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EXECUTIVE OFFICE OF
THE PRESIDENT
OFFICE OF MANAGEMENT
AND BUDGET
BUDGET
OF THE
UNITED STATES
GOVERNMENT
FISCAL YEAR
1988
Supplement
THE BUDGET DOCUMENTS
Budget of the United States Government, 1988 contains the Budget Message of the
President and presents an overview of the President’s budget proposals. It includes
summary information on goals of the 1988 Budget, economic assumptions, receipts
and outlays, defense and international programs, social security benefits, other
programmatic changes, financing changes, reductions and terminations, a listing of
the budget by agency and account, and various summary data tables.
Budget of the United States Government, 1988—Supplement repeats the Budget
Message of the President and the summary information. In addition it includes
sections on the Federal program by function, perspectives on the budget, the budget
system and concepts, reform of the Federal credit system, and summary tables (both
the tables included in the Budget and additional tables).
United States Budget in Brief, 1988 is designed for use by the general public. It
provides a more concise, less technical overview of the 1988 budget than the above
volumes, including summary and historical tables on the Federal budget and debt,
together with graphic displays.
Budget of the United States Government, 1988—Appendix contains detailed infor
mation on the various appropriations and funds that constitute the budget. The
Appendix contains more detailed information than any of the other budget docu
ments. It includes for each agency: the proposed text of appropriation language,
budget schedules for each account, new legislative proposals, explanations of the
work to be performed and the funds needed, and proposed general provisions appli
cable to the appropriations of entire agencies or groups of agencies. Supplemental
and rescission proposals for the current year are presented separately. Information
is also provided on certain activities whose outlays are not part of the budget totals.
Special Analyses, Budget of the United States Government, 1988 contains analyses
that are designed to highlight specified program areas or provide other significant
presentations of budget data. This document includes information about alternative
views of the budget; i.e., current services and national income accounts; economic
and financial analyses of the budget covering Government finances and operations
as a whole; and Government-wide program and financial information for Federal
research and development programs. Data on Federal civilian employment are also
included in this volume.
Historical Tables, Budget of the United States Government, 1988 provides data on
budget receipts, outlays, surpluses or deficits, and Federal debt covering extended
time periods—in many cases from 1940-1992. These are much longer time periods
than those covered by similar tables in other budget documents. The data in this
volume and all other historical data in the budget documents are consistent with
the concepts and presentation used in the 1988 Budget, so the data series are
comparable over time.
Management of the United States Government, 1988 includes the President’s Man
agement Message and provides the goals and strategies of the President’s Manage
ment Improvement Program. It reports on the nine point credit management pro
gram, the program to improve financial management in executive branch agencies,
the President’s Productivity Program, the activities of the President’s Council on
Integrity and Efficiency, and the President’s Council on Management Improvement.
This document also describes the status of Grace Commission recommendations, the
status of debt collection and prompt payment efforts, and a report on the motor
vehicle cost reductions required by the Consolidated Omnibus Budget Reconciliation
Act (COBRA) of 1985.
Instructions for purchasing copies of any of these documents are on the last two
pages of this volume.
GENERAL NOTES
1. All years referred to are fiscal years, unless otherwise noted.
2. Detail in the tables, text and charts of this volume may not add to the
totals because of rounding.
For sale by the Superintendent of Documents, U.S. Government Printing Office
Washington, D.C. 20402
TABLE OF CONTENTS
Page
PART 1. THE BUDGET MESSAGE OF THE PRESIDENT..................................
PART 2. BUDGET SUMMARY AND PRIORITIES.............................................
Programmatic changes.........................................................................................
Social security....................................................................................................
National defense................................................................................................
Major medical programs...................................................................................
Other mandatory programs................................................................................
Economic subsidies and development.............................................
Social programs...................................................................................................
General government ...........................................................................................
Revenue changes.....................................................................................................
Governmental receipts........................................................................................
Credit reform........................................................................................................
Other loan asset sales.........................................................................................
Privatization.........................................................................................................
User fees..............................................................................................................
Other revenue changes........................................................................................
Summary of tables..................................................................................................
PART 3. THE ECONOMIC OUTLOOK AND FEDERAL INVESTMENT.........
3a. THE ECONOMIC OUTLOOK.............................................................................
3b. FEDERAL CREDIT: INVESTMENT IN FINANCIAL ASSETS....................
3c. CAPITAL SPENDING: INVESTMENT IN PHYSICAL ASSETS....................
PART 4. FEDERAL RECEIPTS BY SOURCE.......................................................
Summary...............................................................................................................
Enacted legislation................................................................................................
Tax Reform Act of 1986........................................................................................
Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA).................
Federal Employees’ Retirement System Act of 1986...........................................
Omnibus Budget Reconciliation Act of 1986.........................................................
Superfund Amendments and Reauthorization Act of 1986.................................
Continuing Resolution for fiscal year 1987..........................................................
Receipts proposals....................................................................................
Effects of enacted and proposed changes on receipts..........................................
Changes in receipts.................................................................................................
Receipts by source...................................................................................................
Proprietary receipts..............................................................................................
PART 5. FEDERAL PROGRAMS BY FUNCTION: MEETING NATIONAL
NEEDS...............................................................................................................
Introduction...........................................................................................................
National defense....................................................................................................
International affairs...............................................................................................
General science, space, and technology................................................................
Energy......................................................................................................................
iii
M-l
2-1
2-3
2-3
2-3
2-5
2-10
2-14
2-26
2-32
2-36
2-36
2-36
2-37
2-38
2-41
2-45
2-46
3-1
3a-l
3b-l
3c-l
4-1
4-2
4-3
4-6
4-11
4-12
4-13
4-13
4-14
4-17
4-21
4-22
4-25
4-26
5-1
5-2
5-4
5-18
5-28
5-34
iv
THE BUDGET FOR FISCAL YEAR 1988—SUPPLEMENT
Page
Natural resources and environment................................................................... 5-43
Agriculture............................................................................................................. 5-53
Commerce and housing credit............................................................................. 5-60
Transportation....................................................................................................... 5-69
Community and regional development............................................................... 5-80
Education, training, employment and social services........................................ 5-88
Health..................................................................................................................... 5-106
Medicare......................................................
5-114
Income security..................................................................................................... 5-118
Social Security....................................................................................................... 5-135
Veterans benefits and services............................................................................. 5-137
Administration of justice...................................................................................... 5-146
General government.............................................................................................. 5-151
General purpose fiscal assistance........................................................................ 5-157
Net interest............................................................................................................ 5-161
Allowances.............................................................................................................. 5-166
Undistributed offsetting receipts......................................................................... 5-169
PART 6. SUPPLEMENTS........................................................................................
6-1
6a. PERSPECTIVES ON THE BUDGET............................................................... 6a-l
Relationship of budget authority to outlays....................................................... 6a-l
Limitations on the availability of funds............................................................. 6a-3
Fiscal activities outside the Federal budget........................................................ 6a-6
Budget funds and the Federal debt..................................................................... 6a-17
Comparison of actual and estimated Federal Government totals for 1986...... 6a-20
Comparison of the actual and estimated relatively uncontrollable outlays
for 1986................................................................................................................ 6a-27
Allocation of windfall profit tax receipts............................................................. 6a-30
6b. THE BUDGET SYSTEM AND CONCEPTS..................................................... 6b-l
The budget process................................................................................................ 6b-l
Coverage of the budget totals.....................................
6b-6
Budgetary resources and related transactions................................................... 6b-8
Federal credit activities........................................................................................ 6b-12
Collections............................................................................................................... 6b-12
Other transactions................................................................................................ 6b-14
Basis for budget figures........................................................................................ 6b-15
6c. SUMMARY TABLES.......................................................................................... 6c-l
Explanation of the summary tables.................................................................... 6c-2
Table 1. Summary.............................................................................................. 6c-7
Table 2. Summary of current services and the President’s proposals........... 6c-8
Table 3. Receipts by source and outlays by agency, 1986-92......................... 6c-ll
Table 4. Outlays by function, 1986-92.............................................................. 6c-13
Table 5. Credit budget: new direct loan obligations and guaranteed loan
commitments by agency.................................................................................... 6c-14
Table 6. Federal government financing and debt........................................... 6c-15
Table 7. Full-time equivalent of Federal civilian employment...................... 6c-17
Table 8. Budget authority by function, 1986-92.............................................. 6c-18
Table 9. Budget authority by agency, 1986-92................................................ 6c-19
Table 10. Budget authority and outlays available with and without current
action by Congress............................................................................................ 6c-21
Table 11. Relation of budget authority to outlays............................................. 6c-22
Table 12. Balances of budget authority.............................................................. 6c-23
Table 13. Receipts by source................................................................................ 6c-24
Table 14. Offsetting receipts by type.................................................................. 6c-28
Table 15. Legislative proposals for major new and expanded programs in
the 1988 budget, projection of costs................................................................. 6c-31
CONTENTS
V
Page
Table 16. Controllability of outlays, 1986-88......................................................
Table 17. Receipts by source, 1978-88................................................................
Table 18. Outlays by function and subfunction, 1978-88..................................
Table 19. Federal finances and the gross national product, 1969-90..............
Table 20. Composition of receipts and outlays in current prices: 1968-90......
Table 21. Composition of receipts and outlays in constant (fiscal year 1982)
prices: 1968-90...................................................................................................
Table 22. Total receipts and outlays, 1789-1992................................................
Table 23. On-budget and off-budget receipts and outlays, 1937-92..................
6c-32
6c-34
6c-37
6c-44
6c-46
6c-47
6c-48
6c-49
PART 1
THE BUDGET MESSAGE
OF THE
PRESIDENT
M-l
The Federal Government Dollar
Fiscal Year 1988 Estimate
Where It Comes From ...
THE BUDGET MESSAGE OF THE PRESIDENT
To the Speaker of the House of Representatives and the
President of the Senate:
The current economic expansion, now in its 50th month, is al
ready one of the longest of the postwar era and shows promise of
continuing to record length. This has not been due simply to
chance—it is the result of successful policies adopted during the
past 6 years. Disposable personal income is at an all-time high and
is still rising; total production and living standards are both in
creasing; employment gains have been excellent. Inflation, which
raged at double-digit rates in 1980, has been reduced dramatically.
Defense capabilities, which had been dangerously weakened during
the 1970’s, have been substantially rebuilt, restoring a more ade
quate level of national security. An insupportable growth in tax
burdens and Federal regulations has been halted, an intolerably
complex and inequitable income tax structure has been radically
reformed, and the largest management improvement program ever
attempted is in full swing in all major Federal agencies. It has
been a good 6 years.
Now in its 5th year, the current expansion already has exceeded
5 of the 7 previous postwar expansions in duration, and leading
economic indicators point to continued growth ahead. Our policies
have worked. Let me mention a few highlights of the current
economic expansion:
• In the past 4 years 12.4 million new jobs have been created,
while the total unemployment rate has fallen by 3.7 percent
age points. By comparison, jobs in other developed countries
have not grown significantly, and unemployment rates have
remained high.
• Inflation, which averaged 10.3 percent a year during the 4
years before I came to office, has averaged less than a third of
that during the last 4 years—3.0 percent; inflation in 1986, at
about 1 percent, was at its lowest rate in over two decades.
• The prime rate of interest, and other key interest rates, are
less than half what they were in 1981.
• Between 1981 and 1986, numerous changes in the tax code,
including a complete overhaul last year, have simplified re
porting, made the tax law more equitable, and significantly
lowered tax rates for individuals and corporations. Six million
low-income taxpayers are being removed from the income tax
M-3
M-4
THE BUDGET FOR FISCAL YEAR 1988
rolls. The inhibitive effect of our tax code on individual initia
tive has been reduced dramatically. Real after-tax personal
income has risen 15 percent during the last 4 years, increas
ing our overall standard of living.
• Our defense capabilities have been strengthened with mod
ernized equipment and successful recruiting and retention of
higher caliber personnel; the readiness, training, and morale
of our troops has been improved.
• After years of unsustainably rapid growth, Federal spending
for domestic programs other than entitlements has been held
essentially flat over the last 4 years.
• Since 1981, the amount of time spent by the public filling out
forms required by the Federal Government has been cut by
over 600 million hours, and the number of pages published
annually in the Federal Register has been reduced by over 45
percent.
• Our continuing fight against waste, fraud, and abuse in Gov
ernment programs has paid off, as the President’s Council on
Integrity and Efficiency has saved $84 billion in funds that
have been put to more efficient use.
• Finally, Federal agencies have instituted the largest manage
ment improvement program ever attempted to bring a more
business-like approach to Government.
The dramatic improvement in the performance of our economy
stemmed from steadfast adherence to the four fundamental princi
ples of the economic program I presented in February 1981:
• limiting the growth of Federal spending;
• reducing tax burdens;
• relieving the economy of excessive regulation and paperwork;
and
• supporting a sound and stable monetary policy.
BUDGET SUMMARY
(In billions of dollars)
1986
1987
1988
1989
1990
1991
1992
Receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
842.4 916.6 976.2 1,048.3 1,123.2 1,191.2
769.1
Outlays.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
989.8 1,015.6 1,024.3 1,069.0 1,107.8 1,144.4 1,178.9
12.3
Surplus or deficit (-).. .. .. . -220.7 -173.2 -107.8 -92.8 -59.5 -21.3
Gramm-Rudman-Hollings def
0.0
0.0
icit targets.. .. .. .. .. .. .. .. .. . -171.9 -144.0 -108.0 -72.0 -36.0
23.5
21.3 -12.3
20.8
29.2 -0.2
Difference.. .. .. .. .. .. .. .. .. .. .. .
48.8
Note—Totals include social security, which is off-budget.
NEED FOR DEFICIT REDUCTION
The foundation has been laid for a sustained era of national
prosperity. But a major threat to our future prosperity remains:
THE BUDGET MESSAGE OF THE PRESIDENT
M-5
the Federal deficit. If this deficit is not brought under control by
limiting Government spending, we put in jeopardy all we have
achieved. Deficits brought on by continued high spending threaten
the lower tax rates incorporated in tax reform and inhibit progress
in our balance of trade.
We cannot permit this to happen. Therefore, one of the major
objectives of this budget is to assure a steady reduction in the
deficit until a balanced budget is reached.
This budget meets the $108 billion deficit target for 1988 set out
in the Balanced Budget and Emergency Deficit Control Act, com
monly known for its principal sponsors as Gramm-Rudman-Hollings. Gramm-Rudman-Hollings committed both the President and
Congress to a fixed schedule of progress toward reducing the defi
cit. In submitting this budget, I am keeping my part of the bar
gain—and on schedule. I ask Congress to do the same. If the deficit
reduction goals were to be abandoned, we could see unparalleled
spending growth that this Nation cannot afford.
This budget shows that eliminating the deficit over time is possi
ble without raising taxes, without sacrificing our defense prepared
ness, and without cutting into legitimate programs for the poor and
the elderly, while at the same time providing needed additional
resources for other high priority programs.
DEFICIT REDUCTION IN 1988
Although the deficit has equalled or exceeded 5 percent of the
gross national product (GNP) in each of the past 4 years, each year
I have proposed a path to lower deficits—involving primarily the
curtailment of unnecessary domestic spending. Congress, however,
has rejected most of these proposals; hence, our progress toward
reducing the deficit has been much more modest than it could have
been.
This year there appears to be a major turn for the better. The
1987 deficit is estimated to be about $48 billion less than in 1986
and should decline to less than 4 percent of GNP. As the economy
expands, Federal receipts will rise faster than the increase in out
lays Congress enacted for the year.
However, there is no firm guarantee that progress toward a
steadily smaller deficit and eventual budget balance will continue.
On a current services basis the deficit will continue to decline over
the next 5 years, but this decline is gradual and vulnerable to
potential fiscally irresponsible congressional action on a multitude
of spending programs. It is also threatened by the possibility of a
less robust economic performance than is projected, for that projec
tion is based on the assumption that the necessary spending cuts
will be made.
M-6
THE BUDGET FOR FISCAL YEAR 1988
This 1988 budget can deal the deficit a crucial blow. If the
proposals in this budget are adopted and if the economy performs
according to the budget assumptions for growth and inflation, then
for the second consecutive year the deficit should shrink substan
tially, by $65 billion, and thus decline to less than 2^2 percent of
GNP. Reducing the deficit this far would bring it within the range
of our previous peacetime experience and bring our goal of a bal
anced budget much closer to realization.
Moreover, if Congress adopts the proposals contained in this
budget, it will ensure additional deficit reductions in future years,
because in many cases the savings from a given action, although
small in 1988, would mount in later years. Given the good start
made in 1987, Congress has an opportunity this year—by enacting
this budget—to put the worst of the deficit problem behind us.
Adopting the spending reductions and other reforms proposed in
this budget would reduce the Federal deficit an average of $54 billion
annually for the next 3 years. This represents $220 each year for
every individual American and about $600 for every household. I
believe this is the appropriate way to deal with the deficit: cutting
excessive Federal spending rather than attacking the family
budget by increasing taxes, weakening our national security, break
ing faith with the poor and the elderly, or ignoring the require
ments for additional resources for other high priority programs.
A MORE COMPETITIVE, PRODUCTIVE AMERICA
The task of deficit reduction is a formidable one—but it can and
should be achieved with serious attention to the effects on Ameri
ca’s economy, businesses, State and local governments, social orga
nizations, and individual citizens. Reducing the deficit will reduce
the burden the Federal Government places on private credit mar
kets. The specific deficit reduction measures proposed in this
budget would also help make our economy more competitive—and
more productive. These objectives have been major considerations
in the formulation of this budget.
High priority programs must be funded adequately. Despite the
very tight overall fiscal environment, this budget provides ade
quate funds for maintaining and, in selected cases, expanding high
priority programs in key areas of national interest. For example:
• essential services and income support for the aged and needy
are expanded;
• the prevention, treatment, and research efforts begun in my
1987 drug abuse initiative are continued, while resources de
voted to drug law enforcement have tripled since my adminis
tration began;
• the budget allocates $85 million to more intensive health care
for those with the highest incidence of infant mortality;
THE BUDGET MESSAGE OF THE PRESIDENT
M-7
• over half a billion dollars is provided for AIDS research and
education in 1988—a 28 percent increase above the 1987 level
and more than double our 1986 effort (an additional $100
million is provided for AIDS treatment and blood screening
by the Veterans Administration and the Department of De
fense);
• building upon the Nation’s preeminence in basic biomedical
research, the budget seeks funding for the full multiyear costs
of biomedical research grants made by the National Institutes
of Health;
• a $200 million increase over the 1987 level is proposed for
compensatory education for educationally disadvantaged chil
dren;
• current ineffective programs intended to assist dislocated
workers are replaced by an expanded billion-dollar program
carefully designed to help those displaced from their jobs
move quickly into new careers;
• a 68 percent increase in funding is provided to permit the
Federal Aviation Administration to modernize the Nation’s
air traffic control system; this includes the procurement of
doppler radars capable of detecting severe downdrafts that
imperil landings and takeoffs at airports where this is a
hazard;
• for 1988, $400 million is provided to carry out newly enacted
immigration reform legislation;
• substantial increases in funding for clean coal technology
demonstrations, as well as research on acid rain formation
and environmental effects, are provided to address the acid
rain problem; and
• a new civil space technology initiative, together with previ
ously planned increases to construct a space station, develop a
national aerospace plane, and foster the commercial develop
ment of space, are provided in this budget.
Restoring our national security also has been one of my highest
priorities over the past 6 years due to the serious weakness arising
from severe underfunding during the middle and late 1970’s. None
theless, defense and international programs have not escaped the
effects of fiscal stringency. The defense budget actually has de
clined in real terms in each of the past 2 years. This trend cannot
be allowed to continue. I am proposing in this budget a 3 percent
real increase over last year’s appropriated level. This request—
some $8 billion less than last year’s—is the minimum level consist
ent with maintaining an adequate defense of our Nation.
Likewise, my request for our international affairs programs is
also crucial to our effort to maintain our national security. I urge
M-8
THE BUDGET FOR FISCAL YEAR 1988
Congress not to repeat last year's damaging cuts, but rather to
fund these programs fully.
The incentive structure for other Federal programs should be
changed to promote efficiency and competitiveness. One of the prob
lems with many Federal programs is that they provide payments
without encouraging performance or efficiency. They are perceived
to be “free” and, therefore, there is potentially unlimited demand.
This has to be changed—and this budget proposes creating needed
incentives in critical areas.
Our farm price support programs, under the Food Security Act of
1985, are proving much too costly—half again as costly as estimat
ed when the bill was enacted just one year ago. The $25 billion
being spent on farm subsidies in 1987 is 14 percent of our total
Federal deficit and equivalent to taking $415 of each nonfarm
family's taxes to support farmers' incomes—over and above the
amount that price supports add to their grocery bills. Some of the
provisions of the Act encourage farmers to overproduce just to
receive Federal benefits. Other provisions give the greatest benefits
to our largest and most efficient agricultural producers instead of
to those family farmers most in need of help. My administration
will propose amendments to the Food Security Act to focus its
benefits on the full-time family farmer by placing effective limita
tions on the amount paid to large producers and removing the
incentive for farmers to overproduce solely to receive Federal pay
ments.
Reform of the medicare physician payment system is also pro
posed. Under the proposals, medicare would pay for radiology,
anesthesiology, and pathology (RAP) services based on average area
costs instead of inflationary fee-for-service reimbursements. The
current fee-for-gervice payment distorts incentives and induces in
appropriate billing for unneeded services. This initiative would
remove the distortions caused by medicare's current reimburse
ment rules, eliminating a key barrier preventing the restoration of
traditional arrangements between RAP physicians and hospital
staffs.
The budget proposes continued increases in federally supported
basic research that will lead to longer term improvements in the
Nation's productivity and global competitiveness. For example, the
budget projects a doubling within 5 years of the National Science
Foundation's support for academic research. I also propose to in
crease support for training future scientists and engineers, and to
foster greater technology transfer from Government to industry.
Another way of attaching a “value” to Government-provided
services—and an incentive to use them only as needed—is to
charge user fees where appropriate. Those who receive special
Federal services—not the general taxpayer—should bear a greater
THE BUDGET MESSAGE OF THE PRESIDENT
M-9
share of the costs of those services. Accordingly, this budget im
poses fees for Federal lending activities, for meat and poultry
inspection, for National park and forest facilities, for Coast Guard
services, for Customs inspections, and for many other services.
The Government should stop competing with the private sector.
The Federal Government interferes with the productivity of the
private sector in many ways. One is through borrowing from the
credit markets to finance programs that are no longer needed—as
in the case of the rural housing insurance fund, direct student
financial assistance, urban mass transit discretionary grants, voca
tional education grants, the Federal Crop Insurance Corporation
fund, sewage plant construction grants, justice assistance grants,
the Legal Services Corporation, and rural electrification loans. I
am proposing in this budget that we terminate these programs and
rely instead on private or State and local government provision of
these services.
The budget also proposes that a number of programs that have
real utility be transferred back to the private sector, through
public offerings or outright sales. Following our successful effort to
authorize sale of Conrail, I am now proposing the sale of the Naval
Petroleum Reserves, AMTRAK, the Alaska Power Administration,
the helium program, and excess real property. In addition, I am
proposing legislation to authorize study of a possible divestiture of
the Southeastern Power Administration. These “privatization” ef
forts continue to be a high priority of my administration and, I
believe, will result in increased productivity and lower total costs
of providing these services. The Federal Government needs to pro
vide essential services that are truly public in nature and national
in scope. It has no business providing services to individuals that
private markets or their State or local governments can provide
just as well or better.
The Federal Government should depend more on the private
sector to provide ancillary and support services for activities that
remain in Federal hands. The budget proposes that the work asso
ciated with over 40,000 Federal positions be contracted out to the
private sector as yet another way to increase productivity, reduce
costs, and improve services.
Federal credit programs should operate through the private mar
kets and reveal their true costs. The Federal Government provides
credit for housing, agriculture, small business, education, and
many other purposes. Currently, over a trillion dollars of Federal
or federally assisted loans are outstanding. Including lending of
Government-sponsored enterprises, federally assisted lending
amounted to 14 percent of all lending in U.S. credit markets in
1985.
M-10
THE BUDGET FOR FISCAL YEAR 1988
Under current treatment, loan guarantees appear to be “free”;
they do not affect the budget until and unless borrowers default.
Direct loans are counted as outlays when they are made, but as
“negative outlays” when they are repaid; thus, direct loans seem
“free” too, inasmuch as it is presumed they will be repaid. But
neither direct loans nor loan guarantees are free. Besides the
better terms and conditions a borrower gets from the Government,
there is the matter of default. When a borrower does not repay a
direct loan, the negative outlay does not occur, and this is a subsi
dy implicit in the original loan transaction. When a borrower
defaults on a guaranteed loan, the Government has to make good
on repayment—also a program subsidy.
Since these effects are poorly understood and lead to grave ineffi
ciencies in our credit programs, we will ask Congress to enact
legislation whereby the true cost to the economy of Federal credit
programs would be counted in the budget. By selling a substantial
portion of newly made loans to the private sector and reinsuring
some newly made guarantees, the implicit subsidy in the current
practice will become explicit. This reform will revolutionize the
way Federal credit activities are conducted.
The private sector will also be increasingly involved in the man
agement of our huge portfolio of outstanding loans and loan guar
antees. Delinquent Federal borrowers will be reported to private
credit bureaus, and private loan collection agencies will be used to
help in our collection efforts. The Internal Revenue Service (IRS)
will expand its “offsetting” of refunds to pay off delinquent Federal
debts, and Federal employees who have not paid back Federal
loans will have their wages garnisheed.
Increased role for State and local governments. Over the past 6
years I have sought to return various Federal services to State and
local governments—which are in a much better position to respond
effectively to the needs of the recipients of these services. To me,
this is a question of reorganizing responsibilities within our Feder
al system in a manner that will result in more productive delivery
of the services that we all agree should be provided. Thus, this
budget phases out inappropriate Federal Government involvement
in local law enforcement, sewage treatment, public schools, and
community and regional development. Transportation programs
will be consolidated or States will be given greater flexibility in the
use of Federal funds for highways, mass transit, and airports.
Federal regulations must be reduced even further to improve productivitg. My administration will continue the deregulation and
regulatory relief efforts that were begun in 1981. The Task Force
on Regulatory Relief, headed by the Vice President, has been rein
stated. In the past, excessive Federal regulations and related paper
work have stifled American productivity and individual freedom.
THE BUDGET MESSAGE OF THE PRESIDENT
M-ll
We must continue our efforts to streamline the regulatory process
and to strike the proper balance between necessary regulation and
associated paperwork on the one hand, and the costs of these
requirements on the other.
Federal activities should be better managed. The American people
deserve the best managed Federal Government possible. Last year,
I initiated the Federal Government Productivity Program, with the
goal of improving productivity in selected areas by 20 percent by
1992. A substantial portion of total direct Federal employment falls
within the program, including such activities as the Department of
Agriculture meat and poultry inspection, Navy aircraft mainte
nance and repair, social security claims processing, National Park
maintenance, operation of Federal prisons, and IRS processing of
tax returns.
Credit reform, privatization, productivity improvement, and
other proposals will be described in more detail in the Management
Report to be issued this month. It will also identify further meas
ures to reduce waste, fraud, and abuse; to improve management of
the Government’s $1.7 trillion cashflow; to institute compatible
financial management systems across all Federal agencies; and
other initiatives to improve the management of Government oper
ations. These ambitious management reform undertakings, called
“Reform ’88,” constitute the largest management reform effort
ever attempted.
The budget also proposes a new approach to paying Federal
employees who increase their productivity. I ask that Congress
approve a new plan to transform the current system of virtually
automatic “within-grade” salary increases for the roughly 40 per
cent of employees eligible each year for these 3 percent hidden pay
raises to one that is “performance-oriented”. This will give Federal
employees stronger incentives to improve service delivery.
I include with this budget my recommendations for increases in
executive level pay for the executive, legislative, and judicial
branches of the Federal Government. The Quadrennial Commission
report submitted to me on December 15, 1986 documented both the
substantial erosion in the real level of Federal executive pay that
has occurred since 1969 and the recruitment and retention prob
lems that have resulted, especially for the Federal judiciary. The
Commission is to be commended for its diligent and conscientious
effort to address the complicated and complex problems associated
with Federal pay levels.
Every one of the Quadrennial Commissions that have met over
the past 18 years has recognized that a pay increase for key Feder
al officials was necessary. Each Commission concluded that pay for
senior Government officials fell far behind that of their counter
parts in the private sector. They also understood that we cannot
M-12
THE BUDGET FOR FISCAL YEAR 1988
afford a Government composed primarily of those who are wealthy
enough to serve. Unfortunately, the last major Quadrennial Com
mission pay adjustment was in 1977—a decade ago.
However, I recognize that we are under mandated efforts to
reduce the Federal deficit and hold down the costs of Government
to the absolute minimum level. In this environment, I do not
believe it would be appropriate to implement fully the Quadrennial
Commission recommendations.
Accordingly, I have decided to propose a pay increase, but have
cut substantially the recommendations made by the Quadrennial
Commissioners in their report to me last month. Moreover, I have
decided to establish a Career Manager Pay Commission to review
and report to me by next August on appropriate pay scales for our
elite corps of career Government managers. The pay increases I am
proposing to Congress, plus the results of this new Commission,
should place Government compensation on a fairer and more com
parable footing.
PEACE THROUGH STRENGTH
I have become convinced that the only way we can bring our
adversaries to the bargaining table for arms reduction is to give
them a reason to negotiate—while, at the same time, fulfilling our
responsibility to our citizens and allies to provide an environment
safe and secure from aggression.
We have built our defense capabilities back toward levels more
in accord with today’s requirements for security. Modest and sus
tained growth in defense funding will be required to consolidate
the real gains we have made. Because of severe fiscal constraints,
we are proceeding at a slower pace than I originally planned, and
the budget I propose provides the minimum necessary to ensure an
adequate defense.
I am also submitting, for the first time, a two-year budget for
National Defense. This will permit greater stability in providing
resources for our defense efforts and should lead to greater econo
my in using these resources.
BUDGET PROCESS REFORM
The current budget process has failed to provide a disciplined
and responsible mechanism for consideration of the Federal budget.
Budget procedures are cumbersome, complex, and convoluted. They
permit and encourage a process that results in evasion of our duty
to the American people to budget their public resources responsi
bly. Last year Congress did not complete action on a budget for 8
months and 2 weeks—2 weeks past the statutory deadline. Except
for the initial report of the Senate Budget Committee, Congress
missed every deadline it had set for itself just 9 months earlier. In
THE BUDGET MESSAGE OF THE PRESIDENT
M-13
the end, Congress passed a yearlong, 389-page omnibus appropria
tions bill full of excessive and wasteful spending. Because Congress
had not completed action on the annual appropriations bills, at one
point I was compelled by law to initiate a shutdown of Federal
Government activities. Such abrogation of a responsible budget
process not only discourages careful, prudent legislation—it encour
ages excessive spending and waste.
Furthermore, since I, as President, do not have a line-item veto, I
had to ignore the many objectionable features of the omnibus
appropriations legislation and sign it to avoid a Federal funding
crisis. I am sure that many Members of Congress do not approve of
this method of budgeting the Federal Government.
Last Fall's funding crisis and its slap-dash resolution are only
one of the most obvious manifestations of the flaws in the system.
Congress passes budget resolutions (without the concurrence of the
President) based on functions; it considers 13 separate, but related,
appropriations bills based on agencies, not functions; it develops a
reconciliation bill; it passes authorizing legislation, sometimes an
nually; and it enacts limits on the public debt. The words alone are
obscure and confusing; the process behind it is chaotic. The process
must be streamlined and made more accountable.
Shortly, I will outline specific reforms designed to make the
process more efficient and increase accountability, so that we can
give the American people what they deserve from us: a budget that
is fiscally responsible and on time.
CONCLUSION
Looking back over the past 6 years, we can feel a sense of pride
and satisfaction in our accomplishments. Inflation has been
brought under control. Growth and investment are up, while inter
est rates, tax rates, and unemployment rates have all come down
substantially. A foundation for sustained economic expansion is
now in place. Our national security has been restored to more
adequate levels. The proliferation of unnecessary and burdensome
Federal regulations has been halted. A significant beginning has
been made toward curbing the excessive growth of domestic spend
ing. Management of the Government is being improved, with spe
cial emphasis on productivity.
Important tasks, however, still remain to be accomplished. The
large and stubbornly persistent budget deficit has been a major
source of frustration. It threatens our prosperity and our hopes for
continued economic growth.
Last year, the legislative and executive branches of Government
responded to this threat by mandating gradual, orderly progress
toward a balanced budget over the next 4 years. The proposals
outlined here achieve the 1988 target while preserving legitimate
M-14
THE BUDGET FOR FISCAL YEAR 1988
programs for the aged and needy, providing for adequate national
security, devoting more resources to other high-priority activities,
and doing this without raising taxes.
This budget presents hard choices which must be faced squarely.
Congress must not abandon the statutory deficit targets of GrammRudman-Hollings. Honoring the provisions and promises of this
legislation offers the best opportunity for us to escape the chronic
pattern of deficit spending that has plagued us for the past half
century. We must realize that the deficit problem is also an oppor
tunity of a different kind—an opportunity to construct a new,
leaner, better focused, and better managed Federal structure sup
porting a more productive and more competitive America.
Ronald Reagan
January 5, 1987
PART 2
BUDGET SUMMARY AND
PRIORITIES
2-1
BUDGET SUMMARY AND PRIORITIES
The President’s budget for 1988 proposes further reduction in the
deficit while maintaining Federal support for the core functions of
Government. In particular, this budget:
• meets the Gramm-Rudman-Hollings 1988 deficit target of
$108 billion—a reduction of $65 billion in 1988, following a
reduction of $48 billion in 1987;
• avoids increasing the Nation’s tax burden;
• reflects bipartisan consensus to protect social security;
• provides 3 percent real growth in funding for national de
fense, that is, 3 percent real growth above the 1987 appropri
ated level; and
• reforms, reduces, or terminates an assortment of programs,
saving taxpayers $19 billion in 1988 alone.
PRESIDENT’S 1988 BUDGET
(In billions of dollars)
1986
1992
1987
1988
842.4
1,015.6
-173.2
916.6
1,024.3
-107.8
976.2
1,069.0
-92.8
1,048.3
1,107.8
-59.5
1,123.2
1,144.4
-21.3
1,191.2
1,178.9
12.3
-144.0
-108.0
-72.0
-36.0
0.0
0.0
73.3
25.8
+47.5
74.2
8.8
+ 65.4
59.6
44.6
+ 15.0
72.1
38.8
+ 33.3
74.9
36.6
+38.2
68.1
34.5
+33 .6
1989
1990
1991
Totals:
Receipts.. .. .. .. .. .. .. .. .. .. .. .
769.1
Outlays.. .. .. .. .. .. .. .. .. .. .. ..
989.8
Deficit or surplus.. .. .. .. .. .. . -220.7
Gramm-Rudman-Hollings
targets.. .. .. .. .. .. .. .. .. .. . -171.9
Year-to-Year Changes:
Receipts.. .. .. .. .. .. .. .. .. .. .. .
Outlays.. .. .. .. .. .. .. .. .. .. .. ..
Deficit.. .. .. .. .. .. .. .. .. .. .. .. .
35.0
43.5
-8.5
As a share of gross national product (GNP), the proposed reduc
tion in the deficit is dramatic—from 5.3 percent of GNP in 1986 to
just 2.3 percent in 1988.
The President’s budget calls for holding the outlay increase to $9
billion, from $1,016 billion in 1987 to $1,024 billion in 1988. After
adjustment for inflation, spending would decline in real terms.
The $9 billion increase in proposed outlays reflects the net
impact of:
2-2
BUDGET SUMMARY AND PRIORITIES
2-3
• an increase of $2 billion for net interest payments;
• an increase of $11 billion for social security benefits under
existing law;
• an increase of $15 billion in spending for national defense;
• an increase of $1 billion for major medical programs; and
• a net decrease of $21 billion for other Federal spending. This
decrease reflects the net impact of increased revenues from
asset sales, privatization initiatives, and user fees—a total of
$13 billion—as well as a wide variety of programmatic in
creases and decreases.
The following sections describe the major budget proposals by
programmatic category. Social security, national defense, major
medical, and the category of other mandatory programs are dis
cussed separately from domestic discretionary programs. Spending
for mandatory programs is determined largely by the number of
individuals or businesses that meet eligibility and benefit criteria
established by law. Funding for national defense and domestic
discretionary programs is determined by authorizations and appro
priations, rather than by benefit criteria in substantive legislation.
Domestic discretionary programs are described in three broad
groupings—economic subsidies and development, social programs,
and general government functions (including the conduct of inter
national affairsL The discussion of programmatic changes is fol
lowed by a discussion of the proposed changes in revenues from the
sale of assets, the collection of user fees, and other sources. Sum
mary tables on these categories are provided at the end of this
chapter.
PROGRAMMATIC CHANGES
Social Security,—The administration proposes no changes in
social security benefits. Approximately one in every six Americans
is a social security beneficiary. The average benefit for a retired
worker and spouse will be about $10,000 in 1987—an increase of
approximately $265 per month (or nearly $3,200 per year) over the
1981 level. Benefits will continue to increase as new retirees re
ceive higher benefits based on higher average wages.
Nearly all Americans participate in the social security program,
either by receiving benefits or by paying payroll taxes that finance
them. Primarily because benefits will increase by the change in the
consumer price index and a growing number of beneficiaries, out
lays for social security benefits are estimated to increase from $205
billion in 1987 to $217 billion in 1988.
National Defense,—Defense budget authority levels declined in
real terms in both 1986 and 1987. The 1987 appropriated amount is
now 6 percent below that for 1985. In those years, Congress cut $65
2-4
THE BUDGET FOR FISCAL YEAR 1988
billion from administration requests, with reductions in both oper
ations and investment programs. As a result, the rebuilding of our
national security capabilities has been delayed, and in the end may
prove more costly. Fewer aircraft, missiles, and ships are being
purchased than is prudent. There is less investment in ammuni
tion, in war reserve stocks, and in the development of systems that
will provide new capabilities. Fewer resources are available for
combat readiness.
Specific congressionally mandated reductions in the President’s
budget request over the past 2 years include:
• a 65 percent cut in Peacekeeper strategic missiles—a reduc
tion of 45 missiles from a 2-year request of 69 missiles;
• a 30 percent cut in funding for the Strategic Defense Initia
tive—a reduction of $2.8 billion from a 2-year request of $9.3
billion;
• a 27 percent cut in a variety of tactical missiles—a reduction
of 14,000 from a 2-year request of over 53,000 missiles;
• a 9 percent cut in tactical fighter aircraft—a reduction of 73
F-15, F-16, and F-18 aircraft, from a 2-year request of 834
aircraft;
• a cut of 14 percent in funding for spare parts for aircraft—a
cut of $1.9 billion out of a total request of $13.4 billion; and
• a cut of 17,000 in active duty military strength from levels
requested in 1986 and 1987.
To meet the most critical unmet needs resulting from the 2-year
decline in real defense budget authority levels, the administration
proposes a 1987 supplemental appropriation of $2.8 billion to be
followed by sustained moderate real growth of about 3 percent
annually. The amounts requested are those minimally necessary to
maintain national security and to allow the consolidation of real
gains in military strength made in this administration.
The budget resumes improvements in the capabilities of strategic
and conventional forces but at a slower rate than originally
planned. Because of severe fiscal constraints, the budget accepts
certain risks in reducing the rate of force improvements. Procure
ment is being stretched out for several major ground forces sys
tems—including the Abrams tank, the Bradley Fighting Vehicle,
and the Blackhawk helicopter. Similarly, ship procurement is being
delayed—in 1988 only 16 ships are funded rather than the 24
projected in last year’s budget. The goal of achieving 40 Air Force
tactical wings has been reduced to 37 wings.
Increased Efficiencies.—To maximize the benefits of defense
spending, the administration is making every effort to increase the
efficiency and productivity of the defense program. For example, to
improve the acquisition process, the Department of Defense is car
rying out key recommendations of the President’s Blue Ribbon
BUDGET SUMMARY AND PRIORITIES
2-5
Commission on Defense Management (i.e., the Packard Commis
sion). The President recently appointed a new Under Secretary of
Defense for Acquisition with responsibility for setting acquisition
policies governing procurement, research and development, and
contract administration.
The budget reflects several specific efforts to reduce costs. These
include: legislation to revise thresholds for applying the DavisBacon and related acts (discussed in the general government sec
tion below), which cover Federal construction contracts, and the
Service Contract Act, which covers Federal service contracts; and
recovery of excess pension costs included in prior contracts and
reducing current pension costs to reflect recent changes in the
financial position of pension funds. The Department also intends to
recover an equitable share of excess pension assets that become
available when companies terminate their current plans and sub
stitute annuity plans.
Very importantly, the Department plans to increase competition
for defense contracts. In 1984 and 1985, the Department saved an
estimated $4.8 billion from competition in shipbuilding and acquisi
tion of spare parts. Further savings are anticipated from a greater
proportion of defense procurement being subject to competition,
and from competition on work now done by Government civilian
employees that might be performed by private contractors.
The administration is also proposing two other projects to im
prove conditions for service men and women and their families, as
well as to reduce costs. The first is a plan to collect, on a test basis,
nominal fees for outpatient medical care provided to non-activeduty patients to determine whether such fees can reduce costs and
improve the quality of care in military medical facilities. The
second is a test, in a limited area, of whether the private sector can
manage efficiently the operations of commissaries now run by the
military. Under this plan, commissary privileges would remain the
same for service members. If the private sector can run the com
missaries more efficiently than the military, however, then services
and costs for the military members would improve, and the costs to
taxpayers would decline.
Finally, in keeping with the recommendation of the President’s
Commission on Defense Management and as required by the 1986
Defense Authorization Act, the administration is proposing a 2year national defense budget. Favorable response by Congress
should lead to enhanced program planning and execution, and
more stability at the operational level where commanders and
program managers carry out mandated policy.
Major Medical Programs.—Since 1960, Americans’ per capita
spending on health care has increased rapidly—more than three
times faster than the rate of inflation. Americans now spend 10.7
2-6
THE BUDGET FOR FISCAL YEAR 1988
HEALTH COSTS AS PERCENT OF GNP, 1975-1984
YEAR
• AUSTRALIA. CANADA, FRANCE, WEST GERMANY, fTAU, JAPAN, NETHERLANDS, AND UNTIED MNGDOM
percent of GNP on medical care, more than any other industrial
ized nation. Federal health spending has also continued to grow
rapidly, despite major policy reforms enacted since 1981. Federal
spending for health care is growing even faster than medical
spending generally and will more than double in this decade unless
present trends are reversed.
Health care costs are growing far more rapidly than can be
explained by inflation or by the aging of the population. In the first
half of the 1980s, medicare expenditures increased an average of
9.7 percent per year more than general inflation. During the same
period, the elderly population increased only 2.2 percent annually,
and there were many medical advances that decreased (as well as
increased) the cost of care.
Americans spend more per capita on health than citizens in any
other industrialized nation—28 percent more than in Canada, 52
percent more than in West Germany, and 100 percent more than
in Japan. Justifiably, the Nation can be proud of the quality of its
health care system. Nevertheless, the other major industrialized
nations have achieved a high degree of overall health care—as
indicated by their citizens’ having virtually the same average life
expectancy.
BUDGET SUMMARY AND PRIORITIES
2-7
Rising medical costs have been cited as a factor in the declining
international competitiveness of many industries. During the last
decade, the competitive burden of health care costs on American
industry has doubled, widening the gap between the U.S. and its
major trade competitors. More efficient use of health resources
would not diminish the quality of health care, but, as shown by the
experience of major international competitors, would free the Na
tion’s resources for other productive efforts.
Without substantial health spending reform, America’s competi
tive position will continue to erode. The Nation’s businesses, which
pay for most health care in the U.S. through payroll taxes and
fringe benefits, have recognized the urgent need for reform. They
have brought competitive market principles to the health care
system, promoting among other reforms the wider use of health
maintenance organizations (HMOs), i.e., a single institution that is
responsible for all of an individual’s health care. So, too, must
Federal health spending be brought under control.
Medicare,—By far the largest Federal health program is medi
care. Medicare’s prospective payment system (PPS) has curbed hos
pital spending, which increased only 2.0 percent between 1985 and
1986 after almost doubling from 1980 to 1985. In contrast, spending
on physician services grew 8.5 percent between 1985 and 1986, even
though the number of beneficiaries grew only 2 percent and hospi
tal admissions actually declined by 2 percent. And this occurred
during a congressionally imposed freeze on physician charges!
The budget includes urgently needed medicare reforms that will
restrain the rapid growth in Federal health spending and, in turn,
will help improve the Nation’s competitive position. The principle
of capitation—paying a fixed, predetermined price for health serv
ices—would be expanded in medicare and medicaid, replacing the
inflationary incentives inherent in cost reimbursement. By creat
ing incentives for the efficient delivery of quality care, capitation
and other reforms can bring to Federal programs the same efficien
cies realized by employers and private insurers. This budget pro
poses that medicare payments to physicians whose practices are
based in hospitals—radiologists, anesthesiologists, and pathologists
(RAPs)—be incorporated in the set price for each procedure, provid
ing incentives for hospitals and these physicians to provide quality
care at lower costs.
The role of capitation in bringing greater efficiencies to the
provision of services paid for by medicare would also be enhanced
by encouraging HMOs to participate in medicare and by promoting
the development of preferred provider organizations (PPOs). A pri
vate sector innovation, PPOs lower costs by contracting only with
efficient providers.
2-8
THE BUDGET FOR FISCAL YEAR 1988
Under the budget, medicare payments for hospital capital costs
would become part of the hospital's fixed, predetermined price per
admission (depending on the patient's diagnosis). This reform
would reverse the inflationary incentives of the current system,
which rewards hospitals for building excess capacity even though
one out of every three hospital beds currently is empty. Prospective
payment for capital costs would give hospitals the incentive to
allocate resources efluiently and to restrain escalations in costs.
However, consistent with provisions of the Omnibus Budget Recon
ciliation Act of 1986. capital reforms would not reduce medicare
spending in 1988.
Revenue proposals would restrain spiraling health care costs by
increasing medicare premiums to 35 percent of supplementary
medical insurance costs for new enrollees and extending medicare
coverage to the minority of State and local employees that are not
already covered (most of whom are eligible for medicare benefits).
Medicaid.—The Federal Government's second largest medical
program—medicaid—has grown 10 percent per year since 1980.
The administration proposes an optional capitation demonstration
program with fiscal incentives for States to place medicaid benefici
aries into HMOs. For the initial years of each new State-initiated
capitation program, the Federal matching rate would be in
creased—as an incentive and to aid States during transition. To
qualify for a demonstration, a State program would have to capi
tate all eligible beneficiaries in a particular geographic area—such
as a county—and must have certain provisions that protect quality
of care and access to care. In particular, in spite of not having a
choice of reimbursement system, beneficiaries would be guaranteed
freedom-of-choice of provider.
Finally, the administration reproposes the institution of a rea
sonable limit in the growth of Federal medicaid payments to
States. Federal payments would be limited to $1 billion below
projected outlays in 1988 and then be allowed to grow at the rate of
the medical consumer price index.
Federal Employees Health Benefits (FEHB).—The FEHB program
is the world's largest multiple-choice health plan. The administra
tion proposes that the formula used to determine the Government's
contribution to enrollees' health premiums be changed to a weight
ed average that reflects the premiums of all FEHB plans and the
distribution of enrollees among those plans. Currently, this contri
bution is based on a simple average of the high-option coverage
offered by six of the largest plans. The limitations of this outdated
formula prevent it from reflecting the recent shift of enrollees from
high-option to low-option coverage and the dramatic growth in the
number of FEHB plans. The proposed formula would reflect these
BUDGET SUMMARY AND PRIORITIES
2-9
OUTLAYS FOR MAJOR MEDICAL PROGRAMS*
$ BtLUONS
• INCUDES MEDICARE. MEDICAID. FEDERAL EMPLOYEE HEALTH BENEFITS. HOSPITAL AND MEDICAL CARE FOR VETERANS.
AND INDIAN HEALTH CARL
and other changes in the FEHB program, providing more equitable
cost sharing between the Government and its employees.
Veterans Medical Care.—Adequate medical care for America’s
disabled and needy veterans is one of the Nation’s highest prior
ities. The administration’s proposal for Veterans Administration
(VA) medical care provides ample resources to meet this objective.
No-cost care would be provided to all service-disabled veterans who
request it, as well as to former prisoners of war and veterans
exposed to certain toxic substances and radiation. No-cost care
would also be provided to veterans of wars prior t'l World War II
and those receiving VA pensions. Among other veterans, funding
would be provided for no-cost care for all earning less than $25,000
per year (for a veteran with one dependent; $20,000 for a single
veteran); funding would not be provided for the care of those whose
annual incomes exceed these levels. The administration believes
that as a rule when veterans’ illnesses are completely unrelated to
their military service and they are financially able to provide for
their own health care, they should do so.
This policy will allow the VA to concentrate its efforts on serv
ice-disabled veterans and those least able to finance the cost of
their own health care. It carries out the Veterans Health Care
2-10
THE BUDGET FOR FISCAL YEAR 1988
Amendments of 1986, which established the current set of eligibil
ity criteria for veterans’ health care. The VA may, however, con
tinue to furnish care to non-service disabled veterans with incomes
above $25,000 in locations where resources remain available.
Within the $10 billion requested in 1988 for veterans’ medical
care, VA expects to fund 20.4 million outpatient visits. In addition,
1.3 million hospital in-patients will be treated by the VA, and
almost 83,000 nursing home patients will be treated through VAfunded nursing home care—an increase of almost 3,000 nursing
care patients over the number treated in 1987.
Conclusion.—As the chart on the previous page reveals, under
current services major medical expenditures are projected to in
crease by 54 percent during the period 1988 through 1992. Howev
er, adjusting for the increase in the expected number of benefici
aries and general inflation, expenditures should have to rise by
only 27 percent to maintain the same level of resources per benefi
ciary. Without some kind of reforms, expenditures would rise at
twice the rate that would appear warranted. The proposals out
lined above would increase real expenditures per beneficiary by 1
percent per year while lowering the overall increase during the
next 5 years to 36 percent. This difference is hardly a trifle; it
would save taxpayers $7.2 billion in 1988 and $65.8 billion during
the period 1988 through 1992.
Other Mandatory Programs.—This category includes farm price
supports, deposit insurance, Federal employee retirement, unem
ployment compensation, food and nutrition assistance, and other
income maintenance programs, including those for veterans. The
runaway growth in Government spending of the 1970s was in part
a product of the unchecked expansion of outlays for these pro
grams. Outlays for this category doubled in real terms between
1970 and 1981. With the major exception of agriculture price sup
ports, constant-dollar outlays for this category have all but stabi
lized since 1981.
The administration proposes no cuts in the benefit levels for
supplemental security income, veterans compensation, and food
stamps. For some “other mandatory” programs, however, the ad
ministration proposes carefully targeted reforms to make the
system more equitable and to reduce unnecessary costs. Farm pro
grams must be modified to target payments better and to encour
age market-oriented planting decisions. The old civil service retire
ment system should be put on equal standing with the newly
established Federal employee retirement system. Means-tested enti
tlements should be reformed to focus on genuine need and on
reducing administrative expenses.
BUDGET SUMMARY AND PRIORITIES
2-11
Restructure Farm Price Supports.—The administration will pro
pose legislation to modify farm commodity price support programs
in order to solve the farm program problems once and for all.
In the past 5 years, spending on farm programs has increased by
over sixfold—rising from $4 billion in 1981 to $25.8 billion in 1986.
This $25.8 billion would amount to an average payment of more
than $16,000 to each of the 1.6 million farm families if made
directly. It would be enough to pay almost $42,000 to each of the
619,000 commercial sized farms in the U.S. In comparison, in calen
dar year 1985 U.S. median family income was $27,735. On average,
each nonfarm family spent more than $425 in 1986 to support farm
prices and incomes.
Despite this enormous commitment of resources, economic condi
tions in agriculture are not good, in large part because of contra
dictory and counterproductive farm programs. This situation is
untenable and must be changed.
Farm programs base certain direct payments and price support
loans on the volume of crops produced, so that higher production
leads to higher Federal benefits. Consequently, farmers overpro
duce, which causes commodity prices to decline. Because current
crop programs are designed to support farm income when prices
decline, this overproduction generates ever-increasing Federal sup
port.
In addition, too much Federal money goes to a relatively small
proportion of farmers—and those tend to be the owners of the
largest and most efficient farms. In 1985, two-thirds of American
farmers did not receive price supports. Of the one-third of Ameri
can farmers who did receive direct assistance, one-fifth—with
annual sales of over $100,000—received almost 70 percent of the
payments. Moreover, during 1986, 12 percent of those receiving
subsidies for producing cotton received more than half the total
payments, with some receiving millions of dollars; and during 1986,
50 of the largest rice producers received subsidies of over $1 million
each.
Finally, certain farm programs are directly counter to the Feder
al Government’s international objectives and responsibilities. For
example, the Government’s support for domestic sugar producers
conflicts with the policy to encourage increased trade between the
United States and the Philippines and certain Caribbean countries.
The administration’s proposals will address the major shortcom
ings of the 1985 farm bill but will retain that bill’s basic price
support mechanisms. Outlay savings of $24 billion over the 19881992 period are projected to result from enactment of these propos
als.
Specifically, the administration’s proposed changes will modify
farm programs to:
2-12
THE BUDGET FOR FISCAL YEAR 1988
• remove the incentive for farmers to overproduce by decou
pling program benefits from an obligation to harvest certain
crops;
• limit to $50,000 (instead of $250,000 under current law) the
amount of Federal payments each farmer may receive;
• close loopholes that make current payment limitations inef
fective for a large number of farmers; and
• reduce target prices by 10 percent per year in order to reduce
incentives for farmers to overproduce, and to reduce the
burden on the taxpayer.
The administration will also seek changes in the counter-produc
tive sugar program to make it more market-oriented while provid
ing adjustment assistance to current program participants.
Reform the Civil Service Retirement System (CSRS).—A new Fed
eral employee retirement system (FERS) was enacted in June 1986
for Federal employees hired on or after January 1, 1984. The FERS
more closely parallels private sector practice, reducing the overly
generous features still retained in the old civil service retirement
system (CSRS) that covers most Federal employees. The budget
proposes that retirement benefits under the existing CSRS program
be brought in line with FERS by changing the way cost-of-living
adjustments (COLAs) are provided to annuitants. While only 3
percent of all private pensions are fully and automatically adjusted
for inflation, the existing civil service system continues to have full
indexation to the Consumer Price Index (CPI). The administration’s
proposal generally would limit future COLAs to the percentage
change in the CPI minus 1 percent. This change would be identical
to the COLA that will be granted under the new FERS system for
employees retiring at age 62 and beyond.
The administration is also seeking repeal of the lump sum with
drawal provisions in both CSRS and FERS, which enable employ
ees to withdraw all their contributions toward retirement in a
lump sum at retirement.
Indexing the Veterans Compensation COLA to the CPI.—The ad
ministration proposes to link the veterans compensation COLA to
the annual change in the CPI. The Veterans Administration com
pensation program makes payments to 2.2 million veterans with
service-connected disabilities and to 380 thousand survivors of vet
erans who died due to service-connected conditions. The purpose of
this proposal is to ensure that these veterans and survivors receive
full and timely adjustments to their benefits—and that they be
protected from the possible erosion of their benefits and the uncer
tainties of an annually legislated COLA.
BUDGET SUMMARY AND PRIORITIES
2-13
Improve the Self-Sufficiency of AFDC Recipients.—The adminis
tration is proposing several changes designed to prevent and
reduce welfare dependency in the aid to families with dependent
children (AFDC) and child support enforcement programs. Under a
new AFDC work and training proposal, teenage recipients will be
encouraged to remain in or return to school; older recipients will
participate in a variety of employment and training activities de
signed to improve their employability, including job search, remedi
al education, training under the Job Training Partnership Act,
time-limited training directed at immediate employment, and other
State-designed activities approved by the Secretary of the Depart
ment of Health and Human Services. A proposal to require States
to establish mandatory child support guidelines will also promote
self-sufficiency and family stability. These guidelines will help
ensure that single-parent families receive adequate support from
parents who are absent from the home.
Withhold Funds From States for Excessive Issuance of Food
Stamp Benefits.—Over the past decade, substantial progress has
been made by States in giving the proper food stamp benefits to
those who lawfully deserve them. But State laxity, resulting in the
over-issuance of food stamps, remains a large problem that costs
taxpayers dearly. Actual State error rates for 1983 and 1984 (8.4
percent and 8.6 percent, respectively), and the estimated error rate
for 1985 (8.4 percent), are too high and show no recent improve
ment. In contrast, AFDC and medicaid State error rates are much
lower (6.0 percent and 2.7 percent, respectively, in 1984). To date,
only $1.3 million of approximately $100 million in outstanding
State food stamp liabilities have been collected.
This budget proposes to withhold from grants to States the value
of their excessive food stamp issuance. As in medicaid, at the
beginning of the fiscal year Federal grants to States would be
adjusted for each State’s estimated erroneous payments above the
national food stamp error tolerance rate of 5 percent. As States
improve their benefit issuance systems and error rates fall, Federal
withholdings would also fall. It is estimated the proposal would
save $264 million in 1988.
Target School Meal Subsidies to Low-Income Students.—The
child nutrition programs give cash and commodity subsidies to
institutions for meals served in schools, child care facilities, and
other places. In 1987, schools and other institutions will receive
$4.5 billion in Federal subsidies for meals served to 27.6 million
students. Of that amount, $705 million will subsidize meals to 14.7
million students whose families earn more than 185 percent of the
poverty level—approximately $20,350 per year for a family of four.
2-14
THE BUDGET FOR FISCAL YEAR 1988
The administration proposes to maintain Federal nutrition subsi
dies to institutions for meals served to children from families with
incomes below 185 percent of the poverty level, but discontinue
subsidies for students from families with incomes above that level.
Under the administration’s proposals, nearly 13 million needy chil
dren will receive federally subsidized meals in 1988, for total
budget authority of $4 billion. But by limiting the subsidy to those
who need it most, savings of nearly $757 million will be realized.
Economic Subsidies and Development—This category covers dis
cretionary programs for science and space, energy, natural re
sources and the environment, agricultural research and services,
commerce and housing credit, transportation, community and re
gional development, and subsidies for health professions. Many
programs in these areas should be and are being increased, includ
ing those that improve the safety and efficiency of the national
airspace system, address the acid rain issue, and encourage invest
ments in science and technology that over the longer run will
enhance America’s competitiveness. Other programs no longer war
rant current levels of Federal support. Many reward inefficient
private activities, and much of the State and local development
funded by the Federal Government is more appropriately financed
directly by these governments or by the private sector. Discussed
below are the major changes for these programs proposed in this
budget.
Improve the National Airspace System.—The Federal Aviation
Administration (FAA) operates and maintains the national air
space system and provides funds to the Nation’s airports to ensure
the safe and efficient movement of the Nation’s air traffic. For
these activities, the administration proposes a 20 percent increase
in budget authority—from $4.8 billion in 1987 to $5.8 billion in
1988. Most of this increase would be used to modernize our Na
tion’s airspace system, for which the administration proposes a 68
percent increase in budget authority—from $805 million in 1987 to
$1,350 million in 1988. Among other activities, these funds would
be used to finance the advanced automation system, precision land
ing systems, improved surveillance radar and communications
equipment, and weather radars designed to detect potentially
deadly wind shears.
The airport improvement program is proposed to be funded at
$1,017 million in budget authority in 1988, slightly more than the
$1,000 million made available for obligation in 1987. Airports that
can be self-financing would be allowed to withdraw from the Feder
al grant program and to assess their own local passenger facility
charges, in addition to landing and other fees they currently assess.
This change would give these airports more discretion in their
BUDGET SUMMARY AND PRIORITIES
2-15
capital investment programs. In addition, 27 percent of the Federal
grant funds would be turned over to the States to administer,
thereby allowing greater State involvement in funding general
aviation and small commercial service airports. Large commercial
service airports that remain in the Federal program would contin
ue to receive grants directly from the FAA. Discretionary grants
would be channeled primarily into projects to increase airport ca
pacity nationwide and to improve airport safety.
The administration also proposes a 17 percent increase for FAA
operations. This would increase budget authority from $2.8 billion
appropriated in 1987 to $3.2 billion in 1988. Among other items,
this will permit increases in the controller workforce from a mini
mum of 15,000 to a minimum of 15,225 and increases in the safety
inspection workforce from 2,020 to 2,198.
Increase Efforts To Resolve the Acid Rain Issue.—In March 1985,
the President and the Prime Minister of Canada requested a full
report by the Special Envoys on the acid rain issue. In 1986, the
President and the Prime Minister endorsed the Envoys’ Report.
As a first step in carrying out the Envoys’ recommendations, the
Department of Energy committed $400 million that already had
been appropriated to share costs with the private sector for nine
clean coal technology demonstration projects at an estimated total
cost of just under $1 billion. Over the period 1981 to 1985, the
administration committed over $2 billion to clean coal technology
research and development. From 1986 to 1992, the administration
proposes an additional $1 billion for clean coal research.
The administration proposes an additional $350 million in spend
ing over 5 years for new clean coal technology demonstration
projects, with at least as much funding to be provided by industry.
These additional demonstrations are in response to the recommen
dations in the Envoys’ Report. The amounts proposed in this
budget to address the acid rain issue do not include the funds being
spent by non-Federal sources. States such as Ohio, Illinois, and
New York are allocating approximately $300 million, and the utili
ty industry’s Electric Power Research Institute is investing more
than $300 million over the next four years to develop clean coal
technologies. Additional funds are being provided by other private
sources. Together, the Federal and non-Federal investments begin
ning in 1986 constitute a national effort exceeding $5 billion in
research, development, and demonstration of new technologies.
The administration also will continue to press forward its re
search program to resolve the scientific uncertainties regarding the
cause and effect of acid rain. The Government-wide acid rain re
search task force has received more than $300 million through
1987. An additional $86 million is requested in 1988, and another
$170 million is anticipated for 1989 through 1990.
2-16
THE BUDGET FOR FISCAL YEAR 1988
Finally, the President has instructed the Administrator of the
Environmental Protection Agency (EPA) to determine whether the
current Clean Air Act can be used to promote the implementation
of innovative ways of reducing those pollutants that are thought to
cause acid rain (e.g., emissions of sulfur dioxide). The Administra
tor’s report is scheduled to be completed early in 1987.
The United States has reduced the emission of sulfur dioxide by
almost 30 percent since 1973 under the current clean air program
at a cost of $45 to $50 billion, and further emission reductions are
projected to occur through 1995 under current law.
It is critical to know with a significant degree of confidence the
environmental effects of any further new emission reduction ef
forts, because such efforts will be extremely expensive for the
American people. Estimates of the costs of programs now under
consideration, using existing technology, range between $3 billion
and $9 billion per year and could affect adversely up to 80,000 jobs
in mining and related industries. These costs would have to be
borne by Americans who use electricity and by manufacturers who
use fossil fuels.
Before assuming a commitment to bear such costs, the American
people should be assured that there will be sufficiently positive
environmental effects, and should know, with some degree of cer
tainty, the extent and location of those effects. To the extent possi
ble, ways must be found to reduce the tremendous costs of such
control efforts. The program funded in this budget moves toward
these objectives.
Restore America's Competitiveness.—The ability of the Nation to
meet global competition, to provide for national security, and to
improve the quality of life for all citizens depends in part upon
national investments in science and technology. The Nation’s
future position in global markets will depend upon:
• the allocation of national resources to the generation of new
knowledge; and
• the effective and timely transfer of this new knowledge to
specific applications.
To satisfy these needs, the administration proposes continued
increases in federally supported basic research, including:
• an increase of about 18 percent in funding for basic research
for the National Science Foundation and a doubling of its
budget by 1992;
• an increase of about 22 percent in basic research activities of
the National Aeronautics and Space Administration, includ
ing the initiation of two new science and technology pro
grams; and
BUDGET SUMMARY AND PRIORITIES
2-17
• an increase of about 15 percent for the general science pro
grams of the Department of Energy, permitting better use of
basic research facilities.
Support for basic research, particularly at universities, is a key
factor in generating sufficient new knowledge to ensure continued
technological innovation. The Federal Government traditionally
has assumed a key role in the support of basic research, because
the private sector has insufficient incentives to invest in this area.
Federal support for basic scientific research is estimated to in
crease by 76 percent between 1982 and 1988—an average rate of
growth of nearly 10 percent annually. All this is in recognition of
the critical importance of basic research in universities to the
welfare of U.S. citizens and our international competitiveness.
With the increased level of support of basic research proposed for
1988, interdisciplinary research will receive special emphasis. Basic
research among several disciplines often leads to the creation of
important new fields of science. The administration proposes to
establish between 5 and 10 new interdisciplinary basic science and
technology centers through the National Science Foundation, mod
eled after the existing engineering research centers. These new
centers will focus on basic research among scientific disciplines and
will attract and encourage substantial participation by industry
and the States to speed the transfer of new knowledge from the
laboratory to the marketplace.
A second key element in the continued leadership of the U.S. in
science and industry is the future availability of high-quality scien
tists and engineers. Academic basic research is a primary means to
help expand the U.S. pool of trained scientists and engineers; this
in turn helps to ensure, over the long term, the ability of the
United States to compete in global markets. The administration
proposes to increase the emphasis on research programs that would
contribute to the development of such “human capital/’ This em
phasis will be reflected in the new basic science and technology
centers, and in a variety of ongoing programs of the National
Science Foundation (NSF), including the engineering research cen
ters, the advanced scientific computing centers, the graduate fel
lowship program, and programs to improve student research and
increase funds for scientific equipment at undergraduate institu
tions. Increased support will also be provided for other NSF pro
grams aimed at improving the quality of pre-college science and
mathematics education.
The Federal Government should also encourage the transfer to
the private sector of technology and new knowledge created in
Federal laboratories. New knowledge generated through research
and development in Federal laboratories is of little use unless that
knowledge is made available to the private sector to permit the
2-18
THE BUDGET FOR FISCAL YEAR 1988
marketplace to make economically efficient choices. To achieve this
end, there will be increased Federal efforts to transfer the results
of federally supported research and development both through
greater use of incentives for federally employed scientists and engi
neers and through the exchange of scientists and engineers be
tween Government and industry.
Finally, the administration proposes to strengthen the Nation’s
“leading edge” technologies to meet other national needs. Exam
ples include:
• initiation of a new civil space technology initiative, together
with previously planned funding increases to deploy the space
station, develop the national aerospace plane, and foster the
commercial development of space;
• the Strategic Defense Initiative, and associated Department of
Defense initiatives involving strategic computing and very
high speed integrated circuits; and
• support for cooperative research and development ventures by
the Department of Energy to encourage greater private sector
participation in fossil, solar, and energy conservation research
and development.
Increase the Number of Subsidized Housing Units.—Housing
vouchers continue to be the cornerstone of the administration’s
housing policy. They are less expensive than new construction
subsidies and benefit tenants by giving them more freedom of
choice about where they live. For 1988, the administration is pro
posing to provide 102,000 additional households with subsidies—
twice the level proposed in 1987. Most are vouchers: 79,000 funded
through the Department of Housing and Urban Development
(HUD) and 20,000 through the Farmers Home Administration
(FmHA). The other 3,000 subsidized units include new construction
of housing specifically for Indians and for the elderly and handi
capped. With the exception of the Indian and elderly/handicapped
housing units, this budget envisions no other commitments for new
housing construction in FmHA or HUD.
Another 1,700 vouchers are being proposed in 1988 for those
tenants currently living in HUD or FmHA projects. To prevent
economic hardship or displacement resulting from higher rents
that may occur when project owners prepay their mortgages, exist
ing tenants would be provided vouchers that they could use either
in the project or elsewhere.
The administration also proposes a series of reforms in the sec
tion 8 program for existing housing to increase the similarity be
tween section 8 certificates and vouchers. Both the section 8 exist
ing and voucher programs rely on the private market to supply
rental units. However, the section 8 program is more restrictive
than the voucher program since section 8 tenants must occupy only
BUDGET SUMMARY AND PRIORITIES
2-19
units that rent for less than the HUD-established “fair market
rent.” In addition, section 8 tenants must pay 30 percent of their
income for rent and therefore receive no benefit from renting a
lower cost (but acceptable quality) unit. Voucher recipients have
more freedom to choose the kind of housing they prefer, as well as
access to more neighborhoods than households that use the current
version of section 8 certificates. The 1988 budget reforms would
give the section 8 program participants the same freedom of choice
and access to housing as voucher recipients.
A demonstration project is also proposed to test ways of promot
ing more housing choices for both public housing tenants and
voucher holders. Public housing tenants will be given vouchers to
use for public housing or for the private rental market. Voucher
holders, including individuals not currently residing in public hous
ing, could use their vouchers to live in public housing. Public
housing would thus become an integral part of the community’s
overall housing supply.
Set Federal Highway Funding Equal to User Fee Receipts.—High
way construction and repair on the 834,000-mile Federal-aid high
way system is financed by Federal highway user fees in combina
tion with State and local funds. The administration proposes to set
annual Federal highway spending equal to the average annual
amount of user fee receipts, excluding interest, deposited in the
highway trust fund. This approach is necessary, because in recent
years highway program authorizations have exceeded annual user
fee collections and hence have contributed to the deficit. Consolida
tion of several Federal-aid programs, together with provisions to
increase the flexibility States have in spending these funds, would
improve the abilities of States to meet highway needs.
Limit the Federal Role in Mass Transit Funding and Distribute
Funds More Appropriately.—The Federal Government assists
States and localities with their mass transit programs through
grants for capital and operating expenses. These grants are fi
nanced in part by a dedicated source of funding from a share of
motor fuel tax receipts. These funds currently provide financial
assistance for selected capital and planning projects, at the discre
tion of the Secretary of Transportation (though often directed by
Congress). The return on the taxpayer’s investment on many of
these projects has been low. For example:
• In 1973 Detroit estimated that its automated people mover
would cost $30 million to build. It is now estimated that the
people mover will cost $210 million to build and will attract
no more than 15,000 riders daily—far fewer than the 37,000
originally projected.
2-20
THE BUDGET FOR FISCAL YEAR 1988
• In 1969 the 63rd Street tunnel on Manhattan’s East Side was
projected to cost $245 million. By 1985, when further Federal
financing was suspended, the cost had risen to $800 million,
with only 1,700 passengers expected to use the tunnel each
day. After almost 17 years of construction, the tunnel remains
unfinished.
• In Miami, a $1 billion transit investment carries only onetenth of the ridership originally estimated to justify the
project. The bus riders of Miami have endured higher fares
and reduced service because current transit funds have been
diverted to the rail system.
Moreover, the administration seeks a more appropriate distribu
tion of this dedicated source of transit funding. Currently, 83 per
cent of these funds benefit fewer than 20 cities. The administration
is proposing that these funds, which are collected in every State, be
allocated by formula to States and local agencies.
Because benefits derived from mass transit accrue primarily to
localities, and because the Federal deficit is so high (among other
reasons), the administration advocates increased financial partici
pation by States and localities in federally subsidized projects. The
administration’s proposal would eliminate discretionary grants for
new transit systems because they encourage investment in ineffi
cient and expensive systems. The Federal role in transit would be
limited to management and allocation of the dedicated penny tax
for transit, with no further funding of transit from general funds
(except for the Washington, D.C. system, which is separately au
thorized). Moreover, the proposal includes an increased local match
on Federal funds from 20 percent to 50 percent.
Terminate Costly and Unjustified Electrification and Telephone
Subsidies.—The Rural Electrification Administration (REA) pro
gram has gone far beyond its original purpose of making loans
available to cooperatives to provide electricity and telephone serv
ice to rural areas. Recipients of subsidized REA loans today include
electric cooperatives serving prosperous urban or suburban areas of
cities such as Washington, D.C., Atlanta, Houston, Minneapolis,
and Denver. Loans are also used to provide electric service to
exclusive recreation communities, such as ski resorts in Vail,
Aspen, and Steamboat Springs, Colorado, as well as other resorts in
Myrtle Beach, Kiawah Island, and Hilton Head Island in South
Carolina. In addition, REA has provided loans to telephone borrow
ers that are subsidiaries of large multi-million dollar holding com
panies with excellent credit ratings.
When the REA was established in 1935, only 12 percent of the
farms in the country received electricity; today over 99 percent of
farms have electric service. In 1949 the REA act was amended to
bring telephone service to rural areas; today over 95 percent of
BUDGET SUMMARY AND PRIORITIES
2-21
farms have telephones. The REA’s original mission is complete,
and reforms to the loan subsidy programs are needed.
The administration proposes to terminate the costly existing sub
sidized direct loan program (5 percent interest), the 100 percent
REA guaranteed Federal Financing Bank (FFB) loans, and the
subsidized Rural Telephone Bank lending to electric cooperatives
and telephone companies. To ensure continued credit availability,
most borrowers will be eligible for a new program of privately
originated loans with an REA guarantee of 70 percent of the loan
principal. Electric and telephone borrowers serving largely urban,
suburban, or recreation areas and most telephone borrowers who
are subsidiaries of larger holding companies would no longer be
eligible for any REA assistance starting in 1988. Moreover, to
encourage privatization, the administration is proposing that any
borrower with existing REA loans outstanding have an opportunity
to prepay all loans without a prepayment premium or at a discount
determined by the Administrator if the borrower agrees not to seek
REA assistance again.
Fill the Strategic Petroleum Reserve at 35,000 Barrels per Day.—
The strategic petroleum reserve (SPR) is a Government stockpile of
crude oil to supplement the market in the event of a severe disrup
tion in world oil supplies. The administration is proposing to con
tinue development and fill of the reserve at the current rate of
75,000 barrels per day during 1987, but to reduce the rate to 35,000
barrels per day in 1988. This proposal is consistent with the admin
istration’s support for development of a 750 million barrel reserve
and continues to preserve the Nation’s energy security.
By the end of 1987, SPR will contain 534 million barrels of crude
oil. This amount is equal to over 100 days of 1986 net U.S. imports
from all countries, nearly 200 days of imports from all OPEC
countries, and 20 months of imports from the Persian Gulf. This
level of the SPR more than meets U.S. obligations to the Interna
tional Energy Agency. In view of the more than 10 million barrels
per day of surplus oil production capacity in the world, the 350
million barrels of stocks under the control of other major import
ing nations’ governments, and the stocks contained in the private
sector, there is no need to fill SPR at the 75,000 barrel daily rate,
at a yearly extra cost of more than $225 million.
Reduce or Eliminate Unnecessary Subsidies for Energy Technolo
gy.—The Department of Energy now supports technology research
and development in renewable energy, fossil energy, and energy
conservation. The administration proposes a reduction of $269 mil
lion in funding for spending in this area—a reduction of more than
40 percent from the 1987 enacted level of $625 million. This reduc
tion reflects the administration’s belief that the proper Federal
2-22
THE BUDGET FOR FISCAL YEAR 1988
role is to support longer term, high-risk, or generic technologies.
Most of the activities proposed for elimination are near-term or are
subsidies that benefit primarily one company. Other activities pro
posed for elimination are inordinately expensive compared to other
options for achieving similar benefits, such as coal-fired magneto
hydrodynamics. The administration also proposes to use Federal
research and development funding more effectively by promoting
the formation of industrial cooperative research and development
ventures. Such ventures provide a mechanism to spread the costs,
risks, and benefits of federally supported technology research and
development more broadly.
Constrain or Eliminate Community and Economic Development
Programs for State and Local Governments.—In 1988, the adminis
tration will continue its effort to concentrate Federal resources on
national priorities and provide maximum opportunities for State
and local governments to meet their own local community and
development needs. Shifting responsibility for economic develop
ment programs to the State and local levels brings both economic
development funding and priority decisions closer to the people. To
achieve this, the administration proposes to eliminate a number of
Federal categorical programs currently providing support for spe
cific local community and economic projects. The comprehensive
and more flexible community development block grants (CDBG)
will be the principal vehicle for continued Federal support.
The administration proposes to establish the CDBG program
level at $2.6 billion for 1987 and 1988. Although this will be a
reduction in total resources, the most needy communities will con
tinue to receive adequate resources through legislation to target
resources to such areas. Many communities with the resources to
meet their own needs amply without Federal assistance—such as
Cherry Hill, New Jersey, and Montgomery County, Maryland—
currently receive Federal aid from this program.
As part of the Government-wide effort to reduce unnecessary
subsidies and excessive Federal intervention in the economic deci
sions of private firms and individuals, the administration is propos
ing termination and rescission of most of the 1987 appropriations of
the urban development action grants (UDAG) program and the
Economic Development Administration (EDA), and part of the 1987
appropriations of the Appalachian Regional Commission (ARC).
These grant programs siphon productive resources from private
investment projects to politically designed projects that may pro
vide local benefits, but that are less efficient for the national
economy as a whole. By approving awards for hotels in resort areas
such as Stowe, Vermont, and Newport, Rhode Island, or for office
buildings for major banks, the UDAG program is diverting precious
capital from its best possible use.
BUDGET SUMMARY AND PRIORITIES
2-23
The UDAG and EDA programs warrant termination because
they have become tools through which the Congress provides “pork
barrel” Federal funds for favored local areas, to the detriment of
the overall national economy. In 1987 alone, for example, Congress
used the EDA program to target $7.5 million for the renovation of
stockyards in Fort Worth, Texas; $1 million for the improvement of
a county road in Sumter County, Alabama; and $1 million for the
renovation of a museum in Portland, Oregon.
Phase Out EPA Sewage Treatment Grants.—The Environmental
Protection Agency’s (EPA) sewage treatment grant program pro
vides financial assistance to State and local governments for the
construction of publicly owned sewage treatment systems. The ad
ministration’s budget provides $2 billion each in 1987 and 1988 and
declining amounts in future years as part of a major legislative
proposal to phase out the program by 1994. In addition to the $47
billion already provided for this program between 1972 and 1985,
the proposal provides $12 billion for the period 1986 through 1993.
This amount is halfway between the $6 billion proposed in the
administration’s 1987 budget and the $18 billion included in the
Clean Water Act amendments of 1986, which was disapproved by
the President at the close of the last Congress.
The administration’s program fulfills the remaining Federal com
mitment made in 1972 to help local governments finance the back
log of needed improvement in their sewage treatment systems. By
providing these funds through 1993, the proposal gives State and
local governments a lengthy and stable period to reassume finan
cial responsibility for this program. The Federal commitment will
be limited strictly to assistance for construction of treatment facili
ties and related appurtenances to ensure maximum environmental
benefits and cost-effectiveness from the use of these remaining
funds.
Defer Land Acquisition for Recreation and Refuge Purposes.—
The administration proposes that discretionary land acquisition for
recreation and refuge purposes be deferred through 1992 except for
wetlands acquired with Duck Stamp and other receipts collected
under the Migratory Waterfowl Conservation Act. The Federal
Government owns over 730 million acres of land—one-third of the
Nation’s total land area. About 410 million of these acres are in
the lower 48 States and 320 million acres are in Alaska. The total
comprises an area more than 25 times the size of the State of
Pennsylvania; the lower 48 State total alone is more than 14 times
the size of that State. Most of this acreage is available for outdoor
recreation. The budget includes funds for administering the acqui
sitions in progress from prior year appropriations and for limited
emergency acquisitions.
2-24
THE BUDGET FOR FISCAL YEAR 1988
Eliminate Extension Service Funds for Certain Directed Pro
grams.—The Extension Service, created in 1914 to provide agricul
ture and home economics instruction to the farm population, now
provides free, non-means-tested social and economic services that
would seem totally beyond the responsibility of the Federal Gov
ernment. The administration proposes to reduce (but not eliminate)
Federal funding for the Extension Service by terminating categori
cal grants to States that are used for such programs as urban
gardening, pest management, support for rural development cen
ters, financial management, and food and nutrition education.
These activities are either not essential activities of the Federal
Government or are already partially carried out under the Exten
sion Service formula grant program that is fully funded in this
budget. States and localities can increase their allocations within
their share of the Federal formula grants, their own contributions,
and/or their pool of volunteers if they wish to offset some or all of
the reduction in Federal categorical grants. Outlay savings for this
proposal are estimated to be $518 million over the next 5 years.
Terminate Small and Fragmented Conservation Assistance Pro
grams.—The Federal Government provides several forms of conser
vation cost-sharing assistance, including financial assistance for the
construction of small watershed and flood prevention projects, con
servation technical assistance to landowners, and soil and snow
surveys. The administration is repeating its 1987 proposal to termi
nate immediately the outdated conservation cost-sharing and wa
tershed financial assistance programs. However, the administration
continues funding for technical assistance, soil and snow surveys,
and plant materials center programs.
The existing array of small fragmented conservation assistance
programs duplicates activities in the new conservation reserve pro
gram, which has the same objective. Through this program, Feder
al funds will subsidize the 10-year retirement of between 40 and 45
million acres of highly erodible cropland to less intensive use. The
5-year eligibility period for enrolling in this program began in 1986.
The Federal Government will pay farmers a total of about $25
billion over the 15-year life of this new program to take these lands
out of production and put them in permanent cover, while saving
about $2.1 billion during the 1988-92 period by eliminating the
former programs.
Finally, the small watershed program is proposed for elimina
tion. This program provides highly localized benefits and is com
posed of small construction projects that landowners and local
governments are able to finance without Federal assistance.
Eliminate Subsidies for Most Health Professions.—Twenty-five
years of Federal training subsidies for health professions have
BUDGET SUMMARY AND PRIORITIES
2-25
resulted in a significant expansion of the supply of physicians and
other health professionals. Initiated primarily to address perceived
shortages of health professionals, the broad array of federally sub
sidized institutional and student grant and loan programs have
also helped improve the distribution of health care practitioners
throughout medically underserved areas of the country. Since 1965,
the number of professionals in every major health occupation has
increased both in absolute number and relative to the population.
For example, by 1985 there were 218 doctors for every 100,000
Americans, compared to 148 in 1965—a 48 percent increase. Be
cause the supply of health professionals is now adequate (in fact,
many disciplines are now in oversupply), direct Federal subsidies
for clinical health professions training are no longer essential for
most professional specialties.
With projected outlay savings of $1,082 million between 1987 and
1992, the administration's proposal would eliminate funding for
most health professions training subsidies administered by the De
partment of Health and Human Services. Funding for family medi
cine and geriatric training would continue. Federal contributions to
health professions and nursing student loan funds, combined with
the multi-billion dollar Department of Education and Department
of Health and Human Services loan guarantee programs, have
established a continuing foundation of Federal student aid for
health professions training. These programs ensure access for all
students who otherwise lack the resources to pursue an education
in one of the health professions. In addition, the administration
proposes unlimited, non-needs tested access to market rate student
loans in certain guaranteed student loan programs.
Terminate Remaining Economic Regulation of the Motor Carrier
Industry and Related ICC Activities.—Legislative changes, begin
ning in 1980, partially deregulated the surface transportation in
dustry and reduced the Interstate Commerce Commission's (ICC)
jurisdiction, workload, and staff. The administration proposes to
terminate all remaining economic regulation of the motor carrier,
freight forwarder, interstate water carrier, and bus industries. The
ICC would close by October 1, 1987, with most railroad activities
transferred to the Department of Transportation, except for anti
trust matters, which would be transferred to the Department of
Justice. Handling of consumer complaints regarding those who
move household goods would be transferred to the Federal Trade
Commission. Termination of the ICC reflects the administration's
commitment to deregulation of the surface transportation industry,
based on its strong belief that continued economic regulation im
poses greater costs than benefits to the public.
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THE BUDGET FOR FISCAL YEAR 1988
Social Programs.—The Federal Government supports a wide
range of social programs involving education, training and employ
ment, social services, health, and income support. This section
discusses major administration initiatives that affect discretionary
programs in these areas. For some programs, the administration is
proposing increases, including research and education activities for
acquired immune deficiency syndrome (AIDS), basic biomedical re
search, and demonstration projects designed to help State and local
governments provide for the homeless.
Provide Major Increases for AIDS Research and Education.—
Acquired immune deficiency syndrome (AIDS) remains the admin
istration’s highest public health priority. The administration pro
poses $534 million for the Department of Health and Human Serv
ices (HHS) AIDS research and education programs in 1988—a 28
percent, or $118 million, increase over the 1987 level and more
than twice the level for 1986.
The administration also proposes to expand the discretion per
mitted in its AIDS programs. Broadening the authority to transfer
funds would expedite mid-year funding allocations for new re
search and education opportunities that might emerge after sub
mission of the budget. Permitting AIDS funds to be used over
several years will reinforce efforts to develop the AIDS programs
according to the best scientific judgment. These improvements will
build upon administrative actions undertaken recently to improve
the programs’ management. In addition, the administration pro
poses $98 million for use by the Veterans Administration and the
Department of Defense to screen for the AIDS antibody and to
counsel and provide medical care for veterans with AIDS.
Provide Stable Support for Basic Biomedical Research.—The ad
ministration proposes to adopt a long-term policy of stable and
sustainable support for basic biomedical research by seeking obligational authority of $5.8 billion for the National Institutes of Health
(NIH) in 1987 and 1988. The 2-year total of $11.6 billion represents
a 12 percent increase over the previous 2-year total of $10.4 billion.
These funds would permit NIH to fund about 19,100 research
project grants in 1987 and 1988, compared to about 18,800 funded
in 1986.
As part of the administration’s efforts to ensure long-term fund
ing stability for NIH, the administration requests that Congress
appropriate the full budget authority associated with multi-year
NIH research project grant commitments incurred in 1988. Replac
ing the current system, which funds new awards without regard to
their full eventual cost, with a new policy of fully funding multi
year commitments at the time they are incurred would eliminate
grantees’ annual uncertainties over the level and timing of NIH
BUDGET SUMMARY AND PRIORITIES
2-27
non-competing awards; allow NIH program managers to take ad
vantage of rapidly emerging scientific opportunities; permit proper
review and consideration of the total costs of funding additional
project grants; and result in a more rational allocation of funds
between NIH and other Federal priorities.
Provide Assistance to the Homeless. —The administration believes
the problem of the homeless is one characterized by intense person
al suffering, but one not given to easy solutions. This administra
tion responds to the problem of homelessness in several ways,
including:
• funding emergency needs for food and shelter;
• directing that more efforts be made to ensure that the home
less have access to entitlement programs, such as food stamps,
supplemental security income, aid to families with dependent
children, VA benefits, and social security;
• encouraging States and local governments to use Federal
grant funds, such as the community development block grant
(CDBG) and the social services block grant, to assist the home
less; for example, to date, more than $100 million of CDBG
funds have been used to renovate and acquire buildings for
use as emergency shelters for the homeless and for related
services;
• providing information and assistance to State and local gov
ernments and private providers on Federal and other re
sources available to help the homeless;
• redirecting surplus Federal commodities and facilities to
assist local groups in providing services to the homeless; and
• conducting research and demonstration projects. (For exam
ple, the Department of Housing and Urban Development
(HUD) has issued 1,000 housing vouchers for use in a national
demonstration for chronically mentally ill; vouchers are pro
vided to the homeless in conjunction with health and other
services supported by the private sector.)
Thus the administration proposes to continue and expand efforts
that benefit the homeless. Resources will be provided in 1987 and
1988 to establish a clearinghouse on the homeless in the Depart
ment of Health and Human Services (HHS), which heads the Inter
agency Task Force on the Homeless. The clearinghouse will serve
as the Federal focal point for information and technical assistance,
helping States and communities develop strategies and package
resources available to help the homeless.
The budget proposes to continue the emergency funds for feeding
and housing the homeless for the Federal Emergency Management
Agency at $80 million in 1988, to be distributed through a national
board of major private charities.
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THE BUDGET FOR FISCAL YEAR 1988
Additional initiatives are being taken. For example, $5 million in
budget authority for the transitional housing demonstration project
in HUD is requested for 1988. This program tests innovative ap
proaches to providing shelter and supportive services for the home
less. The budget also proposes to increase funding for the communi
ty support program of State and local demonstrations sponsored by
the Alcohol, Drug Abuse and Mental Health Administration in
HHS. Budget authority is proposed to increase these grants from
$15 million in 1987 to $20 million in 1988. This additional funding
would be provided to complete demonstration projects targeted on
mental health services for the homeless mentally ill.
Limit the Federal Role in the Financing, Content, and Structure
of Education Programs.—Education has always been and should
remain primarily a State, local, and family responsibility. Al
though the Federal Government plays an important role—particu
larly for programs for the disadvantaged the handicapped, and
others in special need of additional support—the administration
seeks to reduce the current size of the Federal financial involve
ment in education. In total, budget authority for Department of
Education programs is proposed to be $14.0 billion for 1988. Major
program proposals are described below.
Handicapped and rehabilitation.—For these programs the budget
allows for increases to offset inflation for the major State grants in
1987 and 1988. A significant increase over 1986 is provided in the
preschool State grant. Reductions are requested in selected smaller
programs in which the Federal investment exceeds legitimate pro
gram needs. For example, reduced funding is sought for training
because available data on personnel shortages do not support cur
rent appropriation levels. The administration requests $2.9 billion
for these programs—a reduction of $0.3 billion from the 1987 en
acted level.
Compensatory education.—For over 20 years, the Federal Govern
ment has provided support to States and local school districts to
operate compensatory (remedial) education programs for education
ally disadvantaged children. About 4.8 million children receive
services. The administration proposes $4.1 billion for these compen
satory education programs for 1988—a $200 million increase over
the 1987 appropriation. The budget will be accompanied by a legis
lative proposal to revise and strengthen these programs, which are
authorized under Chapter 1 of the Education Consolidation and
Improvement Act.
Adult education.—The administration requests $130 million for
programs funded under the Adult Education Act—the central Fed
eral program in the fight to reduce adult illiteracy. This 20 percent
BUDGET SUMMARY AND PRIORITIES
2-29
increase over the 1987 enacted level will allow State and local
agencies that operate adult education programs for more than 2.3
million participants to expand program services or to enhance the
quality of existing activities. The budget also provides for increased
funding for adult education each year until 1992, when total fund
ing will reach $200 million.
Student aid.—Although society benefits from a better educated
workforce, students are the principal beneficiaries of their invest
ment in higher education. It is therefore reasonable to expect
them—not taxpayers—to shoulder most of the costs of that invest
ment. The Federal Government’s role is to help make the invest
ment possible, primarily by providing support for student loans.
The administration accordingly proposes that guaranteed loans
that have no direct costs to the Government be made available to
all students without any limit other than the cost of education.
The administration recognizes the particular needs of low-income
students, who may be reluctant to borrow significant amounts for
school or who may have more trouble in paying off loans once they
have left school. A Pell grant program for the neediest students
would be maintained, with targeting improvements allowing fund
ing reductions from $3.8 billion in 1987 to $2.7 billion in 1988 and
$2.0 billion in 1989 and beyond. In addition, the need-tested,
income-contingent loan program, with its more manageable repay
ment arrangements that tie the repayment amount to the recipi
ent’s income, would be expanded substantially to assist more poor
students.
Vocational education.—The administration proposes to eliminate
all Federal support for vocational education, for which $0.9 billion
was appropriated in 1987. Federal funds are not essential to the
maintenance and expansion of the vocational education system,
which currently is supported with more than $10 of State and local
funds for every $1 of Federal support. The existing Federal statutes
are too prescriptive and contain too many (about 40) conditions or
set-asides that affect fund distribution. Research has shown that
investment in vocational education produces only small marginal
benefits to participants, and these tend to disappear after several
years.
Reform Job Training Programs.—The various programs now pro
viding job search, job training, and cash benefits to dislocated
workers, such as Title III of the Job Training Partnership Act
(JTPA) and the trade adjustment assistance programs, are pro
posed to be replaced by an entirely new program. This new pro
gram would assist all dislocated workers without regard to whether
they were unemployed because of increased imports, or because
2-30
THE BUDGET FOR FISCAL YEAR 1988
they were permanently laid off, lost their farms, or were long-term
unemployment insurance recipients. Services, which would include
counseling, job search assistance, basic education, and job skill
training, would be provided in a two-tiered approach, with the
quick-action services provided first. States would be responsible for
operating the programs, which would be linked to the unemploy
ment insurance system, with the private industry councils set up
under JTPA given local oversight responsibilities. These changes
will allow States and local areas to use a variety of new approaches
to encourage workers to recognize when their old jobs are gone and
move more quickly on to new careers. The new program would
receive $980 million in 1988, compared to the $344 million appro
priated for job search, training, and cash assistance in 1987. It is
expected that the new approach will provide readjustment services
faster than is possible under current programs.
The summer youth employment program is proposed to be con
verted into a year-round program of remedial skill training, subsi
dized summer jobs, or a mixture of both, as determined by local
areas, for youth in families receiving support from the aid to
families with dependent children (AFDC) program. This new pro
gram is aimed at the multiple objectives of helping these at-risk
youth achieve higher earnings throughout their lives, increasing
the number of workers with needed skills, and reducing welfare
dependency. The administration proposes to provide $800 million,
$50 million more than the 1987 enacted appropriation for the
summer youth employment program.
For the basic block grant for training and employment services
under the Job Training Partnership Act, the administration is
proposing $1.8 billion—the same amount as in 1986—to assist State
and local governments, in cooperation with industry, in helping
some 1 million disadvantaged people prepare for a productive life.
Legislation will be proposed to decentralize authority, financing,
and responsibility for administering State unemployment insur
ance and employment service programs to the States. Based on an
extensive consultative process involving all interested groups, the
legislation will answer the many questions raised by States and
others over the equity of current Federal allocation of administra
tive resources, the adequacy of the resources provided, and lack of
flexibility provided for States to use resources to meet their re
quirements. This decentralization will place administrative policy,
financing, and decisionmaking at the same State level of govern
ment that already is responsible for unemployment insurance ben
efit policy, financing, and decisionmaking. The Department of
Labor will retain its current responsibilities of ensuring that State
programs meet the general requirements of Federal law and of
financing the costs of State administration of Federal programs.
BUDGET SUMMARY AND PRIORITIES
2-31
Continue Support for Important Social Services Programs; Reduce
Support for Others,—The supplemental nutritional assistance pro
gram for women, infants, and children (WIC) will give food supple
ments every month to more than 3 million low-income women and
young children in 1988. WIC is designed to lessen health problems
associated with inadequate diets during critical—particularly pre
natal—stages of child development. Federal funding for the pro
gram has expanded rapidly in recent years, more than doubling
since 1980. The administration is requesting $1.7 billion in budget
authority in 1988—$24 million above the 1987 level.
The administration proposes $253 million for the refugee and
entrant assistance program, reflecting continued declines in refu
gee admissions and continuing efforts to encourage refugees’ early
self-sufficiency. Beginning in 1988, the administration proposes to
reduce subsidies to States and limit the time during which refugees
may receive special Federal assistance that is not available to
similarly situated U.S. citizens.
The foster care and adoption assistance programs provide pay
ments for approximately 108,000 foster care children and 25,000
children in adoption assistance. Federal funding for these entitle
ment programs has grown uncontrollably since 1981, primarily as a
result of rapidly rising State claims for administrative expenses
rather than increased benefit payments to families. Thus, the ad
ministration proposes to limit Federal matching of State adminis
trative and training costs for these programs to 50 percent of
maintenance payments. This proposal will save an estimated $84
million in 1988 without reducing assistance to the beneficiaries.
The low-income home energy assistance block grant helps States
provide heating and cooling assistance to low-income households.
The administration requests $1.2 billion in budget authority for
this program for 1988—a reduction of $0.6 billion from 1987—in
recognition of the hundreds of millions of dollars in oil overcharge
settlements available to States for these purposes.
Consistent with the last five budgets, the administration again
proposes no new Federal funding and no substantive reauthoriza
tion for the Legal Services Corporation. Efforts to prevent inappro
priate activities by local legal aid grantees have not been fully
successful, and adequate State funds are available to fund legal aid
through the social services block grant, currently funded at $2.7
billion. Responsive and accountable to local needs, States are in the
best position to structure and finance legal aid programs. Further
more, Federal supply of these services has stunted the development
of low-cost legal services supplied by the private sector.
The administration proposes to begin to phase out Federal sup
port for the community services block grant (CSBG); in 1988, the
administration is requesting $310 million in budget authority. Com
2-32
THE BUDGET FOR FISCAL YEAR 1988
munity action agencies—the primary recipients of these funds—
derive less than 13 percent of their funding from this block grant.
A phased reduction in Federal CSBG support will provide these
agencies time to solicit funding from other sources. At this time of
Federal budget constraints, it is hoped that contributions from nonFederal sources can maintain critical activities.
Social services for the needy will continue to be supported. Effec
tive community action agencies can be funded through the social
services block grant, Head Start, low-income energy, community
development, job training, and other available funding sources that
are already the main sources of funding for community action
agencies.
General Government.—This category of discretionary programs
includes many of the core functions of Government: conduct of
international affairs, administration of justice, legislative and cen
tral executive functions, and fiscal operations such as tax collec
tion.
International Affairs.—The President proposes to reverse the
sharp decreases in funding for many international affairs programs
that have taken place over the past 2 years. A 1987 supplemental
appropriation of $1.3 billion in budget authority is proposed.
Budget authority for 1988 is requested at $19.1 billion, which is
$1.0 billion above the 1987 level with the supplemental. Outlays in
1988 are estimated to be $15.2 billion.
The increases proposed for international affairs reflect full con
sideration of the need for tight control of all Federal spending in
order to achieve the overall Federal deficit targets established by
the President and Congress. Thus, international spending will be
carefully targeted. A major portion of the proposed increases is
needed to make good on firm commitments of the United States to
other countries and organizations, commitments that Congress has
fully reviewed and affirmed. The increases also will allow vital
support for the national security of the United States in a variety
of ways, particularly through the provision of military and eco
nomic aid to democratic governments struggling to maintain their
freedom. Further, the increases are intended to protect the lives of
American citizens and officials against widespread threats by inter
national terrorists. Finally, the United States must further
strengthen its international information programs. These programs
reach out to peoples throughout the world to provide them with
the truth about the United States, the rest of the democratic world,
and repressive, totalitarian regimes.
Nearly 60 percent of the 1987 supplemental is directed at inter
national security assistance objectives. Over half of these security
funds are needed to honor the obligations of the United States to
BUDGET SUMMARY AND PRIORITIES
2-33
countries that provide military bases or base access for United
States forces. These commitments simply cannot be ignored with
out impairing the Nation’s security. Much of the remaining securi
ty aid will provide crucial economic assistance to four major Cen
tral American democracies. Lesser amounts are being provided to
meet special needs, including support for friendly countries in
southern Africa and encouragement to nations that are taking
major and difficult steps to halt international narcotics trade. The
various objectives of this additional security assistance have had
widespread support in Congress and among the American people. It
is necessary now to provide the funding to meet these objectives.
The 1988 security assistance request for budget authority would
continue to meet worldwide commitments, including the objectives
addressed in the proposed supplemental.
For international development and humanitarian assistance, the
supplemental proposes $100 million in urgently needed reconstruc
tion funds for El Salvador in the wake of that country’s recent
severe earthquake. The supplemental also partially would reduce
large arrearages in U.S. payments to the multilateral development
banks—the World Bank and the Asian, African, and Inter-Ameri
can Development Banks. The arrearages have occurred because of
congressional reductions to the 1986 and 1987 budget requests for
U.S. contributions to these institutions. The administration has
achieved significant reforms in the way that these institutions
operate. Given these accomplishments, the U.S. must meet its
pledges, confirmed in authorizing legislation, to provide specific
annual amounts over multiyear periods. For 1988, the elimination
of the remaining multilateral bank arrearages is proposed, and
other development and humanitarian programs are held below
1987 levels in total.
The conduct of foreign affairs is inherently a Federal governmen
tal function carried on for all Americans. If the United States is to
remain a world power, it must be prepared to provide adequate
levels of personnel and funding to carry out diplomacy. The budget
calls for modestly increased funds for the State Department’s regu
lar operations—including enhanced reporting and analysis and im
proved data processing and telecommunications capability. Most of
the $0.6 billion in increased spending in this area would protect
U.S. facilities and officials abroad from attack. The increase in
such attacks over the past decade and the resulting loss of life
demand a major upgrade for diplomatic security by the United
States.
In trying to communicate more effectively with the peoples of
the world—particularly those of communist countries—the United
States has embarked on a major worldwide modernization and
expansion of Voice of America and Radio Free Europe/Radio Liber
2-34
THE BUDGET FOR FISCAL YEAR 1988
ty broadcasting facilities. This is the primary reason for the budget
increases requested for foreign information and exchange activities.
The U.S. broadcasting effort is exceeded in funding by that of the
Soviet Union, but it is superior in quality, primarily because it
speaks the truth. To ensure that the U.S. message gets through to
a growing audience, increases in radio construction and moderniza
tion programs are needed.
Expand Government-wide Drug Enforcement and Fight Drug
Abuse.—Overall, for drug law enforcement, prevention, and treat
ment, budget authority has climbed from $1.2 billion in 1981 to
more than $3.0 billion proposed in 1988.
Improvement of the Federal drug law enforcement program has
been one of the administration's top domestic priorities. Since 1981,
budget authority for drug law enforcement has grown by almost
200 percent, from $0.9 billion in 1981 to a proposed level of $2.5
billion in 1988. In 1986, in response to nationwide concern over the
level of illicit drug abuse in the country, Congress passed and the
President signed the Anti-Drug Abuse Act of 1986. The Act estab
lished tougher penalties for drug traffickers, and authorized large
budget increases for a number of Federal agencies.
This budget proposes resource levels for 1988 necessary to contin
ue the Federal priority given to drug enforcement. The 1988 re
quest is $0.5 billion lower than the enacted 1987 level of $3.0 billion
for two reasons. First, $225 million was appropriated in 1987 for
grants to assist in drug enforcement activities at the State and
local level. The administration believes that this one-time infusion
of funds will provide significant assistance to local drug enforce
ment efforts, so such grant funds will no longer be needed for 1988.
Second, approximately $350 million was appropriated for capital
purchases made in 1987, which need not be repeated in 1988.
Partially offsetting these decreases are about $70 million of in
creases for drug enforcement operations in 1988. For example,
budget authority for the Drug Enforcement Administration is pro
posed to increase from $490 million in 1987 to $522 million in 1988.
The administration also proposes to expand the drug abuse treat
ment, research, and prevention programs begun in the President's
drug abuse initiative. The recently created Office for Substance
Abuse Prevention, which coordinates the Department of Health
and Human Services' prevention efforts, will increase the effective
ness of these programs; the Department will also support a second
year of expanded State and local drug abuse treatment services.
The budget proposes to continue substantial levels of drug abuse
research funding. The administration also proposes to continue the
Department of Education's 3-year program of grants to States and
localities for school and community-based drug abuse programs and
related national activities. Funding for the second and third years
BUDGET SUMMARY AND PRIORITIES
2-35
is lower than funding for the first year, reflecting one-time, start
up costs and increased State and local participation. Finally, block
grant funding for State and local government programs will be
maintained at the 1987 level of $495 million, and the Veterans
Administration and Department of Defense will maintain their
drug abuse treatment and prevention programs.
Implement Immigration Reform.—On November 6, 1986, the
President signed into law a landmark revision of the Nation’s
immigration laws—a revision 6 years in the making. The Immigra
tion Reform and Control Act of 1986:
• prohibits the hiring of illegal aliens;
• provides legal status to certain aliens who have been living in
the country illegally;
• establishes new programs to permit the entry of aliens to
harvest perishable crops; and
• provides increased staff for the Immigration and Naturaliza
tion Service (INS) for its new responsibilities under the Act.
The budget seeks $138 million in supplemental 1987 budget au
thority and $194 million in 1988 budget authority for INS to carry
out this legislation. In addition, INS is expecting to obligate an
additional $149 million in 1987 and $181 million in 1988 from fees
charged to applicants in the legalization program. The actual fee
charged will be established by regulation and will be sufficient to
make the legalization program entirely self-financing.
Provide Necessary Resources for Securities and Exchange Commis
sion (SEC) and Commodity Futures Trading Commission (CFTC).—
The administration is proposing budget increases for the independ
ent regulatory agencies responsible for ensuring that the nation’s
financial markets are kept efficient and that their integrity is
preserved. A 30 percent increase in the SEC’s budget authority for
1988 and almost a 10 percent increase in the CFTC’s budget au
thority for 1988 will enable these agencies to address workload
increases—particularly in the areas of market surveillance and
enforcement. Since 1980, the annual volume of securities transac
tions and financings has more than doubled, as has the number of
registered broker-dealers. The futures and options markets also
have grown rapidly in terms of the number and types of traders, as
well as contracts and financial products offered. In a joint venture
with a private contractor, the administration is proposing to fund
an electronic disclosure system (EDGAR) to increase the efficiency
and integrity of the securities markets for the benefit of investors,
corporations, and the economy. This system will accelerate dra
matically the filing, processing, dissemination, and analysis of
time-sensitive corporate information.
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THE BUDGET FOR FISCAL YEAR 1988
Reform of the Davis-Bacon and Related Acts and the Service
Contract Act.—The administration is proposing legislation to in
crease the thresholds of coverage under the Davis-Bacon and relat
ed acts and the Service Contract Act. The Davis-Bacon Act covers
wages paid to workers on Federal and federally aided construction
projects. The Service Contract Act covers wages and benefits paid
to workers under Federal service contracts. The threshold of cover
age under the Davis-Bacon Act has not been revised since it was
set at $2,000 in 1935. Similarly, the threshold of coverage under the
Service Contract Act has not been revised since it was set at $2,500
in 1965. An increase in the thresholds of coverage under these
statutes is appropriate in recognition of economic changes in the
past several decades and to encourage competition and efficiency in
Government procurement.
REVENUE CHANGES
In addition to the programmatic changes discussed above, the
administration proposes a number of revenue changes to:
• collect taxes owed but not paid;
• improve the allocation of Federal credit;
• sell loan assets where appropriate;
• shift to the private sector the production of certain goods and
services; and
• charge reasonable user fees for Federal programs that deliver
services to identifiable beneficiaries.
Governmental Receipts.—Thanks to the support of the American
people and a bipartisan coalition in the Congress, one of the most
sweeping tax bills in this Nation’s history became law last year.
With the enactment of the Tax Reform Act of 1986, the Nation
now has the lowest marginal tax rates and the most modern tax
code of any major industrialized country.
Having come this far, tax reform must not be undone with tax
rate increases. The President believes firmly that certainty must be
restored to the tax code and the economy, and has pledged to
oppose any attempt to raise taxes. In keeping with this pledge, the
receipt changes proposed in this budget are limited to initiatives to
collect taxes owed but not paid, increased user charges for Federal
services, and trust fund reforms. Together, these changes are esti
mated to increase receipts $6.1 billion in 1988, resulting in total
receipts in 1988 of $916.6 billion. The major changes being proposed
are discussed in Part 4, “Federal Receipts By Source.”
Credit Reform.—The administration proposes to change the way
Federal credit programs are treated in the budget. The proposal
would charge the true economic cost of credit—the present value of
the subsidy—to any agency making or guaranteeing loans. Adop
BUDGET SUMMARY AND PRIORITIES
2-37
tion of this proposal would be a significant improvement over
current practice. It would:
• accurately and equitably measure the benefits of Federal
credit programs;
• encourage delivery of benefits in the form most appropriate to
the needs of beneficiaries;
• put the cost of credit programs on an expenditure basis equiv
alent to other Federal spending; and
• improve the allocation of resources among credit programs
and between credit and other spending.
Under this reform, Federal agencies would obtain appropriations
equal to the subsidy component of the direct loans and loan guar
antees they make each year. As agencies make new direct loans or
loan guarantees, they would pay the subsidy value of those loans
into a newly created central revolving fund that would be estab
lished in the Department of the Treasury. The cash disbursement
for direct loans would be recorded in the central fund; in this way,
the subsidy value of a direct loan would be evaluated and recorded
separately from its financing in the budget account of the originat
ing agency. The subsidy value of a loan guarantee would be evalu
ated and recorded directly for the first time in the budget account
of the originating agency. As a result of this process, loan guaran
tees would be put on a basis comparable to direct loans.
The central fund would oversee the sale of all direct loans for
which there are no policy or programmatic constraints to asset
sales, and it would oversee the private sector reinsurance of guar
anteed loans insofar as it is available. The subsidy cost of direct
loans sold and loan guarantees reinsured would be determined by
the actual price established by the market. Other loan subsidies
would be calculated according to the procedures already estab
lished.
Because of the limited availability of reinsurance for Federal
loans at present, the net savings from the sale of direct loans—$1.8
billion—would exceed the cost of reinsurance by an estimated $1.3
billion in 1988, reducing the deficit by this amount compared to
past accounting practices. As a private industry develops to rein
sure these guarantees, the amount of reinsurance purchased would
grow and is expected to exceed the proceeds from loan sales by
1990.
Details of this proposal and specific legislative language will be
prepared and sent to the Congress at a later date.
Other Loan Asset Sales.—The Federal Government will continue
and expand its pilot program of selling existing loan assets without
recourse—a program first proposed in the 1987 budget. These sales
are designed to achieve four main goals:
• reduce the Government’s cost of administering credit;
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THE BUDGET FOR FISCAL YEAR 1988
• provide an incentive for agencies to improve loan origination
and documentation;
• assist in determining the subsidies on Federal credit pro
grams; and
• increase budgetary offsetting receipts in the year of sale.
The sales program includes loans with a face value of $11.2
billion in 1988, which are estimated to produce offsetting receipts
of $5.3 billion. The loans will be sold from the portfolios of the
following agencies: Farmers Home Administration, Rural Electrifi
cation Administration, Small Business Administration, Department
of Housing and Urban Development, Department of Education,
Veterans Administration, Export-Import Bank, Bureau of Reclama
tion, Department of Health and Human Services, Department of
Transportation, and the Tennessee Valley Authority.
Small portfolios of terminated programs will be liquidated in
their entirety in 1 to 2 years. For larger portfolios, a sustainable
rate of sales is proposed throughout the 5-year budget horizon.
Agencies are being encouraged to hire private sector financial con
sultants to assist them in evaluating and marketing their loans.
Privatization.—Privatization is a strategy to shift the production
of goods and services from the Government to the private sector in
order to reduce Government expenditures and to take advantage of
the efficiencies that normally result when services are provided
through the competitive marketplace. Privatization is a natural
counterpart to other administration initiatives—such as federalism,
deregulation, and an improved tax system—that seek to return the
Federal Government to its proper role. Privatization can be an
important part of efforts to build a more productive America,
because the central rationale for privatizing public activities is to
enhance productivity—to get greater output from fewer inputs.
Building on the sale of Conrail, which was approved by the Con
gress last year and is expected to take place in 1987, the adminis
tration proposes in this budget a number of privatization initia
tives.
The administration’s privatization program rests on several basic
principles. The first principle is that the Government should not
compete with the private sector in supplying ordinary goods and
services. The proper role of Government is to provide goods that
are truly public in nature, such as national defense and law en
forcement, and to provide assistance in obtaining the necessities to
those who are truly in need. Candidates for privatization should
include any Government operation that sells goods or services in
competition with the private sector or that provides goods or serv
ices that could be offered by the private sector.
Once a decision is made that Government responsibility should
be reduced or terminated, there are a variety of privatization meth
BUDGET SUMMARY AND PRIORITIES
2-39
ods that can be used, depending on the circumstances. For exam
ple, Government can simply sell on-going businesses and produc
tive assets to the private sector, using a public offering, negotiated
sale, or auction. Government can reduce legal barriers to competi
tion, or otherwise scale back the operations, and thereby encourage
the development of private alternatives. Even where Government
needs to play a continuing role, private sector efficiencies can be
obtained by contracting out for the provision of commercially pro
duced goods and services, and by using vouchers to provide finan
cial help for individuals unable to pay the market price for certain
goods (e.g., housing, food, and education).
Major privatization initiatives in this year’s budget include:
Amtrak.—Following on the sale of Conrail, the administration
proposes that the Federal Government get out of the passenger rail
business by severing its financial ties to Amtrak. The budget pro
poses to terminate all Amtrak subsidies and dispose of some or all
of Amtrak’s assets, the majority of which are in the Boston-toWashington corridor, to one or more private sector companies, rail
passenger organizations, or other entities. Such transactions will be
designed to preserve viable intercity rail passenger services to the
extent economically feasible. Despite providing the only intercity
rail passenger service and a subsidy averaging $27 per passenger,
Amtrak carried less than 0.5 percent of all intercity travel in 1985.
The disposal of Amtrak’s assets will generate offsetting receipts
estimated to be $1.0 billion in 1988, which will partially repay the
more than $12 billion in Federal subsidy already paid to Amtrak.
Naval Petroleum Reserves (NPRs).—The administration proposes,
as it did last year, that the Federal Government sell the two oil
fields it operates—Elk Hills, California, and Teapot Dome, Wyo
ming.
Running an oil field is a business, not a Government activity.
Private owners can produce and market oil more efficiently and
effectively than can the Federal Government.
There is little national security reason for the Government to
retain these oil fields, which were originally set aside by President
Taft and President Wilson to fuel the Navy as it converted from
coal to oil-fired ships. In 1975, Congress decided emergency petrole
um needs could best be met by creating the strategic petroleum
reserve, which, in an emergency, can pump out oil 30 times faster
than can the NPRs. That same year, Congress also decided to start
selling NPR oil commercially.
By selling the NPRs, the Federal Government—and taxpayers—
will get a better financial return than by holding onto them. There
is no reason to delay the sale to wait for oil prices to rise: the price
potential buyers are willing to pay will reflect expectations about
2-40
THE BUDGET FOR FISCAL YEAR 1988
future oil prices, and those who are willing to bet their own money
are in a better position to gauge the validity of speculation that
prices will begin to escalate.
Selling the NPRs is estimated to reduce the deficit by $2.5 billion
in 1988 and $0.3 billion in 1989. In addition, if the assets are sold,
they will generate hundreds of millions of dollars in tax receipts
for the Treasury in future years.
Power Marketing Administrations,—The budget reproposes dives
titure of the five power marketing administrations (PMAs), which
supply 6 percent of the electricity generated in the country. These
are commercial activities, which in most areas of the country are
performed by private and other non-Federal enterprises.
The administration continues to believe that divestiture can lead
to creation of new enterprises that are more responsive to regional
and customer needs, without significant increases in power rates.
Consequently, legislation is being proposed with the budget to
study a possible divestiture of the Southeastern Power Administra
tion. Also, work will continue on the Alaska Power Administration
divestiture. Administration activities will be coordinated with Con
gress and with existing power customers, and legislative authoriza
tions will be sought when necessary. (Implementation, of course,
cannot proceed until there are necessary legislative approvals.) The
budget assumes that divestiture of the Southeastern and Alaska
Power Administrations will be authorized and implemented at the
end of 1989.
As long as the PMAs remain under Federal ownership and con
trol, it is highly appropriate that they repay the federally financed
investment on a regular, business-like basis. To assure regular
repayments, the budget proposes reforms that would require the
PMAs to repay the Federal investments on a fixed, straight-line
amortization schedule. The proposal would not increase the PMAs’
interest costs or the total Federal investment to be repaid, but
merely would ensure that annual repayments occur on a predict
able and stable schedule.
Debt repayment reform will result in near-term power rate in
creases of zero to 13.5 percent for bulk wholesale power sales. The
impact on retail power rates for residential and other customers
will be only zero to 5 percent. Home electric bills in the Pacific
Northwest, the region most affected, will increase less than $5 per
month for all-electric homes, yet the resulting monthly bills will
still be only about half of the national average.
On a long-term basis, however, the PMA power customers will
benefit from putting the PMAs on a sound financial basis. Without
reforms to require meaningful and regular repayments of princi
pal, PMA customers will experience even larger rate increases in
the longer run, resulting from higher interest costs on the growing
BUDGET SUMMARY AND PRIORITIES
2-41
debt and large “balloon” principal payments that become due in
future years. Bonneville Power Administration customers already
are paying higher power rates partly as a result of a lack of past
repayment, because their interest costs almost quadrupled over a
decade (from $89 million in 1975 to $334 million in 1985).
Auction of the Unassigned Spectrum.—The administration pro
poses to allow the use of auctions, instead of the present practice of
using hearings and lotteries, in assigning Federal Communications
Commission licenses for use of the unassigned spectrum. Auction
authority will not affect the terms of the licenses awarded and will
not apply to licenses awarded in any medium of mass communica
tions, or for public safety or amateur services. Only those licenses
for unassigned spectrum allocated for non-mass media services are
affected. Non-mass media services include 2-way common carrier
paging, common carrier cellular, private multiple address, and lowpower television.
Public auctions will capture the true value of the license and
give taxpayers a return for the use of the spectrum, which is
considered public property. Auctioning the assignments for fre
quencies is expected to generate $600 million in 1988. Hundreds of
licenses currently assigned through lotteries could be assigned
through an auction in future years.
Helium Operations.—The budget proposes an increased role for
industry in supplying helium to U.S. Government users. The pri
vate helium industry will provide purification and transportation
services to Federal helium consumers using crude helium from the
Government’s existing inventory in the Cliffside field storage reser
voir. Government-owned helium facilities and helium program
assets other than the inventory of crude helium will be offered for
sale. The Bureau of Mines will continue its helium resource assess
ment activity.
Excess Real Property.—In 1987, Federal agencies will identify
more than $800 million in excess real property for disposal. The
General Services Administration will sell this property over the
next 2 years; the receipts will help reduce the deficit.
User Fees.—Some of the services the Federal Government pro
vides are utilized by narrowly defined groups or individuals. Agen
cies should recover a portion of their costs for providing these
services through “user fees,” in which recipients of the service are
charged directly. Direct charges to users are appropriate because
those who benefit from the service pay the cost; taxpayers do not.
User fees increase efficiency of service delivery by reaching those
willing to pay. Cost-based user fees may also provide an incentive
for the private sector to provide comparable service at lower cost.
2-42
THE BUDGET FOR FISCAL YEAR 1988
The beneficiaries of the services for which the administration is
proposing new or increased fees generally consist of corporations or
the relatively affluent. Charging these groups directly avoids the
need to impose additional general taxes on lower- and middleincome citizens.
Increase Fees in the Mortgage Finance Programs of the Federal
Housing Administration (FHA) and the Government National Mort
gage Association.—The FHA enjoys certain governmental privi
leges that enable it to charge significantly lower mortgage insur
ance premiums than private insurers charge. This makes it diffi
cult for private firms to compete with FHA. Preliminary estimates
indicate that FHA may be charging 25 percent less for the same
guarantee. The administration proposes legislation to allow FHA to
increase its premium to levels on a par with those that private
insurers would have to charge to provide a comparable guarantee.
In the secondary mortgage market, Federal agencies and Govern
ment-sponsored enterprises compete directly with private mortgage
conduits. The President’s Housing Commission in 1982 concluded
that these organizations impeded the growth of private conduits
and recommended that the administration seek to privatize them.
The administration proposes to reduce the ability of the principal
Federal agency—the Government National Mortgage Association
(GNMA)—to compete with the private sector by increasing
GNMA’s guarantee fee to a level closer to that charged by private
market entities performing similar secondary mortgage market
functions.
The administration is studying ways of privatizing the Federal
National Mortgage Association (“Fannie Mae”) and the Federal
Home Loan Mortgage Corporation (“Freddie Mac”)—the major
Government-sponsored enterprises involved in the secondary mort
gage market. The administration also plans to propose legislation
that will limit permanently the maximum amount of a mortgage
these Government-sponsored enterprises can purchase. This will
limit their continued encroachment on the market served by pri
vate firms for as long as these entities enjoy the advantages con
ferred by their association with the Federal Government.
Increase Fee for Veterans Administration (VA) Home Loans.—The
VA home loan program provides a partial mortgage guaranty that
enables eligible veterans to purchase a home without a downpay
ment. The administration proposes to increase the current 1 per
cent origination fee, which expires at the end of 1987, to 2.5 per
cent. The increased fee is essential to offset costs associated with
high levels of future foreclosures, and would keep the fund solvent
while still providing subsidized mortgages to veterans. Since 1978
BUDGET SUMMARY AND PRIORITIES
2-43
the program has required $2 billion in appropriations and internal
transfers to cover costs associated with foreclosures.
Charge for Coast Guard Services.—The Coast Guard currently
provides services such as inspections, licenses, navigation aids, and
search and rescue without charge to commercial operators and
recreational boaters. The administration proposes a phased imple
mentation of fees for users of Coast Guard services, totaling $355
million in 1988 and $474 million a year thereafter. Fees for direct
services involving a transaction (e.g., issuing licenses) would be set
to recover the cost to the Coast Guard of providing the specific
service. Fees for other services would be set in proportion to the
Coast Guard’s cost of providing the availability of the services to
each class of users—recreational, commercial fishing, deep-sea com
mercial, and inland commercial. The cost of Coast Guard programs
that benefit the general public (e.g., defense preparedness, law
enforcement, and polar ice operations) would not be included in the
user fees, because they are core functions of Government that
should be paid for by all taxpayers.
Increase Recreation User Fees.—The administration again pro
poses, as it has in past years, the enactment of permanent author
ity to expand national park entrance fees. This authority will
permit the Federal Government to recover from users a greater
share of the costs of providing recreational opportunities where it
is feasible to collect fees. Although substantially higher than exist
ing charges, the proposed fees will continue to be modest. The
maximum fee to enter a single park would be $10 per vehicle, and
would entitle all occupants to admission to the park for 1 week.
Entrance fees would be priced at less than $10 for most units. The
price of the Golden Eagle Passport, which entitles all occupants of
a vehicle to enter all units of the national park system for a year,
would be increased to $40. Total revenue is expected to be $74
million in 1988, an increase of $52 million over revenue anticipated
under current law. All revenues obtained will be available for use
within the national park system without further appropriation
action. This authority will succeed the temporary 1-year fee pro
gram enacted in the 1987 appropriations bill.
Legislation will also be proposed to permit charges at many
developed sites in the national forest system. Current law prohibits
charges at many primitive and developed sites that lack certain
improvements. Revenue is anticipated to increase from $31 million
in 1987 to $52 million in 1988. The legislation would return all
receipts to the national forest system for operation and mainte
nance of recreation programs.
2-44
THE BUDGET FOR FISCAL YEAR 1988
Charge User Fees for the Food Safety and Inspection Service.—
The administration reproposes user fees for Federal meat and poul
try inspection. Federal health and safety laws require that all
slaughter and processing of meat and poultry occur under Federal
inspection and supervision. The Food Safety and Inspection Service
currently provides these services free of charge. Although the im
portance of uncontaminated meat supplies would seem to justify
continuing a strong Federal role in setting standards and supervis
ing compliance and enforcement, there is no rationale for providing
these services free. Rather, they should be a normal cost of doing
business for companies selling animal products for human con
sumption. This proposal would place the meat and poultry industry
on a par with other industries that include their quality control
and standardization activities in product costs.
The user fees would have a negligible impact on consumer prices
and would not affect enforcement of Federal health standards. Full
implementation of these charges, if completely passed on to the
consumer, would result in an average price increase of less than 0.3
cents per pound of federally inspected product. The industry would
still be subject to Federal requirements and Federal inspection, and
individual plants would be charged a fee to recover the costs of
their inspection. Collection of the fees would be separated from the
provision of services to ensure the absence of industry influence in
the setting or enforcement of safety standards. The savings expect
ed from this initiative are $361 million in 1988.
Reform Pension Benefit Guaranties.—Legislation will be proposed
to ameliorate the extremely weak financial position of the Pension
Benefit Guaranty Corporation. Despite last year’s tripling of the
premium rate charged to private pension plans and the repeal of
provisions of law that allowed employers to dump their unfunded
pension promises on the Corporation at will, the termination of
underfunded pension plans in failing companies is expected to
double the Corporation’s deficit to $4.5 billion in 1987. Cash pay
ments to retired workers will exceed the Corporation’s income,
depleting its already inadequate reserves. The proposed legislation
would permit the Corporation to charge higher premiums to those
employers who do not adequately fund their pension promises. The
current minimum funding requirements in law would be revised to
protect both the pensions expected by workers and the Corporation.
Revise User Fees for Guaranteed Student Loans.—Currently the
Government pays nearly all of the costs of borrower defaults in the
guaranteed student loan (GSL) program. These costs have mush
roomed in recent years, exceeding $1 billion in 1985 and in 1986.
GSL borrowers themselves should bear this risk; the Federal role is
BUDGET SUMMARY AND PRIORITIES
2-45
properly limited to actions that ensure the continued existence of a
strong student loan market.
The budget proposes new insurance fees on regular and supple
mental GSLs of 9 percent and 2 percent, respectively. These one
time, up-front fees are intended to generate revenues equal to the
estimated present value of the costs of defaults arising from new
loans. The current 5 percent origination fee on regular GSL loans,
intended to cover a portion of Federal interest subsidy costs, would
be eliminated.
Establish User Fees for the United States Travel and Tourism
Administration.—The administration proposes to fund from user
fees the United States Travel and Tourism Administration’s
annual budget of $12 million. Legislation will be proposed to estab
lish an international ticket-writing charge of $1 per ticket for
international travel to and from the United States, its possessions,
and its territories. The charge would be collected from airline and
cruise ship carriers, which, together with their customers, are the
primary beneficiaries of the program. Receipts collected in excess
of the level required to support the existing program will be depos
ited in the Treasury.
Increase User Fees for Commerce Products and Services.—Begin
ning in 1988, the administration proposes increasing fees for spe
cialized products and services of the Census Bureau, the National
Oceanographic and Atmospheric Administration, and the Interna
tional Trade Administration. Collections will be phased in, with
increased receipts of $18 million in 1988, rising to $38 million in
1992.
Other Revenue Changes.—The administration proposes several
revenue changes from other sources.
Strengthen the Banking Agencies and Recapitalize the Federal
Savings and Loan Insurance Corporation (FSLIC).—The adminis
tration continues to support the plan—originally proposed by the
Department of the Treasury last year and included in both House
and Senate banking bills—to recapitalize the FSLIC fund. Failure
to enact the recapitalization plan, combined with continued eco
nomic difficulties in the agriculture and energy sectors, poses a
direct short-term budget threat. Outlays by the major deposit in
surance funds are estimated to exceed previously planned levels by
$5.8 billion in 1987 (net of a change in accounting) and $4.0 billion
in 1988.
The FSLIC recapitalization plan would create a separate financ
ing facility, which would be capitalized from earnings of the Feder
al Home Loan Banks (FHLBs). The financing facility would issue
bonds without any Federal guarantee and use the proceeds to
2~46
THE BUDGET FOR FISCAL YEAR 1988
purchase FSLIC stock. FSLIC would raise between $10 billion and
$15 billion from the sale of stock over 5 years and use these
resources to accelerate its efforts to close those unprofitable and
insolvent thrifts that pose the most severe financial threat. The
additional resources from the recapitalization plan, together with
current premium income, are expected to be sufficient to enable
the Federal Home Loan Bank Board to take action to close down or
merge a large portion of those failing institutions.
Share Natural Resources Receipts on a Net Basis.—Since the
early 1900s, the Federal Government has been sharing with State
and local governments the gross receipts from mineral leasing and
timber sales on Federal lands. These payments from Federal re
ceipts added over $800 million to State and local treasuries in 1986.
The administration again proposes to deduct from gross receipts
the Federal cost of generating the natural resource receipts before
sharing them according to current formulas with State and local
governments. Current law distributes Federal “profits” that often
do not exist, and creates an incentive for State and local govern
ments to advocate unprofitable sales and uneconomic uses of Feder
al resources. After the proposed reform, State and local govern
ments would still receive about $460 million in shared Federal
receipts in 1988, while the Federal Government would save over
$350 million. The Federal program of payment-in-lieu-of-taxes,
funded at more than $100 million per year, would continue to
offset the impact of undeveloped Federal land on local property tax
bases.
SUMMARY OF TABLES
The first table in this section shows total outlays for the major
components of the budget: social security benefits; national defense;
major medical programs; other mandatory programs; programs
that provide economic subsidies and development; social programs;
general government programs; and net interest. The next table
summarizes the deficit reduction proposals described in the sec
tions above. For each of the major categories of programmatic
changes and revenue changes, the table shows budget savings rela
tive to a current services level. The current services level is a
measure of the budget outlook assuming no changes in policy.
Current services estimates are based on an assumption that exist
ing laws and programs will simply be carried forward, adjusted
only for inflation and other anticipated relatively uncontrollable
changes such as increases in the number of beneficiaries.
2-47
BUDGET SUMMARY AND PRIORITIES
MAJOR COMPONENTS OF THE BUDGET
(In billions of dollars)
Social security benefits.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
National defense.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Major medical programs.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Other mandatory.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Discretionary:
Economic subsidies and development.. .. .. .. ..
Social programs.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
General government.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, discretionary.. .. .. .. .. .. .. .. .. .. .. .. .
Net interest.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, gross Federal outlays.. .. .. .. .. .. .. .
Undistributed offsetting receipts.. .. .. .. .. .. .. .. .. ..
Total Federal outlays.. .. .. .. .. .. .. .. .. .. .. .. ..
1986
1987
1988
1989
1990
1991
1992
196.5
273.4
106.4
151.9
205.5
282.2
111.2
156.3
216.9
297.6
112.3
144.5
230.0
312.2
122.1
143.4
244.4
330.0
130.8
144.8
259.1
349.5
140.7
146.8
273.2
370.9
151.2
148.3
84.5 81.3 80.9 82.2 82.3 79.8 79.9
45.4 46.6 44.4 45.0 44.8 45.2 44.6
28.7 32.1 34.1 38.3 40.2 42.6 44.5
158.7 160.0 159.4 165.4 167.4 167.6 169.0
136.0 137.5 139.0 141.5 139.0 134.8 122.1
1,022.8 1,052.7 1,069.7 1,114.7 1,156.3 1,198.5 1,234.6
-33.0 -37.1 -45.4 -45.8 -48.5 -54.0 -55.6
989.8 1,015.6 1,024.3 1,069.0 1,107.8 1,144.4 1,178.9
SUMMARY OF DEFICIT REDUCTIONS
(Change from current services, in billions of dollars)
1987
1988
1989
1990
1991
1992
Programmatic changes:
Major medical programs.. .. .. .. .. .. .. .. .. .
Other mandatory.. .. .. .. .. .. .. .. .. .. .. .. .. ..
Nondefense discretionary:
Economic subsidies and development..
Social programs.. .. .. .. .. .. .. .. .. .. .. .. .
General government.. .. .. .. .. .. .. .. .. ..
Subtotal, nondefense discretionary..
Subtotal, programmatic changes....
-0.1
-0.1
-6.7
-3.4
-7.7
-8.2
-10.0
-11.4
-11.8
-13.1
-13.9
-13.9
-1.3
-0.5
1.1
-0.7
-0.9
-4.6
-4.5
0.5
-8.6
-18.7
-10.7
-7.5
3.2
-15.0
-30.8
-11.9
-10.0
2.5
-19.3
-40.8
-15.0
-11.3
2.1
-24.2
-49.1
-16.2
-12.5
1.5
-27.3
-55.1
-0.1
-8.0
-0.6
-1.7
-3.7
-3.5
-2.6
-20.1
-3.2
-8.6
0.9
-0.8
-3.8
-3.6
-3.6
-19.5
-6.0
-8.8
2.2
-0.3
-6.5
-3.7
-4.3
-21.5
-9.3
-8.9
3.6
_*
-5.3
-3.8
-6.7
-21.2
-14.3
-54.2
-66.2
-79.9
-90.6
Revenue changes:
Governmental receipts1.. .. .. .. .. .. .. .. .. .
Credit reform.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Other loan asset sales.. .. .. .. .. .. .. .. .. .. .
Privatization.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
User fees.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Other revenue changes.. .. .. .. .. .. .. .. .. ..
Subtotal, revenue changes.. .. .. .. .. .. .
Interest.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
-0.4
_*
-6.1
-1.3
-4.2
-5.4
-3.2
-2.1
-22.4
-1.3
Total deficit reductions.. .. .. .. .. .. .. .
-1.3
-42.4
-0.1
-0.3
*$50 million or less.
1 For additional details, see Part 4, "Federal Receipts by Source”, and Special Analysis A, “Current Services Estimates.”
The administration proposes to reduce the 1988 deficit by $42.4
billion below the current services level. Nearly 56 percent of these
reductions are a result of the various revenue changes discussed
above, and lower interest. Only 44 percent of the reductions are a
result of programmatic changes. Even after these proposed reduc
tions, outlays for many programs will increase between 1987 and
2-48
THE BUDGET FOR FISCAL YEAR 1988
1988. The next table provides additional detail on the dollar
amounts of proposed changes in specific programs. The last table
shows that of the $42.4 billion in reductions, $12.8 billion results
from privatization and other proposed terminations.
PROPOSED DEFICIT REDUCTIONS
(Change from current services, in billions of dollars)
1987
1988
1989
1990
1991
1992
Programmatic changes:
Major medical:
Medicare.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Medicaid.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Veterans medical care.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Federal employees health benefits.. .. .. .. .. .. .. .. ..
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, major medical.. .. .. .. .. .. .. .. .. .. .. .. ..
Other mandatory:
Farm price supports.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Federal retirement systems.. .. .. .. .. .. .. .. .. .. .. .. .
Child nutrition.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Family support payments.. .. .. .. .. .. .. .. .. .. .. .. .. ..
Food stamps.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, other mandatory.. .. .. .. .. .. .. .. .. .. ..
Nondefense Discretionary:
Economic subsidies and development:.. .. .. .. .. .. .. .. .
Rural Electrification Administration.. .. .. .. .. .. .. ..
Natural resources and environment.. .. .. .. .. .. .. ..
Rural housing insurance fund.. .. .. .. .. .. .. .. .. .. .. .
Rural development insurance fund.. .. .. .. .. .. .. .. .
Subsidized housing.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, economic subsidies and development..
Social programs:
Student financial assistance.. .. .. .. .. .. .. .. .. .. .. .. .
Other education.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Low income home energy assistance.. .. .. .. .. .. ..
National Institutes of Health.. .. .. .. .. .. .. .. .. .. .. ..
Legal Services Corporation.. .. .. .. .. .. .. .. .. .. .. .. ..
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, social programs.. .. .. .. .. .. .. .. .. .. .. ..
General government:
IRS enforcement.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Department of Justice.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Conduct of foreign affairs.. .. .. .. .. .. .. .. .. .. .. .. .. .
Public Law 480 food aid.. .. .. .. .. .. .. .. .. .. .. .. .. ..
Federal supply service.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Export-Import Bank.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, general government.. .. .. .. .. .. .. .. .. .
Subtotal, programmatic changes.. .. .. .. .. .. .. ..
_*
-0.1
_*
-0.1
-0.1
*
-0.1
-0.2
-0.2
-0.8
_*
-0.1
-1.3
-0.2
♦
-0.2
-0.1
-0.5
-4.6
-1.4
-0.1
-0.5
-0.1
-6.7
-4.0 -5.1 -5.6 -6.3
-3.0 -4.0 -5.2 -6.6
_* -0.1 -0.1 -0.1
-0.6 -0.7 -0.8 -0.8
-0.1 -0.2 -0.2 -0.2
-7.7 -10.0 -11.8 -13.9
0.5
-1.5
-0.8
-0.6
-0.3
-0.8
-3.4
-3.5 -6.1 -6.9 -6.9
-1.7 -1.9 -2.1 -2.2
-0.9 -1.0 -1.1 -1.1
-0.6 -0.5 -0.6 -0.9
-0.3 -0.2 -0.1 -0.1
-1.2 -1.8 -2.3 -2.7
-8.2 -11.4 -13.1 -13.9
-1.5 -1.8 -2.1 -3.3 -3.9
-1.1 -1.6 -1.8 -2.1 -2.3
-0.8 -1.4 -1.5 -1.7 -1.8
-0.5 -1.6 -0.3 -0.3 -0.4
-0.3 -0.6 -1.2 -1.9 -1.9
-0.4 -3.6 -4.9 -5.8 -6.0
-4.6 -10.7 -11.9 -15.0 -16.2
-1.8
-1.1
-0.6
-0.5
-0.3
-0.3
-4.5
-3.7 -4.5 -4.9 -5.3
-1.9 -2.5 -2.9 -3.2
-0.7 -0.8 -0.8 -0.9
-0.6 -0.8 -1.0 -1.1
-0.3 -0.3 -0.3 -0.3
-0.3 -1.0 -1.3 -1.6
-7.5 -10.0 -11.3 -12.5
0.5
0.5
0.6
0.4
0.6
0.4
0.4
0.3
0.5
0.6
0.6
0.5
0.4
0.5
0.4
-0.1 -0.1 -0.1 -0.2 -0.2
-0.2 -0.2 -0.2 -0.2 -0.2
*
0.2
0.1
0.1
-0.4
0.2
0.9
1.3
0.7 -0.2
1.9
2.1
1.5
3.2
2.5
1.1
0.5
-0.9 -18.7 -30.8 -40.8 -49.1 -55.1
0.1
0.1
0.2
2-49
BUDGET SUMMARY AND PRIORITIES
PROPOSED DEFICIT REDUCTIONS—Continued
(Change from current services, in billions of dollars)
Revenue changes:
Governmental receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Credit reform.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Other loan asset sales.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Privatization:
Amtrak sale and grant termination.. .. .. .. .. .. .. ..
Sale of NPRs.. .. 5... .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Sale of PMAs.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Auction of the unassigned spectrum.. .. .. .. .. .. .. .
GSA real property sales.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Terminate crop insurance.. .. .. .. .. .. .. .. .. .. .. .. .. .
Health professions training subsidies.. .. .. .. .. .. ..
Subtotal, privatization.. .. .. .. .. .. .. .. .. .. .. .. .. ..
User fees:
Credit fees.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Other user fees.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, user fees.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Other revenue changes:
FSUC.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Medicare premium increase.. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, other revenue changes.. .. .. .. .. .. .. .
Subtotal, revenue changes.. .. .. .. .. .. .. .. .. .. .. .
Interest.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . ... .. .. .
Total deficit reductions.. .. .. .. .. .. .. .. .. .. .. ..
*$50 million or less.
1987
1988
1989
1990
1991
1992
-0.1
-6.1
-1.3
-4.2
-8.0
-0.6
-1.7
-8.6
0.9
-0.8
-8.8
2.2
-0.3
-8.9
3.6
_*
-1.6
-2.5
-0.6
-0.3
-1.8
-0.7
0.5
-2.6
-0.7
0.7
-5.4
-0.7
0.6
-4.0
-0.6
-0.3
-0.2
-0.2
-5.4
-0.4
-0.5
— 0.2
-3.7
-0.2
-0.6
-0.2
-3.8
-0.2
-0.7
-0.2
-6.5
-0.2
-0.8
-0.2
-5.3
-1.6
-1.7
-3.2
-1.6
-1.9
-3.5
-1.7
-1.9
-3.6
-1.8
-1.9
-3.7
-1.9
-1.9
-3.8
-0.1
-0.1
-0.3
_*
-0.3
0.1 -0.9
-1.6 -0.8 -0.5
-0.6 -1.8 -3.1 -4.4 -5.8
-2.1 -2.6 -3.6 -4.3 -6.7
-0.4 -22.4 -20.1 -19.5 -21.5 -21.2
_* -1.3 -3.2 -6.0 -9.3 -14.3
-1.3 -42.4 -54.2 -66.2 -79.9 -90.6
2-50
THE BUDGET FOR FISCAL YEAR 1988
PROPOSED PHASE-OUTS AND TERMINATIONS
(Outlays, in millions of dollars)
Current
services
1987
Savings from current services
1988
1989
1990
Privatization:
Amtrak sale and grant termination.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Naval petroleum reserves.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Power marketing administrations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Auction of the unassigned spectrum.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
GSA real property sales.. .. .. .. .. .. .. .. .. .. .. .. . .. .. .. .. .. .. .. .. .. .
Crop insurance.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Health professions training subsidies.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, privatization.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
640
-442
-501
-1,617
-2,500
-640
-274
-1,756
-662
518
-2,631
-250
637
232
316
-600
-305
-178
-186
-5,386
-353
-471
-188
-3,682
-213
-627
-201
-3,816
-2,162
-776
-344
-276
-69
-14
—2
-1
-485
-2,266
-1,395
-473
-392
-92
-39
-3
-1
-1,589
-2,267
-1,530
-438
-464
-104
-70
-3
-1
-279
-60
-3
-6
-44
-11
-130
-184
-11
-68
-6
-12
-81
-1
-10
-23
-97
19
-71
-73
-126
-47
-311
-133
-84
-106
-52
-9
-12
-219
-9
-27
-406
-10
-39
-90
-39
-230
-45
-390
-50
-523
-35
-12
-11
-9
-5,156
-564
-46
-13
-3
-29
-7,967
-582
-51
-13
-61
-7,670
7
48
-6
-41
-8
-53
-8
-56
2
941
-38
-312
-49
-749
-53
-914
Economic Subsidies and Development:
Department of Agriculture:
Rural electrification loans.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . -35
Rural housing insurance fund.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 2,999
Telephone Bank.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
-5
Conservation programs.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
599
Extension Service categorical grants.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
332
Rural water and waste disposal grants.. .. .. .. .. .. .. .. .. .. .. .. .. .
168
Office of Transportation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
2
Marketing payments to States.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
2
Rural development insurance fund.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 1,023
Department of Commerce:
Economic Development Administration.. .. .. .. .. .. .. .. .. .. .. .. .. ..
358
Trade adjustment assistance.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
12
National undersea research program.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
11
Coastal zone management and sea grants.. .. .. .. .. .. .. .. .. .. .. .
80
Public telecommunications facilities.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
21
Department of Housing and Urban Development:
Categorical housing programs.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
515
Urban development action grants.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
440
Rehabilitation loans.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
25
Housing development action grants.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
157
Department of Transportation:
Mass transit discretionary grants.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
898
State maritime schools.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
8
Miscellaneous highway projects.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
115
Environmental Protection Agency:
Sewage construction grants.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . 2,610
Asbestos-in-schools loans/grants.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
15
Other Agencies:
Postal subsidy.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
729
Interstate Commerce Commission.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
46
TVA economic development programs.. .. .. .. .. .. .. .. .. .. .. .. .. ..
12
Communication technology satellite.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
75
Appalachian Regional Development Commission.. .. .. .. .. .. .. .. .
143
Subtotal, economic subsidies and development.. .. .. .. .. .. .. . 11,355
Social Programs:
Department of Education:
Compensatory education (HEP & CAMP).. .. .. .. .. .. .. .. .. .. .. .. .
Several elementary and secondary programs.. .. .. .. .. .. .. .. .. .. .
Education for the handicapped (grants for infants and
families).. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Vocational education.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
2-51
BUDGET SUMMARY AND PRIORITIES
PROPOSED PHASE-OUTS AND TERMINATIONS—Continued
(Outlays, in millions of dollars)
Current
services
1987
Immigrant and refugee education.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Several higher education programs.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Several student aid programs.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Library grants.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Other Agencies:
Legal Services Corporation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Community services block grant.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Subtotal, social programs.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Savings from current services
1988
1989
1990
22
124
1,161
200
-23
-80
-1,239
-55
-44
-94
-1,321
-100
-48
-96
-1,367
-139
303
368
3,176
-276
-54
-2,124
-323
-127
-2,868
-333
-220
-3,234
267
-118
-259
-375
-12,784
-14,776
-15,095
General Government:
Justice assistance grants.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Total.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
15,114
PART 3
THE ECONOMIC OUTLOOK
AND FEDERAL INVESTMENT
3-1
THE ECONOMIC OUTLOOK
AND FEDERAL INVESTMENT
This part of the budget supplement has 3 sections. The first
reviews the economic assumptions underlying the 1988 budget esti
mates. The second discusses the Federal Government’s financial
investments, its role in credit markets, and the administration’s
credit reform initiatives. The third section highlights the Federal
Government’s investment in physical assets.
3-2
Part 3a
THE ECONOMIC OUTLOOK
This section begins by reviewing the economic developments of
1986, explains why they differed from forecasts made a year ago,
and shows the effect of this divergence on the 1986 budget deficit.
This is followed by a discussion of why the expansion is expected to
continue. The next subsection describes the economic assumptions
and compares them with last year’s. The final subsection reviews
the sensitivity of the budget to changes in economic assumptions.
In this section, annual statistics refer to calendar years, rather
than fiscal years.
Economic Developments in 1986—A year ago, there was a broad
consensus among economic forecasters that the economic expan
sion, then beginning its fourth year, would continue. Real GNP
growth was anticipated to rise to between 3 and 4 percent on a
fourth-quarter to fourth-quarter basis. The administration’s fore
cast was at the upper end of this narrow range. Little further
progress was expected by most observers toward reducing inflation
or lowering interest rates, although the administration assumed
such progress would resume in later years.
Instead, real economic growth continued at the moderate 2%
percent rate that began in mid-1984. At the same time, inflation
and interest rates were also lower than predicted. Indeed, by late
1986, interest rates had returned to their lowest levels since 1978.
For several reasons, growth was lower than expected during
1986. First, and perhaps most important, was the decline in net
exports, which, in accounting terms, cut about % percentage point
from real GNP growth. Had U.S. output managed to keep pace
with the growth of domestic demand, it would have increased 3%
percent instead of 2% percent. This calculation is somewhat mis
leading, however, because one of the factors sustaining the healthy
growth in U.S. domestic demand throughout the expansion has
been strong consumer spending on goods and services (including
housing) resulting from higher real disposable income and the
surge in consumer real net worth.
A strong dollar contributed greatly to these developments during
the early phase of the expansion. Last year, real incomes and net
worth were boosted partly by the sharp fall in oil prices and the
associated decline in inflation and interest rates. Lower domestic
3a-l
3a-2
THE BUDGET FOR FISCAL YEAR 1988
Economic Forecasts tor 1986
Real GNP
GNP Deflator
Congmswi Socfeet CMSss* W Samsrtfe W BodsM
Cteffcafc fW WearcUS,
?s$7-«; B&»*¥&$£
£W Beswo
W axaewer Wmy W fcoosessus of SO private forecasts}.i
Source; OMB,
interest rates were made possible by the massive inflow of capital
from abroad, the counterpart of the trade deficit. Reduced inflation
and interest rates have contributed to stock and bond market
rallies that boosted consumer wealth.
A second reason for lower growth was the negative effects of the
sharp drop in oil prices on domestic oil producers, the industries
that supply them, and the regions in which they are located. The
refiner’s acquisition cost of a barrel of crude oil averaged less than
$15 last year, compared with about $27 in 1985. Few had anticipat
ed such a large decline. The oil price drop led to drastic reductions
in drilling activity, as well as to other investment cutbacks in
energy related sectors of the economy. Although over time the
effects of lower oil prices will be positive for the economy, shortrun disruptions in the energy sector offset these favorable effects
last year.
Lower energy prices were the principal reason for the betterthan-expected inflation performance. The GNP deflator rose only
2.2 percent last year,1 1% percentage points below the consensus
forecast, and the consumer price index (CPI) increased just 1 per1 This is less than the 2.6 percent shown on p. 3a-6, which represents a forecast made before fourth quarter
GNP data was available.
THE ECONOMIC OUTLOOK
3a-3
cent. The CPI includes the prices of imported consumer goods that
are excluded from GNP, so it tends to rise less than the GNP
deflator when import prices are falling, as they were last year due
to the oil price decline. Instead of seeing the inflation rate go up
slightly, as was widely expected, 1986 turned in the best inflation
performance in nearly a quarter century.
A third reason for lower real growth was the weakness in real
business fixed investment. A combination of events has temporarily
stalled the rapid rate of capital formation maintained since the
beginning of the expansion. In addition to the oil price decline, the
prolonged deliberations on the tax reform legislation caused some
capital spending to be postponed or cut back. Tax reform eliminat
ed the investment tax credit, as well as some of the tax advantages
for commercial real estate. The gains in economic efficiency from
these changes in the law will eventually outweigh their near-term
effects on investment and real GNP, but last year they had a
temporarily depressing effect.
Although the economy did not perform as well as many had
hoped, 1986 was nonetheless a good year. Almost 2.5 million jobs
were added in 1986, bringing the total in this expansion to 12.7
million. Real per capita disposable personal income gained 2.1 per
cent last year, and 10.1 percent since the beginning of the expan
sion 4 years ago.
The combination of slow growth and low inflation contributed to
the lower-than-expected interest rates. Although the deficit rose
somewhat last year, the long-term budget outlook improved as
actions were taken that will hold nominal spending growth to 2.6
percent in fiscal year 1987. Monetary policy attempted to follow a
carefully balanced course, providing liquidity without excessive
stimulation. Eventually, however, the Federal Reserve will have to
rein in the growth of the monetary aggregates if the disinflation
ary trend is to continue. By the fourth quarter, the Treasury bill
rate was just 5.3 percent, P/2 to 2 percentage points below the
forecasts of a year earlier. The long-term corporate bond rate was
8.7 percent, the lowest rate in almost 9 years—V2 percentage point
below the administration’s January forecast, and P/i percentage
points below the Blue Chip consensus forecast. As interest rates
were falling, stock prices were rising. By year’s end, the Dow-Jones
Industrial average was up 27 percent.
Declining interest rates, rising equity prices, and falling oil
prices helped spur consumer spending Total personal consumption
expenditures were up 4.0 percent in real terms, while expenditures
on consumer durables rose even faster—7.3 percent. Consumer con
fidence remains high. Lower interest rates also stimulated a resur
gence in the housing market. Sales of new and existing homes last
year were at the highest level since 1979, as were single-family
3a-4
THE BUDGET FOR FISCAL YEAR 1988
housing starts. Multifamily starts were not as strong, especially in
the last half of the year, due to the effect of changes in the new tax
law.
Although the economy’s performance last year differed in impor
tant respects from the forecast used to estimate the 1986 budget,
this divergence accounted for only a small part of the larger-thanexpected deficit. Last year’s budget estimated the 1986 deficit at
$202.8 billion; the actual figure was $220.7 billion. Of the nearly
$18 billion increase, only $5.3 billion was due to unexpected eco
nomic developments. The failure of the economy to grow as rapidly
as expected was largely offset by the favorable effects of lowerthan-expected interest rates. The remaining $12.7 billion reflects
policy and technical differences unrelated to the economic assump
tions. (For details of how 1986 actual receipts and outlays differed
from the original budget estimates made 2 years ago, see Part 6a of
this budget supplement.)
Economic Assumptions.—The economic and finanical develop
ments of last year—continued moderate GNP growth coupled with
declining inflation and interest rates—have strengthened the foun
dation for noninflationary future growth. The resource constraints
and capacity shortages that usually put upward pressure on prices
at this stage of a business expansion are absent. The rate of capac
ity utilization is only 79 percent, well below the 83-85 percent rate
that often in the past has been associated with an acceleration in
the rate of inflation. Despite a healthy increase in the number of
jobs, the civilian unemployment rate has hovered around 7 percent
since mid-1984, well above the 5V2 percent rate at which labor
shortages might be expected to slow output growth and put upward
pressure on wages and prices.
The disinflationary trend that has marked the expansion so far
should resume, after an expected rebound from the oil-price-depressed 1 percent 1986 rate to the 3% percent rate of 1983-1985.
Previous postwar expansions were often cut short when mounting
inflation led to a tightening of monetary policy. With disinflation
continuing, there is little risk that the current recovery will be
brought to an end in this manner.
The Outlook for 1987-1988.—The current expansion is already
the second longest peacetime expansion in the postwar period, but
it has proceeded in two distinct phases. The first phase was one of
very rapid growth, averaging 6.8 percent a year. This was followed
by a second phase of more moderate growth beginning in mid-1984.
The economy is now about to enter a third phase in which growth
should gather strength. Real GNP is projected to grow about 3 Vi
percent this year, rising to 3% percent in 1988.
THE ECONOMIC OUTLOOK
3a-5
A likely improvement in the merchandise trade balance, result
ing from the 35 percent fall in the value of the dollar relative to
other major currencies since February 1985, is the main factor
arguing for a pickup in real GNP growth in 1987-1988. As already
indicated, the deterioration in U.S. net exports has been a drag on
the economy in recent years. That deterioration can be traced, in
large part, to the marked dollar appreciation during the first half
of the decade. Sluggish economic growth in the other industrial
countries, as well as the adjustment problems of Mexico and the
other LDC debtors, have also hampered American efforts to in
crease exports.
As the dollar rose, American industry found it increasingly diffi
cult to match the prices of its foreign competitors, either in over
seas markets or here in the United States, despite the progress
that was made toward holding down U.S. production costs. Manu
facturing productivity rose sharply, while wages were restrained.
Yet this was not enough to offset the advantage foreign products
received from the rising dollar.
During the past 2 years, however, other currencies have appreci
ated sharply relative to the dollar and by the end of 1986, about 70
percent of the dollar’s earlier runup had been reversed. Despite
this, improvement in the trade balance has been minimal to date.
The lag between the changing exchange rate and its effect on trade
flows has proven to be much longer than originally anticipated.
Initially, following the dollar’s peak in February 1985, importers
were able to absorb the fall in the dollar without raising prices by
reducing their profit margins, thus protecting their newly won
share of the U.S. market. More recently, the falling dollar is finally
having an effect on the prices of most imported commodities aside
from oil. Between September 1985 and September 1986, nonoil
import prices rose by 10.2 percent, with even larger increases for
automobiles and transportation equipment. At the same time, U.S.
export prices fell by 1.5 percent. Although the effects of this shift
in relative prices have yet to be reflected in the trade data, this is
likely to change in 1987. A slowdown in import growth, an increase
in exports, and an improvement in real net exports should add
significantly to real GNP growth.
While the turnaround in net exports is the main reason for
expecting a faster rate of growth in 1987-1988, inventory accumu
lation should also contribute to this acceleration. Inventory stocks
are generally lean. The improvement in net exports should encour
age manufacturers to add to inventories as sales improve. The
needed inventory build-up could add % percentage point to GNP
growth during 1987.
Other factors, however, may work to constrain growth, especially
in the first half of this year. Some deceleration in real consumer
3a-6
THE BUDGET FOR FISCAL YEAR 1988
SHORT-RANGE ECONOMIC FORECAST
(Calendar years; dollar amounts in billions)
Item
Forecast
Actual
1985
1986 6
1987
1988
Major economic indicators:
Gross national product, percent change, fourth quarter over
fourth quarter:
Current dollars.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Constant (1982) dollars.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
GNP deflator (percent change, fourth quarter over fourth
quarter).. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Consumer Price Index (percent change, fourth quarter over
fourth quarter) 1.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Unemployment rate (percent, fourth quarter)2.. .. .. .. .. .. .. ..
6.3
2.9
5.4
2.7
6.9
3.2
7.3
3.7
3.3
2.6
3.6
3.5
3.3
6.9
0.9
6.9
3.8
6.5
3.6
6.2
3,998
6.2
4,218
5.5
4,493
6.5
4,816
7.2
3,585
2.7
3,681
2.7
3,794
3.1
3,928
3.5
3,314
1,966
223
3,493
2,075
240
3,700
2,210
309
3,941
2,371
341
111.5
3.4
114.6
2.8
118.4
3.3
122.6
3.5
318.5
3.5
323.4
1.6
333.1
3.0
345.2
3.6
7.1
2.8
6.9
2.8
6.7
2.6
6.3
2.4
6.0
7.7
3.0
3.0
5.4
6.7
4.0
2.0
5.6
6.6
Annual economic assumptions:
Gross national product:
Current dollars:
Amount.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Percent change, year over year.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Constant (1982) dollars:
Amount.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Percent change, year over year.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Incomes:
Personal income.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Wages and salaries.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Corporate profits before tax.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Price level:
GNP deflator:
Level (1982=100), annual average.. .. .. .. .. .. .. .. .. .. ..
Percent change, year over year.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Consumer Price Index:1
Level (1967=100), annual average.. .. .. .. .. .. .. .. .. .. ..
Percent change, year over year.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Unemployment rates:
Total, annual average2.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Insured, annual average3.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Federal pay raises, January (percent):
Military 4.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Civilian.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Interest rate, 91-day Treasury bills (percent)5.. .. .. .. .. .. .. ..
Interest rate, 10-year Treasury notes (percent).. .. .. .. .. .. .. ..
7.0
3.5
7.5
10.6
1 CPI for urban wage earners and clerical workers. Two versions of the CPI are now published. The index shown here is that currently used,
as required by law, in calculating automatic cost-of-living increases for indexed Federal programs.
2 Percent of total labor force, including armed forces residing in the U.S.
3 Unemployment under State regular unemployment insurance as a percentage of covered employment under the program; does not include recip
ients of extended benefits under the program.
4 Two military pay raises occurred in calendar year 1985: 4 percent in January and 3 percent in October.
5 Average rate on new issues within period, on a bank discount basis.
6 Data released after the January 5th transmittal of the budget indicate a preliminary actual for 1986 GNP of $4,208 billion in current dollars
and $3,677 billion in constant dollars. The GNP deflator is 114.5; the CPI is unchanged. The fourth quarter unemployment rate is 6.7 percent.
spending is likely this year. The beneficial effects of lower oil
prices on consumption have largely been realized, and households
are likely to try to boost saving rates to more normal levels. The
saving rate stood at a relatively low 2% percent in the final quar
ter of last year. Furthermore, it is likely that investment in both
nonresidential structures and multifamily housing units will con
tinue to be adversely affected by high vacancy rates and the transi
tion to the new tax law.
3a-7
THE ECONOMIC OUTLOOK
LONG-RANGE ECONOMIC ASSUMPTIONS
(Calendar years; dollar amounts in billions)
Item
Assumptions
1990
1989
1992
1991
Major economic indicators:
Gross national product, percent change, fourth quarter
over fourth quarter:
Current dollars.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Constant (1982) dollars.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
GNP deflator (percent change, fourth quarter over
fourth quarter).. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Consumer Price Index (percent change, fourth quarter
over fourth quarter) 1.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Unemployment rate (percent, fourth quarter)2.. .. .. .. ..
7.2
3.6
6.8
3.6
6.3
3.5
5.4
3.3
3.5
3.0
2.7
2.0
3.5
5.9
3.0
5.7
2.6
5.5
2.0
5.5
5,165
7.3
5,524
6.9
5,879
6.4
6,214
5.7
4,071
3.6
4,218
3.6
4,367
3.5
4,514
3.4
4,201
2,546
377
4,452
2,716
411
4,703
2,885
444
4,959
3,057
459
126.9
3.5
131.0
3.2
134.6
2.8
137.7
2.3
357.4
3.6
369.0
3.2
379.1
2.8
387.5
2.2
6.0
2.3
5.8
2.2
5.6
2.0
5.5
2.0
4.3
3.0
5.3
6.1
4.6
3.0
4.7
5.5
4.5
3.0
4.2
5.0
4.2
3.0
3.6
4.5
Annual economic assumptions:
Gross national product:
Current dollars:
Amount.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Percent change, year over year.. .. .. .. .. .. .. .. .. .. .. .
Constant (1982) dollars:
Amount.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Percent change, year over year.. .. .. .. .. .. .. .. .. .. .. .
Incomes:
Personal income.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Wages and salaries.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Corporate profits before tax.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Price level:
GNP deflator:
Level (1982=100), annual average.. .. .. .. .. .. .. ..
Percent change, year over year.. .. .. .. .. .. .. .. .. .. .. .
Consumer Price Index:1
Level (1967=100), annual average.. .. .. .. .. .. .. ..
Percent change, year over year.. .. .. .. .. .. .. .. .. .. .. .
Unemployment rates:
Total, annual average 2.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Insured, annual average3.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Federal pay raises, January (percent):
Military.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Civilian.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Interest rate, 91-day Treasury bills (percent) 4.. .. .. .. .. .
Interest rate, 10-year Treasury notes (percent).. .. .. .. .. .
1 CPI for urban wage earners and clerical workers. Two versions of the CPI are now published. The index shown here is that currently used,
as required by law, in calculating automatic cost-of-living increases for indexed Federal programs.
2 Percent of total labor force, including armed forces residing in the U.S.
3 Unemployment under State regular unemployment insurance as a percentage of a percentage of covered employment under that program; does
not include recipients of extended benefits under that program.
4 Average rate on new issues within period, on a bank discount basis. These projections assume, by convention, that interest rates decline with
the rate of inflation.
Some of the factors that seem likely to limit real GNP growth in
the near term should abate later this year and in 1988. Conse
quently, real GNP growth is assumed to rise to 3.7 percent in 1988.
Some increase in the rate of inflation is also expected as the effects
of the fall in oil prices dissipate and the lower exchange rate of the
dollar boosts prices of imported goods. As a consequence, inflation
during 1987-1988 is forecast to rise to about 3^2 percent. At this
3a-8
THE BUDGET FOR FISCAL YEAR 1988
rate, inflation would still be well under control. Long-term interest
rates are forecast to decline slightly over the next 2 years.
In summary, 1987 should be a good year for the economy, with
activity accelerating as the year progresses. Next year should be
even better: businesses and consumers will have adjusted to the
new tax system and the improvement in the trade balance should
be in full swing. By late 1988, another 4 ¥2 million Americans will
have found employment. The unemployment rate should be near 6
percent, its lowest level since 1979. Most importantly, inflation
should remain moderate.
The Long-Term Economic Assumptions: 1989-1992.—The long
term economic assumptions are not intended to be forecasts. They
are based on long-term trends and the implications of the adminis
tration’s policy proposals.
The underlying assumption is that economic growth will gradual
ly slow over the 1989-1992 period toward its long-run trend rate as
the unemployment rate declines to 5x/2 percent.
Inflation is assumed to decline gradually over this period, assum
ing that major unexpected shocks to costs and prices are avoided.
At present, the economy is operating somewhat below capacity.
These projections assume that it will reach more normal operating
rates only toward the end of the forecast period. The projections do
not envision any point at which the economy would experience the
pressures of excess demand. Thus, the growth assumed here should
be consistent with a continuation of disinflation. This will require
that the Federal Reserve avoid an excessive expansion in money
and credit that could push the economy across its inflationary
threshold.
Policy Changes Needed to Sustain the Recovery in the Outyears.—
As growth picks up, the economic slack that has served to restrain
inflation will gradually be eliminated. Saving will have to rise in
order to provide the extra capacity needed to sustain economic
growth once the current margin of unused capacity is eliminated.
Similarly, productivity growth will need to increase to offset a
slower pace of employment growth as the unemployment rate
ceases to decline.
The administration’s projection of sustained economic growth
assumes that the policies proposed in this budget will benefit the
economy in a number of ways. Federal spending restraint should
free resources that could be more efficiently utilized by the private
sector; particularly, cuts in Federal programs that are not essential
or that are ineffective and inefficient. Should there be insufficient
spending restraint, the long-run benefits of tax reform could be put
in jeopardy. Eventually, either interest payments on the mounting
3a-9
THE ECONOMIC OUTLOOK
COMPARISON OF FEBRUARY 1986 AND CURRENT ECONOMIC ASSUMPTIONS
(Calendar years; dollar amounts in billions)
Nominal GNP:
1986 assumptions1.. .. .. .. .. .. .. .. .. .. .. .. .. .
1987 assumptions.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Real GNP (percent change):2
1986 assumptions.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
1987 assumptions.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
GNP deflator (percent change):2
1986 assumptions.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
1987 assumptions.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Interest rate on 91-day Treasury bills (per
cent):
1986 assumptions.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
1987 assumptions.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Unemployment rate (percent):
1986 assumptions.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
1987 assumptions.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
1986
1987
1988
1989
1990
1991
4,288
4,218
4,645
4,493
5,011
4,816
5,377
5,165
5,727
5,524
6,056
5,879
4.0
2.7
4.0
3.2
4.0
3.7
3.7
3.6
3.6
3.6
3.5
3.5
3.8
2.6
4.1
3.6
3.6
3.5
3.2
3.5
2.5
3.0
2.0
2.7
7.3
6.0
6.5
5.4
5.6
5.6
4.8
5.3
4.3
4.7
4.0
4.2
6.7
6.9
6.5
6.7
6.3
6.3
6.1
6.0
5.8
5.8
5.6
5.6
1 Adjusted for July 1986 revisions.
2 Fourth quarter to fourth quarter.
debt must cut severely into other Federal spending priorities, taxes
must be indirectly raised by rising inflation, or tax rates must
increase, any of which would destroy incentives for economic
growth.
The budget and credit reforms proposed in the budget will also
help improve the Government’s efficiency. Tax reform will encour
age the more efficient use of capital, increasing the productivity of
all economic resources, including labor.
In addition to the positive steps that can be taken by the Govern
ment to enhance efficiency, it is essential to avoid the kind of
policy mistakes that, in the past, have often hampered capital
formation and productivity growth. Protectionist measures, de
signed to help special interests at the expense of the general wel
fare, must be resisted. The short-run help such protection might
provide particular interests costs the Nation as a whole far more
than it is worth. This does not apply, however, to efforts to end
unfair foreign trade practices abroad that hamper American ex
porters.
Continued efforts to reduce the Federal regulatory burden will
also help sustain the recovery. More efficient regulation can lead to
increased productivity and higher levels of real income.
Finally, the durability of the economic expansion is predicated
on the assumption that monetary policy will continue to provide
sufficient liquidity for real growth without stimulating a resur
gence of inflation. This places a large burden on the monetary
authorities to maintain a careful balance between these two objec
tives. So far in this expansion, the Federal Reserve has managed
this task successfully.
3a-10
THE BUDGET FOR FISCAL YEAR 1988
The preceding table compares the current economic assumptions
with last year’s, showing that projected nominal GNP has been
reduced by about $200 billion a year for 1988-1991.
Changes in Economic Assumptions and the Budget.—The table
below shows changes since last year’s budget in the budget outlook
for 1987-1991 resulting from actual economic performance during
calendar year 1986 and the revisions to the economic outlook for
coming years. As shown in the addendum, which separates the
budgetary effects of these two sources of change, economic perform
ance in 1986 widened the budget deficit by $13.4 billion for the
current fiscal year, 1987, and by $22.6 billion in 1991. On the other
hand, the revisions to the economic outlook for 1987-1991 have
tended to reduce the deficit by roughly similar amounts in each
year. In 1991, for example, the effects of 1986 developments add
$22.6 billion to the deficit, but the effects of changes in the econom
ic outlook almost completely offsets this, so that the 1991 deficit of
$21.3 billion is virtually identical to the deficit that would have
been estimated with the February 1986 economic assumptions.
EFFECTS ON THE BUDGET OF CHANGES IN ECONOMIC ASSUMPTIONS SINCE LAST YEAR
(Fiscal years; in billions of dollars)
Budget totals under February 1986 economic as
sumptions and January 1987 policies:
Receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Outlays.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Deficit (-).. .. .. .. .. .. .. .. .. .. .. .. .
Changes due to economic assumptions:
Receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Outlays:
Inflation and pay raises.. .. .. .. .. .. .. .. .. .
Unemployment.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Interest rates.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Interest on changes in borrowing.. .. .. ..
Total, outlays.. .. .. .. .. .. .. .. .. .. .. .. .
Increase in deficit ( + ).. .. .. .. .. ..
Budget totals under January 1987 economic as
sumptions and January 1987 policies:
Receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Outlays.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Deficit (-).. .. .. .. .. .. .. .. .. .. .. .. .
1987
1988
1989
1990
1991
865.0
1,035.4
-170.5
941.8
1,056.9
-115.2
997.6
1,094.8
-97.3
1,065,4
1,123.9
-58.5
1,131.2
1,152.4
-21.2
-22.6
-25.2
-21.4
-17.1
-8.0
-4.4
0.8
-16.7
0.5
-19.8
2.7
-16.2
0.2
-16.9
0.3
-32.6
-7.4
-17.5
0.0
-8.2
-0.1
-25.8
-4.5
-16.1
-0.3
0.5
-0.2
-16.1
1.0
-12.1
-0.1
4.4
-0.2
-8.0
0.1
842.4
1,015.6
-173.2
916.6
1,024.3
-107.8
976.2
1,069.0
-92.8
1,048.3
1,107.8
-59.5
1,123.2
1,144.4
-21.3
11.9
16.8
20.8
22.6
(-6.7)
(18.6)
-19.3
(-3.7)
(20.5)
-21.3
(-2.5)
(23.3)
-19.8
(-0.9)
(23.5)
-22.5
Addendum:
Increase in deficit ( + ) due to:
Actual 1986 economic performance.. .. ..
13.4
Of which:
Interest rates.. .. .. .. .. .. .. .. .. (-12.6)
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .
(26.0)
Change in the forecast for 1987-1991... -10.7
THE ECONOMIC OUTLOOK
3a-ll
The differences between actual 1986 performance and last year’s
assumptions include lower oil prices, lower inflation, lower interest
rates, and slower real growth. The changes in the economic outlook
for 1987-1991 reflect lower real GNP growth, especially during
1987, which lowers nominal GNP, and an upward revision to the
aggregate tax base—the sum of all income subject to personal
income and payroll taxes.
The increase in total taxable income as a share of nominal GNP
compared to what those shares were in last year’s budget is due
largely to the effects of the Tax Reform Act of 1986. First, wages
and salaries have been raised relative to nontaxable forms of com
pensation. Tax reform, by lowering marginal tax rates, reduces
incentives to shelter compensation in untaxed fringe benefits.
Moreover, businesses have increased their efforts in recent years to
control the costs of such nontaxable fringe benefits as pension
contributions and health insurance. Required pension fund contri
butions have been growing very slowly because the stock and bond
rallies have increased the value of pension fund assets.
Second, corporate pretax profits have been raised as a share of
GNP to reflect the less favorable depreciation schedules of the new
tax law and the tapering off of the effects of the earlier accelerated
depreciation schedules. Third, dividends have been increased be
cause the new lower marginal tax rates on dividends and the
higher tax rates on capital gains suggest that shareholders will
prefer that corporations distribute more of their profits rather than
retain them.
Sensitivity of the Budget to Economic Assumptions.—Both re
ceipts and outlays are significantly affected by changes in economic
conditions. This sensitivity seriously complicates budget planning
because the inevitable errors in forecasting the performance of the
economy lead to errors in the budget forecast. Since the budgetary
impacts of changes in economic assumptions are fairly predictable,
a set of rules of thumb can be useful for analysis of the budget.
For example, a 1 percentage point higher rate of inflation per
year beginning in October 1986 would raise total outlays by $40
billion on a current services basis and receipts by $52 billion by
1992. Outlays for indexed entitlement programs would be raised
$13 billion in that year, and those for nonindexed entitlement
programs that rise automatically with the rate of inflation, such as
medicare and medicaid, would be $4 billion higher. Discretionary
spending would increase by $22 billion, assuming that appropria
tions were provided through the budget process to maintain real
program levels. These effects assume that nominal GNP would
increase 1 percentage point a year reflecting the higher rate of
inflation, while real economic growth and unemployment remained
unchanged.
3a-12
THE BUDGET FOR FISCAL YEAR 1988
SENSITIVITY OF THE BUDGET TO ECONOMIC ASSUMPTIONS
(Fiscal years; in billions of dollars; current services basis)
Budget effect
1988
1
1989
1990
1991
1992
INFLATION
Sustained 1 percentage point higher rate of inflation beginning
October 1987:
Outlays, entitlements:
Indexed programs.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Non-indexed programs.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Outlays, discretionary programs:
Defense.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Nondefense.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
0.4
2.3
1.1
5.6
2.0
9.2
3.0
13.0
4.2
1.2
0.5
6.1
3.6
1.6
16.1
7.0
3.4
27.2
10.8
5.3
39.5
15.0
7.3
52.2
REAL GROWTH
Sustained 1 percentage point lower real GNP growth beginning
October 1987:
Receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
-5.6 -15.3 -26.5 -39.0 -54.5
INTEREST RATES (EFFECT ON NET INTERESD
Sustained 1 percentage point increase in interest rates begin
ning October 1987 1.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
5.7
10.9
14.3
16.6
18.5
3.8
7.0
7.1
6.8
6.6
3.8
1.8
2.4
2.0
2.6
2.0
2.7
2.0
2.9
2.0
0.5
0.5
-0.2
0.7
0.7
-0.3
0.8
0.7
-0.4
0.8
0.8
-0.4
0.8
0.8
-0.4
INTEREST COST OF HIGHER FEDERAL BORROWING
Effect of $100 billion in 1988 2.. .. .. .. .. .. .. .. .. .. .. .. .. . .... .. .. .. .
UNEMPLOYMENT RATE
One percentage point higher beginning October 1987:
Unemployment benefits.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Other unemployment-sensitive outlays.. .. .. .. .. .. .. .. .. .. .. .. .
FEDERAL PAY RAISES
Outlay effect of 1 percentage point increase (January 1988):
Military personnel.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Civilian employees.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Employer share, employee retirement.. .. .. .. .. .. .. .. .. .. .. .. ..
COMBINED EFFECTS
Effect of a sustained 1 percentage point higher annual rate of
inflation (and interest rates) beginning October 1987:
52.2
39.5
27.2
Change in receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
6.1
16.1
46.4
60.0
20.2
33.3
8.2
Change in outlays.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
7.8
6.9
6.2
4.1
2.1
Increase in deficit (+).. .. .. .. .. .. .. .. .. .. .. .. .. .
1.4 -0.5 -1.4
2.1
1.6
1% higher rates during FY 1988 only, increase in deficit ( + )...
Effect of a sustained 1 percentage point lower annual rate of
real growth, with higher unemployment, beginning October
1987:
Change in receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . -5.6 -15.3 -26.5 -39.0 -54.5
8.4
18.3
13.1
3.8
1.0
Change in outlays.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
72.7
52.1
34.9
Increase in deficit (+).. .. .. .. .. .. .. .. .. .. .. .. .. .
6.6
19.1
17.1
15.2
12.2
6.6
14.0
1% lower growth during FY 1988 only, increase in deficit ( + ).
1 Omits increase in receipts due to higher Federal Reserve System deposits of earnings.
2 Includes subsequent interest on borrowing incurred to pay for previous costs.
Higher inflation is likely to affect other economic factors that
influence the deficit, such as interest rates and Federal pay. The
THE ECONOMIC OUTLOOK
3a-13
direct and indirect effects of a 1 percentage point higher rate of
inflation per year beginning October 1987 are shown on a current
services basis in the lower part of the accompanying table. Note
that the effects of the higher inflation rate on outlays and receipts
are roughly offsetting and the net effect on the deficit is compara
tively small.
The second set of figures shows the impact of a rate of real and
nominal economic growth one percentage point lower per year
than in the budget for the 1988-1992 period. By 1992, the budget
deficit would be $73 billion higher. Inflation and interest rates are
assumed to be unchanged, but the unemployment rate is assumed
to rise by 1 percentage point for each 2 percentage points that the
level of real GNP falls below its base path. Outlay effects include
the interest costs due to the increased deficit. From this analysis, it
is clear that, while the budget is relatively immune to fluctuations
in the inflation rate, threats to the economy’s real growth potential
are also serious threats to progress on the deficit.
The direct and indirect effects of 1 percentage point higher infla
tion and interest rates or lower real growth for one year only,
beginning in October 1987, are also shown in the lower part of the
table. The impacts are much smaller in these cases since the differ
ence from the assumed inflation, interest, and real growth rates
occurs in only 1 year. After 1988, the effects shown are the outyear
impacts of a price level/real GNP level permanently 1 percentage
point higher/lower than in the base case.
The effects of changes in economic assumptions in the opposite
direction are approximately symmetric. The impact of a 1 percent
age point lower inflation or higher real growth would be of about
the same magnitude as shown, but of opposite sign.
These rules of thumb ignore possible changes in the assumed
income share composition of GNP that would be likely to accompa
ny any changes in real growth, inflation, or interest rates. Because
different income components are subject to different taxes and tax
rates, estimates of total receipts can be affected significantly by
changing the income shares. These relationships are too complex,
however, to reduce to simple rules of thumb.
FEDERAL GOVERNMENT INVESTMENT
Part 3b
FEDERAL CREDIT: INVESTMENT IN FINANCIAL ASSETS
This section begins by reviewing the scope of Government credit
activities. This is followed by a description of the problem in con
trolling Federal credit, and an explanation of the credit budget and
how it tries to limit growth of direct loans and loan guarantees. It
then outlines the administration’s response to the inadequacies of
the credit budget—a proposal to reform the way credit programs
are treated in the budget. Also discussed are other administration
credit policies, including improved credit management, the sale of
existing loan assets, and credit program user fees. It finally ana
lyzes the allocation of credit by means of direct loans, loan guaran
tees, and the activities of Government-sponsored enterprises.
Overview of Federal Credit Activities.1—The Federal Govern
ment is the largest financial intermediary in the United States. At
the end of 1986, it held outstanding loans with a face value of $252
billion in its direct loan portfolio and had another $450 billion in
guaranteed loans outstanding. Government-sponsored enterprises
had lent another $453 billion. Thus, directly or indirectly, the
Government had influenced the allocation of more than one trillion
dollars of credit.
Through direct loans and loan guarantees, the Government has
provided subsidized credit to many different types of borrowers:
farmers, homeowners, students, small businesses, exporters, utili
ties, shipbuilders, and State, local, and foreign governments. The
subsidies inherent in Federal and federally sponsored lending to
these groups have come at the expense of the general taxpayers
and in direct competition with all borrowers who did not receive
subsidized credit. The unsubsidized borrowers have paid higher
interest rates or fees for their credit or have not been able to
borrow at all.
Controlling Federal Credit.—The problems in directing or control
ling Federal credit are enormous and systemic. The discipline that
the private market imposes on financial intermediaries is absent.
1 See also Special Analysis F, “Federal Credit Programs,” and the 1988 report on Management of the U.S.
Government.
3b-l
3b-2
THE BUDGET FOR FISCAL YEAR 1988
The discipline that the current budget process imposes on most
Federal agencies is not fully effective in controlling Federal credit
programs. The unified budget, with its focus on budget authority,
outlays, and receipts, provides a comprehensive system for record
ing and controlling most receipts and outlays, but it is an incom
plete mechanism for recording and controlling Federal credit pro
grams. The unified budget measures net outlays, not the full
volume of new credit extended for direct loans. Furthermore, guar
anteed loan commitments, an important form of credit, are not
reflected in the unified budget.
The Federal credit budget, discussed in the next section, while an
improvement over the previous control and display mechanisms of
the unified budget, does not capture and price explicitly the most
important aspect of Federal credit—the economic subsidy offered to
borrowers. In order to focus on that subsidy, the administration is
proposing a reform of budgeting for credit programs, discussed
below, that would remedy the shortcomings of existing practices by
incorporating into the unified budget the subsidies provided by
credit programs.
The Credit Budget.—The Federal credit budget measures and
controls the volume of new direct loans and loan guarantees ex
tended to borrowers. The credit budget is a necessary supplement
to the unified budget because it corrects some of the deficiencies of
the unified budget noted above.
The credit budget is based on three principles. First, it is intend
ed to measure new credit at the point at which the Government
legally contracts to provide a loan or a loan guarantee. Usually a
legal contract occurs when a direct loan agreement or loan guaran
tee agreement is signed.
Second, the credit budget is based on credit authority—the au
thority to make new offers of credit. In contrast to the treatment of
credit programs in the unified budget, credit authority is measured
on a gross basis and does not reflect repayments of loans or de
faults on loan guarantees. In the unified budget, budget authority
for direct loan programs is required only when collections are
insufficient to finance new loans for those programs funded
through revolving funds. For loan guarantees in the unified budget,
budget authority is needed only to pay for defaults when other
resources are insufficient to fund those costs. As a result, credit
authority is a needed tool because subsidies are provided to all new
recipients of direct loans and loan guarantees, regardless of the
extent to which borrowers are repaying loans previously made.
Third, guaranteed loan commitments are measured as the full
principal of the loan, even if the Government’s contingent liability
is less than the full loan principal. The full principal is included in
the commitment because the entire loan, even if only partially
FEDERAL CREDIT
3b-3
guaranteed, is assisted by the guarantee. Moreover, in some pro
grams that offer nominal partial guarantees, the private lender is
at risk only when the value of the collateral and the guarantee
combined are less than the full loan principal.
The accompanying chart shows Federal credit activity for 1965 to
1992.
The credit budget is included in the budget resolution, and limi
tations for many programs are subsequently enacted in annual
appropriations acts. The administration proposes limitations annu
ally on direct loan obligations and guaranteed loan commitments
for many credit programs. The limitations serve as ceilings on the
volume of new credit that may be offered by the account in a given
year. The limitation is specified in the appropriations language for
individual budget accounts that include credit activity.
The administration proposes appropriations limitations in 1988
for programs amounting to 61 percent of the credit budget totals.
Approximately 32 percent of direct loan obligations (excluding obli
gations for defaulted loans) and 68 percent of guaranteed loans are
included under the proposed limitations. (The relatively low per
centage for direct loans results because the largest direct loan
program—CCC commodity loans—is exempt from limitation.) Ap
3b-4
THE BUDGET FOR FISCAL YEAR 1988
propriations act limitations are not proposed for certain programs
primarily for two reasons. First, programs that provide a clear
entitlement to qualified applicants, such as farm price support
loans, credit assistance to veterans, and guaranteed student loans,
are controlled by authorizing legislation. Second, direct loans that
arise from payment of claims on defaulted guaranteed loans are
exempt from limitation since the effective point of control at the
time of the original loan guarantee is past.
The Congressional Budget Act, as amended by the Balanced
Budget and Emergency Deficit Control Act of 1985, also known as
Gramm-Rudman-Hollings, requires functional allocations for direct
loan obligations, primary loan guarantee commitments, and sec
ondary loan guarantee commitments in the budget resolution. The
functional targets are then allocated to the Appropriations Com
mittees and other committees. In the event of a sequestration
under Gramm-Rudman-Hollings, direct loan obligations and guar
anteed loan commitments would be reduced by the general nonde
fense sequestration percentage.
Credit Reform Initiative.—The credit budget, which does not
measure the economic subsidy offered to borrowers, has proved to
be an incomplete way of displaying and controlling Federal credit
activity. To rectify the inadequacies of the current credit budget,
the administration is proposing a reform in the way Federal credit
programs are treated in the budget. The proposal would:
• measure accurately and equitably the benefits of Federal
credit programs;
• put the cost of credit programs on an expenditure basis equiv
alent to other Federal spending;
• encourage delivery of benefits in the form most appropriate to
the needs of beneficiaries; and
• improve the allocation of resources among credit programs
and between credit and other spending.
The proposal would charge the true economic cost of credit—the
present value of the subsidy—to any agency making or guarantee
ing loans. For direct loans, this value can be measured as the
difference between the face value of a newly made loan and its
market value on immediate competitive sale; for guaranteed loans,
it is the cost to purchase private reinsurance of a newly made loan
guarantee. Another way to evaluate the same concept would be to
measure the difference between the terms and conditions associat
ed with a Government loan and the terms and conditions of financ
ing for a similar loan from a private lender. In either case, the
subsidy, as used here, measures the benefit to the borrower of
Federal credit.
An alternative measure of subsidy calculates the direct cash
costs to the Government, which are always less than the benefit to
FEDERAL CREDIT
3b-5
the borrower for two reasons. First, the Government’s cost of bor
rowing is always lower than that of the private sector due to the
Government’s sovereign power to tax and to print money, and to
the safety and liquidity of Treasury securities. Second, the Govern
ment does not need to hold any reserves against its loan guaran
tees, which makes the Government less risk averse than is the
private sector to the level and variance of risk inherent in the
credit it grants.
If the cost to the Government were used instead of the benefit to
the borrower as the basis for measuring subsidies, distortions
would be created. The budget would continue to favor credit pro
grams over direct spending programs; it would not give policymak
ers and the public the information they need to compare fairly
those two kinds of programs and to determine what form of assist
ance is most cost effective. Furthermore, using cost to the Govern
ment would not take full account of the borrower’s riskiness, which
would skew the allocation of resources among borrowers, among
credit programs, and between credit and other spending.
A new Federal credit revolving fund (referred to as “the fund”)
would be established within the Department of the Treasury. Fed
eral agencies would be required to obtain appropriations equal to
the estimated subsidy to the borrower of the direct loans and loan
guarantees they make each year. As agencies make obligations for
new direct loans, they would pay the estimated subsidy value of
those loans into the fund, which would be recorded in the budget
account of the originating agency. The fund would provide the
balance, or financing portion, of the loan. As agencies make com
mitments for new loan guarantees, their estimated subsidy value
would be paid into the fund and recorded in the budget account of
the originating agency. Agencies would continue to originate and
close loans as they do now.
A large part of the ultimate success of this reform depends on
the ability of the fund to establish correct subsidy values for direct
loans and loan guarantees. The best way to determine the true
subsidy implicit in Federal credit programs would be through a
market evaluation of the loan. The agencies, with the fund and
OMB providing oversight, would manage the sale to the public of
direct loans soon after they were disbursed, and the reinsurance
with the private sector of guaranteed loans soon after they were
issued. The difference between the market price offered for a direct
loan and its face value would represent the subsidy provided by the
direct loan. Similarly, the market premiums charged for insuring a
guaranteed loan would represent the economic subsidy provided by
it. Agencies would request appropriations based on these subsidies.
Not all direct loans made by the Federal Government are suita
ble for sale to the public. Many loans made for sensitive foreign or
3b-6
THE BUDGET FOR FISCAL YEAR 1988
domestic policy reasons will remain in the hands of the Govern
ment. Direct loans in this category would have their subsidies
evaluated by the fund using a method that approximates the value
that would have been set in the market if these loans had been
offered for sale. The appropriations requested for these loan pro
grams would be based on the fund’s subsidy calculation.
Reinsurance for some federally guaranteed loans will probably
not be available in the early years of this reform. In that case, the
central fund would evaluate the subsidies provided by those loans
using a method that approximates the premium that would have
been set by the market if reinsurance were available. The appro
priations requested for guaranteed loan programs for which rein
surance is not available would be based on the fund’s subsidy
calculation.
Account-level details of this proposal and specific legislative lan
guage will be sent to the Congress in March 1987. This legislation
would create the fund and authorize establishment of agency ac
counts at the fund for each program. Appropriated subsidies, as
well as principal payments and interest, will be credited to these
accounts. Loans in program portfolios at the end of 1987 will not be
transferred to the fund, but will continue to be recorded in the
present accounts of the originating agencies. However, revolving
funds currently authorized to make loans will be prohibited from
making new loans, which instead will be included in the new credit
regime.
Credit Policy Issues.—The reform of budgeting for credit pro
grams is a fundamental credit policy issue. Also important is the
phase-out or termination of some credit programs proposed in the
budget. Details of those proposals are described in Special Analysis
F. The budget also contains other important aspects of credit
policy—improved credit program management, sales of existing
loan assets, and credit program user fees.
Credit Management.—Since 1981, the administration has made a
major effort to establish a Government-wide policy framework for
credit management. This framework is contained in OMB Circulars
A-70 and A-129, which set forth basic credit principles and the
first comprehensive guidance on improving Federal credit manage
ment.
Legislative support for improved credit management was
achieved with the passage of the Debt Collection Act of 1982,
authorizing agencies to use proven private sector debt collection
tools for the first time. The Deficit Reduction Act of 1984 (DEFRA)
contributed to an even stronger program by allowing a two-year
income tax refund offset experiment at the Internal Revenue Serv
ice. In addition, the Federal Debt Recovery Act of 1986 authorized
FEDERAL CREDIT
3b-7
the Justice Department to use private attorneys for debt collection
litigation.
While substantial progress has been made toward achieving a
sound and comprehensive credit management program, a great
deal remains to be done. Credit management will be improved by
adoption of the credit reform initiative described above, and by
implementation in each agency of the administration’s nine-point
management program. The nine-point program, described more
fully in Management of the United States Government, focuses ef
forts on the origination, servicing, and collection of loans and ac
counts receivable.
Loan Asset Sales.—The Federal Government will continue and
expand its pilot program of selling existing loan assets without
recourse—a program first proposed in the 1987 budget. These sales
are designed to achieve four main goals: reduce the Government’s
cost of administering credit; provide an incentive for agencies to
improve loan origination and documentation; assist in determining
the subsidies on Federal credit programs; and increase budgetary
offsetting collections in the year of sale.
The administration firmly believes that sales must be on a non
recourse basis. Sales with recourse are undesirable because such
sales would defeat the basic objectives of selling loan assets:
• Private investors would have less incentive to pursue rigor
ous, but legal, collection efforts since bad loans could be re
turned to the Government. Agencies would still have to ad
minister bad loans as they do now. Existing staffs for that
purpose would have to be maintained and agencies would not
achieve any administrative savings from the sale.
• Investors would look to the guarantee placed on the loan, and
not to the credit risk underlying the loans. Consequently,
investors would not be as concerned with the information
supporting the loan, and agencies would not have to improve
loan documentation.
• Investors would bid for the loans based on their evaluation of
the guarantee, not on the underlying loan value. As a result,
the information derived from the sale would not reveal any
thing about the true cost of Federal loan programs.
• Sales with recourse are a very short-sighted policy because
total Government revenues would not be greater if loans are
sold in this way. Although the Government would receive
higher revenues at the time of sale if the loans were guaran
teed, those additional revenues would be offset in the future
as the defaults on the guaranteed loans began to occur.
• Loans sold with the full faith and credit of the United States
are similar in form to a Treasury security. As such, both
3b-8
THE BUDGET FOR FISCAL YEAR 1988
OMB and the Congressional Budget Office consider the paper
being sold as a form of Federal borrowing.
The sales program includes loans with a face value of $11.2
billion in 1988, which are estimated to produce offsetting collec
tions of $5.3 billion. Loans will be sold from the portfolios of the
following over the years 1988-92: Farmers Home Administration,
Rural Electrification Administration, Small Business Administra
tion, Department of Housing and Urban Development, Department
of Education, Veterans Administration, Export-Import Bank,
Bureau of Reclamation, Department of Health and Human Serv
ices, Department of Transportation, and the Tennessee Valley Au
thority.
Small portfolios of many terminated programs will be liquidated
in their entirety in 1 or 2 years. For larger portfolios, a sustainable
rate of sales is proposed throughout the 5-year budget horizon.
Agencies are being encouraged to hire private sector financial con
sultants to assist them in evaluating and marketing their loans.
Credit User Fees.—The administration believes that a consistent,
Government-wide policy of assessing interest rates and other fees
on Federal credit programs ought to be established. In accordance
with OMB Circular A-70, interest rates and other fees for loan
programs should be based on private sector benchmarks. Fees
should compensate the Government for the administrative and
servicing costs of operating programs, and all or a specified portion
of the estimated cost to the Government of the expected liabilities
incurred by the program.
Assessing fees is necessary to charge the operating costs of pro
grams to those individuals or businesses that benefit from the
program instead of passing along those costs to the general taxpay
er. But of equal importance is the fact that, in comparison to
private sector fees, the level of fees charged by Federal credit
programs, or the absence of fees in some cases, contribute to the
subsidy conferred by those programs. The identification and meas
urement of that subsidy, as noted earlier in the discussion of credit
reform, is required to evaluate the impact of Federal credit on the
economy. In the coming months, the administration will study
ways to establish standard procedures for setting and charging fees
that would apply to all credit programs.
The budget takes a first step in the direction of assessing appro
priate fees by proposing new or increased fee levels for guaranteed
student loans, home mortgage loans, secondary mortgage guaran
tees, agricultural export loans, small business loans, rural electrifi
cation and telephone loans, and new debt securities issued by Sallie
Mae. In addition, the Federal Financing Bank proposes to increase
the fee it charges to agencies using its lending facilities.
FEDERAL CREDIT
3b-9
Other.—The role played by the Federal Government in allocating
credit involves activities in addition to those described in this part
of the budget. Deposit insurance and other contingent liabilities,
leasing, and tax-exempt financing are among the other aspects of
Federal involvement in the credit market that affect the economy.
Special Analysis F discusses those issues.
Direct Loans.—The Federal Government makes direct loans to
individuals, businesses, and State, local, and foreign governments.
The primary example of a direct loan is the disbursement of funds
by a Federal agency under the terms of a loan contract in which
the borrower agrees to repay the loan principal to the Government,
with or without interest.
Three other types of transactions are also considered direct
loans: (1) acquisition of defaulted private loans that the Govern
ment had guaranteed and for which the Government made direct
payment to the lender to honor the guarantee; (2) the purchase by
the Government of a private loan in the secondary market; and (3)
a sale of agency assets on credit terms of more than 90 days.
Direct loans are financed from a variety of sources, including
appropriated funds derived from taxation, borrowing, and repay
ments of previous loans. Such loans are designed to direct economic
resources to federally determined uses by providing credit on more
favorable terms than would otherwise be available from private
sources. A direct loan is best justified when the Federal objective
cannot be met with financing from private sources, even with a
Government guarantee. The objectives of a direct loan program, for
example, may require financing at interest rates that are lower or
loan maturities that are longer than those available from private
lenders.
The accompanying chart shows the shifting composition of new
direct loans issued over the past 35 years. Four sectors of the
economy receive the bulk of direct lending: housing, business, agri
culture, and education. (This chart and all subsequent discussions
are based on the face value, not the unsubsidized market value, of
loans.)
3b-10
THE BUDGET FOR FISCAL YEAR 1988
During the 1950s and 1960s, housing accounted for roughly 30
percent of new direct loans; however, this percentage dropped off
sharply in the following years. This change reflected the increasing
amount of direct lending to business and agriculture in the 1970s
and 1980s, and, to a lesser extent, the conversion of the lending
activity of the Federal National Mortgage Association (FNMA) in
1968 from a direct on-budget spending program to a Governmentsponsored enterprise that is outside the budget.
In recent years, business borrowers have received more than onethird of the Government’s new direct loans. The Export-Import
Bank, Small Business Administration, Rural Electrification Admin
istration, and Agency for International Development are the princi
pal lenders to the business sector.
During the 1980s, the share of new direct loans provided to
agriculture has ranged from one-third to more than one-half of the
annual total. This includes lending of the Farmers Home Adminis
tration for farm ownership, farm operations, and rural housing,
and the price support program of the Commodity Credit Corpora
tion.
Direct loans for education include loans for construction of facili
ties, payments for defaulted guaranteed student loans, and direct
financial assistance to students. Although defaults now exceed $1
FEDERAL CREDIT
3b-ll
billion a year, this sector takes only a small share of total new
direct loans.
Guaranteed Loans.—Government guaranteed loans are loans for
which the Government guarantees the payment of the principal
and the interest, in whole or in part, in the event of borrower
default. Loan guarantees are contingent liabilities of the Federal
Government. They generally result in budget outlays only in the
case of default.
The guarantees may be for the full or only a partial value of the
loan principal. In some programs, such as the guaranteed student
loan program, they are supplemented by explicit subsidies or other
forms of assistance. Most guaranteed loans are made by banks or
other private institutional lenders and may take the form of mort
gages or bank loans. Others are sold in securities markets.
A loan guarantee transfers from the private lender to the Gov
ernment some or all of the default risk of the loan. Where the
Government guarantees timely payment of 100% of the loan prin
cipal and interest, it transforms a private loan into a near-Government direct loan financed by a Government security. However, the
guaranteed loan will not have all the attributes of a direct Govern
ment loan, since private lenders will negotiate different financial
terms and conditions than would a Government agency. Nor will
the guaranteed loan have all of the attributes of a U.S. Treasury
security because it will be less liquid and may involve higher
transaction costs.
Loan guarantees are designed to allocate economic resources to
particular uses by providing credit at more favorable terms than
are otherwise available in the private market. If loan guarantee
recipients are not sufficiently creditworthy to borrow without Fed
eral assistance, the subsidy provided by the guarantee is large and
the guarantee will directly reallocate credit towards federally se
lected uses, thereby increasing the total volume of credit channeled
into these uses. This leaves a smaller supply of credit to be allocat
ed to those potential borrowers who do not receive assistance and
increases the costs to these borrowers. However, the guarantee
does not always change the allocation of credit to such a large
degree. Some beneficiaries of loan guarantee programs would have
been able to secure the funds privately, without Government sup
port. For example, a federally guaranteed mortgage might be used
to finance, at a lower cost, a house that would have been purchased
anyway.
Many of the guarantee programs operated by the Federal Gov
ernment began in efforts to revive the economy during the depres
sion of the 1930s. The Reconstruction Finance Corporation, created
in 1932, was the forerunner of the Export-Import Bank, the Small
Business Administration, and other credit programs. The Nation’s
3b-12
THE BUDGET FOR FISCAL YEAR 1988
single largest credit program, the Federal Housing Administra
tion’s (FHA) home mortgage insurance program, was created in
1934 to stimulate housing purchases.
As the accompanying chart shows, housing guarantees dominat
ed Federal guarantee credit activities during the 1950s and 1960s.
The housing programs of the FHA and Veterans Administration
accounted for 82 percent of the total volume of new commitments
for guaranteed loans in 1965. The range of activities financed with
Federal guarantees has widened since that time. Guarantees are
now offered for business, agriculture, and education, although
housing continues to dominate, particularly because falling interest
rates in the past 2 years have led many homeowners to refinance
their mortgages. For the 1988 budget, housing programs account
for three-quarters of all new guaranteed loan commitments.
New Guaranteed Loans by Sector
Percent of Total
Percent of Total
Government-Sponsored Enterprises (GSEs).—The third means by
which the Federal Government allocates credit, albeit indirectly, is
through Government-sponsored enterprises. GSEs have been estab
lished and chartered by the Federal Government to perform spe
cialized credit functions. The first GSEs were created with partial
or full Government ownership and with direct Government control;
in time, however, they were converted to private ownership and
3b-13
FEDERAL CREDIT
some new enterprises were created as privately owned institutions.
GSEs have greatly increased their activity in domestic credit mar
kets in the last few years. The accompanying table shows the net
increase in their loans and their loans outstanding.
LENDING BY GOVERNMENT-SPONSORED ENTERPRISES
(In billions of dollars)
Net change .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstanding.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
1971
1976
1981
1986
1.3
32.4
6.8
90.1
33.3
186.6
83.3
453.3
The budget treatment of these enterprises was established in
1967 in accordance with a recommendation by the President’s Com
mission on Budget Concepts. The Commission basically recom
mended that the budget exclude those Government-sponsored en
terprises that are entirely privately owned. However, the Commis
sion recommended that financial statements of their operations be
included in the budget because the enterprises carry out federally
designed programs and receive benefits from their close association
with the Government.2
These benefits differ from one enterprise to another and from
one type of debt security to another. In most cases, but not all, they
include such advantages as the following: their debt securities can
be held by federally regulated financial institutions under circum
stances where other private securities or State and local securities
are not eligible; the interest on their debt securities is exempt from
State and local income taxation; they are exempt from SEC regis
tration requirements and various State banking laws. Further
more, the enterprises are perceived by the securities market to
have a special relationship with the Federal Government. Because
of these benefits, the Government-sponsored enterprises can borrow
at interest rates significantly below even the best rated private
borrowers.
The administration is studying ways of more fully privatizing the
Federal National Mortgage Association (Fannie Mae) and the Fed
eral Home Loan Mortgage Association (Freddie Mac)—the major
Government-sponsored enterprises involved in the secondary mort
gage market—and the Student Loan Marketing Association (Sallie
Mae). The privatization study will be completed by the end of the
fiscal year.
While moving toward the goal of privatization, the administra
tion plans to propose legislation that will limit permanently the
maximum amount of mortgages that Fannie Mae and Freddie Mac
2 Report of the President’s Commission on Budget Concepts, pp. 29-30. Financial statements for the Govern
ment-sponsored enterprises are published in the Appendix, Part IV, “Government-Sponsored Enterprises.” Their
borrowing is discussed in Special Analysis E, “Borrowing and Debt.”
3b-14
THE BUDGET FOR FISCAL YEAR 1988
can purchase. This will limit their continued encroachment on the
market served by private firms for as long as these entities enjoy
the advantages conferred by their assocation with the Federal Gov
ernment. The administration will also resubmit last year’s proposal
to charge a fee to Sallie Mae for the new debt it issues in the
marketplace. The fee would partly eliminate the borrowing advan
tage enjoyed by Sallie Mae as a Government-sponsored enterprise.
FEDERAL GOVERNMENT INVESTMENT
Part 3c
CAPITAL SPENDING: INVESTMENT IN PHYSICAL ASSETS
This section discusses the Federal Government’s investment,
direct or indirect, in public physical assets. More detailed informa
tion is provided in Special Analysis D, “Federal Investment and
Operating Outlays,” Special Analyses, Budget of the United States
Government, Fiscal Year 1988. In addition, data on historical trends
in gross Federal physical capital investment are provided in section
9 of the separate volume entitled Historical Tables, Budget of the
United States Government, Fiscal Year 1988. In accordance with
the requirements of the Federal Capital Investment Program Infor
mation Act of 1984 (Title II of Public Law 98-501), a separate
report will be transmitted to the Congress showing 10-year projec
tions of Federal physical investment spending (excluding weapons),
in current and constant dollars, and assessing civilian investment
needs for selected purposes.
Federal outlays for investment take several forms and are made
for many purposes. They are in the form of direct outlays or grants
and they include the acquisition of physical assets, which yield a
stream of services over a period of years; expenditures for human
capital in the form of education and training; expenditures for
research and development, which provide less tangible long-term
benefits; and lending, which yields a monetary return.
3c-l
3c-2
THE BUDGET FOR FISCAL YEAR 1988
SUMMARY OF TOTAL FEDERAL INVESTMENT OUTLAYS
(In billions of dollars)
1986
1987
estimate
1988
estimate
Physical capital investment:
Direct Federal:
Defense.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Nondefense.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Direct Federal investment.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Grants to State and local governments.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Physical capital investment.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Conduct of education and training.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Conduct of research and development.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Loans and financial investments.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Other (including commodity inventories).. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
84.7
11.3
95.9
26.3
122.2
23.7
52.1
20.5
11.0
90.8
12.9
103.7
24.9
128.6
23.6
55.1
5.2
7.8
91.2
10.9
102.1
23.4
125.5
22.2
59.5
2.0
9.6
Total.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
229.5
220.3
218.8
The Federal Government’s investment in public physical assets is
of two general types: direct investment by the Federal Govern
ment, and Federal grants to State and local governments to finance
physical capital acquisition. Physical capital investment by the
private sector, State and local governments, and others as a result
of Federal loans and loan guarantees, leases, contracts, tax policy,
and regulatory policy is not covered.
Direct Federal Physical Capital.—A business only invests in
structures and equipment that it expects will generate future reve
nue. The Federal Government also invests directly in physical
assets that generate future revenue. The budget proposes to spend
$4.3 billion on such projects in 1988, including those for TVA power
generating stations and equipment, many Corps of Engineers
projects, and Postal Service buildings and equipment.
An additional $6.7 billion is proposed to be spent in 1988 on
federally owned nondefense physical capital that will provide long
term benefits, but that is not expected to generate future Federal
revenue. This includes Government office buildings, veterans’ hos
pitals, research facilities, park buildings, space shuttles, and com
puters. Total direct nondefense physical investment of the Federal
Government amounts to $10.9 billion, or 8.7 percent of all Federal
investment spending, and 1.3 percent of total Federal outlays.
The remaining purchases of long-lived physical assets by the
Federal Government are for defense. Military bases and facilities,
ships, planes, and missiles are in this category, along with ware
houses, offices, and computers. In 1988, $91.2 billion is budgeted for
Federal investment in such assets. This amount is 72.7 percent of
CAPITAL SPENDING: INVESTMENT IN PHYSICAL ASSETS
3c-3
total Federal physical capital investment and 8.9 percent of total
Federal outlays.
Grants for Physical Capital Investment.—The Federal Govern
ment also helps pay for many public physical assets that it does
not own. Federal grants finance a large share of State and local
public works, mainly highways, mass transit facilities, airports,
and pollution control facilities. In 1988, grants to State and local
governments for investment purposes are proposed to be $23.4 bil
lion, which is 18.6 percent of total Federal physical capital invest
ment and 2.3 percent of total Federal outlays. All Federal outlays
for physical capital investment, both direct outlays and grants,
come to $125.5 billion or 12.5 percent of total Federal outlays.
GROSS FEDERAL INVESTMENT IN PHYSICAL CAPITAL 1
(In billions of dollars)
I960
Direct Federal investment in physical capital:
National Defense.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Nondefense:
Water and power projects.. .. .. .. .. .. .. .. .. ..
Acquisition of major equipment.. .. .. .. .. .. ..
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Subtotal, Nondefense.. .. .. .. .. .. .. .. .. .. ..
Subtotal, Direct Federal investment.. .. ..
Grants to State and local governments for
physical capital:
Highways.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Grants.. .. .. .. .. .. .. .. .. .. .. .. .. .
Total, Gross Federal investment in
physical capital.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
1970
1980
1985
1986
1987
estimate
1988
estimate
17.2
23.6
32.5
78.0
84.7
90.8
91.2
1.0
0.1
0.8
1.9
19.1
1.5
0.2
0.8
2.5
26.1
4.6
0.7
2.7
8.1
40.5
4.6
3.6
3.5
11.7
89.7
4.3
3.3
3.7
11.3
95.9
5.2
3.7
4.0
12.9
103.7
4.7
4.4
1.8
10.9
102.1
2.9
4.3
9.0
12.7
13.9
12.4
12.6
0.4
2.7
13.5
12.2
12.3
12.5
10.8
3.3
7.1
22.5
24.9
26.3
24.9
23.4
22.4
33.2
63.0
114.6
122.2
128.6
125.5
(As percentages of Federal outlays)
National Defense.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Nondefense.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Subtotal, Direct Federal investment.. .. ..
Grants to State and local governments.. .. .. ..
Total, Gross Federal investment in
physical capital.. .. .. .. .. .. .. .. .. .. .. .. .
18.6
2.1
20.7
3.6
12.1
1.3
13.4
3.6
5.5
1.4
6.9
3.8
8.2
1.2
9.5
2.6
8.6
1.1
9.7
2.7
8.9
1.3
10.2
2.4
8.9
1.3
10.2
2.3
24.3
17.0
10.7
12.1
12.3
12.7
12.5
1 See Special Analysis D, "Federal Investment and Operating Outlays”, for more detail.
Trends in Federal Investment.—Throughout the 1950s, 1960s, and
1970s, Federal investment in physical capital trended downward as
a proportion of all Federal outlays, largely because payments for
individuals grew very rapidly. More recently, Federal investment
in physical capital rose from 10.3 percent of outlays in 1981 to a
3c-4
THE BUDGET FOR FISCAL YEAR 1988
projected 12.5 percent in 1988, primarily as a result of investment
in national defense.
The greatest variation in investment during the post-World War
II period has been for defense. Defense investment as a proportion
of all Federal spending dropped from an average of 23.3 percent in
the 5 years after the Korean war to an average of 5.4 percent in
the latter half of the 1970s. Since then, defense investment has
increased to 8.6 percent in 1986 and it is estimated to be 8.9
percent in 1988. This brings the share of defense investment back
to that of the early 1970s—though well below the share in all but 2
years between 1940 and 1972.
Spending for nondefense physical capital owned by the Federal
Government has been much more stable. It has varied between 1.6
percent and 1.0 percent of total Federal outlays for the past two
decades, and in 1988 it is estimated to be in the middle of that
range.
Federal grants to State and local governments for physical in
vestment averaged 3.6 percent of all Federal outlays in the 1960s
and 1970s. In recent years, they have declined to about 2.7 percent
of all outlays and are estimated to decline to 2.3 percent in 1988.
During this period, while the Federal Government was running
large deficits, State and local governments, on average, were run
ning surpluses. The cutback has been greatest in Federal grants for
community and regional development and for natural resource
investments; grants for transportation have nearly kept pace with
the growth of Federal spending. These reductions reflect the ad
ministration’s federalism initiatives, which have shifted responsi
bilities funded by the Federal Government back to State and local
governments if the benefits were primarily local or regional in
nature.
Real Net Nondefense Investment—Net capital investment is sig
nificantly lower than gross investment because depreciation offsets
part of new investment. The following table shows the estimated
net values, in constant 1987 dollars, of Federal and federally fi
nanced nondefense capital investment. Recently, direct Federal
real net investment has been stable at a rate of about $3 billion.
Real net investment financed by Federal grants to State and local
governments has experienced a marked drop since the late 1970s,
with the decline concentrated in community and regional develop
ment and natural resources. Real net investment in transportation
financed by Federal grants is expected to decline in 1987 and 1988,
but from a relatively high base in 1986.
Nondefense gross investment in physical assets has declined only
moderately in constant dollars from the peak years of 1978-1980.
However, net investment dropped substantially, from about $21
billion in the late 1970s to an estimated $10 billion currently. The
CAPITAL SPENDING: INVESTMENT IN PHYSICAL ASSETS
3c-5
investments proposed in this budget are directed toward projects of
high national priority and will improve the efficiency of the Gov
ernment and the economy.
GROSS AND NET NONDEFENSE FEDERAL INVESTMENT IN PHYSICAL CAPITAL 1
(Estimates, in billions of 1987 dollars)
1960
1970
1980
1985
1986
1987
1988
Gross nondefense investment.. .. .. .. .. .. .. .. .. .. ..
22.6 29.3 42.6 38.6 38.6 37.7 35.5
Depreciation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . -10.0 -15.6 -21.8 -25.7 -26.6 -27.3 -28.0
7.5
10.4
Net nondefense investment.. .. .. .. .. .. .. .. .. .. .. .. . 12.7 13.8 20.8
12.9 12.0
Composition of net investment
Direct nondefense:
Water and power projects.. .. .. .. .. .. .. .. .. .. ..
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Subtotal, direct nondefense.. .. .. .. .. .. ..
1.7
1.1
2.8
0.9
_*
Grants to State and local governments.. .. .. .. .. .
Total, Net nondefense Federal in
vestment in physical capital.. .. .. .
0.8
1.7
0.9
2.6
-0.3
3.1
2.8
-0.8
2.5
1.7
0.2
2.7
2.9
-0.4
3.1
2.8
9.9
12.9
18.2
10.1
10.2
7.5
4.8
12.7
13.8
20.8
12.9
12.0
10.4
7.5
*$50 million or less.
1 See Special Analysis D, “Federal Investment and Operating Outlays”, for more detail.
PART 4
FEDERAL RECEIPTS BY SOURCE
4-1
FEDERAL RECEIPTS BY SOURCE
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. They are compared with outlays
to determine the surplus or deficit.
This section of the budget discusses receipts for 1986 to 1990 and
the legislative proposals and administrative actions affecting
them.1
SUMMARY
Total receipts in 1988 are estimated to be $916.6 billion, an
increase of $74.2 billion from the $842.4 billion estimated for 1987.
Receipts in 1989 and 1990 are estimated to be $976.2 billion and
$1,048.3 billion, respectively. These estimates include the effects of:
• previously enacted tax legislation, including the Tax Reform
Act of 1986; and
• the receipts proposals—primarily Internal Revenue Service
initiatives, increased user fees, and trust fund reforms—in
this budget.
As a share of GNP, receipts are projected to rise from 19.1
percent in 1987 to 19.3 percent in 1990. This is primarily due to
real economic growth and increases in the combined employeremployee social security (OASDHI) tax rate from 14.3 percent to
15.02 percent on January 1, 1988, and to 15.3 percent on January 1,
1990.
Composition of Receipts.—The Federal tax system relies predomi
nantly on income and payroll taxes. In 1988:
• Income taxes paid by individuals and corporations are esti
mated at $392.8 billion and $117.2 billion, respectively. These
sources combined account for 55.6 percent of estimated re
ceipts.
• Social insurance taxes and contributions—composed largely of
payroll taxes levied on wages and salaries, most of which are
paid in equal amounts by employers and employees—will
yield an estimated $333.2 billion, 36.4 percent of the total.
1 Detailed estimates of receipts by source for 1986 to 1988 are shown in Tables 13 and 17 of Part 6c. The
economic assumptions on which the receipts estimates are based are presented in Part 3, and estimates of
receipts for 1986-1992 are presented in Table 3 of Part 6c. Part 6a contains an analysis of the difference between
actual receipts for 1986 and the estimates for 1986 transmitted to the Congress in February 1985. Part 6b
explains the conceptual basis for classifying certain amounts collected by the Federal Government as receipts
and other amounts as offsetting collections.
4-2
4-3
FEDERAL RECEIPTS BY SOURCE
• Excise taxes imposed on selected products, services, and ac
tivities are expected to provide $33.4 billion, 3.6 percent of the
total.
• Estate and gift taxes, customs duties, and miscellaneous re
ceipts are estimated at $40.0 billion, the remaining 4.4 per
cent of receipts.
RECEIPTS BY SOURCE
(In billions of dollars)
1986 actual
Source
Individual income taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . 349.0
63.1
Corporation income taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Social insurance taxes and contributions.. .. .. .. .. .. .. 283.9
On-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. (83.7)
Off-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. (200.2)
32.9
Excise taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
7.0
Estate and gift taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
13.3
Customs duties.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Miscellaneous receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
19.9
Total receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
On-budget.......................................................
Off-budget.......................................................
1987
estimate
1988
estimate
1989
estimate
1990
estimate
364.0
104.8
301.5
(87.4)
(214.0)
32.6
6.0
14.4
19.1
392.8
117.2
333.2
(91.1)
(242.1)
33.4
5.8
15.3
18.9
417.3
128.6
357.2
(93.8)
(263.4)
32.9
5.0
16.2
19.0
450.8
139.8
384.0
(97.3)
(286.6)
33.7
4.4
16.8
18.8
769.1
842.4
916.6
976.2
(568.9)
(200.2)
(628.4)
(214.0)
(674.5)
(242.1)
(712.8)
(263.4)
1,048.3
(761.6)
(286.6)
Under the tax policy and economic assumptions presented in this
budget, the income tax share of total receipts is projected to rise to
56.3 percent by 1990, 0.7 percentage point more than its 1988 share.
This rise is the combined effect of a 0.1 percentage point rise in the
individual income tax share to 43.0 percent and a 0.5 percentage
point rise in the corporation income tax share to 13.3 percent.
Social insurance taxes and contributions are projected to increase
slightly as a share of total receipts to 36.6 percent. The excise tax
share is projected to decline to 3.2 percent in 1990, 0.4 percentage
point less than for 1988. The projected share of all other receipts
declines by 0.5 percentage point between 1988 and 1990.
ENACTED LEGISLATION
Several major tax laws have been enacted since this administra
tion took office in January 1981. The first, the Economic Recovery
Tax Act of 1981 (ERTA), provided incentives for work, saving, and
investment. The major provisions of the Act included an across-theboard reduction in individual income tax rates and other reduc
tions in individual income taxes; the annual adjustment of the zero
bracket amount, the personal exemption, and individual income
tax brackets for inflation beginning in 1985; and the accelerated
cost recovery system (ACRS) for depreciation of capital expendi
tures.
4-4
THE BUDGET FOR FISCAL YEAR 1988
The second major tax law, the Tax Equity and Fiscal Responsibil
ity Act of 1982 (TEFRA), improved the fairness of the tax system
while preserving the incentives for work, saving, and investment
enacted in 1981. This Act increased receipts primarily by eliminat
ing unintended benefits and obsolete incentives, and providing
mechanisms to improve tax law enforcement and collection tech
niques.
The Highway Revenue Act of 1982 was the third major tax law
enacted after January 1981. This Act increased the excise tax on
gasoline and diesel fuel to 9 cents per gallon and restructured
other highway related taxes to make the taxes paid by various
highway users correspond more equitably to the wear and tear that
such users cause to the highway system.
Three major laws affecting receipts were enacted during 1983:
the Social Security Amendments of 1983, the Interest and Divi
dends Tax Compliance Act of 1983, and the Railroad Retirement
Revenue Act of 1983. The first, the Social Security Amendments of
1983, restored the solvency of social security trust funds through a
combination of revenue increases and benefit reductions. The
major provision of the Interest and Dividends Tax Compliance Act
of 1983 repealed the withholding of taxes on interest and dividend
income provided in TEFRA. The tax increases provided in the
Railroad Retirement Revenue Act of 1983, together with the bene
fit reductions provided in the Railroad Retirement Solvency Act of
1983, were designed to place the railroad industry pension program
on a sounder financial basis. Despite these changes, further deterio
ration in the system has forced the rail pension actuaries to recom
mend financing increases in the pension program.
The most recent major tax law enacted prior to 1986 was the
Deficit Reduction Act of 1984 (DEFRA). The major provisions of
this Act increased the efficiency of the tax system by curbing tax
shelter abuse, limiting unwarranted tax benefits, and further im
proving tax law enforcement.
One of the most sweeping overhauls of the tax code in our
Nation’s history became law on October 22, 1986, when President
Reagan signed the Tax Reform Act of 1986. The major provisions of
this Act, which broadened the individual and corporation income
tax bases and substantially lowered individual and corporation
income tax rates, were designed to restore simplicity and fairness
to the Federal income tax code.
Other major laws enacted during 1986 affecting receipts included
the Consolidated Omnibus Budget Reconciliation Act of 1985, the
Federal Employees’ Retirement System Act of 1986, the Omnibus
Budget Reconciliation Act of 1986, the Superfund Amendments and
Reauthorization Act of 1986, and the Continuing Resolution for
1987.
4-5
FEDERAL RECEIPTS BY SOURCE
As a result of these legislated changes, taxes have been reduced,
on net, by $743.8 billion over the 1986-1990 period relative to what
they would have been under pre-1981 tax law. As shown in the
following table, there is a net tax reduction of $117.5 billion to
$193.1 billion every year during this period. Individuals have bene
fited the most from these legislated changes, realizing reductions in
income taxes of $933.2 billion over the 5-year period.
NET EFFECT OF MAJOR ENACTED LEGISLATION ON RECEIPTS 1
(In billions of dollars)
1986
Economic Recovery Tax Act of 1981.... -209.8
Tax Equity and Fiscal Responsibility
46.7
Act of 1982 .. .. .. .. .. .. .. .. .. .. .. .... .
Highway Revenue Act of 1982 .. .. .. .. .
4.5
10.2
Social Security Amendments of 1983...
Interest and Dividends Tax Compliance
Act of 1983 .. .. .. .. .. .. .. .. .. .. .. .. .. . . -2.1
Railroad Retirement Revenue. Act of
1983.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
1.1
Deficit Reduction Act of 1984.. .. .. .. ..
16.1
Consolidated Omnibus Budget Recon
ciliation Act of 1985.. .. .. .. .. .. .. .. .
0.9
Federal Employees’ Retirement System
Act of 1986 .. .. .. .. .. .. .. .. .. .. .. .. .. .
Omnibus Budget Reconciliation Act of
1986.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Superfund Amendments and Reauthor
ization Act of 1986.. .. .. .. .. .. .. .. .. .
Continuing Resolution for 1987.. .. .. .. .
Tax Reform Act of 1986 2.. .. .. .. .. .. ..
Net tax reduction.
.-132.4
ADDENDUM
Net effect on receipts by source-.
Individual income taxes.. ..
.-134.4
Corporation income taxes...
. -14.8
Social insurance taxes and con
tributions.. .. .. .. .. .. .. ..
11.3
Excise taxes.. .. .. .. .. .. .. ..
11.3
Estate and gift taxes.. .. ..
. -5.9
*
Customs duties.. .. .. .. .. .. .
Miscellaneous receipts.. .. .
0.1
1987
1988
1989
1990
1986-90
-238.5
-258.7
-282.0
-309.4
-1,298.4
56.8
4.7
12.1
58.8
4.9
24.6
58.2
5.1
31.0
59.9
5.1
23.8
280.4
24.2
101.7
-1.7
-1.8
-2.0
-2.5
-10.0
1.1
22.0
1.0
25.3
1.1
27.7
1.1
31.1
5.4
122.1
2.7
3.0
3.0
3.1
12.7
-0.4
-0.8
-0.8
-0.9
-2.9
2.6
2.8
2.4
1.0
8.8
0.6
1.9
18.6
-117.5
1.0
2.7
0.9
-136.4
1.1
2.4
-11.7
-164.4
1.1
2.5
-9.0
-193.1
3.9
9.5
-1.2
-743.8
-157.0
18.5
-186.2
19.7
-216.9
20.6
-238.6
24.2
-933.2
68.3
13.8
14.4
-7.9
0.6
0.2
27.3
11.2
-9.2
0.5
0.3
33.4
8.7
-11.0
0.6
0.1
25.1
8.5
-12.4
*
0.1
110.9
54.0
-46.4
1.8
0.8
*$50 million or less.
1 These estimates are based on the direct effect only of legislative changes at a given level of economic activity. Induced effects on the
economy are taken into account in forecasting incomes, however, and in this way affect the receipts estimates by major source and in total.
2 The Tax Reform Act of 1986 also increases outlays by the following amounts: 1987, $0.1 billion; 1988, $1.7 billion; 1989, $2.8 billion; and
1990, $2.8 billion. The cumulative amount for 1987-90 is $7.4 billion.
The major provisions of the laws enacted in 1986 affecting re
ceipts are described below.2
2 For a more detailed discussion of the Economic Recovery Tax Act of 1981, see Part 4 of the 1983 Budget. A
more detailed discussion of the Tax Equity and Fiscal Responsibility Act of 1982 and the Highway Revenue Act
of 1982 is provided in Part 4 of the 1984 Budget. Detailed discussions of the Social Security Amendments of 1983,
the Interest and Dividends Tax Compliance Act of 1983, and the Railroad Retirement Revenue Act of 1983 are
provided in Part 4 of the 1985 Budget. The major provisions of the Deficit Reduction Act of 1984 are described in
Part 4 of the 1986 Budget.
4-6
THE BUDGET FOR FISCAL YEAR 1988
TAX REFORM ACT OF 1986
Reduction in Individual Income Tax Rates,—The 15 tax brackets
and tax rates of prior law will be reduced to two tax brackets and
two rates—15 and 28 percent—effective January 1, 1988. Beginning
in 1988, the benefit of the 15 percent bracket will be phased out for
taxpayers with taxable income exceeding specified levels, implicitly
creating a marginal tax rate of 33 percent in the affected income
range. These levels and the taxable income threshold at which the
28 percent rate applies will be adjusted annually for inflation
beginning in 1989. A transitional tax rate schedule, consisting of
five tax brackets and five tax rates—ranging from 11.0 percent to
38.5 percent—is in effect in 1987.
Increase in Standard Deduction (Zero Bracket Amount),—The
zero bracket amount, which was $3,670 for a married couple filing
a joint return in 1986 and $2,480 for a single taxpayer or a head of
household, was replaced with a standard deduction. For a married
couple filing a joint return, the standard deduction is $3,760 in
1987 and will rise to $5,000 in 1988. For a single taxpayer, the
standard deduction is $2,540 in 1987 and will rise to $3,000 in 1988.
For a head of household, the standard deduction is $2,540 in 1987
and will rise to $4,400 in 1988. Beginning in 1989, the standard
deduction will be adjusted annually for inflation. For elderly or
blind taxpayers, the standard deduction in 1987 will rise to $5,000
on a joint return, $3,000 on a single return, and $4,400 on a head of
household return. For 1987 and 1988, each elderly or blind individ
ual will receive an additional standard deduction of $600 if they
are married or a surviving spouse, and $750 if they are unmarried.
These additional standard deductions will be adjusted annually for
inflation beginning in 1989.
Increase in Personal Exemption.—The personal exemption was
increased from $1,080 in 1986 to $1,900 in 1987, and will increase to
$1,950 in 1988, and to $2,000 in 1989. The exemption will be in
dexed annually for inflation beginning in 1990. The additional
exemptions provided elderly and blind individuals under prior law
were repealed effective January 1, 1987, and replaced with the
additional standard deductions discussed above.
Repeal of Two-earner Deduction.—Under prior law, two-earner
married couples filing a joint return were allowed a deduction
equal to the lesser of $3,000 or 10 percent of the earnings of the
lower-earning spouse. This deduction was repealed effective Janu
ary 1, 1987.
Repeal of Income Averaging.—Under prior law, eligible individ
uals could apply a marginal tax rate that was lower than their
FEDERAL RECEIPTS BY SOURCE
4-7
statutory rate to the portion of their taxable income that was more
than 40 percent higher than their average taxable income for the
prior 3 years. Income averaging was repealed for all taxpayers
effective January 1, 1987.
Limitation on Deduction for Medical Expenses.—Under prior
law, unreimbursed medical care expenses were deductible to the
extent that they exceeded 5 percent of adjusted gross income (AGI).
Effective January 1, 1987, the floor on the amount of deductible
medical expenses was increased to 7.5 percent of AGI.
Taxation of Unemployment Compensation Benefits.—A portion of
unemployment compensation benefits received under a Federal or
State program was excluded from income subject to tax under prior
law. Unemployment compensation benefits became fully taxable
effective January 1, 1987.
Limitation on Exclusion for Scholarship and Fellowship
Income.—Scholarship and fellowship income, which generally was
excluded from tax under prior law, became taxable to the extent
that it exceeds tuition and related expenses effective January 1,
1987.
Increase in Earned Income Tax Credit.—Under prior law, individ
uals with one or more children and earned income of less than
$11,000 were eligible for a refundable income tax credit. The credit
was equal to 11 percent of the first $5,000 of earned income, for a
maximum credit of $550. The amount of the credit was phased out
for individuals with earned income (or, if greater, adjusted gross
income) between $6,500 and $11,000. Effective January 1, 1987, the
earned income tax credit was increased to 14 percent of the first
$6,080 of earned income, for a maximum credit of $851. The
amount of the credit is phased out for individuals with earned
income (or, if greater, adjusted gross income) between $6,920 and
$15,432. In 1988, the credit will be indexed for inflation and the
phaseout range will be raised substantially. Depending on the
exact inflation rate, the credit will be 14 percent of the first $6,200
of earned income for a maximum credit of about $865. The phase
out range will be approximately $9,700 to $18,400.
Repeal of State and Local Sales Tax Deduction.—The prior law
itemized deduction for State and local sales taxes was repealed
effective January 1, 1987.
Repeal of Capital Gains Exclusion for Individuals.—Under prior
law, individuals were allowed to exclude 60 percent of their net
long-term capital gains from tax, resulting in a maximum marginal
tax rate on long-term capital gains of 20 percent. The net capital
4-8
THE BUDGET FOR FISCAL YEAR 1988
gains exclusion was repealed effective January 1, 1987. Because of
the transitional individual income tax rate schedule in effect in
1987, the law provides that net long-term capital gains for that
year cannot be taxed at rates exceeding 28 percent.
Limitation on Miscellaneous Itemized Deductions.—Miscellane
ous itemized deductions, such as union dues, tax preparation fees,
and business periodicals, were fully deductible under prior law. In
addition, moving expenses and certain employee business expenses
such as unreimbursed travel and transportation costs, were deduct
ible whether or not a taxpayer itemized deductions. Effective Janu
ary 1, 1987, these items became itemized deductions and all but
moving expenses are deductible only to the extent that they exceed
2 percent of adjusted gross income. Moving expenses are deductible
without regard to the 2 percent floor.
Limitation on Deductibility of Contributions to an Individual
Retirement Account (IRA).—Individuals who do not actively partici
pate in an employer sponsored pension plan are allowed to deduct
up to $2,000 in annual contributions to an IRA ($2,250 in annual
contributions to a spousal IRA), as under prior law. Effective Janu
ary 1, 1987, the deduction was eliminated for individuals who file a
joint return if either spouse actively participates in an employersponsored plan and their adjusted gross income is greater than or
equal to $50,000; the maximum deductible contribution was phased
out for such individuals with adjusted gross income between
$40,000 and $50,000. The deduction was eliminated for single tax
payers who actively participate in an employer sponsored plan and
have adjusted gross income greater than or equal to $35,000; the
maximum deductible contribution was phased out for such individ
uals with adjusted gross income between $25,000 and $35,000. How
ever, employees not eligible for deductible IRAs, or whose incomes
fall within the phaseout range and are eligible for only partial
deductible IRAs, can contribute to non-deductible IRAs. Taxpayers
will be able to make deductible contributions for 1986 up to the due
date of their 1986 return, as under prior law.
Limitation on Consumer Interest Deduction.—The deductibility of
interest on credit cards, car loans, student loans, and other con
sumer loans was repealed. The deductibility of interest on a princi
pal residence or a second home was retained, provided the indebt
edness does not exceed the purchase price of the property plus
improvements, or any excess is used for certain educational or
medical expenses. This limitation, which applies to all interest paid
after December 31, 1986, will be phased in and become fully effec
tive January 1, 1991.
FEDERAL RECEIPTS BY SOURCE
4-9
Limitation on Deductibility of Passive Losses.—Losses from pas
sive trade or business activities, which were fully deductible under
prior law, are deductible only to the extent that they do not exceed
passive income. An exception is provided for individuals who ac
tively participate in rental real estate activities; these individuals
are allowed to deduct up to $25,000 in annual passive losses against
other sources of income. However, the $25,000 amount is reduced
by 50 percent of the amount by which the taxpayer’s adjusted gross
income (excluding losses from passive activities) exceeds $100,000.
These limitations will be phased in beginning January 1, 1987, and
will become fully effective January 1, 1991.
Repeal of Investment Tax Credit.—A credit against the income
tax of up to 10 percent of a taxpayer’s investment in depreciable
property (generally not including buildings or their structural com
ponents) was allowed under prior law. This credit was repealed for
most property placed in service after December 31, 1985. However,
certain property will continue to be eligible for the investment
credit for various periods through 1990.
Reduction in Corporation Income Tax Rates.—Under prior law,
corporate income was subject to tax under a 5-bracket rate sched
ule, with rates ranging from 15 to 46 percent. The benefit of the
graduated rate structure was phased out for corporations with
taxable income in excess of $1 million. Effective July 1, 1987,
corporate income will be subject to tax under a 3-bracket rate
schedule, with rates of 15, 25, and 34 percent. The benefit of the
graduated rate structure is fully phased out for corporations with
taxable income in excess of $335,000.
Modification of Accelerated Cost Recovery System (ACRS) of De
preciation.—Under ACRS, personal property is depreciated over 3,
5, 10, or 15 years, under the 150 percent declining balance method.
Real property generally is depreciated over 19 years under the 175
percent declining balance method. ACRS was modified for property
placed in service after December 31, 1986. Under the modified
system, personal property and certain real property are depreciat
ed over 3, 5, 7, 10, 15, and 20 years; real property generally is
depreciated over 27.5 years for residential rental property and 31.5
years for non-residential property. Each class of property is depre
ciated under prescribed depreciation methods. Property in the 3-,
5-, 7-, and 10-year classes is depreciated under the double declining
balance method, switching to the straight line method. The 150
percent declining balance method, switching to the straight line
method, is used to depreciate 15- and 20-year property. The straight
line method is used to depreciate 27.5- and 31.5-year property.
4-10
THE BUDGET FOR FISCAL YEAR 1988
Extension of Research and Experimentation Credit.—The 25 per
cent credit provided certain incremental research and experimenta
tion expenditures paid or incurred in carrying on an existing trade
or business was extended, at a reduced 20 percent rate, from Janu
ary 1, 1986 through December 31, 1988. The credit had expired
December 31, 1985.
Modification of Alternative Minimum Tax (AMT) for Individ
uals.—Under prior law, the AMT was equal to 20 percent of an
individual's AMT taxable income (regular adjusted gross income
plus certain tax preferences) less an exemption amount ($40,000 for
a married couple filing a joint return and $30,000 for a single
taxpayer). Effective January 1, 1987, the AMT tax rate was in
creased to 21 percent and the computation of certain tax prefer
ences was modified. In addition, the exemption amount was phased
out for married taxpayers with AMT taxable income exceeding
$150,000 and for single taxpayers with AMT taxable income ex
ceeding $112,500.
Replacement of Corporate Add-on Minimum Tax With an Alter
native Minimum Tax.—The corporate add-on minimum tax of prior
law was replaced with an alternative minimum tax (AMT) effective
January 1, 1987. The AMT is equal to 20 percent of a corporation’s
AMT taxable income (regular taxable income plus certain adjust
ments and preferences) less a $40,000 exemption. The exemption is
phased out for corporations with alternative minimum taxable
income in excess of $150,000. The excess, if any, of the AMT over
the regular corporation income tax may generally be credited
against future regular tax payments.
Limitation on Deductibility of Investment Interest.—Under prior
law, investment interest was deductible to the extent of net invest
ment income (the excess of investment income over investment
expenses) plus $10,000. This Act limited the deductibility of invest
ment interest to the extent of net investment income. This limita
tion, which applies to all interest paid after December 31, 1986, will
be phased in and become fully effective January 1, 1991.
Deductibility of Health Insurance Costs of Self-Employed Individ
uals.—Effective January 1, 1987 through December 31, 1989, 25
percent of the amount paid for health insurance on behalf of a selfemployed individual and the individual’s spouse and dependents is
deductible, provided the health insurance satisfies nondiscrimina
tion requirements.
Limitation on the Issuance of Tax-Exempt Bonds.—Two existing
State-by-State volume caps on the issuance of private activity
bonds (those financing loans to industry or to individuals for mort
FEDERAL RECEIPTS BY SOURCE
4-11
gages or student loans) were combined into a single tighter volume
cap. Bonds issued for certain purposes such as pollution control
and sports facilities will no longer be tax exempt; on the other
hand, prior law sunsets for both single family mortgage revenue
bonds and certain industrial development bonds were each ex
tended by one year. The number of advance refundings of taxexempt bonds was limited and the ability to earn arbitrage by
investing proceeds of tax-exempt bonds in taxable instruments was
reduced. These changes generally apply to bonds issued after
August 15, 1986.
Increase in Taxpayer Compliance.—The tax penalty for under
statement of tax was increased from 10 percent to 20 percent;
penalties for fraud, failure to file information returns, and failure
to pay penalties were increased; the interest rate on tax deficien
cies was increased; and information reporting requirements were
expanded.
Limitation on Deduction for Business Meals and Entertain
ment.—Expenses for business meals and entertainment were fully
deductible under prior law. Effective January 1, 1987, this deduc
tion was limited to 80 percent of expenses incurred.
Repeal of Dividend Exclusion for Individuals.—The $200 divi
dend exclusion for married couples filing a joint return ($100 for
single taxpayers) was repealed effective January 1, 1987.
Changes in Requirements for Qualified Pensions.—Effective Jan
uary 1, 1987, the amount an employee can exclude from his adjust
ed gross income under a qualified cash or deferred arrangement
with his employer was limited to $7,000 per year. The amount an
employee may exclude from his taxable income by his own contri
bution to a tax-sheltered annuity cannot exceed $9,500 per year.
Existing nondiscrimination rules were tightened and qualified pen
sion plans were required to cover a broader group of employees. To
improve income security after retirement for individuals who
change jobs, an individual's employer-provided pension benefits
must vest more rapidly than under prior law.
CONSOLIDATED OMNIBUS BUDGET RECONCILIATION
ACT OF 1985 (COBRA)
Extension of Cigarette Excise Tax.—The 16 cents per pack ciga
rette excise tax, which was scheduled to decline to eight cents per
pack effective March 15, 1986, was permanently extended.
Taxation of Smokeless Tobacco.—Effective July 1, 1986, an excise
tax of eight cents per pound was imposed on chewing tobacco and
an excise tax of 24 cents per pound was imposed on snuff.
4-12
THE BUDGET FOR FISCAL YEAR 1988
Increase in Excise Tax on Coal Production.—The excise tax on
coal production was increased to the lesser of $1.10 per ton for coal
from underground mines and 55 cents per ton for coal from surface
mines, or 4.4 percent of the sales price. These taxes became effec
tive April 1, 1986.
Extension of Medicare (HI) Coverage to New State and Local
Government Employees.—Medicare coverage was extended to all
State and local government employees hired after March 31, 1986,
for services performed after that date. States also were allowed to
extend medicare coverage (without extending coverage for social
security benefits) to State and local government employees hired
prior to April 1, 1986, by means of a voluntary agreement with the
Secretary of Health and Human Services.
Repeal of Income Averaging for Former Students.—Effective Jan
uary 1, 1986, income averaging was repealed for individuals who
were full-time students during any of the preceding three years.3
FEDERAL EMPLOYEES’ RETIREMENT SYSTEM ACT OF
1986
Establishment of Federal Employees9 Retirement System
(FERS).—Federal employees hired after December 31, 1983 are
covered under FERS and social security. These employees are con
tributing 1.3 percent of their pay to FERS in 1987, and will contrib
ute 0.94 percent in 1988 and 1989, and 0.8 percent beginning in
1990. Employees hired before January 1, 1984, who are currently
covered under the Civil Service Retirement System (CSRS), may
make an irrevocable election to join FERS and social security
between July 1, 1987 and December 31, 1987.
Establishment of Thrift Savings Fund.—After an initial transi
tion period, employees covered under FERS may contribute up to
10 percent of their pay to a special tax deferred savings plan. The
employing agency automatically contributes 1 percent of pay into
each employee’s thrift plan, even if the employee contributes noth
ing. The agency will match 100 percent of the first 3 percent of pay
contributed by the employee, and 50 percent of the next 2 percent
of pay contributed by the employee.4 After an initial transition
period, employees covered under CSRS may contribute up to 5
percent of pay to the thrift fund; however, the employing agency
will not match the contributions of these employees.5
3 The Tax Reform Act of 1986 subsequently repealed income averaging for all taxpayers, as discussed above.
4 The Omnibus Budget Reconciliation Act of 1986 delayed the effective date of the Thrift Savings Fund from
January 1, 1987 to April 1, 1987, but increased the maximum allowable employee contribution to 15 percent of
pay through September 30, 1987.
8 The Omnibus Budget Reconciliation Act of 1986 changed the date on which employees covered under CSRS
may begin contributing to the thrift plan from July 1, 1987 to April 1, 1987. This Act also increased the
maximum allowable contribution of these employees to 7.5 percent of pay through September 30, 1987.
FEDERAL RECEIPTS BY SOURCE
4-13
OMNIBUS BUDGET RECONCILIATION ACT OF 1986
Elimination of 3 Percent Threshold for Social Security Cost-ofLiving Increases.—Under prior law, social security benefits were
not provided a cost-of-living adjustment (COLA) if the consumer
price index (CPI) increased by less than 3 percent. The maximum
level of wages and salaries subject to the social security (OASDHI)
payroll tax was adjusted annually for inflation only if a COLA was
provided. This 3 percent threshold was eliminated, effective the
date of enactment.
Acceleration of State and Local Deposit of Social Security Payroll
Taxes . —Under prior law, States were required to make semi
monthly deposits of social security taxes on their own behalf and
for sub-State entities. Private employers and the Federal Govern
ment deposit these taxes under a more timely, flexible schedule.
Effective for social security taxes on wages paid after December 31,
1986, States are no longer liable for deposit of taxes by sub-State
entities. In addition, State and local government employers are
subject to the same deposit schedule, and the same interest charges
and penalities for late deposit, as private employers.
Acceleration of Collection of Certain Excise Taxes.—Under prior
law, excise taxes on alcohol and tobacco products were paid semi
monthly, with payments due 15 to 30 days after the close of each
semi-monthly period. Effective for semi-monthly periods ending on
or after December 31, 1986, excise taxes on these products are due
14 days after the close of the semi-monthly period.
Increases in Certain Tax Penalties.—The penalty for failure to
comply with deposit requirements was increased from 5 percent to
10 percent effective for all penalties assessed after the date of
enactment. The penalty for substantial understatement of tax was
increased from 10 percent to 25 percent, effective for such penalties
assessed after the date of enactment.
Increase in Customs User Fee.—An ad valorem tax of 0.22 percent
was imposed on the value of imported merchandise. This tax,
which was in addition to the customs processing fee on certain
passengers and conveyances required under prior law, will decline
to 0.17 percent effective October 1, 1988, and expire September 30,
1989.
SUPERFUND AMENDMENTS AND REAUTHORIZATION ACT
OF 1986
Reauthorization of Hazardous Substance Response Trust Fund
(Superfund).—To help finance a 5-year extension of the Superfund
4-14
THE BUDGET FOR FISCAL YEAR 1988
toxic waste cleanup program, the following taxes became effective
January 1, 1987:
• Excise taxes of 8.2 cents per barrel and 11.7 cents per barrel
were levied on domestic crude oil and imported petroleum
products, respectively. Under the prior law authorization,
which expired September 30, 1985, importers and domestic
producers were taxed at a rate of 0.79 cent per barrel.
• The excise taxes imposed on the sale of 42 organic and inor
ganic substances generally remained at their prior law rates.
The excise tax on xylene was increased from its prior law rate
of $4.87 per ton to $10.13 per ton.
• A broad-based tax, equal to 0.12 percent of alternative mini
mum taxable income in excess of $2 million, was imposed on
all corporations.
Establishment of Leaking Underground Storage Tank (LUST)
Trust Fund.—To help finance the cleanup of wastes from leaking
underground petroleum storage tanks, which pose a threat to
drinking water, a 0.1 cent per gallon excise tax was imposed on
gasoline, diesel fuels and other special motor fuels effective Janu
ary 1, 1987.
CONTINUING RESOLUTION FOR FISCAL YEAR 1987
Increase in Internal Revenue Service (IRS) Funding.—Funds were
provided IRS for additional examiners; additional staff to handle
appeals and litigation related to tax shelters; an automated exami
nation system; and a system to match information documents sup
plied by third parties against taxpayer returns. These increases in
staffing and equipment will help IRS close the gap between taxes
owed and taxes paid.
Establishment of Immigration and Naturalization Service (INS)
Inspection Fee.—To cover the cost of immigration inspection and
pre-inspection services, a fee of $5 was levied on each passenger
arriving at a port of entry in the United States, or receiving pre
inspection prior to such arrival. Passengers entering from Canada,
Mexico, or a territory or possession of the United States are ex
empted from this fee, which generally applies to immigration in
spection services rendered after November 30, 1986 and before
December 1, 1988.
4-15
FEDERAL RECEIPTS BY SOURCE
EFFECT OF MAJOR LEGISLATION ENACTED IN 1986 ON RECEIPTS 1
(In billions of dollars)
1986
1987
1988
1989
1990
-0.2
*
1.2
0.1
-0.2
0.3
2.3
0.2
0.2
-0.1
0.4
2.3
0.2
0.2
-0.1
0.5
2.3
0.2
0.3
-0.1
0.6
2.3
0.9
2.7
3.0
3.0
3.1
-0.1
-0.3
-0.7
-0.2
-0.7
-0.8
-0.1
-0.4
-0.8
-0.8
-0.9
0.7
0.1
1.1
0.4
0.4
0.7
*
1.5
*
0.4
0.1
0.7
0.1
1.1
♦
0.4
0.8
0.1
0.1
2.6
2.8
2.4
1.0
-0.1
0.2
0.6
-0.2
0.4
0.9
-0.2
0.4
0.9
-0.2
0.4
0.9
0.6
1.0
1.1
1.1
1.1
0.8
-0.1
0.1
1.9
1.4
1.2
_*
0.1
2.7
1.2
1.2
1.3
1.2
2.4
2.5
Individual income tax provisions:
Individual income taxes.. .. .. .. .. .. .. .. .. ..
Corporation income taxes.. .. .. .. .. .. .. .. ..
Social insurance taxes and contributions..
Subtotal, individual income tax provisions..
-37.7
1.4
0.1
-36.3
-48.6
2.2
0.1
-46.3
-62.7
2.2
0.1
-60.3
-69.1
2.4
0.1
-66.6
Capital cost provisions:
Individual income taxes.. .. .. .. .. .. .. .. .. .. .. .. .
Corporation income taxes.. .. .. .. .. .. .. .. .. .. .. .
Subtotal, capital cost provisions..
4.7
18.9
23.6
3.9
17.1
21.0
5.3
23.3
28.6
6.7
29.0
35.7
Consolidated Omnibus Budget Reconciliation
Act of 1985
Individual income taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Corporation income taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Social insurance taxes and contributions.. .. .. .. .. .. .
Excise taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Customs duties.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Total, Consolidated Omnibus Budget Rec
onciliation Act of 1985.. .. .. .. .. .. .. .. .. .
Federal Employees’ Retirement System Act of
1986
Individual income taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Social insurance taxes and contributions.. .. .. .. .. .. .
Total, Federal Employees' Retirement
System Act of 1986.. .. .. .. .. .. .. .. .. .. ..
Omnibus Budget Reconciliation Act of 1986
Individual income taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Corporation income taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Social insurance taxes and contributions.. .. .. .. .. ..
Excise taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Customs duties.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Miscellaneous receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Total, Omnibus Budget Reconciliation Act
of 1986.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Superfund Amendments and Reauthorization
Act of 1986
Individual income taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Corporation income taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Excise taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Total, Superfund Amendments and Reau
thorization Act of 1986.. .. .. .. .. .. .. .. ..
Continuing Resolution for 1987
Individual income taxes.. .. .. .. .. .. .. .. .. .. .. ..
Corporation income taxes.. .. .. .. .. .. .. .. .. .. .
Social insurance taxes and contributions.. ..
Miscellaneous receipts.. .. .. .. .. .. .. .. .. .. .. .. .
Total, Continuing Resolution for 1987
Tax Reform Act of 1986
4-16
THE BUDGET FOR FISCAL YEAR 1988
EFFECT OF MAJOR LEGISLATION ENACTED IN 1986 ON RECEIPTS—Continued
(In billions of dollars)
1987
1988
1989
1990
Accounting provisions:
Individual income taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .
Corporation income taxes.. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, accounting provisions.. .. .. .. .. .. ..
0.3
8.9
9.2
1.3
12.6
14.0
1.2
11.8
13.0
1.2
11.1
12.3
Capital gains:
Individual income taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .
Corporation income taxes.. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, capital gains.. .. .. .. .. .. .. .. .. .. .. .. .
12.5
0.5
13.0
-1.5
0.9
-0.6
-0.1
1.0
1.0
3.4
1.2
4.6
2.2
0.1
0.1
1.1
0.3
*
*
2.4
0.4
*
*
2.5
0.5
*
♦
2.4
1.4
2.7
3.0
0.1
-6.2
-0.4
-17.7
*
-0.9
-25.8
*
-0.9
-29.7
*
-6.0
-18.0
-26.7
-30.6
Interest expense (individual income taxes).. .. .. .. ..
1.2
3.1
4.6
5.8
Minimum tax provisions:
Individual income taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .
Corporation income taxes.. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, minimum tax provisions.. .. .. .. .. ..
1.4
2.7
4.1
3.7
4.6
8.3
0.9
4.8
5.7
-0.5
4.2
3.7
Pensions and employee benefits:
Individual income taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .
Corporation income taxes.. .. .. .. .. .. .. .. .. .. .. .. .
Social insurance taxes and contributions.. .. .. .
Excise taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Estate and gift taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, pensions and employee benefits
3.2
1.2
-0.1
0.2
-0.7
3.8
8.4
0.9
_*
0.1
-0.6
8.7
8.2
0.2
♦
-1.2
7.2
9.0
-0.1
*
-1.9
7.0
_*
-1.7
_*
-1.2
_*
-0.7
_*
-0.4
-1.7
-1.2
-0.8
-0.4
0.8
*
0.8
3.4
-0.2
3.3
5.7
-0.6
5.1
8.0
-1.0
7.0
1.9
2.4
*
1.3
5.5
0.3
1.2
6.9
0.2
1.2
8.2
0.2
1986
Compliance and administration:
Individual income taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .
Corporation income taxes.. .. .. .. .. .. .. .. .. .. .. .. .
Excise taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Estate and gift taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, compliance and administration.. ..
Corporate and general business taxation:
Individual income taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .
Corporation income taxes.. .. .. .. .. .. .. .. .. .. .. .. .
Excise taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Subtotal, corporate and general business
taxation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Research and development provisions:
Individual income taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .
Corporation income taxes.. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, research and development provi
sions .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Tax shelters and real estate:
Individual income taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .
Corporation income taxes.. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, tax shelters and real estate.. .. .. .
Other:
Individual income taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .
Corporation income taxes.. .. .. .. .. .. .. .. .. .. .. .. .
Excise taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
4-17
FEDERAL RECEIPTS BY SOURCE
EFFECT OF MAJOR LEGISLATION ENACTED IN 1986 ON RECEIPTS—Continued
(In billions of dollars)
1987
1988
1989
1990
Subtotal, other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
4.3
7.2
8.3
9.6
Total, Tax Reform Act of 1986 2.. .. .. .. .. ..
18.6
0.9
-11.7
-9.0
-7.7
29.1
0.9
3.7
-0.7
0.6
0.1
26.0
-22.8
26.7
1.8
3.7
-0.6
0.5
0.2
9.5
-33.0
24.9
1.6
3.5
-1.2
0.6
*
-31.4
26.9
0.8
3.5
-1.9
*
-3.5
-2.1
1986
ADDENDUM
Total effect on receipts by source:
Individual income taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .
Corporation income taxes.. .. .. .. .. .. .. .. .. .. .. ..
Social insurance taxes and contributions.. .. .. .
Excise taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Estate and gift taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Customs duties.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Miscellaneous receipts.. .. .. .. .. .. .. .. .. .. .. .. .. ..
Total.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
_*
-0.2
*
1.2
*
0.9
* $50 million or less.
1 These estimates are based on the direct effect only of legislative changes at a given level of economic activity. Induced effects on the
economy are taken into account in forecasting incomes, however, and in this way affect the receipts estimates by major source and in total.
2 The Tax Reform Act of 1986 also increases outlays by the following amounts: 1987, $0.1 billion; 1988, $1.7 billion; 1989, $2.8 billion; and
1990, $2.8 billion.
RECEIPTS PROPOSALS
The President believes firmly that tax reform must not be
undone with income tax rate increases, and has pledged to oppose
any such attempt to raise taxes. In keeping with this pledge, the
receipt changes proposed in this budget are limited to initiatives to
collect taxes owed but not paid, increased user charges for Federal
services, and trust fund reforms. Together, these changes are esti
mated to increase receipts $6.1 billion in 1988. The major changes
being proposed are discussed below.
Internal Revenue Service (IRS) Initiatives.—As a result of the
Tax Reform Act of 1986, the tax system is simpler and fairer,
making it easier for taxpayers to pay the correct amount of taxes
and for IRS to determine how much each taxpayer owes. The
administration proposes to increase IRS funding in 1988 to ensure
the smooth implementation of tax reform, to improve tax law
enforcement, and to close the gap between taxes owed and taxes
paid. These initiatives are estimated to increase 1988 receipts by
$2.4 billion. This increase is in addition to the $5.0 billion in 1988
receipts (reflected in the current services receipts estimates) that is
estimated to result from increased taxpayer compliance due to tax
reform, recent increases in penalties, and more effective enforce
ment.
Extension of Medicare Hospital Insurance (HI) Coverage to All
State and Local Government Employees.—A minority of State and
local government employees who were hired prior to April 1, 1986
may not be assured of medicare coverage. Moreover, because of
4-18
THE BUDGET FOR FISCAL YEAR 1988
eligibility through their spouse or short periods of work in covered
employment, as many as three out of four State and local employ
ees who contribute nothing to the program are entitled to the full
range of medicare benefits. Coverage of these employees, who are
the only major group of employees not assured of medicare cover
age, would eliminate this drain on the medicare trust fund. This
change in coverage, proposed to be effective January 1, 1988, is
estimated to increase receipts $1.6 billion in 1988.
Repeal of Exemptions from Gasoline and Other Highway Excise
Taxes.—Under current law, gasohol and certain other alcohol fuels
are exempted from Federal excise taxes on gasoline and diesel fuel.
Public bus operators are fully exempted from Federal gasoline,
diesel fuel, and other highway excise taxes; in general, private bus
operators are fully or partially exempted from these taxes. State
and local governments are exempted from all Federal highway
excise taxes. Consistent with its position that highway users should
pay taxes that correspond to the wear and tear that they cause the
highway system, the administration proposes to repeal these ex
emptions effective October 1, 1987, resulting in increased receipts
to the highway trust fund of $0.8 billion in 1988.
Increase in Contribution to the Rail Industry Pension Fund.—
Financing legislation for the rail industry pension fund enacted in
1974, 1981, and 1983 was based on what have proven to be optimis
tic assumptions, and Railroad Retirement Board actuaries now
recommend raising rail pension finances. To protect the solvency of
the fund, the administration proposes to increase rail pension con
tributions 1.5 percent effective January 1, 1988, and an additional
1.5 percent effective January 1, 1989. These changes are estimated
to increase receipts $0.1 billion in 1988 and $0.3 billion in 1989.
Requirement that Employers Pay the Employer Portion of the
Social Security (OASDHI) Payroll Tax on Total Tips.—Under cur
rent law, employees must pay their portion of the OASDHI payroll
tax on the total amount of cash tips; the liability of their employ
ers, however, generally is limited to the amount of tips considered
to be wages under the Federal minimum wage law. Benefits are
based on the total amount of cash tips. To eliminate this cross
subsidy from other employers, the administration proposes that the
employer contribution be based on the total amount of cash tips.
This proposal is estimated to increase 1988 receipts by $0.2 billion.
Increase in Excise Tax on Coal Production.—The excise tax paid
by coal mine operators is insufficient to cover the cost of medical
and income replacement benefits for miners disabled by the black
lung disease, for which those operators are legally responsible. The
black lung disability trust fund will be $2.9 billion in debt by the
FEDERAL RECEIPTS BY SOURCE
4-19
end of 1988, even though the Federal Government has assumed
responsibility for paying almost $1 billion a year in income replace
ment benefits for some miners and the general taxpayer currently
is required to pay the interest cost on the amounts the trust fund
has borrowed. The administration proposes to increase the excise
tax receipts to the trust fund by $357 million in 1988 and to repeal
the requirement that the general taxpayer pay the interest costs.
These changes, together with modest benefit reforms, would elimi
nate the trust fund deficit by the year 2007.
Extension of Social Security (OASDHI) Coverage to Certain Earn
ings.—Under current law some 1.4 million Armed Forces reservists
do not receive social security credit for their inactive duty earn
ings, because inactive duty training has not been covered employ
ment. Earnings from full time active duty or active duty training
are covered. The administration proposes to extend coverage to
inactive duty earnings. The administration also proposes to extend
coverage to certain students and agricultural workers, children age
18-21 employed by their parents, and spouses employed by the
other spouse. The proposal would also conform the social security
treatment of group term life insurance to the income tax treat
ment. These changes, proposed to become effective January 1, 1988,
are estimated to increase receipts $0.3 billion in 1988.
Increase in Customs User Fee.—Last year Congress enacted an ad
valorem tax on imports of 0.22 percent of value in 1987, dropping
to 0.17 percent in 1988, and expiring September 30, 1989. In imple
menting this change, Congress exempted imports with Americanmade components. The administration proposes to correct this tech
nical deficiency to ensure that the costs of services provided by the
U.S. Customs Service are borne by the users of those services and
not the general taxpayer. The administration also proposes to
extend the fee beyond its scheduled expiration date. This proposal
is estimated to increase receipts $0.1 billion in 1988.
Extension of Federal/State Unemployment Insurance Coverage to
Railroad Employment.—Railroad employment is the only sector
not covered by the Federal/State unemployment insurance system.
The separate Railroad Sickness and Unemployment Insurance
Fund (RSUI), which is financed by payroll taxes paid by rail em
ployers, is deeply in debt to the rail pension fund. Rail pension
actuaries have recommended immediate action to begin improving
the solvency of the rail pension fund. This fund cannot afford to be
a “rich uncle” to the unemployment fund when it is facing poten
tially serious financial problems.
To ensure sound financing of rail unemployment benefits and
repayment of debts to the financially ailing rail pension fund, the
4-20
THE BUDGET FOR FISCAL YEAR 1988
administration is renewing its proposal that Federal/State unem
ployment insurance coverage be extended to railroad employment.
Under a transitional Federal program, all rail workers becoming
unemployed after September 30, 1987 would be eligible for general
ly higher benefits under the Federal/State system. Existing RSUI
debt repayment contributions from rail employers would remain in
place to finance sickness payments and ensure that RSUI’s debt to
the rail pension fund is repaid. This proposal is estimated to in
crease receipts by $0.1 billion in 1988.
Initiation of Internal Revenue Service (IRS) Fees.—The adminis
tration is again proposing that the IRS impose fees on letters of
determination and private letter rulings. The IRS, upon written
request by a taxpayer, will issue a private letter ruling to give
assurance of the IRS position on a transaction under consideration.
This ensures that the transaction can be completed in such a way
that it will not be challenged by the Government. Determination
letters primarily concern employee benefit plans and tax exempt
organizations. These fees, proposed to become effective October 1,
1987, are estimated to increase receipts by $0.1 billion in each year,
beginning in 1988.
Initiation of Rail Sector Financing of a Portion of Windfall
Subsidy.—The Federal Government subsidizes 100 percent of the
windfalls created when railroad retirement and social security ben
efits were uncoordinated. Prior to 1985, railroad retirees covered
under both social security and railroad retirement received higher
benefits than they would have received had all employment been
covered under railroad retirement. Congress enacted legislation in
1974 to stop accrual of these additional benefits, or windfalls, and
authorized 25 level annual appropriations to fund remaining wind
falls. The General Accounting Office has found that rail industry
funded pensions are reduced by some 25 percent of windfall
amounts, and has suggested that it may be more accurate to subsi
dize only 75 percent of total windfall costs. Consistent with the
administration’s policy of limiting subsidies provided to higher
income recipients of Federal benefits, rail sector financing of 25
percent of windfall benefits is being reproposed. This change, pro
posed to become effective October 1, 1987, is estimated to reduce
the annual windfall subsidy of some $1,100 per employee to about
$820 in a sector with average annual wages of some $40,000 per
rail worker. This proposal is estimated to increase receipts $0.1
billion in each year, beginning in 1988.
Increase in the District of Columbia (D.C.) Employer Contribution
to the Civil Service Retirement System (CSRS).—The D.C. Govern
ment currently contributes 7 percent of wages and salaries to
FEDERAL RECEIPTS BY SOURCE
4-21
CSRS; D.C. Government employees contribute an additional 7 per
cent. The cost of civil service retirement exceeds the combined
contribution of the D.C. Government and its employees. Beginning
in 1988, the administration proposes to increase the D.C. Govern
ment employer contribution as necessary to cover the full cost of
the program.6 This proposal is estimated to increase receipts by
small amounts in each year.
Increase in Fees on Nuclear Power Plants,—The administration is
proposing increasing existing fees to recover 50 percent of Nuclear
Regulatory Commission (NRC) and Federal Emergency Manage
ment Administration (FEMA) costs for regulating nuclear power
plants. It is estimated that these fees will increase receipts $0.1
billion in each year, beginning in 1987.
Other,—Additional changes being proposed include: extension of
the Immigration and Naturalization Service inspection fees at cur
rent rates; inclusion of income replacement benefits for miners
disabled by the black lung disease in taxable income; initiation of
Federal marine fishing license fees for commerical and recreational
fishing; increases in fees for services provided by the Treasury’s
Bureau of Alcohol, Tobacco, and Firearms; and repeal of the wind
fall profit tax.
EFFECT OF ENACTED AND PROPOSED CHANGES ON
RECEIPTS
The actual change in receipts that will result from an enacted or
proposed tax revision will depend on both the direct effect of the
tax change and the indirect or “feedback” effect. The direct effect
is the increase or decrease in receipts due only to the tax change at
the levels of income reflected in the administration’s forecast. The
indirect or feedback effect is the increase or decrease in receipts
due to the effect of the tax change on income levels.
The estimates of the effect of enacted and proposed tax changes
shown in this budget represent the direct effect of these changes on
receipts, based on the levels of corporate and individual income
reflected in the administration’s forecast. These levels of income
already reflect enactment of the tax change; therefore, the estimat
ed indirect or feedback effect on receipts due to the tax-induced
change in incomes is already included in the baseline (pre-tax
change) estimates of receipts.
For example, the estimates of the effect of the Economic Recov
ery Tax Act of 1981 (ERTA) shown in this budget represent only
the direct effect of the changes provided in the Act, based on the
6 The administration proposes to increase the contribution of the Postal Service in the same way. Contribu
tions of the Postal Service to CSRS are shown on the outlay side of the budget and do not affect receipts.
4-22
THE BUDGET FOR FISCAL YEAR 1988
EFFECT OF PROPOSED LEGISLATION AND ADMINISTRATIVE ACTION ON RECEIPTS 1
(In billions of dollars)
1987
IRS initiatives.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Extend HI coverage to State and local employees.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Repeal gasoline and other highway tax exemptions2.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Increase contribution to rail industry pension fund.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Require employer tax on total tips2.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Increase tax on coal production2.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Extend OASDHI coverage to certain earnings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Customs user fee2.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . *
Railroad unemployment insurance coverage.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
IRS user fees.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Railroad windfall subsidy financing.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
D.C. employer contribution to CSRS.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Nuclear power plant fees.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 0.1
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Total.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 0.1
1988
1989
1990
2.4
1.6
0.6
0.1
0.2
0.3
0.3
0.1
0.1
0.1
0.1
*
0.1
0.1
6.1
3.1
2.2
0.6
0.3
0.3
0.3
0.3
0.1
0.2
0.1
0.1
♦
0.1
0.4
8.0
3.3
2.2
0.6
0.3
0.3
0.3
0.4
0.5
0.2
0.1
0.1
*
0.1
0.4
8.6
1.1
1.0
2.4
(2.0)
(0.4)
1.2
0.4
6.1
(5.8)
(0.4)
1.4
1.4
1.5
1.5
3.5
3.5
(2.9) (2.9)
(0.6) (0.6)
1.2
1.2
1.0
0.5
8.0
8.6
(7.5) (8.0)
(0.6) (0.6)
ADDENDUM
Effect of proposals on receipts by source:
Individual income taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. -*
Corporation income taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Social insurance taxes and contributions.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
On-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Off-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Excise taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . 0.1
Total.. .. .. .. .
0.1
On-budget.
(0.1)
Off-budget
* $50 million or less.
1 These estimates are based on the direct effect only of legislative changes at a given level of economic activity. Induced effects on the
economy are taken into account in forecasting incomes, however, and in this way affect the receipts estimates by major sources and in total.
2 Net of income tax offsets.
levels of income reflected in the administration’s forecast. These
levels of income already reflect enactment of ERTA. The increased
receipts resulting from the tax-induced increase in incomes there
fore are included in the baseline estimates of receipts. The esti
mates of the direct effect of the Economic Recovery Tax Act of 1981
on receipts therefore overstate, in this sense, the net loss to the
Treasury of the income tax reductions and other tax changes pro
vided in the Act.
The estimates in this budget of the effect of the administration’s
proposals on receipts also represent only the direct effect of these
changes. The indirect effect of these proposals is likewise included
in the baseline estimates of receipts.
CHANGES IN RECEIPTS
Receipts are estimated to increase by $73.3 billion in 1987, $74.2
billion in 1988, $59.6 billion in 1989, and $72.1 billion in 1990.
These year-to-year changes can be divided between changes due to
4-23
FEDERAL RECEIPTS BY SOURCE
growth in the tax base and changes due to revisions in the tax
structure. For example, under the tax rates and structure in effect
on January 1, 1981, receipts would have risen by $77.6 billion in
1988. The combined effect of administrative action and enacted and
proposed tax law changes reduces the growth in 1988 receipts by
$3.4 billion.
COMPONENTS OF CHANGES IN RECEIPTS
(In billions of dollars)
1987
1988
1989
1990
Growth in receipts:
Under existing law and administrative action and proposed legislation.. .. .. .. . 73.3 74.2 59.6 72.1
Under tax rates and structure in effect January 1,1981.. .. .. .. .. .. .. .. .. .. .. .. 53.1 77.6 77.0 74.5
Difference.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . 20.2 -3.4 -17.4 -2.4
4-24
THE BUDGET FOR FISCAL YEAR 1988
CHANGES IN RECEIPTS
(In billions of dollars)
1986
Receipts under tax rates and structure in
effect January 1,19811.. .. .. .. .. .. .. .. .. .. .. .. .. 868.6
0.2
Administrative action.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Enacted legislative changes:
Economic Recovery Tax Act of 1981.. .. .. .. .. . -209.8
Tax Equity and Fiscal Responsibility Act of
46.7
1982.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
4.5
Highway Revenue Act of 1982.. .. .. .. .. .. .. .. ..
8.2
Social Security Amendments of 1983 2.. .. .. ..
Interest and Dividends Tax Compliance Act of
1983.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. -2.1
Railroad Retirement Revenue Act of 1983.. .. .
1.1
Deficit Reduction Act of 1984.. .. .. .. .. .. .. .. .. . 16.1
Consolidated Omnibus Budget Reconciliation
0.9
Act of 1985.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Federal Employees’ Retirement System Act of
1986.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Omnibus Budget Reconciliation Act of 1986 3..
Superfund Amendments and Reauthorization
Act of 1986 4.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Continuing Resolution for 1987.. .. .. .. .. .. .. .. ..
Tax Reform Act of 1986 5 .. .. .. .. .. .. .. .. .. .. ..
Social security taxable earnings base in
creases: 6
$29,700 to $32,400 on Jan. 1,1982.. .
5.1
$32,400 to $35,700 on Jan. 1,1983.. .
5.0
$35,700 to $37,800 on Jan. 1,1984.. .
2.5
$37,800 to $39,600 on Jan. 1,1985.. .
2.0
$39,600 to $42,000 on Jan. 1,1986.. .
0.9
$42,000 to $43,800 on Jan. 1,1987.. .
$43,800 to $45,300 on Jan. 1,1988.. .
$45,300 to $47,400 on Jan. 1,1989.. .
$47,400 to $50,100 on Jan. 1,1990.. .
Social security (OASDHI) tax rate in
creases: 6 7
13.3% to 13.4% effective Jan. 1,1982.. ..
1.6
13.4% to 14.0% effective Jan. 1,1984.. ..
11.6
14.0% to 14.1% effective Jan. 1,1985.. ..
2.2
2.7
14.1% to 14.3% effective Jan. 1,1986.. ..
14.3% to 15.02% effective Jan. 1,1988....
15.02% to 15.3% effective Jan. 1,1990....
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
1.2
Proposed legislation and administrative action...
Total, receipts under existing and pro
posed legislation and administrative
action 8.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 769.1
1987
1988
1989
1990
921.6
0.3
999.2
1.0
1,076.2
0.9
1,150.7
0.2
-238.5
-258.7
-282.0
-309.4
56.8
4.7
9.5
58.8
4.9
11.0
58.2
5.1
12.1
59.9
5.1
15.3
-1.7
1.1
22.0
-1.8
1.0
25.3
-2.0
1.1
27.7
-2.5
1.1
31.1
2.7
3.0
3.0
3.1
-0.4
1.9
-0.8
1.5
-0.8
2.3
-0.9
1.0
0.4
1.9
18.6
0.8
2.7
0.9
0.9
2.4
-11.7
0.9
2.5
-9.0
5.9
5.8
3.0
2.3
2.7
0.7
6.7
6.7
3.5
2.8
3.2
2.1
0.6
7.7
7.8
4.1
3.3
3.8
2.5
1.9
1.0
8.7
8.9
4.8
3.8
4.5
3.0
2.2
3.0
1.3
1.7
12.3
2.3
4.1
1.8
13.2
2.5
4.5
10.6
1.9
13.9
2.6
4.7
15.7
0.7
0.1
3.4
6.1
3.8
8.0
2.0
14.6
2.8
5.0
16.6
5.3
4.1
8.6
842.4
916.6
976.2
1,048.3
1 These figures assume a social security taxable earnings base of $29,700 through 1990.
2 Excludes the effect of increases in the OASDHI tax rate that are shown below.
3 Excludes the effect of increases in the social security taxable earnings base that areshown below.
4 These estimates represent the net increase in receipts relative to receipts under the tax rates in effect January
1, 1981.
5 The Tax Reform Act of 1986 also increases outlays by the following amounts: 1987, $0.1 billion; 1988, $1.7 billion; 1989, $2.8billion; and
1990, $2.8 billion.
8 When the tax rate and the taxable earnings base increase at the same time, dividing up the total effect on receipts is arbitrary to some
small extent because of an interaction effect. Tne increase in receipts due to this interaction effect is attributed to the rate and base changes in
proportion to the increases in receipts that would occur if the rate and base were each changed separately.
7 The combined employer-employee old age and survivors, disability, and hospital insurance (OASDHI) tax rate.
8 These estimates include both the direct and indirect effects of administrative action and legislative changes.
FEDERAL RECEIPTS BY SOURCE
4-25
RECEIPTS BY SOURCE
Individual Income Taxes.—Individual income taxes are estimated
to increase by $86.8 billion or 23.9 percent from 1987 to 1990,
largely due to increases in incomes resulting from both real eco
nomic growth and inflation. These estimates reflect the legislated
changes in individual income taxes provided since this administra
tion took office, and the proposed changes reflected in this budget.
The administation’s IRS initiatives and other proposals are esti
mated to add $3.9 billion to individual income taxes between 1987
and 1990.
Corporation Income Taxes.—Corporation income taxes are esti
mated to increase from $104.8 billion in 1987 to $139.8 billion in
1990. This increase of 33.4 percent is in large part due to higher
corporate profits. These estimates reflect the changes in the invest
ment tax credit and depreciation provided in the Tax Reform Act
of 1986, and other tax changes enacted since January 1981. They
also reflect the administration’s IRS initiatives and other propos
als, which are estimated to increase corporation income taxes by a
net $1.0 billion in 1988, and $1.5 billion in 1989 and 1990.
Social Insurance Taxes and Contributions.—This category in
cludes social security and railroad retirement taxes, unemployment
insurance taxes and deposits, and other retirement contributions.
Receipts from this source are expected to increase from $301.5
billion in 1987 to $384.0 billion in 1990. These estimates reflect
scheduled increases in the combined employer-employee social se
curity (OASDHI) tax rate from 14.3 percent to 15.02 percent on
January 1, 1988, and to 15.3 percent on January 1, 1990. The
estimates also reflect annual increases in the social security tax
able earnings base to $50,100 in 1990. The administration’s propos
als, primarily the extension of medicare coverage to State and local
government employees and the extension of social security
(OASDHI) coverage to certain earnings, are estimated to increase
this source of receipts by $2.4 billion in 1988, and $3.5 billion in
1989 and 1990.
Excise Taxes.—Excise taxes are levied on a variety of products,
services, and activities. Receipts from these taxes are estimated to
increase from $32.6 billion in 1987 to $33.7 billion in 1990. These
estimates reflect the extension of airport and airway trust fund
taxes and highway trust fund taxes scheduled to expire under
current law. The estimates also reflect Army Corps of Engineers
harbor maintenance user fees and inland waterway fuel tax in
creases enacted in the Water Resources Development Act of 1986.
The administration’s proposals, which include the repeal of high
way tax exemptions and increases in excise taxes on coal produc
4-26
THE BUDGET FOR FISCAL YEAR 1988
tion, are estimated to increase excise taxes by $1.2 billion in 1988,
1989, and 1990.
Other Receipts.—Estate and gift taxes, customs duties, and mis
cellaneous receipts (almost all of which are deposits of earnings by
the Federal Reserve System) are estimated to total $39.6 billion in
1987, $40.0 billion in 1988, $40.2 billion in 1989, and $40.0 billion in
1990.
PROPRIETARY RECEIPTS
In addition to receipts, the Government receives significant pro
prietary income from the public. This income is derived from vari
ous market-oriented activities and takes the form of interest, rents,
royalties, and the sale of Government property, products, and serv
ices. Because this income arises from business-type transactions
rather than from taxation, it is treated as an offset to related
outlays and budget authority rather than as receipts. These offset
ting collections from the public are discussed in Part 6b; they are
divided between collections offset in expenditure accounts and pro
prietary receipts from the public. Proprietary receipts from the
public are shown in Table 14 of Part 6c.
PART 5
FEDERAL
PROGRAMS BY FUNCTION:
MEETING NATIONAL NEEDS
5-1
INTRODUCTION
This part of the budget presents Federal programs in terms of
functions, which are broad categories of activities with similar
purposes. Programs are grouped into functions so that related Fed
eral activities that meet particular national needs may be consid
ered together, regardless of which agencies are responsible for
them. To the extent feasible, the functional structure classifies
these activities according to their primary purpose. Each activity is
classified only in the function that defines its most important
purpose, even though it may serve more than one.
There are 19 functions, each of which consists of one or more
subfunctions, which are generally narrower and more homogene
ous groupings of programs. Two additional categories—allowances
and undistributed offsetting receipts—are not themselves functions
because they do not consist of programs, but are needed to encom
pass the entire budget. There have been no major changes in the
functional structure of the budget since last year.
The function-subfunction-program hierarchy is used in the tables
of budget authority and outlays presented for each function. These
tables quantify the President’s proposals; the accompanying text
explains them. Each function starts with a statement of the nation
al needs served by programs in the function. A summary para
graph or two describe the function and major proposals. Individual
programs within the subfunctions are discussed in terms of budget
authority and outlays.
While budget authority and outlays are the most important
measures of resources allocated to Federal programs, they do not
cover all Federal activities. Federal loan guarantees generally re
quire no outlays unless the borrower defaults. To monitor and
control Federal credit activities, a separate credit budget measures
all guaranteed loan commitments and direct loan obligations. Most
functions contain Federal credit programs; the functional sections
discuss these programs and contain a table of credit activity. The
figures in these tables add up to the credit budget totals, which
appear in Table 1 of Part 6c of this volume. The credit budget is
explained in Part 3b of this volume and in Special Analysis F,
“Federal Credit Programs.”
Tax expenditures, also not measured by budget authority or out
lays, are another means by which the Federal Government can
achieve policy objectives. Tax expenditures are provisions of
5-2
INTRODUCTION
5-3
income tax law that allow a preferential rate of tax, a special
credit, a deferral of tax liability, or a special exclusion, deduction,
or exemption. Most of the functions include a discussion, and in
several cases a table, of tax expenditures. All tax expenditure
estimates are based on current law, and do not reflect any pro
posed changes in tax law. The definition and measurement of tax
expenditures are explained in Part 6a of this volume and in Special
Analysis G, “Tax Expenditures/’
The following tables appear in other parts of this volume:
• Outlays by function and subfunction for 1978 through 1988, in
Table 18 of Part 6c.
• Outlays and budget authority by function for 1986 through
1992, in Tables 4 and 8, respectively, of Part 6c.
• Budget authority and outlays for 1986 through 1989 for each
agency and account, in Part 4 of the Budget. Each account
has a 3-digit code indicating the function and subfunction in
which it is classified.
Data for earlier years are published in Historical Tables, Budget
of the United States Government, Fiscal Year 1988.
5-4
THE BUDGET FOR FISCAL YEAR 1988
NATIONAL DEFENSE
The objective of the national defense program is to protect the
Nation and its allies from foreign aggression. This program seeks
to preserve peace by maintaining sufficient military strength to
deter both nuclear and conventional war. Should war nonetheless
occur, we must be prepared to defend ourselves successfully, while
minimizing the scope and intensity of the conflict.
Deterring foreign threats to our vital interests and those of our
allies and friends requires a full range of defense capabilities,
including survivable and flexible capabilities for nuclear deter
rence; maritime superiority; strong air and ground forces in Europe
and other critical forward areas; and the ability to deploy military
forces rapidly anywhere in the world and to sustain them in the
field. Our defense program is designed to develop and maintain
these necessary military capabilities in an efficient and timely
manner.
Budget authority for defense declined in real terms in both 1986
and 1987. The 1987 appropriated amount is now 6 percent below
that for 1985. Congress cut $65 billion from administration requests
for 1986 and 1987, with reductions in both operations and invest
ment programs. As a consequence, the rebuilding of our national
security capabilities is proceeding at a slower pace and may prove
more costly. Fewer aircraft, missiles, and ships are being purchased
than is prudent. There is less investment in ammunition, in war
reserve stocks, and in the development of systems that will provide
new capabilities. Fewer resources are available for combat readi
ness.
To address the most critical unmet needs resulting from the 2year decline in real defense budget authority levels, the adminis
tration proposes a 1987 supplemental appropriation of $2.8 billion,
to be followed by sustained moderate real growth in 1988 and
thereafter. The amounts requested are those minimally necessary
to maintain national security and to allow the consolidation of real
gains in military strength made in this administration.
The budget proposal would continue improvements in the capa
bilities of strategic and conventional forces. Because of severe fiscal
constraints, the rate of force improvements is slower than original
ly planned. Procurement is being stretched out for several major
ground forces systems and some Navy ship construction delayed.
Progress toward the Air Force’s mid-term goal of 40 active and
reserve tactical wings is being held temporarily to 37 wings.
In keeping with the recommendation of the President’s Blue
Ribbon Commission on Defense Management, and as required by
the 1986 Defense Authorization Act, a 2-year budget for 1988 and
1989 is submitted for national defense. The budget proposes $312.0
NATIONAL DEFENSE
5-5
billion in budget authority and estimates $297.6 billion in outlays
for the national defense function in 1988, and $332.4 billion in
budget authority and $312.2 billion in outlays in 1989. The accom
panying table shows budget authority and outlays for the three
major national defense subfunctions: military functions of the De
partment of Defense, atomic energy defense activities, and defenserelated activities of other agencies.
Department of Defense-Military.—The $303.3 billion in budget
authority requested for the military functions of the Department of
Defense in 1988 and the $323.3 billion requested for 1989 provide
about 3 percent real growth per year starting from the 1987 level
enacted by the Congress. These levels are essential to maintain the
military strength to ensure the Nation’s security and deter war.
Maintaining our defense capabilities requires continuing efforts to:
• modernize all components of U.S. strategic forces to ensure
that they deter nuclear attack by virtue of their ability to
survive and retaliate should an attack occur;
• develop and procure conventional equipment that performs
efficiently and effectively on the modern battlefield;
• improve the readiness and combat endurance of conventional
forces;
• develop sufficient maritime and airlift capacity to ensure that
we can deploy U.S. forces to critical regions overseas in order
to protect our interests, support our allies, and allow contin
ued access to essential resources; and
• strengthen alliances and coalitions to protect U.S. interests
worldwide and, in particular, to achieve NATO objectives.
Budget authority requested for the Department of Defense-Mili
tary is shown by mission category in the second table of this
section. These categories are discussed below.
Strategic Forces.—The budget continues the President’s strategic
modernization program, which is essential for strengthening deter
rence and achieving meaningful arms control agreements.
Our bomber forces are being modernized by acquiring 100 B-1B
bombers, the Advanced Technology Bomber, and the Advanced
Cruise Missile. Land-based missile forces are being improved sub
stantially through the deployment of the first 50 Peacekeeper mis
siles in refurbished Minuteman silos; development of a new, surviv
able rail-mobile basing mode for deployment of Peacekeepers in the
early 1990’s; and development of the single-warhead small ICBM.
To continue modernization of our submarine-based forces, the
budget provides for procuring one new Trident ballistic missile
submarine per year, and continues development and procurement
of the new, advanced Trident II missile. Substantial funding in
creases also are proposed for the President’s Strategic Defense
Initiative to fund research to determine whether a thoroughly
5-6
THE BUDGET FOR FISCAL YEAR 1988
NATIONAL DEFENSE
(Functional code 050; in millions of dollars)
Major missions and programs
Estimate
1986
actual
1987
67,794
74,888
92,506
33,609
5,281
2,803
5,262
-753
74,203
79,674
85,847
36,724
5,382
3,121
678
-699
76,299
86,065
83,974
43,719
6,592
3,484
1,225
-750
505
2,008
174
76,632
90,045
94,624
44,203
6,885
3,679
1,156
-766
1,419
4,927
485
78,336
96,549
105,587
39,586
7,463
4,005
1,748
-785
2,528
8,187
694
281,390
284,931
7,287
470
7,478
518
303,295
8,050
622
323,290
8,500
574
343,900
8,980
583
289,146
292,927
311,967
332,364
353,463
71,511
75,259
76,517
32,283
5,067
2,819
2,933
-753
70,808
76,714
82,695
34,178
4,952
2,767
2,785
-699
75,677
81,368
82,798
38,266
5,186
3,012
1,212
-750
496
1,979
57
76,135
86,212
83,561
42,095
5,652
3,352
951
-766
1,403
4,884
221
77.693
94.694
88,739
38,866
6,431
3,566
1,256
-785
2,243
7,884
413
265,636
7,445
274,200
7,440
289,300
7,817
303,700
8,290
321,000
8,768
294
606
294
606
613
-180
433
587
-380
207
595
-380
215
273,375
282,246
297,550
312,197
329,983
1989
1990
BUDGET AUTHORITY
Department of Defense-Military:
Military personnel.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Operation and maintenance.. .. .. .. .. .. .. .. .. ..
Procurement.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Research, development, test and evaluation...
Military construction.. .. .. .. .. .. .. .. .. .. .. .. .. ..
Family housing.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Revolving funds and other.. .. .. .. .. .. .. .. .. .. ..
Offsetting receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Allowances: Civilian pay raises.. .. .. .. .. .. .. ..
Allowances: Military pay raises and benefits..
Allowances: Other legislation (proposed).. ..
Subtotal, Department of Defense-Mili
tary.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Atomic energy defense activities
Defense-related activities.. .. .. .. .. .. .. .. .. .. .. .. .
Total, budget authority
OUTLAYS
Department of Defense-Military:
Military personnel.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Operation and maintenance.. .. .. .. .. .. .. .. .. ..
Procurement.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Research, development, test and evaluation..
Military construction.. .. .. .. .. .. .. .. .. .. .. .. .. ..
Family housing.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Revolving funds and other.. .. .. .. .. .. .. .. .. .. .
Offsetting receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Allowances: Civilian pay raises.. .. .. .. .. .. .. ..
Allowances: Military pay raises and benefits.
Allowances: Other legislation (proposed).. ..
Subtotal, Department of Defense-Mili
tary.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Atomic energy defense activities..
Defense-related activities:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .
Proposed legislation.. .. .. .. .. .. .. ..
Subtotal, Defense-related activities..
Total, outlays.. .. .. .. .. .. .. .. .. .. .. .. .
effective defensive system against ballistic missiles can be de
ployed. Finally, the budget also supports improvements to our stra
tegic command and control systems, as well as to our early warn
ing and strategic defensive capabilities. These strategic force pro
grams are essential to ensure that our deterrent remains strong in
the near term and through the 1990’s.
5-7
NATIONAL DEFENSE
MISSION CATEGORIES: DEFENSE, MILITARY
(Functional code 051; in billions of dollars)
Estimate
1986
actual
1987
1988
1989
1990
Strategic forces1.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
General purpose forces.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Intelligence and communications.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Airlift and sealift.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Guard and reserve.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Research and development2.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Central supply and maintenance.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Training, medical, and other general personnel activities.. .. .. .
Administration and associated activities.. .. .. .. .. .. .. .. .. .. .. .. ..
Support of other nations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
24.2
116.2
26.4
7.6
15.6
25.7
24.4
33.6
7.1
0.5
21.5
117.2
28.2
7.2
16.0
28.0
23.1
36.3
6.7
0.7
23.7
118.8
30.2
6.0
17.5
35.1
26.0
38.8
6.3
0.9
27.7
126.8
31.5
6.6
18.6
36.5
27.0
41.0
6.7
0.9
32.9
135.6
33.5
7.1
19.5
35.8
29.7
42.0
6.9
0.9
Total, budget authority.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
281.4
284.9
303.3
323.3
343.9
Prior-year funds and other financial adjustments.. .. .. .. .. .. .. ..
-0.9
1.4
0.8
0.8
0.8
Total obligational authority.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
280.5
286.3
304.1
324.1
344.7
Major missions and programs
1 Excludes strategic systems development included in the research and development category.
2 Excludes research and development in other program areas on systems approved for production.
General Purpose Forces.—Strengthening general purpose forces
will deter and counter non-nuclear military aggression. U.S. forces
must be able to respond effectively to all levels of potential con
flict—up to and including a war between NATO and the Warsaw
Pact—while retaining the flexibility to meet other threats to U.S.
interests. The budget provides support for 18 active-duty Army
divisions, 3 Marine divisions, 3 Marine and 14 Navy active-duty
tactical airwings, 25 active-duty wings of Air Force tactical aircraft,
and a 582-ship Navy (including strategic missile submarines and
support ships).
Army General Purpose Forces.—The budget provides the re
sources to buy weapons that will improve the firepower, tactical
mobility, and survivability of Army forces, and supports the main
tenance and training of these forces.
In 1988 and 1989, the Army will procure a total of 1,134 M-l
Abrams tanks, 1,234 Bradley fighting vehicles, and other modern
equipment to strengthen armored combat capability. Attack and
assault support helicopters improve the Army’s ability to destroy
enemy tanks and move rapidly on the battlefield. Funds are includ
ed for 67 Apache attack helicopters, procurement of which will be
completed in 1988, and for 133 Blackhawk utility helicopters in
1988 and 1989. The budget continues the development of a new
family of light rotorcraft helicopters (LHX) to perform scout, utility
and attack missions.
The budget provides funding for both short- and long-range air
defense missile systems vital to the survivability of conventional
land forces. Short-range systems such as Stinger and Chaparral
5-8
THE BUDGET FOR FISCAL YEAR 1988
defend troops near the front lines while longer-range, area defense
systems like Patriot and Hawk are capable of defending larger,
more widely dispersed areas of the battlefield. Initial procurement
of a new forward area air defense system, to provide short-range
air defense for mechanized infantry and armored divisions, is
planned for 1988. A total of 53 of these systems will be bought in
1988 and 1989.
By the end of 1989 the activation or conversion of 4 new active
light divisions will be completed. This will be done without exceed
ing previously planned manpower and equipment requirements.
The new light divisions are smaller and require less strategic airor sealift than existing infantry divisions. In 1988 and 1989 the
budget supports the continued enhancement of special operations
forces by providing them with improved equipment and training.
Navy General Purpose Forces.—In peacetime, Navy forces can
provide a tangible demonstration of U.S. regional commitments. In
wartime, maritime superiority is essential to control the sea lines
of communication over which critical U.S. reinforcements and re
supply must travel to battle theatres. Naval forces also must be
able to conduct offensive operations, if necessary, against Soviet
naval forces and facilities.
Under the budget proposals, the Navy’s deployable battle force
(including strategic missile submarines and support ships) would
increase from 569 ships in 1987 to 582 in 1988, and reach the
administration’s goal of 600 by the end of the decade. The Navy’s
shipbuilding plan for 1988 and 1989 includes 4 cruisers, 6 guided
missile destroyers, 6 attack submarines, 3 amphibious ships, 9 sup
port ships, and 5 minesweepers. This plan also includes advance
funding for 2 nuclear-powered aircraft carriers, with construction
to begin in 1990 and 1993.
During 1988, the Navy’s 14th active-duty tactical airwing will
become fully operational. Active naval aviation forces will then
consist of 17 tactical airwings (14 Navy and 3 Marine Corps), 24
land-based patrol squadrons, and various support aircraft. To main
tain and modernize these forces, the budget provides funding for
continued procurement of F-14, F/A-18, and AV-8B aircraft for
the tactical air wings, as well as SH-60B LAMPS III ship-based
and SH-60F carrier-based helicopters for anti-submarine warfare.
A competitive procurement for an updated P-3 long-range patrol
aircraft will begin in 1989.
Realizing the full potential of the investment in naval ships and
aircraft requires highly trained crews. Navy tactical aircraft pilots
will average about 300 flying hours annually during 1987-1989,
roughly double that of their Warsaw Pact counterparts.
Expansion of naval ordnance inventories over the last several
years has contributed significantly to combat endurance. Special
NATIONAL DEFENSE
5-9
attention has been paid to meeting requirements for torpedoes,
surface-to-air and air-to-air missiles, and anti-ship cruise missiles.
Air Force General Purpose Forces.—The tactical air force is
equipped with fighter, attack, and support aircraft for the mission
of controlling the skies and attacking enemy ground targets. In
1988 and 1989, the Air Force plans to procure a total of 360 F-16
and 84 F-15 multi-mission fighter aircraft as part of its moderniza
tion program. These aircraft will improve significantly the combat
effectiveness of our tactical forces because of their range/payload
characteristics, their ability to operate in adverse weather, and
their advanced navigation and targeting capabilities.
Funds also are requested for continued improvements in aircraft
readiness and combat sustainability with emphasis on spare parts
purchases, procurement of more capable missiles and bombs, and
more realistic training for aircrews. To maintain their superior
combat proficiency, Air Force tactical fighter pilots will continue to
fly about twice as many training hours as their Warsaw Pact
counterparts.
Intelligence and Communications.—To employ our weapon sys
tems and forces effectively, we must be able to direct them in
accordance with national policy and military strategy. Information
on friendly, hostile, and potentially hostile forces must be gathered
and evaluated to aid decision makers. Decisions and operational
orders, in turn, must be communicated to the appropriate forces.
The budget seeks improvements in intelligence and communica
tions by providing for development and modernization of command
centers, sensors, computers, satellites, and other data-gathering
and communication links. These improvements will be made in five
broad mission areas: strategic and non-strategic nuclear force man
agement; theatre and tactical force management; world-wide infor
mation and communication systems; electronic warfare; and intelli
gence.
Airlift and Sealift Forces.—The ability to conduct a forward
defense while maintaining a limited peacetime presence, depends
upon the ability to deliver military personnel and combat equip
ment rapidly to crisis areas anywhere in the world and to sustain
them once deployed. The budget reflects an expansion of airlift
capacity through procurement of the new C-17 cargo aircraft. The
budget supports continued efforts to improve capabilities of exist
ing airlift aircraft and increase their capacity through modifica
tions. Sealift capabilities will be strengthened by the addition of
ships to the ready reserve force and the continued procurement of
equipment to make civilian container ships more useful for mili
tary purposes. The budget also includes funds for a new sealift
5-10
THE BUDGET FOR FISCAL YEAR 1988
enhancement program similar to the Air Force Civil Reserve Air
Fleet (CRAF) program. This new program would underwrite the
cost of adding militarily useful features to merchant vessels con
structed in U.S. shipyards.
Stockpiling of equipment and materials near potential trouble
spots is critical to our ability to sustain deployed forces in distant
areas. The Army has stockpiled in Europe heavy equipment for
four divisions and supporting units, and is acquiring equipment for
two more divisions. Equipment to support the rapid deployment of
tactical fighter squadrons also is being stockpiled in Europe.
National Guard and Reserves,—Guard and Reserve forces that
are well trained, equipped and readily deployable are essential to
U.S. defense planning. As the growth in active duty personnel has
moderated, Reserve and Guard units have become key to the U.S.
total force concept. As a result, numerical strengths and the
number of missions assigned these units have both increased. The
budget for 1988 and 1989 reflects these increases and provides for
continued improvement in unit strength, equipment, and training.
Manpower levels in the Army, Air Force, Navy, and Marine Corps
Reserves, and Army and Air National Guards, are projected to
reach 1.19 million by the end of 1988, and 1.21 million by the end
of 1989. For these two budget years, Reserve components will con
tinue to receive modern weapon systems such as M-l tanks, F-16
aircraft, and Perry-class guided missile frigates. Continued empha
sis will be placed on the program for screening members of the
individual ready reserve, and the system of regional maintenance
training sites. Also, the Sixth Quadrennial Review of Military Com
pensation will make a comprehensive in-depth study of all Reserve
compensation issues.
Research and Development,—Programs in this category fund all
research and development except improvements to upgrade sys
tems that are already operational. New weapon systems are devel
oped, tested and evaluated to meet specific military requirements.
At the same time, a strong research and technology base allows
continued investigation into promising new technologies. This
serves to guard against “technological surprise” by potential adver
saries.
Major strategic force development programs include the landbased small ICBM and the Trident II submarine-launched missile,
as well as the Advanced Technology Bomber and the Advanced
Cruise Missile. Funding also is requested for development of a railmobile basing mode for Peacekeeper intercontinental ballistic mis
siles. Budget authority of $5.2 billion is requested for 1988 and $6.3
billion for 1989 for the Strategic Defense Initiative, a research
program to explore the possibility of eliminating the ballistic mis
NATIONAL DEFENSE
5-11
sile threat to the United States and its allies. This initiative in
cludes research on space surveillance and target acquisition; direct
ed energy weapons; kinetic energy weapons; battle management
systems; and system survivability.
Development efforts continue on new tactical fighters for the Air
Force and the Navy, a joint service tilt-rotor aircraft and an ad
vanced nuclear-powered attack submarine. The Army is developing
advanced anti-tank and air defense systems and a family of light
weight helicopters.
Training, Medical, and Other General Personnel Activities.—Gen
eral personnel activities include training and medical services for
active duty personnel. The budget request continues the improve
ments to individual training begun several years ago. Also, high
priority is given to developing team proficiency of operational units
through realistic training that simulates actual combat conditions.
Efforts to improve the readiness of our medical forces and the
provision of peacetime care continue.
Military Personnel and Compensation.—Recognizing that mili
tary readiness depends heavily on competent and motivated per
sonnel, the budget reflects a continued commitment to maintaining
competitive levels of military compensation, providing adequate
recruitment and retention incentives and improving the quality of
life for military personnel and their families. The budget provides
for military pay raises of 4.0 percent in 1988 and 4.3 percent in
1989, which should roughly match increases in private sector pay
over the next two years. While overall manpower levels will de
cline slightly from 2,174,250 at the end of 1987 to 2,172,400 at the
end of 1988, the reductions will occur in support and training
areas, and will not affect manning of ships, aircraft and front line
units. In 1989, manpower levels will increase to 2,184,400 by the
end of the year, reflecting the additional personnel required for
new ships, aircraft, and other weapon systems entering the mili
tary inventory.
Under current law, the new GI Bill educational benefit test
program (which began in July 1985) will expire on June 30, 1988.
The budget proposes that the GI Bill program be extended with
certain modifications to improve its management and effectiveness.
Funding responsibility would be transferred from the Veterans
Administration to the Department of Defense to reflect appropri
ately the function of the GI Bill program as a peacetime military
recruiting incentive. Legislation also will be proposed to reduce the
basic GI benefit for shorter enlistments to reduce overall program
costs and increase the program’s contribution to achieving recruit
ing and retention goals. Other aspects of the program would
remain unchanged, including the benefits provided to reservists.
5-12
THE BUDGET FOR FISCAL YEAR 1988
This and other Reserve benefits will be evaluated by the Sixth
Quadrennial Review of Military Compensation.
The budget provides that beginning in 1988 the Department of
Defense budget will include funding for all of the employer social
security taxes paid for wage credits earned by military personnel,
rather than continuing the current practice of funding portions of
the military wage credits in the budget of the Department of
Health and Human Services. This change will not affect overall
Government outlays. It would, however, ensure that the Depart
ment of Defense budget will more accurately reflect all defense
costs. The budget also provides that social security coverage be
extended to reservists while on inactive duty for training (weekend
drills). This change will require legislative approval and will result
in an increase in budget authority and outlays of the Department
of Defense and a net increase in revenues of the social security
trust funds.
The budget reflects several major changes that were made in the
benefits and financing of the military retirement system in 1986.
Persons entering the military on or after August 1, 1986 will
receive a reduced annuity for retirement before completion of
thirty years of service, to be restored at age 62. This new class of
beneficiaries will also be subject to a revised cost-of-living adjust
ment (COLA) formula providing an adjustment equal to the annual
increase in the Consumer Price Index (CPI) minus one percent,
with a one-time restoration of purchasing power at age 62. The
budget reflects the reduced retirement accrual costs that will occur
as a larger percentage of the force comes under the new system.
Military personnel who began service prior to August 1986 and
current retired personnel are not affected by the new benefit struc
ture.
Another change in the retirement system comes from a new
method of calculating accrual costs. Beginning with 1987, active
duty and reserve personnel will be subject to two different retire
ment accrual rates (expressed as a percentage of basic pay) to
reflect the actuarial difference in their retirement benefits. During
1985 and 1986 these groups were subject to a single percentage
rate. Starting in 1987, this change will reduce the reserve accrual
rate by about 50 percent, while slightly increasing the active duty
rate, for a net reduction in accruals of about $580 million in 1987.
By reflecting relative personnel costs more accurately, this change
will improve personnel mix decisions made by military program
managers.
Management Initiatives.—The administration is focusing on man
agement initiatives to cut costs while increasing the responsiveness
and flexibility of the defense establishment. In particular, the ad
ministration is committed to carrying out key initiatives recom
NATIONAL DEFENSE
5-13
mended by the President’s Blue Ribbon Commission on Defense
Management (the Packard Commission). The President recently
appointed a new Under Secretary of Defense for Acquisition with
responsibility for setting acquisition policies governing procure
ment, research and development, and contract administration.
Other procurement reforms recommended by the Packard Commis
sion, such as expanding use of commercial products and improving
program management by setting cost and schedule baselines for
major weapon systems, are underway.
Competition will continue to be emphasized as a means to keep
costs down, improve quality, encourage innovation, and strengthen
the defense industrial base. In 1986, 57 percent of all Department
of Defense contracts, by dollar volume, were let competitively, a
significant increase since 1981. The Department plans to increase
competition for defense contracts further. In 1984 and 1985, the
Department saved an estimated $4.8 billion through competition in
shipbuilding and acquisition of spare parts. Additional savings are
anticipated from a greater proportion of defense procurement being
subject to competition, as well as from competition for work now
done by Government civilian employees that might be performed
by private contractors. In addition, the Department of Defense will
continue its efforts to reform its procurement and financial man
agement systems and to carry out the President’s Productivity
Initiative. The success of these and other management initiatives
are monitored under the Management Improvement Plan.
The administration plans several specific initiatives to reduce
costs. These include legislation to revise thresholds for applying the
Davis-Bacon Act (covering Federal construction contracts) and the
Service Contract Act (covering Federal service contracts), recovery
of excess pension costs included in prior contracts, and reducing
current pension costs to reflect recent changes in the financial
position of pension funds. The Department also will recover an
equitable share of excess pension assets that become available
when companies terminate their current plans and substitute an
nuity plans.
The administration plans to collect, on a test basis, nominal fees
for outpatient medical care provided to non-active duty patients.
This measure is expected to improve the quality of military care
while reducing costs. Also, a test will be conducted to determine
whether private operation of commissary stores will reduce costs
and improve customer service.
Atomic Energy Defense Activities.—These activities, conducted by
the Department of Energy, include research, development, testing,
and production of nuclear weapons; production of special nuclear
materials; storage of nuclear wastes from defense programs, and
design of reactors for nuclear-powered Navy vessels. The accompa
5-14
THE BUDGET FOR FISCAL YEAR 1988
SUMMARY OF ACTIVE MILITARY PERSONNEL AND FORCES
(Year end—i.e., as of September 30)
Estimate
1986
actual
1987
1988
1989
End strength:
Army.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Navy.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Marine Corps.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Air Force.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
781
581
199
608
781
587
200
607
781
593
200
599
781
603
200
601
Total, Department of Defense.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
2,169
2,174
2,172
2,184
Average strength:
Army.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Navy.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Marine Corps.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Air Force.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
778
572
197
607
777
582
199
608
781
588
199
605
780
596
200
602
Total, Department of Defense.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
2,154
2,166
2,173
2,178
2
998
7
640
20
27
973
46
954
50
950
640
24
640
26*
664
26*
18
3
18
3
18
3
18
3
24.5
13
3
24.5
14
3
24.5
14
3
24.5
14
3
Military personnel (in thousands):
Strategic forces:
Intercontinental ballistic missiles:
Peacekeeper.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Minuteman.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Titan II.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Poseidon-Trident.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Strategic bomber squadrons.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
General purpose forces:
Land forces:
Army divisions.......................................................................................
Marine Corps divisions.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Tactical air forces:
Air Force wings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Navy attack wings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Marine Corps wings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Naval Forces:
Attack and multipurpose carriers.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Battleships.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Nuclear attack submarines.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Other warships.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Amphibious assault ship.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
13
3
97
211
60
14
3
97
214
61
14
3
99
214
62
14
4
101
218
65
4
13
64
4
13
61
4
13
61
4
13
61
Airlift and sealift forces:
C-5 airlift squadrons.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Other airlift squadrons.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Sealift fleet.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
♦Includes 4 B-52G squadrons that will be reassigned to conventional forces.
nying table shows the funding levels for these programs. In total,
budget authority of $8.0 billion is requested for 1988, compared to
$7.5 billion for 1987. Outlays are estimated to increase from $7.4
billion in 1987 to $7.8 billion in 1988.
The nuclear weapons program involves the design, testing, and
production of nuclear warheads for the nuclear weapons stockpile,
including quality control and periodic inspection of the finished
devices. Budget authority proposed for 1988 would provide for con
tinuing missile warhead production for current and new weapon
5-15
NATIONAL DEFENSE
systems, and for production of special nuclear materials for use in
these warheads.
The defense nuclear waste management program provides inter
im storage for all defense nuclear wastes. The program also sup
ports research and development activities for the isolation and
permanent storage of these wastes.
The naval reactor development program includes the research
and development, design, procurement, and testing of prototype
reactors for current and future nuclear-powered naval vessels.
Other atomic energy defense and research and development pro
grams cover security at defense nuclear facilities, security investi
gations, and arms control and verification technology development.
ATOMIC ENERGY DEFENSE ACTIVITIES
(Functional code 053; in billions of dollars)
Major missions and programs
1986
actual
Estimate
1987
1988
1989
1990
BUDGET AUTHORITY
Weapons research, development, test and production.. .. .. .. .. .. .. .. .. .
Weapons materials, production, and waste management.. .. .. .. .. .. .. ..
Naval reactor development.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Other research programs.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Adjustments.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
4,176
2,388
536
184
3
4,180
2,531
575
191
1
4,535
2,693
612
210
4,606
2,991
648
255
4,790
3,236
674
280
Total, budget authority.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
7,287
7,478
8,050
8,500
8,980
Weapons research, development, test and production.. .. .. .. .. .. .. .. ..
Weapons materials, production and waste management.. .. .. .. .. .. .. .. .
Naval reactor development.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Other research programs.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Adjustments.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
4,276
2,448
530
188
3
4,160
2,519
573
187
1
4,404
2,615
594
204
4,492
2,917
632
249
4,677
3,160
658
273
Total, outlays.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
7,445
7,440
7,817
8,290
8,768
OUTLAYS
Defense-Related Activities,—Activities of civilian departments
and agencies that support national defense include emergency pre
paredness programs, maintenance of strategic stockpiles, and the
Selective Service System.
The Federal Emergency Management Agency conducts civil de
fense and other preparedness programs. Budget authority of $135
million is proposed for 1988 for civil defense programs, slightly
below last year’s level, but total budget authority for the defense
related activities of this agency increases from $306 million in 1987
to $332 million in 1988.
5-16
THE BUDGET FOR FISCAL YEAR 1988
CREDIT PROGRAMS—NATIONAL DEFENSE
(In millions of dollars)
Estimate
1986
actual
Direct loans:
Navy industrial fund:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Defense stock fund:
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Defense production guarantees:
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Total, direct loans:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. ..
Change in outstandings.. .. .. .. .. .. .. .. .. ..
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Total, new obligations.. .. .. .. .. .. .. .. .. .. .. .. .
568
435
1,748
1
1987
1988
1989
1990
-167
1,582
-169
1,412
-178
1,234
-178
1,056
-169
1,412
-178
1,234
-178
1,056
-1
3
10
-10
568
439
1,760
-178
1,582
568
To meet defense and essential civilian requirements for strategic
and critical materials in the event of war, the General Services
Administration maintains a stockpile of such materials. In July
1985, the President proposed modernizing the stockpile, including
establishing new stockpile goals and retaining a supplemental re
serve, for a combined stockpile value of about $6.7 billion. He also
proposed disposal of $3.2 billion in surplus material stocks, in
amounts not to exceed $500 million a year. Consistent with the
President’s program, in 1987 the administration proposes to obli
gate $125 million for the purchase of germanium, a beryllium and
ferroalloy upgrade program, and the management of stockpile com
modities; and to dispose of $125 million in surplus materials. In
1988, the administration proposes to obligate an additional $125
million and dispose of $275 million in surplus materials. Legisla
tion will be proposed to authorize these purchases and sales.
The Selective Service System maintains a high level of mobiliza
tion readiness to meet defense manpower requirements in case of a
national emergency. Activities in support of this objective include
national and regional operational planning, maintenance of auto
mated registration information on eligible inductees, and training
of Reserve officers and appeal board members necessary to set up
local offices. Greater compliance with registration requirements
will be stressed through public awareness efforts, focusing on cities
in certain geographic areas, and Federal/State legislation tying
registration with employment and educational opportunities. For
1988, a plan to set up a stand-by system to register critically
NATIONAL DEFENSE
5-17
needed health care personnel will be submitted to Congress. Esti
mated outlays for 1988 and 1989 are $27 million a year.
Tax Expenditures,—The exclusion from taxable income of hout
ing and meals for military personnel, provided either in cash or inkind, results in a tax expenditure estimated at $2.2 billion in 1988.
5-18
THE BUDGET FOR FISCAL YEAR 1988
INTERNATIONAL AFFAIRS
The Federal Government bears the primary responsibility for
protecting and advancing the interests of the United States and its
people in international affairs. The funds for international affairs
proposed in this budget are necessary to carry out that responsibil
ity.
The administration proposes to reverse the sharp decreases in
budget authority for many international affairs programs that
have taken place over the past 2 years. For 1988, $19.1 billion in
budget authority is requested and outlays of $15.2 billion are esti
mated. For 1987, supplemental appropriations totaling $1.3 billion
in budget authority and $556 million in 1987 outlays are proposed.
When enacted, total 1987 budget authority will be $18.0 billion, and
1987 outlays of $14.6 billion are estimated. For 1988, new direct
loan obligations for international affairs are proposed to be $7.5
billion, and new guaranteed loan commitments are proposed to be
$10.2 billion.
Foreign Aid.—Two budget subfunctions—international security
assistance and international development and humanitarian assist
ance—comprise foreign aid.
International Security Assistance.—Security assistance programs
are vital to the exercise of national security and foreign policy and
serve to strengthen allied and friendly governments where the
United States has special security concerns. These programs make
it possible for other governments to strengthen their economies
and to acquire and use modern military equipment necessary for
their defense. Security assistance also helps ensure U.S. access to
military bases and facilities overseas. Because of the importance of
national security objectives, but in keeping with current budget
requirements, 1988 budget authority of $9.4 billion is proposed.
This is approximately the same as the 1987 proposed level, which
includes a $0.8 billion supplemental to permit the achievement of
essential security assistance goals. Outlays are estimated to be $7.7
billion in 1988.
Foreign Military Sales Credit.—This program provides financing
for foreign governments to purchase U.S. military equipment,
training, and design and construction services for their security
needs. In the face of challenges to U.S. interests and economic
difficulties in many parts of the world, the 1988 proposed program
consists of only forgiven and concessional loans. For 1988, budget
authority of $4.4 billion is requested and outlays of $3.0 billion are
estimated. These figures reflect both direct loan programs and the
loan activity of the Federal Financing Bank.
INTERNATIONAL AFFAIRS
5-19
This year the budget also reflects the estimated impact of a new
foreign military sales debt restructuring program that is being
offered to countries with Federal Financing Bank loans. Under this
program, debtor countries have the option of prepaying their loans
without a premium, or refinancing their loans at current rates
with the difference added as a balloon payment due at the end of
the loan repayment period. The economic burden on allies, particu
larly developing countries, of loans at interest rates that are now
considerably above market rates must be reduced lest it have the
effect of nullifying the purpose for which these loans were made—
to promote the international security of the United States and the
recipient countries.
Military Assistance.—Providing the same types of articles and
services as the foreign military sales credit program, these grants
are for countries where the repayment of loans would impose an
inappropriate economic burden. For 1988, budget authority of $1.3
billion is requested. Outlays are estimated to be $0.6 billion.
Economic Support Fund.—This account finances programs in
over 50 countries; the largest portion goes to countries where there
are special political and security concerns. Loans and grants pro
vide general budget and balance of payments support to friendly
governments and finance individual development projects where
doing so enhances our ability to achieve important national securi
ty objectives. Aid to Egypt and Israel accounts for approximately
half of the program. The proposed budget authority for 1988 is $3.6
billion, $0.2 billion for direct loans and the remainder for grants.
Outlays are estimated to be $4.1 billion.
Other.—The budget authority requested in 1988 for security as
sistance includes $46 million for peacekeeping operations, $56 mil
lion for international military education and training, and $10
million for anti-terrorism assistance.
International Development and Humanitarian Assistance.—An
important complement to security assistance is the achievement of
international policy objectives through international development
and humanitarian assistance programs. These programs are de
signed to encourage the expansion of a market-oriented interna
tional economic system and to help meet the development and
humanitarian needs of developing countries. Budget authority re
quested for 1988 is $5.2 billion, a $400 million increase over 1987.
Outlays for 1988 are estimated at $4.9 billion.
Multilateral Development Banks.—The United States contributes
to the World Bank group of institutions and regional banks for
Latin America, Asia, and Africa. These institutions provided more
5-20
THE BUDGET FOR FISCAL YEAR 1988
NATIONAL NEED: CONDUCTING INTERNATIONAL RELATIONS
(Functional code 150; in millions of dollars)
Major missions and programs
1986
actual
Estimate
1987
1988
1989
1990
BUDGET AUTHORITY
Foreign aid:
International security assistance:
4,947
798
3,762
95
-58
4,240
1,161
3,897
98
-76
4,421
1,330
3,600
112
-111
4,499
1,353
3,663
107
-136
4,573
1,375
3,723
108
-198
9,543
9,320
9,352
9,486
9,582
Multilateral development banks.. .. .. .. .. .. .
International organizations.. .. .. .. .. .. .. .. ..
Agency for International Development.. .. .
P.L. 480 food aid.. .. .. .. .. .. .. .. .. .. .. .. .. ..
Refugee assistance.. .. .. .. .. .. .. .. .. .. .. .. ..
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Offsetting receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, International development
and humanitarian assistance.. .. .. .. .
1,143
261
2,026
1,243
324
220
-457
1,242
237
2,144
1,083
361
293
-583
1,819
194
2,192
965
314
269
-568
1,400
200
2,199
1,090
307
263
-569
1,400
206
2,238
1,119
306
269
-573
4,760
4,777
5,185
4,890
4,964
Subtotal, Foreign aid.. .. .. .. .. .. .. .. .. ..
14,303
14,096
14,537
14,376
14,546
2,445
477
81
3,003
2,093
441
82
2,616
2,655
506
89
3,250
2,653
522
109
3,285
2,704
536
105
3,345
958
1,013
1,147
1,214
1,260
Foreign military sales trust fund (net).. .. .. .
Other
.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Offsetting receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, International financial pro
grams.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
-3,034
1,514
-87
412
241
-453
100
-89
-90
-92
-94
-1,607
323
151
-545
6
Total, budget authority.. .. .. .. .. .. .. .. .
16,659
18,049
19,085
18,330
19,157
Foreign military sales credit.. .. .. .. .. .. .. ..
Military assistance.. .. .. .. .. .. .. .. .. .. .. .. .. .
Economic support fund.. .. .. .. .. .. .. .. .. .. ..
Other .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Offsetting receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, International security assist
ance.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
International development and humani
tarian assistance:
Conduct of foreign affairs:
Administration of foreign affairs.. .. .. .. .. .. .. .
International organizations and conferences...
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Subtotal, Conduct of foreign affairs.. ..
Foreign information and exchange activi
ties .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
International financial programs:
than $22.5 billion in long-term loans and technical assistance in
1985 and promoted sound economic policies in recipient countries.
Lending programs are funded through the direct contributions of
members and through borrowing in world capital markets, backed
by guaranteed repayment of that borrowing by member govern
ments. Both are provided in accord with multi-year international
agreements to replenish the resources of each bank.
5-21
INTERNATIONAL AFFAIRS
NATIONAL NEED: CONDUCTING INTERNATIONAL RELATIONS
(Functional code 150; in millions of dollars)
Major missions and programs
1986
actual
Estimate
1987
1988
1989
1990
OUTLAYS
Foreign aid:
International security assistance:
Foreign military sales credit.. .. .. .. .. .. .. ..
Military assistance.. .. .. .. .. .. .. .. .. .. .. .. .. .
Economic support fund.. .. .. .. .. .. .. .. .. .. ..
Guarantee reserve fund.. .. .. .. .. .. .. .. .. .. ..
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Offsetting receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, International security assist
ance.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
4,763
753
4,684
255
102
-58
3,926
237
4,374
8
101
-76
3,002
594
4,097
4,692
922
4,219
4,235
1,251
4,122
113
-111
106
-136
108
-198
10,499
8,570
7,695
9,802
9,518
Multilateral development banks.. .. .. .. .. .. .
International organizations.. .. .. .. .. .. .. .. ..
Agency for International Development.. .. .
P.L 480 food aid.. .. .. .. .. .. .. .. .. .. .. .. .. ..
Refugee assistance.. .. .. .. .. .. .. .. .. .. .. .. ..
Other .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Offsetting receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, International development
and humanitarian assistance.. .. .. .. .
1,607
231
1,990
1,095
348
154
-457
1,078
259
2,038
1,083
330
150
-583
1,639
229
2,103
1,007
318
172
-568
1,635
240
2,154
1,090
312
170
-569
1,373
247
2,189
1,119
306
174
-573
4,968
4,355
4,899
5,031
4,835
Subtotal, Foreign aid.. .. .. .. .. .. .. .. .. .
15,467
12,925
12,594
14,833
14,353
Administration of foreign affairs.. .. .. .. .. .. .. .
International organizations and conferences...
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Conduct of foreign affairs.. ..
1,717
499
64
2,280
2,181
455
96
2,733
2,395
501
91
2,987
2,452
522
101
3,075
2,622
536
107
3,265
Foreign information and exchange activi
ties .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
907
1,032
1,114
1,140
1,184
Foreign military sales trust fund (net).. .. .. .
Export-Import Bank.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Exchange stabilization fund.. .. .. .. .. .. .. .. .. ..
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Offsetting receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Subtotal, International financial pro
grams.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
-1,016
-1,167
-772
-1,460
-87
500
-2,389
-32
-73
-89
200
-1,564
-31
-1
-90
100
-964
-29
38
-92
100
-891
-28
36
-94
-4,501
-2,083
-1,486
-948
-876
Total, outlays.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
14,152
14,607
15,209
18,101
17,925
International development and humani
tarian assistance:
Conduct of foreign affairs:
International financial programs:
To support international commitments to the multilateral devel
opment banks, budget authority of $293 million is requested in a
1987 supplemental and $1.8 billion for 1988. Approximately onehalf of the proposed budget authority will be used to meet existing
pledges to the International Development Association. The admin
istration has also proposed a one-time subscription to the World
Bank’s Multilateral Investment Guarantee Agency, a new institu
tion established to insure investment in developing countries
5-22
THE BUDGET FOR FISCAL YEAR 1988
against non-commercial risks. The remaining funds will be used to
make authorized annual payments to the other multilateral banks.
International Organizations.—Voluntary contributions of $194
million in budget authority are proposed for several developmental,
humanitarian and scientific programs carried out by the United
Nations and other international organizations—$43 million less
than the 1987 level. The administration believes that, useful as
some of these programs may be, a higher priority must be afforded
other foreign assistance activities accomplishing the same objec
tives.
Agency for International Development (AID).—AID carries out
bilateral development assistance programs in more than 60 coun
tries in Latin America, Africa and Asia. The agency also supports
the overseas humanitarian relief and development programs of
U.S. private and voluntary organizations and assists developmentrelated research activities in U.S. universities. Proposed budget
authority for AID programs for 1988 is $2.2 billion, approximately
the same as for 1987. Included in this amount is a new $500 million
development fund for Africa designed to allow AID greater flexibil
ity in providing development assistance to that region. Principal
objectives of bilateral development programs include supporting
sound economic policies in recipient countries, using the private
sector as a vehicle for economic growth, improving the capability of
indigenous institutions in developing countries, and increasing the
use of science and technology in development.
Public Law 480 Food Aid.—This program provides U.S. surplus
agricultural commodities to foreign governments under either long
term (up to 40 years) low interest rate (2 to 3 percent) loans or
grants. Food aid commodities are limited to those declared by the
Secretary of Agriculture as surplus to normal domestic and export
needs. These surplus commodities include wheat, corn, rice, other
coarse grains, and soybeans.
The U.S. agricultural sector benefits when surplus commodities
are disposed of in a manner that does not displace commercial
exports. Also, the food aid program serves U.S. objectives in pro
moting international security, agricultural export market develop
ment and economic assistance. Egypt, Morocco, El Salvador, Jamai
ca, Zaire, Pakistan and Bangladesh are major cooperating country
recipients of U.S. food aid loans. These governments benefit by not
having to repay the total loan immediately, thereby saving their
scarce foreign exchange to import needed non-food goods and serv
ices beneficial to economic development.
Under the Title II grant program, food aid is targeted by the
foreign governments and private and voluntary organizations
INTERNATIONAL AFFAIRS
5-23
mainly to needy children, pregnant women and refugees. India,
Pakistan, Sudan, Mozambique, Haiti, and Guatemala are major
recipients of this program, which annually delivers approximately
2 million tons of processed foods, wheat, and wheat flour.
The budget includes a request of $1.0 billion in 1988 budget
authority. With declining commodity prices, a larger volume of
commodities may be shipped for fewer dollars.
Refugee Assistance.—While there have been no major refugee
emergencies this past year, the needs of existing refugee popula
tions continue in many parts of the world. Budget authority of $314
million is proposed for assistance to refugees abroad, primarily in
Africa, the Near East, Pakistan, and Southeast Asia, and for the
admission of up to 55,000 refugees to the United States. This
budget request continues United States leadership in international
humanitarian programs to assist refugees. Additional funding for
refugee assistance in the United States is discussed in the income
security section of Part 5.
Conduct of Foreign Affairs.—Funds for this group of programs
cover primarily the operating costs of the Department of State in
carrying out diplomatic and consular activities with foreign govern
ments and international organizations. Contributions assessed by
international organizations of which the United States is a member
are also included here. For 1988, $3.2 billion of budget authority is
requested, and $3.0 billion in outlays are estimated.
Administration of Foreign Affairs.—To promote United States
interests abroad, diplomatic and consular relations are maintained
with foreign governments by means of 260 posts throughout the
world. The overall request for 1988 budget authority is $2.7 billion
with estimated outlays of $2.4 billion.
The administration’s commitments to further United States in
terests abroad and to ensure that those interests may be pursued
in a physically and technically secure environment are reflected in
the 1988 request for State Department operations. The diplomatic
security program remains a high priority. For diplomatic security
construction, the request seeks continuation of the program levels
authorized by the Congress, which will enable the Department to
undertake nine priority embassy replacement projects. Requested
funding for the salaries and expenses portion of the diplomatic
security program will permit the continuation of ongoing residen
tial and perimeter security programs while increasing high priority
countermeasures and office equipment protection programs.
The request also seeks increases for the Department’s diplomatic
reporting capability as well as initiation of a program to improve
proficiency in the “hard languages”—Arabic, Russian, Chinese, and
5-24
THE BUDGET FOR FISCAL YEAR 1988
Japanese. In addition, the Department seeks increases in spending
for its communications and information processing systems to im
prove its ability to transmit and store information.
International Organizations and Conferences.—For 1988, budget
authority of $506 million is proposed for assessed contributions to
international organizations, for international peacekeeping forces
in the Middle East, and for international conferences. Though some
international organizations fulfill important needs, the administra
tion believes that those organizations must be managed efficiently
and economically. Therefore, the administration is continuing to
pursue a responsible budget policy for international organizations,
a policy that assumes reductions in administrative costs and the
elimination of duplicative, low priority, and obsolete activities.
In addition, enacted law requires that U.S. assessed contributions
to the United Nations and its specialized agencies be limited to 20
percent of each organization’s budget, unless it has adopted a
voting system on budgetary matters under which each member’s
voting power is in direct proportion to its contributions. A total of
$79 million in budget authority and outlays has been deducted
from assessments by the United Nations and its affiliated agencies
for 1988 in accordance with this provision. The UN General Assem
bly took an initial step toward reform in December 1986 by adopt
ing a number of budgetary and administrative measures that, if
implemented, could achieve significant gains in economy and effi
ciency. The United States will monitor the implementation of these
measures in the coming year in order to ascertain their bearing on
the law.
Foreign Information and Exchange Activities.—An important ob
jective of this administration is to increase international under
standing of American society and foreign policy. The United States
Information Agency (USIA) seeks to do so through personal con
tacts, academic and leadership exchanges, Voice of America (VOA)
radio broadcasting, distribution of books and periodicals, television
programming, English language teaching, and the operation of li
braries and cultural centers in 127 countries. For 1988, the admin
istration proposes $942 million in budget authority for USIA, an
increase of $95 million from 1987. The VOA multiyear moderniza
tion program totaling $1.3 billion includes funds for new transmit
ter facilities and modernization of equipment in existing facilities.
The 1988 request of $90 million in budget authority for radio
construction maintains strong administration support for VOA
modernization while instituting a policy of not requesting funding
for new transmitter site projects until acceptable agreements with
host governments have been signed. When such agreements are
concluded, the administration will request the necessary funding
INTERNATIONAL AFFAIRS
5-25
from the Congress. The request for USIA also provides increases
for educational and cultural exchange programs, including addi
tional Central American exchanges.
The Board for International Broadcasting provides grants to
Radio Free Europe/Radio Liberty, Inc. (RFE/RL), which broadcasts
in 22 languages to Eastern Europe and the Soviet Union. For 1988,
$204 million of budget authority is requested for the Board. This
includes $42 million for modernization of existing transmitter sites,
which will complete the originally proposed modernization and
refurbishment of RFE/RL facilities. Most of the operating budget
increase is proposed to offset the decline in value of the dollar
against the three foreign currencies which RFE/RL uses to pay for
the bulk of its activities.
International Financial Programs —To assist in the steady
growth of the international economy, the United States conducts
programs to improve the international financial system and to
facilitate U.S. participation in world trade, including arms sales.
For 1988, proposed budget authority is $151 million. Total net
outlays for 1988 are estimated to be —$1.5 billion, because ExportImport Bank loan repayments are expected to exceed new loan
commitments, and Export-Import Bank loan assets will continue to
be sold.
Export-Import Bank,—The Export-Import Bank (Eximbank) ad
ministers a direct loan and guarantee program to promote U.S.
export sales. The direct loan program offers loans generally below
market rates, consistent with an international agreement that re
duces but does not eliminate interest export subsidies.
In 1988, as part of overall Federal credit reform, the administra
tion is proposing to appropriate the subsidies associated with Eximbank’s direct loan and guarantee programs to reflect more accu
rately the cost to the U.S. economy of these programs. A continu
ation of the loan asset sales program involving loans with a face
value of $1.2 billion in 1988 is also proposed.
A major loophole in existing subsidy reduction agreements is the
use of highly concessional aid loans mixed with normal export
credits. The administration has made the elimination of these
mixed credit or tied-aid credits a major negotiating priority. The
administration will continue to press for an international agree
ment that ends all officially subsidized export financing. Consistent
with this objective, the administration is proposing an additional
$200 million in budget authority for the tied-aid credit fund. This
fund will be used to promote a negotiated end to the predatory
export financing practices of foreign governments.
5-26
THE BUDGET FOR FISCAL YEAR 1988
CREDIT PROGRAMS—INTERNATIONAL AFFAIRS
(In millions of dollars)
Estimate
Direct loans:
Foreign military sales credit:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Economic support fund:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Development credit:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Public Law 480 food aid:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .... .. ..
Export-Import Bank1:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Other:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. . .... .. .. .. .. .. .. .. .
Total, direct loans:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. ..
Change in outstandings.. .. .. .. .. .. .. .. .. ..
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
actual
1987
1988
1989
1990
4,967
2,979
22,124
4,040
568
22,692
4,421
-163
22,529
4,499
1,396
23,925
4,573
907
24,832
104
83
6,305
176
77
6,381
176
54
6,436
240
120
6,556
240
114
6,670
323
100
12,324
237
-82
12,242
232
-100
12,141
228
-225
11,917
231
-276
11,641
813
577
10,622
819
628
11,251
749
619
11,869
771
637
12,507
800
665
13,172
578
-1,525
14,351
900
-3,681
10,670
1,000
-2,714
7,956
900
-975
6,981
900
-1,025
5,956
1,051
251
1,431
952
5
1,436
892
-4
1,432
901♦
1,432
901*
1,432
2,466
-2,485
-2,309
7,470
62,364
6,638
954
63,317
6,744
386
63,703
-20
160
-20
140
-20
120
-20
100
-20
80
7,835
67,157
7,125
64,672
Guaranteed loans-.
Foreign military sales credit:
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Development credit:
New commitments.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Export-Import Bank:
New commitments.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
282
86
1,484
345
92
1,576
250
88
1,665
250
86
1,751
250
84
1,834
5,508
-341
4,785
11,355
703
5,488
10,000
678
6,166
10,000
-500
5,666
10,000
Total, guaranteed loans:
New commitments.. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. ..
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
5,790
-276
6,429
11,700
775
7,204
10,250
746
7,950
10,250
-434
7,516
10,250
64
7,580
Total, new obligations and new com
mitments.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
13,625
18,825
17,720
16,888
16,994
5,666
*$500,000 or less.
1 The obligation levels for 1989 and 1990 are not included in the total.
Tax Expenditures.—In an effort to encourage exports, a portion
of the profits from the export sales of foreign sales corporations
(FSCs) is not subject to tax. Also, tax expenditures occur when
Americans working abroad are permitted to exclude substantial
INTERNATIONAL AFFAIRS
5-27
amounts of earned income and housing allowances from taxation.
Tax expenditures resulting from FSCs and the foreign earnedincome exclusion are an estimated $1.3 billion and $2.2 billion,
respectively, for 1988. Additional estimated tax expenditures of
$705 million, $55 million, and $100 million result from the source
rules exception for inventory property sales, the interest allocation
rules exception for certain nonfinancial institutions, and the defer
ral of income tax on the undistributed earnings of foreign corpora
tions controlled by U.S. shareholders. Total tax expenditures for
international affairs are estimated to be $4.4 billion in 1988. No
changes are proposed for 1988.
5-28
THE BUDGET FOR FISCAL YEAR 1988
GENERAL SCIENCE, SPACE, AND TECHNOLOGY
The programs in this function help to ensure U.S. strength and
leadership in science and space technology. All the programs of the
National Science Foundation, the space programs of the National
Aeronautics and Space Administration, and the general science
programs of the Department of Energy are included in this func
tion. Continued support for these programs in the budget reflects
the administration’s view that the ability of the Nation to meet
global competition, to provide for national security, and to improve
the quality of life for all citizens depends in part upon national
investments in science and technology.
Proposed budget authority for these programs is $11.5 billion in
1988, a $0.7 billion decrease from the 1987 level, but a $2.2 billion
increase over the 1986 level. This decrease in budget authority
from 1987 to 1988 reflects primarily the one-time cost in 1987 of
replacing the Space Shuttle Challenger. Outlays for programs in
this function are estimated to reach $11.4 billion in 1988, an in
crease of 20 percent or $1.9 billion over 1987.
In 1988, increases are proposed for general science programs, and
a strong and balanced space program is maintained. Even in a time
of fiscal restraint, the increasing outlays estimated for these pro
grams represent a necessary investment in the Nation’s future
because of the important contribution such programs make to longrange economic growth and competitiveness of the U.S. economy.
Common to the programs in this function is the support of basic
research, accounting for more than one-third of overall Federal
funding for such research. The programs in this function are of
particular importance to the Nation because they, along with re
search programs of the Department of Defense (DOD), constitute
the predominant Federal sources of funding for basic research in
the physical and engineering sciences.
General Science and Basic Research.—This area covers all the
programs of the National Science Foundation (NSF) and the gener
al science programs of the Department of Energy (DOE) in high
energy and nuclear physics. Budget authority of $2.7 billion is
proposed for these programs in 1988, an increase of 16 percent or
$0.4 billion over the 1987 level.
National Science Foundation Programs,—The principal mission
of NSF is to support basic research in all fields of science and
engineering. The NSF’s broad-based research programs comple
ment the basic research programs of agencies with specialized mis
sions, such as the National Aeronautics and Space Administration,
DOD, and the National Institutes of Health. This approach to
funding basic research helps ensure balanced Federal support
GENERAL SCIENCE, SPACE, AND TECHNOLOGY
5-29
across all scientific disciplines. The 1988 budget includes $1.9 bil
lion in proposed budget authority for the NSF, an increase of 16
percent or $0.3 billion over the 1987 level. Within this amount, the
support of basic research will increase from $1.4 billion in 1987 to
$1.6 billion in 1988.
The NSF supports research at academic institutions through
grants to individual scientists. With the increased level of basic
research support proposed for 1988, interdisciplinary research
would receive special emphasis. Basic research among several disci
plines often leads to the creation of important new fields of science
(e.g., biotechnology). The budget proposes to establish 5 to 10 new
interdisciplinary basic science and technology centers modeled
after the existing engineering research centers. These new centers
would focus on research among scientific disciplines and would
attract and encourage substantial participation by industry and the
States to speed the transfer of new knowledge from the laboratory
to the marketplace.
Research programs that contribute to the development of
“human capital” also will be emphasized in 1988. Continued U.S.
leadership in science and industry depends on the future availabil
ity of high-quality scientists and engineers. Academic basic re
search is a primary means to help expand the U.S. pool of trained
scientists and engineers that, over the long term, enhance the
ability of the U.S. to compete globally. This emphasis in 1988 will
be reflected in the new basic science and technology centers, and
also in a variety of ongoing NSF programs, including the engineer
ing research centers, the advanced scientific computing centers, the
graduate fellowship program, and programs to improve student
research and to increase funds for scientific equipment at under
graduate institutions.
Increased support will also be provided for NSF programs aimed
at improving the quality of pre-college science and math education.
NSF programs in pre-college science and mathematics are intended
to complement the efforts of State and local education agencies and
the private sector.
In addition, continued support is provided for the U.S. Antarctic
program managed by NSF. Through this science program, the U.S.
maintains an active and influential presence in that region.
Department of Energy General Science Programs—The general
science programs of the DOE support basic research in nuclear and
high energy physics. The goal of this research is to achieve a
comprehensive understanding of the basic components of matter
and energy and the forces that govern their interaction. Budget
authority of $814 million is requested for support of these programs
in 1988, an increase of $106 million or 15 percent from the 1987
level.
5-30
THE BUDGET FOR FISCAL YEAR 1988
NATIONAL NEED: INCREASING BASIC SCIENTIFIC KNOWLEDGE AND USE OF SPACE
(Functional code 250; in millions of dollars)
Major missions and programs
1986
actual
Estimate
1987
1988
1989
1990
BUDGET AUTHORITY
General science and basic research:
National Science Foundation programs.. .. .. .
Department of Energy general science pro
grams .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, General science and basic
research.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
1,472
1,636
1,898
2,163
2,479
650
708
814
871
945
2,121
2,345
2,712
3,034
3,424
4,240
2,107
819
6,532
2,239
1,039
5,254
2,361
1,141
6,045
2,626
1,209
6,066
2,704
1,310
Subtotal, Space research and
technology.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
7,165
9,809
8,756
9,881
10,079
Total, budget authority.. .. .. .. .. .. .. .. .
9,286
12,154
11,468
12,915
13,504
1,550
1,571
1,806
1,985
2,249
671
697
782
827
905
2,221
2,268
2,588
2,812
3,154
3,794
2,127
835
4,308
2,172
774
5,569
2,250
1,031
6,858
2,447
1,044
6,586
2,615
1,107
Subtotal, Space research and
technology.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
6,756
7,255
8,851
10,349
10,308
Total, outlays.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
8,976
9,523
11,439
13,161
13,462
Space research and technology:
Space flight.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Space, science, applications, and technology..
Supporting space activities.. .. .. .. .. .. .. .. .. .. .
OUTLAYS
General science and basic research:
National Science Foundation programs.. .. .. .
Department of Energy general science pro
grams .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, General science and basic
research.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Space research and technology:
Space flight.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Space, science, applications, and technology..
Supporting space activities.. .. .. .. .. .. .. .. .. .. .
The budget proposes additional funding for operation of nuclear
and particle physics accelerators supported by DOE, restoring oper
ations to the levels achieved in 1986. Funds are requested for
construction and operation of accelerator facilities at Fermilab (Illi
nois), Stanford University (California), Brookhaven National Labo
ratory (New York), and Continuous Electron Beam Accelerator
(Virginia). The budget also requests continued funding for ad
vanced accelerator and detector research and development related
to the next generation of high energy particle accelerators.
Space Research and Technology.—This part of the function covers
the space-related activities of the National Aeronautics and Space
Administration (NASA). To continue U.S. leadership in space, a
strong and balanced program will be maintained in the primary
areas of space flight, space science, and space technology. Budget
authority of $8.8 billion is proposed for these programs in 1988,
GENERAL SCIENCE, SPACE, AND TECHNOLOGY
5-31
compared to $9.8 billion in 1987. Estimated outlays will increase 22
percent from $7.3 billion in 1987 to $8.8 billion in 1988. The de
crease in budget authority from 1987 to 1988 is due to the one-time
cost of $2.1 billion in 1987 to replace the orbiter Challenger offset
in part by an increase of about $1.1 billion for other space shuttle
recovery-related costs, program enhancements, and new activities.
Space Flight.—The space flight programs help sustain and im
prove the Nation’s ability to supply space transportation services
and to develop the facilities to establish a permanent U.S. presence
in space. Budget authority of $5.3 billion for these programs is
proposed for 1988, compared to $6.5 billion in 1987 and $4.2 billion
in 1986. Outlays will be $5.6 billion in 1988, 29 percent or $1.3
billion over 1987.
In 1988, emphasis will be placed on returning the space shuttle
safely to flight. Modifications and redesigns identified by post-Challenger accident reviews will be continued on the solid rocket boost
ers, orbiters, main engines, and external tank. The recommenda
tions of the Rogers Commission will be implemented to enhance
the safe and effective operation of the shuttle fleet. The orbiter
logistics program will continue to provide hardware to support the
increasing flight rate when flights resume in 1988. Funding for
operations will support the training, mission planning, hardware
and payload processing, and other preparations for flights planned
in 1988 and 1989. Four flights are planned for 1988 and nine are
planned for 1989. Work on the replacement orbiter will continue
with delivery scheduled for 1991. Also, the budget supports the
continued development of an orbital maneuvering vehicle to help
ferry spacecraft in low-Earth orbit to and from the shuttle.
For the manned space station program, budget authority is pro
posed to increase from $420 million in 1987 to $767 million in 1988
to expand development activities leading to an initial operating
capability in the mid-1990,s. The space station will facilitate spacebased research, help develop advanced technologies potentially
useful to the economy, and encourage greater commercial use of
space.
Space Science, Applications, and Technology.—This area includes
programs that study the solar system, the universe, and Earth’s
environment, support research on materials processing in space,
and develop technology for future space programs. Budget author
ity of $2.4 billion is proposed for 1988, an increase of $122 million
from the 1987 level.
In space science, the administration proposes to continue broadbased, high-quality flight programs and supporting ground-based
research. Spacecraft development will continue for the gamma ray
observatory, the Magellan mission (formerly the Venus radar
5-32
THE BUDGET FOR FISCAL YEAR 1988
mapper), and the Mars observer. Operational support will be pro
vided in 1988 for the Hubble space telescope, the Galileo mission to
Jupiter, and the planned Voyager 2 rendezvous with Neptune in
1989. Planning activities will continue for several smaller space
physics, astronomy and life sciences experiments, which were re
scheduled due to the Challenger accident. In addition, preparations
will be made for future science flight missions.
For space applications, the budget emphasizes space experiments
and ground-based supporting research to study the Earth and its
environment and to explore concepts and techniques for materials
processing in space. The cancellation of the advanced communica
tions technology satellite flight demonstration will avoid possible
competition with the private sector and permit greater emphasis
on activities more appropriate for Federal support.
The budget proposes expanded efforts to develop space-based
remote sensing technologies to help better understand the Earth’s
environment and the interaction of the Sun and the Earth. A
major new cooperative mission, the global geospace sciences pro
gram, will be initiated to expand space-based research on the phys
ics of the interaction between the Sun and the Earth. Planning
activities will continue for the ocean topography experiment to
permit oceanographic studies aiding a better understanding of the
effect of ocean circulation on the Earth’s climate. In the area of
materials processing, increased funding will allow support for the
operation of the microgravity materials science laboratory and nu
merous ground-based microgravity experiments. Planning activities
will continue for space-based experiments to be undertaken when
shuttle flights resume.
For the generic space technology program, the administration is
proposing continued growth in funding for 1988 to help provide the
technology base for future space programs in areas such as propul
sion, electronics, and materials research. A major new effort, the
civil space technology initiative, will develop a variety of generic
space technologies such as space-based propulsion, automation and
robotics. This initiative is intended strengthen the technology base
for continued U.S. leadership in space.
The commercial space programs encourage and facilitate greater
private sector investment and involvement in space. Increased
funding will be provided to help non-aerospace firms and universi
ties explore potential new uses of space for future economic bene
fits.
The transatmospheric research and technology program, a joint
program of NASA and DOD, explores new approaches for costeffective hypersonic vehicles for flight in the atmosphere and for
access to space. Funding increases are proposed to continue cooper
ative research as well as technology development and testing.
5-33
GENERAL SCIENCE, SPACE, AND TECHNOLOGY
These efforts are expected to lead to a transatmospheric flight
research vehicle demonstration in the early 1990’s as part of the
National Aerospace Plane program. The budget authority request
for civil space-related elements of this activity is in this function;
budget authority for NASA efforts related to aeronautical applica
tions are discussed in the transportation function.
Supporting Space Activities.—Budget authority of $1.1 billion is
proposed for spacecraft tracking, data gathering, and data process
ing support for the entire space program, an increase of $102
million over the 1987 level.
The budget proposes funding in 1988 for replacement of the
tracking and data relay satellite (TDRSS) lost in the Challenger
accident. The budget also continues repayments of loan obligations
for TDRSS services, and provides for other tracking and data acqui
sition services required to support planned missions. The accompa
nying credit table shows NASA’s repayment schedules on the out
standing direct loans made by the Federal Financing Bank for
TDRSS construction and acquisition. No new obligations for this
account are expected.
CREDIT PROGRAMS—GENERAL SCIENCE, SPACE, AND TECHNOLOGY
(In millions of dollars)
actual
1986
Direct loans:
NASA:
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
888
Estimate
1987
-79
809
1988
-91
717
1989
1990
-105
612
-121
491
Tax Expenditures.—In addition to direct Federal funding of basic
research, the tax code encourages private sector research and de
velopment, including basic research, by allowing expenditures for
such purposes to be deducted as a current expense. The 1988 esti
mate for this provision is $1.4 billion. A 25 percent tax credit to
encourage increases in certain basic research and experimentation
was allowed to expire in 1985, but was reinstated at a reduced rate
of 20 percent through 1988 by the Tax Reform Act of 1986. This
will cost $1.1 billion in 1988. A legislative moratorium on the
Internal Revenue Service regulation determining the allocation
between domestic and international operations of business research
and development expenditures was replaced in the Tax Reform
Act. A statutory allocation rule reduces by half the benefits to
taxpayers enjoyed during the 10-year suspension of the proposed
regulation. The 1988 estimate for this tax expenditure is $200
million. Tax expenditures for general science, space, and technolo
gy are estimated to total $3.0 billion in 1988.
5-34
THE BUDGET FOR FISCAL YEAR 1988
ENERGY
The Nation needs adequate supplies of energy at reasonable
prices. The best way to meet this need is to let market forces work.
This policy produces favorable results, as evidenced by develop
ments since the President decontrolled oil markets in 1981. Oil
prices are down and the economy continues to expand using less
energy than in the past.
The Federal Government can help the Nation meet its energy
needs through limited spending that is carefully focused to meet
appropriate Federal responsibilities and through cutbacks that
eliminate inappropriate Government involvement in energy mar
kets. Major initiatives proposed in the budget include the following:
• Selling the Government-run oil fields at Elk Hills and Teapot
Dome, since these are businesses, and not appropriate govern
mental activites.
• Undertaking the transfer of the power marketing administra
tions to non-Federal entities in order to improve the service
they provide their customers.
• Reforming the lending policies of the Rural Electrification
Administration (REA) to reduce costly subsidies.
A total of $2.5 billion in budget authority is proposed for this
function in 1988, a decrease of $0.1 billion from 1987. Total outlays
are expected to fall from $3.8 billion in 1987 to $3.3 billion in 1988.
This $0.5 billion reduction is the net result of $0.9 billion in in
creased REA outlays, offset by proposed reductions in spending for
the Tennessee Valley Authority of $0.5 billion; for energy conserva
tion of $0.3 billion; for the strategic petroleum reserve of $0.3
billion; and for other programs of $0.3 billion.
Receipts resulting from the divestiture of programs in this func
tion are estimated to total $2.5 billion in 1988. This income is
reported in the last section of Part 5, undistributed offsetting re
ceipts.
Energy Supply—The Federal Government’s energy supply activi
ties fall into three main categories: research and development
(R&D), direct production programs, and subsidies for synthetic
fuels and certain electric utilities and telephone systems.
A total of $2.2 billion in budget authority is proposed for energy
supply research and development programs in 1988. This program
level is roughly equal to the level of funding in 1987, for which $0.7
billion of prior year unobligated budget authority adds to $1.5
billion of new appropriations.
Private industry invests billions of dollars each year in research
and development, including R&D related to energy. The Federal
Government should complement, rather than supplant, private
sector R&D investment. It should limit its spending to support for
5-35
ENERGY
NATIONAL NEED: ENERGY
(Functional code 270; in millions of dollars)
Major missions and programs
Estimate
1986
actual
1987
1988
1989
1990
BUDGET AUTHORITY
Energy supply:
Research and development:
Fission.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Fusion.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Fossil.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Solar and renewable energy resources..
Energy science.. .. .. .. .. .. .. .. .. .. .. .. .. ..
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Offsetting transfers.. .. .. .. .. .. .. .. .. .. ..
Direct production (net):
Uranium enrichment.. .. .. .. .. .. .. .. .. .. ..
Federal power marketing:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .
Proposed legislation.. .. .. .. .. .. .. .. .. .
Petroleum reserves:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .
Proposed legislation.. .. .. .. .. .. .. .. .. .
Nuclear waste disposal.. .. .. .. .. .. .. .. ..
Tennessee Valley Authority.. .. .. .. .. .. ..
Other subsidies:
Nonconventional fuel production.. .. .. ..
Rural electric and telephone:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .
Proposed legislation.. .. .. .. .. .. .. .. ..
Subtotal, Energy supply..
394
362
309
201
669
352
-217
330
345
251
162
745
421
-684
326
346
219
107
779
409
309
360
275
111
845
435
308
375
230
114
881
437
-231
-270
-270
-100
-142
34
-70
61
18
-565
-486
-540
131
985
58
1,450
-12
213
-517
517
-47
434
-504
504
-74
572
1,914
-821
4,745
1,671
27
-27
1,474
28
-28
2,417
28
-28
2,653
Conservation research and development.,
Conservation grants.. .. .. .. .. .. .. .. .. .. .. ..
Subtotal, Energy conservation.. .. .. .. .
164
263
426
136
15
151
86
83
4
87
85
2
87
Emergency energy preparedness.. .. .. .. .. .. ..
113
153
276
401
421
Energy information, policy, and regulation.
763
562
676
699
701
6,047
2,637
2,513
3,604
3,862
Energy conservation:
Total, budget authority.. .. .. .. .. .. .. .
199
3
*$500 thousand or less.
basic research and other longer term R&D where the benefits do
not readily accrue to individual companies but assist industry as a
whole in the development of new technologies. This policy is par
ticularly applicable to non-nuclear R&D, where industry makes
significant investments.
The budget authority requested for nuclear fission R&D includes
$326 million for nuclear technology research, a level nearly con
stant with 1987. The nuclear fission R&D program shows an in
crease in funds for the advanced civilian reactor program but
continues the shift toward R&D on reactor concepts that can meet
space and military nuclear power requirements. The restructured
program, while serving national security interests, will also main
tain a technical and industrial base for any future use of advanced
nuclear technologies in the commercial sector.
5-36
THE BUDGET FOR FISCAL YEAR 1988
NATIONAL NEED: ENERGY
(Functional code 270; in millions of dollars)
Major missions and programs
1986
actual
Estimate
1987
1988
1989
1990
OUTLAYS
Energy supply:
Research and development:
Fission.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Fusion.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Fossil.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Solar and renewable energy resources.. ..
Energy science.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Offsetting transfers.. .. .. .. .. .. .. .. .. .. .. .. ..
Direct production (net):
Uranium enrichment.. .. .. .. .. .. .. .. .. .. .. .. .
Federal power marketing:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Proposed legislation.. .. .. .. .. .. .. .. .. .. ..
Petroleum reserves:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Proposed legislation.. .. .. .. .. .. .. .. .. .. ..
Nuclear waste disposal.. .. .. .. .. .. .. .. .. .. ..
Tennessee Valley Authority.. .. .. .. .. .. .. .. ..
Other subsidies:
Nonconventional fuel production.. .. .. .. .. ..
Rural electric and telephone:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. ..
Subtotal, Energy supply.. .. .. .. .. .. .. .. ..
Energy conservation:
Conservation research and development.. .. ..
Conservation grants.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Energy conservation.. .. .. .. ..
Emergency energy preparedness.. .. .. .. .. .. .. .
Energy information, policy, and regulation...
Total, outlays.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
393
427
336
203
672
372
350
340
361
169
781
390
346
342
367
135
736
408
325
354
324
96
812
412
311
369
337
92
845
428
-91
-200
-231
-270
-270
-408
-500
-556
-691
-70
-519
19
-415
-442
-539
.. .. 17
783
2
806
-12
318
-525
526
-47
-308
-518
518
-74
74
120
89
38
77
208
429
-204
2,839
1,940
1,692
-979
2,065
1,615
-895
1,736
1,075
-842
2,053
172
343
515
597
785
211
228
440
733
675
94
58
153
448
678
96
17
113
415
685
84
2
86
423
686
4,735
3,787
3,344
2,948
3,247
For nuclear fusion R&D, budget authority of $346 million is
proposed for 1988. This budget level, which is the same as that in
1987, funds fusion reactor development at a pace consistent with
national energy needs and the potential contribution of fusion
power. In 1988, the program will continue to focus on resolving
scientific questions key to the ultimate achievement of fusion
energy. Studies to support the President’s Geneva initiative on
expanded cooperation with the Soviet Union in the area of magnet
ic fusion will also continue in 1988.
The budget proposes a total of $219 million for two R&D pro
grams dealing with fossil fuels: a research program and a clean
coal demonstration program. A program level of $169 million is
proposed for research related to fossil fuels, including $7 million
proposed for later transmittal to support cooperative R&D ven
ENERGY
5-37
tures. This is a reduction of $82 million from 1987. The program
supports research in universities and national laboratories and
cooperative R&D with industry. The request continues to empha
size clean use of coal, with $109 million in budget authority for
coal-related R&D.
The administration proposes spending $350 million over 5 years
for additional clean coal technology demonstration projects, in re
sponse to the recommendations in the Report of the U.S. and
Canadian Special Envoys on Acid Rain. This amount is in addition
to the $396 million committed by the Department of Energy in
1986. The budget requests $50 million in 1988 and an advance
appropriation of $100 million for 1989 for this expanded funding.
As with the 1986 commitments, non-Federal sources are expected
to contribute at least equal amounts of funding to these projects.
Federal outlays are estimated to be $26 million in 1987 and $146
million in 1988.
A program level of $107 million, including $5 million proposed
for later transmittal to support cooperative R&D ventures, is pro
posed in 1988 for solar and renewable energy research, a reduction
of $55 million from 1987. The research covers a broad range of
technologies. Like fossil fuel R&D, it supports university and na
tional laboratory research as well as applied research and develop
ment in cooperation with industry.
The reduced budget authority proposed for fossil, solar and other
non-nuclear R&D will continue to support vigorous programs of
research on longer-term concepts that can later be applied by
industry as a whole, while eliminating Federal subsidies for propri
etary products or process development by individual firms. The
emphasis on more generic technology development, coupled with
the use of cooperative R&D ventures, will support industry broadly
with greater cost effectiveness and more effective technology trans
fer. It also reduces the need for continuing previous levels of Feder
al investment.
For energy science programs, the budget proposes $779 million in
new budget authority, a $34 million increase over the 1987 level.
Spending on these programs has increased 34 percent in the past 5
years. These are programs where the Government clearly has a
key role to play. They support energy-related basic and applied
research at major universitites and the DOE national laboratories
in the physical, biological, environmental, and engineering sci
ences. Their goal is to provide fundamental scientific knowledge
and a broadened engineering data base for future industrial devel
opment of a wide spectrum of energy technologies.
Other energy supply R&D programs include DOE research on
health and safety issues, and Environmental Protection Agency
research on acid rain and on an advanced environmental control
5-38
THE BUDGET FOR FISCAL YEAR 1988
technology. Investments for energy conservation at the national
laboratories are also included, together with spending for environ
mental cleanup at DOE sites. For the nuclear fission remedial
action program, $252 million is proposed in 1988 for the cleanup of
waste from uranium mining and other contaminated sites.
The budget proposes privatization of two of the Federal Govern
ment's direct production activities*, the naval petroleum reserves
(NPRs) and the power marketing administrations (PMAs). In addi
tion, the administration is developing plans to privatize the Gov
ernment's uranium enrichment program.
The NPRs are located at Elk Hills, California and Teapot Dome,
Wyoming. These oil fields were set aside by President Taft and
President Wilson to ensure fuel supplies for the Navy as its ships
converted from coal to oil. They have outlived their usefulness as
national security assets. The strategic petroleum reserve now pro
vides an adequate emergency reserve; it can pump out oil 30 times
faster than the NPR. The budget assumes the oil fields are sold for
$3.3 billion. The proceeds from this sale are not included in this
function; instead, they are classified as undistributed offsetting
receipts.
The budget reproposes divestiture of the five power marketing
administrations (PMAs), which supply 6 percent of the electricity
generated in the country. These are commercial activities, which in
most areas of the country are performed by private and other nonFederal enterprises.
The administration believes that divestiture can lead to creation
of new enterprises that are more responsive to regional and cus
tomer needs, without significant increases in power rates. Conse
quently, legislation is proposed with the budget to study a possible
divestiture of the Southeastern Power Administration. Also, work
will continue on the Alaska Power Administration divestiture. All
activities will be coordinated with Congress and with existing
power customers, and legislative authorizations will be sought for
divestitures. The budget assumes that divestiture of the Southeast
ern and Alaska Power Administrations will be authorized and
carried out at the end of 1989.
As long as the PMAs remain under Federal ownership and con
trol, it is appropriate that they repay Federal investment on a
regular, business-like basis. To ensure regular repayments, the
budget proposes that the PMAs repay the Federal investments on a
fixed, straight-line amortization schedule. The proposal would not
increase the PMAs' interest costs or the total Federal investment
to be repaid, but merely would ensure that annual repayments
occur on a predictable and stable schedule.
In 1988, the uranium enrichment program will reduce plant
operating costs so as to be more competitive in the world enrich
ENERGY
5-39
ment market, repay $231 million to the Treasury for prior unrecov
ered costs, and transfer the responsibility for further development
of enrichment technologies to the private sector. Also in 1988,
legislation will be proposed to authorize privatization of the urani
um enrichment enterprise.
The commercial nuclear waste program is financed by a fee on
electricity generated by nuclear power plants. Proposed budget
authority of negative $12 million in 1988 results from expenses of
$500 million, offset by receipts of $512 million. The request is
consistent with levels appropriated in 1986 and 1987. If certain
external issues affecting the scope and pace of the program are
resolved, a budget amendment supporting a more aggressive pro
gram will be submitted at a later date.
The Tennessee Valley Authority (TVA) estimates its total bor
rowing (budget authority) to be $213 million in 1988, a decrease of
$1.2 billion from 1987. Restoration and construction of the agency’s
nuclear power plants and other power system modifications and
upgrades will be financed primarily out of internally-generated
funds. TVA will guarantee $209 million in borrowing by the Seven
States Energy Corporation from the FFB to finance the TVA nucle
ar fuel inventory. TVA’s economic development programs are de
scribed in the community and regional development function.
The Rural Electrification Administration (REA) in the Depart
ment of Agriculture provides direct loans and guarantees of direct
loans by the Federal Financing Bank (FFB) for the construction
and operation of rural electric utilities and telephone systems.
Total REA loans outstanding, including FFB direct loans, are esti
mated to be $37.0 billion at the end of 1986.
The administration proposes that rural electric and telephone
systems increase their reliance on private financing and that all
REA direct lending programs be phased out by the end of 1989.
Under this proposal, revolving fund direct loans and Rural Tele
phone Bank loans would be phased out by the end of 1989, and 100
percent REA guaranteed FFB loans would end in 1987. A less
costly program offering a 70 percent REA guarantee of the princi
pal of privately originated loans would be substituted. Electric and
telephone borrowers that serve largely urban, suburban, or recrea
tion areas and most telephone borrowers who are subsidiaries of
larger holding companies would no longer be eligible for REA
assistance. Consistent with this approach, the budget proposes that
REA reduce its direct loan obligations in 1988 by $0.7 billion from
the 1987 obligations of $1.1 billion. In addition, to encourage privat
ization, the administration proposes that any borrower with exist
ing REA loans outstanding have the opportunity to prepay all FFB
and Rural Telephone Bank loans without a prepayment premium
5-40
THE BUDGET FOR FISCAL YEAR 1988
CREDIT PROGRAMS—ENERGY
(In millions of dollars)
Estimate
1986
actual
Direct loans:
TVA fund:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Rural electrification:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Geothermal resources and other:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Total, direct loans:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. ..
Change in outstandings.. .. .. .. .. .. .. .. .. ..
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Guaranteed loans:
Biomass energy development:
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Rural electrification:
New commitments.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Synthetic fuels:
Change in outstandings......................................
TVA fund:
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Geothermal resources and other:
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
1987
1989
1990
268
180
2,091
301
-211
1,880
280
74
1,954
343
-634
1,319
346
-66
1,253
2,953
304
35,941
1,305
2,045
37,986
290
276
38,262
145
-320
37,942
-720
37,222
4
2
23
-1
23
-1
22
-1
21
-1
21
3,224
486
38,055
1,606
1,833
39,888
570
349
40,238
488
-955
39,283
346
-787
38,496
283
796
273
1,069
1,069
1,069
1,069
1,118
840
317
1,435
1,115
824
2,260
1,388
1,306
3,565
-15
1,030
-4
-1
1
1
-4
50
50
50
50
50
Total, guaranteed loans:
New commitments.. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. ..
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
262
1,877
.. .. .. ..
361
2,238
840
316
2,554
1,115
824
3,378
1,388
1,306
4,684
Total, new obligations and new com
mitments.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
3,224
1,606
1,410
1,603
1,734
and all Revolving Fund direct loans at a discount if the borrower
agrees not to seek REA assistance in the future.
Energy Conservation.—The budget proposes a total of $86 million
in new budget authority for programs in this subfunction, which
includes energy conservation research and development and State
and local conservation grants.
Energy conservation R&D supports development of methods to
use energy more efficiently in buildings, transportation, and indus
try. The budget proposes a program level of $80 million, including
$5 million proposed for later transmittal to support cooperative
ENERGY
5-41
R&D ventures, a reduction of $56 million from 1987. The reduction
largely reflects proposed elimination of Federal support for devel
opment of specific proprietary products for individual companies,
because it is not appropriate for the Federal Government to pro
vide that kind of company-specific assistance.
This subfunction also includes programs providing energy grants
to State and local governments. These grants are used to weather
ize school buildings, hospitals, and the homes of low-income fami
lies. They also support State energy planning and extension activi
ties. States received $2.8 billion this past year from the settlement
of cases involving petroleum pricing violations under the old price
control program. Consequently, no new budget authority is pro
posed for these grants.
Emergency Energy Preparedness.—The strategic petroleum re
serve (SPR) is a Government stockpile of crude oil that is being
built up to supplement the market in the event of a severe disrup
tion in world oil supplies. The administration proposes to continue
development and fill of the reserve at the current rate of 75,000
barrels a day during 1987, then to reduce the rate to 35,000 barrels
a day in 1988. This proposal is consistent with the administration’s
support for a 750 million barrel reserve and provides adequately
for the Nation’s energy security.
By the end of 1987, the SPR will contain 534 million barrels of
crude oil, an amount equal to over 100 days of 1986 net U.S.
imports from all countries. This inventory level will more than
meet U.S. obligations to the International Energy Agency. In view
of the more than 10 million barrels per day of surplus oil produc
tion capacity in the world, the 350 million barrels of stocks under
the control of other major importing nations’ governments, and the
stocks held by the private sector, there is no need to continue
filling SPR at the 75,000 barrel daily rate at an additional annual
cost of more than $225 million. At the proposed 35,000 barrels per
day rate, SPR outlays for petroleum acquisition and for storage
facilities development and maintenance for 1988 are estimated to
be $442 million.
Energy Information, Policy, and Regulation—Budget authority
for energy information, policy, and regulation of $676 million is
proposed for 1988, a $14 million increase over 1987. Included in this
total is $428 million to support the work of the Nuclear Regulatory
Commission. This subfunction also includes the operating expenses
of the Department of Energy’s Federal Energy Regulatory Commis
sion and Energy Information Administration, as well as the De
partment’s general administrative expenses.
5-42
THE BUDGET FOR FISCAL YEAR 1988
Tax Expenditures.—To encourage energy resources exploration
and production, the tax code permits certain capital costs to be
deducted as current expenses rather than amortized over the
useful life of the property. In addition, extractive industries are
generally permitted to use percentage depletion rather than cost
depletion.
A number of residental tax incentives designed to stimulate
energy conservation and encourage conversion to energy sources
other than oil or natural gas expired on December 31, 1985. Special
tax credits for business investments in specified energy property,
which were scheduled to expire at the end of 1985, were extended
at declining rates through 1988 by the Tax Reform Act of 1986.
Tax expenditures for energy are listed in the accompanying table
and discussed in more detail in Special Analysis G.
TAX EXPENDITURES FOR ENERGY
(Outlay equivalents; In millions of dollars)
Description
Estimates
1986
Expensing of exploration and development costs:
Oil and gas.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . -765
Other fuels.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
35
Excess of percentage over cost depletion:
Oil and gas.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . 1,375
Other fuels.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
340
125
Capital gains treatment of royalties on coal.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Exclusion of interest on State and local industrial development bonds for certain
energy facilities.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
180
Residential energy credits:
Supply incentives.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
175
Conservation incentives.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
70
Alternative, conservation and new technology credits:
Supply incentivies.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
375
*
Conservation incentives.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Alternative fuel production credit.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
25
Alcohol fuel credit1.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
10
Energy credit for intercity buses.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
5
55
Special rules for mining reclamation reserves.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Total (after interactions), energy2.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . 1,420
1987
1988
-820
35
-485
35
850
235
30
585
190
200
205
20
325
♦
15
10
90
50
680
45
490
*
*
15
10
*
*500 thousand or less.
1 In addition, the exemption of alcohol fuel from the excise tax on gasoline results in a reduction in excise receipts of $400 million in 1986, $340 million in
1987, and $300 million in 1988.
2 The estimate of total tax expenditures for this function reflects interactive effects among the individual items. Therefore, the estimates cannot
simply be added.
NATURAL RESOURCES AND ENVIRONMENT
5-43
NATURAL RESOURCES AND ENVIRONMENT
Federal natural resources and environment programs manage
public lands and resources for their preservation, conservation, and
economic development; work with State governments to ensure a
clean environment; and encourage increased knowledge and under
standing of the environment. A total of $14.1 billion in budget
authority is requested for this function in 1988, an increase of $0.8
billion from 1987. This change results primarily from a $1.4 billion
increase for conservation of agricultural lands. While funding for
water resources and other natural resources is increased, decreases
for recreational resources and pollution control and abatement
offset these increases.
Pollution Control and Abatement.—Efforts to control pollution of
air, water, and land are carried out through direct Federal pro
grams and through financial assistance to State and local govern
ments.
Regulatory, Enforcement, and Research Programs.—Proposed
budget authority for these programs will continue at about the
1987 level. However, programs with new or recent statutory man
dates, such as the Safe Drinking Water Act (SDWA) Amendments,
are increased significantly. This Act requires new drinking water
standards, and ensuring compliance with public water supply
standards and underground injection control requirements. The
budget also includes increases for State environmental agencies.
Other initiatives begun or maintained in 1987 are continued in the
1988 budget. Budget authority is also requested to continue aggres
sive implementation of the Hazardous and Solid Waste Amend
ments of 1984. The acid rain task force is classified in the energy
function.
Hazardous Substance Superfund.—This trust fund finances the
cleanup of abandoned hazardous waste sites and hazardous chemi
cal spills. To implement the provisions of the Superfund Amend
ments and Reauthorization Act of 1986, the administration pro
poses budget authority of $1.2 billion for 1988. Including unobligat
ed budget authority from 1987, this request represents a $450 mil
lion increase in activity by all agencies involved in the Superfund
program.
Sewage Treatment Plant Construction Grants.—With the comple
tion of the original Federal mission, communities will be expected
to finance waste treatment facilities through charges for the serv
ices they provide, combined with assistance that State governments
may provide. In order to complete the Federal role in assisting
State and local governments to build sewage treatment facilities,
5-44
THE BUDGET FOR FISCAL YEAR 1988
the administration requests $12 billion in budget authority through
1993. New budget authority of $2.0 billion will be requested in 1988
for the construction of sewage treatment systems once an accepta
ble program has been reauthorized.
NATIONAL NEED: USING AND PRESERVING NATURAL RESOURCES AND PROTECTING THE
ENVIRONMENT
(Functional code 300; in millions of dollars)
Major missions and programs
Estimate
1986
actual
1987
1988
1989
1990
BUDGET AUTHORITY
Pollution control and abatement:
Regulatory, enforcement, and research pro
grams .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Hazardous substance response fund.. .. .. .. ..
Oil pollution funds (gross).. .. .. .. .. .. .. .. .. .. .
Sewage treatment" plant construction
grants.Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Leaking underground storage tank trust
Offsetting receipts:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Pollution control and abate
ment.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
1,373
261
6
1,394
1,411
7
1,436
1,200
5
1,435
1,300
5
1,432
1,500
5
1,774
1,200
800
2,000
1,900
1,600
25
25
50
-16
-35
-10
-57
-40
-132
-43
-207
-45
3,399
4,817
4,544
4,491
4,311
2,774
3,354
3,503
3,677
3,661
Water resources:
Corps of Engineers.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Bureau of Reclamation.. .. .. .. .. .. .. .. .. .. .. .. .
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Offsetting receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Water resources.. .. .. .. .. .. .. .
768
298
-161
3,678
953
129
-422
4,014
1,053
87
-475
4,168
1,127
24
-437
4,390
1,141
20
-405
4,417
1,946
470
278
595
307
1,978
559
304
437
315
1,828
487
292
1,801
218
1,836
560
292
2,403
218
1,839
561
292
2,731
219
-2,166
-2,217
-2,292
-2,424
-2,520
1,430
1,375
2,334
2,886
3,121
195
79
24
9
89
-30
91
-30
94
-30
1,312
1,320
1,379
52
1,402
52
1,416
52
-74
-49
1,456
1,359
-136
-63
1,291
-138
-64
1,313
-131
-64
1,337
Conservation and land management:
Management of national forests, cooperative
forestry, and forestry research (Forest
Service).. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Management of public lands (BLM).. .. .. .. ..
Mining reclamation and enforcement.. .. .. .. ..
Conservation of agricultural lands.. .. .. .. .. .. .
Other resources management.. .. .. .. .. .. .. .. ..
Offsetting receipts:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Conservation and land man
agement.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Recreational resources:
Federal land acquisition:1
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Urban park and historic preservation funds....
Operation of recreational resources:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Offsetting receipts:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Recreational resources.. .. .. ..
5-45
NATURAL RESOURCES AND ENVIRONMENT
NATIONAL NEED: USING AND PRESERVING NATURAL RESOURCES AND PROTECTING THE
ENVIRONMENT—Continued
(Functional code 300; in millions of dollars)
Major missions and programs
1986
actual
Other natural resources:
Program activities:
Existing law............ .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Offsetting receipts........ .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
1,778
-17
Subtotal, Other natural resources.. .. .. ..
1,761
Total, budget authority.. .. .. .. .. .. .. .. .. .
11,724
Estimate
1987
1,690
1988
1989
1990
-15
1,734
29
-24
1,792
29
-24
1,702
29
-24
1,675
1,738
1,796
1,707
13,241
14,076
14,876
14,893
1 Includes budget authority from State grants financed by the land and water conservation fund.
Water Resources.—Total net proposed budget authority of $4.2
billion for the Department of the Army’s Corps of Engineers, the
Department of the Interior’s Bureau of Reclamation, and the De
partment of Agriculture’s Soil Conservation Service (SCS) is an
increase of about 4 percent from the 1987 level. The increase is due
primarily to the construction of new Federal water resource
projects initiated since 1985 and is partially offset by increases in
commercial navigation user fees, higher non-Federal project financ
ing, and proposed termination of the SCS small watershed pro
gram. Most of the proposed funding for water resources develop
ment covers ongoing construction of projects started in previous
years, and operation and maintenance of completed projects.
The administration proposes up to 13 new construction starts for
the Corps of Engineers. Construction of these projects is contingent
upon the willingness of State and local governments, and other
non-Federal project sponsors, to share in project costs in accord
ance with the Water Resources Development Act of 1986 (WRDA).
WRDA authorized a new ad valorem fee for use of the 200 U.S.
commercial harbors, annually recovering up to 40 percent of the
expenses of the Corps of Engineers for harbor operation and main
tenance (O&M) that were previously financed entirely by general
tax funds. The fee is equivalent to 4 cents for every $100 of value of
cargo loaded or unloaded.
The administration requests estimated budget authority of $149
million in 1988 and $67 million in 1987 for Corps of Engineers
harbor O&M costs to be recovered from the new ad valorem re
ceipts. In addition, the administration proposes to offset 1988 con
struction costs of inland waterway projects with $38 million in
receipts from the existing tax on fuel to transport cargo on the
inland waterway system (WRDA imposed a gradual increase in this
tax, doubling it by 1995). Both harbor and inland revenues are
classified as governmental receipts and are discussed in Part 4.
5-46
THE BUDGET FOR FISCAL YEAR 1988
In addition, WRDA authorized greater concurrent non-Federal
financing of Corps of Engineers construction-period costs and estab
lished new requirements for repayment of construction costs over
time with interest. Budget estimates are based on these new cost
sharing policies.
NATIONAL NEED: USING AND PRESERVING NATURAL RESOURCES AND PROTECTING THE
ENVIRONMENT
(Functional code 300; in millions of dollars)
Major missions and programs
1986
actual
Estimate
1987
1988
1989
1990
OUTLAYS
Pollution control and abatement:
Regulatory, enforcement, and research pro
grams .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Hazardous substance response fund.. .. .. .. ..
Oil pollution funds (gross).. .. .. .. .. .. .. .. .. ..
Sewage treatment plant construction
grants:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Leaking underground storage tank trust
Offsetting receipts:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Pollution control and abatement.
Water resources:
Corps of Engineers.. .. .
Bureau of Reclamation..
Other.. .. .. .. .. .. .. .. .. .. .
Offsetting receipts.. .. ..
Subtotal, Water resources.
1,291
435
9
1,419
550
10
1,458
900
5
1,441
1,175
6
1,439
1,325
6
3,113
2,592
8
1,814
506
1,600
550
1,100
980
18
22
25
-16
-35
-10
-57
-40
-132
—43
-207
-45
4,831
4,541
4,603
4,620
4,624
2,855
1,050
298
-161
4,041
3,365
1,007
228
-422
4,178
3,522
907
144
-475
4,099
3,677
1,129
54
-437
4,423
3,661
1,139
26
-405
4,421
1,846
529
327
553
299
1,983
558
345
606
322
1,841
494
327
1,889
216
1,856
558
317
2,460
218
1,858
561
297
2,753
218
-2,166
-2,217
-2,292
-2,424
-2,520
1,388
1,598
2,474
2,984
3,167
262
32
269
29
132
14
107
2
78
1,293
1,384
1,371
45
1,403
52
1,401
52
-74
-49
1,513
1,633
-136
-63
1,362
-138
-64
1,362
-131
-64
1,336
Conservation and land management:
Management of national forests, cooperative
forestry, and forestry research (Forest
Service).. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Management of public lands (BLM).. .. .. .. .
Mining reclamation and enforcement.. .. .. .. .
Conservation of agricultural lands.. .. .. .. .. ..
Other resources management.. .. .. .. .. .. .. .. .
Offsetting receipts-.
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. ..
Subtotal, Conservation and land man
agement.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Recreational resources:
Federal land acquisition1.. .. .. .. .. .. .. .. .. .. .
Urban park and historic preservation funds..
Operation of recreational resources:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. ..
Offsetting receipts.Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. ..
Subtotal, Recreational resources..
5-47
NATURAL RESOURCES AND ENVIRONMENT
NATIONAL NEED: USING AND PRESERVING NATURAL RESOURCES AND PROTECTING THE
ENVIRONMENT—Continued
(Functional code 300; in millions of dollars)
Major missions and programs
1986
actual
Estimate
1987
1988
1989
1990
Other natural resources:
Program activities:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Offsetting receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Subtotal, Other natural resources.. .. .. .
Total, outlays.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
-15
1,907
1,706
21
— 24
1,703
1,783
27
-24
1,785
1,785
29
-24
1,789
13,857
14,241
15,175
15,336
1,883
1,922
-17
1,866
13,639
1 Includes outlays from State grants financed by the land and water conservation fund.
The Bureau of Reclamation is included in the administration’s
loan asset sale initiative. Bureau loans worth about $350 million
will be offered for sale, yielding estimated net receipts of $154
million. Funding for the Bureau gives highest priority to complet
ing ongoing construction and planning activities that are substan
tially underway and constrains funding of new activities and
projects. This initiative will allow the Bureau to complete more
projects or major project features on schedule than would be possi
ble if funding were distributed to all projects regardless of their
relative stage of completion. Also, funding for Bureau planning
activities is substantially reduced, reflecting the emphasis on com
pleting work on ongoing projects before starting new ones.
The administration proposes to terminate the Soil Conservation
Service (SCS) small watershed program in 1988. While the program
can provide flood control facilities under Public Laws 78-534 and
83-566, these facilities are usually within the financial and engi
neering capability of non-Federal entities to provide. The facilities
also duplicate services of the Corps of Engineers in some cases, and
often provide added capacity to produce surplus commodities.
Conservation and Land Management.—Changes in these pro
grams reflect the administration’s continuing efforts to improve
the management of the national forests and public lands, to make
mineral leasing programs more efficient, and to place maximum
responsibility with the States for surface coal mining regulatory
and reclamation programs. Budget authority for these programs is
proposed to increase by $1.0 billion because of increases in the
conservation of agricultural lands subfunction.
Management of National Forests, Cooperative Forestry, and For
estry Research.—Proposed budget authority in 1988 for direct man
agement of National Forests is $1.8 billion, a decrease from 1987 of
$134 million, after adjusting the 1987 and 1988 levels of funding for
forest fire fighting and increased pay and retirement costs. This
5-48
THE BUDGET FOR FISCAL YEAR 1988
net decrease occurs primarily as a result of a postponement of
some construction and recreational land acquisition and termina
tion of financial assistance and some technical assistance to State
forestry agencies.
The productivity of national forest management will be improved
through careful control of costs and close attention to benefit-cost
relationships. The administration’s objective is to produce timber,
minerals, recreation, and other products or services at the lowest
unit costs. Both market and nonmarket benefits and costs of re
sources will be carefully considered.
Planned timber sales from National Forest lands in 1988 are 11.1
billion board feet (BBF). Together with the estimated 25 BBF sold
but still uncut at the end of 1987, this level will be adequate to
respond to anticipated housing construction needs in 1988 and
subsequent years.
Gross receipts from the harvest of timber are estimated to be
approximately $1.0 billion in 1988. Under current law, 25 percent
of these receipts are paid to States for schools and roads in the
counties of origin. The administration will propose legislation, dis
cussed in the general purpose fiscal assistance function, to deduct
appropriate Federal costs from receipts before calculating the
share paid to the States. Federal payments in lieu of taxes on
Federal lands, also classified in the general purpose fiscal assist
ance function, will continue to be paid to counties.
The administration proposes to reduce budget authority for con
tributions to State and private forestry programs from $58 million
in 1987 to $35 million in 1988. Funding will be retained to provide
for pest suppression on Federal and closely associated lands, and
collection and dissemination to States of data on national problems.
General financial assistance to States for pest suppression, fire
protection and forestry technical assistance on non-Federal lands is
not proposed for 1988.
Management of Public Lands.—The Bureau of Land Manage
ment (BLM) administers 310 million surface acres of public lands
for multiple use and 370 million acres of federally owned subsur
face mineral rights. The BLM will continue to emphasize mineral
leasing, realty management, data support systems, and renewable
resource activities such as those affecting water, timber, or wildlife,
including hazardous waste assessment.
Mining Reclamation and Enforcement.—The 1988 budget reflects
a continuation of the regulatory program at the current services
level. A budget authority decrease of $12 million from the 1987
level reflects maturation of the abandoned mined land reclamation
grant program, balancing annual obligations at a rate that can be
absorbed by States and sustained each year until program comple
NATURAL RESOURCES AND ENVIRONMENT
5-49
tion in 1992. Approximately 225 projects to reclaim abandoned
mined lands in 22 States will be financed by the $187 million of the
proposed budget authority.
Conservation of Agricultural Lands.—A new Federal conserva
tion reserve program is authorized by the Food Security Act of
1985. Under the new program, the Secretary of Agriculture will
enter into contracts with owners of highly erodible lands to remove
those lands from active crop production. In return, the landowners
will receive assistance in establishing appropriate conservation
cover on the land and rental payments for each acre put into
reserve status. The administration proposes to terminate a number
of existing conservation cost share and Soil Conservation Service
programs. Technical assistance will continue to be provided to
farmers to achieve sound conservation of farm land as well as to
aid in the implementation of the new conservation reserve pro
gram.
Other Resources Management.—The apparent reduction of $97
million in budget authority is primarily due to the budget-neutral
reclassification of certain Bureau of Indian Affairs activities to the
community and regional development function.
Recreational resources.—Excluding offsetting receipts paid into
the Treasury, and after proposed rescissions, budget authority for
recreation is proposed to be increased from $1.40 billion in 1987 to
$1.49 billion in 1988. Budget authority for Federal land acquisition
is proposed to be reduced from $216 million appropriated in 1987 to
$59 million in 1988. A rescission is proposed to reduce budget
authority for land acquisition by $137 million in 1987, and discre
tionary acquisitions for park and refuge purposes are proposed to
be postponed through 1992 except for wetlands acquired with reve
nue from the sale of duck stamps, refuge entrance fee collections
and other dedicated receipts. Grants to States for acquisition and
development of outdoor recreation lands and for support of State
historic preservation staffs are proposed for elimination in 1988. In
addition, a rescission is proposed to reduce budget authority for
land acquisition grants by $33 million in 1987 and historic preser
vation grants by $15 million in 1987. These needs can be met
through State, local, and private resources and the positive effect
of Federal tax incentives on private investment in historic build
ings.
The administration proposes to increase entrance fees to national
parks and service charges for recreational use of national parks,
forests, and other Federal recreation facilities, so that those who
use them will pay more for their upkeep and maintenance than
will those taxpayers who do not use them. The agency collecting
5-50
THE BUDGET FOR FISCAL YEAR 1988
the user fees will retain them for operation and maintenance of
recreation areas. For 1988, recreation receipts, are estimated to be
about $167 million, $92 million above what would otherwise be
collected in 1988 under current law.
Total 1987 budget authority of $715 million, an increase of $31
million over 1987, is proposed to operate and maintain the national
park system’s 338 units and 79 million acres. The total budget
authority includes $74 million to be financed by increased entrance
and user fees.
Other Natural Resources.—These activities focus on the under
standing, conservation, and careful husbandry of the Earth’s re
sources, structure, and environment through research and develop
ment and information dissemination programs. They comprise ele
ments of the Geological Survey (USGS), the Bureau of Mines
(BOM), and the National Oceanic and Atmospheric Administration
(NOAA).
USGS 1988 budget authority totals $420 million and reflects
proposed reductions for numerous lower priority program activi
ties.
Budget authority of $119 million is requested for the Bureau of
Mines. No funds have been requested for the Mineral Institutes
program. BOM research activities will be focused on long-term
projects with high potential benefit. The 1988 budget proposal also
includes the privatization of Federal helium operations. All helium
operation assets are proposed for sale. However, BOM will retain
the helium inventory for Federal agency use.
For the NOAA programs, budget authority for this category
reflects an increase of 6 percent in budget authority to $1,130
million in 1988. Increased funding is included for the procurement
of the next generation of polar-orbiting weather satellites, doppler
weather radars, automated surface observation and weather infor
mation processing systems, and commercialization of the Land
Remote Sensing Satellite (Landsat) program. Reductions are pro
posed for State and industry financial assistance and lower priority
research and service programs. Funding for other life safety, re
source management and development programs, and atmospheric
and oceanic research and services is maintained.
The administration proposes a $6 marine fishing license for both
commercial and recreational fishing, to offset partially the costs of
managing and conserving this exhaustible natural resource. Coast
al states will retain one-half of the license fee. The budget assumes
a 3-year phase-in of the Federal share of the fee from $46 million
in 1988 to $69 million by 1990. Upon enactment of the fishing
license, the administration will request a $29 million increase for
fisheries management programs. Part 4 provides a more complete
discussion of governmental receipts.
5-51
NATURAL RESOURCES AND ENVIRONMENT
Offsetting Receipts.—Offsetting receipts from the entire natural
resources and environment function—primarily from user fees,
sales of products, rents and royalties—are expected to rise from
$2.7 billion in 1987 to $3.1 billion in 1988. More than half of these
collections are rents and royalities.
Credit Programs.—The administration proposes to (1) sell about
$350 million of Bureau of Reclamation loans (with proceeds from
the sale estimated at $154 million), and (2) continue funding 11
ongoing Bureau loans. These direct loans are made to local govern
ment project sponsors, generally for construction and rehabilitation
of irrigation systems and for storage of municipal or industrial
water supplies.
CREDIT PROGRAMS—NATURAL RESOURCES AND ENVIRONMENT
(In millions of dollars)
Estimate
1986
actual
1987
1988
1989
1990
Direct loans:
Water resources and other:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
79
64
541
44
64
606
27
-336
270
22
19
289
15
26
315
Total, new obligations.. .. .. .. .. .. .. .. .. .. ..
79
44
27
22
15
Tax Expenditures.—As an incentive to encourage production, cer
tain capital costs associated with exploration and development of
nonfuel minerals may be recovered at preferentially rapid rates. In
addition, most nonfuel mineral extractors are permitted to use
percentage depletion, rather than cost depletion. Percentage deple
tion is more generous than cost depletion in that total deductions
are not limited to the cost of the investment. The estimates for
these two provisions are $35 million and $300 million, respectively,
in 1988.
Beginning in 1987, the Tax Reform Act of 1986 eliminates the
use of State and local government debt to finance privately owned
pollution control facilities and caps the use of such debt to fund
waste disposal facilities of private firms. Previously, investment for
all of these purposes could be financed at below market interest
rates because the interest is excluded from income subject to Fed
eral income tax. The estimated cost for 1988 is $1.9 billion.
Prior to 1987, a special 25 percent tax credit was available for
expenditures made to restore certain historic structures. The Tax
Reform Act of 1986 reduced the credit to 20 percent. The 1988 cost
estimate is $420 million.
5-52
THE BUDGET FOR FISCAL YEAR 1988
Special benefits are provided to the timber and iron industries in
order to encourage production. The gains on the cutting of timber
and royalties from iron ore deposits are taxed at capital gains
rates, which are lower than rates on ordinary income. However,
the Tax Reform Act of 1986 has repealed the special capital gains
rates beginning with 1987, but constrains the maximum rate to 28
percent for that year. Therefore, there will no longer be a tax
expenditure for this provision in 1988. The act exempted timber
growers from the newly codified rules for capitalizing production
and holding costs for all producers of goods beginning in 1987. In
1988, this tax expenditure will cost an estimated $430 million.
Private forestry is encouraged additionally because a limited
amount of reforestation expenditures are eligible for special tax
credits and write-offs that will cost $330 million in 1988.
Tax expenditures for natural resources and environment total an
estimated $3.4 billion in 1988.
AGRICULTURE
5-53
AGRICULTURE
Federal agricultural programs help meet domestic and interna
tional trade demands for food and fiber while mitigating the ad
verse effects of price fluctuations on farmers. To improve U.S.
agriculture’s competitive position in world markets and strengthen
the Farm Credit System, the administration will act under two
major recently enacted laws: the Food Security Act of 1985 (known
as the farm bill); and the Farm Credit Amendments Act of 1985.
The farm bill permits a greater market orientation in the Federal
Government’s farm price support programs. The Farm Credit Act
provides the needed authority for the Farm Credit System to deal
more effectively with its current financial problems.
The administration will propose legislation to modify farm com
modity price support programs to ensure a fair deal for taxpayers
while meeting commitments to America’s farmers.
The administration’s request for the Farmers Home Administra
tion (FmHA) contains almost $4 billion in budget authority for
agricultural credit in 1988 to help ensure that viable but high risk
farmers have operating credit available to continue operations.
Within this level of credit authority direct Government lending is
reduced and guarantees of private loans are increased. This trend
began in 1986 and was ratified by the farm bill.
In addition, the budget proposes to scale down Federal interven
tion and subsidies in other areas of agriculture, particularly in crop
insurance, applied research, and other business services.
Farm Income Stabilization.—Outlays on farm income stabiliza
tion programs are estimated to drop from $29.2 billion in 1987 to
$24.5 billion in 1988.
Commodity Price Support and Related Programs.—These pro
grams were created to stabilize, support, and protect farm income
and prices, and to provide consumers with a dependable supply of
agricultural products at affordable prices. Price and income sup
port activities currently constitute the largest portion of Federal
Government expenditures in the agricultural sector of the econo
my.
The Department of Agriculture (USDA), working through the
Commodity Credit Corporation (CCC), provides income support
through deficiency payments, and price support through loans to
farmers. Deficiency payments are made to farmers based on the
difference between target prices that are set by law and the higher
of either the market price or loan level. Through these payments,
the Government guarantees farmers a certain level of income.
Using their crops as collateral, farmers also have access to pricesupport loans that enables them to hold their crop for later sale. If
5-54
THE BUDGET FOR FISCAL YEAR 1988
NATIONAL NEED: IMPROVED AGRICULTURE
(Functional code 350; in millions of dollars)
Major missions and programs
Estimate
1986
actual
1987
1988
23,085
21,514
16,069
308
21,325
-3,663
21,245
-6,232
344
345
500
-157
444
-270
443
-324
4,627
3,506
9
28,065
3,685
50
4,552
-115
4,749
22
25,365
20,456
22,273
19,903
775
834
”328'
”332”
783
_*
263
785
_*
263
786
_*
263
133
134
140
-40
140
-40
140
-41
310
...........
308
.........
303
-86
200
300
-86
201
295
-87
201
206
211
-97”
-99
247
-4
-102
244
-4
-102
238
-4
-102
1,836
1,910
1,703
1,698
1,689
29,901
27,275
22,158
23,972
21,592
1989
1990
BUDGET AUTHORITY
Farm income stabilization:
Commodity price support and related pro
grams:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Crop insurance:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Agricultural credit:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Other programs and unallocated overhead.. .
Subtotal, Farm income stabilization..
Agricultural research and services:
Research programs:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Extension programs.. .. .. .. .. .. .. .. .. .. .. .. .. ..
Marketing programs.Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Animal and plant health programs:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Economic intelligence.. .. .. .. .. .. .. .. .. .. .. .. ..
Other programs and unallocated overhead:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Offsetting receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Subtotal, Agricultural research and
services.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Total, budget authority..
*$500 thousand or less.
market prices are below the price-support loan rate determined by
law, the producer can default on the loan without penalty, forfeit
ing the loan collateral as settlement of the loan.
The administration does not plan to provide advance deficiency
payments on 1988 crops during FY 1988. In addition, the adminis
tration plans to utilize fully the discretion provided in the farm bill
to set price supports at market clearing levels. The elimination of
artifically high price supports should increase U.S. exports, thereby
reducing the need for export subsidies. The value of agricultural
exports in 1986 was $26.3 billion, while imports totaled $20.9 bil
lion, resulting in a positive agricultural trade balance of $5.4 bil
lion. The importance of agricultural trade to the economic health
of the farm sector and the nation as a whole mandates the contin
ued reliance on free markets for farm products.
5-55
AGRICULTURE
NATIONAL NEED: IMPROVED AGRICULTURE
(Functional code 350; in millions of dollars)
Major missions and programs
Estimate
1986
actual
1987
1988
25,891
25,288
20,978
308
21,325
-3,663
21,245
-6,232
516
637
672
-190
481
-270
409
-332
3,234
3,187
-33
29,608
.. .. 5i”
29,163
2,888
-133
2,059
68
1,420
21
24,524
20,000
16,531
761
.........
832
880
_*
274
843
_*
263
805
_*
263
1989
1990
OUTLAYS
Farm income stabilization:
Commodity price support and related pro
grams:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. ..
Crop insurance:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. ..
Agricultural credit:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. ..
Other programs and unallocated overhead.. .
Subtotal, Farm income stabilization..
Agricultural research and services:
Research programs.Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. ..
Extension programs.. .. .. .. .. .. .. .. .. .. .. .. .. ..
Marketing programs.Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. ..
Animal and plant health programs:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. ..
Economic intelligence.. .. .. .. .. .. .. .. .. .. .. .. ..
Other programs and unallocated overhead:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. ..
Offsetting receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Subtotal, Agricultural research and
services.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Total, outlays..
"332"
154
152
140
-40
140
-40
140
-41
283
.........
298
303
-86
198
303
-86
200
295
-87
201
203
218
—97
-99
246
-4
-102
244
-4
-102
239
-4
-102
1,841
1,921
1,809
1,760
1,708
31,449
31,084
26,333
21,760
18,240
188
*$500 thousand or less.
The administration will propose legislation to modify farm com
modity price support programs in order to move to a more marketoriented agricultural sector and to expand export markets.
In the past 5 years, spending on price support programs has
increased over 500 percent—rising from $4.0 billion in 1981 to $25.8
billion in 1986. If made directly, the 1986 outlays would amount to
an average payment of more than $16,000 to each of the 1.6 million
farm families. It would be enough to pay almost $42,000 to each of
the 619,000 commercial sized farms in the U.S. In comparison, in
calendar year 1985, U.S. median family income was $27,735. On
average, more than $425 of each nonfarm family’s taxes was spent
to support farm prices and incomes in 1986.
Despite this enormous commitment of resources, in part because
of contradictory and counterproductive farm programs, economic
5-56
THE BUDGET FOR FISCAL YEAR 1988
conditions in agriculture are not good. This situation is untenable
and must be changed.
Farm programs base certain direct payments and price support
loans on the volume of crops produced, so that higher production
leads to higher Federal benefits. Consequently, farmers overpro
duce, which causes commodity prices to decline. Because current
crop programs are designed to support farm income when prices
decline, this overproduction generates ever-increasing Federal sup
port.
In addition, too much Federal money goes to a relatively small
proportion of farmers who tend to be the owners of the largest and
most efficient farms. In 1985, two-thirds of American farmers did
not receive price supports. Of the one-third who did, those with
annual sales of more than $100,000 received almost 70 percent of
the payments. Moreover, during 1986, 12 percent of those receiving
subsidies for producing cotton received more than half the total
payments, with some individual farmers receiving millions of dol
lars. Similarly, 50 of the largest rice producers received subsidies of
over $1 million each in 1986.
Finally, certain farm programs are directly counter to the Feder
al Government’s international objectives and responsibilities. For
example, the Government’s support for domestic sugar producers
conflicts with the policy to encourage increased trade between the
United States and the Philippines and certain Caribbean countries.
The administration’s proposal will address the major shortcom
ings of the 1985 farm bill, but will retain that bill’s basic price
support mechanisms. Outlay savings of $24 billion over the 19881992 period are projected to result from enactment of these propos
als.
Specifically, the administration’s proposed changes will modify
farm programs to:
• remove the incentive for farmers to overproduce by decou
pling program benefits from the obligation to harvest certain
crops;
• limit to $50,000 (instead of $250,000 under current law) the
amount of Federal payments each farmer may receive;
• close loopholes that make current payment limitations inef
fective for a large number of farmers; and
• reduce target prices by 10 percent per year in order to reduce
incentives for farmers to overproduce.
These proposals are made within the basic structure of the Food
Security Act of 1985. The administration’s proposal will continue to
help America’s family farmers adjust to changing world economic
conditions. However, this help will be provided equitably, without
placing an unnecessary burden on the general taxpayer and with
out giving some farmers undue advantage or favored treatment.
AGRICULTURE
5-57
The administration will also seek to make changes in the coun
terproductive sugar program to make it more market-oriented
while providing adjustment assistance to current program partici
pants.
Crop Insurance.—Since 1938, the Federal Crop Insurance Corpo
ration (FCIC) has offered insurance to producers against crop losses
from natural hazards such as excessive rainfall or drought. In 1980,
legislation was enacted to develop a market for self-sustaining
private crop insurance. Today, all-risk crop insurance is available
in more than 3,000 agricultural counties and more than 90 percent
is delivered by private companies. Insurance in force is expected to
reach $8.6 billion in 1988, an increase of $200 million over the 1987
estimate. The budget proposes privatization of crop insurance serv
ices and a 5-year phaseout of the Federal role. Over the phaseout
period, premium rates will be increased to an actuarially sound
level, and all Federal subsidies will be eliminated. FCIC will contin
ue to provide a reinsurance function operated on a business-like
basis.
Agricultural Credit.—The Nation relies on private credit for agri
culture, as in other sectors of the national economy. However, the
Farmers Home Administration (FmHA) currently holds about 13
percent of total farm debt outstanding, primarily for family farm
ers with limited resources. At the end of 1986, outstanding FmHA
agricultural credit insurance fund direct loans totaled $28.7 billion.
The FmHA has lent over 50 percent of this amount during the last
10 years. In 1986 alone, new direct lending totaled $2.8 billion, with
8 percent of this amount for disaster loans.
Farm operating direct and guaranteed loan activity in 1987 is
estimated to be $3.5 billion. The 1988 budget proposes $3.5 billion
in direct and guaranteed farm operating lending, continuing to
shift gradually away from direct Federal lending to Federal guar
antees of private loans as provided for in the farm bill. Disaster
loan programs are proposed to be funded at levels used in recent
years, $295 million. No new Federal funds or guarantees are budg
eted for farm ownership. Also, as mandated in the farm bill, $185
million will be available in 1988 for interest rate buy-downs on
guaranteed loans.
Agricultural Research Programs.—The proposed 1988 research
program increases genetic and biotechnology research to improve
the competitiveness and profitability of U.S. agriculture. Research
will be conducted in areas of plant and animal productivity, com
modity conversion, conservation, and human nutrition. The 1988
program emphasizes long-term, basic research rather than applied
research and product development, which are more appropriately
5-58
THE BUDGET FOR FISCAL YEAR 1988
CREDIT PROGRAMS—AGRICULTURE
(In millions of dollars)
1986
actual
Estimate
1987
1988
1989
1990
Direct loans.Commodity price support and related loans:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Agricultural credit insurance fund:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
17,719
6,504
21,608
17,803
-2,017
19,591
13,488
-2,419
17,172
11,202
-1,246
15,925
10,236
-1,512
14,413
2,799
136
28,698
1,817
-924
27,775
1,295
-1,135
26,639
500
-1,596
25,043
400
-1,731
23,312
Total, direct loans:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. ..
Change in outstandings.. .. .. .. .. .. .. .. .. ..
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
20,518
6,639
50,306
19,620
-2,941
47,365
14,783
-3,555
43,811
11,702
-2,842
40,968
10,636
-3,243
37,725
2,503
1,485
3,609
5,500
3,428
7,038
3.500
745
7,782
3,500
322
8,104
3,500
-317
7,788
1,560
776
2,161
2,498
1,098
3,258
2.500
1,175
4,434
3,500
957
5,391
3,600
1,284
6,675
4,062
-709
5,770
7,998
4,526
10,296
6,000
1,920
12,216
7,000
1,279
13,495
7,100
968
14,463
24,580
27,618
20,783
18,702
17,736
Guaranteed loans.Commodity price support and related loans:
New commitments.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. ..
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Agricultural credit insurance fund:
New commitments.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. ..
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Total, guaranteed loans:
New commitments.. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings............................
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Total, new obligations and new com
mitments.. .. .. . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
financed by private industry. Budget authority of $783 million is
requested for these activities in 1988.
Extension Programs.—The Federal Extension Service, States, and
localities finance the Cooperative Extension System. This system
provides social and economic services in agriculture, home econom
ics, community development, and 4-H youth programs. Federal
support, which accounts for only one-third of the resources avail
able to the system, is proposed to decrease from $332 million to
$263 million in budget authority in 1988. The administration pro
poses to reduce funding for the Extension Service by terminating
categorical grants to States that are used for such programs as
urban gardening, pest management, support for rural development
centers, financial management, and food and nutrition education.
These programs can be funded out of the formula grant program,
which is proposed to be $238 million in 1988, an increase of ap
proximately $8 million over the 1987 level.
AGRICULTURE
5-59
Marketing Programs.—The Federal Government provides a varie
ty of services to aid in the orderly marketing of farm products such
as grain inspection and weighing; tobacco inspection; cotton classi
fication; and meat, poultry, and livestock grading. Most of these
services are now provided on a user fee basis. Legislation will be
proposed to finance more services with user fees including compli
ance and standardization for Federal grain inspection, market
news information and other activities of the Agricultural Market
ing Service. These new fees are estimated to generate $40 million
in additional offsetting collections in 1988.
Animal and Plant Health.—The Federal Government carries out
a number of programs to prevent the introduction and spread of
plant and animal pests and diseases that can cause severe losses in
crop yields or livestock. Outlays in 1988, estimated to be $303
million, include funds to support the eradication of brucellosis
infection in domestic livestock through a Federal-State-industry
cooperative program. The goal is to eradicate brucellosis by 1991,
after which time the Federal role will be reduced to surveillance
only. New user fees totaling about $86 million are proposed for
services rendered through the agricultural quarantine inspection,
import-export inspection, veterinary biologies and veterinary diag
nostics programs.
Tax Expenditures.—Agriculture is promoted by several tax ex
penditures. Farmers are permitted to deduct the costs of soil and
water conservation projects on their land. In addition, the Tax
Reform Act of 1986 permits farmers and timber growers to deduct
the costs of producing products that have multi-year growing sea
sons. In contrast, non-agricultural entities are required to capital
ize the costs of multi-year production processes. The tax expendi
tures for these two agricultural deductions are estimated to be $530
million and $5 million, respectively, in 1988.
The 1986 tax legislation repealed the capital gains benefit farm
ers could derive from the sale of such products as livestock, which
were treated as capital assets. However, farmers were accorded a
new tax expenditure that provides for preferential treatment when
collateralized loans are settled for less than the principal owed.
This preferential treatment will cost $10 million in 1988. Addition
ally, under the act, farmers will gain $310 million in 1988 through
a special refund of previously unused investment tax credits.
Altogether, the estimated 1988 cost of tax expenditures in sup
port of agriculture is $795 million.
5-60
THE BUDGET FOR FISCAL YEAR 1988
COMMERCE AND HOUSING CREDIT
The Federal Government seeks to support an environment in
which all sectors of the economy may compete equally for credit.
Commerce and housing credit programs supplement private sector
financing of business and housing by providing assistance for mort
gage credit, deposit insurance and other subsidies for business. This
function also includes non-credit programs for the advancement of
commerce.
The budget proposals reflect the administration’s goals of main
taining low-inflation, growth-oriented monetary and fiscal policies,
reducing Federal intervention in private markets, and making ex
isting programs more efficient. These policies have brought about
the lowest interest rates in nearly a decade. These low rates have
resulted in over 700,000 new business incorporations last year and
the strongest levels of housing starts and home sales since the
1970’s. Because of the booming private sector activity in this area,
the budget proposes to reduce, terminate, or privatize programs in
which the beneficiaries can be better served by the private sector.
The budget also proposes to raise user fees for credit programs in
which the Government does not recover the full program costs and
unfairly competes with the private sector.
The budget proposes $8.8 billion in budget authority in 1988 and
$2.5 billion in estimated outlays for commerce and housing credit.
Mortgage credit and deposit insurance programs and activities are
a major portion of the assistance, with $3.6 billion in proposed
budget authority in 1988. In addition, the budget proposes $1.4
billion in direct loan obligations and $73.8 billion in guaranteed
loan commitments in 1988.
Mortgage Credit and Deposit Insurance.—In support of both the
housing and financial markets, the Federal Government’s primary
goal is to have fiscal and monetary policies that result in stable,
non-inflationary economic growth. Additionally, the Government
has long provided direct support—in the form of grants, and direct
and guaranteed loans—to those areas of the economy that the
private sector may not adequately serve.
Mortgage-Backed Securities.—The Government National Mort
gage Association (GNMA) supports the mortgage market through
guarantees of mortgage-backed securities issued by private lenders
and backed by mortgages that are insured by the Federal Housing
Administration (FHA) or guaranteed by the Veterans Administra
tion. The GNMA guarantee enhances the saleability of these secu
rities in the capital markets. In 1987, guarantees are expected to be
issued on $87.7 billion in securities. For 1988, the administration
proposes a new commitment limitation of $100 billion, as shown in
5-61
COMMERCE AND HOUSING CREDIT
NATIONAL NEED: COMMERCE AND HOUSING CREDIT
(Functional code 370; in millions of dollars)
Major missions and programs
1986
actual
Estimate
1987
1988
1989
1990
BUDGET AUTHORITY
Mortgage credit and deposit insurance:
Mortgage purchase activities (GNMA).. .. .. .
Mortgage credit (FHA and other).. . .... .. .. .
Housing for the elderly or handicapped.. .. .. .
Rural housing programs (FmHA).. .. .. .. .. .. .
Federal Savings and Loan Insurance Corpo
ration and other.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Subtotal, Mortgage credit and deposit
insurance.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Postal Service:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal Postal Service.. .. .. .. ..
Other advancement of commerce:
1
90
415
2,476
432
704
877
3,125
3,039
2,766
6,666
2,982
3,557
3,743
3,643
2,504
3,183
2,504
3,183
2,972
376
3,348
2,178
552
2,731
2,084
735
2,819
757
323
217
493
569
334
298
551
384
425
511
561
465
432
684
556
485
439
1,528
549
137
493
3,036
3,000
Small and minority business assistance.. .. .. .
Science and technology.. .. .. .. .. .. .. .. .. .. .. .. .
Economic and demographic statistics.. .. .. .. .
International trade and other.. .. .. .. .. .. .. .. .. .
Subtotal, Other advancement of com
merce .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
1,790
1,751
1,882
2,137
3,001
Total, budget authority.. .. .. .. .. .. .. .. .
10,960
7,916
8,787
8,610
9,463
the credit programs table in this section. Of that amount, new
guarantees are estimated to be issued on $67.0 billion in securities.
The administration is adopting a Grace Commission recommen
dation to increase the guarantee fee that GNMA currently charges
mortgage-backed securities issuers from 6 basis points to 10 basis
points. This fee is closer to that charged by ether issuers of mort
gage-backed securities and is part of a coordinated effort to in
crease opportunities for private sector activity in the secondary
mortgage market for home mortgages.
Mortgage Credit.—The FHA provides mortgage insurance on
single-family homes, apartments, manufactured housing, and
health care facilities. This insurance protects lenders from loss in
the event of default on loans. The single-family mortgage insurance
program (the largest of the FHA programs) is currently available
to all qualified applicants regardless of income level. The program
has liberal underwriting and nominal downpayment requirements
intended to assist low- and moderate-income families who other
wise would not be able to afford to buy a home. However, many
families using the FHA program may be qualified for private mort
gage insurance. Over the past year, the administration has been
studying the extent to which FHA activity duplicates private mort
5-62
THE BUDGET FOR FISCAL YEAR 1988
gage insurance activity. A report will be forthcoming this spring
from the Department of Housing and Urban Development (HUD),
which will analyze the extent of duplication as well as feasible
approaches to transferring duplicative business to the private
sector.
There are two clear-cut areas of overlap between FHA and the
private sector that the administration addresses in the 1988 budget:
mortgage insurance for families earning over $40,000 per year and
for buyers of non-primary residences. Beginning in 1988, families
earning over $40,000 would be required to make a minimum 5
percent downpayment to participate in the FHA mortgage insur
ance program—consistent with the downpayment requirements in
the private mortgage insurance (PMI) industry. Families in the top
quartile of the income distribution tend to make higher downpay
ments than the average FHA mortgagor and are better able to
accumulate the financial resources needed to buy a home. In addi
tion, legislation will be proposed to limit the FHA single-family
program to purchasers of primary residences in order to target limit
ed credit subsidies to homebuyers rather than investors.
The budget would prohibit the inclusion of closing costs as part
of the mortgage, although the mortgage insurance premium could
continue to be financed. This would make the FHA policies on
closing costs consistent with those for conventional mortgages and
would reduce the risk of default by ensuring that the home buyer
has a greater stake in the home.
Consistent with the administration’s initiative of instituting, and
in some cases raising, credit user fees, legislation will be proposed
to allow FHA to charge a mortgage insurance premium comparable
to private market premiums. An increase from 3.8 percent to 5.0
percent is estimated to bring the FHA premium in line with those
that private insurers would have to charge to provide comparable
guarantees and would permit FHA to pay for the full cost of
reinsuring its loan guarantees under the credit reform proposal, as
discussed in Part 3b.
Housing for the Elderly or Handicapped.—The housing program
for elderly and handicapped households provides direct loans at
subsidized rates to non-profit organizations for the construction of
housing for the very-low-income elderly and the handicapped.
Projects are also subsidized by the Section 8 rental assistance pro
gram in HUD, described in the income security function.
The administration proposes to address the needs of elderly and
handicapped households primarily through the rental housing
voucher program rather than housing construction programs.
Vouchers allow low-income households to shop for their own hous
ing in the existing rental market. For 1988, the budget proposes a
limited construction program of 2,000 units financed by a supple
5-63
COMMERCE AND HOUSING CREDIT
NATIONAL NEED: COMMERCE AND HOUSING CREDIT
(Functional code 370; in millions of dollars)
Major missions and programs
1986
actual
Estimate
1987
1988
1989
1990
-293
-790
-315
-373
-399
58
-451
-6
-506
-5
-1,750
-2,398
531
3,235
262
515
498
4,046
-2,574
-487
47
834
1,535
-2,179
-401
489
562
-458
-2,450
-454
304
205
-620
1,072
3,745
-368
-203
850
-1,550
-326
800
-783
-226
800
-501
-256
1,899
5,515
-2,013
-2,653
-3,483
758
1,781
758
1,781
2,669
376
3,045
1,051
552
1,604
1,054
735
1,789
OUTLAYS
Mortgage credit and deposit insurance:
Mortgage-backed securities (GNMA).. .. .. .. .
Mortgage purchase activities (GNMA).. .. .. .
Mortgage credit (FHA and other):
Existing law....................................
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Housing for the elderly or handicapped.. .. .. .
Rural housing programs (FmHA).. .. .. .. .. .. .
Federal Deposit Insurance Corporation.. .. .. ..
Federal Savings and Loan Insurance Corpo
ration and other:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
National Credit Union Administration.. .. .. .. ..
Subtotal, Mortgage credit and deposit
insurance.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Postal Service:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Postal Service.. .. .. .. .. .. .. .. ..
Other advancement of commerce:
Small and minority business assistance.. .. .. .
Science and technology.. .. .. .. .. .. .. .. .. .. .. ..
Economic and demographic statistics.. .. .. .. .
International trade and other.. .. .. .. .. .. .. .. .. .
Subtotal, Other advancement of com
merce .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
774
334
208
475
627
479
270
628
5
411
491
594
118
430
635
547
520
436
1,617
539
1,790
2,004
1,501
1,730
3,113
Total, outlays.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
4,448
9,300
2,533
680
1,419
mental legislative request to extend the availability of 1987 funds
into 1988. This would permit the construction of 10,000 units in
1987, a small reduction from the 11,500 units constructed in 1986.
Loan asset sales of $500 million are assumed in 1988 and outlays
for this program are estimated to be $515 million in 1987 and $47
million 1988.
Rural Housing Programs.—The administration proposes to estab
lish a voucher program, discussed in the income security function,
to replace the two principal loan programs of the Farmers Hpme
Administration (FmHA). As in metropolitan areas where vouchers
are already in use, vouchers increase household choices and permit
more efficient use of private market housing. The administration
proposes to terminate those traditional lending programs that have
not been cost-effective in helping low-income families move to
standard housing units.
5-64
THE BUDGET FOR FISCAL YEAR 1988
Credit and Banking.—A number of programs enhance the safety
and soundness of the banking system and affect its responsiveness
to the needs of both savers and borrowers. The Federal Deposit
Insurance Corporation (FDIC) insures the deposits of all federally
chartered and many State-chartered commercial and savings
banks. A record number of FDIC-insured banks failed in 1986. A
significant portion of the failed banks suffered unsustainable losses
caused by weaknesses in the agricultural economy. The net loss
incurred by the fund in 1986 was $42 million, resulting in an
equity balance of $18.8 billion. Increased bank closing activity is
estimated to lead to net losses of $1.9 billion in 1987 and $408
million in 1988. FDIC equity is projected to decline to an estimated
$16.5 billion by the end of 1988.
CREDIT PROGRAMS—COMMERCE AND HOUSING CREDIT
(In millions of dollars)
Estimate
actual
Direct loans:
Mortgage-backed securities (GNMA):
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Mortgage purchase activity (GNMA):
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Mortgage insurance (FHA):
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Housing for the elderly or handicapped:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Rural housing (FmHA):
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Central liquidity facility (NCUA):
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Small business assistance:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
FDIC:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
FSLIC:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Other:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
1987
1988
1989
1990
8
7
10
802
*
10
306
*
10
196
—2
8
128
—2
6
-750
884
-522
361
-45
316
-1
315
-1
315
423
42
4,246
321
-393
3,853
395
-476
3,377
443
6
3,382
573
-109
3,273
556
523
6,189
502
521
6,710
131
3
6,713
24
464
7,177
14
284
7,460
1,826
615
29,295
508
-2,594
26,702
-2,020
24,682
-2,139
22,543
-2,269
20,274
31
-117
106
56
24
129
72
25
154
150
25
179
150
25
204
1,027
77
4,950
591
-181
4,769
454
-1,814
2,956
448
-1,486
1,470
428
152
1,622
128
-194
3,423
-53
3,370
-1
3,369
-50
3,319
-50
3,269
21
-73
1,686
25
8
1,694
25
25
1,718
25
15
1,733
25
15
1,748
8
-28
66
13
-10
55
14
-6
50
7
-8
42
7
-4
38
5-65
COMMERCE AND HOUSING CREDIT
CREDIT PROGRAMS—COMMERCE AND HOUSING CREDIT—Continued
(In millicns of dollars)
Estimate
actual
Total, direct loans:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. ..
Change in outstandings.. .. .. .. .. .. .. .. .. ..
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
1987
1988
1989
1990
4,027
102
50,854
2,819
-3,202
47,652
1,397
-4,308
43,344
1,293
-3,175
40,169
1,325
-1,959
38,210
137,962
40,204
241,230
132,500
50,817
292,047
100,000
34,246
326,292
100,000
29,397
355,689
100,000
28,800
384,489
102,592
28,041
223,520
86,975
57,030
280,550
70,000
41,952
322,502
68,999
34,628
357,129
71,347
33,058
390,188
-138
617
-15
602
-291
311
-184
127
-3
124
2,780
-512
8,638
3,617
710
9,348
3,510
715
10,063
3,510
610
10,673
3,510
530
11,203
506
438
2,952
103
53
3,005
300
294
3,299
100
50
3,349
100
50
3,399
25
31
220
52
29
249
1
-23
226
-14
211
-12
199
750
-884
522
-361
45
-316
1
-315
1
-315
Total, guaranteed loans:
New commitments.. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. ..
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
105,903
28,610
235,065
90,746
58,328
293,393
73,811
42,692
336,084
72,609
35,090
371,175
74,957
33,624
404,798
Total, new obligations and new com
mitments.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
109,929
93,565
75,208
73,902
76,282
Guaranteed loans:
Mortgage-backed securities (GNMA)1:
New commitments.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Mortgage insurance (FHA):
New commitments.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Rural housing (FmHA):
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Small business assistance
New commitments.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
FSLIC:
New commitments.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Other:
New commitments.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Less guaranteed loans held as direct loans by
GNMA2:
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
* $500,000 or less.
1 GNMA guarantees securities that are backed by pools of loans previously insured by FHA, VA, or FmHA. These secondary guarantees of loans
are not included in the guaranteed loan totals on tnis table.
2 When guaranteed loans are acquired by another budget account, they are counted as direct loans in the creditbudget. This deduction for
GNMA eliminates double counting.
The Federal Savings and Loan Insurance Corporation under the
direction of the Federal Home Loan Bank Board, insures deposits
of member savings and loan associations and savings banks. While
the thrift industry did exceptionally well in 1986, about 20 percent
of thrifts experienced losses. Estimated 1987 outlays of $3.7 billion,
$2.7 billion above 1986 outlays, reflect the mounting caseload of
troubled institutions to be handled by FSLIC. To enable FSLIC to
take the necessary action during the next few years, the adminis
tration proposes legislation to recapitalize the FSLIC fund.
Through a new financing facility to be created and capitalized from
5-66
THE BUDGET FOR FISCAL YEAR 1988
earnings of the Federal Home Loan Banks, funds would be raised
in the long-term credit markets and invested in FSLIC stock.
FSLIC would use the proceeds, in addition to its premium and
investment income, to accelerate its efforts to close unprofitable
and insolvent institutions. With recapitalization, cash receipts are
anticipated to exceed cash disbursements in 1988. The equity bal
ance of the fund is projected to increase from its 1986 level of $3.6
billion to $5.4 billion in 1988.
The National Credit Union Administration regulates credit
unions, provides liquidity assistance to member credit unions, and
insures depositors’ accounts. The equity of the National Credit
Union share insurance fund climbed from $1.1 billion in 1985 to
$1.4 billion at the end of 1986.
In 1987 and 1988, insurance fund equity is expected to grow to
$1.6 billion and $2.0 billion, respectively. Collections are expected
to exceed gross outlays by $226 million in 1987 and $350 million in
1988.
Postal Service.—The U.S. Postal Service is an independent part
of the executive branch. There are two components of Postal Serv
ice outlays: the subsidy for religious and charitable mailings (the
revenue forgone appropriation) and the difference between receipts
(e.g., stamp sales receipts) and disbursements. Total outlays for
1988 are estimated to be $3.0 billion. Although the subsidy would
be virtually eliminated, outlays would be $1.3 billion greater than
in 1987. Costs continue to rise, but rates will remain constant until
late in 1988.
Consistent with a recent Postal Rate Commission study of subsi
dized postal mailings, the budget proposes to eliminate nearly all of
the subsidy while continuing lower rates for most religious and
charitable mailings. This would reduce outlays by $523 million. The
proposal would also eliminate some currently subsidized mailings
and establish separate subclass pricing for the remaining reducedrate payers. It would continue a small appropriation for worker
compensation liabilities for the former Post Office Department, and
free mail for the blind and for overseas voters.
The budget also proposes termination of the Postal Service’s
borrowing from the Federal Financing Bank for financing capital
projects. Under this legislative proposal, any bonds issued by the
Postal Service would be without Federal guarantee, and would be
subject to the Securities and Exchange Commission’s filing require
ments, and all other requirements demanded of private corporate
issues.
The administration’s legislative proposals to reform the current
civil service retirement system, discussed in the income security
function, would require the Postal Service to begin paying the
actuarial cost of employee pensions less the employer share. An
COMMERCE AND HOUSING CREDIT
5-67
other legislative proposal would require it to begin paying the cost
of its annuitants’ health benefit premiums.
Other Advancement of Commerce,—Federal programs attempt to
support an environment for fair and equitable business opportuni
ties and increase international competitiveness by providing techni
cal assistance, developing and distributing scientific standards, col
lecting and disseminating information on the economy and popula
tion, administering U.S. trade laws, and providing export promo
tion assistance to small and medium-sized businesses.
Small and Minority Business Assistance.—The administration
proposes to continue Federal credit assistance to small and minori
ty businesses, primarily in the form of guaranteed, rather than
direct, loans. Guaranteed loans of $3.5 billion are proposed for the
Small Business Administration (SBA) general business, small and
minority enterprise business investment company, and develop
ment company programs in 1988. Except for $20 million in deben
tures purchased from minority enterprise small business invest
ment company, no direct business loans are proposed. An estimated
$434 million in direct loans will be made to repurchase defaulted
guaranteed loans in 1988.
As part of the administration’s effort to improve Federal credit
management, increases in guarantee fees for SBA’s programs and
reductions in the Federal Government’s contingent liability will be
proposed. By increasing both the borrowers’ and the lenders’ share
of default costs, these proposals encourage sounder credit origina
tion decisions and should result in lower default rates. The budget
also proposes to sell $2.9 billion in loans between 1988 and 1989.
Other.—The U.S. Travel and Tourism Administration’s (USTTA)
international marketing program encourages foreign travel to the
United States by providing technical assistance to private, State,
and local tourism organizations. In 1988, the administration pro
poses financing the $12 million program from a charge of $1 per
ticket for international travel to and from the United States, its
possessions, and its territories. The charge would be collected
through airline and cruise ship carriers, which are the primary
beneficiaries of the program.
Financial Markets.—The Securities and Exchange Commission
(SEC) and the Commodity Futures Trading Commission (CFTC) are
responsible for ensuring that the Nation’s financial markets are
kept efficient and fair. The securities, commodity futures and op
tions markets perform important roles in the economy. The admin
istration proposes increases in budget authority in 1988 for the
SEC by 30 percent and the CFTC by 10 percent to strengthen these
agencies, particularly in enforcement and market surveillance.
5-68
THE BUDGET FOR FISCAL YEAR 1988
TAX EXPENDITURES FOR COMMERCE AND HOUSING CREDIT
(Outlay equivalents; in millions of dollars)
Description
Commerce and housing credit:
Dividend exclusion.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Exclusion of interest on State and local industrial development bonds.. .. .. .. .. .
Exemption of credit union income.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Excess bad debt reserves of financial institutions.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Exclusion of interest on life insurance savings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Deductibility of interest on consumer credit.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Deductibility of mortgage interest on owner-occupied homes.. .. .. .. .. .. .. .. .. .. ..
Deductibility of property tax on owner-occupied homes.. .. .. .. .. .. .. .. .. .. .. .. .. ..
Exclusion of interest on State and local housing bonds for owner-occupied
housing.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Exclusion of interest on State and local debt for rental housing.. .. .. .. .. .. .. .. ..
Capital gains (other than agriculture, timber, iron ore and coal).. .. .. .. .. .. .. ..
Deferral of capital gains on homes sales.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Exclusion of capital gains on home sales for persons age 55 and over.. .. .. .. ..
Carryover basis of capital gains at death.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Investment credit (other than employee stock ownership plans, rehabilitation
of structures, energy property, and reforestati on expenditures).. .. .. .. .. .. ..
Special investment credit carryback rules for steel companies.. .. .. .. .. .. .. .. .. ..
Accelerated depreciation of rental housing.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Accelerated depreciation of buildings other than rental housing.. .. .. .. .. .. .. .. .. .
Accelerated depreciation of machinery and equipment.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Safe harbor leasing rules.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Amortization of start-up costs.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Reinvestment of dividends in public utility stock...................................................
Estimates
1986
1987
1988
740
2,470
285
735
9,450
18,155
30,670
8,595
185
2,635
270
525
7,960
10,835
23,840
7,955
2,805
250
75
8,345
5,560
19,855
7,205
1,900
1,275
46,835
2,960
1,275
7,690
2,010
1,335
16,195
5,240
2,255
13,600
2,035
1,320
1,445
6,550
2,820
17,010
31,365
20,615
2,900
5,160
37,835
1,600
330
2,780
5,175
32,340
975
285
13,180
565
2,320
4,720
30,500
660
220
170
7,915
Reduced rates on the first $100,000 of corporate income.. .. .. .. .. .. .. .. .. .. .. .. . 8,700
5,845
Deductions for special percentage of taxable income for life insurance
2,110
1,440
companies.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Total (after interactions), commerce and housing credit1.. .. .. .. .. .. .. .. . 219,600 163,720 130,540
1 The estimate of total tax expenditures for this function reflects interactive effects among the individual items. Therefore, the estimates cannot
simply be added.
Tax Expenditures .—There are numerous tax expenditure pro
grams designed to increase the supply of savings, to encourage
homeownership, and to reduce the cost of acquiring or financing
the purchase of assets used in commerce. These are listed in the
table. Some of the programs, such as the dividend exclusion to
encourage stock ownership and the exclusion of interest on certain
saving certificates, expired before 1987; others, such as the depre
ciation and bank bad debt reserve provisions, have been modified
by the Tax Reform Act of 1986; and still others, such as the capital
gains and investment tax credit, were repealed. Altogether, the
estimated 1988 budget cost of these aids to commerce and housing
credit is $130.5 billion, 20 percent less than the $163.7 billion total
for 1987. A detailed description of these tax expenditure programs
and the way they have been affected by the Tax Reform Act will be
found in Special Analysis G.
TRANSPORTATION
5-69
TRANSPORTATION
The Federal Government seeks to facilitate a safe and efficient
national transportation system that contributes to the national
economy, advances interstate commerce, supports the national de
fense, and provides for the free movement of people among States.
An integrated and efficient national, State, and local transporta
tion network requires the combined and cooperative efforts of the
Federal Government, States, localities, and the private sector. Each
level of Government should promote and maintain those transpor
tation services and facilities for which it is appropriately responsi
ble, with the Federal Government concentrating its efforts and
limited resources on the interstate transportation system. The pri
vate sector, when freed of unnecessary governmental restrictions
and allowed to compete freely in the transportation market, is an
invaluable partner with all levels of Government in the effort to
ensure appropriate levels of transportation services at the lowest
reasonable cost.
The administration requests $24.6 billion of budget authority in
1988 for national ground, air, and water transportation systems,
about $2.4 billion less than estimated for 1987. The administration
has proposed legislation to reauthorize highway, transit, and high
way safety programs for 1987-1990 and to reauthorize aviation
programs for 1988-1989. Funding for those highway, highway
safety, and transit programs supported by the highway trust fund
in 1987-1990 is planned at the level of anticipated user fee re
ceipts—this budget authority totals $14.7 billion in 1987 and in
creases to $15.0 billion for 1988 through 1990. Requested funding
for air transportation increases by $1 billion, or 18 percent, be
tween 1987 and 1988, with the largest increase associated with
modernization of the air traffic control system.
The administration continues to stress the importance of trans
portation users paying the full cost of their transportation benefits.
The administration proposes to finance 85 percent of transporta
tion costs by user fees in 1988, compared to 49 percent of these
costs funded by user fees in 1982. For example, the budget proposes
increased user fees for many services currently provided free of
charge by the Coast Guard to commercial and recreational boaters.
Subsidizing certain transportation services at the expense of all
taxpayers results in a misallocation of society’s resources by penal
izing unsubsidized, but socially and economically useful, transpor
tation services.
5-70
THE BUDGET FOR FISCAL YEAR 1988
NATIONAL NEED: EFFICIENT TRANSPORTATION SYSTEMS
(Functional code 400; in millions of dollars)
Estimate
1986
actual
1987
1988
1989
1990
14,644
254
3,616
13,476
303
3,504
13,386
285
1,556
13,386
298
1,556
13,386
300
1,556
789
675
17
-9
60
-18
60
-40
46
47
19,349
18,005
48
-17
15,265
49
-32
15,299
50
-33
15,279
4,815
642
27
5,484
4,800
699
30
5,529
5,803
725
5,944
725
5,930
783
6,529
6,669
6,712
2,306
2,575
2,717
15
-355
2,802
15
-474
2,884
15
-474
1,609
733
Other transportation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
3,915
115
3,307
115
328
-29
2,676
135
146
—2
2,486
134
205
_*
2,629
135
Total, budget authority.. .. .. .. .. .. .. .. .
28,863
26,956
24,604
24,587
24,755
Major missions and programs
BUDGET AUTHORITY
Ground transportation:
Highways.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Highway safety.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Mass transit.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Railroads:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Regulation:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Ground transportation.. .. .. .. .
Air transportation:
Airports and airways (FAA).. .. .. .. .. .. .. .. .. .
Aeronautical research and technology.. .. .. .. .
Air carrier subsidies.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Air transportation.. .. .. .. .. .. .
Water transportation:
Marine safety and transportation:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Proposed Coast Guard fees.. .. .. .. .. .. .. .. .
Ocean shipping:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Water transportation.. .. .. .. ..
*$500 thousand or less.
Ground Transportation.—Proposed budget authority in 1988 is
$15.3 billion for highway, highway safety, mass transit, and rail
road programs. The administration is committed to maintaining
the quality of the Federal-aid highway system within available
user fee resources, promoting highway safety, eliminating subsidies
for Amtrak, and providing States and localities flexibility to fund
local transportation projects.
Highways.—The Surface Transportation Assistance Act of 1982
(STAA) expired at the end of 1986. The 99th Congress failed to
reauthorize funding for 1987 or 1988 for the highway, highway
safety, and transit programs. The administration’s 4-year (1987—
1990) reauthorization legislation proposes that budget authority
and planned obligations supported by the highway trust fund be
equal to average annual anticipated highway user fee receipts from
the public. Proposed budget authority for the Federal Highway
Administration is $13.5 billion in 1988 and $54.0 billion over the
TRANSPORTATION
5-71
1987-1990 period. To maximize the funding available for highway
programs, the administration proposes a repeal of existing gas tax
loopholes, which inequitably benefit public and private bus oper
ations, State and local governments, and users of gasohol and other
special fuels. Closing these tax loopholes would increase highway
trust fund receipts by $0.8 billion in 1988 and $0.9 billion annually
through 1992. These additional receipts would be prorated by exist
ing formulae between the highway and mass transit accounts of
the highway trust fund.
Several policy changes are reflected in the reauthorization legis
lation proposal and the 1988 estimate. Specifically, funding for the
categorical interstate construction, interstate rehabilitation, and
primary highway programs would be replaced by a combined interstate/primary program totaling $8.2 billion annually. States would
have the discretion to use these funds for either construction or
repair of the 42,796-mile interstate system or for the 308,418-mile
primary system. The primary system consists of connected main
roads that are important to interstate and regional travel. In con
trast, rural and urban roads are primarily the responsibility of
State and local governments, which must decide their own prior
ities and expenditures for construction, maintenance, and rehabili
tation. To help States meet these needs, the administration pro
poses to consolidate into a $2.2 billion block grant the trust fund
resources for urban and secondary highway systems, including
bridges on those systems. States would have the discretion to use
the funds on any main public road, other than interstate or pri
mary highways, without advance Federal project approval.
Highway Safety.—Proposed budget authority of $303 million in
1987 and $285 million in 1988 for Federal highway safety programs
is, on average, 16 percent higher than the 1986 level of $254 mil
lion. The proposed 1987 and 1988 funds would maintain current
support for Federal vehicle safety research and development and
for promulgation and enforcement of Federal safety standards.
The administration continues to support State and local efforts
to develop awareness of the benefits of protecting the occupants of
motor vehicles. In 1988, $6 million in Federal funds would be used
to encourage the use of seat belts and passive restraints in vehicles.
Mass Transit.—The administration seeks a four-year reauthoriza
tion for transit programs (1987-1990). The reauthorization proposal
provides two fundamental changes in subsidies for mass transit
beginning in 1988. First, mass transit funding (except for Washing
ton Metro) would be limited to the level of receipts provided by the
one cent per gallon of the motor fuel tax dedicated to mass transit
activities. Second, these subsidies would be distributed by formula
5-72
THE BUDGET FOR FISCAL YEAR 1988
NATIONAL NEED: EFFICIENT TRANSPORTATION SYSTEMS
(Functional code 400; in millions of dollars)
Estimate
1986
actual
1987
1988
1989
1990
14,138
257
3,399
12,633
287
4,010
12,861
315
3,426
13,843
311
3,479
13,536
310
3,132
885
891
-42
-9
71
-18
53
-40
45
46
18,725
17,866
48
-17
16,581
49
-28
17,707
50
-33
17,007
4,615
648
24
5,287
4,650
621
33
5,304
5,251
683
2
5,935
5,430
721
5,627
745
6,152
6,372
2,491
2,642
2,753
15
-355
2,801
15
-474
2,828
15
-474
1,473
1,074
Other transportation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
3,964
140
3,717
130
483
-25
2,871
136
412
1
2,755
135
479
3
2,852
134
Total, outlays.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
28,117
27,017
25,523
26,748
26,365
Major missions and programs
OUTLAYS
Ground transportation:
Highways.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Highway safety.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Mass transit.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Railroads:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Regulation:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Ground transportation.. .. .. .. .
Air transportation:
Airports and airways (FAA).. .. .. .. .. .. .. .. .. .
Aeronautical research and technology.. .. .. .. .
Air carrier subsidies.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Air transportation.. .. .. .. .. .. .
Water transportation:
Marine safety and transportation:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Proposed Coast Guard fees.. .. .. .. .. .. .. .. .
Ocean shipping:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Water transportation.. .. .. .. ..
to States and large urban areas for their use on local transit
projects.
Proposed 1988 mass transit budget authority from the trust fund
is $1.4 billion. The majority, about $1.2 billion, would be distributed
by existing formula to States and large urban areas. States and
localities could then use their formula grant funds on any public
transportation capital project, provided that they make matching
contributions of at least 50 percent. Only small urban and rural
areas could use funds for transit operating subsidies, which also
require a 50 percent match. Remaining budget authority, about
$150 million, would be used for program administration, research
(including a continued emphasis on promoting private sector mass
transit initiatives), planning, special assistance for the elderly and
handicapped, and rural areas.
The administration is also proposing an immediate end to discre
tionary grant funding for building new or expanding current tran
sit systems in 1988. In the past, these subsidies have promoted the
TRANSPORTATION
5-73
construction of local transit systems that often have been unneces
sary, too costly, and underutilized. For example, in 1973 Detroit
estimated that the automated people mover would cost $30 million
to build. The people mover is now estimated to cost $210 million
and the Urban Mass Transportation Administration (UMTA) esti
mates that it will attract no more than 15,000 daily riders, far less
than the 37,000 originally projected.
In 1969 the 63rd Street tunnel on Manhattan’s East Side was
projected to cost $245 million. By 1985, when UMTA suspended
further Federal financing, the cost had risen to $800 million, with
only 1,700 passengers expected to use the tunnel each day. After
almost 17 years of construction, the tunnel remains unfinished.
In Miami, a $1 billion transit investment carries only one-tenth
of the ridership originally estimated to justify the project. The bus
riders of Miami have endured higher fares and reduced service
because current transit funds have been diverted to the rail
system.
Funding for these discretionary grants has come from the one
cent of the gas tax that is dedicated to transit. The administration
believes that it is inequitable to continue subsidizing the projects of
less than 20 cities by taxes paid throughout the country. Therefore,
the administration seeks to allocate the one cent per gallon re
ceipts more equitably, by formula to States and localities. The
changes in Federal subsidies for local transportation also reflect
the administration’s view that support of essentially local activities
is not an appropriate Federal role.
In addition to the $1.4 billion from trust funds, the administra
tion proposes a $130 million construction grant from general funds
for the Washington, D.C. Metrorail. The administration is also
proposing that the interstate transfer grants-transit program be
made eligible for Federal-aid highway funding from the trust fund
instead of a separate general fund appropriation.
Railroads.—In keeping with the administration’s policy of reduc
ing Federal responsibility for rail activities unrelated to safety,
proposed budget authority for railroads in 1988 is reduced to $17
million, $658 million less than in 1987. The decrease is largely
attributable to the proposed elimination of subsidies for Amtrak.
Since 1970, the Federal Government has provided Amtrak with
more than $12 billion in direct and indirect subsidies. After more
than 15 years of operation and despite a virtual monopoly on
intercity rail passenger service and a subsidy averaging $27 per
passenger in 1986, Amtrak served less than 0.5 percent of all
intercity travel. The administration is proposing to terminate all
Amtrak subsidies and to dispose of some or all of Amtrak’s assets,
the majority of which are in the Boston-to-Washington corridor, to
non-Federal entities. Such transactions will be designed to preserve
5-74
THE BUDGET FOR FISCAL YEAR 1988
viable intercity rail passenger services to the extent economically
feasible.
Conrail, the Government-owned freight railroad that provides
service in the Northeast and Midwest, is to be sold in a public
offering of its stock in 1987. Receipts from the sale of Conrail and
proposed sale of Amtrak are shown in the undistributed offsetting
receipts section.
Regulation.—The administration will continue its efforts to
eliminate unnecessary Federal transportation regulations and to
remove nonessential constraints on the competitive operation of
the private transportation sector, especially the motor freight
transportation industry. Legislation will be proposed to deregulate
completely the motor carrier, freight forwarder, bus and water
transportation industries, and to abolish the Interstate Commerce
Commission (ICC) as an independent agency by October 1, 1987.
Although most ICC rail activities would transfer to the Department
of Transportation, rail antitrust matters would be policed by the
Department of Justice. Handling of consumer protection com
plaints regarding household goods movers would be administered
by the Federal Trade Commission.
Air Transportation.—Budget authority of $6.5 billion is requested
for air transportation in 1988, an increase of $1.0 billion from 1987.
Federal spending for air transportation is for the improvement,
operation, and maintenance of the national airspace system, air
port grants, aeronautical research and technology.
Airports and Airways.—The Federal Aviation Administration
(FAA) operates and maintains the national airspace system and
provides funds to the Nation’s airports to ensure the safe and
efficient movement of the Nation’s air traffic.
The administration will seek a 2-year (1988-1989) reauthorization
of FAA programs and the Airport and Airway Improvement Act of
1982. Budget authority of $5.8 billion is proposed for 1988, a 20
percent increase from that provided in 1987. Tax receipts, primari
ly from passenger ticket and freight waybill taxes, are estimated to
be $3.5 billion in 1988, an increase of 10 percent over estimated
1987 receipts of $3.1 billion.
Most of the requested 1988 funding increase is due to a proposed
68 percent increase in funding for the FAA’s program to modernize
our Nation’s airspace system. In 1988, the administration is re
questing $1,350 million in budget authority to continue the FAA’s
airspace modernization program; this is $545 million more than the
$805 million appropriated in 1987. This increase in funding reflects
the administration’s continued strong commitment to improving
the reliability, capacity, and safety of the current air traffic control
TRANSPORTATION
5-75
system. The funds will be used for a variety of important activities
and improvements, including the advanced automation system, pre
cision landing systems, surveillance radar, communications equip
ment, and terminal doppler weather radar systems designed to
detect deadly wind shears.
Proposed budget authority for the airport improvement program
is $1,017 million in 1988, slightly more than the $1,000 million
made available for obligation in 1987. Three important structural
changes are being proposed to the program. First, commercial air
ports that can be self-financing would be allowed to withdraw from
the Federal program and to assess their own fees to finance capital
improvements. Second, 22 percent of the funds would be allocated
to States to administer general aviation, reliever, and small com
mercial service airports. Third, discretionary grant funds would be
targeted to projects that increase national airport capacity and
improve safety. These proposed changes would provide increased
flexibility to large airports and allow States to meet their own
needs better.
Commensurate with increases in air traffic, the budget also pro
poses a 16 percent increase in funding for FAA operations—from
$2.8 billion in 1987 to $3.2 billion in 1988. Among other items (e.g.,
increased telecommunication costs), this funding increase will
permit increases in the number of air traffic controllers from a
minimum of 15,000 in 1987 to a minimum of 15,225 in 1988 and in
the number of safety inspectors from 2,020 in 1987 to 2,198 in 1988.
As an integral part of the 2-year reauthorization proposal, the
administration will again propose that 85 percent of all FAA costs
be funded from the user-supported Airport and Airway Trust Fund.
This proposal is consistent with several studies that have shown
that 85 percent of all FAA costs are attributable to the non-Federal
use of the national airspace system and only about 15 percent is
attributable to Federal, mostly defense, use of the system. The
administration will propose that penalty provisions built into the
1982 act not be extended, because they have resulted in the trust
fund paying far less than the 85 percent share of FAA costs attrib
utable to the users. As a result, during the period 1982-1987, there
has been an unwarranted $7.4 billion subsidy of aviation programs
by the general taxpayer. This is in addition to the subsidy provided
to Federal aviation programs through general fund interest pay
ments to the trust fund.
No funding is requested for the Washington Metropolitan Air
ports in 1988 and beyond. The transfer of the two federally-owned
Washington, D.C. airports (Washington National and Dulles Inter
national Airports) to a regional authority via a 50-year lease was
authorized by the “Metropolitan Washington Airports Act of 1986.”
The transfer is expected to be completed by the end of 1987 and
5-76
THE BUDGET FOR FISCAL YEAR 1988
will provide for a total of $150 million in 1987 dollars over the
lifetime of the lease.
Aeronautical Research and Technology.—The National Aeronau
tics and Space Administration (NASA) conducts research in aero
nautical sciences and operates unique research and testing facili
ties to help maintain U.S. leadership in aeronautics. In 1988, the
budget reflects a strong program of fundamental research, includ
ing expanded use of advanced computers to solve complex aerody
namic problems and the continuation of a joint NASA/Department
of Defense program of research and advanced technology develop
ment in hypersonic flight. The administration requests $725 mil
lion in 1988 budget authority for aeronautical research and tech
nology, an increase of 4.0 percent from 1987.
Air Carrier Subsidies.—In conjunction with airline deregulation,
the air carrier subsidy program was designed to guarantee essen
tial air services to small communities. Consistent with the termina
tion of the Civil Aeronautics Board on January 1, 1985 and the
airline industry’s adaptation to a deregulated environment, the air
carrier subsidy program is proposed to end in 1987.
Water Transportation.—To meet its Federal responsibility in
water transportation, the administration requests $2.7 billion in
budget authority for 1988, a reduction of $0.6 billion from the 1987
level.
Marine Safety and Transportation.—Coast Guard services include
search and rescue, maintenance of navigation aids, enforcement of
maritime laws, and other activities.
The administration’s request of $2.7 billion in 1988 budget au
thority for the Coast Guard represents a 6 percent increase over
1987. The majority of these funds will be used for Coast Guard
operations, including search and rescue and law enforcement ac
tivities. In addition, the administration proposes a phased imple
mentation of fees for certain Coast Guard services provided to
commercial operators and recreational boaters. The fees, which
would be set to recover part of the cost to the Coast Guard of
providing the services, would total an estimated $355 million in
1988 and $474 million annually thereafter. The cost of Coast Guard
programs that benefit the general public (e.g., defense prepared
ness, law enforcement, and polar icebreaking) would not be includ
ed in the user fees, because they are core functions of Government
that benefit all taxpayers. Upon full implementation, the proposal
would recover less than 25 percent of the Coast Guard’s $2.0 billion
operating budget.
In 1988, drug law enforcement will continue to receive major
emphasis with 22 percent of the Coast Guard’s operating budget
TRANSPORTATION
5-77
supporting interdiction of drug smuggling. At the same time, Coast
Guard’s other missions (e.g., search and rescue) will continue at
current or increased operating levels. The Coast Guard’s air search
and rescue operations will benefit from 18 replacement short-range
recovery helicopters that will be put into service during 1988. The
Coast Guard will continue to modernize its fleet of medium and
high endurance cutters, resulting in expanded law enforcement
and defense preparedness capabilities and extension of the usable
lives of the ships. In support of Coast Guard’s wartime mobilization
role, the administration proposes an increase in the Coast Guard’s
selected reserve strength to 13,500 members.
Ocean Shipping.—Programs in ocean shipping are administered
by the Department of Transportation’s Maritime Administration
and Saint Lawrence Seaway Development Corporation, the
Panama Canal Commission, and the Federal Maritime Commis
sion. Proposed budget authority for ocean shipping in 1988 is $299
million, a decrease of $434 million from 1987. The decrease reflects
a lower projection of borrowings required to cover ship construction
loan guarantee defaults, partly offset by a financing change in the
Panama Canal Commission.
The Maritime Administration has traditionally provided subsi
dies to assist the U.S. merchant marine and shipbuilding industries
in competing with foreign maritime industries.
In 1988, the administration will continue to provide operating
subsidies to offset the higher costs of operating U.S.-flag vessels.
The 1988 cost to meet the Federal Government’s obligations on
existing operating subsidy contracts is estimated to be $250 million;
no new contracts are anticipated. The administration will pursue
legislative reforms that would increase the competitiveness of sub
sidized U.S.-flag operators.
In maritime operations and training, the 1988 budget requests
funding for technical and policy studies and proposes funding in
creases for the U.S. Merchant Marine Academy and the National
Defense Reserve Fleet. The 1988 budget also includes several initia
tives to reduce unwarranted maritime subsidies. First, the adminis
tration proposes to eliminate all Federal aid to the six State mari
time schools, with the single exception of honoring previously com
mitted student incentive payments. Given projections for a contin
ued oversupply of licensed merchant marine officers through the
early 1990’s, Federal subsidies for the State maritime schools
cannot be justified.
Second, the budget proposes no funding in 1988 for the maritime
research and development appropriation. Third, the administration
will seek administrative reforms to reduce the cost of implement
ing the expanded cargo preference requirement enacted as part of
the Food Security Act of 1985. This provision increases from 50
5-78
THE BUDGET FOR FISCAL YEAR 1988
percent to 75 percent the amount of specified concessional food
programs that must be shipped on U.S.-flag vessels.
The administration is seeking a supplemental of $6 million for
operations and maintenance of the Saint Lawrence Seaway Devel
opment Corporation in the second half of 1987. Prior to April 1,
1987, Corporation operations and maintenance were funded from
toll revenues. Starting on April 1, 1987, the Corporation’s toll
revenues must be deposited in a newly created Harbor Mainte
nance Trust Fund that will finance operations and maintenance
expenses. For 1988 and beyond, the administration will propose
legislation to return the Corporation to direct financing from toll
and other revenues, consistent with its organization and mission.
With regard to the Panama Canal Commission, the administra
tion will seek legislation to convert the Commission’s financing
structure from a special fund to a revolving fund. A revolving fund
not only would simplify the Commission’s financial structure, but
also would provide the Commission with the flexibility it needs to
meet unforeseen business conditions. The revolving fund proposal
would not result in any cost to the U.S. taxpayer.
Credit Programs.—The Department of Transportation provides
direct loans and guaranteed loans for water and ground transporta
tion projects. The largest loan and guarantee program is part of
the Maritime Administration. It guarantees construction mortgage
loans to build U.S.-flag vessels in the United States and makes
direct loans in the form of advances to operators to avoid defaults
on federally guaranteed loans. The administration is proposing rio
new loan guarantee commitments after 1986. The maritime indus
try should be encouraged to rely on the private credit market,
without Federal intervention, as the source of capital. The adminis
tration will continue its policy of not providing loans to private
freight railroad companies, in light of the health of the railroad
industry. The administration is also proposing the sale of its direct
railroad loan portfolio; these direct loans were made to private
railroad companies from 1977 to 1985.
Tax Expenditures.—In addition to direct Federal funding, tax
expenditures provide assistance to shipping concerns and mass
transit systems. Prior to 1987, certain companies that operate U.S.flag vessels were able to defer taxes indefinitely on income invested
in construction, repair and modernization of ships. The Tax Reform
Act of 1986 limits the deferral to 25 years, which results in a tax
expenditure of $115 million in 1988. State and local governments
could issue tax-exempt bonds for mass transit vehicles until Decem
ber 31, 1984, which results in a tax expenditure estimated to be $55
million in 1988. Total tax expenditures for transportation are esti
mated to be $170 million in 1988.
5-79
TRANSPORTATION
CREDIT PROGRAMS—TRANSPORTATION
(In millions of dollars)
Estimate
1986
actual
Direct loans-.
Highway and mass transit programs:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Aid to railroads:
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Aircraft purchase guarantee defaults.New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Assistance to ocean shipping:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Other transportation:
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
1987
1988
1989
1990
74
17
208
48*
208
48*
208
48
48
208
208
-80
1,569
-884
685
-583
102
-6
96
-4
92
2
-21
48
—6
42
-5
37
-5
32
-4
27
1,260
878
1,475
610
608
2,082
105
103
2,185
105
103
2,288
105
103
2,390
11
11
11
11
11
1,337
793
3,311
658
-282
3,028
153
-485
2,543
153
92
2,634
153
94
2,728
997
997
997
997
997
-131
276
-76
200
-37
163
-31
132
-30
102
4,995
-750
4,245
-300
3,645
-300
3,345
-9
3
—2
1
-300
3,945
-1
Total, guaranteed loans.New commitments.. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. ..
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
48
-1,588
6,272
-828
5,444
-338
5,106
-331
4,775
-330
4,444
Total, new obligations and new com
mitments.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
1,385
658
153
153
153
Total, direct loans:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. ..
Change in outstandings.. .. .. .. .. .. .. .. .. ..
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Guaranteed loans:
Highway and mass transit programs:
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Aircraft purchase:
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Assistance to ocean shipping:
New commitments.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Other transportation:
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
'$500,000 or less.
48
-1,448
5-80
THE BUDGET FOR FISCAL YEAR 1988
COMMUNITY AND REGIONAL DEVELOPMENT
The Nation requires healthy and thriving communities to main
tain the economic vitality and general well-being of society. Feder
al programs for community and regional development supplement
State and local government efforts to sustain economic and social
growth in urban and rural neighborhoods, communities, and re
gions. Specific programs assist particular regions, provide disaster
relief, and accomplish the major goals of Federal Indian policy.
Most of this assistance takes the form of grants, but direct and
guaranteed loan programs exist as well.
In 1988, the administration will continue its effort to concentrate
Federal resources on national priorities and provide maximum op
portunity for State and local governments to meet their own local
community and economic development needs. Shifting responsibil
ity for economic development programs to the State and local
levels brings both economic development funding and priority deci
sions closer to the people. To achieve this, the administration pro
poses to eliminate a number of Federal categorical programs cur
rently providing support for specific local community and economic
projects. The comprehensive and more flexible community develop
ment block grants (CDBG) program will be the principal vehicle for
Federal support.
The administration is requesting budget authority of $5.3 billion
in 1988 for community and regional development, a reduction of 13
percent from the 1987 level. Outlays are estimated to total $5.5
billion in 1988, a reduction of 11 percent from 1987.
Community Development.—The principal Federal program in this
category is the community development block grant program,
which is administered by the Department of Housing and Urban
Development (HUD).
Community Development Block Grants (CDBG).—The community
development block grant program provides Federal support for
cities, counties, Indian tribes, and U.S. territories, to help them
meet their community and economic development needs. After cer
tain funds are set aside for the Secretary’s discretionary fund,
which provides grants for Indians, insular areas, technical assist
ance, and special projects in support of CDBG activities, CDBG
funds are allocated by formula to States, large cities, and urban
counties. Seventy percent of the funds allocated by formula go to
the large city/urban county program and 30 percent to the Stateadministered small cities program. The States receive funds to
distribute to smaller communities and rural areas in their jurisdic
tions.
5-81
COMMUNITY AND REGIONAL DEVELOPMENT
NATIONAL NEED: COMMUNITY AND REGIONAL DEVELOPMENT
(Functional code 450; in millions of dollars)
Major missions and programs
1986
actual
Estimate
1987
1988
1990
1989
BUDGET AUTHORITY
Community development:
3,023
316
72
72
244
3,726
2,625
20
95
2,510
2,625
2,625
75
75
75
231
2,971
227
2,811
212
2,912
213
2,913
1,552
216
968
120
100
-273
1,857
130
1,035
77
100
-298
1,306
1,772
1,612
1,169
1
73
-298
1,173
1,177
79
-300
87
-302
2,684
2,900
2,251
2,724
2,573
Disaster relief.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Disaster relief and insurance..
346
129
475
120
80
200
125
77
202
230
77
307
230
78
308
Total, budget authority.. .. .. .. .. .. .. .. .
6,884
6,071
5,264
5,943
5,793
Community development block grants.. .. .. ..
Urban development action grants.. .. .. .. .. .. .
Rental rehabilitation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Rental development.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Other.. .. .. .. '... .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Subtotal, Community development ..
Area and regional development:
Rural development.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Economic development assistance.. .. .. .. .. .. .
Indian programs.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Regional commissions.. .. .. .. .. .. .. .. .. .. .. .. .. .
Tennessee Valley Authority.. .. .. .. .. .. .. .. .. .. .
Offsetting receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Subtotal, Area and regional develop
ment.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Disaster relief and insurance:
The administration proposes to rescind $375.2 million of 1987
budget authority and establish the CDBG program level at $2.6
billion for 1987 and 1988. The 1988 program level includes $2.5
billion of new budget authority and a transfer of $115 million from
the rehabilitation loan fund upon its termination at the end of
1987. Although this will reduce the total resources available for the
CDBG program, the administration is proposing legislation that
would target assistance toward the most needy communities. Many
communities with the resources to meet their own needs currently
receive Federal aid from this program.
Urban Development Action Grants (UDAG).—The administration
proposes to terminate the UDAG program and rescind $238 million
of budgetary resources in 1987 as part of the Government-wide
effort to cut back categorical local economic development subsidy
programs that distort economic investment choices and impose
Federal priorities on State and local governments. These grant
programs siphon productive resources from private investment
projects to Government-subsidized projects that may provide local
benefits, but are less efficient for the national economy as a whole.
By approving awards to assist successful companies, major hotel
chains, and large commercial banks, the UDAG program is misus
5-82
THE BUDGET FOR FISCAL YEAR 1988
NATIONAL NEED: COMMUNITY AND REGIONAL DEVELOPMENT
(Functional code 450; in millions of dollars)
Major missions and programs
1986
actual
Estimate
1987
1988
1989
1990
OUTLAYS
Community development:
Community development block grants.. .. .. ..
Urban development action grants.. .. .. .. .. .. .
Rental rehabilitation.. .. .. . 7... .. .. .. .. .. .. .. .. .
Rental development.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Other.. .. .. .. .... .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Community development.. .. ..
Area and regional development:
Rural development.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Economic development assistance.. .. .. .. .. .. .
Indian programs.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Regional commissions.. .. .. .. .. .. .. .. .. .. .. .. .. .
Tennessee Valley Authority.. .. .. .. .. .. .. .. .. .. .
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Offsetting receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Area and regional develop
ment.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Disaster relief and insurance:
Small business disaster loans.. .. .. .. .. .. .. .. ..
Disaster relief.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
National flood insurance fund.. .. .. .. .. .. .. .. ..
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Subtotal, Disaster relief and insurance..
Total, outlays.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
3,337
461
80
62
155
4,095
3,284
428
165
157
219
4,254
2,996
355
120
162
28
3,661
2,662
251
89
_5
112
3,109
221
2,986
1,505
253
957
163
122
-5
-273
609
330
1,036
145
118
—2
-298
565
170
1,145
123
98
-12
-298
149
70
1,130
90
101
_9
-300
-173
43
1,131
53
93
-8
-302
2,723
1,937
1,791
1,231
837
-172
336
144
108
416
-457
313
-23
143
-24
-304
225
-9
99
11
-188
230
-27
77
92
-119
230
-31
77
157
7,233
6,167
5,463
4,432
3,981
2,574
109
83
ing government dollars and diverting scarce capital from its best
possible use. Cities may, at their discretion, continue to use remain
ing CDBG resources to assist economic development projects. The
$355 million in outlays estimated for this program in 1988 reflects
the continued spendout of funds for projects approved in prior
years.
The administration continues to support the enterprise zone con
cept as a more economically efficient approach for assisting struc
turally depressed local economies. Sometime during 1987 the ad
ministration intends to propose legislation to establish enterprise
zones. The specific details of the new enterprise zone legislation
would be determined following analysis of how enterprise zones can
encourage business development most efficiently.
Rental Rehabilitation Grants.—In 1983, the administration pro
posed, and the Congress enacted, a new housing rehabilitation
program to support the voucher program in communities with an
insufficient supply of standard quality low- and moderate-income
housing. The administration is proposing to rescind $125 million of
1987 budget authority, which will provide $95 million for the pro
COMMUNITY AND REGIONAL DEVELOPMENT
5-83
gram in 1987. The administration also proposes to provide $75
million for rental rehabilitation grants in 1988—a level adequate to
meet this program’s objectives. Outlays in 1988 are estimated to be
$120 million.
Rental Development Grants.—In the Housing Urban-Rural Re
covery Act of 1983, the Congress created a new rental development
grant program to subsidize the construction or substantial rehabili
tation of rental housing in low- and moderate-income neighbor
hoods experiencing a severe shortage of rental housing. This pro
gram was intended to be funded on a one-time demonstration basis
for 2 years, with a total of $315 million in budget authority made
available. The administration proposes to discontinue this program
and rescind $99.6 million of 1987 budget authority as well as $10
million in recaptured funds from previous years’ appropriations.
This program is a costly subsidy supporting construction of new
rental units during a period of historically high vacancy rates, and,
thus, cannot be justified. Furthermore, the program is not well
targeted for low-income people—those most in need of housing
assistance. Outlays in 1988 are estimated to be $162 million from
grants awarded in previous years.
Area and Regional Development.—Programs in this category sup
port rural development, development programs of American Indian
tribal governments, and multi-State regional development.
Rural Development.—The administration proposes to terminate
the Farmers Home Administration (FmHA) rural development
loan and grant programs that finance construction of water and
waste-water systems and community facilities. Financing such
projects is primarily a State and local responsibility, using the
Nation’s private credit system. When such financing is locally man
aged, communities are better able to determine the appropriate
size of their own facilities and thus avoid unnecessary and over
built infrastructure. In addition, communities can move ahead on
such facilities when they are needed rather than stand in line
awaiting Federal help. Termination of these programs in 1988 will
achieve outlay savings of approximately $500 million.
Economic Development Assistance.—The Department of Com
merce’s Economic Development Administration (EDA) provides
public works grants to States and communities, and loan guaran
tees to businesses. Because the grant program interferes in the
decisionmaking process of States and local governments by approv
ing local projects at the Federal level, and the loan guarantee
program distorts private financial markets by funding projects that
would not merit resources under other criteria, the administration
5-84
THE BUDGET FOR FISCAL YEAR 1988
proposes to terminate the EDA and rescind the unobligated portion
of the 1987 appropriation.
Indian Programs.—The three major objectives of Federal Indian
policy are to fulfill the trusteeship responsibilities of the Federal
Government, to increase self-determination for American Indian
tribal governments, and to encourage economic development on
Indian reservations.
Outlays for regional development from the Indian programs and
miscellaneous trust funds administered by the Bureau of Indian
Affairs are estimated to be $1.0 billion in 1987 and $1.1 billion in
1988. The Department of Housing and Urban Development also
provides community development support specifically for Indians
through a set-aside in the community development block grant
program described above. Total Federal outlays for special Indian
programs Government-wide, including programs in other functions
such as income security and education, are expected to be $2.9
billion in 1988. This amount does not include payments received by
Indians from several trust funds established for their benefit or
from programs serving all qualified U.S. citizens.
Appalachian Regional Commission (ARC).—The ARC was estab
lished in 1965 to provide economic development assistance to the
13-State Appalachian region. Since 1965, more than $5 billion in
Federal funds has supported highway construction and financed
community development-related facilities. The administration pro
poses to terminate ARC and rescind the unobligated portion of the
1987 congressional appropriation. ARC highway funds unnecessar
ily duplicate the Department of Transportation's Federal Highway
program. ARC development programs target resources to rural
districts that are no worse off economically than rural communities
in other parts of the country, and therefore not deserving of special
injections of Federal resources.
Tennessee Valley Authority (TVA).—The administration proposes
to terminate direct support for TVA’s regional economic and com
munity development programs, which are more appropriately pri
vate or State and local government responsibilities. These pro
grams have included activities such as assistance to cities, towns
and businesses, and the promotion of tourism, forestry and wildlife.
To the extent that Federal assistance might be warranted, it can be
allocated more equitably by programs administered nationally by
other Federal agencies. TVA’s basic responsibilities for water re
sources systems management and fertilizer research would contin
ue. Outlays for TVA’s activities in this function are estimated to be
$98 million in 1988, down from $118 million in 1987. The TVA
COMMUNITY AND REGIONAL DEVELOPMENT
5-85
power program, financed through the sale of electricity, is unaffect
ed by this reduction and is discussed in the energy function.
Disaster Relief and Insurance.—Providing insurance against
losses from floods, hurricanes, tornadoes, and other natural disas
ters is primarily the responsibility of private insurers. State and
local governments aid recovery when necessary, and Federal insur
ance and disaster relief programs are available to supplement
State and local resources when those resources are insufficient.
Small Business Disaster Loans.—The Small Business Administra
tion (SBA) provides loans to homeowners and businesses for unin
sured losses suffered as a result of physical disasters. In order to be
eligible for the loans, recipients must be able to demonstrate the
financial ability to repay the loans. These loans are currently
available to borrowers at an interest rate of 4 percent if credit
cannot be obtained elsewhere (i.e., if the borrower is not likely to
satisfy commercial credit requirements) and no more than 8 per
cent if credit can be obtained from private sources. The administra
tion will propose legislation to limit this program to those homeowners and businesses unable to obtain credit elsewhere and to
raise the interest rate to the Treasury rate plus 1 percent. In order
to allow those who would no longer be eligible for the program
time to obtain adequate insurance coverage or make other prepara
tions for potential disaster losses, the change in eligibility would
not be effective until 1989. These changes are designed to encour
age those homeowners and businesses who can afford to obtain and
maintain adequate insurance coverage against disaster-related
losses to rely upon these alternatives instead of relying on direct
Federal loans at preferential interest rates. The General Account
ing Office has found that insurance is a better form of disaster
protection than direct Federal loans. The administration also pro
poses to sell the disaster loan portfolio over 6 years beginning in
1987.
Disaster Relief.—The Federal Emergency Management Agency
administers this nationwide program, which provides supplemental
assistance to individuals and State and local governments in the
event of a Presidentially-declared emergency or disaster. In addi
tion, States or Federal agencies may be reimbursed for disaster
relief work performed under this authority. Outlays are estimated
at $225 million in 1988.
National Flood Insurance Fund.—The Federal Emergency Man
agement Agency operates a national program of direct Federal
flood insurance at subsidized rates. Since the program began in
1968, losses have amounted to $1.4 billion. The administration pro
poses to eliminate this costly subsidy by 1988 through a combina
5-86
THE BUDGET FOR FISCAL YEAR 1988
tion of rate increases, coverage changes, and optional deductibles,
thereby recovering clearly allocable costs of flood insurance from
beneficiaries of this program. Receipts for this program are esti
mated to exceed outlays by $8 million in 1988.
CREDIT PROGRAMS—COMMUNITY AND REGIONAL DEVELOPMENT
(In millions of dollars)
Estimate
1986
actual
Direct loans:
Rural development (FmHA):
New obligations.. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .
Economic development assistance:
New obligations.. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .
Small business disaster loans1:
New obligations.. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .
Rural telephone bank:
New obligations.. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .
Other:
New obligations.. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .
1987
1989
1990
421
245
7,990
107
-1,518
6,471
-769
5,702
-860
4,842
-1,035
3,806
5
-62
568
152
99
668
8
-41
626
7
-40
587
6
-37
550
516
-334
4,222
325
-939
3,283
350
-864
2,419
310
-744
1,675
310
-652
1,023
128
51
1,434
149
64
1,498
93
-493
1,005
46
-490
515
-211
304
93
-19
108
-32
18
-650
17
-519
17
-68
Outstandings..............................
1,727
1,695
1,045
526
458
Total, direct loans:
New obligations.. .. .. .. ..
Change in outstandings...
Outstandings.. .. .. .. .. .. ..
1,163
-119
15,941
841
-2,326
13,615
469
-2,817
10,798
70
-2,653
8,145
23
-2,003
6,142
55
-285
2,626
115
-290
2,337
-465
1,871
-316
1,555
-220
1,335
22
51
286
22
-149
137
-17
120
3
3
2
-16
104
*
2
-14
90
*
2
118
20
217
190
160
377
34
82
459
28
-35
424
20
-47
377
195
-215
3,132
327
-279
2,854
34
-401
2,453
28
-367
2,085
20
-282
1,804
1,358
1,167
502
98
43
Guaranteed loans:
Rural development (FmHA):
New commitments.. .. .. .. .. .. ..
Change in outstandings.. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .
Economic development assistance.New commitments.. .. .. .. .. .. ..
Change in outstandings.. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .
Small business disaster loans:
Change in outstandings.. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .
Other:
New commitments.. .. .. .. .. .. ..
Change in outstandings.. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. ..
Total, guaranteed loans:
New commitments.. .. .. .
Change in outstandings...
Outstandings.. .. .. .. .. .. .
Total, new obligations and new com
mitments.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
*$500,000 or less.
1 The obligation levels for 1989 and 1990 are not included in the total.
COMMUNITY AND REGIONAL DEVELOPMENT
5-87
Tax Expenditures.—Direct Federal funding for community and
regional development is supplemented by several existing tax ex
penditures. The provision that allowed certain taxpayers to amor
tize rehabilitation expenditures for low- and moderate-income
rental housing over a 5-year period expired at the end of 1986. It
has been replaced by a tax credit structured to have a present
value equal to 70 percent of construction or rehabilitation costs.
The credit is reduced to 30 percent for federally subsidized projects.
The 1988 tax expenditure for this provision is $575 million. Devel
opment is also assisted by the exclusion of interest on State and
local industrial development bonds for airports and docks. The
estimate for this provision is $785 million. Special tax credits are
also available for rehabilitation of older nonresidential buildings.
For 1988, the estimated tax expenditure for this program is $235
million. Total tax expenditures for community and regional devel
opment for 1988 are estimated to be $1.7 billion
5-88
THE BUDGET FOR FISCAL YEAR 1988
EDUCATION, TRAINING, EMPLOYMENT, AND
SOCIAL SERVICES
Federal programs for education, training, employment, and
social services are intended to: (1) assist parents, States, and local
ities in providing education, especially for educationally disadvan
taged, low-income, and handicapped persons; (2) assist economically
disadvantaged or dislocated workers in gaining job skills and find
ing permanent, unsubsidized employment opportunities; (3) help
employers and employees maintain stable and productive relations;
and (4) help provide social services for needy children, families, the
elderly, and other persons. Historically, the responsibility for meet
ing most of these needs has rested with State and local govern
ments and the private sector. Total outlays for this function are
estimated to be $28.4 billion for 1988, $1.4 billion below the pro
posed 1987 level, which reflects requested rescissions.
EDUCATION
The administration’s policies for funding education activities con
tinue the Nation’s tradition that primary responsibility for educa
tion lies with the family, State and local governments, and private
institutions. Federal programs should provide mainly supplementa
ry aid for persons with disabilities and for the educationally and
economically disadvantaged, support national-level research, and
finance statistics-gathering and analysis.
Budget authority requested for education programs in these sub
functions in 1988 is $13.9 billion, $5.3 billion below the level en
acted for 1987. The level requested for 1987 reflects proposed rescis
sions of $2.3 billion in budget authority.
Elementary, Secondary and Vocational Education,—The budget
requests $7.6 billion in budget authority in 1988, $0.5 billion below
the level requested for 1987, which includes $0.8 billion in proposed
rescissions.
Block Grant and Special Programs.—This activity includes the
education block grant, maintained in 1988 at the 1987 level of $500
million in budget authority, and a variety of smaller programs. In
general, the budget continues to seek elimination of small, less
important programs. The administration will submit legislation to
convert the current math, science and foreign language education
program into a new general teacher education program, to be
named in honor of the late Christa McAuliffe. The drug-free
schools programs, which began in 1987 with $200 million in budget
authority, are proposed to continue for the two additional author
ized years at $100 million per year. The reduced level reflects the
one-time start-up costs of the first year and the increased support
EDUCATION, TRAINING, EMPLOYMENT, SOCIAL SERVICES
5-89
for such activities that result from the assumption of responsibility
by States and localities.
NATIONAL NEED: EDUCATION, TRAINING, EMPLOYMENT, AND SOCIAL SERVICES
(Functional code 500; in millions of dollars)
Major missions and programs
1986
actual
Estimate
1987
1988
1989
1990
BUDGET AUTHORITY
Education:
Elementary, secondary, and vocational
education:
Block grant and special programs:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. ..
Compensatory education:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. ..
Education for the handicapped.. .. .. .. .. .. .
Impact aid.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Vocational and adult education.. .. .. .. .. ..
Other .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Elementary, secondary, and
vocational education.. .. .. .. .. .. .. .. .
675
884
3,537
3,944
1,350
683
907
528
175
609
175
609
75
609
1,453
700
556
522
4,144
1,488
548
130
487
4,144
1,527
558
150
487
4,144
1,575
558
170
487
7,680
8,059
7,581
7,650
7,619
4,823
4,214
6,133
-2,797
6,312
-3,685
6,697
-4,069
3,266
2,717
.. . 673’
7,604
1,237
2,885
-1,313
527
4,727
Research and general education aids.
754
8,776
1,184
2,510
-1,334
546
5,058
1,217
Subtotal, Education.. .. .. .. .. .. .. .. .
17,640
16,901
13,856
1,285
13,663
2,694
-1,722
518
4,118
989
1,783
1,783
1,783
1,783
1,783
636
650
650
-650
650
-650
650
-650
800
800
800
Higher education:
Student financial assistance:
Existing law.. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. ..
Receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .
Guaranteed student loan program:
Existing law.. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. ..
Other .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Higher education.. .. .. .. ..
Training, employment, and other labor
services:
Training and employment:
Block grants to States.. .. .. .. .. .. .. .. .. .. ..
Summer youth employment:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. ..
Welfare youth training and employment:
Proposed legislation.. .. .. .. .. .. .. .. .. .. ..
Assistance to dislocated workers:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. ..
Job Corps.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Older Americans employment.. .. .. .. .. .. ..
Work incentive program.. .. .. .. .. .. .. .. .. ..
Other training programs.. .. .. .. .. .. .. .. .. ..
Federal-State employment service.. .. .. .. .
Subtotal, Training and employment
Other labor services.. .. .. .. .. .. .. .. .. .. .. ..
Subtotal, Training, employment,
and other labor services.. .. .. .. .. .
-67
12,725
121
55
612
312
203
250
958
4,875
656
326
103
277
869
4,719
980
652
326
980
658
326
980
676
326
275
873
5,688
274
893
5,714
274
914
5,753
679
730
812
817
837
5,554
5,449
6,500
6,531
6,590
5-90
THE BUDGET FOR FISCAL YEAR 1988
NATIONAL NEED: EDUCATION, TRAINING, EMPLOYMENT, AND SOCIAL SERVICES—Continued
(Functional code 500; in millions of dollars)
Major missions and programs
Social services:
1986
actual
Estimate
1987
1988
1989
1990
Social services block grant.. .. .. .. .. .. .. .. .. .. .
Community service programs.. .. .. .. .. .. .. .. .. .
Rehabilitation services.. .. .. .. .. .. .. .. .. .. .. .. ..
Family social services.. .. .. .. .. .. .. .. .. .. .. .. .. .
Social services activities.. .. .. .. .. .. .. .. .. .. .. ..
Domestic volunteer programs.. .. .. .. .. .. .. .. ..
Other social services.. .. .. .. .. .. .. .. .. .. .. .. .. ..
Subtotal, Social services.. .. .. .. .. .. .. .. .
2,584
352
1,310
761
1,929
145
23
7,104
2,700
368
1,357
994
2,086
156
22
7,684
2,700
310
1,401
682
2,277
153
953
8,476
2,700
245
1,447
728
2,272
156
678
8,225
2,700
160
1,486
771
2,272
159
767
8,315
Total, budget authority.. .. .. .. .. .. .. .. .
30,298
30,033
28,832
28,419
27,630
A legislative proposal will be submitted for the reauthorization
of the block grant in Chapter 2 of the Education Consolidation and
Improvement Act to continue, with some modifications, this essen
tial element of Federal support for State and local school improve
ment activities.
Compensatory Education for the Disadvantaged.—This activity,
primarily authorized under Chapter 1 of the Education Consolida
tion and Improvement Act, includes the major Federal programs
financing remedial education for the educationally disadvantaged.
For 1988, $4.1 billion in budget authority is proposed, an increase
of $200 million over the 1987 enacted level. A legislative proposal
will be transmitted to the Congress for reauthorization of these
programs. It will continue existing programs and propose improve
ments in the targeting of funds on the schools and the school
districts with the highest concentrations of poor children, provide
new resources to States to encourage better program performance,
provide new resources to the Education Department to conduct
demonstrations and research, and restructure the allocation formu
la of the State-managed migrant program to weight more heavily
children who are migrants or recently were migrants.
The legislative proposal will also include a new authority for
school districts to use their Chapter 1 allocations to offer parents of
children selected for Chapter 1 services an option to purchase
compensatory education services from other public or private
schools.
EDUCATION, TRAINING, EMPLOYMENT, SOCIAL SERVICES
5-91
NATIONAL NEED: EDUCATION, TRAINING, EMPLOYMENT, AND SOCIAL SERVICES
(Functional code 500; in millions of dollars)
Major missions and programs
1986
actual
Estimate
1987
1988
1989
1990
OUTLAYS
Education:
Elementary, secondary, and vocational
education:
Block grant and special programs:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. ..
Compensatory education:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. ..
Education for the handicapped.. .. .. .. .. .. .
Impact aid.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Vocational and adult education.. .. .. .. .. ..
Other .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Elementary, secondary, and
vocational education.. .. .. .. .. .. .. .. .
619
671
833
54
330
528
175
598
3,405
3,108
1,628
684
1,035
461
1,429
803
1,046
562
3,746
207
1,318
581
524
491
822
3,274
1,408
566
234
487
39
4,103
1,516
562
166
487
7,832
7,618
7,755
7,649
7,645
4,585
5,099
-70
4,317
-630
6,119
-2,928
6,386
-3,746
2,741
-959
67
5,535
1,251
14,542
2,880
-1,281
514
5,303
1,150
14,103
2,702
-1,640
479
4,182
1,121
Higher education:
Student financial assistance:
Existing law.. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. ..
Receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .
Guaranteed student loan program:
Existing law.. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. ..
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Higher education.. .. .. .. ..
-67
Research and general education aids.
574
8,415
1,164
Subtotal, Education.. .. .. .. .. .. .. .. .
17,410
2,367
-144
268
7,519
1,398
16,534
1,911
1,848
1,799
1,783
1,783
746
684
645
650
-422
650
-650
23
724
800
23
980
651
326
2
980
657
326
272
882
5,868
274
902
5,725
Training, employment, and other labor
services:
Training and employment:
Block grants to States.. .. .. .. .. .. .. .. .. .. ..
Summer youth employment:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. ..
Welfare youth training and employment:
Proposed legislation.. .. .. .. .. .. .. .. .. .. ..
Assistance to dislocated workers:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. ..
Job Corps.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Older Americans employment.. .. .. .. .. .. ..
Work incentive program.. .. .. .. .. .. .. .. .. ..
Other training programs.. .. .. .. .. .. .. .. .. ..
Federal-State employment service.. .. .. .. .
Subtotal, Training and employment.
Other labor services.. .. .. .. .. .. .. .. .. .. .. ..
Subtotal, Training, employment,
and other labor services.. .. .. .. .. .
Social services:
Social services block grant.. .
Community service programs..
Rehabilitation services.. .. .. ..
Family social services.. .. .. .. .
3,323
12,948
211
207
594
321
227
260
986
5,257
625
319
110
266
943
5,001
106
490
649
326
11
279
872
5,201
672
730
802
815
833
5,929
5,731
6,003
6,683
6,558
2,671
348
1,311
2,661
366
1,393
931
2,697
327
1,389
777
2,700
267
1,433
717
2,700
188
1,474
758
5-92
THE BUDGET FOR FISCAL YEAR 1988
NATIONAL NEED: EDUCATION, TRAINING, EMPLOYMENT, AND SOCIAL SERVICES—Continued
(Functional code 500; in millions of dollars)
Major missions and programs
1986
actual
Estimate
1987
1989
1990
Social services activities.. .. .. .. .. .. .. .. .. .. .. ..
Domestic volunteer programs.. .. .. .. .. .. .. .. ..
Other social services.. .. .. .. .. .. .. .. .. .. .. .. .. ..
Subtotal, Social services.. .. .. .. .. .. .. .. .
1,933
154
20
7,246
2,013
152
27
7,543
2,216
154
323
7,885
2,271
155
556
8,099
2,272
158
937
8,486
Total, outlays.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
30,585
29,808
28,429
28,885
27,992
Education for the Handicapped.—Increases over 1986 levels are
proposed in 1987 and 1988 to offset the effects of inflation on the
major State grant for the education of handicapped children and to
provide States with additional assistance in the preschool grant for
children aged 3-5. Overall, however, programs in this account re
ceived an unjustified 29 percent appropriation increase in 1987;
therefore, selective reductions are proposed. For example, the new
program for infants authorized in the 1986 reauthorization would
not be funded because it is not properly designed to provide aid
only to families who could not otherwise afford services and because
it authorizes health and social services that duplicate authority
and funding provided by other Federal, State, local and private
programs.
The net effect of the administration’s proposals is a reduction in
budget authority for 1988 of $254 million from the 1987 enacted
level of $1.7 billion. The 1988 request is $138 million or 10 percent
above the 1986 appropriation.
Impact Aid.—The Government compensates school districts
whose enrollments and available revenues are deemed to have
been adversely affected by Federal activities. The budget proposes
to provide aid only to those districts in which the federally-connect
ed children pose a demonstrable burden. Therefore, for the major
impact aid program, the budget proposes to maintain 1988 funding
at the 1987 level of $533 million for school districts that provide
services to children who live on Federal property and whose par
ents work on Federal property—so-called “a” children. No funds
are proposed in 1988 for the current authority to provide funds for
school districts with children who either live on or whose parents
work on Federal property—so-called “b” children.
Vocational and Adult Education.—The budget proposes to end
Federal funding of vocational education. The current vocational
education law is overly prescriptive and funds many activities that
are inappropriate and, at the postsecondary level, duplicative of
other Federal aid. Research has shown that the investment in
EDUCATION, TRAINING, EMPLOYMENT, SOCIAL SERVICES
5-93
vocational education has only small and transitory benefits for
recipients. States and localities that wish to continue vocational
education programs will not be seriously hindered by withdrawal of
Federal funds. Vocational education is now funded by at least
twelve State and local dollars for every Federal dollar.
A total of $130 million in budget authority, an increase of $24
million over the 1987 enacted level, is provided for adult education.
This increase is part of the administration’s efforts to combat adult
illiteracy. It will aid States and localities in the improvement or
expansion of their adult education programs and provide $2 million
for Federal research and data collection activity. The budget in
cludes additional increases in budget authority each year for a
total proposed level of $200 million by 1992.
Other Elementary and Secondary Education.—Budget authority
for bilingual education and for the Education Department’s Indian
education programs is maintained at the 1987 enacted levels of
$143 million and $64 million, respectively. The administration will
propose legislation to eliminate inappropriate statutory restrictions
on the allocation of bilingual education funds. In the Interior De
partment, the Bureau of Indian Affairs is proposing to accelerate
transfer of the operation of the remaining Federal Indian schools
to tribal or other school systems, while retaining Federal funding
approximately at the 1987 enacted level. No funds are requested
for the duplicative programs for immigrants and refugees. Funding
is also requested for an elementary and a secondary school for deaf
children, the American Printing House for the Blind, and certain
administrative costs of the Education Department.
Higher Education.—The budget requests $5.1 billion in budget
authority for higher education in 1988, $3.9 billion below the 1987
enacted level of $9.0 billion.
Student Aid.—The budget continues the Federal Government’s
longstanding commitment to ensuring access to higher education
for the poor, with significant changes proposed in program struc
ture. Current programs are excessively costly and poorly designed.
They neither represent a coherent Federal aid policy nor ensure
that students and their families bear the appropriate responsibility
for higher education costs, since students themselves are the pri
mary beneficiaries of the education they obtain. Under the budget
proposals, total aid available to students would be maintained at
about current levels while costs to taxpayers would be dramatically
decreased. Budget authority for student aid for 1988 is requested at
$4.5 billion, a reduction of $3.6 billion from the 1987 enacted level.
Major proposals include:
5-94
THE BUDGET FOR FISCAL YEAR 1988
• Borrowing limits other than the cost of education would be
eliminated for guaranteed student loans that have no direct
cost to the government. The Government’s primary responsi
bility in student aid financing is to help ensure availability of
loan capital.
• The newly authorized income-contingent loan program would
be significantly expanded to provide additional aid for poor
students. Under this program, borrowing is less burdensome
because repayments are adjusted annually to fit within the
income the student earns after leaving school.
• Because some of the poorest students might not go to college
if the only financing available were loans, the budget pro
poses maintaining a Pell grant program. The program would
be better targeted, allowing a reduction in proposed budget
authority from the 1987 enacted level of $3.8 billion to $2.7
billion in 1988, and to $2.0 billion in 1989 and each year
thereafter, without any reduction in awards to the lowest
income students.
• The mushrooming cost of loan defaults, over $1 billion per
year, is proposed to be offset by insurance fees on new borrow
ing, equal to the present value of estimated default costs
associated with that borrowing.
• Federal payment of student interest during in-school, grace
and deferment periods would be eliminated; interest subsidies
for lenders reduced; and default risk-sharing with lenders and
guarantee agencies increased in the guaranteed student loan
program. The borrower and lender subsidies are costly and
unnecessary; increased risk-sharing is needed to improve in
centives for default prevention and debt collection.
• No funding is requested for supplemental educational oppor
tunity grants, college work study, Perkins loans (formerly
national direct student loans), or State student incentive
grants, funded in total at $1.3 billion in 1987. These programs
inefficiently provide aid to institutions rather than directly to
students and are not needed under the new policies proposed
for other programs. The 1987 appropriation for new awards in
these programs is proposed for rescission.
To eliminate the $287 million unfunded shortfall in the Pell
grant program in 1987, a supplemental is requested that would
transfer budget authority in that amount from the guaranteed
student loan program, where it is not needed to meet 1987 costs. If
the supplemental is not enacted or assured of enactment by April
1, 1987, the Secretary will issue a revised award schedule (a “linear
reduction” schedule) for the Pell grant program, as provided by
law, to ensure that the program would operate within the level of
funds appropriated.
EDUCATION, TRAINING, EMPLOYMENT, SOCIAL SERVICES
5-95
Other Aid to Higher Education.—For historically black colleges
and universities, base-level funding would be maintained at the
level set aside by law in the 1987 appropriation, $50.7 million.
Funding at a reduced level is proposed for more tightly-focused
support service programs for disadvantaged students. Most of the
other small programs, providing aid to institutions for program
development and supporting narrow purpose scholarships and fel
lowships, are reduced or eliminated. These programs are low priori
ty because they duplicate other programs or are no longer neces
sary. Funding is maintained at the 1987 enacted level for the
operations of Gallaudet University and the National Technical In
stitute for the Deaf (NTID), as well as for Howard University.
Additional funding is also requested for the new endowment grant
programs at Gallaudet and NTID, which are similar to the existing
endowment program for Howard. Funding is also provided for cer
tain administrative expenses of the Education Department.
Loan Asset Sales.—The budget reflects the continuation of Edu
cation Department sales of higher education loan assets. About $1
billion of college housing and higher education facilities loans are
planned for sale in 1988, with net proceeds estimated at about $600
million. The budget also includes $42 million in 1988 revenues from
the sale of defaulted Perkins and guaranteed student loans.
Research and General Education Aids.—The budget includes an
increase of $6 million in budget authority for Education Depart
ment research and statistics over the 1987 enacted level of $64
million. No funding is requested for Education Department library
programs. The State grant programs have fulfilled their purpose of
extending access to library services to all segments of the popula
tion, and these services now receive about 95 percent of their
funding from non-Federal sources. The other library programs are
small, duplicative, and unnecessary. The budget proposes rescission
of the $4 million in 1987 budget authority enacted for the National
Capital Arts and Cultural Affairs program. This program, which
provides funds for the general operations of large cultural organi
zations in Washington, DC, is unnecessary since these organiza
tions are eligible for competitive grants. Funding is provided for
certain administrative expenses of the Education Department, as
well as for the National Endowments for the Arts and for the
Humanities, the Institute of Museum Services, the Smithsonian
Institution, the Library of Congress, and the Corporation for Public
Broadcasting (which receives 2-year advance appropriations).
Tax Expenditures—A variety of exclusions, exemptions and de
ductions provide assistance for education. Student loans are subsi
dized through the exclusion of interest on State and local student
5-96
THE BUDGET FOR FISCAL YEAR 1988
CREDIT PROGRAMS—EDUCATION, TRAINING, EMPLOYMENT, AND SOCIAL SERVICES
(In millions of dollars)
1986
actual
Direct loans:
Guaranteed student loans:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Student financial assistance:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
College housing and other:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
57
-105
2,628
Total, direct loans:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. ..
Change in outstandings.. .. .. .. .. .. .. .. .. ..
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Guaranteed loans:
Guaranteed student loans:
New commitments.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
1,334
944
9,146
Estimate
1987
1988
1989
1990
1,232
441
9,587
1,404
80
9,667
1,811
275
9,943
1,840
82
10,025
191
139 i_4,739
5,272
532
-14
519
-19
500
-25
475
-1,038
1,590
-1,077
513
-132
381
-103
278
1,582
977
17,046
1,232
-5,336
11,710
1,404
-1,011
10,699
1,811
125
10,824
1,840
-45
10,779
8,575
657
37,482
9,591
2,450
39,931
9,398
1,131
41,063
10,715
1,025
42,088
11,857
1,643
43,731
Outstandings..............................................
8,575
657
37,482
9,591
2,450
39,931
9,398
1,131
41,063
10,715
1,025
42,088
11,857
1,643
43,731
Total, new obligations and new com
mitments.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
10,157
10,823
10,802
12,526
13,697
Total, guaranteed loans:
New commitments.. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. ..
1 Reflects reclassification of direct loan capital contribution to schools as grants (-$4,793 million).
loan bonds. Students receive additional benefits because scholar
ship and fellowship awards are not subject to tax to the extent that
they pay for tuition, books, and related fees. These two tax expend
itures are estimated at $315 million and $585 million, respectively,
in 1988. The exclusion of up to $5,000 from annual taxable personal
income of employer-provided educational assistance was extended
through December 31, 1987. Other assistance is provided through a
special tax exemption available to parents of students age 19 or
over who do not claim an exemption on their own tax return and
by the deductibility of charitable contributions for education. Tax
expenditures for these three items are estimated at $25 million,
$2.3 billion, and $1.2 billion, respectively, in 1988. The exclusion of
interest on State and local debt for private nonprofit educational
facilities results in a tax expenditure estimated at $285 million in
1988. Current tax expenditures for education are estimated to total
$4.8 billion in 1988.
EDUCATION, TRAINING, EMPLOYMENT, SOCIAL SERVICES
5-97
TRAINING, EMPLOYMENT, AND OTHER LABOR SERVICES
Federal training and employment programs are designed to im
prove individuals’ abilities to obtain and retain jobs and to facili
tate the operation of the labor market by ensuring the develop
ment of a labor force that has the skills and flexibility required to
meet the needs of a rapidly changing economy over the next
decade. Those who have difficulty getting and keeping jobs may
receive skill training or information on the location of suitable jobs
and how to seek them. Other labor services include the compilation
of labor statistics and the regulation of employer-employee rela
tions. In 1988, outlays for these activities are expected to be $6.0
billion, an increase of $0.3 billion from the estimate of $5.7 billion
for 1987.
Training and Employment.—The major Federal activities for
training and employment are financed through grants to States for
training those having greatest difficulties in the job market, help
ing experienced workers displaced from their jobs find new employ
ment, providing subsidized jobs for youth in the summer, and oper
ating the Employment Service. In addition, the Federal Govern
ment contracts for the operation of other job training programs,
including the Job Corps. Under the Job Training Partnership Act
(JTPA), States have major control over the use of amounts granted
them. In each State and locality, the private sector is heavily
involved in planning and carrying out the programs. The primary
JTPA program is a block grant that provides States and localities
program discretion within broad Federal guidelines. To provide
lead time for adequate planning, the budget authority enacted for a
fiscal year for JTPA and the Employment Service finances a 12month program year beginning on July 1 of that year.
Block Grants to States.—Under JTPA, the States design pro
grams in close cooperation with private sector employers to meet
the needs of their populations and the opportunities in the State
job market. These programs are intended to prepare youth and
unskilled adults for entry into the labor force and to provide job
training to those who are in special need of such training in order
to obtain productive employment. Activities are designed in con
junction with the Employment Service, educational institutions,
and other vocational activities to prepare individuals for jobs in the
area. Although few restrictions are placed on the States and local
ities, JTPA requires that 70 percent of the grant amount must be
used for training and 90 percent of the participants must be eco
nomically disadvantaged. At least 40 percent of the resources must
be spent for youth, and welfare recipients must be served on an
equitable basis. A $57 million rescission is proposed in 1987 because
5-98
THE BUDGET FOR FISCAL YEAR 1988
of large amounts of unexpended balances in this program. The
resulting level of funding in 1987 is the same as in 1986. This
rescission is not expected to have a significant effect on service
levels. Outlays of $1.8 billion in 1988 reflect the budget authority
proposed to serve over 1 million people in both program years 1987
and 1988.
Summer Youth Employment.—Under the summer youth employ
ment program, grants are made to States in the spring of each year
to subsidize minimum-wage public sector jobs during the following
summer for youth between the ages of 14 and 21. The 1986 budget
authority provides jobs in the summer of 1987 and the 1987 budget
authority provides jobs in the summer of 1988. While the summer
youth employment program has successfully provided summer jobs
for youth, there is no evidence that simply providing jobs during
the summer has benefitted those youth most at risk, nor is it clear
that using these resources only for jobs is the most effective use of
tax dollars. Under current law, local areas have very limited flexi
bility to use these resources in new and innovative programs
mixing jobs and long-term training. This budget therefore proposes
replacing the current summer program with a more flexible pro
gram of jobs and training directed to youth on welfare. Because of
the proposed program, which is described below, and the large
amount of prior year unexpended summer jobs money that will be
available in the summer of 1987, the administration proposes re
scinding $100 million of the 1987 appropriation for summer jobs for
youth, thus keeping the program for the summer of 1988 at ap
proximately the summer of 1987 level.
Welfare Youth Training and Employment.—Legislation will be
proposed to amend the Job Training Partnership Act (JTPA) by
replacing the existing summer youth employment program with
one allowing States and local areas to establish a comprehensive
program of services for youth in families receiving support from
the aid to families with dependent children (AFDC) program.
States and localities could operate a year-round program of remedi
al education, basic skills training, and related support; a subsidized
summer jobs program as they do now; or a mixture of both pro
grams. The mix of services between training and jobs will be up to
States and local areas, but if a year-round program is established,
it is expected to provide a more intensive, enriched program than
that offered under either the JTPA block grant or the summer jobs
program. This proposal is intended to allow local areas to put
together the best combination of services for their jurisdiction to
help youth who suffer from illiteracy and a lack of jobs skills. They
are the most seriously at risk of failing to participate fully in our
society and having to turn to AFDC for support. Resources will be
EDUCATION, TRAINING, EMPLOYMENT, SOCIAL SERVICES
5-99
allocated by a formula that gives added weight to the numbers of
economically disadvantaged youth and AFDC recipients in a State
and in sub-State areas. Budget authority of $800 million in 1988 is
proposed for this program, which will be coordinated with other
work and training initiatives described in the income security func
tion for assisting the welfare population.
Assistance to Dislocated Workers.—Two programs have been
available to help workers whose jobs have disappeared because of
changes in the economy. Trade adjustment assistance (TAA) pro
vides unemployment benefit payments for a period beyond that
available from unemployment insurance. It also pays for retraining
workers whose skills were obsolete or for expenses of searching for
and moving to jobs in new locations. This aid is available only to
workers who are determined, after investigation, to have been
displaced from their jobs by increased imports. Experience under
the program has demonstrated that the additional weeks of unem
ployment benefits encourage workers to delay efforts to seek new
opportunities in the hope that somehow their old jobs will reap
pear. Congress provided $30 million for retraining and relocation
assistance under TAA in 1987.
JTPA authorizes the second readjustment program, providing
grants to States to help dislocated workers find new occupations
that use their skills, get training in new skills for which there is a
demand, or meet the costs of looking for jobs or moving to new
locations where they have found long-term jobs. JTPA provides for
75 percent of amounts appropriated for this program to be distrib
uted to States by formula and for 25 percent to be granted to
States at the discretion of the Secretary of Labor based on applica
tions describing special needs. An appropriation of $200 million
was enacted to be distributed in this manner in 1987.
Experience has shown that these separate worker assistance pro
grams have not operated efficiently to help workers adjust. In
addition, the separate TAA program targeting one group of unem
ployed workers raises serious questions about equity of treatment.
The administration proposes to replace these two programs with an
entirely new program. This new program would be available to all
dislocated workers, whether they are unemployed due to increased
imports, have been permanently laid off, have lost their farms, or
are long-term unemployment insurance recipients. Services, which
could include counseling, job search assistance, basic education,
and job skill training, would be provided in a two-tiered approach,
with services leading to quick adjustment being provided first.
States would apply to the Secretary of Labor for grants and would
be responsible for the program and linking it to the unemployment
insurance system. The private industry councils set up under JTPA
will have oversight responsibilities at the local level. These changes
5-100
THE BUDGET FOR FISCAL YEAR 1988
would allow States and local areas to use a variety of new ap
proaches to encourage workers to recognize when their old jobs are
gone and to move on more quickly to new careers.
In order to move to the new program, the budget rescinds $175
million of the $200 million appropriated in 1987 for dislocated
worker assistance under JTPA. The remaining $25 million, when
combined with large unexpended balances, will be sufficient to
finance worker adjustment services through September 30, 1987,
when the new program would take over. This transition amount
would be allocated by the Secretary of Labor at his discretion. No
resources are requested for the TAA or JTPA programs in 1988.
The new program would receive $980 million in budget authority
in 1988. Some 700,000 workers are expected to enroll in this pro
gram each year. The new approach would provide readjustment
services faster than has been possible under the current programs.
Job Corps.—The Job Corps provides disadvantaged youth remedi
al education and job skills training in 106 residential centers that
also provide meals, room, recreation, medical care, and living and
readjustment allowances. Because the Job Corps continues to be
the most costly domestic job training program financed by the
Federal Government, several initiatives are being undertaken to
help keep program costs under control and improve program effi
ciency while maintaining service levels. Currently there is consid
erable variation among the centers in terms of cost, size, and
effectiveness. To increase management efficiency, the administra
tion proposes to competitively bid all Job Corps center operations,
including those now operated by the Federal Government, and to
close inefficient and more expensive centers without reducing the
total number of youth served. Additional savings will be achieved
through implementation of the results of several pilot and demon
stration projects testing ways to reduce costs or improve positive
outcomes. The 1988 budget authority request of $652 million will be
sufficient to support 40,500 training slots, the same level as in
previous years.
Older Americans Employment.—Part-time public service employ
ment for older workers is provided under Title V of the Older
Americans Act through contracts with seven national service orga
nizations and the U.S. Forest Service and through grants to States.
Budget authority of $326 million is requested for 1988, the same as
provided in 1987. The wage is fixed by law; some 63,800 job oppor
tunities will be provided for older workers in 1987 and 1988. Out
lays are also estimated at $326 million in 1988.
Work Incentive Program.—This separate categorical program has
for years provided job services, training, and public service employ
EDUCATION, TRAINING, EMPLOYMENT, SOCIAL SERVICES
5-101
ment to recipients of aid to families with dependent children
(AFDC). Although its aim is to help curb welfare dependency, it
has not proved successful or cost-effective. Other programs, such as
JTPA, provide services to AFDC families in a program better de
signed to train adults and youth in the skills needed for private
sector jobs. For 1987, the Congress appropriated $103 million to be
used during the first 9 months of the fiscal year on the understand
ing that a replacement program would be enacted. The work incen
tive (WIN) program will be phased out with the 1987 appropriation,
and new work and training legislation is proposed as described
above and in the income security function. No budget authority is
requested for 1988.
Other Training Programs.—Outlays of $279 million are estimated
in 1988 for other national training programs, including research
and demonstration projects and special programs for veterans,
native Americans, and migrant and seasonal farm workers. A net
increase of $8 million in budget authority for research and demon
strations will help develop understanding of, and solutions to, em
ployment problems faced by youth and dislocated workers.
Federal-State Employment Services.—Grants are made for State
employment service agencies under a formula based on each
State’s share of the civilian labor force and of unemployed individ
uals. These grants support the total cost of job search and place
ment services to job seekers and of recruitment and special techni
cal services for employers. Certain employment services designed to
meet national needs are financed with grants under specific agree
ments with the State agencies. These national activities include
special services to veterans, collection of general purpose labor
market statistics, and determinations of labor needs under immi
gration laws.
Beginning in 1988, States would receive special grants under the
proposed new program of assistance for dislocated workers de
scribed earlier. States would be able to use these resources to
provide adjustment services tailored to the needs of dislocated
workers in their jurisdiction. As part of the transition to the new
program, the budget proposes to rescind $90 million of the 1987
appropriation for Employment Service grants. This reduction, com
bined with the use of unexpended balances and the substantial
resources available to States under the worker adjustment assist
ance program, would permit States to provide current levels of job
search assistance to those seeking work.
Legislation will be proposed to decentralize authority, financing,
and responsibility for administering State employment service and
unemployment insurance programs to the States. Based on an
extensive consultative process involving all interested groups, the
5-102
THE BUDGET FOR FISCAL YEAR 1988
legislation will answer the many questions raised by States and
others over the equity of current Federal allocation of administra
tive resources, the adequacy of the resources provided, and lack of
flexibility provided for States to use resources to meet their re
quirements. The Department of Labor will retain its current re
sponsibilities of ensuring that State programs meet the general
requirements of Federal law and of financing the costs of State
administration of Federal programs. This proposal is also discussed
in the income security function. In 1988, outlays for employment
service activities, except those under the worker adjustment assist
ance program, are estimated at $872 million.
Tax Expenditures.—Training and employment is subsidized
through a diverse group of tax expenditures. The largest employ
ment incentive was provided by the deduction for two-earner mar
ried couples that reduced the tax married people pay. It was justi
fied on the ground that the income of second earners is stacked on
top of their spouses’ earnings and thus taxed at a higher marginal
tax rate than if the second earner had been taxed as a single
person. This provision was repealed by the Tax Reform Act of 1986.
The Economic Recovery Tax Act of 1981 (ERTA) expanded the
credit for child and dependent care and created a special exclusion
for employer payments for child care. These provisions for child
and dependent care, designed to provide work incentives for fami
lies with children, are estimated to cost $4.6 billion and $45 mil
lion, respectively, in 1988.
The targeted jobs tax credit, intended to provide incentives for
employers to hire disadvantaged individuals from certain target
groups and recipients of certain welfare payments, was extended
through December 31, 1988, by the Tax Reform Act of 1986. The
exclusion of contributions to qualified prepaid legal services plans
was extended through 1987. Special tax credits for employee stock
ownership plans (ESOPs), designed to encourage employee owner
ship of their employer’s stock, will be allowed to expire at the end
of 1987. The tax expenditures for these provisions are estimated at
$460 million, $20 million and $320 million, respectively, in 1988.
Total tax expenditures for training and employment are estimated
to be $6.2 billion in 1988.
SOCIAL SERVICES
The Federal Government makes grants to States and to local
public and private institutions to defray the cost of social services.
Beneficiaries are low-income persons, the elderly, the disabled, chil
dren, youth, and Native Americans. Federal outlays for social serv
ices are expected to increase from $7.5 billion in 1987 to $7.9 billion
in 1988.
EDUCATION, TRAINING, EMPLOYMENT, SOCIAL SERVICES
5-103
Social Services Block Grant.—Block grant funding of social serv
ices gives States discretion to determine which social services will
be offered and who will be eligible to receive them. Child day care,
foster care, child protective services, preparation and delivery of
meals, and legal services are some examples of social services
offered by the States. Block grant funds may also be used by State
and local governments for administrative costs and are distributed
among the States on the basis of population. States may transfer
up to 10 percent of their social services block grant allotment to
other block grants that support health services, health promotion
and disease prevention, and low-income home energy assistance.
Budget authority of $2.7 billion is requested for the social serv
ices block grant in 1988, the same level as enacted for 1987.
Community Services Block Grant.—The administration proposes
to begin to phase out Federal support for the community services
block grant (CSBG); the administration is requesting $310 million
in 1988 budget authority, $58 million less than the 1987 level.
Community action agencies—the primary recipients of these
funds—derive less than 13 percent of their funding from this block
grant. A phased reduction in Federal CSBG support will provide
these agencies time to solicit funding from other sources. At this
time of Federal budget constraints, it is hoped that contributions
from non-Federal sources can maintain critical activities.
Rehabilitation Services.—Increases in budget authority over the
1986 level are proposed in 1987 and 1988 to offset the effect of
inflation on the vocational rehabilitation State grant. Appropriated
amounts in excess of this inflation offset are proposed for rescission
($97 million). Proposed 1988 budget authority for most other pro
grams is maintained at the 1987 enacted level, with selected reduc
tions requested. For example, the new supported-work State grant
is not financed because similar activities are already funded under
existing programs.
The net effect is a 1988 budget authority request of $1.4 billion, a
reduction of $84 million (6 percent) from the 1987 appropriation.
The proposed 1988 level would be $91 million (7 percent) over the
1986 appropriation.
Family Social Services.—In 1988, budget authority of $682 mil
lion is requested for foster care and adoption assistance. Funds
support State programs to reunite children with their families or,
when this is not possible, to place them promptly in adoptive
homes.
The levels requested for foster care and adoption assistance
assume passage of a legislative proposal aimed at controlling rapid
ly growing State administrative costs. The proposal is to limit State
5-104
THE BUDGET FOR FISCAL YEAR 1988
administration and training costs to 50 percent of the amount
reimbursed for maintenance payments under each program. Main
tenance payments to 110,000 foster care children and 39,000 adop
tion assistance families would not be reduced.
Social Service Activities.—In 1988, a generic appropriation of $2.2
billion is requested for all of the discretionary social service activi
ties administered by the Office of Human Development Services in
the Department of Health and Human Services. This generic re
quest is in no way a block grant consolidation proposal. The pur
pose is to simplify the congressional budget process and to focus
resource allocation decisions on the overall direction of Federal
policy for social services rather than on 26 separate activities.
Programs included in this request will retain their separate stat
utory program authorities. Under a generic appropriation for social
service activities, the Department of Health and Human Services
would be flexible to use its program expertise in determining spe
cific program funding levels and inititatives, thus taking advantage
of emerging opportunities to best serve children, older Americans,
the developmentally disabled, and Native Americans. Congress is
invited to selectively define priorities within the $2.2 billion re
quested level of effort.
These programs have been included in a generic request because
they serve similar populations and share common objectives of
promoting economic independence, integration, and self-sufficiency.
Head Start will continue to be a priority and the administration
intends to increase support for Head Start $20 million over the
1987 level.
Domestic Volunteer Programs.—The ACTION agency operates
programs to help citizens 60 and older provide various social serv
ices, pays stipends and other support costs of the volunteers in
service to America program (VISTA), and provides small grants to
stimulate other volunteer services. In 1988, the foster grandparents
program will support 23,800 older volunteers to work with 61,000
children with special needs. The senior companions program will
provide support for approximately 7,000 volunteers to work with
24,400 older shut-ins. The retired senior volunteer program (RSVP)
will support 392,000 part-time volunteers in 1988 who work on a
great variety of community needs. Funds requested for the VISTA
program will provide 2,500 volunteer service years in 1988, com
pared to 2,400 volunteer service years in 1987.
Other Social Serinces.—Funding is provided for certain adminis
trative functions of the Education Department and for the interim
assistance to States for legalization programs of the Department of
Health and Human Services.
EDUCATION, TRAINING, EMPLOYMENT, SOCIAL SERVICES
5-105
Tax Expenditures.—The provision of social services by a wide
variety of private charitable and religious institutions is encour
aged by the tax deductibility of contributions to those institutions.
The tax expenditure estimate for charitable contributions, other
than to educational and health institutions, is $8.8 billion in 1988.
Parsonage housing allowances are excluded from ministers’ taxable
incomes. This allows them to accept lower cash remuneration from
their congregations. The tax expenditure for parsonage allowances
is estimated at $195 million in 1988. The adoption of children with
special needs was encouraged by a limited itemized deduction for
expenses incurred. Effective January 1, 1987, the Tax Reform Act
of 1986 repealed this deduction and explicitly replaced it with a
direct expenditure program. For social services, tax expenditures
are estimated to total $9.0 billion in 1988.
Total tax expenditures for education, training, employment, and
social services are estimated at $20.0 billion in 1988.
5-106
THE BUDGET FOR FISCAL YEAR 1988
HEALTH
The Federal Government contributes to meeting the Nation’s
health needs by financing and providing health care services, pro
moting disease prevention, and supporting research, training, and
consumer and occupational health and safety. Since 1960, Ameri
cans’ per capita spending on health care has increased rapidly—
more than three times faster than the rate of inflation. Americans
now spend 10.7 percent of GNP on medical care, more than any
other industrialized nation. Federal health spending has also con
tinued to grow rapidly, despite major policy reforms enacted since
1981. This spending is growing even faster than medical spending
generally and will more than double in this decade unless present
trends are reversed. The budget contains initiatives to restrain
continued cost increases.
Health Care Services,—Four-fifths of Federal outlays for health
in this function are devoted to financing or providing health care
services directly to individuals. Federal outlays for health care
services are estimated to decline from $32.0 billion in 1987 to $31.5
billion in 1988.
Medicaid Grants.—Under current law, the Federal Government
is expected to finance 56 percent of the cost of the joint StateFederal medicaid program; the State and local share is projected to
be $22.2 billion, with the Federal share at $28.1 billion in 1988.
This program finances health care for 23.8 million poor Americans.
The administration’s legislative proposals are designed to foster
State action to implement capitation—that is, the payment of a
monthly sum to HMOs and other providers who are responsible for
all of a person’s health care. Capitation enhances competitive
market forces and helps to limit the growth of medicaid expendi
tures.
To promote competition, the administration is proposing legisla*
tion giving States optional authority to capitate acute care medic
aid services. To qualify, a State program would have to have all
eligible beneficiaries in a particular geographic area—such as a
county—enrolled in HMOs or other capitated organizations, and
must have provisions that protect quality of care and access to
care. For example, within the capitated system, beneficiaries would
be guaranteed the freedom to choose among providers.
During the first 3 years of each new capitation project, a State
would receive a higher Federal matching rate, which could be used
to defray the costs of the transition from fee-for-service to capita
tion. A State’s regular Federal assistance matching rate, which
currently ranges from 50 to 79 percent, would be increased 3 per
centage points in the first year, 2 percentage points in the second
HEALTH
5-107
year, and 1 percentage point in the third year. States would limit
matchable medicaid expenditures to not more than 97 percent of
their normal fee-for-service per capita costs in the first year, 96
percent of their norm in the second year, and 95 percent of their
norm in the third year. At any point, States could choose to revert
to current law, but the transition incentives would end after the
third year. The budget assumes no savings from this legislative
proposal.
A second legislative proposal would reduce Federal assistance to
the States for medicaid in 1988 by $1.0 billion in outlays and, in
subsequent years, constrain the rate of increase in Federal assist
ance to States to the rate of increase in medical care prices.
To reform Federal funding for State medicaid administrative
costs, the administration is proposing to replace the current com
plicated and disparate set of administrative matching rates with a
uniform 50 percent Federal matching rate beginning in 1988. Spe
cial matching rates, such as those intended to prompt the States to
develop information systems and recruit medically trained staff,
are no longer necessary. Limited Federal resources should focus on
medical assistance, not on overhead and other administrative costs.
Similar funding changes are proposed for aid to families with
dependent children and food stamps, both described in the income
security function.
Finally, as part of the medicaid cost reforms, the administration
will propose legislation to eliminate the enhanced 90 percent Fed
eral assistance to States for family planning services and adminis
tration. Savings of $85 million from this proposal would be used,
once they become available, for medicaid case management demon
strations of comprehensive services to pregnant women at high risk
of having low birthweight infants and high incidence of infant
mortality. States would be eligible for up to 100 percent Federal
funding for these demonstration projects. Case management dem
onstration projects would not only deliver medicaid services but
also manage the delivery of related federally supported services,
including community health centers, maternal and child health
grantees, and Women, Infants, and Children clinics.
5-108
THE BUDGET FOR FISCAL YEAR 1988
NATIONAL NEED: HEALTH
(Functional code 550; in millions of dollars)
Major missions and programs
Estimate
1986
actual
1987
24,644
26,640
28,120
-1,256
30,870
-2,835
33,450
-3,890
1,537
1,459
3,237
29,418
3,569
31,668
1,789
-502
3,332
31,483
2,082
-589
3,273
32,802
2,599
-657
3,252
34,754
5,013
539
5,552
6,229
731
6,961
7,970
639
8,609
7,516
639
8,156
6,768
640
7,408
262
206
39
286
67
32
291
36
30
291
46
25
291
43
25
507
385
357
361
359
794
856
878
-390
431
874
-386
441
1988
1989
1990
BUDGET AUTHORITY
Health care services:
Medicaid grants:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Federal employees’ health benefits:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. ... .. .. .. .. ..
Other health care services.. .. .. .. .. .. .. .. .. .. ..
Subtotal, Health care services.. .. .. .. ..
Health research:
National Institutes of Health research.. .. .. ..
Other research programs.. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Health research.. .. .. .. .. .. .. ..
Education and training of health care
work force:
Research training.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Clinical training.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Subtotal, Education and training of
health care work force.. .. .. .. .. .. .. .
Consumer and occupational health and
safety:
Consumer safety:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Occupational safety and health.. .. .. .. .. .. .. ..
Subtotal, Consumer and occupational
health and safety.. .. .. .. .. .. .. .. .. .. ..
363
392
881
-397
422
1,157
1,248
906
918
928
Total, budget authority.. .. .. .. .. .. .. .. .
36,634
40,262
41,355
42,237
43,450
Federal Employees Health Benefits (FEHB).—The administration
is proposing two reforms in the FEHB program, which is the
world’s largest multiple-choice health program. The administration
proposes that the formula used to determine the Government’s
contribution to enrollees’ health premiums be changed to a weight
ed average that reflects the premiums of all FEHB plans and the
distribution of enrollees among those plans. Currently, this contri
bution is based on a simple average of the high-option coverage
offered by six of the largest plans. The limitations of this outdated
formula prevent it from reflecting the recent shift of enrollees from
high-option to low-option coverage and the dramatic growth in the
number of FEHB plans. The proposed formula would reflect these
and other changes in the FEHB program, providing more equitable
cost sharing between the Government and its employees.
5-109
HEALTH
NATIONAL NEED: HEALTH
(Functional code 550; in millions of dollars)
Major missions and programs
Estimate
1986
actual
1987
24,995
26,700
28,120
-1,256
30,870
-2,835
33,450
-3,890
638
1,871
3,217
28,850
3,469
32,040
1,768
-492
3,313
31,453
2,211
-589
3,279
32,936
2,449
-656
3,247
34,600
4,859
534
5,393
5,244
682
5,925
5,483
674
6,158
5,585
645
6,231
5,633
641
6,274
256
269
279
291
291
232
156
41
30
42
—2
31
46
—2
25
41
—2
25
529
455
350
360
355
799
854
878
-390
429
874
-386
440
1988
1989
1990
OUTLAYS
Health care services:
Medicaid grants:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Federal employees’ health benefits:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Other health care services.. .. .. .. .. .. .. .. .. .. ..
Subtotal, Health care services.. .. .. .. ..
Health research:
National Institutes of Health research.. .. .. ..
Other research programs.. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Health research.. .. .. .. .. .. .. ..
Education and training of health care
work force:
Research training.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Clinical training:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Education and training of
health care work force.. .. .. .. .. .. .. .
Consumer and occupational health and
safety:
Consumer safety:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Occupational safety and health.. .. .. .. .. .. .. ..
Subtotal, Consumer and occupational
health and safety.. .. .. .. .. .. .. .. .. .. ..
366
391
883
-398
419
1,165
1,245
903
917
927
Total, outlays.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
35,936
39,665
38,865
40,443
42,156
In addition, the administration proposes that the respective em
ployer health insurance costs for current annuitants be transferred
to the U.S. Postal Service and the District of Columbia govern
ment. This proposal merely expands current law, which requires
these entities to pay for Government contribution costs of prospec
tive retirees. Of the $0.5 billion in outlay reductions presented in
this function under FEHB, $0.4 billion represents the transfer of
annuitants’ costs to the Postal Service and the District of Columbia
government. The remaining $0.1 billion is outlay savings from the
weighted average proposal. An additional $0.1 billion in outlay
savings from the weighted average proposal accrues to agencies
throughout the Government, and is presented in the allowances
section.
5-110
THE BUDGET FOR FISCAL YEAR 1988
Other Health Care Services.—Budget authority of $1.2 billion is
requested for health block grants in 1988, $0.1 billion more than
the 1987 level. This increase reflects proposed legislation for a
family planning block grant to give States greater latitude in deliv
ering voluntary family planning services. Block grants allow States
flexibility in coordinating and improving the effectiveness of serv
ices for their citizens. Under such grants, States are able to stream
line program administration and devote more resources to services,
because unnecessary Federal regulatory, legal, and reporting re
quirements previously imposed on grantees no longer apply.
Budget authority of $797 million is requested for the Indian
Health Service (IHS) in 1988. In addition, the IHS will collect an
estimated $71 million in third-party reimbursements for health
services provided to American Indians and Alaskan Natives. To
encourage maximum participation in the planning and manage
ment of health care services, the IHS will embark on a 10-year selfdetermination goal to have Indian tribal organizations administer
75 percent of IHS hospitals and clinics by 1998. The delivery of
health services by the IHS will be made more cost-effective through
increased patient registration and the use of fiscal intermediaries
for contract health services. The IHS also plans to continue to
allocate resources among its health service delivery areas based on
indicators of health status.
For 1988, $30 million in budget authority is requested for the
direct Federal subsidy for the care of District of Columbia residents
at Saint Elizabeths Hospital. This represents the seventh year of a
10-year phasedown of this subsidy. In addition, budget authority of
$38 million is proposed for facilities renovation and other expenses
associated with the transfer of the hospital to the District of Co
lumbia on October 1, 1987. An additional transition subsidy is also
requested as part of the Federal payment to the District of Colum
bia government, which is classified in the general purpose fiscal
assistance function.
Health Research.—In 1988, the Federal Government will provide
an estimated 85 percent of the Nation’s expenditures on basic
health-related research, with the bulk of Federal support chan
neled through the National Institutes of Health (NIH). Total 1988
outlays for health research are estimated to increase from the 1987
level of $5.9 billion to $6.2 billion in 1988. To stabilize Federal
support for basic health research at a strong and sustainable level,
and thus ensure continued leadership in this area, the 1988 budget
requests funds sufficient to support the full, multi-year costs of new
and competing research project grants awarded by NIH in 1988.
Full funding reduces the uncertainties associated with annual
funding of these multi-year grant commitments, increases the abili
ty of program managers to respond to rapidly emerging scientific
HEALTH
5-111
opportunities, ensures proper congressional consideration of the
full costs associated with grant commitments, and fosters a more
considered allocation of Federal funds among competing priorities.
In total, the 1988 request for NIH would fund about 19,100 re
search project grants, 560 research centers, and 10,900 research
trainees. Complementing the NIH effort, funding requested for the
Alcohol, Drug Abuse, and Mental Health Administration would
support about 1,600 research project grants.
Acquired Immune Deficiency Syndrome (AIDS) is the highest
public health priority of the administration. Supplementing State
and local programs, the Federal effort encompasses health educa
tion and risk prevention as well as research on the causes of and
potential treatments for AIDS. Budget authority of $534 million is
requested for AIDS research and education in 1988, an increase of
$118 million, or 28 percent, above the 1987 enacted level. Transfer
authority is proposed to expedite mid-year adjustments to AIDS
spending plans for the purpose of enhancing efforts on newly iden
tified research and education opportunities.
Education and Training of the Health Care Workforce.—In 1988,
$357 million in budget authority is requested for these programs.
Since the supply of health care professionals is now adequate,
direct Federal subsidies for most clinical health professions train
ing are no longer essential. Between 1965, when Federal subsidies
for health professions training began, and 1985, the supply of phy
sicians per capita grew by 48 percent, and surpluses are projected
for most health care disciplines in the 1990's. For this reason, the
administration proposes to eliminate the Federal subsidies for most
health professions in 1988. Federal emphasis will be on training in
family medicine and geriatric health care.
In 1988, an estimated 10,000 students in health professions train
ing programs—medical and allied health professionals—will be
supported by $100 million in new guaranteed loan commitments
under the health education assistance loan program. An additional
37,600 health professions and nursing students will continue to
receive assistance through revolving fund loans. Direct support will
continue for about 12,000 students pursuing careers in health-relat
ed research. Research training is projected to have outlays of $279
million in 1988.
Consumer and Occupational Health and Safety.—Budget author
ity of $906 million in 1988 is requested for protecting consumers
from unsafe and defective products and for protecting workers
from occupational hazards.
Consumer Safety.—Budget authority for consumer safety activi
ties is proposed to be $484 million in 1988. This funding would
5-112
THE BUDGET FOR FISCAL YEAR 1988
CREDIT PROGRAMS—HEALTH
(In millions of dollars)
voluntary and regulatory measures to protect consumers from un
reasonable risks. Inspections would be continued to ensure the
safety and efficacy of drugs, medical devices, and foods. Legislation
will be proposed to provide for more efficient inspection methods
for meat and poultry and egg products processing. Legislation that
establishes full recovery of inspection and related costs through
fees assessed on these industries is also proposed. Charging such
fees would neither lower inspection standards nor affect consumer
safety, but would reduce net outlays by an estimated $398 million
in 1988. Legislation is also being proposed to strengthen Federal
enforcement powers under the meat and poultry inspection acts to
ensure consumer safety.
Occupational Safety and Health,—The budget includes $422 mil
lion in budget authority to improve occupational safety and health
in 1988. The Occupational Safety and Health Administration
(OSHA) and the Mine Safety and Health Administration (MSHA)
in the Department of Labor issue and enforce standards to elimi
nate workplace hazards causing injury, illness, or death. During
1987 and 1988, both OSHA and MSHA will continue efforts to
revise or eliminate standards that burden employers without en
hancing protection of workers. Resources would be focused on those
activities most likely to ensure safe and healthful working condi
tions. Cooperative and voluntary efforts of employers and employ
ees to increase workplace safety and health will be encouraged. All
mine inspections required by the Mine Safety and Health Act in
HEALTH
5-113
1987 and 1988 are expected to be accomplished. OSHA plans to
increase inspections of occupational health hazards by 20 percent
in 1988.
Tax Expenditures.—Federal tax laws help finance health insur
ance by allowing employees to exclude from their taxable income
the insurance premiums paid by their employers. The estimated
tax expenditure for this provision is $30.2 billion for 1988. Individ
uals also are permitted to itemize as deductions certain expenses
for health care. In 1988, the estimate for this health-related tax
expenditure is $1.7 billion. In addition, health-related charitable
contributions result in a tax expenditure estimated at $1.4 billion
for 1988, and the exclusion of interest on State and local hospital
bonds results in an estimated 1988 tax expenditure of $2.3 billion.
Estimated tax expenditures for existing health provisions total
$35.6 billion in 1988.
Related Programs.—The Federal Government supports healthrelated expenditures that are reported in other functions. Among
the most important are medicare, discussed in the next function,
and medical care for veterans and military personnel, discussed in
both the veterans benefits and services and national defense func
tions. Agency contributions to Federal employees health benefits
are described under health care services but are included in indi
vidual agency budgets in virtually all functions.
5-114
THE BUDGET FOR FISCAL YEAR 1988
MEDICARE
The Federal Government contributes to the health of aged and
disabled Americans through medicare. In 1988, medicare will pro
vide health insurance for an estimated 32 million persons who are
aged, disabled, or suffer from end-stage renal (i.e., kidney) disease.
Medicare consists of two parts. Hospital insurance (Part A),
funded primarily by social security payroll taxes, pays for care
provided by hospitals, skilled nursing facilities, home health agen
cies, and hospices. Supplementary medical insurance (Part B), the
optional part of medicare, pays for physician services, hospital
outpatient and laboratory services, treatment for end-stage renal
disease, and durable medical equipment. Enrollees pay about 25
percent (or $17.90 per month per enrollee in calendar year 1987) of
Part B costs through premiums. In addition, there is a $20 billion
subsidy from general revenue, which averages $54 per month per
enrollee.
Medicare current services outlays are expected to increase 10
percent annually, increasing outlays $44.8 billion from 1987 to
1992. One cause of continued rapid growth in medicare is physician
fees, which is one of the fastest growing parts of the budget and is
expected to double in 5 years. Medicare’s prospective payment
system (PPS) has curbed rapid increases in hospital spending,
which increased only 2.0 percent between 1985 and 1986 after
almost doubling from 1980 to 1985. In contrast, spending on physi
cian services grew 8.5 percent between 1985 and 1986, even though
the number of beneficiaries grew only 2 percent and hospital ad
missions actually declined by 2 percent. This 8.5 percent increase
occurred during a congressionally imposed freeze on physician
charges.
The administration’s proposals would reform physician payment
rules and make other changes promoting the role of competitive,
market-oriented incentives in medicare. Even with savings from
legislative proposals, outlays are projected to increase from $71.6
billion in 1987 to $104.4 billion in 1992. This increase significantly
exceeds general inflation and the increase in beneficiaries. Under
the administration’s proposals, spending per medicare beneficiary
would increase in real terms through 1992.
Hospital Insurance (HI).—The budget includes legislation restor
ing the authority of the Secretary of Health and Human Services,
temporarily suspended in the Omnibus Budget Reconciliation Act
of 1986, to set the appropriate increase in hospital payment rates.
For planning purposes, the average payment for a hospital case is
projected to increase 2.5 percent in 1988. The administration is also
proposing to extend 1987 reforms of Periodic Interim Payments
5-115
MEDICARE
NATIONAL NEED: MEDICARE
(Functional code 570; in millions of dollars)
Major missions and programs
Estimate
1986
actual
1987
67,037
62,627
25,004
-5,739
1989
1990
67,841
1,811
73,000
2,770
78,348
3,116
27,785
5
34,183
-596
39,772
-1,181
45,200
-1,470
-6,545
-8,311
-570
-9,180
-1,828
-9,667
-3,058
87,228
83,872
94,358
103,353
112,469
49,685
48,273
52,553
-3,486
57,134
-2,683
61,072
-2,894
26,217
29,886
34,046
-1,201
38,957
-1,275
44,129
-1,646
-5,739
-6,545
-8,311
-570
-9,180
-1,828
-9,667
-3,058
70,164
71,614
73,032
81,125
87,936
BUDGET AUTHORITY
Medicare:
Hospital insurance (HI):
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Supplementary medical insurance (SMI):
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Medicare premiums and collections:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Interfund transactions.. .. .. .. .. .. .. .. .. .. .. .. .. .
Total, budget authority
926
OUTLAYS
Medicare:
Hospital insurance (HI):
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Supplementary medical insurance (SMI):
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Medicare premiums and collections:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Interfund transactions.. .. .. .. .. .. .. .. .. .. .. .. .. .
Total, outlays.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
(PIP) to hospitals serving a disproportionate share of the poor, and
is reproposing reforms in medical education payments.
Under the administration’s proposals, medicare payments for
hospital capital costs would become part of the hospital’s fixed,
predetermined price per admission (depending on the patient’s di
agnosis). This reform would reverse the inflationary incentives of
the current system, which rewards hospitals for building excess
capacity even though one out of every three hospital beds currently
is empty. Prospective payment for capital costs would give hospi
tals the incentive to allocate resources efficiently and to restrain
escalations in costs. However, consistent with current law, capital
reforms would not reduce medicare spending in 1988.
Further, the budget includes legislation to broaden the types of
prepaid health care plans in which Medicare beneficiaries could
participate. Beneficiaries would be offered a voucher with which
they could choose from a wide variety of plans, each offering bene
fits at least equivalent to medicare’s.
Under current law, Medicare bills will be paid as close as possi
ble to 26 days, the standard enacted last year. The administration
5-116
THE BUDGET FOR FISCAL YEAR 1988
proposes legislation conforming the timing of Medicare bill pay
ments to government-wide standards of 30 days.
Other hospital insurance proposals would extend medicare cover
age to the minority of State and local employees who are not
already covered. Most of these workers are eligible for medicare
benefits through their spouse or their own employment in the
private sector.
Supplementary Medical Insurance (SMI).—This budget proposes
that payments for radiology, anesthesiology and pathology (RAP)
services provided to inpatients be reflected in a set price for each
diagnosis, replacing the inflationary fee-for-service payment mecha
nism. Medicare would pay the average price for RAP services in an
area, thereby retaining variations in physician practice, while cre
ating new incentives for these physicians to provide only medically
necessary services. Current law rules for the assignment of physi
cian claims and beneficiary cost-sharing would be retained.
Other SMI proposals would tap competitive market forces by
promoting the growth of capitated arrangements in a series of
nationwide demonstrations. “Negotiated provider agreements”
would build on existing or new preferred provider organizations to
harness private sector incentives in the service of medicare benefi
ciaries. Medical societies, employers, advocacy groups and others
would be eligible to participate in the demonstrations.
The SMI premium was originally set to cover 50 percent of the
program’s costs in 1966, but it now covers less than 25 percent,
with taxpayers subsidizing the remainder. The administration pro
poses to maintain the premium at 25 percent for all current benefi
ciaries, set the premium at 35 percent for new beneficiaries, and
adopt a 50 percent premium where premiums are paid by third
parties.
The administration is also proposing reforms to:
• adjust annually the current SMI deductible, as is done for
other medicare cost-sharing amounts. The deductible has been
increased only twice since 1966, although beneficiary income
in the form of social security automatically increases with
inflation;
• repeal the costly expansions enacted last year that pay non
physicians directly but provide no new services to benefici
aries;
• extend to medium-size employers requirements enacted last
year that medicare pay after private insurance; and
• reform the timing of initial medicare entitlement.
Related programs.—A number of programs related to medicare
are discussed in the health, veterans, and income security func
tions; payroll taxes are discussed in Part 4, “Federal Receipts by
MEDICARE
5-117
Source.” Social security is now a separate budget function and
follows the income security discussion.
5-118
THE BUDGET FOR FISCAL YEAR 1988
INCOME SECURITY
Federal programs in the income security function help meet the
needs of individuals by insuring against loss of income resulting
from retirement, disability, death, or unemployment of a wage
earner, and by assisting the truly needy who are unable to provide
for themselves. The income security function includes retirement
and disability programs for Federal civilian and military personnel,
railroad employees, and coal miners. Retirement and disability
benefits are financed by a combination of employer and employee
contributions and direct Federal payments. This function also in
cludes unemployment compensation programs and a wide range of
housing, food, and cash assistance programs.
General Retirement and Disability Insurance (Excluding Social
Security).—This subfunction includes programs that provide retire
ment and disability benefits for railroad workers and coal miners.
Railroad Retirement.—The Railroad Retirement Board (RRB)
will administer retirement and disability benefits to an estimated
922,000 former railroad employees, their dependents, and survivors
in 1988. RRB payments include benefits equivalent to social securi
ty retirement and disability benefits, as well as rail industry pen
sions and federally subsidized windfall payments. Benefits are fi
nanced through railroad employee payroll deductions and railroad
employer contributions, payments from social security trust funds,
and direct subsidies from taxpayers. Estimated 1988 outlays of $4.1
billion include $368 million for the Federal windfall subsidy compo
nent, which represents an annual subsidy of more than $1,000 per
active railroad employee.
Financing legislation enacted in 1974, 1981, and 1983 was based
on what have proven to be optimistic assumptions, and RRB actu
aries now recommend financing increases to protect the solvency of
the fund. Therefore, the administration proposes increasing pay
ments into the rail pension fund by 1.5 percent in 1988 and again
in 1989.
The budget also proposes legislation to improve equity and help
move the rail pension toward solvency by: (1) making uniform the
treatment of rail pension payments for cost-of-living adjustment
purposes by correcting flaws in the law that now treat these indus
try pensions like social security; (2) maintaining rail pensions at
the 1987 level during 1988, (3) extending Federal/State unemploy
ment insurance coverage to railroad employment, ensuring the
payment of benefits to unemployed rail workers and paying off the
debts of the railroad unemployment system to the rail pension
fund; (4) requiring the railroad retirement trust funds to pay the
full normal costs of Railroad Retirement Board employees’ civil
INCOME SECURITY
5-119
service retirement benefits to the civil service retirement trust
fund; and (5) having the rail sector finance 25 percent of Federal
windfall subsidy costs.
Two other initiatives would correct unintended subsidies to the
rail sector that are financed by the social security program. First,
the continuing eligibility of railroad retirement disability benefici
aries would be reviewed, just like persons getting direct social
security disability payments. Second, the rail sector equivalent of
workers’ compensation, provided under the Federal Employers’ Li
ability Act, would be treated like regular workers’ compensation in
that payments would be offset against rail disability payments.
The budget also proposes to restore the rail industry pension to
the private sector. Railroad retirement is the only private industry
pension system embedded in Federal law, subsidized by taxpayers
and administered by a Federal agency. Privatization of rail pension
would free rail labor and management to bargain collectively for
new benefit levels and mechanisms for a new funding arrange
ment. Although not included in the budget estimates, privatization
would generate long-term savings.
Special Benefits for Disabled Coal Miners.—Miners who suffer
from chronic dust disease of the lungs—black lung—and who meet
specified medical criteria are entitled to monthly cash payments
and medical benefits. Cash payments are also made to their de
pendents and survivors. The basic monthly cash payment is based
on the GS-2 Federal salary level. Total outlays are estimated to be
$1.6 billion in 1988. Beneficiaries receive payments from either
general revenues or the black lung disability trust fund. The black
lung disability trust fund, which is financed by a fee on coal
production, is projected to have a deficit of $2.9 billion at the end of
1988. The excise tax paid by coal operators is insufficient to cover
the cost of medical and income replacement benefits for miners
disabled by the black lung disease for which these operators are
legally responsible. This is true even though the Government has
assumed full responsibility for paying income benefits to two-thirds
of those disabled by black lung disease, and even though the gener
al taxpayer is currently paying interest costs on money the trust
fund borrowed because coal mine operators have paid too little.
The administration proposes to increase the excise tax receipts to
the trust fund by $357 million in 1988 and to repeal the require
ment that the general taxpayer pay the interest on monies bor
rowed from the Treasury.
In addition, the budget proposes legislation for both the general
and trust fund black lung programs that will slow the growth of
benefits now being paid to coal miners who have been determined
disabled by black lung disease, their survivors, and their depend
ents. The proposed legislation would: (1) maintain the 1988 benefits
5-120
THE BUDGET FOR FISCAL YEAR 1988
at the 1987 level and increase benefits by one half the amount of
the percent increase in Federal pay each year thereafter, (2) re
strict the maximum amount that can be paid to a family, and (3)
end special benefits for students. The administration also proposes
counting black lung benefits as income for tax purposes. These
changes would not only make the black lung program more consist
ent with other Government disability programs, but would also
help efforts to restore the trust fund to solvency. Under proposed
legislation, trust fund payment calculations would be conformed to
general fund payment calculations using the social security rule of
rounding down to the nearest dollar.
Legislation is also being proposed that would offset social securi
ty disability benefits against general fund financed benefits when
beneficiaries receive both benefits—in the same way in which the
trust fund financed benefits are currently treated.
Pension Benefit Guaranty Corporation (PBGC).—This Govern
ment corporation insures payment of pension benefits promised to
workers by their private employers. When a bankrupt or financial
ly weak employer closes a defined benefit pension plan, the corpo
ration takes over the plan and pays its monthly retirement benefits
up to a legal maximum. PBGC may advance money to an insolvent
multi-employer plan to prevent termination, thereby forestalling
the need to take over the plan. The Corporation’s revenues include
premiums charged to all employers with defined benefit plans,
earnings on investments, and collections from sponsors that termi
nate plans. Although premiums have been recently increased, li
abilities from terminated plans are exceeding income from all
sources. PBGC’s deficit is expected to increase from $2.3 billion at
the end of 1986 to $4.2 billion by the end of 1988. Payment of
benefits will exceed cash income in 1988 and the Corporation will
start depleting its already inadequate reserves.
The budget reflects legislation that will be proposed to allow the
Corporation to collect higher premiums from sponsors with under
funded plans. The increased income would avoid depletion of the
Corporation’s assets and reduce its deficit. The administration will
also propose legislation to require improved funding of poorly fi
nanced plans.
Federal Employee Retirement and Disability.—Of the several em
ployee retirement and disability programs in the legislative, judi
cial, and executive branches of the Federal Government, the larg
est are civil service retirement and disability and military retire
ment.
5-121
INCOME SECURITY
NATIONAL NEED: PROVIDING INCOME SECURITY
(Functional code 600; in millions of dollars)
Major missions and programs
1986
actual
Estimate
1987
1988
1989
1990
5,541
4,589
4,405
230
4,311
411
4,310
463
2,213
1,170
.. .. 67
.. .. 87
1,563
-8
94
1,526
-16
103
1,473
-25
110
7,820
5,846
6,284
6,335
6,330
44,039
31,246
612
226
46,243
85
33,409
1,514
170
48,183
212
34,984
1,908
193
50,008
326
37,075
2,250
222
76,122
81,420
85,480
89,880
22,066
23,332
22,066
23,332
19,859
28
19,887
19,917
23
19,940
19,431
22
19,453
9,394
1,159
895
196
11,643
7,267
1,435
1,829
177
10,709
3,920
1,377
1,552
527
7,376
4,193
1,467
846
590
7,096
4,579
1,482
418
638
7,115
12,582
12,646
12,788
-278
12,950
-268
13,273
-202
6,221
18,803
6,699
-73
19,272
6,954
-860
18,604
7,370
7,785
-942 -1,034
19,110 19,821
10,171
10,856
12,303
12,102
11,771
9,899
10,414
1,415
403
2,281
1,491
340
2,076
10,244
-468
2,910
253
1,423
10,108
-528
3,961
244
1,424
10,696
-382
3,964
226
1,425
BUDGET AUTHORITY
General retirement and disability insurance (exclud
ing social security):
Railroad retirement:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Special benefits for disabled coal miners-.
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Subtotal, General retirement and disabil
ity insurance (excluding social secu
rity) .. .. .. .. .. .. .. .. .. .. .. . ... .. .. .. .. .. ..
Federal employee retirement and disability:
Civilian retirement and disability programs:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 43,296
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Military retirement.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . 29,896
Thrift investment fund.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Federal employees workers’ compensation (FECA) ... .. .. 266
Subtotal, Federal employee retirement
and disability.. .. .. .. .. .. .. .. .. .. .. .. .. ..
73,458
Unemployment compensation:
Existing law.. .. .. .. .. .. .. .. ..
Proposed Legislation.. .. .. .. .
Subtotal, Unemployment compensation.. .
Housing assistance:
Subsidized housing.. .. .. .. .. .. .. .. .. .
Public housing operating subsidies..
Low-rent public housing loans.. .. ..
Other housing assistance.. .. .. .. .. .
Subtotal, Housing assistance.
Food and nutrition assistance:
Food stamps and aid to Puerto Rico-.
Existing law.. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. ..
Child nutrition and other programs:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .
Subtotal, Food and nutrition assistance.
Other income security:
Supplemental security income (SSI)..
Family support payments:
Existing law.. .. .. .. .. .. .. .. .. .. .
Proposed legislation.. .. .. .. .. ..
Earned income tax credit (EITC).. ..
Refugee assistance.. .. .. .. .. .. .. .. .. .. .
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
5-122
THE BUDGET FOR FISCAL YEAR 1988
NATIONAL NEED: PROVIDING INCOME SECURITY—Continued
(Functional code 600; in millions of dollars)
Estimate
Major missions and programs
1986
actual
1987
1988
1989
1990
Subtotal, Other income security.. .. .. .. .. .. ..
24,170
25,177
26,665
27,311
27,700
Total, budget authority.. .. .. .. .. .. .. .. .. .. ..
157,960
160,458
160,236
165,273
170,300
Civilian Retirement and Disability Programs,—The civil service
retirement and disability system covers most of the Federal Gov
ernment’s 2.7 million civilian employees. Under existing law, ap
proximately 2.0 million retirees and survivors will receive pay
ments in 1987 totaling an estimated $26.7 billion in outlays. Bene
fits are paid to former employees who meet eligibility requirements
based on age and length of service, and to their survivors. Current
ly, full retirement benefits can begin at age 55 for employees with
30 years of service under the civil service retirement system
(CSRS); however, under the new Federal employee retirement
system (FERS), that retirement age will gradually increase to age
57. Benefit levels under the CSRS are based on the employee’s 3
highest salary years and are indexed to the Consumer Price Index
(CPI). CSRS participants and their employing agencies each con
tribute 7 percent of wages toward retirement costs.
The new FERS was enacted in 1986 for employees hired on or
after January 1, 1984. The FERS more closely resembles pension
systems in the private sector and reduces the overly generous
features in CSRS.
The administration proposes that CSRS retirement benefits be
brought more in line with FERS. While only a tiny fraction of all
private pensions are fully and automatically adjusted for inflation,
the CSRS continues to have full indexation to the CPI. The admin
istration proposes legislation to limit future cost-of-living adjust
ments (COLAs) to the percentage changes in the CPI minus 1
percentage point. This proposal would be virtually identical to the
COLA provided under the defined benefit portion of the FERS for
employees retiring at age 62 and beyond.
The budget also seeks repeal of the lump-sum withdrawal provi
sions in both CSRS and FERS, which enables employees to with
draw all their contributions toward retirement in a lump sum at
retirement.
Military Retirement,—Approximately 1.6 million military retir
ees and survivors will receive an estimated $18.9 billion in outlays
under existing law in 1988. Normal retirement eligibility is at
tained at 20 years of service. The initial benefit is 2.5 percent of
final basic pay for each year of service. For personnel entering
5-123
INCOME SECURITY
NATIONAL NEED: PROVIDING INCOME SECURITY
(Functional code 600; in millions of dollars)
Major missions and programs
1986
actual
Estimate
1987
1989
1990
OUTLAYS
General retirement and disability insurance (exclud
ing social security):
Railroad retirement:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Special benefits for disabled coal miners:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Pension Benefit Guaranty Corporation:
Existing law.. .. .. . .... .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Subtotal, General retirement and disability insur
ance (excluding social security).. .. .. .. .... .. .. .
3,755
3,855
3,851
65
4,008
44
4,157
30
1,616
1,611
1,573
-8
1,531
-16
1,477
-25
-106
-4
64
82
172
-347
90
185
-355
99
199
-245
106
5,330
5,543
5,396
5,497
5,698
24,237
26,696
17,621
266
-760
17,953
-644
226
-679
41,363
43,551
42,905
45,504
48,172
17,753
17,983
17,753
17,983
17,769
-92
17,677
17,630
-120
17,510
18,042
-106
17,936
10,041
9,472
1,181
1,018
144
12,383
1,344
1,872
256
12,944
10,170
-60
1,489
1,605
188
13,392
11,361
-150
1,424
918
196
13,749
12,134
-150
1,472
495
235
14,186
12,443
12,731
12,782
-277
12,942
-267
13,265
-200
6,159
18,602
6,698
-68
19,362
6,921
-788
18,638
7,332
7,745
-941 -1,033
19,066 19,777
10,345
10,947
12,303
12,102
11,771
9,877
10,607
...........
379
2,099
25,522
10,244
-468
2,910
288
1,499
26,776
10,108
-528
3,961
251
1,444
27,338
10,696
-382
3,964
233
1,426
27,709
124,905
124,784
128,664
133,478
Federal employee retirement and disability:
Civilian retirement and disability programs:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Military retirement.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Thrift investment fund.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Federal employees workers’ compensation (FECA).. .. .. .
Federal employees life insurance fund.. .. .. .. .. .. .. .. .. .. .
Subtotal, Federal employee retirement and dis
ability.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Unemployment compensation:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Subtotal, Unemployment compensation.. .. .. .. .. .. .
27,874 29,371 30,964
-1,505 -1,686 -1,880
18,887 19,936 21,012
-1,828 -1,599 -1,401
193
170
222
-694 -711 -745
Housing assistance:
Subsidized housing:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Public housing operating subsidies.. .. .. .. .. .. .. .. .. .. .. ..
Low-rent public housing loans.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Other housing assistance.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Subtotal, Housing assistance.. .. .. .. .. .. .. .. .. .. .. ..
Food and nutrition assistance:
Food stamps and aid to Puerto Rico:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Child nutrition and other programs:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Subtotal, Food and nutrition assistance.. .. .. .. .. ..
Other income security:
Supplemental security income (SSI).. .. .. .. .. .. .. .. .. .. ..
Family support payments:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Earned income tax credit (EITC).. .. .. .. .. .. .. .. .. .. .. .. .. .
Refugee assistance.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Subtotal, Other income security.. .. .. .. .. .. .. .. .. .. .
Total, outlays.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
http://fraser.stlouisfed.org/
"$500 thousand or less.
Federal Reserve Bank of St. Louis
1,415
435
2,293
24,364
119,796
5-124
THE BUDGET FOR FISCAL YEAR 1988
after September 1980, the average of the member’s highest 3 years
of basic pay will be used, as specified by current law, instead of
final basic pay. Benefits are indexed to the CPI. Under legislation
enacted in 1986, persons entering the military after August 1, 1986
will be subject to a reduction in their initial annuity for retirement
with less than 30 years of service. Their initial annuity at 20 years
will be reduced to 40 percent of the average of the member’s
highest 3 years of basic pay, with the annuity rising 3.5 percentage
points with each additional year of service to the full 75 percent for
retirement at 30 years. These reduced annuities will be restored to
their former levels when the retiree reaches age 62. This new class
of beneficiaries will also receive a COLA equal to the CPI minus 1
percent for life, subject to a one-time restoral of purchasing power
at age 62. Disability retirees and survivor benefits will not be
affected by the reduction in initial annuities, but will be subject to
the revised COLA formula. The budget provides for full cost-ofliving adjustments for military retirees in 1988 and 1989. Also,
military personnel will continue to make contributions to and be
eligible for social security.
Thrift Savings Fund.—Part of the new retirement system
(FERS), the thrift savings fund is a tax-deferred, voluntary savings
plan to which Federal employees may contribute up to 10 percent
of their salary and receive matching government contributions of
up to 5 percent of their salary. Employees covered by the old
retirement system (CSRS) may also contribute up to 5 percent of
their salaries to the fund and receive tax deferral benefits, but they
receive no matching contributions. The budget estimates for the
thrift savings fund assume no policy changes in the basic law as
passed and modified by Congress last year. Because the fund is not
yet operational and Federal employee participation rates are still
speculative, actual receipts and expenditures could vary significant
ly from these estimates in this budget.
Federal Employees Workers' Compensation.—The Department of
Labor provides tax-free cash and medical benefits to Federal em
ployees or their survivors for job-related injuries, illnesses, or
deaths. About 48,000 workers with long-term disabilities, or their
survivors, will receive monthly payments in 1987 and 1988.
Unemployment Compensation—About 97 percent of wage and
salaried employment in the United States is covered by unemploy
ment compensation programs, which pay benefits to individuals
who are temporarily out of work and are searching for jobs. Based
on the economic assumptions described in Part 3a, an average of
2.3 million workers per week will receive unemployment benefits
during 1987 and 2.2 million workers in 1988. Therefore, outlays are
INCOME SECURITY
5-125
estimated to decline from $18.0 billion in 1987 to $17.7 billion in
1988.
Regular benefits, usually paid for up to 26 weeks, are financed by
a State tax on employers and vary according to benefit levels set by
each State. Extended unemployment benefits, which increase by 50
percent the number of weeks an unemployed worker can receive
unemployment compensation, are payable in States with high rates
of unemployment among covered individuals, as defined by statute.
The total number of weeks of regular and extended benefits may
not exceed 39. Extended benefits are financed in equal portions by
State and Federal taxes on employers.
Benefits paid to former Federal civilian and military employees
are financed by the Federal agency that employed them. Addition
al benefits are available to workers in specific circumstances, such
as former Conrail employees. As part of the proposed changeover
to a comprehensive dislocated worker assistance program, weekly
benefits provided under the trade adjustment assistance program
for workers affected by imports would be eliminated beginning in
1988. Discussed in the education, training, employment, and social
services section, the new program would be tied closely to the
unemployment compensation program and would provide workers
(whose jobs have been eliminated because of imports or other
causes) with special help in finding new work. Under the proposed
legislation, workers collecting trade adjustment assistance benefits
at the end of 1987 would remain eligible to collect benefits in 1988.
Legislation will be proposed to decentralize authority, financing,
and responsibility for administering State unemployment insur
ance and employment service programs to the States. Based on an
extensive consultative process involving all interested groups, the
legislation will answer the many questions raised by States and
others over the equity of current Federal allocation of administra
tive resources, the adequacy of the resources provided, and lack of
flexibility provided for States to use resources to meet their re
quirements. This decentralization will place administrative policy,
financing, and decision making at the same level of government
that is already responsible for unemployment insurance benefit
policy, financing, and decision making. The Department of Labor
will retain its current responsibilities of ensuring that State pro
grams meet the general requirements of Federal law and of financ
ing the costs of State administration of Federal programs.
The administration proposes to ensure comprehensive unemploy
ment insurance coverage for rail workers by extending FederalState unemployment insurance coverage to railroad employment
beginning in 1988 with a transitional program. Under this propos
al, all rail workers becoming unemployed after September 30, 1987,
would be eligible for the generally higher maximum weekly bene
5-126
THE BUDGET FOR FISCAL YEAR 1988
fits available under the Federal-State program. Railroads would
reimburse States for the costs of benefits paid during the transi
tion, allowing States time to gain experience with railroad employ
ment before regular State unemployment insurance contributions
from the railroads begin. This proposal would speed repayment of
the rail sickness and unemployment fund’s debts to the rail pen
sion fund.
Housing Assistance.—The Federal Government provides housing
subsidies for low-income families and individuals through several
programs administered by the Department of Housing and Urban
Development (HUD) and the Department of Agriculture (USDA).
Eligibility for HUD assistance is generally limited to households
with annual incomes below 50 percent of median income in each
community. The Agriculture Department’s Farmers Home Admin
istration (FmHA) programs serve households with incomes up to 80
percent of the median income, although this would change under
the 1988 budget proposals. By the end of 1986, 6.3 million house
holds, or 18 million people, were receiving housing assistance. By
the end of 1988, the number of assisted households will grow to 6.5
million, reflecting the completion of units under construction, the
occupancy of other units funded in 1986 and prior years, and the
utilization of units recommended in the budget for 1987 and 1988.
The 6.5 million units (4.3 million are HUD-assisted units; 2.2 mil
lion are USDA-assisted units) reflect an increase of more than 2.0
million units since 1980.
Whereas most of HUD’s subsidized housing programs focus on
low-income renters, 60 percent of FmHA’s assisted units since 1980
have been for homeownership. Under the section 502 program,
very-low-interest mortgages are provided to households to encour
age their owning homes. By its very design, this program excludes
very-low-income renters, often those households with the most
severe housing need.
The other major housing program operated by FmHA (section
515) provides loans for building new rental projects in rural areas.
In addition, some of the tenants in these rental projects receive
additional rental subsidies from either HUD, FmHA, or other State
programs. Data on housing quality indicators and vacancy rates in
non-metropolitan areas suggest, however, that the rental housing
inventory has improved significantly over the last decade, and
rental vacancy rates continue to be higher than in metropolitan
areas.
Because of the recognition that the primary housing deficiency
in rural areas is not a physical shortage of adequate units, insuffi
cient homeownership among the low-income, or failure of housing
market financial institutions, the 1988 budget proposes to re-orient
policy away from the current approach which emphasizes these
INCOME SECURITY
5-127
goals. Instead, the main problem in rural and metropolitan areas is
income deficiency, a problem most efficiently addressed with hous
ing vouchers.
As reflected in the budget, housing vouchers are the cornerstone
of the administration’s housing policy both in rural and non-rural
areas. Vouchers, unlike new construction subsidies, address the
main housing problem faced by low-income households: insufficient
income to afford decent housing. Vouchers are targeted to the verylow-income households, can be used in most privately-owned rental
units that meet certain housing quality standards, and are less
costly than other housing subsidies for low-income households.
Vouchers provide tenants with greater freedom to choose where
they wish to live, including the opportunity to live in better neigh
borhoods with access to higher quality schools and services. The
evidence suggests that in many cases, voucher recipients choose to
move into better neighborhoods.
The budget proposes to fund 102,000 additional units in 1988:
99,000 are vouchers or rental subsidies for tenants to use in the
private market; the other 3,000 units are subsidies for construction
of new units for Indian (1,000) and elderly or handicapped house
holds (2,000). Of the 99,000 vouchers, 79,000 will be funded through
and administered by HUD. Between 20 percent and 25 percent of
the vouchers will be issued in non-metropolitan areas. The other
20,000 vouchers will be funded through FmHA and given to house
holds living in rural areas. With the exception of the 3,000 units
for Indians and elderly/handicapped households, no units are pro
posed to be constructed with Federal subsidies in HUD or FmHA.
The budget assumes a 100,000 housing unit program through
1989 and 1992 with the same program mix divided between HUD
and FmHA. The proposed 1988 subsidized housing program re
quires $3.92 billion in budget authority for HUD and $378 million
in budget authority for FmHA. The HUD budget reflects an esti
mated $60 million in cost-savings from the passage of income verifi
cation legislation.
The budget also includes a rescission of HUD funding totaling
$473 million for programs over-funded relative to need, including
$109.6 million for HUD’s rental development grants. This program
supports, via a large subsidy, the construction of new rental units.
Given currently high rental vacancy rates, it is not possible to
justify a poorly targeted, new rental construction program. The
remaining components of the proposed rescission package include
$125 million from rental rehabilitation grants and $238.8 million
from the section 8 moderate rehabilitation program. It also in
cludes a rescission of about $1.5 billion in rural housing loan and
grant funds appropriated for 1987 to the FmHA.
5-128
THE BUDGET FOR FISCAL YEAR 1988
The administration also proposes increasing the similarity be
tween section 8 certificates for existing housing and vouchers, both
of which rely on the private market to supply rental units. Howev
er, the section 8 program is more restrictive since its tenants must
occupy only units that rent for less than the HUD-established “fair
market rent.” In addition, section 8 tenants must pay 30 percent of
their income for rent, so there is no incentive to shop for a lower
cost but acceptable quality unit. These reforms would give the
section 8 participants the same freedom of choice and access to
housing as voucher recipients.
CREDIT PROGRAMS—INCOME SECURITY
(In millions of dollars)
Estimate
1986
actual
Direct loans:
Low-rent public housing:
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Other:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
1987
1989
1990
-35
2,111
-37
2,074
-39
2,035
-42
1,993
-44
1,949
3
—2
18
4
—2
16
3
—2
14
3
—2
11
3
-3
9
3
-37
4
-39
3
-42
3
-44
3
-47
Outstandings..............................................
2,129
2,090
2,049
2,005
1,958
Guaranteed loans:
Low-rent public housing:
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
-275
8,612
-312
8,300
Total, new obligations and new com
mitments.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
3
4
Total, direct loans:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. ..
Change in outstandings.. .. .. .. .. .. .. .. .. ..
-339
7,961
3
-367
7,594
3
-394
7,200
3
Also proposed is a project to test ways of providing more choices
in subsidized housing by linking the public housing and voucher
programs at the local level. Public housing tenants would have
access to vouchers to use for public housing or for the private
rental market. Voucher holders, including individuals not current
ly residing in public housing, could use their vouchers to live in
public housing. Public housing and its tenants would thus be inte
grated into a community’s overall housing market.
Publicly owned rental housing is provided by public housing
agencies and Indian housing authorities (PHAs and IHAs). The
budget includes $1.4 billion in budget authority for operating subsi
dies for almost 1.4 million public and Indian housing units.
In 1986, legislation was passed to forgive outstanding direct loans
for public and Indian housing construction or modernization. In
addition, the legislation also provided that all new direct loans be
INCOME SECURITY
5-129
forgiven at the end of the fiscal year when construction is complet
ed. In 1987, $5.4 billion of direct loan outlays will be forgiven at the
end of the fiscal year.
In 1987, the administration proposes modernization funding of $1
billion for capital needs. In 1988, the budget again requests $1
billion for capital needs using a direct grant financing mechanism,
but will only need $0.6 billion in new budget authority by using
$0.4 billion of proposed carryover from 1987. The proposed $1 bil
lion represents a 41 percent increase over 1986 capital funding
levels ($0.7 billion). These large funding levels reflect the adminis
tration’s emphasis on renovating present public housing stock
before constructing new units.
Food and Nutrition Assistance.—Low- and middle-income families
and individuals receive food and nutrition assistance through a
number of Federal programs.
Food Stamps and Aid to Puerto Rico.—Food stamps help lowerincome families maintain a nutritious diet. Eligible households
receive monthly allotments of stamps based on income and house
hold size to finance food purchases. Benefits are entirely Federally
funded; administrative costs are shared by the States and the
Federal Government. Each year, benefits are adjusted for changes
in the cost-of-living, with the next adjustment scheduled for Octo
ber 1987. Each month, an estimated 19.3 million people will receive
food stamps during 1988, with associated Federal outlays of $11.7
billion under proposed law. Outlays for nutrition assistance for
Puerto Rico are estimated to be $826 million in 1988.
In aid to families with dependent children (AFDC) and medicaid,
the States are held liable for the full dollar value of erroneous
payments above a 3 percent tolerance level, while in food stamps,
they are held liable for only a fraction of erroneous payments
above 5 percent. As a result, States are responsible for repaying
the Federal Government only one-tenth of the approximately $920
million in food stamps they issued erroneously during 1984. The
administration proposes that food stamps be brought into closer
conformity with medicaid and AFDC. Beginning in 1988, States
would be held liable for the full dollar value of erroneous benefits
issued above 5 percent, equal to only one-third of their total errone
ous payments.
The administration is also proposing to withhold food stamp
liabilities from grants to States. As in medicaid, at the beginning of
the fiscal year Federal grants to States would be adjusted for each
State’s estimated erroneous payment above the national food stamp
error tolerance rate of 5 percent. Withholding liabilities would
greatly improve collections; to date only $1.3 million of approxi
mately $100 million in outstanding State liabilities have been col
5-130
THE BUDGET FOR FISCAL YEAR 1988
lected. As States improve their benefit issuance systems and error
rates fall, Federal withholdings would also fall.
Child Nutrition and Other Programs.—The child nutrition pro
grams subsidize institutions for meals served to students in schools,
child care facilities, and other institutional settings. Schools receive
cash and commodity subsidies for meals served to all students,
regardless of income level. In 1987, schools and other institutions
will be given $4.5 billion in cash and commodities to subsidize
meals served to students. Of that amount, $705 million will subsi
dize institutions for meals served to students from families whose
income levels are above 185 percent of the poverty level.
The administration proposes to better target Federal funds to the
needy by maintaining institutional subsidies for meals served to
students whose family income are below 185 percent of the poverty
level. The proposal would discontinue subsidies to students with
family incomes above that level. Under this proposal, nearly 13
million needy students would be given federally subsidized free and
reduced price meals in 1988, for total program costs of $4.0 billion.
Limiting the subsidy to students who need it would save $757
million in 1988. Other proposals to conform coverage, reimburse
ment rates, and administrative expenses among the programs
would save an additional $89 million in 1988.
The supplemental nutritional assistance program for women, in
fants, and children (WIC) provides food supplements and nutrition
education to more than three million low-income women, infants,
and children determined to be at nutritional risk. WIC is designed
to lessen health problems associated with inadequate diets during
the critical early stages of child development, especially pre-natal.
Federal funding for the program has expanded rapidly in recent
years, more than doubling since 1980. The administration request
of $1.7 billion in budget authority for 1988 is $24 million above the
1987 level, and would maintain monthly participation levels above
3 million.
Related Food Assistance Programs in Other Functions.—The
Commodity Credit Corporation (CCC) donates surplus food, such as
cheese, butter, and nonfat dry milk, for distribution to food banks,
charitable institutions, and schools. Acquired as part of the agricul
tural price support programs, CCC commodities valued at $1.3 bil
lion are expected to be donated in 1988.
Other Income Security.—A number of other income security pro
grams assist the poor. Estimated outlays for these programs are
$26.8 billion in 1988.
Supplemental Security Income (SSI).—This program will make
cash payments to an estimated four million needy aged, blind, or
INCOME SECURITY
5-131
disabled persons in 1988. Benefits are to be automatically increased
in January 1988 by the same percentage as social security benefits.
Federal outlays in 1988 are for 13 months of benefit payments, and
are estimated at $12.3 billion. Some States also finance supple
ments to the basic Federal grant, which may be administered by
the Federal Government at no charge to the States. The adminis
tration proposes no changes to this program.
Family Support Payments to States.—Aid to families with de
pendent children (AFDC) helps State and local governments fi
nance cash assistance to needy families. States administer the
AFDC program, determining guidelines for eligibility and the level
of benefits within broad Federal rules. The Federal Government
reimburses States for, on average, slightly more than half of the
benefit costs. Child support enforcement (CSE) finances most State
and local administrative expenses for establishing paternity and
collecting support from legally liable absent parents. These collec
tions offset State and Federal AFDC costs. Federal outlays to
States for AFDC and CSE are estimated to be $9.8 billion in 1988,
compared with $10.6 billion in 1987. About 3.8 million families are
expected to receive AFDC benefits in 1988 under current law. Child
support collections on behalf of about 0.8 million of these families
are also anticipated.
The administration proposes legislation to achieve selected re
forms of AFDC. Under a new AFDC work and training proposal,
teenage recipients would be encouraged to remain in or return to
school; older recipients would participate in a variety of employ
ment and training activities designed to improve their employment
status. The unsuccessful work incentive (WIN) program terminated
by Congress—classified in the education, training, employment,
and social services function—would be replaced by this reform.
Other changes would prohibit unmarried minor mothers from leav
ing their parents’ home solely to qualify for AFDC, and would
eliminate payments to employable AFDC parents whose youngest
child is age 16 or older. In addition, States would be required to
establish mandatory child support guidelines to help ensure that
single-parent families receive adequate support from parents who
are absent from the home.
The administration also proposes legislation to reform Federal
funding for State and local administrative costs in AFDC and CSE.
A uniform Federal matching rate for all types of administrative
costs would be phased in over several years. In addition, the AFDC
matching rate would be reduced for States with excessively high
administrative costs per recipient. Similar changes are proposed for
medicaid (discussed in the health function) and food stamps. Other
administrative reforms include accelerating the recovery of State
5-132
THE BUDGET FOR FISCAL YEAR 1988
AFDC overpayments and linking State CSE incentive payments to
minimum levels of cost-effectiveness.
These AFDC and CSE reforms would save an estimated $554
million in Federal outlays in 1988.
Earned Income Tax Credit (EITC).—Wage earners with children
are eligible for tax credits if they earn less than $13,500 now and
$17,000 beginning in 1988. When the credit exceeds a wage earner’s
income tax liability, the Treasury Department makes a cash pay
ment. Credits can be received as additions to paychecks or as a
lump sum at the end of the year. Total 1988 outlays for these
payments are estimated to be $2.9 billion. When the credit does not
exceed the wage earner’s tax liability, no direct Treasury payment
is made and the credit is considered a tax expenditure rather than
an outlay. In 1988, the EITC tax expenditure is estimated to be $1.6
million.
Refugee Assistance.—The Federal Government fully subsidizes
States for initial costs associated with refugee and entrant resettle
ment, including preventive health activities, cash and medical as
sistance, employment, and English language training. Estimated
1988 outlays are $288 million. Assistance is intended to help refu
gees become self-sufficient as soon as possible after they arrive in
the United States. Aid to refugees while they are overseas is dis
cussed in the international affairs function.
The administration plans to reduce subsidies to States for cash
and medical assistance provided to refugees. Benefits paid to refu
gees would not be reduced, as States would pick up the normal
State share of program costs. The administration also proposes to
reduce the time period for which refugees may receive Federal
assistance that is not available to similarly situated U.S. citizens.
Low-Income Home Energy Assistance.—The Department of
Health and Human Services gives States block grants to help pay
the fuel bills of low-income families. States can make direct cash
payments to eligible families, payments to fuel vendors, or pay
ments to public housing building operators. The States may also
finance weatherization of homes for some low-income families. For
1988, the administration requests low-income home energy assist
ance budget authority of $1.2 billion, in recognition of the hundreds
of millions of dollars in oil overcharge settlements available to
States for these purposes. Related programs for low-income home
weatherization and energy conservation for schools and hospitals
are financed by the Department of Energy, and are discussed in
the energy function.
Tax Expenditures.—Federal tax laws encourage provision for re
tirement income by excluding from employee taxable income their
5-133
INCOME SECURITY
employer’s contributions to pension plans and by allowing individ
uals to exclude their own contributions to individual retirement
accounts (IRAs) and Keogh accounts. The maximum IRA contribu
tion is limited to $2,000 annually. However, individuals are allowed
to make it a tax deductible contribution after 1986 only if (1) they
and their spouses, in the case of joint returns, are not active
participants in an employer-maintained retirement plan, or (2)
their adjusted gross income is below a specified amount. Those
individuals who do not meet either restriction may still make
nondeductible contributions and defer taxes on the earnings until
the funds are withdrawn. Married taxpayers whose spouses have
no earnings may invest in a spousal IRA as well. The total invested
in both accounts may not exceed $2,250, with no more than $2,000
in any single account. The deductibility of contributions and the
deferrral of taxes on the earnings result in tax expenditures.
TAX EXPENDITURES FOR INCOME SECURITY
(Outlay equivalents; in millions of dollars)
Description
Estimates
1986
Net exclusion of pension contribution earnings:
Employer plans.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 71,940
Individual Retirement Accounts (IRAs).. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 22,470
Keogh plans.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
3,730
Exclusion of other employee benefits:
Premiums on group term life insurance.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
2,960
175
Premiums on accident and disability insurance.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
30
Income of trust to finance supplementary umemployment benefits.. .. .. .. .. .. .. .
Additional exemption for elderly.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
2,785
Additional deduction for the elderly.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
35
Additional exemption for the blind.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . ... .. .. .. .
Additional deduction for the blind.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
110
Tax credit for the elderly and disabled.. .. .. .. .. .. .. .. .. ... .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
120
Exclusion of military disability pensions.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
420
Exclusion of railroad retirement system benefits.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
145
Exclusion of special benefits for disabled coal miners.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
2,500
Exclusion of workmen’s compensation benefits.. . .... .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
1,080
Exclusion of untaxed unemployment insurance benefits.. .. .. .. .. .. .. .. .. .. .. .. .. . ....
270
Deductability of casualty losses.. .. .... .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
580
Exclusion of public assistance benefits.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
700
Earned income credit1.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Total (after interactions) income security2.. .. .. .... .. .. .. .. .. .. .. .. .. .. .. . 107,850
1987
1988
64,505
15,150
2,820
58,185
11,635
1,715
2,730
160
30
710
810
10
10
105
110
400
130
2,425
270
230
490
1,110
90,360
2,485
160
30
1,150
10
90
105
370
115
2,270
225
355
1,595
78,885
1 The figures in the table indicate the tax subsidies provided by the earned income tax credit. The effect on outlays is: 1986, $1,415 million;
1987, $1,491 million; 1988 $2,910 million.
2 The estimate of total tax expenditures for this function reflects interactive effects among the individual items. Therefore, the estimates
cannot simply be added.
Many tax expenditures related to income security programs
result from Government benefits not being included in the taxable
income of recipients. For example, workers’ compensation benefits,
and other income security assistance for the needy are excluded
from taxable income. Part of unemployment compensation benefits
paid prior to January 1, 1987, were not taxed. In contrast, Federal
5-134
THE BUDGET FOR FISCAL YEAR 1988
employee retirement benefits are subject to tax and therefore, are
not tax expenditures. The largest tax expenditure item in this
function is the net exclusion of pension contributions and earnings,
including contributions to IRAs and similar pension plans.
SOCIAL SECURITY
5-135
SOCIAL SECURITY
The Federal Government contributes to the income security of
aged and disabled Americans through social security, which is
comprised of old-age and survivors insurance (OASI) and disability
insurance (DI) programs. Social security represents about one-fifth
of estimated total Federal outlays in 1988 and provides benefits to
one in every six Americans.
The administration proposes no changes in social security bene
fits. Social security affects most Americans, either through benefits
received or through payroll taxes deducted from earnings. In
almost all cases, beneficiaries paid into the system during their
working years to help support these programs. The average benefit
for a retired worker and spouse will be about $10,000 in 1987—an
increase of nearly $3,200 over the 1981 level. Outlays for the com
bined OASDI programs are estimated to increase from $207.9 bil
lion in 1987 to $219.4 billion in 1988, primarily because of benefit
increases tied to the consumer price index and increases in the
number of beneficiaries.
This function is composed not only of the two off-budget social
security expenditure accounts, but of a number of intragovernmental transactions (i.e., payments from accounts within the govern
ment to other accounts within the government). The principal intragovernmental transactions are the payments from the general
fund to the social security trust funds, which in 1988 amount to an
estimated $5.5 billion of Federal fund outlays and trust fund offset
ting collections.
As discussed in Part 4—Federal Receipts by Source—the admin
istration is proposing to extend social security coverage to certain
groups and types of earnings, which is estimated to increase re
ceipts by $2.4 billion in 1988 and $3.5 billion in 1989 and 1990.
Tax Expenditures.—The exclusion from income tax of a portion
of social security benefits, including those for dependents and sur
vivors, results in a 1988 estimated tax expenditure of $16.6 billion.
Up to one-half of social security benefits are subject to tax. This
provision affects single taxpayers whose incomes exceed $25,000,
and married taxpayers who file jointly and have incomes exceeding
$32,000. The threshold for married taxpayers filing separately is
zero.
5-136
THE BUDGET FOR FISCAL YEAR 1988
NATIONAL NEED: SOCIAL SECURITY
(Functional code 650; in millions of dollars)
Major missions and programs
1986
actual
Estimate
1987
1989
1990
BUDGET AUTHORITY
Social security:
Old-age and survivors insurance (OASI)—
Off-budget:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Old-age and survivors insurance (OASI)—
On-budget:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Disability insurance (DI)—Off-budget:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Disability insurance (DI)—On-budget.. .. .. ..
Interfund transactions (Off-budget).. .. .. .. .. .
Interfund transactions (On-budget).. .. .. .. .. .
Total, budget authority.. .. .. .. .. .. .. .. .
On-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Off-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
183,055
207,743
236,399
473
259,320
708
281,807
791
-854
-542
-560
-1
-604
—2
-585
—2
22,718
20,237
-45
-8,971
5,760
-53
-5,603
5,603
22,759
42
-54
-5,497
5,497
24,767
67
-58
-6,101
6,101
28,996
80
-59
-6,009
6,009
201,662
227,384
259,058
284,198
311,028
179,412
187,699
198,461
1
210,618
2
223,803
2
-854
-542
-560
-1
-604
—2
-585
—2
22,522
-5
-58
-6,101
6,101
23,621
-6
-59
-6,009
6,009
232,473
246,774
(5,437)
(4,861)
(5,008)
(4,882)
(5,363)
(196,802) (222,377) (254,176) (278,761) (305,665)
OUTLAYS
Social security:
Old-age and survivors insurance (OASI)—
Off-budget:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Old-age and survivors insurance (OASI)—
On-budget:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Disability insurance (DI)—Off-budget:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Disability insurance (D,)—On-budget.. .. .. ..
Interfund transactions (Off-budget).. .. .. .. ..
Interfund transactions (On-budget).. .. .. .. .. .
20,243
20,761
-45
-8,971
8,971
-53
-5,603
5,603
21,546
-5
-54
-5,497
5,497
Total, outlays.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
198,757
207,865
219,388
On-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Off-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
(5,437)
(4,882)
(5,008)
(5,363)
(8,072)
(190,684) (202,857) (214,506) (227,035) (241,411)
VETERANS BENEFITS AND SERVICES
5-137
VETERANS BENEFITS AND SERVICES
Federal benefits and services for veterans and their survivors
recognize the sacrifices that wartime and peacetime veterans made
in military service. Benefits compensate for presumed loss of earn
ings resulting from service-related disabilities, provide medical care
for physical and psychological disabilities, and assist returning vet
erans to prepare themselves for reentry into civilian life. In addi
tion, veterans benefits provide financial assistance to needy veter
ans of wartime service and their survivors. Outlays for veterans
benefits and services are estimated at $26.7 billion in 1987 and
$27.2 billion in 1988.
The budget implements the major reforms in Veterans Adminis
tration (VA) medical care enacted in the Veterans Health Care
Amendments of 1986. These sustain quality care, maintain medical
care at no charge to veterans with service-connected disabilities
and low and moderate incomes, and provide for collecting reim
bursements from third-party insurers. The budget also proposes to
ensure full and timely increases in veterans compensation benefits
by indexing the cost-of-living adjustment (COLA) to the annual
change in the Consumer Price Index (CPI).
Income Security for Veterans.—In addition to Federal income
security programs for the general population, such as social securi
ty and unemployment insurance, several VA programs help certain
veterans and their survivors maintain their income when the vet
eran is disabled, aged, or deceased. Outlays for this purpose are
estimated to increase from $15.1 billion in 1987 to $15.2 billion in
1988.
Service-Connected Compensation.—Veterans with disabilities re
sulting from military service receive monthly compensation pay
ments scaled to the degree of disability. The payment is made
regardless of the veteran’s income or age. The amount depends on
the average reduction in earnings capacity that is presumed for
different individuals with the same degree of disability. Survivors
of veterans who die from service-connected injuries also receive
payments in the form of death and indemnity compensation. In
1987, benefits were increased by 1.5 percent.
The administration is proposing legislation to link the veterans
compensation COLA to the annual change in the CPI. This legisla
tion would ensure that veterans with service-connected disabilities
and survivors of veterans who died from service-connected condi
tions would receive full and timely adjustments to their benefits,
protecting them from the erosion of their benefits and the uncer
tainties of an annually legislated COLA. For 1988, this adjustment
is expected to be 3.5 percent. Allowances provided to compensate
5-138
THE BUDGET FOR FISCAL YEAR 1988
beneficiaries for dependents and clothing would be indexed similarlyThe number of veterans and survivors of deceased veterans re
ceiving compensation benefits is expected to decline from 2.6 mil
lion in 1986 to 2.5 million by 1989. However, because of the pro
posed cost-of-living adjustment, outlays for compensation benefits
are estimated to increase from $10.5 billion in 1987 to $10.6 billion
in 1988.
Non-Service-Connected Pensions.—Pensions are provided to lowincome wartime-service veterans—combat and non-combat veterans
alike—who are 65 or older, or who have become permanently and
totally disabled subsequent to their military service. Survivors of
wartime-service veterans also may qualify for pension benefits
based on financial need. A 1.3 percent cost-of-living increase
became effective with the January 1987 payments. The next cost-ofliving increase, effective with the January 1988 payments, is esti
mated to be 3.5 percent.
Although the number of veterans age 65 and over is expected to
double during the 1980’s, the number of pension recipients is ex
pected to decline from 1.3 million in 1987 to 1.2 million in 1988,
because veterans over age 65 increasingly have higher incomes.
Outlays for veterans pensions are estimated at $3.8 billion in both
1987 and 1988.
Burial and Other Benefits.—Families of deceased veterans who
received pension or compensation benefits and who are to be
buried in private cemeteries may receive burial benefits to assist in
defraying funeral expenses of the veteran. Legislation will be pro
posed to similarly target existing allowances that apply toward the
purchase of burial plots to families of these same veterans. Because
of this change, outlays for burial and related benefits are estimated
to decrease from $136 million in 1987 to $106 million in 1988.
Insurance Programs.—Life insurance programs that assist veter
ans and their survivors will continue to provide in excess of $150
billion of coverage to nearly eight million veterans and active duty
personnel in 1988. Policy loans, in which veterans borrow against
their policy equity, are expected to increase slightly from $65.0
million in 1987 to $65.1 million in 1988. Capitalized interest from
policy loans is expected to decrease from $62.1 million to $59.7
million.
5-139
VETERANS BENEFITS AND SERVICES
NATIONAL NEED: PROVIDING VETERANS BENEFITS ANO SERVICES
(Functional code 700; in millions of dollars)
Major missions and programs
Estimate
1986
actual
1987
1988
1989
1990
10,430
10,489
3,850
3,828
10,352
301
3,841
10,200
670
3,879
10,040
1,051
3,926
129
128
1,367
1,372
142
-36
1,375
146
-36
1,369
151
-37
1,358
29
22
-443'
15,363
-405’
15,433
30
4
-404
15,605
26
4
-392
15,868
25
5
-379
16,139
896
741
626
-20
582
-56
452
-178
-105
.........
-178
-186
223
-128
171
14
28
826
563
642
569
316
390
-390
300
-300
343
-343
BUDGET AUTHORITY
Income security for veterans:
Service-connected compensation:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .
Non-service-connected pensions.. .. .. .. .. ..
Burial and other benefits:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .
National service life insurance trust fund..
All other insurance programs:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. ..
Insurance program receipts.. .. .. .. .. .. .. ..
Subtotal, Income security for veterans..
Veterans education, training, and rehabili
tation:
Readjustment benefits (Gl Bill and related
programs):
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Post-Vietnam era education.. .. .. .. .. .. .. .. .. .
All-volunteer force educational assistance
trust fund:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Veterans jobs program.. .. .. .. .. .. .. .. .. .. .. ..
Subtotal, Veterans education, training,
and rehabilitation.. .. .. .. .. .. .. .. .. .. .
Veterans housing:
Existing law.. .. .. .. ..
Proposed legislation..
Subtotal, Veterans housing..
200
200
Other veterans benefits and services:
Cemeteries, administration of veterans bene
fits, and other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Non-VA support programs.. .. .. .. .. .. .. .. .. .. ..
Subtotal, Other veterans benefits and
services.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Hospital and medical care for veterans:
Medical care and hospital services.. .. .. .. .. .
Construction.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Medical administration, research, and other..
Third-party reimbursement.. .. .. .. .. .. .. .. .. .. .
Subtotal, Hospital and medical care
for veterans.. .. .. .. .. .. .. .. .. .. .. .. .. .
Total, budget authority..
"$500 thousand or less.
731
68
784
75
831
54
818
59
811
57
799
859
885
877
868
9,130
601
233
9,554
531
256
-65
9,968
568
249
-250
10,213
772
243
-265
10,405
794
239
-275
9,964
10,275
10,534
10,963
11,163
27,151
27,130
27,666
28,277
28,486
5-140
THE BUDGET FOR FISCAL YEAR 1988
NATIONAL NEED: PROVIDING VETERANS BENEFITS AND SERVICES
(Functional code 700; in millions of dollars)
Major missions and programs
Estimate
1986
actual
1987
1988
1989
1990
10,426
............
10,499
10,369
271
3,840
10,210
640
3,874
10,053
1,019
3,921
122
.............
136
.............
142
-36
1,086
146
-36
1,124
151
-37
1,159
14
-29
—443
15,031
-405
15,079
-23
4
-404
15,248
-17
4
-392
15,553
-8
5
-379
15,883
918
756
-99
.. . —8
646
-20
18
590
-55
48
464
-173
68
-321
-413
.. .. 34
.. .. . 42
-300
194
-30
—4
169
-150
-6
-6
-6
—7
-7
526
372
537
543
371
163
-29
-20
114
278
-91
-37
-19
131
254
-390
-30
153
-13
308
-398
-26
350
-372
-25
-116
-47
764
49
772
70
821
67
817
58
811
57
813
841
888
875
869
Medical care and hospital services.. .. .. .. .. ..
Construction.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Medical administration, research, and other..,
Third-party reimbursement.. .. .. .. .. .. .. .. .. .. .
Subtotal, Hospital and medical care
for veterans.. .. .. .. .. .. .. .. .. .. .. .. .. .
9,095
539
238
9,426
638
257
-65
9,848
650
252
-250
10,091
653
244
-265
10,281
672
240
-275
9,872
10,257
10,499
10,724
10,918
Total, outlays.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
26,356
26,679
27,160
27,580
27,994
OUTLAYS
Income security for veterans:
Service-connected compensation.Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Non-service-connected pensions.. .. .. .. .. .. .. ..
Burial and other benefits:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. . .... ..
National service life insurance trust fund.. ..
All other insurance programs:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Insurance program receipts.. .. .. .. .. .. .. .. .. ..
Subtotal, Income security for veterans..
3,830
Veterans education, training, and rehabili
tation:
Readjustment benefits (Gl Bill and related
programs):
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Post-Vietnam era education.. .. .. .. .. .. .. .. .. ..
All-volunteer force educational assistance
trust fund:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Veterans jobs program....................................
Other:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Veterans education, training,
and rehabilitation.. .. .. .. .. .. .. .. .. .. ..
5
Veterans housing:
Loan guaranty revolving fund:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Direct loan revolving fund.. .. .. .. .. .. .. .. .. .. ..
Other (HUD participation sales trust fund)....
Subtotal, Veterans housing.. .. .. .. .. .. ..
Other veterans benefits and services:
Cemeteries, administration of veterans bene
fits, and other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Non-VA support programs.. .. .. .. .. .. .. .. .. .. ..
Subtotal, Other veterans benefits and
services.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Hospital and medical care for veterans:
'$500 thousand or less.
VETERANS BENEFITS AND SERVICES
5-141
Veterans Education, Training, and Rehabilitation.—Several Fed
eral programs support job training and finance education for the
general population including veterans, and several programs are
run by the Department of Labor exclusively for veterans. In addi
tion, three VA programs—the Vietnam-era GI bill, the post-Vietnam era education program, and the all-volunteer force education
al assistance test program (the new GI bill)—provide education,
training, and rehabilitation benefits to veterans and military per
sonnel who meet specific eligibility criteria. The budget proposes to
make the new GI bill a permanent Department of Defense (DOD)
recruitment and retention program, and transfer funding responsi
bility for its basic benefit to DOD, which already funds the pro
gram’s specialty skill recruitment benefits. VA would continue to
administer the new GI bill program, as it has the previous peace
time all-volunteer education program. Outlays for these programs
are estimated to decline from $756 million in 1987 to $626 million
in 1988, because of a continued decline in the number of eligible
beneficiaries and the legislative proposal to transfer funding re
sponsibility for basic benefits under the new GI bill to DOD.
GI Bill.—The GI bill provides education benefits—ranging from
college courses to vocational and on-the-job training—to veterans
and active duty military personnel who served, at least in part,
between February 1, 1955 and December 31, 1976. This program
assists beneficiaries in making the transition from military to civil
ian life by helping them finance the education they might other
wise have received during the time they were in military service.
These benefits are also available to active duty personnel and to
spouses and children of veterans who were totally disabled in mili
tary service or died of service-connected conditions.
More than 80 percent of all eligible Vietnam era veterans who
live in the United States or Puerto Rico have used GI bill benefits.
In 1988, GI bill trainees participating in the program are expected
to total 226,200, compared with 282,800 in 1987. The number of GI
bill trainees, including dependents, will continue to fall as the
number of eligible veterans and military personnel becomes small
er.
Post- Vietnam Era Education —Individuals who entered military
service after 1976 and before July 1985 are eligible for the postVietnam era education program, which allows them to set aside
$25 to $100 from their monthly pay to finance future education.
These funds are matched by the Government on a two-for-one basis
and are returned to the beneficiary as education payments after
discharge from the military. The VA administers this program, but
it is funded by the DOD. Enrollment in this program was closed
5-142
THE BUDGET FOR FISCAL YEAR 1988
temporarily in July 1985 and will be closed permanently as of
March 1987.
All-Volunteer Force Educational Assistance Program.—As re
cruiting incentive, the DOD Authorization Act of 1984 established
a test education program with a larger Federal contribution for
individuals who enter the military between July 1985 and July
1988. In addition to a basic benefit, DOD may fund—and VA ad
minister—additional educational assistance to retain military per
sonnel or to help recruit individuals with critical skills or special
ties. Because the Secretary of Defense has determined that educa
tion benefits can assist in recruitment and retention, the adminis
tration is proposing legislation to make this program permanent.
As with other peacetime education programs for the all-volunteer
force, under the President’s proposal DOD will fund—and VA will
administer—the basic benefit as well.
Veterans Housing.—In addition to mortgage assistance available
to veterans through the Federal Housing Administration (FHA)
insurance program, VA-guaranteed and direct loan programs are
expected to assist 340,000 veterans in obtaining mortgages in 1988.
Guaranteed loan commitments and direct loan obligations for
mortgage loans in 1988 are estimated at $27.9 billion and $0.8
billion, respectively.
The administration is proposing to charge origination fees for
participation in Federal credit programs in order that the borrower
share the cost of the Federal subsidy. These fees would be large
enough to cover projected losses from default and obviate the need
for future appropriations. In line with this initiative, legislation is
being proposed to increase and make permanent the fee charged on
VA-guaranteed housing loans and vendee loans from the current 1
percent to 2.5 percent of the mortgage amount. (Vendee loans are
direct loans made to both veterans and non-veterans who purchase
property that the VA has acquired through prior defaults.) The
borrower would be able to add this amount to the mortgage. Veter
ans with service-connected disabilities would continue to be exempt
from the fee. This change would be effective in June 1987, before
the current fee expires in September 1987. The administration will
continue to seek enactment of its proposal to permit negotiated
interest rates on VA-guaranteed mortgages.
Other Veterans Benefits and Services.—Veterans benefits are pro
vided through a network of 59 regional offices located throughout
the Nation. The budget proposes that VA continue a modernization
of its operations to improve cost-effectiveness, accuracy and timeli
ness of service delivery to veterans.
5-143
VETERANS BENEFITS AND SERVICES
CREDIT PROGRAMS—VETERANS BENEFITS AND SERVICES
(In millions of dollars)
Estimate
1986
actual
Direct loans:
Income security-.
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Education:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Mortgage insurance and other housing pro
grams:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. .. . .... ..
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
1987
*
1988
1989
1990
♦
*
*
♦
*
1
-5
47
1
-6
41
1
-6
35
1
—7
28
1
—7
21
971
-63
1,313
932
48
1,360
828
-293
1,067
917
-288
780
965
-296
484
Total, direct loans:
New obligations.. .. .. .. .. .. .. .. .. .. .. .. .. ..
Change in outstandings.. .. .. .. .. .. .. .. .. ..
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
972
-68
1,359
933
42
1,401
829
-299
1,102
918
-294
808
966
-303
505
Guaranteed loans:
Mortgage insurance and other housing pro
grams:
New commitments.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
34,297
8,254
142,562
35,000
11,194
153,756
27,930
8,483
162,239
27,700
6,911
169,150
24,800
3,486
172,636
Total, new obligations and new com
mitments.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
35,269
35,933
28,759
28,618
25,766
* $500,000 or less.
Several other initiatives are included in the budget to improve
the management of veterans benefits. These include making better
use of contractor support for services that business can provide
more efficiently, and achieving a return on the Federal Govern
ment’s investment in automated data processing equipment in the
form of smaller administrative staff, as this equipment increases
staff productivity.
Management of the national cemetery system—for burial of eligi
ble veterans, active duty military personnel, and their depend
ents—is also included in this subfunction. Over 100 national ceme
teries are open throughout the Nation. In 1988, a new national
cemetery in Florida will be open for interments. Funding is also
requested to continue the construction of the Northern California
National Cemetery, which is scheduled to be open in October 1990.
The policy goal of providing one large national cemetery per Feder
al region has now been attained.
Outlays for other veterans benefits and services are estimated to
be $0.8 billion in 1987 and $0.9 billion in 1988.
Hospital and Medical Care for Veterans.—The VA provides medi
cal services, including hospital, outpatient and nursing home care,
5-144
THE BUDGET FOR FISCAL YEAR 1988
to veterans by operating a nationwide medical care system. In
1988, this system will provide support for an estimated 20.4 million
outpatient visits and treat 1.3 million inpatients and 83,000 nursing
home patients in VA and community facilities and state veteran’s
homes. This program is carried out in 172 hospitals, 230 outpatient
clinics, 120 nursing homes, 16 domiciliary facilities, and, in some
situations, in other Federal facilities and the private sector. Out
lays for medical programs (excluding receipts expected for thirdparty reimbursement) are estimated to rise from $9.4 billion in
1987 to $9.8 billion in 1988.
Medical Care and Hospital Services,—VA’s primary health mis
sion is to treat veterans who were injured during military service
for their service-connected disabilities. Currently, most of the sys
tem’s users are either veterans with service-connected disabilities
or needy veterans. Adequate medical care for America’s disabled
and needy veterans is one of the Nation’s highest priorities. The
administration’s proposal for VA medical care provides ample re
sources to meet this objective.
No-cost care would be provided to all service-disabled veterans
who request it, as well as to former prisoners of war and veterans
exposed to certain toxic substances and radiation. No-cost care
would also be provided to veterans of wars prior to World War II,
and those receiving VA pensions. Among other veterans, funding
would be provided for no-cost care for all earning less than $25,000
per year (for a veteran with one dependent; $20,000 for a single
veteran); funding would not be provided for other veterans whose
annual incomes exceed these levels. The administration believes
that as a rule when veterans’ illnesses are completely unrelated to
their military service and they are financially able to provide for
their own health care, they should do so.
This policy will allow the VA to concentrate its efforts on serv
ice-disabled veterans and those least able to finance the cost of
their own health care. It carries out the Veterans Health Care
Amendments of 1986, which established the current set of eligibil
ity criteria for veterans’ health care. The VA may, however, con
tinue to furnish care to non-service disabled veterans with incomes
above $25,000 in locations where resources remain available.
Budget authority of $10.0 billion is requested for medical care
and hospital services in 1988. As a result of improvements in
medical service delivery, 1 percent fewer staff members will be
required to treat the same number of patients.
Construction of Hospital and Extended Care Facilities,—New
budget authority of $526 million is requested for VA medical con
struction in 1988.
VETERANS BENEFITS AND SERVICES
5-145
The budget proposes to maintain and upgrade the full network of
medical facilities throughout the Nation and expand capabilities
and bed space. Rather than defer maintenance, renovation, and
modification of older facilities, the budget continues funding to
maintain and upgrade the physical system. Budget authority of
$401 million is requested to support 15 major projects and other
maintenance, safety correction, and design activities.
The budget proposes to continue the average rate of construction
over the last 10 years, replacing or modernizing two large hospitals
each year. In 1988, construction funds are proposed for two large
hospital projects in Dayton, Ohio and North Chicago, Illinois. The
budget also proposes to design a replacement hospital in Atlanta,
Georgia, and a new 400-bed hospital in Palm Beach, Florida, the
first medical center to be added to the VA system since 1977.
Funding in 1988 is also requested for large projects in Huntington,
West Virginia; Jackson, Mississippi; Montgomery, Alabama; and
Prescott, Arizona.
Budget authority of $42 million is requested for 1988 for grants
to States for the construction or repair of State homes for the care
of aging veterans. This continues the 1987 level and will enable VA
to support 17 grants in 7 States, increasing the total number of
States participating by 1, for a total of 37.
Tax Expenditures.—In addition to direct Federal funding, a
number of tax expenditures provide assistance to veterans. All cash
benefits administered by VA (disability compensation, pension, and
GI bill benefits) are excluded from taxable income. The estimated
tax expenditures for these exclusions in 1988 are $1.4 billion, $80
million, and $70 million, respectively. Veterans are aided in obtain
ing housing through veterans bonds issued by State and local gov
ernments, the interest on which is not subject to tax. In 1988, the
tax expenditure estimate for this provision is $305 million. Total
tax expenditures for veterans are estimated to be $1.9 billion for
1988.
Related Programs.—In addition to the assistance provided specifi
cally for veterans by the VA, many veterans receive assistance
from other income security, health, housing credit, education,
training, employment, and social service programs supported by
the Federal Government and available to the general population,
as well as preference for Federal jobs. Some of these programs have
components specifically intended to assist veterans.
5-146
THE BUDGET FOR FISCAL YEAR 1988
ADMINISTRATION OF JUSTICE
A fundamental responsibility of the Federal Government is to
provide for the safety of its people and for the peaceful and fair
resolution of disputes. Federal expenditures for the administration
of justice are intended to protect persons and property through
enforcement of Federal laws, provide Federal courts to resolve
disputes, defend the public interest in criminal and civil proceed
ings, and operate detention and correctional facilities for those
charged with or convicted of violating Federal law. The proposed
budget authority for 1988 for this function is $9.0 billion, a $244
million increase from the 1987 level.
Federal Law Enforcement Activities.—As in the past, over half of
the total Federal resources for the administration of justice is
dedicated to law enforcement. Proposed budget authority of $5.1
billion in 1988 will maintain and increase resources dedicated to
foreign counterintelligence, drug enforcement, immigration activi
ties, and computer and communications upgrades.
Criminal Investigations.—Budget authority requested for crimi
nal investigations for 1988 is $2.0 billion, an increase of 12 percent
over the 1987 level. The Justice Department carries out criminal
investigations through the Federal Bureau of Investigation (FBI)
and the Drug Enforcement Administration (DEA). The FBI and
DEA frequently work together with other Federal agencies in 13
regional task forces on organized crime drug enforcement and have
concurrent jurisdiction to combat drug trafficking. The administra
tion is requesting full funding for over 600 domestic and foreign
positions added to DEA by the Anti-Drug Abuse Act of 1986, as
well as funding to improve DEA’s computer and technical equip
ment capabilities.
The FBI also enforces a broad range of criminal statutes, works
with other Federal agencies, as well as State and local authorities
when appropriate, and assists States and localities through train
ing, dissemination of information, and other activities. Additional
funding is being requested in 1988 to increase the FBTs foreign
counterintelligence activities for the fifth consecutive year. The
FBI will also intensify its investigative efforts against organized
criminal organizations, white-collar crime, and terrorist activity.
The administration is also seeking $13 million for the construction
of a joint FBI/DEA Engineering Research Facility for the develop
ment of advanced investigative equipment such as customized elec
tronic devices and concealed cameras and microphones.
5-147
ADMINISTRATION OF JUSTICE
NATIONAL NEED: ADMINISTRATION OF JUSTICE
(Functional code 750; in millions of dollars)
Major missions and programs
Estimate
1986
actual
1987
1988
1989
1990
1,522
167
1,375
293
1,794
178
1,992
335
2,006
197
2,056
376
1,973
201
2,022
350
1,969
204
2,003
355
371
386
3,728
4,686
447
5
5,087
448
5
4,998
452
5
4,988
1,296
1
1,471
1,390
1,418
1,519
1,563
BUDGET AUTHORITY
Federal law enforcement activities:
Criminal investigations (DEA, FBI, and OCDE).. .. .. .. .. .. .. .. .. .
Alcohol, tobacco, and firearms investigation (ATF).. .. .. .. .. .. .
Border enforcement activities (Customs and INS).. .. .. .. .. .. ..
Protection activities (Secret Service).. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Other enforcement:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Federal law enforcement activities.. .. .. .. .. .. .. .
Federal litigative and judicial activities:
Civil and criminal prosecution and represen- tation:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Federal judicial activities.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Representation of indigents in civil cases.. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Federal litigative and judicial activities.. .. .. .. ..
834
1,080
1,063
292
2,190
1,314
306
2,699
2,767
2,908
2,980
Federal correctional activities.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
595
868
971
964
988
Criminal justice assistance.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
265
488
159
166
174
Total, budget authority.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
6,777
8,740
8,984
9,036
9,130
1,538
166
1,291
290
1,759
175
1,986
329
1,984
193
2,154
369
1,954
197
1,957
343
1,956
200
1,916
348
348
387
3,632
4,636
449
1
5,150
442
5
4,898
446
5
4,871
1,291
*
1,485
1,305
2,776
2,833
OUTLAYS
Federal law enforcement activities:
Criminal investigations (DEA, FBI, and OCDE).. .. .. .. .. .. .. .. .. .
Alcohol, tobacco, and firearms investigation (ATF).. .. .. .. .. .. .
Border enforcement activities (Customs and INS).. .. .. .. .. .. ..
Protection activities (Secret Service).. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Other enforcement:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Federal law enforcement activities.. .. .. .. .. .. .. .
Federal litigative and judicial activities:
Civil and criminal prosecution and represen- tation:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Federal judicial activities.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Representation of indigents in civil cases.. .. .. .. .. .. .. .. .. .. .. ..
Subtotal, Federal litigative and judicial activities.. .. .. .. ..
781
981
1,090
305
2,176
1,275
303
2,559
1,203
1
1,458
37
2,698
Federal correctional activities.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
614
755
936
998
925
Criminal justice assistance.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
181
344
387
232
129
Total, outlays.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
6,603
8,293
9,170
8,904
8,758
*$500 thousand or less.
1,528
5-148
THE BUDGET FOR FISCAL YEAR 1988
Border Enforcement Activities.—Budget authority for border en
forcement activities is proposed to be $2.1 billion in 1988. The
Immigration and Naturalization Service (INS) and the United
States Customs Service are responsible for border enforcement ac
tivities. The INS administers laws related to the admission, exclu
sion, deportation and naturalization of aliens. The budget proposes
budget authority of $298 million in 1987 and $400 million in 1988
to implement immigration reform legislation. All but $3 million of
this funding is provided to the Justice Department, the bulk of
which, $286 million in 1987 and $375 million in 1988, is provided to
the INS. These funds will be used to administer legalization and
agricultural worker programs, enforce employer sanctions, launch
a public education campaign aimed at businesses and illegal aliens,
and deter further illegal immigration.
The United States Customs Service assesses and collects duties,
excise taxes, fees and penalties on imported merchandise; stops the
importation of contraband and seizes it once it is smuggled into the
United States; and processes persons, carriers, cargo and mail into
and out of the United States. In 1988, the Customs Service’s com
mercial processing costs, estimated at $499 million, will be funded
from Customs user fee receipts, pursuant to Public Law 99-509. The
administration will continue to fund other Customs activities, in
cluding specific drug-related activities and cargo export controls,
through direct appropriations.
Federal Litigative and Judicial Activities.—The Department of
Justice prosecutes all of the Federal government’s criminal cases
and litigates most of its civil cases.
Civil and Criminal Prosecution and Representation.—Budget au
thority for civil and criminal prosecution and representation is
proposed to be $1.3 billion in 1988, $217 million higher than 1987.
The Government’s responsibilities in this area include:
• prosecuting offenders under organized crime and drug stat
utes;
• defending against the tens of thousands of civil suits filed
annually against the Government and its officials; and
• continuing litigative efforts to combat fraud, waste, and
abuse, as well as recover billions of dollars in delinquent debt
owed the Government.
Federal Judicial Activities.—By law, budget requests from the
judiciary are included in the budget without change by the execu
tive branch. The U.S. Courts have proposed budget authority of
$1.5 billion in 1988 for judicial branch activities in this function, a
$157 million increase over the 1987 level.
Representation of Indigents in Civil Cases.—The Legal Services
Corporation is a private, non-profit organization that funds State
ADMINISTRATION OF JUSTICE
5-149
and local agencies providing free civil legal assistance to the poor.
Grantees are currently involved in cases both for individual clients
and in broader “law reform” activities.
The administration proposes that the Corporation not be reau
thorized and that no further separate Federal funding be provided.
The social services block grant, which is discussed in the education,
training, employment, and social services function, includes ade
quate authority to fund legal services activities through State and
local governments. In addition, State and local bar associations
have developed programs to provide free assistance to indigent
clients, and these efforts are expected to continue to grow, consist
ent with private attorneys’ ethical obligations to provide such free
services.
Federal Correctional Activities.—The Federal Government is re
sponsible for the care and custody of prisoners charged with or
convicted of violating Federal laws. In response to the continuing
growth of the Federal prisoner population, two new prisons are
proposed for construction in 1988. In addition, renovation and ex
pansion projects proposed in this budget will further increase and
improve existing facilities. Budget authority requested for correc
tional activities in 1988 is $971 million, a 12 percent increase from
the 1987 level.
Criminal Justice Assistance.—Criminal justice assistance is in
tended to provide financial, technical, and emergency assistance to
States and local units of government to reduce crime and juvenile
delinquency as well as establish programs to collect and dissemi
nate accurate and comprehensive justice statistics. Financial and
technical assistance is provided to States through a number of
specific programs, including one for missing and exploited children
and another designed to aid victims of crime.
Although the Congress has continued to fund the juvenile justice
and delinquency prevention programs, the administration is re
questing their termination because their primary objective—the
separation of juvenile from adult offenders—has largely been ac
complished. The administration is also proposing that funding for
the State and local assistance program be ended since the States
can better afford to pay for these programs than can the Federal
Government and because the States and localities benefit from
them. No funding is proposed for either the Mariel Cuban or re
gional information system sharing system grant programs. The
requested funding level for the crime victims program is being
reduced from $64 million in 1987 to $35 million in 1988 because the
States can and should fund these programs. The missing and ex
ploited children program is being maintained at the current level
of $4 million.
5-150
THE BUDGET FOR FISCAL YEAR 1988
Related Programs.—A number of programs classified in other
functions support the administration of justice. Over 100 agencies
and regulatory commissions perform some type of law enforcement
activity. About 30 Federal agencies, including the Departments of
Agriculture and Labor, the Environmental Protection Agency, and
most independent regulatory commissions have some litigation au
thority independent of the Department of Justice.
GENERAL GOVERNMENT
5-151
GENERAL GOVERNMENT
The general government function covers the overall manage
ment, policy, and central operations of the Federal Government,
including the legislative branch. This function focuses primarily on
Federal finances, tax collection, personnel management, and prop
erty control. A goal of this administration is to provide these basic
services in a business-like and efficient manner.
The four central management agencies—the Office of Manage
ment and Budget, the Office of Personnel Management, the Gener
al Services Administration, and the Department of the Treasury—
are working with other agencies on a variety of management
reform initiatives. These management improvements include im
proving financial systems, simplifying procurement procedures, in
creasing reliance on the private sector, and improving cash man
agement and debt collection practices.
Budget authority proposed for general government activities for
1988 is $7.5 billion, an increase of $0.6 billion from 1987. Major
goals in this function include broadening efforts to identify and
collect unpaid taxes, improving services to taxpayers, and improv
ing productivity in the Federal Government.
Legislative Functions,—By law, the budget request submitted by
the legislative branch is included in the budget without change.
Budget authority proposed for the legislative branch activities in
this function is $1.8 billion in 1988 and includes funds for the
operation of the Congress, the General Accounting Office, the Con
gressional Research Service, and legislative branch activities. Some
of these activities are in other budget functions. A complete listing
of all legislative branch accounts appears in of Part 4 of the Budget
transmitted on January 5, 1987.
Executive Direction and Management.—Budget authority pro
posed for the Executive Office of the President and related activi
ties is $130 million in 1988. This office assists the President in the
discharge of his budgetary, management, policy development, and
other executive responsibilities.
Central Fiscal Operations.—The mission of central fiscal oper
ations is to collect taxes, administer the public debt, supervise the
Federal Financing Bank, and carry out certain other financial
operations of the Federal Government. For 1988, $5.4 billion of
budget authority is requested, an increase of $0.7 billion from 1987.
5-152
THE BUDGET FOR FISCAL YEAR 1988
NATIONAL NEED: GENERAL GOVERNMENT
(Functional code 800; in millions of dollars)
Major missions and programs
1986
actual
Estimate
1987
1989
1990
BUDGET AUTHORITY
Legislative functions.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
1,412
1,582
1,786
1,759
1,828
Executive direction and management.. .. .. .. .
110
116
130
131
134
3,826
4,448
5,072
5,361
5,361
220
294
4,046
4,742
358
-24
5,405
376
-26
5,711
369
-31
5,699
10
-70
14
97
-345
15
102
-494
16
111
-495
16
114
-349
17
115
330
342
418
-169
430
-172
437
-175
382
113
-119
-107
44
136
139
146
147
148
136
139
146
147
148
221
153
8
277
101
760
76
143
2
355
65
642
144
77
2
350
62
635
147
74
2
350
49
621
148
74
2
341
50
614
-78
-450
-450
-6
14
-450
-12
14
-450
-16
14
-78
-450
-442
-448
-452
6,768
6,884
7,542
7,814
8,015
Central fiscal operations:
Collection of taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Other fiscal operations:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Central fiscal operations.. .. ..
General property and records manage
ment:
Federal buildings fund.. .. .. .. .. .. .. .. .. .. .. .. ..
Property receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .. . .
Personal property.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Records management.. .. .. .... .. .. .. .. .. .. .. .. .
Other:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, General property and records
management.. .. .. .. .. .. .. .. .. .. .. .. .. .
Central personnel management:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Central personnel manage
ment.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Other general government:
Compact of free association.. .. .. .. .. .. .. .. .. .
Territories.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Indian affairs.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Treasury claims.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Subtotal, Other general government.. .
Deductions for offsetting receipts:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Sailie Mae fees (proposed).. .. .. .. .. .. .. .. ..
Other proposed offsetting receipts.. .. .. .. ..
Subtotal, Deductions for offsetting re
ceipts.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Total, budget authority
Collection of Taxes.—Budget authority requested for the Internal
Revenue Service (IRS) in 1988 is $5.1 billion. Within this amount,
the IRS plans to meet the requirements of the Tax Reform Act of
1986 and maintain standards for the processing of tax returns.
5-153
GENERAL GOVERNMENT
NATIONAL NEED: GENERAL GOVERNMENT
(Functional code 800; in millions of dollars)
Major missions and programs
1986
actual
Estimate
1987
1988
1989
1990
OUTLAYS
Legislative functions.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
1,383
1,768
1,814
109
1,666
116
1,824
Executive direction and management.. .. .. .. .
128
129
131
3,754
4,360
4,974
5,216
5,217
-149
110
3,605
4,470
146
170
5,290
183
161
5,560
169
149
5,535
19
-70
12
96
-82
-345
14
102
-18
-494
16
111
226
-495
16
113
134
-349
16
113
418
339
391
-166
422
-169
428
-171
475
29
-161
114
171
126
147
144
147
148
126
147
144
147
148
10
173
8
277
13
482
278
165
2
355
62
862
144
77
2
350
173
746
147
86
2
351
28
614
148
82
2
342
19
592
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Sallie Mae fees (proposed).. .. .. .. .. .. .. .
Other proposed offsetting receipts.. .. .. ..
Subtotal, Deductions for offsetting re
ceipts.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
-78
-450
-450
-6
14
-450
-12
14
-450
-16
14
-78
-450
-442
-448
-452
Total, outlays.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
6,102
6,840
7,528
7,883
7,941
Central fiscal operations:
Collection of taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Other fiscal operations:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Central fiscal operations.. .. ..
General property and records manage
ment:
Federal buildings fund.. .. .. .. .. .. .. .. .. .. .. .. ..
Property receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Personal property.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Records management.. .. .. .. .. .. .. .. .. .. .. .. .. .
Other:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, General property and records
management.. .. .. .. .. .. .. .. .. .. .. .. .. .
Central personnel management:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Central personnel manage
ment.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Other general government:
Compact of free association.. .. .. .. .. .. .. .. .. .
Territories.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Indian affairs.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Treasury claims.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Other general government..
Deductions for offsetting receipts:
The administration proposes to increase the number of auditors
by 2,500 and accompanying support staff by 500 as the second
installment of a 3-year effort to identify and collect taxes owed but
5-154
THE BUDGET FOR FISCAL YEAR 1988
not paid. In addition, expanded efforts to collect taxes owed in
clude:
• 3,000 positions to reduce inventories of accounts receivable;
• 1,500 positions to institute new programs to detect underpay
ment of taxes; and
• 500 positions to follow up on tax shelter abuse cases.
These expanded efforts are estimated to increase taxes collected
in 1988 by $2.4 billion at a cost of about $300 million.
Legislation is being requested to impose user fees on letters of
determination and private letter rulings. Supplemental funds of
$80 million are requested in 1987 to begin implementation of the
Tax Reform Act of 1986, (a further $120 million is requested to
cover the increased costs of the Federal employee retirement
system (FERS)).
Federal Financing Bank (FFB).—The Balanced Budget and Emer
gency Deficit Control Act of 1985 (P.L. 99-177), requires the trans
actions of the FFB on behalf of a Federal agency to be treated as a
means of financing for each agency. Therefore, virtually all of the
budget authority and outlays of the FFB are distributed to other
functions and agencies to reflect the primary purpose of its activi
ty. This function contains two credit programs financed by the
FFB—one for purchase contract agreements administered by the
General Services Administration, and the other for loans to territo
ries. No new activity is proposed for credit programs in this func
tion for 1988.
Legislation will be reproposed to require that, at the discretion of
the Secretary of the Treasury, all 100 percent federally guaranteed
loans of a kind ordinarily traded in the investment securities
market be processed through the FFB. Legislation will also be
proposed to fund FFB administrative expenses through direct ap
propriations. The budget would return all excess earnings directly
to the general fund as proprietary receipts, instead of being a
negative outlay “transfer of capital surplus” from this account to
the general fund. The budget also proposes legislation to raise the
rate charged by the FFB to borrowers from one-eighth to one-half
of 1 percent over the yield of equivalent Treasury securities to
reflect the economic value of the service provided. This would
result in collections of $7 million 1988, increasing to $76 million
annually by 1992.
These FFB proposals may be superseded by the submission of
budget amendments in early March to implement the administra
tion’s credit reform initiative and establish a central Federal credit
revolving fund in Treasury.
5-155
GENERAL GOVERNMENT
CREDIT PROGRAMS—GENERAL GOVERNMENT
(In millions of dollars)
1986
actual
Estimate
1987
1988
1989
1990
Direct loans:
General Services Administration (GSA):
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Administration of territories:
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
-6
402
-6
396
—7
389
-8
381
-8
373
-1
62
—2
60
—2
59
—2
57
—2
55
Total, direct loans:
Change in outstandings.. .. .. .. .. .. .. .. .. ..
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
—7
464
-8
456
-9
448
-9
438
-10
428
Guaranteed loans:
General Services Administration (GSA):
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
-121
579
-9
570
-24
546
-26
520
-28
492
Other Fiscal Operations.—The administration is proposing legis
lation that would correct technical deficiencies in the Customs
Service cargo processing user fee legislation passed by Congress in
October 1986. Under current law, many importers are exempt from
any cargo import processing user fee for Customs inspections. This
correcting legislation would increase Customs user fee receipts by
$166 million in 1988 and would extend the authorization of these
fees beyond its scheduled expiration date of September 30, 1989.
The budget provides almost full reimbursement ($72 million or
94 percent) for Federal Reserve Banks (FRBs) from the Bureau of
the Public Debt for FRB fiscal agent services, an increase of $37
million over current service levels. (In future years, budget plan
ning estimates adopt a policy of full reimbursement). The budget
calls for $15 million in new user fees charged to investors in
marketable Treasury securities. These fees, together with $11 mil
lion in existing fees, would be used to pay some of the FRB reim
bursements. The budget provides the full amount of the funds
needed to reimburse private agents for issuing and redeeming sav
ings bonds ($51 million). It does not call for any user fees for
purchasers or holders of savings bonds. Other fiscal operations
include the manufacture of coins by the Bureau of the Mint and
the printing of currency by the Bureau of Engraving and Printing.
General Property and Records Management.—The General Serv
ices Administration (GSA) is the Government’s builder, landlord,
wholesaler, and retailer. Its services support the activities of other
Federal agencies. GSA is also responsible for disposing of proper
ties no longer needed by the Government. The administration is
proposing a major initiative to improve property management Gov
5-156
THE BUDGET FOR FISCAL YEAR 1988
ernment-wide. Planned disposal of surplus properties in 1988 is
estimated to generate $400 million in receipts.
Also included in this subfunction is the National Archives and
Records Administration, which is responsible for the recordkeeping
activites of the Federal Government.
Central Personnel Management.—Personnel management func
tions are carried out by the Office of Personnel Management
(OPM), the Federal Labor Relations Authority, and the Merit Sys
tems Protection Board. Outlays for these activities are estimated to
be $144 million in 1988.
Other General Government.—Other activities in the general gov
ernment function include payments of claims and judgments
against the Federal Government, funding for the territories, Indian
affairs, and other activities.
Compact of Free Association.—By Presidential proclamation on
November 3, 1986, the Compacts of Free Association with the Fed
erated States of Micronesia and the Republic of the Marshall Is
lands were placed into full force and effect. The compacts bind the
United States to make annual payments to the two freely associat
ed states totaling $2.3 billion during the next 15 years. This will
aid in their successful development as sovereign states. Budget
authority of $144 million is proposed for 1988.
Territories.—Budget authority of $62 million is proposed for 1988
for continued support of the U.S. territories of Guam, American
Samoa, the Virgin Islands, and the Northern Marianas. Budget
authority of $15 million in 1988 is requested for the Trust Territory
of the Pacific Islands, which includes Palau. The territories and the
Trust Territory receive grants and payments from many other
Federal agencies for programs classified in other functions.
Indian Affairs.—Funding for American Indians in this function
includes payment of treaty obligations to tribes and program sup
port for the Navajo and Hopi Indian Relocation Commission. Addi
tional assistance to Indian tribes is also found in a number of other
functions—health; natural resources and environment; community
and regional development; and education, training, employment,
and social services.
Tax Expenditures.—The tax code permitted a 50 percent tax
credit on political contributions of up to $100 for individual returns
and $200 for joint returns. The Tax Reform Act of 1986 repealed
this provision, effective January 1, 1987.
GENERAL PURPOSE FISCAL ASSISTANCE
5-157
GENERAL PURPOSE FISCAL ASSISTANCE
General purpose fiscal assistance provides financial aid to State
and local governments without major restrictions or matching re
quirements. This assistance can generally be used for State or local
services, construction, debt retirement, and other purposes of gen
eral government. Programs in this category include general reve
nue sharing, payments to the District of Columbia, Forest Service
receipts paid to the States, payments in lieu of taxes, and payments
to territories and Puerto Rico. Outlays for this function are esti
mated to decline from $1.9 billion in 1987 to $1.5 billion in 1988.
General Revenue Sharing.—In 1987 the phasing out of the gener
al revenue sharing program essentially will be completed. The
administration has opposed further funding for this program, and
last year Congress did not enact new authorizing legislation. Ac
cordingly, the only 1987 outlays will be to distribute the remainder
of funds already appropriated in prior years and otherwise still
available, and to satisfy all legitimate claims.
Other General Purpose Fiscal Assistance.—Several programs pro
vide funds with minimal restrictions to States and localities. Out
lays for these programs are estimated to be $1.9 billion in 1987 and
$1.5 billion in 1988.
Payments and Loans to the District of Columbia.—The District of
Columbia’s operating budget is financed in part by annual reim
bursement for the net cost of the Federal presence. The administra
tion requests $497 million in budget authority for the District of
Columbia in 1988, net of loan repayments from the District. Of the
total amount, $425 million is for the Federal payment to the Dis
trict for general purposes, $52 million is for the annual Federal
contribution to the retirement funds for the District’s police offi
cers, firefighters, teachers, and judges. The remaining funds are for
St. Elizabeth’s Hospital and the construction of a new District
prison facility.
Beginning in 1988, in order to promote efficiency and account
ability, the District of Columbia will treat Federal establishments
of all three branches of Government like private customers for the
water and sewer services. Thus, in lieu of a lump-sum appropria
tion to the District for these services, the Federal establishments
will make these payments directly.
The administration continues to support legislation to increase
the District’s contribution for the city’s participants in both the
civil service retirement system and the Federal employees health
benefits program beginning in 1988. These changes would begin to
5-158
THE BUDGET FOR FISCAL YEAR 1988
NATIONAL NEED: FISCAL ASSISTANCE TO STATE AND LOCAL GOVERNMENTS
(Functional code 850; in millions of dollars)
Major missions and programs
1986
actual
Estimate
1987
1989
1990
BUDGET AUTHORITY
General revenue sharing.. .. .. .. .. .. .. .. .. .. .. .. ..
4,192
6
-34
287
497
466
459
685
274
296
-270
305
-270
306
-271
423
435
391
435
482
95
100
381
5
89
105
378
9
63
105
386
7
63
150
390
7
57
150
395
8
Other general purpose fiscal assistance:
Payments ana loans to the District of
Columbia.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Payments to States and counties from
Forest Service receipts:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Payments to States from receipts under the
Mineral Leasing Act.. .. .. .. .. .. .. .. .. .. .. .. .
Payments to States and counties from Fed
eral land management activities.. .. .. .. .. .
Payments in lieu of taxes.. .. .. .. .. .. .. .. .. .. ..
Payments to territories and Puerto Rico...... .
Otner.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Subtotal, Other general purpose fiscal
assistance.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
1,655
1,576
1,475
1,545
1,587
Total, budget authority.. .. .. .. .. .. .. .. .
5,847
1,582
1,475
1,545
1,587
5,121
82
-34
287
497
466
459
399
560
296
-270
303
-270
306
-271
423
435
391
435
482
31
100
384
8
88
105
380
8
63
105
386
7
63
150
390
7
57
150
395
8
1,310
1,862
1,475
1,543
1,586
6,431
1,944
1,475
1,543
1,586
OUTLAYS
General revenue sharing.. .. .. .. .. .. .. .. .. .. .. .. .
Other general purpose fiscal assistance:
Payments ana loans to the District of
Columbia.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Payments to States and counties from
Forest Service receipts:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Payments to States from receipts under the
Mineral Leasing Act.. .. .. .. .. .. .. .. .. .. .. .. .
Payments to States and counties from Fed
eral land management activities.. .. .. .. ..
Payments in lieu of taxes.. .. .. .. .. .. .. .. .. .. ..
Payments to territories and Puerto Rico.. .. .
Otner.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Other general purpose fiscal
assistance.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Total, outlays
*$500 thousand or less.
eliminate the Federal subsidy for such benefits currently provided
to the District government.
Other Payments.—Some jurisdictions receive payments from the
Federal Government based on a percentage of Federal receipts
generated from timber sales, mineral leases, grazing permits, and
other activities on Federal property.
5-159
GENERAL PURPOSE FISCAL ASSISTANCE
CREDIT PROGRAMS—GENERAL PURPOSE FISCAL ASSISTANCE
(In millions of dollars)
1986
actual
Direct loans:
Loans to the District of Columbia:
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
Outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
-564
1,008
Guaranteed loans.
Guarantees of New York City loans:
Change in outstandings.. .. .. .. .. .. .. .. .. .. .. .. .. .
-190
Estimate
1987
-293
715
1988
-30
685
1989
-31
654
1990
-33
621
Payments to States and Counties from Various Land Management
Receipts.—Under current law, 50 percent of receipts under the
Mineral Leasing Act are shared with the State of origin. Twentyfive percent of the receipts from the National Forests, and 50
percent of the receipts from the Oregon and California grant lands
are shared with the counties of origin. Sharing is on a gross basis
before any costs of obtaining these receipts are deducted. The ad
ministration is proposing legislation to permit the costs of generat
ing these receipts to be deducted before calculating the State or
local government shares. It makes neither economic nor business
sense to share gross receipts when the actual returns from manag
ing the lands are receipts net of costs. After adjustments for eco
nomic factors, this proposal will reduce outlays for receipt pay
ments to States and counties in 1988 by $353 million below the
levels under current law.
These payments to States and counties from Forest Service re
ceipts, payments to States from receipts under the Mineral Leasing
Act, and payments to States and counties from Federal land man
agement activities are offset against and deducted from the formu
la amounts of payments in lieu of taxes for the following year.
Hence, these deductions will be partially offset beginning in 1989
by increases in payments in lieu of taxes.
Payments in Lieu of Taxes provide fees based on a formula to
local governments for some Federal lands located within their ju
risdictions. The administration proposes to continue this program
at a level of $105 million in outlays for 1988.
Payments to Territories and Puerto Rico reflect the payment of
certain taxes by the Federal Government to the territories and
Puerto Rico. These payments comprise annual advance payments
of certain income tax withholding and excise tax collections involv
ing Guam and the Virgin Islands, and excise tax withholding for
Puerto Rico. Outlays are estimated to be $380 million in 1987 and
$386 million in 1988.
5-160
THE BUDGET FOR FISCAL YEAR 1988
Tax Expenditures.—The Federal Government provides general
purpose fiscal assistance through several tax provisions. Interest on
State and local government debt is excluded from the taxable
income of businesses, mainly commercial banks and casualty insur
ance companies, and individuals. As a result, State and local gov
ernments can borrow at lower interest rates than would be possible
if such interest were taxable. In effect, the Federal Government
subsidizes States and localities by paying part of their interest
costs. Only the effect of excluding interest on general purpose
obligations and revenue bonds for public purposes such as schools,
sewers, and roads is included in this function. The exclusion of
interest on tax-exempt bonds issued for private or quasi-public
activities is covered in applicable budget functions, such as com
merce and housing credit. The tax expenditure estimate for the
exclusion of interest on general purpose State and local debt is
$10.4 billion in 1988.
The Federal Government also provides indirect assistance to
States and localities by allowing individuals to deduct nonbusiness
State and local taxes, primarily income taxes, from income in
calculating their Federal tax liability. The value of this assistance
is estimated at $14.8 billion in 1988. The Tax Reform Act of 1986
repealed the State and local sales tax deduction. Tax expenditures
resulting from deductibility of taxes on owner-occupied homes are
included in the commerce and housing credit function.
As a means of providing assistance to U.S. possessions, primarily
Puerto Rico, the Federal Government permits a special tax credit
for qualifying U.S. corporations doing business in the possessions.
This tax credit, which effectively exempts earnings attributable to
the possessions, results in an estimated tax expenditure of $2.4
billion in 1988. Altogether, tax expenditures for general purpose
fiscal assistance are an estimated $27.6 billion in 1988.
Related Programs.—In addition to general purpose fiscal assist
ance, the Federal Government provides States and localities with
assistance through a variety of Federal grant-in-aid programs.
These programs, which range from relatively narrow categorical
programs to broader grant programs, are more restrictive than
general purpose fiscal assistance, and are designed to meet other
national needs and priorities. Therefore, they are not included as
general purpose fiscal assistance, although, in total, they provide
21 percent in 1985 of the financing of total State and local expendi
tures. Total grant-in-aid outlays to States and localities are esti
mated to decrease from $109.9 billion in 1987 to $106.3 billion in
1988.
Grants are discussed in more detail in Special Analysis H, “Fed
eral Aid to State and Local Governments.”
NET INTEREST
5-161
NET INTEREST
Net interest includes the Federal Government’s cost of borrowing
and most of its interest income from lending money. Net interest
outlays are estimated to rise from $136.0 billion in 1986 to $137.5
billion in 1987 to $139.0 billion in 1988.
Interest on the Public Debt—The public debt consists of Treasury
securities sold to the public and to Federal Government accounts,
such as trust and revolving funds. Though the public debt also
includes debt issued by the Federal Financing Bank (FFB), an arm
of the Treasury, this subfunction includes all interest paid on the
public debt other than that paid by the FFB. Outlays for interest
on the public debt are estimated to be $198.4 billion in 1988.
Estimates of interest outlays are directly affected by assumptions
about interest rates and the size of the debt. It is assumed that the
91-day Treasury bill rate will decline steadily from an average of
6.0 percent in calendar year 1986 to 4.2 percent by 1990. These
declining interest rates largely offset the rise in interest payments
due to higher Federal debt. Interest on the public debt is estimated
to increase by $1.6 billion in 1987 (less than 1 percent) and an
additional $6.6 billion (3.5 percent) in 1988. Trust fund balances in
excess of current requirements are invested in public debt securi
ties. The interest income to these trust funds constitute offsetting
receipts in the two subfunctions for interest received by trust
funds. Because the social security trust funds are off-budget, the
interest received by those funds is carried separately from interest
received by the on-budget trust funds.
Interest Received by On-budget Trust Funds.—Interest earnings
of on-budget trust funds were $26.6 billion in 1986 and are estimat
ed to be $28.7 billion in 1987 and $31.6 billion in 1988. More than
half of these interest earnings is received by the civil service retire
ment and disability fund, and nearly one-fifth is received by medi
care. Interest earned by the on-budget trust funds is deducted, so
that the functional total for net interest includes only the Govern
ment’s net transactions with the public, not payments between
Government accounts. Normally, the vast majority of interest col
lected by on-budget trust funds is derived from payments in the
subfunction for interest on the public debt. However, for 1986
through 1989, some of the interest income derives from payments
by the FFB.
5-162
THE BUDGET FOR FISCAL YEAR 1988
NET INTEREST
(Functional code 900; in millions of dollars)
1986
actual
Major missions and programs
Estimate
1987
1988
1989
1990
BUDGET AUTHORITY
Interest on the public debt:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Interest on the public debt.. .
191,744
5
191,749
198,150
244
198,394
204,782
812
205,594
207,226
1,357
208,583
-28,680
-5
-31,372
-236
-34,443
-765
-37,067
-1,264
-28,685
-31,608
-35,208
-38,331
-4,329
-5,084
-6,586
-8
-9,193
-47
-12,173
-93
-4,329
-5,084
-6,594
-9,240
-12,266
Interest on refunds of tax collections.. .. .. .. .
1,814
Interest on loans to Federal Financing Bank.. -16,377
Interest on loans to CCC.. .. .. .. .. .. .. .. .. .. .. . -2,190
Interest on loans to FmHA.. .. .. .. .. .. .. .. .. .. .
-770
OCS interest.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . -1,072
Other:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. -4,689
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Other interest.. .. .. .. .. .. .. .. .. -23,285
1,668
-13,836
-1,741
-1,099
-901
1,621
-14,475
-1,878
-1,024
-604
1,697
-14,156
-1,627
-935
1,754
-13,881
-1,647
-866
-4,617
-20,526
-4,598
-201
-21,159
-4,370
-211
-19,602
-4,123
-224
-18,987
137,454
139,032
141,544
138,999
Interest received
funds:
by
on-budget
190,166
190,166
trust
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. -26,570
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Interest received by onbudget trust funds.. .. .. .. .. .. .. .. .. .. -26,570
Interest received
funds:
by
off-budget
trust
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Interest received by offbudget trust funds.. .. .. .. .. .. .. .. .. ..
Other interest:
Total, budget authority.. .. .. .. .. .. .. .. .
135,982
On-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. (140,311) (142,538) (145,626) (150,784) (151,265)
Off-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. (-4,329) (-5,084) (-6,594) (-9,240) (-12,266)
Interest Received by Off-budget Trust Funds.—The receipts and
disbursements of the old-age and survivors insurance trust fund
(OASI) and the disability insurance trust fund (DI) are excluded
from the budget. Notwithstanding this change in status, OASI and
DI hold a large amount of Federal debt securities on which they
receive interest. The social security trust funds, like all other Fed
eral trust funds, are constituted from funds collected, controlled,
and spent by the Federal Government. Hence, any interest paid by
Treasury to these funds constitutes payments by Government ac
counts to Government accounts, and the offsetting collections must
be included to identify net interest paid to the public. Interest
earnings of these off-budget trust funds were $4.3 billion in 1986
and are estimated to be $5.1 billion in 1987 and $6.6 billion in 1988.
5-163
NET INTEREST
NET INTEREST
(Functional code 900; in millions of dollars)
1986
actual
Major missions and programs
Estimate
1987
1988
1989
1990
OUTLAYS
Interest on the public debt:
191,744
5
191,749
198,150
244
198,394
204,782
812
205,594
207,226
1,357
208,583
-28,680
-5
-31,372
-236
-34,443
-765
-37,067
-1,264
-28,685
-31,608
-35,208
-38,331
-4,329
-5,084
-6,586
-8
-9,193
-47
-12,173
-93
-4,329
-5,084
-6,594
-9,240
-12,266
1,814
Interest on refunds of tax collections.. .. .. .. .
interest on loans to Federal Financing Bank.. -18,377
Interest on loans to CCC.. .. .. .. .. .. .. .. .. .. .. . -2,190
Interest on loans to FmHA.. .. .. .. .. .. .. .. .. .. .
-770
CCS interest.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . -1,072
Other:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. -4,702
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Other interest.. .. .. .. .. .. .. .. .. -23,298
1,668
-13,836
-1,741
-1,099
-901
1,621
-14,475
-1,878
-1,024
-604
1,697
-14,156
-1,627
-935
1,754
-13,881
-1,647
-866
-4,611
-20,520
-4,598
-201
-21,159
-4,370
-211
-19,602
-4,123
-224
-18,987
137,461
139,032
141,544
138,999
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Interest on the public debt.. .
Interest received
funds:
by
on-budget
190,166
190,166
trust
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. -26,570
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Interest received by onbudget trust funds.. .. .. .. .. .. .. .. .. .. -26,570
Interest received
funds:
by
off-budget
trust
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Interest received by offbudget trust funds.. .. .. .. .. .. .. .. .. ..
Other interest:
Total, outlays.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
135,969
On-budget.. .. .. .. .. .. ... .. .. .. .. . ,.. .. . (140,298) (142,544) (145,626) (150,784) (151,265)
Off-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. (-4,329) (-5,084) (-6,594) (-9,240) (-12,266)
Other Interest,—This subfunction includes interest payments by
the Government on tax refunds and, as an offset, interest collec
tions from Federal agencies and the public. As a general rule, the
Treasury finances all interest earning activities through public
debt issuance. The interest income derived from these activities is
normally offset within this subfunction. In some cases, the interest
income is paid directly by the public, but the bulk of the interest
included herein arises from interest charges to revolving funds.
The revolving funds, which are in other functions, borrow from
Treasury for programs intended to be largely self-supporting. The
revolving fund collects interest or other charges from the public
and then pays interest to Treasury. The largest such revolving
fund is the FFB.
5-164
THE BUDGET FOR FISCAL YEAR 1988
Interest on Refunds of Tax Collections.—Interest paid by the
Treasury on tax refunds was $1.8 billion in 1986 and is estimated
to decline to $1.7 billion in 1987 to $1.6 billion in 1988. This
decrease is due, in large part, to improved claims processing by the
Internal Revenue Service (IRS), which reduces the backlog of re
funds subject to interest. Under current law, the rate paid on
refunds of tax collections is set quarterly at the average market bid
yield on outstanding marketable obligations of the United States
with maturities of 3 years or less.
Interest on Loans to the Federal Financing Bank (FFB).—The
FFB is the major source of funds for a number of Government
programs. The FFB normally borrows from the Treasury and uses
these borrowed funds to make loans to or on behalf of various
Government agencies. It collects interest on its lending, and in
turn, pays interest to the Treasury on its borrowings. Since most of
its borrowings are from Treasury, the interest paid to the Treasury
becomes offsetting collections in this subfunction. Interest pay
ments from the FFB to the Treasury were $16.4 billion in 1986 and
are estimated to be $13.8 billion in 1987 and $14.5 billion in 1988.
Treasury debt issued to finance its lending to the FFB is included
in debt subject to statutory limitation. However, the FFB also has
authority to issue public debt that is not included under the statu
tory debt ceiling. In August 1986, the Treasury came so close to the
debt ceiling that it had to take extraordinary steps to continue
financing legally authorized spending within the debt limit. One
step taken was to disinvest the civil service retirement and disabil
ity trust fund of Treasury securities subject to limit and to replace
them with FFB securities that are not subject to debt limit. An
other step was to delay investing some trust fund balances. The
trust funds have been fully reimbursed for the interest foregone
during this delay. These procedures have altered the amounts re
corded in the subfunctions of net interest but have no significant
effect on the functional totals.
Other.—Offsetting interest collections from accounts other than
the FFB were $8.7 billion in 1986 and are estimated to be $8.4
billion in 1987 and $8.3 billion in 1988. These come from two
principal sources: interest charged by Treasury to Federal agency
revolving funds, which is by far the larger source; and interest
collected from the public by funds other than revolving funds.
Revolving funds, such as that of the Commodity Credit Corporation
(CCC), borrow from the Treasury primarily to finance direct loans
to the public, and then pay interest to the Treasury on their
borrowings. Other collections include interest on loans made to the
5-165
NET INTEREST
public by non-revolving funds, interest received from the Outer
Continental Shelf (OCS) escrow account, and interest collected from
banks on Federal tax collections kept on deposit in those banks.
Net Budgetary Effect—The Federal Reserve System owns Gov
ernment securities for the purpose of implementing monetary
policy. The Treasury pays interest on these securities but virtually
all of the interest the Federal Reserve receives on these securities
is returned to the Treasury as deposits of earnings of the Federal
Reserve System (classified as receipts). As shown below, deposits of
earnings were $18.4 billion in 1986 and are projected to be $15.8
billion in 1987 and $15.4 billion in 1988. Deducting these receipts
from the outlay totals for the function shows the net budgetary
effect of interest transactions with the public:
NET BUDGETARY EFFECT OF INTEREST TRANSACTIONS WITH THE PUBLIC
(In millions of dollars)
1986
actual
Estimates
1987
1988
1989
1990
Net interest function.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . 135,969 137,461 139,032 141,544 138,999
Less: Deposits of earnings by the Federal Reserve System 1.. .. . 18,374 15,822 15,450 15,771 16,077
Net budgetary effect.. .. .. .. .. .. .. .. .. ..... .. .. .. .. .. .. .. .. .. 117,595 121,639 123,582 125,773 122,922
1 Shown as budget receipts.
Tax Expenditures.—A tax expenditure arises from the optional
deferral of interest income on U.S. savings bonds. Interest is nor
mally taxed each year as it is earned, but the holder of a U.S.
savings bond may defer paying tax until the bond is redeemed. The
estimate for this provision is $710 million in 1988.
5-166
THE BUDGET FOR FISCAL YEAR 1988
ALLOWANCES
The budget includes allowances to cover certain forms of budget
ary transactions that are expected to occur but are not reflected in
the program details shown in the preceding functions. When these
transactions actually take place, they are reported as outlays for
the appropriate agencies and functions rather than as allowances.
For this reason, allowances for completed years are always zero. In
1988, the net effect of the six allowances included in this category
is to reduce outlays by $770 million.
ALLOWANCES
(Functional code 920; in millions of dollars)
Major missions and programs
1986
actual
Estimate
1987
1989
1990
BUDGET AUTHORITY
Civilian agency pay raises:
Civilian agency pay raises1.. .. .. .. .. .. .. .. .. .
Coast Guard military pay raises.. .. .. .. .. .. .. .
Subtotal, Civilian agency pay raises.. .
656
48
704
1,570
79
1,649
2,692
113
2,805
Credit reform initiative.. .. .. .. .. .. .. .. .. .. .. .. .. ..
-163
1,284
-163
-606
-163
920
Proposed change in Government contribu
tion for employee health benefits.. .. .. .. .
-140
-205
-225
-200
-500
-883
475
2,836
Civilian agency pay raises1.. .. .. .. .. .. .. .. .. .
Coast Guard military pay raises.. .. .. .. .. .. .. .
Subtotal, Civilian agency pay raises.. .
630
48
678
1,507
79
1,586
2,584
113
2,697
Savings from reform of Davis-Bacon and
Service Contract Acts.. .. .. .. .. .. .. .. .. .. .. .. .
-24
-90
-127
-1,284
-606
920
-140
-205
-225
-200
-500
485
2,764
Savings from reform of Davis-Bacon and
Service Contract Acts.. .. .. .. .. .. .. .. .. .. .. .. .
Special productivity savings from person
nel policies.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Allowance for contingencies:
Relatively uncontrollable programs.. .. .. .. .. .
Other requirements.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Total, budget authority.. .. .. .. .. .. .. ..
OUTLAYS
Civilian agency pay raises:
Credit reform initiative
Proposed change in Government contribu
tion for employee health benefits.. .. .. .. .
Special productivity savings from person
nel policies.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Allowance for contingencies:
Relatively uncontrollable programs.. .. .. .. .. .
Other requirements.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Total, outlays.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
1 Includes allowance for administration of the off-budget social security trust funds.
-770
ALLOWANCES
5-167
Civilian Agency Pay Raises.—This allowance covers the costs of
future pay raises for civilian agency employees and Coast Guard
military personnel. Also included are amounts for top level officials
in the executive, legislative, and judicial branches. Allowances to
cover future pay raises for military and civilian personnel of the
Department of Defense are included in the national defense func
tion.
The budget includes a 2.0 percent pay increase for civilian em
ployees, effective in January 1988, and a 4.0 percent pay increase
for military personnel, including Coast Guard military personnel,
also effective in January 1988. The estimates for this allowance
reflect the assumption that 50 percent of the 1988 pay raise for
Federal civilian employees will be absorbed by the employing agen
cies. The President’s final decision on the 1988 civilian pay adjust
ment will be made after he reviews the recommendations of his
pay agent and the recommendations of the Advisory Committee on
Federal Pay, as provided for by law. The pay raise allowances for
1989 and 1990 reflect the assumption that Federal civilian employ
ees will receive a 3.0 percent pay raise in January of each year,
and that Coast Guard military personnel will receive pay increases
in January of each year that equal the pay increases received by
Department of Defense military personnel.
Savings From Reform of Davis-Bacon and Service Contract
Acts.—The administration is proposing legislation to increase the
thresholds of coverage under the Davis-Bacon and related acts and
the Service Contract Act to $1 million for defense contracts and
$100,000 for nondefense contracts. The Davis-Bacon Act covers
wages paid to workers on Federal and federally-aided construction
projects. The Service Contract Act covers wages and benefits paid
to workers under Federal service contracts. The threshold of cover
age under the Davis-Bacon Act has not been revised since it was
set at $2,000 in 1935. Similarly, the threshold of coverage under the
Service Contract Act has not been revised since it was set at $2,500
in 1965. An increase in the thresholds of coverage under these
statutes is appropriate in recognition of economic changes in the
past several decades and to encourage competition and efficiency in
Government procurement.
Credit Reform Initiative.—The administration proposes to change
the budgetary accounting of Federal credit programs. The proposal
would separate the subsidy value of a loan from its financing.
Subsequent sales of direct loans less the costs of reinsuring loan
guarantees are expected to produce net savings of $1.3 billion in
1988. A detailed discussion of this proposal is presented in Part 3b.
5-168
THE BUDGET FOR FISCAL YEAR 1988
Proposed Change in Government Contribution for Employee
Health Benefits.—As discussed in the health function, the adminis
tration proposes to change the formula used to determine the
Government's contribution for Federal employee health benefits
(FEHB) to a weighted average that reflects the premiums of all
FEHB plans and the distribution of enrollees among those plans.
This proposal is estimated to reduce agency contributions for
health benefits for current employees by $140 million in 1988. The
reduced contributions for annuitants are recorded in the health
function.
Special Productivity Savings from Personnel Policies.—The ad
ministration's efforts to foster more efficient delivery of Govern
ment services are expected to produce, at a minimum, the produc
tivity savings estimated in this Government-wide allowance. The
replacement of the current system of within-grade increases with
more performance-based pay incentives should spur productivity
gains. Also included in this allowance are overall savings expected
from such reforms as capital/labor trade-offs, simplification of pay
and personnel systems, consolidation of functions and organization
al units, methods and process improvements, and implementation
of a gain-sharing program. The savings represent about 3 tenths of
one percent of total Federal civilian compensation costs in 1989.
Allowances for Contingencies.—The Congressional Budget Act of
1974, as amended, requires that the budget include an allowance
for unanticipated spending or savings in relatively uncontrollable
programs and an allowance for other unanticipated spending or
savings. The contingency allowance for relatively uncontrollable
programs is estimated to be zero for all years, because the chance
of these outlays being lower than the estimates is as great as the
chance of being higher. The contingency allowance for other re
quirements is also assumed to be zero, with probable increases
being offset by unanticipated decreases.
5-169
UNDISTRIBUTED OFFSETTING RECEIPTS
UNDISTRIBUTED OFFSETTING RECEIPTS
Offsetting receipts are generally deducted from the budget au
thority and outlays of the agencies and functions of the receipt
accounts. In three instances, however, such collections are deducted
from the budget totals as undistributed offsetting receipts. These
are for the employer share of employee retirement, rents and
royalties on the Outer Continental Shelf, and the sale of major
assets.
Undistributed offsetting receipts are estimated to be $37.1 billion
in 1987 and $45.4 billion in 1988. Details of all offsetting receipts
are shown in Table 14 in Part 6c.
UNDISTRIBUTED OFFSETTING RECEIPTS
(Functional code 950; in millions of dollars)
Major missions and programs
1986
actual
Estimate
1987
1988
1989
1990
-18,193
-422
-18,782
-1,324
-19,328
-1,499
-20,082
-1,626
-9,398
-11,985
-38
-12,761
-191
-13,490
-324
-28,013
-32,128
-33,779
-35,523
-2,857
-3,275
-5,367
-117
-5,955
-161
-6,580
-169
-2,857
-3,275
-5,484
-6,116
-6,749
-4,716
-3,903
-3,686
-3,530
-3,756
-4,716
-3,903
-3,686
-3,530
-3,756
-2,500
-800
-1,542
-2,513
-2,342
-2,513
-45,767
-48,541
BUDGET AUTHORITY AND OUTLAYS
Employer share, employee retirement (onbudget):
Military retired contributions.. .. .. .. .. .. .. .. .. . -17,429
Federal retirement thrift.. .. .. .. .. .. .. .. .. .. .. ..
Other contributions:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. -8,006
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Employer share, employee
retirement (on-budget).. .. .. .. .. .. .. -25,434
Employer share, employee retirement (offbudget):
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Employer share, employee
retirement (off-budget).. .. .. .. .. .. ..
Rents and royalties on the Outer Conti
nental Shelf:
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, Rents and royalties on the
Outer Continental Shelf.. .. .. .. .. .. .. .
Sale of major assets:
Sale of Conrail.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Sale of petroleum reserves (proposed).. .. .. .
Sale of power administrations (proposed).. .
Sale of Amtrak (proposed).. .. .. .. .. .. .. .. .. ..
Auction receipts, FCC (proposed).. .. .. .. .. .. .
Subtotal, Sale of major assets.. .. .. .. ..
Total, budget authority and out
lays .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
-1,900
-33,007
-1,900
-1,000
-600
-4,100
-37,091
-45,399
On-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. (-30,150) (-33,816) (-39,915) (-39,651) (-41,792)
Off-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. (-2,857) (-3,275) (-5,484) (-6,116) (-6,749)
5-170
THE BUDGET FOR FISCAL YEAR 1988
Employer Share, Employee Retirement.—The payments made by
Federal agencies to employee retirement funds are outlays of the
agencies and are counted as such in the functions of the paying
accounts.1 Since these are payments made by Federal agencies to
other Federal agencies, they must be deducted prior to arriving at
total budget authority and outlays in order to measure properly
the Federal Government’s transactions with the public. The deduc
tions are not made against the paying agencies and functions,
because they are deemed appropriate charges that should be in
cluded in the costs of these programs. Deductions are also not
made against the trust funds and functions receiving the payments,
because the size of the deductions would cause the budget author
ity and outlay totals to seriously understate the amount of re
sources used to carry out these programs. Hence, the deductions for
these collections are recorded as undistributed offsetting receipts.
The budget distinguishes two categories of these receipts—collec
tions by budget accounts and collections by the off-budget social
security accounts. Almost all of the $32.1 billion in 1988 that are
collected by budget accounts go to the military retirement and the
civil service retirement trust funds. Most of the remainder is col
lected by the new Federal retirement thrift savings fund and the
medicare trust fund.
The off-budget undistributed offsetting receipts for the employer
share of employee retirement are collected by two funds—the oldage and survivors insurance trust fund and the disability insurance
trust fund. Most of these receipts are collected from on-budget
Federal agencies. They are estimated to increase from $3.3 billion
in 1987 to $5.5 billion in 1988, in part because it is the first full
year in which agencies will make social security contributions for
employees who transfer from the civil service retirement system to
the new Federal employee retirement system. It is assumed that 40
percent of the eligible workforce will choose to transfer.
The administration proposes to require the Department of De
fense to make social security and medicare contributions for wage
credits earned by military personnel. The administration also pro
poses to require the Postal Service to begin paying the full employ
er share of the actuarial cost of employee pensions. These propos
als, which are discussed in greater detail in the national defense
and commerce and housing credit functions, will increase employ
ing agency outlays for employee retirement and, therefore, undis
tributed offsetting receipts, by $155 million in 1988.
Rents and Royalties on the Outer Continental Shelf (OCS).—
Collections for rents and royalties on the Outer Continental Shelf
1 The effect of future pay increases assumed for Federal civilian employees, which are discussed in the
allowances section, is included in the estimates of employing agency payments to retirement trust funds.
UNDISTRIBUTED OFFSETTING RECEIPTS
5-171
by the Federal Government are large. They arise from land owner
ship by the Federal Government rather than as a result of any
major spending program. Their inclusion as an offsetting receipt in
any particular function would greatly understate the amount of
budget authority and outlays used to carry out programs in that
function; hence, they are not distributed by function. These collec
tions include cash bonuses received from the leasing of OCS lands
that have the promise of containing oil and gas; annual rents on
existing leases; and royalties, based on a percentage of the value of
production. Collections to which title is in dispute are not recorded
as offsetting receipts in the budget. Until the dispute is settled, the
collections are retained in escrow in a deposit fund outside the
budget. When settlement is reached, only the amounts determined
to belong to the Federal Government are recorded as undistributed
offsetting receipts. On September 30, 1986, the amounts of disputed
OCS collections held in escrow totaled $4.0 billion. Most of the
collections held in escrow are expected to be disbursed in 1987.
The current estimates of $3.9 billion in 1987 and $3.7 billion in
1988 assume that four OCS sales will be conducted in 1987 and
nine sales in 1988. No final decision will be made on any of these
sales until environmental studies and other requirements under
the National Environmental Policy Act have been completed.
Sale of Major Assets.—The Omnibus Budget Reconciliation Act
of 1986 authorized the sale of Conrail via a public offering. It is
anticipated that the sale will be concluded in 1987 and that re
ceipts from the sale, including cash transfers already made by
Conrail to Treasury, could amount to $1.9 billion. The administra
tion proposes to sell the naval petroleum reserves for an estimated
$3.3 billion. Sales proceeds are expected to be received in 1988 and
1989. The five Federal power marketing administrations are also
proposed to be sold, beginning in 1989. Both of these proposed sales
are discussed in greater detail in the energy function. As discussed
in the transportation function, the administration also proposes to
sell some or all of Amtrak’s assets for $1.0 billion in 1988.
In addition, the administration proposes to auction Federal Com
munications Commission licenses for use of the unassigned spec
trum by non-mass media services. Auctioning the assignments for
mobile radio services frequencies is expected to generate approxi
mately $600 million in 1988. Auction authority will not affect the
terms of the licenses awarded and will not apply to licenses award
ed in any medium of mass communications or for public safety or
amateur services. Public auctions will capture the true value of
licenses and give taxpayers a monetary return for use of the spec
trum, which is a valuable and limited resource.
According to normal budget accounting principles, the receipt
from the above sales would be treated as offsets to the budget
5-172
THE BUDGET FOR FISCAL YEAR 1988
authority and outlays for the respective agencies and functions.
However, since the receipts from these sales are relatively large,
such treatment would seriously distort the budget estimates for
those agencies and functions. Hence, gross proceeds from the pro
posed sales are classified as undistributed offsetting receipts. The
decrease in spending or offsetting collections associated with some
of these sales are recorded in the functions in which the program is
classified.
PART 6
SUPPLEMENTS
6-1
Part 6a
PERSPECTIVES ON THE BUDGET
This part of the budget explains several topics that help to
interpret the budget totals and to place the budget in perspective:
• the relationship of budget authority to outlays;
• limitations on the availability of funds;
• fiscal activities outside the Federal budget:
—off-budget Federal entities,
—tax expenditures, and
—regulation;
• Federal debt and the relationship of budget funds to changes
in Federal debt;
• comparison of the actual and estimated totals in 1986 for:
—receipts,
—outlays, and
—the deficit;
• comparison of the actual and estimated relatively uncontrol
lable outlays in 1986; and
• the allocation of windfall profit tax receipts.
RELATIONSHIP OF BUDGET AUTHORITY TO OUTLAYS
The Congress must usually provide budget authority, which is
generally in the form of appropriations, before Federal agencies
can obligate the Government to make outlays. For 1988, $1,142.2
billion of new budget authority is proposed for the Federal Govern
ment. Of this amount, $900.1 billion is for agencies included in the
budget and $242.1 billion is for off-budget Federal entities.
Of this total new budget authority, both on-budget and offbudget, $571.6 billion will require congressional action. New budget
authority of $779.9 billion will be available through permanent
appropriations under existing law. This consists mainly of trust
fund receipts, which in most trust fund programs are automatically
appropriated under existing law, and interest on the public debt,
for which budget authority is automatically provided under a per
manent appropriation enacted in 1847. This gross amount of new
budget authority is partially offset by $209.3 billion of deductions
for offsetting receipts, which consist of proprietary receipts from
the public and collections of one Government account from an
other.
6a-1
6a-2
THE BUDGET FOR FISCAL YEAR 1988
BUDGET AUTHORITY
(In billions of dollars)
Description
Available through current action by
the Congress:
Enacted and pending appropriations..
Proposed in this budget:
Appropriations1.. .. .. .. .. .. .. .. .. ..
Supplemental requests.. .. .. .. .. .. .
Rescission proposals.. .. .. .. .. .. .. ..
To be requested separately:
Upon enactment of proposed leg
islation .. .. .. .. .. .. .. .. .. .. .. .. .. .
Allowances.Civilian agencies2.. .. .. .. ..
Department of DefenseMilitary 3.. .. .. .. .. .. .. .. .
Subtotal, available through
current action by the
Congress.. .. .. .. .. .. .. .. .. .
Available without current action by
the Congress (permanent appro
priations):
Trust funds (existing law).. .. .. .. .. .
On-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .
Off-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .
Interest on the public debt.. .. .. .. .. .
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Subtotal, available without cur
rent action by the Congress.. .
Deductions for offsetting receipts....
On-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .
Off-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .
Total, budget authority.. .. .. .. .. .. .
On-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .
Off-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .
1986
actual
535.0
1987
estimate
1988
estimate
1990
estimate
1989
estimate
555.1
4.5
-5.7
0.7
567.3
.3
608.7
636.6
2.2
-6.1
-11.2
-.9
.5
2.8
2.7
6.8
11.4
535.0
554.6
571.6
609.9
639.6
439.0
(233.1)
(205.9)
190.2
96.6
448.9
(220.9)
(228.0)
191.7
83.6
504.2
(245.1)
(259.2)
198.2
77.5
541.3
(257.2)
(284.1)
204.8
73.0
582.7
(272.0)
(310.8)
207.2
73.6
725.8
724.2
779.9
-188.1
(-171.8)
(-16.3)
1,072.8
(883.2)
(189.6)
-185.0
(-171.0)
(-14.0)
1,093.9
(879.9)
(214.0)
-209.3
(-191.8)
(-17.6)
1,142.2
(900.1)
(242.1)
819.1
-217.5
(-196.0)
(-21.5)
1,211.6
(948.2)
(263.4)
863.6
-231.4
(-206.4)
(-25.0)
1,271.9
(985.3)
(286.6)
1 For 1989, includes advance appropriations that are available without current action by Congress (permanent appropriations).
2 Allowance for civilian agency pay raises, Coast Guard military pay raises, and other purposes.
3 Allowances for civilian and military pay raises and other legislation for Department of Defense—Military.
Not all of the new budget authority for 1988 will be obligated or
spent in that year:1
• Budget authority for most trust funds comes from the author
ity of these funds to spend their receipts. Any balances
remain available to these trust funds indefinitely in order to
finance benefits and other purposes specified by lawr.
• Budget authority for most major construction and procure
ment projects covers the entire cost estimated when the
projects are initiated, even though work will take place and
1 This subject is also discussed in a separate 0MB report, “Balances of Budget Authority,” which can be
purchased from the National Technical Information Service shortly after the budget is transmitted.
PERSPECTIVES ON THE BUDGET
6a-3
outlays will be made over a period extending beyond the year
for which the budget authority is enacted. Some exceptions
are made to this convention, notably for water resource pro
grams.
• Government enterprises are occasionally given budget author
ity for standby reserves that will be used only in the event of
special circumstances.
• Budget authority for large portions of the subsidized housing
programs is equal to the Government’s estimated obligation
to pay subsidies under contracts, which may extend for peri
ods of up to 40 years.
• Budget authority for most other long-term contracts also
covers the estimated maximum obligation of the Government.
• Budget authority for many direct loan programs provides fi
nancing for a number of years; budget authority for many
insurance and loan guarantee programs provides amounts to
be used only in the event of defaults or other contingent
claims made upon the programs.
As a result of these factors, a substantial amount of budget
authority carries over from one year to the next. Most of this is
earmarked for specific uses and is not available for new programs.
A small part may never be obligated or spent, because it is primar
ily for contingencies that do not occur or reserves that never have
to be used.
As shown in the chart on the next page, $292.5 billion of the
outlays in 1988 (29 percent of the total) will be made from budget
authority enacted in previous years. At the same time, $410.4
billion of the new budget authority proposed for 1988 (36 percent of
the total amount proposed) will not lead to outlays until future
years. Thus, the total budget authority for a particular year is not
useful for the analysis of that year’s outlays, since it combines
various types of budget authority that have different short-term
and long-term implications for budget obligations and outlays.
Budget authority and its relationship to obligations and outlays are
discussed further in Part 6b of this volume and displayed in table
11 of Part 6c.
LIMITATIONS ON THE AVAILABILITY OF FUNDS
Limitations on the availability of funds are a control mechanism
that supplements the use of appropriations and other budgetary
resources discussed in the previous section. Unlike budget author
ity, limitations on the availability of funds generally are not the
source of authority to incur obligations; rather, they place a special
ceiling on the use of authority by limiting the amount that can be
obligated or committed for a specific purpose. These limitations are
established most often through the appropriations process.
6a-4
THE BUDGET FOR FISCAL YEAR 1988
Some limitations establish stricter control over the amounts pro
vided by appropriations or other acts by limiting the amount to be
allocated for specific purposes within an appropriation or fund
account.
• Many appropriation accounts provide funding for several ac
tivities. A limitation can single out and restrict the amount of
obligations for one or more of these activities within the
overall budget authority provided for the account. For exam
ple, the 1987 appropriation of $911 million for Operation of
Indian programs in the Department of the Interior includes
language specifying that an amount not to exceed $56 million
is available for higher education scholarships and assistance
to public schools.
• A limitation can be established on the amount that can be
used for a particular type of expense, such as travel, consult
ants, or publications. These limitations can apply to (1) a
single account; (2) all amounts within a single appropriations
act; or (3) amounts in more than one appropriations act or
amounts provided in substantive law.
Other limitations can affect the total level—not just the composi
tion—of obligations and spending. They are used to control funds
that would otherwise become available under relatively broad au
thority provided in substantive law without further action by the
Congress in an appropriations act. In most cases these limitations
6a-5
PERSPECTIVES ON THE BUDGET
SELECTED LIMITATIONS THAT AFFECT THE TOTAL LEVEL OF OUTLAYS
(In billions of dollars)
1986
enacted
Direct loan obligations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Program levels (other than loans).. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Administrative expenses of trust funds.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Total, selected limitations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
10.0
17.6
6.8
34.4
1987
estimate
6.1
17.6
6.7
30.4
1988
estimate
3.6
18.3
6.8
28.6
apply either (1) to trust fund activities, which are normally fi
nanced through earmarked receipts, like the payroll tax receipts
for the social security trust funds; (2) to revolving funds, which
finance business-type operations that generate their own income to
pay their expenses; or (3) to other accounts for which substantive
law provides spending authority.
Under the credit control system, limitations on Federal direct
loan obligations and guaranteed loan commitments are the princi
pal method of controlling the allocation of Federal credit.2 These
limitations provide a mechanism for annual Congressional review
of the gross level of new credit activity. All direct lending will
result in outlays. Guaranteed loan commitments—also important
because of their effects on the credit market and the economy—
ordinarily lead to Government spending only in the event of de
fault.
In addition to credit activities, certain other Federal program
levels are also constrained through the use of limitations on operat
ing and administrative expenses. For example, the use of the
budget authority of the highway trust fund and the airport and
airway trust fund is controlled by limitations on the agencies'
ability to obligate the Federal Government to make payments.
Non-loan, business-type activities controlled through limitations in
clude the Federal buildings fund, which is controlled through limi
tations on the use of receipts.
For many trust funds, all income of the fund automatically be
comes budget authority and is available for spending. The Congress
exercises control over the benefits that are paid from these funds
through the use of eligibility criteria and benefit levels established
in substantive law. Through the use of limitations, the Congress
can also exercise control over the administrative expenses of these
trust funds. Such limits apply, for example, to the old-age and
survivors insurance trust fund and the hospital insurance trust
fund.
2 The credit control system is discussed further in Part 3b of this volume and in Special Analysis F, “Federal
Credit Programs,” in Special Analyses, Budget of the United States Government, Fiscal Year 1988.
6a-6
THE BUDGET FOR FISCAL YEAR 1988
The preceding table summarizes some of the major limits on the
availability of funds that affect budget spending. The amounts
identified do not include all limitations, but they illustrate that
spending can be changed significantly without changing budget
authority.
FISCAL ACTIVITIES OUTSIDE THE FEDERAL BUDGET
The budget does not include some activities of the Federal Gov
ernment that result in spending similar to budget outlays. These
activities, nevertheless, channel economic resources toward particu
lar uses in ways that are analogous to the effects of budget spend
ing.
The total receipts and outlays of the Federal Government are
composed of both on-budget receipts and outlays and off-budget
receipts and outlays. The receipts and outlays of the off-budget
Federal entities are a significant exclusion from the budget. Legis
lation enacted in 1985 made a major change in the budgetary
classification of several activities by putting all of the previously
off-budget Federal entities into the budget and moving social secu
rity off-budget. The first section below discusses the off-budget
Federal entities.
This is followed by a discussion of fiscal activities that are out
side the scope of budget outlays by their inherent nature. Taxation
and tax expenditures have significant allocative effects on the
economy that are analogous to budget outlays. Some types of regu
lation have economic effects that are similar to budget outlays by
requiring the private sector to make expenditures for specified
purposes such as safety and pollution control. Two other major
fiscal activities not recorded in budgetary outlays are the outlays of
the Government-sponsored enterprises, which are excluded from
the budget because the enterprises are privately owned, and loan
guarantees, which generally do not result in budget outlays except
in the case of default. Government-sponsored enterprises and loan
guarantees are discussed in Part 3b, of this volume, “Federal
Credit,” together with Federal direct loans. Part 3b also discusses
an Administration proposal to make budgetary accounting for loan
guarantees and direct loans more comparable with budgetary ac
counting for other programs.
Off-budget Federal Entities.—The Federal Government has used
the unified budget concept as the foundation for its budgetary
analysis and presentation since the 1969 budget. This concept calls
for the budget to include all of the Government’s fiscal transac
tions with the public. Starting in 1971, however, various laws have
been enacted under which several Federal entities have been re
moved from the budget or created outside the budget. Other laws
PERSPECTIVES ON THE BUDGET
6a-7
have moved certain off-budget Federal entities onto the budget.
Under current law the off-budget Federal entities consist of the two
social security trust funds, old-age and survivors insurance and
disability insurance.3
The off-budget Federal entities are federally owned and con
trolled, but their transactions are excluded from the budget totals
under provisions of law. When an entity is off-budget, its receipts,
outlays, and surplus or deficit are not included in budget receipts,
budget outlays, or the budget deficit; its budget authority is not
included in the totals of budget authority for the budget; and its
receipts, outlays, and surplus or deficit ordinarily are not subject to
the targets set by the congressional budget resolution.4 5
Nevertheless, the Balanced Budget and Emergency Deficit Con
trol Act of 1985 (commonly known as the Gramm-Rudman-Hollings
Act) included the off-budget surplus or deficit in calculating the
deficit targets under that Act and in calculating the excess deficit
for purposes of that Act.6 Partly because of this reason, attention
has focused on the total receipts, outlays, and deficit of the Federal
Government instead of the on-budget amounts alone. Many of the
tables in the budget documents include both on-budget and offbudget amounts, adding them together to arrive at the total Feder
al receipts, outlays, and deficit. Other tables include the on-budget
and off-budget amounts only in combination in order to concen
trate on the total amounts of the Federal Government.
The Federal entities that were off-budget until 1986 primarily
made direct loans to the public. The Gramm-Rudman-Hollings Act,
however, placed on budget all of the entities that were then offbudget. This Act also changed the budgetary status of social securi
ty. The Social Security Amendments of 1983 had already provided
that beginning in 1993 the old-age and survivors insurance trust
fund (OASI), the disability insurance trust fund (DI), and the hospi
tal insurance trust fund (HI) would be excluded from the budget.
The Gramm-Rudman-Hollings Act provided that OASI and DI (but
not HI) be off-budget as of 1986, even though, as noted above, it
also provided that their receipts and disbursements should be in
cluded in calculating the deficit targets. In order to provide consist
ent comparisons over time, the on-budget and off-budget amounts
for previous years that are published in the budget documents are
all calculated on the basis of the current definition of off-budget
Federal entities.
3 The “Perspectives” part of the 1986 and preceding Budgets describes the history of the off-budget Federal
entities.
4 Financial statements for the off-budget Federal entities are published in the chapter entitled “Department
of Health and Human Services, Social Security,” in the Appendix, Budget of the United States Government,
Fiscal Year 1988, Part I.
5 The Board of Governors of the Federal Reserve System is a Federal organization. It is excluded from the
budget, from this discussion, and from the legislative proposals and changes in law. Financial statements are
published for information purposes in the Appendix, Part IV, “Government-Sponsored Enterprises.”
6 The role of these particular deficit figures is explained in Part 6b of this volume.
6a-8
THE BUDGET FOR FISCAL YEAR 1988
COMPARISON OF TOTAL, ON-BUDGET, AND OFF-BUDGET TRANSACTIONS 1
(In billions of dollars)
Outlays
Receipts
Fiscal year
Total
Onbudget
1970.. .. .. .. .. .. .. .. .. .. ..
1971.. .. .. .. .. .. .. .... .. ..
1972.. .. .. .. .. .. .. .. .. .. ..
1973.. .. .. .. .. .. .. .. .. .. ..
1974.. .. .. .. .. .. .. .. .. .. ..
192.8
187.1
207.3
230.8
263.2
159.3
151.3
167.4
184.7
209.3
1975.. .. .. .. .. .. .. .. .. .. ..
1976.. .. .. .. .. .. .. .. .. .. ..
TQ.. .. .. .. .. .. .. .. .. .. .. .. .
1977.. .. .. .. .. .. .. .. .. .. ..
1978.. .. .. .. .. .. .. .. .. .. ..
1979.. .. .. .. .. .. .. .. .. .. ..
279.1
298.1
81.2
355.6
399.6
463.3
1980.. .. .. .. .. .. .. .. .. .. ..
1981.. .. .. .. .. .. .. .. .. .. ..
1982.. .. .. .. .. .. .. .. .. .. ..
1983.. .. .. .. .. .. .. .. .. .. ..
1984.. .. .. .. .. .. .. .. .. .. ..
1985.. .. .. .. .. .. .. .. .. .. ..
1986.. .. .. .. .. .. .. .. .. .. ..
1987 est.. .. .. .. .. .. .. .. ..
1988 est.. .. .. .. .. .. .. .. ..
1989 est.. .. .. .. .. .. .. .. ..
Offbudget
Total
Onbudget
33.5
35.8
39.9
46.1
53.9
195.6
210.2
230.7
245.7
269.4
168.0
177.3
193.8
200.1
217.3
216.6
231.7
63.2
278.7
314.2
365.3
62.5
66.4
18.0
76.8
85.4
98.0
332.3
371.8
96.0
409.2
458.7
503.5
517.1
599.3
617.8
600.6
666.5
403.9
469.1
474.3
453.2
500.4
113.2
130.2
143.5
147.3
166.1
734.1
769.1
842.4
916.6
976.2
1990 est.. .. .. .. .. .. .. .. .. 1,048.3
1991 est.. .. .. .. .. .. .. .. .. 1,123.2
1992 est.. .. .. .. .. .. .. .. .. 1,191.2
Surplus or deficit (-)
Offbudget
Offbudget
Total
On-budget
27.6
32.8
36.9
45.6
52.1
-2.8
-23.0
-23.4
-14.9
-6.1
-8.7
-26.1
-26.4
-15.4
-8.0
5.9
3.0
3.1
0.5
1.8
271.9
302.2
76.6
328.5
369.1
403.5
60.4
69.6
19.4
80.7
89.7
100.0
-53.2
-73.7
-14.7
-53.6
-59.2
-40.2
-55.3
-70.5
-13.3
-49.7
-54.9
-38.2
2.0
-3.2
-1.4
-3.9
-4.3
-2.0
590.9
678.2
745.7
808.3
851.8
476.6
543.0
594.3
661.2
686.0
114.3 -73.8 -72.7
135.2 -78.9 -73.9
151.4 -127.9 -120.0
147.1 -207.8 -208.0
165.8 -185.3 -185.6
-1.1
-5.0
-7.9
0.2
0.3
547.9
568.9
628.4
674.5
712.8
186.2 946.3
200.2 989.8
214.0 1,015.6
242.1 1,024.3
263.4 1,069.0
769.5
806.3
821.1
821.9
857.3
176.8
183.5
194.5
202.4
211.7
-221.6
-237.5
-192.7
-147.4
-144.5
9.4
16.7
19.5
39.7
51.7
761.6
815.4
865.9
286.6 1,107.8
307.7 1,144.4
325.3 1,178.9
885.4
911.1
935.1
222.4
233.3
243.9
-59.5 -123.8
-21.3 -95.7
12.3 -69.1
64.3
74.4
81.4
-212.3
-220.7
-173.2
-107.8
-92.8
1 The division of transactions between on-budget and off-budget is based for all years on the current definition of off-budget Federal entities.
The accompanying table compares the total Federal Government
receipts, outlays, and deficit with the amounts that are on-budget
and off-budget (i.e., OASI and DI). In 1988 the off-budget receipts
are an estimated 26 percent of total receipts, and the off-budget
outlays are an estimated 20 percent of total outlays. The off-budget
surplus of $39.7 billion is significant relative to the on-budget defi
cit of $147.4 billion. As shown in this table, off-budget receipts and
outlays have grown more rapidly than the on-budget amounts since
1970 and are estimated to continue growing more rapidly through
1992. The off-budget entities in total had deficits during 1976-82,
but because of the Social Security Amendments of 1983 and an
improving economy they have had surpluses beginning in 1983 and
are estimated to have growing surpluses through 1992.
Taxation and Tax Expenditures.—Taxation provides the Govern
ment with receipts, which withdraw purchasing power from the
private sector in order to finance direct Government expenditure.
In addition to this effect, the structure of the tax system has
PERSPECTIVES ON THE BUDGET
6a-9
important effects on the allocation of resources among private uses
and the distribution of income among individuals. These effects are
caused by the choice of taxes and by the structural characteristics
of each of these different taxes—for example, by the rate schedules,
exemptions, deductions, and exclusions of the individual income
tax. The effects of taxation on resource allocation and income
distribution are analogous to the effects of outlays.
Some features of the tax system have been defined as “tax ex
penditures” and receive special attention in the budget. Tax ex
penditures are defined as amounts attributable to provisions of the
Federal income tax laws that allow a special exclusion, exemption,
or deduction from gross income or that provide a special credit, a
preferential rate of tax, or a deferral of tax liability. The Congres
sional Budget Act requires that estimates of tax expenditures be
published in the budget.
Tax expenditures are so designated because they are one means
by which the Federal Government pursues public policy objectives,
and because in many cases they can be regarded as an alternative
means of achieving the same objectives as direct expenditures.
They can also be regarded as an alternative means of achieving the
same objectives as other instruments of Government policy, such as
loan guarantees, regulations, and provisions of the tax law other
than those provisions that cause tax expenditures. There are nu
merous examples of the similarity in objective between tax expend
itures and direct outlays. For instance, the cost of medical care is
reduced both by direct Government expenditures for the medicare
and medicaid programs and by the exclusion from individual
income of the medical insurance premiums that employers pay for
their employees; and the cost of borrowing by eligible persons and
businesses is reduced both by direct loans at subsidized interest
rates and by tax exemption for certain bonds. Similarly, State and
local governments benefit both from direct grants and from the
ability to borrow funds at tax-exempt rates; and individuals benefit
both from social security payments and from the tax exemption of
most of these payments.
Tax expenditures ordinarily result from permanent legislation.
They therefore are not submitted to the Congress each year and do
not routinely receive a formal and systematic annual review. In
this sense they share a legislative status with entitlement pro
grams, such as social security, which do not require annual appro
priations. However, tax expenditures, other provisions of the
income tax, and other tax laws are generally reviewed whenever
fiscal policy decisions are considered regarding the overall level of
tax receipts. As described in Part 4 of this volume, several major
income tax laws have been adopted since 1981. Most recently the
Tax Reform Act of 1986, which was enacted after a comprehensive
6a-10
THE BUDGET FOR FISCAL YEAR 1988
review of the income tax law by the Treasury Department and the
Congress, made major revisions to both tax expenditures and other
provisions of the individual and corporation income taxes.
The classification of certain provisions of law as resulting in tax
expenditures requires some baseline tax structure against which
the actual tax law can be compared. Deviations of the law from
this baseline are deemed to cause tax expenditures. The Congres
sional Budget Act does not provide an exact specification of the
baseline against which tax expenditures are to be measured.
The baseline used in the budget is intended to consist of the
general provisions of the Internal Revenue Code. For the individual
income tax, the baseline introduced in the 1983 budget specified
those provisions that exist under current law for the definition of
taxpaying units (including the separate corporation income tax),
graduated rate schedules, personal exemptions, standard deduc
tions, and basic accounting rules. The baseline before 1983 was
similar, but in addition it required that the time pattern of depre
ciation deductions approximate the useful life of assets and that all
cash transfers from government be included in calculating taxable
income. By definition, characteristics of the tax structure included
in the baseline do not give rise to tax expenditures.
The use of many of the general provisions of the Internal Reve
nue Code for defining both of these baseline tax structures makes
it clear that listing an item as a tax expenditure does not imply
that it is either a desirable or an undesirable provision. When
different provisions of the Code are considered to be in the base
line, the list of tax expenditures is different and the amounts of
particular tax expenditures may also be different. For example, in
contrast with the baseline used in earlier years, the baseline intro
duced in the 1983 budget has considered the accelerated cost recov
ery system (ACRS) to be the general method for depreciating assets
placed in service before January 1, 1987 (at which time the Tax
Reform Act changed the general method for depreciating assets);
this baseline therefore has included ACRS as part of the baseline
deductions. This baseline has also excluded public assistance pay
ments from baseline income. Therefore, under this baseline, unlike
the pre-1983 baseline, tax expenditures do not arise from either the
use of ACRS or the exclusion of public assistance benefits from
adjusted gross income. The present budget shows tax expenditures
relative to both of these baselines.
These two baselines are not the only ones that might be used. In
particular, a baseline tax structure might reflect a truly compre
hensive income tax base. A truly comprehensive income tax base,
among other differences from present law, would adjust income for
the effect of inflation; would integrate the individual and corpora
tion income taxes rather than regard the separate tax treatment of
PERSPECTIVES ON THE BUDGET
6a-ll
individuals and corporations as part of the baseline tax structure;
would include imputed income, such as the consumption benefits
received from owner-occupied homes; and would tax income when
it was accrued instead of when it was realized. Thus, for example,
the failure under present law to tax imputed income would be
regarded as giving rise to tax expenditures. On the other hand, the
failure under present law to take account of inflation in measuring
capital gains, depreciation, and interest income would be regarded
as negative tax expenditures, since these deviations from the com
prehensive baseline would raise the amount of taxes paid. Conse
quently, under such a baseline structure, the list of tax expendi
tures and their estimated amounts would be different from what
they are now.
Some of the items listed as tax expenditures under one or both of
the present baselines can be regarded to some degree as inexact
but practicable adjustments to correct for departures of the base
line from a fully comprehensive tax base. For example, the use of
more accelerated depreciation methods than economic life—which
is a tax expenditure under the pre-1983 baseline—may be regarded
as a means of offsetting the failure to adjust depreciation deduc
tions for increases in the price level.
Regardless of how the baseline is defined, the provisions of the
tax law that do not result in tax expenditures deserve as much
scrutiny as the provisions of the tax law that do. This is because
the other provisions also have major effects on the allocation of
resources and the distribution of income, and because these other
provisions may be alternative means of achieving the same objec
tives or analogous objectives as tax expenditures achieve. For ex
ample, investment in equipment may be stimulated by either an
increase in the investment tax credit or a decrease in the corpora
tion income tax rate; the former is a change in a tax expenditure,
but the latter is not. Similarly, income support may be provided by
either the exclusion of social security benefits from taxable income
or by the standard deduction; the former causes a tax expenditure,
but the latter does not.
Tax expenditures are estimated in two steps. First, the revenue
loss of a tax provision is estimated, i.e., the difference between tax
receipts and the amount that tax receipts would be if the tax law
conformed to a specified baseline. If removing a tax provision
would increase taxable income, for example, the revenue loss is
estimated as the increase in taxable income multiplied by the tax
rate that would be paid on the additional income.
The revenue loss is then adjusted to an outlay equivalent, i.e.,
the amount of outlays that would be required to provide an equal
after-tax income to the taxpayer as the special tax provision pro
vides (and thereby also to provide an equal incentive). In many
6a-12
THE BUDGET FOR FISCAL YEAR 1988
cases the required outlays are greater than the revenue loss, be
cause taxpayers would have to pay taxes on the higher income
derived from the outlays. For example, one tax expenditure provi
sion is the exclusion from taxable income of the value of housing
and meals supplied to military personnel. If the Government were
to repeal this tax exclusion and instead pay higher salaries, the
increase in salaries would be taxed. Consequently, if the Govern
ment were to use taxable direct expenditures rather than tax
expenditures and were to provide the same total after-tax compen
sation, the increase in direct outlays for higher salaries would have
to be greater than the revenue loss under the special tax provision.
The Federal deficit would be the same in either case, however,
because higher outlays would be required only to the extent needed
to make up the difference caused by higher tax receipts.
This adjustment makes the tax expenditures more comparable
with direct outlays than the revenue loss would be and therefore
more useful in analyzing Federal programs. For some tax expendi
tures, though, the revenue loss is equivalent to a direct outlay
without any adjustment. Special Analysis G, “Tax Expenditures,”
presents estimates of tax expenditures defined both as outlay
equivalents and as revenue losses, but for program analysis in this
budget only the outlay equivalent estimates are used.
The size of a particular tax expenditure depends not only on the
tax provision in question but also on the interaction of this provi
sion with the rest of the tax structure. The reductions in the
individual and corporation income tax rate schedules provided by
the Tax Reform Act of 1986, for example, have automatically de
creased most tax expenditures below what they otherwise would
have been. A tax rate reduction decreases the amount of receipts
that would be gained by repealing deductions, exemptions, and
exclusions, because lower tax rates are applied to the increase in
taxable income.
The interaction among tax provisions means that special calcula
tions are generally needed to add tax expenditures together. For
example, if more than one exclusion from individual income were
ended, the gain in receipts would generally be greater than the
sum of the separate tax expenditures, because some taxpayers
would move into higher tax rate brackets. If more than one person
al deduction were ended, the gain in receipts would generally be
smaller than the sum of the separate tax expenditures, because
some taxpayers would switch to using the standard deduction. Con
sequently, adding together separate tax expenditures would usually
be inaccurate, and they are not aggregated in this budget except
for specially computed totals by functional category.
Tax expenditures are presented at two places in the budget. Part
5, “Federal Programs by Function: Meeting National Needs,” dis
PERSPECTIVES ON THE BUDGET
6a-13
cusses the major tax expenditures in each functional category,
together with outlays and guaranteed loans, in order to describe
more fully the Government’s policy. Special Analysis G, “Tax Ex
penditures,” analyzes the concept and measurement of tax expendi
tures and presents a complete list of tax expenditure estimates for
1986-88. The discussion in Part 5 and the functional totals are
based on the pre-1983 baseline.
As discussed in Part 4 of this volume, “Federal Receipts by
Source,” the Tax Reform Act of 1986 made major revisions to the
individual and corporation income taxes. Many of its provisions
repeal or directly reduce tax expenditures. For example, the invest
ment tax credit is repealed, the personal deduction for sales taxes
is eliminated, the personal deduction for interest on consumer
credit is phased-out, the exclusion of contributions to individual
retirement accounts (IRAs) is restricted, all of long-term realized
capital gains are included in income, and the deductibility of pas
sive business losses is limited. The Act also changed provisions of
law other than tax expenditures, notably by decreasing the individ
ual and corporation income tax rates and also by such provisions
as raising personal exemptions and the standard deduction. To a
significant extent the lower tax rates and the reduction in tax
expenditures were a trade-off for each other.
The Administration is proposing some changes affecting tax col
lections in the present budget, which are largely trust fund reforms
and initiatives to collect taxes owed but not paid. One tax expendi
ture would be repealed, the exclusion from income of the income
replacement benefits for coal miners disabled by black lung dis
ease. The other proposed measures would change receipts but not
tax expenditures, such as repealing various exemptions from the
gasoline and diesel fuel taxes and extending medicare (hospital
insurance) coverage to the minority of State and local government
employees who are now exempted.
Regulation.—Federal regulations provide a large variety of goods
and services to the public, including the protection of the environ
ment, the creation of incentives for the development of useful
innovations, and the fair and efficient disbursement of Federal
entitlements. These three types of regulatory activities are exam
ples of the major categories of regulation: social, economic, and
managerial. Social regulation generally establishes standards
either for the characteristics of products or for the methods of
producing products. Social regulations are usually aimed at curbing
the unintended, harmful effects of products or production methods,
such as pollution and accidents from industrial production or prod
uct use. Economic regulation directly controls prices and market
entry in order to promote competition and curb monopolistic be
havior. In the last ten years the scope of economic regulation at
180-600 0 - 87 - 11 : QL 3
6a-14
THE BUDGET FOR FISCAL YEAR 1988
the Federal level has been significantly reduced as the harmful
effects of regulating naturally competitive industries have become
better understood.7 Finally, managerial regulation sets the condi
tions for the efficient and proper use of Government funds and
property and ranges from the terms for procurement of Govern
ment purchases to the Federal tax code.
Social regulation differs from the other Federal activities outside
the budget—from loan guarantees and tax expenditures, in particu
lar, and also from the other forms of regulation—by directly re
quiring expenditures for specific public purposes rather than induc
ing desired private action by offering various types of incentives.
Nevertheless, social regulatory activities are directly analogous to
budget outlays in two important ways.
First, the expenditures required by regulation have many of the
same overall economic effects on output, employment, prices, and
growth as do budget outlays. The Federal Government finances
outlays by diverting resources from the private sector through
taxation or borrowing. Similarly, business firms finance expendi
tures required by regulation (e.g., for pollution control) by borrow
ing, increasing prices, reducing other expenditures, or reducing
dividends. These, of course, are the same ways firms finance taxes
and thus have the same general effects on the economy as do many
taxes. The incentive effects on working, investing, and saving may
differ from income taxes, however, to the extent that tax liability is
more directly tied to earnings, profits, and interest income than is
regulation. Thus regulation may be closer to user fees and excise
taxes in such impacts than to income taxes. In such instances
social regulation can be considered a cost of production.
Second, the effects of social regulation on the allocation of eco
nomic resources are also similar to the effects of budget outlays.
Most fundamentally, in both cases private resources are diverted to
public purposes. Furthermore, in many cases expenditures required
by regulation may be an alternative means of achieving the same
public policy objectives as budget outlays or other instruments of
Government policy such as taxes, tax expenditures, or loan guaran
tees. For example, firms can be required by regulation to treat
their effluents before dumping. Alternatively, public waste water
treatment facilities can be constructed by direct expenditure of the
Federal Government; such facilities can be constructed by States
and localities with assistance in the form of Federal outlays for
grants; they can be constructed by private firms with assistance
from Federal loan guarantees for their borrowing, Federal income
tax exemption for the interest on their bonds, or rapid amortiza
tion of their capital costs for determining their Federal income tax;
7 A brief history of this deregulatory effort is presented in chapter 5, “Reforming Regulation: Utilizing Market
Incentives,” of the Economic Report of the President (February 1986).
PERSPECTIVES ON THE BUDGET
6a-15
or the Federal Government could even charge firms an effluent fee
sufficient to cause them to cut back on their dumping by the same
amount. The basic allocative effects are similar, although the effi
ciency of the method might differ from one policy instrument to
another, and the implications for the distribution of income might
also differ.
Perhaps the most basic procedural difference between budget
outlays, loan guarantees, and tax expenditures on the one hand,
and expenditures to meet social regulations on the other, is that no
systematic accounting is kept of the latter. Some incomplete esti
mates of these expenditures have been made by adding up esti
mates of the costs of individual regulations made by various re
searchers, who often use different methods, assumptions, and time
periods. Not surprisingly, these estimates show considerable varia
tion. They range from about $50 billion to $150 billion per year,
which is equal to about 5 to 15 percent of Federal outlays.
The Federal Government thus does not currently have any
formal accounting of regulatory costs or any process analogous to
the budget process for the purposes of reviewing and controlling
regulatory costs, either in the aggregate or for individual pro
grams. Nevertheless, new regulatory activities are now examined
under a formal review process established by Executive Order
12291, issued in February 1981, and Executive Order 12498, issued
in January 1985. Executive Order 12291 established regulatory
principles and required each agency covered by the Order to
adhere to them, to the extent permitted by law. Agencies must also
submit drafts of proposed and final rules and drafts of regulatory
impact analyses, before they are issued, to the Office of Manage
ment and Budget for review for consistency with the President’s
principles. According to these principles, agencies must:
• base regulations upon adequate information concerning the
need for and consequences of the proposed action,
• not issue regulations unless the potential benefits to society
outweigh the potential costs to society, and
• select the alternative approach to a given regulatory objective
that involves the least net cost to society.
These policies are conducted within the statutory authorities of the
agencies and apply only to the extent of the discretion given by the
statutes to Federal regulatory officials.
Executive Order 12498 established that an annual regulatory
program would be developed and published each year in order to
explain the Administration’s regulatory plan and priorities for the
upcoming year. Agencies are required to submit to the Office of
Management and Budget a statement of the regulatory policies,
goals, and objectives they intend to pursue during the coming year.
This Executive Order also directs the agencies to provide summary
6a-16
THE BUDGET FOR FISCAL YEAR 1988
descriptions of all significant regulatory actions underway or
planned for the coming year. The Office of Management and
Budget is directed by the Executive Order to review each agency’s
draft regulatory program for consistency with the Administration’s
regulatory policies and priorities and with the regulatory programs
submitted by other agencies. The first Regulatory Program of the
United States Government was published August 8, 1985, and the
second on August 7, 1986.
This program moves the regulatory oversight process a step
closer toward the budgetary process, because the Administration’s
priorities and goals are now spelled out in one document for Con
gress and the American people to understand and review. This
process, however, cannot deal systematically with the overall
impact of regulatory activities on the economy until an estimate of
the annual incremental expenditures required by regulation is
made. This is extremely difficult because, unlike budgetary deci
sions, regulatory decisions are still to a large extent made on an
individual basis.
In an effort to determine better the overall effects of regulatory
activities and to improve the regulatory oversight process, mem
bers of Congress and the past two Administrations have considered
developing an accounting framework to track expenditures directly
required by regulation. This framework, however, is still in the
proposal stage, and more work needs to be done to solve the practi
cal accounting problems inherent in measuring private regulatory
expenditures.
One practical problem is that in order to get accurate expendi
ture figures it might be necessary to ask private firms and individ
uals to keep records, which would create a considerable compliance
burden. Second, estimating which expenditures were made because
of a regulation compared to which would have occurred in the
absence of regulation is often extremely subjective. For example, in
the absence of regulations for automobile safety standards some
level of safety would still be built into vehicles, but since the
amount is unknown the additional cost of regulation cannot be
calculated accurately. A third type of problem arises because the
indirect costs of regulation are extremely difficult to estimate and
probably are relatively more important for regulation than for
spending and taxing.
Indirect costs result when regulation reduces otherwise desirable
economic activities by raising production or product costs, by
making the product less desirable, or, in the extreme, by banning
the product or making it unprofitable to produce. The economic
loss caused by this decline in economic activity is the excess of the
value to consumers of this forgone output above the costs of pro
duction. Since this indirect cost is not directly measurable, and can
PERSPECTIVES ON THE BUDGET
6a-17
only be estimated by complicated statistical models, it would be
problematic to combine estimates of these indirect costs with the
direct costs of regulation. Yet measuring only the direct expendi
ture costs of regulation for use in an oversight program may create
a bias toward banning substances and products rather than con
trolling them, since banning a product, service, or manufacturing
process mainly gives rise to indirect costs. These practical prob
lems, although important, do not appear to be intractable. They
should be addressed, however, in developing an accounting system
for measuring the aggregate impacts of regulation.
BUDGET FUNDS AND THE FEDERAL DEBT
The budget consists of two major groups of funds: Federal funds
and trust funds. The Federal funds are derived mainly from tax
receipts and borrowing and are used for the general purposes of
the Government. Most of these funds are not restricted by law to
any specific Government program. The trust funds, on the other
hand, collect certain taxes and other receipts for specified purposes,
such as paying social security and unemployment insurance bene
fits. The social security trust funds (old-age and survivors insur
ance and disability insurance) are now excluded from the budget by
law and classified as off-budget Federal entities.
The budget includes the receipts and outlays of both the Federal
funds and the on-budget trust funds and, as shown in the table on
the next page, deducts the various transactions that occur between
them in order to arrive at the on-budget totals for receipts, outlays,
and the deficit. The on-budget totals plus the off-budget totals may
be added, as shown in this table, to arrive at the total receipts,
outlays, and deficit of the Federal Government. These latter totals
for receipts and outlays thus generally represent the net transac
tions of the Federal Government with the public.8
Therefore, as shown in the subsequent table, the Federal deficit
or surplus is the principal determinant of the change in the Feder
al debt held by the public.9 The Federal deficit, together with the
other factors noted in this table, is estimated to increase the Feder
al debt held by the public by $162.2 billion in 1987 and $106.7
billion in 1988.10 These borrowing projections are based on deficits
that are consistent with the economic assumptions explained in
Part 3a of this volume.
8 Special Analysis C, “Funds in the Budget,” discusses further the two major groups of funds and the offbudget Federal entities.
9 Table 6 in Part 6c of this volume contains more detail on budget financing through 1992 and shows the
levels of debt from 1986 to 1992. Federal borrowing and debt are discussed extensively in Special Analysis E,
“Borrowing and Debt.” Historical data since 1940 are published in Historical Tables, Budget of the United States
Government, Fiscal Year 1988.
10 Some of the data on borrowing and debt for 1985 and 1986 have been retroactively revised from the
amounts previously published in budget documents and Treasury reports. These changes are discussed in
Special Analysis E.
6a-18
THE BUDGET FOR FISCAL YEAR 1988
TRANSACTIONS BY FUND GROUP
(In billions of dollars)
1986
actual
1987
estimate
1988
estimate
1989
estimate
1990
estimate
Receipts:
On-budget:
Federal funds.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . 473.5 526.1
569.0 601.4 645.7
Trust funds.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 206.9 215.1
232.5 243.9 257.3
Interfund transactions.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. -111.6 -112.9 -127.1 -132.5 -141.3
Total, on-budget receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . 568.9 628.4 674.5 712.8 761.6
Off-budget (trust funds).. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 200.2 214.0 242.1
263.4 286.6
Total, Federal Government receipts.. .. .. .. .. .. .. .. .. .. .. 769.1 842.4 916.6 976.2 1,048.3
Outlays:
On-budget:
Federal funds.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
756.5 769.1
780.5 813.3 840.5
Trust funds.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 161.4 164.8 168.5 176.6 186.2
Interfund transactions.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. -111.6 -112.9 -127.1 -132.5 -141.3
Total, on-budget outlays.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 806.3 821.1 821.9 857.3 885.4
Off-budget (trust funds).. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 183.5 194.5 202.4 211.7 222.4
Total, Federal Government outlays.. .. .. .. .. .. .. .. .. .. .. . 989.8 1,015.6 1,024.3 1,069.0 1,107.8
Surplus or deficit (-):
On-budget:
Federal funds.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . -283.0 -243.0 -211.4 -211.8 -194.9
Trust funds.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
50.3
64.0
67.3
71.1
45.5
Total, on-budget surplus or deficit (—).. .. .. .. .. .. .. . -237.5 -192.7 -147.4 -144.5 -123.8
39.7
Off-budget (trust funds).. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
16.7
51.7
19.5
64.3
Total, Federal Government surplus or deficit
(-).. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
-220.7 -173.2 -107.8
-92.8
-59.5
Gross Federal debt is the sum of the debt held by the public and
the debt held by the Government itself, which includes such invest
ments as the Treasury debt held by the social security, unemploy
ment, and other trust funds. At the end of 1988 gross Federal debt
is estimated to be $2,585.5 billion, of which debt held by the Gov
ernment itself is $570.4 billion and debt held by the public is
$2,015.1 billion. Thus, gross Federal debt is much larger than the
Federal debt held by the public.
Gross Federal debt is estimated to rise by $213.0 billion during
1988. As indicated in the lower section of the following table, $106.3
billion of this increment will be held in trust funds and other
Government accounts. This is nearly all due to the investment of
trust fund surpluses in Treasury debt.
The gross Federal debt consists almost entirely of securities
issued by the Treasury Department. However, a few Government
agencies are authorized to issue their own debt instruments to the
public or to other Government accounts. These securities are part
of the gross Federal debt. At the end of 1986 the public held $3.7
6a-19
PERSPECTIVES ON THE BUDGET
FEDERAL GOVERNMENT FINANCING AND CHANGE IN DEBT OUTSTANDING 1
(In billions of dollars)
Description
1986 actual
1987 estimate
1988 estimate
1989 estimate
1990 estimate
-220.7
-173.2
-107.8
-92.8
-59.5
On-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. (-237.5) (-192.7) (-147.4) (-144.5) (-123.8)
Off-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
(39.7)
(19.5)
(16.7)
(64.3)
(51.7)
Surplus or deficit (—).. .. .. .. .. .. .. .. .. .. .. .. ..
Means of financing other than borrowing
from the public:
Decrease or increase (-) in Treasury
operating cash balance.. .. .. .. .. .. .. .. .. .
Increase or decrease (-) in:
Checks outstanding, etc.. .. .. .. .. .. .. .. .. .
Deposit fund balances.. .. .. .. .. .. .. .. .. .. .
Seigniorage on coins.. .. .. .. .. .. .. .. .. .. .. .. ..
Total, means of financing other
than borrowing from the public.. .
-14.3
11.4
1.9
-3.5
.4
1.9
-2.8
.4
1.8
-1.2
,4
.4
.4
-15.6
10.9
1.0
.4
.4
Total, requirements for borrowing
from the public.. .. .. .. .. .. .. .. .. .. ..
-236.3
-162.2
-106.7
-92.3
-59.1
Change in debt held by the public.. .. .. .. .. .
236.3
162.2
106.7
92.3
59.1
.9
63.3
-.9
61.5
1.2
66.6
67.3
71.1
8.6
-3.4
19.5
-2.8
39.7
-1.2
51.7
64.3
69.4
77.3
106.3
119.0
135.4
305.7
239.5
213.0
211.4
194.4
Change in Federal debt held by Govern
ment accounts:
Federal funds.. .. .. .. .. .. .. .. .. .. .. .. .. ..
Trust funds (on-budget)2.. .. .. .. .. ..
Off-budget Federal entities (trust
funds) 3 .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Deposit funds4.. .. .. .. .. .. .. .. .. .. .. .. .
Total, change in Federal debt
held by Government accounts....
Change in gross Federal debt.. .. .. .. .. .. .. .. .
1 Several amounts have been assumed to be zero in 1988-90 because they are usually small and cannot be estimated accurately.
2 Estimates for 1989 and 1990 are equal to the surplus of the trust funds on-budget.
3 Estimates for 1989 and 1990 are equal to the surplus of the trust funds off-budget.
4 Only those deposit funds classified as Government accounts.
billion of agency debt, most of which was issued some years ago by
agencies that no longer borrow or that borrow only from the Feder
al Financing Bank (FFB). The FFB finances its purchases of agency
debt mostly by borrowing from the Treasury, which in turn bor
rows from the public. The agency debt held by the FFB is not
included in gross Federal debt, in order to prevent double counting.
Almost all the new agency borrowing from the public is inherent
in the way that the agency operates a program. In particular,
during 1986 the Federal Deposit Insurance Corporation began to
issue notes as part of some agreements with prospective purchasers
to buy failing banks. The issuance of these notes is an outlay and a
borrowing.11
Almost all Treasury securities are covered by a general statutory
debt limitation. The present limit is $2,300 billion through May 15,
11 This type of transaction is discussed more fully in Special Analysis E, “Borrowing and Debt.’
6a-20
THE BUDGET FOR FISCAL YEAR 1988
FEDERAL FUNDS FINANCING AND CHANGE IN DEBT SUBJECT TO LIMIT
(In billions of dollars)
1986
actual
1987
estimate
1988
estimate
-283.0
-243.0
-211.4
-14.3
11.4
-7.7
-3.5
.4
-25.1
-9.3
-2.8
.4
— .2
-.9
-1.2
.4
-1.6
Decrease or increase (-) in Federal debt held by Federal funds and
deposit funds1.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Increase or decrease (—) in Federal funds debt not subject to limit.. .. ..
Total, requirements for borrowing subject to debt limit.. .. .. .. .. .. .
2.5
18.5
-287.2
3.7
-2.8
-242.3
-6.7
-219.7
Change in debt subject to limit.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
287.2
242.3
219.7
Description
Federal funds surplus or deficit (—).. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Means of financing other than borrowing:
Decrease or increase ( —) in Treasury operating cash balance.. .. .. .. ..
Increase or decrease (-) in:
Checks outstanding, etc.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Deposit fund balances.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Seigniorage on coins.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Total, means of financing other than borrowing.. .. .. .. .. .. .. .. .. .. .
_*
*$50 million or less.
1 Only those deposit funds classified as Government accounts.
1987, at which time it is scheduled to return to $2,111 billion. The
debt subject to limit is estimated to rise to $2,353.3 billion by the
end of 1987. Therefore, in order to permit the Federal Government
to meet its obligations, the limit will have to be raised.
Debt subject to the general statutory limit, like gross Federal
debt, includes debt held internally within the Government, such as
the Treasury issues held by the social security trust funds. Debt
subject to the statutory limit is therefore much larger than the
debt held by the public and is nearly as large as gross Federal debt.
It is a little less than gross Federal debt because a few types of
Treasury debt and most agency debt are excluded from the general
statutory limitation.
Since trust fund surpluses for the most part have been invested
in debt securities, rather than being held as cash assets, the Feder
al funds deficit must be financed primarily by borrowing. This debt
is almost entirely subject to the statutory limit. As shown in the
table above, the estimated Federal funds deficit is $211.4 billion in
1988, and the estimated increase in debt subject to statutory limit
is $219.7 billion. Thus, the Federal funds deficit approximately
accounts for the increase in the debt subject to limit.
COMPARISON OF ACTUAL AND ESTIMATED FEDERAL
GOVERNMENT TOTALS FOR 1986
The following sections compare the actual 1986 receipts, outlays,
and deficit with the amounts estimated in the 1986 budget, which
was transmitted to the Congress in February 1985 for the fiscal
year ending on September 30, 1986.
6a-21
PERSPECTIVES ON THE BUDGET
Comparison of Receipts.—Receipts in 1986 were $769.1 billion,
which is $24.6 billion less than the February 1985 estimate of
$793.7 billion. This was the net effect of differences in tax law from
the legislation proposed in the 1986 budget, lower than anticipated
incomes, and different collection patterns and effective tax rates
than had been assumed.
COMPARISON OF ACTUAL 1986 RECEIPTS WITH THE FEBRUARY 1985 ESTIMATES
(In billions of dollars)
Individual income taxes.. .. .. .. .. .. .. .. .. .. .. .. .. ..
Corporation income taxes.. .. .. .. .. .. .. .. .. .. .. .. .
Social insurance taxes and contributions.. .. .. ..
Excise taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Estate and gift taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Customs duties.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Miscellaneous receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Total.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
February
1985
estimate1
Differences
in tax law
from 1985
proposals
Different
economic
conditions
Technical
factors
Net change
Actual
362.8
74.1
285.4
35.0
5.3
12.3
18.7
793.7
0.6
0.6
-0.4
0.9
-14.8
-13.1
-0.5
-2.8
_*
1.1
-1.9
-32.1
0.4
1.5
-0.6
-0.2
1.6
-0.1
3.1
5.7
-13.9
-10.9
-1.5
-2.1
1.6
1.0
1.2
-24.6
349.0
63.1
283.9
32.9
7.0
13.3
19.9
769.1
1.8
*$50 million or less.
1 The February 1985 estimates have been adjusted by the following amounts to reflect changes in the classification of taxes on social security
benefits: individual income taxes ($4.0 billion), social insurance taxes and contributions (-$4.1 billion), and miscellaneous receipts ($0.1 billion).
Differences in tax law from the legislation proposed in the
budget increased 1986 receipts by $1.8 billion. These legislative
differences consisted of congressional inaction on, or modification
of, the proposals in the 1986 budget, and of changes in law that the
administration did not propose at that time.
Several user fees and trust fund reforms were proposed in the
1986 budget. Other proposed changes included incentives for higher
education, a tuition tax credit, and incentives for the redevelop
ment of economically distressed areas. Altogether, the February
1985 proposals were estimated to reduce 1986 receipts by an esti
mated $0.2 billion.
The Consolidated Omnibus Budget Reconciliation Act of 1985
(COBRA) and several temporary extensions of the 16 cents per
pack excise tax on cigarettes, which would have otherwise expired
on September 30, 1985, were the only major tax changes enacted
after February 1985 that affected 1986 receipts. Several of the
provisions of COBRA were modifications of the user fees and trust
fund reforms proposed in the budget; but others, such as the per
manent extension of the 16 cents per pack cigarette excise tax and
the extension of medicare coverage to State and local employees
hired after March 31, 1986, had not been proposed in the budget.
The provisions of COBRA, together with the previous temporary
extensions of the cigarette excise tax and several minor legislative
changes, increased 1986 receipts by $1.6 billion, which is $1.8 bil
lion more than the administration had proposed.
6a-22
THE BUDGET FOR FISCAL YEAR 1988
Differences between the economic assumptions upon which the
original receipts estimates were made and the actual outcome—
primarily incomes and oil prices that proved to be lower than
anticipated—accounted for a net decrease in receipts of $32.1 bil
lion. Individual income taxes were reduced $14.8 billion due to
lower than expected personal incomes. Lower than anticipated cor
porate profits reduced collections of corporation income taxes by
$13.1 billion. Declining oil prices, which reduced collections of the
windfall profit excise tax, were primarily responsible for the de
crease in excise taxes of $2.8 billion. Higher than expected imports,
due primarily to the continued strength of the dollar relative to
foreign currencies, increased customs duties by $1.1 billion.
Different collection patterns and effective tax rates than had
been assumed in February 1985 increased collections of individual
and corporation income taxes by $0.4 billion and $1.5 billion, re
spectively. Technical factors, including higher holdings of debt se
curities by the Federal Reserve, increased other sources of receipts
by a net $3.8 billion.
Comparison of Outlays.—Outlays for 1986 were $989.8 billion,
which is $16.1 billion higher than the initial estimate made by the
Administration in its budget transmitted to Congress in February
1985. This section reviews the major causes of the increase.
The following table compares the initial outlay estimate with the
actual outlay total and shows both as a percentage of GNP. Total
outlays were 1.6 percent above the initial estimate. The table also
compares defense with nondefense outlays. Actual outlays for de
fense were 4.3 percent below the initial estimate, while outlays for
nondefense programs were 4.1 percent higher.
1986 OUTLAY DIFFERENCES
(Dollars in billions)
February 1985
estimate
Total outlays.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
National defense.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Nondefense.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Total outlays as a percent of GNP.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
973.7
(285.7)
(688.0)
23.2
Actual
989.8
(273.4)
(716.4)
23.8
Percent change
1.6
-4.3
4.1
2.6
Chronology of the outlay increase.—The Administration’s initial
estimate for outlays for 1986 was $973.7 billion. The table below
shows subsequent revisions to this estimate. In April 1985, the
estimate decreased by $2.0 billion largely due to lower inflation
assumptions that reduced estimates of cost-of-living adjustments
for indexed programs and also due to technical reestimates for
Rural Electrification Administration lending. This decline contin
ued through August 1985, when outlay estimates were reduced by
PERSPECTIVES ON THE BUDGET
6a-23
$14.0 billion. This was primarily the result of the Administration’s
acceptance of the lower defense levels included in the 1986 Con
gressional Budget Resolution. These decreases were more than
offset by an increase of $22.2 billion in the 1987 budget. The largest
increases were for farm price supports, net interest, and general
revenue sharing. In August 1986, the outlay estimate was revised
upward by $15.5 billion. This was largely the result of technical
reestimates spread among numerous accounts, but primarily for
the national defense function, farm price supports, and Federal
Deposit Insurance Corporation. Technical reestimates for many
programs account for actual outlays being $5.6 billion below the
August 1986 estimate, with lower outlays for net interest and other
programs partially offset by higher outlays for national defense
and medicare.
CHRONOLOGY OF THE 1986 OUTLAY INCREASE
(In billions of dollars)
February 1985 estimate (1986 Budget).. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
973.7
Changes from previous estimate:
April 1985 (April Update): Decreases of $1.4 billion for social security, $1.3 billion for the Rural
Electrification Administration, and $1.3 billion in net interest were partially offset by increases
of $0.5 billion for medicare and a $0.6 billion decline in offsetting receipts from the Outer
Continental Shelf.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . -2.0
August 1985 (Mid-Session Review): Decreases of $18.6 billion for the national defense function,
$3.2 billion for net interest, and $0.6 billion for medicare were partially offset by an increase
of $2.9 billion for farm price supports.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. -14.0
February 1986 (1987 Budget): Increases of $7.0 billion for farm price supports, $4.6 billion for
net interest, $3.2 billion for general revenue sharing, $2.9 billion for income security, $2.3
billion for agricultural credit insurance, and a variety of other domestic programs were partially
offset by decreases of $3.4 billion for foreign aid and $1.3 billion for the national defense
function.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
22.2
August 1986 (Mid-Session Review): Increases of $5.6 billion for the national defense function,
$5.2 billion for farm price supports, $2.6 billion for the Federal Deposit Insurance Corporation,
$1.3 billion for the Federal Savings and Loan Insurance Corporation, and $0.9 billion for the
Federal ship financing fund were partially offset by decreases of $3.8 billion for net interest,
$0.9 billion for the Export-Import Bank, $0.7 billion for the Postal Service, and $0.6 billion for
social security.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
15.5
September 30, 1986: Decreases of $3.0 billion in net interest, $1.4 billion for international
monetary programs, and $1.0 billion for the Farmers Home Administration were partially offset
by increases of $2.0 billion for the national defense function, and $1.1 billion for medicare.. .. .. . -5.6
Total increase.. .. .. ..... .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
16.1
Actual.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
989.8
Major causes of the increase.—The following table distributes the
$16.1 billion increase in outlays according to three categories: (1)
policy changes, (2) economic conditions, and (3) estimating and
other differences. The amounts in the first two categories represent
approximations for the major items, while the third category is a
residual.
Policy changes to the 1986 budget proposals were a result of
revised Administration proposals and congressional action that dif
fered from the initial Administration proposals. The net effect of
6a-24
THE BUDGET FOR FISCAL YEAR 1988
all policy changes was a $9.3 billion increase in outlays. This effect
includes the $11.7 billion decrease in outlays associated with the
across-the-board reductions and other cuts required by the GrammRudman-Hollings Act. Outlays for national defense programs were
$19.9 billion lower than proposed, due to policy change, whereas
outlays for nondefense programs were $29.2 billion higher. This
pattern of decreased defense outlays and increased nondefense out
lays also occurred for budget proposals in the four previous years.
Outlays for nondefense discretionary programs, including credit
programs, were almost $7 billion above the Administration’s origi
nal proposals due to policy changes. This includes increases in
regular and supplemental appropriations bills, as well as partial
offsets from the Gramm-Rudman-Hollings cuts.
Outlays for benefit payments for individuals were $6.8 billion
above the Administration’s proposals due to policy changes. Policy
changes, largely congressional unwillingness to enact savings pro
posed by the Administration, increased outlays for medicare by
$3.9 billion. Administration proposals to reform medicaid, aid to
families with dependent children (AFDC), child nutrition, and guar
anteed student loans were also not enacted, thus increasing outlays
by $2.5 billion from the President’s original proposals.
SUMMARY OF REASONS FOR DIFFERENCE IN 1986 OUTLAYS
(In billions of dollars)
Total
Reasons for difference (net):
Policy changes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Economic conditions.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Estimating differences and other changes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Total.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
9.3
-4.9
11.7
16.1
Policy changes for other mandatory programs increased non
defense outlays by $10.3 billion. The advanced deficiency payments
and marketing loans required by the farm bill of 1985 caused a $5.3
billion increase in outlays for farm price supports. Outlays for
general revenue sharing were $3.9 billion higher than proposed
because of a delay in the termination of the program and a timing
shift in the payment for the last quarter of 1986.
Policy differences affecting collections that offset outlays in
creased net outlays by $5.3 billion. Most of this change was due to
congressional unwillingness to enact legislation to authorize the
sale of Conrail in 1986 and to implement most of the user fees
proposed by the Administration. It also reflects congressional inac
tion on proposals to partially finance low-income home energy
assistance with recovered oil overcharge funds; to change the for
mula for sharing mineral and timber receipts with the States; and
6a-25
PERSPECTIVES ON THE BUDGET
to liquidate the loan portfolio of the Small Business Administra
tion.
Economic conditions differed from those forecast in February
1985 as shown in the following table. Growth in real GNP fell short
of the growth projected by 1.1 percentage points and 1.3 percentage
points for 1985 and 1986, respectively. Inflation, as measured by
both the GNP deflator and the Consumer Price Index, was lower
than projected for both 1985 and 1986. The total unemployment
rate was higher than anticipated in 1985 by 0.1 percentage point
and was correctly forecast for 1986. Interest rates, as measured by
the 91-day Treasury bill rate, were 0.6 percentage point lower than
projected in 1985 and 1.9 percentage points lower in 1986.
COMPARISON OF FEBRUARY 1985 ECONOMIC FORECAST AND ACTUAL ECONOMIC PERFORMANCE
(Calendar years)
February 1985
estimate
1985
Percent change:
GNP (constant dollars): 4th quarter over 4th quarter1..
Inflation (4th quarter over 4th quarter):
GNP deflator1.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Consumer Price Index (CPI).. .. .. .. .. .. .. .. .. .. .. .. ..
Total unemployment rate (annual average).. .. .. .. .. .. .. .. .. .. ..
Interest rate (91-day bills, annual average).. .. .. .. .. .. .. .. .. .. ..
1986
Difference
Actual
1985
1986
1985
1986
4.0
4.0
2.9
2.7 -1.1 -1.3
4.3
4.2
7.0
8.1
4.3
4.3
6.9
7.9
3.3
3.3
7.1
7.5
2.6 -1.0 -1.7
0.9 -0.9 -3.4
6.9
0.1
6.0 -0.6 -1.9
1 February 1985 estimates based on data prior to the December 1985 benchmark revision of the national income and product accounts.
The difference between the economic forecast and economic per
formance resulted in a net outlay decrease of $4.9 billion. Esti
mates of the major components of this decrease are shown in the
following table. Lower inflation reduced outlays by $1.1 billion.
Social security accounts for half of this change. Although the total
unemployment rate was correctly forecast for the fiscal year,
weekly benefit amounts were higher than expected, which in
creased unemployment compensation outlays by $1.4 billion. Out
lays decreased by $7.3 billion due to the net effect of lower interest
rates and the increased borrowing associated with changes in eco
nomic conditions.
Estimating differences and other changes account for a $11.7
billion increase in 1986 outlays. The largest estimating adjustments
were for national defense programs and farm price supports. Out
lays for national defense programs were up by $7.6 billion due to
greater spending for procurement than anticipated. Crop produc
tion and farm participation were greater than estimated, resulting
in an outlay increase of about $10.0 billion for the Commodity
Credit Corporation.
Comparison of the Deficit—The preceding two sections discuss in
detail the differences between the February 1985 budget estimates
6a-26
THE BUDGET FOR FISCAL YEAR 1988
EFFECT OF DIFFERENCES BETWEEN ESTIMATED AND ACTUAL ECONOMIC CONDITIONS ON 1986
OUTLAYS
(In billions of dollars)
Difference
Unemployment assumptions (Unemployment compensation).. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Price differences:
Cost of living adjustments:
Social security.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Medical prices:
Medicare and medicaid.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Subtotal, price differences.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
+1.4
-0.6
-0.6
+0.2
-1.1
Interest differences:
Net interest:
Interest rates.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Differences in borrowing 1.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Subtotal, interest differences.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
-7.7
+1.0
-0.6
-7.3
Offsetting receipts from the Outer Continental Shelf.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
+2.1
Total.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
-4.9
1 Includes only the effect of differences in borrowing associated with differences in economic conditions.
and the actual amounts of Federal Government receipts and out
lays in 1986. This section summarizes the net impact of these
differences on estimates of the deficit.
The deficit for 1986 was originally estimated to be $180.0 billion;
the actual deficit was $220.7 billion, a $40.7 billion increase. The
following table shows the approximate distribution of this differ
ence according to three categories: (1) policy; (2) economic condi
tions that were different from the original forecast; and (3) estimat
ing and other technical differences. Each category is subdivided to
show the impact of receipts compared to outlays. An increase in
receipts is shown as positive because it reduces the deficit, while an
increase in outlays is shown as negative because it raises the
deficit.
The actual deficit was above the initial estimate due to both
large reductions in receipts and large increases in outlays. Almost
two-thirds of the increase in the deficit was caused by economic
conditions. The remaining increase was caused by both technical
reestimates and policy changes.
Changes in economic conditions account for a $27.2 billion in
crease in the deficit. Receipts decreased due to lower than antici
pated incomes and oil prices. This was offset to only a limited
extent by lower outlays resulting from lower interest rates than
had been estimated. Policy changes increased the deficit by $7.5
billion. Technical reestimates, which increased outlays much more
PERSPECTIVES ON THE BUDGET
6a-27
SUMMARY OF REASONS FOR THE DIFFERENCE IN THE 1986 DEFICIT
(In billions of dollars)
Total
February 1985 estimate of surplus or deficit(-).. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. -180.0
Changes:
Policy:
Receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
1.8
Outlays.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . -9.3
Subtotal, policy.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. -7.5
Economic conditions:
Receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . -32.1
Outlays.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
4.9
Subtotal, economic conditions.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . -27.2
Estimating and other differences:
Receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
5.7
Outlays.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . -11.7
Subtotal, estimating and other differences.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . -6.0
Total, changes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . -40.7
Actual surplus or deficit (-).. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. -220.7
MEMORANDUM
Total change in receipts.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. -24.6
Total change in outlays.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . -16.1
Note: Receipt increases and outlay decreases are shown as positive because they lower the deficit.
than they increased receipts, further raised the deficit by $6.0
billion.
COMPARISON OF THE ACTUAL AND ESTIMATED
RELATIVELY UNCONTROLLABLE OUTLAYS FOR 1986
Outlays in any one year are considered to be relatively uncon
trollable when the program level is determined by existing statutes
or by contracts or other obligations. Outlays for these programs
generally depend on factors that are beyond administrative control
under existing law at the start of the fiscal year. For example, the
criteria making people eligible for programs like medicaid and civil
service retirement is established by law. Prior-year contracts and
obligations are also legally binding.
Relatively uncontrollable outlays are grouped into two major
categories: (1) open-ended programs and fixed costs, for which out
lays are generally mandated by law; and (2) payments from prioryear contracts and obligations, for which outlays are required be
cause of previous action, such as entering into contracts. Estimates
of relatively uncontrollable outlays are for outlays mandated under
existing law (i.e., they exclude any effect of proposed legislation on
the programs).
6a-28
THE BUDGET FOR FISCAL YEAR 1988
A number of factors may cause differences between the amounts
estimated in the budget and the actual outlays. For example, legis
lation may change benefit rates or coverage; the actual number of
beneficiaries may differ from the number estimated; and economic
conditions (such as interest rates) may differ from what was as
sumed in making the estimates.
The following table shows the differences between actual outlays
for relatively uncontrollable programs in 1986 and the amounts
estimated in the 1986 budget. The list of programs is the same as
in Table 16 (Controllability of Outlays) in Part 6c of this volume.
Actual outlays for relatively uncontrollable programs in 1986 were
$745.4 billion, which is $1.4 billion or 0.2 percent below the initial
estimate based on existing law in February 1985. Outlays for openended programs and fixed costs were $4.5 billion above the initial
estimate (adjusted for comparable coverage), while outlays from
prior-year contracts and obligations were $5.8 billion lower.
RELATIVELY UNCONTROLLABLE OUTLAYS FOR 1986
(In billions of dollars)
Relatively uncontrollable under present law
Open-ended programs and fixed costs:
Payments for individuals:
Social security and railroad retirement.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Federal employees' retirement and insurance.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
(Military retired pay).. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
(Other).............. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Unemployment compensation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Medical care............ .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Assistance to students.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Food and nutrition assistance.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Public assistance and related programs.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Other...................... .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
February 1985
estimate
(existing law)
Actual
Change
203.4
54.1
(18.3)
(35.8)
14.8
96.8
4.6
4.1
23.1
2.9
199.9
52.9
(17.6)
(35.3)
16.3
97.8
4.5
3.8
24.5
2.9
-3.5
-1.2
(-0.7)
(-0.5)
1.5
1.0
-0.1
-0.3
1.5
*
Subtotal, payments for individuals.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
403.7
402.6
-1.2
Other open-ended programs and fixed costs:
Net interest.............. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
General revenue sharing.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Farm price supports (CCC).. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Other...................... .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
142.9
4.6
12.3
-4.0
136.0
5.1
25.8
-5.4
-7.0
0.5
13.5
-1.4
Subtotal, other open-ended programs and fixed costs.. .. ..
155.9
161.5
5.6
Total, open-ended programs and fixed costs.. .. .. .. .. .. .. .. .. .. .
559.6
564.1
4.5
Outlays from prior-year contracts and obligations:
National defense.......... .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Nondefense.................. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
109.2
78.0
107.8
73.5
-1.4
-4.4
Total, outlays from prior-year contracts
and obligations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
187.2
181.3
-5.8
Total, relatively uncontrollable outlays.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
746.8
745.4
-1.4
*$50 million or less.
PERSPECTIVES ON THE BUDGET
6a-29
Payments for individuals, which are essentially income transfers,
were 71.4 percent of all open-ended programs and fixed costs in
1986. Actual outlays for these payments were $1.2 billion lower
than originally estimated. This decrease was the net effect of legis
lative action, differences between actual and assumed economic
conditions, differences between the anticipated and actual number
of beneficiaries, and other technical adjustments.
Outlays for social security and railroad retirement, the largest
category of payments for individuals, were $3.5 billion lower than
estimated. Outlays for social security were $3.2 billion below the
initial estimate because of fewer retroactive benefit payments,
fewer beneficiaries, and smaller cost of living adjustments as a
result of lower inflation.
Federal employees’ retirement and disability insurance programs
consist of military retirement, civilian employee retirement and
disability, and veterans service-connected compensation. Except for
the latter, these benefits are automatically indexed to the con
sumer price index. However, as a result of the sequester required
by Gramm-Rudman-Hollings, the 1986 cost-of-living increase for
military and civilian retirement benefits was eliminated. Total out
lays were $1.2 billion below the budget estimate of outlays under
existing law because of the elimination of this cost-of-living in
crease and technical factors.
Outlays for unemployment compensation programs were $1.5 bil
lion above the initial estimate. This increase was the result of
higher weekly benefit amounts than had been estimated, as well as
legislation that extended the Trade Adjustment Assistance pro
gram.
Outlays for medical care were $1.0 billion higher than originally
estimated. Medicare outlays were $0.6 billion or 1.2 percent above
the initial estimate. Outlays for the medicaid program were $0.2
billion or 1.0 percent above the initial estimate. Both programs
experienced higher outlays as a result of increased utilization of
services and higher medical costs. The increases in medicare result
ing from these factors were largely offset by legislative savings.
Assistance to students consists of GI bill benefits and the guaran
teed student loan program. Outlays for these programs were not
significantly different from the original estimates.
Food and nutrition assistance includes the child nutrition and
special milk programs. Outlays for the child nutrition program
were $0.3 billion below the original estimate largely because of
lower than anticipated inflation.
Public assistance and related programs include family support
payments, supplemental security income, outlays for earned
income tax credits, and veterans non-service-connected pensions.
Outlays for these programs were $1.5 billion above the estimate.
6a-30
THE BUDGET FOR FISCAL YEAR 1988
Most of this increase was in family support payments to States,
which were a result of delayed error liability collections from
States and higher than estimated State caseload and average bene
fits levels.
Relatively uncontrollable outlays for all other payments for indi
viduals were not significantly different than originally estimated.
Open-ended programs and fixed costs other than payments for
individuals were 28.6 percent of all open-ended programs and fixed
costs in 1986. Outlays for net interest were $7.0 billion or 4.9
percent lower than the original estimate. This decrease is the net
effect of lower than expected interest rates, differences in the
composition of borrowing, and higher than expected Federal bor
rowing. The budget assumed a 7.9 percent interest rate on 91-day
Treasury bills for fiscal year 1986 whereas the actual rate averaged
6.4 percent for 91-day Treasury bills.
Outlays for general revenue sharing, which expired at the end of
1986, were $0.5 billion above the original estimate. The payment
for the last quarter, which the budget assumed would occur in
1987, was instead made in 1986. Outlays for farm price supports
(Commodity Credit Corporation) were $13.5 billion above the initial
current law estimate. This was due to the Farm Bill of 1985, higher
production, particularly for corn, and increased farmer participa
tion.
Outlays for prior-year contracts and obligations were $5.8 billion
below the initial estimate. Outlays for nondefense programs were
$4.4 billion lower than the initial estimate, and outlays for defense
programs were $1.4 billion lower. These results were due to lower
than anticipated spending and the Gramm-Rudman-Hollings Act.
ALLOCATION OF WINDFALL PROFIT TAX RECEIPTS
Section 102 of the Crude Oil Windfall Profit Tax Act of 1980
requires that each year the President propose the allocation of net
receipts from the tax in his budget. The budget estimates that the
net receipts from the Windfall Profit Tax will be zero in 1988.
Part 6b
THE BUDGET SYSTEM AND CONCEPTS
The budget system of the U.S. Government provides the frame
work within which decisions on resource allocation and program
management are made in relation to the requirements of the
Nation, availability of Federal resources, effective financial control,
and accountability for use of the resources.
THE BUDGET PROCESS
The budget process has three main phases: (1) executive formula
tion and transmittal; (2) congressional action; and (3) budget execu
tion and control. Each of these is interrelated with the others.
Executive Formulation and Transmittal.—The budget sets forth
the President’s financial plan and indicates his priorities for the
Federal Government. The President’s transmittal of his budget to
the Congress early in each calendar year is the culmination of
many months of planning and analysis throughout the executive
branch.
Formulation of a budget begins not later than the spring of the
year before it is transmitted. The budget is developed in the con
text of a multi-year budget planning and tracking system that
includes coverage of the four years following the budget year to
integrate long-range planning into the executive budget process.
The system requires that broad fiscal goals and agency spending
and employment targets be established beyond the budget year.
During the period when a budget is formulated in the executive
branch, there is a continual exchange of information, proposals,
evaluations, and policy decisions among the President, the Office of
Management and Budget (OMB), other Executive Office units, and
the various Government agencies. The President also receives pro
jections of the economic outlook that are prepared jointly by the
Council of Economic Advisers, OMB, and the Treasury. After con
sidering such advice, the President establishes general budget and
fiscal policy guidelines. General policy directions and planning ceil
ings, both for the fiscal year that will begin about 15 months later
and for the following four years, are then given to the agencies to
guide the preparation of their budget requests.
6b-l
6b-2
THE BUDGET FOR FISCAL YEAR 1988
The primary phase of the budget process occurs throughout the
fall and early winter, when the executive branch is involved in the
formulation and preparation of the President’s budget for transmit
tal to the Congress. Agency budget requests are submitted to OMB,
where they are reviewed in detail, and decisions are made. These
decisions may be revised as a result of Presidential review. Fiscal
policy issues, which affect outlays and receipts, are reexamined.
The effect of budget decisions on receipts, budget authority, and
outlays in the years that follow are also considered and are explic
itly taken into account, in the form of multi-year budget requests
or planning estimates.1 Thus, the budget formulation process in
volves the simultaneous consideration of the resource needs of
individual programs, the total outlays and receipts that are appro
priate in relation to current and prospective economic conditions,
and the requirements of the Balanced Budget and Emergency Defi
cit Control Act of 1985 (Public Law 99-177).2
The Congressional Budget Act of 1974, as amended, requires that
current services estimates be transmitted to the Congress with the
budget to provide a basis for reviewing the President’s budget
recommendations.3 The current services estimates of budget au
thority and outlays are those amounts required to continue Federal
programs and activities without policy changes from the fiscal year
in progress. Current services estimates of receipts generally assume
that tax changes will occur as scheduled under current law.
Congressional Action.—The Congress can act to approve, modify,
or disapprove the President’s budget proposals. It can change fund
ing levels, eliminate proposals, or add programs not requested by
the President. It also can enact legislation affecting taxes and
other sources of revenue.
Usually prior to making appropriations, the Congress enacts leg
islation that authorizes an agency to carry out a particular pro
gram and, in some cases, includes limits on the amount that can be
appropriated for the program. Programs are authorized for a speci
fied number of years or indefinitely; some programs require annual
authorizing legislation, such as space exploration, foreign affairs,
and some construction programs.
In making appropriations, the Congress does not vote on the
level of outlays directly, but rather on budget authority, the au
thority to incur obligations that will result in immediate or future
outlays. For most programs, budget authority becomes available
each year only as voted by the Congress in appropriations acts.
However, in a number of cases the Congress has voted permanent
1 These terms are discussed further under “Data for 1989 through 1992,” which appears later in this part.
2 These requirements are discussed further under “Deficit reduction,” which appears later in this part.
3 See Special Analysis A, “Current Services Estimates,” in Special Analyses, Budget of the United States
Government, Fiscal Year 1988.
THE BUDGET SYSTEM AND CONCEPTS
6b-3
budget authority, under which funds become available annually
without further Congressional action. Many trust fund appropria
tions are permanent, as are a number of Federal fund appropria
tions, such as the appropriation to pay interest on the public debt.
In terms of dollars, more budget authority and outlays result from
permanent authority than result from current action by the Con
gress.
Congressional review of the budget begins when the President
transmits his budget estimates to the Congress. The budget is
required by law to be transmitted on or before the first Monday
after January 3 of each year.
Under the procedures established by the Congressional Budget
Act of 1974, as amended by the Balanced Budget and Emergency
Deficit Control Act of 1985, the Congress considers budget totals
before completing action on individual appropriations. The Act
requires each standing committee of the Congress to report on
budget estimates to the House and Senate Budget Committees by
February 25. The Congress adopts a concurrent budget resolution
as a guide in its subsequent consideration of appropriations and
receipt measures. It is not in order for either House to consider a
resolution that includes a budget deficit that is greater than the
maximum deficit specified in the Act for the budget year. In 1988,
the maximum deficit is $108 billion. The budget resolution, which
is scheduled to be adopted by April 15, sets targets for total re
ceipts and for budget authority and outlays, in total and by func
tional category. The resolution also sets targets for direct loan
obligations and guaranteed loan commitments.
Congressional budget resolutions do not require Presidential ap
proval. Frequently, there is informal consultation between the con
gressional leadership and the Administration, because legislation
developed to attain congressional budget targets must be sent to
the President for his approval. In recent years, the Congress has
enacted omnibus reconciliation legislation that reduced budget au
thority and outlays or increased receipts in response to directives
in the concurrent budget resolution.
Congressional consideration of requests for appropriations and
changes in revenue laws occurs first in the House of Representa
tives. The Appropriations Committee, through its subcommittees,
studies the requests for appropriations and examines in detail each
agency’s performance. The Ways and Means Committee reviews
proposed revenue measures. Each committee then recommends the
action to be taken by the House of Representatives. After passage
of the budget resolution, a point of order can be raised to block
consideration of bills that would cause a committee’s targets, as set
by the resolution, to be breached.
6b-4
THE BUDGET FOR FISCAL YEAR 1988
When the appropriations and tax bills are approved by the
House, they are forwarded to the Senate, where a similar review
process is followed. In case of disagreement between the two
Houses of the Congress, a conference committee (consisting of
Members of both bodies) meets to resolve the differences. The
report of the conference committee is returned to both Houses for
approval. When the measure is agreed to, first in the House and
then in the Senate, it is ready to be transmitted to the President as
an enrolled bill, for his approval or veto.
When action on appropriations is not completed by the beginning
of the fiscal year, the Congress enacts a continuing resolution to
provide authority for the affected agencies to continue financing
operations up to a specified date or until their regular appropria
tions are enacted. The Congress did not complete action on any of
the regular appropriations for 1987. A continuing resolution, in
effect, an omnibus appropriations bill, was enacted for the whole
year (Public Laws 99-500 and 99-591).
Deficit Reduction.—The Balanced Budget and Emergency Deficit
Control Act of 1985 (commonly known as the Gramm-RudmanHollings Act) calls for a balanced Federal budget by 1991 by setting
declining deficit targets for each fiscal year beginning in 1986 and
specifies a procedure designed to achieve these targets. According
to the Act, the President’s budget must propose receipts and out
lays consistent with the deficit target for the budget year, and
Congressional action on the budget is supposed to ensure that the
deficit target for that year will be met. The Act specifies a process
to sequester budgetary resources, if necessary, to reduce outlays by
the amount required to meet the specified target for the year
ahead.
On August 20 of each year, the Directors of the Office of Manage
ment and Budget and the Congressional Budget Office submit a
joint report to the Congress estimating the deficit for the upcoming
fiscal year. On October 5 they submit a revised report, which
reflects the effects on the deficit of any legislation enacted since
August 20. If the average of their estimates shows that the deficit
exceeds the specified target by more that $10 billion (zero in 1991),
they must calculate the across-the-board reductions required to
eliminate the deficit excess. The Act specifies rules for determining
uniform percentage reductions for most programs, special rules for
certain programs, and a requirement to eliminate cost-of-living
increases in some programs. Certain programs are exempt from
reduction.
The Directors’ reports are submitted to the Temporary Joint
Committee on Deficit Reduction, which consists of the entire mem
bership of the Budget Committees of the House and Senate. Within
5 days after receiving a report, the Committee is required to report
THE BUDGET SYSTEM AND CONCEPTS
6b-5
to the House and to the Senate a joint resolution setting forth the
contents of the report. This joint resolution, upon enactment by the
Congress and approval by the President, becomes the basis for a
sequester order issued by the President. The President’s order may
not change any of the particulars in the joint resolution.
Only one sequester order has been issued since the Act was
passed, and it was the result of procedures that were different from
those described above. For 1986, the President issued a sequester
order that was based on a report submitted to him by the Comp
troller General of the United States, as the Act then required.
Subsequently, the Supreme Court of the United States ruled that
the Comptroller General’s role was unconstitutional, thereby in
validating the President’s order. The Congress subsequently passed
and the President approved a law that ratified the reductions
included in the sequester order. The Act specified that the proce
dures described above would be used in the event that any of the
original procedures were invalidated. In August 1986, the Directors
submitted their initial joint report for 1987 to the Committee,
which reported a joint resolution that, if enacted, would have re
sulted in a sequester order. However, the Directors second report
indicated that a number of legislative actions were underway that,
if enacted as expected, would avoid the need for a sequestration.
The Congress did not enact the joint resolution, so no sequestration
was ordered.
Budget Execution and Control—Once approved, the President’s
budget, as modified by the Congress and reduced by sequestration,
if necessary, becomes the basis for the financial plan for the oper
ations of each agency during the fiscal year. Under the law, most
budget authority and other budgetary resources are made available
to the agencies of the executive branch through an apportionment
system. The Director of OMB apportions (distributes) appropria
tions and other budgetary resources to each agency by time periods
or by activities, to ensure the effective use of available resources
and to preclude the need for additional appropriations.
Changes in laws or other factors may indicate the need for
additional appropriations during the year, and supplemental re
quests may have to be sent to the Congress. On the other hand,
amounts appropriated may be withheld from obligation under cer
tain circumstances to provide for contingencies or to effect savings
made possible by changes in requirements or greater efficiency of
operations. The Impoundment Control Act of 1974 provides that
the executive branch, in regulating the rate of spending, must
report to the Congress any deferrals or proposed rescissions 4 of
4 These terms are discussed further under “Budgetary resources” which appears later in this part. Litigation
challenging the constitutionality of section 1013 of the Act, which concerns deferrals, is currently pending in the
Federal courts.
6b-6
THE BUDGET FOR FISCAL YEAR 1988
budget authority; that is, any effort through administrative action
to postpone or eliminate spending provided by law. Deferrals,
which are temporary withholdings of budget authority, may be
overturned by an act of the Congress at any time. Rescissions,
which permanently cancel budget authority, must be passed by the
Congress within 45 days of continuing session. Otherwise, the with
held funds must be made available for spending.
COVERAGE OF THE BUDGET TOTALS
Agencies and Program.—The budget totals cover all agencies and
programs (including Government corporations) no matter how
funded, except that the receipts and disbursements of social securi
ty (the Federal Old-Age and Survivors Insurance and the Federal
Disability Insurance trust funds) are excluded from the budget
totals by the Balanced Budget and Emergency Deficit Control Act
of 1985 (Public Law 99-177). The outlays and receipts of these trust
funds are nevertheless included in calculating the deficit targets
specified in the Act. The transactions of these trust funds are
shown in a separate chapter of the Appendix, entitled “Department
of Health and Human Services, Social Security.” Where on-budget
totals are shown in the budget and in other appropriate places,
amounts for these trust funds are presented as an off-budget com
ponent of total Federal activity.
The presentation for the Board of Governors of the Federal Re
serve System is included in Part IV of the Appendix. Those
amounts are presented for information only because of the inde
pendent status of the System.
The budget totals do not include transactions of privately owned,
Government-sponsored enterprises, such as the Federal land banks
and Federal home loan banks. However, these enterprises are dis
cussed in several parts of the budget.5
Functional Classification.*—The functional classification arrays
budgetary data according to the major purpose served by the unit
being classified. In accordance with the Congressional Budget Act
of 1974, as amended, the Congressional budget resolution estab
lishes budget targets by these functional categories.
The following criteria are used in establishing and in assigning
activities to functional categories:
• A function must have a common end or ultimate purpose
addressed to an important national need. (The emphasis is on
what the Federal Government seeks to accomplish rather
5 See Part 3b, “Federal Credit,” in this volume; Special Analysis E, “Borrowing and Debt;” Special Analysis F,
“Federal Credit Programs;” Part IV, “Government Sponsored Enterprises,” Appendix, Budget of the United
States Government, Fiscal Year 1988.
8 Part 5, “Federal Programs by Function: Meeting National Needs,” of this volume discusses the budget by
function.
THE BUDGET SYSTEM AND CONCEPTS
6b-7
than the means of accomplishment, what is purchased, or the
clientele or geographic area served.)
• A function must be of continuing national importance and the
amounts attributable to it must be significant.
• Each basic unit (generally the appropriation or fund account)
usually is classified into the single best or predominant pur
pose and assigned to only one subfunction. However, when an
account is large and serves more than one major purpose, it
may be subdivided into two or more subfunctions.
• Activities and programs are normally classified according to
their primary purpose (or function) regardless of which agen
cies conduct the activities.
National Needs Presentation.—Section 601 of the Congressional
Budget Act of 1974 requires that the budget for each fiscal year
shall contain a presentation of budget authority, proposed budget
authority, outlays, proposed outlays, and descriptive information in
terms of—
(1) a detailed structure of national needs, which shall be used
to reference all agency missions and programs;
(2) agency missions; and
(3) basic programs.
To meet that requirement of law, each major function is de
scribed in Part 5 of this volume, “Federal Programs by Function:
Meeting National Needs/’ in the context of the national needs
being served, and subfunctions are described in the context of the
major missions devoted to serving national needs. Part 5 also meets
the budget presentation requirements of the Full Employment and
Balanced Growth Act of 1978.
Types of Funds.—Agency activities are financed through Federal
funds and trust funds.
Federal funds are of several types. The general fund is credited
with receipts not earmarked by law for a specific purpose and with
the proceeds of general borrowing. Special funds contain Federal
receipts earmarked for specific purposes, other than for carrying
out a cycle of operations. Public enterprise (revolving) funds finance
a cycle of business-type operations in which outlays generate collec
tions, primarily from the public. Intragovernmental funds, includ
ing revolving and management funds, finance operations primarily
within and between Government agencies and are credited with
collections earmarked by law to carry out a cycle of business-type
operations primarily within and between Government agencies.
Trust funds are established to account for the receipt and ex
penditure of monies by the Government for carrying out specific
purposes and programs in accordance with the terms of a statute
or trust agreement. These monies are not available for other pur
6b-8
THE BUDGET FOR FISCAL YEAR 1988
poses of the Government. Trust revolving funds are credited with
trust-type collections earmarked by law to carry out a cycle of
business-type operations.
There is little practical difference between a trust fund and a
special fund or a trust revolving fund and a public enterprise
revolving fund.
Current Expenses and Capital Investment—The budget includes
spending for both current operating expenses and capital invest
ment, such as the purchase of lands, structures, and equipment. It
also includes capital investment in the form of lending and the
purchase of other financial assets.7
BUDGETARY RESOURCES AND RELATED TRANSACTIONS
Budgetary Resources.—Government agencies are permitted to
enter into obligations requiring either immediate or future pay
ment of money only when they have been granted authority to do
so by law. This authority, which constitutes the budgetary re
sources available to an agency, is usually provided in the form of
budget authority. In addition, collections specifically authorized to
be credited to appropriation and fund accounts (e.g., repayments of
loan principal), while not scored as budget authority, are also avail
able for obligation. The use of budgetary resources may be re
strained by the imposition of legally binding limitations on obliga
tions, including obligations for direct loans.8
Budget authority and other budgetary resources permit obliga
tions to be incurred. The amounts of budget authority requested
are determined by the nature of the programs or projects being
financed and the amounts of other resources available for the
purpose.
For activities such as operation and maintenance, entitlement
programs, and continuing research programs, for which the cost
depends upon the program level during the fiscal year, the amount
of budget authority requested covers the obligations expected to be
incurred during the year.
For most projects that are separate and distinct units, particular
ly direct Federal major procurement and construction projects,
"full funding” generally is requested. That is, budget authority is
requested in a sufficient amount at the time the project is initiated
to complete it, regardless of the expected time of completion.
Budget authority usually takes the form of appropriations, which
permit obligations to be incurred and payments to be made. Some
budget authority is in the form of contract authority, which permits
7 The division between operating and investment outlays is displayed in Special Analysis D, “Federal Invest
ment and Operating Outlays.”
8 See “Limitations on the Availability of Funds,” Part 6a of this volume.
THE BUDGET SYSTEM AND CONCEPTS
6b-9
obligations in advance of appropriations but requires a subsequent
appropriation or the collection of revenues to liquidate (pay) these
obligations. Another form of budget authority is authority to
borrow, which permits obligations to be incurred but requires that
funds be borrowed, generally from the Treasury, to liquidate these
obligations.
With certain exceptions, it is not in order for either House of the
Congress to consider any bill that provides new borrowing or con
tract authority unless that bill also provides that such new spend
ing authority will be effective only to the extent or in such
amounts as provided in appropriations acts.
Most appropriations for current operations are made available
for obligation only during a specified fiscal year (annual appropria
tions). Some are for a specified longer period (multiple-year appro
priations). Others, including most of those for construction, some
for research, and many for trust funds, are made available for
obligation until the amount appropriated has been expended or
until the objectives have been attained (no-year appropriations).
Budget authority can be made available by the Congress for
obligation and disbursement during a fiscal year from a succeeding
years appropriation (advance funding). For many education pro
grams, Congress provides forward funding—budget authority made
available for obligation in one fiscal year for the financing of
ongoing grant programs during the succeeding fiscal year. When
advantageous to the Federal Government, an appropriation is pro
vided by the Congress that will become available one year or more
beyond the fiscal year for which the appropriations act is passed
{advance appropriations).9 Included as advance appropriations are
appropriations related to multi-year budget requests.10
When budget authority is made available by the Congress for a
specific period of time, any part that is not obligated during that
period expires (lapses) and cannot be used later. Congressional
actions that extend the availability of unobligated amounts that
have expired or would otherwise expire are known as reappropri
ations. The amounts involved are counted as new budget authority
in the fiscal year of the legislation in which the reappropriation
action is included, regardless of when the amounts were originally
appropriated or when they would otherwise lapse.
A rescission is a legislative action that cancels new budget au
thority or the availability of unobligated balances, prior to the time
the authority would otherwise have expired. Rescissions of new
budget authority becoming available are decreases to such author
ity for that year. Rescissions of unobligated balances reduce the
9 A list of advance appropriations included in this budget appears in Part III, “Other Materials,” Appendix.
10 Multi-year budget requests are discussed under “Data for 1989 through 1992,” which appears later in this
part.
6b-10
THE BUDGET FOR FISCAL YEAR 1988
amounts of those balances available for obligation. Rescission pro
posals are identified in separate schedules in Part II of the Appen
dix. A deferral is an executive branch action or inaction—including
the establishment of reserves under the Antideficiency Act—that
delays the obligation and expenditure of funds within the year that
the action is taken. Deferrals are not separately identified in the
budget.
Most authority to obligate funds is enacted by the Congress
during or immediately preceding the fiscal year in which it be
comes available (current authority). Most current authority is
granted year by year. Some budget authority in Federal funds and
most budget authority in trust funds becomes available as the
result of previously enacted legislation and does not require cur
rent action by the Congress {permanent authority). Such authority
is presented as “current” in the year in which the legislation is
enacted and “permanent” in succeeding years.
The amount of budget authority is usually stated specifically or
in an amount stated as “not to exceed” a specific aggregate sum in
the legislation that makes it available (definite authority). In some
cases, the legislation permits the amount to be determined by
subsequent circumstances (indefinite authority). Examples of the
latter type are authority to borrow that is limited only to the
amount of debt that may be outstanding at any time, the appro
priation for interest on the public debt, and the trust fund appro
priation equal to receipts under the Federal Insurance Contribu
tions Act (social security). Indefinite budget authority is presented
in the amount of receipts collected or estimated to be collected
each year in the case of many special and trust funds, and in the
amount needed to finance obligations incurred or estimated to be
incurred in the case of certain appropriations, contract authority,
and authority to borrow.
Obligations Incurred.—Following the enactment of budget au
thority and the completion of required apportionment action, obli
gations are incurred by Government agencies. Such obligations
cover: the current liabilities for salaries, wages, and interest; agree
ments to make loans; contracts for the purchase of supplies and
equipment, construction, and the acquisition of office space, build
ings, and land; and other arrangements requiring the payment of
money.
Outlays.—Obligations generally are liquidated by the issuance of
checks or the disbursement of cash; such payments are called
outlays. In lieu of issuing checks, obligations also may be liquidated
(and outlays recorded) by the accrual of interest on public issues of
Treasury debt securities (including an increase in the redemption
value of bonds outstanding); or by the issuance of bonds, deben
THE BUDGET SYSTEM AND CONCEPTS
6b-ll
tures, notes, or monetary credits.11 Refunds of collections 12 gen
erally are treated as reductions of collections, rather than as out
lays. However, payments for earned income tax credits in excess of
tax liabilities are treated as outlays rather than as a reduction to
receipts. Outlays during a fiscal year may be for payment of obliga
tions incurred in prior years or in the same year. Outlays, there
fore, flow in part from unexpended balances of prior year budget
authority and in part from budget authority provided for the year
in which the money is spent.13 Total outlays include both budget
and off-budget outlays and are stated net of offsetting collections.
Balances of Authority.—Not all budget authority enacted for a
fiscal year is obligated and paid out in the same year. In multipleyear or no-year accounts, budget authority that is still available for
obligation at the end of a year (unobligated balances) may be
carried forward for obligation in the following year. The obligated
balance is that portion of the budget authority that has been
obligated but not yet paid. For example, in the case of salaries and
wages, 1 to 3 weeks elapse between the time of obligation and time
of payment. In the case of major procurement and construction,
payment may occur over several years. Obligated balances of
budget authority are carried forward until the obligations are sub
sequently paid.14 These balances may also include collections cred
ited directly to appropriations or fund accounts.
Therefore, a change in the amount of obligations incurred from
one year to the next does not necessarily result in an equal change
in either the budget authority or the outlays of that same year.
Conversely, a change in budget authority in any one year may
anticipate changes in the level of obligations and outlays for sever
al years.
Allocations Between Agencies.—In some cases, an agency may
share in the administration of a program for which appropriations
are made to another agency or to the President. This is made
possible by the establishment of allocations from the “parent” ac
count, that is, the account to which the appropriation was made.
Obligations incurred under such allocations are included with the
parent account in the Budget (without separate identification) and
in the Appendix (which the total obligations of each participating
agency are identified separately under each parent account).
11 See Special Analysis E, “Borrowing and Debt,” for further discussion of the use of such instruments.
12 This term is discussed under “Collections,” which appears later in this part.
13 See “Relationship of Budget Authority to Outlays,” Part 6a of this volume.
14 Additional information is provided in a separate report, “Balances of Budget Authority,” which is available
from the National Technical Information Service, Department of Commerce, shortly after the budget is trans
mitted.
6b-12
THE BUDGET FOR FISCAL YEAR 1988
FEDERAL CREDIT ACTIVITIES 15
COLLECTIONS
In addition to the resource measures previously described, Gov
ernment programs may be financed through federally supported
credit in the form of direct or guaranteed loans. These are included
in the budget as obligations for direct loans and commitments for
guaranteed loans. Obligations for direct loans result from agree
ments requiring the Government to make a loan immediately or at
some future time. Commitments for guaranteed loans result from
agreements entered into by the Government to guarantee the re
payment of principal and/or interest. Since guaranteed loans,
unlike direct loans, do not require obligational authority and, by
themselves, do not require Federal disbursements, the amounts are
not included in the President’s budget totals. They create Govern
ment liabilities of a contingent nature that result in obligations
and outlays only in the event of borrower default. The Administra
tion is proposing a fundamental change in the way credit programs
are financed. This proposal is described in Part 3b of this volume.
In General.—Amounts collected by the Government are classified
in two major categories:
• Governmental receipts, which are compared with outlays in
calculating the surplus or deficit.16
• Offsetting collections, which are deducted from gross disburse
ments in calculating outlays.
Governmental Receipts.—These are collections from the public
that result from the exercise of the Government’s sovereign or
governmental powers. These collections consist primarily of tax
receipts (including social insurance taxes), but also include receipts
from customs duties, court fines, certain licenses, and deposits of
earnings by the Federal Reserve System. Gifts and contributions
(as distinguished from payments for services or cost-sharing depos
its by State and local governments) are also counted as governmen
tal receipts. Receipts are divided between on-budget receipts and
off-budget receipts.
Offsetting Collections.—These are amounts received from other
Government accounts or the public that are of a business-type or
market-oriented nature. They are classified into two major catego
ries: offsetting collections credited to appropriations or fund ac
counts and offsetting receipts (that is, collections deposited in re
ceipt accounts). The offset is applied differently for each type.
15 Part 3b “Federal Credit,” of this volume and Special Analysis F, “Federal Credit Programs,” discuss this
subject in detail.
16 Part 4, “Federal Receipts by Source,” of this volume discusses governmental receipts in more detail.
THE BUDGET SYSTEM AND CONCEPTS
6b-13
Offsetting Collections Credited to Appropriation or Fund Ac
counts.—Amounts treated in this manner are specifically author
ized by law and are available, generally, for the purpose of the
account without further action by the Congress. However, it is not
unusual for the Congress to enact limitations on the obligations
that can be financed by these collections. These collections are
netted against gross obligations in the account when calculating
outlays.
Offsetting Receipts.—These amounts are credited to general fund,
special fund, or trust fund receipt accounts, and generally they are
deducted from budget authority and outlays by subfunction and by
agency. Offsetting receipts are subdivided into two categories, as
follows:
• Proprietary receipts from the public.—These are collections
from the public, deposited in receipt accounts of the general
fund, special funds, or trust funds, that arise out of the busi
ness-type or market-oriented activities of the Government.
However, collections from rents and royalties from Outer Con
tinental Shelf (OCS) lands are deducted from total budget
authority and outlays for the Government as a whole rather
than from any single agency or subfunction.
When there is a legal dispute over the disposition of rents
and royalties from OCS lands, the disputed amounts are
placed in interest bearing deposit fund accounts and are not
included in the budget totals. Upon settlement of such dis
putes, the amounts that are determined to belong to the
Government are added to OCS offsetting receipts and the
interest on such amounts is also deducted from the outlay
totals. The large-scale receipts from the proposed sale of
major assets (including Amtrak, the Naval petroleum reserve,
the power administrations, and the assignment of frequencies
by the Federal Communications Commission) also are shown
as undistributed deductions from total budget authority and
outlays.
• Intragovernmental transactions.—These are payments into re
ceipt accounts from governmental appropriation or fund ac
counts. In most cases, intragovernmental transactions are de
ducted from both the outlays and the budget authority of the
subfunction and the agency receiving the payment. However,
intragovernmental transactions that involve agencies’ pay
ments as employers into employee retirement trust funds and
interest received by trust funds appear as special deductions
in computing total budget authority and outlays for the Gov
ernment rather than offsets at the agency level. There are
several categories of intragovernmental transactions. Intrabudgetary transactions include all payments from on-budget
6b-14
THE BUDGET FOR FISCAL YEAR 1988
expenditure accounts to other on-budget receipt accounts.
These are subdivided into three categories: (1) interfund trans
actions, where the payment is from one fund group (either
Federal funds or trust funds) to a receipt account in the other
fund group; (2) Federal intrafund transactions, where the pay
ment and receipt both occur within the Federal fund group;
and (3) trust intrafund transactions, where the payment and
receipt both occur within the trust fund group. In addition
there are intragovernmental payments from on-budget ac
counts to off-budget receipt accounts, and from off-budget ac
counts to on-budget receipt accounts.
OTHER TRANSACTIONS
Borrowing and Repayment.—Borrowing and debt repayment are
not treated as receipts or outlays. If they were, the budget would
be balanced simply by classifying borrowing as income or revenue.
This rule applies both to borrowing in the form of public debt
securities and to specialized borrowing in the form of agency secu
rities, including the sale of certificates representing participation
in a pool of loans. In addition to participation certificates, individ
ual Federal loan assets are sold with recourse (i.e., the Federal
Government guarantees repayment of principal and interest in the
event of default). In the past, the proceeds from such sales were
treated as offsetting collections, even though such transactions, like
the issuance of participation certificates, constituted borrowing.
Beginning with this budget, the proceeds of such sales are treated
as borrowing.17
Many Federal loans have been financed by the Federal Financ
ing Bank (FFB), and until passage of the Balanced Budget and
Emergency Deficit Control Act of 1985 (Public Law 99-177), the
receipts and disbursements of the FFB were excluded by law from
the budget totals. The Act moved the FFB on-budget and required
the transactions of the FFB on behalf of an agency to be treated as
a means of financing the agency (i.e., agency borrowing from the
FFB). The 1987 budget reflected an interim change in the treat
ment of FFB transactions to comply with the new law, as fully as
was feasible given the short period between enactment of the law
and submission of the 1987 budget. This budget implements the
requirement more fully by integrating the transactions (e.g., obliga
tions, budget authority, and outlays for loans) that are financed by
the FFB into the agency program accounts.
Exercise of Monetary Power.—Seigniorage is the profit from coin
ing money. It is the difference between the value of coins as money
17 See Special Analysis E, “Borrowing and Debt,” for further discussion of this subject.
THE BUDGET SYSTEM AND CONCEPTS
6b-15
and their cost of production. Seigniorage on coins arises from the
exercise of the Government’s monetary powers and differs from
receipts coming from the public, since there is no corresponding
payment by another party. Therefore, seigniorage is excluded from
receipts and treated as a means of financing a deficit (or as a
supplementary amount to be applied to reduce debt in a year with
a surplus). The increment (profit) resulting from the sale of gold as
a monetary asset also is treated as a means of financing, since the
value of gold is determined by its value as a monetary asset rather
than as a commodity.
Balances in Deposit Fund Accounts.—Certain accounts outside
the budget, known as deposit funds, are established to record
amounts held in suspense temporarily (for example, proceeds from
mineral leases on the Outer Continental Shelf to which title is in
dispute) or held by the Government as agent for others (for exam
ple, State and local income taxes withheld from Federal employees’
salaries, and payroll deductions for the purchase of savings bonds
by civilian employees of the Government). Changes in deposit fund
uninvested balances affect Treasury’s cash balances, even though
the transactions are not a part of the budget. To the extent that
deposit fund balances are not invested, changes in the balances are
reflected as changes in the means of financing the deficit.
Exchange of Cash.—The Government’s deposits with the Interna
tional Monetary Fund are considered to be monetary assets. There
fore, the movement of money between the IMF and the Depart
ment of the Treasury is not considered in itself a receipt or an
outlay, borrowing, or lending. In a similar manner, the holdings of
foreign currency by the Exchange Stabilization Fund are considered
to be cash assets. Changes in these holdings are outlays only to the
extent there is a realized loss of dollars on the exchange and are
offsetting collections only to the extent there is a realized dollar
profit.
BASIS FOR BUDGET FIGURES
In general.—Outlays usually are stated in terms of checks issued,
including cash paid in lieu of checks, net of offsetting collections
received. When a cash-equivalent financial instrument is developed
to use as a substitute for cash or checks, the monetary value of the
instrument is normally counted as outlays in the budget in order to
record the transaction in the same manner regardless of the means
of effecting it. The accrual basis is used for interest on the public
issues of Treasury debt securities; however, interest on special
issues of the debt securities held by trust funds and other Govern
ment accounts is stated on a cash basis. When a Government
account invests in Federal debt securities, the purchase price is
6b-16
THE BUDGET FOR FISCAL YEAR 1988
usually close to the par (face) value of the security. The budget
records the investment at par value, and adjusts the interest paid
by Treasury and collected by the account by the difference between
purchase price and par. However, in the case of two trust funds in
the Department of Defense, the Military Retirement Trust Fund
and Education Benefits Trust Fund,18 the differences between pur
chase price and par have routinely become relatively large. Hence,
for these funds, the budget now records the original investment at
purchase price rather than par, and amortizes the difference be
tween purchase price and par over the life of the security.
Data for 1986.—The past year (1986) column of the budget gener
ally presents the actual transactions and balances as recorded in
agency accounts and as summarized in the central financial reports
prepared by the Department of Treasury. However, the budget
treatment in certain cases is not in agreement with Treasury ac
counting. In two cases, the treatment of FFB transactions on behalf
of Federal agencies and the treatment of the investments of two
Department of Defense trust funds (both described above) the ac
counting differences are significant. In such cases, OMB has adopt
ed a treatment for purposes of the budget that it believes more
accurately reflects the use of budgetary resources than does the
accounting system. In addition, occasionally the budget reports
corrections to data reported erroneously to Treasury but not discov
ered in time to be reflected in Treasury's published data.
Data for 1987.—The current year (1987) column of the budget
includes estimates of transactions and balances based on the
amounts of budgetary resources that were available when the
budget was submitted, including amounts provided as appropria
tions for 1987, and that are expected to become available during
the year. All of the usual 13 appropriations bills were enacted by
inclusion or by reference in the continuing resolution for 1987
(Public Laws 99-500 and 99-591).
Where the word “enacted” is used with reference to 1987, the
amount generally represents budget authority already voted by the
Congress. In the case of indefinite appropriations, the enacted sums
included the amounts likely to be required. Where the word “esti
mate” is used, the amounts include both enacted budget authority
and requested supplemental and rescissions.
Data for 1988.—The budget year (1988) column of the budget
includes estimates of transactions and balances based on the
amounts of budgetary resources that are expected to be available,
including amounts proposed to be appropriated. The budget gener18 See “Department of Defense—Civil” in Part I, “Detailed Budget Estimates,” in the Appendix.
THE BUDGET SYSTEM AND CONCEPTS
6b-17
ally includes the appropriations language for the amounts proposed
to be appropriated.19 Where the estimates represent amounts that
will be requested under proposed legislation the appropriation lan
guage usually is not included; it is transmitted later, instead. In a
few cases, language for appropriations to be requested under exist
ing legislation are transmitted later, because the exact require
ments are not known at the time the budget is submitted. In certain
tables of the budget, the items for later transmittal and the related
outlays are identified separately. Estimates of the total require
ments for 1988 include both the amounts requested with the sub
mission of the budget and the amounts planned for later transmit
tal.
Data for 1989 through 1992.—To place emphasis on longer term
objectives and plans consistent with the multi-year budget plan
ning system, the budget presents estimates through 1992. These
data often reflect specific Presidential policy determinations and
are shown in a number of budget tables. This budget also includes
multi-year budget requests, which differ from multi-year planning
estimates in that advance appropriations for 1989 (and beyond in a
few cases) are proposed to be enacted in the 1988 appropriations
process. The 1986 Defense Authorization Act (Public Law 99-145)
requires two-year requests (1988 and 1989) for accounts of the
Department of Defense and related agencies in the national de
fense function, and the budget proposes multi-year requests for
several non-defense accounts. Advance appropriations language for
multi-year budget requests is included in the Appendix presenta
tion for the affected budget accounts. The schedules in the Appen
dix include a 1989 column only for Defense and related agency
accounts because of technical limitations. The “Budget by Agency
and Account” in the Budget20 includes a 1989 column for all
accounts in the budget; those that represent multi-year budget
requests, rather than planning estimates, are footnoted.
Allowances.—Lump-sum allowances are included in the tables to
cover certain forms of budgetary transactions that are expected to
result in increases or decreases in budget authority or outlays but
are not reflected in the program details, such as civilian pay in
creases.21
Budget authority and outlays included in the allowance section
are never appropriated as undistributed allowances, but rather
indicate the estimated budget authority and outlays that may be
requested for specific programs.
19 See Part I, “Detailed Budget Estimates,” of the Appendix.
20 See Part 4, “Budget by Agency and Account,” of the Budget of the United States Government, 1988.
21 See Part 5, “Federal Programs by Function: Meeting National Needs” of this volume for a further
discussion of allowances.
Part 6c
SUMMARY TABLES
TABLE OF CONTENTS
Page
Explanation of the summary tables....................................................................
Table 1. Summary...............................................................................................
Table 2. Summary of current services and the President’s proposals...........
Table 3. Receipts by source and outlays by agency, 1986-92..........................
Table 4. Outlays by function, 1986-92...............................................................
Table 5. Credit budget: new direct loan obligations and guaranteed loan
commitments by agency....................................................................................
Table 6. Federal Government financing and debt...........................................
Table 7. Full-time equivalent of Federal civilianemployment.......................
Table 8. Budget authority by function, 1986-92..............................................
Table 9. Budget authority by agency, 1986-92................................................
Table 10. Budget authority and outlays available with and without current
action by Congress............................................................................................
Table 11. Relation of budget authority to outlays.............................................
Table 12. Balances of budget authority..............................................................
Table 13. Receipts by source................................................................................
Table 14. Offsetting receipts by type...................................................................
Table 15. Legislative proposals for major new and expanded programs in
the 1988 Budget, projection of costs.................................................................
Table 16. Controllability of outlays, 1986-88..................................................
Table 17. Receipts by source, 1978-88.................................................................
Table 18. Outlays by function and subfunction, 1978-88..................................
Table 19. Federal finances and the gross national product, 1969-90...............
Table 20. Composition of receipts and outlays in current prices: 1971-90.......
Table 21. Composition of receipts and outlays in constant (fiscal year 1982)
prices: 1971-90...................................................................................................
Table 22. Total receipts and outlays, 1789-1992................................................
Table 23. On-budget and off-budget receipts and outlays, 1937-92..................
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6c-l
EXPLANATION OF THE SUMMARY TABLES
Overview.—The tables in this part of the budget are organized as
follows:
• Tables 1 through 12 provide summary data on the 1988
Budget in terms of budget authority, outlays, receipts, and
surpluses or deficits for the period 1986-92. Summary infor
mation is also included on Federal Government financing and
debt, current services estimates, the credit budget, and Feder
al civilian employment.
• Tables 13 and 14 provide greater detail on governmental and
ofsetting receipts.
• Table 15 presents 5-year projections of the estimated costs of
proposed legislation pursuant to 31 U.S.C. 1105(a)(12).
• Table 16 provides data on controllability of outlays.
• Tables 17 through 23 are historical in nature, giving data, for
earlier years on receipts by source; outlays by function; total
receipts, outlays, and surpluses or deficits; and the on- and
off-budget components of these amounts. Comparisons with
the gross national product and receipts and outlays in con
stant (fiscal year 1982) prices are also presented.
Periods covered.—Due to the change in fiscal year required by
the Congressional Budget Act, the following periods are covered by
the various columns or stub entries:
• July 1 through June 30, for the 1976 and prior fiscal periods.
• July 1 through September 30, 1976, for the transition quarter
(TQ).
• October 1 through September 30, for the 1977 and subsequent
fiscal periods.
Presentation of data.—As in the 1987 Budget, totals shown in the
1988 Budget include off-budget amounts, but the on- and off-budget
components are identified separately. In tables by agency, entries
for “Health and Human Services, except social security” present
on-budget data, and entries for “Health and Human Services, social
security” present the off-budget amounts distributed by agency.
In addition, the 1988 Budget reflects the effects of the sequestra
tion of 1986 budgetary resources required by Public Law 99-177
without separate identification. Accordingly, data shown in the
following tables incorporate the effects of this sequestration.
The outlay totals for 1986 exceed those previously reported by
the Treasury Department by $27 million primarily because of ad
justments in outlays of the Small Business Administration (+$67
6c-2
SUMMARY TABLES
6c-3
million) and the Federal Financing Bank (—$2 million) and inter
est on the public debt (—$39 million).
Allowances.—Allowances for pay raises in 1988-92 are shown for
military personnel and for civilian employees of the Department of
Defense (DoD—Military). In addition, allowances for other legisla
tion are shown for 1988-92. Included in the allowances for other
legislation for DoD—Military are amounts for military benefits,
which are partially offset by proposed savings. These allowances
are included in the totals for the DoD—Military and in subfunction
051.
Allowances for pay raises for non-defense civilian employees and
for military pay raises for the Coast Guard in 1988-92 are shown at
the end of the tables. Other Government-wide allowances for 198892 presented at the end of the tables reflect proposals for savings
from reform of Davis-Bacon and Service Contract Acts, for the
Administration’s credit reform initiative, and for a change in the
Government contribution for employee health benefits. An allow
ance for 1989-92 for special productivity savings from personnel
policies is also included.
Undistributed offsetting receipts.—Offsetting receipts are general
ly deducted from budget authority and outlays at the subfunction
and agency levels. However, in some cases these amounts are un
distributed, i.e., deducted from totals for the Government as a
whole rather than from a single agency or subfunction in order to
avoid distortion of agency or subfunction totals. These payments
are for the employer share, employee retirement (both on-budget
and off-budget amounts), rents and royalties on the Outer Conti
nental Shelf (OCS), and the proposed sale of major assets (Conrail,
Amtrak, naval petroleum reserves, power marketing administra
tions, and the auction of frequencies by the Federal Communica
tions Commission) in 1987-92.
In addition, some offsetting receipts are undistributed at the
agency level but not at the subfunction level. These are interest
received by on-budget trust funds and interest received by offbudget trust funds (subfunctions 902 and 903, respectively) and
interest received from the OCS escrow account (in subfunction 908).
Accordingly, the offsetting receipt totals identified as undistributed
in tables by agency are larger than those shown in tables by
function by the amount of the interest received by trust funds and
the interest received from OCS escrow account.
Description of the tables.—Each table in this part is described
below.
• Table 1, Summary, provides a general overview of budget
authority, receipts, outlays, and surpluses or deficits for 198692. Summary information on the Federal credit budget and on
the Federal debt are also provided.
6c-4
THE BUDGET FOR FISCAL YEAR 1988
• Table 2, Summary of current services and the President’s pro
posals, provides a bridge between current services estimates
of outlays and estimated outlays under the President’s propos
als for 1987-90. Changes in outlays are shown by function.
Current services estimates of receipts and estimated receipts
under the President’s proposals are also provided. Changes
are shown by source. For further information on current serv
ices, see Special Analysis A, “Current Services Estimates”, in
the Special Analyses volume.
• Table 3, Receipts by source and outlays by agency, 1986-92,
displays data on the composition of receipts by source, the
distribution of outlays by the Legislative and Judicial
Branches and by major agency in the Executive Branch, and
the surpluses or deficits for these years.
• Table 4, Outlays by function, 1986-92, distributes outlays by
function. Supporting data by subfunction from 1978-88 is
found in table 18. Part 5 of this volume provides detail at the
program level for 1986-90.
• Table 5, Credit budget: new direct loan obligations and guar
anteed loan commitments by agency, displays new obligations
for direct loans and new commitments for guaranteed loans
by agency for 1986-88. Additional information can be found in
Parts 3b and 5 of this volume and Special Analysis F, “Feder
al Credit Programs”, of the Special Analyses volume.
• Table 6, Federal Government financing and debt, shows the
means of financing the Federal deficit, the gross debt held by
Government accounts and the public, and the amount of debt
subject to statutory limitation. Further data related to the
totals are contained in Special Analysis E, “Borrowing and
Debt”, and Part 6a of this volume.
• Table 7, Full-time equivalent of Federal civilian employment,
provides full-time equivalent employment estimates for the
major departments and agencies of the Executive Branch for
1986-89. For additional information, see Special Analysis I,
“Civilian Employment in the Executive Branch”, in the Spe
cial Analyses volume.
• Table 8, Budget authority by function, 1986-92, distributes
budget authority by function. For detail at the program level,
see Part 5 of this volume. For the subfunctional classification
of budget authority in each account, see Part 4 of the Budget
of the United States Government, 1988.
• Table 9, Budget authority by agency, 1986-92, presents the
distribution of budget authority by Legislative and Judicial
Branches and by major agency in the Executive Branch. For
account level detail, see Part 4 of the Budget of the United
States Government, 1988.
SUMMARY TABLES
6c-5
• Table 10, Budget authority and outlays available with and
without current action by Congress, presents budget authority,
including supplemental requests, for 1986-88 that requires
congressional action during or immediately preceding the
fiscal year in which it becomes available and ties budget
authority and outlays available through current action to
totals. In most cases, off-budget (social security trust fund)
amounts are available as the result of previously enacted
legislation (substantive legislation or prior appropriations
acts) and do not require further action by Congress. There
fore, they are included in the portion available without cur
rent action by Congress. The remaining off-budget amounts
are included in the portion available through current action
by Congress.
• Table 11, Relation of budget authority to outlays, provides a
bridge from budget authority to net obligations incurred to
outlays for 1986-88. Data on off-budget amounts are included
without separate identification. References to other tables in
this part that provide detail on data shown in this table are
included. A chart on the relationship of budget authority to
outlays is shown in Part 6a of this volume.
• Table 12, Balances of budget authority, presents data on obli
gated and unobligated balances of budget authority for 198688. Detailed information is available in a separate OMB
report, “Balances of Budget Authority”, which can be pur
chased from the National Technical Information Service
shortly after the budget is transmitted.
• Table 13, Receipts by source, provides detailed data by source
for 1986-88 on receipts that are classified as governmental
receipts. The total of these receipts is compared with total
outlays to calculate the Federal deficit. Information on gov
ernmental receipts is also included in table 17 and in Part 4
of this volume.
• Table 14, Offsetting receipts by type, presents, by type, offset
ting receipts for 1986-88 that are deducted from gross dis
bursements to calculate outlays. Offsetting receipts data are
also included in Part 4 of the Budget of the United States
Government, 1988.
• Table 15, Legislative proposals for major new and expanded
programs in the 1988 Budget, projection of costs, provides a
description of major legislative proposals and a projection of
costs for 1987-92.
• Table 16, Controllability of budget outlays, 1986-88, displays
data classified as relatively uncontrollable and relatively con
trollable outlays.
6c-6
THE BUDGET FOR FISCAL YEAR 1988
• Table 17, Receipts by source, 1978-88, provides historical data
on governmental receipts by source.
• Table 18, Outlays by function and subfunction, 1978-88, in
cludes historical data in outlays by function and subfunction.
• Table 19, Federal finances and the gross national product,
1969-90, displays receipts, outlays, surpluses or deficits, and
Federal debt and shows these amounts as percentages of the
gross national product.
• Table 20, Composition of receipts and outlays in current prices,
1971-90, includes historical data in the composition of receipts
and outlays in current dollars.
• Table 21, Composition of receipts and outlays in constant
(fiscal year 1982) prices, 1971-90, includes historical data on
the composition of receipts and outlays in constant dollars for
the same categories shown in table 20.
• Table 22, Total receipts and outlays, 1789-1992, includes his
torical data and out-year estimates of total receipts, outlays,
and surpluses or deficits. Beginning in 1937, data include
amounts for social security trust funds that are off-budget
under current law.
• Table 23, On-budget and off-budget receipts and outlays, 193792, provides historical data and out-year estimates of on- and
off-budget components of total receipts, outlays, and surpluses
or deficits shown in table 22.
6c-7
SUMMARY TABLES
Table 1. SUMMARY
(In billions of dollars)
Description
Estimate
1986 actual
1987
1988
1989
1990
1,211.6
1,271.9
|
1991
1992
1,331.8
1,377.9
TOTALS
Budget authority.. .. .. .. .. .. .. .. .
On-budget.. .. .. .. .. .. .. .. .. .. ..
Off-budget.. .. .. .. .. .. .. .. .. .. ..
Receipts.. .. .. .. .. .. .. .. .. .. .. .. .. ..
On-budget.. .. .. .. .. .. .. .. .. .. .
Off-budget.. .. .. .. .. .. .. .. .. .. ..
Outlays.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
On-budget.. .. .. .. .. .. .. .. .. .. .
Off-budget.. .. .. .. .. .. .. .. .. .. .
Surplus or deficit (—).. .. .. .. .
1,072.8
1,142.2
1,093.9
(883.2)
(189.6)
(879.9)
(214.0)
(900.1)
(242.1)
(948.2)
(263.4)
769.1
842.4
916.6
976.2
(568.9)
(200.2)
(628.4)
(214.0)
(674.5)
(242.1)
(712.8)
(263.4)
989.8
1,015.6
-220.7
1,024.3
(821.1)
(194.5)
(806.3)
(183.5)
-173.2
(821.9)
(202.4)
-107.8
1,069.0
(985.2) (1,024.1) (1,052.6)
(286.6) (307.7) (325.3)
1,048.3
1,123.2
1,191.2
(761.6) (815.4) (865.9)
(286.6) (307.7) (325.3)
1,107.8
1,144.4
1,178.9
(857.3)
(211.7)
(885.4) (911.1) (935.1)
(222.4) (233.3) (243.9)
-92.8
-59.5
-21.3
12.3
On-budget.. .. .. .. .. .. .. .. .. .. . (-237.5) (-192.7) (-147.4) (-144.5) (-123.8) (-95.7) (-69.1)
Off-budget.. .. .. .. .. .. .. .. .. .. .
(16.7)
(39.7)
(64.3) (74.4) (81.4)
(19.5)
(51.7)
THE CREDIT BUDGET
New direct loan obligations.. .. .
New guaranteed loan
commitments1.. .. .. .. .. .. .. ..
41.3
34.9
27.1
23.1
22.1
21.9
21.0
159.2
155.7
128.4
129.5
130.5
129.6
129.5
Total.. .. .. .. .. .. .. .. .. .. ..
200.6
190.6
155.5
152.7
152.6
151.4
150.5
Change in outstandings.Direct loans.. .. .. .. .. .. .. .. .. ..
Guaranteed loans1.. .. .. .. .. .
11.2
34.6
-15.2
76.4
-15.3
54.1
-9.1
43.5
-8.2
40.0
-7.4
36.8
-8.9
34.2
Total.. .. .. .. .. .. .. .. .. .. ..
45.7
61.1
38.8
34.4
31.8
29.4
25.3
FEDERAL DEBT 2
1985 actual 1986 actual
Debt outstanding, end of year:
Gross Federal debt.. .. .. .. .. .. .. .. .. .
1,827.2
2,132.9
Estimate
1987
1988
1989
1990
1991
1992
2.372.4 2,585.5 2,796.9 2,991.3 3,162.6 3,309.8
Held by:
Government accounts.. .. .. .. .. .. . 317.4 386.8 464.0 570.4 689.4 824.8 975.2 1,135.2
The public3.. .. .. .. .. .. .. .. .. .. .. .. 1,509.9 1,746.1 1.908.4 2,015.1 2,107.5 2,166.5 2,187.4 2,174.7
(Federal Reserve Banks).. .. .. (169.8) (190.9)
(Others).. .. .. .. .. .. .. .. .. .. .. .. (1,340.1) (1,555.3)
ADDENDUM
Debt subject to statutory limitation.. .. 1..823.8 2,111.0 2,353.3 2,573.0 2,790.8 2,986.7 3,158.0 3,305.3
Ho avoid double counting, excludes guarantees (or commitments) of loans previously guaranteed or guarantees (or commitments) by one
Government account of direct loans made by another Government account.
2 For additional information on the Federal debt, see table 6 of this part, Part 6a of this volume, and Special Analysis E, “Borrowing and
Debt.”
3 The estimates for 1987-92 have been revised from those shown in the Budget, dated January 5, 1987, due to a technical correction.
Note—For all years, transactions of the social security trust funds are presented off-budget and transactions of formerly off-budget accounts
are included on-budget.
6 c -8
Table 2. SUMMARY OF CURRENT SERVICES AND THE PRESIDENT'S PROPOSALS
(In billions of dollars)
Estimates
1986 actual
1987
Total.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
On-budget........ .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Off-budget........ .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Outlays by function:
National defense............ .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
International affairs........ .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
General science, space, and technology.. .. .. .. .. .
Energy.......................... .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Natural resources and environment.. .. .. .. .. .. .. .. .
Agriculture.................... .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Commerce and housing credit.. .. .. .. .. .. .. .. .. .. .. ..
Transportation................ .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Community and regional development.. .. .. .. .. .. .
Education, training, employment, and social
services.................... .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Health.......................... .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
1989
1990
1987
1988
1989
1990
349.0
63.1
283.9
(83.7)
(200.2)
32.9
7.0
13.3
19.9
769.1
(568.9)
(200.2)
364.0
104.8
301.5
(87.4)
(214.0)
32.6
6.0
14.4
19.1
842.3
(628.3)
(214.0)
391.7
116.2
330.7
(89.0)
(241.7)
32.2
5.8
15.1
18.6
910.4
(668.7)
(241.7)
449.5
415.9
127.1
138.3
380.5
353.8
(91.0) (94.4)
(262.8) (286.0)
32.4
31.6
4.4
5.0
16.3
16.1
18.4
18.6
968.2 1,039.7
(705.3) (753.6)
(262.8) (286.0)
364.0
104.8
301.5
(87.4)
(214.0)
32.6
6.0
14.4
19.1
842.4
(628.4)
(214.0)
392.8
117.2
333.2
(91.1)
(242.1)
33.4
5.8
15.3
18.9
916.6
(674.5)
(242.1)
417.3
450.8
128.6
139.8
357.2
384.0
(93.8) (97.3)
(263.4) (286.6)
33.7
32.9
4.4
5.0
16.2
16.8
19.0
18.8
976.2 1,048.3
(712.8) (761.6)
(263.4) (286.6)
273.4
14.2
9.0
4.7
13.6
31.4
4.4
28.1
7.2
282.2
14.7
9.5
4.0
14.1
31.1
10.1
26.8
6.3
297.6
16.8
11.1
6.2
15.7
26.6
6.9
26.9
6.7
312.2
16.7
12.7
5.9
16.9
27.0
4.1
29.1
7.8
330.0
16.2
12.7
6.0
17.3
26.2
4.4
29.7
6.6
282.2
14.6
9.5
3.8
13.9
31.1
9.3
27.0
6.2
297.6
15.2
11.4
3.3
14.2
26.3
2.5
25.5
5.5
312.2
18.1
13.2
2.9
15.2
21.8
0.7
26.7
4.4
30.6
35.9
30.3
40.0
32.7
42.0
35.3
45.6
37.0
48.8
29.8
39.7
28.4
38.9
28.9
40.4
330.0
17.9
13.5
3.2
15.3
18.2
1.4
26.4
4.0
1987
1988
1989
1990
*
1.1
1.0
2.4
(2.1)
(0.4)
1.2
1.4
1.5
3.5
(2.9)
(0.6)
1.2
1.4
1.5
3.5
(2.9)
(0.6)
1.3
*
0.1
O.1
(0.1)
0.2
0.3
6.1
(5.8)
(0.4)
0.1
0.4
8.0
(7.5)
(0.6)
0.5
0.4
8.6
(8.0)
(0.6)
-0.1
*
-0.3
-0.2
*
-0.8
0.2
-0.1
-1.6
0.4
-2.9
-1.4
-0.3
-4.4
-1.4
-1.2
1.4
0.4
-3.0
-1.8
-5.2
-3.5
-2.3
-3.4
1.7
0.7
-2.7
-2.0
-7.9
-3.0
-3.3
-2.6
28.0 -0.5
42.2 -0.3
-4.2
-3.2
-6.5
-5.1
-9.0
-6.6
THE BUDGET FOR FISCAL YEA R 1988
Receipts by source:
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.... .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
1988
Change from current services
President's proposals
Current services
cn
-32.1
-33.8
-35.5
-0.3
-0.6
-1.0
-5.5
-6.1
-6.7
-0.1
-0.2
-0.2
-3.7
-4.1
-45.4
-3.5
-2.3
-45.8
-3.8
-2.5
-48.5
-4.1
-4.5
-2.3
-3.1
-2.5
-3.7
1
-C
*
.
1
-5.8 -8.2
81.1
87.9
128.7
-5.8 -6.4
133.5 -0.1
232.5
246.8
-0.1 -0.2 -0.3
(5.4)
(5.4)
(-*) (-*) (-*)
(227.0) (241.4)
(-0.1) (-0.2) (-0.3)
27.6
28.0 -0.2 -0.2 -0.6 -0.8
0.1
8.9
8.8
0.3
0.1 -0.2
7.9
0.1
0.8
7.9
0.3
0.8
1.5
1.6
-0.4 -0.4 -0.4
141.5
0.1 -1.3 -3.7
139.0
0.9
(150.8) (151.3) (0.9) (0.1) (-1.3) (-3.6)
(-9.2) (-12.3)
(-*) (-*) (-0.1)
-1.4 -1.1
0.1
0.5
2.8
6 c-9
73.0
124.8
219.4
(4.9)
(214.5)
27.2
9.2
7.5
1.5
139.0
(145.6)
(-6.6)
-0.8
SUMMARY TABLES
70.2
78.2
96.1
71.6
Medicare.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
71.6
86.9
139.9
125.0
129.5
134.4
124.9
Income security.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . 119.8
247.1
207.9
219.5
232.7
Social security.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . 198.8
207.9
(5.4)
(5.0)
On-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
(4.9)
(5.4)
(5.0)
(8.1)
Off-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . (190.7) (202.9) (214.6) (227.2) (241.7) (202.9)
28.8
26.7
28.2
26.4
26.8
27.5
Veterans benefits and services.. .. .. .. .. .. .. .. .. ..
8.9
8.2
8.3
Administration of justice.. .. .. .. .. .. .. .. .. .. .. .. .. .
6.6
8.9
8.8
12
7.1
6.7
7.1
6.1
6.8
General government.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
2.0
1.9
1.8
1.9
General purpose fiscal assistance.. .. .. .. .. .. .. .. .
6.4
1.9
142.7
136.6
142.9
Net interest.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 136.0
139.0
137.5
On-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. (140.3) (141.6) (145.5) (152.1) (154.9) (142.5)
Off-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. (-4.3) (-5.1) (-6.6) (-9.2) (-12.2) (-5.1)
2.7
0.7
1.6
Allowances1.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Undistributed offsetting receipts.Employer share, employee retirement (onbudget).. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. -25.4 -28.0 -31.8 -33.2 -34.5 -28.0
Employer share, employee retirement (off-5.4
-6.0
budget).. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. -2.9
-3.3
-6.6
-3.3
Rents and royalties on the Outer Continental
-3.9
-3.7
-3.8
Shelf.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . -4.7
-3.5
-3.9
-1.9
Sale of major assets.. .. .. .. .. .. .. .. .. .. .. .. .. ..
-1.9
Total, undistributed offsetting receipts.. .. -33.0 -37.1 -40.9 -42.6 -44.8 -37.1
6 c -1 0
Table 2.
SUMMARY OF CURRENT SERVICES AND THE PRESIDENT'S PROPOSALS—Continued
(In billions of dollars)
Estimates
Current services
1986 actual
On-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Off-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Surplus or deficit (—).. .. .. .. .. .. .. .. .. .. .
989.8
(806.3)
(183.5)
-220.7
Change from current services
1987
1988
1989
1990
1987
1988
1989
1990
1987
1988
1989
1990
1,016.8
1,060.5
1,115.1
1,165.4
1,015.6
1,024.3
1,069.0
1,107.8
-1.3
-36.2
-46.1
-57.6
(822.3)
(194.5)
-174.5
(857.9)
(202.7)
-150.1
(903.0)
(212.1)
-146.9
(942.5)
(223.0)
-125.7
(821.1)
(194.5)
-173.2
(821.9)
(202.4)
-107.8
(857.3)
(211.7)
(885.4) (-1.3) (-36.0) (-45.7) (-57.1)
(222.4)
(-0.2) (-0.4) (-0.6)
-92.8
-59.5
On-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. (-237.5) (-194.0) (-189.2) (-197.7) (-188.8) (-192.7) (-147.4) (-144.5) (-123.8)
Off-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . (16.7) (19.5) (39.0) (50.8) (63.1) (19.5) (39.7) (51.7) (64.3)
1.3
42.4
54.2
66.2
(1.3)
(41.7)
(0.6)
(53.2)
(1-0)
(65.1)
(1.2)
ADDENDUM
Budget authority.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
On-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .... ..
Off-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
1,072.8
(883.2)
(189.6)
1,102.6
(888.5)
(214.0)
1,172.2
1,251.8
(930.5)
(241.7)
(988.9) (1,037.0)
(262.8) (286.0)
1,323.0
1,093.9
(879.9)
(214.0)
*$50 million or less.
1 Allowances for civilian agencies are separately identified in table 18; all other tables in this part present only the totals for these allowances.
1,142.2
(900.1)
(242.1)
1,211.6
(948.2)
(263.4)
1,271.9
-8.6
-30.0
-40.1
-51.1
(985.2) (-8.6) (-30.4) (-40.7) (-51.7)
(286.6)
(0.4) (0.6) (0.6)
THE BUD GET FOR FISCAL YEA R 1988
Total outlays.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
President's proposals
SUMMARY TABLES
6c-ll
Table 3. RECEIPTS BY SOURCE ANO OUTLAYS BY AGENCY, 1986-92
(In billions of Mars)
1980 actual
Estimate
1987
1988
1989
1990
1991
1992
364.0
104.8
392.8
117.2
417.3
128.6
450.8
139.8
489.0
149.2
523.7
160.5
301.5
(87.4)
(214.0)
32.6
6.0
14.4
19.1
842.4
(628.4)
(214.0)
333.2
(91.1)
(242.1)
33.4
5.8
15.3
18.9
916.6
(674.5)
(242.1)
357.2
384.0 409.9 431.2
(93.8) (97.3) (102.2) (106.0)
(263.4) (286.6) (307.7) (325.3)
33.7
35.2
34.3
32.9
4.4
3.3
3.9
5.0
18.5
16.2
16.8
17.6
18.8
19.3
18.8
19.0
976.2 1,048.3 1,123.2 1,191.2
(712.8) (761.6) (815.4) (865.9)
(263.4) (286.6) (307.7) (325.3)
Receipts by Source:
Individual income taxes.. .. .. .. .. .. .. 349.0
Corporation income taxes.. .. .. .. .. ..
63.1
Social insurance taxes and contri
butions.. .. .. .. .. .. .. .. .. .. .. .. .. 283.9
On-budget.. .. .. .. .. .. .. .. .. .. .. .. .. (83.7)
Off-budget.. .. .. .. .. .... .. .. .. .. .. . (200.2)
Excise taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .
32.9
Estate and gift taxes.. .. .. .. .. .. .. .. .
7.0
Customs duties.. .. .. .. .. .. .. .. .. .. .. ..
13.3
Miscellaneous receipts.. .. .. .. .. .. .. .
19.9
Total receipts.. .. .. .. .. .. .. .. .. .
769.1
On-budget.. .. .. .. .. .. .. .. .. . (568.9)
Off-budget.. .. .. .. .. .. .. .. .. . (200.2)
Outlays by agency:
2.2
Legislative branch.. .. .. .. .. .. .. .. .. ..
1.7
2.2
2.2
2.2
2.1
The Judiciary.. .. .. .. .. .. .. .. .. .. .. .. ..
1.1
1.4
1.5
1.5
1.2
1.5
Executive Office of the President.. .
0.1
0.1
0.1
0.1
0.1
0.1
Funds appropriated to the Presi
dent.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
12.7
11.4
11.2
12.3
13.3
11.8
Agriculture.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
58.7
50.7
42.9
55.1
46.5
39.5
Commerce.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
2.4
3.3
2.0
2.1
2.4
2.3
Defense—Military1.. .. .. .. .. .. .. .. .. 265.6
303.7
321.0 340.0
274.2
289.3
Defense—Civil.. .. .. .. .. .. .. .. .. .. .. ..
23.4
24.5
25.5
20.3
22.1
20.9
Education.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
17.7
14.7
14.4
13.3
12.8
16.8
Energy.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
10.2
11.8
12.5
11.0
10.9
10.6
Health and Human Services,
except social security.. .. .. .. .. .. . 143.3
165.2 176.4
146.8
156.3
145.3
Health and Human Services, social
security.. .. .. .. .. .. .. .. .. .. .. .. .. .. . 190.7
241.4 256.2
227.0
214.5
202.9
Housing and Urban Development.. ..
14.1
13.6
13.9
14.3
14.0
14.6
Interior.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
4.4
4.4
4.7
4.6
4.8
5.2
Justice.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
5.4
5.5
3.8
5.6
4.8
5.8
Labor.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
26.2
24.1
25.4
25.4
25.9
24.5
State.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
4.0
2.9
3.7
3.9
3.3
3.6
Transportation.. .. .. .. .. .. .. .. .. .. .. ..
27.4
25.0
25.9
25.5
26.2
24.6
Treasury.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . 179.2
200.7 202.9
180.2
197.0
187.3
Environmental Protection Agency.. .
4.7
4.7
4.9
4.6
4.6
4.6
General Services Administration.. ..
0.2
-0.4
-0.2 -0.3
-0.1
-0.3
National Aeronautics and Space
Administration.. .. .. .. .. .. .. .. .. .. ..
7.4
11.1
11.1
11.0
7.9
9.5
Office of Personnel Management.. ..
24.0
27.7
28.4
29.9
31.5
26.8
Small Business Administration.. .. .. .
0.4
0.4
0.6
-0.1
0.1
-0.3
Veterans Administration.. .. .. .. .. .. ..
26.5
26.8
27.6
27.9
28.5
27.0
Other independent agencies.. .. .. .. ..
11.4
9.2
11.9
17.9
11.5
10.5
Allowances2.. .. .. .. .. .. .. .. .. .. .. .. ..
4.9
0.5
-0.8
2.8
Undistributed offsetting receipts.. .. -65.0 -71.8 -84.2 -90.2 -99.1 -110.8
Interest.. .. .. .. .. .. .. .. .. .. .. .. .. .. . (-32.0) (-34.7) (-38.8) (-44.4) (-50.6) (-56.8)
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . (-33.0) (-37.1) (-45.4) (-45.8) (-48.5) (-54.0)
2.3
1.6
0.1
11.7
37.6
1.9
361.0
26.5
12.4
13.5
185.9
270.6
13.7
4.3
5.6
26.8
3.9
25.4
196.0
4.5
-0.7
11.0
33.1
0.4
28.9
11.8
7.1
-118.0
(-62.4)
( — 55.6)
6c-12
THE BUDGET FOR FISCAL YEAR 1988
Table 3. RECEIPTS BY SOURCE AND OUTLAYS BY AGENCY, 1986-92—Continued
(In billions of dollars)
1986 actual
Total outlays.. .. .. .. .. .. .. .. .. .
On-budget.. .. .. .. .. .. .. .. .. .
Off-budget.. .. .. .. .. .. .. .. ..
989.8
(806.3)
(183.5)
Surplus or deficit (—).. .. .. -220.7
Estimate
1987
1988
1989
1990
1991
1992
1,015.6
1,024.3
1,069.0
1,107.8
1,144.4
1,178.9
(821.1)
(194.5)
-173.2
(821.9)
(202.4)
(857.3)
(211-7)
(885.4) (911.1) (935.1)
(222.4) (233.3) (243.9)
107.8
-92.8
-59.5
-21.3
12.3
On-budget.. .. .. .. .. .. .. .. .. . ( — 237.5) ( — 192.7) (-147.4) — 144.5) ( — 123.8) (—95.7) (-69.1)
Off-budget.. .. .. .. .. .. .. .. .. . (16.7) (19.5) (39.7) (51.7) (64.3) (74.4) (81.4)
1 Includes allowances for civilian and military pay raises for the Department of Defense.
2 Includes allowances for civilian agency pay raises and military pay raises for the Coast Guard.
6c-13
SUMMARY TABLES
Table 4—OUTLAYS BY FUNCTION, 1986-92
(In billions of dollars)
050 National defense:
Department of Defense—Mili
tary 1.. .. .. .. .. .. .. .. .. .. .. .. .. .
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
150 International affairs.. .. .. .. .. .. .
250 General science, space, and
technology.. .. .. .. .. .. .. .. .. .. .. .. .
270 Energy.. .. .. .. .. .. .. .. .. .. .. .. .. .
300 Natural resources, and envi
ronment.. .. .. .. .. .. .. .. .. .. .. .. .. ..
350 Agriculture.. .. .. .. .. .. .. .. .. .. .. .
370 Commerce and housing credit...
400 Transportation.. .. .. .. .. .. .. .. .. .
450 Community and regional de
velopment.. .. .. .. .. .. .. .. .. .. .. .. ..
500 Education, training, employ
ment, and social services.. .. .. ..
550 Health.. .. .. .. .. .. .. .. .. .. .. .. .. ..
570 Medicare.. .. .. .. .. .. .. .. .. .. .. .. .
600 Income security.. .. .. .. .. .. .. .. .
650 Social security.. .. .. .. .. .. .. .. .. .
On-budget.. .. .. .. .. .. .. .. .. .. .. .. ..
Off-budget.. .. .. .. .. .. .. .. .. .. .. .. .
700 Veterans benefits and services.
750 Administration of justice.. .. .. .
800 General government.. .. .. .. .. .. .
850 General purpose fiscal assist
ance .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
900 Net interest.. .. .. .. .. .. .. .. .. .. ..
On-budget.. .. .. .. .. .. .. .. .. .. .. .. ..
Off-budget.. .. .. .. .. .. .. .. .. .. .. .. .
920 Allowances2
950 Undistributed offsetting re
ceipts:
Employer share, employee re
tirement (on-budget).. .. .. .. ..
Employer share, employee re
tirement (off-budget).. .. .. .. .
Rents and royalties on the
Outer Continental Shelf.. .. .. .
Sale of major assets.. .. .. .. .. .. ..
Total undistributed offsetting
receipts.. .. .. .. .. .. .. .. .. .. .
On-budget.. .. .. .. .. .. .. .. .. .
Off-budget.. .. .. .. .. .. .. .. .. .
Total outlays.. .. .. .. .. .. .. .
Estimate
1986
actual
1987
1988
1989
1990
1991
1992
273.4
282.2
297.6
312.2
330.0
349.5
370.9
265.6
7.7
14.2
274.2
8.0
14.6
289.3
8.2
15.2
303.7
8.5
18.1
321.0
9.0
17.9
340.0
9.5
18.0
361.0
9.9
17.7
9.0
4.7
9.5
3.8
11.4
3.3
13.2
2.9
13.5
3.2
13.8
2.9
14.3
3.1
13.6
31.4
4.4
28.1
13.9
31.1
9.3
27.0
14.2
26.3
2.5
25.5
15.2
21.8
0.7
26.7
15.3
18.2
1.4
26.4
14.9
14.7
0.2
25.8
14.5
13.0
-1.6
26.2
7.2
6.2
5.5
4.4
4.0
4.2
4.2
30.6
35.9
70.2
119.8
198.8
(8.1)
(190.7)
26.4
6.6
6.1
29.8
39.7
71.6
124.9
207.9
(5.0)
(202.9)
26.7
8.3
6.8
28.4
38.9
73.0
124.8
219.4
(4.9)
(214.5)
27.2
9.2
7.5
28.9
40.4
81.1
128.7
232.5
(5.4)
(227.0)
27.6
8.9
7.9
28.0
42.2
87.9
133.5
246.8
(5.4)
(241.4)
28.0
8.8
7.9
27.5
43.9
95.9
138.9
261.5
(5.3)
(256.2)
28.6
8.9
7.9
26.5
45.6
104.4
143.6
275.5
(4.9)
(270.6)
29.0
9.1
7.8
1.7
1.7
6.4
1.6
1.9
1.5
1.5
136.0
137.5
134.8
122.1
139.0
141.5
139.0
(140.3) (142.5) (145.6) (150.8) (151.3) (150.4) (141.1)
(-4.3) (-5.1) (-6.6) (-9.2) (-12.3) (-15.6) (-19.0)
7.1
4.9
0.5
-0.8
2.8
-25.4
-28.0
-32.1
-33.8
-35.5
-37.3
-39.0
-2.9
-3.3
-5.5
-6.1
-6.7
-7.3
-7.8
-4.7
-3.9
-1.9
-3.7
-4.1
-3.5
-2.3
-3.8
-2.5
-4.0
-5.4
—4.3
-4.5
-33.0 -37.1 -45.4 -45.8 -48.5 -54.0 -55.6
(-30.2) (-33.8) (-39.9) (-39.7) (-41.8) (-46.8) (-47.8)
(-2.9) (-3.3) (-5.5) (-6.1) (-6.7) (-7.3) (-7.8)
989.8
On-budget.. .. .. .. .. .. .. .. (806.3)
Off-budget.. .. .. .. .. .. .. .. (183.5)
1,015.6
(821.1)
(194.5)
1,024.3
(821.9)
(202.4)
1,069.0
(857.3)
(211.7)
1 Includes allowances for civilian and military pay raises for the Department of Defense.
2 Includes allowances for civilian agency pay raises and military pay raises for the Coast Guard.
1,107.8
(885.4)
(222.4)
1,144.4
(911.1)
(233.3)
1,178.9
(935.1)
(243.9)
6c-14
THE BUDGET FOR FISCAL YEAR 1988
Table 5. CREDIT BUDGET: NEW DIRECT LOAN OBLIGATIONS AND GUARANTEED LOAN COMMITMENTS
BY AGENCY
(In millions of dollars)
Guaranteed loan commitments
Direct loan obligations
Department or other unit
1987
estimate
1986
actual
1987
estimate
Funds Appropriated to the President.. .. .. .. .. .. .
Agriculture.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Commerce.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Defense.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Education.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Energy.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Health and Human Services.. .. .. .. .. .. .. .. .. .. ..
Housing and Urban Development1.. .. .. .. .. .. ..
Interior.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Labor.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
State.. .. .. .. .. .. .. .. .... .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Transportation. . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Environmental Protection Agency.. .. .. .. .. .. .. ..
Small Business Administration.. .. .. .. .. .. .. .. .. .
Veterans Administration.. .. .. .. .. .. .. .. .. .. .. .. .. .
Other independent agencies:
Export-Import Bank.. .. .. .. .. .. .. .. .. .. .. .. .. ..
Federal Deposit Insurance Corporation.. .. .. .
Federal Savings and Loan Insurance Corpo
ration (FHLBB).. .. .. .. .. .. .. .. .. .. .. .. .. .. .
National Credit Union Administration.. .. .. .. .
Tennessee Valley Authority.. .. .. .. .. .. .. .. .. ..
6,443
26,658
10
568
1,582
4
22
1,060
67
2
1
1,337
32
1,543
972
5,405
22,508
160
5,720
15,915
17
282
4,117
41
345
1,113
72
250
6,840
1,232
1,404
8,575
9,591
9,398
32
374
832 102,673
37
45
3
1
153
48
343
87,125
40
100
70,000
34
916
933
804
829
2,780
34,297
3,617
35,000
3,510
27,930
578
128
900
1,000
5,508
11,355
10,000
21
34
268
25
61
301
25
77
280
506
6
103
2
300
1
Total............................................................
41,329
34,927
27,136
159,243
155,705
128,362
137,962
132,500 100,000
47
1,711
67
3
1
658
1988
estimate
1986
actual
1988
estimate
ADDENDUM
Secondary guaranteed loans1
1 Commitments by GNMA to guarantee securities that are backed by loans previously insured or guaranteed by the Federal Housing
Administration, Veterans Administration, or Farmers Home Administration (secondary guarantees) are excluded from the totals and shown as a
memorandum entry.
6c-15
SUMMARY TABLES
Table 6. FEDERAL GOVERNMENT FINANCING AND DEBT
(In billions of dollars)
FINANCING
1986 actual
Estimate
1987
1988
1989
1990
1991
1992
Surplus or deficit (-).. .. .. . -220.7 -173.2 -107.8 -92.8 -59.5 -21.3
12.3
On-budget.. .. .. .. .. .. .. .. .. . (-237.5) (-192.7) (-147.4) (-144.5) (-123.8) (-95.7) (-69.1)
Off-budget.. .. .. .. .. .. .. .. .. .
(39.7)
(74.4)
(64.3)
(81.4)
(51.7)
(16.7)
(19.5)
Means of financing other
than borrowing from the
public:
Decrease or increase
(-) in Treasury
operating cash balance.. -14.3
11.4
Increase or decrease
(-) in:
Checks outstanding,
etc.1.. .. .. .. .. .. .. .. ..
1.9
1.9
1.8
Deposit fund balances.... -3.5
-2.8
-1.2
0.4
Seigniorage on coins.. .. .. .
0.4
0.4
0.4
0.4
0.4
0.4
Total, means of
financing other
than borrowing
0.4
0.4
from the public.. . -15.6
0.4
0.4
10.9
1.0
Total, requirements
for borrowing
12.7
from the public.. . -236.3 -162.2 -106.7 -92.3 -59.1
-20.9
Change in debt held by
the public.. .. .. .. .. .. .. .. ..
20.9 -12.7
236.3
162.2
106.7
59.1
92.3
DEBT, END OF YEAR
Gross Federal debt:
Debt issued by Treasury.. .
Debt issued by other
agencies.. .. .. .. .. .. .. .. .
Total, gross Federal
debt.. .. .. .. .. .. .. .
Held by:
Government accounts.. .. ..
The public.. .. .. .. .. .. .. .. ..
Federal Reserve
Banks.. .. .. .. .. .. .
Others.. .. .. .. .. .. .. ..
2,128.2
2,364.7
2,580.3
2,793.2
2,989.1
3,160.3
3,307.7
4.8
7.8
5.1
3.7
2.2
2.2
2.2
2,132.9
2.372.4
2,585.5
2,796.9
2,991.3
3,162.6
3,309.8
386.8
1,746.1
464.0
1.908.4
570.4
2,015.1
689.4
2,107.5
824.8
2,166.5
975.2
2,187.4
1,135.2
2,174.7
190.9
1,555.3
6c-16
THE BUDGET FOR FISCAL YEAR 1988
Table 6. FEDERAL GOVERNMENT FINANCING AND DEBT—Continued
(In billions of dollars)
DEBT SUBJECT TO STATUTORY LIMITATION, END OF YEAR
1986 actual
Debt issued by Treasury.... .. .
Treasury debt not subject to
limitation (-)2........ .. ..
Agency debt subject to
limitation.................... .. .. .
Total, debt subject to
statutory limitation 3.
Estimate
1987
1988
1989
1990
1991
1992
2,128.2
2,364.7
2,580.3
2,793.2
2,989.1
3,160.3
3,307.7
-18.5
-12.7
-7.6
-2.6
-2.6
-2.6
-2.6
1.3
1.3
0.2
0.2
0.2
0.2
0.2
2,111.0
2,353.3
2,573.0
2,790.8
2,986.7
3,158.0
3,305.3
1 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, profit on sale
of gold, and a technical error in recording FDIC outlays in 1986.
2 Consists of Federal Financing Bank debt, the unamortized difference between the purchase price and par value of certain Treasury securities
held by Government accounts, and other Treasury debt not subject to statutory limitation.
3 The permanent statutory debt limit is $2,111 billion. Public Law 99-509 temporarily increased the limit to $2,300 billion through May 15,
6c-17
SUMMARY TABLES
Table 7. FULL-TIME EQUIVALENT OF FEDERAL CIVILIAN EMPLOYMENT 1
Fiscal year
Agriculture.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Commerce.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Defense—civil functions.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Education.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Energy.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Health and Human Services.. .. .. .. .. .. .. .. .. .. .. .. .. ..
Housing and Urban Development.. .. .. .. .. .. .. .. .. .. ..
Interior.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Justice.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Labor.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
State.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Transportation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Treasury.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Environmental Protection Agency.. .. .. .. .. .. .. .. .. .. ..
National Aeronautics and Space Administration.. .. .. .
Veterans Administration.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Other:
Agency for International Development.. .. .. .. .. .. .
General Services Administration.. .. .. .. .. .. .. .. .. .. .
Nuclear Regulatory Commission.. .. .. .. .. .. .. .. .. .. .
Office of Personnel Management.. .. .. .. .. .. .. .. .. .
Panama Canal Commission.. .. .. .. .. .. .. .. .. .. .. .. ..
Small Business Administration.. .. .. .. .. .. .. .. .. .. ..
Tennessee Valley Authority.. .. .. .. .. .. .. .. .. .. .. .. ..
United States Information Agency.. .. .. .. .. .. .. .. ..
Miscellaneous.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Estimated nondefense lapse.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
1986
actual2
1987
estimate
1988
estimate
1989
estimate
difference
1987-88
102,997
32,321
28,511
4,526
16,193
128,105
11,720
70,657
63,307
17,931
25,261
60,375
130,845
12,931
21,660
220,642
106,393
33,849
28,348
4,500
16,100
124,745
12,535
71,350
69,463
18,339
26,147
60,480
136,807
14,165
21,800
221,227
99,085
41,049
28,347
4,500
15,950
119,099
12,438
70,400
76,920
18,060
26,658
59,868
146,188
14,323
22,425
216,709
98,894
43,577
28,347
4,500
15,850
114,208
11,428
70,400
77,782
17,997
26,803
57,404
148,574
14,263
22,425
215,218
-7,308
7,200
-1
4,675
22,745
3,445
5,306
8,336
4,054
27,613
8,981
39,652
4,825
22,281
3,369
5,419
8,550
4,115
29,500
9,120
43,529
-21,939
1,075,017
1,039,000
2,114,017
764,590
2,878,607
4,825
21,677
3,250
5,195
8,665
4,227
29,500
9,020
44,049
-19,292
1,083,135
1,037,000
2,120,135
794,000
2,914,135
4,825
20,877
3,180
5,005
8,665
4,050
29,500
9,020
43,981
-16,452
1,080,321
1,036,000
2,116,321
824,000
2,940,321
Civilian agency employment.. .. .. .. .. .. .. .. 1,072,789
Defense—military functions3.. .. .. .. .. .. .. .. .. .. .. .. . 1,041,352
Subtotal.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . 2,114,141
Postal Service Employment4.. .. .. .. .. .. .. .. .. .. .. .. .. . 739,574
Total, Executive Branch.. .. .. .. .. .. .. .. .. .. .. . 2,853,715
-150
-5,646
-97
-950
7,457
-279
511
-612
9,381
158
625
-4,518
-604
-119
-224
115
112
-100
520
2,647
8,118
-2,000
6,118
29,410
35,528
1 Excludes developmental positions under the Worker-Trainee Opportunity Program (WT0P) as well as certain statutory exemptions.
2 Data are estimated for portions of Defense—civil functions as well as for the Federal Reserve System, Board of Governors and the
International Trade Commission.
3 Section 904 of the 1982 Defense Authorization Act (Public Law 97-86) exempts the Department of Defense from full-time equivalent
employment controls. Data shown are estimated.
4 Includes the Postal Rate Commission.
6c-18
THE BUDGET FOR FISCAL YEAR 1988
Table 8. BUDGET AUTHORITY BY FUNCTION, 1986-92
(In billions of dollars)
Estimate
actual
050 National defense.. .. .. .. .. .. .. .. 289.1
Department of Defense—Mili
tary 1.. .. .. .. .. .. .. .. .. .. .. .. .. (281.4)
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
(7.8)
16.7
150 International affairs.. .. .. .. .. ..
250 General science, space, and
technology.. .. .. .. .. .. .. .. .. .. .. .. .
9.3
270 Energy.. .. .. .. .. .. .. .. .. .. .. .. .. .
6.0
300 Natural resources and envi
ronment.. .. .. .. .. .. .. .. .. .. .. .. .. ..
11.7
350 Agriculture.. .. .. .. .. .. .. .. .. .. ..
29.9
370 Commerce and housing credit... 11.0
400 Transportation.. .. .. .. .. .. .. .. .. .
28.9
450 Community and regional de
velopment.. .. .. .. .. .. .. .. .. .. .. .. .
6.9
500 Education, training, employ
ment, and social services.. .. .. .
30.3
550 Health.. .. .. .. .. .. .. .. .. .. .. .. .. ..
36.6
570 Medicare.. .. .. .. .. .. .. .. .. .. .. .. .
87.2
600 Income security.. .. .. .. .. .. .. ..
158.0
650 Social security.. .. .. .. .. .. .. .. .. 201.7
On-budget.. .. .. .. .. .. .. .. .. .. .. .. .
(4.9)
Off-budget.. .. .. .. .. .. .. .. .. .. .. .. . (196.8)
700 Veterans benefits and services. 27.2
750 Administration of justice.. .. .. .
6.8
800 General government.. .. .. .. .. ..
6.8
850 General purpose fiscal assist
ance .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
5.8
900 Net interest.. .. .. .. .. .. .. .. .. .. . 136.0
On-budget.. .. .. .. .. .. .. .. .. .. .. .. . (140.3)
Off-budget.. .. .. .. .. .. .. .. .. .. .. .. . (-4.3)
920 Allowances 2.. .. .. .. .. .. .. .. .. .
950 Undistributed offsetting re
ceipts:
Employer share, employee re
tirement (on-budget).. .. .. .. . -25.4
Employer share, employee re
tirement (off-budget).. .. .. .. -2.9
Rents and royalties on the
Outer Continental Shelf.. .. .. . . -4.7
Sale of major assets.. .. .. .. .. .. .
Total undistributed
offsetting receipts..
, -33.0
On-budget.. .. ..
.(-30.2)
Off-budget.. .. ..
• (-2.9)
. 1,072.8
On-budget..
Off-budget..
. (883.2)
. (189.6)
1987
1988
1989
1990
1991
1992
292.9
312.0
332.4
353.5
375.0
396.9
(284.9)
(8.0)
18.0
(303.3)
(8.7)
19.1
(323.3)
(9.1)
18.3
(343.9)
(9.6)
19.2
(364.9)
(10.1)
19.2
(386.5)
(10.4)
19.2
12.2
2.6
11.5
2.5
12.9
3.6
13.5
3.9
14.1
4.1
14.6
4.0
13.2
27.3
7.9
27.0
14.1
22.2
8.8
24.6
14.9
24.0
8.6
24.6
14.9
21.6
9.5
24.8
14.1
16.7
8.3
25.7
13.7
18.6
7.9
25.9
6.1
5.3
5.9
5.8
5.3
5.1
30.0
40.3
83.9
160.5
227.4
(5.0)
(222.4)
27.1
8.7
6.9
28.8
41.4
94.4
160.2
259.1
(4.9)
(254.2)
27.7
9.0
7.5
28.4
42.2
103.4
165.3
284.2
(5.4)
(278.8)
28.3
9.0
7.8
27.3
44.9
122.3
185.4
335.9
(5.3)
(330.6)
28.8
9.3
8.0
26.2
46.3
132.7
187.8
356.9
(4.9)
(352.0)
29.3
9.4
8.1
1.7
1.7
1.6
1.5
1.5
1.6
122.1
139.0
134.8
141.5
139.0
137.5
(142.5) (145.6) (150.8) (151.3) (150.4) (141.1)
(-5.1) (-6.6) (-9.2) (-12.3) (-15.6) (-19.0)
5.1
2.8
7.3
-0.9
0.5
-28.0
-32.1
-33.8
-35.5
-37.3
-39.0
-3.3
-5.5
-6.1
-6.7
-7.3
-7.8
-3.9
-1.9
-3.7
-4.1
-3.5
-2.3
-3.8
-2.5
-4.0
-5.4
-4.3
-4.5
-37.1 -45.4 -45.8 -48.5 -54.0 -55.6
(-33.8) (-39.9) (-39.7) (-41.8) (-46.8) (-47.8)
(-3.3) (-5.5) (-6.1) (-6.7) (-7.3) (-7.8)
1,093.9
(879.9)
(214.0)
1,142.2
(900.1)
(242.1)
1,211.6
(948.2)
(263.4)
1 Includes allowances for civilian and military pay raises for the Department of Defense.
2 Includes allowances for civilian agency pay raises and military pay raises for the Coast Guard.
27.6
43.4
112.5
170.3
311.0
(5.4)
(305.7)
28.5
9.1
8.0
1,271.9
1,331.8
1,377.9
(985.2) (1,024.1) (1,052.6)
(286.6) (307.7) (325.3)
6C-19
SUMMARY TABLES
Table 9. BUDGET AUTHORITY BY AGENCY, 1986-92
(In billions of dollars)
Department or other unit
Legislative Branch.. .. .. .. .. .. .. .
The Judiciary.. .. .. .. .. .. .. .. .. .. .
Executive Office of the
President.. .. .. .. .. .. .. .. .. .. .
Funds Appropriated to the
President.. .. .. .. .. .. .. .. .. .. ..
Agriculture.. .. .. .. .. .. .. .. .. .. .. .
Commerce.. .. .. .. .. .. .. .. .. .. .. ..
Defense—Military1.. .. .. .. .. .. .
Defense—Civil.. .. .. .. .. .. .. .. .. .
Education.. .. .. .. .. .. .. .. .. .. .. .. .
Energy.. .. .. .. .. .. .. .. .. .. .. .. .. ..
Health and Human Services,
except social security.. .. .. .
Health and Human Services,
social security.. .. .. .. .. .. .. ..
Housing and Urban
Development.. .. .. .. .. .. .. .. ..
Interior.. .. .. .. .. .. .. .. .. .. .. .. .. .
Justice.. .. .. .. .. .. .. .. .. .. .. .. .. ..
Labor.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
State.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Transportation.. .. .. .. .. .. .. .. .. .
Treasury.. .. .. .. .. .. .. .. .. .. .. .. ..
Environmental Protection
Agency .. .. .. .. .. .. .. .. .. .. .. ..
General Services
Administration.. .. .. .. .. .. .. ..
National Aeronautics and
Space Administration.... .. .. ..
1986
Actual
1988
1989
1990
1991
1992
1.7
1.0
1.9
1.3
2.2
1.5
2.2
1.5
2.2
1.5
2.2
1.6
2.3
1.6
0.1
0.1
0.1
0.1
0.1
0.1
0.1
11.1
59.2
2.0
281.4
32.7
17.9
10.6
12.6
53.1
2.0
284.9
34.5
17.1
9.6
13.1
49.0
2.1
303.3
36.7
14.0
10.5
12.2
52.4
2.4
323.3
38.5
13.8
11.9
12.9
50.7
3.1
343.9
40.6
13.3
12.6
12.7
45.7
2.0
364.9
42.5
12.8
13.4
12.8
47.7
1.8
386.5
44.5
12.5
13.7
156.5
158.4
171.0
180.6
190.7
203.3
214.2
196.8
222.4
254.2
278.8
305.7
330.6
352.0
15.9
4.6
3.9
28.8
4.0
28.1
179.7
14.2
4.6
5.3
29.1
3.8
26.1
180.3
10.2
4.4
5.6
28.3
4.3
23.6
187.1
10.3
4.6
5.7
27.9
4.4
23.8
197.1
10.5
4.6
5.7
27.5
4.4
23.9
200.7
18.0
4.5
5.8
28.6
4.5
24.8
202.8
15.6
4.4
5.8
28.1
4.5
25.0
195.8
3.4
4.9
4.6
4.5
4.4
4.0
3.7
0.3
0.1
-0.2
-0.2
-0.1
-0.1
-0.1
7.8
10.5
9.5
10.6
10.9
11.0
11.0
44.8
0.5
27.0
16.6
47.0
0.4
27.6
17.0
-0.9
49.2
0.5
28.2
17.2
0.5
51.6
0.5
28.4
17.9
2.8
53.8
0.4
28.7
18.9
5.1
55.8
0.4
29.2
19.8
7.3
-28.7
-31.6
-35.2
-38.3
-41.1
-43.4
-5.1
-6.6
-9.2
-12.3
-15.6
-19.0
-0.9
-0.6
-28.0
-32.1
-33.8
-35.5
-37.3
-39.0
-3.3
-5.5
-6.1
-6.7
-7.3
-7.8
Office of Personnel
Management.. .. .. .. .. .. .. .. ..
44.2
Small Business Administration..
0.7
Veterans Administration.. .. .. ..
27.1
Other Independent Agencies.. ..
18.2
Allowances2.. .. .. .. .. .. .. .. .. .. .
Undistributed offsetting
receipts:
Interest received by onbudget trust funds.. .. .. . -26.6
Interest received by offbudget trust funds.. .. .. . -4.3
Interest received by OCS
escrow account.. .. .. .. .. . -1.1
Employer share, employee
retirement (on-budget).... -25.4
Employer share, employee
retirement (off-budget)... -2.9
Estimate
1987
6c-20
THE BUDGET FOR FISCAL YEAR 1988
Table 9. BUDGET AUTHORITY BY AGENCY, 1986-92—Continued
(In billions of dollars)
Department or other unit
1986
Actual
Estimate
1987
1988
1989
1990
1991
1992
Rents and royalties on the
-3.7
-3.5
-4.0
-4.3
-3.8
Outer Continental Shelf.... -4.7
-3.9
-5.4
-4.5
-4.1
-2.3
-2.5
Sale of major assets.. .. .. .. .
-1.9
Total undistributed
offsetting receipts.. .. . -65.0 -71.8 -84.2 -90.2 -99.1 -110.8 -118.0
On-budget.. .. .. .. .. (-57.8) (-63.4) (-72.1) (-74.9) (-80.1) (-87.9) (-91.3)
Off-budget.. .. .. .. .. (-7.2) (-8.4) (-12.1) (-15.4) (-19.0) (-22.9) (-26.8)
Total budget
authority.. .. .. ..
On-budget.. .. .. .. ..
Off-budget.. .. .. .. ..
1,072.8
(883.2)
(189.6)
1,093.9
1,142.2
1,211.6
1,271.9
1,331.8
1,377.9
(985.2) (1,024.1) (1,052.6)
(286.6) (307.7) (325.3)
(879.9)
(214.0)
(900.1)
(242.1)
(948.2)
(263.4)
555.1
-1.2
0.7
567.6
4.0
608.7
1.2
636.6
3.0
N/A
N/A
N/A
N/A
724.2
779.9
819.1
863.6
N/A
N/A
-185.0
-209.3
-217.5
-231.4
N/A
N/A
1,093.9
1,142.2
1,211.6
1,271.9
1,331.8
1,377.9
MEMORANDUM
Available through current
action by Congress:
Enacted and pending.. .. .. .. 535.0
Proposed in this budget.. .. .
To be requested separately...
Available without current
action by Congress.. .. .. .. ..
725.8
Deductions for offsetting
receipts3.. .. .. .. .. .. .. .. .. .. . -188.1
Total budget
authority.. .. .. ..
1,072.8
N/A - Not available
1 Includes allowances for civilian and military pay raises for Department of Defense.
2 Includes allowances for civilian agency pay raises and military pay raises for the Coast Guard.
3 These consist of intragovernmental transactions and proprietary receipts from the public.
6C-21
SUMMARY TABLES
Table 10.
BUDGET AUTHORITY AND OUTLAYS AVAILABLE WITH AND WITHOUT CURRENT ACTION BY
CONGRESS 1
(In millions of dollars)
Budget authority
Department or other unit
1986
actual
Portion available through current action
by Congress:
Legislative branch.. .. .. .. .. .. .. .. .. .. .. .
The Judiciary.. .. .. .. .. .. .. .. .. .. .. .. .. ..
Executive Office of the President.. .. ..
Funds appropriated to the President....
Agriculture.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Commerce.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Defense—Military2.. .. .. .. .. .. .. .. .. ..
Defense—Civil.. .. .. .. .. .. .. .. .. .. .. .. .. .
Education.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Energy.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Health and Human Services3.. .. .. .. .
Housing and Urban Development.. .. ..
Interior.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Justice.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Labor.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
State .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Transportation.. .. .. .. .. .. .. .. .. .. .. .. .. .
Treasury .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Environmental Protection Agency.. .. ..
General Services Administration.. .. .. .
National Aeronautics and Space Ad
ministration.. .. .. .. .. .. .. .. .. .. .. .. .. .
Office of Personnel Management.. .. ..
Small Business Administration.. .. .. .. .
Veterans Administration.. .. .. .. .. .. .. ..
Other independent agencies.. .. .. .. .. ..
1988
estimate
1,580
1,030
108
13,565
25,681
2,067
278,453
2,786
17,932
13,336
72,427
14,939
4,928
3,806
6,340
3,484
9,855
10,422
3,660
392
1,766
1,276
119
13,320
24,548
1,958
285,603
3,202
17,046
12,777
78,771
12,267
4,810
5,208
5,303
3,196
19,470
6,547
5,540
383
1,989
1,437
127
14,065
29,659
2,122
303,797
3,357
14,043
13,779
83,905
8,289
4,758
5,322
8,613
3,711
10,484
7,452
4,689
251
7,807
6,040
371
26,230
7,802
10,408
6,115
486
26,300
8,221
535,040
554,641
Allowances4........................................
Subtotal.. .. .. .. .. .. .. .. .. .. .. .. .. ..
Outlays
1987
estimate
1987
estimate
1988
estimate
1,411
945
93
5,695
22,848
1,378
158,202
1,932
7,572
8,128
65,136
826
3,612
2,957
1,999
2,174
5,975
9,626
1,156
321
1,646
1,123
103
5,504
22,409
1,379
163,158
2,411
5,558
7,988
71,650
936
3,864
3,869
1,627
2,334
7,804
5,686
1,930
317
1,884
1,278
111
5,291
24,645
1,564
175,712
2,552
4,139
8,375
69,231
1,022
3,684
4,123
4,260
2,440
6,054
6,511
1,272
156
9,481
6,187
379
26,824
7,805
-883
5,322
5,240
139
23,043
5,698
5,353
5,997
150
23,181
6,190
5,891
4,446
161
23,483
5,457
-770
571,645
341,428
352,169
362,972
1986 actual
Portion available without current action
by Congress.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 725,804 724,295 779,872 536,769 514,505 513,506
Outlays from obligated balances5.. .. .. .
214,620 216,314 225,849
Outlays from unobligated balances5.. ..
85,072 117,588 131,338
Deductions for offsetting receipts.. .. .. .. -188,073 -185,003 -209,338 -188,073 -185,003 -209,338
Total budget authority and
outlays.. .. .. .. .. .. .. .. .. .. .. .. .. . 1,072,773
1,093,933
1,142,180
665
989,815
MEMORANDUM
Appropriations to liquidate
tract authority: 6
con
Agriculture.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Interior.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Transportation.. .. .. .. .. .. .. .. .. .. .. .. .. .
10
14,958
2,486
12
14,453
15,288
Total.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
14,968
16,952
15,953
1 Includes budget authority and outlays that are off-budget under current law.
2 Includes allowances for civilian and military pay raises for Department of Defense.
3 Includes amounts for social security trust funds that are available through current action by Congress.
4 Includes allowances for civilian agency pay raises and military pay raises for the Coast Guard.
5 Outlays from appropriations to liquidate contract authority are included as outlays from balances.
6 Excluded from budget authority above.
1,015,572
1,024,328
6c-22
THE BUDGET FOR FISCAL YEAR 1988
Table 11.
RELATION OF BUDGET AUTHORITY TO OUTLAYS 1
(In millions of dollars)
Description
1986 actual
1987 estimate
1988 estimate
Budget authority available through current action by Congress:
Enacted, pending, or recommended herein:
Appropriations2.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Contract authority.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Authority to borrow.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Reappropriations and reauthorizations.. .. .. .. .. .. .. .. .. .. .. .. .
To be requested separately:
Appropriations2.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Contract authority.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Authority to borrow.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
542,097
12,496
-1,349
660
560,843
2,501
51
69
737
7,476
-30
734
535,040
554,641
571,645
658,824
34,101
32,880
676,820
15,476
31,999
735,928
22,614
21,331
Intragovernmental transactions.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Proprietary receipts from the public.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
-153,024
-35,049
-148,618
-36,385
-167,304
-42,034
Total budget authority for the year (table 8).. ..
1,072,773
1,093,933
1,142,180
Unobligated balances:
Brought forward at start of year (table 12).. .. .. .. .. .. .. ..
Written off (rescinded, lapsed, etc.)3.. .. .. .. .. .. .. .. .. .. .. .
Carried forward at end of year (table 12).. .. .. .. .. .. .. .. .. .
479,724
-13,312
-526,141
526,141
-17,760
-580,191
580,191
-16,804
-680,133
Obligations incurred, net 4.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
1,013,044
1,022,123
1,025,433
589,316
9,921
-20,692
9
-601,782
601,782
-1,127
-10,334
596,872
-13
-11,210
-596,872
-586,755
989,815
1,015,572
1,024,328
532,048
779,716
781,527
756,486
541,522
779,313
772,116
769,097
559,740
795,201
777,473
780,469
Total budget authority available through cur
rent action by Congress (table 10).. .. .. .. .. .. .. .
528,476
5,700
636
228
Budget authority available without current action by Congress
(permanent authorizations):
Appropriations2.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Contract authority.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Authority to borrow.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Deductions for offsetting receipts (table 14):
Unobligated balances and adjustments:
Obligated balances:
Brought forward at start of year, funded (table 12).. .. .. .. .. .. .
Adjustments in expired accounts.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Adjustments in unexpired accounts.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Deficiency appropriations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Carried forward at end of year (table 12).. .. .. .. .. .. .. .. .. .. .. .. .
Outlays (table 3).. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ... .. .. ..
MEMORANDUM
Federal funds included above:
Budget authority available through current action by Congress....
Budget authority5.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Obligations incurred, net5.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Budget outlays5.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
1 Includes budget authority and outlays that are off-budget under current law.
2 Excludes appropriations to liquidate contract authority-.
1986
1987
1988
actual
estimate
estimate
37,008
36,990
36,275
Enacted, pending, or recommended herein.......................................................
3 Includes redemption of agency debt and capital transfers to the general fund, as well as proposed and enacted rescissions of unobligated
balances.
4 For additional information on obligations incurred, net, see the 0MB report entitled, “Object Class Analysis”, which can be purchased from the
National Technical Information Service shortly after the budget is transmitted.
5 Amounts are net of intrafund transactions and proprietary receipts from the public.
6c-23
SUMMARY TABLES
Table 12.
BALANCES OF BUDGET AUTHORITY 1
(In millions of dollars)
Department or other unit
Legislative branch.. .. .. .. .. .. .. ..
The Judiciary.. .. .. .. .. .. .. .. .. .. ..
Executive Office of the
President.. .. .. .. .. .. .. .. .. .. .. .
Funds appropriated to the
President.. .. .. .. .. .. .. .. .. .. .. .
Agriculture.. .. .. .. .. .. .. .. .. .. .. ..
Commerce.. .. .. .. .. .. .. .. .. .. .. .. .
Defense—Military2.. .. .. .. .. .. ..
Defense—Civil.. .. .. .. .. .. .. .. .. ..
Education.. .. .. .. .. .. .. .. .. .. .. .. ..
Energy.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Health and Human Services,
except social security.. .. .. .. .
Health and Human Services,
social security.. .. .. .. .. .. .. .. .
Housing and Urban
Development.. .. .. .. .. .. .. .. .. .
Interior.. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Justice.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Labor.. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
State.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Transportation.. .. .. .. .. .. .. .. .. .. .
Treasury.. .. .. .. .. .. .. .. .. .. .. .. .. .
Environmental Protection
Agency .. .. .. .. .. .. .. .. .. .. .. .. .
General Services Administration..
National Aeronautics and Space
Administration.. .. .. .. .. .. .. .. .
Office of Personnel
Management.. .. .. .. .. .. .. .. .. .
Small Business Administration....
Veterans Administration.. .. .. .. ..
Other independent agencies:
Export-Import Bank.. .. .. .. .. .
Federal Home Loan Bank
Board.. .. .. .. .. .. .. .. .. .. .. ..
Railroad Retirement Board.. ..
All other independent
agencies.. .. .. .. .. .. .. .. .. .. .
Allowances3.. .. .. .. .. .. .. .. .. .. ..
Start 1986
Obligated
End 1987
End 1986
Unobligated
Obligated
Unobligated
Obligated
End 1988
Unobligated
Obligated
Unobligated
401
124
401
142
388
115
415
122
383
159
195
128
389
176
152
138
21
*
17
*
18
*
19
♦
33,740 31,226 32,962 29,634 32,752 29,433
24,521 2,189 29,445 2,255 22,407 1,227
1,643
387 1,129
169
352 1,445
182,861 61,487 196,407 59,046 209,459 50,464
2,184 10,459 2,135 22,939 2,398 36,189
13,683 1,993 13,670 1,676 11,877 2,221
563
7,949 2,450 7,111 2,649 7,613
32,329 29,370
13,404
989
162
946
224,031 49,697
2,664 50,556
11,488 1,320
131
7,883
10,410 58,052
12,869 79,793
7,301
14,727
36,563
7,309 48,447
25,026 15,824 30,046
16,836 48,554 16,838 88,222
212,131 58,427 203,883 56,698 189,933 59,027 171,998 59,605
2,346 2,156 2,165 2,104 1,919 1,735 1,788 1,689
384
282 1,214
730
445
884
338 1,422
4,957 19,802 3,755 25,412 3,585 30,002 4,828 31,412
702 2,990
867 3,962 1,193 4,089 1,352 4,660
35,197 12,252 38,851 12,053 38,075 12,659 37,548 11,905
3,459 22,589 1,016 19,396
996 19,082 1,114 18,815
10,176
970
1,136
1,244
8,828
402
1,048
1,879
8,835
811
1,327
1,587
9,189
1,069
921
1,512
1,631
913
1,640
1,249
2,347
3,096
2,647
2,651
2,994 183,330
850
398
4,848 13,050
3,188 203,329
363 1,176
5,162 13,120
1,982 146,999
260 1,952
4,071 13,174
2,768 166,458
421
589
4,201 13,516
3,109
439
1,732
797
2,628
2,023
2,153
2,650
1,907
71
3,920
4,176
6,671
-259
1,084
6,289
3,812
-191
199
6,955
3,175
-96
1,535
7,809
16,461
14,820
17,128 15,651
17,825
13,704
17,139
-113
16,430
Total.. .. .. .. .. .. .. .. .. .. .. . 589,316 479,724 601,782 526,141 596,872 580,191 586,755 680,133
MEMORANDUM
Federal funds.. .. .. .. .. .. .. .. .. .. . 516,596 206,866 531,068 191,579 522,625 181,271 508,407 182,248
Trust funds.. .. .. .. .. .. .. .. .. .. .. .. 72,721 272,857 70,714 334,562 74,247 398,920 78,348 497,886
Total.. .. .. .. .. .. .. .. .. .. .. . 589,316 479,724 601,782 526,141 596,872 580,191 586,755 680,133
*$500 thousand or
1 Includes balances
2 Includes balances
3 Includes balances
less.
of budget authority that are off-budget under current law.
of allowances for civilian and military pay raises for the Department of Defense.
of allowances for civilian agency pay raises.
6c-24
THE BUDGET FOR FISCAL YEAR 1988
Table 13. RECEIPTS BY SOURCE
(In millions of dollars)
1986
actual
1987 estimate
1988 estimate
Withheld.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . 314,838
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 105,994
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Gross individual income taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . 420,832
Refunds.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . -71,873
313,648
128,428
—2
442,074
-78,072
326,691
137,828
1,097
465,616
-72,795
348,959
364,002
392,821
80,442
Existing law.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Refunds.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . -17,298
122,243
-17,482
134,955
1,028
-18,776
63,143
104,761
117,207
195,241
220,554
359
21,154
31
59,962
1,690
Source
Individual income taxes:
Net individual income taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Corporation income taxes:
Net corporation income taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Social insurance taxes and contributions (trust funds):
Employment taxes and contributions:
Old-age and survivors insurance (off-budget).. .. .. .. .. .. .. .. .. .. .. .. .. 182,518
Proposed legislation (off-budget).. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
17,711
Disability insurance (off-budget)^.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Proposed legislation (off-budget).. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
51,335
Hospital insurance.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Railroad retirement:
1,395
Social Security equivalent account.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ....
Rail pension fund.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
2,103
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Total employment taxes and contributions.. .. .. .. .. .. .. .. .. .. . 255,062
On-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. (54,834)
Off-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. (200,228)
Unemployment insurance:
18,832
State taxes deposited in Treasury 1.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
5,044
Federal unemployment tax receipts1.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
221
Railroad unemployment tax receipts1.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Railroad debt repayment1.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
24,098
Total unemployment insurance.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Other retirement contributions:
4,645
Federal employees’ retirement—employee contributions.. .. .. .. .. .. .. .
96
Contributions for non-Federal employees2.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
4,742
Total other retirement contributions.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Total social insurance taxes and contributions.. .. .. .. .. .. .. .
283,901
On-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . (83,673)
Off-budget.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . (200,228)
18,777
55,811
1,313
2,106
1,370
2,101
217
273,248
(59,230)
(214,018)
307,438
(65,340)
(242,098)
17,375
16,177
78
5,580
9
207
42
153
22,246
6,016
216
174
23,781
4,431
3,394
96
10
3,500
301,460
333,184
(87,442)
(214,018)
(91,086)
(242,098)
4,097
1,603
4,045
1,615
4,332
99
Excise taxes:
Federal funds:
Alcohol taxes:
Distilled spirits.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Beer.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
4,045
1,597
6c-25
SUMMARY TABLES
Table 13.
RECEIPTS BY SOURCE—Continued
(In millions of dollars)
Source
Wines.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Special taxes in connection with liquor occupations.. .. .. .. .. .. .. ..
Refunds.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Total alcohol taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Tobacco taxes:
Cigarettes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Cigars.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Cigarette papers and tubes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Smokeless tobacco.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Other.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Refunds.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Total tobacco taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Manufacturers’ excise taxes:
Gasoline.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Firearms, shells, and cartridges.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Pistols and revolvers.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Bows and arrows.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Gas guzzler tax.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Windfall profit tax.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Refunds.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Total manufacturers’ excise taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Miscellaneous excise taxes:
General and toll telephone and teletype service.. .. .. .. .. .. .. .. .. .. .
Wagering taxes, including occupational taxes.. .. .. .. .. .. .. .. .. .. .. ..
Employee pension plans.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Tax on foundations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Foreign insurance policies.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Refunds..............................................................................................
Total miscellaneous excise taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Undistributed Federal tax deposits and unapplied collections.. .. .. .. ..
Total Federal fund excise taxes.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Trust funds:
Highway:
Gasoline.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Trucks, buses, and trailers.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Tires, innertubes, and tread rubber.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Diesel fuel used on highways.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .
Use-tax on certain vehicles.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Proposed legislation.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Refunds.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Total highway trust fund3.. .. ..
@FedFRASER