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EXECUTIVE OFFICE OF
THE PRESIDENT
OFFICE OF MANAGEMENT
AND BUDGET

BUDGET

OF THE
UNITED STATES
GOVERNMENT




FISCAL YEAR

1989

THE BUDGET DOCUMENTS
Budget of the United States Government, 1989 contains the Budget Message of the
President and presents an overview of the President's budget proposals. It includes
summary information on the economic assumptions used in the 1989 Budget, Federal receipts, and Federal spending. In addition it includes supplemental information
on the baselines used in the Budget, Federal credit programs, Federal capital
expenditures, several topics that help place the budget in perspective, the budget
system and concepts, a listing of the Federal program by agency and account, and
summary tables.
United States Budget in Brief, 1989 is designed for use by the general public. It
provides a more concise, less technical overview of the 1989 budget than the above
volume, including summary and historical tables on the Federal budget and debt,
together with graphic displays.
Budget of the United States Government, 1989—Appendix contains detailed information on the various appropriations and funds that constitute the budget. The
Appendix contains more detailed information than any of the other budget documents. 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 applicable to the appropriations of entire agencies or groups of agencies. Supplemental
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, 1989 contains analyses
that are designed to highlight specified program areas or provide other significant
presentations of budget data. The first part of this document includes information
about two alternative views of the budget; i.e., the current services and GrammRudman-Hollings budget baselines, and the national income accounts. The second
part provides analyses and tabulations of the totals that cover the Federal Government s finances and operation as a whole and reflect the ways in which Government
finances affect the economy. Financial information on Federal research and development programs and data on Federal civilian employment are also included in this
part.
Historical Tables, Budget of the United States Government, 1989 provides data on
budget receipts, outlays, surpluses or deficits, and Federal debt covering extended
time periods—in many cases from 1940-1993. 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 1989 Budget, so the data series are
comparable over time.
Management of the United States Government, 1989 includes the President's Management Message and provides the goals and strategies of the President's Management Improvement Program. It reports on the credit management program, 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 and the
status of debt collection and prompt payment efforts.
Major Policy Initiatives, 1989 highlights the major policy changes proposed in the
1989 Budget. Each description includes a brief history of the program and the
conditions that precipitated the need for change. The President's proposal describes
concisely the initiative and, in most examples, presents a summary funding chart
that contains the budget authority and outlay changes that would occur if enacted.
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
PART 1. THE BUDGET MESSAGE OF THE PRESIDENT
1-1
PART 2. BUDGET TRENDS AND PRIORITIES
2-1
2a. BUDGET POLICY AND TRENDS SINCE 1980
2a-l
Reallocating resources to basic national priorities
2a-l
National defense
2a-3
Low-income benefit programs
2a-4
Benefits for the elderly and retirees
2a-6
Health
2a-7
Other payments for individuals
2a-8
Basic Government activities
2a-10
Other priorities
2a-13
Grants to State and local governments
2a-14
Economic development and business subsidies
2a-16
Remaining domestic programs
2a-17
Conclusion
2a-18
2b. PRIORITIES IN THE 1989 BUDGET
2b-l
National defense
2b-2
International discretionary programs
2b-3
Domestic discretionary programs
2b-4
Entitlements and other mandatory programs
2b-16
Revenues
2b-19
Credit reform initiative
2b-22
Privatization initiatives
2b-23
Other management initiatives
2b-24
Conclusion
2b-25
PART 3. THE ECONOMY AND THE BUDGET
3-1
3a. ECONOMIC PERFORMANCE, BUDGET POLICY, AND THE DEFICIT:
1981-1989
3a-l
3b. THE ECONOMIC OUTLOOK
3b-l
PART 4. FEDERAL RECEIPTS BY SOURCE
4-1
Summary
4-2
Enacted legislation
4-3
Omnibus Budget Reconciliation Act of 1987
4-5
Continuing Resolution for Fiscal Year 1988
4-12
Receipts proposals
4-13
Effect of enacted and proposed changes on receipts
4-17
Changes in receipts
4-19
Receipts by source
4-21
Proprietary receipts
4-22
PART 5. FEDERAL PROGRAMS BY FUNCTION
5-1
Introduction
5-2
National defense
5-5
International affairs
5-17
General science, space, and technology
5-27




III

IV

THE BUDGET FOR FISCAL YEAR 1989
Page

Energy
Natural resources and environment
Agriculture
Commerce and housing credit
Transportation
Community and regional development
Education, training, employment and social services
Health
Medicare
Income security
Social security
Veterans benefits and services
Administration of justice
General government
Central Federal credit activities
Net interest
Allowances
Undistributed offsetting receipts
PART 6. SUPPLEMENTS
6a. ALTERNATIVE BUDGET BASELINES
Current year vs. current services
Gramm-Rudman-Hollings
Choice of baseline for the 1989 budget
6b. FEDERAL CREDIT
Overview
Controlling Federal credit
Credit management
Other types of credit activity
6c. FEDERAL CAPITAL EXPENDITURES
6d. PERSPECTIVES ON THE BUDGET
Relationship of budget authority to outlays
Limitations on the availability of funds
Fiscal activities outside the Federal budget
Budget funds and the Federal debt
Comparison of actual and estimated Federal Government totals for 1987
Comparison of the actual and estimated relatively uncontrollable outlays
for 1987
Allocation of windfall profit tax receipts
6e. THE BUDGET SYSTEM AND CONCEPTS
The budget process
Coverage of the budget totals
Budgetary resources and related transactions
Federal credit activities
Collections
Other transactions
Basis for budget figures
6f. THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT
Explanatory note
Legislative branch
The Judiciary
Executive Office of the President
Funds appropriated to the President
Department of Agriculture
Department of Commerce
Department of Defense—Military




5-35
5-46
5-56
5-62
5-73
5-83
5-92
5-108
5-114
5-117
5-132
5-134
5-143
5-148
5-155
5-157
5-162
5-164
6-1
6a-l
6a-l
6a-4
6a-5
6b-l
6b-l
6b-6
6b-ll
6b-15
6c-l
6d-l
6d-l
6d-3
6d-6
6d-18
6d-22
6d-30
6d-32
6e-l
6e-l
6e-6
6e-9
6e-13
6e-14
6e-16
6e-17
6f-l
6f-l
6f-2
6f-10
6f-12
6f-15
6f-25
6f-40
6f-46

CONTENTS
Department of Defense—Civil
6f-59
Department of Education
6f-63
Department of Energy
6f-68
Department of Health and Human Services, except social security
6f-72
Department of Health and Human Services, social security
6f-86
Department of Housing and Urban Development
6f-87
Department of Interior
6f-93
Department of Justice
6f-105
Department of Labor
6f-110
Department of State
6f-114
Department of Transportation
6f-118
Department of the Treasury
6f-129
Environmental Protection Agency
6f-136
General Services Administration
6f-138
National Aeronautics and Space Administration
6f-140
Office of Personnel Management
6f-143
Small Business Administration
6f-144
Veterans Administration
6f-146
Other independent agencies
6f-149
Allowances
.
6f-178
Budget totals
6f-179
Off-budget totals
6f-180
Federal Government totals
6f-181
6g. SUMMARY TABLES
6g-l
Explanation of the summary tables
6g-2
Table 1. Summary
6g-7
Table 2. Receipts by source and outlays by agency, 1987-93
6g-8
Table 3. Outlays by function, 1987-93
6g-9
Table 4. Credit budget: new direct loan obligations, guaranteed loan commitments and subsidies by agency
6g-10
Table 5. Credit budget: new direct loan obligations, guaranteed loan commitments and subsidies by function
6g-ll
Table 6. Federal Government financing and debt
6g-12
Table 7. Full-time equivalent of Federal civilian employment
6g-14
Table 8. Budget authority by function, 1987-93
6g-15
Table 9. Budget authority by agency, 1987-93
6g-16
Table 10. Budget authority and outlays available with and without current
action by Congress
6g-17
Table 11. Relation of budget authority to outlays
6g-18
Table 12. Balances of budget authority
6g-19
Table 13. Receipts by source
6g-20
Table 14. Offsetting receipts by type
6g-23
Table 15. Legislative proposals for major new and expanded programs in
the 1989 Budget, projection of costs
6g-26
Table 16. Controllability of outlays, 1987-89
6g-28
Table 17. Receipts by source, 1979-89
6g-30
Table 18. Outlays by function and subfunction, 1979-89
6g-32
Table 19. Federal finances and the gross national product, 1970-91
6g-39
Table 20. Composition of receipts and outlays in current prices: 1974-91
6g-41
Table 21. Composition of receipts and outlays in constant (fiscal year 1982)
prices: 1974-91
6g-42
Table 22. Direct loan obligations and guaranteed loan commitments by
sector, 1979-93
6g-43
Table 23. Direct loan obligations and guaranteed loan commitments, 195193
6g-44




VI

THE BUDGET FOR FISCAL YEAR 1989
Page

Table 24. Total receipts and outlays, 1789-93
Table 25. On-budget and off-budget receipts and outlays, 1937-93
6h. GLOSSARY OF COMMON ACRONYMS
INDEX




6g-45
6g-46
6h-l
Ind-1

PART 1

THE BUDGET MESSAGE
OF THE
PRESIDENT




1-1

1-2

The Federal Government Dollar
Fiscal Year 1989 Estimate
Where It Comes From ...
Excise Taxes
3%
, Other
4%

Borrowing12%

Social
Insurance
Receipts
32%

Corporation
Income Taxes
11%

Individual
Income

Taxes
38%

Where It Goes
Grants to
States & Localities
11%




Other Federal
Operations
5%
National
Defense
27%

Direct Benefit
Payments for
Individuals
43%

THE BUDGET MESSAGE OF THE PRESIDENT
To the Congress of the United States:
As we consider the state of our Nation today, we have much
cause for satisfaction. Thanks to sound policies, steadfastly pursued
during the past 7 years, America is at peace, and our people are
enjoying the longest peacetime economic expansion in our Nation's
history.
By reordering priorities so that we spend more on national security and less on wasteful or unnecessary Federal programs, we
have made freedom more secure around the world and have been
able to negotiate with our adversaries from a position of strength.
By pursuing market-oriented economic policies, we have uncorked
the genie of American enterprise and created new businesses, more
jobs, improved production, and widespread prosperity. And we have
done all this without neglecting the poor, the elderly, the infirm,
and the unfortunate among us.
SEVEN YEARS OF ACCOMPLISHMENT

Let me note a few of the highlights from our Administration's
record of accomplishment:
• The current expansion, now in its sixty-third month, has outlasted all previous peacetime expansions in U.S. history. Business investment and exports are rising in real terms, foreshadowing continued economic growth this year and next.
• Since this expansion began, 15 million new jobs have been
created, while the unemployment rate has fallen by 5 percentage points—to 5.7 percent, the lowest level in nearly a decade.
By comparison, employment in other developed countries has
not grown significantly, and their unemployment rates have
remained high.
• Inflation, which averaged 10.4 percent annually during the 4
years before I came to office, has averaged less than a third of
that during the past 5 years.
• The prime interest rate was 21.5 percent just before I came
into office; it is now 8.5 percent; the mortgage rate, which was
14.9 percent, is now down to 10.2 percent.
• Since 1981, the amount of time spent by the public filling out
forms required by the Federal Government has been cut by
hundreds of millions of hours annually, and the number of




1-3

1-4

THE BUDGET FOR FISCAL YEAR 1989

pages of regulations published annually in the Federal Register has been reduced by over 45 percent.
• Between 1981 and 1987, changes in the Federal tax code,
including a complete overhaul in 1986, have made the tax
laws more equitable, significantly lowered earned income tax
rates for many individuals and corporations, and eliminated
the need for 4.3 million low-income individuals or families to
file tax forms.
• At the same time, real after-tax personal income has risen 15
percent during the past 5 years, increasing pur overall standard of living.
• The outburst of spending for means-tested entitlement programs that occurred in the 1970's has been curbed. Eligibility
rules have been tightened to retarget benefits to the truly
needy, and significant progress has been made in improving
the efficiency and effectiveness of these programs.
• We have begun the process of putting other entitlement programs on a more rational basis. This includes medicare,
which was converted from cost-plus financing to a system that
encourages competition and holds down costs.
• Federal spending for domestic programs other than entitlements has been held essentially flat over the past 5 years,
while basic benefits for the poor, the elderly, and others in
need of Federal assistance have been maintained. This is a
dramatic improvement over the unsustainably rapid annual
growth of these programs that prevailed before 1981.
• The social security system has been rescued from the threat
of insolvency.
• Our defense capabilities have been strengthened. Weapons
systems have been modernized and upgraded. We are recruiting and retaining higher caliber personnel. The readiness,
training, and morale of our troops have been improved significantly. Because we are stronger, enormous progress has been
achieved in arms reduction negotiations with the Soviet
Union.
• Federal agencies have undertaken a major management improvement program called "Reform '88/' This program has
two main objectives: to operate Federal agencies in a more
business-like manner, and to reduce waste, fraud, and abuse
in government programs.
• Some functions of the Federal Government—such as financing waste treatment plants—are being transferred back to
State and local governments. In other instances—such as
water projects—State and local governments are bearing a
larger share of costs, leading to more rational decision-making
in these areas.




1-5

THE BUDGET MESSAGE OF THE PRESIDENT

• Finally, we have made real progress in privatizing Federal
activities that are more appropriate for the private sector
than government. Notable examples include the sale of Conrail, the long-term lease of National and Dulles Airports, and
the auction of billions of dollars in loan portfolios.
• Related to this shift away from the Federal budget are our
achievements on cost sharing and user fees, shifting the cost
of projects and programs where appropriate to non-Federal
sources.
While we have reason to be proud of this record of achievement,
we must be vigilant in addressing threats to continued prosperity.
One major threat is the Federal deficit.
DEFICIT REDUCTION, THE AGREEMENT, AND G-R-H

If the deficit is not curbed by limiting the appetite of government, we put in jeopardy what we have worked so hard to achieve.
Larger deficits brought on by excessive spending could precipitate
rising inflation, interest rates, and unemployment. We cannot
permit this to happen, and we will not.
BUDGET SUMMARY
(In billions of dollars)

Receipts
Outlays
Surplus or deficit ( - )
Gramm-Rudman-Hollings
deficit targets
Difference

1987

1988

1989

1990

1991

1992

1993

854.1
1,004.6

909.2
1,055.9

964.7
1,094.2

1,044.1
1,148.3

1,124.4
1,203.7

1,189.9
1,241.0

1,258.1
1,281.3

-150.4

-146.7

-129.5

-104.2

-79.3

-51.1

-23.3

-144.0

-144.0

-136.0

-100.0

-64.0

-28.0

0.0

6.4

2.7

-6.5

4.2

15.3

23.1

23.3

Note.—Totals include social security, which is off-budget.

The Congress acknowledged the pressing need to reduce the deficit when, in December 1985, it enacted the Balanced Budget and
Emergency Deficit Control Act, commonly known for its principal
sponsors as the Gramm-Rudman-Hollings (G-R-H) Act. This Act
committed both the President and the Congress to a fixed schedule
of progress toward balancing the budget.
In 1987, the budget deficit was $150 billion—down $71 billion
from the record level of $221 billion reached in 1986. This was also
a record decline in the deficit. To some extent, however, this improvement represented one-time factors, such as a high level of
receipts in the transitional year of tax reform. Economic forecasters predicted that without action the 1988 and 1989 deficits would
be higher than the 1987 level. In order to prevent this, and to
preserve and build upon the 1987 deficit-reduction progress in a
realistic fashion, last fall the Congress modified the G-R-H Act.




1-6

THE BUDGET FOR FISCAL YEAR 1989

Specifically, it required that the 1988 deficit target be $144 billion
and the target for 1989 be $136 billion.
Last year, members of my Administration worked with the Leaders of Congress to develop a 2-year plan of deficit reduction—the
Bipartisan Budget Agreement. One of the major objectives of the
budget I am submitting today is to comply with that agreement—
in order to help assure a steady reduction in the deficit until
budget balance is achieved.
The Bipartisan Budget Agreement reflects give and take on all
sides. I agreed to some $29 billion in additional revenues and $13
billion less than I had requested in defense funding over 2 years.
However, because of a willingness of all sides to compromise, an
agreement was reached that pared $30 billion from the deficit
projected for 1988 and $46 billion from that projected for 1989.
In submitting this budget, I am adhering to the Bipartisan
Budget Agreement and keeping my part of the bargain. I ask the
Congress to do the same. This budget does not fully reflect my
priorities, nor, presumably, those of any particular Member of
Congress. But the goal of deficit reduction through spending reduction must be paramount. Abandoning the deficit reduction compromise would threaten our economic progress and burden future
generations.
This budget shows that a gradual elimination of the deficit is
possible without abandoning tax reform, without cutting into legitimate social programs, without devastating defense, and without
neglecting other national priorities.
Under the Bipartisan Budget Agreement, progress toward a
steadily smaller deficit and eventual budget balance will continue,
but this projected decline rests on two assumptions: continued economic growth, and implementation of the Agreement. If the economy performs as expected, and if the Bipartisan Budget Agreement
reflected in this budget is adhered to, the deficit should decline to
less than 3 percent of GNP in 1989. For the first time in several
years, the national debt as a proportion of GNP will actually fall.
Reducing the deficit and the debt in this manner would bring our
goal of a balanced budget and a reduced burden on future generations much closer to realization.
Moreover, adherence to the Agreement, as reflected in this
budget, will ensure the achievement of additional deficit reductions
in future years, because in many cases the savings from a given
action this year will generate deficit savings in subsequent years.
Given the good start made in 1987, we have an opportunity this
year to put the worst of the deficit problem behind us.




THE BUDGET MESSAGE OF THE PRESIDENT

1-7

MEETING NATIONAL PRIORITIES
In formulating this budget, I have endeavored to meet national
priorities while keeping to the terms of the Bipartisan Budget
Agreement and the G-R-H Act. In essence, the Agreement limits
the 1988-to-1989 increase in domestic discretionary program budget
authority to 2 percent. To address urgent national priorities insofar
as possible within this overall 2 percent limit, my budget proposes
that some programs—such as those for education, drug enforcement, and technology development—receive larger funding increases, while others are reduced, reformed, or, in some cases,
terminated.
High-priority programs must be funded adequately. One of our
highest priorities is to foster individual success through greater
education and training opportunities. For example:
• I propose an increase of $656 million over the $16.2 billion
appropriated for 1988 for discretionary programs of the Department of Education. Although State and local governments
fund most educational activity, Federal programs provide crucial aid for the poor, the handicapped, and the educationally
disadvantaged.
• I have proposed reform of our over-centralized welfare system
through State experimentation with innovative alternatives.
In addition, my initiative would overhaul current employment
and training programs for welfare recipients, and strengthen
our national child support enforcement system.
• By emphasizing housing vouchers, I would provide housing
assistance to 135,500 additional low-income households in
1989—8 percent more than the 125,000 additional households
receiving housing subsidies in 1988.
• Ineffective programs to assist dislocated workers would be
replaced by an expanded $1 billion worker readjustment program (WRAP) carefully designed to help those displaced from
their jobs move quickly into new careers.
In addition, I am proposing funds to strengthen U.S. technology
and make America more competitive. For example:
• I propose a continued increase in federally supported basic
research aimed at longer-term improvements in the Nation's
productivity and global competitiveness. This budget would
double National Science Foundation support for academic
basic research, increase support for training future scientists
and engineers, and expedite technology transfer of Government-funded research to industry.
• I would provide $11.5 billion for space programs, including:
essential funding for continued development of America's first
permanently manned Space Station; increased support for improving the performance and reliability of the space shuttle; a




1-8

THE BUDGET FOR FISCAL YEAR 1989

major new initiative, the Advanced X-ray Astrophysics Facility, for space science; further support to encourage the commercial development of space; and a new technology effort,
Project Pathfinder, designed to develop technologies to support future decisions on the expansion of human presence and
activity beyond Earth's orbit, into the solar system.
• I also recommend $363 million in 1989 to initiate construction
of the Superconducting Super Collider (SSC), including $283
million for construction and $60 million for supporting research and development. The SSC as currently envisaged will
be the largest pure science project ever undertaken. It will
help keep this country on the cutting edge of high energy
physics research until well into the next century.
This budget also reflects my belief that the health of all of our
citizens must remain one of our top priorities:
• I continue to urge enactment of an affordable self-financing
insurance program through medicare to protect families from
economic devastation caused by catastrophic illness.
• To attack the scourge of AIDS, I propose $2 billion for additional research, education, and treatment in 1989—a 38 percent increase over the 1988 level and more than double the
Federal Government's effort in 1987. This includes $1.3 billion
in funding for the Public Health Service.
• Building upon the Nation's preeminence in basic biomedical
research, I seek a 5.1 percent increase for non-AIDS research
at the National Institutes of Health;
Our fight against drug abuse must continue, as well as our
efforts to protect the individual against crime:
• For expanded law enforcement, including efforts targeted at
white collar crime, organized crime, terrorism and public corruption, I propose $4.5 billion—an increase of 6 percent over
1988.
• For drug law enforcement, prevention, and treatment programs, I propose $3.9 billion in 1989, a 13 percent increase
over the 1988 level.
• To relieve prison overcrowding and adequately house a growing inmate population, I would provide $437 million—more
than double the $202 million devoted to Federal prison construction in 1988.
Other areas of Federal responsibility receive priority funding in
this budget:
• For the Federal Aviation Administration to continue its
multi-year program to modernize the Nation's air traffic control systems, I would provide $1.6 billion—a 44 percent increase over the level of 1988.




THE BUDGET MESSAGE OF THE PRESIDENT

1-9

• To improve coordination of Federal rural development programs and to redirect funding toward needy rural areas and
program recipients, I propose a rural development initiative
to be coordinated by the Secretary of Agriculture.
• To carry out the joint recommendations of the U.S. and Canadian Special Envoys on Acid Rain, I recommend total funding
of $2.5 billion for innovative clean coal technology demonstration projects over the period 1988 through 1992.
• I also recommend an expansion of hazardous waste cleanup
efforts, with an increase in Superfund outlays of some $430
million in 1989.
• To continue filling the Strategic Petroleum Reserve (SPR) at
the current rate of 50,000 barrels per day, I would provide
$334 million in 1989. Contingent upon the enactment of legislation authorizing the sale of the Naval Petroleum Reserves
(NPR), I would provide an additional $477 million to bring the
fill rate up to 100,000 barrels per day, and an additional $208
million to establish a separate 10 million barrel defense petroleum inventory to offset the disposition of the NPR.
• To improve the speed and accuracy of tax processing and
expand information services provided to taxpayers, I would
provide a $241 million increase for the Internal Revenue Service. These funds are designed to assure smooth implementation of the 1986 tax reforms.
Maintaining peace in a troubled world is the most important
responsibility of government. Fortunately, during the past 7 years,
our defense capabilities have been restored toward levels more
consistent with meeting our responsibility to provide an environment safe and secure from aggression. Specifically, combat readiness has been improved, and our forces have been modernized.
The proposals for national security contained in this budget represent an essential minimum program for keeping America safe
and honoring our commitments to our friends and allies. Anything
less would jeopardize not only our security—and that of our friends
and allies—but also would dim the prospects for further negotiated
agreements with our adversaries.
As called for in the Bipartisan Budget Agreement, my budget
requests defense funding of $299.5 billion in budget authority and
$294.0 billion in outlays for 1989. It also provides for about 2
percent real growth in these programs in future years. Also, as
called for in the Agreement, my budget requests $18.1 billion in
budget authority for discretionary spending for international affairs. This includes $8.3 billion in security assistance to allied and
friendly countries where the United States has special security
concerns.




1-10

THE BUDGET FOR FISCAL YEAR 1989

NEEDED PROGRAMMATIC REFORMS

Incentives.—It is essential to continue to change the incentive
structure for many domestic Federal programs to promote greater
efficiency and cost-effectiveness. This budget proposes to create
such needed incentives.
Many Federal programs offer payments without sufficient regard
for how well taxpayers' money is being spent. For example, farm
price support programs, under the Food Security Act of 1985, are
much too costly. I plan to continue pushing for the elimination of
artificially high price supports, thereby reducing the need for
export subsidies. In particular, I plan to propose amendments to
the Act to modify the counterproductive sugar price support program that currently poses significant problems in the areas of
trade policy, foreign policy, and agricultural policy. The importance
of agricultural trade to the economic health of the farm sector and
the Nation as a whole mandates increased reliance on free markets, not government largess.
The budget proposes certain reforms in the medicare program in
order to achieve the savings agreed to in the Bipartisan Budget
Agreement. First, as justified by the results of several independent
studies, I propose to reduce the add-on payment for teaching hospitals under the prospective payment system (PPS) for indirect medical education from 7.70 percent to 4.05 percent, the best estimate of
the added costs incurred historically by teaching hospitals. Second,
I propose to limit medicare overhead payments for graduate medical education and make consistent varying secondary payor enforcement mechanisms. To reduce escalating supplementary medical insurance costs and help slow future increases in beneficiary
premiums, I propose to limit payments for certain overpriced physician procedures, limit payments for durable medical equipment
and supplies, and eliminate a loophole in the payment process for
kidney dialysis. In total, these reforms would reduce spending for
medicare by $1.2 billion from the level that would occur if current
law were continued. Spending for the medicare program would still
increase by 7 percent from 1988 to 1989.
Although the provision of needed legal services for those who
cannot afford them is an important goal in our society, the current
system earmarks a large portion of the funding to "National and
State Support Centers" that have been criticized for political involvement. I urge Congress to disallow use of Federal funds for
such "think tanks" and limit the use of funds to the direct assistance of the poor in need of legal aid.
The Government often continues programs at the Federal level
that are no longer needed. This is the case with rural housing
programs, the Economic Development Administration, urban mass
transit discretionary grants, urban development action grants,




THE BUDGET MESSAGE OF THE PRESIDENT

1-11

sewage treatment, Small Business Administration direct loans,
housing development action grants, the housing rehabilitation loan
program, and economic development programs of the Tennessee
Valley Authority. Efforts to reverse this situation have been undertaken by prior administrations as well as my own, but the limited
results to date indicate the difficulty of curbing excessive government involvement in these areas.
Regulatory Relief.—For 7 years I have worked to reduce the
excess burdens of government regulation for all Americans—working men and women, consumers, businesses, and State and local
governments. As a result, various departments and agencies have
reduced the scope and costs of Federal regulation. Federal approval
of experimental drugs has been expedited, making them available
to treat serious or life-threatening diseases when other treatments
do not work. Excessive burdens on State and local governments are
being lifted. Access to goods and services has been made easier, and
at less cost. Federal reporting requirements on individuals and
businesses have been eased, as well as the paperwork burden on
those who wish to compete for contracts with the Federal Government. Under the leadership of the Presidential Task Force on
Regulatory Relief, headed by the Vice President, the Administration will continue these and other efforts to lessen the burden of
excessive government regulation.
As a case in point, my budget proposes termination of the Interstate Commerce Commission, contingent upon enactment of legislation that completes deregulation of the motor carrier industry.
There is no justification for continued economic (as opposed to
safety) regulation of surface transportation, and there is a substantial argument against it. As a result of economic deregulation of
trucking and railroads, consumers save tens of billions of dollars
each year, and the industry is healthier, more innovative, and
better able to adapt to changing economic circumstances. This is no
time to turn back the clock.
Privatization.—The government and the private sector should do
what each does best. The Federal Government should not be involved in providing goods and services where private enterprise can
do the jobs cheaper and/or better. In some cases, the fact that no
private provider exists is a reflection of government policy to prohibit competition—as with first class mail service. In other cases,
an absence of private providers reflects a government policy of
providing large subsidies—as with uranium enrichment. Invariably, the taxpayer ends up paying more for less.
Accordingly, my budget proposes that a number of Federal enterprises be transferred back to the private sector, through public
offerings or outright sales. Following our successful sale of Conrail




1-12

THE BUDGET FOR FISCAL YEAR 1989

and auctioning of $5 billion in selected loan portfolios, I am proposing the sale not only of the Naval Petroleum Reserves, but also of
the Alaska Power Administration, the Federal Government's
helium program, excess real property, and a further $12 billion in
loan portfolios. In addition, I have proposed legislation to authorize
a study of possible divestiture of the Southeastern Power Administration, and plan to study possible privatization of our uranium
enrichment facilities, as well as ways of making the U.S. Postal
Service more efficient through greater reliance on the private
sector. Such "privatization" efforts continue to be a high priority of
this Administration, and I look forward to acting on the final
recommendations of the Privatization Commission, which I established last September.
Privatization does not necessarily imply abrogation of government responsibility for these services. Rather, it recognizes that
what matters is the service provided, not who provides it. Government has an inherent tendency to become too big, unwieldy, and
inefficient; and to enter into unfair competition with the private
sector.
The Federal Government should also depend more on the private
sector to provide ancillary and support services for activities that
remain in Federal hands. Therefore, I am proposing the development of a private mediating institution to reduce the backlog of
cases before the U.S. Tax Court. I propose that the private sector
be relied upon for booking functions for concessional food programs. I also encourage the complete privatization of wastewater
treatment plants, certain mass transit projects, the Department of
Agriculture's National Finance Center, and the Rural Telephone
Bank.
In addition, our Administration plans to initiate privatization
and commercialization efforts involving Federal prison industries,
relying on a private space facility for micro-gravity research opportunities in the early 1990's, commercial cargo inspection, military
commissaries, Coast Guard buoy maintenance, and the management of undeveloped Federal land. Moreover, my budget proposes
that the work associated with certain Federal employment positions be reviewed for the feasibility of contracting their responsibilities out to the private sector as yet another way to increase
productivity, reduce costs, and improve services.
One of the best ways to test the worth of a governmental program or a particular project is to shift some of the cost of that
program or project to the direct beneficiaries. We have done that,
for example, with water resources development projects. As a
result, local sponsors and users choose to proceed only on the
projects that are most important and most cost effective.




THE BUDGET MESSAGE OF THE PRESIDENT

1-13

Management Improvements.—As we all know, the Federal Government has a major effect upon our daily lives through the direct
delivery of services, the payment of financial assistance through
various entitlement programs, the collection of taxes and fees, and
the regulation of commercial enterprises. As the 21st century approaches, the Federal Government must adapt its role in our society to meet changing demands arising from changing needs and
requirements. At the turn of the century, the U.S. population will
exceed 268 million, with a greater proportion of elderly requiring
more specialized services. The Nation will operate at a much faster
pace as changes in technology and communication link the world's
economies, trade, capital flows, and travel as never before.
I have asked the Office of Domestic Affairs and the Office of
Management and Budget to work with the President's Council on
Management Improvement to conduct an in-depth review and recommend to me by this August what further adjustments in the
Federal role should be made to prepare for the challenge of government in the 21st century. This summer I will receive their report,
"Government of the Future." I also intend to complete the "Reform
'88" management improvement program I started 6 years ago to
overhaul the administrative, financial, and credit systems in our
Federal Government; to implement productivity and quality plans
in each agency; and to examine the needs of the Federal work force
of the future. I want to leave a legacy of good management of
today's programs, with plans in place to handle tomorrow's challenges.
Efforts to improve the management of the Federal Government
must be continued. We have all heard stories of the horrible waste
that occurs in the Federal Government. Some of it is obvious—like
the billions of dollars in unneeded projects that were included in
the thousand-page 1988 spending bill that was dropped on my desk
last December. Some are not obvious—like the billion dollars in
unnecessary interest expense the government paid, year after year,
because it lacked a cash management system, or the billions of
dollars lost annually for lack of a credit management process to
ensure collection of the trillion dollars in loans owed the Federal
Government.
In July 1980, I promised the American people: "I will not accept
the excuse that the Federal Government has grown . . . beyond the
control of any President, Administration or Congress . . . we are
going to put an end to the notion that the American taypayer
exists to fund the Federal Government. The Federal Government
exists to serve the American people . . . I pledge my Administration will do that." I have delivered on that promise.
The first step was taken within months after my inauguration
when I formed the President's Council on Integrity and Efficiency,




1-14

THE BUDGET FOR FISCAL YEAR 1989

composed of the agency Inspectors General. By the time I leave
office, they will have delivered savings of over $110 billion in
reduced waste, fraud, and abuse to the American people.
Then, in March 1982, I initiated the world's largest management
improvement program with these words: "With Reform '88 we're
going to streamline and reorganize the processes that control the
money, information, personnel and property of the Federal bureaucracy." I told my Cabinet at that time that "we have six years
to change what it took twenty or thirty to create—and we came to
Washington to make changes!" I have followed up on that commitment. The President's Council on Management Improvement has
overseen this effort, and is generating significant results.
These efforts are described in greater detail in my Management
Report, which is being submitted concurrently. They can succeed
only if all Federal managers and employees work together. Therefore, I propose in this budget a new approach to paying Federal
employees who increase their productivity. I ask the Congress to
modify the current system of virtually automatic "within-grade"
pay increases for the roughly 40 percent of employees eligible each
year to one that is based on employee performance. This will give
Federal employees stronger incentives to improve service delivery
and reduce costs to the taxpayer.
THE BUDGET PROCESS
As I have stressed on numerous occasions, the current budget
process is clearly unworkable and desperately needs a drastic overhaul. Last year, as in the year before, the Congress did not complete action on a budget until well past the beginning of the fiscal
year. The Congress missed every deadline it had set for itself just 9
months earlier. In the end, the Congress passed a year-long, 1,057page omnibus $605 billion appropriations bill with an accompanying conference report of 1,053 pages and a reconciliation bill 1,186
pages long. Members of Congress had only 3 hours to consider all
three items. Congress should not pass another massive continuing
resolution—and as I said in the State of the Union address, if they
do I will not sign it.
I am asking for a constitutional amendment that mandates a
balanced budget and forces the Federal Government to live within
its means. A constitutional amendment to balance the Federal
budget—and a provision requiring a super-majority vote in the
Congress to increase taxes—would impose some much-needed discipline on the congressional budget process. Ninety-nine percent of
Americans live in States that require a balanced State budget, and
a total of 32 States already have passed resolutions calling for a
convention for the purpose of proposing a balanced budget amendment to the U.S. Constitution.




THE BUDGET MESSAGE OF THE PRESIDENT

1-15

Also, I am asking the Congress for a line-item veto, so that my
successors could reach into massive appropriation bills such as the
last one, cut out the waste, and enforce budget discipline. Fortythree State Governors have a line-item veto; the President should
have this power as well. As Governor of the State of California
(1967-1975), I used the line-item veto 943 times. The California
State legislature upheld each of these vetos, even though both
Houses were controlled by the opposition party.
In addition, I propose the following further reforms to the budget
process:
(1) Joint budget resolution. The budget process has so degenerated in recent years that the presidential budget is routinely
discarded and the congressional budget resolution is regularly
disregarded. As a remedy, I propose that henceforth the Congress and the Executive collaborate on a joint resolution that
sets out spending priorities within the receipts available. The
requirement of a Presidential signature would force both
branches of government to resolve policy differences before
appropriations measures must be formulated. The budget process could be further improved by including in the budget law
allocations by committee as well as by budget function.
(2) Individual transmittal of appropriation bills. The current
practice of transmitting full-year continuing resolutions skirts
appropriations committee-subcommittee jurisdictions. More importantly, it does not permit the Legislative and Executive
branches to exercise proper scrutiny of Federal spending.
Therefore, I propose a requirement that appropriations bills be
transmitted individually to the President.
(3) Strict observance of allocations. During the 1980s, an unacceptable budget practice evolved within the Congress of disregarding congressionally approved function allocations. Funds
regularly were shifted from defense or international affairs to
domestic spending. I strongly urge that each fiscal year separate national security and domestic allocations be made and
enforced through a point of order provision in the Budget Act.
(4) Enhanced rescission authority. Under current law, the President may propose rescissions of budget authority, but both
Houses of Congress must act "favorably" for the rescission to
take effect. In 1987, not a single rescission was enacted, or
even voted on, before expiration of the 45-day deadline. I propose a change of law that would require the Congress to vote
"up or down" on any presidentially proposed rescission, thereby preventing the Congress from ducking the issue by simply
ignoring the proposed rescission and avoiding a recorded vote.
(5) Biennial budgeting. The current budget process consumes too
much time and energy. A 2-year budget cycle offers several




1-16

THE BUDGET FOR FISCAL YEAR 1989

advantages—among them, a reduction in repetitive annual
budget tasks, more time for consideration of key spending decisions in reconciliation, and less scope for gimmicks such as
shifting spending from one year to the next. I call on the
Congress to adopt biennial budgeting.
(6) Truth in Federal spending.—As part of my Economic Bill of
Rights, I will shortly transmit legislation that will require any
future legislation creating new Federal programs to be deficitneutral. In addition to requiring the concurrent enactment of
equal amounts of program reductions or revenue increases, my
proposal would require that all future legislation and regulations be accompanied by financial impact statements, including
the effect on State and local governments.
Adoption of these reforms should enable the Federal Government
to make informed decisions in a deliberate fashion that fosters
rational priorities. The American people deserve no less from their
elected representatives.
CONCLUSION
Looking back over the past 7 years we can feel a sense of pride
in our accomplishments. Important tasks remain, however. The
large and stubbornly persistent budget deficit has been a major
source of frustration. It threatens our prosperity and our hopes for
lessening the burden on future generations.
Two years ago, the Legislative and Executive branches of government responded to this threat by enacting the G-R-H Act, which
mandated gradual, orderly progress toward a balanced budget over
the next several years. My budget achieves the 1989 target of the
amended Act while preserving legitimate programs for the aged
and needy, providing for adequate national security, devoting more
resources to other high-priority activities, and doing so without
raising taxes.
My budget also embodies the Bipartisan Budget Agreement
reached last November. In presenting this budget, I am keeping my
end of the bargain. I call upon the Congress to uphold its end—by
ensuring that appropriations and other legislation are in full
accord with the Agreement. By exercising this measure of restraint
and self-discipline, we can secure great benefits for the Nation: a
lower budget deficit, reduced demand on credit markets, more
stable financial markets, a steadily declining trade deficit, and
continued prosperity with non-inflationary growth. And, by reforming the budget process, the Congress can improve its decisionmaking and garner the thanks of a grateful public. Surely, these are
small prices for what is at stake.
RONALD REAGAN
FEBRUARY 18,




1988




PART 2

BUDGET TRENDS
AND PRIORITIES
2-1

2-2
INTRODUCTION

This part of the budget has two sections. The first discusses
trends in Federal spending since 1980. The second describes the
priorities in the President's 1989 budget and how it implements the
Bipartisan Budget Agreement that the President and the Congress
adopted last November.
The Bipartisan Budget Agreement calls for 1989 discretionary
budget authority and outlay ceilings for defense, international, and
domestic programs, as shown in the table below. In the President's
1989 budget, funding for defense is constrained by both the budget
authority and outlay caps, funding for international discretionary
programs is constrained by the budget authority cap, and domestic
discretionary spending is constrained by the outlay cap.
Discretionary Budget Targets
(in billions of dollars)
Bipartisan Agreement
Budget
Authority

Defense
International
Domestic




. . . .

299.5
18.1
148.1

Outlays

294.0
16.1
169.2

1989 Budget
Budget
Authority

299.5
18.1
147.6

Outlays

294.0
15.6
169.1

PART 2a

BUDGET POLICY AND TRENDS SINCE 1980
The 1980s have seen a dramatic change in the Federal budget
and public policy. The growth rate of Federal spending has been
cut sharply, and budget priorities have been reordered. Since 1980,
real Federal spending has grown by 23 percent; it is projected to
increase by 26 percent for the full decade.1 This is a much smaller
rate of growth than in previous postwar decades; real outlays rose
by 37 percent in the 1970s, and by 50 percent or more in both the
1960s and 1950s.
Despite the slowdown in the rate of growth, Federal outlays
accounted for a slightly larger share of GNP in 1987 than they did
in 1980—22.8 percent vs. 22.1 percent. This share has been declining since 1983, however. The budget this year, in conformity with
the Bipartisan Budget Agreement, proposes a further decline to
21.8 percent in 1989. If the President's budget is accepted, the 1980s
will be the first decade since World War II in which Federal
Government spending fell as a share of GNP.
REALLOCATING RESOURCES TO BASIC NATIONAL
PRIORITIES
The slower overall growth of Government has been accompanied
by a substantial restructuring of Federal outlays. The Government
is now devoting more of its resources to basic national priorities
that are inherently the responsibility of the Federal Government.
At the same time, the Government is maintaining its commitment
to help disadvantaged individuals whose problems are of special
concern in our society, such as the poor and elderly.
• Defense capabilities have been substantially rebuilt to levels
that enable the Nation to provide for its own defense and
meet its international commitments.
• Programs for the poor have increased in real terms, albeit at
a slower rate than in the 1970s, a period of especially high
growth.
• Income security and health expenditures for the elderly and
retirees have grown, continuing the national commitment to
1
Throughout this section, unless otherwise indicated, all budget figures are expressed in constant (FY 1982)
dollars, and refer to outlays rather than budget authority.




2a-l

2a-2

THE BUDGET FOR FISCAL YEAR 1989

these groups; the economic status of the elderly has continued
to improve.
• The core executive, legislative and judicial functions of the
central Government, including enforcing the laws and conducting foreign policy, have been maintained and strengthened.
• Grants to State and local governments (excluding payments
for individuals, which are mostly programs for the poor), which
grew rapidly during the 1970s, have been cut substantially,
but these governments, in general, have been able to adjust to
the change without undue stress; in the aggregate, they have
run surpluses over the period since the end of the recession.
• Lower priority domestic programs, which also grew rapidly
during the 1970s, have been curtailed.
The reordering of budget priorities is reflected in the most broadly defined categories, as well as in specific functions and purposes.
A standard classification is defense, payments for individuals (most
of which are entitlements), other Federal programs (most of which
are discretionary), and interest on the debt. Even in these terms,
the changes during the 1980s are striking. Between 1980 and 1987,
total real outlays increased by 23 percent. Defense and interest
grew much more rapidly than average (52 and 90 percent, respectively); payments for individuals grew at about the average rate (22
percent), with social security (the largest domestic program) growing somewhat more rapidly than other payments in the aggregate;
other nondefense spending fell (by 35 percent). Within the last
category, however, there have been increases in outlays for the
essential activities of the central Government, including the core
legislative and executive functions, law enforcement, and the conduct of international affairs. The campaign against illegal drugs
has been a very high priority; drug law enforcement and related
activities have received exceptionally large funding increases. The
administration has also identified other national priorities in space,
basic science, AIDS research, and air traffic safety, for which it has
sought and received significant funding increases. Real outlays for
these necessary activities and administration priorities have increased by 10 percent. Spending on all other nondefense discretionary programs has been reduced by 48 percent.2
Other significant changes have also occurred within these broad
spending categories. The remainder of this section describes the
changes in more detail. (The categories do not necessarily correspond to budget functions and subfunctions and are not intended to

2
The figures in the text include the budget function of undistributed offsetting receipts. When these receipts
are excluded, other nondefense spending declined by 26 percent instead of 35 percent, and nonpriority programs
by 34 percent instead of 48 percent.




2a-3

BUDGET POLICY AND TRENDS SINCE 1980

be mutually exclusive or exhaustive; they are chosen to delineate
important public purposes.)
COMPOSITION OF BUDGET OUTLAYS, 1970-1989
(as percentages of GNP)
1970

National Defense
Net Interest
Payments for Individuals
Low-Income Benefits
Elderly and Retirees
. ..
Other
Basic Government Functions
Other Administration Priorities
Grants to State and Local Governments1
Remaining Programs
Total Outlays
Addendum:
Health Benefits
Economic Development and Subsidies
1

1980

1987

1989

8.3
1.5
6.5
1.1
4.4
1.1
0.7
0.6
1.6
0.7

5.0
2.0
10.4
2.0
6.8
1.6
0.7
0.4
2.2
1.5

6.4
3.1
10.6
1.9
7.6
1.1
0.6
0.4
1.2
0.4

5.9
3.0
10.6
2.0
7.6
1.1
0.6
0.5
1.1
0.2

19.8

22.1

22.8

21.8

1.2
0.5

2.1
0.7

2.7
0.2

2.7
0.2

Excludes grants for payments for individuals.

COMPOSITION OF BUDGET OUTLAYS, 1970-1989
(in billions of FY 1982 dollars)
1970

1980

1987

1989

National Defense
Net Interest
Payments for Individuals
Low-Income Benefits
Elderly and Retirees
Other
Basic Government Functions
Other Administration Priorities
Grants to State and Local Governmentx
Remaining Programs

225.6
34.7
152.3
24.8
101.7
25.8
20.0
18.0
43.4
15.8

164.0
62.0
324.7
61.5
213.9
49.3
21.4
12.3
68.0
47.6

249.7
117.5
394.9
71.8
281.7
41.4
22.6
14.4
42.6
18.6

241.6
119.5
415.3
76.7
296.5
42.1
23.7
18.5
41.4
9.3

Total Outlays

509.3

699.1

859.3

868.3

28.0
13.6

65.8
22.7

100.0
7.4

107.5
7.8

Addendum:
Health Benefits
Economic Development and Subsidies
1

.. ..

Excludes grants for payments for individuals.

NATIONAL DEFENSE
In the aftermath of Vietnam, defense expenditures dropped
sharply until 1978. Real outlays were $62 billion lower in 1980 than
in 1970, a 27 percent decrease. Spending had fallen to levels well
below those prevailing before the Vietnam war. Defense spending
declined from 44 percent of all Federal expenditures to about 24
percent over the decade. Thus, when this administration took
office, military capability had been allowed to deteriorate. U.S.
strategic forces were in need of modernization, conventional equip-




2a-4

THE BUDGET FOR FISCAL YEAR 1989

ment was undermaintained, spare parts were often lacking, and
the quality and turnover of military personnel was unacceptable.
A basic priority of the Reagan administration has been to rebuild
our national defenses. Toward this end, an increase in real outlays
of 52 percent, to $250 billion, has been achieved from 1980 through
1987. As a share of GNP, defense outlays are now at 6.4 percent,
compared to 5.0 percent in 1980. This level of defense expenditures
is well within the capacity of the American economy to sustain.
Indeed, during the prosperous peacetime decade of 1955-1964, the
United States devoted a full 10 percent of GNP to national defense.
As a result of the increase in spending, there were improvements
in all aspects of defense: strategic and conventional modernization;
training, readiness, and the ability to engage in sustained combat;
and the development of new systems. Naval and air forces were
strengthened and expanded, and manpower levels were increased
modestly.
Under the Bipartisan Budget Agreement, real outlays are projected to decline to $244 billion in 1988 and in $242 billion in 1989.
Budget authority is also being reduced, in real terms. After 1989,
outlays are projected to increase by about 1 percent annually
through 1993. Although our national defense objectives remain
unchanged, the rebuilding of national security capabilities will proceed at a slower pace. The defense program has been extensively
revised to accommodate reduced budget levels. However, the
budget proposals for 1989 and beyond present an essential program
for maintaining our defensive strength that will enable us to negotiate fair agreements with our adversaries, in order to continue the
successes of this decade.
LOW-INCOME BENEFIT PROGRAMS

Income support programs for the poor grew extraordinarily rapidly during the 1960s and 1970s.3 Real outlays increased by almost
150 percent, from $24.8 to $61.5 billion, between 1970 and 1980.
New in-kind benefit programs were created for housing, food and
nutrition, and participation rates rose rapidly for many programs.
In the 1980s, the explosive growth in low-income benefit programs has been brought under control, but the poor have not been
abandoned. Low-income families have continued to benefit from
the programs developed in earlier years. Contrary to much popular
discussion, real outlays on economic protection for the poor have
not fallen; indeed, they have continued to grow during most years
of this administration, even as the economy has prospered. Real
outlays in 1987 amounted to $71.8 billion, 17 percent above the
1980 level. The share of GNP devoted to low-income benefit pro3
These programs are all payments for individuals; most are also entitlements. Housing assistance is the
largest discretionary program; others are refugee assistance and low-income energy assistance.




BUDGET POLICY AND TRENDS SINCE 1980

2a-5

grams has been stable, at about 2.0 percent. The growth rate of
total real outlays has been reduced, as indeed it had to be, as a
result of the major policy changes in most low-income benefit programs that were enacted between 1981 and 1983. Real outlays have
nonetheless increased at an annual rate of 2.2 percent in the 1980s,
compared to 9.5 percent in the 1970s.
Medicaid is the source of much of this growth, partly because
medical costs have increased more rapidly than the cost of living in
general, and partly also because of policy changes and benefit
increases since 1984. Real medicaid outlays have increased by 41
percent, from $15.5 billion to $21.9 billion. Real outlays for other
programs have increased as well, at a more moderate 8 percent,
from $46.0 billion to $50.0 billion in the aggregate. There was,
however, a small decline of 9 percent in real outlays for food
stamps, from $10.7 billion to $9.7 billion, partly because of the
improvement in the economy that reduced the number of people
requiring help, and partly because of the changes enacted in 1981
to target assistance to those most in need.
There has been a reduction in budget authority for low-income
benefit programs, in real terms, from $95.6 billion to $72.3 billion.
The decrease is often cited as evidence that programs for the poor
have been cut during this administration. This is not the case. All
of the decline has come in housing programs, where budget authority is misleading as a measure of benefits. A two-thirds reduction
in budget authority resulted solely from shifting to more efficient
and socially beneficial forms of housing assistance that use the
existing private housing stock instead of expensive new construction programs. Budget authority for new construction projects runs
for 20 to 30 years, compared to only 5 to 15 years for existing
housing vouchers and certificates. At the same time that budget
authority was reduced, actual real outlays for HUD's subsidized
programs increased by 68 percent from $6.3 billion in 1980 to $10.6
billion in 1987, as more people were aided. The number of assisted
households (including those subsidized through Farmers Home Administration programs) has increased by over 1.5 million in the
1980s. Budget authority and outlays are essentially identical for all
of the other programs, and budget authority for low-income benefit
programs excluding housing assistance increased by 12 percent
between 1980 and 1987.
Real benefits (both cash and in-kind) have increased relative to
the number of poor people. Real benefits per person below the
poverty line reached an all-time high of $2,170 in 1986, 5.2 percent
above the 1980 level of $2,063. Real benefits per poor person are
continuing to rise. Real benefits increased by $1.2 billion in 1987,
and while the number of people below the poverty line in 1987 will
not be known until the summer of 1988, it almost certainly de-




2a-6

THE BUDGET FOR FISCAL YEAR 1989

clined. The unemployment rate fell by almost 1 full percentage
point in the course of the year, dropping to the lowest level since
1979, and per capita real income continued to rise. The economy
grew at 3.8 percent, a better performance than in either of the two
previous years, during which the poverty population was reduced.
In fact, the change in benefits actually going to the poor is
greater than is suggested by the data on outlays per person. Programs such as food stamps and housing subsidies have been targeted more narrowly toward those living below the poverty level.
Some in-kind benefit programs have been reformed to eliminate
duplication of benefits and reduce administrative costs. Changes in
Aid to Families with Dependent Children (AFDC) were enacted in
1981 to help ensure that it is not used as a permanent wage
supplement by individuals able to support their families, and that
resources already available to those seeking assistance are more
fully taken into account in determining both eligibility and benefits. At the same time, new programs have been created to meet
newly perceived needs, such as homelessness.
The poverty rate has been coming down since 1983, although it
remains unsatisfactorily high. Single-parent families are accounting for an increasing share of those below the poverty line. The
administration's welfare reform proposal is designed to ameliorate
this problem by offering incentives to those on welfare to acquire
the skills they need to obtain productive employment in our expanding economy, and by strengthening the Federal-State child
support enforcement program to ensure that absent parents take
responsibility for their children.
BENEFITS FOR THE ELDERLY AND RETIREES
Income security and health programs for the elderly and for
retirees have grown steadily during this administration. Real outlays have risen 32 percent from $214 billion in 1980 to $282 billion
in 1987. As a share of GNP, spending has grown from 6.8 to 7.6
since 1980, with most of the growth accounted for by social security
and medicare. Growth in this decade will be half as rapid as in the
1970s, when real outlays rose by 110 pecent and the share of GNP
rose from 4.4 to 6.8 percent. Federal policy in the 1980s has continued the commitment to provide adequate social insurance for the
elderly, while at the same time seeking to bring the cost of the
programs within sustainable limits.
Part of the growth in program expenditures is accounted for by
the growing elderly population, a long-term demographic trend
that is steadily being reinforced as life expectancy increases. Part
of the growth also represents higher per capita expenditures. Average outlays have grown by 14 percent relative to the number of
elderly persons since 1980.




BUDGET POLICY AND TRENDS SINCE 1980

2a-7

Important structural changes have occurred in many of these
programs during the 1980s. Reforms to preserve social security
were enacted in 1983, as Congress and the administration acted
upon the recommendations of the bipartisan National Commission
on Social Security Reform. These recommendations called for both
restrained outlays and increased receipts; carrying them out has
put the social security program on a sounder actuarial basis. Over
the course of the next several decades, the total taxes paid by (and
on behalf of) workers while they are working should be brought
into closer balance with the benefits they can expect to receive
after retirement.
Reforms have also been enacted in the Federal civilian and military retirement systems which will save money in the very long
run. The new Federal Employees Retirement System (FERS) integrates social security and Federal pensions for civilian workers
hired in 1984 and later years. FERS is more consistent with private
pension plans than its predecessor, the Civil Service Retirement
System; cost-of-living adjustments and benefits for early retirement
have been modestly reduced. Companion COLA and early retirement reforms for the military retirement system were enacted in
1988. These changes together will eventually reduce the cost of
Federal civilian and military retirement programs, while maintaining income security for retired workers.
HEALTH
Outlays for health are an important component of both lowincome benefit programs and income security for the elderly, and
also of veterans benefits. They are worth separate discussion because they are a growing share of the Federal budget. Virtually all
health programs have grown substantially during this decade. Between 1980 and 1987, real Federal outlays for health benefits rose
from $65.8 billion to $100.0 billion, an increase of 52 percent. Even
with this large increase, real health outlays grew more slowly in
the 1980s compared to the 1970s, an annual average rate of 6
percent versus 9 percent. The annual growth rates for both medicaid and medicare have been several percentage points lower in this
decade than during the 1970s. They have still been the most rapidly growing programs for the elderly and the poor.
Medicare has grown especially rapidly during the 1980s. Real
outlays have increased from $39.7 billion to $67.2 billion between
1980 and 1987, an annual rate of 7.8 percent. As a share of GNP,
the program has grown from 1.3 to 1.8 percent. The growth in
outlays for medicare has been a serious fiscal problem throughout
this decade. The administration has proposed and Congress has
enacted reforms almost every year. The enacted reforms have dif-




2a-8

THE BUDGET FOR FISCAL YEAR 1989

fered in a number of ways from the administration's proposals, but
there has clearly been a consensus that costs need to be contained.
Other health benefits include hospital and medical care for veterans, where real outlays have risen by 15 percent beween 1980 and
1987. All veterans who apply to the Veterans Administration for
care, and who are found to need care, are being treated. Most
veterans who use the system are either service-disabled or have a
low income. Outpatient treatment has expanded by 20 percent
between 1980 and 1987, while inpatient care has increased by 6
percent. In 1986, eligibility rules were modified to give priority to
lower-income veterans with non-service disabilities, and to require
higher income veterans to contribute toward the cost of their care.
The growth in Federal outlays for health parallels the growth in
total spending on health in the United States. A steadily larger
share of the total income of the United States has been devoted to
health care throughout the postwar period.
The 1989 budget proposes reductions in medicare amounting to
$1.2 billion, largely through reducing indirect medical education
adjustments for teaching hospitals to levels reflecting the added
costs of providing education. These reductions are required in order
to implement fully the Bipartisan Budget Agreement. Consistent
with the agreement, the budget does not propose changes in medicaid. Costs are projected to increase further in both medicare and
medicaid, however, and future action will be necessary to control
program growth.
OTHER PAYMENTS FOR INDIVIDUALS

Low-income benefit programs and income security for the elderly
comprise a substantial majority of payments for individuals. The
largest of the other programs in these categories are unemployment compensation, veterans educational benefits, veterans service-connected compensation, and higher education loans and
grants. Most of them are entitlements. Real outlays for these programs in the aggregate have decreased in the 1980s. The largest
decline occurred in trade adjustment assistance (TAA) for displaced
workers. TAA benefits peaked at $1.6 billion in 1980; they were cut
to less than $100 million in 1982 and later years. Other outlays for
unemployment compensation and outlays for veterans benefits
have declined mainly because of changes in the number of individuals receiving benefits. Legislation in 1981 significantly modified
the unemployment compensation program to target extended benefits more effectively to States with high unemployment, but the
effect on outlays was minor. Similarly, the changes in higher education loans and grants, also designed to target assistance to those
most needing it, have had a small effect on the budget.




BUDGET POLICY AND TRENDS SINCE 1980

2a-9

Unemployment Compensation. —Unemployment compensation
outlays vary inversely with the business cycle. Since the end of the
recession, nominal outlays have fallen by over 40 percent, and real
outlays by more than half, with most of the reductions coming
during fiscal year 1984 as the economic recovery took hold. Real
outlays in 1987 were one-third lower than the level at the beginning of the decade. As a share of GNP, unemployment compensation declined from 0.6 to 0.4 percent between 1980 and 1987.
The 1981 Omnibus Budget Reconciliation Act reformed the extended benefits component of unemployment compensation to concentrate benefits on workers in States experiencing high levels of
unemployment and on those who had held jobs for 20 weeks or
more during the preceding year. The savings from these reforms
were modest—about $100 million, less than 5 percent of total outlays in 1983, for example—but they were the largest program
changes enacted in this decade, apart from the TAA reform.
TAA was changed in 1981 so that it could no longer be a supplement to unemployment benefits, but was only an extension of
benefits for workers who had exhausted their weeks of unemployment compensation. The administration is now proposing to replace TAA with a new, more efficient and more expeditious
Worker Readjustment Program.
Veterans Benefits.—Outlays for service-connected compensation
and education benefits (the GI bill) have reflected changes in the
eligible population, rather than changes in policy.
Real outlays for veterans compensation have grown by 2 percent,
from $8.7 billion in 1980 to $8.8 billion in 1987. At the same time,
the number of veterans and survivors on the rolls has declined by 3
percent, reflecting the continued decline in the veteran population.
The administration has not proposed any major reforms for this
program. In both the 1988 and 1989 budgets, the President has
proposed to index benefits to the Consumer Price Index automatically, rather than await annual Congressional action, in order to
ensure a full, timely cost of living adjustment to veterans and their
survivors.
Real outlays for veterans education benefits have decreased rapidly during the 1980s, from $2.9 billion in 1980 to $0.9 billion in
1987, as the number of Vietnam-era veterans receiving education
and training has fallen by 80 percent. This trend should continue
as Vietnam-era veterans exhaust their entitlement. The decline in
outlays will be offset, however, by increases in the newest veterans'
education program, the Montgomery GI bill. This provides for more
generous benefits than the previous peacetime veterans education
program, as a recruitment incentive for the all-volunteer armed
forces. The first trainees are expected to begin using their benefits




2a-10

THE BUDGET FOR FISCAL YEAR 1989

in 1988, and outlays for the program are expected to grow rapidly
through 1992, when they should level off.
Higher Education.—Federal outlays for student aid increased
during the 1980s. Real outlays have risen from $6.0 billion in 1980
to $6.2 billion in 1987. Program reforms were initiated to reduce
subsidies to students from middle- and upper-income families,
while funds for poor students were increased. In 1982, Congress
required students from middle-income families to meet a needs test
before receiving a regular guaranteed student loan; in 1986, the
needs test was extended to all families.
The total amount of aid generated by Federal efforts to support
financially disadvantaged students exceeds the direct outlays. It
includes private capital used in making student loans guaranteed
by the Federal Government and matching funds provided by States
and educational institutions. When the total value of these resources is included, aid generated by Federal loans or guarantees
has increased by 12 percent in real dollars during the 1980s.
BASIC GOVERNMENT ACTIVITIES

The administration has maintained or increased outlays on the
core functions of Government: the conduct of international affairs,
the administration of justice, the legislative and central executive
functions, and fiscal operations such as tax collection. These activities, jointly with national defense, can be regarded as the most
basic purposes of any national government. The administration has
identified and given priority to other important purposes, such as
science and basic research, space research and technology, and the
campaign against drug abuse. Other nondefense discretionary purposes, with lower priority, have been substantially reduced.
International Affairs.—The administration has placed a high priority on increased spending for international affairs programs. In
1980, the United States was in retreat in many parts of the world
as Soviet power expanded, either directly as in Afghanistan or
through surrogates as in Nicaragua. The administration set out to
reverse this trend by supporting democratic governments and
movements throughout the world. Budgetary resources were devoted to international security assistance, to strengthening U.S. capacity to conduct diplomacy, and to international information programs, particularly broadcasting activities.
The results of this foreign policy effort have been dramatic.
Democratic governments have been established in countries where
there seemed little prospect for replacing entrenched totalitarian
or authoritarian regimes. The Soviet Union has met with strong
resistance from U.S. supported freedom fighters in Afghanistan
and Nicaragua. International broadcasting facilities, many of




BUDGET POLICY AND TRENDS SINCE 1980

2a-ll

which were decades out of date, have been completely modernized
and expanded.
International affairs spending grew by 32 percent, from $12.3 to
$16.2 billion in real terms, between 1980 and 1986. Since 1986,
Congress has been less willing to support the administration's efforts. Congressional cuts caused real outlays to drop by $3.9 billion
in 1987, back to a level of $12.3 billion; a further decline to $11.1
billion will occur by 1989, under the Bipartisan Budget Agreement.
The administration believes that this recent trend must be reversed in the 1990s. Within the limits imposed by these constrained
resources, the administration will continue to place the highest
priority on programs that will sustain the spread of democracy
throughout the world.
General Government—The legislative and central executive functions are fundamental to the conduct of Government. Real outlays
for these activities have decreased by 4 percent, from $5.0 billion in
1980 to $4.8 billion in 1987; outlays will rise to $5.8 billion in 1989.
The cost of tax collections accounts for more than half of this
amount, and tax collection outlays have increased from $2.8 billion
to $3.6 billion, or 28 percent. Total IRS operating outlays will
increase further in 1989, to $4.3 billion. Over 80 percent of the total
increase has been for improved tax law enforcement. IRS enforcement staffing has increased by 50 percent since 1981. This growth
is mainly intended to make up for the virtual stagnation in enforcement efforts during the previous decade, which occurred despite rapid growth in the tax base and increased complexity of the
tax laws. The administration has made significant investments in
programs to improve compliance with the tax laws and collect
additional revenue.
Law Enforcement—The other central domestic responsibility of
the Federal Government is to enforce the laws and provide for the
safety of the people of the United States. The Federal Government
has direct responsibility for protecting the Nation against organized crime, white-collar crime, drug violations, and hostile intelligence activities by foreign nations. The budgets and personnel of
the FBI, the Drug Enforcement Administration, the Customs Service, the Immigration and Naturalization Service and other Federal
law enforcement agencies have all increased significantly, enabling
these agencies to better enforce Federal statutes that cover a wide
variety of illegal activity. Resources for the U.S. Attorneys have
increased steadily, so that once violators are arrested they can be
vigorously prosecuted. This budget includes funds to increase the
capacity of Federal prisons, including innovative involvement of
the private sector to provide new facilities.




2a-12

THE BUDGET FOR FISCAL YEAR 1989

In our Federal system, State and local governments play an
important role in maintaining public safety. Some Federal law
enforcement endeavors, such as the juvenile justice and delinquency prevention programs and the efforts of the Legal Services Corporation to provide counsel for the poor, are more properly provided
at the State and local level. The administration has sought to
reduce Federal funding for these activities, and to increase support
for activities that are appropriately provided at the Federal level.
For the latter, real outlays have increased from $4.1 billion to $5.5
billion, by 36 percent, during the 1980s, and this budget proposes a
further increase to $6.8 billion.
Drug Enforcement and Prevention Programs.—A significant

share of the increase in law enforcement outlays has come in the
area of drug enforcement, and the campaign against drugs has
been one of the administration's top domestic priorities. Since 1980,
the Federal budget for anti-drug programs has grown from just
under $1 billion to a proposed level of nearly $3.7 billion in 1989, a
300 percent increase. In real terms, outlays have grown from about
$1.2 billion to $2.9 billion. Precisely comparable numbers are not
available before 1980, because anti-drug activities are carried out
by several agencies, and previous administrations did not attempt
to identify their cost as specifically as this administration, but it is
clear that outlays have grown much more in the 1980s than in any
previous period.
The Drug Enforcement Administration (DEA) illustrates the increasing commitment. Real outlays have grown twice as fast in this
administration as they did previously. Outlays have grown from
$243 million in 1980 to $345 million in 1987, and this budget
proposes a further increase to $391 million in 1989. DEA was
created in 1974 and spent $192 million (in 1982 dollars) in that
year. Similarly, real outlays for the Coast Guard increased by 10
percent from $1.3 billion in 1980 to $1.4 billion in 1987. Almost all
of this increase was for operating expenses. The Coast Guard's drug
interdiction activities are an important component of the administration's war on drugs.
In addition to increasing the budget for drug enforcement, the
administration has also increased the number of agencies involved
in the war against drugs, and the degree of cooperation among the
agencies. More than 20 Federal agencies are now actively involved
in the struggle to drive illegal narcotics out of this country. The
Departments of Health and Human Services (HHS) and Education
lead the Federal effort to reduce the demand for drugs, by convincing young people that they should never begin to use drugs. HHS
also provides leadership and considerable funding for treatment
activities aimed at those who have made the mistake of taking
drugs.




BUDGET POLICY AND TRENDS SINCE 1980

2a-13

OTHER PRIORITIES
AIDS.—Acquired Immune Deficiency Syndrome (AIDS) is the
highest public health concern of the administration. Real outlays
have risen from $30 million in 1982 to $700 million in 1987; the
administration is proposing a further increase to $1.7 billion for
1989. Federal funds are spent both for research on the causes of
AIDS and potential treatments, and also for health education and
risk prevention. Research represents slightly less than half of outlays.
Science.—Basic research generates new knowledge which helps
ensure continued technological innovation. It represents an essential investment in the Nation's future. Real outlays for science
have risen from $1.7 billion in 1980 to $1.9 billion in 1987. This
budget proposes a further increase to $2.3 billion in 1989.
Real outlays for nondefense basic research by all Federal agencies have risen from $4.6 billion in 1980 to $6.5 billion in 1987, an
increase of 39 percent. In contrast, real outlays for nondefense
applied research and development have declined from $15.3 billion
to $10.0 billion over the same period, a reduction of 35 percent.
Much of this decrease is due to cuts in funding for new and exotic
non-nuclear energy technologies. Such R&D comprised a large
share of Federal research spending during the 1970s as a reaction
to the energy crises in 1973 and 1979. In the 1980s, oil prices have
fallen sharply, and there is little need for continued Federal support. The energy sector of U.S. industry has also scaled back its
own expenditures on R&D since 1984.
Federal policy has placed a special emphasis on basic research
that has the potential to contribute significantly to America's longterm economic competitiveness, such as research in the physical
sciences, mathematics and engineering. About one-half of the Federal funds for basic research go to the Nation's universities and
colleges. These funds support not only fundamental research but
also the training of future generations of scientists and engineers.
Space.—Support for space activities meets both the direct needs
of the Federal Government and broader national needs. After the
Apollo project to put a man on the moon was completed in the
early 1970s, expenditures for space activities steadily declined. This
administration has recognized the economic and scientific value of
space research, as well as its importance for national security. Real
Federal outlays for non-defense space activities have risen from
$5.4 billion in 1980 to $5.9 billion in 1987, an increase of 10 percent.
The space shuttle and manned space station are necessary first
steps for major new environmental initiatives, such as the ocean
topography experiment to learn more about the effect of ocean




2a-14

THE BUDGET FOR FISCAL YEAR 1989

circulation on the climate of the Earth. They also will support
possible future missions beyond Earth's orbit, into the solar system.
Air Traffic Control—The successful deregulation of the Nation's
airlines has dramatically increased air travel. This in turn has
necessitated improvements in the air transportation system. Real
outlays for airports and airways have increased from $3.7 billion to
$4.1 billion between 1980 and 1987. A further increase to $4.5
billion is proposed for 1989. The bulk of the 1989 increase is intended to improve the reliability, capacity, and safety of the air traffic
control system, including increases in the number of controllers
and safety inspectors, and equipment improvements.
GRANTS TO STATE AND LOCAL GOVERNMENTS

Federal grants to State and local governments (excluding payments for individuals, which are mainly programs for the poor)
have been cut back sharply in real terms and as a share of GNP.
Real grants have fallen from $68.0 billion in 1980 to $42.6 billion in
1987, a reduction of 37 percent. As a share of GNP, grants have
been cut from 2.2 to 1.2 percent.
Many of these grants are for programs where the benefits are
primarily local rather than national, such as local economic development and the construction and operation of local transportation
systems. Federal funding for these purposes has been substantially
reduced.
The administration and Congress have eliminated some grant
programs. One was general revenue sharing. When enacted in
1972, it was partly justified on the basis that the Federal Government would run a surplus when the Vietnam War ended, while the
State and local government sector, as a whole, would continue to
run a deficit. This has not happened. Public service employment
was terminated as part of the reform of Federal job training programs in 1981-1982. It was supposed to provide temporary jobs and
training for the disadvantaged; instead, it was widely criticized
because a number of cities used it as a substitute for local resources to hire municipal workers who could scarcely qualify as
being disadvantaged.
Other savings have also occurred as a result of this reform. The
Comprehensive Employment and Training Act (CETA) was repealed in 1982, and replaced by the Job Training and Partnership
Act (JTPA). The JTPA emphasizes training to enhance permanent
employability. This contrasts to the main focus of CETA, which
paid program participants merely for showing up for classes, and
provided subsidized employment which had little, if any, effect on
long-term employability.




BUDGET POLICY AND TRENDS SINCE 1980

2a-15

Savings have also been generated by the consolidation of categorical programs into block grants, simplifying State and local program administration. The JTPA consolidated several CETA programs into a single block grant to States for training economically
disadvantaged individuals. Numerous social services programs were
combined into a single block grant and funding was reduced in
1982. Since then, real social services outlays have increased modestly in most years, and in 1987 were about $300 million, or 5
percent, higher than in 1982. State and local governments have the
authority to shift funds among the new block grants that have
replaced categorical programs, and there is some evidence from
Government studies that they have used this authority to increase
funding for social services.
Similarly, 29 categorical programs for elementary and secondary
education were consolidated into a single block grant. These programs were typically small and there was no systematic relationship between funding and need. The block grant reduced the cost of
compliance for State and local education agencies and provided
program flexibility.
Elementary and secondary education has traditionally been the
responsibility of State and local governments; the Federal share of
financing has been small (under 10 percent of total spending). In
the 1980s, real expenditures for public education, by all levels of
government combined, have risen to record amounts, from $133
billion to $145 billion between 1980 and 1987. Real outlays per
student have risen also, from $2,945 to $3,276. State and local
governments have provided the increase from their own fiscal resources, without requiring additional Federal Government support.
The increase in spending alone is not a guarantee of better
education. There is no direct connection between greater expenditures (or greater Federal expenditures) and higher quality. There
has been a renewed national concern with educational quality, a
concern that was given impetus and focus by the 1983 report of the
National Commission on Excellence in Education, A Nation at
Risk. The efforts of governments and private citizens are beginning
to show results. Many measures of educational attainment that
were previously declining, notably standardized test scores, have
recently begun to stabilize or rise. This has been accomplished by
State, local and family initiatives, not with spending alone.
Overall, State and local governments have absorbed the decline
in Federal grants without straining their fiscal resources. The reduction amounts to about 5 percent of their budgets (if real outlays
had been maintained at their 1980 levels until 1987). They ran
surpluses from the end of the recession through 1986, excluding
their pension fund receipts. In 1987, the sector ran a modest deficit
of $6 billion, about one percent of total outlays, but this occurred




2a-16

THE BUDGET FOR FISCAL YEAR 1989

because their construction spending has been growing rapidly in
recent years. Construction is largely financed through debt issue as
a matter of deliberate policy. The cost of construction is counted in
outlays, but the bond proceeds are not counted as revenues. The
States have been and remain in a position to assume more responsibility in many of the areas where the Federal Government has
cut back its support.
The fiscal rearrangements reflected in the 1989 budget demonstrate the administration's renewed emphasis on the importance of
federalism. Rather than seeking to control State and local decisions
through the grant process, the Federal Government has moved to
restore decision-making authority to States and localities, which
better understand the priorities of their citizens. Similarly, the
administration has sought to reduce unnecessary administrative
restrictions on State and local recipients of Federal funds, recognizing that States also have incentives to control expenditures.
ECONOMIC DEVELOPMENT AND BUSINESS SUBSIDIES

Federal outlays for economic development and subsidies to private business have been cut back sharply in the 1980s.4 Real
outlays have fallen by two-thirds, from $22.7 billion in 1980 to $7.4
billion in 1987; they are lower than at any time since 1970. Programs in this category can be divided generally into urban development, rural development, and business subsidies. Most programs in
the first two categories take the form of grants to State and local
governments; most business subsidies are paid directly by the Federal Government. Reductions have been substantial for each category during the 1980s: from $5.7 to $3.1 billion in real outlays for
urban development (mainly community development block grants
and urban development action grants), from $5.1 to $1.3 billion for
rural development (now, mainly Farmers Home Administration
programs for wastewater treatment plants and community facilities, and assistance to Indian reservations), and from $12.0 to $3.1
billion for private business. These programs grew rapidly during
the 1970s and have been cut back below their 1970 level in real
terms; subsidies to business have been cut to less than half the
1970 level. Economic development assistance and support for regional commissions have been cut back sharply.
Reducing and eliminating local development assistance and business subsidies has been a continuing goal of the administration.
Support for a number of regional commissions has ended; this year,
the administration is again proposing to terminate the Appalachian Regional Commission, the Economic Development Administration and Urban Development Action Grants. Often these programs
4
This comparison includes grants to State and local governments as well as other subsidies. Outlays for the
grants are also included in the previous subsection.




BUDGET POLICY AND TRENDS SINCE 1980

2a-17

benefit one business or locality at the expense of others; some
localities have received UDAG funds, for example, to subsidize
businesses to move away from other localities. It is inappropriate
for the Federal Government to favor one region at the expense of
another, or one business enterprise over its competitors, and it is
futile to try to favor all regions or all businesses. There is particularly little justification for these subsidies when the economy as a
whole is continuing to grow strongly.
REMAINING DOMESTIC PROGRAMS
The other activities of the Federal Government account for a
small and declining share of the budget. Agricultural price supports are a substantial fraction; outlays have risen during most of
the decade, but came down in 1987 and are expected to continue
falling. The other programs in the aggregate have been declining
substantially.
Agriculture.—Farm price supports have grown even while the
overall economy has improved. Real outlays in 1986, at $24.6 billion, were almost three times the 1980 level ($8.9 billion). During
the 3 years 1974 to 1976, an exceptionally prosperous period for
American agriculture, farm price supports had fallen to their
lowest level since the Korean war. Since then, they have increased
steadily both in real terms and as a share of GNP. The experience
in 1987, however, indicates that this decade-long trend is finally
being brought under control. The Food Security Act of 1985 has
successfully shifted the focus of U.S. agriculture policy to recapturing lost markets and shifted farm lending programs from direct
Federal lending to loan guarantees. Exports and domestic consumption of the major agricultural commodities increased significantly
in 1987, farm land values have begun to rise, and default rates on
farmer and rural loans are dropping. Reflecting these conditions,
outlays for agricultural price supports declined by $3.3 billion (in
real dollars). The budget projects further reductions in 1988 and
1989, to $15.2 billion (in 1982 dollars) by 1989.
Other Discretionary Programs.—Outlays for other Federal Government activities are relatively small in the aggregate. During the
1980s, they have been sharply reduced both in real terms and as a
share of GNP. Real outlays were $46.8 billion in 1980 (1.5 percent
of GNP), compared to $25.3 billion (0.6 percent of GNP) in 1987.
They are projected to be $22.4 billion in 1989.
This residual category comprises a diverse set of programs from
many budget functions. In several functions only a small part of
the outlays are included here. Most of the programs are relatively
low priority activities from the standpoint of the Federal Government, and the administration has sought and achieved outlay re-




2a-18

THE BUDGET FOR FISCAL YEAR 1989

ductions, program terminations, and reforms. The Water Resources
Development Act of 1986, as an example, authorizes fees for use of
commercial harbors, and will bring in more than $200 million in
1989 to pay for operation and maintenance expenditures previously
financed by general tax revenues. One of the best ways to test the
worth of a governmental program or a particular project is to shift
some of its costs to the direct beneficiaries. The administration has
established this test with water resources development projects. As
a result, local sponsors and users choose to proceed only on the
projects which are most important and most cost-effective.
The FHA mortgage insurance premium has been converted from
a monthly charge to a single payment of the full amount when the
loan is closed. The administration has terminated the Synfuels
Corporation, saving $200 million per year, and sold Conrail, the
Government-owned freight railroad serving the Northeast and Midwest. Some further reductions are being proposed in order to meet
the outlay ceilings stated in the Bipartisan Budget Agreement.
Additional land acquisitions for parks and refuges, and construction
activities, would be postponed through 1993, for instance.
Undistributed Offsetting Receipts.—Federal Government receipts
from several sources are included in the budget as distributed
offsetting receipts, a separate budget function. These receipts, have
increased from $23.5 billion in 1980 to $30.9 billion in 1987, in real
terms. The largest component is the employer share of Federal
employee retirement funds, which has been growing during the
1980s. Rent and royalties from oil leases on the Outer Continental
Shelf are also reported as undistributed receipts. Part of the increase reflects significant policy changes, such as the sales of Government-owned loans and other assets. The 1987 sale of Conrail for
$1.9 billion is counted in this function. The administration is proposing to sell Amtrak, the Naval Petroleum Reserve, and other
assets that more appropriately should be owned and managed
within the private sector.
CONCLUSION
The restructuring of the budget that has occurred during the
1980s was necessary and unavoidable. Outlays for domestic programs could not have continued to grow at the rapid rates of the
preceding three decades without serious harm to the economy. Nor
could the Nation have continued to allow its defense capability to
decline as it did after the Vietnam war.
These changes have been accomplished without neglecting the
basic domestic responsibilities of the Federal Government, and
without creating hardships for the poor, the elderly, or others who
deserve special consideration as a matter of public policy. Impor-




BUDGET POLICY AND TRENDS SINCE 1980

2a-19

tant public purposes, such as maintaining and improving the
health of our citizens, have received increased funding, but at the
same time the Federal Government has succeeded in better controlling the costs of health programs. New priorities, such as research on the Strategic Defense Initiative and AIDS, have been
recognized and supported. Programs have been restructured to promote administrative efficiency, as for example the block grants in
education and social services. Ineffective programs, such as CETA,
have been replaced by more carefully designed and targeted programs. Funding for low-priority programs has been sharply cut
back and some programs have been terminated, among them subsidized public service employment, general revenue sharing, and
regional economic development commissions.
The 1980s have been a decade of restrained growth in the Federal budget. In 1987, nominal expenditures grew at their lowest rate
since 1965, only 1.2 percent; real outlays actually declined for the
first time since 1973. The result was a reduction of $71 billion,
nearly one-third, in the budget deficit. Continued restraint is essential if further progress is to be made in reducing the deficit, meeting the Gramm-Rudman-Hollings deficit targets for 1989, and
achieving a balanced budget by 1994.




PART 2b

PRIORITIES IN THE 1989 BUDGET
In fiscal 1987, there was an historic drop in the Federal deficit,
which declined from $221.2 billion in 1986 to $150.4 billion in 1987.
As a percent of GNP, the deficit declined from 5.3 percent to 3.4
percent. For the first time in nearly two decades, outlays did not
increase in real terms.
Last November, the President and Congress reached an historic
agreement to ensure continued progress in reducing the deficit.
Under this budget, which implements that agreement, the deficit
would decline to $129.5 billion in 1989 and $104.2 billion in 1990.
As a percent of GNP, it would be 2.6 percent and 1.9 percent. As
the table shows, the 1986 to 1990 reduction would be achieved
primarily through limiting the growth in outlays to below the
growth in receipts—a circumstance that should occur naturally as
the economy grows. Indeed, receipts will have grown by 36 percent
and outlays by only 16 percent, producing a deficit reduction of
$117.0 billion.
PRESIDENT'S 1989 BUDGET
(in billions of dollars)
1986

1987

1988

1989

1990

Change
1986-90

Percent
change
1986-90

Receipts..
Outlays

769.1
990.3

854.1
1,004.6

909.2
1,055.9

964.7
1,094.2

1,044.1
1,148.3

275.0
158.0

35.8
16.0

Deficit. .

-221.2

-150.4

-146.7

-129.5

-104.2

117.0

-52.9

The Bipartisan Budget Agreement divided spending into several
categories, including national defense, international discretionary,
domestic discretionary, and entitlements and other mandatory programs. Spending for entitlements and other mandatory programs is
determined largely by the number of individuals and businesses
that meet eligibility criteria established by law. Discretionary programs are funded at levels set by annual appropriations.
The Bipartisan Budget Agreement set levels for the three discretionary categories, leaving it to the administration to propose its
own priorities within those categories. Rather than simply treating
all programs alike in some false sense of equity, the administration




2b-l

2b-2

THE BUDGET FOR FISCAL YEAR 1989

has proposed substantially higher funding for priority programs, to
be accommodated by lower funding and termination of programs
that have outlived their purpose, have no Federal purpose, or are
wasteful or inefficient.
The Bipartisan Budget Agreement set no caps or levels for entitlements and other mandatory programs but, rather, included specific savings to be achieved. This budget only proposes major
changes in these programs where Congressional action on the 1988
budget did not achieve the 1989 savings called for in the Agreement.
The next section analyzes the budget proposals for each of the
four main categories. The remaining sections discuss receipt initiatives, proposed asset sales, and privatization and other management initiatives included in the President's budget.
NATIONAL DEFENSE

The President's budget proposes $299.5 billion in budget authority for the national defense function, the level specified in the
Bipartisan Budget Agreement. This level, which is $33 billion
below last year's biennial request for 1989, is about the same as the
1988 level in real terms. The estimated outlays for the defense
function also fall within the Bipartisan Budget Agreement limits.
Meeting the new budget level for 1989 has required an extensive
revision of the budget submitted last year. The revisions include
some force reductions, slowdowns and deferrals in the development
and procurement of weapon systems, as well as cancellation of
some acquisition programs.
The President's strategic modernization program remains a high
priority. The budget proposes $4.6 billion for the strategic defense
initiative—a $1 billion increase over the level provided by the
Congress for 1988, but less than the $6.3 billion originally planned
for the 1989 budget. Although substantial modernization would
continue, some programs have been reduced relative to last year's
plans. In particular, the small ICBM has been substantially reduced because of budget constraints.
Conventional force capability improvements would continue, but
at a slower pace than planned. Combat readiness would be protected, but with some delay in equipment maintenance. Major adjustments to the program planned one year ago include the termination or delay of some aircraft acquisition programs, such as the
Navy A-6 attack aircraft and the restructuring of the Army helicopter program. There would also be accelerated retirement of
some older Navy ships. There are substantial reductions in military end strength levels for both the Air Force and Army.
The budget requests a 4.3 percent military pay raise in January
of 1989. This would roughly match increases in private sector pay,




2b-3

PRIORITIES IN THE 1989 BUDGET

and would safeguard the achievements made by the administration
in restoring a dedicated, high quality military force.
As budget pressures increase, continued emphasis on the defense
management improvement program, implemented seven years ago,
becomes more important. Significant progress has been made in
reducing costs through the use of multiyear contracts, increased
competition, and improved management of spare parts. Further
emphasis on improved defense program management would continue under the 1989 budget. Specific efforts include the contracting
out of some commercially available activities, strengthening the
financial management system, and expanding the Department's
plan to improve productivity.
NATIONAL DEFENSE
(in billions of dollars)
1987

Department of Defense—Military:
Budget Authority
Outlays
Atomic energy defense:
Budget Authority
Outlays
Other:
Budget Authority
Outlays
Total, national defense:
Budget AuthorityOutlays
MEMORANDUM
Bipartisan Budget Agreement:
Budget Authority
Outlays

Percent
Change
1988-89

1989

279.5
274.0

283.2
277.3

290.8
285.5

7.6
8.2

2.7
3.0

7.5
7.5

7.7
7.6

8.1
7.9

0.4
0.3

4.5
4.1

0.5
0.6

0.5
0.5

0.6
0.6

0.1
0.1

27.0
11.2

287.4
282.0

291.4
285.4

299.5
294.0

8.1
8.6

2.8
3.0

292.0
285.4

299.5
294.0

7.5
8.6

2.6
3.0

INTERNATIONAL DISCRETIONARY PROGRAMS

The President's budget proposes $18.1 billion in budget authority
and $15.6 billion in outlays for discretionary programs in the international affairs function. This represents a two percent increase in
budget authority over the 1988 level, as agreed to by the bipartisan
budget negotiators. Unlike domestic discretionary programs where
the outlay target from the Bipartisan Budget Agreement becomes
binding before the budget authority target, the budget authority
target is the primary constraint for international affairs discretionary programs. Outlays are estimated to be $0.5 billion below the
Bipartisan Budget Agreement ceiling. This occurs because the
highest priority discretionary programs in the international affairs




2b-4

THE BUDGET FOR FISCAL YEAR 1989

function are those that require relatively fewer outlays during the
first year of funding.
The Bipartisan Budget Agreement entails severe stringencies in
every category of international affairs activity. The budget would,
however, permit growth greater than two percent in a few key
discretionary areas. A limited (three percent) increase is requested
for security assistance programs. These programs provide military
goods and services and help strengthen the economies of allied and
friendly countries where the U.S. has special security concerns.
They also help ensure U.S. access to military bases and facilities
overseas. Full funding is also requested for 1989 commitments of
the U.S. to the various multilateral development banks. Arrears on
past commitments to these institutions cannot be restored in 1989
and thus will be deferred until 1990. Finally, new funding for
international radio broadcasting transmitter sites is requested, to
permit further work on sites in Israel, Morocco, and Thailand.
To achieve the discretionary increases, a number of other international programs would be held to less than two percent growth.
For example, funding for foreign food aid, under Public Law 480,
would not increase, although the capacity would remain to handle
disaster needs due to crop failure. Elsewhere, the U.S. would be
unable to meets its obligations to a number of international organizations and multilateral agreements. Over time, steps must be
taken to redress this situation.
INTERNATIONAL DISCRETIONARY PROGRAMS
(in billions of dollars)

1987
Foreign aid:
Budget Authority.
Outlays
Other international:
Budget Authority.
Outlays
Total, international:
Budget Authority..
Outlays

1988

1989

Change
1988-89

Percent
Change
1988-89

0.3
-0.1

2.0
-0.9

14.0
12.4

13.4
12.9

13.6
12.8

5.6
0.3

4.5
2.8

4.5
2.8

19.6
12.8

17.9
15.8

18.1
15.6

0.3
-0.2

1.6
-1.0

17.8
16.5

18.1
16.1

0.3
-0.4

1.7
-2.4

0.3
-1.2

MEMORANDUM
Bipartisan Budget Agreement:
Budget Authority
Outlays
*$50 million or less.

DOMESTIC DISCRETIONARY PROGRAMS

Domestic discretionary programs are those that are annually
funded in appropriations acts. The category includes a wide diversi-




2b-5

PRIORITIES IN THE 1989 BUDGET

ty of Federal programs, from enforcement of the laws to providing
grants for local economic development. The budget requests for
discretionary programs are within the limits set by the Bipartisan
Budget Agreement. The budget does not uniformly increase all
domestic discretionary accounts above the 1988 levels in order to
reach the ceiling, but seeks to allocate spending to higher priority
programs while reducing funding for ineffective, duplicative, or low
priority programs. For example, the budget proposes to shift Federal funding from costly local economic subsidies that do not increase
net investment to high priority research such as the space station,
the super collider, and automated manufacturing technology. This
section outlines proposals for discretionary programs which reflect
this shift to more productive, efficient, and effective programs.
DOMESTIC DISCRETIONARY PROGRAMS
(in billions of dollars)
1987

Space and science:
Budget Authority
Outlays
Transportation and public works:
Budget Authority
Outlays
Economic subsidies and development:
Budget Authority
Outlays
Education and social services:
Budget Authority
Outlays
Health research and services:
Budget Authority
Outlays
Law enforcement and other core functions of government:
Budget Authority
Outlays
Total, domestic discretionary.Budget Authority
Outlays

1988

1989

Change
1988-89

Percent
Change
1988-89

12.5
9.2

10.7
10.9

13.9
13.1

3.1
2.2

29.3
20.2

12.3
26.7

12.6
28.4

11.0
28.3

-1.6
_*

-12.7

39.4
38.6

44.6
41.4

43.1
43.1

-1.5
1.7

-3.3
4.2

29.6
27.9

30.2
30.0

31.3
31.1

1.1
1.1

3.7
3.6

22.7
20.9

23.9
22.8

24.7
24.2

0.8
1.4

3.5
6.2

20.5
24.7

21.2
27.2

23.6
29.3

2.4
2.0

11.3
7.5

143.2
160.6

147.6
169.1

4.4
8.5

3.1
5.3

145.1
160.3

148.1
169.2

3.0
8.9

2.1
5.6

136.9
148.1

MEMORANDUM
Bipartisan Budget Agreement:
Budget Authority
Outlays
*$50 million or less.

Space and Science.—The programs in this category include the
National Science Foundation (NSF), space programs in the National Aeronautics and Space Administration (NASA) and the general
science programs of the Department of Energy. These programs
help to ensure U.S. strength and leadership in science and space




2b-6

THE BUDGET FOR FISCAL YEAR 1989

technology. The President's budget requests $13.9 billion in budget
authority for these programs, a 29 percent increase over the 1988
enacted level.
The President's budget proposes to increase funding for the National Science Foundation (NSF) to $2.1 billion in budget authority
for 1989, an increase of 19 percent from the 1988 enacted level.
NSF would emphasize the support for basic research, and for science and engineering education. Continued U.S. leadership in science and technology depends on the future availability of highquality scientists and engineers. NSF would also fully fund 10 to 15
interdisciplinary Science and Technology Centers for five years,
encouraging substantial participation by industry and the States to
speed the transfer of knowledge from the laboratory to the marketplace. Support for basic research is a key element in helping to
ensure, over the long-term, the ability of the U.S. to compete in
increasingly competitive global markets. University-based research
not only generates the "intellectual capital" of new knowledge, but
also, through the training of future scientists and engineers, the
essential "human capital" necessary for continued economic
growth.
The budget also requests an increase of 49 percent for the general science programs within the Department of Energy, to reach a
budget authority level of $1.2 billion for 1989. This includes funding for the initial construction of the Superconducting Super Collider (SSC), the world's most powerful atom smasher. The SSC is a
critical part of the administration's initiative to maintain and
strengthen the Nation's scientific and technological leadership. The
1989 level for the SSC represents the first year of an eight-year
$5.3 billion construction project. The budget estimates assume substantial cost sharing by the host State and foreign countries, beginning in 1991.
Budget authority of $10.6 billion is proposed for the space-related
activities of NASA, a $2.4 billion increase from the 1988 level. This
increase would allow NASA to continue the buildup of safe flight
of the space shuttle, while initiating development of a new advanced solid rocket motor to improve the shuttle's performance,
reliability and safety. NASA would also significantly expand development activities for the manned space station, leading to operating capabilities in the mid-1990's, and initiate a major new space
science project, the Advanced X-ray Astrophysics Facility. For the
space station, the President's budget proposes providing funding for
1989 through 1991 this year and, later this year, legislation to
establish a ceiling on total program costs. These measures would
provide program stability as well as necessary discipline in controlling costs. A continued national commitment to a permanentlymanned space station is essential if the nation is to maintain its




PRIORITIES IN THE 1989 BUDGET

2b-7

leadership in space. The space station is planned for development
in cooperation with our friends and allies. This multi-purpose facility will advance not only our capability in space research and
technology, but will also serve to foster commerical and entrepreneurial space activities. NASA will strongly encourage private
sector investment in the space station, including relying on the
private sector to the greatest extent feasible for future enhancements to the space station.
Transportation and Public Works.— This category includes air,
water, and ground transportation programs as well as Federal
water resource projects. In total, budget authority for this category
would be reduced under the President's request, from $12.6 billion
in 1988 to $11.0 billion in 1989. Increases for high-priority programs such as the Federal Aviation Administration (FAA), and for
new construction starts for the Army Corps of Engineers, would be
offset by reductions in low-priority programs such as mass transit.
The budget also proposes to terminate unnecessary subsidy programs, such as payments to air carriers for providing service to
certain communities, and grants to Amtrak. The Interstate Commerce Commission is proposed for termination, contingent on enactment of legislation to deregulate the motor carrier industry.
The administration requests a 44 percent increase in funding for
the modernization of air traffic control facilities and equipment.
For example, the proposed funding increase for 1989 would permit
procurement of specialized radar systems designed to detect highly
dangerous wind shears. It would also allow for continued development of the advanced automation system, which is an automated
air traffic control system designed to expand capacity, improve
efficiency, and maintain the high level of safety of the airways as
aviation activity increases. The administration also requests a 9.4
percent increase for FAA operations in order to increase the air
traffic controller, aviation safety, and inspector workforces, commensurate with projected increases in aviation activity.
The budget also includes the administration's proposal to reform
maritime operating subsidies by expanding carriers' operating flexibility, reducing the cost of subsidy per ship, and allowing additional carriers to participate in the program. In addition, the proposal
contains several reforms that would reduce the cost of administering the cargo preference program.
The administration's request for $4.3 billion in budget authority
for the Federal water resources agencies—the Army Corps of Engi-

neers, Interior's Bureau of Reclamation, and Agriculture's Soil
Conservation Service (SCS)—is approximately the same as that
enacted in 1988. Increases due primarily to the construction of new
Federal water resource projects initiated since 1985 would be offset
by a decrease for lower-priority SCS projects and already author-




2b-8

THE BUDGET FOR FISCAL YEAR 1989

ized commercial navigation fees and non-Federal project financing.
Most proposed funding is for ongoing construction of projects started in previous years, and the operation and maintenance of completed projects. In addition, the administration is proposing six new
construction starts for the Army Corps of Engineers, including the
Santa Ana flood control project in California.
Total obligations for the Federal-aid highway program would be
targeted at $12.3 billion, down 5.7 percent from 1988 estimates.
This would ensure that spending from the highway account of the
highway trust fund does not exceed annual user fee receipts. Eligible highway projects should be funded through these grants, which
give States discretion to spend on their high-priority programs, and
not with separate earmarking, which the Congress has used in the
past for some specific projects.
The budget also calls for a decrease of 54 percent in mass transit
funding. The proposed savings would come primarily from terminating discretionary grant funding used to build or expand transit
systems which have often been unnecessary, too costly, and underutilized. For example, in 1973, Detroit estimated that its automated
people mover would cost $30 million to build; it actually cost $200
million and attracts no more than 10,000 daily riders, far less than
the 71,000 originally projected. In Miami, a $1 billion transit investment carries only one-sixth 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. The budget also proposes eliminating
operating subsidies to large and medium-sized cities. These subsidies were originally provided in response to the energy crisis to
increase ridership and decrease fuel consumption, but most have
come to finance increased wages and declining labor productivity
in the mass transit industry. Absenteeism in the transit industry is
estimated at three times the national average, yet transit operators
and mechanics in large publicly operated systems earn 31 to 95
percent more than their counterparts in the private sector.
Economic Subsidies and Development—This category includes
programs for energy, natural resources and the environment, farm
programs, commerce and housing credit, community and regional
development, and housing assistance. Funding increases are proposed for a few selected programs in this category, including full
funding for the Federal share of the innovative clean coal technology demonstration program, which addresses the problem of acid
rain. However, many programs would be reduced because they no
longer warrant Federal support. Many reward inefficient private
activities and support State and local development more appropriately financed by State and local governments or the private
sector. Surely this is an area that we can afford to reduce in order




PRIORITIES IN THE 1989 BUDGET

2b-9

to fund higher priority programs such as health research, education programs, and education and enforcement efforts concerning
drug abuse. On net, the administration proposes to reduce budget
authority for this category from $44.6 billion in 1988 to $43.1
billion in 1989.
The administration is requesting $0.5 billion of budget authority
in 1989 to continue developing and filling the strategic petroleum
reserve (SPR) at a minimum average rate of 50,000 barrels per day,
the fill rate approved by Congress in 1988. The SPR is a Government stockpile of crude oil to supplement the market in the event
of a severe disruption in world oil supplies. If the administration's
proposal to sell the naval petroleum reserve (discussed below under
Revenues) is approved, the administration will propose additional
funding of $0.7 billion to increase the SPR fill rate to 100,000
barrels per day and to create an additional 10 million barrel inventory in 1989. This would add to the country's ability to deal with
energy supply disruptions.
The President proposes budget authority of $1.6 billion for 1989
for the Hazardous Substance Superfund. This represents an increase of $0.5 billion over 1988 funding levels, and would continue
the full-scale buildup of this hazardous waste cleanup program.
The increase would prevent any delay in starting work on projects
ready for cleanup, and would also enable the Superfund program to
maintain the momentum gained since reauthorization.
The budget also requests full funding for the Government's share
of a five-year, $2.5 billion innovative clean coal technology demonstration program. Congress has already provided $0.7 billion for the
program for 1988 and 1989. The 1989 budget seeks $1.8 billion
additional advance appropriations. This program supports commercial-scale, innovative control technology demonstration projects
consistent with the recommendations of the U.S. and Canadian
Special Envoys on Acid Rain. These projects, whose costs will be
shared at least 50 percent with industry, are intended to address
the environmental effects of acid rain by stimulating the development and deployment of new means to reduce air pollution emissions. The budget also provides strong support for continuation of
the 10-year research activities of the national acid precipitation
assessment program (NAPAP), whose final assessment will be published in 1990.
The administration proposes an increase of more than 70 percent
in budget authority for the federal conservation reserve program.
Under this program, the Federal Government contracts with
owners of highly eroded cropland acres to remove them from active
crop production. In exchange for placing their acres of cropland in
a reserve status, landowners receive assistance in establishing appropriate conservation cover on the land, as well as rental pay-




2b-10

THE BUDGET FOR FISCAL YEAR 1989

merits on each acre. The proposed increase is necessary in order to
increase the number of acres enrolled in the program, as mandated
by the 1985 farm bill, and to provide increased technical assistance
in determining eligibility of landowners.
The administration proposes to expand its use of vouchers to
meet rural and non-rural housing needs. In 1989, 135,500 additional
low income households would receive housing subsidies (primarily
vouchers), an 8 percent increase from 1988. Vouchers can be used
in most privately-owned units meeting housing quality standards,
and are less costly than other housing subsidies for low-income
households. For example, a new public housing unit costs $700 per
month for each family served, while a voucher can provide the
same assistance for only $250 each month. Vouchers increase
household choices regarding where to live, and permit more efficient use of private sector housing. Lending and selected grant
programs which have not been cost-effective would be terminated.
In particular, the administration would discontinue the housing
development action grant (HoDAG) program created by the Housing Urban-Rural Recovery Act of 1983. Although the HoDAG program was intended to subsidize the construction or rehabilitation
of rental housing in low- and moderate-income neighborhoods experiencing a severe shortage of rental housing, it has proven to be an
inefficient subsidy for costly new construction activity. The administration prefers relying upon housing vouchers for use with existing rental housing units. Congress not only provided no new 1988
appropriations for HoDAG, it also proposed termination at the end
of 1989 in the Housing and Community Development Act of 1987.
The administration is requesting budget authority of $1.5 billion
for the sewage treatment construction grant program, a decrease of
35 percent from the 1988 funding level. This program provides
financial assistance to State and local governments for the construction of publicly owned treatment facilities. Since 1972, $50
billion in Federal funds has been spent on this grant program
benefitting localities. Presidential policy calls for a $12 billion
phaseout of the program by 1993. This level of funding is sufficient
to fund the Federal share for all projects needed to meet the 1988
municipal requirements and complete all treatment plants started
with Federal funds.
Budget authority for Federal land acquisition is also proposed to
decrease from $0.3 billion in 1988 to $0.2 billion in 1989. There are
already over 700 million acres of acquired land and no additions
are needed at this time. Additional discretionary acquisitions for
park and refuge purposes would be postponed through 1993. The
proposed budget would fully utilize entrance fees and service
charges associated with national parks, forests, and other Federal
recreation facilities.




PRIORITIES IN THE 1989 BUDGET

2b-ll

The budget calls for a 41 percent decrease in budget authority

for non-nuclear energy research and development. This represents a
decrease from the 1988 level of $0.6 billion to $0.4 billion in 1989.
These research and development programs include fossil, solar, and
renewable energy, and the reduction reflects the administration's
belief that the proper Federal role is to support longer term, highrisk, or generic technologies.
In 1989, the administration proposes to continue its effort to
concentrate Federal resources on national priorities and provide
maximum opportunity for State and local governments to meet
their own local community and economic development needs. To
achieve this, the administration proposes to eliminate a number of
Federal categorical programs currently providing support for specific local community and economic projects, including urban development action grants (UDAG), Economic Development Administration, and Appalachian Regional Commission programs. In St. Petersburg, Flordia, for example, a $3.4 million UDAG grant helped
the Harbor View Hotel Corporation renovate a 337 room Hilton
hotel that will have a swimming pool and tennis courts. This
project is one of many representative of unnecessary Federal
spending through this type of grant program. There is no evidence
that such programs have resulted in net job creation nationwide.
Under the administration's proposal, the comprehensive and more
flexible community development block grant (CDBG) program
would continue to be the principal vehicle for Federal support.
As part of its Rural Development Initiative, the administration
proposes to target existing rural development program resources to
the most needy rural communities and residents. It is proposed
that financing for rural water and waste disposal systems and
community facilities gradually shift from grants and direct loans to
loan guarantees, which provide rural communities with access to
private financing sources.
Consistent with past congressional action, the administration
proposes to continue phasing down funding of low income home
energy assistance, which provides States with block grants to help
pay fuel bills of low-income families. States have hundreds of millions of dollars of oil overcharge settlements available for this
purpose.
The budget proposes to substitute partial Rural Electrification
Administration (REA) guarantees of private sector loans for REA
borrowers for the high cost deeply subsidized direct REA loans.
This reform is appropriate since REA goals of providing electric
and telephone service to rural areas are largely accomplished, and
nearly all REA borrowers are financially sound and able to secure
private lending with the partial REA guarantees.




2b-12

THE BUDGET FOR FISCAL YEAR 1989

The budget seeks elimination of all SBA direct business loan
programs, relying completely on loan guarantees for its business
loan activity. The administration also proposes to increase the
amount of private co-insurance on SBA guaranteed loans to secure
even greater private capital market involvement in meeting small
business financing needs. This would benefit small business borrowers by allowing them to develop credit records with private
lenders instead of with the SBA, thereby fostering the long-term
growth potential of such firms.
As suggested by a recent Postal Rate Commission study, the
administration proposes to eliminate nearly all Postal Service subsidies that allow certain preferred mailers to receive reduced postal
rates. The American taxpayer should not be burdened with these
inefficient subsidies, which are often misused. Subsidies would be
eliminated for materials with high commercial advertising content,
political advocacy mail, and "educational" mail from organizations
that do not maintain teacher/student relationships. The administration would continue lower rates for most religious and charitable mailings, but shift the residual cost of these lower subsidies
from taxpayers to commercial mailers. This would reduce outlays
by $0.5 billion.
Education and Social Services.—Funding for elementary, secondary, and higher education, as well as job training and a variety of
social services is included in this category. The Federal Government's major role in this category is to provide support primarily
for meeting the educational, training, and social services needs of
the disadvantaged, preferably through programs that allow States
and localities to tailor solutions to their particular problems. The
administration believes that States and localities must continue to
bear the major financial responsibility for these programs. The
request for budget authority is $31.3 billion, $1.1 billion above the
1988 enacted level.
As one part of the welfare reform proposal, discussed under
"Entitlements and Other Mandatory Programs" below, $0.5 billion
in budget authority is requested for a new employment and training program for recipients of aid to families with dependent children. The ineffective work incentive program, intended to serve
this population, would not be funded.
The President's budget requests $4.6 billion in budget authority
for compensatory education programs, an increase of $0.2 billion
over the 1988 funding level. Federal support for compensatory
education is provided through grants to States and local school
districts which provide partial financing of remedial education to
educationally disadvantaged elementary and secondary school children. These programs are the Federal Government's major contribution to State and local efforts to improve the quality of education




PRIORITIES IN THE 1989 BUDGET

2b-13

for the children most in need. This increase in the 1989 budget
would allow States and localities to serve more children, provide
more intensive services, or create new projects.
The administration is proposing a nine percent increase in school
improvement programs. Increases of 13 percent for the education
block grant, and nine percent for the drug-free schools program are
requested. The budget also requests a 60 percent funding increase
for magnet schools in desegregating and certain other school districts.
Funding for discretionary student aid would increase $0.6 billion
under the administration's proposal. The major increase in this
area would be for Pell grants, which would increase by $0.8 billion
or 18 percent over the 1988 level of $4.3 billion. The proposed
increase would finance program eligibility expansions and increase
the Pell maximum award to $2,300. It would also provide funding
for proposals to reduce temporarily the expected family contribution to educational costs based on the value of non-liquid assets,
and to limit eligibility to students with a high school diploma or
the equivalent, in order to prevent widespread error and abuse.
The administration proposes budget authority of $980 million in
1989 to serve dislocated workers, almost triple the 1988 level. The
proposal would replace the trade adjustment assistance (TAA) program and the readjustment programs authorized by the Job Training Partnership Act with a worker readjustment program (WRAP),
a new program expected to provide readjustment services faster
than has been possible under current training and employment
programs. The TAA program of cash assistance has proven to be
the least efficient way in which the Government can help workers
adjust to economic change. The payment of additional weeks of
cash benefits has often acted to delay workers' efforts to change
jobs or gain new skills, because they can wait longer in the hope
that their jobs will come back. In addition, a program directed at
workers dislocated for a specific reason, such as increased imports,
is inequitable because workers unemployed for other reasons over
which they have no control would not receive the same benefits or
services. WRAP would be available to all dislocated workers and
would include services such as counselling, job search assistance,
basic education, and job skill training. Services leading to quick
adjustment would be provided first, with a second "tier" of longer
term, more extensive services also being available.
The administration proposes $0.4 billion in funding for Federal
programs or activities specifically targeted to homeless individuals.
This funding level is four percent above the 1988 level of funding
for the homeless provided by Congress, although the mix of programs differs somewhat, reflecting a desire to eliminate redundancy and to fund those programs where there is most need. The




2b-14

THE BUDGET FOR FISCAL YEAR 1989

administration's budget request for the homeless covers a variety
of programs providing food, emergency, transitional, and permanent housing, as well as various health services. While some of
these programs offer services to all homeless individuals, others are
targeted to special groups, especially the homeless mentally ill,
veterans, runaway youth, and homeless families. The administration also proposes to fund the Interagency Council on the Homeless, an independent executive entity that will coordinate and
review all Federal programs for the homeless.
The administration is requesting $0.3 billion in 1989 budget authority for the community services block grant (CSBG). This is $0.1
billion less than the 1988 level, and reflects the administration's
proposal to phase out Federal support for CSBG. The phaseout,
rather than instant termination, is proposed to provide community
action agencies time to solicit funding from other sources to replace the less than 13 percent of their funding which currently
comes from this block grant.
The administration also proposes to reduce budget authority for
criminal justice assistance from $0.3 billion in 1988 to $0.2 billion
in 1989. Funding for Legal Services Corporation would be reduced
modestly, because State and local bar associations have developed
programs to provide free assistance to indigent clients and these
non-Federal efforts are expected to grow. Funding for juvenile justice and delinquency prevention programs would be ended because
their primary objective, the separation of juvenile from adult offenders, has been accomplished. State and local law enforcement
assistance would also be ended because States and localities can
afford to pay for these programs from which they benefit directly.
Health Research and Services.—This category includes research
at the National Institutes of Health, block grants to States for
health, and hospital and medical care for veterans. The President's
budget recognizes the importance of many programs in this area.
In total, the budget authority request for health research and
services is $0.8 billion above the 1988 enacted level of $23.9 billion.
Proposed increases for high-priority AIDS research would be offset
by reductions in some programs of lesser priority such as subsidies
for clinical health professions training, which are no longer essential.
Combatting Acquired Immune Deficiency Syndrome (AIDS) is the
highest public health priority of the administration. Supplementing
State and local programs, the Federal effort encompasses health
education and risk prevention as well as research on the causes of
and potential treatment for and vaccination against AIDS. Budget
authority of $1.3 billion is requested for AIDS research and education in 1989, an increase of 40 percent above the 1988 enacted level.




PRIORITIES IN THE 1989 BUDGET

2b-15

The President's budget requests $0.6 billion for drug abuse treatment, research, and prevention programs in the Public Health Service, an 18 percent increase above 1988. These funds would support
the President's initiative to combat drug abuse. The budget also
requests an increase in budget authority over the 1988 enacted
level for veterans medical care to $10.4 billion for 1989. This increase would allow ample resources to meet the objective of sustaining quality medical care for America's veterans who use Veterans Administration medical services—primarily disabled and needy
veterans. It would also allow funding for tuition support payments
that would aid in recruitment and retention of nursing and other
medical staff in shortage areas and for increases in community
nursing home workload.
Elimination of direct Federal subsidies for most clinical health
professions training subsidies is proposed. Between 1965, when Federal subsidies began, and 1986 the supply of physicians per capita
grew by 54 percent. Surpluses for most health care disciplines are
projected through the 1990's. Remaining Federal programs emphasize training in family medicine and geriatric care through consolidated grants to States and other entities.
Law Enforcement and Other Core Functions of Government—
Programs in this category include the Federal Bureau of Investigation (FBI), Drug Enforcement Administration (DEA), and other
agencies involved in law enforcement, as well as the Internal Revenue Service and administrative expenses for the major entitlement
programs. The administration places a high priority on law enforcement activities of the Federal Government. In total, budget
authority for these programs would increase by $2.4 billion from
$21.2 billion in 1988 to $23.6 billion in 1989.
Budget authority requested for criminal investigations of the FBI
and DEA for 1989 is $2.0 billion, an increase of eight percent over
the 1988 level. 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 increased funding would provide more
than 170 new domestic and foreign positions for DEA and allow for
improvements in intelligence and technical capabilities. It would
also allow the FBI to intensify investigative efforts against organized criminal organizations, white-collar crime, terrorist activity,
foreign counterintelligence, and public corruption. The administration is also proposing a 17.4 percent increase over 1988 in budget
authority for the Coast Guard. Drug law enforcement would continue to receive a major emphasis within Coast Guard operations,
with 23 percent of the budget supporting interdiction of drug smuggling.




2b-16

THE BUDGET FOR FISCAL YEAR 1989

The budget also requests increased funding for Federal prisons,
from $0.9 billion in 1988 to $1.4 billion in 1989. In response to the
continuing growth of the Federal prison population, the administration is proposing to acquire 10 new facilities. This expansion
would meet the demands of tougher law enforcement and longer
sentencing created by a number of recent initiatives.
Budget authority for the Internal Revenue Service is requested to
grow from the 1988 level of $5.1 billion to $5.3 billion in 1989. This
increased funding would allow better enforcement of the tax code
as well as provide quality service to and for the public, especially
during the first years of tax reform.
ENTITLEMENTS AND OTHER MANDATORY PROGRAMS

Spending for entitlements and other mandatory programs is determined by eligibility criteria and benefit formulas set in substantive law. Annual action on the part of the Congress or the Executive is generally not required. Spending for 1988 and 1989 is estimated at $491.6 billion and $511.5 billion, respectively.
The Bipartisan Budget Agreement called for a few specified
changes in these programs. Most of these changes were enacted as
part of the Omnibus Budget Reconciliation Act of 1987. The budget
proposes further programmatic reductions where the full savings
envisioned by the Bipartisan Budget Agreement were not achieved.
The administration also continues to seek approval of its catastrophic health insurance and welfare reform proposals. This section briefly describes the budget proposals for these programs.
ENTITLEMENTS AND OTHER MANDATORY PROGRAMS
(in billions of dollars)
1987

Retirement and unemployment
Medical care
Low income programs
Agriculture
Other mandatory programs
Total, entitlements and other mandatory programs

1988

1989

Change
1988-89

Percent
Change
1988-89

284.4
102.8
39.7
25.2
7.5

297.1
109.6
44.6
20.5
19.8

315.9
116.6
45.5
19.8
13.7

18.8
7.0
0.9
-0.7
-6.1

6.3
6.4
2.0
-3.6
-30.7

459.6

491.6

511.5

19.9

4.0

Retirement and Unemployment Programs.—This category includes social security, Federal employee retirement programs, veterans compensation and pensions, and unemployment compensation. Other than the replacement of trade agreement assistance by
a new worker readjustment program discussed in the domestic
discretionary category, above, no significant changes are proposed
for these programs. Spending for these programs will increase by




PRIORITIES IN THE 1989 BUDGET

2b-17

$18.8 billion from $297.1 billion in 1988 to $315.9 billion in 1989,
largely as a result of cost-of-living adjustments, increases in the
number of eligible recipients, and increases in the wage base used
to calculate some of the retirement benefit payments. Social security accounts for 74 percent, or $14.0 billion of the increase.
Medical Care.—Medicare, medicaid, and Federal employee health
benefits are the major medical care programs. Spending on these
programs has expanded rapidly during the last decade. Under the
President's proposal, spending would increase further, from $109.6
billion in 1988 to $116.6 billion in 1989. This increase is largely due
to increased prices for medical services and increased utilization of
the programs. Seventy percent of the increase is in the medicare
program.
The budget proposes further reductions in the medicare program
to achieve the savings agreed to by the budget negotiators but not
enacted fully last year. The administration proposes to reduce the
add-on payment for teaching hospitals under the prospective payment system (PPS) for indirect medical education from 7.7 percent
to 4.05 percent, the best estimate of the added costs incurred historically by teaching hospitals. The administration proposes to
limit medicare overhead payments for graduate medical education
and make consistent varying secondary payor enforcement mechanisms. To reduce escalating Part B costs and help slow future
increases in beneficiary Part B premiums, the administration proposes to limit payments for physician services such as radiology,
anesthesioloy, and certain overpriced procedures, limit payments
for durable medical equipment and supplies, and eliminate a loophole in the payment process for kidney dialysis. In total, these
reforms would reduce spending for medicare by $1.2 billion from
the level that would occur if current law were continued. Spending
for the medicare program would still increase by six percent from
1988 to 1989.
The administration remains committed to the enactment of legislation providing affordable, acute care catastrophic illness protection and outpatient prescription drug coverage for our nation's
elderly and disabled. Such legislation must be deficit neutral, with
benefits paid from newly created, self-financed trust funds. The
Senate-passed version of H.R. 2470, the Medicare Catastrophic Protection Act, is consistent with the administration's principles for an
acceptable catastrophic health insurance bill. The administration's
continued support for the Senate-passed bill assumes modifications
in effective dates, necessary because of the delay in conference
action.
Low Income.—The low income category includes food and nutrition assistance, supplemental security income, family support pay-




2b-18

THE BUDGET FOR FISCAL YEAR 1989

ments, and other forms of income security. Most of these programs
are needs tested, with eligibility determined by income standards.
Spending for programs in this category would be $45.5 billion in
1989, an increase of $0.9 billion from the 1988 level. Again, the
increase is largely a result of inflation and changes in the beneficiary populations.
The budget proposes only one change from current law in this
area—passage of welfare reform legislation (AFDC Employment
and Training Reorganization Act of 1987—HR.3200 and S.1655).
This legislation would reform the aid to families with dependent
children (AFDC) program by requiring States to involve meaningful numbers of recipients in work or preparation for work and,
through a new discretionary grant program, almost triple the resources available for them to do so. It would also strengthen the
Federal-State child support enforcement program, and provide
broad flexibility to States to carefully test innovative alternatives
to current programs which support low-income families and individuals. These reforms, by reducing welfare dependency, would
decrease mandatory outlays by $0.1 billion in 1989 from the current law levels. Discretionary outlays would increase, as discussed
under discretionary programs, to fund the proposed employment
and training program.
Agriculture.—Farm price support payments make up the largest
portion of this category. Reforms in this program were enacted last
year in accordance with the Bipartisan Budget Agreement. In particular, the Bipartisan Budget Agreement included reforms originally proposed in the President's 1988 budget. This package of
reforms:
• Provided for a IV2 percent reduction in target prices. Artifically high target prices have led to overproduction, leading to
increased budget costs.
• Tightened up on the "definition of person" for corporate payment purposes, resulting in a lower level of multiple payments.
• Provided for a program that decouples production from
income decisions by paying the farmer 92 percent of deficiency payments that would have been received had he planted
crops on his land.
• Reduced price support for non-target price commodities (tobacco, peanuts, sugar, honey, wool and dairy products).
The President's budget proposes only two further changes in
these programs. Legislation will be prepared to modify the current
domestic sugar program to ensure fair treatment for taxpayers,
consumers, and farmers. The proposal would reduce Government
interference in trade. Domestic sugar policy currently runs counter
to a free trade policy, and results in a loss of foreign exchange from




PRIORITIES IN THE 1989 BUDGET

2b-19

countries that are economically weak but vital to U.S. interests. In
addition, the administration is proposing to reduce the appropriated limit of the export guarantee loan program by $2 billion. This
reduction would bring the program level in line with the actual
demand that exists in the marketplace.
Other Mandatory Programs.—This category includes the remaining mandatory programs which, in total, represent $19.8 billion for
1988 and $13.7 billion for 1989. Major changes proposed for programs in this area are for the Postal Service, where legisaltion is
needed to fully achieve the reductions agreed to by the bipartisan
budget negotiators, and for the D.C. government. Under the proposal, the Postal Service and the D.C. government would be required
to contribute amounts to the civil service retirement fund to cover
the full cost of providing cost-of-living adjustments (COLAs) to
Postal and D.C. government retirees and their survivors. These
payments would increase receipts from the D.C. government by $4
million in 1989. While the Postal Service would be liable for its
annuitant COLA costs in 1989, its initial payment would be deferred until 1990, when it would make a payment for 1989 and
1990.
REVENUES
In addition to the programmatic changes discussed above, the
President's budget includes several proposals to change revenues.
It also proposes sales of loans and real assets.
User Fees.—The administration is proposing to fund 55 percent of
the expenses of the Nuclear Regulatory Commission (NRC) and the
Federal Emergency Management Agency (FEMA) in regulating nuclear power plants through user fees. Currently NRC recovers 45
percent of these costs through user fees, while none of FEMA's
costs are recovered. The administration believes that direct beneficiaries should pay for services rather than all taxpayers.
The administration is also proposing reforms in the existing fees
charged by the Customs Service. The Congress recently enacted
legislation imposing Customs user fees to finance the cost of conducting customs inspections. However, the fee as enacted is inconsistent with provisions of the General Agreement on Tariffs and
Trade (GATT). Among other concerns, GATT recently ruled that
the ad valorem structure of the merchandise processing fee was not
indicative of the cost of processing individual entries. The administration's proposed reforms would enable Customs to collect user
fees that conform to GATT requirements.




2b-20

THE BUDGET FOR FISCAL YEAR 1989
RECEIPTS
(in billions of dollars)
1989

User fees:
Nuclear Regulatory Commission
Federal Emergency Management Administration..
Customs service 1 ..
Subtotal, user fees
Other revenue initiatives:
Revised allocation of R&E expenditures..
Permanent R&E tax credit.
Extend HI coverage to all State and local employees
Exempt mutual fund shareholder expenses from 2% floor..
Other
Subtotal, other revenue initiatives..

-0.1
-0.1
-0.6
-0.4
1.6
-0.4
-0.1
0.1

*$50 million or less.
1
The budget proposes to change the classification of the customs fee from an offsetting collection to a governmental receipt, as well as make
changes in the fee. This shows the net effect of the proposal.

Other Revenue Initiatives.—Other receipts changes proposed by
the administration include the following:
Extension of medicare hospital insurance (HI) coverage to all
State and local government employees.—Because of eligibility
through their spouse or short periods of work in covered employment, as many as three out of four State and local employees 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 medicare coverage, would
eliminate this drain on the medicare trust fund.
Revision in research and experimentation (R&E) allocation
rules.—The administration proposes to allow companies to allocate
at least 67 percent of total R&E expenditures to domestic source
income. Under current law companies with foreign operations are
allowed to allocate at least 30 percent of total research and experimentation expenditures to their domestic operations.
Initiation of a permanent research and experimentation (R&E)
tax credit.—To reduce taxpayers' uncertainty about the availability
of incentives for research and experimentation, the administration
proposes to establish a permanent R&E tax credit. The current law
credit is scheduled to expire on December 31, 1988.
Exemption of mutual fund shareholder expenses from the two
percent floor for miscellaneous deductions.—Effective January 1,
1988 the expenses of publicly offered mutual funds are subject to
the two percent floor for miscellaneous deductions. Mutual fund
shareholders therefore are required to include in taxable income
amounts in excess of actual payments from mutual funds. The
administration proposes to permanently exempt these expenses
from the two percent floor.




PRIORITIES IN THE 1989 BUDGET

2b-21

Asset Sales.—The Federal Government will continue its successful pilot program of selling existing loan assets without recourse.
These sales are designed to reduce the Government's cost of administering credit, provide an incentive for agencies to improve loan
origination and documentation, and assist in determining the Federal subsidies involved in Federal credit programs. The sales program includes loans with a face value of $12.0 billion in 1989,
which are estimated to produce receipts of $8.6 billion.
ASSET SALES *
(in billions of dollars)
1989

Loan asset sales and prepayments:
Proposed prepayments:
Rural Electrification Administration
HHS Health Maintenance Organizations
Proposed sales:
Rural housing insurance fund
Rural Electrification Administration
College housing and higher education facilities..
HHS medical facilities
Federal Housing Administration
Small Business Administration

1.0
0.9
0.9
0.2
0.1
0.1
0.7

Subtotal, loan asset sales and prepayments
Real asset sales:
Naval Petroleum Reserve
Alaska Power Adminstration
GSA real property
Helium sales

4.0

Subtotal, real asset sales

3.5

Total, proposed asset sales

7.5

MEMORANDUM:
Enacted prepayments:
Foreign military sales credit
Rural Electrification Administration.

2.3
0.2

Total, enacted prepayments...

3.2
0.1
0.1

2.5

*1 $50 million or less.
These sales cannot be counted toward the Gramm-Rudman-Hollings (G-R-H) target. The G-R-H baseline does include $2.1 billion in loan asset
sales and prepayments that will occur in 1989.

In addition, the administration is encouraging privatization by
allowing borrowers with Rural Electrification Administration
(REA) guaranteed loans that were made by the Federal Financing
Bank to prepay them utilizing an 80 percent REA guarantee and
without paying the required prepayment premium. Further, borrowers of REA revolving fund direct loans would be allowed to
prepay them at a discount if they agree not to seek REA assistance
in the future.
The administration is also continuing to promote the sale of real
assets. The administration proposes as it did last year that the




2b-22

THE BUDGET FOR FISCAL YEAR 1989

Federal Government sell the two oil fields it operates—Elk Hills,
California, and Teapot Dome, Wyoming. Running an oil field is a
business, not a Government activity. Proceeds from the sale of
these oil fields would be used to accelerate filling the strategic
petroleum reserve, discussed earlier, and to create an additional 10
million barrel inventory, thereby enhancing national energy security. The budget assumes that the oil fields can be sold for $3.5
billion, of which $3.2 billion would be received in 1989.
The administration is also proposing to sell the Alaska Power
Administration (APA), which supplies electricity in the Anchorage
and Juneau areas, by the end of 1989. State and local groups in
Alaska have proposed buying APA's two hydropower projects. The
administration believes that divestiture of the APA would lead to
creation of new enterprises more responsive to local and customer
needs, without significant increases in power rates. In addition, the
administration has proposed legislation to authorize a study of
divestiture of the Southeastern Power Administration. The budget
assumes a sale in 1990.
The administration is proposing two additional real asset sales in
1989, an administration initiative to increase planned disposal of
surplus Government properties by the General Services Administration and the sale of helium operations by the Bureau of Mines.
CREDIT REFORM INITIATIVE

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. Adopting this proposal
would be a significant improvement over current practice. It would:
• put the cost of credit programs on an expenditure basis equivalent to other Federal spending;
• improve the allocation of resources among credit programs
and between credit and other spending;
• measure accurately and equitably the benefits of Federal
credit programs; and
• encourage delivery of benefits in the form most appropriate to
the needs of beneficiaries.
The administration's proposed legislation makes a sharp change
in accounting for direct and guaranteed loans. For direct loans,
agency accounts after implementation would reflect only the subsidy provided by the loans, while the balance of the loan would be
reflected in the central direct loan fund; before implementation,
net flows from direct loans (disbursements minus repayments) were
shown in the agency accounts. For guaranteed loans, agency accounts after implementation would reflect the subsidy provided by




PRIORITIES IN THE 1989 BUDGET

2b-23

the loans; before implemenation, only defaults associated with
guarantees were reflected in agency accounts.
The credit reform proposal does not have an impact on the
deficit. However, it does require an additional $3.4 billion in budget
authority over what would be required under the current accounting treatment. Because credit reform is a deficit-neutral accounting
change, this additional budget authority is separate from the
budget authority levels agreed to as part of the Bipartisan Budget
Agreement. The proposal is discussed in Part 6b of this volume.
PRIVATIZATION INITIATIVES

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. The administration has developed a privatization plan with three different implementation
strategies: comprehensive studies, pilot projects, and full privatization.
Comprehensive Studies.—During the next two years, the administration will conduct a series of comprehensive studies on functions
for which privatization offers the potential of improving quality of
the activity or reducing costs. These functions include the Postal
Service and the in-house research laboratories of the National
Institutes of Health. In each case, a leading independent research
organization will be requested to analyze the current status of the
function and estimate the benefits of improvements that result
from public/private sector partnerships. The study will provide a
solid, definitive base on which to judge whether privatization
should proceed.
Pilot Projects.—Pilot projects will be conducted for a number of
functions where a body of previous privatization experience exists
at either the State or local government level or for similar functions at the Federal level. Pilot projects will be conducted on Federal prisons, Customs commercial cargo inspection and regulatory
audits, military commissaries, Coast Guard buoy maintenance, and
undeveloped lands. The projects will provide the opportunity to test
several different techniques before making major programmatic
changes.
Full Privatization.—For many functions, ample data and experience are available to start privatization efforts immediately. Included in this area are the real asset sales discussed above as well
as the administration's on-going efforts to increase contracting out
of services.




2b-24

THE BUDGET FOR FISCAL YEAR 1989

OTHER MANAGEMENT INITIATIVES

In 1981, the administration found an overly large and unmanageable government with hundreds of systems that did not help us to
manage effectively. The administration's program, "Reform 88", set
several strategies for achieving better government: control growth
of government programs, reduce fraud and waste, improve individual agency operations, build governmentwide management systems
and improve the quality of services and goods being delivered to
the American people. Much progress has been made in improving
these areas of Government management.
We are managing a $2 trillion annual cash flow more effectively
by using more business-like practices and capitalizing on modern
technology. These advances are generating a $1 billion annual
savings in interest payments. A comprehensive debt collection and
credit management program has been put into place to manage the
more than $700 billion in direct and guaranteed loans that are the
responsibility of the Federal Government. Loan extension, servicing, and collection are being conducted in accordance With private
sector standards and practices.
Financial management has also undergone dramatic improvements. A Chief Financial Officer for the Federal Government has
been designated as have chief financial officers in each major
agency. Modern, integrated financial systems are well on the way
to being installed in all of the agencies. These systems are compatible with one another, including standard accounts, and emphasize
strong internal controls. Financial operations are also stressing
prompt pay practices, as well as more effective cash management.
The Inspectors General have successfully helped to curtail fraud,
waste, and abuse in the conduct of operations and the use of
financial resources.
A productivity improvement program, designed to promote the
timely delivery of high-quality, error-free, and cost effective products and services to the taxpayer, is in full operation, and will
include nearly 700 program functions and the work of two million
Federal employees over the period 1987 to 1992. Information technology management, which comprises more than $17 billion of the
Federal budget, also has been vastly improved in recognition of the
important role that modern technology will play in future government operations. Finally, procurement management has been a key
theme of the administration. The Federal acquisition process, accounting for more than 21 million contract actions worth over $200
billion a year, has been simplified, accelerated, and made more
understandable. Efforts in all these directions will continue
through 1989, and will serve as a solid foundation for continued
emphasis on a well-managed Federal system by future adminstrations.




PRIORITIES IN THE 1989 BUDGET

2b-25

CONCLUSION
In summary, the President's budget as described above provides
a comprehensive program to fully implement the Bipartisan
Budget Agreement. It meets the ceilings set for the national defense function, and for international and domestic discretionary
programs. It proposes legislation to reduce mandatory programs
where the Bipartisan Budget Agreement savings have not yet been
enacted. It also continues the administration's efforts toward privatizing appropriate Federal activities and improving the management of existing activities. The result of this program will be a
continued decline in the deficit, to the benefit of the American
people.







PART 3

THE ECONOMY
AND THE BUDGET
3-1

THE ECONOMY AND THE BUDGET
This part of the budget covers two areas. The first relates to the
increases in the budget deficit that have taken place since the
early 1980s and the roles played by the 1981-82 recession and other
economic and policy variables in bringing it about. The second
discusses the near- and long-term economic projections and their
implications for future deficit changes.
The economy and the budget are interrelated. Budget receipts
and outlays depend directly on the level of economic activity, inflation, interest rates, unemployment, and other economic factors.
Likewise, budget outlays and the tax structure have substantial
effects on the state of the economy.
3-2




PART 3a

ECONOMIC PERFORMANCE, BUDGET POLICY,
AND THE DEFICIT: 1981-1989
In 1981, President Reagan changed the fiscal policy objectives of
the Federal Government, reducing the growth of overall Federal
spending, rearranging expenditure priorities, and limiting tax burdens to the levels necessary to finance essential Government services. The purpose of this policy has been to improve the performance of the U.S. economy, increase the income of American families, and raise the productivity of American workers by strengthening the incentives to work, save, and invest. The program was
expected to achieve a balanced budget by 1985. Instead, the budget
has been in deficit. Reducing the deficit is one of the Nation's
central economic policy concerns.
Several factors have contributed to the difference between the
original deficit projection and the current situation. The administration's first economic forecast did not anticipate the 1981-1982
economic downturn and the concomitant decline in the inflation
rate, as a result of which tax receipts were much lower than
expected. Since the end of the recession, however, the deficit has
remained high, despite sustained economic growth and a stable,
lower inflation rate. The reason is that Federal domestic spending,
measured as a share of GNP or on any other reasonable basis, has
been at historically high levels. The administration has regularly
proposed significant reductions in domestic spending—reductions
that would have brought the deficit down substantially, without
affecting social security or most programs for the poor—but Congress has been unwilling to approve the reductions.
The Downturn and the Deficit—In March 1981, the administration projected that receipts would increase from $603 billion in the
current year to $713 billion in 1983. Instead, receipts were essentially unchanged over the period. Actual receipts in 1981 were $599
billion; they rose slightly to $618 billion in 1982, and fell back to
$601 billion in 1983. The difference was entirely due to the economic downturn that began in mid-1981.
The downturn surprised most forecasters, Government and private alike. At the beginning of 1981, this administration, its predecessor, the Congressional Budget Office (CBO), and the Blue Chip




3a-l

3a-2

THE BUDGET FOR FISCAL YEAR 1989

survey of private forecasters all predicted continuing recovery from
the 1980 recession, which had ended in the third quarter of the
year. All expected real growth of about 1 percentage point during
1981, followed by much stronger growth during the next 3 years.
They differed in their long-term outlook; the administration's forecast of annual real growth was significantly above most of the
others.
The administration was criticized for its over-optimistic economic
projection—its "rosy scenario"—at the beginning of 1981. But while
the real growth projections were different, the nominal growth
projections were very similar. The reason is that the administration projected lower inflation than most other forecasters. The
average annual nominal GNP growth rate projections were 11.7
percent for CBO, 11.8 percent for the administration, and 11.9
percent for the Blue Chip consensus. The corresponding real GNP
growth rate projections were 2.6 percent for CBO, 2.9 percent for
the Blue Chip consensus, and 3.7 percent for the administration.
The differences in the forecasts meant that CBO and the administration were in close agreement on their receipts projections, and
expected significant but not extremely large differences in outlays.
(The Blue Chip forecasters do not try to project Federal Government receipts or outlays.)
Nominal GNP is more important than real GNP for projecting
tax receipts. The administration's estimates of tax receipts, therefore, were quite similar to those of the Congressional Budget Office.
For 1983, for example, the CBO receipts estimate was only $2
billion below the administration's figure. It is worth stressing that
these receipts projections incorporated the administration's proposed tax reductions. Receipts were projected to increase from 1981
to 1983 by about $110 billion, by both the administration and CBO.
The administration forecast slower growth in expenditures, because it expected higher real growth, lower inflation, and lower
interest rates. The projected difference between the administration
and CBO in 1983 was $34 billion, of which $13 billion resulted from
lower interest rates on the debt, and $6 billion from lower inflation
and, therefore, lower payments for social security, medicare, and
oil purchases.
The administration forecast a deficit of $23 billion for 1983, and a
balanced budget in 1984; CBO forecast a deficit of $59 billion in
1983, and $50 billion in 1984. The differences seemed large, but
both saw the deficit declining from its 1980 level ($74 billion), and
declining rapidly in constant dollars. CBO forecast a deficit of less
than 1.2 percent of GNP by 1984, which would have been the
smallest since 1973.
The unforeseen recession changed this outlook, though the
change was not immediately recognized. Indeed, during the




ECONOMIC PERFORMANCE, BUDGET POLICY, AND THE DEFICIT 3 a - 3

summer of 1981, two-thirds of the private economic forecasters
participating in the annual survey of the National Association of
Business Economists felt that the next recession would not begin
until after the end of 1982. Both the administration and CBO were
forecasting continued economic growth. At that time, however, the
recession was actually just beginning.
Recovery and Receipts.—The recession ended in November 1982,
early in the 1983 fiscal year. Its depressing effect on receipts continued through the remainder of the fiscal year. Since the end of
the recession, the Nation has enjoyed sustained economic growth
and continued low inflation; since the end of fiscal year 1983,
Federal Government receipts have grown steadily from year to
year. Between 1983 and 1987, receipts increased from $601 billion
to $854 billion, an annual growth rate of over 6 percent. This is
higher than the growth rate during the peacetime expansion of the
early 1960s, but lower than the growth during 1977-1981. The
reason for the higher receipts growth during the late 1970s was the
high rate of inflation, which automatically diverted receipts from
taxpayers to the Federal Government even if taxpayers' real incomes were unchanged.
The rapid growth in receipts results partly from economic
growth and partly from changes in the tax laws. Two new laws, the
Tax Equity and Fiscal Responsibility Act of 1982 and the Deficit
Reduction Act of 1984, broadened the tax base; the Highway Revenue Act of 1982 raised the Federal gasoline tax; the Social Security
Amendments of 1983 raised contribution rates as part of reforming
the system. This historically rapid increase in receipts has not been
enough to balance the budget, although it has brought the deficit
down both in dollar terms and as a share of GNP.
The lower inflation has not been a major contributing factor to
the deficit. Receipts have been lower than projected, but so have
expenditures for indexed entitlement programs. Real outlays for
non-indexed programs have been higher than originally anticipated, because they are budgeted in nominal dollars; this was particularly important in 1981. Nonetheless, the net effect of lower inflation on the deficit over the years since 1981 is close to zero.
Domestic Spending.—While receipts have grown rapidly since the
end of the recession, so too has spending. An unavoidable consequence of past deficits has been the growth in interest payments
for the Federal debt. Outlays for defense have increased to make
up for the dangerously depleted situation of our armed forces in
the aftermath of the Vietnam war. Domestic spending has grown
as well, however, though this is less widely recognized. Indeed,
annual domestic spending increased slightly more than defense
spending between 1981 and 1987 ($128 billion vs. $125 billion), and




3a-4

THE BUDGET FOR FISCAL YEAR 1989

substantially more than interest ($71 billion). Much of the increased domestic spending has been for social security and lowincome benefits, but annual spending for other programs has risen
by $47 billion. Moreover, the domestic increases in the 1980s have
come after an extraordinarily rapid period of spending growth
during the 1960s and 1970s, while the defense spending increase
has come after a period of substantial reduction.
The administration has regularly proposed sustained programs to
reduce domestic spending over a period of several years, in order to
bring the goal of a balanced budget within reach. The fiscal year
1984 budget offered a 5-year reduction plan that would have saved
$106 billion in fiscal year 1988. Similarly, the 1986 budget offered a
plan to reduce the deficit by $105 billion in fiscal year 1988. In both
cases, minimal reductions were proposed for low-income benefit
programs—$3 billion in the 1984 plan, $2 billion in 1986. Had
either program been enacted in its entirety, the budget deficit in
the current fiscal year would be substantially lower. For example,
Congress enacted about one-third of the domestic spending cuts
that the administration proposed in 1986; had it approved the full
domestic package, the 1988 deficit would be about $90 billion, less
than 2 percent of GNP. (Congress has cut defense spending for 1988
by some $20 billion below the President's 1986 budget request, far
less than the additional domestic spending that it appropriated.) A
balanced budget would now be attainable within 3 years, given
normal receipts growth and some further restraint on spending.
Deficit Reduction Options in the Future.—The solution to the
deficit problem must be to control the growth of the Federal Government and to give maximum opportunity for continued economic
growth. This budget proposes a gradual deficit reduction, in accord
with the Bipartisan Budget Agreement. It reflects the priorities of
Congress as well as the administration. If it is not enacted, deficit
reduction and a balanced budget will be pushed further into the
future.
This budget does not propose tax increases to balance the budget.
Taxes now take about the same share of GNP as they did in 1980—
between 19 and 20 percent. The composition of receipts has
changed slightly; individual and corporate income taxes now represent about 1 percentage point less of GNP, while social insurance
taxes and contributions are about 1 percentage point more. The
American citizen, worker, and taxpayer should be allowed to enjoy
the beneficial effects of the 1986 Tax Reform Act. Lower marginal
tax rates are a powerful incentive for increasing economic productivity; higher rates risk a renewal of the stagflation that plagued
the United States in the late 1970s.




PART 3b

THE ECONOMIC OUTLOOK
The past year saw a welcome resurgence of the Nation's industrial sector, along with some startling developments in financial markets. This part of the budget reviews these events, discusses the
economic outlook for 1988, presents the economic assumptions for
the following 5 years, and discusses how the budget is affected by
changes in the economic assumptions. In this part, annual statistics refer to calendar years rather than fiscal years.
The Economy in 1987.—The economy grew vigorously last year.
The increase in real GNP from the fourth quarter of 1986 through
the fourth quarter of 1987 was 3.8 percent. The total unemployment rate fell by almost a full percentage point, from 6.6 percent
in December 1986 to 5.7 percent in December 1987, its lowest level
since 1979, and employment increased by over 3 million jobs. Inflation rebounded from the low rate reached in 1986, when falling oil
prices temporarily held it down. The overall increase in prices for
the year, however, was only slightly above the average maintained
since the era of double-digit inflation rates ended in 1982. The
Consumer Price Index rose 4.4 percent between December 1986 and
December 1987. Excluding energy prices, the index was up 4.1
percent, just under its rate of increase over the previous 5 years.
The Federal budget deficit, which had reached $221 billion in fiscal
year 1986, fell to $150 billion in fiscal year 1987, its lowest level
since fiscal year 1982. Measured as a share of nominal GNP, the
deficit fell from 5.3 percent in fiscal year 1986 to 3.4 percent in
fiscal year 1987.
At this time a year ago, the budget estimates assumed a real
GNP growth rate of 3.2 percent for the four quarters of 1987, 0.6
percentage point below the actual outcome; the Blue Chip consensus, an average of 52 private sector forecasts, was less optimistic,
calling for a growth rate of 2.8 percent. Most forecasters failed to
anticipate the magnitude of the improvement in the manufacturing
sector just then getting under way.
A healthy growth rate, stable inflation, and a sharply lower
deficit would normally have been good news for financial markets.
Last year, however, was not a normal year. After skyrocketing
upward in the first 8 months of the year, stock prices faltered in




3b-l

3b-2

THE BUDGET FOR FISCAL YEAR 1989

August and, on October 19th, fell precipitously, registering the
largest one-day decline in history. After further volatility, the
market began 1988 near its level of a year ago. These startling
events reawakened fears about the direction of the economy, and
even led some to predict an imminent economic downturn. Despite
the sharp reversal in stock prices, however, the real economy has
shown few signs of serious damage.
The budget agreement reached last year between the President
and leaders of Congress preserves the gains that have been made
in reducing the deficit and sets the stage for further improvements.
If the policies proposed in this budget are adhered to, the deficit
will decline steadily in future years. The economy would be healthier today if the deficit had already been eliminated, but changes in
the budget outlook do not explain the course of the stock market
last year. It was affected much more by changing patterns of world
trade and finance.
Last year saw the first solid evidence that trade flows were
finally responding to the steep decline in the exchange value of the
U.S. dollar that began in February 1985. In the third quarter of
1984 the real value of goods and services exported from the U.S.
stopped growing. For the next two years real exports remained
below their level in that quarter. During that period, the volume of
goods and services imported by the United States rose by $77
billion, measured in 1982 prices. Nonpetroleum imports accounted
for 80 percent of this increase. Real net exports, the difference
between exports and imports, fell to a level of —$162 billion in the
third quarter of 1986. That proved to be the low point, however, for
this key measure of the U.S. trade deficit. Since then real net
exports have improved by $31 billion (in 1982 dollars). The turnaround was led by a sizable jump in U.S. exports, which have
increased by $74 billion in 1982 dollars, an increase of 20 percent.
Real imports have continued to increase, but at a slower rate. Real
nonpetroleum imports have risen just $23 billion since the third
quarter of 1986.
This striking turnaround in the real U.S. trade balance has been
overshadowed because, measured in current dollars, the deficit has
continued to increase. The improvement in trade volume was more
than offset by a rapid rise in the price of U.S. imports and an
increase in oil imports. Over the four quarters of 1987, the fixedweighted price index for merchandise imports rose 10.4 percent.
Much of this increase was accounted for by a 38 percent increase in
petroleum prices. Of course, higher import prices are also responsible for moderating the growth in import volumes over the past
year, but as long as import prices continue to rise rapidly, nominal
trade flows will be slow to reflect the improvement in trade volumes. Moreover, there is normally a lag of one to four quarters




THE ECONOMIC OUTLOOK

3b-3

between changes in exchange rates and adjustments in import
prices. Since the exchange rate continued to decline through the
end of 1987, this lag means that a turnaround in the nominal trade
deficit could still be some months away.
The improved international competitiveness of U.S. producers
generated increased demand for U.S. manufacturing output. This
was reflected in higher employment and rising production. From
December 1986 to December 1987, manufacturing employment rose
by over 400,000. This followed 2 years in which manufacturing
employment declined. Industrial production was up more than 5
percent, the first time in three years that it outpaced the increase
in real GNP. U.S. firms, whose competitiveness was adversely affected as the dollar appreciated, found they could compete with
foreign firms as the dollar declined. The earlier loss of competitiveness was widely attributed to fundamental weaknesses in U.S.
production methods or the closing of foreign markets. These explanations have been proven wrong. The increase in the trade deficit
was a macroeconomic phenomenon that is finally responding to a
macroeconomic solution.
The recovery of manufacturing contributed to a pickup in business fixed investment. After a weak first quarter due in part to the
timing of the Tax Reform Act of 1986, investment grew very
strongly for the rest of the year. Since last spring, it has risen at
an annual rate of 10.7 percent in real terms. Inventory investment
also added to growth last year, especially in the fourth quarter.
While exports and business investment were surging ahead,
other components of total output were slowing down. Real consumer spending, which had been rising at a 4.5 percent annual rate
in the first 4 years of the expansion, increased only 0.6 percent in
the four quarters of 1987. Some moderation in consumer spending
had long been anticipated. The boom in consumption had pulled
down the personal saving rate, and the growth rate of consumer
debt had been outpacing the rise in household incomes for some
time. A slowdown in the pace of consumer spending is probably a
healthy adjustment under the circumstances. Real residential investment declined slightly in 1987, following 2 years of robust
growth. Housing purchases are highly sensitive to changes in borrowing costs, and the upturn in mortgage rates earlier in the year
had a negative effect on the housing sector. In addition, changes in
the tax law and high rental vacancy rates curtailed multifamily
housing starts.
While the real economy prospered in 1987, the Nation's financial
markets experienced an upheaval. The bond market lost about a
fifth of its value during the first three quarters of the year as longterm interest rates rose by more than 2 percentage points. (These
losses were partially reversed when interest rates eased after the




3b-4

THE BUDGET FOR FISCAL YEAR 1989

October decline in the stock market.) The falling dollar, which was
helpful to the Nation's manufacturers, was a problem for foreign
investors. The prospect of a decline in the U.S. exchange rate was
worrisome to them because the value of their U.S. investment
portfolios would ultimately be measured in terms of a foreign
currency. U.S. investors with holdings overseas would benefit for
the same reason, of course.
As foreign investors became more cautious about adding to their
U.S. holdings, foreign central bankers sought to prevent their currencies from appreciating further by intervening in the currency
markets. The Federal Reserve also tightened the U.S. money
supply, beginning in the spring. There were signs at that time of
heightened inflation expectations, as reflected in commodity prices
and in long-term bond yields. From the end of April until the
beginning of October, interest rates rose coincident with a sharp
slowdown in growth of the monetary aggregates; M2 grew at an
annualized rate of 3 percent, while Ml barely grew at all. The
ongoing rally in the stock market was checked temporarily, but
when interest rates stabilized in June, the market took off again in
a dizzying rush. By August, it was at a new all-time high—43.6
percent above its levels at the end of 1986. The last upward surge
in the market is difficult to account for in terms of fundamentals.
It is true that the rebound in the real economy promised higher
earnings for America's major manufacturing corporations, but—
even so—the ratio of prices to earnings was stretched well beyond
historical bounds in the summer rally. In August and September,
interest rates rose again, and the stock market faltered. Between
its high point on August 25th and mid-October, the Dow-Jones
Industrial average lost 13.5 percent. On the Friday before October
19th, the market fell by 4.6 percent. On the day of the crash, it
dropped another 22.6 percent.
In the immediate aftermath of this massive upheaval, there were
many predictions that the economy would soon suffer a downturn
or even a return of the Great Depression. Although it is too soon to
determine what the final effects will be, the initial fears now seem
greatly exaggerated. Despite the memories of 1929 provoked by the
crash, stock market upheavals are not inevitably followed by major
downturns. In 1962, for example, the stock market fell 26 percent
in less than 3 months, but the economy did not go into a recession.
Indeed, the next recession did not occur until 8 years later. Two
other times in the past 25 years, the stock market has fallen by
more than 10 percent without a recession following within the next
3 years: in 1966 it fell 21 percent and in 1983-1984 it fell 12
percent.
There are other reasons for reassurance as well. First, the October decline did not shake confidence in the Nation's banking




THE ECONOMIC OUTLOOK

3b-5

system. The stock market crash of 1929 would not have led to the
Great Depression had it not been followed by several waves of
banking panics which contributed to a drop in the money supply of
one-third. The banking system today is much better protected
against such eventualities as a result of Federal programs, most
notably Federal deposit insurance, and because the Federal Reserve has a clearer understanding of what it must do to forestall
such a catastrophe. The Federal Reserve's response to the October
crash is a model of effective central bank action. It did much to
calm the markets and prevent panic from spreading. In the days
following the crash, the Federal Reserve provided sufficient liquidity to reassure the markets and enable interest rates to decline. As
U.S. interest rates fell, other central banks cooperated by allowing
their interest rates to decline somewhat.
As 1988 began, exchange rates and interest rates were relatively
stable. The outlook for inflation is quite favorable. Responding to a
surplus of production and high inventories, the price of oil has
come down. There appears to be no need, at present, for restrictive
monetary measures. Somewhat slower growth is likely this year for
reasons that are explained below, but the economy should continue
to expand at a healthy pace, and the prospects for more rapid
growth in 1989 are good.
Outlook for 1988-89.—The economy continues to exhibit considerable strength as it enters 1988. Final sales were weak in the fourth
quarter but the strong growth of exports and capital spending
should carry the economy through the coming inventory correction.
Large and widespread gains in employment in the closing months
of last year suggest that most businesses remain confident that the
economy will continue to grow in 1988. That confidence is shared
by the majority of economic forecasters. The Blue Chip consensus
forecast envisages an increase in real GNP of 1.8 percent from the
fourth quarter of 1987 to the fourth quarter of this year. The
administration's forecast calls for a somewhat stronger 2.4 percent
increase. Given the uncertainty surrounding any forecast, the difference between these projections is not large. They share the
common view that whatever adverse effects might ensue from the
stock market crash, those effects will not push the economy into
recession. Most private and public forecasters foresee the expansion
continuing through 1988 and 1989.
The highlights of the administration's forecast are as follows:
• The net export deficit in real terms is expected to shrink
substantially this year as a consequence of the nearly 50
percent decline in the dollar's trade-weighted exchange rate
since its peak in February 1985. Almost half of the rise in
real GNP forecast for this year is due to the improvement in




3b-6

THE BUDGET FOR FISCAL YEAR 1989

the foreign balance, up from a 15 percent contribution to real
growth during 1987.
• The slower growth of real GNP this year—2.4 percent, fourth
quarter to fourth quarter, compared with 3.8 percent last
year—is largely due to an expected decline in inventory investment, which offsets the favorable impact from the rebounding foreign sector. Stockbuilding, which accounted for
half of the increase in real GNP last year, is likely to make a
negative contribution to growth in 1988. The inventory-tosales ratio rose sharply in the fourth quarter of last year, and
some of the increase was probably involuntary stockbuilding.
In these circumstances, businesses normally limit their inventory investment in the months that follow.
• Overall growth of economic activity should be slower in the
first half of the year than in the second. The stock market
crash appears to have contributed to some erosion of consumer confidence. As a consequence, business and household
spending may expand at a somewhat slower pace than they
would have otherwise. A step-up in the pace of activity is
likely in the second half of the year as these uncertainties are
dispelled.
• The total unemployment rate, which was 5.7 percent in January, is likely to remain near this level throughout 1988. This
would produce the lowest average unemployment rate for any
year in the 1980s.
• The rate of inflation as measured by the Consumer Price
Index is expected to moderate slightly in 1988. The ample
supply of oil in world markets suggests that energy prices are
unlikely to increase very rapidly. Other import prices, however, should continue to outpace the overall index.
• Short- and long-term interest rates are expected to decline
further this year. The somewhat slower growth of economic
activity implies reduced private demand for credit. The lower
rate of inflation and continued Federal budget restraint
should help reduce the inflation premium in long-term interest rates.
For 1989, the administration forecasts a rebound in the rate of
growth of real GNP and continued progress toward lower inflation,
lower interest rates, and lower unemployment.
• In 1989, real GNP is forecast to increase 3.5 percent, about 1
percentage point faster than during 1988. With confidence
improving and the economy expanding, private sector spending on fixed investment, housing and consumption is anticipated to grow more rapidly than during 1988. At the same
time, the real net export deficit is expected to continue to
shrink significantly, reflecting increased competitiveness of




3b-7

THE ECONOMIC OUTLOOK

SHORT-RANGE ECONOMIC FORECAST
(Calendar years; dollar amounts in billions)
Item

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) *
Unemployment rate (percent, fourth quarter) 2
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: x
Level (1967=100), annual average
Percent change, year over year
Unemployment rates:
Total, annual average 2
Insured, annual average 3
Federal pay raises, January (percent):
Military
Civilian
Interest rate, 91-day Treasury bills (percent) 4
Interest rate, 10-year Treasury notes (percent)

Forecast

Actual
1986

1987

1989

4.5
2.2

7.2
3.8

6.4
2.4

7.3
3.5

2.2

3.3

3.9

3.7

0.9
6.7

4.6
5.8

4.3
5.8

3.9
5.5

4,235
5.6

4,486
5.9

4,779
6.5

5,113
7.0

3,713
2.9

3,820
2.9

3,932
2.9

4,054
3.1

3,534
2,089
232

3,746
2,213
275

3,978
2,344
310

4,245
2,502
353

114.1
2.6

117.5
3.0

121.5
3.5

126.1
3.8

323.4
1.6

335.0
3.6

349.3
4.3

363.5
4.1

6.9
2.8

6.1
2.4

5.8
2.2

5.6
2.1

6.0
7.7

3.0
3.0
5.8
8.4

2.0
2.0
5.3
8.0

4.3
2.0
5.2
7.4

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 2required by law, in calculating automatic cost-of-living increases for indexed Federal programs.
Percent of total labor force, including armed forces residing in the U.S.
Unemployment under State regular unemployment insurance as a percentage of covered employment under the program; does not include recipients of
extended
benefits under the program.
4
Average rate on new issues within period, on a bank discount basis.

American-made goods at home and abroad and continued
policy actions to stimulate increased demand abroad.
• The resumption of faster growth should put the unemployment rate back on a gradual downward path, following its
leveling off this year. By the end of 1989, the total unemployment rate is forecast to be 5.5 percent.
• As usually occurs when activity accelerates, productivity
growth is likely to increase next year, helping to moderate
the growth of unit labor costs and slow the rise in prices.




3b-8

THE BUDGET FOR FISCAL YEAR 1989

LONG-RANGE ECONOMIC ASSUMPTIONS
(Calendar years; dollar amounts in billions)
Item

Major economic indicators:
Gross national product, percent change, fourth quarter
over fourth quarter:
Current dollars
Constant (1982) dollars
6NP deflator (percent change, fourth quarter over
fourth quarter)
Consumer Price Index (percent change, fourth quarter
over fourth quarter) J
Unemployment rate (percent, fourth quarter) 2
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
Civilian
Interest rate, 91-day Treasury bills (percent) 4
Interest rate, 10-year Treasury notes (percent)

Assumptions
1990

1991

1992

1993

7.1
3.5

6.5
3.4

5.9
3.3

5.3
3.2

3.5

3.0

2.5

2.0

3.5
5.4

3.0
5.3

2.5
5.2

2.0
5.2

5,481
7.2

5,850
6.7

6,207
6.1

6,548
5.5

4,196
3.5

4,340
3.4

4,485
3.3

4,630
3.2

4,521
2,676
406

4,806
2,858
448

5,081
3,040
471

5,343
3,212
492

130.6
3.6

134.8
3.2

138.4
2.7

141.4
2.2

376.7
3.6

388.7
3.2

399.2
2.7

407.9
2.2

5.4
2.0

5.3
2.0

5.2
1.9

5.2
1.9

4.6
3.0
5.0
6.8

4.5
3.0
4.5
6.0

4.2
3.0
4.0
5.0

4.0
3.0
3.5
4.5

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 2required by law, in calculating automatic cost-of-living increases for indexed Federal programs.
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 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.

• The Consumer Price Index is projected to increase only 3.9
percent in 1989, down from 4.3 percent this year. Lower inflation will help reduce interest rates, especially long-term rates.
The Long-Term Assumptions: 1990-93.—The economic projections
beyond 1989 depend more on recommended public policies and
long-term trends than on considerations of business fluctuations.
The administration's budget assumptions are somewhat more optimistic than most private long-term forecasts in two important re-




THE ECONOMIC OUTLOOK

3b-9

spects: real GNP growth averages almost SV2 percent a year in
1990-1993, and inflation and interest rates decline each year, as
indicated by the tables.
The assumption about real growth has the largest effect on projected future deficits, and it has become a center of attention in
debates about the budget projections. In the long run, the Nation's
real output of goods and services is determined by the supply of
labor and capital inputs and the efficiency with which they are
used in production, i.e., productivity. When output per hour is used
as the measure of productivity, the rate of growth in total output
can be decomposed into the rate of growth in productivity plus the
rate of growth in total hours.
Output per hour, of course, is a partial measure that relates
output to just a single input—labor. Growth in output per hour,
however, depends upon increases in the amount of capital used per
hour of work, and upon a number of variables that affect productive efficiency, such as the reallocation of resources, changes in the
quality of labor, improvements in management, technological advances, and government regulation.
Changes in labor input depend on changes in the working age
population, labor force participation rates, unemployment and the
average workweek. The working-age population is projected to increase at an annual rate of about 1 percent a year over the next
several years, which is a considerable slowdown from the experiences of the 1970s and early 1980s, when the working age population grew rapidly as the very large baby-boom generation (those
born between 1946 and 1964) entered their working years. Continued increases in the labor force participation rate for women and
other demographic factors are projected to maintain growth of the
labor force close to 1V2 percent per year. The rate of employment
increase should be a little faster than that as the unemployment
rate is projected to edge down from the current rate of about 5%
percent to about 5V* percent by 1993.
Throughout much of the postwar period, growth of total labor
inputs has been dampened by a gradual decline in the average
workweek. So far in the current decade, that declining trend has
been partially arrested and, for the next several years, very little
further decline in the average workweek is projected—about 0.1
percent per year. Combining all these demographic forces, and
allowing for a continued shift in the composition of employment
toward the private sector, total work-hour inputs into the business
sector of the economy should rise about 1% percent per year,
which is close to its average rate of increase in the 1960s and 1970s.
Critical to the administration's relatively optimistic real GNP
growth forecast is the assumption that productivity will advance at
a yearly rate of nearly 2 percent over the next 5 years. To put this




3b-10

THE BUDGET FOR FISCAL YEAR 1989

projection in perspective, it is useful to examine productivity performance over an extended period of time.
Rate of Growth in Output Per Hour in the Private Economy Since 1918
Interval *
1918-1928
1928-1938
1938-1948
1948-1973
1973-1981
1981-1987
1918-1948
1948-1978

Yearly growth, %

2.0
1.2
3.1
2.9
0.7
1.6
2.1
2.2

1
These intervals are not strictly comparable from the standpoint of business cycle chronology. In the post-1948 period, the endpoints of the
intervals are business cycle peaks. In the pre-1948 period, this practice was not followed, but except for 1938-1948 each of the intervals covers
at least one complete cycle.

Productivity has averaged a little over 2 percent a year during
the past 70 years, with little significant change between the 19181948 and 1948-1987 periods. Periods of very slow productivity
growth, like the 1930s and the 1970s, have been followed by periods
with much more rapid rates of increase.
Much has been said about the dismal productivity record of the
1970s and its detrimental effects on output, real income, and the
overall standard of living. While it is difficult to pinpoint specific
causes, it is useful to describe the unfavorable economic environment of that period—rapid inflation, oil price shocks, proliferating
Government regulations, and the changing composition of the labor
force.
• Inflation slowed productivity by promoting inefficient resource allocation and by reducing the rate of return on capital through increasing effective tax rates (the tax on capital
increased because depreciation allowances are based on historical costs and were inadequate to cover the replacement
costs of capital in an inflationary environment). Inflation also
encouraged expectations that rising price levels would continue and that the passthrough of increases in costs would be
nearly automatic. In this setting, business had little incentive
to hold down costs, undertake innovations, or stress productivity improvement.
• The two oil price shocks of 1973-74 and 1978-79 depressed
productivity growth not only by contributing to inflation but
also through changes in relative costs. The higher marginal
cost of energy per unit of output and the relatively lower
marginal cost of labor may have induced business to use more
of the relatively cheap factor (labor) and to economize on the
use of the relatively expensive energy input. Substitution is
costly, and substitution in the short term is likely to be in-




THE ECONOMIC OUTLOOK

3b-ll

complete, so efficiency may have suffered during the 1970s as
a result. Furthermore, the high price of energy made a part
of the capital stock obsolete. If firms abandoned energy-intensive capital equipment, capital used per hour of work would
be reduced and productivity growth would be slowed.
• Increased regulation also may have resulted in the abandonment of some plant and equipment that is not captured by
conventional measures of capital stock. It also increased business investment in equipment designed to reduce pollution
and to increase safety. While these activities are desirable
from a general welfare point of view, they add nothing to
conventional measures of output, and are therefore not reflected in measured productivity.
• Shifts in the age composition of the work force were an additional factor in the productivity slowdown after 1973. The
proportion of the labor force between 16 and 24 years of age
increased. Partly because young workers move in and out of
the labor market frequently and partly because they have
little work experience, their skill levels tend to be lower than
average.
The economic environment has improved significantly during the
current decade. The rate of inflation has been sharply reduced. Oil
prices, have trended down and in 1986 they plummeted. This experience showed that falling prices could also have disruptive effects.
Although the benefits of lower energy prices were widespread,
some regions of the country were hurt by the decline, especially in
1986. Excessive and costly government regulation has been curbed.
Furthermore, stiff and growing competition from foreign suppliers
has forced domestic businesses to undertake extensive cost-cutting
and reorganization measures to improve efficiency. Although these
changes have yet to show their full effects, the results so far have
been encouraging. Growth in output per hour in the private economy accelerated from only 0.7 percent a year from 1973-81 to 1.6
percent over the past 6 years. The most dramatic turnaround occurred in the manufacturing sector, where the impact of foreign
competition has been particularly large. Manufacturing productivity has grown at an annual rate of 4.2 percent since 1981, about 3
times as fast as occurred from 1973 to 1981, and well above the 2.8
percent rate of increase for 1948-1973.
The pace of overall productivity advance should increase over the
next several years due to further moderation in inflation, more
stable oil prices, and continued breakthroughs in science and technology. This assessment, however, depends heavily on the assumption that proper policies will be followed.
Policies that promote sustained, noninflationary economic
growth and build confidence in that outlook are the key to the




3b-12

THE BUDGET FOR FISCAL YEAR 1989

productivity improvements outlined above. Preserving the incentives embodied in the lower marginal tax rates contained in the
Tax Reform Act of 1986 is a must if the economy is to achieve its
full economic potential and a more efficient allocation of resources.
The chief threat is excessive Federal spending and continued high
deficits that would crowd out private investment and retard capital
formation.
The budget assumes a declining rate of inflation and falling
interest rates. By the end of the forecast period, the rate of inflation is projected to be 2 percent a year and interest rates are
assumed to have fallen correspondingly. At that time real interest
rates, the margin between nominal interest rates and expected
inflation, are projected to return to their historical levels, about
2V2 percent for long-term rates. These assumptions hinge on the
ability of the Federal Reserve to follow a monetary policy that will
lead to further disinflation. If the policy measures reflected in this
budget are adhered to, the deficit will decline, and the Federal
Reserve will find this task to be more manageable. Failure to
uphold the Bipartisan Budget Agreement would endanger this
prospect.
Changes in Economic Assumptions and the Budget—The table
below shows changes in economic assumptions (on a calendar year
basis) since last year's budget. Changes in economic assumptions
reflect both adjustments for actual experience in late 1986 and
1987 and revisions to the outlook for subsequent years. The following table shows the impact of these changed assumptions on the
budget outlook for fiscal years 1988-1992.
Real growth in 1987 was stronger than projected in last year's
budget. However, the fourth quarter of 1986 was substantially
weaker than had been assumed. The GNP deflator in 1987 was
slightly lower than anticipated. The net effect of these differences
was a moderately lower level of nominal GNP, and a shortfall of
receipts of $9 billion in fiscal year 1988.
The projection for real growth during 1988-89 is substantially
lower in this year's budget, and even though inflation is projected
to be slightly higher, the overall shortfall in receipts is $13 billion
in fiscal year 1989 compared to last year's estimate. In the outyears, the real growth projection is little changed, while the inflation rate is moderately higher. Although nominal GNP remains
slightly below last year's projection in 1992, receipts are expected
to be somewhat higher. This reflects adjustments in the distribution of income components in GNP resulting in large part from the
July 1987 revisions to the National Income and Product Accounts.
Changes in economic assumptions account for higher outlays of
about $4.8 billion in fiscal years 1988-89, increasing to $19.1 billion
in fiscal year 1992. A higher interest rate projection accounts for




3b-13

THE ECONOMIC OUTLOOK

COMPARISON OF JANUARY 1987 AND CURRENT ECONOMIC ASSUMPTIONS
(Calendar years; dollar amounts in billions)

Nominal GNP:
1987 assumptions*
1988 assumptions
RealGNP (percent change):2
1987 assumptions*
1988 assumptions
GNP deflator (percent change):2
1987 assumptions*
1988 assumptions
Interest rate on 91-day Treasury bills (percent):
1987 assumptions
1988 assumptions
Unemployment rate (percent):
1987 assumptions
1988 assumptions
1
2

1986

1987

1988

1989

1990

1991

1992

4,246
4,235

4,520
4,486

4,844
4,779

5,196
5,113

5,557
5,481

5,914
5,850

6,252
6,207

2.7
2.2

3.2
3.8

3.7
2.4

3.6
3.5

3.6
3.5

3.5
3.4

3.3
3.3

2.8
2.2

3.6
3.3

3.5
3.9

3.5
3.7

3.0
3.5

2.7
3.0

2.0
2.5

6.0
6.0

5.4
5.8

5.6
5.3

5.3
5.2

4.7
5.0

4.2
4.5

3.6
4.0

6.9
6.9

6.7
6.1

6.3
5.8

6.0
5.6

5.8
5.4

5.6
5.3

5.5
5.2

Adjusted for July 1987 revisions.
Fourth quarter to fourth quarter.

most of the higher outlays in 1988. In the outyears, the slightly
higher inflation path in this year's budget, and the interest costs
due to higher borrowing, account for most of the rise in the outlays.
The total budget impact of changes in economic assumptions
results in a $13.9 billion higher deficit in fiscal year 1988, and adds
$17.8 billion to the fiscal year 1989 projection. In the outyears, the
effect on the deficit diminishes to only $6.2 billion in fiscal year
1992. Thus, the performance of the economy in 1986-87 and the
resulting changes in the economic assumptions have made the
near-term outlook somewhat worse than expected in last year's
budget but have little impact on the long run budget outlook.
Sensitivity of the Budget to Economic Assumptions.—Both receipts and outlays are significantly affected by changes in economic
conditions. This sensitivity seriously complicates budget planning
because the inevitable errors in economic forecasting lead to errors
in the budget forecast. The budgetary effects of changes in economic assumptions are fairly predictable, however, and a set of rules of
thumb can be used to estimate how much various changes in the
economic forecast would alter outlays, receipts, and the deficit.
Several observations can be made in conjunction with the sensitivity rules shown in the table. The economic variables that affect
the budget do not change independently of one another. Output
and employment move together in the short run; a higher rate of
real GNP growth tends to reduce the rate of unemployment, and
vice versa. In the long run, however, changes in the average rate of
growth in real GNP result primarily from changes in the rate of




3b-14

THE BUDGET FOR FISCAL YEAR 1989

EFFECTS ON THE BUDGET OF CHANGES IN ECONOMIC ASSUMPTIONS SINCE LAST YEAR
(Fiscal years; in billions of dollars)

1988

1989

1990

1991

1992

916.6
1,024.3

976.2
1,069.0

1,048.3
1,107.8

1,123.2
1.144.4

1,191.2
1.178.9

-107.8
Deficit ( - )
Budget totals under January 1987 economic assumptions and February 1988 policies:
918.3
1,051.1
Outlays..

-92.8

-59.5

-21.3

12.3

977.7
1,089.4

1,049.8
1,138.7

1,118.8
1,187.5

1,177.0
1,221.9

-132.8

-111.7

-88.9

-68.7

-44.9

-9.1

-13.0

-5.7

5.6

12.9

Budget totals, January 1987 budget:
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 February 1988 economic assumptions and February 1988 policies:
Receipts
Outlays
Deficit ( - ) . .

0.6
-2.6
6.3
0.5
4.8

1.9
-2.3
3.7
1.5
4.8

3.7
-1.8
5.2
2.5
9.6

6.0
-1.4
8.5
3.0
16.2

8.3
-1.5
9.1
3.2
19.1

13.9

17.8

15.3

10.6

6.2

909.2
1,055.9

964.7
1,094.2

1,044.1
1,148.3

1,124.4
1,203.7

1,189.9
1,241.0

-146.7

-129.5

-104.2

-79.3

-51.1

growth in productivity, and are not necessarily associated with
changes in the level of unemployment. Inflation and interest rates
are also closely interrelated: a higher rate of inflation generally
raises interest rates while lower inflation is associated with lower
rates. The relationships between nominal and real variables are
less regular; there is no necessary connection between changes in
the rate of inflation and the real rate of economic growth or the
unemployment rate. Finally, the effects on budget receipts and
outlays depend heavily on whether a change in either real GNP
growth or inflation is temporary or permanent.
These patterns are the basis for the combinations of changes
examined in the table. The unemployment rate is assumed to vary
by one-half percentage point for each one percentage point change
in real growth. Inflation and interest rates are assumed to vary
directly by equal percentage point changes; interest rates are
higher by one percentage point for each percentage point rise in
inflation. Other examples where only one variable changes are also
shown.
The first section illustrates the effects of changes in real variables on the deficit. If real GNP growth is lower by one percentage
point in fiscal year 1989, then 1989 receipts will be lower by $5.9




THE ECONOMIC OUTLOOK

3b-15

billion, and 1989 outlays will be higher by $1.8 billion, primarily
for unemployment-sensitive programs. In 1990, the receipts would
decline further, by $10.4 billion, and outlays would increase by $3.5
billion, compared to the base, even though the growth rate after
1989 followed the path originally assumed. The budget effects
would grow slightly in future years.
The effects are much larger if the growth rate is assumed to be
one percentage point less in each year. The levels of real and
nominal GNP then are below the base case by a cumulatively
growing percentage and the unemployment rate steadily rises, compared to the base. The deficit is $76.7 billion higher than originally
projected by 1993.
The effects of slower productivity growth are shown in the third
example. Real growth is one percentage point lower per year, while
the unemployment rate is unchanged. In this case also the budget
effects mount steadily over the years, but more slowly, reaching
$66.0 billion by 1993.
Changes in interest rates and inflation have a smaller impact on
the deficit, because they have effects on receipts and outlays which
are substantially offsetting. The first example shows the effect of a
one percent higher rate of inflation and one percentage point
higher interest rate during fiscal year 1989 only. In subsequent
years, the price level and nominal GNP are one percent higher
than in the base case, but interest rates return to their base levels.
Outlays for 1989 would rise by $7.8 billion and receipts by $6.6
billion, for a net increase of $1.2 billion in the 1989 deficit. In 1990,
outlays would increase further above the base, by $12.0 billion, due
in part to lagged cost-of-living adjustments, and the increase in
receipts would rise to $10.9 billion, for a net $1.1 billion increase in
the deficit. In subsequent years, the amounts added to receipts and
to outlays would remain close, and would continue to have roughly
offsetting effects on the deficit. Receipts would rise slightly and
outlays would decline.
If the rate of inflation and the level of interest rates are higher
by one percentage point in all years, then the price level and
nominal GNP rise by a cumulatively growing percentage above
their base levels. In this case the effects on receipts and outlays
mount steadily in successive years, adding $63.8 billion to outlays
and $56.7 billion to receipts in 1993. These estimates assume that
discretionary program levels and Federal pay are adjusted for the
rising price level to maintain real program levels. Under this assumption, receipts do not rise quite as fast as outlays; the net
impact is a $7.0 billion increase in the 1993 deficit.
The table also shows the interest rate and the inflation effects
separately, and rules of thumb for the added interest cost associat-




3b-16

THE BUDGET FOR FISCAL YEAR 1989

SENSITIVITY OF THE BUDGET TO ECONOMIC ASSUMPTIONS
(Fiscal years; in billions of dollars; current services basis)

1989

1990

1991

1992

1993

-5.9
1.8

-10.4
3.5

-11.4
4.4

-11.9
5.3

-12.5
5.9

7.7

13.9

15.8

17.2

18.4

-5.9
1.8

-16.4
5.4

-28.5
10.5

-41.3
15.8

-55.3
21.4

7.7

21.8

39.0

57.1

76.7

-6.0
0.3

-16.9
1.1

-29.7
2.8

-43.5
5.0

-58.7
7.3

6.3

18.0

32.5

48.5

66.0

6.6
7.8

10.9
12.0

11.7
11.0

12.3
10.2

13.0
10.0

1.2

1.1

-0.7

-2.1

-3.0

6.6
7.8

17.7
21.2

29.7
35.0

42.4
49.0

56.7
63.8

1.2

3.5

5.3

6.6

7.1

0.6
5.8

1.4
11.9

1.9
16.3

2.3
19.7

2.7
22.7

Deficit increase ( + )
Effects of a sustained 1 percentage point higher rate of
inflation during fiscal years 1989-93 (no interest rate
change):
Receipts
Outlays

5.2

10.5

14.4

17.4

20.0

6.0
2.0

16.3
9.3

27.8
18.7

40.1
29.3

54.0
41.1

Deficit increase ( + )
INTEREST COST OF HIGHER FEDERAL BORROWING
Effect of $100 billion additional borrowing in fiscal year 1989....
FEDERAL PAY RAISES
Outlay effect of a 1 percentage point increase in 1988

-4.0

-7.0

-9.1

-10.8

-12.9

3.5

7.3

7.5

7.4

7.1

1.2

1.3

1.3

1.4

1.4

REAL GROWTH AND EMPLOYMENT
Effects of 1 percent lower real GNP growth in fiscal year 1989
only, including higher unemployment:1
Receipts
Outlays
Deficit increase ( + )
Effects of a sustained 1 percent lower annual real GNP growth
rate during fiscal years 1989-1993, including higher unemployment: 1
Receipts
Outlays
Deficit increase ( + )
Effects of a sustained 1 percent lower annual real GNP growth
rate during fiscal years 1989-1993, with no change in
unemployment:
Receipts
Outlays
Deficit increase ( + )
INFLATION AND INTEREST RATES
Effects of 1 percentage point higher rate of inflation and
interest rates during fiscal year 1989 only:
Receipts
Outlays
Deficit increase ( + )
Effects of a sustained 1 percentage point higher rate of
inflation and interest rates during fiscal years 1989-93:
OutlaysDeficit increase ( + )
Effects of a sustained 1 percentage point higher interest rate
during fiscal years 1989-93 (no inflation change):
Outlays..

1

The unemployment rate is assumed to be V 2 percentage point higher per 1 percent shortfall in the level of real GNP.

ed with higher or lower deficits (increased or reduced borrowing),
and changes in Federal pay rates.




THE ECONOMIC OUTLOOK

3b-17

The effects of changes in economic assumptions in the opposite
direction are approximately symmetric. The impact of a 1 percentage point lower inflation or higher real growth would be of about
the same magnitude as shown, but with the opposite sign.
These rules of thumb ignore possible changes in the assumed
income share composition of GNP that would be likely to accompany 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 income shares. These relationships are too complex, however, to reduce to simple rules.







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 1988 and 1989,
and the legislative proposals and administrative actions affecting
them.1
SUMMARY

Total receipts in 1989 are estimated to be $964.7 billion, an
increase of $55.5 billion or 6.1 percent from the $909.2 billion
estimated for 1988. These estimates include the effects of:
• previously enacted tax legislation, including the Omnibus
Budget Reconciliation Act of 1987; and
• the receipts proposals in this budget.
As a share of GNP, receipts are projected to decline slightly from
19.3 percent in 1988 to 19.2 percent in 1989, primarily due to the
fact that 1989 is the first full fiscal year in which the two-bracket
individual income tax rate schedule is in effect.
Composition of Receipts—The Federal tax system relies predominantly on income and payroll taxes. In 1989:
• Income taxes paid by individuals and corporations are estimated at $412.4 billion and $117.7 billion, respectively. These
sources combined account for 55.0 percent of estimated receipts.
• 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 $354.6 billion, 36.8 percent of the total.
• Excise taxes imposed on selected products, services, and activities are expected to provide $35.2 billion, 3.6 percent of the
total.
• Estate and gift taxes, customs duties, and miscellaneous receipts are estimated at $44.8 billion, the remaining 4.6 percent of receipts.
1
Detailed estimates of receipts by source for 1988 and 1989 are shown in Tables 13 and 17 of Part 6g. The
economic assumptions on which the receipts estimates are based are presented in Part 3b, and estimates of
receipts for 1988-1993 are presented in Table 2 of Part 6g. Part 6d contains an analysis of the difference
between actual receipts for 1987 and the estimates for 1987 transmitted to the Congress in February 1986. Part
6e 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

RECEIPTS BY SOURCE
(In billions of dollars)
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
Total receipts
On-budget
Off-budget

1987 actual

1988
estimate

1989
estimate

1990
estimate

1991
estimate

392.6
83.9
303.3
(89.9)
(213.4)
32.5
7.5
15.1
19.3

393.4
105.6
331.5
(91.6)
(239.9)
35.3
7.6
16.4
19.4

412.4
117.7
354.6
(96.1)
(258.5)
35.2
7.8
17.2
19.8

448.9
129.3
382.5
(100.1)
(282.4)
36.1
8.0
18.3
20.9

490.5
140.6
410.0
(104.0)
(306.0)
34.7
8.2
19.2
21.3

854.1
(640.7)
(213.4)

909.2
(669.3)
(239.9)

964.7
(706.2)
(258.5)

1,044.1
(761.7)
(282.4)

1,124.4
(818.5)
(306.0)

Because of legislated tax changes, the composition of receipts in
1989 is estimated to be much different than in 1980. Although the
Federal tax system relied predominantly on income and payroll
taxes in 1980, as it will in 1989, the income tax share of total
receipts in 1989 is expected to be 4.7 percentage points less than in
1980, when income taxes comprised 59.7 percent of receipts. In
contrast, the social insurance taxes and contributions share of receipts in 1989 is estimated to be 6.2 percentage points higher than
in 1980. The share of all other receipts is expected to decline 1.5
percentage points, from 9.8 percent in 1980 to 8.3 percent in 1989.
ENACTED LEGISLATION

Several major tax laws—including one of the most sweeping
overhauls of the tax code in our nation's history—have been enacted since the administration took office in January 1981. These
legislated changes have improved the fairness and efficiency of the
tax system and broadened the income tax base by eliminating
unintended benefits and obsolete incentives, curbing tax shelter
abuse, limiting unwarranted tax benefits, and providing mechanisms to improve tax law enforcement and collection techniques.
They have also reduced individual and corporation income tax
rates and provided other incentives for work, saving, and investment.
For individuals, the sixteen individual income tax brackets and
tax rates of pre-1981 tax law—ranging from 14 percent to 70 percent—have been reduced to two tax brackets with rates of 15 and
28 percent.2 The zero bracket amount, which was $3,400 for a
2
The benefit of the 15 percent bracket is phased out for taxpayers with taxable income exceeding specified
levels, implicitly creating a marginal tax rate of 33 percent in the affected income range.




4-4

THE BUDGET FOR FISCAL YEAR 1989
NET EFFECT OF MAJOR ENACTED LEGISLATION ON RECEIPTS

1

(In billions of dollars)
1987

Economic Recovery Tax Act of 1981
-241.7
Tax Equity and Fiscal Responsibility
Act of 1982
56.9
Highway Revenue Act of 1982
4.7
Social Security Amendments of 1983....
12.1
Interest and Dividends Tax Compliance
Act of 1983
-1.7
Railroad Retirement Revenue Act of
1983
1.2
Deficit Reduction Act of 1984
22.0
Consolidated Omnibus Budget Reconciliation Act of 1985
2.7
Federal Employees' Retirement System
-0.1
Act of 1986
Omnibus Budget Reconciliation Act of
2.7
1986
Superfund Amendments and Reauthorization Act of 1986
0.4
Continuing Resolution for 1987
1.9
Tax Reform Act of 1986
21.5
Omnibus Budget Reconciliation Act of
1987 2
Continuing Resolution for 1988
Net tax reduction ( — )

-117.5

1988

1989

1990

1991

-260.8

-285.5

-315.7

-350.2

-546.2

57.3
4.9
24.6

55.8
5.1
31.0

57.4
5.1
23.9

61.6
5.1
23.9

113.1
10.0
55.6

-1.8

-2.0

-2.5

-2.8

-3.8

1988-89

1.2
25.3

1.1
27.7

1.1
31.0

1.1
34.0

2.3
53.0

2.9

3.0

3.0

3.2

5.9

-0.2

-0.2

-0.3

-0.4

-0.4

2.5

2.0

1.0

0.2

4.5

0.8
2.7
-4.5

0.8
2.6
-17.2

0.8
2.7
-13.5

0.8
2.8
-9.5

1.6
5.3
-21.8

9.1
2.4

14.3
3.1

16.2
3.3

15.6
3.4

23.3
5.5

-133.7

-158.4

186.3

-211.4

-292.1

-193.1
24.2

-224.8
26.8

-250.2
33.1

-278.3
41.0

-418.0
51.0

29.2
13.1
-7.8
0.2
0.5

36.0
11.7
-8.7
0.2
0.4

27.9
11.8
-9.3
*
0.4

25.8
9.4
-9.7
*

65.3
24.8
-16.5
0.3
0.9

ADDENDUM
Net effect on receipts by source:
Individual income taxes
-158.7
Corporation income taxes
19.7
Social insurance taxes and contributions
14.1
Excise taxes
14.1
Estate and gift taxes
-7.6
Customs duties
0.7
Miscellaneous receipts
0.2

0.3

*$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
These estimates reflect only the effect on budget receipts. The Act reclassified the ad valorem customs user fee as an offsetting collection,
rather than as a budget receipt, which reduces outlays by the following amounts: 1988, $0.1 billion; 1989, $0.1 billion; and 1990, $0.7 billion.

married couple filing a joint return and $2,300 for a single taxpayer or a head of household under pre-1981 tax law, has been replaced with a standard deduction of $5,000 for a married couple
filing a joint return, $3,000 for a single taxpayer, and $4,400 for a
head of household. The personal exemption has been increased
from $1,000 in 1980 to $1,900 in 1987 and to $1,950 in 1988, and will
be increased to $2,000 in 1989. In addition, the individual income
tax brackets and the standard deduction will be adjusted annually
for inflation beginning in 1989, and the personal exemption will be
adjusted beginning in 1990.
Corporate income, which was subject to tax under a 5-bracket
rate schedule with rates ranging from 17 to 46 percent under pre-




FEDERAL RECEIPTS BY SOURCE

4-5

1981 tax law, is now subject to tax under a 3-bracket rate schedule
with rates of 15, 25, and 34 percent.
Other legislated changes affecting receipts have restructured
highway-related taxes to increase tax compliance and to make the
taxes paid by various highway users correspond more equitably to
the wear and tear that they cause to the highway system, restored
the solvency of the social security trust funds, placed the railroad
industry pension program on a sounder financial basis, established
the Federal Employees' Retirement System (FERS), reauthorized
the Superfund toxic waste cleanup program, and established a fund
to finance the cleanup of wastes from leaking underground petroleum storage tanks.
As a result of these legislated changes, taxes have been reduced,
on net, by $133.7 billion in 1988 and $158.4 billion in 1989 relative
to what they would have been under pre-1981 tax law. Individuals
have benefited the most from these legislated changes, realizing
reductions in income taxes of $418.0 billion over the two years.
The provisions of the major laws enacted in 1987 affecting receipts—the Omnibus Budget Reconciliation Act of 1987 and the
Continuing Resolution for 1988—are described below.3
OMNIBUS BUDGET RECONCILIATION ACT OF 1987
In conformance with the Bipartisan Budget Agreement, this Act
meets the target of $23 billion in receipts increases over two years
without affecting the reductions in income tax rates or the increases in the personal exemption and the standard deduction provided in the Tax Reform Act of 1986. The major provisions of this
Act, highlighted below, primarily affect corporations and wealthy
individuals.
Extension of Telephone Excise Tax.—The 3 percent excise tax
imposed on amounts paid for local and toll telephone service, and
for teletypewriter exchange service, was extended through December 31, 1990. The tax had been scheduled to expire after December
31, 1987.
Extension of Temporary Federal Unemployment Tax Act (FUTA)
Tax.— The 6.2 percent gross FUTA tax rate consists of a permanent
component of 6.0 percent and a temporary component of 0.2 percent. The temporary component, which was scheduled to expire on
3
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. Part 4 of the 1988 Budget includes a detailed discussion of the Tax Reform Act of
1986, 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 Fiscal Year 1987.




4-6

THE BUDGET FOR FISCAL YEAR 1989

January 1, 1988, was extended for 3 years through December 31,
1990.
Extension of 55 Percent Estate and Gift Tax Rate.—Under prior
law, the maximum estate and gift tax rate was scheduled to decline
from 55 percent in 1987 to 50 percent in 1988. The reduction in the
maximum rate to 50 percent was deferred for 5 years until January 1, 1993.
Expansion of Employer Share of Social Security (OASDHI) Payroll Tax to Include All Cash Tips.—Under prior law, employees
were required to pay the employee portion of the OASDHI payroll
tax on the total amount of cash tips; the liability of their employers, however, generally was limited to the amount of tips considered to be wages under the Federal minimum wage law. Effective
January 1, 1988, employers must pay the OASDHI payroll tax on
the total amount of cash tips, up to the taxable wage base.
Extension of Social Security (OASDHI) Coverage to Certain Earnings.—Social security coverage was extended to the earnings of
inactive duty reservists, certain agricultural workers, children age
18-21 employed by their parents, and spouses employed by the
other spouse. In addition, the cost of employer-provided group term
life insurance must be included in wages for OASDHI tax purposes
if the cost is included in income for individual income tax purposes.
These changes became effective January 1, 1988.
Restrictions on Estate Tax Deduction for Sales to an Employee
Stock Ownership Plan (ESOP).—Because of an unintended loophole
in the Tax Reform Act of 1986, executors of estates were allowed to
sell stocks held by an estate to an ESOP and exclude one-half of
the proceeds from the estate tax. Effective with respect to sales of
securities to an ESOP after October 22, 1986, the deduction is not
available unless the decedent directly owned the securities before
death, and, after the sale, the securities are allocated to plan
participants or are held for future allocation. In addition, effective
with respect to sales after February 26, 1987, the deduction is
limited to sales of securities not publicly traded, may not exceed 50
percent of the taxable estate, and may not reduce estate taxes by
more than $750,000.
Increase in Contributions to the Rail Industry Pension Fund.—
The primary source of income to the rail industry pension fund is
payroll taxes levied on employers and their employees. In addition,
the Railroad Retirement Revenue Act of 1983 provided that up to
$877 million in income taxes from the taxation of rail industry
pensions received between January 1, 1984 and October 1, 1988 was
to be transferred to the rail industry pension fund. Effective Janu-




FEDERAL RECEIPTS BY SOURCE

4-7

ary 1, 1988, the employer contribution to the rail industry pension
fund was increased 1.35 percentage points to 16.1 percent; the
employee contribution was increased 0.65 percentage points to 4.9
percent. The limit on the amount of income taxes from the taxation of rail industry pensions that are diverted to the rail industry
pension fund was eliminated, and the transfer was extended to
apply to the taxation of benefits received prior to October 1, 1989.
This gives the rail pension fund an additional $390 million in
taxpayer subsidies.
Initiation of Internal Revenue Service (IRS) Fees.—The IRS is
required to charge a fee for each request for a letter ruling, determination letter, opinion letter, or other similar ruling or determination. The amount of the fee will vary with the type of request
and will apply to requests filed after January 31, 1988 and before
October 1, 1990.
Increase in Fees for Services Provided by the Bureau of Alcohol,
Tobacco, and Firearms (BATF).—Occupational taxes imposed on
the producers and manufacturers of alcohol, tobacco and firearms
products, and on the dealers in alcohol and firearms products, were
increased effective January 1, 1988.
Modification of Customs User Fee.—The ad valorem fee on imports of 0.22 percent of value in 1987, dropping to 0.17 percent in
1988 and expiring September 30, 1989, was extended through September 30, 1990. The Act also reclassified collections from the fee
as offsets to outlays, rather than as receipts, and, for imports with
U.S. components, exempted only the value of the U.S. component,
rather than the total value of the good, from the fee.
Limitation on Qualified Residence Interest Expense Deduction.—
Interest on debt to acquire or improve a principal or second residence is deductible to the extent the amount of debt does not
exceed $1 million. Interest on up to $100,000 in debt secured by a
lien on a principal or second residence is also deductible, irrespective of the purpose of the borrowing, provided the debt does not
exceed the fair market value of the residence(s). These changes
apply to mortgage debt incurred after October 13, 1987. Under
prior law, interest on debt secured by a principal or second residence was deductible to the extent the debt did not exceed the
purchase price of the property plus improvements, plus debt for
educational and medical expenses.
Repeal of Vacation Pay Reserve.—Under prior law, employers
were allowed to elect to deduct an amount for vacation pay earned
by employees before the close of the year and paid within 8V2
months after the close of the year. Effective for taxable years




4-8

THE BUDGET FOR FISCAL YEAR 1989

beginning after December 31, 1987, non-vested vacation pay may be
deducted only if it is paid during the year, and vested vacation pay
may be deducted only if it is paid within 2V2 months after the end
of the year.
Limitations on Completed Contract Method of Accounting,—
Under prior law, companies engaged in the production of property
under a long-term contract were required to compute income from
the contract under either the percentage of completion method or
the percentage of completion-capitalized cost method. Under the
percentage of completion-capitalized cost method, 40 percent of the
income from the contract was reported according to the percentage
of completion method, and 60 percent was reported according to
the taxpayer's normal method of accounting. Effective for longterm contracts entered into after October 13, 1987, 70 percent of
contract income must be reported according to the percentage of
completion method and 30 percent according to the taxpayer's
normal method of accounting.
Delay in Application of 2 Percent Floor to Mutual Fund Shareholder Expenses.—Effective January 1, 1987, miscellaneous expenses generally are deductible only to the extent that they exceed
2 percent of adjusted gross income. The application of this floor to
indirect deductions of publicly offered mutual funds was delayed
for one year until January 1, 1988.
Change in Collection of Excise Taxes on Diesel Fuel and Nongasoline Aviation Fuel.—Excise taxes on diesel fuel and nongasoline
aviation fuel will be imposed at the wholesale rather than the
retail level effective April 1, 1988. Excise taxes on special motor
fuels will continue to be imposed at the retail level.
Acceleration of Corporation Estimated Tax Payments.—A corporation that fails to pay an installment of estimated income tax on
or before the due date generally is subject to a penalty on the
amount of underpayment. Under prior law, the amount of underpayment was the difference between the payments made on or
before the due date of each installment and 90 percent of the total
tax shown on the return for the year, divided by the number of
installments that should have been made. However, no penalty was
imposed if total tax payments for the year equaled or exceeded
installments based on (1) the previous year's tax liability, if a
return showing a liability for tax was filed for the previous year;
(2) the tax computed by using the facts shown on the prior year's
return under the current year's tax rates; or (3) 90 percent of the
taxes that would have been due if certain income already received
during the current year had been annualized. Large corporations
(those having at least $1 million of taxable income in any of the




FEDERAL RECEIPTS BY SOURCE

4-9

three prior years) could not use exceptions (1) and (2). Effective for
taxable years beginning after December 31, 1987, the underpayment penalty will apply to the difference between payments made
by the due date of the installment and the lesser of an installment
based on (1) 90 percent of the taxes that would have been due if
certain income already received during the current year had been
annualized or (2) 100 percent of the tax shown on the previous
year's return. Exception (2) will not be available to large corporations except that such large corporations may base their first estimated tax payment for such year on that exception; in addition, in
determining whether a corporation's taxable income exceeds $1
million, net operating loss and capital loss carryforwards and carrybacks will be disregarded. Moreover, the safe harbor allowing the
use of the previous year's facts and the current year's tax rates
was repealed. Other technical changes were made to the estimated
tax rules, including a new requirement that taxpayers make up in
subsequent estimated tax payments any previous reduction in such
payments that occurred by using the annualization exception if the
annualization exception was not used by the taxpayer for subsequent periods.
Repeal of Installment Method of Accounting for Dealers.—A taxpayer who sells property generally must recognize gain or loss at
the time of the sale. However, under prior law, taxpayers were
eligible to use the installment method of reporting gain, which
allowed them to defer the payment of tax and recognize the gain as
the payments were received rather than upon sale. The proportionate disallowance rules generally applied to installment sales of
property. Under these rules a percentage of the deferred gain from
installment sales, based on the seller's debt to equity ratio, was
required to be included currently in income. The installment
method of accounting and the application of the proportionate
disallowance rules were repealed for dealer dispositions occurring
after December 31, 1987. In addition, the proportionate disallowance rules as applied to non-dealer installment sales of rental or
business real property exceeding $150,000 were repealed and replaced with other restrictions.
Denial of Graduated Corporation Income Tax Rates for Personal
Service Corporations.—Effective for taxable years beginning after
December 31, 1987, the taxable income of qualified personal service
corporations is taxed at the flat rate of 34 percent. These corporations perform services in the fields of health, law, engineering,
architecture, accounting, actuarial science, performing arts, or consulting. Substantially all of the stock of such corporations is owned
by employees, retired employees, or the estates of former employees.




4-10

THE BUDGET FOR FISCAL YEAR 1989

Capitalization of Past Service Pension Costs.—Contributions to a
pension or annuity plan for past service costs were deductible
under prior law. Effective for taxable years beginning after December 31, 1987, past service pension costs are subject to the uniform
capitalization rules.
Election of Taxable Year Other Than Required Taxable Year.—
Under prior law, partnerships, S corporations and personal service
corporations generally were required to conform their taxable
years to the taxable years of their owners. Effective for taxable
years beginning after December 31, 1986, partnerships, S corporations and personal service corporations may elect the use of a
taxable year other than the year they would otherwise be required
to use, if certain required procedures are followed. Under those
procedures, electing partnerships and S corporations are required
to make payments to the Federal Government that are intended to
represent the value of the tax deferral obtained by the owners of
those entities through the use by the entities of their particular
taxable year. In addition, under those procedures, electing personal
service corporations that fail to distribute certain amounts to employee-owners by December 31 of any taxable year may be required
to defer the taking of certain deductions for amounts paid to those
employee-owners.
Change in the Taxation of Partnerships.—The income and loss of
a partnership is subject to tax at the partner's level; in contrast,
corporations are subject to tax at the entity level and distributions
of stock are taxed at the shareholder level. Effective for taxable
years beginning after December 31, 1987, certain publicly traded
partnerships will be treated as corporations for Federal income tax
purposes. An exception is provided for certain partnerships, 90
percent or more of whose gross income is passive-type income.
Income from publicly traded partnerships that are classified as
corporations under this provision generally will be treated as dividend income, which is treated as portfolio income for purposes of
the passive loss rule. The Act also placed restrictions on the ability
of a partnership with both tax exempt and taxable partners to
make disproportionate allocations of income, gain, loss, and deductions among the partners to take advantage of the tax-exempt
status of certain partners.
Modification of Computation of Earnings and Profits for Purposes of Intercorporate Dividends and Stock Basis Adjustments.—
For the purposes of determining gain or loss on the disposition of a
subsidiary with which it filed a consolidated return, a parent corporation's basis in such stock is computed as if the subsidiary's earnings and profits had been computed (during the period of consolida-




FEDERAL RECEIPTS BY SOURCE

4-11

tion) without regard to special adjustments for depreciation and
certain other items. This provision applies to stock disposed of after
December 15, 1987.
Limitation on Dividends Received Deduction,—Under prior law,
corporations owning less than 80 percent of the stock of another
domestic corporation were entitled to a deduction equal to 80 percent of the dividends received. Effective for dividends received or
accrued after December 31, 1987, the dividends received deduction
is reduced to 70 percent of the amount of the dividend for corporations owning less than 20 percent of the voting stock of the distributing corporation. The 80 percent dividends received deduction is
maintained for corporations owning 20 percent or more (but less
than 80 percent) of the stock of the issuing corporation.
Reduction of Tax Avoidance in Certain Corporate Dispositions.—
Gains on liquidating distributions to a U.S. corporate shareholder
owning 80 percent or more of the stock in the liquidating corporation are tax free to both the distributing corporation and the
distributee. However, effective for distributions after December 15,
1987, the distributing corporation must recognize gain on such
distributions to a corporation within an affiliated group filing a
consolidated tax return, if such corporation meets the 80 percent
ownership test solely by reason of the consolidated return regulations. In addition, the nonrecognition of gain on the distribution of
stock of a controlled corporation may apply in the case of a corporate distributee-shareholder owning 80 percent or more of the stock
in the distributing corporation, only if the distributee corporation
has owned such stock for at least 5 years.
Taxation of "Greenmail" Gain.—A 50 percent non-deductible
excise tax is imposed on "greenmail" gain realized by corporate
raiders. Such gain is the amount paid by a corporation that was
the subject of an attempted takeover pursuant to a public tender
offer (or a threatened offer) in redemption of its stock held by the
raider for less than two years.
Distribution of Income by Mutual Funds.—In order to avoid a
penalty excise tax under prior law, regulated investment companies (mutual funds) were required to distribute 97 percent of their
ordinary income earned during a given calendar year and 90 percent of their capital gains net income earned during the 12 month
period ending on October 31 of the same year, by December 31 of
the following year. Effective January 1, 1987, mutual funds must
distribute 98 percent of their capital gains net income in order to
avoid the penalty.




4-12

THE BUDGET FOR FISCAL YEAR 1989

Modification of Pension Funding.—Subject to certain limitations,
an employer may make deductible contributions to a qualified
defined benefit pension plan up to the full funding limitation,
which is the amount of the plan's accrued liability for projected
benefits in excess of the plan's assets. However, if a defined benefit
plan is terminated, the employer's liability to plan participants
does not exceed the plan's termination liability, which is the liability for benefits determined as of the date of the plan termination.
Defined benefit plans also are required to meet minimum funding
standards for each plan year. This Act limited deductible contributions to defined benefit pension plans to the lesser of the existing
full funding limitation or 150 percent of the plan's termination
liability. In addition, this Act applied stricter minimum funding
standards (up to the plan's termination liability) to single-employer
defined benefit pension plans with more than 100 participants.
CONTINUING RESOLUTION FOR FISCAL YEAR 1988

Increase in Internal Revenue Service (IRS) Funding.—Funds were
provided to the IRS for additional examiners; additional staff to
handle appeals and litigation related to tax shelters; an automated
examination system; and a system to match information documents
supplied by third parties against taxpayer returns. These increases
in staffing and equipment will help IRS ensure the smooth implementation of tax reform, improve tax law enforcement, and reduce
the gap between taxes owed and taxes paid.




4-13

FEDERAL RECEIPTS BY SOURCE
EFFECT OF MAJOR LEGISLATION ENACTED IN 1987 ON RECEIPTS 1
(In billions of dollars)
1987
Omnibus Budget Reconciliation Act of 1987
Individual income taxes
Corporation income taxes
Social insurance taxes and contributions
Excise taxes
Estate and gift taxes
Miscellaneous receipts
Total, Omnibus Budget Reconciliation Act
of 1987 2
Continuing Resolution for 1988
Individual income taxes ....
Corporation income taxes
Total, Continuing Resolution for 1988
ADDENDUM
Total effect on receipts by source:
Individual income taxes
Corporation income taxes
Social insurance taxes and contributions
Excise taxes
Estate and gift taxes
Miscellaneous receipts
Total effect on receipts
Total effect on customs outlays
Total deficit reduction ( — )

1988

1989

1990

1991

-0.1
4.0
1.7
2.0
1.2
0.2

0.4
6.0
2.6
3.3
1.7
0.3

0.1
7.3
2.8
3.6
2.2
0.3

0.8
8.2
1.6
1.7
3.2
0.2

9.1

14.3

16.2

15.6

1.0
1.5

1.2
1.8

1.3
2.0

1.3
2.0

2.4

3.1

3.3

3.4

0.8
5.5
1.7
2.0
1.2
0.2

1.6
7.9
2.6
3.3
1.7
0.3

1.4
9.2
2.8
3.6
2.2
0.3

2.1
10.2
1.6
1.7
3.2
0.2

11.5

17.3

19.5

19.0

-0.1

-0.1

-0.7

-11.6

-17.4

20.2

-19.0

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
These estimates reflect only the effect on budget receipts. The Act reclassified the ad valorem customs user fee as an offsetting collection,
rather than as a budget receipt, which reduces outlays by the following amounts: 1988, $0.1 billion; 1989, $0.1 billion; and 1990, $0.7 billion.

RECEIPTS PROPOSALS
The receipts changes proposed in this budget are estimated to
increase receipts by $0.7 billion in 1989. However, because the
proposed reclassiflcation of the ad valorem customs user fee is
estimated to increase 1989 outlays by $0.7 billion, the combined
impact is estimated to be deficit neutral in 1989.
Extension of Medicare Hospital Insurance (HI) Coverage to All
State and Local Government Employees.—A minority of the State
and local government employees who were hired prior to April 1,
1986, may not be assured of medicare coverage. Moreover, because
of eligibility through their spouse or short periods of work in
covered employment, as many as three out of four State and local
employees 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 medicare
coverage, would eliminate this drain on the medicare trust fund.




4-14

THE BUDGET FOR FISCAL YEAR 1989

The change in coverage, proposed to be effective December 1, 1988,
is estimated to increase receipts $1.6 billion in 1989.
Revision in Research and Experimentation (R&E) Allocation
Rules,—For tax years beginning after July 31, 1987, companies
with foreign operations are allowed to allocate at least 30 percent
of total research and experimentation expenditures to their domestic operations. For the tax year prior to August 1, 1987, such
companies were allowed to allocate at least 50 percent of R&E
expenditures to domestic income. The administration proposes to
allow companies to allocate at least 67 percent of total R&E expenditures to domestic source income. This proposal is estimated to
reduce 1989 receipts by $0.6 billion.
Initiation of a Permanent Research and Experimentation (R&E)
Tax Credit—The tax credit provided for certain incremental research and experimentation expenditures is scheduled to expire on
December 31, 1988. To reduce taxpayers' uncertainty about the
availability of this incentive for research and experimentation, the
administration proposes to establish a permanent R&E tax credit.
This proposal is estimated to reduce 1989 receipts by $0.4 billion.
Exemption of Mutual Fund Shareholder Expenses From the Two
Percent Floor for Miscellaneous Deductions.—Effective January 1,
1987, miscellaneous expenses generally are deductible only to the
extent that they exceed two percent of adjusted gross income.
Because the expenses of publicly offered mutual funds would have
been subject to this floor, mutual fund shareholders would have
been required to include in taxable income amounts in excess of
actual payments from mutual funds. However, the Omnibus
Budget Reconciliation Act of 1987 delayed for one year, until January 1, 1988, the application of this floor to expenses of publicly
offered mutual funds. The administration proposes to permanently
exempt these expenses from the two percent floor. This proposal is
estimated to reduce 1989 receipts by $0.4 billion.
Increase in Nuclear Regulatory Commission (NRC) User Fees.—
Under current law, 45 percent of NRC's costs incurred in regulating nuclear power plants are recovered through user fees. The
administration proposes to increase these fees to a level sufficient
to recover 55 percent of NRC's costs effective October 1, 1988. This
proposal is estimated to increase receipts by $45 million in 1989.
Initiation of Federal Emergency Management Agency (FEMA)
User Fees.— Under current law, FEMA's costs incurred, as NRC's
agent in regulating the evacuation plans of nuclear power plants,
are not recovered through user fees. The administration proposes
to recover 55 percent of FEMA's costs through user fees, effective




FEDERAL RECEIPTS BY SOURCE

4-15

October 1, 1988. This proposal is estimated to increase receipts by
$4 million in 1989.

Modification of Customs User Fee.—Under the Omnibus Budget
Reconciliation Act of 1987, the ad valorem fee on imports (currently 0.17 percent of value), which would have expired on September
30, 1989, was extended through September 30, 1990. The Act also
reclassified collections from the fee as offsets to outlays, rather
than as receipts. For imported goods made with U.S. components,
the Act exempted only the value of the U.S. component, rather
than the total value of the good, from the fee. A ruling of the
General Agreement on Tariffs and Trade (GATT) requires correcting legislation to make the user fee consistent with GATT requirements. Legislation will be proposed to ensure that the ad valorem
fee structure represents the costs of processing individual entries
and that collections from the fee are reclassified as budget receipts.
In 1989, this proposal is estimated to increase receipts by $0.6
billion; however, it will also increase outlays by $0.7 billion, for a
net deficit increase of $0.1 billion.
Initiation of Higher Education Savings Bonds.—The costs of postsecondary education have increased substantially in recent years,
often faster than inflation. As a result, parents may have difficulty
bearing these costs unless they establish a savings program for this
purpose when their children are young. To encourage parents to
establish such savings programs, the administration proposes to
exclude from taxation the interest on certain savings bonds that
are redeemed to pay certain post-secondary educational expenses of
the taxpayer or the taxpayer's spouse, children, or other dependents. The exclusion would be phased-out for taxpayers with higher
annual adjusted gross income levels, and the phase-out income
levels would be adjusted annually for inflation beginning in 1990.
The exclusion would apply to bonds issued after December 31, 1988.
The amount of the interest eligible for the exclusion would be
limited to the total qualified educational expenses incurred. This
proposal is estimated to increase the 1989 deficit by $10 million.
Increase in the District of Columbia (D.C.) Employer Contributions to the Civil Service Retirement System (CSRS).—The D.C.
Government currently contributes 7 percent of wages and salaries
to CSRS; D.C. Government employees contribute an additional 7
percent. The cost of civil service retirement exceeds the combined
contribution of the D.C. Government and its employees. The administration will propose legislation requiring the D.C. Government to
begin making an annual cost-of-living adjustment payment to the
civil service retirement system to fully cover the cost of cost-ofliving adjustments for D.C. Government retirees and their survi-




4-16

THE BUDGET FOR FISCAL YEAR 1989

vors beginning in 1989. This proposal is estimated to increase 1989
receipts by $4 million.
Repeal of Windfall Profit Tax.—The windfall profit tax reduces
incentives for exploration and production of domestic oil, and imposes burdensome recordkeeping expenses on producers. Based
upon budgetary oil price assumptions made last year, repeal of this
tax would reduce receipts by less than $23 million in each year.
Using a more current forecast of oil prices, there would be no loss
in receipts from repeal of this tax.
Initiation of Branch Tax Credit—The Tax Reform Act of 1986
levied a tax on the earnings and profits of a U.S. branch of a
foreign corporation attributable to its income connected with a U.S.
trade or business. As a result, taxes are levied twice on U.S. source
income of U.S. shareholders of foreign corporations. The administration proposes to provide a tax credit to U.S. shareholders for
branch taxes paid by such foreign corporations. This proposal,
which would be effective for branch taxes incurred on income
earned after December 31, 1987, is estimated to reduce 1989 receipts by $30 million.
Modification of Oil and Gas Depletion Rules.—Independent oil
producers are limited in their use of depletion deductions by two
provisions: (1) "proven" properties transferred from integrated oil
companies to independent producers are ineligible for percentage
depletion, and (2) the deduction may not exceed 50 percent of the
owner's net income from the property. Because these restrictions
discourage the transfer of marginal wells to independent producers,
the administration proposes to remove the transfer rule restrictions and to raise the deduction limit to 100 percent of the property's net income, effective January 1, 1989. These changes are estimated to reduce 1989 receipts by $52 million.
Technical Corrections to Previous Legislation.—The administration supports prompt passage of technical corrections legislation to
the Tax Reform Act of 1986 and to the Omnibus Budget Reconciliation Act of 1987. Technical corrections are needed quickly to help
administer the tax laws as intended by Congress and to ease taxpayer uncertainty. These corrections would have no effect on receipts.
Elimination of Tax Differentials in Superfund Petroleum Tax.—
The superfund petroleum tax is imposed at a rate of 8.2 cents per
barrel of domestic crude oil and 11.7 cents per barrel of imported
petroleum products. This tax differential, if not changed, could
subject the United States to retaliation or possible compensatory
damage payments under the General Agreement on Tariffs and




FEDERAL RECEIPTS BY SOURCE

4-17

Trade (GATT). A revenue neutral change in the excise tax rates,
slightly increasing the rate on domestic crude oil and lowering to
an equal level the rate on imported petroleum products, would be
GATT-consistent and have no effect on receipts.
Repeal of Reduction in Aviation-Related Taxes.—The Airport
and Airway Safety and Capacity Expansion Act of 1987 extended
the airport and airway trust fund taxes, which had been scheduled
to expire on December 31, 1987, at their prior law rates. However,
the Act also provided that most of these taxes be reduced by 50
percent, beginning in calendar year 1990, if appropriations for the
programs funded by these taxes are less than 85 percent of authorizations. Under current budget projections, airport and airway trust
fund taxes would be reduced by $1.2 billion in 1990 in accordance
with this provision. The administration will propose to repeal this
reduction, resulting in increased receipts to the trust fund in 1990
of $1.2 billion.
Other.—Two other proposals will not affect receipts until 1990:
the initiation of Federal marine fishing license fees for commercial
and recreational fishing, and the administration's Federal pay
raise proposals.
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 only 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
estimated indirect or feedback effect on receipts due to the taxinduced change in incomes is already included in the baseline (pretax change) estimates of receipts.
For example, the estimates of the effect of the Economic Recovery Tax Act of 1981 (ERTA) shown in this budget represent only
the direct effect of the changes provided in the Act, based on the
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 therefore are included in the baseline estimates of receipts. The esti-




4-18

THE BUDGET FOR FISCAL YEAR 1989

EFFECT OF PROPOSED LEGISLATION AND ADMINISTRATIVE ACTION ON RECEIPTS '
(In billions of dollars)
1988

HI coverage of State and local employees
R&E allocation rules
R&E tax credit
Mutual fund exemption
NRC fees
FEMA fees.
Customs user fee 2 3
Education savings bonds
D C contributions to CSRS
Windfall profit tax 2 4
Branch tax credit
Oil and gas depletion rules
Aviation-related taxes 2
Other
Total effect on receipts

-0.4

1989

1990

1991

1.6
-0.6
-0.4
-0.4

2.1
-0.7
-0.8
-0.5

2.1
-0.7
-1.0
-0.6

3.6

0.5

*
0.5
-0.1

0.7
9
9

*

9*

9

-0.1

*

0.1
*
0.9
-0.6

1.6
-0.5

0.1

0.3

0.7

0.9

1.2

*
-0.4
*
0.7

-04
-1.1
1.6
*
0.6
*

-1.4
-1.6
2.0
1.2
0.5
0.1

-1.6
-1.9
2.0
2.1
0.5
0.1

Total effect on receipts

0.3

0.7

0.9

1.2

Total effect on customs outlays

0.7

0.7

0.7

0.8

Total deficit increase/reduction (—)

0.4

-0.2

-0.4

ADDENDUM
Effect of proposals on receipts by source:
Individual income taxes
Corporation income taxes
Social insurance taxes and contributions
Excise taxes
Customs duties
Other

*1 $50 million or less.
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.
23 Net of income tax offsets.
These estimates reflect only the effect of the proposal on budget receipts. The proposal increases customs outlays by the following amounts:
1988,
$0.7 billion; 1989 $0.7 billion; 1990, $0.7 billion; and 1991, $0.8 billion.
4
These estimates are based on the administration's budgetary oil price assumptions made last year. Using a more current forecast of oil
prices, there would be no loss in receipts from repeal of this tax.

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 provided 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.




4-19

FEDERAL RECEIPTS BY SOURCE

CHANGES IN RECEIPTS
Receipts are estimated to increase by $55.0 billion in 1988 and
$55.5 billion in 1989. These year-to-year changes can be divided
between changes due to 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 $71.6 billion in 1989. The combined effect of administrative
action and enacted and proposed tax law changes reduces the
growth in 1989 receipts by $16.1 billion.
COMPONENTS OF CHANGES IN RECEIPTS
(In billions of dollars)
1988

Growth in receipts:
Under existing law and administrative action and proposed legislation
Under tax rates and structure in effect January 1,1981
Difference




1989

1990

1991

55.5
71.6

79.4
82.4

80.3
87.4

-7.1 -16.1

-3.0

7.0

55.0
62.2

4-20

THE BUDGET FOR FISCAL YEAR 1989
CHANGES IN RECEIPTS
(In billions of dollars)
1987

1988

9331

995 3

1066 8

1149 2

1236 6

0.3

08

08

06

0.2

-241.7
Economic Recovery Tax Act of 1981
Tax Equity and Fiscal Respons bility Act of
56 9
1982
4.7
Highway Revenue Act of 1982
2
9.5
Social Security Amendments of 1983
Interest and Dividends Tax Compliance Act of
-1.7
1983
1.2
Railroad Retirement Revenue Act of 1983
22.0
Deficit Reduction Act of 1984
Consolidated Omnibus Budget Reconciliation
27
Act of 1985
Federal Employees' Retirement System Act of
-0.1
1986
2.0
Omnibus Budget Reconciliation Act of 1986 3 ..

-260 8

-285 5

-315 7

350 2

57 3

55 8

57 4

49

51

5.1

616
5.1

11.0

12.2

15.4

18.4

-18
1.2

-2.0

-2.5

-2.8

Receipts under tax rates and structure in
effect January 1 , 1 9 8 1 1
Administrative action
Enacted legislative changes:

Superfund Amendments and Reauthorization
Act of 1986 4
Continuing Resolution for 1987
Tax Reform Act of 1986

Omnibus Budget Reconciliation Act of 1 9 8 7 5
Continuing Resolution for 1988
Social security taxable earnings base increases: 6
$29,700 to $32,400 on Jan. 1,1982
$32,400 to $35,700 on Jan. 1,1983

$35,700 to $37,800 on Jan. 1, 1984
<137,800 to $39,600 on Jan. 1,1985
139,600 to $42,000 on Jan. 1,1986
<542,000 to $43,800 on Jan. 1,1987
;43,800 to $45,000 on Jan. 1,1988
<545.000 to $4fi 500 on Jan. 1 1QRQ
$46 500 to $48 900 on Jan 1 1990
$48 900 to $51600 on Jan 1 1991
Social security (OASDHI) tax rate increases: 6 7
13.3% to 13.4% effective Jan. 1,1982
13.4% to 14.0% effective Jan. 1,1984
14.0% to 14.1% effective Jan. 1,1985
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
Proposed legislation and administrative action..
Total, receipts under existing and proposed legislation and administrative
action 8

1989

1990

1991

1.1

25 3

1.1
111

1.1
310

34.0

29

30

30

32

-02
1.2

-0.2

-0.3

-0.4

2.0

1.0

0.2

0.4
19

0.8
27

0.8
26

0.8
27

0.8
2.8

21.5

-4.5

-17.2
14 3

-13.5
16 2

-9.5
15.6

3.1

3.3

3.4

7.7
7.8

8.7
8.9
4.8
3.8
4.3
2.9
1.8
2.1
12

91
24
5.9

5.8
3.0
2.3
2.8
0.7

6.7
6.7
3.5
2.8
3.1
2.1
0.5

4.1
3.3
3.7
2.4
1.5
07

9.8
10.1

5.4
4.4
5.1
3.4
2.1
2.5
3.7
1.4

1.7

1.8

1.9

2.0

2.1

12.3

13.2

13.9

14.6

15.3

2.3
4.2

2.5
4.5

2.6
4.7

2.8
5.0

2.9
5.3

10.6

15.5

16.5

17.5

9.2
3.0
1.2

1,124.4

0.7

35
0.3

4.0
0.7

55
3.3
0.9

854.1

909.2

964.7

1,044.1

1
These figures assume a social security taxable earnings base of $29,700 through 1991.
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 are shown
4
These estimates represent the net increase in receipts relative to receipts under
5

below.
the tax rates in effect January 1, 1981.
These estimates reflect only the effect on budget receipts. The Act reclassified the ad valorem customs user fee as an offsetting collection,
rather
than
as
a
budget
receipt,
which
reduces
outlays
by
the
following
amounts:
1988,
$0.1
billion;
1989, $0.1 billion; and 1990, $0.7 billion.
6
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. The 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

4-21

RECEIPTS BY SOURCE

Individual Income Taxes.—Individual income taxes are estimated
to increase by $19.0 billion or 4.8 percent from 1988 to 1989, largely
due to increases in incomes resulting from both real economic
growth and inflation. These estimates reflect the legislated reductions in individual income taxes provided since the administration
took office in January 1981, and the proposed changes included in
this budget. The administration's proposals are estimated to reduce
individual income taxes by $0.4 billion in 1989.
Corporation Income Taxes.—Corporation income taxes are estimated to increase from $105.6 billion in 1988 to $117.7 billion in
1989, in large part due to higher corporate profits. These estimates
reflect the changes in corporation income taxes provided in the Tax
Reform Act of 1986 and the Omnibus Budget Reconciliation Act of
1987, and other tax changes enacted since January 1981. They also
reflect the administration's proposals, which include a permanent
R&E tax credit and modification of the R&E allocation rules. Together, the administration's proposals are estimated to reduce corporation income taxes by $1.1 billion in 1989.
Social Insurance Taxes and Contributions.—This category includes social security and railroad retirement taxes, unemployment
insurance taxes and deposits, and other retirement contributions.
Receipts from this source are expected to increase from $331.5
billion in 1988 to $354.6 billion in 1989. These estimates reflect
annual increases in the social security taxable earnings base from
$45,000 in 1988 to an estimated $46,500 in 1989. The estimates also
reflect the following changes provided in the Omnibus Budget Reconciliation Act of 1987: extension of OASDHI coverage to certain
earnings and to the employer share of cash tips, increases in contributions to the rail industry pension fund, and extension of the
temporary 0.2 percent FUTA tax through December 31, 1990. The
administration's proposal to extend medicare coverage to State and
local Government employees is estimated to increase this source of
receipts by $1.6 billion in 1989.
Excise Taxes.—Excise taxes are levied on a variety of products,
services, and activities. Receipts from these taxes are estimated to
decrease from $35.3 billion in 1988 to $35.2 billion in 1989. These
estimates reflect the extension of the 3 percent telephone excise
tax through December 31, 1990 (the tax had been scheduled to
expire after December 31, 1987), and the collection of excise taxes
on diesel fuel and nongasoline aviation fuel at the wholesale rather
than the retail level effective April 1, 1988. These changes were
provided in the Omnibus Budget Reconciliation Act of 1987.




4-22

THE BUDGET FOR FISCAL YEAR 1989

Other Receipts.—Estate and gift taxes, customs duties, and miscellaneous receipts (almost all of which are deposits of earnings by
the Federal Reserve System) are estimated to total $43.3 billion in
1988 and $44.8 billion in 1989. These estimates reflect the extension
of the 55 percent maximum estate and gift tax rate through December 31, 1992, restrictions on the estate tax deduction for sales
to an ESOP, and the proposed modification and reclassification of
the ad valorem customs user fee as a budget receipt.
PROPRIETARY RECEIPTS

In addition to receipts, the Government receives significant proprietary income from the public. This income is derived from various market-oriented activities and takes the form of interest, rents,
royalties, and the sale of Government property, products, and services. 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 offsetting collections from the public are discussed in Part 6e; they are
divided between collections offset in expenditure accounts and proprietary receipts from the public. Proprietary receipts from the
public are shown in Table 14 of Part 6g.

Receipts
$ Billions
1,200

$ Billions
1,200

1.000Total >

800Social Insurance
Taxes and
Contributions

Excise Taxes and
Other Receipts

600-

400-

200-

1979 80
Fiscal Years




81 82

83

84

85

86

87

88

89

90

Estimate

91

PART 5

FEDERAL
PROGRAMS BY FUNCTION




5-1

INTRODUCTION
National Needs and the Functional Classification.—This section
discusses budget authority, outlays, and related measures of Federal spending, focusing on the end purposes served by the spending.
The presentation is organized in terms of national needs as defined
by the functional structure.
The Part 5 structure includes 19 functions and two additional
categories—allowances and undistributed offsetting receipts—that
are not functions but are needed to encompass the entire budget.
Each function is further divided into subfunctions, which consist of
more homogeneous groupings of programs. Federal spending is
classified in the functional structure according to the primary purpose of the activity; to the extent feasible this classification is made
without regard to agency or organizational distinctions. Classifying
each activity solely in the function that defines its most important
purpose—even though many activities serve more than one purpose—permits adding the budget authority and outlays for each
function to obtain the budget totals.
The function-subfunction-program hierarchy is used in the tables
of budget authority and outlays and the text presented for each
function. The text begins with a statement of national needs served
by programs in the function. This is followed by a paragraph or
two that describes the function and summarizes the major proposals. The President's proposals for individual programs are then
described in greater detail.
Changes in the Functional Structure.—While it is obviously desirable to maintain stability in the functional classification from
budget to budget so that budget users will not have to learn a new
system each year, absolute stability is impossible. Changing conditions frequently require modifications. When such changes are
made, the historical data base is usually revised to conform to the
new functional structure so that budget users can compare program trends over time without discontinuities caused by changes in
classification or accounting conventions.
Two major function changes have been made for this budget.
First, the general purpose and fiscal assistance function has been
abolished as a major function; all activities formerly included in
this function have been transferred to the general government
function, where they appear as a separate subfunction. This change




5-2

INTRODUCTION

5-3

was made because the general revenue sharing program, which
constituted the bulk of the former major function, was ended by
Congress, and the remaining general purpose fiscal assistance activities are not significantly large to warrant being a separate
major factor.
The second major function change is being made in conjunction
with the administration's proposed reform for budgeting for Federal credit activities. Under current practice, the budget fails to
distinguish between the bona fide loan component and the subsidy
provided when the Federal Government makes a direct loan or
guarantees a loan. The administration proposes to separate the
subsidy from the non-subsidy portion of Federal credit activities.
The budget authority and outlays for the subsidy portion will be
shown in the present functional locations of the credit programs,
while a new major function entitled "central Federal credit activities" will record the non-subsidy elements of these credit programs.
Since the reform is proposed to begin in 1989, there is an inevitable
discontinuity in the credit historical data by function and the data
for the years after the new system is in place. The administration's
credit reform proposal is discussed in greater detail in Part 6b and
in Special Analysis F, "Federal Credit Programs."
One additional change, which is not a functional reclassification
but does affect the totals for several functions, is the reclassification of the Federal retirement thrift savings fund from being an
on-budget trust fund to a non-budgetary status. The reasons for
this reclassification are discussed in Part 6e. Since this program
began in 1987, this reclassification has no impact on the data for
earlier years. The following functions are affected by this reclassification:
• The income security function no longer includes the thrift
fund operations, employee contributions to their thrift accounts, and refunds or withdrawals of contributions.
• The net interest function no longer includes the interest received by the trust fund; instead it now includes only the
interest paid to the fund, which is now classified as payments
to the public.
• Collections of Federal employing agencies' contributions to
the fund are no longer deducted as undistributed offsetting
receipts.
• The cost and financing of thrift fund operations now appears
in the general government function.
Credit Budget—While budget authority and outlays are important measures of resources allocated to Federal programs, they do
not cover all Federal activities. Federal credit activity may also
take the form of direct loans or loan guarantees, which do not
always become budget authority or outlays. For example, Federal




5-4

THE BUDGET FOR FISCAL YEAR 1989

loan guarantees generally require no outlays unless the borrower
defaults. To monitor and control Federal credit activities, a subsidiary credit budget measures and provides a mechanism for controlling all loan guarantee 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 6g of this volume. The credit
budget, and the administration's credit reform proposal, are explained in Part 6b of this volume and in Special Analysis F, "Federal Credit Programs."
Tax Expenditures.—Tax expenditures are provisions of the
income tax laws that provide special benefits in comparison with
what would be permitted under the general provisions of the Internal Revenue Code. They arise from special exclusions, exemptions,
or deductions from gross income, or from special credits, preferential tax rates, or deferrals of tax liability. In many cases tax
expenditures can be viewed as alternatives to other means by
which the Federal Government can carry out policy objectives,
such as direct outlays, loan guarantees, regulations, or other tax
law provisions.
Tax expenditures are discussed in the functional presentation
that follows so that they may be compared with outlays and loan
guarantees that serve similar purposes. To aid in this comparison
all tax expenditures estimates in Part 5 are shown as outlay
equivalents, that is, the amount of outlays that would be required
to provide the same level of after-tax benefits if direct spending
programs were substituted for the tax expenditure. The definition
and measurement of tax expenditures are discussed in Part 6d of
this volume and in Special Analysis G, "Tax Expenditures/7
Relationship to Other Budget Tables.—The following tables
appear in other parts of the budget and supplement the tables
shown in Part 5:
• Outlays by function and subfunction for 1979 through 1989, in
Table 18 of Part 6g.
• Budget authority and outlays by function for 1987 through
1993, in Tables 8 and 3, respectively, of Part 6g.
• Budget authority and outlays for 1987 through 1989 for each
agency and account, in Part 6f. 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 1989




NATIONAL DEFENSE

5-5

NATIONAL DEFENSE
The objectives of the national defense program are to protect the
United States and its allies from foreign aggression and to maintain sufficient military strength to deter both nuclear and conventional war. Should armed conflict nonetheless occur, we must be
prepared to defend ourselves successfully, while limiting the scope
and intensity of the conflict.
Carrying out these objectives requires a full range of defense
capabilities. These include survivable and flexible capabilities for
nuclear deterrence; maritime superiority; strong air and ground
forces forward deployed in Europe and other critical areas; and the
means to deploy reinforcements rapidly from the United States and
to sustain our military forces anywhere in the world.
The budget proposals for budget authority and outlays are consistent with the Bipartisan Budget Agreement for 1988 and 1989.
These levels are significantly below the biennial budget request
submitted last year for 1988 and 1989 ($20 billion and $33 billion,
respectively). After 1989, budget authority is projected to increase
by about 2 percent a year in real terms. Compared to last year's
estimate, total 1988-1992 funding for national defense is reduced
by $177 billion.
The budget proposes $299.5 billion in budget authority and estimates $294.0 billion in outlays for the national defense function in
1989. The defense program has been extensively revised to accommodate these reduced budget levels. Although our national defense
objectives remain unchanged, the rebuilding of our national security capabilities will proceed at a slower pace. Some programs will be
cancelled, while others are being deferred. This will result in smaller annual procurements of equipment, ammunition and war reserve stocks than previously planned, and slower development of
new systems. Combat readiness will be preserved, but some delays
in equipment maintenance will be unavoidable.
To address the requirements resulting from the recent INF
Treaty with the Soviet Union, the Department of Defense will
reprogram, within available funds, the amount necessary for inspection and verification required by the treaty.
The accompanying table shows budget authority and outlays for
the three national defense subfunctions: military functions of the
Department of Defense, atomic energy defense activities, and defense-related activities of other agencies.
Department of Defense—Military.—Budget authority of $290.8

billion is requested for the military functions of the Department of
Defense in 1989. This budget level will provide for continuing efforts to:




5-6

THE BUDGET FOR FISCAL YEAR 1989
NATIONAL DEFENSE
(Functional code 050; in millions of dollars)
Major missions and programs

actual
1987

Estimate
1988

1989

1990

1991

76,145
80,684
81,027
36,695
5,354
3,149
854
-750

78,399
85,649
80,037
38,157
5,743
3,272
788
-766

80,144
89,176
85,259
40,022
6,022
3,435
976
-785
833
2,461

80,725
92,803
91,069
42,047
6,307
3,607
1,031
-795
1,962
5,838

-310
-185

-310
54

-310
54

BUDGET AUTHORITY
Department of Defense—Military:
Military personnel
Operation and maintenance
Procurement
Research, development, test and evaluation...
Military construction
Family housing
Revolving tunas and other
Offsetting receipts
Allowances: Civilian pay raises
Allowances: Military pay raises and benefits.
Allowances: Savings from reform of DavisBacon and Service Contract Acts:
Proposed legislation
Allowances: Other legislation (proposed)
Subtotal, Department of DefenseMilitary
Atomic energy defense activities..
Defense-related activities
Total, budget authority

74,010
79,607
80,234
35,644
5,093
3,075
2,647
-841

279,469

283,159

290,784

307,287

324,338

7,478

7,749

1,100

8,380

8,630

480

508

645

733

732

287,427

291,416

299,529

316,400

333,700

72,020
76,205
80,744
33,596
5,853
2,908

75,453
80,433
79,166
33,127
5,418
3,022

77,827
82,725
79,820
36,295
5,668
3,229

79,512
86,667
80,578
38,212
5,917
3,425

80,182
90,734
82,495
40,325
6,241
3,502

3,481

1,405

950

1,014

-841

-750

906
-40
-766

-785
819
2,312

-795
1,943
5,634

-196
33

-268
-34

-288
-10

OUTLAYS
Department of Defense—Military:
Military personnel
Operation and maintenance
Procurement
Research, development, test and evaluation...
Military construction
Family housing
Revolving funds and other:
Existing law
Proposed legislation
Offsetting receipts
Allowances: Civilian pay raises
Allowances: Military pay raises and benefits.
Allowances: Savings from reform of DavisBacon and Service Contract Acts:
Proposed legislation
Allowances: Other legislation (proposed)
Subtotal, Department of DefenseMilitary

Atomic energy defense activities..
Defense-related activities
Total, outlays..

273,966

277,275

285,500

297,305

310,977

7,451
582

7,631
517

7,945
575

8,246
649

8,513
710

285,423

294,020

306,200

320,200

281,999

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 for the essential
modernization of U.S. conventional forces;




NATIONAL DEFENSE

5-7

• maintain the readiness and improve the combat sustainability
of conventional forces;
• develop sufficient sealift and airlift capacity to ensure that
U.S. forces can be rapidly deployed overseas in order to protect our critical interests, support our allies, and allow continued access to essential resources; and
• strengthen alliances and coalitions to protect U.S. interests
worldwide and, in particular, to achieve NATO objectives.
The budget constraints imposed by the Bipartisan Budget Agreement require a reduction in military personnel levels from the
2,172,400 authorized by the Congress for 1988 and 1989 to a new
level of 2,138,300. Air Force reductions are the largest. Its proposed
level is 575,600, which is 23,100 below the authorized level. The
Army proposed level is 772,300, which is 8,600 below the authorized
level.
Budget authority requested for the Department of Defense—Military is estimated 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 deterrence and achieving meaningful arms control agreements. Maintaining a modern triad of strategic forces remains our highest
defense priority. Nevertheless, some adjustments to individual strategic programs have been made as part of the administration's
efforts to adapt to the reduced defense budget levels agreed to in
the Bipartisan Budget Agreement.
Our bomber forces are being modernized by acquiring the advanced technology (stealth) bomber and the advanced cruise missile, while formation of operational B-l bomber wings continues
following delivery of the one-hundredth production aircraft in 1988.
Continued procurement of the Peacekeeper intercontinental ballistic missile (ICBM) is proposed, to provide for operational and reliability testing. To continue the modernization of our submarinebased forces, the budget provides for procurement of one new Trident ballistic missile submarine per year, and procurement of the
new Trident II missile. Finally, the budget also supports improvements to our strategic command and control systems, as well as to
our early warning and strategic defense capabilities. These programs for strategic forces are essential to ensure that our deterrent
remains strong in the near term and through the 1990's.
General Purpose Forces.—U.S. forces must be able to respond
effectively to all levels of potential conflict—up to and including a
war between NATO and the Warsaw Pact—while retaining the
flexibility to meet other threats. The budget provides support for
18 active-duty Army divisions, 3 Marine divisions, 3 Marine and 13
Navy active-duty tactical airwings, the equivalent of nearly 25




5-8

THE BUDGET FOR FISCAL YEAR 1989

MISSION CATEGORIES: DEFENSE, MILITARY
(Functional code 051; in billions of dollars)
Major missions and programs

Strategic forces 2
General purpose forces
Intelligence and communications
Airlift and sealift
Guard and reserve
Research and development3
Central supply and maintenance
Training, medical, and other general personnel activities..
Administration and associated activities
Support of other nations
Special operations forces
Total, budget authority..
1
2
3

1987
actual

Estimate
1988

1989

21.1
114.9
27.7
7.1
15.7
27.5
22.7
35.5
6.6
0.7

21.0
110.7
28.0
5.6
16.2
32.5
24.1
35.9
5.8
0.8
2.6

23.4
114.1
28.1
5.9
16.6
32.6
24.1
36.6
6.0
0.8
2.6

279.5

283.2

290.8

Preliminary data; subject to revision.
Excludes strategic systems development included in the research and development category.
Excludes research and development in other program areas on systems approved for production.

active-duty wings of Air Force tactical aircraft, and a 580-ship
Navy (including strategic missile submarines and support ships).
Army General Purpose Forces.—The budget provides for new

weapons to improve the firepower, mobility, and survivability of
Army forces, and supports the maintenance and training of these
forces.
In the 1989 budget program, the Army would procure 545 M-l
Abrams tanks and 581 Bradley fighting vehicles. Last year's biennial budget for 1988 and 1989 provided for the procurement of 534
Abrams tanks and 618 Bradley fighting vehicles in 1989.
The Army's plans for modernizing its helicopter forces have been
significantly revised. Last year's budget was based on a plan to
cease production of the AH-64 Apache attack helicopter after 1988
and to develop a new multipurpose helicopter, the LHX or light
helicopter experimental, that would be used for both attack and
utility missions. The plan assumed procurement of more than 4,000
multipurpose LHX's over a 10-year period starting in 1993. This
year's revised program would continue procurement of Apaches at
a rate of 72 a year, and the new LHX would be designed for the
light attack mission. About 2,000 LHX helicopters are to be procured beginning in the late 1990's. This year's budget also includes
funds to procure 72 Blackhawk utility helicopters, as proposed last
year.
The budget continues procurement of air defense missile systems
such as the short-range Stinger and Chaparral missiles and the
longer-range Patriot area defense system. Initial procurement of a
new forward area air defense system to provide short-range air




NATIONAL DEFENSE

5-9

defense for mechanized infantry and armored divisions is planned
for 1989.
The 1989 budget will support the Army's 18 active and 10 reserve
divisions. The personnel strength of two active divisions, however,
will be below the levels projected last year. Also, about 450 utility
helicopters and their support personnel will be eliminated from the
Army force structure.
Navy General Purpose Forces.—In peacetime, Navy forces provide
a tangible demonstration of U.S. regional commitments. In wartime, Navy forces are essential to control the sea lines of communication over which U.S. reinforcements and resupply would travel to
battle theaters. Naval forces also must be able to conduct offensive
operations, if necessary, against Soviet naval forces and facilities.
Under the budget proposal, the Navy's deployable battle force
ships (including strategic missile submarines and support ships)
would increase from 570 ships in 1988, to 580 ships in 1989. This
compares to 605 ships in 1989 that were anticipated before the
budget revision. To keep future forces strong, the Navy's shipbuilding plan for 1989 includes 3 guided missile destroyers, 3 attack
submarines (including initial procurement of the SSN-21 Seawolf),
1 amphibious ship, 7 support ships, and 2 minesweepers.
Active naval aviation forces will consist of 16 tactical airwings
(13 Navy and 3 Marine Corps), 24 land-based patrol squadrons, and
various support aircraft. The Navy's 14th active-duty tactical airwing will be deactivated. To maintain and modernize these forces,
the budget provides for continued procurement of F-14, F/A-18,
and AV-8B aircraft for tactical air wings, as well as SH-60B
LAMPS III ship-based and SH-60F carrier-based helicopters for
anti-submarine warfare. Budget limitations require cancellation of
the new A-6F aircraft in favor of converting existing A-6 aircraft
to anew and more capable configuration. A competitive procurement for an updated P-3 long-range patrol aircraft will be delayed
until the early 1990s.
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 1988-1989,
roughly double that of their Warsaw Pact counterparts.
Air Force General Purpose Forces.—The Air Force's tactical

forces include fighter, attack, and support aircraft to gain air superiority and to conduct attacks against enemy ground forces and
interdiction targets. Aircraft inventories will be maintained at a
level that will support nearly 25 fully equipped active wings. Fighter and attack units of the active Air Force, the Air National
Guard, and the Air Force Reserve together provide the equivalent
of 38 fully equipped wings in 1988. Total wing equivalents will be
reduced to 35 in 1990.




5-10

THE BUDGET FOR FISCAL YEAR 1989

To continue modernization in 1989, the Air Force plans to procure 36 F-15E aircraft, six fewer than originally planned for 1989,
and 180 F-16 multi-mission fighters.
Improvements in readiness and combat sustainability will also be
made at a slower rate than previously planned. Spare parts will be
purchased mainly for peacetime flying, with fewer additions to
wartime stocks. Aircrew flying hours will be increased over the
1988 level, reflecting support for activities that are first in priority
in maintaining high levels of readiness. To enhance air-to-air
combat capability and sustainability, the budget provides for procurement of nearly 1,500 advanced medium range air-to-air missiles for the Air Force, compared to 1,750 that were projected last
year to be procured in 1989.
Intelligence and Communications.—To employ our weapon systems 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 communications 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 management; theater and tactical force management; world-wide information and communication systems; electronic warfare; and intelligence.
Airlift and Sealift Forces.—Our strategy of a forward defense
with a limited peacetime presence depends on being able to project
military forces 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, and continuing efforts to improve existing airlift aircraft
through modifications. Sealift capabilities will be strengthened by
the continued procurement of equipment to make civilian container ships more useful for military purposes.
Stockpiling equipment and materials near potential trouble spots
greatly aids the deployment of forces to distant areas. The Army
has stockpiled in Europe heavy equipment for four divisions and
supporting units, but the acquisition of equipment for two more
divisions has been slowed. Equipment to support the rapid deployment of tactical fighter squadrons is also being stockpiled in
Europe.
National Guard and Reserves.—The Guard and Reserves are an
integral part of our national defense, and this budget reflects their
importance. Total Selected Reserve strength for 1989 will be




NATIONAL DEFENSE

5-11

1,172,900, of which 1,101,300 will be paid drill strength and 71,600
will be full-time support personnel. Measures will be adopted to
improve readiness and increase unit strength levels, improve training, and modernize equipment. Particular attention will be placed
on strengthening combat support and combat service support units
in the Army Guard and Reserve. The Guard and Reserves will
continue receiving modern weapon systems and equipment such as
C-130H and F-16 aircraft, UH-60A helicopters, and M-l tanks.
The Sixth Quadrennial Review of Military Compensation, focused
on Reserve compensation, will make its report this spring in time
for consideration in developing the 1990 budget.
Research and Development—This category includes funds for all
research and development except improvements to systems that
are already operational. Weapon systems are developed, tested and
evaluated to meet new military requirements. At the same time, a
strong research and technology base allows continued investigation
into promising new technologies and guards against technological
surprise by potential adversaries. As a result of budget reductions,
some programs have been cancelled and others delayed. However,
the strength of our technology base is being maintained.
Major strategic force development programs include the Trident
II submarine-launched missile, the B-2 advanced technology
(stealth) bomber, and the advanced cruise missile. The budget requests $4.6 billion for the Strategic Defense Initiative (SDI). This is
an increase of $1.1 billion from the level provided by the Congress
for 1988, but $1.7 billion less than the 1989 level planned in last
year's budget. Additional SDI funding of $0.4 billion is provided in
the Department of Energy budget. The budget continues development of a rail garrison basing mode for the Peacekeeper ICBM.
Funding requested for the development of the small ICBM has
been reduced substantially from the 1988 level, pending further
review of the program.
For general purpose forces, development continues on the joint
service tilt-rotor aircraft and new fighter and attack aircraft for
the Air Force and the Navy. Major efforts on anti-submarine warfare are funded. The Army continues development of advanced
anti-tank weapon systems, cannon-fired precision munitions, and
ground-based missile and control systems to fulfill its air defense
mission.
Training, Medical, and Other General Personnel Activities.—
These activities include training and medical services for active
duty personnel. The budget request continues the improvements to
individual training and realistic operational training that simulate
actual combat conditions. Efforts to improve the readiness of our
medical forces and the provision of peacetime care continue.




5-12

THE BUDGET FOR FISCAL YEAR 1989

Special Operations Forces.—A new Special Operations Command
was recently established at MacDill Air Force Base, Florida, to
strengthen the integration of units specialized in land, sea and air
operations. These units include Army Special Forces and Rangers,
Navy SEALS, and Air Force special units. Modernization of these
forces will continue with procurement of new and specially modified helicopters, transport aircraft, and high-speed boats. Although
special operations forces are mainly oriented toward low-intensity
conflict, they can be employed across the entire spectrum of military operations—from peacetime operations to conventional and
nuclear war.
Military Personnel and Compensation.—The military services
continue to enjoy unprecedented success in manning our forces
with competent and highly motivated volunteers. A key to this
success has been a commitment to maintaining attractive levels of
military compensation. The budget provides for a pay raise of 4.3
percent effective January 1989, which should roughly match increases in private sector pay. This pay raise is especially crucial in
light of the reduced pay raise enacted in 1988.
Management Initiatives.—Over the past 7 years, the Department
of Defense (DOD) has made major improvements in the way it does
business. Continued improvements have become increasingly important in light of recent budget reductions. For 1989, major goals
of the department's management improvement program include
simplifying and improving the acquisition process, strengthening
the financial management system by consolidating financial management data within each military department and the defense
agencies, and accelerating the Department's efforts to improve productivity.
Competition will be encouraged in order to keep costs down,
quality up and the industrial base strong. Multiyear procurement
will be emphasized to improve program stability. Commercially
available products will be used instead of custom-made items wherever possible and an information system will be established to
gather and maintain data on DOD's use of commercial products.
The administration will propose legislation to streamline commercial products acquisition procedures, as well as to simplify the basic
procurement statutes. The administration will also develop a policy
on contractors' rights to technical data developed under Government contracts. DOD plans to continue improving its cash management programs.
As required by Executive Order 12615, the Department will accelerate its program of contracting-out some of its commercially
available activities. The Order requires studies covering 25,000 fulltime-equivalent positions (FTE) in 1988. For 1989 and beyond, DOD
will conduct studies covering no less than 3 percent of its civilian




5-13

NATIONAL DEFENSE

SUMMARY OF ACTIVE MILITARY PERSONNEL AND FORCES
(Year end—i.e., as of September 30)

Military personnel (in thousands):
End strength:
Army
Navy
Marine Corps
Air Force
Total, Department of Defense
Average strength:
Army
Navy
Marine Corps
Air Force
Total, Department of Defense
Strategic forces:
Intercontinental ballistic missiles:
Peacekeeper
Minuteman
Poseidon-Trident
Strategic bomber squadrons
General purpose forces:
Land forces-.
Army divisions
Marine Corps divisions
Tactical air forces:
Air Force wing equivalents
Navy attack wings
Marine Corps wings
Naval Forces:
Attack and multipurpose carriers
Battleships
Nuclear attack submarines
Other warships
Amphibious assault ships
Airlift and sealift forces:
C-5 airlift squadrons
Other airlift squadrons
Sealift fleet

Estimate

1987
actual

1988

1989

781
587
200
607

772
593
197
576

772
593
197
576

2,174

2,138

2,138

777
582
199
609

770
584
198
594

764
592
197
579

2,167

2,145

2,132

27
973
640
23

46
954
624
*25

50
950
656
*25

18
3

18
3

18
3

25.2
14
3

25.5
13
3

24.5
13
3

14
3
97
214
61

14
3
96
204
62

14
4
99
200
65

4
13
61

4
13
61

4
13
61

*lncludes 4 B-52G squadrons that will be reassigned to conventional forces.

employment annually until all identified potential commercial activities have been studied. Also, a test of contracting out commissary store operations will begin in 1988. When the results of that
test have been assessed, the Department will conduct a test to
examine the feasibility of contracting out the operation of military
exchanges.
This budget also reflects expected combined savings of $310 million annually from enactment of pending legislation to raise to $1




5-14

THE BUDGET FOR FISCAL YEAR 1989

million the dollar threshold for defense contracts covered by DavisBacon and related acts and the Service Contract Act.
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 accompanying table shows the funding levels for these programs. In total, budget authority of $8.1 billion is requested for
1989, compared to $7.7 billion for 1988. Outlays are estimated to
increase from $7.6 billion in 1988 to $7.9 billion in 1989.
ATOMIC ENERGY DEFENSE ACTIVITIES
(Functional code 053; in millions of dollars)
Major missions and programs

BUDGET AUTHORITY
Weapons research, development, test and production
Weapons materials, production, and waste management
Naval reactor development
Other research programs
Total, budget authority
OUTLAYS
Weapons research, development, test and production
Weapons materials, production and waste management
Naval reactor development
Other research programs
Total, outlays

Estimate

1987
actual

1988

1989

1990

1991

4,180
2,531
575
192

4,208
2,704
607
230

4,243
2,972
630
255

4,390
3,074
652
264

4,521
3,166
671
272

7,478

7,749

8,100

8,380

8,630

4,165
2,522
573
191

4,144
2,663
598
226

4,162
2,915
618
250

4,320
3,025
642
259

4,460
3,123
662
268

7,451

7,631

7,945

8,246

8,513

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 1989 would provide for continuing missile warhead production for current and new weapon
systems, and for production of special nuclear materials for use in
these warheads.
The defense nuclear waste management program provides interim storage for all defense nuclear wastes. The program also supports research and development activities for the isolation and
permanent storage of these wastes. Pursuant to the stipulated
agreement of 1982 between the Department of Energy and the
State of New Mexico, the Department will provide funds from this
function for the improvement of roads relating to the Waste Isolation Pilot Plan (WIPP).




5-15

NATIONAL DEFENSE

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 programs cover security at defense nuclear facilities, security investigations, and arms control and verification technology development.
Defense-Related Activitives.—Activities of departments and agencies that support national defense include emergency preparedness
programs, management of the Ready Reserve Force, the Selective
Service System, and assistance for the Nicaraguan democratic resistance.
The Federal Emergency Management Agency conducts civil defense and other preparedness programs. Budget authority of $160
million is proposed for 1989 for civil defense programs in order to
improve State and local preparedness to cope with emergencies.
Total outlays for all defense-related activities of this agency are
estimated at $325 million in 1989.
CREDIT PROGRAMS—NATIONAL DEFENSE
(In millions of dollars)
Actual 1987

Direct loans:
Navy industrial fund:
Change in outstandings
Outstandings
Defense stock fund:
Change in outstandings
Defense production guarantees:
Change in outstandings
Total, direct loans:
Change in outstandings
Outstandings

40
1,788

Estimate
1988

1989

1990

1991

29
1,759

-38
1,721

-48
1,672

-48
1,624

29
1,759

-38
1,721

-48
1,672

-48
1,624

_\
-10
29
1,788

To meet defense and essential civilian requirements for strategic
and critical materials in the event of a national emergency, a
stockpile of such materials is maintained. In 1988, the President
designated the Secretary of Defense stockpile manager, consolidating responsibility for stockpile policy, budgeting, and administration. Legislation will be proposed to authorize the disposal of $180
million of surplus material stocks and the acquisition and upgrading of $90 million worth of materials in 1989. These amounts are
included in the Department of Defense-Military.
The Maritime Administration (MarAd) maintains the Ready Reserve Force (RRF), a group of inactive commercial vessels that can
be used to support military contingency operations. This group of
cargo ships is to be ready to carry military unit equipment within
five to ten days of notification. Through 1988, MarAd had program




5-16

THE BUDGET FOR FISCAL YEAR 1989

responsibility, while the Navy budgeted for most costs including
acquiring additional ships and providing maintenance. In 1989,
funding and program management responsibility will be consolidated in MarAd. Although in 1989 funding will remain in the national
defense function, the administration will consult with Congress
about transferring funding to the transportation function in future
budgets.
The Selective Service System maintains a high level of 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 automated registration information on eligible inductees, and training of Reserve
officers and local and appeal board members necessary to set up
local offices. The agency will begin planning for the development of
a post-mobilization system for the registration and classification of
health care personnel. Estimated outlays for 1988 and 1989 are $26
million a year.
By law, funds appropriated or transferred to the President to
support the Nicaraguan democratic resistance to advance democracy in Nicaragua and security for all of Central America are administered by the Secretary of State. Additional assistance for the
Resistance will be requested in 1988 and 1989 as required to
achieve U.S. foreign policy objectives.
Tax Expenditures.—The housing and meals provided military
personnel, either in cash or in-kind, are excluded from taxable
income, which results in a tax expenditure estimated at $2.2 billion
in 1989.




INTERNATIONAL AFFAIRS

5-17

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 responsibility.
The Bipartisan Budget Agreement set ceilings for discretionary
programs; i.e., those that are appropriated annually and are not
mandated by permanent legislation. Budget authority in 1989 for
discretionary programs is $18.1 billion, the same as the ceiling in
the Bipartisan Budget Agreement. Outlays are $15.6 billion, or $0.5
billion below the ceiling. This is because the administration has
allocated the 2 percent increase allowed by the Bipartisan Budget
Agreement to programs with low outlays in the year in which
funds are appropriated.
For all international affairs programs in 1989, $16.5 billion in
budget authority is requested and outlays of $13.3 billion are estimated. These amounts are lower than the discretionary totals primarily because non-discretionary programs include large amounts
of receipts. For 1989, new direct loan obligations for international
affairs are proposed to be $5.9 billion, and new guaranteed loan
commitments are proposed to be $12.9 billion.
Foreign Aid.—Two budget subfunctions—international security
assistance and international development and humanitarian assistance—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 the U.S. 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, 1989 budget authority of $9.0 billion is proposed.
Outlays are estimated to be $6.0 billion in 1989.
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. The program proposed for 1989 consists of only forgiven
loans. For 1989, budget authority of $4.6 billion is requested and
net outlays of $1.2 billion are estimated, including credit reform.
This year the budget also reflects the estimated impact of a new
foreign military sales (FMS) debt reform program for existing FMS




5-18

THE BUDGET FOR FISCAL YEAR 1989

credit loans. Under this program, FMS credit debtor countries have
the option of refinancing their loans through commercial financial
institutions. This would reduce the interest rate for allies and
friendly developing countries whose FMS loans are at interest
rates that are now above market rates. Loan repayments under
this refinancing arrangement are credited to the program, lowering
net outlays.
Military Assistance.—This program provides the same types of
articles and services as the foreign military sales credit program.
For 1989, budget authority of $0.5 billion is requested. Outlays are
estimated to be $0.6 billion.
Economic Support Fund.—This account finances programs in
over 40 countries; the largest portion goes to countries where there
are special political and security concerns. Grants provide 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 security objectives. Aid to Egypt and Israel accounts for approximately twothirds of the program. The proposed budget authority for 1989 is
$3.3 billion. Outlays are estimated to be $3.5 billion.
Other.—The budget authority requested in 1989 for security assistance includes $32 million for peacekeeping operations, $52 million for international military education and training, and $10
million for anti-terrorism assistance.
International Development and Humanitarian

Assistance.—An

important complement to security assistance are international development and humanitarian assistance programs. These programs
are designed to encourage the expansion of a market-oriented
international economic system and to help meet the development
and humanitarian needs of developing countries. Budget authority
requested for 1989 is $4.7 billion. Outlays for 1989 are estimated at
$4.6 billion.
Multilateral Development Banks (MDBs).—The United States
contributes to the World Bank group of institutions and regional
banks for Latin America, Asia, and Africa. These institutions provided more than $23.5 billion in long-term loans and technical
assistance in 1986 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 governments. Both are provided in accord with multiyear
international agreements to replenish the resources of each bank.
To support international commitments to the MDBs, budget authority of $1.3 billion is requested for 1989. Nearly three-fourths of
the proposed budget authority will be used to meet existing pledges
to the International Development Association, which lends to the




5-19

INTERNATIONAL AFFAIRS
NATIONAL NEED: CONDUCTING INTERNATIONAL RELATIONS
(Functional code 150; in millions of dollars)
Major missions and programs

actual 1987

Estimate
1988

1991

1989

1990

4,540
219
475
3,340
40
96
-191

97
-298

BUDGET AUTHORITY
Foreign aid:
International security assistance:
Foreign military sales credit:
Existing law
Proposed credit reform
Military assistance
Economic support fund
Guarantee reserve fund
Other
Offsetting receipts
Subtotal, International security assistance

4,053

4,017

950
3,576
98
-464

701
3,201
532
89
114

4,460
155
467
3,281
643
94
-132

8,213

8,425

8,968

8,520

8,293

1,207
237

1,206
245

1,324
200

1,805
204

1,400
207

2,162

2,240

2,169
16

2,215
17

2,244
18

1,083

1,060

361

338

1,023
214
340

1,094
205
313

1,050
197
307

305
26
479

314
28
-492

4,615
483
3,395

International development and humanitarian assistance:
Multilateral development banks
International organizations
Agency for International Development:
Existing law
Proposed credit reform
P.L. 480 food aid:
Existing law
Proposed credit reform.
Refugee assistance
Other:
Existing law
Proposed credit reform
Offsetting receipts

300

292

-449

-479

296
25
-458

Subtotal, International development
and humanitarian assistance

4,902

4,901

4,722

5,295

4,878

13,114

13,326

13,690

13,815

13,171

2,091

2,039

2,071
*

2,380
*

2,421
*

420
80

515
91

525
89

543
91

560
91

2,591

2,645

2,685

3,014

3,072

1..022

1,041

1,110

1,371

1,108

811

-791

-1,214

-751

761

78

110

336

317

294

92

-94

-96

Subtotal, Foreign aid
Conduct of foreign affairs:
Administration of foreign affairs:
Existing law
Proposed credit reform
International organizations and conferences...
Other
Subtotal, Conduct of foreign affairs
Foreign information and exchange activities
International financial programs:

Foreign military sales trust fund (net)
Export-Import Bank:
Existing law
Proposed credit reform
Other
Offsetting receipts
Subtotal, International financial programs
Total, budget authority
*$500 thousand or less.




1,196

-89

-90

1,997

-771

-970

-528

-563

18,724

16,241

16,515

17,673

16,789

5-20

THE BUDGET FOR FISCAL YEAR 1989
NATIONAL NEED: CONDUCTING INTERNATIONAL RELATIONS
(Functional code 150; in millions of dollars)
Major missions and programs

Estimate

actual 1987

1989

1990

724
219
578
3,469
40
90
-191

94'
-298

1991

OUTLAYS
Foreign aid:
International security assistance:
Foreign military sales credit:
Existing law
Proposed credit reform
Military assistance
Economic support fund
Guarantee reserve fund
Other
Offsetting receipts

Subtotal, International security assistance

3,758

-2,264

356
3,466
-117
108
-464

633
3,362
723
89
-114

1,091
155
624
3,459
701
93
-132

7,106

2,428

5,991

4,931

8,181

1,043
263

1,248
257

1,298
239

1,397
229

1,431
226

2,012

2,056

2,126

2,229
1

2,162
1

970

1,155

341"

335'

1,082
-194
336

1,091
-204
322

1,048
-197
310

186
3
-458

196
8
-479

200
9
-492

4,371
506'
3,508

International development and humanitarian assistance:
Multilateral development banks
International organizations
Agency for International Development:
Existing law
Proposed credit reform
P.L 480 food aid:
Existing law
Proposed credit reform
Refugee assistance
Other:
Existing law
Proposed credit reform
Offsetting receipts

139

173

-449

-479

Subtotal, International development
and humanitarian assistance

4,319

4,744

4,618

4,790

4,699

11,425

7,173

10,609

9,721

12,880

1,793

2,037

565
97
2,699

2,197
*
542
91
2,829

2,227
*

360
65
2,218

2,156
*
523
90
2,769

990

1,119

1,115

1,221

1,219

1,407
3

155

142

98

-44

-2,300

-985

-2,006
-89

-145
-90

-1,084
81
-206
-92

-565
79
-160
-94

-829
9
-110
-96

-2,985

-1,065

-1,160

-642

-1,070

11,649

9,926

13,334

13,129

15,905

Subtotal, Foreign aid.
Conduct of foreign affairs:
Administration of foreign affairs:
Existing law
Proposed credit reform
International organizations and conferences..

Other

Subtotal, Conduct of foreign affairs
Foreign information and exchange activities
International financial programs:
Foreign military sales trust fund (net)

Buffer stocks
Export-Import Bank:
Existing law
Proposed credit reform
Other
Offsetting receipts

.....

Subtotal, International financial programs
Total, outlays
*$500 thousand or less.




559
91
2,877

INTERNATIONAL AFFAIRS

5-21

poorest countries on concessional terms. The administration is also
proposing to provide funding for the general capital increase of the
World Bank's International Bank for Reconstruction and Development. The remaining funds will be used to make authorized annual
payments to the other multilateral banks.
The 1989 budget provides currently scheduled annual payments
to the MDBs. However, $405 million remains outstanding on prior
pledges that could not be accommodated in the budget due to the
ceiling in the 2-year Bipartisan Budget Agreement. The administration intends to request funding for the full amount of these
arrearages in the 1990 budget, consistent with its international
obligations.
International Organizations.—Voluntary contributions of $200
million in budget authority are proposed for 1989 for several developmental, humanitarian and scientific programs carried out by the
United Nations and other international organizations—$45 million
less than the 1988 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 objectives.
Agency for International Development (AID).—AID carries out
bilateral development assistance programs in more than 60 countries 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 1989 is $2.2 billion, about 3 percent
below 1988. Principal objectives of bilateral development programs
include meeting the basic human needs of aid recipients, 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. 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 available, if excess to normal domestic and
commercial export needs.
The U.S. agricultural sector benefits when these available commodities are exported in a manner that does not displace commercial exports. The food aid program serves U.S. objectives in promoting international security, agricultural export market development,
and economic development. Recipients of these loans benefit by
saving their scarce foreign exchange to import non-food goods and
services beneficial to economic development.




5-22

THE BUDGET FOR FISCAL YEAR 1989

Under the Title II grant program, food aid is targeted by foreign
governments and private and voluntary organizations, as well as
international organizations, mainly to needy children, pregnant
women, and refugees. Title II also constitutes the U.S. Government's primary response mechanism to emergency food needs in
Africa, Asia, and Latin America.
The budget includes a total program level of $1.4 billion, with a
request of $809 million in 1989 budget authority for the P.L. 480
food aid program. This will allow for a program level of $812
million under Title I (concessional loans) and $595 million under
Title II (grant assistance), after incorporating receipts from repayment of prior loans.
Refugee Assistance.—Budget authority of $340 million is proposed
in 1989 for assistance to refugees abroad, primarily in Africa, the
Near East, Pakistan, and Southeast Asia, and for the admission of
up to 68,500 refugees to the United States. Together with the
continuing needs of existing refugee populations, this admissions
level will cover the potential major inflow of Armenians and Soviet
Jews into 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 function.
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 governments and international organizations. Contributions assessed by
international organizations of which the United States is a member
are also included here. For 1989, $2.7 billion of budget authority is
requested, and $2.8 billion in outlays are estimated.
Administration of Foreign Affairs.—To promote United States
interests abroad, diplomatic and consular relations are maintained
with foreign governments at 262 posts throughout the world. The
overall request for 1989 budget authority is $2.1 billion, with estimated outlays of $2.2 billion. The administration's 1989 request for
State Department operations reflects the need for budget restraint.
This "hold the line" request maintains ongoing activities and emphasizes the need for efficiencies in departmental operations. Increased funding will be sought for only the highest priority requirements, such as a new Foreign Service Institute facility in Arlington, Virginia. This tight budget climate has not diminished the
administration's commitment to further the interests of the United
States abroad and to ensure that those interests may be pursued in
a physically and technically secure environment. The diplomatic
security program remains a high priority, and requested funding
for its operating expenses will permit the continuation of high
priority perimeter security programs, countermeasures and office




INTERNATIONAL AFFAIRS

5-23

equipment protection programs, and foreign national replacement
in Eastern Bloc countries. The administration is not requesting
funds for new diplomatic security construction projects, preferring
to focus on projects currently underway.
International Organizations and Conferences,—Budget authority
of $525 million in 1989 is proposed for assessed contributions to
international organizations, international peacekeeping activities
in the Middle East, and participation in international conferences.
This amount, the maximum feasible under the Bipartisan Budget
Agreement, is less than the total assessments on the United States
from these organizations; as a result, arrearages to them will increase further. The United States remains committed to effective
participation in international organizations in pursuit of important
U.S. interests. The United States will continue to press for implementation of the administrative and program budget reforms required to rebuild confidence in the operational effectiveness and
policy relevance of these organizations. The administration intends
no downgrading of the importance of multilateral activities and
will consult with both the Congress and other countries regarding
ways to address the arrearage problem.
Foreign Information and Exchange Activities.—An important objective of this administration is to increase international understanding of American society and foreign policy. The United States
Information Agency (USIA) seeks to do so through personal contacts, academic and leadership exchanges, WORLDNET satellite
television broadcasting, Voice of America (VOA) radio broadcasting, distribution of books and periodicals, English language teaching, and the operation of libraries and cultural centers in 127
countries. For 1989, the administration proposes $881 million in
budget authority for USIA, an increase of $61 million from 1988.
The VOA multiyear modernization program includes funds for two
major new transmitter facilities. The 1989 request of $65 million in
budget authority for radio construction maintains strong administration support for VOA modernization—which received no new
funding in 1988—while modifying the previous plans to focus on
establishing new relay facilities in Morocco and Thailand. The
Television and Film Service funding request is increased over the
1988 level in order to complete the global satellite television broadcasting infrastructure for the WORLDNET television service.
These two program areas account for most of the funding increases
for USIA in 1989.
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 1989,
$227 million of budget authority is requested for the Board. This
includes $35 million for continuing construction of a transmitter in




5-24

THE BUDGET FOR FISCAL YEAR 1989

Israel, to be used by both RFE/RL and the Voice of America. An
operating budget increase is proposed to offset the decline in value
of the dollar against the three foreign currencies that 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 1989, total net outlays are estimated to be —$1.2 billion, because Export-Import Bank loan repayments are expected to exceed
new loan commitments, and Export-Import Bank loans will continue to be prepaid.
CREDIT PROGRAMS—INTERNATIONAL AFFAIRS
(In millions of dollars)
Actual 1987

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
OPIC subsidies:
New obligations
Change in outstandings
Outstandings
Overseas Private Investment Corporation:
New obligations
Change in outstandings
Outstandings
AID private sector loan subsidies:
New obligations
Change in outstandings
Outstandings
AID private sector revolving fund:
New obligations
Change in outstandings
Outstandings
AID housing & other guarantee programs-.
Change in outstandings
Outstandings
Public Law 480 food aid:
New obljgations
Change in outstandings
Outstandings
Export-Import Bank:
New obligations
Change in outstandings
Outstandings
Export-Import Bank subsidies:
New obligations




Estimate
1988

1989

1991

1990

4,053
1,066
24,935

4,049
-5,070
19,865

4,460
-1,571
18,293

4,540
-1,966
16,327

4,615
1,573
17,900

109
5
6,310

25
-43
6,267

-73
6,194

-78
6,116

-81
6,035

124
-35
12,072

65
-66
12,006

11,918

-134
11,784

-111
11,672

17
1
1

18
7

18
11
19

54

-6
48

5
1
1

5
2
4

15
6
17

12
7
24

32

4
36

-1
35

23
92

19
112

20
132

26
158

21
179

804
597
11,219

777
543
11,762

739
499
12,261

752
607
12,868

764
556
13,424

677
-3,149
11,202

693
-1,552
9,649

-1,471
8,178

-960
7,218

-1,148
6,070

705

718

730

5-25

INTERNATIONAL AFFAIRS
CREDIT PROGRAMS—INTERNATIONAL AFFAIRS—Continued
(In millions of dollars)
Estimate

Actual 1987

Change in outstandings..
Outstandings
Other:
New obligations
Change in outstandings..
Outstandings
Total, direct loans:
New obligations
Change in outstandings..
Outstandings
Guaranteed loans:
Foreign military sales credit:
New commitments
Change in outstandings
Outstandings
OPIC subsidies:
New commitments
Change in outstandings
Outstandings
Overseas Private Investment Corporation:
New commitments
Change in outstandings
Outstandings
AID private sector loan subsidies:
New commitments
Change in outstandings
Outstandings
AID housing guarantee subsidies:
New commitments
AID housing & other guarantee programs:
New commitments
Change in outstandings
Outstandings
Export-Import Bank:
New commitments
Change in outstandings
Outstandings
Export-Import Bank subsidies:
New commitments
Change in outstandings
Outstandings
Total, guaranteed loans:
New commitments
Change in outstandings..
Outstandings
Total, new obligations and new commitments

1989

1990

1991

96
96

218
315

297
612

1
-99
1,332

1
556
1,888

1
643
2,531

1
41
2,572

1
-4
2,568

5,806
-1,577
67,229

5,645
-5,601
61,627

5,927
-1,935
59,693

6,034
-2,237
57,456

6,133
1,110
58,566

-20
140

5,153
5,133
5,273

2,300
2,280
7,553

3,266
2,730
10,283

-562
9,721

175
11
11

178
68

181
92
171

19
357

-23
333

-60
273

100

100
25
25

100
50
75

100

100

100

200
40
308

200
30
338

145
112
1,328

125
95
1,423

112
1,535

124
1,659

86
1,745

6,754
294
5,079

14,601
-115
4,964

-1,125
3,839

-647
3,192

-554
2,638

10,200
1,184
1,184

10,384
1,498
2,682

10,555
1,461
4,143

7,099
426
6,855

20,079
5,143
11,998

12,875
2,481
14,479

14,028
3,774
18,254

10,936
514
18,767

12,905

25,724

18,802

20,062

17,069

Export-Import Bank.—The Export-Import Bank (Eximbank) administers direct loan, guarantee and insurance programs to promote U.S. export sales. The direct loan program offers loans generally below market rates, consistent with an international agreement that reduces, but does not yet completely eliminate, interest
rate subsidies. The administration proposes that Eximbank's direct




5-26

THE BUDGET FOR FISCAL YEAR 1989

loan program be $705 million in 1989, a 2 percent increase over the
1988 enacted level.
In 1989, as part of an overall Federal credit reform proposal
discussed in Part 6b of this volume, the administration is proposing
to appropriate the subsidies associated with Eximbank's direct loan
and guarantee programs to reflect more accurately the cost to the
U.S. economy of these programs. Loan prepayments of $525 million
in 1989 are anticipated.
Puratant to the September 1987 OMB/Eximbank report to Congress titled "Report on Government Involvement in Export Credit
Insurance," Eximbank and OMB will continue to examine the benefits of alternative delivery mechanisms for insurance provided
through the Foreign Credit Insurance Association (FCIA). The
study will also explore the current operating arrangement, in
which the FCIA operates as an agent of Eximbank, in light of the
withdrawal of meaningful private sector participation in FCIA.
Tax Expenditures.—In an effort to encourage exports, a portion
of the profits from the export sales of foreign sales corporations
(FSCs) is not taxed. Also, Americans working abroad are permitted
to exclude substantial amounts of earned income and housing allowances from taxation. Tax expenditures resulting from FSCs and
the foreign earned-income exclusion are an estimated $0.6 billion
and $1.8 billion, respectively, for 1989. Additional estimated tax
expenditures of $4.4 billion, $95 million, and $155 million result
from the source rules exception for inventory property sales, the
interest allocation rules exception for certain nonfinancial institutions, and the deferral of income tax on the undistributed earnings
of foreign corporations controlled by U.S. shareholders. Total tax
expenditures for international affairs are estimated to be $7.1 billion in 1989.




GENERAL SCIENCE, SPACE, AND TECHNOLOGY

5-27

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 function. Continued support for these programs in the budget reflects
the administration's view that the ability of the Nation to meet
global competition, provide for national security, and 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 $13.9 billion in
1989, an increase of $3.1 billion or 29 percent above the 1988 level.
Outlays for programs in this function are estimated to reach $13.1
billion in 1989, an increase of 20 percent or $2.2 billion over 1988.
The budget would increase funding for general science programs,
and strengthen a vigorous and balanced space program. Even in a
time of fiscal restraint, the increased budget authority proposed for
these programs represents a necessary investment in the Nation's
future because of the important contribution such programs make
to long-range economic growth and the competitiveness of the U.S.
economy.
The programs in this function all support basic research, and
account for well over one-third of total Federal funding for such
research. These programs are of particular importance to the
Nation because they, along with research programs of the Department of Defense (DOD), constitute the predominant Federal sources
of funding for basic research in the physical and engineering sciences.
The major initiatives proposed in the 1989 budget include:
• a 19 percent increase for the National Science Foundation,
including full funding for the Science and Technology Centers
program, as well as a continued commitment to double the
support for academic basic research through NSF by 1993;
• an increase of nearly 50 percent in the general science programs of the Department of Energy, including funds to initiate construction of the Superconducting Super Collider (SSC);
and
• a nearly 30 percent increase for the space research and technology programs of the National Aeronautics and Space Administration, including a doubling of support for the development of the space station to nearly $1 billion, and the initiation of a major new technology program, Pathfinder.
General Science and Basic Research.—This area covers all the
programs of the National Science Foundation (NSF), as well as the




5-28

THE BUDGET FOR FISCAL YEAR 1989
NATIONAL NEED: INCREASING BASIC SCIENTIFIC KNOWLEDGE AND USE OF SPACE
(Functional code 250; in millions of dollars)
actual 1987

Major missions and programs

Estimate
1988

1989

1990

1991

BUDGET AUTHORITY
General science and basic research:
National Science Foundation programs
Department of Energy general science programs

Subtotal, General science and basic
research
Space research and technology:
Space flight
Space science, applications, and technology...
Supporting space activities
Subtotal, Space
technology

research

1,639

1,733

2,066

2,149

2,414

702

804

1,197

1,617

1,500

2,340

2,537

3,263

3,766

3,914

6,864
2,297
1,037

4,683
2,444
1,077

6,359
2,998
1,259

7,918
3,099
1,419

8,551
3,165
1,394

10,198

8,203

10,616

12,436

13,111

12,538

10,741

13,879

16,202

17,024

1,562

1,673

1,818

2,033

2,276

697

795

1,104

1,349

1,372

2,260

2,468

2,922

3,382

3,648

4,137
1,942
878

5,180
2,352
903

6,350
2,673
1,158

7,345
3,100
1,364

8,660
3,148
1,374

and

Total, budget authority
OUTLAYS
General science and basic research:
National Science Foundation programs
Department of Energy general science programs
Subtotal, General science and basic
research
Space research and technology:
Space flight
Space science, applications, and technologySupporting space activities
Subtotal, Space
technology
Total, outlays

research

and
6,957

8,435

10,181

11,809

13,181

9,216

10,903

13,103

15,191

16,830

general science projects and programs of the Department of Energy
(DOE) in high energy and nuclear physics. Budget authority of $3.3
billion is proposed for these programs in 1989, an increase of 29
percent or $0.7 billion over the 1988 level.
National Science Foundation Programs.—The principal mission
of the NSF is to support basic research in all fields of science and
engineering. The NSF's broad-based research programs complement the basic research programs of agencies with specialized missions, such as the National Aeronautics and Space Administration,
DOD, and the National Institutes of Health. This approach of
funding basic research across several agencies helps ensure balanced Federal support across all scientific disciplines. The 1989
budget includes $2.1 billion in proposed budget authority for the
NSF, an increase of 19 percent or $0.3 billion over the 1988 level.
Within this amount, the support of basic research would increase
from $1.4 billion in 1988 to $1.7 billion in 1989. In addition, the




GENERAL SCIENCE, SPACE, AND TECHNOLOGY

5-29

budget projects a doubling of support for academic basic research
through the NSF by 1993.
The NSF supports research at academic institutions through
grants to individual scientists. The increased level of basic research
support proposed for 1989 would continue to place special emphasis
on interdisciplinary research. Basic research among several disciplines often leads to the creation of important new fields of science
(e.g., biotechnology). The administration proposes to establish 10 to
15 new fully funded interdisciplinary basic science and technology
centers over the next 5 years from a one-time appropriation in
1989. These centers would be modeled after the existing engineering research centers, and would focus on research among scientific
disciplines, encouraging 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" would also be emphasized. Continued U.S. leadership in science and industry depends on the future availability of
high-quality scientists and engineers. Academic basic research is a
primary means of expanding the U.S. pool of trained scientists and
engineers that, over the long term, enhances the ability of the U.S.
to compete globally. This emphasis would be reflected in the new
basic science and technology centers, discussed above, as well as in
a variety of ongoing NSF programs, including the engineering
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 undergraduate institutions.
Increased support is also requested for NSF programs aimed at
improving the quality of pre-college science and math education.
These programs are intended to complement the efforts of State
and local education agencies and the private sector.
In addition, continued support is requested for the U.S. Antarctic
program, managed by the 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, and support the construction and operation of
facilities required to carry out this research. The goal of the 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 $1.2 billion is requested for support of these programs in 1989, an increase of $0.4 billion or 49
percent over the 1988 level.
The proposed budget would continue funding for research carried
out at the nuclear and particle physics accelerators supported by




5-30

THE BUDGET FOR FISCAL YEAR 1989

DOE. It would also continue funding for advanced accelerator and
detector research and development related to the next generation
of high energy particle accelerators.
The administration requests funding of $0.4 billion for the initiation of construction of the Superconducting Super Collider (SSC).
The SSC will be the world's most powerful proton-proton collider,
producing particle collisions with total energies approaching 40
trillion electron volts, an energy twenty times the highest energies
available in the world today. The budget projections assume substantial cost sharing by the host State and other nations, beginning
in 1991.
The budget also proposes establishment of a separate new account that would support the construction, operation, and maintenance of the DOE's basic research user facilities. General science
facilities funded through this account would include Fermilab, the
Stanford Linear Accelerator Center, the Brookhaven National Laboratory, the Continuous Electron Beam Accelerator Facility
(CEBAF), and the new Superconducting Super Collider project, discussed above. A separate appropriation account would facilitate the
budgeting process and help ensure the funding levels necessary for
effective operation of these unique national facilities.
Space Research and Technology.—This part of the function covers
the space-related activities of the National Aeronautics and Space
Administration (NASA). The proposed budget would continue a
vigorous and balanced program in the primary areas of space
flight, space science, and space technology. These activities ensure
U.S. preeminence in areas critical to achieving the Nation's goals
in space. Budget authority of $10.6 billion is proposed for these
programs in 1989, compared to $8.2 billion in 1988, an increase of
about 29 percent. Outlays are estimated to increase 21 percent,
from $8.4 billion in 1988 to $10.2 billion in 1989. The proposed
increase in budget authority would provide for continued development of the space station, increases in shuttle recovery activities,
compensation for loss of previously planned reimbursements for
the use of the shuttle, and procurement of additional expendable
launch vehicle services for scientific and other missions. Additional
requested increases are for program enhancements such as the
advanced solid rocket motor, new activities such as Pathfinder, a
program supporting the long-range goal of expanding human presence and activity beyond low earth orbit into the solar system, and
initiation of a new science mission.
Space Flight.—U.S. preeminence in critical areas of manned
space flight is ensured through programs to improve the space
shuttle and to develop, deploy, and use the space station. Commitment to the use of commercial goods and services, and private
sector investment and involvement in the space station, encourage




GENERAL SCIENCE, SPACE, AND TECHNOLOGY

5-31

greater commercial use of space. Budget authority of $6.4 billion is
proposed for these programs in 1989, compared to $4.7 billion in
1988, an increase of about 36 percent. Outlays are estimated to be
$6.4 billion in 1989, 22 percent or $1.2 billion over the 1988 level.
The administration continues to place high priority on returning
the space shuttle safely to flight. The proposed budget calls for the
continuation of modifications and redesigns identified by post-Challenger accident reviews, particularly the solid rocket motor. The
recommendations of the Rogers Commission would continue to be
implemented in order to enhance the safe and effective operation
of the shuttle fleet. The orbiter logistics program would continue to
provide hardware to support the flight rate when flights resume.
Proposed funding for operations would support training, mission
planning, hardware and payload processing, and other preparations
for flights planned in 1989 and 1990. Work on the replacement
orbiter would continue, with delivery scheduled for 1991. A new
advanced solid rocket motor would be initiated in 1989 to improve
the safety, reliability, and performance of the shuttle fleet. The
first delivery of the new motor is planned for 1993. Requested
funding would also allow for the initiation of an improvement to
the shuttle for extending the stay time in orbit. Use of domestic
commercial launch services would be increased for small, medium,
and large classes of expendable vehicles. The advanced launch
system, a joint program of NASA and DOD, would explore new
approaches to meet national space transportation needs.
For the manned space station program, the administration is
requesting an increase in budget authority from $0.4 billion in 1988
to $1.0 billion in 1989, and a three-year advance appropriation
commitment from Congress for $6.0 billion, to expand development
activities leading to an operating capability in the mid-1990's.
Later in the year, the administration will request legislation to
establish a total program cost ceiling on the space station. When
operational, the space station will facilitate space-based research,
help develop advanced technologies potentially useful to the economy, and encourage greater commercial use of space. The administration's proposal strengthens its commitment to private sector
investment and involvement in the space station and relies, to the
greatest extent feasible, on private sector design, financing, construction, and operation of future space station requirements, including those currently under study.
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 authority of $3.0 billion is proposed for 1989, an increase of $0.6 billion
from the 1988 level.




5-32

THE BUDGET FOR FISCAL YEAR 1989

In space science, the administration proposes to continue broadbased, high-quality flight programs and supporting ground-based
research. Spacecraft development would continue for the gamma
ray observatory, the Magellan mission, and the Mars observer.
Operational support would be provided in 1989 for the Hubble
space telescope, the Galileo mission to Jupiter, and the planned
Voyager 2 rendezvous with Neptune in 1989. Planning activities
would continue for several smaller space physics, astronomy, and
life sciences experiments, which were rescheduled due to the Challenger accident. In addition, preparations would be made for future
science flight missions. Specifically, for planetary exploration, such
activities would include advanced technology development with emphasis on the Mariner Mark II Spacecraft. A major new mission,
the Advanced X-ray Astrophysics Facility, would be initiated to
allow the viewing of the universe in the X-ray region of the spectrum with an unprecedented degree of sensitivity, 1000 times
better than any previous or planned X-ray mission. In 1989, proposed funding would provide for launch opportunities for small
payloads on Scout rockets and for the explorer program. The global
geospace sciences program would continue to expand space-based
research on the physics of the interaction between the Sun and the
Earth.
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 administration proposes continued efforts to develop spacebased remote sensing technologies to help better understand the
Earth's environment and the interaction of the Sun and the Earth.
It also calls for the continuation of planning activities for the ocean
topography experiment, which will 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 would allow support for the operation of the microgravity
materials science laboratory and numerous ground-based microgravity experiments, including $25 million to initiate the development
of microgravity payloads for possible use on promising private
sector space facilities. The budget provides for continuing planning
activities 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 1989 to help provide the
technology base for future space programs in areas such as propulsion, electronics, and materials research. The civil space technology
initiative started in 1988 would continue as planned. Increased
funding would allow the initiation of the Pathfinder program, a




5-33

GENERAL SCIENCE, SPACE, AND TECHNOLOGY

major new effort oriented toward potential missions outside earth
orbit, to develop a variety of generic space technologies such as
transfer vehicles, closed cycle life support, and operations. These
initiatives are intended to 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. The budget
provides for increased funding to help non-aerospace firms and
universities explore potential new uses of space for future economic
benefits.
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 cooperative research, as well as technology development and testing.
These efforts are expected to lead to a transatmospheric flight
research vehicle demonstration 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 applications are discussed in
the transportation function.
Supporting Space Activities.—Budget authority of $1.3 billion is
proposed in 1989 for spacecraft tracking, data gathering, and data
processing support for the space program, an increase of $0.2 billion over the 1988 level. The budget also provides for continued
repayments of loan obligations for the tracking and data relay
satellite (TDRSS) services, and for other tracking and data acquisition services required to support planned missions. The accompanying credit table shows NASA's repayment schedules on the outstanding 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 1987
Direct loans:
NASA:
Change in outstandings..
Outstandings

-79

Estimate
1988

-91
717

1989

-105
612

1990

-121
491

1991

-138
354

Tax Expenditures.—In addition to direct Federal funding of basic
research, the tax code encourages private sector research and development, including basic research, by allowing expenditures for
such purposes to be deducted as a current expense. The 1989 esti-




5-34

THE BUDGET FOR FISCAL YEAR 1989

mate for this provision is $1.2 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 December 31, 1988 by the Tax Reform Act of
1986. This will cost $0.8 billion in 1989. The administration is
proposing that this credit be made permanent after 1988, in which
case the 1989 cost would be an additional $0.4 billion. The administration also proposes that the apportionment of research and experimentation expenses be at least 67 percent to domestic-source
income. This tax expenditure would cost nearly $1.0 billion in 1989.
Tax expenditures for general science, space, and technology are
estimated to total $2.0 billion in 1989.




ENERGY

5-35

ENERGY
The Nation needs adequate supplies of energy at reasonable
prices. Experience shows this is best achieved through minimum
Government intervention in the operation of energy markets. The
elimination of counterproductive Government intervention has resulted in significant benefits. For example, while the economy has
greatly expanded, the United States is using no more energy and
less oil than 10 years ago.
Further progress can be achieved by eliminating controls on
natural gas prices, providing open access to natural gas pipelines,
deregulating most of the Nation's oil pipelines, repealing the windfall profit tax on domestic crude oil production, and adopting new
regulatory proposals to increase competition in the electric utility
industry.
Federal spending can complement the workings of our market
economy if it is carefully focused on meeting appropriate Federal
responsibilities. For example, the Nation's strategic petroleum
stockpiles have been increased fivefold since 1980 to provide protection against energy supply disruptions.
The 1989 budget continues this policy of limited Federal energy
spending focused on meeting appropriate Federal responsibilities.
It proposes that spending be reduced on activities that are more
appropriately non-Federal responsibilities, that activities be privatized that can and should be undertaken by non-Federal entities,
and that remaining programs be managed on a business-like basis.
The major initiatives in the 1989 budget are:
• A renewed request for a 5-year, $2.5 billion program to support the demonstration of innovative clean coal technologies.
• A proposal to sell the Government-run oil fields at Elk Hills
and Teapot Dome. The proceeds from the sale would be used
to accelerate the fill rate of the strategic petroleum reserve
and to create an additional oil stockpile to replace the access
the Government now has to these oilfields.
• Proposed major reforms to overhaul the lending practices of
the Rural Electrification Administration (REA) and reduce
costly subsidies by relying on partial REA guarantees of private loans rather than direct REA lending.
Total budget authority of $4.8 billion is requested for energy
programs in 1989, a reduction of $0.7 billion from the level in 1988.
This reduction is the net result of a $1.3 billion decrease for REA
and a $0.4 billion decrease for the Tennessee Valley Authority,
offset in part by a $0.6 billion increase for the strategic petroleum
reserve and a $0.4 billion increase for energy supply research and
development. Outlays are estimated to be $3.1 billion in 1989, an
increase of $0.3 billion from the level in 1988. This increase is due




5-36

THE BUDGET FOR FISCAL YEAR 1989

mainly to the increased fill rate proposed for the strategic petroleum reserve.
The budget also includes $3.5 billion in receipts from the proposed sale of the naval petroleum reserves and $0.1 billion from
the proposed sale of assets of the Alaska power marketing administration. These proceeds are included in the undistributed offsetting
receipts category.
Energy Supply.—The Federal Government's energy supply activities fall into three main categories: research and development
(R&D), direct production activities, and subsidies for certain electric utilities and telephone systems.
A total of $2.9 billion in budget authority is requested for energy
supply research and development programs in 1989. This program
level is $0.4 billion above the level of funding in 1988. Federal
spending on energy technology R&D is focused on longer-term,
high-risk activities with high potential payoff. Federal support complements, rather than duplicates or competes with, R&D investments undertaken by the private sector.
Budget authority of $352 million is requested for nuclear fission
R&D in 1989, slightly above the level in 1988. An increase in
funding is proposed for reactor concepts to meet space and military
nuclear power requirements. This program serves national security
interests and helps to maintain a technical and industrial base for
potential commercial use of advanced nuclear technologies in the
future.
For nuclear fusion R&D, budget authority of $360 million is
requested for 1989, a 7.5 percent increase above the 1988 level. The
requested budget authority will fund fusion reactor development at
a pace consistent with the potential contribution of fusion power in
meeting national energy needs. In 1989, the program will continue
to focus on resolving scientific questions key to the ultimate
achievement of fusion energy. This includes planning and R&D to
demonstrate that it is feasible to control the fusion process. The
budget also includes funding to support cooperation with the Soviet
Union on magnetic fusion research.
The administration requests total budget authority of $692 million for two R&D programs addressing the clean and economical
use of fossil fuels: a fossil energy program and a clean coal technology demonstration program. Budget authority of $167 million is
requested for the research program, a reduction of $160 million
from the 1988 level. The proposed reductions would close out the
operation of synthetic fuels test facilities that have either completed their test programs or have proven uneconomic; eliminate subsidies for proprietary technology development, such as fuel cells, by
individual companies; and reduce lower priority R&D, such as magnetohydrodynamics, not central to the core research program.




5-37

ENERGY
NATIONAL NEED: ENERGY
(Functional code 270; in millions of dollars)
Major missions and programs

actual 1987

Estimate
1990

1989

1988

1991

BUDGET AUTHORITY
Energy supply:
Research and development:
Fission
Fusion
Fossil
Solar and renewable energy resources
Energy science
Other
Offsetting transfers
Direct production (net):
Petroleum reserves:
Existing law
Proposed legislation
Federal power marketing:
Existing law
Proposed credit reform legislation
Tennessee Valley Authority:
Existing law
Proposed credit reform
Uranium Enrichment
Nuclear Waste Disposal Fund
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:
Existing law
Proposed legislation
Subtotal, Emergency energy preparedness
Energy information, policy, and regulation...
Total, budget authority

325

347

352

417

415

342
293
174
833
423
-684

335
377
149
914
397
-104

360
692
125
859
464

375
753
131
937
485

392
787
134
1,008
487

542

596

-574

558
558

592
593

64

213

-175

-28
6

49
98

1,243

1,269

55
58

-159
148

858
-45
-108
-88

1,075
-37
253
57

595
-29
-183
76

-596

*

16

*

*

1,442

22
81

22
85

22
80

2,280

4,010

2,838

4,025

3,930

153
81

154
157

81
9

88
7

90
4

234

311

89

95

94

153

609

513
684

204
793

194
829

153

609

1,197

997

1,023

763

588

711

765

769

3,430

5,518

4,837

5,883

5,816

294

*$500 thousand or less.

The budget request continues to support important, broad-based
research in coal chemistry, coal-derived fuels, and petroleum and
natural gas extraction. In particular, the budget provides increased
funding for enhanced oil recovery and geoscience. It also includes
funding to encourage cost-shared cooperative R&D ventures among
companies and the Federal Government.
The administration is requesting $2.5 billion over 5 years for
clean coal technology demonstration projects to stimulate development and deployment of innovative technologies to reduce emission




5-38

THE BUDGET FOR FISCAL YEAR 1989
NATIONAL NEED: ENERGY
(Functional code 270; in millions of dollars)
Major missions and programs

actual 1987

Estimate
1988

1989

1990

1991

OUTLAYS
Energy supply:
Research and development:
Fission
Fusion.

Fossil..
Solar and renewable energy resources
Energy science
Other
Offsetting transfers
Direct production (net):
Petroleum reserves:
Existing law
Proposed legislation
Federal power marketing:
Existing law

320
340
323
174
806
409
-87

332
320
380
148
904
408
-26

355
398
463
128
867
455

408
376
534
128
902
449

407
393
667
131
970
471

-515

-597

-587

-577
627

-591
591

-401

-622

-580

-632
7

-500
99

648
-37
-257

89
-29
-191

-23

37

Proposed legislation
Tennessee Valley Authority:

Existing law
Proposed credit reform
Uranium Enrichment
Nuclear Waste Disposal Fund
Other subsidies:
Nonconventional fuel production
Rural electric and telephone:
Existing law
Proposed legislation
Proposed credit reform

979

907

102
5

_3
-87

774
-45
91
-102

111

108

161

164

188

-206

-998

805
-2,093
10

389
-667
33

59
-489
52

2,318

1,177

915

2,470

2,354

113
168

150
176

138
171

112
72

95
27

281

325

308

184

122

788

611

634
479

292
761

196
818

Subtotal, Emergency energy preparedness

788

611

1,113

1,053

1,015

Energy information, policy, and regulation..

727

600

724

751

761

4,115

2,713

3,061

4,458

4,252

Subtotal, Energy supply
Energy conservation:
Conservation research and development
Conservation grants
Subtotal, Energy conservation
Emergency energy preparedness:
Existing law
Proposed legislation

Total, outlays

of air pollutants. This Presidential initiative, which implements
the recommendations of the U.S. and Canadian Special Envoys on
Acid Rain, is funded by $0.7 billion already made available for 1988
and 1989 plus an additional $1.8 billion in budget authority requested in the form of advance appropriations for 1990 through
1992. Non-Federal sources are expected to contribute at least equal
amounts of funding to these projects, as they did with cooperative
agreements negotiated in 1987. Outlays for this program are estimated to be $55 million in 1988 and $163 million in 1989.




ENERGY

5-39

Budget authority of $125 million is requested for solar and renewable energy R&D, a reduction of $24 million from 1988. This
research covers a broad range of technologies, with emphasis on
the generation of electricity from sunlight, biomass, geothermal,
and wind energy. The budget also proposes a new initiative to
study the use of the new high-temperature superconducting materials by electric utilities. Like t h e fossil energy R&D budget, this
budget provides for cost-shared government/industry cooperative
ventures.
Energy science programs support energy-related basic and applied research in the physical, biological, environmental, and engineering sciences. The work is conducted at major universities and
the Department of Energy's (DOE) national laboratories. The objective of this work is to provide fundamental scientific knowledge
and a broadened engineering data base useful for future industrial
development of a wide spectrum of energy technologies.
The 1989 budget requests $859 million for these programs, a
reduction of $55 million from the 1988 level. The reduction is the
net change resulting from elimination of $126 million for congressionally-earmarked university buildings, offset by an increase of
$69 million, or nearly 10 percent, for on-going programs. The 15
building projects added by Congress in the 1988 continuing resolution have not been approved through a merit review process, and
are not necessary to further program objectives. The increases for
this on-going program would emphasize research on new high temperature superconducting materials and development of methods
for mapping the constituents of h u m a n DNA. In addition, the
budget proposes initiation of construction of a new synchrotron
facility t h a t will enable scientists to investigate the structure of
matter and thereby make significant contributions to materials
science.
Budget authority of $464 million is requested for other energy
supply R&D activities in 1989. Included in this category are Environmental Protection Agency research on acid rain, DOE studies of
health and safety issues at its facilities, and investments to conserve energy at the national laboratories. Funding is also requested
for environmental cleanup at DOE sites and for the cleanup of
wastes from uranium mining. For cleanup of uranium mill tailings
sites and the West Valley project, the administration will propose
legislation to clarify and limit the Federal responsibility for these
projects.
The Federal Government's direct production activities in the
energy function include producing oil and gas at the naval petroleum reserves (NPR); producing and distributing electric power by
the Federal power marketing administrations and the Tennessee




5-40

THE BUDGET FOR FISCAL YEAR 1989

Valley Authority, enriching uranium, disposing of nuclear waste,
and producing radioisotopes.
The administration proposes to sell the Government-run oilfields
at Elk Hills, California and Teapot Dome, Wyoming. These fields
were originally set aside in the early 1900's to assure an adequate
oil supply for Navy ships converting from coal to oil.
The proceeds from selling these oil fields would be dedicated to
raising the fill rate for the strategic petroleum reserve (SPR). The
SPR is a much better emergency reserve than the NPR because it
can pump out oil 30 times as fast, and it is also accessible to more
pipelines and refineries. In addition, the proceeds would be used to
create a separate 10 million barrel inventory to replace the access
the Government now has to the NPRs and to provide increased
flexibility to respond to a wide range of petroleum supply problems. The budget assumes the oil fields can be sold for $3.5 billion,
of which $3.2 billion would be received in 1989.
The Federal power marketing administrations sell power produced at Federal hydroelectric facilities. The administration proposes divestiture of the Alaska Power Administration (APA). State
and local groups in Alaska have proposed buying APA's two hydropower projects in the Anchorage and Juneau areas. Upon successful completion of negotiations, DOE will submit authorizing legislation to the Congress in calendar year 1988, with the sale likely to
be completed by the end of 1989. In addition, the administration
has proposed legislation to authorize a study of divestiture of the
Southeastern Power Administration (SEPA). The budget includes
SEPA sale proceeds of $1.4 billion in 1990, assuming congressional
authorization and favorable results from the study. The proceeds
are classified in the undistributed offsetting receipts category. The
budget does not include funds for possible Bonneville Power Administration construction of a major new west coast power line. A
final decision on funding will be made later this year, after completion of a study of possible non-Federal participation in, and funding
for, the project.
The 1989 budget for the Tennessee Valley Authority (TVA) assumes revenues of $5.4 billion and power expenses of $4.6 billion.
The net revenues of $0.8 billion will finance a portion of planned
capital investment of $1.5 billion. The remaining $0.7 billion will
be borrowed from the Federal Financing Bank (FFB). Included in
this total is TVA-guaranteed borrowing by the Seven States Energy
Corporation from the FFB to finance the TVA nuclear fuel inventory. In recent years, TVA has encountered problems in its power
program, particularly in nuclear generation. The administration
believes that the report of the Southern States Energy Board Committee on TVA, chaired by Virginia Governor Baliles, includes




ENERGY

5-41

important recommendations to ensure that this program remains
an efficient and reliable supplier of power in the Southeast.
The budget assumes that one of the five shutdown TVA nuclear
power plants will resume operation in 1988. TVA's economic development programs are described in the community and regional
development function.
The Federal Government's uranium enrichment enterprise is expected to have sales revenues in 1989 of $1.3 billion and outlays of
$1.2 billion. The difference of $91 million will be returned to the
Treasury as repayment of prior-year investment. Included in the
outlay total for 1989 is $90 million for research and development of
an advanced process for enriching uranium. The budget also proposes repeal of the prohibition, enacted in the 1988 continuing
resolution, of any studies on the privatization of the uranium enrichment program. Repeal of this prohibition will allow assessment
of the feasibility and desirability of converting the program into a
private, taxpaying enterprise, a goal too important to the Nation to
have it foreclosed preemptorily, without hearings or careful consideration.
The commercial nuclear waste program, which is financed by a
fee on electricity generated by nuclear power plants, provides for
the permanent disposal of spent nuclear reactor fuel rods and
other high-level radioactive waste. In 1987, Congress enacted substantial changes in the program. Starting in 1988 DOE is directed
to focus its detailed study efforts on one waste repository site,
located at Yucca Mountain, Nevada. If this site proves technically
feasible, DOE will build a repository there. In addition, the newly
amended Nuclear Waste Policy Act provides incentive payments to
any State that agrees to host the repository.
The 1989 budget includes a separate new fund for isotope sales
and distribution. This new structure, along with focused management at DOE, will ensure that this service is run on a business-like
basis that fully recovers costs. In addition, the restructured program will be better able to assure a secure supply to the many
customers for both radioactive and stable isotopes.
The Rural Electrification Administration (REA), Department of
Agriculture, provides deeply subsidized, 5 percent interest direct
loans and guarantees of direct loans by the FFB for the construction and operation of rural electric utilities and telephone systems.
Total REA loans outstanding, including FFB direct loans, are estimated to be $34 billion at the end of 1987.
Since most REA borrowers are financially healthy and the goals
of the REA program have been largely accomplished, the administration proposes that rural electric and telephone systems increase
their reliance on private financing and that all REA lending pro-




5-42

THE BUDGET FOR FISCAL YEAR 1989

grams be reformed through the use of partial REA guarantees of
privately originated loans.
Under this proposal, 100 percent REA guaranteed FFB loans for
power supply borrowers would be reformed into 80 percent REA
guarantees of private loans. Further, 5 percent revolving fund
direct loans would be reformed into 70 percent REA guarantees of
private loans starting in 1989. Electric and telephone borrowers
that serve largely urban, suburban, or recreation areas, and telephone borrowers who are subsidiaries of major telecommunications
holding companies would not be eligible for such lending assistance.
Consistent with this approach, the administration proposes that
REA reduce its direct loan obligations in 1989 by $1.8 billion in
favor of loans originated by the private banking system. In addition, the administration encourages privatization by proposing that
any borrower with outstanding REA-guaranteed, FFB-originated
loans have the opportunity to prepay them utilizing an 80 percent
REA guarantee and without paying the required prepayment premium. Further, all outstanding revolving fund direct loans could be
prepaid at a discount if the borrower agrees not to seek REA
assistance in the future.
Energy Conservation.—The administration proposes $89 million
of budget authority in 1989 for programs in this subfunction, including energy conservation research and development and State
and local energy conservation grants.
Federal Government energy conservation R&D spending supports development of methods to use energy more efficiently in
buildings, transportation, and industry. The administration requests budget authority of $81 million in 1989 for energy conservation R&D, a reduction of $73 million from the 1988 appropriation.
The proposed reduction would eliminate subsidies for development
of proprietary commercial products, such as heat pumps and industrial cogeneration equipment, by specific companies. The proposed
program continues support for many broad-based and long-range
technology developments, including new ceramic materials for high
efficiency engines and advanced chemical and biochemical processes for industry. The budget also includes a new initiative on hightemperature superconductors.
Energy grants to State and local governments are used to weatherize school buildings, hospitals, and the homes of low-income families. They also support State energy extension activities. States
have received more than $2.8 billion from the settlement of cases
involving violations of rules and regulations under the price control program which expired in 1981. Since these amounts are avail-




5-43

ENERGY
CREDIT PROGRAMS—ENERGY
(In millions of dollars)
Actual 1987
Direct loans:
TVA power program-.
New obligations
Change in outstandings
Outstandings
TVA Seven States:
New obligations
Change in outstandings
Outstandings
Rural electrification and telephone
fund:
New obligations
Change in outstandings
Outstandings
Geothermal resources and other:
Change in outstandings
Outstandings

Estimate
1988

1989

1990

1991

97
16
267

72
-6
261

70
-23
238

68
-12
226

65
-6
220

156
-16
1,824

212
-80
1,744

180
169
1,912

208
-362
1,550

330
-190
1,360

1,033
-666
34,323

1,794
-1,117
33,206

-1,120
32,086

-918
31,168

-1,006
30,162

-1
23

-1
22

-1
21

-1
21

-1
20

1,286
-668
36,436

2,078
-1,203
35,232

249
-975
34,257

276
-1,293
32,964

-1,203
31,762

-218
578

-12
565

-10
555

555

555

1,319
179
179

1,413
581
760

1,413
875
1,634

-15
3,404

-15
3,389

-15
3,374

revolving

Total, direct loans:
New obligations
Change in outstandings..
Outstandings
Guaranteed loans:
Biomass energy development:
Change in outstandings
Outstandings
Rural electrification and telephone subsidies:
New commitments
Change in outstandings
Outstandings
Rural electrification and telephone revolving
fund:
New commitments
Change in outstandings
Outstandings
TVA power program:
Change in outstandings
Outstandings
Geothermal resources and other:
Outstandings

582
404
1,434

2,000
1,985
3,419
-1

395

-1
50

Total, guaranteed loans:
New commitments
Change in outstandings..
Outstandings

582
185
2,062

2,000
1,972
4,034

1,319
154
4,188

1,413
566
4,754

Total, new obligations and new commitments

1,867

4,078

1,568

1,689

1,413
859
5,613

able in 1989 to fund the State grant programs, the budget requests
$9 million for administrative costs only; no new budget authority is
proposed for new grants.
Emergency Energy Preparedness.—The administration supports
the development of a 750 million barrel strategic petroleum reserve
(SPR). The SPR is a Government stockpile of crude oil that is




5-44

THE BUDGET FOR FISCAL YEAR 1989

intended to supplement the market in the event of a severe disruption in world oil supplies. By the end of 1988, the SPR will contain
over 550 million barrels of crude oil, an amount equal to nearly 100
days of 1987 net U.S. imports of crude oil and petroleum products.
The administration is requesting $334 million in budget authority to continue filling the SPR in 1989 at a minimum average rate
of 50,000 barrels per day, the same fill rate approved by Congress
in 1988. The budget also assumes proposed legislation to increase
the SPR fill rate to 100,000 barrels per day and to create a separate
10 million barrel inventory to replace the Governments loss of
access to the NPRs. These proposals would be contingent upon
enactment of legislation authorizing the sale of the naval petroleum reserves (NPRs), and would be financed from the proceeds from
the sale. These initiatives would require additional budget authority of $684 million and outlays of $479 million in 1989.
Energy Information, Policy and Regulation.—Net outlays for this
subfunction are expected to be $724 million in 1989, an increase of
$124 million above the 1988 level. This increase is due, in part, to
the receipt in 1988 of $49 million in fees charged by the Federal
Energy Regulatory Commission (FERC), which reduce net outlays
in that year. Included in this total are the general administrative
expenses of the DOE together with the operating expenses of the
Energy Information Administration, FERC and the Nuclear Regulatory Commission (NRC).
Proposed budget authority for the FERC in 1989 is $107^Hiillion,
completely offset by user fees. Proposed budget authority for the
NRC is $450 million in 1989. Currently, 45 percent of NRC budget
authority is derived from user fees. Consistent with the Bipartisan
Budget Agreement, the budget proposes legislation to increase
these fees to cover 55 percent of NRC budget authority.
Tax Expenditures.—To encourage energy resource 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, the smaller, independent
operators in the extractive industries are generally permitted to
use percentage depletion rather than cost depletion.
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.
Currently, "proven" oil and gas properties that are transferred
from major oil companies to independent oil producers are ineligible for percentage depletion. This discourages the transfer of marginal wells. The administration is proposing to remove the restriction. The independents may currently not deduct more than 50




5-45

ENERGY

percent of the owner's net income from a property as percentage
depletion. The administration's proposal also would raise the deduction back to 100 percent. These proposed changes would raise
the cost of allowing percentage depletion by an additional $65
million in 1989.
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)
Estimates

Description

Expensing of exploration and development costs.Oil and gas
Other fuels
Excess of percentage over cost depletion:
Oil and gas
Other fuels
Capital gains treatment of royalties on coal
Exclusion of interest on State and local industrial development bonds for certain
energy facilities
Residential energy credits:
Supply incentives
Conservation incentives
Alternative, conservation and new technology credits:

Supply incentivies
Conservation incentives
Alternative fuel production credit
Alcohol fuel credit *
Energy credit for intercity buses
Special rules for mining reclamation reserves
Total (after interactions), energy

s

1987

1988

1989

-675
35

-415
35

-185
35

1,030
330
75

770
225

665
215

380

385

400

60
*

5

180
*
25
10

95
_*
15
10
*
45
830

45
1,060

35
*
15
10
*
45
875

*500
thousand or less.
1
In addition, the exemption from the excise tax on alcohol fuel results in a reduction in excise receipts of $475 million in 1987, $480 million
in 21988, and $480 million in 1989.
The estimate of total tax expenditures for this function reflects interactive effects among the individual items. Therefore, the estimates cannot
simply be added.




5-46

THE BUDGET FOR FISCAL YEAR 1989

NATURAL RESOURCES AND ENVIRONMENT
Federal natural resources and environment programs manage
public lands and resources for their preservation, conservation, and
economic development; assist State governments to ensure a clean
environment; and encourage increased knowledge and understanding of the environment. A total of $15.2 billion in budget authority
is requested for this function in 1989, a decrease of $233 million
from 1988. This change results from a $804 million decrease for
sewage treatment plant construction grants, and reductions in Federal land acquisition and other natural resources programs. These
reductions are partially offset by a $778 million increase in the
conservation reserve program.
Pollution Control and Abatement—Efforts to control pollution of
air, water, and land are carried out through direct Federal programs and through financial assistance to State and local governments. The administration proposes budget authority of $4.6 billion
for these programs in 1989, a decrease of $281 million from 1988.
Regulatory, Enforcement, and Research Programs.—Proposed
1989 budget authority for these programs is increased $51 million
over the 1988 level. Increases are requested to carry out new statutory responsibilities under the Clean Water Act. In addition, increases are proposed for high priority environmental problems including stratospheric ozone depletion, global climate change, radon,
disposal of suspended pesticides, and the attainment of Clean Air
Act deadlines. Proposed 1989 budget authority for the Federal acid
precipitation task force, classified in the energy and in other functions, will ensure that the task force will be able to address the
remaining scientific uncertainties associated with acid precipitation in its final assessment.
Hazardous Substance Superfund.—This trust fund finances the
cleanup of abandoned hazardous waste sites and hazardous chemical spills. The administration proposes budget authority of $1.6
billion for 1989, an increase of $472 million over 1988. This funding
level is greater than the total Superfund program from 1981-1985.
The requested level would enable the Superfund program to fund
all projects ready for cleanup in 1989 and meet the statutory
deadline for cleanups.
Sewage Treatment Construction Grants.—This program provides
financial assistance to States and municipalities for the construction of publicly owned treatment facilities. For 1989, funding of
$1.5 billion is requested, split evenly between the existing grant
program and the new State Revolving Fund (SRF) program. Capitalization grants to SRFs are intended to set up self-sustaining
financial mechanisms that would make loans, enable refinancing,
and provide loan guarantees. The 1989 funding level, which is $804




5-47

NATURAL RESOURCES AND ENVIRONMENT

million below the 1988 level, is consistent with the President's longterm program level of $12 billion for 1986 to 1993, which was
proposed in the 1988 budget. This program level is sufficient to
fund the Federal share for all projects needed to meet the 1988
municipal compliance requirements, complete all treatment plants
started with Federal funds, and give States the flexibility they
need to make the transition to financial independence in this area.
NATIONAL NEED: USING AND PRESERVING NATURAL RESOURCES AND PROTECTING THE
ENVIRONMENT
(Functional code 300; in millions of dollars)
Major missions and programs

BUDGET AUTHORITY
Pollution control and abatement:
Regulatory, enforcement, and research programs
Hazardous substance response fund
Oil pollution funds (gross)
Sewage treatment plant construction grants..
Leaking underground storage tank trust
fund
Offsetting receipts
Subtotal, Pollution control and abatement
Water resources:
Corps of Engineers
Bureau of Reclamation:
Existing law
Proposed credit reform
Other
Offsetting receipts:
Existing law
Proposed legislation
Subtotal, Water resources..
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 reserve program
Other conservation of agricultural lands
Other resources management
Offsetting receipts:
Existing law
Proposed legislation
Subtotal, Conservation and land management
Recreational resources: 1
Federal land acquisition:
Existing law
Proposed legislation
Urban park and historic preservation funds....
Operation of recreational resources:
Existing law
Proposed legislation




actual 1987

Estimate
1988

1989

1990

1991

1,487
1,411
7
2,361

1,538
1,128
5
2,304

1,589
1,600
6
1,500

1,562
1,750
6
1,300

1,560
1,875
6
1,100

50
-20

14
-68

50
-104

75
-122

75
-175

5,296

4,922

4,641

4,571

4,440

3,236

3,471

3,537

3,615

3,565

951

1,057

218

206

1,077
_7
138

1,106
-5
135

1,006
-2
134

-297

-459

4,107

4,274

-483
10
4,273

-448
11
4,413

-482
11
4,233

2,054
564
319

2,071
520
309
1,086
687
301

1,971
547
260
1,864
486
303

1,971
547
275
2,020
480
285

1,971
541
290
1,975
480
285

-2,151

-2,298
23

-2,354
23

-4,529
23

-2,559
23

1,721

2,699

3,101

1,072

3,007

244

232

81
-30

85
-30

85
-30

24"

27"

1,475

1,560

1,465
23

1,478
23

1,490
43

642
293

5-48

THE BUDGET FOR FISCAL YEAR 1989

NATIONAL NEED: USING AND PRESERVING NATURAL RESOURCES AND PROTECTING THE
ENVIRONMENT—Continued
(Functional code 300; in millions of dollars)
Major missions and programs

Offsetting receipts:
Existing law
Proposed legislation
Subtotal, Recreational resources
Other natural resources:
Program activities:
Existing law . .

Proposed legislation
Offsetting receipts
Subtotal, Other natural resources
Total, budget authority
1

actual 1987

Estimate
1988

1989

1990

1991

-59

-109
-23

-113
-23

-104
-45

-108
-45

1,685

1,687

1,403

1,406

1,435

1,781

1,868

1,801

1,721
29
-27

-i'i

-26

-27

1,787
29
-27

1,770

1,842

1,774

1,789

1,722

14,578

15,424

15,191

13,251

14,837

Includes budget authority from State grants financed by the land and water conservation fund.

Water Resources.—Total 1989 net proposed budget authority for
the Department of the Army's Corps of Engineers, the Department
of the Interior's Bureau of Reclamation, and the Department of
Agriculture's Soil Conservation Service (SCS) is $4.3 billion, which
is approximately the 1988 level, and is about $166 million above
the 1987 level. Increases due primarily to the construction of new
Federal water resource projects initiated since 1985 are offset in
1989 by higher commercial navigation user fees, non-Federal
project financing already authorized in law, and a decrease for
SCS. Most proposed funding for water resources development
covers ongoing construction of projects started in previous years,
and operation and maintenance of completed projects. However,
with the enactment of the Water Resources Development Act of
1986 (WRDA), the beneficiaries of water projects must pay a bigger
share of planning and construction costs. While these new requirements allow continued work on needed water projects, cost-sharing
has already resulted in smaller, less environmentally damaging
projects.
The administration proposes six new construction starts for the
Corps of Engineers, including the Santa Ana flood control project
in Southern California. 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 accordance with WRDA.
WRDA authorizes an ad valorem fee for use of the 200 U.S.
commercial harbors, and will annually recover up to 40 percent of
the Corps of Engineers harbor operation and maintenance expenses
that were previously financed entirely by general tax funds. The




5-49

NATURAL RESOURCES AND ENVIRONMENT

fee is equivalent to 4 cents for every $100 of value of cargo loaded
or unloaded.
The administration requests budget authority of $156 million in
1989 for Corps of Engineers harbor operation and maintenance
costs. These costs will be recovered from the WRDA ad valorem
receipts. In addition, the administration proposes to offset 1989
construction costs of inland waterway projects with $77 million in
receipts from the existing tax on fuel to transport cargo on the
inland waterway system (WRDA imposes a gradual increase in this
tax, doubling it by 1995). Both harbor and inland revenues are
classified as governmental receipts.
WRDA also authorizes greater concurrent non-Federal financing
of Corps of Engineers construction costs and established 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

OUTLAYS
Pollution control and abatement:
Regulatory, enforcement, and research programs
Hazardous substance response fund
Oil pollution funds (gross)
Sewage treatment plant construction grants..
Leaking underground storage tank trust
fund
Offsetting receipts
Subtotal, Pollution control and abatement
Water resources:
Corps of Engineers
Bureau of Reclamation:
Existing law
Proposed credit reform..
Other
Offsetting receipts-.
Existing law
Proposed legislation
Subtotal, Water resources.,
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 reserve program
Other conservation of agricultural lands
Other resources management
Offsetting receipts:
Existing law




actual 1987

Estimate
1988

1989

1990

1991

2,378

1,565
1,478
6
2,370

1,566
1,646
6
2,070

23
-68

32
-104

47
-122

71
-175

4,869

4,819

5,097

5,345

5,184

2,873

3,440

3,531

3,615

3,565

964

919

243

254

1,078
-4
166

1,099
-5
189

1,025
-2
138

-297

-459

-483
10

-448
11

-482
11

3,783

4,154

4,298

4,460

4,256

1,876
537
325
580
306

2,068
545
324
736
786
298

1,977
560
287
1,841
627
305

1,980
547
290
2,393
560
286

1,971
542
279
1,975
513
286

-2,151

-2,298

-2,354

-4,529

-2,559

1,419
541
6
2,920

1,511
778
8
2,566

1
-20

1,580
1,205

5-50

THE BUDGET FOR FISCAL YEAR 1989
NATIONAL NEED: USING AND PRESERVING NATURAL RESOURCES AND PROTECTING THE
ENVIRONMENT—Continued
(Functional code 300; in millions of dollars)
Estimate
Major missions and programs

actual 1987
1988

1990

1991

23

23

23

23

1,473

2,483

3,266

1,551

3,030

Proposed legislation
Subtotal, Conservation and land management

1989

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

281
29

312
33

185
16

110
*

71

1,312

1,612

1,507
17

1,506
23

1,486
43

-59

-109
-23

-113
-23

-104
-45

-108
-45

Subtotal, Recreational resources

1,564

1,824

1,589

1,490

1,447

1,686

1,886

1,801

1,890

1,876

Other natural resources:
Program activities:
Existing law
noposeo legislation
Offsetting receipts
Subtotal, Other natural resources
Total, outlays

97
LI

9Q

-ii

-26

-27

1,675

1,860

1,773

-11
1,889

1,877

13,363

15,139

16,024

14,735

15,794

-27

*$500 thousand or less.
1
Includes outlays from State grants financed by theland and water conservation fund.

Funding for the Bureau of Reclamation is consistent with the
change in the Bureau's mission announced in October 1987. An
increase of $32 million in budget authority over 1988 is proposed
for enhanced operation and maintenance of existing dams, power
plants, and irrigation facilities. Emphasis is also placed on the
consolidation of many headquarters operations and technical functions in Denver, Colorado, and on completion of ongoing construction and planning activities that are substantially underway. Funding for new activities and projects is constrained. These changes
will allow the Bureau to: upgrade the physical condition of its
facilities; streamline administrative and technical functions; and
complete more projects, or major project features, on schedule than
would be possible if funding were distributed to all projects regardless of their relative stage of completion.
The Bureau is included in the administration's loan asset sale
initiative. Bureau loans with a face value of about $530 million will
be offered for sale, yielding estimated net receipts of $130 million
in 1988.
The administration proposes major reforms for the SCS small
watershed program, which provides flood control facilities in rural
areas. The proposed reforms will eliminate overlap and duplication,
achieve a reduction in bureaucracy, bring about a significant in-




NATURAL RESOURCES AND ENVIRONMENT

5-51

crease in productivity, and make SCS flood control cost-sharing
consistent with WRDA provisions for the Army Corps of Engineers.
The administration is proposing $116 million in budget authority
for the small watershed program in 1989.
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. Proposed budget authority for these
programs increases by $402 million between 1988 and 1989 because
of increases in funding for the conservation of agricultural lands.
Management of National Forests, Cooperative Forestry, and Forestry Research.—Proposed budget authority in 1989 for direct management of National Forests is $2.0 billion, a decrease from 1988 of
$10 million, after adjusting the 1988 and 1989 levels of funding for
forest fire fighting. This net decrease occurs primarily as a result
of the postponement of some construction projects, as well as the
termination of financial assistance and reduced technical support
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 the costs of
resources will be carefully considered.
Planned timber sales from National Forest lands in 1989 are 11.2
billion board feet (BBF). Together with the estimated 25 BBF sold
but still uncut at the end of 1988, this level will be adequate to
respond to anticipated housing construction needs in 1989 and in
subsequent years.
Gross receipts from the harvest of timber are estimated to be
approximately $1.0 billion in 1989. Under current law, 25 percent
of these receipts are paid to States for schools and roads in the
counties of origin.
The administration proposes to reduce budget authority for contributions to State and private forestry programs from $76 million
in 1988 to $35 million in 1989. Funding will be retained to provide
for pest suppression on Federal and closely associated lands, and
for the collection and dissemination of data dealing with national
problems. General financial assistance to States for pest suppression, fire protection, and for forestry technical assistance on nonFederal lands is not proposed in 1989.
Management of Public Lands.—The Bureau of Land Management (BLM) administers 310 million surface acres of public lands
for multiple use, and 370 million acres of federally owned subsur-




5-52

THE BUDGET FOR FISCAL YEAR 1989

face mineral rights. The BLM will continue to emphasize mineral
leasing, realty management, data support systems, and renewable
resource activities that affect water, range, timber, or wildlife.
Hazardous waste assessment will also continue to be emphasized.
Mining Reclamation and Enforcement—A 1989 budget authority
request decrease of $47 million from the 1988 level of the abandoned mine reclamation fund reflects maturation of the abandoned
mined land reclamation grant program. This decrease balances
annual obligations at a rate that can be absorbed by States and
sustained each year until program completion in 1992. For 1989,
approximately 225 projects to reclaim abandoned mined lands in 22
States will be financed by the $159 million of proposed budget
authority.
Conservation of Agricultural Lands,—The Federal conservation
reserve program, authorized by the Food Security Act of 1985, will
continue in 1989. Under this program, the Secretary of Agriculture
enters into contracts with owners of erodible lands to remove those
lands from active crop production. In return, the landowners receive assistance in establishing appropriate conservation cover on
the land, and rental payments for each acre put into reserve
status. Savings will result from termination of a number of existing
conservation programs. The 1989 budget strengthens the conservation program of this administration by emphasing the conservation
reserve program and technical assistance.
Recreational Resources.—Overall proposed budget authority for
recreation decreases from $1.7 billion in 1988 to $1.4 billion in
1989. However, proposed funding for operation of the national park
system is increased. The overall reduction is due to postponing or
forgoing various construction and land acquisition projects. Proposed budget authority for Federal land acquisition is reduced from
the $232 million appropriated in 1988 to $51 million in 1989. The
administration is proposing that discretionary acquisitions for park
and refuge purposes be postponed through 1993 except for wetlands
to be acquired with revenue 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 the support of State historic preservation staffs are proposed for elimination in 1989. These needs can be met through
State, local, and private resources and the positive effect of Federal
tax incentives on private investment in historic buildings.
The Department of the Interior is pursuing private market approaches to the supply, rehabilitation, and construction of employee housing in areas, such as parks, where there are problems in
existing supply. Homeownership alternatives are included.
The budget fully utilizes entrance fees to national parks and
service charges for the recreational use of national parks, forests,




NATURAL RESOURCES AND ENVIRONMENT

5-53

and other Federal recreation facilities as authorized by the Omnibus Budget Reconciliation Act of 1987. Legislation will be proposed
to broaden the type of recreation fees to be retained by the Forest
Service to augment funding for National Forest system recreation
programs. This will increase the total fees available for use by $23
million. For 1989, recreation receipts available to the agency are
estimated to be about $32 million.
Total 1989 budget authority of $734 million, an increase of $13
million over 1988, is proposed to operate and maintain the national
park system's 341 units and 79 million acres. This includes $52
million to be financed by entrance and user fees collected in 1988.
In addition, legislation will be proposed to charge entrance fees
at recreation units administered by the Army Corps of Engineers
beginning in 1990. This will increase receipts by $20 million in 1990
and provide funding for the Corps of Engineers' recreation program.
Other Natural Resources.—These activities focus on the understanding, conservation, and careful husbandry of the Earth's resources, structure, and environment through research and development and through information dissemination programs. They comprise elements of the Geological Survey (USGS), the Bureau of
Mines (BOM), and the National Oceanic and Atmospheric Administration (NOAA).
The USGS 1989 budget authority request totals $425 million and
reflects reductions for numerous lower priority program activities.
Budget authority of $128 million is requested for the Bureau of
Mines in 1989. No funds have been requested for the Mineral
Institutes program. BOM research activities will reflect long-term
basic research projects with high potential benefit. The 1989 budget
proposal also includes the privatization of Federal helium operations. Current Federal helium activities are indistinguishable
from commercial operations and transfer to the private market can
efficiently meet future Federal helium needs. All helium operation
assets are proposed for sale. However, BOM will retain the crude
helium inventory assuring future supplies for Federal agency use.
For the NOAA programs, the 1989 budget authority request of
$1,151 million in this subfunction reflects a reduction of $32 million from the 1988 level. Increased funding is included for the
procurement of the next generation of polar-orbiting and geostationary weather satellites, doppler weather radars, and commercialization of the Land Remote Sensing Satellite (Landsat) program. Increased funding is also included for an integrated NOAA
program in Earth system science that will support research to
improve predictions of global climate change. Reductions are proposed for State and industry financial assistance, and for research
and service programs. Funding for other life safety, resource man-




5-54

THE BUDGET FOR FISCAL YEAR 1989

agement and development programs, and for atmospheric and oceanic research and services is maintained.
Offsetting Receipts.—Offsetting receipts for the entire natural
resources and environment function—primarily from user fees,
sales of products, and rents and royalties—are expected to increase
from $3.0 billion in 1988 to $3.1 billion in 1989. More than half of
these collections are rents and royalities.
Arctic National Wildlife Refuge.—During 1988, Congress will also
consider opening the Arctic National Wildlife refuge for the exploration and development of potentially vast oil reserves. Such development could greatly increase expected offsetting receipts. Congress should move quickly to harness this energy resource in order
to enhance United States energy security, yet do so in a manner
that ensures that environmental safeguards are carefully maintained. Because these resources belong to the Nation as a whole, to
the maximum extent feasible, these receipts must be used to benefit all the people by being returned to the Treasury in order to
reduce the deficit.
Credit Programs.—The administration will sell Bureau of Reclamation loans with a face value of about $530 million in 1988 (with
net proceeds from the sale estimated at $130 million). Four ongoing
Bureau loans are funded in 1989. These direct loans are made to
local government 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)
Actual 1987

Direct loans:
Water resources and other:
New obligations
Change in outstandings
Outstandings
Total, new obligations

Estimate
1988

1990

1989

1991

72
32
574

49
-304
270

18
38
308

11
2
309

2
-10
300

72

49

18

11

2

Tax Expenditures.—As an incentive to encourage production, certain 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 depletion is more generous than cost depletion in that total deductions
are not limited to the cost of the investment. The estimates for




NATURAL RESOURCES AND ENVIRONMENT

5-55

these two provisions are $40 million and $315 million, respectively,
in 1989.
The Tax Reform Act of 1986 eliminated the use of State and local
government debt to finance privately owned pollution control facilities and capped 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 was excluded from income subject to Federal income tax.
The estimated cost for 1989 is $2.2 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 1989 cost
estimate is $170 million.
Special benefits are provided to the timber industry to encourage
production. The gains from the sale of cut timber had been taxed
as capital gains. Because of the special capital gains exclusion, the
effective capital gains rates were lower than rates on ordinary
income before the exclusion was repealed by the Tax Reform Act of
1986. The Act, however, did exempt timber growers from the newly
codified rules for capitalizing production and holding costs for all
producers of goods beginning in 1987. This tax expenditure will
cost an estimated $300 million in 1989. Private forestry is also
encouraged because a limited amount of reforestation expenditures
are eligible for special tax credits and writeoffs that will cost $210
million in 1989.
Tax expenditures for natural resources and environment total an
estimated $3.2 billion in 1989.




5-56

THE BUDGET FOR FISCAL YEAR 1989

AGRICULTURE
Federal agricultural programs help meet domestic and international trade demands for food and fiber while mitigating the adverse 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, as
amended (known as the farm bill); and the Agricultural Credit Act
of 1987. 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 and Federal assistance
for the farm credit system to deal effectively with its financial
problems.
In 1988, the administration will prepare new legislation to
modify the current domestic sugar program to implement fair
treatment for taxpayers, consumers, and farmers. In addition, the
administration is proposing to reduce the appropriated limit of the
export guarantee loan program by $2 billion. This reduction would
bring the program level in line with the actual demand that exists
in the market place.
A total of $23.8 billion in budget authority is proposed for this
function in 1989, an increase of $1.3 billion from 1988. Total outlays are expected to decrease from $22.4 billion in 1988 to $21.7
billion in 1989. The $620 million reduction is the result of the
continuing shift away from direct loans to private loans that are
federally guaranteed and the success of the administration's policies aimed at developing more market-oriented price levels and
enhancing the United States' competitiveness.
The administration is requesting over $5 billion in budget authority for agricultural credit in 1989 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 to
provide a total loan level of $4.2 billion.
Farm Income Stabilization.—Outlays for farm income stabilization programs are estimated to drop from $20.3 billion in 1988 to
$19.8 billion in 1989.
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 support activities currently constitute the largest portion of Federal
Government expenditures in the agricultural sector of the economy
and include deficiency payments and loans to farmers.




5-57

AGRICULTURE
NATIONAL NEED: IMPROVED AGRICULTURE
(Functional code 350; in millions of dollars)
Major missions and programs

BUDGET AUTHORITY
Farm income stabilization:
Commodity Credit Corporation:
Existing law
Proposed legislation
Proposed credit reform
Crop insurance:
Existing law
Proposed legislation
Agricultural credit:
Existing law
Proposed credit reform
Other programs and unallocated overhead
Subtotal, Farm income stabilization
Agricultural research and services:
Research programs
Extension programs
Marketing programs
Animal ana plant health programs
Economic intelligence
Other programs and unallocated overhead
Offsetting recei
Subtotal, Agricultural research and
services
Total, budget authority

Estimate

actual 1987

1989

1990

1991

20,115

16,344

15,658
7
565

15,947
-63
346

15,455
-126
141

345

429

330

354
-99

383
-172

2,933

3,615

5,795
-524

4,153
66

3,352
50

1
23,394

20,388

21,832

20,704

19,084

902
339
138
319
188
219
-98

910
358
141
336
204
224
-103

834
300
142
302
205
240
-103

823
300
141
297
205
230
-103

823
300
141
268
205
230
-103

2,007

2,070

1,920

1,893

1,864

25,401

22,458

23,752

22,597

20,948

*$500 thousand or less.

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 price-support loans
that enable them to hold their crop for later sale. If market prices
are below the price-support loan rate determined by law, the producer can default on the loan without penalty, forfeiting the loan
collateral as settlement of the loan.
Agricultural price support outlays were $22.5 billion in 1987,
down from the record level of $25.8 billion in 1986. Outlays are
projected to decline to $17.7 billion in 1988 and $17.1 billion in
1989. The administration's goal of developing more market-oriented
agricultural programs that would enhance the United States' competitiveness is working. There has been major improvement in
export markets, farm income reached record levels in 1987, and
farm debt is projected to decline again for the fifth straight year.
The administration plans to utilize fully the discretion provided
in the 1985 farm bill to set price supports closer to market clearing
levels. The reduction in artifically high price supports should in-




5-58

THE BUDGET FOR FISCAL YEAR 1989

NATIONAL NEED: IMPROVED AGRICULTURE
(Functional code 350; in millions of dollars)
Major missions and programs

OUTLAYS
Farm income stabilization:
Commodity Credit Corporation:
Existing law
Proposed legislation
Proposed credit reform
Crop insurance:
Existing law
Proposed legislation
Agricultural credit:
Existing law
Proposed credit reform
Other programs and unallocated overhead
Subtotal, Farm income stabilization
Agricultural research and services:
Research programs
Extension programs
Marketing programs
Animal and plant health programs
Economic intelligence
Other programs and unallocated overhead
Offsetting receipts
Subtotal, Agricultural research and
services

Total, outlays..

actual 1987

Estimate
1988

1989

1990

1991

22,454

17,707

17,149
7
565

15,951
-63
346

15,455
-126
141

454

491

541

547
-98

534
-172

2,564

2,124

1,999
-497

1,110
-354

20"
25,492

12"
20,334

19,763

1,281
-392
2
17,573

16,588

808
319
103
324
183
225
-98

885
353
134
338
191
220
-103

867
312
143
306
204
239
-103

852
294
141
297
205
231
-103

840
300
141
268
205
230
-103

1,864

2,018

1,969

1,918

1,880

27,356

22,352

21,732

19,491

18,468

crease U.S. exports, thereby reducing the need for export subsidies.
The value of agricultural exports in 1987 was $27.9 billion, while
imports totaled $20.6 billion, resulting in a positive agricultural
trade balance of $7.3 billion. The importance of agricultural trade
to the economic health of the farm sector and the nation as a
whole mandates an increased reliance on free markets for farm
products.
The current price support program for the sugar industry poses
significant problems in the areas of trade policy, foreign policy, and
agricultural policy. The administration will seek to make deficitneutral changes in this counterproductive program to make it
more market-oriented and reduce Government interference in
trade. The most important aspect of the 1985 farm bill was a move
to a more market-oriented agriculture sector. Domestic sugar
policy is in direct conflict with this and other policy objectives for
the following reasons: the quota system runs counter to a free
trade policy; international trade tensions are fostered by reducing
the quota; and there is a loss of foreign exchange in countries that
are economically weak but vital to U.S. interests.
Crop Insurance.—Since 1938, the Federal Crop Insurance Corporation (FCIC) has offered insurance to producers against crop losses




AGRICULTURE

5-59

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. The insurance in force is projected to reach $7.6 billion in 1989, an increase of $400 million over the
1988 estimate.
Agricultural Credit—The Nation relies primarily on private
credit for agriculture, as in other sectors of the national economy.
However, the Farmers Home Administration (FmHA) currently
holds about 20 percent of total farm debt outstanding, primarily for
family farmers with limited resources. At the end of 1987, outstanding FmHA agricultural credit insurance fund direct loans
totaled $27.6 billion. The FmHA has lent over 50 percent of this
amount during the last 10 years. In 1987, new direct lending totaled $1.1 billion.
Farm operating and ownership direct and guaranteed loan activity in 1988 is estimated to be $3.8 billion. The 1989 budget proposes
$4.0 billion in direct and guaranteed farm operating lending, continuing to shift gradually away from direct Federal lending to
Federal guarantees of private loans, as provided for in the farm
bill. Disaster loan programs are proposed to be funded at anticipated demand levels, or $100 million in 1989, versus the estimated
level of $114 million in 1988. An additional $100 million will be
available in 1989 for interest rate buy-downs on guaranteed loans
and $100 million will be available for guarantees of farm ownership loans.
Agricultural Research and Services.—The proposed funding level
for agricultural research and services is $1.9 billion in 1989, a $0.2
billion decrease from the estimated level in 1988.
Research Programs.—The proposed 1989 research program includes $834 million of budget authority, a $75 million decrease
from the 1988 level due to reduced funding for research, buildings
and facilities, and special grants to States. The proposed program
level gives priority to genetic and biotechnology research. Research
in the areas of water quality, protection of the stratospheric ozone,
conservation, food safety, and human nutrition will be emphasized.
The 1989 program emphasizes long-term, basic research rather
than applied research and product development, which are more
appropriately financed by private industry.
Extension Programs.—The Federal Extension Service, States, and
localities finance the Cooperative Extension System. This system
provides social and economic services in agriculture, home economics, community development, and 4-H youth programs. Federal
support, which accounts for up to one-third of the resources available to the system, is proposed to decrease from $358 million in




5-60

THE BUDGET FOR FISCAL YEAR 1989
CREDIT PROGRAMS—AGRICULTURE
(In millions of dollars)
Estimate

Actual 1987

Direct loans:
Agricultural credit insurance fund subsidies:
New obligations
Change in outstandings
Outstandings
Agricultural credit insurance fund:
New obligations
Change in outstandings
Outstandings
CCC export subsidies:
Change in outstandings
Outstandings
Commodity price support and related loans:
New obligations
Change in outstandings
Outstandings
Total, direct loans:
New obligations
Change in outstandings..
Outstandings
Guaranteed loans:
Agricultural credit insurance fund subsidies:
New commitments
Change in outstandings
Outstandings
Agricultural credit insurance fund:
New commitments
Change in outstandings
Outstandings
CCC export subsidies:
New commitments
Change in outstandings
Outstandings
CCC export guarantee loans:
New commitments
Change in outstandings
Outstandings
Total, guaranteed loans:
New commitments
Change in outstandings..
Outstandings
Total, new obligations and new commitments

1,493
-1,471
27,600

1989

1,137
-2,270
25,329

1990

1991

600
570
570

500
452
1,022

400
299
1,321

-2,742
22,587

-2,554
20,033

-2,241
17,792

19
19

234
252

438
690

16,566
-3,031
18,578

15,024
-4,184
14,393

10,746
-717
13,676

10,923
-1,230
12,446

10,330
-288
12,158

18,060
-4,501
46,177

16,161
-6,455
39,722

11,346
-2,871
36,852

11,423
-3,098
33,754

10,730
-1,793
31,960

3,600
1,615
1,615

3,675
2,969
4,584

3,750
2,398
6,982

357
4,191

-757
3,433

-354
3,079

3,500
3,500
3,500

3,500
2,450
5,950

3,500
1,400
7,350

1,565
700
2,488

2,793
1,345
3,834

2,998
123
3,732

5,500
3,492
7,224

-2,879
4,346

-2,240
2,106

-1,729
377

4,564
823
6,220

8,293
4,838
11,058

7,100
2,593
13,651

7,175
2,422
16,074

7,250
1,715
17,789

22,623

24,454

18,446

18,598

17,980

budget authority for 1988 to $300 million in 1989. The administration proposes 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, and financial management; and by reducing grant
assistance for food and nutrition education. These programs can be
funded out of the formula grant program, which is proposed to
have $228 million in budget authority in 1989.




AGRICULTURE

5-61

Marketing Programs,—The Federal Government provides unbiased, time-sensitive marketing information on most major agricultural commodities in international, national, and regional segments of the agricultural marketing chain. Marketing transaction
data are compiled into market reports that are released to users
through radio, television, telephone answering devices, and
through printed media. These data aid in the orderly marketing of
farm products and services. Most of these sources are offered on a
user fee basis.
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. Budget authority in 1989, proposed to be
$306 million, includes 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.
Tax Expenditures.—Agriculture is promoted by several tax expenditures. 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 seasons. In contrast, non-agricultural entities are required to capitalize the costs of multi-year production processes. The tax expenditures for these two agricultural deductions are estimated to be $545
million and $5 million, respectively, in 1989.
The 1986 tax legislation repealed the capital gains benefit farmers could derive from the sale of such products as livestock, which
had been 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 1989.
Altogether, the estimated 1989 cost of tax expenditures in support of agriculture is $520 million.




5-62

THE BUDGET FOR FISCAL YEAR 1989

COMMERCE AND HOUSING CREDIT
The Federal Government needs to ensure a stable supply of
credit to all sectors of the economy. Commerce and housing credit
programs supplement private sector financing of business and
housing by providing assistance for mortgage 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 maintaining low-inflation, growth-oriented monetary and fiscal policies,
reducing Federal intervention in private markets, and making existing programs more efficient. These policies have brought about
the lowest interest rates in nearly a decade. These low rates contributed to 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 proposes $14.8 billion in budget authority in 1989 and
$7.9 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 $10.0 billion in proposed
budget authority in 1989. In addition, the budget proposes $677
million in direct loan obligations and $66 billion in guaranteed
loan commitments in 1989.
Mortgage Credit and Deposit Insurance.—In support of both the
housing and financial markets, the Federal Government's primary
goals are fiscal and monetary policies that result in non-inflationary economic growth and a stable, sound financial system. 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 Mortgage 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 Administration. The GNMA guarantee enhances the saleability of these securities in the capital markets. In 1988, guarantees are expected to be
issued on $83.4 billion in securities. For 1989, the administration
proposes a new commitment limitation of $100 billion. Of that
amount, new guarantees are estimated to be issued on $83.6 billion
in securities.
The administration is proposing to deregulate the fee GNMA
mortgage-backed issuers earn servicing FHA and VA mortgages
underlying GNMA's securities. Currently, GNMA sets the servicing




5-63

COMMERCE AND HOUSING CREDIT
NATIONAL NEED: COMMERCE AND HOUSING CREDIT
(Functional code 370; in millions of dollars)
Major missions and programs

actual 1987

Estimate
1989

1988

1991

1990

BUDGET AUTHORITY
Mortgage credit and deposit insurance:
Mortgage-backed securities (GNMA):
ProDosed credit reform

Mortgage purchase activities (GNMA)
Mortgage credit (FHA):
Existing law
Proposed credit reform
Housing for the elderly or handicapped:
Existing law
Proposed credit reform
Rural housing programs (FmHA):
Existing law

Proposed legislation
Federal Deposit Insurance Corporation
Federal Savings and Loan Insurance Corporation and other
Subtotal, Mortgage credit and deposit
insurance
Postal service:
Existing law

Proposed legislation
Subtotal, Postal service
Other advancement of commerce:
Small and minority business assistance:
Existing law
Proposed credit reform

Science and technology
Economic and demographic statistics
International trade and other:
Existing law

Proposed legislation
Subtotal, Other advancement of commerce
Total, budget authority

1,900
270

1,900

1,900

825

957
903

1,040
880

1,017
880

533

584

289
-216

310
-231

327
-254

2,434

6,339

3,864

2,862

3,716
-89

1,099

903

27

1,600

3,986

2,000

1,000

750

6,148

12,652

9,994

7,761

8,248

2,944

1,699

2,764
-351

2,731
-194

2,807
11

2,944

1,699

2,412

2,537

2,818

644

515

317
298

362
473

404
336
378
704

496
280
387
1,529

547
156
373
421

535

562

597
-1

572

570

1,792

1,912

2,419

3,265

2,066

10,885

16,262

14,825

13,562

13,133

1

14

480

fee paid to issuers at 44 basis points per annum (44/100 of one
percent) of the outstanding mortgage amount. This minimum fee
was originally established to assure that lenders could profitably
service the GNMA mortgage pools. However, the fee may be in
excess of that needed to protect the Government's interests and
may in fact lead to higher mortgage rates for borrowers. The
administration proposes to deregulate the fee, thereby letting the
market establish the rate, and to increase minimum capital requirements for issuers to protect the Government against issuers
defaulting on their mortgage pools.
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




5-64

THE BUDGET FOR FISCAL YEAR 1989

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 underwriting and downpayment requirements intended to
assist low- and moderate-income families who otherwise would not
be able to afford to buy a home. However, some families using the
FHA program may qualify for private mortgage insurance. The
administration will continue to study the extent to which FHA
activity duplicates private mortgage insurance activity. As part of
this effort, HUD is planning to conduct a study to compare its
mortgage insurance premium to the premium private mortgage
insurers would have to charge to provide comparable guarantees.
NATIONAL NEED: COMMERCE AND HOUSING CREDIT
(Functional code 370; in millions of dollars)
Major missions and programs

actual 1987

Estimate
1988

1989

1990

1991

-234

-100

-481

27

-278
1,007
-7

-318
1,053
-4

-369
1,107
-4

-555

281

36
1,586

-262
2,056

-535
1,746

545

530

532

OUTLAYS
Mortgage credit and deposit insurance:
Mortgage-backed securities (GNMA):
Existing law

Proposed credit reform ...
Mortgage purchase activities (GNMA)
Mortgage credit (FHA):
Existing law
Proposed credit reform
Housing for the elderly or handicapped:

Existing law
Proposed credit reform
Rural housing programs (FmHA):
Existing law
Proposed legislation
Federal Deposit Insurance Corporation
Federal Savings and Loan Insurance Corporation and other
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:
Existing law

Proposed credit reform
Science and technology
Economic and demographic statistics
International trade and other:
Existing law
Proposed legislation
Subtotal, Other advancement of commerce
Total, outlays




404

518

-60
799

3,248

-1,438

1,407

1,090

2,268

1,411
-89
502

-1,016

-1,067

4,755
-188

2,189
-253

951
-295

1,120
-320

915
-326

3,062

8,205

5,355

4,247

3,016

1,593

2,223

1,183
-508

1,591
-46

1,663
11

1,593

2,223

675

1,545

1,674

342

471

370
246

411
480

74
173
373
624

-26
283
386
1,616

553
163
379
427

569

575

589
-1

561

555

1,527

1,936

1,832

2,821

2,078

6,182

12,364

7,862

8,613

6,768

COMMERCE AND HOUSING CREDIT

5-65

Housing for the Elderly or Handicapped.—The section 202 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 program 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 housing in the existing rental market. For 1989, the budget proposes a
section 202 construction program of 7,000 units with $350 million
in loan funds. To address the special needs of the mentally handicapped, the budget proposes a 25 percent set-aside of program
funds for the handicapped, with special priority given to the mentally handicapped homeless. By emphasizing these special needs,
the budget assumes that approximately $50 million in section 202
loan authority will be used to develop projects equipped to assist
the mentally handicapped homeless population.
Rural Housing Programs.—As discussed in the income security
function, the administration proposes to expand the rural voucher
program established in the 1987 Housing and Community Development Act, to replace lending from the rural housing insurance
fund direct loan program of the Farmers Home Administration
(FmHA). As evidenced 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.
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 1987. A
significant portion of the failed banks suffered unsustainable losses
caused by weaknesses in the economies of states dependent on the
agriculture and oil industries. The net loss incurred by the fund in
1987 was $201 million, resulting in an equity balance of $18.3
billion. Despite continued high rates of bank closing activity projected for 1988 and 1989, the FDIC will have sufficient resources to
handle this historically heavy workload. FDIC equity is projected to
increase to $19.5 billion by the end of 1989.




5-66

THE BUDGET FOR FISCAL YEAR 1989
CREDIT PROGRAMS—COMMERCE AND HOUSING CREDIT
(In millions of dollars)
Actual 1987

Direct loans:
Mortgage-backed securities (GNMA):
Change in outstandings
Outstandings
Mortgage-backed securities subsidies (GNMA):
Change in outstandings
Outstandings
Mortgage insurance (FHA):
New obligations
Change in outstandings
Outstandings
Mortgage purchase activity (GNMA):
Change in outstandings
Outstandings
FHA fund subsidies:
New obligations
Change in outstandings
Outstandings
Housing for the elderly or handicapped:
New obligations
Change in outstandings
Outstandings
Housing for the elderly or handicapped subsidies:
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 Administration:
New obligations
Change in outstandings
Outstandings
FDIC:
Change in outstandings
Outstandings
FSLIC:
New obligations
Change in outstandings
Outstandings
Other:
New obligations
Change in outstandings
Outstandings
Total, direct loans:
New obligations
Change in outstandings..
Outstandings
Guaranteed loans:
Mortgage-backed securities (GNMA) 1
New commitments
Change in outstandings
Outstandings




92
102

399
4,645
-427
457

574
377
6,566

Estimate
1988

1989

2
104

41
-203
4,442
-55
402

566
505
7,071

1990

1991

-28
75

-10
44
*
1

42
4,484

280
4,764

-393
9

9

103
41
41

168
107
148

168
166
314

17
490
7,560

9
491
8,051

391
8,442

333

350

368
79
79

338
5,102

1,716
-3,219
26,511

1,715
301
26,812

-2,434
24,378

-1,196
23,182

-1,228
21,954

106
6
112

127
25
137

144
25
162

150
25
187

150
25
212

-910
3,326

-943
2,383

-187
2,196

-216
2,872

-50
2,822

-50
2,772

-334
3,089

85
-278
4,236
-1
3,088

96
83
1,769

100
-12
1,757

74
-35
1,722

25
15
1,737

25
15
1,752

3
-21
42

20
5
47

5
-3
44

-7
37

-7
30

2,581
-3,347
47,806

2,654
290
48,097

677
-3,422
44,674

702
-1,301
43,374

711
-468
42,906

-302
4,514

139,976
67,767
308,997

83,355
32,522 -22,690 -36,771 -35,984
341,519 318,829 282,058 246,074

5-67

COMMERCE AND HOUSING CREDIT
CREDIT PROGRAMS—COMMERCE AND HOUSING CREDIT—Continued
(In millions of dollars)
Actual 1987

Mortgage-backed securities subsidies (GNMA):
New commitments
Change in outstandings
Outstandings
Mortgage insurance (FHA):
New commitments
Change in outstandings
Outstandings
FHA fund subsidies:
New commitments
Change in outstandings
Outstandings
Rural housing (FmHA):
Change in outstandings
Outstandings
Small Business Administration:
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
Total, guaranteed loans:
New commitments
Change in outstandings..
Outstandings
Total, new obligations and new commitments

Estimate
1988

1989

83,609
50,422
50,422
79,995
51,897
275,417

1990

84,462
62,128
112,550

1991

85,409
60,893
173,443

59,850
7,685 -27,174 -42,048 -41,153
283,102 255,928 213,880 172,727
61,790
34,801
34,801

63,918
51,141
85,942

66,309
51,519
137,460

-5
177

-140
37

-1
35

_2
33

-5
28

3,387
586
9,291

3,791
435
9,726

3,597
310
10,036

3,596
205
10,241

3,596
95
10,336

1,260
1,110
4,063

623
-367
3,696

325
218
3,913

100
50
3,963

100
50
4,013

142
54
274

90
45
319

4
-22
297

-20
277

-18
259

427
-457

55
-402

393
-9

-9

84,785
54,068
288,765

64,354
7,713
296,478

65,715
8,525
305,002

67,614
9,325
314,328

70,005
10,488
324,816

87,366

67,008

66,392

68,316

70,716

*1 $500,000 or less.
GNMA guarantees securities that are backed by pools of loans previously insured by FHA, VA, or FmHA. These secondary guarantees of loans
are2not included in the guaranteed loan totals on this table.
When guaranteed loans are acquired by another budget account, they are counted as direct loans in the credit budget. This deduction for
GNMA eliminates double counting.

The Federal Savings and Loan Insurance Corporation (FSLIC),
under the direction of the Federal Home Loan Bank Board, insures
deposits of member savings and loan associations and savings
banks. While healthy thrifts (holding over 80 percent of industry
assets) improved their combined net worth by almost 25 percent in
1987, troubled thrifts as a group experienced heavy losses. Estimated outlays of $2.2 billion in 1988 and $1.0 billion in 1989 reflect the
mounting caseload of troubled institutions to be handled by FSLIC.
The Competitive Equality Banking Act (CEBA) of 1987 recapitalized the FSLIC fund by creating the Financing Corporation (FICO),
a new financing facility (FICO) capitalized from earnings of the




5-68

THE BUDGET FOR FISCAL YEAR 1989

Federal Home Loan Banks. Funds are raised by FICO in the longterm credit markets and invested in FSLIC stock. FSLIC will use
the proceeds, in addition to its premium and investment income, to
accelerate its efforts to close unprofitable and insolvent institutions.
The CEBA also directed that the special insurance assessment
(one-eighth of 1 percent) on deposits of FSLIC insured thrifts be
gradually eliminated unless the FHLBB determined that FSLIC's
financial conditions would not warrant a reduction. Although the
FHLBB has not made a final policy determination to continue the
special assessment, the budget projections assume continuation at
the current rate. Even with recapitalization and the projected continuation of the special assessment, FSLIC expenditures are anticipated to exceed receipts during the next few years. FSLIC fund
equity remains negative through 1989 due to recognition of FSLIC's
contingent liability for the eventual closing of many insolvent
thrifts.
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 $1.4 billion in 1986 to
$1.6 billion at the end of 1987. In 1988 and 1989, insurance fund
equity is expected to grow to $1.9 billion and $2.2 billion, respectively. Collections are expected to exceed gross outlays for the
insurance fund by $277 million in 1988 and $320 million in 1989.
Postal Service.—The U.S. Postal Service (USPS) is an independent federal corporation within the executive branch. There are two
components of Postal Service outlays: the subsidy for religious and
charitable mailings (the Revenue Forgone Appropriation) and the
difference between total USPS receipts (e.g., stamp sales receipts)
and expenditures. Total outlays for 1988 are estimated to be $2.2
billion with a drop in 1989 to $0.7 billion. This is largely due to
increased postage receipts resulting from a projected 16 percent
average rate increase in April 1988.
Consistent with the June 1986 Postal Rate Commission study of
subsidized postal mailings, the 1989 budget proposes to eliminate
virtually all taxpayer subsidies while shifting the cost of reduced
rates for most religious and charitable mailings to commercial
mailers. This would reduce the 1989 appropriation $498 million
below the 1988 level of $517 million. The budget continues a small
appropriation ($19 million) to subsidize free mail for the blind and
for overseas voters.
The recently enacted Omnibus Budget Reconciliation Act of 1987
(OBRA) requires the Postal Service to achieve operating cost reductions of $160 million for 1988 and $270 million for 1989. These
congressionally-mandated savings represent 0.43 and 0.68 percent




COMMERCE AND HOUSING CREDIT

5-69

of the total estimated USPS expenditures for 1988 and 1989, respectively. To help the Postal Service achieve these modest operating
cost reductions without reducing service, the budget proposes implementation of pilot projects (1) permitting private companies to
provide certain postal services directly, and (2) expanding current
efforts to contract with the private sector to supply goods and
services to the Postal Service at lower cost. Recent experience in
implementing the "urgent letter" rule and broadening international mail competition has proved that the Postal Service and private
enterprise can coexist profitably in the same markets, better serving the American public with more services and more explicit price
information for choosing among these services.
A recent GAO report recommended strengthening the Postal
Inspection Service (PIS) by requiring the PIS to submit reports,
similar to those prepared by Statutory Inspector Generals, directly
to the Postal Board of Governors for action. The budget recommends that the Governors meet this GAO objective by taking direct
control over the PIS. Additionally, to strengthen further the Presidentially-appointed Governors, the budget proposes providing them
with independent counsel and a small program analysis and evaluation staff. The Postal Service Fund would fully finance the proposed staff increases for the Board of Governors. No taxpayer costs
would be incurred.
For several years the administration has sought to require the
Postal Service to pay its full share of the costs of retirement and
health insurance benefits for Postal retirees. OBRA required the
Postal Service to make partial payments in 1988 of $350 million
toward retirement costs and $160 million toward annuitant health
benefit costs. The Act required another partial payment of $270
million for health benefit costs in 1989. Following up on this policy,
the administration will propose legislation requiring the Postal
Service to make payments to the civil service retirement fund to
cover the full cost of providing cost-of-living adjustments (COLAs)
to Postal Service annuitants. The Postal Service will be liable for
its annuitant COLA costs in 1989, but its initial payment will be
deferred until 1990 when a payment will be made for both 1989
and 1990.
Other Advancement of Commerce.—Federal programs attempt to
support an environment for fair and equitable business opportunities and increase international competitiveness by providing technical assistance, developing and distributing scientific standards, collecting and disseminating information on the economy and population, administering U.S. trade laws, and providing export promotion assistance to small and medium-sized businesses.
Small and Minority Business Assistance.—The administration
proposes to continue Federal credit assistance to small and minori-




5-70

THE BUDGET FOR FISCAL YEAR 1989

ty businesses in the form of guaranteed loans rather than direct
loans. Guaranteed loans of $3.6 billion are proposed in 1989 for the
Small Business Administration (SBA) general business program,
small and minority enterprise business investment company programs, and development company programs. An estimated $520
million in direct loans will be made to repurchase defaulted guaranteed loans in 1989. To improve the Federal Government's efforts
to assist minority business enterprises, the administration proposes
to consolidate the minority business development assistance program, currently in the Department of Commerce, into the minority
business assistance programs within the SBA.
As part of the administration's effort to improve Federal credit
management, administrative increases in guarantee fees for SBA's
programs are proposed, which would result in $7.5 million in receipts. In addition, measures will be proposed to reduce the Federal
Government's contingent liability. By increasing both the borrowers' and the lenders' share of default costs, these proposals encourage sounder credit origination decisions and should result in lower
default rates. The budget also proposes to sell $1 billion in loans
during 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 1989, the administration proposes budget authority of $11 million for USTTA programs. The
administration will continue to pursue legislation, introduced last
year, to establish 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, and
would be used to fund USTTA programs in 1990 and beyond.
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, futures and options markets perform important
roles in the economy. The administration proposes to increase
budget authority in 1989 for the SEC by 19 percent and the CFTC
by 8 percent to permit these agencies to keep pace with major
changes in these markets and corresponding increased workloads.
Tax Expenditures.—There are numerous tax expenditure programs 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, expired before 1987; others, such as the
depreciation and bank bad debt reserve provisions, have been modi-




5-71

COMMERCE AND HOUSING CREDIT

TAX EXPENDITURES FOR COMMERCE AND HOUSING CREDIT
(Outlay equivalents; in millions of dollars)
Estimates

Description
1987

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
Exemption of RIC expenses from the miscellaneous deductions floor
Deducibility of interest on consumer credit
Deducibility of mortgage interest on owner-occupied homes
Deducibility 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
Deferral of income from post-1987 installment sales
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 reforestation 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
Reduced rates on the first $100,000 of corporate income
Deductions for special percentage of taxable income for life insurance
companies
Exception from passive loss rules for $25,000 of rental losses
Total (after interactions), commerce and housing credit ]

470
3,420
265
575
7,475
11,845
34,745
10,285
2,420
1,730
98,180
2,970
2,935
9,210
17,745
210
260
13,280
975
300
6,340

1988

1989

3,435
240
120
7,200
240
6,530
33,675
10,100

3,475
220
65
7,235
3,280
32,185
10,410
2,360
1,630
670

2,375
1,650
260
265
4,435
3,730
16,030

4,690
3,910
17,310

11,295
565
290
340
21,920
660
245
4,720

4,030
-25
350
390
27,520
535
230
4,550

480
580
1,580
1,255
221,450 129,300 123,610

*$500
thousand or less.
1
The estimate of total tax expenditures for this function reflects interactive effects among the individual items. Therefore, the estimates cannot
simply be added.

fied by the Tax Reform Act of 1986; and still others, such as capital
gains and investment tax credit, were repealed. Individuals may
deduct miscellaneous expenses only to the extent that they exceed
2 percent of adjusted gross income (AGI). Regulated investment
company (RIC), i.e., mutual fund, shareholder expenses are subject
to this floor from which they had been exempt for the tax year
1987. Taxpayers are thus again required to include in the taxable
income amounts greater than actually received from mutual funds.
The administration proposes that the exemption of RIC expenses
from the 2 percent miscellaneous deduction floor be made permanent at a cost of $410 million in 1989. Altogether, the estimated
1989 budget cost of these tax subsidies to commerce and housing
credit is $123.6 billion, 4.4 percent less than the $129.3 billion total
for 1988. A detailed description of these tax expenditure programs




5-72

THE BUDGET FOR FISCAL YEAR 1989

and the way they have been affected by the Tax Reform Act will be
found in Special Analysis G.




TRANSPORTATION

5-73

TRANSPORTATION
The Federal Government seeks to facilitate a safe, efficient and
cost-effective national transportation system that contributes to the
national economy, advances interstate commerce, and supports the
national defense.
An integrated and efficient national, State, and local transportation 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 transportation services and facilities for which it is appropriately responsible, with the Federal Government concentrating its efforts and
limited resources on improving the interstate transportation
system and on ensuring compliance with needed safety standards.
The private 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 and cost-effective levels of transportation services at the lowest reasonable cost.
The administration requests $27.0 billion of budget authority in
1989 for national ground, air, and water transportation systems,
about $1.1 billion less than for 1988. This funding request will
implement the highway and air programs recently authorized in
1987. Obligations for highway, highway safety, and transit programs supported by the highway trust fund are targeted to the
level of anticipated user fee receipts over the authorization period,
1987 through 1991. Requested funding for air transportation increases by $0.9 billion, or 13 percent, between 1988 and 1989, with
the largest increase associated with the modernization of the air
traffic control system.
The administration continues to stress the importance of requiring transportation users to pay the full cost of their transportation
benefits. The administration proposes to finance 78 percent of
transportation costs by user fees in 1989, compared to 45 percent of
these costs funded by user fees in 1981. Subsidizing certain transportation services at the expense of all taxpayers results in a
misallocation of society's resources and provides an unfair disadvantage to unsubsidized, but socially and economically useful,
transportation services.
Ground Transportation.—Proposed budget authority in 1989 is
$15.7 billion for highway, highway safety, mass transit, and railroad programs, a $2.6 billion decrease from 1988. The budget continues the administration's commitment to maintaining the quality
of the Federal-aid highway system within available user fee resources, promoting highway safety, eliminating general taxpayer
subsidies for Amtrak and mass transit, providing equitable distri-




5-74

THE BUDGET FOR FISCAL YEAR 1989
NATIONAL NEED: EFFICIENT TRANSPORTATION SYSTEMS
(Functional code 400; in millions of dollars)
Major missions and programs

actual 1987

Estimate
1988

1989

1990

1991

13,581
298

13,806
402

13,701
315

13,850
317

13,850
320

3,598

3,334

720

671

1,430
144
57

1,394
94
56

1,490
-6
55

47

44

44
-13

45
-28

46
-29

18,244

18,258

15,678

15,728

15,726

4,761
727
30

6,147
723
24

6,937
872

7,116
917

7,265
926

5,518

6,895

7,809

8,033

8,191

2,588

2,526

2,968

3,259

3,141

531

332

163
206
*

182
59
*

220
56
*

3,120

2,772

3,338

3,500

3,417

115

108

138

138

140

26,996

28,032

26,963

27,399

27,474

BUDGET AUTHORITY
Ground transportation:
Highways
Highway safety
Mass transit:
Existing law
Proposed legislation. .
Railroads
>
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
Ocean shipping:
Existing law
Proposed legislation
Proposed credit reform
Reimbursement to Treasury from Panama
Canal Commission
Subtotal, Water transportation
Other transportation
Total, budget authority

-86

*$500 thousand or less.

bution of user fee revenues, and requiring State and local cost
sharing on all projects.
Highways.—The administration proposes to implement the provisions of the Surface Transportation and Uniform Relocation Assistance Act (STURAA) within the level of anticipated user fee receipts deposited in the highway account of the highway trust fund.
Proposed budget authority for the Federal Highway Administration is $13.7 billion in 1989. As in previous budgets, the administration proposes to set annual obligations so that spending from the
highway account of the highway trust fund does not exceed user
fee receipts during the 1987-1991 authorization period. (During the
last highway authorization, 1982-86, spending exceeded user fee
receipts by $5.1 billion.) Therefore, obligations for the Federal-aid
highways program are planned at $12.3 billion in 1989, compared
to $13.0 billion projected for 1988. To ensure judicious use of user
fee revenue, the administration also plans to require a non-Federal
cost sharing of at least 20 percent of project costs for all so-called




1

5-75

TRANSPORTATION

NATIONAL NEED: EFFICIENT TRA NSPORTATI ON SYSTEMS
(Function )l code 400; in m Ilions of dollars)
Major missions and programs

actual 1987

Estinnate
1988

1989

1990

1991

12,687
269

13,336
302

13,388
317

12,880
331

12,724
332

3,351

3,589

808

527

3,104
309
26

3,272
407
123

2,848
379
88

42

43

44
-16

45
-28

46
-28

Subtotal, Ground transportation

17,157

17,797

17,172

17,030

16,389

Air transportation:
Airports and airways (FAA)
Aeronautical research and technology
Air carrier subsidies

4,858
635
26

5,311
679
24

5,801
797
5

6,042
893

6,344
918

5,520

6,014

6,603

6,935

7,262

2,575

2,775

2,961

2,901

3,074

886

604

401
8

432
2
-5

462
-27
-5

3,461

3,293

3,365

3,330

3,504

91

133

141

136

137

26,228

27,237

27,280

27,431

27,292

OUTLAYS
Ground transportation:
Highways
Highway safety
Mass transit:
Existing law
Proposed legislation
Railroads
Regulation:
Existing law
Proposed legislation

Subtotal, Air transportation
Water transportation:
Marine safety and transportation
Ocean shipping:
Existing law
Proposed legislation
Proposed credit reform
Reimbursement to Treasury from Panama
Canal Commission
Subtotal, Water transportation
Other transportation
Total, outlays

-86

"demonstration" and special interest projects, that are not 1OO
percent federally funded.
Highway Safety.—The proposed funding level of $315 million in
1989 for Federal highway safety programs is 2 percent higher than
the 1988 level of $308 million (excluding a $94 million reappropriation in 1988). The proposed 1989 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 1989, $6.4 million in Federal funds would be
used to encourage the use of seat belts and passive restraints in
vehicles. Particular emphasis will be placed on reducing the level
of alcohol-related traffic accidents, which are again on the rise.
Approximately $51.3 million, including grant funds of $46.5 million, is planned for alcohol research and to support State drunkdriving abatement programs.
Mass Transit.—Total transit ridership in the United States is
now at a point slightly below where it was in 1965, accounting for



5-76

THE BUDGET FOR FISCAL YEAR 1989

only 5 percent of passenger-miles traveled by residents of urbanized areas. The current program is also contrary to the administration's view that support of essentially local activities is not an
appropriate Federal role, especially when financed from the general fund in excess of user fee receipts.
In an effort to address these trends and to use Federal dollars as
wisely as possible, in 1989 the administration will propose legislation to target mass transit funding (except for Washington Metro)
to the level of receipts provided by the one cent per gallon of the
motor fuel tax dedicated to mass transit. Proposed 1989 mass transit budget authority is $1.4 billion. Most of the funds would be
distributed by formula to States and large urban areas. States and
localities could use their formula grant funds on public transportation capital projects, provided they make matching contributions of
at least 50 percent.
The administration also proposes an immediate end to transit
discretionary grant funding. These grants have promoted the construction of local transit systems that often have been too costly
and underutilized. For example, in 1973, Detroit estimated that its
automated people mover would cost $30 million to build; it actually
cost $200 million and attracts no more than 10,000 daily riders, far
less than the 71,000 originally projected. In Miami, a $1 billion
transit investment carries only one-sixth 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
grants comes from the one cent of the fuel tax dedicated to transit.
The administration believes it is inequitable to continue subsidizing
the projects of less than 20 cities by fuel taxes paid throughout the
country. The fuel tax receipts should be distributed more equitably
by formula to States and localities.
The administration is also proposing to terminate operating subsidies to large and medium-sized cities, but not small urban and
rural areas. Federal operating subsidies, provided in response to
the energy crisis to increase transit ridership and decrease fuel
consumption, have generally financed inefficiency. Most of the operating subsidies finance increased wages and declining labor productivity in the mass transit industry. Absenteeism in the transit
industry is estimated at three times the national average, yet
transit operators and mechanics in large publicly operated systems
earn an average of 31 to 95 percent more than their counterparts
in the private sector.
The administration proposes a $128 million construction grant
for the Washington, D.C. Metrorail which will complete construction of 89.5 miles, the Federal commitment made in the 1986 full
funding agreement. Through 1989, the Federal Government will




TRANSPORTATION

5-77

have made available a total of $7.4 billion for the Washington
Metro system, far more than what has been provided for any other
new subway system in the country.
Railroads.—In keeping with the administration's policy of reducing Federal responsibility for rail activities unrelated to safety,
proposed budget authority for railroads in 1989 is reduced to $57
million, $614 million less than in 1988. The decrease is attributable
to the proposed elimination of subsidies for Amtrak as well as
elimination of the Northeast corridor improvement and local rail
service assistance programs.
Since 1970, the Federal Government has provided Amtrak with
more than $13 billion in direct and indirect subsidies. Despite a
virtual monopoly on intercity rail passenger service and a subsidy
averaging about $30 per passenger in 1987, Amtrak serves less
than 0.5 percent of all intercity travel. The administration is proposing to terminate all Amtrak subsidies in 1989. The President's
Privatization Commission is currently studying options for the privatization of Amtrak.
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 again be proposed to deregulate completely the motor carrier, household goods freight forwarder, bus and inland water transportation industries, and to
abolish the Interstate Commerce Commission (ICC) as an independent agency by October 1, 1988. 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 complaints regarding household goods
movers would be administered by the Federal Trade Commission.
Air Transportation.—Budget authority of $7.8 billion is requested
for air transportation in 1989, an increase of $0.9 billion from the
1988 level. Federal spending for air transportation is for the improvement, operation, and maintenance of the national airspace
system, airport grants, and aeronautical research.
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.
Budget authority of $6.9 billion is proposed for 1989, a 13 percent
increase from that provided in 1988. Tax receipts, primarily from
passenger ticket and freight waybill taxes, are estimated to be $3.7
billion in 1989, an increase of 8 percent over estimated 1988 receipts of $3.4 billion.




5-78

THE BUDGET FOR FISCAL YEAR 1989

Most of the requested 1989 funding increase is due to a proposed
44 percent increase in funding for the FAA's program to modernize
our Nation's airspace system. In 1989, the administration is requesting $1.6 billion in budget authority to continue the FAA's
airspace modernization program; this is $492 million more than the
$1.1 billion appropriated in 1988. This increase in funding reflects
the administration's continued strong commitment to improving
the reliability, capacity, and safety of the current air traffic control
system. The funds will be used for a variety of important activities
and improvements, including the advanced automation system, surveillance radar, communications equipment, and terminal doppler
weather radar systems designed to detect deadly wind shears. In
addition, funding will be requested to provide interim support to
existing facilities in order to improve the operation and reliability
of these facilities while we await final acquisition and implementation of the new equipment.
Proposed obligation limitation for the airport improvement program is $1.2 billion in 1989, slightly less than the $1.3 billion made
available for obligation in 1988. A high level priority of the administration will be to direct these funds toward improvements that
will enhance national airway system capacity.
The administration also proposes a 9.4 percent increase in funding for FAA operations—from $3.1 billion in 1988 to $3.4 billion in
1989. This funding increase will permit increases in the air traffic
controller workforce from 15,900 in 1988 to 16,800 in 1989 and in
the safety inspector and security workforce from 3,209 in 1988 to
3,659 in 1989 commensurate with anticipated increases in aviation
activity. Substantial increases are also requested for facility maintenance, leased telecommunications, and human resource management, including improvements to the air traffic controller selection
and training process.
Aeronautical Research and Technology.—The National Aeronautics and Space Administration (NASA) conducts research in aeronautical sciences and operates unique research and testing facilities to help maintain U.S. leadership in aeronautics. In 1989, the
budget reflects a strong program of fundamental research, including augmented support for key areas such as advanced propulsion
concepts and advanced composite materials. The budget also continues the joint NASA/Department of Defense program of research
and advanced technology development in hypersonic flight. The
administration requests $872 million in 1989 budget authority for
aeronautical research and technology, an increase of 21 percent
from 1988.
Air Carrier Subsidies.—In conjunction with airline deregulation,
the air carrier subsidy program was designed to guarantee essential air services to small communities. Consistent with the termina-




TRANSPORTATION

5-79

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 1988. This program
was originally scheduled to terminate 10 years after deregulation
in 1978, but was recently extended. In some communities, subsidies
are as high as $500 per passenger, while 72 percent of the subsidized communities serve 10 or fewer passengers per day.
Water Transportation.—To meet its Federal responsibility in
water transportation, the administration requests $3.3 billion in
budget authority for 1989, an increase of $0.6 billion from the 1988
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 will propose a redistribution of 1988 funds within the Department of
Transportation to ensure the continuation of critical Coast Guard
services, which were cut by Congress in 1988.
The administration's request of $3.0 billion in 1989 budget authority for the Coast Guard represents a significant increase of 17.4
percent over Coast Guard's 1988 appropriation. The majority of
these funds will support Coast Guard operations, including search
and rescue and law enforcement activities. Funding for the Coast
Guard's acquisition, construction, and improvements account,
which supports all Coast Guard programs, is also being increased
in 1989 by $101 million over the 1988 appropriation of $247 million.
In 1989, drug law enforcement will continue to receive major
emphasis with 23 percent of the Coast Guard's operating budget
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 search
and rescue operations will benefit from replacement short-range
recovery helicopters, renovated and modernized vessels, and new
patrol boats that will be put into service during 1989. These assets
will also provide the Coast Guard with expanded law enforcement
and defense preparedness capabilities.
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 Commission. Proposed budget authority for ocean shipping in 1989 is $369
million, an increase of $123 million from 1988. The increase reflects
additional budget authority associated with the proposed reform of
the maritime operating subsidy program, and a reimbursement in
1988 to Treasury from the Panama Canal Commission.




5-80

THE BUDGET FOR FISCAL YEAR 1989

The Maritime Administration has traditionally provided subsidies to assist the U.S. merchant marine and shipbuilding industries
in competing with foreign maritime industries.
In 1989 the administration will continue to provide operating
subsidies to offset the higher costs of operating U.S.-flag vessels.
The 1989 cost to meet the Federal Government's obligations on
existing operating subsidy contracts is estimated to be $249 million.
The administration is pursuing legislation that would reform the
operating subsidy program by expanding carriers' operating flexibility, reducing the cost of subsidy per ship, and allowing additional carriers to participate in the program. In addition, the legislation contains several reforms that would reduce the cost of administering the cargo preference program.
In maritime operations and training, the administration requests
funding for technical and policy studies and proposes funding increases for the U.S. Merchant Marine Academy and the National
Defense Reserve Fleet in 1989. The administration also proposes
that the State maritime schools share federally-supplied training
vessels, rather than the Federal Government supplying each school
with its own ship. As a condition of Federal assistance, the State
maritime schools will have to require their graduates to accept a
Naval Reserve commitment.
Consistent with its proposal to appropriate 1989 Ready Reserve
Force (RRF) funding to the Maritime Administration, the administration will consult with Congress about changing the functional
classification of funding for the RRF from defense-related activities
(054) to water transportation (403) in the future.
The administration has proposed legislation to return the Saint
Lawrence Seaway Development Corporation to direct financing
from toll and other revenues, consistent with its organization and
mission. This proposal would result in the Corporation's operation
and maintenance being funded from toll revenues, as was the case
prior to April 1, 1987.
With regard to the Panama Canal Commission, the 1989 budget
reflects the conversion of its financing structure from a special
fund to a revolving fund, pursuant to the Omnibus Budget Reconciliation Act of 1987. The revolving fund simplifies the Commission's financial structure and gives it needed operating flexibility,
without any increased cost to the U.S. taxpayer.
Credit Programs.—The Department of Transportation provides
direct loans and guaranteed loans for water and ground transportation 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 no




5-81

TRANSPORTATION
CREDIT PROGRAMS—TRANSPORTATION
(In millions of dollars)
Estimate

Actual 1987

Direct loans:
Highway programs-.
New obligations
Change in outstandings
Outstanding
Aid to railroads:
Change in outstandings
Outstandings
Aircraft purchase guarantee defaults:
Change in outstandings
Outstandings
MarAd ship financing fund subsidies:
New obligations
Change in outstandings
Outstandings
MarAd ship financing fund:
New obligations
Change in outstandings
Outstandings
Other transportation:
Outstandings
Total, direct loans:
New obligations
Change in outstandings..
Outstandings
Guaranteed loans:
Mass transit programs:
Outstandings
Aircraft purchase:
Change in outstandings
Outstandings
Assistance to ocean shipping:
Change in outstandings
Outstandings
Other transportation:
Change in outstandings
Outstandings

1989

1990

48
-65
143

45
-18
125

48
-21
104

-936
638
_4
41

-352
285

-151
134

12
53

1991

48

48

104

104

-29
105
*
53

-105

5
5
10

5
5
15

53

1
137
1,612

5
244
1,856

91
1,946

93
2,039

93
2,133

11

11

11

11

11

49
-869
2,444

50
-114
2,330

53
-76
2,254

53
68
2,322

53
-7
2,315

997

997

997

997

997

-77
199

-68
131

-38
93

-21
72

-18
54

-716
4,279

-464
3,815

-291
3,524

-276
3,248

-262
2r986

-2

1

—1

Total, guaranteed loans:
Change in outstandings..
Outstandings

-796
5,476

-533
4,943

-329
4,614

-297
4,317

-281
4,037

Total, new obligations..

49

50

53

53

53

* $500,000 or less.

new loan guarantee commitments after 1987. The maritime industry should be encouraged to rely on the private credit market,
without Federal intervention, as the source of capital. The administration 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.




5-82

THE BUDGET FOR FISCAL YEAR 1989

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 $120 million in 1989. State and local governments
could issue tax-exempt bonds for mass transit vehicles until December 31, 1984, which results in a tax expenditure estimated to be $40
million in 1989. Total tax expenditures for transportation are estimated to be $160 million in 1989.




COMMUNITY AND REGIONAL DEVELOPMENT

5-83

COMMUNITY AND REGIONAL DEVELOPMENT
The Nation requires healthy and thriving communities to maintain the economic vitality and general well-being of society. Federal 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 regions. 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 1989 the administration will continue its effort to concentrate
Federal resources on national priorities and provide maximum opportunity for State and local governments to meet their own local
community and economic development needs. Shifting responsibility for economic development programs to the State and local
levels brings both economic development funding and priority decisions closer to the people who benefit directly. To achieve this, the
administration proposes to eliminate a number of Federal categorical programs currently providing support for specific local community and economic projects. The comprehensive and more flexible
community development block grants (CDBG) program will be the
principal vehicle for Federal support.
The administration is requesting budget authority of $6.2 billion
in 1989 for community and regional development. Outlays are estimated to total $5.9 billion in 1989, a reduction of 7 percent from
1988. The lower outlay estimates reflect reduced outlays attributable to lower expected budget authority and increased offsetting
receipts in the area of disaster relief and insurance.
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 certain funds are set aside for the Secretary's discretionary fund,
which provides grants for Indians, insular areas, technical assistance, 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. The remaining 30 percent is
allocated by formula to the State-administered small cities program; the States receive these funds to distribute to smaller communities and rural areas in their jurisdictions.




5-84

THE BUDGET FOR FISCAL YEAR 1989
NATIONAL NEED: COMMUNITY AND REGIONAL DEVELOPMENT
(Functional code 450; in millions of dollars)
Major missions and programs

actual 1987

Estimate
1988

1989

1991

1990

BUDGET AUTHORITY
Community development:
Community development block grants
Urban development action grants
Rental rehabilitation
Rental development .

Pennsylvania Avenue Development Corporation
Other
Subtotal, Community development
Area and regional development:
Rural development:
Existing law
Proposed legislation
Proposed credit reform
Economic development assistance
Indian programs:
Existing law
Proposed credit reform
Regional commissions
Tennessee Valley Authority
Offsetting receipts
Subtotal, Area and regional development
Disaster relief and insurance:
Small business disaster loans:
Proposed credit reform.
Other
Subtotal, Disaster relief and insurance..
Total, budget authority

3,000
225
208
105

2,880
216
200
6

2,480
-50
150

2,625

2,625

150

150

8
273

6
245

5
262

18
245

5
243

3,819

3,552

2,847

3,038

3,023

1,447

4,468

2,184
-390
16

1,764
-110
-19

217

205

2,234
-51
-10
40

990

1,100

1,032
8

1,026
5

108
100
-242

111
103
-251

1,021
14
1
76
-250

79
256

81
-258

2,620

5,736

3,073

2,641

2,490

210

38
278

38
287

38
295

210

202
202

316

324

332

6,649

9,490

6,236

6,003

5,845

The administration proposes to establish the CDBG program
level at $2.6 billion for 1989, slightly below the 1988 program level
of $2.9 billion. The 1989 program level includes $2.5 billion of new
budget authority and a transfer of $145 million from the rehabilitation loan fund upon its proposed termination at the end of 1988.
Although this will reduce the total resources available for the
CDBG program, recently enacted legislation increases the percentage of funds used to benefit persons of low and moderate income
from 51 percent to 60 percent.
Urban Development Action Grants (UDAG).—The administration
proposes to terminate the UDAG program at the end of 1989. No
funding is proposed for 1989. This measure is part of the administration's 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 invest-




5-85

COMMUNITY AND REGIONAL DEVELOPMENT
NATIONAL NEED: COMMUNITY AND REGIONAL DEVELOPMENT
(Functional code 450; in millions of dollars)
Major missions and programs

actual 1987

Estimate
1988

1990

1989

1991

OUTLAYS
Community development:
Community development block grants
Urban development action grants

Rental rehabilitation
Rental development
Pennsylvania Avenue Development Corporation
Other
Subtotal, Community development

2,991
354

2,980
400

2,959
366

2,915
310

2,796
168

99

180

238

223

150

66

144

109

116

11

9

13

36

157

55

233

180

9
169

3,680

3,768

3,920

3,777

3,291

300

1,181

341

268

1,128
-118
-18
226

1,316
-46
-111
144

1,183
-42
-202
91

950

1,088

152
112
-14
-242

134
85
6
-251

1,044
1
116
89
_)

1,054
-5
87
82
_7

-250

256

1,015
-6
49
81
-7
-258

1,599

2,500

2,210

2,259

1,905

Small business disaster loans:
Existing law . .
Proposed credit reform

-362

-150

National flood insurance fund
Other

219
352

-107
310

-484
-90
-70
393

-269
-163
-70
347

-178
-140
-67
350

Subtotal, Disaster relief and insurance..

-229

53

-251

-155

-35

Total, outlays

5,051

6,321

5,879

5,880

5,161

Area and regional development:
Rural development:
Existing law
Proposed legislation

Proposed credit reform
Economic development assistance
Indian programs:
Existing law
Proposed credit reform
Regional commissions
Tennessee Valley Authority. .
Other
Offsetting receipts
Subtotal, Area and regional development
Disaster relief and insurance:

ment 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
misusing government dollars and diverting scarce capital from its
best possible use. Cities may, at their discretion, continue to use
CDBG resources to assist economic development projects. The $366
million in outlays estimated for this program in 1989 reflects the
continued spendout of funds for projects approved in prior years.
The administration continues to support the enterprise zone concept as a more economically efficient approach for assisting structurally depressed local economies. The 1987 housing bill authorized
Federal enterprise zones under title VII. The Administration will
work with State and local governments to determine the most




5-86

THE BUDGET FOR FISCAL YEAR 1989

effective ways Federal enterprise zones can support and expand
business development most efficiently.
Rental Rehabilitation Grants (RRG).—In 1983, the administration proposed, 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 moderateincome housing. The administration is proposing $150 million for
the program in 1989 as compared with $200 million in 1988. Outlays in 1989 are estimated to be $238 million. The RRG program
seeks to provide financial incentives to building owners to rehabilitate rental property for low-income families. Under current law,
rent controls cannot be applied to buildings rehabilitated with RRG
funds unless such controls existed prior to 1983. To this extent,
Congress has already recognized that this program cannot work
effectively where rent controls are in effect. In order to maximize
the cost effectiveness of Federal assistance, therefore, the administration proposes to target funds to localities that do not have rent
controls. The proposal does not seek to supercede or otherwise
waive a local decision to impose rent controls, but merely seeks to
avoid Federal expenditures that are unlikely to have the intended
effect on low-income housing markets.
Rental Development Grants,—In the Housing Urban-Rural Recovery Act of 1983, the Congress created a new rental development
grant program to subsidize the construction or substantial rehabilitation of rental housing in low- and moderate-income neighborhoods experiencing a severe shortage of rental housing. The 1987
Housing and Community Development Act calls for termination of
this program at the end of 1989. The 1988 Continuing Resolution
provided no funding for the program in 1988; the Administration
proposes no funding in 1989 as well. It has proven to be a costly
subsidy supporting the construction of new rental units at a time
of historically high vacancy rates, and, thus, cannot be justified.
Furthermore, the program is not well targeted to low-income
people—those who are most in need of housing assistance. Outlays
in 1989 are estimated to be $109 million from grants awarded in
previous years.
Pennsylvania Avenue Development Corporation (PADC).—PADC

was created in 1972 to develop and implement a plan for the
physical rejuvenation of the blocks and public areas of Pennsylvania Avenue between the White House and the Capitol, an area
which had experienced economic and physical decline up to that
time. Approval of the development plan by the Executive Branch
and the Congress in 1975 was followed by plan implementation
with 1978 funding. Since then, nearly $100 million in appropriations has been obligated by PADC for land acquisition and extensive improvement of the public areas, including the creation of new




COMMUNITY AND REGIONAL DEVELOPMENT

5-87

parks and plazas, a Federal investment that has directly contributed to attracting $1 billion in private investment on the project
area's blocks. The $5 million in budget authority requested for
1989, combined with projected 1990-1992 budget authority of $27
million, will enable PADC to complete the plan in 1992 and go out
of business.
Area and Regional Development—Programs in this category support rural development, development programs of American Indian
tribal governments, and multi-State regional development.
Rural Development.—The Administration, as part of its Rural
Development Initiative, proposes to continue its program of grants,
and direct and guaranteed loans through the Farmer's Home Administration. Direct loans and grants will be made to small rural
communities to assist in financing water and waste treatment systems. A small portion of direct loans are also made for construction
of community health care facilities. Guaranteed loans are made to
businesses and industries which establish operations in rural areas
with high unemployment rates. The amounts requested for 1989,
$75 million in grants, $300 million in direct loans and $96 million
in guaranteed loans, are to be targeted to very-low income rural
communities.
Economic Development Assistance.—The Department of Commerce's Economic Development Administration (EDA) provides
public works grants to States and communities, and loan guarantees to businesses. The administration proposes to terminate the
EDA in 1989.
EDA programs do not target assistance to those in need, but
instead serve narrow and specialized local and regional political
interests at the public's expense. Furthermore, there is no evidence
that these programs create new jobs nationwide. Rather, they shift
jobs between localities. Similarly, the Government does not create
net new jobs in the economy by moving productive resources from
the private sector to the public sector.
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.
Budget authority requested for regional development, provided
through the Indian programs and Indian trust funds administered
by the Bureau of Indian Affairs is $1.1 billion in 1988 and $1.0
billion in 1989. 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 discretionary budget authority requested for special Indian programs Government-wide, includ-




5-88

THE BUDGET FOR FISCAL YEAR 1989

ing programs in other functions such as income security and education, is expected to be $3.1 billion in 1989. Corresponding outlays
are estimated to be $3.4 billion. These amounts do not include
payments received by Indians from trust funds established for their
benefit or from programs serving all qualified U.S. citizens.
Appalachian Regional Commission (ARC),—The ARC was established 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 proposes to terminate ARC in 1989. ARC highway funds unnecessarily
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 would
terminate direct support for TVA's regional economic and community development programs, which are more appropriately private
or State and local government responsibilities. These programs
include activities such as technical assistance to cities and towns,
promotion of tourism, and the development of commercial resources. To the extent that Federal assistance is needed, it is better
allocated through programs administered nationally by other Federal agencies. TVA's basic responsibilities for water resources systems management and fertilizer research continue. Outlays for
TVA's activities in this function are estimated at $89 million in
1989, up from $85 million in 1988. The TVA power program, financed through the sale of electricity, is discussed in the energy
function.
Rural Telephone Bank (RTB).—The RTB, in the Department of
Agriculture, provides subsidized direct loans for the construction
and operation of rural telephone systems. Total RTB loans outstanding were $1.4 billion at the end of 1987. Most RTB borrowers
are financially healthy and the administration proposes that they
increase their reliance on private financing through phased privatization of the RTB. The RTB would take the necessary steps to
achieve privatization by 1995 including accumulation of reserves to
repurchase the $506 million of two percent dividend class A stock
that has been purchased by Treasury. Consistent with this approach, the administration proposes that direct loan obligations be
maintained at the 1988 enacted level of $177 million annually; that
interest rates charged on loans be sufficient to cover borrowing and
administrative costs; and other necessary steps be taken to achieve
privatization.




COMMUNITY AND REGIONAL DEVELOPMENT

5-89

Disaster Relief and Insurance.—Providing insurance against
losses from floods, hurricanes, tornadoes, and other natural disasters is primarily the responsibility of private insurers. State and
local governments aid recovery when necessary, and Federal insurance and disaster relief programs are available to supplement
State and local resources when those resources are insufficient.
Small Business Disaster Loans,—The Small Business Administration (SBA) provides loans to homeowners and businesses for uninsured 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 percent if credit can be obtained from private sources. The administration will propose legislation to limit this program to those homeowners and businesses unable to obtain credit elsewhere and to
raise the interest rate to a rate comparable to the Treasury rate
for existing loans of equal maturity, plus 1 percent. These changes,
expected to save $35 million per year, are designed to encourage
those homeowners and businesses who can afford to obtain and
maintain adequate insurance coverage against disaster-related
losses to rely upon those alternatives instead of relying on direct
Federal loans at preferential interest rates. The General Accounting Office has found that insurance is a better form of disaster
protection than direct Federal loans. The administration also proposes to sell the disaster loan portfolio over a period of 6 years
beginning in 1989.
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 addition, States or Federal agencies may be reimbursed for disaster
relief work performed under this authority. Outlays are estimated
at $260 million in 1989.
National Flood Insurance Fund.—The Federal Emergency Management Agency operates a national program of direct Federal
flood insurance at subsidized rates. Since the program began in
1968, losses have amounted to $1.0 billion. The Congress has authorized premium increases that will eliminate this costly subsidy
by 1989, thereby recovering clearly allocable costs of flood insurance from beneficiaries of this program. Receipts for this program
are estimated to exceed outlays by $70 million in 1989.




5-90

THE BUDGET FOR FISCAL YEAR 1989

CREDIT PROGRAMS—COMMUNITY AND REGIONAL DEVELOPMENT
(In millions of dollars)
Actual 1987

Direct loans:
Rural development insurance fund:
New obligations
Change in outstandings
Outstandings
Rural development subsidies::
New obligations
Change in outstandings
Outstandings
Rural development loan fund:
Change in outstandings
Outstandings
Economic development assistance:
Change in outstandings
Outstandings
Disaster loan subsidies:
New obligations
Change in outstandings
Outstandings
Small business disaster loans:
New obligations
Change in outstandings
Outstandings
Rural telephone bank subsidies:
New obligations
Change in outstandings
Outstandings
Rural telephone bank:
New obligations
Change in outstandings
Outstandings
Other:
New obligations
Change in outstandings
Outstandings
Total, direct loans:
New obligations
Change in outstandings..
Outstandings
Guaranteed loans:
Rural development insurance fund:
New commitments
Change in outstandings
Outstandings
Rural development subsidies:
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




426
-1,796
6,431

Estimate
1988

1989

426
-1,044
5,386

-810
4,576

70
4,646

14
4,660

300
12
12

200
74
86

100
147
233

1990

1991

-1
33

33

2
35

-2
33

-2
31

-13
556

-114
441

-47
394

-13
381

-12
370

265
112
112

265
205
317

265
172
489

-942
2,383

-754
1,629

-607
1,022

177
11
11

177
50
60

177
85
145

208
-503
3,719

350
-394
3,325

185
13
1,447

177
-145
1,302

53
1,355

32
1,387

9
1,396

71
-95
1,631

98
-397
1,234

13
-104
1,130

13
-668
462

13
-59
403

890
-2,396
13,817

1,051
-2,095
11,722

755
-1,713
10,009

655
-1,008
9,001

555
-252
8,749

115
-438
1,918

96
-265
1,653

-189
1,464

-213
1,251

-234
1,017

96
19
19

196
54
73

296
101
175

-23
56

-19
37

-191
95

20
8
103

-1
2

1

1

1

69
89
292

178
141
433

45
56
489

45
-14
474

45
-22
452

5-91

COMMUNITY AND REGIONAL DEVELOPMENT
CREDIT PROGRAMS—COMMUNITY AND REGIONAL DEVELOPMENT—Continued
(In millions of dollars)
Actual 1987

Total, new obligations and new commitments
1

1,074

Estimate
1988

1,344

1989

896

1990

896

1991

896

$500,000 or less.

Tax Expenditures.—Direct Federal funding for community and
regional development is supplemented by several existing tax expenditures. The provision that allowed certain taxpayers to amortize 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 1989 tax expenditure for this provision is $620 million. Development 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 $1 billion for 1989. Special tax credits
are also available for rehabilitation of older nonresidential buildings. For 1989, the estimated tax expenditure for this program is
$150 million. Total tax expenditures for community and regional
development for 1989 are estimated to be $1.9 billion.




5-92

THE BUDGET FOR FISCAL YEAR 1989

EDUCATION, TRAINING, EMPLOYMENT, AND
SOCIAL SERVICES
Federal programs for education, training, employment, and
social services are intended to: (1) assist parents, States, and localities in providing education, especially for educationally disadvantaged, low-income, and handicapped persons; (2) assist economically
disadvantaged or dislocated workers in gaining job skills and finding 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 meeting most of these needs has rested with State and local governments and the private sector. Excluding the financing effects of the
proposed credit reform legislation, total outlays for this function
are estimated to be $34.9 billion for 1989, $1.2 billion above the
1988 level.
EDUCATION
Funding proposed for education activities in 1989 is intended to
provide substantial support at all levels for supplementary education and other assistance for the handicapped and the educationally and economically disadvantaged. Funding also supports nationallevel research, statistics gathering, and analysis.
Excluding the financing effects of the proposed credit reform
legislation, budget authority requested for education programs in
1989 is $20.8 billion, $904 million or 4.5 percent above the level
enacted for 1988.
Elementary, Secondary and Vocational Education.—The administration requests $9.8 billion in budget authority in 1989 for elementary, secondary, and vocational education programs, $312 million
above the level enacted for 1988.
School Improvement Programs.—This activity includes a number
of programs that provide assistance to States, school districts, and
others to use, with varying degrees of Federal oversight, to design
and implement new projects, improve drug education activity, upgrade teaching of mathematics and science, and demonstrate new
approaches to school improvement. The largest of these programs
is the education block grant, for which the administration is proposing budget authority of $540 million in 1989, $62 million above
the 1988 level. The administration is seeking $250 million in
budget authority for the drug-free schools program in 1989, an
increase of $20 million over the level enacted for 1988. The budget
includes funds to support demonstrations of alternative teacher
certification systems.




EDUCATION, TRAINING, EMPLOYMENT, SOCIAL SERVICES

5-93

NATIONAL NEED: EDUCATION, TRAINING, EMPLOYMENT, AND SOCIAL SERVICES
(Functional code 500; in millions of dollars)
Major missions and programs

actual
1987

Estimate
1988

1989

1990

1991

BUDGET AUTHORITY
Education:
Elementary, secondary, and vocational
education:
School improvement programs:
Existing law
Proposed legislation
Compensatory education:
Existing law
Proposed legislation
Education for the handicapped
Impact aid
Vocational and adult education:
Existing law
Proposed legislation
Other-.
Existing law
Proposed legislation
Subtotal, Elementary, secondary, and
vocational education
Higher education:
Student financial assistance:
Existing law
Proposed legislation
Guaranteed student loan program:
Existing law
Proposed legislation
Proposed credit reform
Other:
Existing law
Proposed legislation
Subtotal, Higher education.
Research and general education aids:
Existing law
Proposed legislation
Subtotal, Research and general education aids
Subtotal, Education..
Training, employment, and other labor
services:
Training and employment:
Block grants to States
Summer youth employment
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




939

1,040

3,952

4,337

1,742
718

1,869
708

995

1,013

30
1,101

29
1,101

29
1,101

4,566
1,917
592

4,566
1,941
592

4,566
2,012
592

150

170

180

656

541

392
185

392
185

392
185

9,001

9,508

9,820

9,864

9,945

5,483

5,545

6,021
79

6,021
79

6,021
79

2,717

2,565

2,740
-5
3,094

2,635
-6
2,632

2,388
-20
2,233

852

902

757
3

754
3

9,052

9,012

779
6
12,714

12,122

11,458

1,308

1,352

1,260
76

1,285
76

1,294
76

1,308

1,352

1,336

1,361

1,370

19,361

19,872

23,870

23,347

22,773

1,840
750

1,809
718

1,809
718

1,809
718

1,809
718

250

335

656
336
126
277
990

716
331
93
298
982

948
711
336

980
732
336

980
751
336

5,282

266
948
5,790

267
970

5,226

265
926
5,713

5,832

730

778

821

839

5-94

THE BUDGET FOR FISCAL YEAR 1989

NATIONAL NEED: EDUCATION, TRAINING, EMPLOYMENT, AND SOCIAL SERVICES—Continued
(Functional code 500; in millions of dollars)
Major missions and programs

Subtotal, Training, employment,
and other labor services

actual
1987

Estimate
1988

1989

1990

1991

5,955

6,061

6,519

6,611

6,671

2,700
405
1,485

2,700
382
1,590

2,700
310
1,616

2,700
245
1,616

2,700
160
1,616

1,061
2,100
156
24

811
2,456
163
957

1,075
2,457
166
670

1,035
2,505
170
769

1,094
2,546
173
758

Subtotal, Social services

7,932

9,059

8,994

9,039

9,047

Total, budget authority

33,249

34,992

39,383

38,997

38,491

Social services:

Social services block grant
Community services block grant
Rehabilitation services
Payments to states for foster care and
adoption assistance
Human development services
Domestic volunteer programs
Other social services

Under current law, Federal funding is available for magnet
schools in desegregating school districts. In general, magnet schools
result in less segregation, greater commitment by students and
parents, and, thus, better quality schooling. For 1989, the administration is proposing legislation to expand eligibility of school systems for Federal grant funds to implement magnet school strategies. Budget authority of $115 million is proposed for magnet
schools in 1989, an increase of $43 million over the 1988 level of
$72 million.
The 1989 budget continues the administration's long-standing
support for increased parental choice in education. Study after
study has found that when parents have a say and are involved in
their children's education, the children do better in school. The
Congress has taken a beginning step in the Senate version of the
pending elementary and secondary education legislation by creating a program to support demonstrations to promote choice in
public education. The 1989 Education Department budget includes
$5 million that will be requested for the Parental Choice Open
Enrollment Demonstration program, upon its enactment. In addition, some States have already begun to experiment with more
broadly based programs supporting choice among schools, including
private schools. To assist in this effort, the Secretary of Education
will develop model legislation for use by State legislatures, at their
discretion, to promote the use of vouchers to expand choice to all
types of elementary and secondary schools.




EDUCATION, TRAINING, EMPLOYMENT, SOCIAL SERVICES

5-95

NATIONAL NEED: EDUCATION, TRAINING, EMPLOYMENT, AND SOCIAL SERVICES
(Functional code 500; in millions of dollars)
Major missions and programs

Estimate

actual
1987

1989

1990

1991

OUTLAYS
Education:
Elementary, secondary, and vocational
education:
School improvement programs:
Existing law
Proposed legislation
Compensatory education:
Existing law
Proposed legislation
Education for the handicapped
Impact aid
Vocational and adult education:
Existing law
Proposed legislation
Other:
Existing law
Proposed legislation
Subtotal, Elementary, secondary, and
vocational education
Higher education:
Student financial assistance:
Existing law.
Guaranteed student loan program:
Existing law
Proposed legislation
Proposed credit reform
Other:
Existing law
Proposed legislation
Subtotal, Higher education
Research and general education aids:
Existing law
Proposed legislation
Subtotal, Research and general education aids
Subtotal, Education..
Training, employment, and other labor
services:
Training and employment:
Block grants to States
Summer youth employment
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




733

934
133

298
883

50
1,079

3,210

3,841

1,339
704

1,801
756

3,810
548
1,864
632

866
3,653
1,910
621

87
4,475
1,944
606

1,231

979

895
18

916
122

891
164

505

523
22

447
148

412
182

537
7,911

8,614

9,380

9,864

9,889

4,780

5,319

5,774
16

6,011
77

6,021
79

2,548

2,630
-2

2,743
-3
2,476

2,631
-5
2,725

2,407
-17
2,313

78

518
8,465

832
9
12,279

746
6

7,406

839
-220
11,625

11,554

1,255

1,407

1,357
30

1,330
59

1,296
76

1,255

1,407

1,388

1,388

1,372

16,571

18,487

22,392

23,531

22,815

1,854
723

1,890
724

1,893
727

1,810
718

1,810
718

212

251

628
312
137
250

641
329
95
283
1,008

292
29
674
333
6
296
961

97
795
721
336

14
957
760
336

271
937

5,084

5,221

5,211

5,685

267
959
5,821

675

768

813

829

5-96

THE BUDGET FOR FISCAL YEAR 1989

NATIONAL NEED: EDUCATION, TRAINING, EMPLOYMENT, AND SOCIAL SERVICES—Continued
(Functional code 500; in millions of dollars)
Major missions and programs

Subtotal, Training, employment,
and other labor services

actual
1987

Estimate
1988

1989

1990

1991

5,759

5,989

6,018

6,497

6,650

2,688
361
1,405

2,685
406
1,585

2,700
349
1,600

2,700
263
1,615

2,700
188
1,616

802
1,959
159
21

996
2,389
160
957

1,014
2,451
165
672

1,034
2,486
168
769

1,074
2,528
172
757

7,394

9,176

8,951

9,036

9,035

29,724

33,652

37,362

39,065

38,500

Social services:

Social services block grant
Community services block grant
Rehabilitation services
Payments to states for foster care and
adoption assistance
Human development services
Domestic volunteer programs
Other social services
Subtotal, Social services
Total, outlays

Compensatory Education for the Disadvantage^—Programs in
this activity include those currently authorized under Chapter 1 of
the Education Consolidation and Improvement Act, plus two small
discretionary grant programs for migrant education. The Chapter 1
programs include the major Federal support for remedial education
services for the educationally disadvantaged. For 1989, the administration is proposing $4.6 billion in budget authority, an increase of
$238 million over the 1988 enacted level for Chapter 1 programs.
Legislation is pending in Congress for reauthorization of these
programs. No funding is requested in 1989 for the two small, duplicative migrant education programs.
Education for the Handicapped.—The administration is requesting $1.9 billion in budget authority for the education of handicapped children in 1989, an increase of $48 million over the 1988
enacted level for these programs.
Impact Aid.—The Government compensates school districts
whose enrollments and available revenues are deemed to have
been adversely affected by Federal activities, such as the presence
of a military base. The administration proposes aid only for those
school districts that provide services to children who live on Federal property and whose parents work on Federal property—so-called
"a" children. A 2 percent increase in funding over the enacted 1988
level is being requested for these districts in 1989. The administration requests no funds in 1989 for school districts with children
who either live on Federal property or whose parents work on
Federal property—so-called "b" children. This change in the
impact aid program would ensure that funds go only to those
districts in which federally connected children pose a demonstrable
burden.




EDUCATION, TRAINING, EMPLOYMENT, SOCIAL SERVICES

5-97

Vocational and Adult Education.—The administration requests
total 1989 funding for vocational education equal to the 1988 enacted level of $888 million. Funds would be reallocated in 1989
from lower priority activities to State grants. Legislation to improve accountability in the State grant program will also be proposed. The administration is requesting budget authority of $150
million for adult education, $26 million more than the 1988 enacted
level. Funds are proposed to be used in accord with legislation now
pending in Congress. Adult education programs are a key part of
the administration's efforts to combat adult illiteracy. They help
States and localities improve or expand their adult education programs. The request includes $2 million for Federal research and
data collection activities in 1989. The budget includes additional
increases in adult education budget authority each year for a total
proposed level of $200 million by 1993.
Other Elementary and Secondary Education.—The administration is requesting increased budget authority in 1989 for bilingual,
immigrant, and refugee education. The bilinqual request is based
on legislation pending in Congress that takes another step toward
elimination of inappropriate statutory restrictions on school flexibility to use bilingual education funds for whatever teaching methods work best for children. In addition, funding is requested for
both the Interior and Education Departments' Indian education
programs, for an elementary and a secondary school for deaf children operated by Gallaudet University, and for the American
Printing House for the Blind.
Higher Education.—Excluding the financing effects of the proposed credit reform legislation, the administration requests $9.6
billion in budget authority for higher education in 1989, $608 million above the 1988 enacted level of $9.0 billion.
Student Financial Assistance and Guaranteed Student Loans.—
The budget continues the Federal Government's longstanding commitment to ensuring access to higher education for lower income
persons. Under the budget proposals, total aid available to students
under the programs in these accounts would be higher than ever
before. Budget authority for student financial assistance for 1989 is
requested at $6.1 billion, an increase of $555 million or 10 percent
over the 1988 enacted level. Budget authority for guaranteed student loans is requested at $2.7 billion, excluding the financing
effects of the proposed credit reform legislation. Major proposals
include:
• Expansion of the recently begun income contingent loan program from $4.3 million in 1988 to $50 million in 1989. Under
this program, borrowing is less burdensome because repayments are adjusted annually to fit within the income the
student earns after leaving school.




5-98

THE BUDGET FOR FISCAL YEAR 1989

• Budget authority of over $5 billion in 1989 for the Pell grant
program for low-income students. Within that total, the administration will propose legislation to (a) suspend, on a temporary basis, the requirement that parents contribute a part
of the value of non-liquid assets (e.g., home equity) to the cost
of education, which adds $266 million to program costs; and
(b) limit eligibility for aid to those with a high school diploma
or equivalent, which saves $187 million.
• A broad range of regulatory and administrative initiatives
designed to address the mushrooming cost of student loan
defaults, estimated at over $1.6 billion in 1988. The initiatives
include proposed legislation to share the cost of financing
defaults with lenders and guarantee agencies. Increased risksharing will provide greater incentives to lenders and agencies to prevent defaults and increase debt collection. Regulatory proposals will seek to enlist the aid of schools in limiting
defaults and hold them accountable for unreasonably high
default rates.
• Legislation to foster incentives for improved educational quality and institutional accountability in the work-study and
supplemental educational opportunity grant programs. Funding would be linked to institutions meeting performance objectives.
• No funds in 1989 for new capital grants to schools for Perkins
loans (formerly National direct student loans) or for State
student incentive grants, funded in total at $258 million in
1988. The Perkins program provides unnecessarily high loan
subsidies and is not as cost-effective as the income contingent
loan program. The State student incentive grant program has
long since fulfilled its objective of stimulating State needbased aid programs.
• Reforming education credit programs, which is part of the
administration's proposed Government-wide credit reform initiative. The budget authority and outlays shown as proposed
credit reform reflect the estimated subsidies implicit in the
Federal loan programs and do not affect the volume of loans
guaranteed. The administration's proposed credit reform initiative is discussed in Part 6b of this volume.
In 1988, Congress appropriated $4.26 billion for the Pell grant
program for the 1988-89 school year. This amount is $259 million
less than is estimated to be needed to fund the program fully under
the requirements of the authorizing statute and the $2,200 maximum grant imposed by the appropriations act. In this situation,
the law requires a "linear reduction" of awards: 206,000 students
will lose awards and 1.2 million will have their awards reduced
significantly. To prevent these effects and eliminate the $259 mil-




EDUCATION, TRAINING, EMPLOYMENT, SOCIAL SERVICES

5-99

lion shortfall, two steps are proposed. First, $160 million in otherwise unneeded prior-year funds will be added to the appropriated
amount. Second, in place of the linear reduction, the administration proposes appropriations language to allow the Secretary to
reduce all awards by a fixed amount, now estimated to be $31. To
avoid severe program disruption, the alternative language must be
enacted or assured of enactment by April 30, 1988.
Other Aid to Higher Education.—For the two programs for historically black colleges and universities, budget authority of $80
million is requested for 1989, a 10 percent increase over the 1988
level. No funding is sought in 1989 for a few small, low-priority
programs or for those that duplicate other programs or are no
longer necessary. Funds requested in 1989 for the operations of
Gallaudet University and the National Technical Institute for the
Deaf are increased to 2 percent above the 1988 enacted level;
increased funding is also requested for their endowment programs.
Increased funding in 1989 is requested for Howard University,
including a substantial increase for endowment matching grants
(proposed for later transmittal upon reauthorization of the endowment program) to help Howard move more rapidly toward reduced
dependency on Federal funds.
Loan Asset Sales.—The budget reflects the continuation of Education Department sales of college housing and higher education
facilities loan assets. About $483 million of college housing and
higher education facilities loans are planned for sale in 1989, with
proceeds estimated at about $230 million.
Research and General Education Aids.—The administration proposes to increase budget authority in 1989 for Education Department research and statistics to $81 million, $13 million over the
1988 enacted level. Funding is sought for selected library programs
along with legislative improvements. Funding is proposed at the
1988 level for the National Endowments for the Arts and for the
Humanities and the Institute of Museum Services. The administration is proposing that funding for the Corporation for Public Broadcasting (which receives 2-year advance appropriations) should be
held at the 1988 level, which is sufficient to meet programming and
capital requirements while providing incentives for development of
non-Federal support.
Tax Expenditures.—A variety of exclusions, exemptions, and deductions provide assistance for education. Student loans are subsidized through the exclusion of interest on State and local student
loan bonds. Students receive additional benefits because scholarship and fellowship awards are not subject to tax to the extent that
they pay for tuition, books, and related fees. These two tax expenditures are estimated at $390 million and $685 million, respectively,




5-100

THE BUDGET FOR FISCAL YEAR 1989
CREDIT PROGRAMS—EDUCATION, TRAINING, EMPLOYMENT, AND SOCIAL SERVICES
(In millions of dollars)
Estimate

Actual
1987
Direct loans:
Guaranteed student loans:
Change in outstandings
Outstandings
Student financial assistance:
Change in outstandings
Outstandings
College housing and other:
New obligations
Change in outstandings
Outstandings
SLMA obligations:
Change in outstandings
Outstandings
Total, direct loans:
New obligations
Change in outstandings
Outstandings
Guaranteed loans:
Guaranteed student loans:
New commitments
Change in outstandings
Outstandings
Total, new obligations and new commitments

1989

1990

1991

615
4,792

603
5,394

531
5,925

319
6,244

43
6,287

-4,615
657

-17
639

-19
620

-18
602

-12
590

60
-1,165
1,463

62
-706
758

-459
298

59
357

12
369

-30
4,940

-30
4,910

4,910

-30
4,880

-30
4,850

60
-5,195
11,852

62
-150
11,701

52
11,753

330
12,083

13
12,095

9,730
2,585
40,067

9,576
1,190
41,256

10,039
1,049
42,306

10,521
860
43,166

11,027
813
43,979

9,790

9,639

10,039

10,521

11,027

in 1989. 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 items are estimated at $450 million and $1.6 billion, respectively, in 1989. The exclusion of interest on State and local debt for
private nonprofit educational facilities results in a tax expenditure
estimated at $315 million in 1989. Current tax expenditures for
education are estimated to total $2.8 billion in 1989.
A legislative proposal will be submitted to create a college savings bond program to help lower- and middle-income families save
for the rising cost of a college education. Tax expenditures in 1989
would be $10 million.
TRAINING, EMPLOYMENT, AND OTHER LABOR SERVICES
Federal training and employment programs are designed to improve individuals' abilities to obtain and retain jobs and to facili-




EDUCATION, TRAINING, EMPLOYMENT, SOCIAL SERVICES

5-101

tate the operation of the labor market by ensuring the development 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 relations. In 1989, outlays for these activities are expected to be $6.0
billion, an increase of $29 million over the estimate for 1988.
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; helping experienced workers displaced from their jobs find new employment; providing subsidized jobs, remediation, and training for
youth in the summer; and operating the Employment Service. In
addition, the Federal Government 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 progran* 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 12-month program year beginning on
July 1 of that year.
Block Grants to States.—Under JTPA, each State designs its
program in close cooperation with private sector employers to meet
the needs of its population and the opportunities in its job market.
These programs are intended to prepare low-income and unskilled
youth and 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 conjunction with the Employment Service, educational institutions,
and other service providers to prepare individuals for jobs in the
area. Although few restrictions are placed on the States and localities, JTPA requires that 70 percent of the grant amount must be
used for training and 90 percent of the participants must be economically disadvantaged. At least 40 percent of the resources must
be spent for youth, and welfare recipients must be served on an
equitable basis. Estimated outlays of $1.9 billion in 1989 reflect the
budget authority proposed to serve over 1 million people in both
program years 1988 and 1989.
Summer Youth Employment—Under the summer youth employment program, grants are made to States in the spring of each year
to subsidize minimum-wage public sector jobs during the following




5-102

THE BUDGET FOR FISCAL YEAR 1989

summer for youth between the ages of 14 and 21. The 1988 budget
authority provides jobs in the summer of 1989 and the 1989 budget
authority provides jobs in the summer of 1990. While the program
usually has been successful in providing summer jobs for youth,
there is no evidence that simply providing such jobs has benefitted
those low-income youth with the fewest skills and most at risk of
not finding a productive role in the economy, 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 limited flexibility to
use these resources in new and innovative programs mixing jobs
and longer term comprehensive training. The administration,
therefore, proposes amending the current summer jobs program.
Legislation will be proposed to change the JTPA by amending
the existing summer youth employment program to allow States
and local areas to establish a comprehensive program of services
for low-income youth. This change would enable States and localities to operate a year-round program of remedial education, basic
skills training, and related support; a subsidized summer jobs program as they do now; or a mixture of both programs. The mix of
services between training and jobs will be up to States and local
areas. 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, lack job skills, and are the most seriously at risk of failing to participate fully in our society. Budget
authority of $718 million in 1989 is proposed for this program, the
same level as enacted for 1988.

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) provides unemployment benefit payments for a period beyond that
available from unemployment insurance. It also pays for retraining
workers whose skills are obsolete or for the cost of searching for
and moving to jobs in new locations. This aid is available only to
workers who are determined to have been displaced from their jobs
by increased imports. Experience under the program has demonstrated that the additional weeks of unemployment benefits encourage workers to delay efforts to seek new opportunities in the
hope that somehow their old jobs will reappear. Congress provided
$48 million for retraining and relocation assistance and resources
to finance $138 million in benefits under TAA in 1988.
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-




EDUCATION, TRAINING, EMPLOYMENT, SOCIAL SERVICES

5-103

uted to States by formula and for 25 percent to be granted to
States at the discretion of the Secretary of Labor based on applications describing special needs. An appropriation of $287 million
was enacted to be distributed in this manner in 1988.
These separate worker assistance programs have not operated
efficiently to help workers adjust. In addition, the separate TAA
program targeting one group of unemployed workers raises serious
questions about equity of treatment. The administration proposes
to replace these two programs with an entirely new program. This
new Worker Readjustment Program (WRAP) 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 such as 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
would have oversight responsibilities at the local level. These
changes would allow States and local areas to use a variety of new
approaches to encourage workers to recognize when their old jobs
are gone and to provide them the help they need to move on more
quickly to new careers.
The budget requests that the $287 million appropriated in 1988
for dislocated worker assistance under JTPA be made available for
transition purposes in addition to the normal program of assistance
until WRAP is fully implemented. No separate resources are requested for serving new enrollees in the TAA program in 1989.
These workers would be served by the new program during 1989.
Existing TAA recipients would continue to receive their benefits
and complete their training.
Total budget authority proposed for 1989 to serve dislocated
workers is $980 million, of which $32 million is for residual TAA
benefits classified in the income security function. About 700,000
workers are expected to enroll in the new program each year when
it is fully operational. The new approach would provide readjustment services faster than has been possible under the current
programs.
Job Corps.—The Job Corps provides disadvantaged youth remedial 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, the program is constantly seeking ways to
help keep program costs under control and improve program effi-




5-104

THE BUDGET FOR FISCAL YEAR 1989

ciency while maintaining service levels. For 1989, some savings
would be achieved through implementation of the results of several
pilot and demonstration projects that tested ways to reduce costs or
improve positive outcomes. The 1989 budget authority request of
$711 million would be sufficient to support 40,500 training slots,
the same level as in previous years.
Older Americans Employment—Part-time public service employment for older workers is provided under Title V of the Older
Americans Act through contracts with seven national service organizations and the U.S. Forest Service and through grants to States.
Budget authority of $336 million is requested for 1989, $5 million
more than provided in 1988. Some 65,700 job opportunities would
be provided for older workers in 1989. Outlays are estimated to be
$333 million in 1989.
Work Incentive Program.—This separate categorical program has
for years provided job services, training, and public service employment 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 designed to train adults and youth in the skills needed for private
sector jobs. The Congress appropriated $93 million in 1988 for the
work incentive (WIN) program. The administration is requesting
no new budget authority for WIN in 1989, seeking to phase out the
program in favor of a new work and training program described in
the income security function.
Other Training Programs.—Outlays of $296 million are estimated
in 1989 for other national training programs, including research
and demonstration projects and special programs for veterans,
native Americans, and migrant and seasonal farm 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 individuals. These grants support the total cost of job search and placement services to job seekers and of recruitment and special technical services for employers. Certain employment services designed to
meet national needs are financed with grants under specific agreements 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 immigration laws. The consultative process with all interested groups
started in 1988 on the role, structure, and responsibility for administering the State employment service and unemployment insurance programs will continue in 1989.
Beginning in 1989, States would receive special grants under the
proposed new program of assistance for dislocated workers de-




EDUCATION, TRAINING, EMPLOYMENT, SOCIAL SERVICES

5-105

scribed earlier. States would be able to use these resources to
provide adjustment services tailored to the needs of dislocated
workers in their jurisdiction.
Tax Expenditures.—Training and employment is subsidized
through a diverse group of tax expenditures. 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 families with children, are
estimated to cost $5.3 billion and $155 million, respectively, in
1989.
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, will be allowed
to expire on December 31, 1988. The preponderence of evidence
shows that this tax credit is a windfall to employers and subsidizes
hiring that would have occurred in the absence of the tax. Special
tax credits for employee stock ownership plans (ESOPs), designed
to encourage employee ownership of their employer's stock, were
allowed to expire at the end of 1986. The tax expenditures for these
provisions are estimated at $275 million and $195 million, respectively, in 1989. Total tax expenditures for training and employment
are estimated to be $6.8 billion in 1989.
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, children, youth, and Native Americans. Federal outlays for social services are expected to be $9.2 billion in 1988 and $9.0 billion in 1989.
Social Services Block Grant.—Block grant funding of social services 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 services block grant in 1989, the same level as enacted for 1988.
Community Services Block Grant.—The administration proposes
to begin phasing out Federal funding for the community services




5-106

THE BUDGET FOR FISCAL YEAR 1989

block grant (CSBG). The administration is requesting $310 million
in 1989 budget authority, $72 million less than the 1988 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 funding will provide
these agencies time to solicit funding from other sources.
Rehabilitation Services.—A 2 percent increase in budget authority over the 1988 level is proposed for four vocational rehabilitation
State formula grant programs in 1989. Most other activities are
proposed to be funded in 1989 at their 1988 enacted levels.
Foster Care and Adoption Assistance.—In 1989, budget authority
of $1.1 billion 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.
Human Development Services.—In 1989, budget authority of $2.5
billion is requested to support social services for children, victims
of family violence, the elderly, persons with developmental disabilities, and Native Americans.
Domestic Volunteer Programs.—The ACTION agency operates
programs to help citizens age 60 and older provide various social
services, 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 1989, the foster grandparents
program will support approximately 27,000 older volunteers to
work with about 68,500 children with special needs. The senior
companions program will provide support for approximately 10,000
volunteers to work with 32,000 older people confined to their
homes. The retired senior volunteer program (RSVP) will support
about 417,000 part-time volunteers in 1989 who work on a great
variety of community needs. Funds requested for the VISTA program will provide 2,600 volunteer service years in 1989, compared
to 2,500 volunteer service years in 1988.
Other Social Services.—Funding is provided for certain administrative functions of the Education Department and for the interim
assistance to States for legalization programs of the Department of
Health and Human Services.
Tax Expenditures.—The provision of social services by a wide
variety of private charitable and religious institutions is encouraged by the tax deductibility of contributions to those institutions.
The tax expenditure estimate for charitable contributions, other
than to educational and health institutions, is $10.3 billion in 1989.
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 $200 million in 1989. The adoption of children with




EDUCATION, TRAINING, EMPLOYMENT, SOCIAL SERVICES

5-107

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 $10.5 billion in 1989.
Total tax expenditures for education, training, employment, and
social services are estimated at $20.1 billion in 1989.




5-108

THE BUDGET FOR FISCAL YEAR 1989

HEALTH
The Federal Government helps to meet the Nation's health
needs by financing and providing health care services, promoting
disease prevention, and supporting research, training, and consumer and occupational health and safety. Since 1960, Americans'
per capita spending on health care has increased rapidly—more
than twice the rate of inflation. Americans now spend 10.9 percent
of GNP on medical care, more than any other industrialized
nation. Federal health spending has also continued 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 within a decade unless present trends are reversed.
Health Care Services.—Four-fifths of Federal outlays for health
in this function are devoted to financing or providing health care
services v directly to individuals. Federal outlays for health care
services, excluding medicare, military, and veterans medical programs, are estimated to increase from $36.3 billion in 1988 to $38.6
billion in 1989.
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 $25.7 billion, with the Federal share at $32.7 billion in 1989, a
spending increase of 7 percent over 1988. The medicaid program
will finance health care for 25 million Americans. Steep growth in
the cost of medical care, and expanded eligibility and coverage will
contribute to rapidly rising Federal outlays, projected to increase
by an average of 10 percent per year in the period between 1989
and 1993.
Consistent with the Bipartisan Budget Agreement, medicaid legislative savings are not being proposed for 1989. Medicaid outlays
will be affected by a medicare Part B proposal beginning in 1990,
and by changes in regulatory and administrative policies beginning
in 1989.
Federal Employees Health Benefits (FEHB).— The FEHB program
is the world's largest multiple-choice employee health program, the
cost of which is shared by the Government and its employees. The
President's budget implements changes legislated in 1987 that require the Postal Service to make payments toward the Government's share of health insurance premiums for Postal Service retirees. Federal outlays in 1989 for Federal employees health benefits
are estimated to be $1.9 billion.
Other Health Care Services.—Budget authority of $1.3 billion is
requested for health block grants in 1989, $0.2 billion more than
the 1988 level. This increase reflects proposed legislation for a
family planning block grant to give States greater latitude in deliv-




5-109

HEALTH
NATIONAL NEED: HEALTH
(Functional code 550; in millions of dollars;

Major missions and programs

BUDGET AUTHORITY
Health care services:
Medicaid grants:
Existing law
noposeu legislation
Federal employees' health benefits
Other health care services:
Existing law
Proposed credit reform
Subtotal, Health care services
Health research:
National Institutes of Health research
Other research programs

Estimate

actual
1987

1988

•

1989

1990

1991

27,612

30,657

32,733

35,815

39,032

1,459

1,789

2,374

2,733

3,696

3,814

4,156

4,129
_*

4,109

4,155
*

32,886

36,601

39,235

42,676

46,932

5,894
766

6,368
689

6,233
1,620

6,351
1,678

6,450
1,722

6,660

7,057

7,853

8,029

8,172

289

299

302

306

311

202

209

59

49

39

41

43
-3
17
35

10
32

10
29

Subtotal, Education and training of
health care work force

530

548

394

408

399

Consumer and occupational health and
safety:
Consumer safety
Occupational safety and health

858
392

902
405

907
420

907
427

906
436

Subtotal, Consumer and occupational
health and safety

1,250

1,308

1,327

1,334

1,342

41,325

45,514

48,810

52,447

56,845

Subtotal, Health research
Education and training of health care
work force:
Research training
Clinical training:
Existing law
Proposed legislation
Proposed credit reform
Other

Total, budget authority

en

JU

*$500 thousand or less.

ering voluntary family planning services. Block grants allow States
flexibility in coordinating and improving the effectiveness of services for their citizens. Under such grants, States are able to streamline program administration and devote more resources to services,
because unnecessary Federal regulatory, legal, and reporting requirements previously imposed on grantees no longer apply.
Budget authority of $987 million is requested for the Indian
Health Service (IHS) for fiscal year 1989. In addition, the IHS will
collect an estimated $74 million in third-party reimbursements for
health services provided to American Indians and Alaska Natives.
In 1989, the IHS will increase its support for tribal health administration as it advances toward its ten-year goal of entrusting 75
percent of IHS hospitals and clinics to Indian organizations. The
IHS will continue to gather health status data and other informa-




5-110

THE BUDGET FOR FISCAL YEAR 1989
NATIONAL NEED: HEALTH
(Functional code 550; in millions of dollars)
Major missions and programs

Estimate

actual
1987

1988

1989

1990

1991

27,435

30,664

32,733

1,799

1,835

1,914

35,815
20
2,843

39,032
50
3,260

3,382

3,811

3,991
*

4,140
_*

4,149
*

32,616

36,309

38,637

42,817

46,491

4,971
628

5,682
795

6,214
1,155

6,336
1,464

6,442
1,699

5,599

6,477

7,369

7,800

8,140

251

218

253

297

306

250

156

64

OUTLAYS
Health care services:
Medicaid grants:
Existing law
Proposed legislation
Federal employees' health benefits
Other health care services:
Existing law
Proposed credit reform
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
Proposed credit reform
Other

162

95

_4

-2

2

10
32

10
30

56

41

18
36

Subtotal, Education and training of
health care work force

556

415

465

432

412

Consumer and occupational health and
safety:
Consumer safety
Occupational safety and health

827
370

879
398

891
409

897
417

900
432

Subtotal, Consumer and occupational
health and safety
Total, outlays

1,197

1,278

1,300

1,314

1,332

39,968

44,479

47,771

52,363

56,375

*$500 thousand or less.

tion necessary to efficiently and equitably distribute resources
among its service areas.
Budget authority of $584 million is requested for drug abuse
treatment, research, prevention, and deterrence programs in the
Public Health Service (PHS), an 18 percent increase above 1988.
These funds will support the President's initiative to combat drug
abuse.
For 1989, $24 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 eighth year of a
10-year phasedown of this subsidy. On October 1, 1987, ownership
of Saint Elizabeths Hospital was transferred to the District of
Columbia. An additional transition subsidy is also requested as
part of the Federal payment to the District of Columbia govern-




HEALTH

5-111

ment. This payment is classified in the general government function.
Health Research.—In 1989, 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 channeled through the National Institutes of Health (NIH). Budget
authority of $7.9 billion is requested for Department of Health and
Human Services' health research in 1989, $0.8 billion more than
the 1988 level. The 1989 request represents a 5.1 percent increase
above the 1988 appropriations, excluding funding for Acquired
Immune Deficiency Syndrome (AIDS) research. This level should
permit 20,600 to 21,000 new and continuing research grant awards.
Complementing the NIH effort, funding requested for the Alcohol,
Drug Abuse, and Mental Health Administration would support
between 1,650 and 1,725 research project grants.
Addressing the Acquired Immune Deficiency Syndrome epidemic
is the highest public health priority of the administration. Supplementing State and local programs, the Federal effort encompasses
health education and risk prevention as well as research on the
causes of and potential treatments for AIDS. Budget authority of
$1.3 billion is requested for AIDS research and education in 1989,
an increase of $369 million, or almost 40 percent, above the 1988
enacted level. Recognizing the continuing congressional interest in
consolidated AIDS funding, all 1989 P H S AIDS funds will be requested under a single heading in the Office of the Assistant Secretary for Health to improve coordination. Transfer authority is proposed to expedite mid-year adjustments to AIDS spending plans
within 1989 aggregate levels for newly identified research and
education opportunities.

Education and Training of the Health Care Workforce.—In 1989,
$394 million in budget authority is requested for these programs,
compared to $548 million appropriated in 1988. Between 1965,
when Federal subsidies for health professions training began, and
1986, the supply of physicians per capita grew by 54 percent, and
surpluses are projected for most health care disciplines in the
1990's. Since the supply of health care professionals is now adequate, direct Federal subsidies for most clinical health professions
training are no longer essential. For this reason, the administration proposes to eliminate the Federal subsidies for most health
professions in 1989. Federal emphasis will be on training in family
medicine and geriatric health care through consolidated grants to
States and other entities.
In 1989, an estimated 17,600 students in health professions training programs—medical and allied health professionals—will be
supported by $176 million in guaranteed loan commitments under




5-112

THE BUDGET FOR FISCAL YEAR 1989

CREDIT PROGRAMS—HEALTH
(In millions of dollars)
Actual
1987

Estimate
1988

1990

1989

1991

Direct loans:
Health resources, education, and facilities:
New obligations
Change in outstandings
Outstandings

1
-57
716

1
-32
684

-131
553

33
587

31
617

Total, direct loans:
New obligations
Change in outstandings..
Outstandings

1
-57
716

1
-32
684

-131
553

33
587

31
617

221
199
1,305

350
319
1,623

77
35
1,659

-39
1,620

-40
1,580

100
100
100

100
100
200

100
100
300

Guaranteed loans:
Health profession graduate student loans:
New commitments
Change in outstandings
Outstandings
Health education assistance loan subsidies:
New commitments
Change in outstandings
Outstandings
Health resources, education, and facilities:
Change in outstandings
Outstandings
Total, guaranteed loans:
New commitments
Change in outstandings..
Outstandings
Total, new obligations and new commitments

*

-86
836

-107
729

-103
626

-116
510

-128
383

221
113
2,140

350
212
2,353

177
32
2,384

100
-55
2,330

100
-68
2,263

222

351

177

100

100

•$500,000 or less.

the health education assistance loan program. An additional 44,760
nursing and health professions students will continue to receive
assistance through revolving fund loans. Direct support will continue for about 12,100 students pursuing careers in health-related
research. Research training is projected to have outlays of $253
million in 1989.
Consumer and Occupational Health and Safety.—Budget authority of $1.3 billion in 1989 is requested to protect consumers from
unsafe and defective products and to protect workers from occupational hazards.
Consumer Safety.—Budget authority for consumer safety activities is proposed to be $907 million in 1989. This funding would
support research, consumer education, and the development of both
voluntary and regulatory measures to protect consumers from unreasonable risks. Inspections would be continued to ensure the
safety and efficacy of drugs, medical devices, and foods.




HEALTH

5-113

Occupational Safety and Health.—The budget includes $420 million in budget authority to improve occupational safety and health
in 1989. 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 eliminate workplace hazards causing injury, illness, or death. During
1988 and 1989, both OSHA and MSHA will continue efforts to
revise or eliminate standards that burden employers without enhancing protection of workers. Resources will be focused on those
activities most likely to ensure safe and healthful working conditions. Cooperative and voluntary efforts of employers and employees to increase workplace safety and health will be encouraged. All
mine inspections required by the Mine Safety and Health Act in
1988 and 1989 are expected to be accomplished.
Tax Expenditures.—Federal tax laws help finance health insurance by allowing employees to exclude from their taxable income
the insurance premiums paid by their employers. The estimated
tax expenditure for this provision is $34.8 billion for 1989. Individuals also are permitted to itemize as deductions certain expenses
for health care. In 1989, the estimate for this health-related tax
expenditure is $2.2 billion. In addition, health-related charitable
contributions result in a tax expenditure estimated at $1.4 billion
for 1989, and the exclusion of interest on State and local hospital
bonds results in an estimated 1989 tax expenditure of $2.9 billion.
Estimated tax expenditures for existing health provisions total
$41.3 billion in 1989.
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 functions. Agency contributions to Federal employees health benefits
are described under health care services but are included in individual agency budgets in virtually all functions.




5-114

THE BUDGET FOR FISCAL YEAR 1989

MEDICARE
The Federal Government contributes to the health of aged and
disabled Americans through medicare. In 1989, medicare will provide health insurance for an estimated 33 million persons who are
aged, disabled, or suffer from end-stage renal (i.e., kidney) disease.
In addition, the administration supports the enactment of catastrophic health insurance legislation consistent with the principles
embodied in the Senate-passed Medicare Catastrophic Protection
Act (H.R. 2470).
Medicare consists of two parts under current law. Hospital insurance (Part A), funded primarily by social security payroll taxes,
pays for care provided by hospitals, skilled nursing facilities, home
health agencies, 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 $24.80 per month per enrollee in calendar year 1988)
of Part B costs through premiums. A $26 billion subsidy from
general revenue, an average of $67 per month per enrollee, completes the program financing for 1988.
Under current law, medicare outlays are expected to increase 11
percent annually, an increase of $55 billion from 1988 to 1993.
Medicare's spending on physician services, one of the fastest growing parts of the budget, is expected to increase 12 percent annually
over the 5-year period.
The Bipartisan Budget Agreement established specific deficit reduction targets for medicare—$2.0 billion in 1988 and $3.5 billion
in 1989. The administration estimates that the reductions achieved
through the enactment of the Omnibus Budget Reconciliation Act
of 1987 (OBRA) fall $1.2 billion short of the 2-year savings agreed
to. The 1989 budget proposes further reductions in 1989 of $980
million in Part A and nearly $240 in Part B to implement the
agreement.
Even with the administration's savings proposals, medicare outlays are projected to increase from $79 billion in 1988 to $128
billion in 1993. This increase significantly exceeds general inflation
and the increase in the beneficiary population. In the budget,
spending per medicare beneficiary would increase from $2,500 in
1988 to $3,700 in 1993.
Hospital Insurance (HI).—OBRA included several changes to hospital spending. In 1988, the annual update in average hospital
payments under the prospective payment system (PPS) was increased from 2.7 percent to 3.0 percent for rural hospitals, reduced
from 2.7 percent to 1.5 percent for urban hospitals in large metropolitan areas (over one million people) and reduced from 2.7 per-




5-115

MEDICARE

NATIONAL NEED: MEDICARE
(Functional code 570; in millions of dollars)
Major missions and programs

BUDGET AUTHORITY
Medicare:
Hospital insurance (HI):
Existing law
Proposed legislation
Supplementary medical insurance (SMI):
Existing law
Proposed legislation
Medicare premiums and collections:
Existing law.
Interfund transactions
Total, budget authority..
OUTLAYS
Medicare:
Hospital insurance (HI):
Existing law..
Supplementary medical insurance (SMI):
Existing law
Proposed legislation
Medicare premiums and collections:
Existing law
Proposed legislation
Interfund transactions
Total, outlays..

Estimate

actual
1987

1988

1989

1990

1991

62,735

67,858

72,794
1,660

78,560
2,302

84,422
2,642

27,797

34,871

42,855
-285

46,952
-624

53,457
-725

-10,563
87

-11,425
-355

-12,102
-1,213

-6,520
-14
83,998

93,928

106,548

115,410

126,481

50,803

52,484

55,782
-980

61,985
-1,231

67,989
-1,521

30,837

35,173

40,026
-337

45,298
-617

51,535
-727

-6,520

-8,800

-10,563
87

-11,425
-355

-12,102
-1,213

75,120

78,857

84,015

93,655

103,961

cent to 1.0 percent for urban hospitals in small metropolitan areas.
In 1989, the update factors will be set at market-basket (hospital
cost) inflation, minus 1.5 percent for rural hospitals, 2.0 percent for
urban hospitals in large metropolitan areas and 2.5 percent for
other urban hospitals.
OBRA made changes to hospital payments including reducing
payments for hospital capital costs and slowing payments of some
hospital bills. The Act increased the disproportionate share PPS
adjustment for certain hospitals and expanded eligibility to additional hospitals. To offset these costs, the payment adjustment for
indirect medical education (IME) costs to teaching hospitals was
reduced from 8.1 percent to about 7.7 percent.
To implement the Bipartisan Budget Agreement, the budget proposes to reduce further indirect medical education payments and
limit graduate medical education payments. The indirect medical
education adjustment would be reduced from 7.7 percent to 4.05
percent—the best estimate of the added costs teaching hospitals
historically incurred.
Supplementary Medical Insurance (SMI).—OBRA included a
series of reforms that limits payments for physician and diagnostic




5-116

THE BUDGET FOR FISCAL YEAR 1989

clinical laboratory services, for durable medical equipment, and to
hospital outpatient departments for radiology. The Act also expanded medicare's mental health benefit. The bulk of the savings
were achieved by:
• freezing payments for most physicians at calendar year 1987
levels;
• reducing the annual payment update;
• reducing payments for new physicians; and
• reducing payments for specific overpriced procedures.
In total, the Act reduced growth in physician spending about
$330 million in 1988 and $700 million in 1989. Two provisions of
the Act increase beneficiary cost-sharing: a one-year extension of
the current law 25 percent of program cost Part B premium, and
an extension of beneficiary cost sharing to ambulatory surgical
center and outpatient department physician services. To implement fully the Bipartisan Budget Agreement, the budget proposes
to limit payments for durable medical equipment, reduce payments
for radiology and anesthesiology services, and to close a loophole in
payments for home dialysis treatment for end-stage renal disease.
The administration aims to begin reducing excessive growth in
physician spending by intensifying screening of physician claims by
program contractors, and by pursuing a variety of physician payment reform options including research on procedures definitions,
payment system options, and physician services volume and intensity issues. In addition to taking these actions to address program
cost increases, the administration is also proposing to set permanently the Part B premium at 25 percent of program costs effective
in 1990.
Catastrophic Health Insurance (CHI).—The administration remains committed to the enactment of legislation providing affordable, acute-care catastrophic illness protection and outpatient prescription drug coverage for our Nation's elderly and disabled. Such
legislation must be deficit neutral, with benefits paid from newly
created trust funds, which are soundly and fully financed from
beneficiary premiums.
The Senate-passed version of H.R. 2470, the Medicare Catastrophic Protection Act, is consistent with the administration's
principles for an acceptable catastrophic health insurance bill. The
administration's continued support for the Senate-passed bill assumes modifications in effective dates, necessary because of the
delay in conference action.




INCOME SECURITY

5-117

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 includes unemployment compensation programs and a wide range of
housing, food, and cash assistance programs. Outlays for these
programs are estimated at $130 billion in 1988 and $136 billion in
1989.
General Retirement and Disability Insurance (Excluding Social

Security).—This subfunction includes programs that provide retirement 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
895,000 former railroad employees, their dependents, and survivors
in 1989. RRB payments include benefits equivalent to social security retirement and disability benefits, as well as rail industry pensions and federally subsidized windfall payments. Benefits are financed through railroad employee payroll deduction^ and railroad
employer contributions, payments from social security trust funds,
and direct subsidies from taxpayers. Estimated 1989 outlays of $4.3
billion include $330 million for the Federal windfall subsidy component, which represents an annual subsidy of more than $1,000 per
active railroad employee.
The budget proposes to restore rail industry pensions, the
amounts above social security equivalent levels, to the private
sector. Rail pensions are the only private industry pensions embedded in Federal law subsidized by taxpayers and administered by a
Federal agency. Privatization of rail pensions would: (1) fully cover
the rail sector under social security, (2) free rail labor and management to bargain collectively for new benefit levels and mechanisms
for a new funding arrangement, and (3) require sound financing of
pensions for new rail workers by placing rail pensions under the
Employee Retirement Income Security Act (ERISA). Rail unemployment insurance (UI) would merge with the Federal/State UI
system as part of the privatization initiative.




5-118

THE BUDGET FOR FISCAL YEAR 1989
NATIONAL NEED: PROVIDING INCOME SECURITY

(Functional code 600; in millions of dollars)
Major missions and programs

actual
1987

Estimate
1988

1990

1989

1991

BUDGET AUTHORITY
General retirement and disability insurance (excluding social security):
Railroad retirement
Special benefits for disabled coal miners
Other

Subtotal, General retirement and disability insurance (excluding social
security)

4,627
1,136
75

4,734
1,584
80

4,354
1,558
87

4,259
1,530
94

4,136
1,498
100

5,838

6,397

5,999

5,882

5,734

44,145

46,528

48,770

50,864

53,042

r

ceo
668
39,142

Federal employee retirement and disabilCivilian retirement and disability programs:
Existing law
proposed legislation
Military retirement
Federal employees workers' compensation
(FECA)

rt

31,919

33,563

35,060

545
36,916

226

205

253

279

301

76,290

80,296

84,087

88,603

93,154

24,037

24,479

24,110
-102

22,740
-92

21,915
-94

24,037

24,479

24,008

22,648

21,821

6,903

7,368

1,350
1,300

1,450
1,436

6,533
382
1,518
956

6,682
382
1,522
716

15,340
382
1,579
270

311

229

189

184

183
*

9,864

10,483

9,578

9,486

17,753

12,646
6,922

13,518
7,132

13,428
7,330

13,559
7,810

13,935
8,269

19,568

20,650

20,758

21,369

22,205

10,797

12,571

12,474

12,300

14,078

10,461

11,125

10,355

10,574

10,905

QCQ
obo

1 CO

c

Subtotal, Federal employee retirement

and disability
Unemployment compensation:
Existing law
Proposed legislation
Subtotal, Unemployment compensation..
Housing assistance:
Subsidized housing
Rural housing voucher program
Public housing operating subsidies
Low-rent public housing loans
Other housing assistance:
Existing law
Proposed credit reform
Subtotal, Housing assistance
Food and nutrition assistance:

Food stamps and aid to Puerto Rico
Child nutrition and other programs
Subtotal, Food and nutrition assistance
Other income security:
Supplemental security income (SSI)
Family support payments:
Existing law
proposed legislation

loo

Earned income tax credit (EITC)
Refugee assistance
Other
Subtotal, Other income security

1,410
340
2,078
25,086

2,893
347
1,720
28,656

3,897
279
1,386
28,759

3,901
279
1,385
28,623

3,895
279
1,386
30,538

Total, budget authority

160,682

170,962

173,188

176,611

191,205

*$500 thousand or less.




INCOME SECURITY

5-119

specified medical criteria are entitled to monthly cash payments
and medical benefits. Cash payments are also made to their dependents 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 1989. 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 $3.1 billion at the end of
1989. 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. Legislation passed in 1988
will retain the current excise taxes beyond their previously proposed expiration date in order to slowly restore the trust fund to
solvency by the year 2014.
Pension Benefit Guaranty Corporation (PBGC).—This Government corporation insures payment of pension benefits promised to
workers by their private employers that sponsor defined benefit
pension plans. When a bankrupt or financially distressed employer
can no longer support a pension plan, the PBGC takes over the
plan and pays monthly retirement benefits up to a legal maximum.
PBGC may also lend money to an insolvent multi-employer plan to
prevent termination, thereby forestalling the need for the government to take over the plan. The Corporation's revenues include
variable rate premiums charged to sponsors of single employer
plans and flat rate premiums charged to sponsors of multi-employer plans, earnings on investments, and collections from sponsors
that terminate plans. Premiums were increased and a variable rate
structure started in 1988 for single employer pension plans.
Federal Employee Retirement and Disability.—Of the several employee retirement and disability programs in the legislative, judicial, and executive branches of the Federal Government, the largest are civil service retirement and disability and military retirement.
Special Benefits for Disabled Coal Miners.—Miners who suffer
from chronic dust disease of the lungs—black lung—and who meet




5-120

THE BUDGET FOR FISCAL YEAR 1989
NATIONAL NEED: PROVIDING INCOME SECURITY
(Functional code 600; in millions of dollars)
Major missions and programs

actual
1987

Estimate
1988

1989

1990

1991

3,963
1,602
-72
72

3,889
1,502
-571
74

4,005
1,619
-504
81

4,116
1,534
-518
88

4,228
1,502
-532
94

5,565

4,894

5,200

5,220

5,292

26,161
18,080

27,552
19,128

29,532
20,324

32,106
21,522

33,226
22,723

206

205

253

279

301

-702

-722

-769
18

-808
23

-816
29

43,745

46,163

49,357

53,123

55,463

17,080

15,764

16,477
-102

16,551
-92

17,126
-94

17,080

15,764

16,375

16,459

17,032

9,786
14
1,388
1,356

10,630
19
1,486
1,492

12,069
24
1,515
1,022

13,283
79
1,520
784

13,718
150
1,548
344

112

208

218

182

174
*

12,656

13,833

14,847

15,848

15,934

12,407
6,533

13,426
7,103

13,412
7,354

13,554
7,760

13,928
8,193

18,940

20,530

20,765

21,314

22,121

10,909

12,636

12,474

12,300

14,078

10,540

10,785

1,410
387
2,017

2,893
305
1,757

10,772
168
3,897
295
1,421

10,574
147
3,901
284
1,397

10,905
50
3,895
279
1,386

25,264

28,376

29,028

28,603

30,593

129,560

135,573

140,567

146,436

OUTLAYS
General retirement and disability insurance (excluding social security):
Railroad retirement:...

Special benefits for disabled coal miners
Pension Benefit Guaranty Corporation
Other
Subtotal, General retirement and disability insurance (excluding social
security)
Federal employee retirement and disabilCivilian retirement and disability programs
Military retirement

Federal employees workers' compensation
(FECA)
Federal employees life insurance fund:
Existing law
Proposed legislation

Subtotal, Federal employee retirement
and disability
Unemployment compensation:
Existing law

Proposed legislation
Subtotal, Unemployment compensation..
Housing assistance:
Subsidized housing
Rural housing voucher program
Public housing operating subsidies
Low-rent public housing loans
Other housing assistance:
Existing law
Proposed credit reform

Subtotal, Housing assistance
Food and nutrition assistance:
Food stamps and aid to Puerto Rico
Child nutrition and other programs

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..
*$500 thousand or less.




123,250

INCOME SECURITY

5-121

Civilian Retirement and Disability Programs,—Nearly all of the
Federal Government's civilian employees are covered by either the
civil service retirement system (CSRS) or the Federal employees'
retirement system (FERS). Under existing law, approximately 2.1
million retirees and survivors will receive payments in 1989 totalling an estimated $29.3 billion in outlays for these two retirement
systems. Benefits are paid to former employees who meet eligibility
requirements based on age and length of service and to their
survivors. Currently, full retirement benefits can begin at age 55
for employees with 30 years of service under the CSRS; however,
under the new FERS, that retirement age will gradually increase
to age 57. Benefit levels under CSRS and FERS are based on the
employee's three highest salary years. CSRS benefit levels are indexed to the Consumer Price Index (CPI), while FERS benefit
levels are indexed to a modified CPI.
The FERS retirement plan consists of social security, a basic
retirement benefit, and a thrift savings plan. Currently, there are
approximately 600,000 active employees covered by FERS, and that
number will grow rapidly each year, since all new employees entering the federal government must now join FERS. The number of
annuitants under FERS is very small, because few FERS participants currently meet retirement eligibility requirements. It is expected that the number of FERS annuitants will grow to approximately 15,000 through 1995.
Part of the new retirement system (FERS), the thrift savings
fund, is a tax-deferred, voluntary savings plan to which FERS
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 CSRS may also contribute up to
5 percent of their salary to the thrift plan and receive tax deferral
benefits, but they receive no matching contributions.
Funds invested in the thrift savings fund are no longer included
in the budget because these funds belong to the investors and are
administered by the Government in a purely fiduciary capacity. A
more detailed explanation of this change is in Part 6e.
Consistent with the administration's efforts to scale back overlygenerous features of the civilian retirement program, the Omnibus
Budget Reconciliation Act of 1987 included a provision to change
the payment of the lump-sum annuity to Federal employees who
retire between January 3, 1988 and December 31, 1989. The payment is now limited to 60 percent in the first year of retirement,
with the remaining 40 percent plus interest paid out in the second
year of retirement.
The administration has sought for several years to have the U.S.
Postal Service pay its full share of costs for Postal retirees. The
administration will propose legislation that, beginning in 1990, re-




5-122

THE BUDGET FOR FISCAL YEAR 1989

quires the Postal Service to make an annual cost-of-living adjustment payment for all Postal annuitants, including survivors. The
proposal is discussed in greater detail in the section on commerce
and housing credit function.
Military Retirement—Approximately 1.6 million military retirees and survivors will receive an estimated $20.3 billion in outlays
under existing law in 1989. Normal retirement eligibility is attained at 20 years of service. The initial benefit is 2.5 percent of
final basic pay for each year of service. For personnel entering
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 for 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 1989. Also, military personnel will continue to make contributions to and be eligible for
social security.
Federal Employees Workers' Compensation.—The Department of
Labor provides tax-free cash and medical benefits to Federal employees or their survivors for job-related injuries, illnesses, or
deaths. About 50,000 workers with long-term disabilities, or their
survivors, will receive monthly payments in 1988 and 1989.
Unemployment Compensation.—About 97 percent of wage and
salaried employment in the United States is covered by unemployment 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 3, an average of 1.9
million workers per week will receive unemployment benefits
during 1988 and 2.0 million workers in 1989. Outlays are estimated
to increase from $15.8 billion in 1988 to $16.4 billion in 1989, as
weekly benefit amounts also rise.
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




INCOME SECURITY

5-123

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. Additional 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 for new claimants beginning in 1989. Discussed in the education, training, employment, and social services function, the new program would be
tied closely to the unemployment compensation program and would
provide workers who have become unemployed 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 1988 would remain eligible to collect benefits
in 1989.
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 generally is limited to households
with annual incomes below 50 percent of median income in each
community. Housing programs administered by the Agriculture
Department's Farmers Home Administration (FmHA) serve households with incomes up to 80 percent of the median income, although this would change under the 1989 budget proposals.
The number of households receiving housing assistance through
FmHA and HUD has increased substantially since 1980, when
there were 4.2 million households receiving such help. By the end
of 1987, the number had grown to 5.6 million. At the end of 1989,
the number of assisted households will be an estimated 5.8 million.
The 5.8 million households (4.4 million are HUD-assisted; 1.4 million are USDA-assisted) reflect an increase of more than 1.6 million
households since 1980.
Under HUD's public and Indian housing program, the oldest
form of federally subsidized housing, buildings are owned and
maintained by local housing authorities. These units originally
were built on the premise that the Federal Government would
construct housing units to be owned locally and maintained and
operated through tenant rents. This proved infeasible in the midto late-1960's, when Congress limited tenant rent payments. To help
local housing authorities meet the resulting shortfalls, the Federal




5-124

THE BUDGET FOR FISCAL YEAR 1989
CREDIT PROGRAMS—INCOME SECURITY
(In millions of dollars)
Estimate

Actual
1987

Direct loans:
Low-rent public housing:
Change in outstandings
Outstandings
Nonprofit sponsor assistance:
New obligations
Change in outstandings
Outstandings
Nonprofit sponsor assistance subsidies:
New obligations
Change in outstandings
Outstandings
Other:
New obligations
Change in outstandings
Outstandings
Total, direct loans:
New obligations
Change in outstandings..
Outstandings
Guaranteed loans:
Low-rent public housing:
Change in outstandings..
Outstandings

1988

1989

1990

1991

-42
1,993

-44
1,949

-47
1,901

2
-39
2,039

2
-41
1,998

3
-44
1,953

3
-47
1,906

-275
5,977

-300
5,677

-325
5,352

-350
5,002

-37
2,074

-39
2,035

1

1

2

2

3
-37
2,078

-249
6,252

Total, new obligations..
* $500,000 or less.

Government created additional funding for capital repair (modernization) and operating subsidies (the difference between operating
costs and tenant rental contributions).
FmHA's housing programs rely on other subsidy approaches. In
contrast to HUD's subsidized housing programs that focus on lowincome renters, 60 percent of the households assisted under FmHA
since 1980 have been homeowners. Under the Section 502 program,
very low-interest mortgages are provided to households to encourage their owning homes; in many cases, these families would not be
considered very low income. FmHA also provides rural renters
with assistance by giving developers low-interest loans to build
projects and by adding rental subsidies for some of the poorer
tenants.
Housing assistance, in the form of housing vouchers, is the key
to the administration's housing policy. At present, only HUD has
an active voucher program; the 1987 Housing and Community
Development Act (HCDA), however, authorized a voucher program
in 1988 and 1989 for areas served by FmHA. Housing vouchers,
which are targeted to very low-income households, provide tenants
with more housing choice, including the opportunity to live in




INCOME SECURITY

5-125

better neighborhoods with access to available jobs and higher quality schools. They also cost less—about one-half of the cost of housing programs that involve additional kinds of subsidies. Finally,
housing vouchers make more policy sense because the primary
housing deficiency in metropolitan and rural areas is not a physical shortage of adequate units nor a failure of housing market
financial institutions, but rather an income deficiency among poor
families. This is a problem most efficiently addressed with vouchers.
The 1989 budget proposes to add 135,500 more subsidized households to those currently being served: 127,500 would be given
vouchers to use in the private rental market; another 8,000 are
subsidies for construction of new units for Indian (1,000) and elderly or handicapped households (7,000). Of the 127,500 vouchers,
100,000 will be funded through and administered by HUD. Between
20 and 25 percent of these vouchers will be issued to families living
in non-metropolitan areas.
The budget proposes no new units under the existing FmHA
programs that subsidize homeownership or construction of apartment buildings. Instead, 27,500 vouchers would be funded through
FmHA and given to low-income families living in rural areas.
This amount includes 7,500 vouchers authorized in HCDA as well
as a request for an appropriation for an additional 20,000. The
proposed 1989 subsidized housing program requires an appropriation of $6.5 billion in HUD budget authority and $382 billion in
FmHA budget authority. (The gross HUD budget authority request
is actually $6.9 billion; the $6.5 billion figure nets out rescissions of
prior-year budget authority.)
The administration will continue its commitment to the existing
stock of public housing. The budget includes $1 billion in budget
authority for modernizing public housing and $1.5 billion of operating subsidies for the almost 1.4 million public and Indian housing
units. Finally, $4.2 billion will be forgiven on public and Indian
housing development and modernization construction loans, pursuant to 1986 legislation that forgave outstanding direct loans.
Building on the experiences and successes of HUD's homeownership demonstration, and consistent with relevant provisions of
HCDA, the administration proposes to further expand homeownership among residents of the Nation's public housing. New initiatives will emphasize sale to tenant management corporations and
other nonprofit organizations, as well as to individual tenants.
The administration proposes to pursue a similar course with
FHA-acquired properties, adding a significant new facet to HUD's
multifamily property disposition activities. Under the proposal,
nonprofit sponsors and other competent housing providers would
be able to negotiate with HUD a sale price low enough to assure




5-126

THE BUDGET FOR FISCAL YEAR 1989

not only affordability by low-income households, but proper management and maintenance over the longer term as well.
Because these initiatives are targeted to prospective buyers who
cannot accommodate private market terms and conditions but who
nonetheless have a wide range in financial capacity and housing
need, the administration hopes to be able to maintain a high
degree of flexibility in structuring the terms of each sale. The
proposal also recognizes that some sales may require deep Federal
subsidies. Such subsidies will, however, be factored into the sale
price; no on-going Federal subsidy after sale will be considered.
In addition to offering public housing tenants home ownership
opportunities, the administration proposes to provide tenants in
public housing with more housing choices by offering them vouchers so that they could continue living in public housing or else find
private rental units. Likewise, households receiving vouchers who
are currently not residing in public housing could use their vouchers to live in public housing. Public housing and its tenants would,
therefore, be more integrated into a community's overall housing
market.
Another proposal is designed to give local housing authorities
(PHAs) more flexibility in setting rents for public housing tenants
and to curtail the escalating costs of public housing operating
subsidies. This reform would allow HUD to waive the requirement
that public housing tenants pay 30 percent of their adjusted income
for rent if PHAs agree to forego future operating subsidies. It is
anticipated that only PHAs currently collecting enough rent to
cover most or all of its operating expenses will take advantage of
this proposal. These PHAs will be able to establish frozen or flexible flat rents and charge more or less for a given unit depending on
the condition and location of the unit. As in the private market,
public housing families will be able to pay more or less for housing,
depending on its condition and location, without automatic rent
increases when income their increases.
Another administration proposal would allow States to finance
vouchers and increase the number of families receiving housing
assistance. Under this proposal, to be tested through a HUD demonstration, States would cover 100 percent of voucher subsidy costs,
while HUD would cover 100 percent of the administrative fee costs.
States could administer their vouchers directly, or pass them on to
PHAs in their jurisdiction. This proposal is designed to amplify and
encourage States' involvement in low-income housing delivery by
eliminating the costs of program start-up or on-going administrative costs.
Finally, HUD's budget will contain two proposals regarding the
homeless. The policy approach emphasizes transitional and permanent housing for the homeless, rather than emergency shelter. The




INCOME SECURITY

5-127

budget proposes to fund the supportive housing demonstration for
the homeless at $75 million in 1989 with all funds going to transitional housing (i.e., where the homeless may live for up to 18
months). In addition, the Section 202/8 program that provides new
housing for the elderly and the handicapped will place special
emphasis on addressing the needs of the mentally ill homeless. The
budget assumes that approximately $50 million in new loan authority will be utilized for projects serving this population.
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 household size to finance food purchases. Benefits are entirely federally
funded; administrative costs are shared by the states and the Federal Government. Benefits are adjusted each year for changes in
the cost-of-living, with the next adjustment scheduled for October
1988. During 1989, 18.8 million people will receive food stamps each
month, with associated Federal outlays of $12.5 billion under current law. Outlays for nutrition assistance for Puerto Rico are estimated to be $907 million in 1989.
For the aid to families with dependent children (AFDC) and
medicaid programs, the States are held liable for the full dollar
value of their erroneous payments above a 3 percent tolerance
level. For the food stamp program, States are held liable for only a
fraction of erroneous payments above 5 percent. As a result, States
will repay the Federal government less than one-tenth of the approximately $900 million in food stamps they issue erroneously
each year. Throughout 1989, USDA will continue efforts to collect
outstanding State error liabilities; the budget assumes USDA will
collect $162 million from the States during the year.
States operate employment and training (E&T) programs for
able-bodied food stamp recipients. Each State's E&T program must
include one or more components, including job search, job search
training, workfare, work experience/training, and/or other programs if approved by the Secretary of Agriculture. To encourage
States to run the best E&T programs, the administration plans to
make a standard amount available for each food stamp recipient
enrolled in State programs. As States serve more food stamp recipients, Federal E&T funds flowing to the States would increase.
States would have complete flexibility to allocate total funds to
place hard to serve individuals in intensive E&T components, while
placing the job-ready in inexpensive job search programs.
Child Nutrition and Other Programs.—The child nutrition programs subsidize institutions for meals served to students in schools,




5-128

THE BUDGET FOR FISCAL YEAR 1989

child care facilities, and other institutions. Schools get cash and
commodity subsidies for meals served to all students, regardless of
income level. In 1988, schools and other institutions will get $4.8
billion in cash and commodities to subsidize meals served to students. Of that amount, $750 million will subsidize institutions for
meals served to students from households with income levels above
185 percent of the poverty level.
The administration proposes to maintain current child nutrition
payments in 1989. Administration initiatives will focus on improving program integrity, and ensuring efficient and effective use of
Federal meal subsidies.
Low income women, infants, and children get monthly food supplements from the supplemental feeding programs: the special supplemental food program for women, infants, and children (WIC)
and the commodity supplemental food program (CSFP). WIC provides monthly food assistance and nutrition education to over 3
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 WIC
has expanded rapidly in recent years, more than doubling since
1980. The administration's 1989 request of $1.9 billion in budget
authority for the supplemental feeding programs is $71 million
above the 1988 level, and would continue to support over 3 million
participants monthly.
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 agricultural price support programs, CCC commodities valued at $682
million are expected to be donated in 1989.
Other Income Security.—A number of other income security programs assist the poor. Estimated Federal outlays for these programs are $29 billion in 1989.
Supplemental Security Income (SSI).—This program will make
cash payments to an estimated four million needy aged, blind, or
disabled persons in 1989. Benefits are to be automatically increased
in January 1989 by the same percentage as social security benefits.
Some States also finance supplements to the basic Federal grant,
which may be administered by the Federal Government at no
charge to the States. The administration proposes no changes to
this program.
Family Support Payments to States.—Aid to families with dependent children (AFDC) helps State and local governments finance cash assistance to needy families. States administer the
AFDC program, determining guidelines for eligibility and the level




INCOME SECURITY

5-129

of benefits within broad Federal rules. Including Emergency Assistance, families will receive about $17.4 billion in 1989. The Federal
Government reimburses States for, on average, slightly more than
half of the benefit costs. Including incentive payments to States,
child support enforcement (CSE) finances, on average, about 90
percent of State and local administrative expenses for establishing
paternity and collecting support from legally liable absent parents.
These collections offset some State and Federal AFDC costs. Under
current law, Federal grants to States for AFDC and CSE are estimated to be $10.8 billion in both 1988 and 1989. About 3.8 million
families are expected to receive AFDC benefits in 1989. Child support collections on behalf of about 0.9 million of these families are
also anticipated.
Welfare Reform.—The administration continues to support the
AFDC Employment and Training Reorganization Act of 1987 (H.R.
3200 and S. 1655). This legislation will reform AFDC work and
training programs, strengthen the Federal-State child support enforcement system and provide broad flexibilty to States to carefully
test innovative alternatives to current programs that support lowincome families and individuals.
Under the comprehensive employment and training program,
teenage recipients would be encouraged to remain in or return to
school; and older recipients would participate in a variety of employment and training activities designed to improve their employment status. Participation standards phased in over nine years
would ensure that the majority of welfare families have the opportunity to achieve self-sufficiency. The unsuccessful work incentive
(WIN) program classified in the education, training, employment
and social services function would no longer be funded. In addition
to the employment and training reforms in AFDC, the budget also
proposes that minor mothers be required to live in their parents'
home in order to be eligible for AFDC.
Changes in child support enforcement would require States to
establish mandatory child support guidelines and employers to
automatically withhold from wages court ordered amounts to be
paid as child support, to help ensure that children receive adequate
and timely support from parents who are absent from the home. In
addition, States would be required to improve their procedures for
paternity establishment and for interstate enforcement of child
support.
Under the proposed demonstration activity, States could receive
waivers in a range of current programs for the low-income population to test new ways of helping families and individuals achieve
financial independence. Demonstrations under these waivers could
cost no more each year than the programs being modified, would




5-130

THE BUDGET FOR FISCAL YEAR 1989

be designed to permit sound evaluation and could not adversely
affect those in need.
These reforms would cost an estimated $168 million in Federal
outlays in 1989.
Earned Income Tax Credit (EITC).—Wage earners with children
are eligible for tax credits if they earn less than $17,000 beginning
in 1988. When the credit exceeds a wage earner's income tax
liability, the Treasury Department makes a cash payment. Credits
can be received as additions to paychecks or as a lump sum at the
end of the year. Total 1989 outlays for these payments are estimated to be $3.9 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
1989, the EITC tax expenditure is estimated to be $1.9 billion.
Refugee Assistance.—The Federal Government fully subsidizes
States for initial costs associated with refugee and entrant resettlement, including preventive health activities, cash and medical assistance, employment, and English language training. Estimated
1989 outlays are $295 million. Assistance is intended to help refugees become self-sufficient as soon as possible after they arrive in
the United States. Aid to refugees while they are overseas is discussed in the international affairs function.
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 payments to public housing building operators. The States may also
finance weatherization of homes for some low-income families. For
1989, the administration requests low-income home energy assistance 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 retirement income by excluding from employee taxable income their
employer's contributions to pension plans and by allowing individuals to exclude their own contributions to individual retirement
accounts (IRAs) and Keogh accounts. The maximum IRA contribution is limited to $2,000 annually. Individuals, however, are allowed
to make it a tax deductible contribution only if (1) they and their
spouse, 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




5-131

INCOME SECURITY

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)
Estimates

Description

Net exclusion of pension contribution earnings:
Employer plans
Individual Retirement Accounts (IRAs)
Keogh plans
Exclusion of other employee benefits:
Premiums on group term life insurance
Premiums on accident and disability insurance
Income of trust to finance supplementary unemployment benefits.
Additional exemption for elderly
Additional deduction for the elderly
Additional exemption for the blind
Additional deduction for the blind
Tax credit for the elderly and disabled
Exclusion of military disability pensions
Exclusion of railroad retirement system benefits
Exclusion of special benefits for disabled coal miners
Exclusion of workmen's compensation benefits
Exclusion of untaxed unemployment insurance benefits
Deductability of casualty losses
Exclusion of public assistance benefits
Earned income credit *
Total (after interactions) income security J

1987

1988

64,120
19,345
3,780

56,150
11,995
2,125

58,670
12,015
1,535

2,425
160
30
1,205
1,630
15
10
205
115
400
135
2,740
690
285
530
590
96,440

2,395
160
30

2,550
165
30

1,535

1,155

15
225
105
380
115
2,660

15
240
105
365
110
2,600

265
390
1,090
78,040

265
350
1,850
80,380

1
The figures in the table indicate the tax subsidies provided by the earned income tax credit. The effect on outlays is: 1987, $1,410 million;
1988,
$2,895 million; and 1989, $3,895 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
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.




5-132

THE BUDGET FOR FISCAL YEAR 1989

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 1989 and provides benefits to
one in every six Americans.
The administration proposes no changes in social security benefits. 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 $10,500 in 1988, an
increase of nearly $3,700 over the 1981 level. Outlays for the combined OASDI programs are estimated to increase from $220.5 billion in 1988 to $234.5 billion in 1989, 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 also of a number of intragovernmental transactions (i.e., payments from accounts within the government 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 1989 amount to an
estimated $6.3 billion of Federal fund outlays and trust fund offsetting collections.
Tax Expenditures.—The exclusion from income tax of a portion
of social security benefits, including those for dependents and survivors, results in a 1989 estimated tax expenditure of $17.5 billion.
Up to one-half of social security benefits are, however, 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.




5-133

SOCIAL SECURITY
NATIONAL NEED: SOCIAL SECURITY
(Functional code 650; in millions of dollars)
Major missions and programs

actual
1987

Estimate
1988

1989

1990

1991

BUDGET AUTHORITY
Social security:

Old-age and survivors insurance (OASI)
Disability insurance (Dl)
Interfund transactions
Total, budget authority
On-budget

Off-budget

206,870
20,052
1

234,246
22,244

254,844
24,064

278,490
28,272

301,743
31,547

226,922
(4,930)
(221,992)

256,490
(5,022)
(251,468)

278,908
(5,572)
(273,336)

306,762
(5,432)
(301,330)

333,290
(4,251)
(329,039)

186,124
21,227
1

197,528
22,189

210,615
23,155

224,332
24,155

238,062
25,348

207,353
(4,930)
(202,422)

219,717
(5,022)
(214,695)

233,769
(5,572)
(228,197)

248,487
(5,432)
(243,055)

263,410
(4,251)
(259,159)

OUTLAYS
Social security:
Old-age and survivors insurance (OASI)
Disability insurance (Dl)
Interfund transactions
Total, outlays

On-budget
Off-budget ..
*$500 thousand or less.




5-134

THE BUDGET FOR FISCAL YEAR 1989

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 earnings resulting from service-related disabilities, provide medical care
for physical and psychological disabilities, and assist returning veterans to prepare themselves for reentry into civilian life. In addition, veterans benefits provide financial assistance to needy veterans of wartime service and their survivors. Outlays for veterans
benefits and services are estimated at $27.7 billion in 1988 and
$29.6 billion in 1989.
The budget continues current administration policy in Veterans
Administration (VA) medical care: to sustain quality care, and
maintain medical care at no charge to veterans with service-connected disabilities and to other veterans with low and moderate
incomes, with a copayment for higher income veterans. The administration 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).
The administration also supports legislation to make the VA a
cabinet agency. This will provide veterans continued access to decision making at the highest levels of government and give them the
recognition that they deserve.
Income Security for Veterans.—In addition to Federal income
security programs for the general population, such as social security and unemployment insurance, several VA programs help certain
veterans and their survivors maintain their income when the veteran is disabled, aged, or deceased. Outlays for this purpose are
estimated to increase from $14.9 billion in 1988 to $15.7 billion in
1989.
Service-Connected Compensation.—Veterans with disabilities resulting from military service receive monthly compensation payments 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
January 1988, benefits were increased by 4.2 percent.
The administration is proposing legislation to link the veterans
compensation COLA to the annual change in the CPI. This legislation would ensure that veterans with service-connected disabilities
and survivors of veterans who died from service-connected conditions would receive full and timely adjustments to their benefits,
protecting them from the erosion of their benefits and the uncer-




VETERANS BENEFITS AND SERVICES

5-135

tainties of an annually legislated COLA. For 1989, this adjustment
is expected to be 4.2 percent. Allowances provided to compensate
beneficiaries for dependents and clothing would be indexed similarly.
The number of veterans and survivors of deceased veterans receiving compensation benefits is expected to decline from 2.6 million in 1986 to 2.5 million by 1989. However, because of the proposed cost-of-living adjustment, outlays for compensation benefits
are estimated to increase from $10.4 billion in 1988 to $11.0 billion
in 1989.
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 4.2 percent cost-of-living increase
became effective with the January 1988 payments. The next cost-ofliving increase, effective with the January 1989 payments, is also
estimated to be 4.2 percent.
Although the number of veterans aged 65 and over is expected to
double during the 1980's, the number of pension recipients is expected to decline from 1.22 million in 1988 to 1.16 million in 1989,
because veterans over age 65 increasingly have higher incomes.
Outlays for veterans pensions are estimated to be $3.8 billion in
1988 and $3.9 billion in 1989.
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 proposed, to take effect in 1990, that would similarly target existing
allowances that apply toward the purchase of burial plots to families of these same veterans. Outlays in 1989 are estimated to be
$141 million.
Insurance Programs.—Life insurance programs that assist veterans and their survivors will continue to provide in excess of $200
billion of coverage to nearly eight million veterans and active duty
personnel in 1989. Policy loans, in which veterans borrow against
their policy equity, are expected to increase slightly from $57.4
million in 1988 to $62.9 million in 1989. Capitalized interest from
policy loans is expected to decrease from $53.5 million to $49.7
million.
Veterans Education, Training, and Rehabilitation.—Several Federal 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 addition, four VA programs—the Vietnam-era GI bill, the post-Vietnam
era education program, the all-volunteer force educational assist


5-136

THE BUDGET FOR FISCAL YEAR 1989
NATIONAL NEED: PROVIDING VETERANS BENEFITS AND SERVICES
(Functional code 700; in millions of dollars)
Major missions and programs

Estimate

actual
1987

1988

1989

1990

1991

10,505

10,352

3,794

3,841

10,749
361
3,865

10,616
786
3,883

10,478
1,189
3,901

123

142

1,391

1,421

145
-4
1,426

149
-41
1,416

152
-43
1,393

22

30

-444

434

23
4
420

27
4
-406

26
5
-392

15,392

15,352

16,149

16,434

16,708

763

626

598

456

493

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 rehabilitation:
Readjustment benefits (Gl Bill and related
programs)
Post-Vietnam era education
All-volunteer force educational assistance
trust fund
Veterans jobs program
Other:
Proposed credit reform
Subtotal, Veterans education, training,
and rehabilitation
Veterans housing:
Loan guaranty revolving fund:
Existing law
Proposed credit reform
Direct loan revolving fund:
Proposed credit reform

-170

169

-166

-168

-174

*

*

289

320

649
907

30

623

457

100

756

432

658

582

1,091

1,242

1,824

1,556

*

100

756

1,749

Other veterans benefits and services:
Cemeteries, administration of veterans benefits, and other
Non-VA support programs

792
78

797
68

803
76

807
73

803
57

Subtotal, Other veterans benefits and
services

870

865

878

880

861

Hospital and medical care for veterans:
Medical care and hospital services:
Existing law

9,728

10,120

10,692
25
748
252
-144

10,946
26
769
252
-152

Subtotal, Veterans housing

531

563

Medical administration, research, and other..
Third-party reimbursement

255
-33

240
-113

10,328
24
543
253
-138

Subtotal, Hospital and medical care
for veterans

10,481

10,810

11,009

11,572

11,841

Total, budget authority

27,466

28,239

30,217

30,999

31,285

Proposed legislation...
Construction

*$500 thousand or less.




5-137

VETERANS BENEFITS AND SERVICES
NATIONAL NEED: PROVIDING VETERANS BENEFITS AND SERVICES
(Functional code 700; in millions of dollars)
Major missions and programs

Estimate

actual
1987

1988

1989

1990

1991

10,500

10,366

10,671
325
3,864

10,596
750
3,882

10,459
1,153
3,899

145
-4
1,132

149
-41
1,266

152
-43
1,313

-7
4
-406
16,192

9
5
-392
16,556

OUTLAYS
Income security for veterans:

Service-connected compensation:
Existing law
Proposed legislation
Non-service-connected pensions
Buriaj 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 rehabilitation:
Readjustment benefits (Gl Bill and related
programs)
Post-Vietnam era education
All-volunteer force educational assistance
trust fund
Veterans jobs program
Other:
Existing law
Proposed legislation
Proposed credit reform

Subtotal, Veterans education, training,
and rehabilitation
Veterans housing:
Loan guaranty revolving fund:
Existing law
Proposed credit reform
Direct loan revolving fund:
Existing law
Proposed credit reform
Other (HUD participation sales trust fund)...

""3,836"
131

142

1,034

1,077

-52

-44

-444

14,962

-434
14,943

-41
4
-420
15,675

776
51

654
59

606
89

468
84

495
75

-401
38

-309
32

-222
5

-161

-128

-10

-6

-5
*

-4

454

428

472

386

439

382

568

683
881

651
1,256

643
921

-27
-1

-3
-1

_2

-33

-67

-19

•"153

330

654

1,536

1,904

1,562

715

825

799

790

788

54

71

80
-1

84
-1

74
-1

769

896

877

874

860

9,500

10,083

563
236
-33

604
253
-113

10,296
24
580
250
-138

10,557
25
709
249
-144

10,809
26
697
249
-152

Subtotal, Hospital and medical care
for veterans

10,266

10,828

11,012

11,396

11,630

Total, outlays..

26,782

27,748

29,573

30,751

31,047

Subtotal, Veterans housing
Other veterans benefits and services:

Cemeteries, administration of veterans benefits, and other
Non-VA support programs:
Existing law
Proposed legislation
Subtotal, Other veterans benefits and
services
Hospital and medical care for veterans:
Medical care and hospital services:
Existing law
Proposed legislation
Construction
Medical administration, research, and other...
Third-party reimbursement

*$500 thousand or less.




5-138

THE BUDGET FOR FISCAL YEAR 1989

ance program (the Montgomery GI bill), and the Vocational Rehabilitation program—provide education, training, and rehabilitation
benefits to veterans and military personnel who meet specific eligibility criteria. Outlays for the readjustment benefits programs are
estimated to decline from $654 million in 1988 to $606 million in
1989, because of a continued decline in the number of eligible
beneficiaries.
Vietnam-era GI Bill—The Vietnam-era GI bill provides education benefits—payments for college courses as well as for 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 civilian life by helping
them finance the education they might otherwise 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 military 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 1989, GI bill trainees (veterans, survivors and dependents) participating in the program are expected to total 200,000, compared
with 240,550 in 1988. The number of GI bill trainees, including
dependents, will continue to fall as the number of eligible veterans
and military personnel becomes smaller.
Post-Vietnam Era Education.—Individuals who entered military
service after 1976 and before July 1985 are eligible for the postVietnam era educational assistance 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 twofor-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 Department of Defense (DOD).
Enrollment in this program was closed as of March 1987.
The Montgomery GI Bill—This program was originally established as a test program with more generous benefits than the postVietnam era program in order to aid armed forces recruitment.
The program was made permanent in 1987. Servicepersons electing
to enter the program have their pay reduced by $100 a month
during their first year of military service. Upon discharge, they
receive basic education benefits equivalent to an eight-to-one match
of their pay reduction. The VA administers the program and pays
the costs of the basic benefits. DOD may provide additional benefits
to aid in the recruitment of certain specialties and critical skills.
Nearly 41,500 veterans and servicepersons are expected to use
benefits under this program in 1989.




VETERANS BENEFITS AND SERVICES

5-139

The Montgomery GI bill also provides education benefits to reservists. DOD pays these benefits, and the VA administers the
program. In 1989, 202,800 reservists are expected to use benefits
under this program.
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 232,600 veterans in obtaining mortgages in 1989.
Guaranteed loan commitments for mortgage loans in 1989 are estimated to be $18 billion.
The administration will continue to seek enactment of its proposal to permit negotiated interest rates on VA-guaranteed mortgages.
By allowing negotiated rates, veterans will have maximum flexibility to structure the financing of their home purchases to best meet
their needs. The administration will also seek to continue the
executive branch's discretion to sell loan assets without recourse to
the Government after 1989 when the current authority expires.
This will reduce the Loan Guaranty Revolving Fund's exposure to
future default costs and promote improved credit management
practices.
The budget authority and outlays shown as proposed credit
reform reflect the estimated subsidies implicit in Federal loan programs. The administration's proposed credit reform initiative is
discussed in Part 6b of this volume.
Other Veterans Benefits and Services.—Veterans benefits are provided through a network of 59 regional offices located throughout
the Nation. The administration proposes that the VA continue to
modernize its operations to improve the cost-effectiveness, accuracy, and timeliness of service delivery to veterans.
The budget includes several other initiatives to improve the management of delivering veteran's benefits. These include making
greater use of contractor support to perform services that private
business can provide more efficiently, and investments in automated data processing equipment which continue to yield productivity
savings in the form of smaller administrative staff.
Management of the national cemetery system—for burial of eligible veterans, active duty military personnel, and their dependents—is also included in this subfunction. Over 100 national cemeteries are open throughout the Nation. The policy goal of providing
one large national cemetery per Federal region has now been attained. In 1989, funding is requested to expand the Calverton National Cemetery.
Additional funding is requested to revitalize the State cemetery
grant program to assist at least ten states in establishing, improving or expanding state-operated veterans cemeteries.




5-140

THE BUDGET FOR FISCAL YEAR 1989
CREDIT PROGRAMS—VETERANS BENEFITS AND SERVICES
(in millions of dollars)
Actual
1987

Direct loans:
Income security:
New obligations
Change in outstandings..
Outstandings
Education:
New obligations
Change in outstandings..
Outstandings
Housing:
New obligations
Change in outstandings..
Outstandings
Total, direct loans:
New obligations
Change in outstandings..
Outstandings
Guaranteed loans:
Housing:
New commitments
Change in outstandings..
Outstandings
Loan guarantee subsidies:
New commitments
Change in outstandings..
Outstandings
Total, guaranteed loans:
New commitments
Change in outstandings..
Outstandings
Total, new obligations and new commitments

Estimate
1988

1989

1990

1991

962
957
957

714
704
1,661

608
601
2,263

1
-6
40
1,010
-11
1,302

1
-6
35

-5
30

-3
27

-3
24

1,063
-342
960

16
-318
642

7
-194
448

5
-169
279

1,010
-17
1,342

1,064
-347
995

978
634

721
507
2,136

613
429
2,565

34,900
3,757
146,319

1,629

18,287
675 -13,780 -12,547 -10,244
146,994 133,214 120,668 110,424
17,940
16,743
16,743

17,033
14,804
31,547

15,973
11,464
43,012

34,900
3,757
146,319

18,287
675
146,994

17,940
2,963
149,957

17,033
2,258
152,215

15,973
1,221
153,436

35,910

19,351

18,918

17,754

16,586

* $500,000 or less.

Outlays for other veterans benefits and services are estimated to
be $896 million in 1988 and $877 million in 1989.
Hospital and Medical Care for Veterans.—The VA provides medi-

cal services, including hospital, outpatient and nursing home care,
to veterans by operating a nationwide medical care system. In
1989, this system will provide support for an estimated 23.1 million
outpatient visits and treat 1.1 million inpatients and 90,359 nursing
home patients in VA and community facilities and state veterans'
homes.
This program is carried out in 172 hospitals, 236 outpatient
clinics, 127 nursing homes, 27 domiciliary facilities, 188 vet centers
and, in some situations, in other Federal facilities and the private
sector. Outlays for medical programs are estimated to rise from
$10.8 billion in 1988 to $11.0 billion in 1989.




VETERANS BENEFITS AND SERVICES

5-141

Medical Care and Hospital Services.—VA's primary health mission is to treat veterans who were injured during military service
for their service-connected disabilities. Currently, most of the system'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 resources to meet this objective.
In addition to maintaining the VA medical care system, the
budget provides for additional recruitment and retention incentives
for VA nurses and other scarce VA health care professionals. The
administration also requests increased funding for community and
state nursing home programs, funds for a VA residency program in
geriatrics, additional resources for the VA's quality assurance efforts, and additional funds for automation investments intended to
make the delivery of medical care more efficient. As a result of
improvements in medical service delivery, as well as recent staffing
experience, slightly fewer staff members will be required to treat
the same number of patients.
Legislation will be proposed to increase, by an average of 24.5
percent, the per diem rate paid to States for the care of veterans in
State-operated nursing homes, domiciliaries, and hospitals for veterans. These rates were last adjusted in 1983. Legislation will also
be proposed to permit the VA to provide financial support for
nursing degree-related coursework taken by eligible VA nurses.
Budget authority of $10.4 billion is requested for medical care
and hospital services in 1989, an increase of $232 million over 1988.
Construction of Hospital and Extended Care Facilities.— New
budget authority of $543 million is requested for VA medical construction in 1989.
The administration 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, funding is provided to
maintain and upgrade the physical system. Budget authority of
$368 million is requested in 1989 to support 14 major projects and
other maintenance, safety correction, and design activities. An additional $133 million is requested for minor construction projects
and construction of parking facilities.
The administration proposes to continue the average rate of
construction over the last 10 years, replacing or modernizing two
large hospitals each year. In 1989, construction funds are proposed
for two large hospital projects in Atlanta, Georgia, and Pittsburgh,
Pennsylvania. The Atlanta project also includes construction of a
parking garage. The administration also proposes to design replacement hospitals in Indianapolis, Indiana and Newington, Connecti-




5-142

THE BUDGET FOR FISCAL YEAR 1989

cut. Funding in 1989 is also requested for large clinical addition
projects in Beckley, West Virginia; Nashville, Tennessee; Perry
Point, Maryland; and San Antonio, Texas.
Budget authority of $42 million is requested for 1989 for grants
to States for the construction or repair of State nursing homes for
the care of aging veterans. This is $1.7 million above the 1988 level
and will enable VA to support 14 grants in 6 States. A total of 37
States are participating in the State nursing home program.
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 1989 are $1.4 billion, $75
million, and $60 million, respectively. Veterans are aided in obtaining housing through veterans bonds issued by State and local governments, the interest on which is not subject to tax. In 1989, the
tax expenditure estimate for this provision is $350 million. Total
tax expenditures for veterans are estimated to be $1.9 billion for
1989.
Related Programs.—In addition to the assistance provided specifically 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.




ADMINISTRATION OF JUSTICE

5-143

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 proceedings, and operate detention and correctional facilities for those
charged with or convicted of violating Federal law. The proposed
budget authority for 1989 for this function is $10.3 billion, a $1.1
billion increase from the 1988 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 $5.3
billion in 1989, $256 million above the 1988 level, will maintain and
increase resources dedicated to foreign counterintelligence, drug
enforcement, immigration activities, and computer and communications upgrades.
Criminal Investigations.—Budget authority requested for criminal investigations for 1989 is $2.0 billion, an increase of 8 percent
over the 1988 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 administration is requesting funding for over 170 new domestic and foreign
positions for the DEA, as well as funding to improve DEA's technical equipment capabilities.
The FBI enforces a broad range of criminal statutes, works with
other Federal agencies as well as State and local authorities, and
assists States and localities through training, dissemination of information, and other activities. Additional funding is being requested in 1989 to increase the FBI's foreign counterintelligence activities. The FBI will also intensify its investigative efforts against
organized criminal groups, white-collar crime, terrorist activity,
and public corruption.




5-144

THE BUDGET FOR FISCAL YEAR 1989
NATIONAL NEED: ADMINISTRATION OF JUSTICE
(Functional code 750; in millions of dollars)
Major missions and programs

Estimate

actual
1987

1988

1990

1989

1991

BUDGET AUTHORITY
Federal law enforcement activities:
Criminal investigations (DEA, FBI, and
OCDE)

Alcohol, tobacco, and firearms investigation
(ATF)
!
Border enforcement activities (Customs and
INS)
Customs user fee:
Existing law
Proposed legislation
Protection activities (Secret Service)
Other enforcement
Subtotal, Federal law enforcement activities
Federal litigative and judicial activities:
Civil and criminal prosecution and representation

Federal judicial activities
Representation of indigents in civil cases
Subtotal, Federal litigative and judicial
activities
Federal correctional activities:
Existing law

Proposed legislation
Subtotal, Federal correctional activities.
Criminal justice assistance
Total, budget authority

1,788

1,883

2,041

2,061

2,055

198

218

219

222

225

1,977

2,162

2,229

2,244

2,220

351
411

-680
680
382
427

-707
707
370
469

-736
736
361
474

-765
765
372
479

4,726

5,072

5,328

5,363

5,351

1,082
1,292
306

1,195
1,369
306

1,414
1,751
250

1,425
1,821
250

1,443
1,892
250

2,680

2,869

3,416

3,496

3,585

867

921

1,370
20

1,366

1,437

867

921

1,390

1,366

1,437

502

324

173

175

182

8,775

9,186

10,307

10,399

10,555

1,633

1,786

1,969

2,043

2,052

179

217

218

222

225

1,616

2,099

2,186

2,235

2,217

312
365

-680
680
404
447

-707
707
368
465

-736
736
360
471

-765
765
367
475

4,105

4,953

5,207

5,331

5,336

977
1,196
309

1,116
1,397
296

1,313
1,710
257

1,413
1,769
250

1,440
1,838
250

2,482

2,809

3,280

3,431

3,528

711

842

1,092

1,349

1,493

OUTLAYS
Federal law enforcement activities:
Criminal investigations (DEA, FBI, and
OCDE)

Alcohol, tobacco, and firearms investigation
(ATF)
Border enforcement activities (Customs and
INS)
Customs user fee:
Existing law
Proposed legislation
Protection activities (Secret Service)
Other enforcement
Subtotal, Federal law enforcement activities
Federal litigative and judicial activities:
Civil and criminal prosecution and representation

Federal judicial activities
Representation of indigents in civil cases
Subtotal, Federal litigative and judicial
activities
Federal correctional activities:
Existing law




5-145

ADMINISTRATION OF JUSTICE
NATIONAL NEED: ADMINISTRATION OF JUSTICE—Continued
(Functional code 750; in millions of dollars)
Major missions and programs

actual
1987

Estimate
1988

Criminal justice assistance
Total, outlays

1990

1991

20

Proposed legislation
Subtotal, Federal correctional activities.

1989

711

842

1,112

1,349

1,493

250

366

295

223

189

7,548

8,970

9,894

10,334

10,546

Border Enforcement Activities.—Budget authority of $2.2 billion
for 1989 is proposed for border enforcement activities—an increase
of $67 million over 1988. The Immigration and Naturalization Service (INS) and the United States Customs Service are responsible for
border enforcement activities. The INS administers laws related to
the admission, exclusion, deportation, and naturalization of aliens.
In 1989, the INS will be in its third year of expanded responsibilities under the Immigration Reform and Control Act of 1986. Resources are requested to administer legalization and agricultural
worker programs, enforce employer sanctions, and deter further
illegal immigration. Funding to activate two new alien detention
facilities is also requested.
The United States Customs Service assesses and collects duties,
excise taxes, fees and penalties on imported merchandise; combats
the illegal entry of narcotics and other goods into the United
States; and processes persons, carriers, cargo and mail into and out
of the United States. Budget authority of $1.2 billion is proposed
for 1989.
Congress recently enacted legislation that requires user fees that
fully cover the costs of Customs' commercial merchandise processing. However, the structure of the current fee violates provisions of
the General Agreement on Tariffs and Trade (GATT). GATT recently ruled that the ad valorem structure of the merchandise
processing fee was not indicative of the cost of processing individual entries. The administration is proposing legislation to make the
merchandise processing fee consistent with the GATT requirements so that the fees collected correspond to the costs incurred in
processing individual transactions. Additionally, the proposal
would record the fee collections as budget receipts in order to
conform to appropriate budget concepts. This presentation is discussed in more detail in Part 4 of this volume.
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.




5-146

THE BUDGET FOR FISCAL YEAR 1989

Civil and Criminal Prosecution and Representation.—Budget authority for civil and criminal prosecution and representation is
proposed to be $1.4 billion in 1989, $219 million higher than in
1988.
The Government's responsibilities in this area include:
• prosecuting offenders under organized crime and drug statutes;
• 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 executive branch. The U.S. Courts have proposed budget authority of
$1.8 billion in 1989 for judicial branch activities in this function, a
$382 million increase over the 1988 level.
Representation of Indigents in Civil Cases.—The Legal Services
Corporation is a private, non-profit organization that funds State
and local agencies providing free civil legal assistance to the poor.
The administration supports action to assure that grantees are
involved in cases for individual clients rather than broader "law
reform" activities.
The administration proposes $250 million for the Corporation in
1989, a modest reduction from the 1988 level. States and private
attorneys can more than make up the difference. State and local
bar associations have developed programs to provide free assistance
to indigent clients, and these efforts are expected to continue to
grow, consistent with private attorneys' ethical obligations to provide such free services. The administration will request changes to
ensure that funds more effectively serve poor persons with legal
problems.
Federal Correctional Activities.—The Federal Government is responsible 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, the administration proposes acquiring ten new facilities, seven of which will be owned by
the Federal Government, and three of which will be leased from
other entities. This expansion, the largest proposed by this administration, will meet the demand of tougher law enforcement and
longer sentencing created by a number of recent initiatives, including passage of both the Anti-Drug Abuse Act and the U.S. Sentencing Commission Guidelines. In addition, the administration proposes two pilot projects, one focusing on prison industries and the
other on minimum security prison management, to explore the role
of the private sector in Federal corrections. Budget authority re-




ADMINISTRATION OF JUSTICE

5-147

quested for the expansion, renovation and operation of the prison
system in 1989 is $1.4 billion, a 51 percent increase above the
enacted 1988 level.
Criminal Justice Assistance.—Criminal justice assistance is intended 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 disseminate 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. Budget authority
requested for these programs in 1989 is $173 million, a decrease of
$151 million below 1988.
Although the Congress has continued to fund the juvenile justice
and delinquency prevention programs, the administration is requesting their termination because their primary objective—the
separation of juvenile from adult offenders—has largely been accomplished. The administration also proposes to end funding for
the State and local assistance program, since the States can better
afford to pay for these programs than can the Federal Government
and because the States and localities benefit directly from them.
No funding is proposed for either the Mariel Cuban or regional
information sharing system grant programs. Deposits of criminal
fines and penalties into the crime victims fund are estimated to be
$85 million for 1989. All of these funds will be made available for
victim compensation and assistance programs at the Federal, State
and local levels. The missing and exploited children program is
proposed to continue at the 1988 level of $4 million.
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 authority independent of the Department of Justice.




5-148

THE BUDGET FOR FISCAL YEAR 1989

GENERAL GOVERNMENT
The general government function encompasses the central management activities for both the executive and legislative branches
of the Federal Government. This function focuses primarily on
Federal finances, tax collection, personnel management, and property 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 Management and Budget, the Office of Personnel Management, the General Services Administration, and the Department of the Treasury—
are working with other agencies on a variety of management
reform initiatives. These management improvements include improving financial systems, simplifying procurement procedures, increasing reliance on the private sector, and improving cash management and debt collection practices.
Budget authority proposed for general government activities for
1989 is $9.9 billion, an increase of $835 million from 1988. Major
goals in this function include broadening efforts to identify and
collect unpaid taxes, improving services to taxpayers, and improving productivity in the Federal Government.
Legislative Functions.—By law, the budget request submitted by
the legislative branch is included in the budget without change.
For 1989, $1.8 billion in budget authority is proposed for the legislative branch activities in this function. This includes funds for the
operation of Congress, the General Accounting Office, the Congressional Research Service, and related legislative branch activities.
Portions of these activities are also included in other budget functions. A complete listing of all legislative branch accounts appears
in Part 6f of this volume.
Executive Direction and Management—Budget authority of $136

million is proposed for the Executive Office of the President and
related activities in 1989. 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 operations is to collect taxes, make payments on behalf of the Government, administer the public debt, maintain accountability for Federal funds, administer the Federal Financing Bank, and carry out
certain other financial operations of the Federal Government. For
1989, $5.7 billion of budget authority is requested, an increase of
$290 million from 1988.
Collection of Taxes.—The administration is requesting $5.3 billion in budget authority for the Internal Revenue Service (IRS) in




5-149

GENERAL GOVERNMENT
NATIONAL NEED: GENERAL GOVERNMENT
(Functional code 800; in millions of dollars)

Major missions and programs

BUDGET AUTHORITY
Legislative functions

actual
1987

Estimate
1988

1989

1990

1991

1,572

1,599

1,786

1,825

1,814

115

125

136

129

131

4,445

5,059

5,300

5,576

5,643

352

340

383
2
4

410

418

6

6

4,797

5,399

5,689

5,993

6,067

General property and records management:
Property receipts
Records management
Other

-78
102
357

-285
116
281

-287
118
314

-289
117
316

-316
120
321

Subtotal, General property and records
management

380

113

145

145

124

141

145

150

151

152

141

145

150

151

152

287

520

493

464

458

213

314

306

307
-259

316
-266

375

412

439

422

463

13
105
176
199

162
105
175
213

90
105
178
213

55
105
184
214

55
150
188
214

1,369

1,902

1,825

1,492

1,577

395
146
361
84

325
120
328
87

179
74
313
83

193
71
301
72

176
71
301
74

985

860

650

637

623

Executive direction and management
Central fiscal operations:
Collection of taxes
Other fiscal operations:
Existing law
Proposed legislation
Proposed credit reform
Subtotal, Central fiscal operations

Central personnel management:
Existing law.
Proposed legislation
Subtotal, Central personnel management
General purpose fiscal assistance:
Payments and 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 Federal land management activities
Payments in lieu of taxes
Payments to territories and Puerto Rico
Other
Subtotal, General purpose fiscal assistance
Other general government:
Compacts of free association
Territories
Treasury claims
Other
Subtotal, Other general government
Deductions for offsetting receipts
Total, budget authority

-623

-1,098

-500

-500

-500

8,736

9,045

9,880

9,871

9,988

1989. No new revenue initiatives are proposed. The 1989 request
includes funding for the 1988 revenue initiatives in accordance




5-150

THE BUDGET FOR FISCAL YEAR 1989

with the Bipartisan Budget Agreement. Total IRS direct enforcement activities, including all revenue initiatives, will result in
sufficient revenue to meet the targets in that agreement.
Other Fiscal Operations.—The 1989 budget provides almost full
reimbursement ($76 million) from the Bureau of the Public Debt to
the Federal Reserve Banks (FRBs) for fiscal agent services, an
increase of $27 million over 1988 enacted levels. (In future years,
budget planning estimates adopt a policy of full reimbursement.)
The 1989 budget also includes $10 million in user fees to be paid by
commercial investors who use FRB book-entry services. These fees
will be used to pay some of the FRB reimbursements. The budget
provides the full amount of the funds needed to reimburse private
agents for issuing and redeeming savings bonds ($50 million).
General Property and Records Management—The General Services 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 properties no longer needed by the Government. The administration is
proposing an initiative to improve property management Government-wide. Planned disposal of surplus properties in 1989 is estimated to generate $225 million in collections.
The cost of operating the National Archives and Records Administration, which is responsible for the recordkeeping activites of the
Federal Government, is also included in this subfunction.
Central Personnel Management—Personnel management functions are carried out by the Office of Personnel Management, the
Federal Labor Relations Authority, and the Merit Systems Protection Board. Outlays for these activities are estimated to be $134
million in 1989, a decrease of $11 million from 1988.
General Purpose Fiscal Assistance.—Outlays in this subfunction
provide financial aid to State and local governments. This assistance can generally be used for State or local services, construction,
debt retirement, and other purposes of general government. In
prior budgets, general purpose fiscal assistance was a separate
major function because of the magnitude of general revenue sharing. The general revenue sharing program has now expired and, as
a result, the remaining activities are no longer of sufficient magnitude to warrant being a separate function. They are now included
in the general government function as a new subfunction. Programs in this subfunction include payments to the District of Columbia, grants from Forest Service and Interior Department rents
and royalties receipts, payments in lieu of taxes, and payments to
territories and Puerto Rico. Outlays for these programs are estimated to increase by $24 million from 1988 to 1989.




5-151

GENERAL GOVERNMENT
NATIONAL NEED: GENERAL GOVERNMENT
(Functional code 800; in millions of dollars)
Major missions and programs

actual
1987

Estimate
1988

1989

1991

1990

OUTLAYS
Legislative functions
Executive direction and management

1,444

1,574

110

123

133

131

132

4,162

5,061

5,255

5,528

5,628

-244

243

184
_*

621

280

4

6

3,918

5,304

5,443

6,155

-84

-133
-285
113
281

-55

212

155

-78
96
211

-287
117
291

-289
115
311

-316
117
316

146

-24

66

348

271

1,755

1,843

1,857

Central fiscal operations:

Collection of taxes
Other fiscal operations:
Existing law
Proposed legislation
Proposed credit reform
Subtotal, Central fiscal operations
General property and records management:
Federal buildings fund

Property receipts
Records management
Other
Subtotal, General property and records
management
Central personnel management:
Existing law

Proposed legislation
Subtotal, Central personnel management
General purpose fiscal assistance:
Payments and 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 Federal land management activities
Payments in lieu of taxes
Payments to territories and Puerto Rico
Other
Subtotal, General purpose fiscal assistance

6
5,913

143

145

134

150

151

143

145

134

150

151

267

523

495

480

458

303

289

308

307
-259

313
-266

375

412

439

422

463

89
105
168
312

86
105
175
214

90
105
178
213

55
105
184
214

55
150
188
214

1,621

1,804

1,828

1,507

1,574

296
93
361
60

325
127
328
189

179
92
313
47

193
71
301
36

176
71
301
58

810

969

632

601

606

Other general government:

Compacts of Tree association
Territories
Treasury claims
Other
Subtotal, Other general government
Deductions for offsetting receipts
Total, outlays
*$500 thousand or less.




-623

-1,098

-500

-500

-500

7,569

8,796

9,492

10,235

10,005

5-152

THE BUDGET FOR FISCAL YEAR 1989

CREDIT PROGRAMS—GENERAL GOVERNMENT
(In millions of dollars)
Actual
1987

Direct loans:
Loans to DC:
Change in outstandings
Outstandings
General Services Administration (GSA):
Change in outstandings
Outstandings
Administration of territories:
Change in outstandings
Outstandings
Total, direct loans:
Change in outstandings..
Outstandings
Guaranteed loans:
General Services Administration (GSA):
Change in outstandings
Outstandings

1990

1989

1988

1991

-293
715

-30
685

-31
654

-33
621

-35
586

-7
395

-8
387

-9
378

-11
367

-12
355

-2
60

-2
59

-2
57

-2
55

-2
53

-39
1,131

-43
1,089

-46
1,043

-49
994

-14
551

-26
525

-28
497

-30
467

-302
1,171

-15
565

Payments and Loans to the District of Columbia.—The District
of Columbia's operating budget is financed in part by an annual
reimbursement for the net cost of hosting the Federal Government.
The administration requests $493 million in budget authority for
the District of Columbia in 1989, net of loan repayments from the
District. Of the total amount, $431 million is for the Federal payment to the District for general purposes and $52 million is for the
annual Federal contribution to the retirement funds for the District's police officers, firefighters, teachers, and judges. The remaining funds are for St. Elizabeths Hospital and the construction of a
new District prison facility.
To promote efficiency and accountability in the use of water and
sewer services, the administration is proposing that the District of
Columbia treat Federal establishments of all three branches of
Government like private customers. In lieu of a lump-sum appropriation to the District for water and sewer services, Federal establishments will be billed separately and will make payments directly to the city.
The administration will propose legislation to have the District
cover its full share of the costs of retirement for District retirees
and their survivors. This change would begin to eliminate the
Federal subsidy for such benefits currently provided to the District
government. This proposal is discussed in greater detail in Part 4
of this volume.
Shared Revenues.—Some jurisdictions receive payments from the
Federal Government based on a percentage of Federal receipts
generated from timber sales, mineral leases, grazing permits, and




GENERAL GOVERNMENT

5-153

other activities on Federal property. Under current law, 50 percent
of receipts under the Mineral Leasing Act are shared with the
State of origin. Twenty-five 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.
Payments to States and counties from Forest Service receipts,
payments to States from receipts under the Mineral Leasing Act,
and payments to States and counties from Federal land management activities are offset against, and deducted from, the formula
amounts of payments in lieu of taxes for the following year.
Payments in lieu of taxes,—The Federal Government provides
fees based on a formula to local governments for some Federal
lands located within their jurisdictions. The administration proposes to continue this program at a level of $105 million in outlays
for 1989. The Federal Government provides special assistance to
help finance the local governments of Puerto Rico, Guam, and the
Virgin Islands. These payments comprise annual advance payments of certain income tax withholding and excise tax collections
for Guam and the Virgin Islands, and excise tax withholding for
Puerto Rico. Outlays are estimated to increase from $175 million in
1988 to $178 million in 1989.
Other General Government—Other activities in the general government function include payments of claims and judgments
against the Federal Government, and funding for the territories,
Indian affairs, and other activities.
Compacts of Free Association.—By Presidential proclamation on
November 3, 1986, the Compacts of Free Association with the Federated States of Micronesia and the Republic of the Marshall Islands were placed into full force and effect. The compacts bind the
United States to make annual payments to the two freely associated states totaling $2.3 billion during the next 15 years. Similarly,
funding for the Compact of Free Association for Palau is included
on the assumption that Palau and the U.S. will implement the
Compact in 1988. These funds will aid in their successful development as sovereign states. Budget authority of $179 million is proposed for 1989.
Territories.—The administration is proposing budget authority of
$71 million in 1989 for continued support of the U.S. territories of
Guam, American Samoa, the Virgin Islands, and the Northern
Marianas. Budget authority of $3 million in 1989 is requested for
the Trust Territory of the Pacific Islands. The territories and the
freely associated states receive grants and payments from many
other Federal agencies for programs classified in other functions.




5-154

THE BUDGET FOR FISCAL YEAR 1989

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 insurance companies—and individuals. As a result, State and local
governments 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 quasipublic activities is covered in applicable budget functions, such as
commerce and housing credit. The tax expenditure estimate for the
exclusion of interest on general purpose State and local debt is
$15.4 billion in 1989.
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 $17.3 billion in 1989. 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 $2.6
billion in 1989. Altogether, tax expenditures for general purpose
fiscal assistance are an estimated $35.4 billion in 1989.
Related Programs.—In addition to general purpose fiscal assistance, 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 provided
21 percent in 1985 of the financing of total State and local expenditures. Total grant-in-aid outlays to States and localities are estimated to decrease from $109.9 billion in 1988 to $106.3 billion in
1989.
Grants are discussed in more detail in Special Analysis H, "Federal Aid to State and Local Governments."




5-155

CENTRAL FEDERAL CREDIT ACTIVITIES

CENTRAL FEDERAL CREDIT ACTIVITIES
This is a new function that is proposed to begin in 1989. It is
composed entirely of the transactions of two new Federal credit
revolving funds, a key part of the administration's proposal to
reform the way credit programs are treated in the budget. The
revolving funds are included in one subfunction, which contains
separate accounts for the financing of direct loans and for guaranteed loan insurance.
The revolving funds are to be established within the Department
of the Treasury. Federal agencies would be required to obtain
appropriations from the Congress for the subsidies implicit in all
new direct loans obligated and guaranteed loans committed in 1989
and later years. Agencies would continue to originate and close
direct loans and to make loan guarantees as they do now.
NATIONAL NEED: CENTRAL FEDERAL CREDIT ACTIVITIES
(Functional code 870; in millions of dollars)
Major missions and programs

actual
1987

Estimate
1988

1989

1990

1991

BUDGET AUTHORITY
Central federal credit activities:
Proposed credit reform
Total, budget authority

3,432

3,171

2,979

3,432

3,171

2,979

1,981

2,026

2,047

-8,263

-9,709

-8,325

-6,282

-7,684

-6,278

OUTLAYS
Central federal credit activities:
Direct loan revolving fund:
Proposed credit reform
Guaranteed loan revolving fund:
Proposed credit reform
Total, outlays

As borrowers draw down obligated direct loans, the agency would
pay the subsidy component of the loan into the direct loan revolving fund. This fund would provide the balance of the loan, or nonsubsidized financing portion, through borrowing from Treasury.
The original borrower would pay interest and repayments of principal to the lending agency, which in turn would pass these amounts
through to the direct loan revolving fund to repay the financing
portion.
For loan guarantees, fees from the borrower and the appropriated subsidy would be paid to the loan guarantee revolving fund,
which would assume responsibility to cover defaults. Excess balances of this fund would be available for use in lieu of borrowing
from Treasury.
Proposed budget authority in 1989 for this function is $3.4 billion; the outlay estimate in that year is —$6.3 billion because of




5-156

THE BUDGET FOR FISCAL YEAR 1989

the large amounts of offsetting collections paid into the loan guarantee revolving fund from other budget accounts. Credit reform is
discussed in more detail in Part 6b of this volume.




NET INTEREST

5-157

NET INTEREST
The Federal Government engages in both borrowing and lending,
and as a result it both pays and receives interest. In its borrowing,
the Federal Government sells public debt securities to the public; it
also issues public debt securities to Federal trust and revolving
funds. The principal form of Federal borrowing is through issuance
of public debt securities, and subfunction 901 is interest on the
public debt issued by Treasury. The other three subfunctions in
this function are composed primarily of interest income; however,
subfunction 908 includes some interest payments as well as interest
income.
Net interest outlays are estimated to rise from $138.6 billion in
1987 to $147.9 billion in 1988 to $151.8 billion in 1989.
Interest on the Public Debt—The public debt consists of all
Treasury debt securities, including debt issued by the Federal Financing Bank (FFB) (a revolving fund administered by the Treasury), but it excludes the comparatively small amount of debt securities issued by other Federal agencies. All interest in subfunction
901 is interest paid directly by the Treasury—it does not include
interest paid by the FFB. Outlays for interest on the public debt
were $195.2 billion in 1987 and are estimated to be $210.1 billion in
1988 and $220.3 billion in 1989, increases of 7.6 percent and 4.9
percent, respectively, over the prior years.
Interest outlays are determined by the size of the debt and the
interest rates on that debt. The rates for new 91-day Treasury bills
are assumed to decline steadily from an average of 5.8 percent in
calendar year 1987 to 4.5 percent by 1991. Similarly, the rates for
notes and bonds with more than 5 years to maturity are assumed
to decline from 8.4 percent in calendar year 1987 to 6.0 percent in
1991. These declining interest rates offset some of the rise in interest payments due to higher Federal debt. Interest-bearing public
debt issued by Treasury is estimated to increase by $251.1 billion in
1988 and an additional $235.4 billion in 1989.
Interest Received by On-budget Trust Funds.—Interest earnings
of on-budget trust funds were $29.7 billion in 1987 and are estimated to be $34.3 billion in 1988 and $38.2 billion in 1989. More than
half is received by the civil service retirement and disability fund,
and one-fifth is received by medicare. Virtually all of these collections arise from interest payments by Treasury on the public debt
(that is, the offsetting collections in subfunction 902 arise from
payments in subfunction 901). However, some of the collections in
subfunction 902 arise from trust fund investments in FFB securities, the payments of which are in subfunction 908.




5-158

THE BUDGET FOR FISCAL YEAR 1989

The ceiling on Treasury's statutory authority to borrow has been
reached several times during the past 2 years. The Treasury has
been required, during these "debt limit crises," 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 disability trust fund of $15 billion in Treasury
securities subject to limit and to replace them with FFB securities,
which are not subject to the general debt limit. Another step was
to delay investing some trust fund balances. The trust funds have
been fully reimbursed for the interest foregone during this delay,
and the civil service retirement and disability trust fund receives
interest on the $14.8 billion of FFB securities that it continues to
hold.
Interest Received by Off-budget Trust Funds.—By law, the receipts and disbursements of the old-age and survivors insurance
trust fund and the disability insurance trust fund (collectively referred to as social security) are excluded from the budget. However,
social security is a Federal Government program, just as are the
on-budget trust funds. Hence, subfunction 903 includes the offbudget interest earnings that are similar to the on-budget amounts
in subfunction 902. Interest earnings of these off-budget trust funds
were $5.3 billion in 1987 and are estimated to be $7.3 billion in
1988 and $10.1 billion in 1989.
Other Interest—This subfunction includes both interest payments and interest collections. While a significant portion of this
subfunction involves interest payments to, or collections from, the
public, most of the subfunction is composed of intragovernmental
payments and collections that arise from attempting to apply
proper cost accounting to Federal revolving funds. The revolving
funds generally borrow from Treasury and use the proceeds of the
borrowing to carry out lending or other business-type activities,
and they pay interest to Treasury on the money they borrow. The
Treasury collection of interest from these revolving funds is included in this subfunction.
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 various Government agencies or on their behalf. It collects interest on its lending, and in
turn, pays interest to the Treasury on its borrowings. Most of its
borrowings are from Treasury, the interest upon which is offsetting
collections in this subfunction. However, as previously noted, the
FFB has also issued securities to the civil service retirement and
disability fund, and FFB interest payments to that fund are offset
in subfunction 902. Interest payments by the FFB to the Treasury




5-159

NET INTEREST
NET INTEREST
(Functional code 900; in millions of dollars)
Estimate

actual
1987

Major missions and programs

1990

1989

1988

1991

BUDGET AUTHORITY
Interest on the public debt:
Existing law

Proposed legislation
Subtotal, Interest on the public debt
Interest received
funds:
Existing law

by

on-budget

195,249

210,052

220,210
52

230,078
228

238,778
553

195,249

210,052

220,262

230,306

239,331

-29,662

-34,321

-38,189
-52

-41,960
-228

-45,114
-553

-29,662

-34,321

-38,240

-42,188

-45,667

-5,290

-7,271

-10,136

-13,445

-17,237

-15,126
1,941

-15,127
1,756

-14,224
1,793

-13,463
1,735

-12,969
1,776

21

18

18
177

18
532

18
796

-8,479

7,236

-7,846

-6,831
12

-6,453
13

-21,732

-20,590

20,082

-17,997

-16,819

138,565
(143,856)
(-5,290)

159,608
151,804
156,676
147,871
(155,142) (161,940) (170,121) (176,845)
(-7,271) (-10,136) (-13,445) (-17,237)

trust

Proposed legislation
Subtotal, Interest received by onbudget trust funds
Interest received by off-budget trust funds.
Other interest:

Interest on loans to Federal Financing Bank
Interest on refunds of tax collections
Interest on univested funds:
Existing law...
Proposed credit reform
Other:

Existing law
Proposed legislation
Subtotal, Other interest
Total, budget authority
On-budget
Off-budget
OUTLAYS
Interest on the public debt:
Existing law
Proposed legislation

195,249

210,052

220,210
52

230,078
228

238,778
553

195,249

210,052

220,262

230,306

239,331

-29,662

-34,321

-38,189
-52

-41,960
-228

-45,114
-553

-29,662

-34,321

-38,240

-42,188

-45,667

-5,290

-7,271

-10,136

-13,445

-17,237

-15,216
1,941

-15,127
1,756

-14,224
1,793

-13,463
1,735

-12,969
1,776

19

18

18
177

18
532

18
796

-8,472

-7,236

-7,846

-6,831
12

-6,453
13

Subtotal, Other interest

-21,727

-20,590

-20,082

-17,997

-16,819

Total, outlays
On-budget
Off-budget

138,570
(143,860)
(-5,290)

151,804
159,608
147,871
156,676
(155,142) (161,940) (170,121) (176,845)
(-7,271) (-10,136) (-13,445) (-17,237)

Subtotal, Interest on the public debt
Interest received by on-budget
funds:
Existing law
Proposed legislation

trust

Subtotal, Interest received by onbudget trust funds
Interest received by off-budget trust funds.
Other interest:

Interest on loans to Federal Financing Bank..
Interest on refunds of tax collections
Interest on univested funds:
Existing law
Proposed credit reform

Other:
Existing law
Proposed legislation




5-160

THE BUDGET FOR FISCAL YEAR 1989

were $15.2 billion in 1987 and are estimated to be $15.1 billion in
1988 and $14.2 billion in 1989.
Interest on Refunds of Tax Collections.—Treasury pays interest
on tax refunds if the money refunded has been held by Treasury
for longer than a specified period. Interest on these refunds was
$1.9 billion in 1987 and is estimated to decline to $1.8 billion in
1988 and 1989. This decrease is due to improved claims processing
by the Internal Revenue Service (IRS), which reduces the backlog
of refunds 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.
Federal Credit Revolving Funds.—A central element of the administration's proposals for credit reform (discussed in Part 6b of
this volume and in Special Analysis F, "Federal Credit Programs")
is the creation of two new revolving funds in Treasury. If enacted,
the Federal credit direct loan revolving fund would finance the
non-subsidized portions of Federal direct loans. It would borrow
from Treasury to obtain the money to make the loans, and would
pay Treasury interest on its borrowings (the interest payments
would be financed from interest collections by the fund on its loans
to the public). Thus, starting in 1989 this subfunction would begin
to record interest from this new fund. In turn, existing loan revolving funds would cease to make new loans using money borrowed
from Treasury, and their interest payments to Treasury on existing
loans would gradually decline as the old loans were repaid or sold.
The second new credit fund is the Federal credit guaranteed loan
revolving fund. This fund is proposed to administer an insurance
program to cover all Federal loan guarantees. The fund would
collect insurance premiums and payments to underwrite subsidies
on Federal loan guarantees, and would disburse money to make
good on any Federal guarantee that went into default. The fund
would accumulate large balances of such payments and maintain
these as uninvested balances in the Treasury. Treasury, in turn,
would pay interest on these uninvested balances.
Other.—The remainder of this subfunction was $8.5 billion in
1987 and is estimated to be $7.2 billion in 1988 and $7.8 billion in
1989. This income comes from two principal sources. By far the
larger source is interest that Treasury charges to Federal agency
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. The other principal source is interest collected from the public by funds other than revolving funds.
Such collections include interest on loans made to the public by
non-revolving funds, interest received from the Outer Continental




5-161

NET INTEREST

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 Government 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 budget receipts). As shown below,
deposits of earnings were $16.8 billion in 1987 and are projected to
be $16.1 billion in 1988 and $16.4 billion in 1989. 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)
1987
actual

Net interest function
LESS: Deposits of earnings by the Federal Reserve System 1
Net budgetary effect
1

Estimates
1988

1989

1990

1991

138,570 147,871 151,804 156,676 159,608
16,817 16,053 16,421 17,443 18,190
121,753 131,818 135,383 139,233 141,418

Shown as budget receipts.

Tax Expenditures.—A tax expenditure arises from the optional
deferral of interest income on U.S. savings bonds. Interest is normally 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 $905 million in 1989.




5-162

THE BUDGET FOR FISCAL YEAR 1989

ALLOWANCES
The budget includes allowances to cover certain forms of budgetary 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
1989, allowances included in this category reduce outlays by $48
million.
ALLOWANCES
(Functional code 920; in millions of dollars)
Major missions and programs

actual
1987

Estimate
1988

1989

1990

1991

BUDGET AUTHORITY
Civilian agency pay raises:
Civilian agency pay raises 1
Coast Guard military pay raises

953
32

2,121
75

985

2,196

-50

-50

-50

-50

935

2,146

915
32

2,074
75

947

2,149

-48

-49

-50

-48

898

2,099

Subtotal, Civilian agency pay raises
Savings from reform of Davis-Bacon and
Service Contract Acts (non-DOD):

Proposed legislation
Allowance for contingencies:
Relatively uncontrollable programs
Other requirements
Total, budget authority
OUTLAYS
Civilian agency pay raises:
Civilian agency pay raises1
Coast Guard military pay raises
Subtotal, Civilian agency pay raises
Savings from reform of Davis-Bacon and
Service Contract Acts (non-DOD):

Proposed legislation
Allowance for contingencies:
Relatively uncontrollable programs
Other requirements
Total, outlays
1

Includes allowance for administration of the off-budget social security trust funds.

Civilian Agency Pay Raises.—This allowance covers the costs of
pay raises for civilian agency employees and Coast Guard military
personnel in 1990 and subsequent years. Allowances to cover similar pay raises for military and civilian personnel of the Department of Defense-Military are included in the national defense function.




ALLOWANCES

5-163

In accordance with the Bipartisan Budget Agreement, no increase in funding will be proposed for pay raises in 1989. Therefore,
the budget does not include allowances for 1989 for the proposed
2.0 percent pay increase for civilian employees or the proposed 4.3
percent increase for military personnel (including Coast Guard
military personnel), effective January 1989. The costs of these proposed increases are included in the budget request for each agency,
which is distributed by function. The pay raise allowances for 1990
and 1991 assume that Federal civilian employees will receive a 3.0
percent pay raise in January of both years, 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

(non-DOD).—The administration proposed legislation in June 1987
to increase the thresholds of coverage under the Davis-Bacon and
related 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 coverage 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. The allowance for savings in the Department of Defense (DOD) is included in the national defense function. This allowance reflects expected savings resulting from enactment of pending legislation raising the dollar threshold for non-DOD contracts to $100,000.
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 requirements is also assumed to be zero, with probable increases
being offset by unanticipated decreases.




5-164

THE BUDGET FOR FISCAL YEAR 1989

UNDISTRIBUTED OFFSETTING RECEIPTS
Offsetting receipts are collections by the Federal Government
that are deposited in receipt accounts but are deducted as offsets to
outlays rather than being recorded as governmental receipts. Such
collections may result from payments by Government accounts to
other Government accounts (intragovernmental transactions) or
they may arise from payments from outside the Government (the
public) as a result of business-like transactions, such as sales of
goods and services. As a result of this treatment, governmental
receipts measure the amount collected from the public due to the
Federal Government's sovereign capacity—generally taxes and
other compulsory charges—while outlays measure the net spending
by the Federal Government that must be financed by governmental receipts or borrowing.1 When offsetting receipts are deducted
from outlays, an equal deduction (offset) is made against budget
authority in order to maintain consistency between budget authority and outlay totals.
UNDISTRIBUTED OFFSETTING RECEIPTS
(Functional code 950; in millions of dollars)
Estimate

actual
1987

1988

1989

1990

1991

-18,288
1,700

-18,353
-1,888

-18,577
-1,945

-19,331
-2,084

-20,025
-2,139

-2,788

-3,647

-3,421

-4,483

-4,782

-5,095

-3,563
-535
-5,451

-3,874
-616
-5,829

Subtotal, Employer share, employee
retirement (on-budget)

-27,259

-28,670

-29,038

-30,964

-32,483

Employer share, employee retirement (offbudget)

-3,300

4,298

-4,719

-5,510

-5,846

Rents and royalties on the Outer Continental Shelf

-4,021

-3,155

-3,920

-3,832

-4,124

-3,225
-100

-275
-1,368
-250

-250

-1,893

-250

Major missions and programs

BUDGET AUTHORITY AND OUTLAYS
Employer share, employee retirement (onbudget):
Military retired contributions
Contributions to HI trust fund
Contributions from Postal Service:
Existing law
Proposed legislation
Contributions from other civilian agencies

Sale of major assets:
Sale of Conrail
Sale of petroleum reserve (proposed)
Sale of power administrations (proposed)....
Spectrum fees, FCC (proposed)
Subtotal, Sale of major assets

-1,875

-1,875

-3,325

Total, budget authority and out-42,703
lays
-36,455
-41,002
-36,123
-42,199
On-budget
(-33,155) (-31,825) (-36,283) (-36,689) (-36,857)
Off-budget
(-3,300) (-4,298) (-4,719) (-5,510) (-5,846)

1

See "collections" in Part 6e of this volume for additional information.




UNDISTRIBUTED OFFSETTING RECEIPTS

5-165

Most offsetting receipts are offset against the function that contains the outlays that give rise to the receipts, i.e. the function of
the account collecting the money. In such cases these offsetting
receipts are deducted before reaching functional budget authority
and outlay totals and are referred to as "distributed" to the functions. However, there are several categories of offsetting receipts
that cannot be properly offset against any specific function. These
collections are deducted just before reaching government-wide
totals and are referred to as "undistributed offsetting receipts."
The three categories of offsetting receipts that are undistributed
by function are: the collections of amounts paid by Federal agencies to Federal employee retirement funds and medicare, collections from the public of rents and royalties on the Outer Continental Shelf, and collections from the public arising from the sale of
major Federal assets.2
Undistributed offsetting receipts are estimated to be $36 billion
in 1988 and $41 billion in 1989. Details of all offsetting receipts are
shown in table 14 in Part 6g.
Employer Share, Employee Retirement—Classification within the

functional structure is relatively straightforward for most Federal
Government accounts, since only one type of transaction occurs—a
payment to the public. In the case of intragovernmental transactions, which are payments by one Government account to another,
the functional classification becomes more complex because of the
special accounting conventions used to record these transactions.
Outlays are charged to the paying account (for the payment to the
receiving agency for services provided) and also to the agency being
reimbursed (for the expenditures it makes on behalf of the paying
account). Although two expenditures occur, only one is made to the
public, and therefore one of these expenditures must be offset
(reduced) in order to measure properly the Federal Government's
net transactions with the public. Since the paying account is ultimately responsible for the expenditure to the public, and the receiving agency simply acts on its behalf, the budget authority and
outlays of the agency and function being reimbursed are normally
offset (reduced) by the size of the payment. Thus outlays are recorded for the agency ultimately responsible for the expenditure
and within the function that best represents the purpose of the
expenditure.
Employing agency payments for employee retirement are an exception to this convention. These payments to Federal retirement
2
Undistributed offsetting receipts in tables presenting budget authority and outlays by agency exceed the
undistributed offsetting receipts in the functional tables. The offsetting receipts that are not distributed by
agency but are distributed to the net interest function are: interest received by on-budget trust funds (subfunction 902), interest received by off-budget trust funds (subfunction 903), and interest received from the Outer
Continental Shelf escrow account (which is included in subfunction 908).




5-166

THE BUDGET FOR FISCAL YEAR 1989

funds represent the accrued liabilities for retirement benefits
earned by current employees and are a cost of fulfilling the employing agency's mission. Hence the payments are recorded as
outlays of the paying account and the function within which the
paying account is classified. The retirement funds in turn pay
retirement and medicare benefits to current retirees, thereby serving important functions that are distinct from the ones served by
the employing agencies. Hence the benefits paid are recorded as
outlays of the retirement funds and the medicare and income
security functions. Neither the employing agency payments nor the
retirement benefits are offset directly, because this would seriously
understate the resources used to fulfill their purposes. Instead, the
offset is recorded as an undistributed offsetting receipt.
Because, by law, social security is off-budget, and because some
of these intragovernmental employer retirement contributions are
used to finance social security, the collections by on-budget accounts are recorded in a separate subfunction from the social security accounts. The great bulk of the $36 billion in 1989 that are
collected by on-budget accounts are used to finance the military
retirement and the civil service retirement trust funds.
The administration proposes that the Postal Service contribute
money to the civil service retirement fund to cover the full cost of
providing cost-of-living adjustments to Postal Service annuitants.
This proposal, which is discussed in greater detail in the commerce
and housing credit function, will increase employing agency outlays for employee retirement and, therefore, undistributed offsetting receipts by $535 million in 1990.
Rents and Royalties on the Outer Continental Shelf (OCS).—In
the private sector, owners of property collect money from companies in exchange for the right to explore and produce oil from the
property. Oil companies voluntarily bid for these rights and those
bidders that are successful make the associated payments in the
form of rents and royalties.
The Federal Government exercises authority over the Outer Continental Shelf in its capacity as a sovereign government, and it
makes similar rent and royalty charges to the oil companies that
successfully bid for the right to explore and produce oil from the
OCS. Since these collections result from business-like transactions
rather than compulsory taxes, they are classified as proprietary
receipts from the public and not governmental receipts.
However, the income to the Government from this source is large
and does not arise in significant measure from any spending program by the Government function or agency that handles the
transactions. As a result, their inclusion as offsetting receipts in
any particular function or agency would substantially understate
the amount of budget authority and outlays needed to carry out




UNDISTRIBUTED OFFSETTING RECEIPTS

5-167

programs in that function. To avoid this distortion, these collections are undistributed.
The collections in this category include cash bonuses received
from 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. In cases where there is a
dispute as to whether the owner of the collection is the Federal
Government, the collections are not recorded as offsetting receipts
in the budget until the dispute is settled; such collections are
retained in escrow in a deposit fund outside the budget. When
settlement is reached, the amounts determined to belong to the
Federal Government are recorded as undistributed offsetting receipts, while the amounts determined not to belong to the Government are paid to the owners. On September 30, 1987, the amounts
of disputed OCS collections held in escrow totaled $1.2 billion. Most
of the collections in dispute are expected to be settled by the end of
1989.
The current estimates of $3.2 billion in 1988 and $3.9 billion in
1989 include the proceeds from five OCS sales that are expected to
occur in 1988 and eight sales expected to occur in 1989. No final
decision will be made on any of these sales until environmental
impact studies and other requirements under the National Environmental Policy Act have been completed.
Sale of Major Assets.—In 1987 the Government received $1.9
billion from the sale of Conrail. The administration proposes to sell
the naval petroleum reserves for an estimated $3.5 billion. Sales
proceeds are expected to be received in 1989 and 1990. The Alaska
Power Administration is also proposed to be sold for $100 million
by the end of 1989 and the Southeastern Power Administration for
$1.4 billion in 1990. These proposed sales are discussed in greater
detail in the energy function.
In addition, the administration proposes to assess a charge for
the right to use the non-mass media radio frequency spectrum. The
charge would not apply to spectrum assigned for public safety or
amateur services. The Federal Government, in its capacity as a
sovereign government, exercises authority over the radio frequency
spectrum, a scarce and valuable public resource. The Federal Communications Commission (FCC) issues licenses to authorize the
right to use the spectrum. Users transmit and receive information
via, for example, television, car telephones and mobile radios.
Users of the spectrum include businesses, private citizens, and
State and local governments. Presently, FCC charges a nominal
amount that only covers the cost of processing the license application. Through the spectrum fee the Federal Government, and ultimately the taxpayer, would receive a payment in exchange for the




5-168

THE BUDGET FOR FISCAL YEAR 1989

right to use the spectrum. The proposal, if enacted, would collect
revenues of approximately $250 million beginning in 1990.
Because these asset sales should result in large offsetting receipts that are not closely related to a spending program, the
collections are included as undistributed offsetting receipts rather
than as an offset to a function.







PART 6

SUPPLEMENTS
6-1

PART 6a

ALTERNATIVE BUDGET BASELINES
Most budget proposals, whether they originate with the President or from Congress, are measured from a baseline. Such comparisons can highlight the dollar savings or costs of proposals. The
baseline chosen can improve the quality of debate surrounding
proposals if it provides an objective base against which costs or
savings can be calculated. However, choosing the wrong baseline
can lead to confusion and result in distorted analysis.
Recently, the proliferation of baselines used by the administration and Congress and changes in how they are computed have
added confusion to budget debates. This supplement discusses three
baselines that have been used (current year, current services, and
Gramm-Rudman-Hollings) and explains why the President's policy
proposals are presented in comparison to current year levels.

CURRENT YEAR VS. CURRENT SERVICES
Up until the mid-1970s, the level of funding enacted for the
current year was the most common baseline. The current year
baseline would seem the most appropriate comparison—especially
with regard to discretionary spending—since this is the standard
most people think of when evaluating budget "increases" and "decreases."
However, the current year baseline has two weaknesses: it does
not adjust for expected inflation (a weakness that can be particularly serious during periods of high inflation or when making longterm comparisons), and it does not allow for normal fluctuations in
entitlement programs due to changes in the size and characteristics
of the eligible population.
Partly in response to these perceived weaknesses, Congress enacted legislation that required creation of a new baseline, current




6a-l

6a-2

THE BUDGET FOR FISCAL YEAR 1989

services. The Congressional Budget and Impoundment Control Act
of 1974, as amended, defines current services as:
. . . the estimated budget outlays and proposed budget authority that would be included in the budget for the following fiscal
year if programs and activities of the United States Government were carried on during that year at the same level as the
current year without a change in policy.
Both OMB and the Congressional Budget Office (CBO) were required to estimate the current services baseline. Because of the
complexity of the budget, it was not feasible for the Act to specify
precise procedures on how to develop the estimates. Consequently,
OMB and CBO were left with some discretion in determining their
estimates.
Generally, the current services baseline provides an inflationadjusted set of estimates based on currently enacted policy. Entitlement or other mandatory programs are estimated on the basis of
projected economic and demographic trends and are assumed to
provide payments or benefits as specified under current law. Entitlements with legislated cost-of-living adjustments are adjusted for
future inflation. Others, such as medicare and medicaid, are implicitly adjusted for inflation, using the best available estimate of
future payments under current law. Discretionary programs, including programs whose authorizing or appropriations legislation
expire during the 5-year budgetary period (other than those that
are clearly temporary in nature), are assumed to be extended.
During the first few years that current services estimates were
calculated, OMB and CBO varied their practice of adjusting for
inflation. In recent years, it has been normal for both to include an
inflation adjustment for discretionary programs. Receipts are estimated by assuming extension of current law.
Both CBO and OMB went through a period of trial and error in
producing the required current services baselines. CBO and OMB
generally agreed on the current services definition for nondefense
programs, but both CBO and OMB changed the current services
definition for defense programs several times.
From the 1977 to the 1980 budgets, CBO's defense baseline concept assumed a constant program level adjusted for inflation-induced cost increases. Beginning with the 1981 budget, the CBO
defense baseline concept was changed to what was called a programmatic basis. This concept used explicit force structure and
investment programs that CBO determined were approved by the
Congress. The outyear force structure reflected announced changes
in force levels through the introduction of new weapons systems
and the planned retirement of others; the outyear investment program included programs announced by the administration at the




6a-3

ALTERNATIVE BUDGET BASELINES
Table 6a-l. COMPARISON OF CURRENT SERVICES AND PRESIDENT'S BUDGET TOTALS
(In billions of dollars)
1987
Actual

Receipts:
Current services
Effect of proposals
President's budget
Outlays:
Current services
Effect of proposals
President's budget
Deficit ( - ) :
Current services
Effect of proposals
President's budget

Estimates
1990

1991

1992

1993

964.0
0.7

1,043.2
0.9

1,123.2
1.2

1,189.0
0.9

1,257.3
0.8

909.2

964.7

1,044.1

1,124.4

1,189.9

1,258.1

1,004.6

1,056.4
-0.5

1,102.4
-8.2

1,154.2
-5.9

1,209.2
-5.6

1,251.9
-10.9

1,296.2
-14.9

1,004.6

1,055.9

1,094.2

1,148.3

1,203.7

1,241.0

1,281.3

-150.4 -147.5 -138.5 -111.0
0.7
8.9
6.8

-86.0
6.8

-62.9
11.9

-39.0
15.7

79.3

-51.1

-23.3

1988

1989

854.1

908.9
0.3

854.1

150.4

146.7 -129.5

104.2

start of the current year adjusted for congressional action. This
approach made it possible to account for the impact of particular
projects from the design through the construction stages. The
result was that real growth of approximately 1.0 percent was incorporated into the defense current services estimates.
Beginning with the 1984 budget, CBO again changed its defense
baseline concept. The 1984 defense levels were based on the defense
mark in the 1983 Congressional Budget Resolution. CBO reports
also included an alternative defense level that had no real growth.
In the 1987 budget, CBO returned to its original concept for
national defense. Budget authority levels were again based on the
concept of constant real program levels. According to the CBO
report, since the Gramm-Rudman-Hollings Act set the outyear deficit targets below those in the 1986 budget resolution, the defense
levels in the resolution could no longer be considered congressional
policy.
In OMB's first current services report for the 1977 budget, most
defense accounts were treated like other discretionary accounts;
the budget authority for all but major multiyear projects was held
level in nominal dollars. Funding for multiyear projects was calculated using an inflation adjustment. This approach was followed
through the 1980 budget, although operations and maintenance
expenses were adjusted for inflation along with multiyear projects
for the 1978 through 1980 budgets. Beginning with the 1981 budget,
all accounts in the national defense function were adjusted for
inflation, as were discretionary accounts in all other functional
areas. Use of a constant real program level for defense programs
remained until the 1984 budget, when the current services defense
concept became previously enunciated Presidential policy so that




6a-4

THE BUDGET FOR FISCAL YEAR 1989

the difference between the defense current services and Presidential policy estimates was the change in Presidential policy. For the
1987 budget, the defense current services level was defined as the
previous year's Congressional Budget Resolution levels. Beginning
with last year's budget, defense current services were set at the
President's defense request.
In addition to the changes associated with the current services
baseline for defense, the current services baseline has had other
problems. One is the constant confusion in the public about what a
"cut" is. Medicare, for example, has been "cut" $50 billion in this
decade, yet it more than doubled in nominal terms. Nevertheless,
public debate over the program often assumed that actual reductions from the previous years' levels had already occurred or were
being proposed. Another problem involves program expansions for
entitlement programs. Because Congress has become preoccupied
with the budget year, a program expansion that is implemented
after the budget year is beyond Congress' focus. When the full
expansion occurs, perhaps years later, it is no longer classified as
an expansion; instead, it is part of the "current services" baseline.
A similar problem arises when inflation is overestimated, thus
allowing real increases to be called "cuts." Another form of this
problem involves reproposing savings. Congress or the administration can "cut" a program through a temporary reduction designed
to end in a year or two. At the end of the period, the reduction can
then be reinstituted, allowing for claimed "savings" for the same
"cut" all over again.
GRAMM-RUDMAN-HOLLINGS
Because of these and other problems interpreting the appropriate
definition for current services, a new baseline was created as part
of the Balanced Budget and Emergency Deficit Control Act of 1985,
the Gramm-Rudman-Hollings (G-R-H) Act. The G-R-H Act, as
amended, provides detailed specifications on how to create this new
budget baseline. OMB must use this baseline in the August and
October calculations that determine whether a sequester is required. In addition, OMB must publish the G-R-H baseline in the
President's budget and explain the differences between the G-R-H
baseline and current services estimates for the budget year. This
presentation and a more detailed discussion of the G-R-H baseline
are provided in Special Analysis A.
Like current services, the G-R-H baseline provides an inflationadjusted set of estimates based on currently enacted budget policy.
In fact, there are basically only four differences between the administration's 1989 G-R-H baseline estimates and the 1989 current
services estimates. First, G-R-H inflates the non-pay portion of the
1988 enacted levels for both defense and nondefense discretionary




ALTERNATIVE BUDGET BASELINES

6a-5

programs by the implicit price deflator for the Gross National
Product (GNP) as projected in the administration's economic assumptions (3.8 percent for fiscal year 1989). The amounts for pay
are inflated using the GNP deflator plus specified amounts for
retirement costs (5.8 percent for civilians and 5.3 percent for military in 1989). In total, current services estimates for discretionary
programs are increased by the rates called for in the Bipartisan
Budget Agreement (defense 2.6 percent and nondefense 2.0 percent
above 1988 enacted).
Second, certain nonappropriated programs whose authorizing legislation expires before 1989 are excluded from the G-R-H baseline.
These programs are extended in the current services baseline.
Third, programs that are clearly temporary in nature are extended
in the G-R-H baseline, but are assumed to expire as scheduled in
the current services baseline. Fourth, the collections from certain
loan prepayments and sales that were enacted in the continuing
resolution and the Omnibus Budget Reconciliation Act of 1987 are
included in the current services baseline, but are explicitly prohibited from inclusion in the G-R-H baseline. The net impact of these
differences results in a G-R-H deficit of $142.7 billion in 1989 as
compared to a current services deficit of $138.5 billion and the
President's proposed deficit of $129.5 billion. A summary comparison of the President's estimates for 1989 with the G-R-H baseline,
the current services baseline, and the current year baseline is
provided in Table 6a-2.
CHOICE OF BASELINE FOR THE 1989 BUDGET

This year, CBO defines their current services baseline as being
equal to G-R-H; in other words, they will only provide estimates
using the G-R-H baseline concepts for 1989 and the outyears. As
indicated above, OMB has estimated a current services baseline for
1988 through 1993, and a G-R-H baseline for 1989 only. Although
OMB and CBO continue to work together to identify and narrow
baseline differences, the mere existence of different baselines estimates—even when the differences between them are small—can
add confusion to the budget process. To avoid this confusion, most
of the discussions of the President's budget proposals in this
volume make comparisons to current year levels, not current services or G-R-H. Comparisons to current year funding levels, whether
in current or constant dollars, clearly show the trend of programmatic spending after taking into account relevant policy proposals.
In addition, current year levels may be the only policy-neutral
baseline on which the administration and the Congress can agree.
As shown in Table 6a-3, 1988 revenues are projected to increase
by $55.5 billion in 1989, from $909.2 billion to $964.7 billion. Increases required for mandatory programs and net interest costs




6a-6

THE BUDGET FOR FISCAL YEAR 1989

Table 6a-2. COMPARISON OF THE PRESIDENT'S 1989 BUDGET ESTIMATES WITH CURRENT SERVICES,
G-R-H, AND CURRENT YEAR BASELINES
(In billions of dollars)
1989 Estimates
President's
budget

Change
from
G-R-H
baseline

Change
from

current

services

0.7

964.7

from 19
current
year levels

55.5

Outlays by fuction:
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
Medicare
Income security
Social security
Veterans benefits and and services
Administration of justice
General government
Central Federal credit activities
Net interest
Allowances
Undistributed offsetting receipts
Total, outlays..

-3.3

-4.9

1,094.2

-13.1

-8.2

38.3

Deficit ( - ) .

-129.5

13.2

9.0

17.2

294.0
13.3
13.1
3.1
16.0
21.7
7.9
27.3
5.9
37.4
47.8
84.0
135.6
233.8
29.6
9.9
9.5
-6.3
151.8
_*
-41.0

-2.6
1.5
-1.7
-0.2
-0.7
0.4
-0.5
-0.7
1.8
-0.5
-1.2
-0.4
-0.3
0.5
1.2

-6.3
-0.3
*
-3.2

-0.1
1.6
-1.7
0.1
-0.6
0.4
-0.6
-0.7
2.1
-0.2
-1.0
-0.3
_*
0.8
1.4
0.3
-6.3
-0.1
_*

8.6
3.4
2.2
0.3
0.9
-0.6

-4.5
*
-0.4
3.7
3.3
5.2
6.0
14.1
1.8
0.9
0.7
-6.3
3.9
*

* $50 million or less.

consume $19.9 billion and $3.8 billion, respectively. Increased outlays for national defense programs, a large part of which are due to
spending from budget authority granted in previous years, take up
an additional $8.6 billion of the funds available. Increased asset
sales and other undistributed offsetting receipts add $0.7 billion
and $1.6 billion, respectively, to the $23.2 billion remaining to fund
increases in nondefense discretionary programs or reduce the deficit. The President's budget proposes to increase spending for nondefense discretionary programs (including international discretionary
programs) by $8.3 billion, or 4.7 percent, and use the remaining
$17.2 billion to reduce the deficit.




6a-7

ALTERNATIVE BUDGET BASELINES

Table 6a-3. YEAR-TO-YEAR CHANGE IN THE PRESIDENTS BUDGET
(In billions of dollars)
Estimates

1987
Actual

Receipts
Outlays:
National defense
International discretionary
Domestic discretionary
Entitlements and other mandatory:
Retirement and unemployment..
Medical care
Low income programs
Agriculture
Other mandatory programs
Subtotal, entitlements and other mandatory.
Net interest
Asset sales and prepayments
Other undistributed offsetting receipts
Total, outlays
Deficit ( - ) .




1988

Change t<
1989

854.1

55.0

909.2

55.5

964.7

282.0
12.8
148.1

3.4
3.0
12.5

285.4
15.8
160.6

8.6
-0.2
8.5

294.0
15.6
169.1

284.4
102.8
39.7
25.2
7.5

12.7
6.8
4.9
-4.7
12.3

297.1
109.6
44.6
20.5
19.8

18.8
7.0
0.9
-0.7
-6.1

315.9
116.6
45.5
19.8
13.7

459.6
138.6
-36.5

32.0
9.3
-9.3
0.3

491.6
147.9
-9.3
-36.1

19.9
3.8
-0.7
-1.6

511.5
151.6
-10.0
-37.7

1,004.6

51.3

1,055.9

38.3

1,094.2

-150.4

3.7 -146.7

17.2 -129.5

PART 6b

FEDERAL CREDIT
OVERVIEW

Introduction.—This chapter begins by reviewing the scope of Government credit activities and the long-term trends in Federal lending. The next section describes the problem in controlling Federal
credit; explains the credit budget and how it limits growth of direct
loans and loan guarantees; and outlines the administration's response to the control problem—a proposal to reform the way credit
programs are treated in the budget. The third section discusses the
administration's program to improve credit management. Finally,
the chapter concludes with a section that describes other forms of
credit activity that are not fully captured in the budget.
Summary of Federal Credit Activities.1—The

Federal Govern-

ment is the largest financial intermediary in the United States. At
the end of 1987, it held outstanding loans with a face value of $234
billion in its direct loan portfolio and had another $507 billion in
guaranteed loans outstanding. (All data in this discussion are based
on the face value, not the unsubsidized market value, of loans.)
Government-sponsored enterprises had an additional $581 billion of
loans outstanding at the end of the year. Thus, directly or indirectly, the Government had influenced the allocation of $1.3 trillion of
outstanding credit.
Through direct loans and loan guarantees, the Government has
provided subsidized credit to many different types of borrowers:
farmers, homeowners, students, veterans, small businesses, exporters, utilities, 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 particular of 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. In 1989, the Federal Government will provide an
estimated $20 billion in new direct loan obligations and $115 billion
in new guaranteed loan commitments. Government-sponsored en1

See also Special Analysis F, "Federal Credit Programs," and Management of the U.S. Government.




6b-l

6b-2

THE BUDGET FOR FISCAL YEAR 1989

terprises (GSEs) will lend an additional $428 billion. The accompanying chart summarizes new Federal credit activity from 1965 to 1993.

Total Federal Credit Budget
$ Billions

$ Billions

700

700

800-

Total-

500-

400

300-

200-

100

70
Fiscal Years

75

80

93

85
Estimate

Direct Loans.—The Federal Government makes direct loans to
individuals, businesses, and State, local, and foreign governments.
The primary type 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 Government 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
repayments of previous loans, appropriated funds derived from
taxation, and borrowing. 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




6b-3

FEDERAL CREDIT

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, agriculture, and education.

New Direct Loans by Sector
Ptrc#nt of Total
100 T

Ftfctfit of Total
1-100
dHoustngt

80

60

-20

1952

57

62

72

77

82

87

During the 1950s, housing accounted for more than 30 percent of
new direct loans; however, this percentage dropped off sharply in
the early 1960s, and again in the 1970s and 1980s to where it only
accounts for a little more than 11 percent of total obligations in
1987. This trend reflects the increasing amount of direct lending to
business and agriculture during the same time period, and, to a
lesser extent, the conversion of the lending activity of the Federal
National Mortgage Association (FNMA) in 1968 from a direct onbudget spending program to a Government-sponsored enterprise
that is outside the budget.
During the 1980s, business borrowers have received more than
one-third of the Government's new direct loans. This amount of
business assistance represents a significant increase in both abso-




6b-4

THE BUDGET FOR FISCAL YEAR 1989

lute and relative amounts. The Export-Import Bank, Small Business Administration, Rural Electrification Administration, and
Agency for International Development are the principal lenders to,
or in support of, the business sector.
The share of new direct loans provided to agriculture has been
close to one-half of the annual total of all direct loans in recent
years. This includes lending of the Farmers Home Administration
for farm ownership, farm operations, and rural housing, and the
price support program of the Commodity Credit Corporation.
Direct loans for education include loans for construction of facilities, payments for defaulted guaranteed student loans, and direct
financial assistance to students. Although defaults now exceed $1
billion a year, this sector has no activity proposed starting in 1989.
Guaranteed Loans.—Guaranteed loans are loans by non-Federal
lenders 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 partial value of the loan
principal. In some programs, such as the guaranteed student loan
program, they are supplemented by explicit interest subsidies or
other forms of assistance. Most guaranteed loans are made by
banks or other private institutional lenders and take the form of
mortgages or bank loans. Some of these are sold in securities
markets.
A loan guarantee transfers from the private lender to the Government some or all of the default risk of the loan. Where the
Government guarantees timely payment of 100 percent of the loan
principal and interest, it transforms a private loan into a nearGovernment direct loan financed by a Government security. However, the guaranteed loan will not have all the attributes of a
direct Government 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 Federal assistance, the subsidy provided by the guarantee may be large
and the guarantee will directly reallocate credit towards federally
selected uses, thereby increasing the total volume of credit channeled into these uses. This leaves a smaller supply of credit to be
allocated to those potential borrowers who do not receive assistance




FEDERAL CREDIT

6b-5

and increases the costs to these borrowers. However, the guarantee
does not always change the allocation of credit. Many beneficiaries
of loan guarantee programs would have been able to secure the
funds privately, without Government support. For example, a federally guaranteed mortgage might be used to finance, at a lower
cost, a house that would have been purchased anyway. In this case,
not only is there a subsidy provided to the borrower, but the loan
does not serve the public purpose of the guarantee program.
Many of the guarantee programs operated by the Federal Government began in efforts to revive the economy during the depression 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
single largest credit program, the Federal Housing Administration's (FHA) home mortgage insurance program, was created in
1934 to help financial markets overcome the risk associated at that
time with long-term mortgages.
As the accompanying chart shows, housing guarantees dominated Federal guarantee activities during the 1950s and 1960s, and
despite increases in other loan guarantee programs during the
1970s and early 1980s, continue to represent an overwhelming
majority of all new loan guarantees. The housing programs of the
FHA and Veterans Administration accounted for 84 percent of the
total volume of new commitments for guaranteed loans in 1962.
The range of activities financed with Federal guarantees has widened since that time. Guarantees are now offered for business,
agriculture, and education; however, housing continues to dominate, particularly because falling interest rates in the past 2 years
have led many homeowners to refinance their mortgages. For the
1989 budget, housing programs account for an estimated 69 percent
of all new loan guarantee commitments.




6b-6

THE BUDGET FOR FISCAL YEAR 1989

New Guaranteed Loans by Sector
FtnDww of Total
100-f

lOO

80

80

60

1952

57

62

67

72

77

82

87

CONTROLLING FEDERAL CREDIT
Background.—The problems in directing or controlling Federal
credit are enormous and systemic. The discipline that the private
market imposes on financial intermediaries is absent. The unified
budget, with its focus on budget authority, outlays, and receipts,
provides a comprehensive system for recording and controlling
most receipts and outlays, but is an incomplete mechanism for
recording and controlling Federal credit programs. The unified
budget measures net outlays, not the full volume of new credit
extended for direct loans. Furthermore, guaranteed loans, an important form of credit, are not reflected in the unified budget
except to the extent that defaults occur.
The Federal credit budget, while an improvement over the control and display mechanisms of the unified budget for credit programs, does not capture 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 further
reform of budgeting for credit programs, discussed below, that
would remedy the shortcomings of existing practices by incorporating into the unified budget and appropriations process the subsidies
provided by credit programs.




FEDERAL CREDIT

6b-7

The Credit Budget—The Federal credit budget measures and
controls the volume of new direct loans and loan guarantees extended to borrowers. It is a necessary supplement to the unified
budget.
The credit budget is based on three principles. First, it is intended to measure new credit at the point at which the Government
legally contracts to provide a loan or loan guarantee. Usually a
legal contract arises when a direct loan agreement or loan guarantee agreement is signed.
Second, the credit budget is based on credit authority—the authority to make new offers of credit. 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; budget authority for loan guarantees is needed only to pay for defaults when other resources are
insufficient to fund those costs. In contrast, credit authority is
measured on a gross basis and does not reflect repayments of loans
or defaults on loan guarantees. As a result, credit authority is a
needed tool because subsidies are incurred for all new direct loans
and loan guarantees, regardless of the extent to which new loans
are offset by repayment of 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 loan principal is
included in the commitment because the entire loan, even if only
partially guaranteed, is assisted by the guarantee.
The credit budget is included in the budget resolution, and limitations for many programs are enacted in annual appropriations
acts. The administration proposes limitations annually 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 is proposing limitations in 1989 for programs
amounting to 74 percent of the credit budget totals. Approximately
38 percent of direct loan obligations and 80 percent of guaranteed
loans are included under proposed limitations. (The relatively low
percentage for direct loans arises because the largest direct loan
program—CCC commodity loans—is exempt from limitation.)
Limitations on appropriations are not proposed for certain programs primarily for two reasons. First, programs that provided 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




6b-8

THE BUDGET FOR FISCAL YEAR 1989

are exempt from limitation since the original decision to guarantee
the loan imposes the requirement for the direct loan.
Credit Reform Legislation.—While the credit budget has helped
to limit new direct loan obligations and guaranteed loan commitments, it does not allocate resources to credit programs according
to the true cost of credit—the present value of the subsidy. Since a
primary purpose of Federal credit programs is to provide borrowers
with a subsidy, this is a serious omission in effective budgetary
control. Furthermore, resources are misallocated because there is
no incentive to limit loan programs with relatively large subsidies.
To rectify these inadequacies, the administration last March sent
the Congress proposed legislation that would reform the way in
which Federal credit programs are treated in the budget. The
proposal would:
• put the cost of credit programs on an expenditure basis equivalent to other Federal spending;
• measure accurately and equitably the subsidies provided by
Federal credit programs;
• 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 forms of spending.
The proposal would accomplish these goals by charging the economic cost of credit—the subsidy cost—to any agency making or
guaranteeing loans.
Through Federal credit programs, favored borrowers are able to
get credit on easier terms and conditions than those available in
the private sector to similar borrowers for similar purposes. Borrowers are able to pay lower interest rates and fees, to get larger
loans, and to repay over longer periods than they would on a
private loan. Indeed, some Federal programs provide funds to borrowers who could not get credit at all in the private sector.
Because Federal direct loans are made on more favorable terms,
their market value at the time they are made is less than the face
amount. This difference in value is a cost to the taxpayer. Similarly, when the Federal Government guarantees a loan, the taxpayer
assumes a cost that is equivalent to the difference between the
amount the borrower pays and the amount required to reinsure the
loan. These subsidy measures are comparable to Federal outlays
for grants or purchases.
One way to measure these costs would be actually to sell newly
made direct loans immediately and competitively, and to purchase
reinsurance for newly guaranteed loans. Last March, the administration proposed that new direct loans be sold, except for loans
deemed unsuitable for sale due to sensitive foreign or domestic




FEDERAL CREDIT

6b-9

policy reasons. Reinsurance for loan guarantees was proposed to be
gradually phased in as the market for reinsurance developed.
Another way to measure the same subsidy costs is to calculate
the present value of the difference between the net cash flow that
the borrower pays under the terms and conditions of the Federal
program and the net cash flow under the terms and conditions of
financing for a similar loan from a private lender. This method is
described in detail in OMB Circular A-70. It has been used to
calculate the subsidy estimates presented in this volume, in the
Budget Appendix, and in Special Analysis F.
The method used compares the interest rate charged on a direct
loan with a comparable private interest rate and discounts the
difference between the loan's expected cash flow by the internal
rate of return on a comparable private loan. It has been suggested
that instead the interest rate difference and the discount factor
should use the rate on U.S. Treasury securities of similar maturity.
Using the Treasury rate would understate the cost to taxpayers for
several reasons. Private lenders must allow for the risk that defaults will turn out to be greater than their best forecast; the
Government need not plan for that contingency. The Treasury rate
method includes an allowance for expected defaults, but not for the
uncertainty of the default forecast. Moreover, use of the Treasury
rate will always give the Government a competitive advantage due
to its sovereign power to tax and to print money, which provides
safety to Treasury securities, and to the great liquidity of the
enormous market for these securities.
If the Treasury borrowing rate were used to estimate the present
value of the subsidies instead of the comparable private rate, distortions would be created. The subsidy would be smaller than the
equivalent of a grant to the borrower. Thus, the budget would
continue to favor credit programs over direct spending programs. It
would not give policymakers and the public the information they
need to compare fairly those two kinds of programs and to determine which form of assistance is more cost effective. Furthermore,
using the Treasury rate would not take full account of the loan's
riskiness, which would skew the allocation of resources toward the
most risky loans among borrowers, among credit programs, and
between credit and other spending.
Under the administration's proposed Credit Reform Act, two new
Federal credit revolving funds would be established within the
Department of the Treasury—one for the financing of direct loans
and the other for guaranteed loan insurance. Federal agencies
would be required to obtain appropriations from Congress for the
subsidy costs of the direct loans and loan guarantees they intend to
make. Agencies would continue to originate and close direct loans
and make loan guarantee decisions as they do now. As they make




6b-10

THE BUDGET FOR FISCAL YEAR 1989

obligations and commitments, information about their terms and
conditions would be sent to Treasury, which would oversee the
subsidy estimates.
As borrowers draw down the obligated direct loans, the agency
would pay the subsidy component of the loan into the direct loan
revolving fund. This fund would provide the balance of the loan, or
non-subsidized financing portion, through borrowing from Treasury. The original borrower would pay interest and repayments of
principal to the lending agency, which in turn would pass these
amounts through to the direct loan revolving fund to repay the
financing portion. For loan guarantees, fees from the borrower and
the appropriated subsidy would be paid to the loan guarantee
revolving fund, which would assume responsibility to cover defaults. Excess balances of this fund would be available for use in
lieu of borrowing from Treasury.
The administration's proposed legislation makes a sharp distinction between accounting for direct and guaranteed loans after implementation of credit reform and the accounting before implementation. For all loan obligations and commitments made after credit
reform, all payments and collections are made from the new subsidy accounts for each program and from the Federal credit revolving funds. For all loan obligations and commitments prior to implementation of credit reform, payments and collections will continue
to be made from the existing agency accounts. The legislation
proposes to establish subsidy values that incorporate the full cost
to the taxpayers of Federal credit programs. The ultimate success
of credit reform depends in large part on measuring subsidies fully
and correctly.
The administration's proposed Credit Reform Act was introduced
in the Senate as S. 745 and in the House as H.R. 1745, and drew
bipartisan support as an improvement in budgeting. The Senate
Budget Committee held hearings on the proposed legislation and
the accompanying budget amendments, which provided account
level detail. A modified version of the bill passed the Senate as
Amendment 645 to H.J. Res. 324, which increased the statutory
limit on the public debt. The Conference Report did not include
credit reform. However, the Congressional Budget Office was directed, in consultation with the General Accounting Office, to
report as soon as possible on measuring the cost of credit programs
more accurately and comparing them with other Federal assistance.
In this budget, the administration is again proposing credit
reform, and intends to work with the Congress to enact legislation
as soon as possible. The proposal has no overall effect on the
budget deficit. Account level data showing the grant-equivalent
subsidies, calculated by the A-70 method, are shown in the Budget




FEDERAL CREDIT

6b-ll

Appendix. Summary data are presented in tables 4 and 5 of Part
6g of this volume. Slightly modified legislation will be transmitted
promptly to Congress. As previously proposed, new subsidy accounts would be created for credit programs that currently use
revolving funds, and agencies would be required to obtain appropriations for the expected value of subsidies before making new
direct loan obligations and loan guarantee commitments. As before,
the portfolios for loans made prior to credit reform would remain
in their existing accounts, in order to keep accounting for the new
credit separate from old costs and payments. In this year's proposal, Treasury would have separate accounts for financing of direct
loans and for guaranteed loan reserves. Sales of newly made loans
and reinsurance of new guarantees will not be mandated, but, to
improve understanding of subsidies inherent in Federal credit programs, some newly made loans may be sold under the loan asset
sale program described below.
CREDIT MANAGEMENT

Background.—Historically, the Federal Government has assumed
the role of a lender of last resort and has fulfilled this role by
establishing credit programs to assist a portion of the borrowers in
every sector in the economy. However, no overall policy framework
for these credit programs was ever established and the evolution of
poor credit management practices was the result. Credit checks on
prospective borrowers were not routinely conducted. Agencies
lacked legislative authority to use private sector credit bureaus to
conduct preliminary screenings of applicants. Federal program
managers devoted their time to loan disbursement rather than to
the collection of funds. Outdated manual debt servicing processes
could not handle the workload, maintain accurate records, or keep
track of repayment schedules; delinquent debt owed the Federal
Government had been growing—undocumented, little managed,
and unchecked—for years.
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 management.
Legislative support for improved credit management was
achieved with the passage of the Debt Collection Act of 1984, which
contributed to an even stronger program by allowing an income
tax refund offset experiment at the Internal Revenue Service. In
addition, the Federal Debt Recovery Act of 1986 authorized the
Justice Department to contract for the use of private attorneys for
debt collection litigation services.




6b-12

THE BUDGET FOR FISCAL YEAR 1989

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 credit initiatives that focus on all three major phases of the credit cycle—
credit extension, loan servicing, and delinquent debt collection.
The administration has institutionalized the reform of the three
basic components of the credit cycle:
Credit Extension/Prescreening: The previous section described the
credit reform legislation aimed at allocating resources to credit
programs according to the true cost of credit—the present value of
the Federal Government's subsidy to the borrowers. Once the decision is made to allocate credit resources, the Federal Government
now has a strong prescreening program in place of determine
creditworthiness of the applicant as an effective means of minimizing defaults and delinquencies. The prescreening program will be
extended to grants and contracts where financial responsibility is a
criteria for approval of assistance. The use of private credit reports
is required to evaluate an applicant's credit history, and determine
whether the applicant is delinquent on a debt to any Federal
program. In addition, all applications for loan and government
assistance will be modified to include a question on whether the
applicant is delinquent on a Federal debt. These actions complement Administration policy that agencies cannot provide financial
assistance to applicants delinquent on a Federal debt until payment is made in full or repayment arrangements are made with
the agency to which the debt is owed.
Loan Servicing: A material weakness in the credit management
cycle found in 1981 was that agencies were not managing their
loan portfolios. While considerable progress has been made in upgrading account servicing and collection systems, it is a long-term
process and expensive to overcome years of neglect. Effective debt
management requires modern, automated billing, financial reporting and accounting systems, and loan files that are fully and accurately documented. Loan asset sales will transfer ownership and
servicing of $10 to $20 billion in new and existing loans to private
purchasers over the next four years. The Government will still
have a portfolio of over $700 billion direct and guaranteed loans
that will be managed by upgraded in-house systems and in many
cases by contracts with private servicers or cross servicing arrangements with other Federal agencies with proven expertise and systems capacity. Another aspect of servicing, credit bureau reporting,
supports prescreening by enabling both public and private credit
experience to be included in an applicant's credit history and it
provides a very effective deterrent to defaulting on a Federal loan.




FEDERAL CREDIT

6b-13

It also permits all Federal agencies to know when a borrower has
defaulted on a loan from another Federal agency.
Delinquent Debt Collection: The Federal Government now has in
place an efficient system for the collection of delinquent debt.
Combining collection tools unique to the Federal Government and
private sector collection practices, the Federal Government has
established a credible reputation as a collector. A delinquent debtor
can expect a number of actions to be taken: additional late payment interest and a penalty interest fee can be added; a negative
credit report can be filed with credit bureau reporting networks;
income tax refunds can be offset up to the amount owed; a Federal
employee can have his Federal salary offset up to 15 percent per
pay day; more serious delinquent debtors will have their accounts
turned over to private collection agencies; and prompt litigation by
Justice Department augmented by private attorneys faces recalcitrant debtors. All of these techniques comprise the most widereaching collection efforts ever undertaken.
The credit initiatives are described more fully in Management of
the United States Government
Loan Asset Sales.—The administration is also working to improve the management of Federal credit programs by selling loan
assets. The sale of loans will improve the management of Federal
lending programs by reducing the Government's cost of administering credit and by providing an incentive for agencies to improve
loan origination and documentation as well as the information
systems used to track repayments. Sales free up resources that
were formerly devoted to loan servicing activities. In turn, the
extra resources could be devoted to improved monitoring of loans,
for example, that would lower the default costs associated with a
credit program. The improved origination, documentation, and repayment tracking incentives are related to the process of packaging asset-backed securities for sale. Each agency is required to hire
a financial advisor that will assist in the structuring and marketing of its loans and to make certain that loan files and delinquency
and default definitions meet private sector standards. Accordingly,
agencies not only learn about private sector practices for good
credit management, but are asked to ensure compliance.
Public sales of loan assets from three portfolios were successfully
concluded in 1987:
• Farmers Home Administration's (FmHA) rural development
insurance fund (RDIFX—FmHA sold 6,442 community facilities loans with a face value of $1.9 billion for $1.0 billion in
net receipts (plus projected receipts of $34 million in residual
interest from the transaction). The option of prepaying loans
was offered to all RDIF borrowers in advance of the securitized sale.




6b-14

THE BUDGET FOR FISCAL YEAR 1989

• FmHA's rural housing insurance fund (RHIF).—FmHA also
sold 141,352 rural housing loans with a face value of $3.0
billion for an estimated $1.9 billion in net proceeds (plus
another $0.5 billion in residual interest that is projected to
accrue to the Government).
• The Department of Education.—The Department sold 324 college housing and academic facilities loans with a face value of
$237 million for $120 million (plus another $10.8 million from
Education's interest in the junior security). Of the total proceeds, $98 million was received in 1987 and the balance in
1988. The option of prepaying loans was provided to all college housing and academic facilities borrowers. The Department received $499 million in prepayments for loans having a
face value of $792 million.
Management improvements have already occurred as a result of
these sales. For example, loan originations have been improved by
including more rigorous legal review to ensure the enforceability of
each loan; and deficiencies in the documentation of loans, as well
as in the information systems used to track loan repayments, have
been identified and will be corrected. Future sales will benefit from
past sales in two ways. First, if default and recovery experience on
the portfolios sold turn out to be better than expected, the Government will benefit to the extent that more optimistic assumptions
will raise the proceeds from future sales. Second, the continuing
sale of similar assets develops buyer familiarity with the Government assets and enhances the salability of future issues. Although
loan asset sales have motivated various credit management improvements, an exact quantification of these savings is difficult
because most of the management benefits are related to savings
that will occur in the future.
The program is continuing in 1988 with the sale or prepayment
of loans that have a face value of $12.8 billion. These sales and
prepayments are projected to yield a market value of approximately $10.9 billion in offsetting collections. The loans to be sold or
prepaid under the program in 1989 will come from 13 different
portfolios and have a face value of $12.0 billion. The estimated
market value of these assets is $8.5 billion.
Coordination of all these loan asset sales is facilitated by the
Federal Credit Policy Working Group consisting of representatives
of the Office of Management and Budget (OMB), the Department of
the Treasury, and each agency selling loans. The "Guidelines for
Loan Asset Sales" prepared by the Group and issued by OMB were
designed to help agencies making sales to meet the credit management objectives of the program. The guidelines required that agencies structure their sales programs without future recourse to the
Federal Government.




FEDERAL CREDIT

6b-15

The administration remains firmly committed to nonrecourse
sales. 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 rigorous, but legal, collection efforts since bad loans could be returned to the Government. Agencies would still have to administer 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.
• Sales with recourse do not increase total Government proceeds. Although the Government would receive higher proceeds at the time of sale if the loans were guaranteed, those
additional proceeds would be offset in the future as defaults
on the guaranteed loans occur.
OTHER TYPES OF CREDIT ACTIVITY

Background.—The Federal Government provides guarantees and
insurance against several types of risk for many sectors of the
economy. These guarantees and insurance create contingent liabilities for the Government; that is, the Government agrees to compensate the holders of the guarantees or insurance if a specified
event occurs. Contingent liabilities may be placed in three categories that reflect activities that generate the liability: Governmentsponsored enterprises; deposit insurance; and other insurance-type
programs. Estimates of the contingent liability associated with
each of these categories is presented in Special Analysis F, "Federal Credit Programs/' In 1987, the contingent liability of the Government due to all of these activities amounted to approximately
$3.6 trillion.
Government-Sponsored Enterprises.—One of the major forms of

Federal intervention in credit markets is through the creation and
sponsorship of Government-sponsored enterprises (GSEs). GSEs
engage in financial transactions that, although not explicitly guaranteed by the Federal Government (with the exception, discussed
below, of the Farm Credit System Financial Assistance Corporation), are often perceived by private lenders as being implicitly
ensured against default. That perception has been underscored
during the past year by several events that are discussed below. To
the extent possible, data on lending and borrowing by GSEs appear
in Part IV of the Appendix, and their borrowing and lending is




6b-16

THE BUDGET FOR FISCAL YEAR 1989

shown in Table F-20 of Special Analysis F. However, these presentations are for informational purposes only. The transactions of
GSEs are not included in the budget and their activities affect
Federal outlays in only limited circumstances.
These institutions were created by the Federal Government to
pursue Federal goals, but were designed to be private —not Federal—enterprises. However, their links to the Federal Government
are sufficiently strong that the financial markets have historically
treated them as roughly equivalent to Federal agencies, even
though some of the statutes governing their creation and operations explicitly state that the Government's objective is to have
them operate as private enterprises.
The principles governing the budget treatment of these enterprises were enunciated in 1967 in the Report of the President's
Commission on Budget Concepts. The Commission sought to distinguish between those activities that are truly Federal—and therefore belong in the budget—and those that are truly private—and
therefore do not belong in the budget. Since GSEs are federally
created and sponsored, but are intended to operate as private financial intermediaries, they occupy a middle ground between those
two endpoints. The Commission recommended that certain criteria
be applied to evaluate the status of an entity in order to determine
its categorization. Even when such enterprises are sufficiently private that they do not belong in the Federal budget, the Commission
concluded that financial statements of their operations should be
published in the Budget Appendix because the enterprises carry
out federally designed programs and may receive implicit benefits
from their close association with the Government.
In principle, budget concepts call for a clear delineation between
Federal Government operations or activities and private sector
operations or activities. Thus, for example, because the Tennessee
Valley Authority, the Federal Housing Administration, and the
Export-Import Bank are all Federal operations, they belong in the
Federal budget. In contrast, privately owned commercial banks,
savings and loan associations, and credit unions are not Federal,
even though they may have Federal characteristics and be federally regulated, chartered, and insured. The GSE status means that
the enterprise is in an intermediate status; it is classified as federally sponsored, but not Federal.
Five new GSEs have been established in the past 2 years. They
have been created to serve three sectors of the economy: agriculture, housing, and education. Most of the newly created entities
conform strictly to the principle outlined in the Commission's
report with regard to private ownership. However, most of them
tend to have greater direct governmental involvement than entities
identified as GSEs before 1985. Their categorization as GSEs may




FEDERAL CREDIT

6b-17

change, however, as the new entities are more closely examined
both as to structure and as to the perception of them by the
financial markets.
Agriculture.—Three new GSEs were created in January 1988 as
part of the rescue package developed for the Farm Credit System.
In each case, private firms will be the sole owners of the three
entities, with the Federal Government taking no equity position in
them.
• The Farm Credit System Financial Assistance Corporation was
chartered to provide the mechanism through which the Farm
Credit System could raise needed capital. The corporation is
authorized to issue up to $4.0 billion in debt obligations with
the statutorily stated guarantee of timely payment to investors of principal and interest by the Federal Government. No
other GSE has this explicit guarantee on debt obligations
issued by the entity. Moreover, the Treasury Department is
responsible for the interest costs in whole or in part for the
first 10 years of the bonds' 15-year lives.
• The Farm Credit System Insurance Corporation will be created
to insure the timely payment of principal and interest on
notes, bonds, debentures, and other obligations issued by
System banks. The Corporation will raise funds both for initial capitalization and for ongoing operations through mandatory assessments on system institutions—a procedure similar
to that developed for the Federal Deposit Insurance Corporation (FDIC) and the Federal Savings and Loan Insurance Corporation (FSLIC), both on-budget entities. By January of 1990,
the farm credit revolving fund is scheduled to be transferred
to the Insurance Corporation. This fund is currently onbudget; therefore, this transfer would represent a direct Federal payment to the Insurance Corporation.
• The Federal Agricultural Mortgage Corporation will be created to provide guarantees for the timely repayment of interest and principal in securities representing interests in or
obligations backed by, pools of farm mortgages and certain
rural housing loans. The Corporation will provide guarantees
of loans originated by both Farm Credit System banks, and by
qualified commercial banks, thrifts, and insurance companies.
The Mortgage Corporation would have available a line of
credit of up to $1.5 billion with the Treasury. Initial capital
will be raised through a stock offering and ongoing operations
will be financed through the use of assessments for the Corporation's guarantee on participating institutions and occasional
additional stock offerings.
Housing.—The Federal Savings and Loan Insurance Corporation
(FSLIC), an on-budget entity, provides Federal insurance to the




6b-18

THE BUDGET FOR FISCAL YEAR 1989

thrift industry, which historically has been a principal source of
housing finance. This industry has been under severe pressure in
the past few years due to several factors, including the depressed
conditions in the oil and agriculture sectors and outright mismanagement of some institutions. While many of the thrifts are profitable, more than 10 percent of the industry is insolvent and losing
money. This state of affairs has caused the FSLIC to deplete its
resources to such an extent as to be technically bankrupt as of the
end of 1986 and to project continued losses into the near future. In
response to this crisis, the FSLIC Recapitalization Act of 1987 was
passed into law.
• The Financing Corporation (FICO), created by the Act, provides the financing mechanism through which FSLIC can
raise needed capital in the credit markets. The Corporation
has the authority to raise up to $10.8 billion through the
issuance of debt obligations to the public and, in turn, to
purchase FSLIC capital certificates. While the Federal Government does not directly guarantee the payment of principal
or interest, the interest payment will be financed through a
mandatory assessment-sharing arrangement with FSLIC.
Moreover, if additional funds are needed, a special assessment
may be levied on insured institutions. FSLIC currently levies
this special assessment on insured thrifts, and FICO may
claim as much of that assessment as is necessary to cover its
interest obligations. Principal will be repaid with the proceeds
of non-interest bearing Government securities purchased by
FICO with funds provided by the Federal Home Loan Banks.
The initial capital for FICO will be provided by the Federal
Home Loan Banks through a stock purchase plan that satisfies the private ownership criteria. Despite the uncertainty
surrounding the finances of FSLIC, the first issue of the FICO
30-year bonds was priced to yield only a 90 basis point premium over comparable U.S. Treasury bonds at the time of issue.
Apparently, the market does not perceive a great default risk
associated with the obligations. While the immediate impact
on the Federal budget is zero, the implicit backing of the
Federal Government for the FICO obligations could result in
a Federal contingent liability of up to $10.8 billion.
Education.—In 1986, Congress created an entity to assist in the
financing of college construction and renovation.
• The College Construction Loan Insurance Association (Connie
Lee) was organized as a private, for-profit insurance corporation to guarantee and insure loans made for college construction and renovation. The authorizing statute specifically
states that obligations issued by Connie Lee will not be guaranteed by the Federal Government. In order to provide the




FEDERAL CREDIT

6b-19

initial capitalization, the Secretary of Education, Student
Loan Marketing Association (Sallie Mae), and other investors
are authorized to purchase stock in the Corporation. The
Secretary of Education has purchased $19 million in stock. In
addition, the Federal Government will appoint four members
of Connie Lee's Board of Directors.
Deposit Insurance.—Deposit insurance serves two purposes: it
helps stabilize the Nation's monetary and financial system and
thereby the economy as a whole, and it protects depositors in the
insured financial intermediaries. Although only a small part of the
transactions of Federal deposit insurance programs are included in
the credit budget, these programs make up the largest portion of
the Government's contingent liability. The Federal Government
insures depositors through the FDIC, FSLIC, and the National
Credit Union Administration.
Federal deposit insurance programs may assist insured depositors in a variety of ways. When an insured financial institution
becomes troubled, deposit insurance programs may: (1) liquidate
the institution and pay depositors directly; (2) merge the troubled
institution with a healthier institution, in some cases providing
financial assistance to the acquiring partner in the merger; or (3)
provide financial assistance directly to the troubled institution in
the expectation that it will recover. Financial assistance to private
financial intermediaries has consisted of equity purchases, purchases of physical assets, and direct loans and loan guarantees.
Although similar to a loan guarantee, Federal deposit insurance
is not included in the guaranteed loan portion of the credit budget,
principally because it does not directly allocate credit to the ultimate borrowers of that credit. Deposit insurance directly affects
the liabilities (deposits) of financial intermediaries but only indirectly their assets (loans). All other Federal guarantee programs
are structured to influence the assets or loans of financial intermediaries directly. Nonetheless it is argued that Federal deposit insurance gives insured institutions an incentive to take on more risk
than they would otherwise, either by making riskier loans or by
increasing leverage. To this degree, deposit insurance indirectly
allocates credit. It also indirectly affects the allocation and amount
of credit by changing depositor behavior as a result of its protection, and by insuring the stability of the financial system and the
economy.
The credit budget records direct loan obligations of FDIC and
FSLIC for two types of transactions: cash advances to troubled
institutions, and purchases of loans to the public held in the failing
financial institution's portfolio. Both of these transactions increase
Federal outlays, and are included in the credit budget.




6b-20

THE BUDGET FOR FISCAL YEAR 1989

Leases.—A related kind of contingent liability arises when the
Federal Government signs leases to acquire goods and services.
Leases commit the Government to make specified payments over a
period of time.
Like all contracts in the Government, leases are subject to the
requirements of the Anti-Deficiency Act (31 U.S.C. 1341). The Act
requires the lessee agency to obligate funds sufficient to cover the
commitments of the Government in the contract. Leases typically
include termination clauses that limit the potential exposure of the
Government and, therefore, also limit the amount of funds that
need to be obligated.
Recently, however, several agencies and Committees of the Congress have proposed financing schemes involving lease-purchase
arrangements. These schemes are designed to allow agencies to
enter into multiyear contracts that do not include effective termination rights and yet permit agencies to obligate only the annual
costs, as opposed to the full legal obligation of the lessee agency
under the contracts. Such proposals have included specific language exempting the transactions from the Anti-Deficiency Act.
This, of course, violates the intent of the Act by under-reporting
the liabilities of the Government. It also understates the cost of
these programs relative to other Federal programs because the
lease obscures some of the short-run costs of the transaction. The
administration is strongly opposed to any such efforts by agencies
or the Congress intended to hide outlays and debts of the Government.




PART 6C

FEDERAL CAPITAL EXPENDITURES
The Federal Government makes expenditures that will have
long-term as well as current benefits. These investment outlays are
made across a wide range of programs but with particular concentration in some. The greater part of Federal investment is in
physical assets, but much is for the intangible assets produced by
expenditures for the conduct of research, development, education,
and training. Most of the investment in physical assets is owned by
the Federal Government itself, but a significant part is owned by
State and local governments whose purchases are financed by Federal grants. Many of the intangible assets produced by Federal
investment outlays reside in the knowledge, education, and skills of
individual people.
Investment is a necessary part of many Federal programs. In
some cases, such as highway grants, investment may define the
nature of the program. In other cases, such as ships for the Navy
or computers for an agency, investment may provide an input for
reaching a program objective. Federal investment is also important
when viewed in terms of the economy as a whole. The Bureau of
Economic Analysis (in the Department of Commerce) has estimated
that 6 percent of the net stock of fixed reproducible tangible wealth
at the end of calendar year 1986 was owned by the Federal Government. *
The definition of Federal investment used in the budget is necessarily a matter of judgment. Outlays for direct loans, for example,
contain a large subsidy element, which is granted to the individual
or business borrower when the loan is made.2 The value to the
Government of the financial asset acquired is therefore much less
than the budget outlay, but the investment data in the budget
count the entire outlay. On the other hand, some outlays not
counted as investment, such as for health, nonetheless have longterm benefits.
1
The Bureau of Economic Analysis data do not tie directly to the budget data and do not include estimates
for future years. The percentage was calculated from Survey of Current Business, November 1987, page 37, table
4. For explanation of the method and further data, see Fixed Reproducible Tangible Wealth in the United States,
1925-85 (Washington: U.S. Government Printing Office, 1987) and Survey of Current Business, August 1987, pp.
100-103. The percentage does not include wealth owned by State and local governments but financed by Federal
grants.
2
Federal direct loans and subsidies are discussed in Part 6b of this volume, "Federal Credit." Subsidy
estimates are shown by agency and function in Part 6g, tables 4 and 5, respectively. Further discussion is in
Special Analysis F, "Federal Credit Programs."




6c-l

6c-2

THE BUDGET FOR FISCAL YEAR 1989

Much greater detail about Federal investment outlays than presented in this part is published in Special Analysis D, "Federal
Investment and Operating Outlays," in Special Analyses, Budget of
the United States Government, Fiscal Year 1989. It includes technical explanations of the data in the following tables. Data series on
outlays for physical investment beginning in 1940 are published in
Historical Tables, Budget of the United States Government, Fiscal
Year 1989, section 9.3
Size and composition of Federal investment—Federal investment
outlays are estimated to be $222.3 billion in 1989, which is 20.3
percent of total Federal outlays. The greater part of this, $128.5
billion, consists of investment outlays for physical capital. These
are 57.8 percent of total investment outlays and 11.7 percent of the
total outlays of the Federal Government.
SUMMARY OF FEDERAL INVESTMENT OUTLAYS
(In billions of dollars)
1987

Physical investment:
Direct:
National defense.
Nondefense

1988 estimate

1989 estimate

89.5
12.5

87.5
14.2

88.5
15.2

Subtotal, direct physical investment
Grants to State and local governments

102.1
23.8

101.7
25.1

103.7
24.9

Subtotal, physical investment

125.9

126.8

128.5

Conduct of research and development:
National defense
Nondefense

37.1
16.2

36.5
18.1

39.8
19.8

Subtotal, conduct of research and development
Conduct of education and training:
Direct
.
Grants to State and local government

53.3

54.6

59.6

11.6
12.3

12.2
13.4

15.4
14.1

Subtotal, conduct of education and training
Loans and financial investments
Other (including commodity inventories) x

23.9
2.4
8.2

25.6
-6.4
5.1

29.5
-1.2
5.9

Total, Federal investment outlays
National defense
Nondefense

208.9
126.9
82.0

205.7
124.3
81.4

222.3
128.6
93.7

1

.

Includes a small amount of outlays for private physical investment.

Businesses invest in structures and equipment in order to earn
profits from the future revenue that is generated by using the
additional capital. The Federal Government rarely invests to earn
a profit. However, some of its investments are recovered (in whole
3
Projections of Federal physical investment outlays (excluding weapons) beyond the budget year and an
assessment of civilian investment needs for selected purposes are contained in Supplement to Special Analysis D,
a separate report transmitted to Congress after the budget.




FEDERAL CAPITAL EXPENDITURES

6c-3

or in part) by subsequent revenue that is paid by the buyers or
other beneficiaries of the services that these investments provide.
Investment of this kind is relatively small. It is estimated at about
$6.7 billion in 1989, primarily outlays for TVA plant and equipment, Postal Service buildings, and many Corps of Engineers
projects.
Federal Government investment is somewhat larger for nondefense physical assets that are federally owned but that generate
little if any future revenue. These estimated outlays are $8.4 billion
in 1989, including space shuttles, veterans hospitals, and computers. Total direct Federal purchases of nondefense physical assets—
both those that generate future revenue and those that do not—
add up to $15.2 billion in 1989, or 12 percent of total Federal
investment outlays for physical assets.
Nondefense physical investment that is financed by Federal
grants to State and local governments is much larger than nondefense physical investment for assets owned by the Federal Government. The budget estimates $24.9 billion of grants to State and
local governments for physical investment purposes in 1989, which
is 19 percent of Federal investment outlays for physical assets.
Slightly over half of these grants is for highways; nearly all the
rest is for other public works, mostly urban mass transit facilities,
airports, pollution control facilities, and community and regional
development projects. For these types of construction Federal
grants finance a large share of State and local expenditures, whereas for other types, such as schools and prisons, Federal grants
finance little or nothing. Altogether, Federal grants financed 26
percent of State and local capital expenditures in 1987. Federal
grants for physical investment were 22 percent of total Federal
grants. 4
The largest part of Federal investment in physical capital is for
national defense. This is estimated to be $88.5 billion in 1989,
which is 69 percent of physical investment outlays. For the most
part defense physical investment is to buy weapons and other
equipment, such as tanks, ships, airplanes, and computers. Less
than one-tenth is for construction, such as military bases and defense family housing. Defense investment is discussed in the national defense section of Part 5 in this volume.
Federal outlays for intangible assets may yield long-term economic and social benefits as much as do Federal outlays for physical assets. 5 Research and development increase the Nation's stock
of knowledge and information, which underlies a large part of the
improvement in productivity and the development of new goods
4

Federal grants are discussed in Special Analysis H, "Federal Aid to State and Local Governments."
5
See chapter 5, "Knowledge, Markets, and Economic Progress," of the Economic Report of the President
(February 1988).




6c-4

THE BUDGET FOR FISCAL YEAR 1989

and services for national defense, space exploration, medical care,
and private consumption. The Federal Government is estimated to
spend $59.6 billion for the conduct of research and development in
1989, of which 67 percent is for national defense and 33 percent for
a wide variety of other programs including health, energy, space,
and agriculture. Outlays for the conduct of basic research are $9.8
billion, of which more than half is for the National Institutes of
Health and the National Science Foundation. Research and development facilities, with estimated outlays of $1.9 billion, are included under physical investment. Research and development is discussed in Special Analysis J, "Research and Development," and
data series beginning in 1949 are shown in Historical Tables, section 10.
The final major category of Federal investment is for another
type of intangible assets. The conduct of education and training
has long-term economic benefits by developing a more knowledgeable and skilled labor force. The conduct of education also has longterm noneconomic benefits by developing people's general capabilities and by providing a common base for political and social interaction. The Federal Government is estimated to spend $29.5 billion
for the conduct of education and training in 1989. About half is
grants to State and local governments to assist educational institutions for such purposes as educating the disadvantaged and the
handicapped; the rest is mostly transfer payments to students
under educational or training programs such as guaranteed student loans. The conduct of education and training is primarily
discussed in the sections of Part 5 in this volume that deal with
education, training, and veterans.
Trends in Federal investment in physical capital—Federal investment outlays for physical capital, when measured in real terms
(constant dollars), were only a little higher in 1980 than in 1960.
From 1980 to 1987, however, they grew at an average annual rate
of 7.0 percent. In 1988 and 1989 they are estimated to decline, but
only moderately, to a level still much above that of 1980.
This pattern, together with the effect of a growing budget, is
reflected in the share of total Federal outlays devoted to physical
investment. As a percentage of total outlays, physical investment
outlays fell sharply from the middle 1950s to around 1980. They
rose from 10.7 percent of total outlays in 1980 to 12.5 percent in
1987 and are estimated to be 11.7 percent in 1989.
These overall trends have largely depended on changing priorities among different Government programs and on the extent to
which capital stocks have been accumulated in previous years in
order to satisfy particular needs. This is especially important because of the role of defense. Defense spending is much more capital
intensive than most other functions of the Government. Physical




FEDERAL CAPITAL EXPENDITURES

6C-5

FEDERAL INVESTMENT IN PHYSICAL CAPITAL
(Dollar amounts in billions)
I960

1970

1980

1985

1987

1988
est.

1989
est.

Amounts in current dollars:
Direct investment in physical capital:
National defense

17.2

23.6

32.5

78.0

89.5

87.5

88.5

Nondefense:
Water and power projects
Other

1.0
0.9

1.5
1.0

4.6
3.4

4.6
7.1

4.6
8.0

5.3
8.9

5.2
9.9

Subtotal, nondefense direct
Subtotal, direct

1.9

2.5

8.1

11.7

12.5

14.2

15.2

19.1

26.1

40.5

89.7

102.1

101.7

103.7

2.9

9.0
2.0
0.6
5.8
4.3
0.8

12.7
2.4
0.8
5.0
2.9
1.0

12.5
2.6
0.9
4.0
3.0
0.9

13.1
2.8
1.0
4.3
2.7
1.2

13.1
3.0
1.1
4.2
2.5
0.9

Grants to State and local governments for
physical capital:
Highways
Urban mass transportation
Airports
Community and regional development
Pollution control facilities
Other

0.1
0.1
*
0.2

4.3
0.1
0.1
1.6
0.2
0.7

Subtotal, grants for physical capital

3.3

7.1

22.5

24.9

23.8

25.1

24.9

22.4

33.2

63.0

114.6

125.9^

126.8

128.5

51.7

55.8

39.6

71.9

84.0

79.1

77.2

3.0
2.8

3.6
2.5

5.3
3.9

4.5
7.0

4.5
7.8

5.0
8.4

4.7
9.0

Total, Federal investment in physical
capital
Amounts in constant 1982 dollars:

1

Direct investment in physical capital:
National defense
Nondefense:
Water and power projects
Other

5.9

6.1

9.1

11.5

12.2

13.4

13.7

57.6

61.9

48.7

83.4

96.2

92.6

90.9

10.8
0.2
0.4
0.1
0.7

11.8
0.3
0.2
4.5
0.5
2.0

9.8
2.2
0.6
6.3
4.7
0.8

11.7
2.3
0.7
4.6
2.7
0.9

11.1
2.3
0.8
3.6
2.6
0.8

11.2
2.4
0.8
3.7
2.3
1.0

10.8
2.5
0.9
3.4
2.1
0.8

Subtotal, grants for physical capital...

12.2

19.4

24.6

22.9

21.2

21.5

20.4

Total, Federal investment
ohvsical capital

69.8

81.3

73.3

106.3

117.4

114.0

111.4

Direct investment in physical capital:
National defense
Nondefense

18.6
2.1

12.1
1.3

5.5
1.4

8.2
1.2

8.9
1.2

8.3
1.3

8.1
1.4

Subtotal direct
Grants to State and local governments

20.7
3.6

13.4
3.6

6.9
3.8

9.5
2.6

10.2
2.4

9.6
2.4

9.5
2.3

24.3

17.0

10.7

12.1

12.5

12.0

11.7

Subtotal, nondefense direct
Subtotal, direct
Grants to State and local governments for
physical capital:
Highways..
Urban mass transportation
Airports ... .
Community and regional development
Pollution control facilities
Other

in

Percentage of total Federal outlays (in current dollars):

Total, Federal investment in
physical capital
..... ...

* $50 million or less.
1
The method of deflating current-dollar outlays is explained in Special Analysis D. The base is fiscal year 1982.




6c-6

THE BUDGET FOR FISCAL YEAR 1989

investment outlays averaged 28 percent of defense outlays from
1960 to 1987 but only 6 percent of nondefense outlays. Defense
spending is also comparatively large. As a result, defense outlays
for physical capital have been more than half of total outlays for
physical capital in almost every year and in most years, as at
present, have been much more than half. The overall trends in
physical investment have therefore been dominated by the trends
in defense physical investment.
Real defense outlays for physical investment declined from 1960
to the middle 1970s before starting to rise in the latter 1970s. The
general decline was a consequence of both a decrease in real defense outlays as a whole and a decrease in the investment share of
defense outlays. Even in 1980, real defense physical investment was
23 percent less than in 1960. From 1980 to 1987, however, real
defense physical investment rose at an 11.3 percent average annual
rate, and despite an estimated decline in 1988 and 1989 it is projected to remain very much above earlier levels.
As a proportion of total Federal outlays, defense physical investment has reflected not only the trend in defense spending but also
the rise in the relative importance of other programs. In 1960
defense outlays were 52 percent of total outlays, whereas in 1987
they were 28 percent. On the other hand, payments for individuals,
such as social security, rose from 26 percent to 47 percent. Consequently, defense physical investment as a share of total outlays has
declined a great deal. While it is estimated to be 8.1 percent in
1989, significantly more than the 5.5 percent in 1980, this is much
less than the 18.6 percent in 1960. Indeed, this is less than in any
year between the Korean War and 1972.
Investment in nondefense physical capital owned by the Federal
Government has been much more stable and has tended to rise in
real terms over time. It increased 56 percent from 1960 to 1980 and
is estimated to be 51 percent higher in 1989 than in 1980. As a
share of total Federal outlays, it has varied from 1.0 percent to 1.6
percent since the late 1960s and is estimated to be in the middle of
this range in 1989. Water and power projects have consistently
been the major component of this type of investment, but they now
account for a lower share of the total than formerly. NASA and
Postal Service investment have also been important components.
Grants to State and local governments to buy physical capital
have also been more stable than defense investment. In real terms,
they doubled from 1960 to 1980. Highway construction, the major
type of investment grant, was not part of that expansion. The
growth instead was caused by the initiation of programs for other
forms of transportation, for pollution control facilities, and for
community and regional development. Since 1980, real grants for
investment have declined a small amount. Real grants for high-




6c-7

FEDERAL CAPITAL EXPENDITURES

ways are now greater than in 1980, though past their peak, but
this increase has been more than offset by decreases in grants for
pollution control facilities and community and regional development. The Administration believes that the latter kinds of projects
primarily benefit the local area where they are built and therefore
that their financing is not the proper responsibility of the Federal
Government. As a share of total Federal outlays, grants for physical investment were about the same in 1980 as in 1960 but have
subsequently declined due to the lower spending for some programs.
Real net investment in nondefense physical capital—Net invest-

ment—the increase in the capital stock—is much less than gross
investment. Each year, part of the existing capital stock depreciates due to wear and tear, obsolescence, and other losses. The
following table shows estimates of the real net investment in nondefense physical capital for direct Federal use and for grants to
State and local governments. These figures have large margins of
error, because they depend on uncertain estimates of depreciation
as well as adjustments for price changes. Corresponding estimates
based on budget data have not been made for defense net investment.6
Direct net investment in federally owned nondefense physical
capital has generally tended to rise over time and has increased
GROSS AND NET FEDERAL INVESTMENT IN NONDEFENSE PHYSICAL CAPITAL 1
(In billions of fiscal year 1982 dollars)

Direct nondefense physical investment:
Gross investment
Depreciation (—)
Net investment
Composition:
Water and power projects.

Other
Grants to State and local governments for
physical investment:
Gross investment 2
Depreciation ( - )
Net investment

Composition:
Transportation.
Other
1
2

1960

1970

1980

1985

1987

1988

1989
est.

5.9
-4.1
1.8

6.1
-4.9
1.2

9.1
-6.5
2.6

11.5
-7.5
4.1

12.2
-7.9
4.3

13.4
-8.3
5.1

13.7
-8.7
5.1

1.2
0.6

0.9
0.2

1.7
0.9

0.7
3.4

0.7
3.6

1.2
3.9

0.9
4.2

22.9
-13.7
9.2

21.1
-14.7
6.4

21.4
-15.2
6.2

20.4
-15.6
4.7

12.2
-3.4

9.0
-0.2

19.3
-7.2
12.1
7.5
4.7

24.5
-11.1
13.4
5.4
8.0

5.9
3.3

4.7
1.7

4.6
1.5

4.0
0.7

The method of estimating depreciation is explained in Special Analysis D.
These amounts are slightly less than those shown for grants in the previous table due to the exclusion of national defense.

6
However, the Bureau of Economic Analysis estimates cited earlier do include military equipment and
structures.




6c-8

THE BUDGET FOR FISCAL YEAR 1989

from 1980 to the present. Its composition has shifted away from
water and power projects and toward other acquisitions.
Net investment financed by Federal grants was very much larger
until recently than net investment in federally owned nondefense
physical capital. The former amount has declined sharply in the
1980s due to a combination of lower gross investment outlays and
higher depreciation. The decline is concentrated in pollution control facilities and community and regional development. Net investment in transportation has declined relatively much less.




PART 6d

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 1987 for:
—receipts,
—outlays, and
—the deficit;
• comparison of the actual and estimated relatively uncontrollable outlays in 1987; 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 1989, $1,233.2
billion of new budget authority is proposed for the Federal Government. Of this amount, $974.7 billion is for agencies included in the
budget and $258.5 billion is for off-budget Federal entities.
Of this total new budget authority, both on-budget and offbudget, $601.9 billion will require congressional action. New budget
authority of $849.2 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 permanent appropriation enacted in 1847. This gross amount of new
budget authority is partially offset by $218.0 billion of deductions
for offsetting receipts, which consist of proprietary receipts from
the public and collections of one Government account from another.




6d-l

6d-2

THE BUDGET FOR FISCAL YEAR 1989
BUDGET AUTHORITY
(In billions of dollars)
Description

Available through current action by
the Congress:
Enacted and pending appropriations..
Proposed in this budget:
Appropriations
Supplemental requests
Rescission proposals
To be requested separately-.
Upon enactment of proposed legislation
Allowances:
Civilian agencies*
Department of DefenseMilitary 2
Subtotal, available through
current action by the
Congress
Available without current action by
the Congress (permanent appropriations):
Trust funds (existing law)
On-budget
Off-budget
Interest on the public debt
Other
Subtotal, available without current action by the Congress
Deductions for offsetting receipts....
On-budget
Off-budget
Total, budget authority
On-budget
Off-budget
1
2

1987
actual

559.7

1988
estimate

1989
estimate

1990
estimate

1991
estimate

570.9
581.7

622.1

656.0

20.2

16.9

15.7

1.0

2.2

3.3

7.8

559.7

570.9

601.9

643.2

681.7

447.0
(219.3)
(227.6)
195.3
84.4

503.3
(246.0)
(257.3)
210.1
89.3

542.2
(262.5)
(279.7)
220.2
86.8

581.9
(274.4)
(307.5)
230.1
74.8

624.0
(289.9)
(334.1)
238.8
73.5

726.7

802.7

849.2

886.7

936.2

-186.5
(-172.3)
(-14.2)

-197.9
(-180.5)
(-17.4)

-218.0
(-196.8)
(-21.2)

-230.9
(-205.8)
( 25.2)

-242.2
(-214.1)
(-28.1)

1,099.9
(886.5)
(213.4)

1,175.7
(935.8)
(239.9)

1,233.2
(974.7)
(258.5)

1,299.0
(1,016.7)
(282.4)

1,375.7
(1,069.8)
(306.0)

Allowance for civilian agency pay raises, Coast Guard military pay raises, and other purposes.
Allowances for civilian and military pay raises and other legislation for Department of Defense—Military.

Not all of the new budget authority for 1989 will be obligated or
spent in that year:l
• Budget authority for most trust funds comes from the authority 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 law.
• Budget authority for most major construction and procurement projects covers the entire cost estimated when the
projects are initiated, even though work will take place and
outlays will be made over a period extending beyond the year
1
This subject is also discussed in a separate OMB 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

6d-3

for which the budget authority is enacted. Some exceptions
are made to this convention, notably for water resource programs.
• 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 periods of up to 20 years.
• Budget authority for most other long-term contracts also
covers the estimated maximum obligation of the Government.
• Budget authority for most education and training activity is
appropriated for school or program years that begin with the
fourth quarter of the fiscal year. Most of these funds result in
outlays in the year after the year of appropriation.
• Budget authority for many direct loan programs provides financing 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.
• Government enterprises are occasionally given budget authority for standby reserves that will be used only in the event of
special circumstances.
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, primarily the
amount for contingencies that do not occur or reserves that never
have to be used.
As shown in the chart on the next page, $348.8 billion of the
outlays in 1989 (32 percent of the total) will be made from budget
authority enacted in previous years. At the same time, $487.7
billion of the new budget authority proposed for 1989 (40 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 6e of this volume, "The Budget System
and Concepts/' and are displayed in table 11 of Part 6g.
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 authority, limitations on the availability of funds generally are not the
source of authority to incur obligations; rather, they place a special




6d-4

THE BUDGET FOR FISCAL YEAR 1989

Relation of Budget Authority to Outlays - 1989
$ Billions

New Authority
Recommended
for 1989

To be spent in 1989
745.5

Outlays
in 1989
1,094.2

1,233.2

Unspent Authority
Enacted in
Prior Years
1,304.1

To be spent in
Future Years
918.8

Unspent Authority
for Outlays in
Future Years
1,406.5

ceiling on the use of that 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.
Some limitations establish stricter control over the amounts provided 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 activities. 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 example, the 1988 appropriation of $971 million for Operation of
Indian programs in the Department of the Interior includes
language specifying that an amount not to exceed $51 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, consultants, 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.




PERSPECTIVES ON THE BUDGET

6d-5

SELECTED LIMITATIONS THAT AFFECT THE TOTAL LEVEL OF OUTLAYS
(In billions of dollars)
1987
enacted
Administrative expenses of trust funds
Direct loan obligations
Program levels (other than loans)
Total, selected limitations

19158
estin ate

1989
estimate

7.1
17.3
11.3

7.0
17.5
12.0

6.9
17.6
7.4

35.7

36.5

31.9

Other limitations can affect the total level—not just the composition—of obligations and spending. They are used to control funds
that would otherwise become available under relatively broad authority provided in substantive law without further action by the
Congress in an appropriations act. In most cases these limitations
apply either (1) to trust fund activities, which are normally financed 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.
For many trust funds, all income of the fund automatically becomes 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.
Under the credit control system, limitations on Federal direct
loan obligations and guaranteed loan commitments, most of which
are financed by revolving funds, are the principal 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 default.
In addition to credit activities, certain other Federal activities
are also constrained through the use of limitations (e.g., on the
obligations level or the program level of the activity). 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
2
The credit control system is discussed further in Part 6b of this volume, "Federal Credit," and in Special
Analysis F, "Federal Credit Programs," in Special Analyses, Budget of the United States Government, Fiscal
Year 1989.




6d-6

THE BUDGET FOR FISCAL YEAR 1989

agencies' ability to obligate the Federal Government to make payments. Non-loan, business-type activities controlled through limitations include the Federal buildings fund, which is controlled
through limitations on the use of offsetting collections.
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 Government that result in spending similar to budget outlays. These
activities, nevertheless, channel economic resources toward particular uses in ways that are the same or analogous to the effects of
budget spending.
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. The
first section below discusses the off-budget Federal entities.
This is followed by a discussion of fiscal activities that are outside 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 regulation 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. Governmentsponsored enterprises and loan guarantees are discussed in Part 6b,
of this volume, "Federal Credit/' together with Federal direct
loans. The discussion of Government-sponsored enterprises includes
several enterprises that have been created in the last three years
and have not formally been classified as Government-sponsored
enterprises until this budget. Part 6b also discusses the Administration's proposal for credit reform, which would make budgetary
accounting for loan guarantees and direct loans more comparable
with budgetary accounting 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




PERSPECTIVES ON THE BUDGET

6d-7

for the budget to include all of the Government's fiscal transactions with the public. Starting in 1971, however, various laws were
enacted under which several Federal entities were removed from
the budget or created outside the budget. Other laws 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 controlled, 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 Control 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 Federal receipts, outlays, and deficit. Other tables include the on-budget
and off-budget amounts only in combination in order to concentrate 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 security. The Social Security Amendments of 1983 had already required
that beginning in 1993 the old-age and survivors insurance trust
fund (OASI), the disability insurance trust fund (DI), and the hospital insurance trust fund (HI) would be excluded from the budget.
The Gramm-Rudman-Hollings Act required 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 included in calculating the deficit targets. In order to provide consist3
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 1989, Part I.
5
The Board of Governors of the Federal Reserve System is a Federal organization. It is excluded from the
budget and from this discussion. 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 6e of this volume, "The Budget System and
Concepts."




6d-8

THE BUDGET FOR FISCAL YEAR 1989
COMPARISON OF TOTAL, ON-BUDGET, AND OFF-BUDGET TRANSACTIONS

l

(In billions of dollars)
Receipts
Fiscal year

Total

On-

Outlays
Offbudget

Total

Onbudget

Surplus or deficit ( - )
Offbudget

Total

On-budget

Offbudget

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

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

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

1975..
1976..
TQ
1977..
1978..
1979..

279.1
298.1
81.2
355.6
399.6
463.3

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

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

1980....
1981....
1982....
1983....
1984...

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

590.9
678.2
745.7
808.3
851.8

476.6
543.0
594.3
661.2
686.0

114.3 - 7 3 . 8 - 7 2 . 7
135.2 - 7 8 . 9 - 7 3 . 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

1985
1986
1987
1988 est...
1989 est...

734.1
769.1
854.1
909.2
964.7

547.9
568.9
640.7
669.3
706.2

186.2
200.2
213.4
239.9
258.5

946.3
990.3
1,004.6
1,055.9
1,094.2

769.5
806.8
810.8
852.8
880.9

176.8
183.5
193.8
203.1
213.3

-221.6
-237.9
-170.0
-183.5
-174.7

9.4
16.7
19.6
36.8
45.1

1,044.1
1,124.4
1,189.9
1,258.1

761.7
818.5
865.0
911.3

282.4
306.0
324.9
346.7

1,148.3 924.2
1,203.7 967.6
1,241.0 996.0
1,281.3 1,027.5

224.1 -104.2 -162.5
236.1 - 7 9 . 3 -149.1
245.0 -51.1 -131.0
253.8 - 2 3 . 3 -116.2

58.3
69.9
79.9
92.9

1990 est

1991 est
1992 est
1993 est
1

-212.3
-221.2
-150.4
-146.7
-129.5

The division of transactions between on-budget and off-budget is based for all years on the current definition of off-budget Federal entities.

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. The transactions of HI are shown for the present
as on-budget amounts.
The table above compares the total Federal Government receipts,
outlays, and deficit with the amounts that are on-budget and offbudget (i.e., OASI and DI). In 1989 the off-budget receipts are an
estimated 27 percent of total receipts, and the off-budget outlays
are an estimated 19 percent of total outlays. The off-budget surplus
of $45.1 billion is significant relative to the on-budget deficit of
$174.7 billion. As shown in the 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
1993. The off-budget entities in total had deficits during 1976-82,
but because of the Social Security Amendments of 1983 and an




PERSPECTIVES ON THE BUDGET

6d-9

expanding economy they have had surpluses beginning in 1983 and
are estimated to have growing surpluses through 1993.

Taxation and Tax Expenditures.—Taxation provides the Government 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
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 expenditures" and receive special attention in the budget. Tax expenditures 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 Congressional 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 targetted objectives as other instruments of Government
policy, such as loan guarantees, regulations, and general provisions
of the tax law. There are numerous examples of the similarity in
objective between tax expenditures 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. State and local
governments benefit both from direct grants and from the ability
to borrow funds at tax-exempt rates. Individuals benefit both from
social security payments and from the exemption of most of these
payments from tax.
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 programs, such as social security, which do not require annual appropriations. However, tax expenditures as well as other parts of the
tax law are generally reviewed whenever fiscal policy decisions are
considered regarding the overall level of tax receipts. As described




6d-10

THE BUDGET FOR FISCAL YEAR 1989

in Part 4 of this volume, "Federal Receipts by Source," several
major tax laws have been adopted since 1981. Most recently the
Tax Reform Act of 1986, which was enacted after a comprehensive
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. By definition, characteristics
of the tax structure included in the baseline do not give rise to tax
expenditures; deviations of the law from this baseline are deemed
to cause tax expenditures. The Congressional 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 income
tax, the baseline includes 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 deductions, and basic accounting rules. The use of
many of the general provisions of the Internal Revenue Code for
defining this baseline tax structure 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 baseline, the list of tax expenditures is different and the amounts of particular tax expenditures
may also be different.
Alternative baselines might be used. In particular, a baseline tax
structure might reflect a truly comprehensive 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 corporation income taxes rather
than regard the separate tax treatment of individuals and corporations as part of the baseline tax structure; would include imputed
income, such as the consumption benefit received from owneroccupied 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, because these deviations from the comprehensive
baseline raise the amount of taxes paid. Therefore, under such a
baseline structure, the list of tax expenditures and their estimated
amounts would be different from what they are now.




PERSPECTIVES ON THE BUDGET

6d-ll

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 general provisions of tax law may be alternative means of achieving the same
targetted objectives or analogous objectives as tax expenditures
achieve. For example, investment in equipment may be stimulated
by either an investment tax credit or a decrease in the corporation
income tax rate; the former causes a tax expenditure, but the
latter does 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 provides (and thereby also to provide an equal incentive). In many
cases the required outlays are greater than the revenue loss, because taxpayers would have to pay taxes on the higher income
derived from the outlays. For example, one tax expenditure provision 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 Government were to use taxable direct expenditures rather than tax
expenditures and were to provide the same total after-tax compensation, 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 expenditures, 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




6d-12

THE BUDGET FOR FISCAL YEAR 1989

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 provision 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 decreased 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 calculations 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 personal 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. Consequently, 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 of this volume, "Federal Programs by Function," discusses the
major tax expenditures in each functional category, together with
outlays and loan guarantees, in order to describe more fully the
Government's policy. Special Analysis G, "Tax Expenditures," analyzes the concept and measurement of tax expenditures and presents a complete list of tax expenditure estimates for 1987-89.
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
repealed or directly reduced tax expenditures. For example, the
investment tax credit was repealed, the personal deduction for
sales taxes was eliminated, the personal deduction for interest on
consumer credit was phased-out, the exclusion of contributions to
individual retirement accounts (IRAs) was restricted, all of longterm realized capital gains were included in income, and the deductibility of passive business losses was limited. The Act also
changed provisions of law other than tax expenditures, notably by
decreasing the individual 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.




PERSPECTIVES ON THE BUDGET

6d-13

Some minor changes in tax expenditures were enacted by the
Omnibus Budget Reconciliation Act of 1987. In the present budget,
as explained in Part 4, the Administration is proposing several tax
changes. Some are tax expenditures, such as enhancing the research and experimentation credit and making the credit permanent. Another tax expenditure would exempt from taxation, subject to certain limitations, the interest earned on savings bonds if
the proceeds are used for post-secondary education.
Regulation.—Federal regulations provide a large variety of goods
and services to the public, including the protection of the environment, 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 examples 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 product use. Economic regulation directly controls prices and market
entry for objectives such as to promote competition and curb monopolistic behavior. In the last ten years the scope of economic
regulation at 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 conditions for the efficient and proper use of Government
funds and property and ranges from the terms for procurement of
Government purchases to the Federal tax code.
Social regulation differs from the other Federal activities outside
the budget—from loan guarantees and tax expenditures, in particular, and also from the other forms of regulation—by directly requiring expenditures for specific public purposes rather than inducing 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 expenditures required by regulation (e.g., for pollution control) by borrowing, increasing prices, reducing other expenditures, or reducing
dividends. These, of course, are the same ways firms finance taxes
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). For a more up-to-date review of airline
deregulation, see chapter 6, "Airline Deregulation," of the Economic Report of the President (February 1988).




6d-14

THE BUDGET FOR FISCAL YEAR 1989

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 economic resources are also similar to the effects of budget outlays.
Most fundamentally, both social regulation and budget outlays
divert private resources 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 guarantees. 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 amortization of their capital costs for determining their Federal income tax; 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 efficiency 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 estimates of these expenditures have been made by adding up estimates of the costs of individual regulations made by various researchers, who often use different methods, assumptions, and time
periods. Not surprisingly, these estimates show considerable variation. 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 programs. 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




PERSPECTIVES ON THE BUDGET

6d-15

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 Management 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
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 in August 1985 and the
most recent in June 1987.
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 Congress 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 decisions, 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, members of Congress and the past two Administrations have considered
developing an accounting framework to track those expenditures
that are directly required by regulation. This framework, however,




6d-16

THE BUDGET FOR FISCAL YEAR 1989

is still in the proposal stage, and more work needs to be done to
solve the practical accounting problems inherent in measuring private expenditures required by Federal regulation.
One practical problem is that in order to get accurate expenditure figures it might be necessary to ask private firms and individuals to keep records, which would not necessarily be accurate and
could create a considerable and expensive 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 production. Since this indirect cost is not directly measurable, and can
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 expenditure costs of regulation for use in an oversight program may create
a bias toward banning substances and products rather than controlling them, since banning a product, service, or manufacturing
process mainly gives rise to indirect costs. These practical problems
must be addressed in developing an accounting system for measuring the aggregate impacts of regulation.
One way to address these problems is to begin implementation of
a system that makes use of such information. In fact, both the
fiscal budgetary process for outlays and receipts and the information collection budget evolved in this fashion. As the budgetary
process evolved from the Treasury Act of 1789, the accounting
concepts used for Government outlays and receipts were continually refined. It was not until the Budget and Accounting Act of 1921,
however, that a comprehensive Federal budget system was establised. This Act established the institutional framework for the
President to prepare a budget for the United States Government as
a whole. The new framework included the Bureau of the Budget to
assist the President in the preparation of the budget and the
General Accounting Office to assist the Congress in carrying out its




PERSPECTIVES ON THE BUDGET

6d-17

legislative and oversight responsibilities. Since 1921 the accounting
principles and standards for the budget have continued to change
as a result of both executive and legislative action.
In a similar manner, the information collection budget evolved
over time with refinements to its accounting and estimation procedures and with more centralized and comprehensive controls. The
Federal Reports Act of 1942 first set the requirement for agencies
to measure and control their paperwork burdens. Executive Order
12174, "Paperwork," issued November 30, 1979, required agencies
to plan and budget total paperwork reporting requirements in a
manner analogous to fiscal resources. The Paperwork Reduction
Act of 1980 directed the Office of Management and Budget to
establish general policies and procedures for controlling information collections, and to report to Congress each year the estimated
"burden hours" imposed by each Federal agency. That Act and
subsequently a 1986 amendment set paperwork burden reduction
goals. Over the last eight years of administering the information
collection budget, the paperwork coverage and the estimates of the
paperwork burden have substantially improved.
In the regulatory cost area, requirements similar to the early
fragmented requirements for the fiscal budget and the paperwork
burden estimates have been in existence since 1974. In that year
President Ford issued Executive Order 11821, requiring agencies to
prepare cost impact statements for their major regulations. These
requirements were extended, refined, and tightened by various Executive Orders issued by both President Carter and President
Reagan. As mentioned above, agencies are now required to list all
significant regulatory activities in the Regulatory Program of the
United States Government, but they are not required to estimate
the cost impacts except for certain "major" regulations.
A proposal of regulatory cost estimates for all new and proposed
regulations and all proposed legislation was contained in the Economic Bill of Rights issued by the President on July 3, 1987. It
would require that every new or proposed regulation and every
piece of proposed legislation be accompanied by a "financial impact
statement" evaluating the costs to the general economy and consumers, the effect on employment, and the ability of U.S. industries to compete internationally. Making these estimates available
to the public for comment and criticism would improve decision
making with regard to regulations and legislation. It would also be
a valuable first step in developing a consensus as to the proper
general accounting conventions and the validity of specific estimation methods.
One approach to developing a practical accounting scheme that
would follow the models of the development of the fiscal budget
and the information collection budget would be to require a "regu-




6d-18

THE BUDGET FOR FISCAL YEAR 1989

latory cost ceiling" in any new legislation that imposes private
sector costs. Under this scheme, each new statute would include a
ceiling on the total private sector costs that agencies could impose
in implementing the statute. Agencies would then keep track of
the estimated costs imposed by the regulations. Once the statutory
ceiling was reached, new regulations would require either additional legislation to raise the ceiling or offsetting changes in other
regulations that would keep total private sector regulatory costs
within the ceiling.
This regulatory cost ceiling system would give Congress and the
agencies even more incentive to make accurate estimates of the
likely costs of regulation than simply requiring financial impact
estimates of the proposal. Regulatory cost ceilings that were excessively low would frustrate the purpose of the statute because agencies could not issue implementing regulations. Although Congress
might be tempted to authorize excessively generous amounts, it
would have to declare itself willing to impose a specific level of
costs on the public. Moreover, Congressional estimates would have
a real effect on agency decision making, and would give agencies
strong incentives to choose regulatory approaches that would
produce benefits at the least possible cost.
This approach still shares some of the drawbacks mentioned
above. Agencies would have incentives to underestimate regulatory
costs and to regulate in ways that impose unmeasurable or difficult
to measure costs, such as banning products or production processes.
However, regulatory cost ceilings would provide more information
on the costs of regulation to the public and would internalize more
regulatory costs to the political process of regulation setting. The
bias toward certain types of regulatory intervention and the tendency toward agency underestimation of costs are problems that,
although they remain to be solved, are not unlike those still faced
in the fiscal budgetary process.

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 benefits. The social security trust funds (old-age and survivors insurance 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




6d-19

PERSPECTIVES ON THE BUDGET

this 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 also shown in this table, to arrive at the total receipts,
outlays, and deficit of the Federal Government. These latter totals
for receipts and outlays generally represent the net transactions of
the Federal Government with the public.8
TRANSACTIONS BY FUND GROUP
(In billions of dollars)

Receipts:
On-budget:
Federal funds
Trust funds
Interfund transactions
Total, on-budget receipts
Off-budget (trust funds)
Total, Federal Government receipts
Outlays:
On-budget:
Federal funds
Trust funds
Interfund transactions
Total, on-budget outlays
Off-budget (trust funds)
Total, Federal Government outlays
Surplus or deficit ( - ) :
On-budget:
Federal funds
Trust funds

1987
actual

1988
estimate

1989
estimate

1990
estimate

1991
estimate

537.8
216.6
-113.7

560.8
231.5
-123.0

593.2
247.9
-134.9

644.8
261.4
-144.4

697.3
276.8
-155.6

640.7
213.4

669.3
239.9

706.2
258.5

761.7
282.4

818.5
306.0

854.1

909.2

964.7

1,044.1

1,124.4

760.9
163.6
-113.7

835.3
805.0
180.4
170.8
-123.0 -134.9

914.0
873.1
209.2
195.6
-144.4 -155.6

810.8
193.8

852.8
203.1

880.9
213.3

924.2
224.1

967.6
236.1

1,004.6

1,055.9

1,094.2

1,148.3

1,203.7

-223.1 -244.2
60.7
53.1

242.2
67.5

-228.3
65.8

-216.7
67.6

-170.0
19.6

-183.5
36.8

-174.7
45.1

-162.5
58.3

-149.1
69.9

Total, Federal Government surplus or deficit
(-)
-150.4

-146.7

-129.5

-104.2

-79.3

Total on-budget surplus or deficit (—)
Off-budget (trust funds)

Therefore, as shown in the table on the next page, the Federal
deficit or surplus is the principal determinant of the change in the
Federal debt held by the public.9 The Federal deficit, together with
the other factors noted in that table, is estimated to increase the
Federal debt held by the public by $127.2 billion in 1988 and $127.0
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 6g of this volume contains more detail on budget financing through 1993 and shows the
levels of debt from 1987 to 1993. 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 1989.




6d-20

THE BUDGET FOR FISCAL YEAR 1989

billion in 1989.10 These borrowing projections are based on deficits
that are consistent with the economic assumptions explained in
Part 3b of this volume.
Gross Federal debt is the sum of the debt held by the public and
the debt held by the Government itself, which includes such investments as the Treasury debt held by the social security, unemployment, and other trust funds. At the end of 1989 gross Federal debt
is estimated to be $2,825.3 billion, of which debt held by the Government itself is $673.2 billion and debt held by the public is
$2,152.1 billion. Thus, gross Federal debt is much larger than the
Federal debt held by the public.
FEDERAL GOVERNMENT FINANCING AND CHANGE IN DEBT OUTSTANDING1
(In billions of dollars)
Description
Surplus or deficit ( - )
On-budget

Off-budget

1987 actual

1988 estimate

1989 estimate

1990 estimate

1991 estimate

-150.4
(-170.0)
(19.6)

-146.7
(-183.5)
(36.8)

-129.5
(-174.7)
(45.1)

(

-104.2
162.5)
(58.3)

-79.3
(-149.1)
(69.9)

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
Proceeds from the sale of loan assets
with recourse

-5.1

16.4

5.2
-1.8
0.5

2.3
-0.3
0.4

2.6
-0.9
0.5

0.7

0.3

0.6

0.6

Total, means of financing other
than borrowing from the public

-1.3

19.5

2.5

0.6

0.6

Total, requirements for borrowing
from the public

-151.7

-127.2

-127.0

-103.6

-78.7

151.7

127.2

127.0

103.6

78.7

1.0
55.1

-0.1
63.4

5.7
66.8

65.8

67.6

20.3
2.8

36.1
0.3

45.1
-0.9

58.3

69.9

73.5

99.0

116.7

124.1

137.5

225.2

226.3

243.7

227.7

216.1

Change in debt held by the public

Change in Federal debt held by Government accounts:
Federal funds.
Trust funds (on-budget) 2
Off-budget Federal entities (trust
funds) 3
Deposit funds 4
Total, change in Federal debt
held by Government accounts....
Change in gross Federal debt

*$50 million or less.
1
Several amounts have been assumed to be zero in 1990-91 because they are usually small and cannot be estimated accurately.
2
Estimates for 1990 and 1991 are equal to the surplus of the trust funds on-budget.
3
Estimates for 1990 and 1991 are equal to the surplus of the trust funds off-budget.
4
Only those deposit funds classified as Government accounts.
10
Some of the previously published data on borrowing and debt have been revised. These changes are
discussed in Special Analysis E.




6d-21

PERSPECTIVES ON THE BUDGET

Gross Federal debt is estimated to rise by $243.7 billion during
1989. As indicated in the lower section of the previous table, $116.7
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 1987 the public held $5.0
billion of agency debt, most of which was issued some years ago by
agencies that no longer borrow or that borrow only from the Federal Financing Bank (FFB). The FFB finances its purchases of agency
debt mostly by borrowing from the Treasury, which in turn borrows 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. For example, the
Federal Deposit Insurance Corporation and the Federal Savings
and Loan Insurance Corporation may issue notes as parts of some
agreements to resolve the financial problems of troubled banks and
thrift institutions. The issuance of these notes is an outlay and a
borrowing.11
FEDERAL FUNDS FINANCING AND CHANGE IN DEBT SUBJECT TO LIMIT
(In billions of dollars)
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
Proceeds from the sale of loan assets with recourse
Total, means of financing other than borrowing
Decrease or increase ( - ) in Federal debt held by Federal funds and
deposit funds *
Increase or decrease ( - ) in Federal funds debt not subject to limit
Total, requirements for borrowing subject to debt limit

1987
actual

1988
estimate

1989
estimate

-223.1

-244.2

-242.2

-5.1

16.4

2.5
-1.8
0.5

0.3
-0.3
0.4
0.7

3.3
-0.9
0.5
0.3

-3.9

17.5

3.2

1.8
0.2

0.4
-1.8

-4.8
-3.6

-225.0

-228.0

-247.4

7.9
225.0

235.9

-0.2
247.2

Increase or decrease ( — ) in unamortized discount on zero-coupon
bonds
Change in debt subject to limit
*$50
million or less.
1
Only those deposit funds classified as Government accounts.
11

This type of transaction is discussed more fully in Special Analysis E, "Borrowing and Debt."




6d-22

THE BUDGET FOR FISCAL YEAR 1989

Almost all Treasury securities are covered by a general statutory
debt limitation. The present limit is $2,800 billion. The debt subject
to limit is estimated to rise to $2,572.0 billion by the end of 1988
and $2,819.1 billion by the end of 1989. Therefore, in order to
permit the Federal Government to meet its obligations, the limit
will have to be raised during 1989.
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 Federal funds deficit must be financed primarily by issuing debt. This
debt is almost entirely subject to the statutory limit. As shown in
the previous table, the estimated Federal funds deficit is $242.4
billion in 1989, and the estimated increase in debt subject to statutory limit is $247.2 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 1987

The following sections compare the actual 1987 receipts, outlays,
and deficit with the amounts estimated in the 1987 budget, which
was transmitted to the Congress in February 1986 for the fiscal
year ending on September 30, 1987.
Comparison of Receipts.—Receipts in 1987 were $854.1 billion,
which is $3.8 billion greater than the February 1986 estimate of
$850.4 billion. This was the net effect of differences in tax law from
the legislation proposed in the 1987 budget, lower than anticipated
incomes, and different collection patterns and effective tax rates
than had been assumed.
Differences in tax law from the legislation proposed in the
budget increased 1987 receipts by $21.4 billion. These legislative
differences consisted of congressional inaction on, or modification
of, the proposals in the 1987 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
1987 budget. Other proposed changes included incentives for higher
education, a tuition tax credit, an increase in contributions to civil
service retirement, extension of the 16 cent per pack excise tax on
cigarettes, the reauthorization and expansion of taxes used to fi-




6d-23

PERSPECTIVES ON THE BUDGET
COMPARISON OF ACTUAL 1987 RECEIPTS WITH THE FEBRUARY 1986 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
1986
estimate

Differences
in tax law
from 1986
proposals

386.0
86.7
302.8
35.2
5.7
12.9
21.1

-6.8
28.8
-0.2
*

850.4

Different
economic
conditions

Technical
factors

-0.3
0.7
-0.9

-21.9
-3.7
-2.9
-0.5
0.8
-2.4

13.3
-9.8
4.4
0.2
2.6
0.6
1.6

6.6
-2.8
0.5
-2.7
1.8
2.1
-1.7

392.6
83.9
303.3
32.5
7.5
15.1
19.3

21.4

-30.6

12.9

3.8

854.1

Net change

Actual

*$50 million or less.

nance the cleanup of hazardous waste sites, an IRS revenue initiative, and a speed-up in the deposit of social security payroll taxes
by State and local governments. The administration also expressed
support for enactment of tax reform legislation, but did not reflect
such legislation in the receipt estimates. Altogether, the February
1986 proposals were estimated to increase 1987 receipts by $6.9
billion.
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 provisions of this
Act, which broadened the individual and corporation income tax
bases and substantially lowered individual and corporation income
tax rates, increased 1987 receipts by $21.5 billion. Other major laws
enacted during 1986 affecting 1987 receipts include 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. Several of the provisions of these Acts were modifications of the 1987
budget proposals, but others, such as the extension of medicare
coverage to State and local government employees hired after
March 31, 1986, had not been proposed by the administration.
These Acts, together with several minor legislative changes and
administrative actions, increased 1987 receipts by $6.8 billion. Legislated changes and administrative actions therefore increased 1987
receipts by $28.3 billion, which is $21.4 billion more than the
administration had proposed.
Differences between the actual economic outcome and that assumed in the economic assumptions upon which the original receipts estimates were made—primarily incomes and oil prices that
proved to be lower than anticipated—accounted for a net decrease




6d-24

THE BUDGET FOR FISCAL YEAR 1989

in receipts of $30.6 billion.12 The greatest effect was on corporation
income taxes, which were $21.9 billion below the budget estimate
because of substantially lower corporate profits than had been
assumed. Social insurance taxes and contributions were below the
budget estimate by $3.7 billion due to lower than expected wages
and salaries and self-employment earnings. Declining oil prices,
which reduced collections of the windfall profit tax, were primarily
responsible for the decline in excise taxes of $2.9 billion. Higher
than expected imports increased customs duties by $0.8 billion, and
lower than anticipated interest rates reduced deposits of earnings
by the Federal Reserve System, which are classified as miscellaneous receipts, by $2.4 billion.
Collection patterns and effective tax rates that differed from
those that had been assumed in February 1986—attributable in
large part to greater than expected capital gains on the sale of
stock and the requirement that individuals file revised individual
income tax withholding forms with their employers by October 1,
1987—increased collections of individual income taxes by $13.3 billion. Changes in the timing of estimated tax payments by corporations, primarily in response to the changes provided in the Tax
Reform Act of 1986, and different effective tax rates than had been
assumed, reduced collections of corporation income taxes by $9.8
billion. A large part of the $4.4 billion increase in social insurance
taxes and contributions reflected higher than anticipated deposits
of State taxes in the unemployment insurance trust fund and a
higher effective social security payroll tax rate on self-employment
earnings. Technical factors, including greater capital gains on foreign security holdings by the Federal Reserve and on holdings of
stocks by deceased individuals, increased other sources of receipts
by $5.0 billion.
Comparison of Outlays.—Outlays for 1987 were $1,004.6 billion,
which is $10.6 billion higher than the initial estimate made by the
Administration in its budget transmitted to Congress in February
1986. 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 1.1 percent above the initial estimate. Actual outlays
for defense were almost exactly the same as the initial estimate,
while outlays for nondefense programs were 1.5 percent higher.
Chronology of the outlay increase.—The Administration's initial
estimate for outlays for 1987 was $994.0 billion. The table
shows subsequent revisions to this estimate. In August 1986, the
estimate was decreased by $18.9 billion. The major decreases were
12
Under the economic forecast developed by the administration six months later, receipts were revised
downward by $19.7 billion.




6d-25

PERSPECTIVES ON THE BUDGET
1987 OUTLAY DIFFERENCES
(Dollars in billions)
February 1986
estimate

Total outlays
National defense
Nondefense
Total outlays as a percent of GNP

994.0
(282.2)
(711.8)
21.9

Actual

1,004.6
(282.0)
(724.0)
22.8

Percent change

1.1
(-0.1)
(1.5)
4.0

for net interest, largely due to lower than expected interest rates,
and for social security and medicare, due to lower than expected
inflation. The estimate was increased by $40.5 billion in the budget
in January 1987. The largest increases were for farm price supports and for technical reestimates of the Federal Deposit Insurance Corporation and the Federal Savings and Loan Insurance
Corporation. The outlay estimate was increased slightly in August
1987, as a result of many increases and decreases. The actual
amount at the end of the year was $1,004.6 billion, which was $12.3
billion lower than the August estimate. This decrease was primarily the result of estimating differences across many programs.
CHRONOLOGY OF THE 1987 OUTLAY INCREASE
(In billions of dollars)

February 1986 estimate (1987 Budget)

994.0

Changes from previous estimate:
August 1986 (Mid-Session Review): The major changes were decreases for net interest ($9.0
billion), social security ($4.7 billion), medicare ($3.1 billion), international affairs ($2.8 billion),
and farm price supports ($1.8 billion), partially offset by increases for civilian retirement and
disability ($1.3 billion), and rents and royalties on the Outer Continental Shelf ($1.1 billlion),
-18.9
January 1987 (1988 Budget): The major increases were for farm price supports ($10.9 billion), the
Federal Deposit Insurance Corporation ($5.9 billion), the Federal Savings and Loan Insurance
Corporation ($3.3 billion), medicare ($4.5 billion), other health programs ($3.7 billion), and
income security programs ($4.2 billion)
40.5
August 1987 (Mid-Session Review): The major changes were increases for net interest ($2.2
billion), medicare ($2.0 billion), mortgage credit (largely FHA) ($1.3 billion), and medicaid
($1.0 billion), partially offset by decreases for the Federal Deposit Insurance Corporation ($3.3
billion) and farm price supports ($2.1 billion)
1.3
September 30, 1987: The major changes were decreases for the Federal Deposit Insurance
Corporation ($2.2 billion), international affairs ($1.9 billion), agriculture programs ($1.6 billion),
and transportation ($1.4 billion), partially offset by an increase for medicare ($1.5 billion)
-12.3
Total increase
Actual

10.6
1,004.6

Major causes of the increase,—The following table distributes the
$10.6 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.




6d-26

THE BUDGET FOR FISCAL YEAR 1989
SUMMARY OF REASONS FOR DIFFERENCE IN 1987 OUTLAYS
(In billions of dollars)
Total

Reasons for difference (net):
Policy changes
Economic conditions
Estimating differences and other changes..
Total

19.0
14.3
5.8
10.6

Policy changes to the 1987 budget proposals were a result of
revised Administration proposals and congressional action that differed from the initial Administration request. The net effect of all
policy changes was a $19.0 billion increase in outlays. Outlays for
national defense programs were $6.9 billion lower than proposed
due to policy changes, because of lower defense appropriations than
requested by the Administration. Outlays for nondefense programs
were $26.0 billion higher. This pattern of decreased defense outlays
and increased nondefense outlays due to policy changes also occurred for budget proposals in the five previous years.
Outlays for nondefense discretionary programs (i.e., programs
generally subject to control by annual appropriations) were $8.3
billion above the Administration's original request for policy reasons. This includes increases in regular and supplemental appropriations bills above what the Administration had originally requested.
Outlays for benefit payments for individuals were $12.1 billion
above the Administration's proposals due to policy changes. The
major change was in medicare. The medicare reforms enacted by
the Congress saved $3.9 billion less than the reforms proposed by
the Administration. Another important change was the cost-ofliving adjustment (COLA) override for social security and related
programs, which increased outlays $1.3 billion. The override was
enacted in 1986 when inflation fell below 3.0 percent, which was
the threshold that had to be exceeded under previous law before
social security or related COLAs could occur. The remaining policy
increases for benefit payments for individuals were mostly due to
the failure to enact proposed Administration reforms for medicaid,
military and civilian retirement, aid to families with dependent
children, and related benefit programs.
Policy changes for other mandatory programs increased nondefense outlays by $6.8 billion. Most of this increase, $5.6 billion,
was for advanced deficiency payments for farm price supports.
Policy differences affecting collections that offset outlays decreased net outlays by $2.4 billion. Collections from loan asset sales
were larger than originally proposed, thus reducing outlays by $3.6




6d-27

PERSPECTIVES ON THE BUDGET

billion. This was partly offset by congressional unwillingness to
enact most of the user fees proposed by the Administration.
The remaining increase for nondefense policy outlays, $1.1 billion, is the effect of policy changes for outlays and receipts on net
interest.
Economic conditions differed from those forecast in February
1986 as shown in the following table. Growth in real GNP fell short
of the growth projected by 1.8 percentage points in 1986 and 0.2
percentage points in 1987. Inflation, as measured by both the GNP
deflator and the Consumer Price Index, was lower than projected
for 1986. For 1987, the GNP deflator was lower than projected, but
the CPI was higher. The total unemployment rate was 0.2 percentage points higher than anticipated in 1986 but 0.4 percentage
points lower for 1987. Interest rates, as measured by the 91-day
Treasury bill rate, were 1.3 percentage points lower than projected
in 1986 and 0.7 percentage points lower in 1987.
COMPARISON OF FEBRUARY 1986 ECONOMIC FORECAST AND ACTUAL ECONOMIC PERFORMANCE
(Calendar years)
February 1986
estimate
1986

Percent change:
GNP (constant dollars): 4th quarter over 4th
quarter
Inflation (4th quarter over 4th quarter):
GNP deflator
Consumer Price Index (CPI)
Total unemployment rate (annual average)
Interest rate (91-day bills, annual average)

Actual

1987

1986

Difference
1987

1986

1987

4.0

4.0

2.2

3.8

-1.8

-0.2

3.8
3.7
6.7
7.3

4.1
4.1
6.5
6.5

2.2
0.9
6.9
6.0

3.3
4.6
6.1
5.8

-1.6
-2.8
0.2
-1.3

-0.8
0.5
-0.4
-0.7

The difference between the economic forecast and economic performance resulted in a net outlay decrease of $14.3 billion for 1987.
Most of this estimate, $12.7 billion, was revised in the forecast in
the 1987 Mid-Session Review in August 1986, before fiscal year
1987 began. The revised economic forecast at that time projected
outlays that differed for economic reasons from the final outcome
by about $1.6 billion. Estimates of the major components of the
$14.3 billion decrease are shown in the following table. Although
the total unemployment rate was slightly lower than forecast for
the fiscal year, weekly benefit amounts were higher than expected,
which increased unemployment compensation outlays by $0.5 billion. Lower inflation reduced outlays by $5.9 billion primarily due
to social security. Outlays decreased by $11.4 billion due to interest
differences. Net interest outlays decreased $12.3 billion due to
lower interest rates. This was offset to a small extent by increases
in borrowing requirements due to economic conditions, because the




6d-28

THE BUDGET FOR FISCAL YEAR 1989

EFFECT OF DIFFERENCES BETWEEN ESTIMATED AND ACTUAL ECONOMIC CONDITIONS ON 1987
OUTLAYS
(In billions of dollars)

Unemployment assumptions (unemployment compensation)
Price differences:
Cost of living adjustments:
Social security
Other
Medical prices:
Medicare and medicaid
Other changes
Subtotal, price differences
Interest differences:
Net interest:
Interest rates
Differences in borrowing *
Other
Subtotal, interest differences
Offsetting receipts from the Outer Continental Shelf
Total
1

0.5
-4.8
-0.4
-1.1
0.4
-5.9

-12.3
1.3
-0.4
-11.4
2L5
-14.3

Includes only the effect of differences in borrowing associated with differences in economic conditions for receipts and outlays.

differences in economic conditions reduced receipts by more than
they reduced outlays.
Estimating differences and other changes account for a net $5.8
billion increase in 1987 outlays. A decrease of $8.5 billion for nondefense discretionary programs was more than offset by increases
for national defense ($6.7 billion) and mandatory programs ($7.2
billion). (Mandatory programs are mostly formula benefit programs
not normally controlled by annual appropriations.) The largest
mandatory program increases were for the Federal Savings and
Loan Insurance Corporation Fund ($4.3 billion), medicare and medicaid ($3.3 billion), and farm price support programs ($0.6 billion).
In addition, an increase of $0.7 billion is the result of removing the
receipts and disbursements of the Thrift Savings Fund from the
budget and placing them in a non-budgetary status. These funds
are owned by the individuals who contribute to the fund, not by
the Federal Government.
Comparison of the Deficit—The preceding two sections discuss
the differences between the February 1986 budget estimates and
the actual amounts of Federal Government receipts and outlays in
1987. This section summarizes the net impact of these differences
on the deficit.
The deficit for 1987 was originally estimated to be $143.6 billion;
the actual deficit was $150.4 billion, a $6.8 billion increase. The
following table shows the approximate distribution of this differ-




PERSPECTIVES ON THE BUDGET

6d-29

ence according to three categories: (1) policy; (2) economic conditions that were different from the original forecast; and (3) estimating and other technical differences. Each category is subdivided to
show the impact of receipts compared to outlays. An increase in
outlays is shown as negative because it increases the deficit, while
an increase in receipts is shown as positive because it reduces the
deficit.
SUMMARY OF REASONS FOR CHANGES IN THE 1987 DEFICIT
(In billions of dollars)
Total

February 1986 estimate of the 1987 deficit..
Changes:
Policy:
Receipts increase ..
Outlay increase
Subtotal, decrease in deficit due to policyEconomic conditions:
Receipts decrease
Outlay decrease
Subtotal, increase in deficit due to economic conditions.
Estimating and other differences:
Receipts increase
Outlay increase
Subtotal, decrease in deficit due to estimating and other differences.,
Total, net increase in deficit
Actual deficit
Recapitulation:
February 1986 estimate of 1987 deficit..
Net effect of higher receipts
Net effect of higher outlays
Actual 1987 deficit..

-143.6

21.4
-19.0
2.4
-30.6
14.3
-16.3
12.9
-5.8
7.1
-6.8
-150.4
-143.6
3.8
-10.6
-150.4

Note: Outlay increases and receipt decreases are shown as negative because they increase the deficit.

The actual deficit was quite close to the initial estimate due to
relatively small net increases in both receipts and outlays. These
net increases, however, were the result of relatively large offsetting
changes for policy, economic, and other reasons.
Policy changes decreased the deficit by $2.4 billion. Receipts
increased $21.4 billion, mostly due to enactment of the Tax Reform
Act of 1986, and outlays increased $19.0 billion. Tax reform was
part of Administration policy, but estimates were not reflected in
the 1987 budget. Changes in economic conditions account for a
$16.3 billion increase in the deficit, largely due to a loss of receipts
of $30.6 billion because of lower than expected incomes. This was
only partially offset by a decrease in outlays, largely due to lower
interest rates and inflation than originally projected. Estimating




6d-30

THE BUDGET FOR FISCAL YEAR 1989

and other differences decreased the actual deficit $7.1 billion from
the original estimate.
COMPARISON OF THE ACTUAL AND ESTIMATED
RELATIVELY UNCONTROLLABLE OUTLAYS FOR 1987

Outlays in any one year are considered to be relatively uncontrollable 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 outlays are generally mandated by law; and (2) payments from prioryear contracts and obligations, for which outlays are required because 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).
A number of factors may cause differences between the amounts
estimated in the budget and the actual outlays. For example, legislation 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 assumed in making the estimates.
The following table shows the differences between actual outlays
for relatively uncontrollable programs in 1987 and the amounts
originally estimated in the 1987 budget in February 1986. The list
of programs is the same as in Table 16 (Controllability of Outlays)
in Part 6g of this volume. Actual outlays for relatively uncontrollable programs in 1987 were $769.3 billion, which is $5.9 billion or 0.8
percent more than the initial estimate of $763.4 billion based on
existing law in February 1986. Outlays for open-ended programs
and fixed costs were $5.6 billion more than the initial estimate, and
outlays from prior-year contracts and obligations were $0.3 billion
more than the initial estimate.
Payments for individuals, which are essentially income transfers,
were 72 percent of all open-ended programs and fixed costs in 1987.
Actual outlays for these payments were $0.8 billion higher than
originally estimated. This increase was the net effect of legislative
action, differences between actual and assumed economic conditions, differences between the anticipated and actual number of
beneficiaries, and other technical differences.




6d-31

PERSPECTIVES ON THE BUDGET
RELATIVELY UNCONTROLLABLE OUTLAYS FOR 1987
(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 1986
estimate
(existing law)

Actual

Change

213.1
55.2
(18.5)
(36.7)
15.3
102.5
4.4
4.2
23.1
3.1

208.6
55.2
(18.1)
(37.1)
15.7
105.9
3.7
4.1
25.7
2.9

Subtotal, payments for individuals

420.9

421.7

0.8

Other open-ended programs and fixed costs:
Net interest
Farm price supports (CCC)
Other

147.3
16.3
-6.2

138.6
22.4
1.4

-8.7
6.1
7.5

Subtotal, other open-ended programs and fixed costs

157.5

162.3

4.9

Total, open-ended programs and fixed costs

578.4

584.0

5.6

106.7
78.3

112.7
72.5

6.0
-5.8

Total, outlays from prior-year contracts
and obligations

185.0

185.3

0.3

Total, relatively uncontrollable outlays

763.4

769.3

5.9

Outlays from prior-year contracts and obligations:
National defense
Nondefense

-4.4
*

(-0.4)
(0.4)
0.3
3.4
-0.8
-0.1
2.6
-0.2

*$50 million or less.

Outlays for social security and railroad retirement, the largest
category of payments for individuals, were $4.4 billion lower than
estimated, primarily because of 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 consumer price index. Total outlays were about the same as the
budget estimate of outlays under existing law.
Outlays for unemployment compensation programs were $0.3 billion above the initial estimate. This increase was largely the result
of higher weekly benefit amounts than had been estimated.
Outlays for medical care were $3.4 billion higher than originally
estimated. This category includes medicare and medicaid. Savings
enacted for medicare were more than offset by higher outlays as a
result of increased utilization of services and higher medical costs.




6d-32

THE BUDGET FOR FISCAL YEAR 1989

Assistance to students consists of GI bill benefits and the guaranteed student loan program. Outlays for these programs were $0.8
billion below the original estimate, in part due to lower than
expected interest rates for the guaranteed student loan program.
Food and nutrition assistance includes the child nutrition and
special milk programs. Outlays for these programs were about the
same as originally estimated.
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 $2.6 billion above the estimate.
Most of this increase was in family support payments to States,
which was a result of higher than estimated State caseload and
average benefit levels.
Relatively uncontrollable outlays for all other payments for individuals were not significantly different than originally estimated.
Open-ended programs and fixed costs other than payments for
individuals were $162.3 billion or 28 percent of all open-ended
programs and fixed costs in 1987. Outlays for net interest were $8.7
billion or 6 percent lower than the original estimate. This decrease
is primarily the effect of lower than expected interest rates. The
budget assumed a 6.8 percent interest rate on 91-day Treasury bills
for fiscal year 1987 whereas the actual rate averaged 5.7 percent,
more than a full percentage point lower.
Outlays for farm price supports (Commodity Credit Corporation)
were $6.1 billion above the initial current law estimate. This was
due to higher production, and increased farmer participation. The
remaining category increased $7.5 billion from the original estimate largely due to increased payments by the Federal Savings
and Loan Insurance Corporation to assist troubled savings and loan
institutions.
Outlays for prior-year contracts and obligations were $0.3 billion
above the initial estimate. Outlays for nondefense programs were
$5.8 billion lower than the initial estimate, and outlays for defense
programs were $6.0 billion higher.
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. In view of the recent decline in
oil prices, it is now expected that the net receipts from the Windfall Profit Tax will be zero for 1989.




PART 6e

THE BUDGET SYSTEM AND CONCEPTS
The budget system of the U.S. Government provides the framework 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 formulation and transmittal; (2) congressional action; and (3) budget execution 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 primary focus of the budget is on the
budget year—the next fiscal year for which the Congress needs to
make appropriations. However, the budget is developed in the context of a multi-year budget planning system that includes coverage
of the four years following the budget year in order 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.
The President transmits his budget to the Congress early in each
calendar year, eight to nine months before the budget fiscal year
begins on October first. The process of formulating the budget
begins not later than the spring of each year, at least nine months
before the budget is transmitted and at least eighteen months
before the budget fiscal year begins. For the 1989 budget, which is
being transmitted to the Congress in February of 1988, the process
began in the spring of 1987.
During the formulation of the budget, 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. Decisions concerning the upcoming budget are influenced
by the results of previously enacted budgets, including the one
being executed by the agencies, and reactions to the last proposed
budget, which is being considered by the Congress. Decisions are




6e-l

6e-2

THE BUDGET FOR FISCAL YEAR 1989

influenced also by projections of the economic outlook that are
prepared jointly by the Council of Economic Advisers, OMB, and
the Treasury.
The President establishes general budget and fiscal policy guidelines. Based on his decisions, OMB issues general policy directions
and planning ceilings to the agencies, both for the budget year and
for the following four years, to guide the preparation of their
budget requests.
Agency budget requests are submitted in September 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 explicitly taken into account, in the form of multi-year budget planning
estimates. Thus, the budget formulation process involves the simultaneous consideration of the resource needs of individual programs,
the total outlays and receipts that are appropriate in relation to
current and prospective economic conditions, and the requirements
of the Balanced Budget and Emergency Deficit Control Act of 1985
(Public Law 99-177).1
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.2 The current services estimates of budget authority 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 funding levels, eliminate programs, or add programs not requested by
the President. It can enact legislation affecting taxes and other
sources of receipts.
Prior to making appropriations, the Congress usually enacts legislation that authorizes an agency to carry out a particular program and, in some cases, includes limits on the amount that can be
appropriated for the program. Some programs require annual authorizing legislation. Others are authorized for a specified number
of years or indefinitely.
In making appropriations, the Congress does not vote on the
level of outlays directly, but rather on budget authority or other
authority to incur obligations that will result in immediate or
1

These requirements are discussed further under "Deficit reduction," which appears later in this part.
See Special Analysis A, "Baseline Estimates," in Special Analyses, Budget of the United States Government,
Fiscal Year 1989.
2




THE BUDGET SYSTEM AND CONCEPTS

6e-3

future outlays. For most programs, budget authority becomes available each year only as voted by the Congress in appropriations
acts. However, in many cases the Congress has voted permanent
budget authority, under which funds become available annually
without further Congressional action. Many trust fund appropriations are permanent, as are a number of Federal fund appropriations, such as the appropriation to pay interest on the public debt.
Some obligational authority takes forms other than budget authority, and such obligational authority usually becomes available for
obligation without further Congressional action. In terms of dollars, more obligational authority becomes available each year
under permanent appropriations than is provided by current actions of the Congress. The outlays from permanent appropriations,
together with the outlays from obligations incurred in prior years
from both permanent and current authority, comprise most of the
outlay total for any year in the budget. Therefore, most outlays in
any year are not controlled through appropriations actions in that
year. Types of budget authority, other budgetary resources, their
control by the Congress, and the relation of outlays to budget
authority are discussed in more detail in sections that appear later
in this part.
Congressional review of the budget begins when the President
transmits his budget estimates to the Congress. Under standing
law, the budget is required to be transmitted on or before the first
Monday after January third of each year. However, in years when
Congress has been late in completing action on the previous
budget, the leadership of the Congress has agreed to a delayed
transmittal of the next budget. That is the case this 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 1989,
the maximum deficit is $136 billion. The budget resolution, which
is scheduled to be adopted by April 15, sets targets for total receipts and for budget authority and outlays, in total and by functional category. The resolution also sets targets for direct loan
obligations and guaranteed loan commitments.
Congressional budget resolutions do not require Presidential approval. Frequently, however, there is informal consultation be-




6e-4

THE BUDGET FOR FISCAL YEAR 1989

tween the congressional 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 authority and outlays or increased receipts in response to directives in the concurrent budget resolution. The Omnibus Budget Reconciliation Act of 1987 (Public Law 100-203) included limits for 1988 and 1989 on levels of new budget authority and
outlays for defense programs and on the aggregate levels of nondefense discretionary spending (i.e., spending generally controlled
by annual appropriations). These levels resulted from bipartisan
budget negotiations between the President and the Congress in
December 1987.
Congressional consideration of requests for appropriations and
changes in revenue laws occurs first in the House of Representatives. 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.
When the appropriations and tax bills are approved by the
House, they are forwarded to the Senate, where a similar review
follows. 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 appropriations are enacted. The Congress did not complete action on any of
the thirteen regular appropriations bills for 1988. After several
short-term continuing resolutions, a full-year continuing resolution—in effect, an omnibus appropriations bill—was enacted on
December 22, 1987 (Public Law 100-202).
Deficit Reduction.--The Balanced Budget and Emergency Deficit
Control Act of 1985 (commonly known as the Gramm-RudmanHollings Act), as amended in 1987, calls for a balanced Federal
budget by 1993. It sets declining deficit targets for each fiscal year
and specifies a procedure designed to achieve these targets. In 1989,




THE BUDGET SYSTEM AND CONCEPTS

6e-5

the target is $136 billion. According to the Act, the President's
budget must propose receipts and outlays consistent with the deficit target for the budget year, and the budget must include estimates of total receipts, total outlays, the deficit, and other aggregate-level estimates using the same budget baseline rules that are
specified for other reports required under the Act. Then, Congressional action on the budget is supposed to ensure that the deficit
target for that year will be met. If the target is not met, the Act
specifies a process to sequester budgetary resources to reduce outlays by the amount required to meet the specified target for the
year ahead. The deficit reduction required in 1989, if the target is
not met, is limited by the Act to $36 billion.
On August 25 of each year, the Director of the Office of Management and Budget (OMB) submits a report to the President and the
Congress estimating the deficit for the upcoming fiscal year and
the amount of net deficit reduction that has resulted from laws
enacted and regulations promulgated. On October 15 he submits a
revised report, which reflects the effects on the deficit of any
legislation enacted or regulations promulgated since August 25. If
his estimates show that the projected deficit exceeds the specified
target by more that $10 billion (zero in 1993) and that the requisite
amount of net deficit reduction has not been achieved through laws
and regulations, he 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 subject to reduction and special rules for certain programs subject to
reduction. Many programs are exempt from reduction. The Director of OMB must explain, in his initial and revised reports, any
significant differences between his estimates and the estimates
provided to him and the Congress in initial and revised reports by
the Director of the Congressional Budget Office.
The reports by the Director of OMB become the basis for the
initial and final sequester orders issued by the President. The
President's orders may not change any of the particulars in the
Director's reports.
Following these procedures, the President issued a final sequester order for 1988 on November 20, 1987 (the date specified for that
year). The order specified reductions in budgetary resources sufficient to reduce outlays by $23 billion (the reduction required for
that year). However, the Omnibus Budget Reconciliation Act of
1987 reversed the order and restored sequestered resources, because spending reductions for 1988 that were included in that Act
and in the continuing resolution for 1988 met the requirements for
deficit reduction.
Budget Execution and Control.—Once approved, the President's
budget, as modified by the Congress and reduced by sequestration,




6e-6

THE BUDGET FOR FISCAL YEAR 1989

if necessary, becomes the basis for the financial plan for the operations 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) appropriations and other budgetary resources to each agency by time periods
and by activities, in order 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 requests may have to be sent to the Congress. On the other hand,
amounts appropriated may be withheld temporarily from obligation under certain, limited circumstances to provide for contingencies, or to achieve savings made possible by or through changes in
requirements or greater efficiency of operations, or as specifically
provided in law. 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 3 of
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 continuous session. Otherwise, the withheld funds must be made available for spending.
COVERAGE OF THE BUDGET TOTALS

Agencies and Programs.—The budget documents provide information on all agencies and programs, including trust funds and
Government corporations. 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 social security (the Federal Old-Age and Survivors Insurance and the Federal Disability Insurance trust funds) are excluded
from the on-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 included in calculating the deficit
targets specified in the Act. The off-budget transactions are shown
in a separate chapter of the Appendix, entitled ' 'Department of
Health and Human Services, Social Security" and are separately
identified elsewhere in the budget documents. The on-budget and
off-budget amounts are added together to derive totals for the
Federal Government.
3

These actions are discussed further under "Budgetary resources" which appears later in this part.




THE BUDGET SYSTEM AND CONCEPTS

6e-7

Neither the on-budget nor the off-budget totals include transactions of private, Government-sponsored enterprises, such as the
Federal land banks and Federal home loan banks. However, because of their relationship to the Government, these enterprises
are discussed in several parts of the budget.4
A presentation for the Board of Governors of the Federal Reserve
System is included in Part IV of the Appendix. Those amounts are
presented for information only (they are not included in either the
on-budget or off-budget totals) because of the independent status of
the System.
Neither the on-budget nor the off-budget totals include the receipts and disbursements of the Thrift Savings Fund established
under the Federal Employees' Retirement System Act of 1986. The
monies in the Fund are owned by the individuals who contribute
them and are managed in a purely fiduciary capacity by the Federal Retirement Thrift Investment Board. The administrative expenses of the Board, an independent agency of the Federal Government, are included in on-budget outlays, and the reimbursements
from the Fund to the Board to finance its administrative expenses
are included in the budget totals as offsetting receipts. In the 1988
budget, all of the receipts and disbursements of the Fund were
included in the on-budget totals. The status of the Fund was
changed beginning with this budget upon further consideration of
the fiduciary nature of the Fund.5
Functional Classification.*—The functional classification arrays
budget authority, outlays, and other budget data according to the
major purpose served—e.g., agriculture. There are nineteen major
functions, most of which are divided into subfunctions. For example, the Agriculture function is divided into Farm income stabilization and Agricultural and research services. In accordance with the
Congressional Budget Act of 1974, as amended, the Congressional
budget resolution establishes budget targets using these functional
categories.
The following criteria are used in the establishment of functional
categories and the assignment of activities to them:
• A function comprises activities with similar purposes addressing an important national need. The emphasis is on what the
Federal Government seeks to accomplish rather than the
means of accomplishment, the objects purchased, or the clientele or geographic area served.

4
See Part 6b, "Federal Credit," in this volume; Special Analysis E, "Borrowing and Debt;" Special Analysis F,
"Federal Credit Programs;" Part IV, "Government Sponsored Enterprises," in the Appendix, Budget of the
United States Government, Fiscal Year 1989.
5
Special Analysis E, "Borrowing and Debt," discusses the reasons for this change in detail.
6
Part 5, "Federal Programs by Function," in this volume discusses the budget by function.




6e-8

THE BUDGET FOR FISCAL YEAR 1989

• A function must be of continuing national importance, and
the amounts attributable to it must be significant.
• Each basic unit being classified (generally the appropriation
or fund account) usually is classified according to its predominant purpose and assigned to only one subfunction. However,
some large accounts that serve more than one major purpose
are subdivided into two or more subfunctions.
• Activities and programs are normally classified according to
their primary purpose (or function) regardless of which agencies 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 described in Part 5 of this volume 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. General fund appropriation accounts account for expenditures from the general fund. Special
funds account for Federal receipts earmarked for specific purposes,
other than for carrying out a cycle of operations, and the expenditure of those receipts. Public enterprise (revolving) funds finance a
cycle of business-type operations in which outlays generate collections, primarily from the public, which are credited directly to the
fund. Intragovernmental funds, including 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 expenditure of monies by the Government for carrying out specific
purposes and programs in accordance with the terms of a statute
that designates the fund as a trust fund (e.g., the Highway Trust




THE BUDGET SYSTEM AND CONCEPTS

6e-9

Fund) or for carrying out the stipulations of a trust agreement
(e.g., any of several trust funds for gifts and donations for specific
purposes). These monies are not available for other purposes of the
Government. Trust revolving funds are credited with 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 between 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 investment, 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. Investment outlays are displayed in Part 6c of this volume, "Federal Capital Expenditures,"
and in Special Analysis D, "Federal Investment and Operating
Outlays."
BUDGETARY RESOURCES AND RELATED TRANSACTIONS

Budgetary Resources.—Government agencies are permitted to
enter into obligations requiring either immediate or future payment of money only when they have been granted authority to do
so by law. This authority, which constitutes the budgetary resources available to an agency, is most commonly 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 available for obligation. The use of budgetary resources may be restrained by the imposition of legally binding
limitations on obligations, including obligations for direct loans.7
Budget authority and other budgetary resources permit obligations 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, for which the
cost depends upon the program level during the fiscal year, the
amount of budget authority requested usually is the amount estimated to be needed to cover the obligations to be incurred during
the year.
For most major procurement programs and construction projects,
an amount adequate to complete the procurement or project generally is requested to be appropriated in the first year, even though it
may be obligated over several years. This policy, sometimes re7

See "Limitations on the Availability of Funds," in Part 6d of this volume.




6e-10

THE BUDGET FOR FISCAL YEAR 1989

ferred to as "full funding/' is intended to avoid piecemeal funding
of programs and projects that cannot be used until they have been
completed.
Budget authority usually takes the form of appropriations, which
permit obligations to be incurred and payments to be made. However, some budget authority is in the form of contract
authority,
which permits obligations in advance of appropriations but requires a subsequent appropriation or the collection of receipts 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 contract authority unless that bill also provides that such new spending authority will be effective only to the extent or in such
amounts as provided in appropriations acts.
Appropriations are available for obligation only during the fiscal
year for which they are enacted, unless the appropriation language
specifies that an appropriation is available for a longer period.
Typically, appropriations for current operations are made available
for obligation in only one year. Some appropriations are made
available for a specified number of years. 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 program objectives have been attained.
Usually the Congress makes budget authority available on the
first day of the fiscal year for which the appropriation act is
passed. Occasionally, the appropriations language specifies a different timing. The language may provide an advance
appropriation—
one made to become available one year or more beyond the fiscal
year for which the appropriations act is passed. 8 To meet the
special timing requirements of many education programs, the appropriations for them provide for forward funding— budget authority that is made available for obligation beginning in the last
quarter of the fiscal year for the financing of ongoing grant programs during the next fiscal year. For certain entitlement programs funded by annual appropriations, the appropriation provides
for advance funding—budget authority that is to be charged to the
appropriation in the succeeding year but which authorizes obligations to be incurred in the last quarter of the fiscal year if necessary to meet higher than anticipated benefit payments in excess of
the specific amount appropriated for the year.
8
A list of advance appropriations included in this budget appears in Part III, "Other Materials," in the
Appendix.




THE BUDGET SYSTEM AND CONCEPTS

6e-ll

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 reappropriations. For this budget, in accordance with agreements reached
between the Administration and the Congress in the 1988 budget
process, reappropriations are counted as new budget authority in
the fiscal year in which the balances become newly available.
A rescission is a legislative action that cancels new budget authority or the availability of unobligated balances of budget authority prior to the time the authority would otherwise have expired.
In this budget, in accordance with the agreements mentioned previously, rescissions of both new budget authority and unobligated
balances of budget authority are recorded as decreases to new
budget authority for that year. Accordingly, it is possible that some
accounts show negative budget authority because an amount of
unobligated balances was rescinded that was greater than the
amount of new budget authority made available. Proposed rescissions, if any, usually are identified in separate schedules in Part II
of the Appendix. A deferral is an executive branch action or inaction permitted in limited situations (such as, 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.9
Budget authority is classified and labeled in the budget as current or permanent. Budget authority is current if it is provided in
legislation enacted during or for the fiscal year in which it becomes
available. Budget authority is permanent if it becomes available in
a fiscal year pursuant to legislation that was enacted in a previous
year. Accordingly, current budget authority usually is provided in
an appropriations act each year, and permanent budget authority
usually is provided by standing authorizing legislation. However,
advance appropriations of budget authority are classified as permanent, even though they are provided in annual appropriations acts,
because they become available a year or more following the year to
which the act pertains; and budget authority that is provided by
authorizing legislation is classified as current in the year such
legislation is enacted and as permanent thereafter. Though not
recorded as budget authority, offsetting collections credited to appropriation and revolving fund accounts provide permanent authority to incur obligations.
Obligations and outlays resulting from permanent budget authority and from offsetting collections credited to appropriation and
9
Rescissions and deferrals are discussed further in this part under the previous section, "Budget Execution
and Control."




6e-12

THE BUDGET FOR FISCAL YEAR 1989

revolving fund accounts comprise more than half of the budget
totals. Put another way, less than half of the obligations and outlays from them result from current action by the Congress. Most
permanent budget authority represents the authority to spend
trust fund receipts and the authority to pay interest on the public
debt. Most obligations and outlays from offsetting collections occur
in public enterprise revolving funds.10
Budget authority is classified and labeled in the budget as definite or indefinite. Budget authority is definite if the legislation that
provides it specifies an amount or an amount not to be exceeded.
Budget authority is indefinite if the legislation providing it permits
the amount to be determined by subsequent circumstances. Examples of indefinite authority are authority to borrow that is limited
only to the amount of debt that may be outstanding at any time,
the appropriation for interest on the public debt, and the trust
fund appropriation equal to receipts under the Federal Insurance
Contributions Act (social security). Indefinite budget authority is
presented as the amount of receipts collected or estimated to be
collected each year in the case of many special and trust funds, and
as 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 authority and the completion of required apportionment action, Government agencies incur obligations. Such obligations include: the
curregit liabilities for salaries, wages, and interest; agreements to
makd loans; contracts for the purchase of supplies and equipment,
construction, and the acquisition of office space, buildings, and
land; and other arrangements requiring the payment of money.
Outlays.—When obligations are liquidated (paid), outlays are recorded. Outlays usually are in the form of checks, cash, or electronic fund transfers. 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, debentures, notes,
or monetary credits.11 Refunds of collections 12 are treated as reductions of collections, rather than as outlays. 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 the payment of obligations incurred in prior years or in
the same year. Outlays, therefore, flow in part from unexpended
balances of prior year budget authority and in part from budget
10
1

See "Relationship of Budget Authority to outlays," in Part 6d of this volume.
* See Special Analysis E, "Borrowing and Debt," for further discussion of the use of such instruments.
This term is discussed under "Collections," which appears later in this part.

12




THE BUDGET SYSTEM AND CONCEPTS

6e-13

authority provided for the year in which the money is spent.13
Total outlays for the Federal Government include both on-budget
and off-budget outlays and are stated net of offsetting collections.
Balances of Authority.—Not all budget authority enacted for a
fiscal year results in obligations and outlays in the same year. In
the case of budget authority that is available for more than one
year, the unobligated balances of budget authority that is still
available 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 the 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 subsequently paid.14 The ratio of the outlays
resulting from budget authority enacted in any year to the amount
of that budget authority is referred to as the spendout rate. Collections authorized to be credited directly to appropriations or fund
accounts also may be carried forward as unobligated or obligated
balances.
Therefore, a change in the amount of obligations incurred from
one year to the next is not necessarily accompanied by 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 cause changes in the level of obligations and outlays for
several 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" account, 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 (where the total obligations of each participating
agency are identified separately under each parent account).
FEDERAL CREDIT ACTIVITIES 15
In addition to the resource measures previously described, Government programs may be financed through federally supported
credit in the form of direct loans or loan guarantees. These are
13

See "Relationship of Budget Authority to Outlays," in Part 6d of this volume.
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 transmitted.
15
Part 6b, "Federal Credit," in this volume and Special Analysis F, "Federal Credit Programs," discuss this
subject in detail.
14




6e-14

THE BUDGET FOR FISCAL YEAR 1989

included in the budget as obligations for direct loans and commitments for guaranteed loans. Obligations for direct loans result from
agreements 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
repayment of principal and/or interest on loans made by nonFederal lenders. Since loan guarantees, 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 Government liabilities of a contingent nature that result in obligations and outlays only in the event
of borrower default. The Administration has proposed a fundamental change in the way credit programs are financed. This proposal
is described in Part 6b of this volume.
COLLECTIONS
In General—Money collected by the Government is classified in
two major categories:
• Governmental receipts, which are compared to outlays in calculating the surplus or deficit.16
• Offsetting collections, which are deducted from gross disbursements in calculating outlays.
Governmental Receipts.—These are collections from the public
that result from the exercise of the Government's sovereign or
governmental powers. Governmental receipts consist primarily of
tax receipts (including social insurance taxes), but also include
compulsory user charges, 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 deposits by State and local governments) are also counted as governmental receipts. Total receipts for
the Federal Government include both on-budget and off-budget
receipts.
Offsetting Collections.—These are amounts received from the
public that result from business-like or market-oriented activities
(e.g., the sale of a product or service) or other Government accounts. They are classified into two major categories: offsetting
collections credited to appropriations or fund accounts and offsetting receipts (that is, collections deposited in receipt accounts). The
offset is applied differently for each type.
Offsetting Collections Credited to Appropriation or Fund Accounts.—For all revolving funds and some appropriation accounts,
16

Part 4, "Federal Receipts by Source," of this volume discusses governmental receipts in more detail.




THE BUDGET SYSTEM AND CONCEPTS

6e-15

laws authorize collections to be credited directly to expenditure
accounts and, usually, make them available to spend for the purpose of the account without further action by the Congress. However, it is not unusual for the Congress to enact limitations in annual
appropriations acts on the obligations that can be financed by
these collections. The outlays of the appropriation or fund account
are quantified as disbursements less offsetting collections.
Offsetting Receipts.—These are offsetting collections credited to
general fund, special fund, or trust fund receipt accounts. They are
deducted from budget authority and outlays in arriving at total
budget authority and outlays. In most cases, such deductions are
made at the subfunction and agency levels. 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 business-type or market-oriented activities of the Government.
Collections from rents and royalties from Outer Continental
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. The large-scale receipts
from the proposed sale of major assets also are shown as
undistributed deductions from total budget authority and outlays.
• Intragovernmental transactions.—These are payments into receipt accounts from governmental appropriation or fund accounts. In most cases, intragovernmental transactions are deducted from both the outlays and the budget authority of the
subfunction and the agency receiving the payment. However,
in two cases intragovernmental transactions appear as special
deductions in computing total budget authority and outlays
for the Government rather than offsets at the agency level—
agencies' payments as employers into employee retirement
trust funds and interest received by trust funds. There are
several categories of intragovernmental transactions. Intrabudgetary transactions include all payments from on-budget
expenditure accounts to on-budget receipt accounts. These are
subdivided into three categories: (1) interfund transactions,
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 payment
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 accounts to off-




6e-16

THE BUDGET FOR FISCAL YEAR 1989

budget receipt accounts, and from off-budget accounts to onbudget 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 by definition. This rule applies both to borrowing in
the form of public debt securities and to specialized borrowing in
the form of agency securities, including the issuance of debt securities to liquidate an obligation, and the sale of certificates representing participation in a pool of loans. Beginning in 1988, in cases
where Federal loan assets are sold with recourse (i.e., cases where
the Federal Government guarantees repayment of principal and
interest on the loan assets in the event of default), the proceeds of
the sale are treated as a means of financing other than borrowing.17
Exercise of Monetary Power.—Seigniorage is the profit from coining money. It is the difference between the value of coins as money
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 example, 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 other
than borrowing from the public.

17

See Special Analysis E, "Borrowing and Debt," for further discussion of this subject.




THE BUDGET SYSTEM AND CONCEPTS

6e-17

Exchange of Cash.—The Government's deposits with the International Monetary Fund are considered to be monetary assets. Therefore, the movement of money between the IMF and the Department of the Treasury is not considered in itself a receipt or an
outlay, borrowing, or lending. However, interest paid by the IMF
on those deposits is an offsetting collection. 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 payments (in
the form of checks, cash, and electronic fund transfers) 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.
This treatment has special significance for the accounting of the
anticipated issuance of zero-coupon bonds to Mexico, which will be
sold at a deep discount from their face value. Interest on special
issues of the debt securities held by trust funds and other Government accounts is stated on a cash basis normally. When a Government account invests in Federal debt securities, the purchase price
is 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 purchase price and par are routinely relatively large. For these funds,
the budget records the holdings of debt at par and records the
differences between purchase price and par as adjustments to the
assets of the funds that are amortized over the life of the security.19
Data for 1987.—The past year (1987) column of the budget generally 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. Occasionally the budget
reports corrections to data reported erroneously to Treasury but
18
19

See "Department of Defense—Civil" in Part I, "Detailed Budget Estimates," in the Appendix.
Special Analysis E, "Borrowing and Debt," discusses these and related matters in more detail.




6e-18

THE BUDGET FOR FISCAL YEAR 1989

not discovered in time to be reflected in Treasury's published data.
The "Explanation of the Summary Tables'' at the beginning of
Part 6g in this volume notes the sources of major differences.
Data for 1988.—The current year (1988) column of the budget
includes estimates of transactions and balances based on the
amounts of budgetary resources that were available when the
budget was transmitted, including amounts provided as appropriations for 1988, and that are expected to become available during
the year. All of the 13 appropriations bills usually enacted as
separate acts were enacted by inclusion in the continuing resolution for 1988 (Public Laws 100-202).
Where the word "enacted" is used with reference to 1988, the
amount generally represents budget authority already voted by the
Congress. In the case of indefinite appropriations, the enacted sums
include the amounts likely to be required. Where the word "estimate" is used, the amounts include both enacted budget authority
and requested supplemental and rescissions.
Data for 1989.—The budget year (1989) 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 generally includes the appropriations language for the amounts proposed
to be appropriated.20 Where the estimates represent amounts that
will be requested under proposed legislation, the appropriation language usually is not included; it is transmitted later, usually after
the legislation is enacted. In a few cases, proposed language for
appropriations to be requested under existing legislation is transmitted later, because the exact requirements are not known at the
time the budget is transmitted. In certain tables of the budget, the
items for later transmittal and the related outlays are identified
separately. Estimates of the total requirements for 1989 include
both the amounts requested with the transmission of the budget
and the amounts planned for later transmittal.
Data for 1990 through 1993.—To place emphasis on longer term
objectives and plans consistent with the multi-year budget planning system, the budget presents estimates through 1993. These
data often reflect specific Presidential policy determinations and
are shown in a number of budget tables.
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
20

See Part I, "Detailed Budget Estimates," in the Appendix.




THE BUDGET SYSTEM AND CONCEPTS

6e-19

are not reflected in the program details, such as civilian pay increases.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.

2

'See Part 5, "Federal Programs by Function" in this volume for a further discussion of allowances.




PART 6f

FEDERAL PROGRAM BY AGENCY AND
ACCOUNT
EXPLANATORY NOTE
This tabulation contains information on budget authority (BA), outlays (O), and subfunctional code number(s) for
each appropriation and fund account. Budget authority
amounts reflect transfers of budget authority between appropriations. All budget authority items are definite appropriations except where otherwise indicated.
Rescissions of unobligated balances of prior year authority are recorded as reductions to budget authority. In past
budgets such rescissions were recorded as adjustments to
unobligated balances.
This budget reflects the Administration's credit reform
proposal. The effects of the proposal are identified in this
tabulation by the footnote "W" to distinguish it from other
proposed legislation items.
Congressional action in the appropriation process occasionally takes the form of a limitation on the use of a trust
fund or other fund, or of an appropriation to liquidate
contract authority. Amounts for such items, which do not
affect budget authority, are included here in parentheses
and identified in the stub column, but are not included in
the totals.




6f-l

6f-2

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)
1987
actual

Account and functional code

1988
estimate

1989

Legislative Branch
Senate
Federal funds
General and Special Funds:
Compensation of members, Senate
801
Appropriation, permanent, indefinite
BA
Outlays
0
Mileage of the Vice President and Senators
801
Appropriation, current
BA
Outlays
0
Expense allowances of the Vice President, President
Pro Tempore, Majority and Minority Leaders and
Majority and Minority Whips
801
Appropriation, current
BA
Outlays
0
Representation allowances for the Majority and Minority Leaders
801
Appropriation, current
BA
Outlays
0
Salaries, officers and employees
801
Appropriation, current
BA
Outlays
0
Payments to widows and heirs of deceased members
of Congress
801
Appropriation, current
BA
Outlays
O
Office of the Legislative Counsel of the Senate 801
Appropriation, current
BA
Outlays
0
Expense allowances of the Secretary of the Senate,
Sergeant at Arms, and Doorkeeper of the Senate
and secretaries for the majority and for the
minority of the Senate
801
Appropriation, current
BA
Outlays
0
Office of Senate Legal Counsel
801
Appropriation, current
BA
Outlays
0
Senate policy committees
801
Appropriation, current
BA
Outlays
0
Inquiries and investigations
801
Appropriation, current
BA
Outlays
O
Expenses of United States Senate Caucus on International Narcotics Control
801
Appropriation, current
BA
Outlays
0
Miscellaneous items
801
Appropriation, current
BA
Outlays
0
Senators' official personnel and office expense account
801
Appropriation, current
BA
Outlays
0
See footnotes at end of table.




9,776
9,717
60
49

10,800
10,800
60
48

11,676
11,676
60
48

73
58

56
56

56
56

3

20
20

20
20

188,814
177,307

196,197
184,425

81,189
76,318

1,561
1,426

1,764
1,676

2,265
2,152

12
10

12
7

12
7

593
444

633
475

657
493

2,081
1,661

2,203
1,873

2,203
1,873

55,141
49,972

57,161
54,303

61,472
58,398

325
300

325
293

325
293

13,165
16,052

10,183
10,183

6,111
6,111

165
165

154,544
149,289

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

6f-3

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Legislative Branch—Con.
Senate—Con.

Secretary of the Senate
801
Appropriation, current
BA
Outlays
0
Sergeant at Arms and Doorkeeper of the Senate 801
Appropriation, current
BA
Outlays
0
Stationery (revolving fund)
801
Appropriation, current
BA
Outlays
0
Congressional use of foreign currency, Senate 801
Appropriation, permanent
BA
Outlays
0
Public Enterprise Funds:
Recording studio (revolving fund)
801
Outlays
0
Senate barber shops (revolving fund)
801
Outlays
0
Total Federal funds Senate..

BA
0

666
543

666
661

727
675

64,620
54,267

68,021
61,219

65,085
58,576

13
52

13
13

13
13

338,168
313,116

348,114
326,052

386,415
365,998

43,783
41,835

50,250
50,250

50,250
50,250

303
303

90
90

210
105

210
105

210
105

516,071
449,193

513,487
483,705

574,500
541,179

-503

-503

-503

3,676
2,602

3,360
3,360

3,360
3,360

167

167

167

9

9

9

-4

-3

-3

1,100
1,044
55
-6

House of Representatives
Federal funds
General and Special Funds:
Compensation of Members and related administrative
expenses
801
Appropriation, permanent
BA
Outlays
0
Payments to widows and heirs of deceased members
of Congress
801
Appropriation, current
BA
Outlays
0
Mileage of Members
801
Appropriation, current
BA
Outlays
0
Salaries and expenses
801
Appropriation, current
BA
Outlays
0
Stationery (revolving fund)
801
Outlays
0
Congressional use of foreign currency, House of Representatives
801
Appropriation, permanent
BA
Outlays..
0
Public Enterprise Funds:
Recording studio (revolving fund)
801
Outlays
Beauty shop (revolving fund)
801
Outlays
House barber shops (revolving fund)
801
Outlays
See footnotes at end of table.




6f-4

THE BUDGET FOR FISCAL YEAR 1989

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Legislative Branch—Con.
House of Representatives—Con.

Office of the attending physician (revolving fund) 801
Outlays
0
Page residence hall and meal plan
801
Outlays
0
Total Federal funds House of Representatives

4
-183

BA
0

564,043
493,528

BA
0

2,966
2,397

4
-183
567,397
537,001

4
-183
628,320
594,385

Joint Items
Federal funds
General and Special Funds:
Joint Economic Committee
Appropriation, current
Outlays
Joint Committee on Printing
Appropriation, current
Outlays
Joint Committee on Taxation
Appropriation, current
Outlays
Office of the Attending Physician
Appropriation, current
Outlays
General expenses, Capitol police
Appropriation, current
Outlays
Official mail costs
Appropriation, current
Outlays
Capitol Guide Service
Appropriation, current
Outlays
Statements of appropriations
Appropriation, current
Outlays

801
3,179
3,020

3,430
3,258

801
BA
0

963
909

1,037
934

1,165
1,050

BA
0

4,159
4,167

4,219
4,008

4,466
4,243

BA
0

1,298
291

1,493
599

1,414
567

BA
0

1,881
1,447

1,734
1,472

2,189
1,858

801
801
801
801
BA
0

91,423
73,053

82,163
82,163

58,926
58,926

801
BA
0

1,021
902

BA
0

20

1,137
1,023

1,220
1,098

801

Total Federal funds Joint Items

19
20

20
19

BA
0

103,731
83,166

94,981
93,239

72,830
71,019

BA
0

17,783
16,423

17,886
18,031

18,900
18,799

Congressional Budget Office
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current
Outlays

See footnotes at end of table.




801

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

6f-5

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Legislative Branch—Con.
Architect of the Capitol
Federal funds
General and Special Funds:
Office of the Architect of the Capitol: Salaries 801
Appropriation, current
BA
Outlays
0
Contingent expenses
801
Appropriation, current
BA
Outlays
0
Capitol buildings
801
Appropriation, current
BA
Outlays
0
Capitol grounds
801
Appropriation, current
BA
Outlays
0
West central front of the Capitol
801
Outlays
0
Congressional cemetery
801
Outlays
0
Acquisition of property as an addition to the Capitol
grounds
801
Outlays
0
Senate office buildings
801
Appropriation, current
BA
Outlays
0
Construction of an extension to the New Senate Office
Building
801
Outlays
0
House office buildings
801
Appropriation, current
BA
Outlays
0
Acquisition of property, construction, and equipment,
additional House Office Building
801
Outlays
0
Installation of solar collectors in House office buildings
801
Outlays
0
Capitol Power Plant
801
Appropriation, current
BA
Outlays0
Expansion of facilities, Capitol Power Plant
801
Outlays
Modifications and enlargement, Capitol Power
Plant
801
Outlays
Alterations and improvements, buildings and grounds,
to provide facilities for the physically handicapped
801
Outlays
Structural and mechanical care, Library buildings and
grounds
801
Appropriation, current
Outlays
See footnotes at end of table.




5,478
5,064

5,925
5,672

7,236
7,119

50
143

48
166

100
100

12,325
12,093

12,793
17,565

21,180
23,457

3,290

3,404

3,682

3,520

3,911
4,205

6,493

2,700

105

18

6,100

32
25,903
21,674

23,265
29,218

808

459

26,138
23,368

30,547
28,872

38,459
35,551

32,910
32,226

64
47
24,716
22,679

24,583
26,387

24,905
24,855

54
157

200

402

110

250

250

6,260
12,436

6,741
17,670

8,975
29,194

6f-6

THE BUDGET FOE FISCAL YEAR 1989

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Legislative Branch—Con.
Architect of the Capitol—Con.
Public Enterprise Funds:
Senate restaurant fund
801
Outlays
0
House of Representatives restaurant fund (revolving
fund)
801
Outlays
0
Total Federal funds Architect of the Capitol

221

282

76

661

BA
0

104,160
109,141

107,306
133,805

137,676
163,459

BA
0

134,850
124,878

138,866
137,784

159,189
155,290

BA
BA
0

10,306

12,139

9,388

11,130
150
11,182

BA
0

10,306
9,388

11,280
11,182

12,139
12,053

40,434
38,088

43,022
43,763

47,889
47,422

36,099
33,813

36,186
35,764

37,692
36,930

Library of Congress
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current
Outlays
Copyright Office: Salaries and expenses
Appropriation, current
Reappropriation
Outlays
Total Copyright Office

503
376

Congressional Research Service: Salaries and expenses
801
Appropriation, current
BA
Outlays
0
Books for the blind and physically handicapped: Salaries and expenses
503
Appropriation, current
BA
Outlays
0
Collection and distribution of library materials (special
foreign currency program)
503
Appropriation, current
BA
Outlays
0
Furniture and furnishings
503
Appropriation, current
BA
Outlays
0
Speaker's Civic Achievement Awards Program 801
Appropriation, current
BA
Outlays
0
Payments to copyright owners
376
Appropriation, permanent, indefinite
BA
Outlays
0
Oliver Wendell Holmes devise fund
503
Appropriation, permanent, indefinite
BA
Outlays
0
See footnotes at end of table.




390
809
5,070
1,335

12,053

564 ..
5,816
1,985

3,575
4,717
680
680

71,304
154,782

71,257
133,265

71,412
71,412

4
9

4
9

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

6f-7

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Legislative Branch—Con.
Library of Congress—Con.

Trust funds
Gift and trust fund accounts
Appropriation, permanent, indefinite
Outlays

503
BA
0

7,485
6,828

6,625
8,559

7,536
7,688

Total Federal funds Library of Congress

BA
0

298,453
363,093

306,431
364,316

332,580
328,513

Total Trust funds Library of Congress

BA
0

7,485
6,828

6,625
8,559

7,536
7,688

BA
0

10,700
8,620

3,866

500

BA
0

62,000
62,446

70,359
69,437

77,700
82,346

BA
0

22,385
19,906

19,162
19,467

26,800
23,896

Government Printing Office
Federal funds
General and Special Funds:
Printing and binding
801
Appropriation, current
Outlays
Congressional printing and binding
801
Appropriation, current
Outlays
Office of Superintendent of Documents: Salaries and
expenses
808
Appropriation, current
Outlays
Intragovernmental Funds:
Government Printing Office revolving fund
808
Outlays

0

3,904

2,008

3,234

95,085
94,876

89,521
94,778

104,500
109,976

BA
0

310,973
301,134

329,847
327,852

393,864
388,743

Federal funds
General and Special Funds:
Salaries and expenses
752
Appropriation, current
BA
Outlays
0
Tax courts independent counsel, U.S. Tax Court 752
Appropriation, permanent, indefinite
BA
Outlays
0

25,613
22,350

27,500
25,659

29,345
28,976

Total Federal funds Government Printing Office... BA
0
General Accounting Office
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current
Outlays

801

United States Tax Court

See footnotes at end of table.




280

100
100

6f-8

THE BUDGET FOR FISCAL YEAR 1989

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Legislative Branch—Con.
United States Tax Court—Con.

Trust funds
Tax Court judges survivors annuity fund
Appropriation, permanent, indefinite
Outlays

602
BA
0

Total Federal funds United States Tax Court

BA
0

Total Trust funds United States Tax Court

BA
0

394
60
25,613
22,350

412
59
27,780
25,659

394
60

412
59

526
721

701
686

428
59
29,445
29,076
428
59

Other Legislative Branch Agencies
Federal funds
General and Special Funds:
Commission on Security and Cooperation in Europe:
Salaries and expenses
801
Appropriation, current
Outlays
International conferences and contingencies: House
and Senate expenses
801
Appropriation, current
Appropriation, permanent
Outlays

BA
0
BA
BA
0

290

Total International conferences and contingencies
BA
0
Dwight David Eisenhower Centennial Commission: Expenses
801
Appropriation, current
Outlays
Botanic Garden: Salaries and expenses
801
Appropriation, current
Outlays
Copyright Royalty Tribunal: Salaries and expenses 376
Appropriation, current
Outlays
Prospective Payment Assessment Commission 551
Outlays
Physician payment review commission
801
Outlays
Railroad Accounting Principles Board.- Salaries and
expenses
801
Appropriation, current
Outlays

See footnotes at end of table.




780
111

290

290
290

290
290

290
290

40

10

BA
0

50

BA
0

2,135
1,990

2,221
2,205

2,521
2,491

BA
0

125

129

142

121

127
127

138

933

-309

-191

0
0
BA
0

600
462

139 ....

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

6f-9

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1989
estimate

estimate

Legislative Branch—Con.
Other Legislative Branch Agencies—Con.
Biomedical Ethics: Salaries and expenses
Appropriation, current
Reappropriation
Outlays

801

Total Biomedical Ethics

BA
BA
0

100
150
250

BA
0

250
250

Payment to the Congressional Award Board
801
Appropriation, current
BA
Outlays
0
Office of Technology Assessment: Salaries and expenses
801
Appropriation, current
BA
Outlays
0

189
189
16,636
15,600

16,901
17,491

18,321
17,966

20,072
18,744

20,681
22,153

22,039

1,878,081
1,815,571

1,909,944
1,942,886

2,126,569
2,091,624

-3,769

-2,200

-2,200

-1,989

-2,004

-2,004

BA
0

1,872,323
1,809,813

1,905,740
1,938,682

2,122,365
2,087,420

BA
0

7,882
6,892

7,040
8,621

7,968
7,751

Trust funds
Office of Technology Assessment: Contributions and
donations
801
Appropriation, permanent, indefinite
BA

Outlays..

0

Total Federal funds Other Legislative Branch
Agencies
BA
0

21,656

Total Trust funds Other Legislative Branch Agencies
BA
0
Summary
Federal funds:
(As shown in detail above)
Deductions for offsetting receipts:
Intrafund transactions

BA
0
803
908

Total Federal funds
Trust funds:
(As shown in detail above)

Deductions for offsetting receipts:
Proprietary receipts from the public

See footnotes at end of table.




BA
0
BA
0

503 BA
0

-4,622

-4,773

-5,693

6f-10

THE BUDGET FOR FISCAL YEAR 1989

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Legislative Branch—Con.
Summary—Con.
908 BA
0

-166

-249

-150

Total Trust funds

BA
0

3,094
2,104

2,018
3,599

2,125
1,908

Total Legislative Branch

BA
0

1,875,417
1,811,917

1,907,758
1,942,281

2,124,490
2,089,328

BA
0

15,513
14,285
(14,478)

15,247
15,162
(14,195)

16,448
16,408
(15,393)

BA
0

2,336
2,163

2,110
3,040

2,384
2,637

The Judiciaryr
Supreme Court of the United States
Federal funds
General and Special Funds:
Salaries and expenses
752
Appropriation, current
Outlays
Salaries and expenses excluding salaries of judges..
Care of the building and grounds
752
Appropriation, current
Outlays
Acquisition of property as an addition to the grounds
of the Supreme Court building
752
Outlays

0

1

Total Federal funds Supreme Court of the United
States
BA
0

17,849
16,449

17,357
18,202

18,832
19,045

United States Court of Appeals for the
Federal Circuit
Federal funds
General and Special Funds:
Salaries and expenses
752
Appropriation, current
BA
Outlays
0
Salaries and expenses excluding salaries of judges..

6,920
6,530
(6,019)

7,430
7,376
(6,217)

8,700
8,490
(7,486)

United States Court of International Trade
Federal funds
General and Special Funds:
Salaries and expenses
752
Appropriation, current
BA
Outlays
0
Salaries and expenses excluding salaries of judges..

7,118
6,936
(6,396)

7,768
7,839
(6,911)

8,164
8,154
(7,306)

Courts of Appeals, District Courts, and
other Judicial Services
Federal funds
General and Special Funds:
Salaries and expenses
752
Appropriation, current
BA
Outlays
0
Salaries and expenses excluding salaries of judges..

1,004,020
952,888
(915,256)

1,081,447
1,109,967
(984,481)

1,385,513
1,368,638
(1,285,777)

See footnotes at end of table.




THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

6f-ll

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

The Judiciary—Con.
Courts of Appeals, District Courts, and
other Judicial Services—Con.
Defender services
Appropriation, current

752

Outlays
Fees of jurors and commissioners
Appropriation, current

BA

87,858

85,100

137,815

0

69,740

83,584

111,190

BA

52,135

43,135

46,500

0

45,951

47,170

48,150

752

Outlays
Furniture and furnishings
Outlays
Court security
Appropriation, current
Outlays
Special rail reorganization court
Outlays

752
0

81

438

752
BA
0

36,000
30,867

40,853
39,665

56,980
51,352

752
0

Total Federal funds Courts of Appeals, District
Courts, and other Judicial Services
BA

0

169

225

2

1,180,013

1,250,535

1,626,808

1,099,696

1,281,049

1,579,332

30,184
30,017

31,167
30,771

41,970
40,869

Administrative Office of the United States
Courts
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current
Outlays
Study of construction of office building
Outlays

752
BA
0
752
0

Total Federal funds Administrative Office of the
United States Courts
BA

624

200

200

30,184

31,167

41,970

0

30,641

30,971

41,069

BA

Federal Judicial Center
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current

752

Outlays

10,824

10,548

12,109

0

9,784

10,297

11,797

BA

1,000

Bicentennial Expenses, The Judiciary
Federal funds
General and Special Funds:
Bicentennial activities
Appropriation, current

Outlays
See footnotes at end of table.




808

0

233

132

435

6f-12

THE BUDGET FOR FISCAL YEAR 1989

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

The Judiciary—Con.
Judiciary Trust Funds
Trust funds
Judicial survivors' annuities fund
Appropriation, permanent, indefinite
Outlays

602

Summary
Federal funds:
(As shown in detail above)
Trust funds:
(As shown in detail above)
Total The Judiciary

BA
0

13,425
7,283

14,863
3,355

15,735
3,527

BA

1,253,908

1,324,805

1,716,583

0

1,170,269

1,355,866

1,668,322

BA
0

13,425
7,283

14,863
3,355

15,735
3,527

BA

1,267,333

1,339,668

1,732,318

0

1,177,552

1,359,221

1,671,849

Executive Office of the President
Compensation of the President
Federal funds
General and Special Funds:
Compensation of the President
Appropriation, current
Outlays

802
BA
0

250
223

250
250

250
250

The White House Office
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current
Outlays

802
BA
0

24,824
25,059

26,426
26,228

27,950
27,797

BA
0

4,753
4,674

7,403
5,585

5,698
5,943

Executive Residence at the White House
Federal funds
General and Special Funds:
Operating expenses
Appropriation, current
Outlays

802

Official Residence of the Vice President
Federal funds
General and Special Funds:
Operating expenses
Appropriation, current
Outlays
See footnotes at end of table.




802
BA
0

211
237

258
253

258
253

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

6f-13

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Executive Office of the President—Con.
Official Residence of the Vice P r e s i d e n t Con.
Trust funds
Donations for the Official Residence of the Vice President
802
Outlays
0

-4

4

Special Assistance to the President
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current

802

Outlays
Council of Economic Advisers
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current
Outlays

BA

1,897

2,163

2,199

0

1,727

2,118

2,195

BA
0

2,370
2,375

2,500
2,428

802

Council on Environmental Quality and Office
of Environmental Quality
Federal funds
General and Special Funds:
Council on Environmental Quality and Office of Environmental Quality
802
Appropriation, current
BA
Outlays
0
Intragovernmental Funds:
Management fund, Office of Environmental Quality
802
Outlays
0

803
648

826
826

-240

1,427

Total Federal funds Council on Environmental
Quality and Office of Environmental Quality BA

803

0
Council on Wage and Price Stability
Federal funds
General and Special Funds:
Salaries and expenses
802
Outlays
0
Office of Policy Development
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current
Outlays
See footnotes at end of table.




408

826

2,787
2,750

870
868

870

2,253

868

3,000
2,948

3,000
3,000

-4

802
BA
0

2,689
2,514

6f-14

THE BUDGET FOR FISCAL YEAR 1989

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Executive Office of the President—Con.
National Security Council

Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current

802

Outlays

BA

4,612

5,000

0

4,369

4,910

5,100

5,080

350
374

178
193

National Critical Materials Council
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current
Outlays

802
BA
0

175
168

Office of Administration
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current

802

Outlays

BA

15,914

16,000

16,900

0

14,853

16,294

16,647

BA
0

37,413
35,680

39,000
38,782

39,780
40,099

2,300
2,230

2,353
2,348

39,033

41,300

42,133

37,306

41,012

42,447

Office of Management and Budget
Federal funds
General and Special Funds:
Salaries and expenses
802
Appropriation, current
Outlays
Office of Federal Procurement Policy: Salaries and
expenses
802
Appropriation, current
Outlays

BA
0

Total Federal funds Office of Management and
Budget
BA

0

1,620
1,626

Office of Science and Technology Policy
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current
Outlays

See footnotes at end of table.




802
BA
0

1,923
1,340

1,888
1,895

1,787
1,827

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

6f-15

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1989
estimate

1988
estimate

Executive Office of the President—Con.
Office of the United States Trade
Representative
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current

802

Outlays
Total Salaries and expenses

BA

13,545

15,229

0

13,444

14,337

15,393
15,369

BA
0

13,545
13,444

15,229
14,337

15,393
15,369

5,000
745

2,500
2,998

335

White House Conference for a Drug Free
America
Federal funds
General and Special Funds:
Salaries and expenses
551
Appropriation, current
BA
Outlays
0
Trust funds
Gifts and donations
551
Appropriation, permanent, indefinite
BA
Outlays
Special Action Office for Drug Abuse
Prevention
Federal funds
General and Special Funds:
Miscellaneous expired accounts
554
Outlays
0
Summary
Federal funds:
(As shown in detail above)

BA
0

Trust funds:
(As shown in detail above)

BA
0

Total Executive Office of the President

BA

0

K

300
300

-12

117,999
109,426
-4
117,999
109,422

125,093
123,883

124,503
124,954

300
304
125,393
124,187

124,503
124,954

1,000
1,000

1,000
1,000

Funds Appropriated to the President
Unanticipated Needs
Federal funds
Unanticipated needs
Appropriation, current
Outlays
See footnotes at end of table.




802
BA
0

1,000
579

THE BUDGET FOR FISCAL YEAR 1989

6f-16

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Funds Appropriated to the President—Con.
Expenses of Management Improvement
Federal funds
General and Special Funds:
Expenses of management improvement
Appropriation, current
Outlays

802
BA
0

5,900
3,400

International Security Assistance
Federal funds
General and Special Funds:
Foreign military sales credit
Appropriation, current

152
BA
3,758,234

-2,263,835

(4,053,441)

(4,049,000)

"4,460,000
w
155,250
1,091,122
* 155,250
(4,460,000)

BA
0

4,053,441
3,758,234

4,017,000
-2,263,835

4,615,250
1,246,372

BA

3,551,000

3,188,320

Reappropriation

BA

25,205

12,500

Outlays

0

3,465,731

3,361,502

"12,500
3,458,699

BA
0

3,576,205
3,465,731

3,200,820
3,361,502

3,281,000
3,458,699

BA

950,000

700,750

0

355,705

632,895

"467,000
623,796

BA
0

950,000
355,705

700,750
632,895

467,000
623,796

BA

56,000

47,400

0

51,087

47,559

"52,500
47,005

56,000
51,087

47,400
47,559

52,500
47,005

BA

31,689

31,689

0

45,522

32,649

"31,689
36,534

BA
0

31,689
45,522

31,689
32,649

31,689
36,534

0

Outlays
Limitation on direct loan obligations...
Total Foreign military sales credit..
Economic support fund
Appropriation, current

152
"3,268,500

Total Economic support fund.
Military assistance
Appropriation, current

152

Outlays
Total Military assistance..
International military education and training
Appropriation, current

152

Outlays

Total International military education and training
BA
0
Peacekeeping operations
Appropriation, current..
Outlays
Total Peacekeeping operations..
See footnotes at end of table.




152

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

6f-17

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Funds Appropriated to the President—Con.
International Security Assistance—Con.
Assistance for relocation of facilities in Israel
Outlays
Public Enterprise Funds:
Guarantee reserve fund
Appropriation, current, indefinite
Authority to borrow, permanent, indefinite

152
0

158

152
BA
BA

Outlays

0

Total Guarantee reserve fund

532,000
643,196

-116,809

BA

723,019

701,114

532,000

643,196

0

-116,809

723,019

701,114

BA
0

8,667,335
7,559,658

8,529,659
2,533,947

9,090,635
6,113,520

152 BA

_mm

_

908

QA

-274,996

-327,453

BA

7,927,900

8,087,909

8,592,180

0

6,820,223

2,092,197

5,615,065

55,805

40,176

Summary
Federal funds:
(As shown in detail above)
Deductions for offsetting receipts:
Proprietary receipts from the public

188

Total International Security Assistance

n m

_mm
-366,414

International Development Assistance
Multilateral Assistance

Federal funds
General and Special Funds:
Contribution to the International Bank for Reconstruction and Development
151
Appropriation, current
BA
Outlays

0

Total Contribution to the International Bank for
Reconstruction and Development
BA

0
Contribution to the International Development Association
151
Appropriation, current
Outlays
Contribution to the special facility for Sub-Saharan
Africa
151
Appropriation, current
Outlays
Contribution to the International Finance Corporation
151
Appropriation, current
Outlays
See footnotes at end of table.




5,581
55,805

5,581

230,181

* 70,915
93,475

40,176

70,915

230,181

93,475

BA
0

830,100
545,700

915,000
568,000

958,333
815,000

BA
0

64,805
64,587

32,960

15,020

BA
0

7,206
7,206

20,300
20,300

35,032
35,032

THE BUDGET FOR FISCAL YEAR 1989

6f-18

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

Funds

1988
estimate

1989
estimate

Appropriated to the President—Con.

International Development Assistance—Con.
Multilateral Assistance—Con.

Contribution to the Inter-American Development
Bank
151
Appropriation, current
BA
Outlays
0
Contribution to the Asian Development Bank
151
Appropriation, current
BA
Outlays
0
Contribution to the African Development Fund 151
Appropriation, current
BA
Outlays

33,680
221,432

58,635
181,432

104,639

43,057

91,230

118,830

90,427

75,000

86,873

64,956

90,427
86,873

75,000
64,956

105,000
65,650

20,480
20,484

8,999
8,999

8,999
8,999

0

Total Contribution to the African Development
BA
Fund..
0
Contribution to the African Development Bank 151
Appropriation, current
BA
Outlays
0
Contribution to Multilateral Investment Guarantee
Agency
151
Appropriation, current
BA
Outlays
0
Multilateral Development Banks—Other
151
Appropriation, current
BA
Outlays
0
International organizations and programs
151
Appropriation, current
BA
Outlays..

244,648

263,057

257,490

BA
0

237,264
263,057
1,444,406
1,306,150

244,648
257,490
1,450,218
1,505,350

BA

1,458,491

1,141,026

Total International organizations and programs.... BA
0
Total Federal funds Multilateral Assistance

146,070
120,001
105,000
65,650

44,403
22,202

237,264

0

144,798

'200,000
239,445
200,000
239,445
1,524,349
1,537,420

Agency for International Development

Federal funds
General and Special Funds:
Functional development assistance program
Appropriation, current

151
'1,119,000
"7,435

Reappropriation
Outlays

BA

108,856

12,500

0

1,390,784

1,393,204

^12*500
1,310,643
^300

1,567,347
1,390,784

1,153,526
1,393,204

1,133,935
1,310,943

Total Functional development assistance program BA
0
See footnotes at end of table.




THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

6f-19

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functiona 1 code

1988
estimate

1989
estimate

Funds Appropriated to the President—Con.
International Development Assistance—Con.
Agency for International Development—Con.

Sub-Saharan Africa, development assistance
Appropriation, current

151

Outlays

BA
BA

550,000

0

67,650

* 510,000
233,230

550,000
67,650

510,000
233,230

73,579

53,909

Total Sub-Saharan Africa, development assistBA
ance...
0
Sahel development program
Appropriation, current
Outlays
American schools and hospitals abroad
Appropriation, current

151
BA
BA
0
151
BA
BA

Outlays

0

70,000
81,341
35,000

40,000

A

33,464

30,000
33,995
30,000
33,995

BA
0

33,843
35,000
33,843

40,000
33,464

BA

72,500

28,000

BA
0

2,811
118,744

47,353

3*1**796

BA
0

75,311
118,744

28,000
47,353

25,000
31,796

Operating expenses Agency for International Development
151
Appropriation, current
BA

348,263

406,000

336,752

384,313

* 414,000
402,318

348,263
336,752

406,000
384,313

414,000
402,318

45,492
45,492

35,132
35,132

40,532
40,532

21,321

23,970

18,354

22,760

23,119
22,781

21,321
18,354

23,970
22,760

23,119
22,781

Total American schools and hospitals abroad
International disaster assistance
Appropriation, current

151
* 25,000

Reappropriation
Outlays
Total International disaster assistance

Outlays

0

Total Operating expenses Agency for International Development
BA
0
Payment to the Foreign Service retirement and disability fund
153
Appropriation, current
BA
Outlays
0
Operating expenses of the Agency for International
Development Office of Inspector General 151
Appropriation, current
BA
Outlays

0

Total Operating expenses of the Agency for
International Development Office of Inspector General
BA
0
See footnotes at end of table.




K

THE BUDGET FOR FISCAL YEAR

6f-20

1989

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

Funds Appropriated to

1988
estimate

1989
estimate

the President—Con.

International Development Assistance—Con.
Agency for International Development—Con.

Housing guarantee loan subsidies
Appropriation, current
Limitation on guaranteed loan commitments
Private sector revolving fund loan subsidies
Appropriation, current
Outlays
Limitation on direct loan obligations
Limitation on guaranteed loan commitments
Miscellaneous appropriations, AID
Outlays
Public Enterprise Funds:
Housing and other credit guaranty programs
Authority to borrow, permanent
Outlays
Limitation on guaranteed loan commitments
Private sector revolving fund
Appropriation, current

151
BA
w

151
BA
0

^6,065
* (5,000)
^(100,000)

151
12

781

575

20,000
20,402
(145,464)

22,000
21,543
(125,000)

22,000
25,000
(100,000)
"(-100,000)

BA

15,500

7,000

8,500
^-8,500

BA
0

4,655

5,000
6,050

(15,150)

(12,000)

0
151
BA
0
151

Reappropriation
Outlays
Limitation on direct loan obligations....,

6,400
(5,000)
(-5,000)
(100,000)
(-100,000)

w

Limitation on guaranteed loan commitments..

w

Total Private sector revolving fund

BA
0

Development loans—revolving fund
151
Outlays
Intragovernmental Funds:
Advance acquisition of property—revolving fund
151
Outlays
0
Trust funds
Miscellaneous trust funds, AID
Appropriation, permanent, indefinite
Outlays

w
15,700
(100,000)

15,500
4,655

12,000
6,050

6,400

87

-188

151
BA
0

8,981
6,817

5,000
5,000

5,000
5,000

BA
0

2,198,234
2,050,278

2,270,628
2,085,829

2,220,351
2,161,479

151 BA
-394,130
0

-433,000

-410,000

Summary

Federal funds:
(As shown in detail above)
Deductions for offsetting receipts:
Proprietary receipts from the public
See footnotes at end of table.




THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

6f-21

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Funds Appropriated to the President—Con.
International Development Assistance—Con.
Agency for International Development—Con.
QAO

DA

0

Total Federal funds

BA
0

Trust funds:
(As shown in detail above)
Deductions for offsetting receipts:
Proprietary receipts from the public

BA
0

-358J68

-310,000

-309,000

1,445,336
1,297,380

1,527,628
1,342,829

1,501,351
1,442,479

5,000
5,000

5,000
5,000

1,501,351
1,442,479

8,981
6,817

151 BA

Total Trust funds

BA
0

-736
-2,900

Total Agency for International Development

BA
0

1,444,600
1,294,480

1,527,628
1,342,829

BA

20,000

25,000

0

17,744

19,368

* 20,400
20,390

BA
0

20,000
17,744

25,000
19,368

20,400
20,390

BA

137,960

146,200

0

124,107

146,453

* 150,000
147,955

BA
0

137,960
124,107

146,200
146,453

150,000
147,955

Trade and Development Program

Federal funds
General and Special Funds:
Trade and development program
Appropriation, current

151

Outlays
Total Trade and development program
Peace Corps

Federal funds
General and Special Funds:
Peace Corps
Appropriation, current

151

Outlays
Total Peace Corps
Trust funds
Peace Corps miscellaneous trust funds
Appropriation, permanent, indefinite
Outlays

See footnotes at end of table.




151
BA
0

298
545

300
500

300
300

6f-22

THE BUDGET FOR FISCAL YEAR 1989

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Funds Appropriated to the President—Con.
International Development Assistance—Con.
Overseas Private Investment Corporation

Federal funds
General and Special Funds:
Overseas Private Investment Corporation loan subsidies
151
Appropriation, current
BA
Outlays
0
Limitation on direct loan obligations
Limitation on guaranteed loan commitments
Public Enterprise Funds:
Overseas Private Investment Corporation
151
Outlays
0
Limitation on direct loan obligations

^ 25,426
^919
w
(17,250)
w
(175,000)
-85,734
(23,000)

Limitation on guaranteed loan commitments

(200,000)

-101,043

-106,036
w
2,573
(23,000)
(17,250)
"(-17,250)
(200,000)
(175,000)
*(-175,000).

Total Overseas Private Investment Corporation.... 0

- 85,734

-101,043

-103,463

Total Federal funds Overseas Private Investment
Corporation
BA
0

-85,734

-101,043

25,426
-102,544

BA
0

11,800
10,075

13,000
11,954

13,900
20,608

BA
0

1

Inter-American Foundation

Federal funds
Public Enterprise Funds:
Inter-American Foundation
Appropriation, current
Outlays

151

Trust funds
Gifts and contributions, Inter-American Foundation
151
Appropriation, permanent, indefinite
Outlays
African Development Foundation

See footnotes at end of table.




6

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

6f-23

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Funds Appropriated to the President—Con.
International Development Assistance—Con.
African Development Foundation—Con.

Federal funds
General and Special Funds:
African Development Foundation
Appropriation, current

151
BA

6,614

7,000

6,076

6,381

BA
0

6,614
6,076

7,000
6,381

* 7,140
6,789
7,140
6,789

Total Federal funds International Development
BA
Assistance
0

3,066,116
2,675,798

3,169,046
2,931,292

3,242,566
3,073,097

Total Trust funds International Development AsBA
sistance....
0

-437
-2,355

300
506

300
300

31,128
(236,865)

-37,921
(350,000)

Outlays
Total African Development Foundation..

International Commodity Agreements

Federal funds
General and Special Funds:
Contributions to international buffer stocks
Outlays

155
2,916

International Monetary Programs

Federal funds
General and Special Funds:
United States quota, International Monetary Fund 155
Outlays
0
Maintenance of value adjustments, International Monetary Fund
155
BA
Appropriation, permanent, indefinite
Supplementary financing facility, International Monetary Fund
155
0
Outlays
Total Federal funds International Monetary ProBA
grams
0

-577,961
1,196,424
2,964
1,196,424
-574,997

Military Sales Programs

Federal funds
Public Enterprise Funds:
Special defense acquisition fund
Outlays
Limitation on program level (obligations)
See footnotes at end of table.




155

-20,653
(315,820)

THE BUDGET FOR FISCAL YEAR 1989

6f-24

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Funds; Appropriated to the President—Con.
Military Sales Programs—Con.
Trust funds
Foreign military sales trust fund
155
Contract authority, permanent, indefinite
BA
Liquidation of contract authority, permanent
Outlays
0

9,315,063
(8,503,911)
9,910,489

7,626,000
(8,417,000)
8,572,000

6,848,000
(8,062,000)
8,204,000

-20,653

31,128

-37,921

9,315,063
9,910,489

7,626,000
8,572,000

6,848,000
8,204,000

155 BA
0

-8,503,911

-8,417,000

-8,062,000

Total Trust funds

BA
0

811,152
1,406,578

-791,000
155,000

Total Military Sales Programs..

BA
0

811,152
1,385,925

-791,000
186,128

-1,214,000
142,000
-1,214,000
104,079

Federal funds
General and Special Funds:
Assistance to the Nicaraguan democratic resistance
054
BA
Appropriation, current
0
Outlays
Promotion of security and stability in Central America
153
Outlays
Humanitarian assistance for Nicaraguan democratic
resistance
151
Outlays

98,218

7,128
19,743

Summary

Federal funds:
(As shown in detail above)

0

Trust funds:
(As shown in detail above)..
Deductions for offsetting receipts:
Proprietary receipts from the public

Special Assistance for Central America

Total Federal funds Special Assistance for Central America
BA
0
Summary
Federal funds:
(As shown in detail above)
Deductions for offsetting receipts.Proprietary receipts from the public

See footnotes at end of table.




BA
0
151 BA
0
152 BA
0

2,000
173

6

98,391

7,128
21,749

13,683,773
10,494,590

12,449,833
6,262,116

13,059,101
9,872,096

-394,130

-433,000

-410,000

-464,439

-114,297

-132,041

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

6f-25

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Funds Appropriated to the President—Con.
Summary—Con.
nno

DA

*

Q

-633J64

-637,453

BA

Total Federal funds
Trust funds:
(As shown in detail above)
Deductions for offsetting receipts:
Proprietary receipts from the public

12,191,440

11,265,083

11,841,646

0

9,002,257

5,077,366

8,654,641

BA
0

9,324,343
9,917,851

7,631,300
8,577,506

6,853,300
8,209,300

_gjn

_ ^

_5m

-8,417,000

-8,062,000

151 BA
155

Total Trust funds

Q A -8,503,911
BA

810,715

-790,700

1,404,223

155,506

142,300

BA

13,002,155

10,474,383

10,627,946

0

10,406,480

5,232,872

8,796,941

0
Total Funds Appropriated to the President

-675,414

-1,213,700

Department of Agriculture
Office of the Secretary
Federal funds
General and Special Funds:
Office of the Secretary
Appropriation, current
Outlays
Trust funds
Gifts and bequests
Appropriation, permanent, indefinite
Outlays

352
BA
0

15,266
4,314

5,710
5,246

5,998
5,983

352
BA
0

50
41

50
50

50
50

Departmental Administration
Federal funds
General and Special Funds:
Departmental administration
Appropriation, current
Outlays
Hazardous waste management
Appropriation, current
Outlays
Rental payments and building operations
Appropriation, current
Outlays
Advisory committees
Appropriation, current
Outlays
See footnotes at end of table.




352
BA
0

22,019
21,706

24,916
23,436

26,542
26,371

304
BA
0

2,000
1,000

10,000
6,000

352
BA
0

67,011
59,312

69,777
69,502

78,836
78,251

352
BA
0

1,408
770

1,308
1,308

2,294
1,953

6f-26

THE BUDGET FOR FISCAL YEAR 1989

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Department of Agriculture—Con.
Departmental Administration—Con.
Intragovernmental Funds:
Working capital fund
352
Appropriation, current
BA
Outlays
0
Total Federal funds Departmental Administration. BA

5,708
5,779
96,146

5,708
5,708
103,709

6,000
5,996
123,672

87,567

100,954

118,571

BA
0

8,386
7,728

8,673
8,574

8,919
8,867

BA
0

45,416
44,579

48,795
47,663

51,442
51,060

BA
0

17,670
15,864

18,734
18,703

23,064
23,018

BA
0

518,237
491,201

540,684
534,033

560,957
550,614

57,815
41,552

11,000
36,042

3,039
3,000
519,237

5,000
5,000
598,499

5,000
5,000
571,957

523,511

575,585

586,656

3,039
3,000

5,000
5,000

5,000
5,000

0
Office of Governmental and Public Affairs
Federal funds
General and Special Funds:
Office of Governmental and Public Affairs
Appropriation, current
Outlays

352

Office of the Inspector General
Federal funds
General and Special Funds:
Office of the Inspector General
Appropriation, current
Outlays

352

Office of the General Counsel
Federal funds
General and Special Funds:
Office of the General Counsel
Appropriation, current
Outlays

352

Agricultural Research Service
Federal funds
General and Special Funds:
Agricultural Research Service
Appropriation, current
Outlays
Buildings and facilities
Appropriation, current
Outlays

352
352
BA
0

Trust funds
Miscellaneous contributed funds
352
Appropriation, permanent, indefinite
BA
Outlays
0
Total Federal funds Agricultural Research Service BA

0
Total Trust funds Agricultural Research Service... BA
0
See footnotes at end of table.




1,000
32,310

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

6f-27

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Department of Agriculture—Con.
Cooperative State Research Service
Federal funds
Genera! and Special Funds:
Cooperative State Research Service
Appropriation, current
Appropriation, permanent
Outlays

352

Total Cooperative State Research Service

BA
BA
0

376,673
2,800
281,287

303,654
2,600
304,105

257,489
275,637

BA

379,473

306,254

257,489

0

281,287

304,105

275,637

BA

338,972

357,963

299,542

0

318,916

352,825

311,848

11,098

12,194

13,599

11,834

13,095

Extension Service
Federal funds
General and Special Funds:
Extension Service
Appropriation, current

352

Outlays
National Agricultural Library
Federal funds
General and Special Funds:
National Agricultural Library
Appropriation, current

352
BA

Outlays

0

8,771

National Agricultural Statistics Service
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current

352

Outlays
Trust funds
Miscellaneous contributed funds
Appropriation, permanent, indefinite

BA

57,889

61,176

64,086

0

60,263

54,024

63,518

352

Outlays

BA

153

150

150

0

104

150

150

Economic Research Service
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current
Outlays
Trust funds
Miscellaneous contributed funds
Appropriation, permanent, indefinite
Outlays
See footnotes at end of table.




352
BA
0

44,977
43,162

48,186
47,542

49,771
49,280

352
BA
0

53
47

200
200

200
200

6f-28

THE BUDGET FOR FISCAL YEAR 1989

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Department of Agriculture—Con.
World Agricultural Outlook Board

Federal funds
General and Special Funds:
World agricultural outlook board
Appropriation, current

352

Outlays

BA

1,644

1,730

1,906

0

1,530

1,679

1,864

Foreign Agricultural Service
Federal funds
General and Special Funds:
Foreign Agricultural Service
Appropriation, current
Outlays

352
BA
0

83,783
78,122

92,217
87,841

89,057
89,352

5,295
5,249

3,972
4,209

2,500
3,668

1,500
1,973

734

2,664
2,909

5,188
5,188

5,188
5,188

Office of International Cooperation and
Development
Federal funds
General and Special Funds:
Salaries and expenses
352
Appropriation, current
BA
Outlays
0
Scientific activities overseas (foreign currency program)
352
Appropriation, current
BA
Outlays
0

5,149
32,579

Trust funds
Miscellaneous contributed funds
352
Appropriation, permanent, indefinite
BA
Outlays
0
Total Federal funds Office of International Cooperation and Development
BA
0

7,649
36,247

Total Trust funds Office of International Cooperation and Development
BA

2,664

5,188

5,188

2,909

5,188

5,188

0

6,795
7,222

3,972
4,943

Foreign Assistance Programs
Federal funds
General and Special Funds:
Expenses, Public Law 480, foreign assistance programs, Agriculture
151
Appropriation, current
BA

Outlays

0

Total Expenses, Public Law 480, foreign assistance programs, Agriculture
BA

0
See footnotes at end of table.




1,083,071

1,059,596

1,023,200
*-214,223

969,938

1,154,634

1,083,071

1,059,596

808,977

969,938

1,154,634

887,472

w

1,081,750
—194,278

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

6f-29

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Department of Agriculture—Con.
Agricultural Stabilization and Conservation
Service
Federal funds
General and Special Funds:
Salaries and expenses
Outlays
Rural clean water program
Appropriation, current
Outlays
Agricultural conservation program
Appropriation, current
Outlays
Colorado river basin salinity control program
Appropriation, current
Outlays
Conservation reserve program
Appropriation, current
Outlays
Water bank program
Appropriation, current
Outlays
Emergency conservation program
Appropriation, current
Outlays
Dairy indemnity program
Appropriation, current
Outlays
Forestry incentives program
Appropriation, current
Outlays

351
0

15,635

124

BA
0

-6,000
6,481

6,278

5,734

BA
0

176,935
157,511

176,935
259,139

122,000

BA
0

3,804
1,284

4,904
4,972

2,452

1,085,760
736,316

1,864,000
1,840,644

304
302
304
302
BA
0
302
BA
0

8,371
9,519

8,371
5,340

3,925

BA
0

10,000
4,657

1,000
8,295

2,878

BA
0

648
8,234

95
95

BA
0

11,891
9,083

11,891
14,036

8,341

Total Federal funds Agricultural Stabilization and
Conservation Service
BA
0

205,649
212,404

1,288,956
1,034,595

1,864,000
1,985,974

209,568

200,000

217,970

176,288

201,675

210,525

209,568
176,288

200,000
201,675

217,970
210,525

453
351
302

Federal Crop Insurance Corporation
Federal funds
General and Special Funds:
Administrative and operating expenses
Appropriation, current

351

Outlays..
Total Administrative and operating expenses

See footnotes at end of table.




BA
.... 0
BA
0

6f-30

THE BUDGET FOR FISCAL YEAR 1989

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Department of Agriculture—Con.
Federal Crop Insurance Corporation—Con.
Public Enterprise Funds:
Federal Crop Insurance Corporation fund
Appropriation, current

351
BA

135,743

228,523

112,000

0

277,578

289,650

330,250

BA
0

135,743
277,578

228,523
289,650

112,000
330,250

Total Federal funds Federal Crop Insurance Corporation
BA
0

345,311
453,866

428,523
491,325

329,970
540,775

BA
BA

122,689

152,130

BA

19,941,886
(2,551,777)
22,407,870

16,142,121
(7,333,612)
17,657,320

124,925
J
6,524
11,284
15,533,425

(6,953)

(7,157)

20,064,575
22,407,870

16,294,251
17,657,320

15,676,158
17,150,787

50,000
46,496

50,000
49,985

15,800

Outlays
Total Federal Crop Insurance Corporation fund

Commodity Credit Corporation
Federal funds
Public Enterprise Funds:
Commodity Credit Corporation Fund
Appropriation, permanent, indefinite
Authority to borrow, current

351

Authority to borrow, permanent
Liquidation of contract authority, current
Outlays

0

Limitation on administrative expenses and direct
loans
Limitation on guaranteed loan commitments
Total Commodity Credit Corporation Fund

BA
0

w

17,132,979
'6,524
"11,284
J

(7,268)
(-2,000,000)

General and Special Funds:
Temporary emergency food assistance program
351
Appropriation, current
BA
Outlays
.,
0
Commodity Credit Corporation export loan guarantee
subsidies
351
Appropriation, current
BA
Authority to borrow, current
BA
Outlays
0

* 554,000
* 554,000

Total Commodity Credit Corporation export loan
guarantee subsidies
BA
0
Total Federal funds Commodity Credit Corporation
BA
0
See footnotes at end of table.




554,000
554,000
20,114,575
22,454,366

16,344,251
17,707,305

16,230,158
17,720,587

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

6f-31

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Department of Agriculture—Con.
Office of Rural Development Policy
Federal funds
General and Special Funds:
Salaries and expenses
Outlays

452
96

25

BA
0

29,447
26,328

30,868
31,692

BA
0

20,000
20,000

327,675
327,675

BA
0

28,710
28 710

28,710
28 710

0

Rural Electrification Administration
Federal funds
General and Special Funds:
Salaries and expenses
271
Appropriation, current
Outlays
Reimbursement to the Rural electrification and telephone revolving fund for interest subsidies and
losses
271
Appropriation, current
Outlays
Purchase of Rural Telephone Bank capital stock 452
Appropriation, current
Outlays
Rural electrification and telephone revolving fund loan
subsidies
271
Appropriation, current
Outlays
Limitation on guaranteed loan commitments
Rural telephone bank loan subsidies
452
Appropriation, current
Outlays
Limitation on direct loan obligations
Public Enterprise Funds:
Rural communication development fund
452
Appropriation, current
Outlays
Rural electrification and telephone revolving fund
271
Authority to borrow, permanent
Outlays

BA
0

"80,680
* 10,420
" (1,318,955)

BA
0

"26,920
"1,615
"(177,045)

BA
0

1,591
772

1,309
1,309

BA
0

244,720
-251,954

1,083,000
-1,357,375

(1,032,887)

(1,794,375)

Limitation on direct loan obligations
Limitation on guaranteed loan commitments
Total Rural electrification and telephone revolving fund
BA
0

See footnotes at end of table.




22,137
22,996

1,447
1,447

782,400
' -2,092,630
'(1,318,955)
"(-1,318,955)

244,720
-251,954

1,083,000
-1,357,375

-1,310,230

6f-32

THE BUDGET FOR FISCAL YEAR 1989

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1989
estimate

1988
estimate

Department of Agriculture—Con.
Rural Electrification Administration—Con.
Rural telephone bank
Appropriation, current, indefinite

452
BA

J

-51,026
- 78,864
129,890

w

Authority to borrow, permanent, indefinite

BA

79,838

Outlays..

-61,714

Limitation on direct loan obligations..

(185,115)

Total Rural telephone bank

-219,257

75,334
'-51,026
*-10,623
(177,045)
(177,045)
w
(-177,045)

BA
0

79,838
-61,714

-219,257

13,685

Total Federal funds Rural Electrification Administration
BA
0

404,306
-237,858

1,471,562
-1,187,246

131,184
-1,260,067

BA
0

394,545
383,880

408,234
405,100

420,188
416,600

BA
0

109,395
157,076

109,395
162,621

75,000
140,108

BA
0

3,091
2,599

3,091
3,043

1,754

BA
0

9,513
8,848

9,513
11,295

10,661

Farmers Home Administration
Federal funds
General and Special Funds:
Salaries and expenses
452
Appropriation, current
Outlays
Rural water and waste disposal grants
452
Appropriation, current
Outlays
Rural community fire protection grants
452
Appropriation, current
Outlays
Rural housing for domestic farm labor
604
Appropriation, current
Outlays
Rural development insurance fund loan subsidies 452
Appropriation, current
Outlays
Limitation on direct loan obligations
Limitation on guaranteed loan commitments
Mutual and self-help housing
604
Appropriation, current
Outlays
Very low-income housing repair grants
604
Appropriation, current
Outlays
Rural housing voucher program
604
Appropriation, current
Outlays
Compensation for construction defects
371
Appropriation, current
Outlays
See footnotes at end of table.




BA
0
w

^41,731
"1,808
(300,000)
w
(95,700)

BA
0

8,000
6,419

8,000
7,661

7,750

BA
0

12,500
13,248

12,500
12,669

625

BA
0

14,499

18,714

381,600
23,543

BA
0

713
275

713
713

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

6f-33

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Department of Agriculture—Con.
Farmers Home Administration—Con.
Rural housing preservation grants
Appropriation, current
Outlays
Rural development grant program
Appropriation, current
Outlays
Agricultural credit insurance fund loan subsidies
Appropriation, current
Outlays
Limitation on direct loan obligations
Limitation on guaranteed loan commitments
Public Enterprise Funds:
Agricultural credit insurance fund
Appropriation, current
Authority to borrow, current, indefinite
Authority to borrow, permanent, indefinite
Outlays

604
BA
0

19,140
10,172

19,140
18,066

BA
0

3,000
126

6,500
9,495

325

351
BA
0

"74,769
"70,990
* (600,000)
* (3,600,000)

351
BA
BA
BA
0

1,323,403
1,609,820
2,563,710
(21,930)
(1493,241)

Limitation on guaranteed loan commitments..

(1,565,493)

Total Agricultural credit insurance fund

3,467,596
-598,300
2,152,402
1,823,677
2,123,518
w
- 568,300
(100,000)
(100,000)
(1,625,156)
(600,000)
*(-600,000)
(2,793,000) (3,600,000)
w (-3,600,000)
3,615,153

w

Limitation on administrative expensesLimitation on direct loan obligations

Self-help housing land development fund
Outlays
Limitation on direct loan obligations
Rural housing insurance fund
Appropriation, current
Indefinite
Authority to borrow, permanent, indefinite
Outlays

20,377

452

BA
0

2,933,223
2,563,710

3,615,153
2,123,518

5,021,698
1,255,377

0

422
(500)

517
(500)

-247

BA
BA
BA
0

2,296,283
137,341

2,964,249
160,357
3,213,951
3,246,735

3,660,061
204,428

371
371

798,125

7l

-88,607
Limitation on administrative expenses..
Limitation on direct loan obligations
Total Rural housing insurance fund

See footnotes at end of table.




BA
0

(275,310)
(1,918,093)

(405,810)
(1,714,490)

2,433,624
798,125

6,338,557
3,246,735

3,864,489
1,322,401

6f-34

THE BUDGET FOR FISCAL YEAR 1989

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Department of Agriculture—Con.
Farmers Home Administration—Con.
Rural development insurance fund
Appropriation, current

452

Authority to borrow, permanent, indefinite
Outlays

BA

656,645

835,182

BA
0

170,000
-209,557

3,067,849
777,235

1,607,047

490,811
'-67,226
-11,139
(426,080)
(300,000)
w
( -300,000)
(95,700)
(95,700)
w
{ -95,700)
w

Limitation on direct loan obligations

(426,080)

Limitation on guaranteed loan commitments

(114,840)

Total Rural development insurance fund

BA
0

826,645
-209,557

3,903,031
777,235

1,607,047
412,446

BA
0

-2,193

7,500
13,082

1,597

Total Federal funds Farmers Home Administration
BA
O

6,753,389
3,747,649

14,441,327
6,810,464

11,486,522
3,686,115

BA
0

399,671
361,819

443,910
461,839

455,208
454,327

BA
0

197,830
227,419

186,575
234,896

116,000
141,899

BA
0

20,474
17,531

20,474
19,806

6,013
13,584

BA
0

25,020
24,403

25,120
25,624

25,020
25,060

Rural development loan fund
Appropriation, current
Outlays

452

Soil Conservation Service
Federal funds
General and Special Funds:
Conservation operations
Appropriation, current
Outlays
Water resource management and improvement
Appropriation, current
Outlays
Great plains conservation program
Appropriation, current
Outlays
Resource conservation and development
Appropriation, current
Outlays
Trust funds
Miscellaneous contributed funds:
(Water resources)
(Appropriation, permanent, indefinite)
(Outlays)

See footnotes at end of table.




302
301
302
302

301
BA
0

192
864

460
1,769

460
1,769

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

6f-35

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Department of Agriculture—Con.
Soil Conservation Service—Con.

(Conservation and land management)
(Appropriation, permanent, indefinite)
(Outlays)

302
BA
0

100
100

100
100

100
100

Total Miscellaneous contributed funds

BA
0

292
964

560
1,869

560
1,869

Total Federal funds Soil Conservation Service

BA
0

Total Trust funds Soil Conservation Service

BA
0

642,995
631,172
292
964

676,079
742,165
560
1,869

602,241
634,870
560
1,869

Animal and Plant Health Inspection Service
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current
Outlays
Buildings and facilities
Appropriation, current
Outlays

352
BA
0

311,467
317,463

329,330
330,945

294,243
299,296

352
BA
0

2,246
1,795

2,246
2,246

2,847
2,246

BA
0

5,086
4,729

4,735
4,735

4,735
4,735

Total Federal funds Animal and Plant Health
Inspection Service
BA
0

313,713
319,258

331,576
333,191

297,090
301,542

Total Trust funds Animal and Plant Health Inspection Service
BA
0

5,086
4,729

4,735
4,735

4,735
4,735

6,826
6,879

7,020
6,967

8,255
8,051

7,020
6,967

8,255
8,051

Trust funds
Miscellaneous trust funds
Appropriation, permanent, indefinite
Outlays

352

Federal Grain Inspection Service
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current
Outlays
Public Enterprise Funds:
Inspection and weighing services
Outlays

352
BA
0
352
0

Total Federal funds Federal Grain Inspection
Service
BA
0
See footnotes at end of table.




-2,971
6,826
3,908

6f-36

THE BUDGET FOR FISCAL YEAR 1989

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Department of Agriculture—Con.
Agricultural Marketing Service

Federal funds
General and Special Funds:
Marketing services
352
Appropriation, current
Outlays
Payments to States and possessions
352
Appropriation, current
Outlays
Perishable Agricultural Commodities Act fund 352
Appropriation, permanent, indefinite
Outlays
Funds for strengthening markets, income, and supply
(section 32)
605
Appropriation, permanent, indefinite
Outlays
Trust funds
Miscellaneous trust funds
Appropriation, permanent, indefinite
Outlays
Milk market orders assessment fund
Outlays

BA
0

31,435
18,915

BA
0

942
763

BA
0

3,834
4,197

32,409
25,485
942
883

33,087
32,753
917

5,329
5,329

5,329
5,329

BA
0

434,285
391,003

366,742
404,552

403,261
362,040

BA
0

85,502
65,692

85,979
85,979

85,979
85,979

352
351
0

Total Federal funds Agricultural Marketing Service
BA

470,496

405,422

441,677

414,878

436,249

401,039

BA

85,502

85,979

85,979

0

65,692

89,036

85,979

BA
0

2,397
2,293

2,397
2,385

1,395
1,574

BA
0

372,973
372,125

392,009
390,980

405,680
404,723

0
Total Trust funds Agricultural Marketing Service.

3,057

Office of Transportation
Federal funds
General and Special Funds:
Office of Transportation
Appropriation, current
Outlays

352

Food Safety and Inspection Service
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current
Outlays

554

Trust funds
Expenses and refunds, inspection and grading of farm
products
352
Appropriation, permanent, indefinite
BA
Outlays
0
See footnotes at end of table.




874
918

825
825

825
825

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

6f-37

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Department of Agriculture—Con.
Food and Nutrition Service

Federal funds
General and Special Funds:
Food program administration
Appropriation, current
Outlays
Food stamp program
Appropriation, current
Outlays
Nutrition assistance for Puerto Rico
Appropriation, current
Outlays
Special milk program
Appropriation, current
Outlays
Child nutrition programs
Appropriation, current
Appropriation, permanent
Outlays

605
BA
0

84,794
77,410

85,828
91,525

94,825
94,105

BA
0

11,793,288
11,555,481

12,638,880
12,550,949

12,519,705
12,504,204

BA
0

852,750
851,984

879,250
875,507

908,250
907,496

BA
0

18,295
15,446

21,500
23,721

19,925
22,015

BA
BA
0

1,064,923
3,295,937
4,044,830

679,826
3,817,803
4,404,692

515,855
4,093,272
4,675,224

BA
0

4,360,860
4,044,830

4,497,629
4,404,692

4,609,127
4,675,224

BA
0

1,704,994
1,701,705

1,852,363
1,861,109

1,923,848
1,921,931

BA
0

193,589
188,254

194,108
192,987

199,147
198,190

Total Federal funds Food and Nutrition Service.... BA
0

19,008,570
18,435,110

20,169,558
20,000,490

20,274,827
20,323,165

Human Nutrition Information Service
Federal funds
General and Special Funds:
Salaries and expenses
352
Appropriation, current
BA
Outlays
0

6,985
9,649

8,623
7,628

9,288
8,910

Packers and Stockyards Administration
Federal funds
General and Special Funds:
Packers and Stockyards Administration
352
Appropriation, current
BA
Outlays
0

9,081
9,033

9,402
9,355

9,562
9,546

Agricultural Cooperative Service
Federal funds
General and Special Funds:
Salaries and expenses
352
Appropriation, current
BA
Outlays
0

4,547
4,583

4,611
4,210

2,303
3,282

605
605
605
605

Total Child nutrition programs
Supplemental feeding programs
Appropriation, current
Outlays
Cash and commodities for selected groups
Appropriation, current
Outlays

See footnotes at end of table.




605
605

6f-38

THE BUDGET FOR FISCAL YEAR 1989

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Department of Agriculture—Con.
Forest Service
Federal funds
General and Special Funds:
National forest system
302
Appropriation, current
Outlays
Construction
302
Appropriation, current
Outlays
Forest research
302
Appropriation, current
Outlays
State and private forestry
302
Appropriation, current
Outlays
Other appropriations
302
Appropriation, current
Outlays
Operation and maintenance of recreation facilities 303
Appropriation, current

BA
0

1,185,168
1,231,440

1,243,391
1,165,777

1,159,655
1,169,242

BA
0

267,195
228,456

214,078
219,454

203,974
190,524

BA
0

126,721
119,867

135,510
129,789

129,279
122,764

BA
0

66,554
55,360

76,469
78,998

34,781
45,745

37,000
34,169

40,699
29,394

BA
0

193

BA

8,700
23,100
6,534
J
17,348

J

Outlays

0

Total Operation and maintenance of recreation
facilities
BA
0
Range betterment fund
302
Appropriation, current, indefinite
Outlays
Land acquisition
303
Appropriation, current
Outlays
Acquisition of lands for national forests, special
acts
302
Appropriation, current
Outlays
Acquisition of lands to complete land exchanges 302
Appropriation, current, indefinite
Outlays
Operations and maintenance of quarters
302
Appropriation, permanent, indefinite
Outlays
Forest Service permanent appropriations
302
Appropriation, current, indefinite
Appropriation, permanent, indefinite
Outlays
Total Forest Service permanent appropriations
See footnotes at end of table.




BA
0
BA
0

31,800
23,882
3,807
3,711
52,236
52,549

3,605
3,645

3,875
3,821

49,076
54,281

3,900
36,911

BA
0

966
491

966
907

966
966

BA
0

1,573
1,496

990
1,052

335
408

BA
0

5,730
4,729

5,500
5,440

5,869
5,805

BA
BA
0

-30,000
140,870
120,277

-75,000
145,556
144,298

91,733
111,425

BA
0

110,870
120,277

70,556
144,298

91,733
111,425

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

6f-39

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Department of Agriculture—Con.
Forest Service—Con.

Forest Service permanent appropriations
Appropriation, permanent indefinite

806

Outlays
Total Forest Service permanent appropriations
Intragovernmental Funds:
Working capital fund
Outlays

213,043

314,382

306,433

0

303,397

288,750

307,776

BA

213,043

314,382

306,433

0

303,397

288,750

307,776

0

4,048

302

Trust funds
Reforestation trust fund
302
Appropriation, permanent, indefinite
Outlays
Cooperative work trust fund
302
Appropriation, permanent, indefinite
Outlays
Gifts, donations and bequests for forest and rangeland
research
302
Appropriation, current
Outlays
Highway Construction: Mount St. Helens National
Monument
401
Contract authority, current
Outlays
Total Federal funds Forest Service
Total Trust funds Forest Service
Summary
Federal funds:
(As shown in detail above)
Deductions for offsetting receipts:
Intrafund transactions

BA

BA
0

31,196
33,159

30,000
30,000

30,000
30,000

BA
0

254,019
72,216

250,369
252,055

267,748
265,037

BA
0

27
39

90
90

BA
0

9,915
6,644

2,271

BA

2,033,863

2,151,523

2,013,299

2,126,014

2,126,560

2,048,663

BA

295,157

280,459

297,838

0

112,058

284,416

296,127

53,406,353
51,440,345

60,863,070
51,695,079

56,480,902
49,309,913

BA
0
302 BA
302 BA

~u
_mm

QA
303

Q

See footnotes at end of table.




_

i m m

'23,100
A

-8,700

QA
Total Federal funds

1,000

0

0
Proprietary receipts from the public

90
90

'-23,100

_

;

^ ^

J

23,300
-8,700

'-23,300

BA

52,477,269

59,844,240

55,462,682

0

50,511,261

50,676,249

48,291,693

6f-40

THE BUDGET FOR FISCAL YEAR 1989

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1989
estimate

1988
estimate

Department of Agriculture—Con.
Summary—Con.
Trust funds:
(As shown in detail above)

BA
0

Deductions for offsetting receipts-.
Proprietary receipts from the public

302 BA
0
352 BA
0

392,870
190,462

383,146
391,469

400,525
400,123

-254,019

-250,369

-267,748

-97,663

-102,637

-102,637

Total Trust funds

BA
0

41,188
-161,220

30,140
38,463

30,140
29,738

Total Department of Agriculture

BA
0

52,518,457
50,350,041

59,874,380
50,714,712

55,492,822
48,321,431

36,556

39,204

41,303

34,095

42,016

41,166

292

151

300

24,986
25,107
189,943
1,596
204,503
(187,500)

24,742
23,607
182,028

40,000
22,335

Department of Commerce
General Administration
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current
Outlays
Special foreign currency program
Outlays
Grants and loans administration
Appropriation, current
Outlays
Economic development assistance programs
Appropriation, current
Reappropriation
Outlays
Limitation on guaranteed loan commitments

376
BA
0
376
0
452
BA
0
452
BA
BA
0

Total Economic development assistance programs
BA
0
Miscellaneous appropriations:
(Other advancement of commerce)
(Outlays)
(Area and regional development)
(Appropriation, current)
(Outlays)
(Training and employment)
(Outlays)

See footnotes at end of table.




182,028
217,605

178,512

178,512

376
0

-23

BA
0

671

0

316

452
504

Total Miscellaneous appropriations
Public Enterprise Funds:
Economic development revolving fund
Outlays

191,539
204,503

217,605
(187,500) ..

BA

-1,541
1,000

964

-1,541
1,000

110,885

26,100

..

452
25,100

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

6f-41

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Department of Commerce—Con.
General Administration—Con.
Intragovernmental Funds:
Working capital fund
Outlays

376
0

Trust funds
Gifts and bequests
376
Appropriation, permanent, indefinite
BA
Outlays
0
Total Federal funds General Administration
BA

0
Total Trust funds General Administration

BA
0

298

427
376
253,081

200
200
244,433

200
200
81,303

376,144

310,479

267,413

427
376

200
200

200
200

Bureau of the Census

Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current

376

Outlays
Periodic censuses and programs
Appropriation, current

BA

92,331

94,835

103,970

0

83,105

101,790

102,965

376

Outlays
Total Federal funds Bureau of the Census

BA

174,806

346,444

567,211

0

133,993

344,941

488,283

BA

267,137

441,279

671,181

0

217,098

446,731

591,248

BA

30,450

32,079

0

28,544

32,857

Economic and Statistical Analysis

Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current

376

Outlays
Total Salaries and expenses
Trust funds
Information products and services
Appropriation, permanent, indefinite
Outlays

BA

30,450

32,079

32,539

0

28,544

32,857

32,468

BA
0

40,910
34,917

43,000
43,000

49,000
49,000

376

Economic Development Assistance
Regional Development Pfogtstn

Federal funds
General and Special Funds:
Regional development programs
Outlays
See footnotes at end of table.




30,832
1,707
32,468

K

452
0

95

142

6f-42

THE BUDGET FOR FISCAL YEAR 1989

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Department of Commerce—Con.
Economic Development Assistance—Con.
Regional Development Program—Con.

Trust funds
Regional development commissions
Outlays

452
0

100

238

Promotion of Industry and Commerce
International Trade Administration

Federal funds
General and Special Funds:
Operations and administration
Appropriation, current

376

Outlays
Participation in United States expositions
Outlays

BA

201,755

161,432

169,337

0

187,812

158,357

173,473

0

7

376

Total Federal funds International Trade Administration
BA

0

441

201,755

161,432

169,337

187,819

158,798

173,473

37,465
26,413

39,313
35,097

Export Administration

Federal funds
General and Special Funds:
Operations and administration
Appropriation, current
Outlays

376
BA
0

Promotion of Industry and Commerce
Minority Business Development Agency

Federal funds
General and Special Funds:
Minority business development
Appropriation, current
Outlays

376
BA
0

39,845
44,492

39,705
40,561

27,232

BA

11,547

11,724

11,000

0

10,882

11,271

11,165

51,392

51,429

11,000

55,374

51,832

38,397

United States Travel and Tourism
Administration

Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current

Outlays

376

Total Federal funds Promotion of Industry and
Commerce
BA

0
See footnotes at end of table.




THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

6f-43

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

estimate

1989
estimate

Department of Commerce—Con.
Science and Technology
National Oceanic and Atmospheric
Administration

Federal funds
General and Special Funds:
Operations, research, and facilities
Appropriation, current

306

Outlays..
Total Operations, research, and facilities

BA

1,097,722

1,154,412

1,099,660

0

1,048,292

1,175,457

* 21,011
1,168,497

BA
0

1,097,722
1,048,292

1,154,412
1,175,457

1,120,671
1,168,497

Construction
306
Outlays
0
Fisheries promotional fund
376
Appropriation, current
BA
Outlays
0
Promote and develop fishery products and research
pertaining to American fisheries
376
Appropriation, current
BA
Appropriation, permanent, indefinite
BA
Outlays
0
Total Promote and develop fishery products and
research pertaining to American fisheries... BA
0
Fishing vessel and gear damage compensation
fund
376
Appropriation, current
Outlays
Fishermen's contingency fund
376
Appropriation, current
Outlays
Foreign fishing observer fund
376
Appropriation, current
Outlays
Fisheries loan fund
376
Outlays
Public Enterprise Funds:
Coastal energy impact fund
452
Outlays
Federal ship financing fund, fishing vessels
376
Outlays

See footnotes at end of table.




375
750

325 .
2,625
2196

1179

-52,550
57,426
7,718

-47,022
56,337
16,436

-56,300
56,300
4,869

4,876
7,718

9,315
16,436

4,869

BA
0

1,114

1,835

500
500

BA
0

750
779

719
697

750
747

BA
0

2,000
2,322

1,919
2,400

2,000
1,997

0

-44

-188

0

-12,489

-5,715

-7,280

0

-2,989

-6,418

-4,593

6f-44

THE BUDGET FOR FISCAL YEAR 1989

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Department of Commerce—Con.
Science and Technology—Con.
National Oceanic and Atmospheric
Administrat/on—Con.

Trust funds
Aviation weather services program
Appropriation, current
Outlays

306
BA
0

29,000
29,000

28,291
28,291

30,000
30,000

Total Federal funds National Oceanic and Atmospheric Administration
BA
0

1,106,098
1,045,078

1,168,990
1,187,025

1,123,921
1,165,916

Total Trust funds National Oceanic and Atmospheric Administration
BA
0

29,000
29,000

28,291
28,291

30,000
30,000

BA
0

98,000
85,899

120,000
112,543

122,504
121,377

BA

121,249

140,788

0

119,158

135,387

* 151,989
149,083

121,249
119,158

140,788
135,387

151,989
149,083

Patent and Trademark Office

Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current
Outlays

376

National Bureau of Standards

Federal funds
General and Special Funds:
Scientific and technical research and services
Appropriation, current

376

Outlays

Total Scientific and technical research and services
BA
0
Intragovernmental Funds:
Working capital fund
Appropriation, current
Outlays
Total Working capital fund

376
BA




3,995

0

-6,363

3,057

* 6,050
5,022

BA
0

2,119
-6,363

3,995
3,057

6,050
5,022

144,783
138,444

158,039
154,105

Total Federal funds National Bureau of Standards
BA
0

See footnotes at end of table.

2,119

123,368
112,795

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

6f-45

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Department of Commerce—Con.
Science and Technology—Con.
National Telecommunications and
Information Administration

Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current

376
BA

13,206

13,814

0

12,548

14,681

13,630
13,626

BA
0

13,206
12,548

13,814
14,681

13,630
13,626

Public telecommunications facilities, planning and construction
503
Appropriation, current
BA
Outlays
0

20,500
21,649

21,290
21,850

19,015

Total Federal funds National Telecommunications
and Information Administration
BA
0

33,706
34,197

35,104
36,531

13,630
32,641

Outlays
Total Salaries and expenses

K

Total Federal funds Science and Technology

BA
0

1,361,172
1,277,969

1,468,877
1,474,543

1,418,094
1,474,039

Total Trust funds Science and Technology

BA
0

29,000
29,000

28,291
28,291

30,000
30,000

BA
0

2,164,987
2,143,043

2,436,994
2,501,795

2,422,767
2,612,135

C70
—j/o

ccn
—DDU

MM
—4UU

Summary
Federal funds:
(As shown in detail above)
Deductions for offsetting receipts:
Intrafund transactions

908 BA
«

Proprietary receipts from the public

306 BA
376

Total Federal funds
Trust funds:
(As shown in detail above)
Deductions for offsetting receipts:
Proprietary receipts from the public
Total Trust funds

See footnotes at end of table.




_gm

_ ^

_ ^

jj A

-28,485

-20,379

-13,379

BA
0

2,125,926
2,103,982

2,391,428
2,456,229

2,382,660
2,572,028

BA
0

70,337
64,393

71,491
71,729

79,200
79,200

35,311
29,367

34,511
34,749

37,060
37,060

376 BA
BA
0

6f-46

THE BUDGET FOR FISCAL YEAR 1989

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Department of Commerce—Con.
Summary—Con.
376 BA
0

Interfund transactions
Total Department of Commerce

BA
0

'
2,155,353
2,127,465

-6,020

-6,860

2,419,919
2,484,958

2,412,860
2,602,228

Department of Defense—Military
Military Personnel
Federal funds
General and Special Funds:
Military personnel, Army
Appropriation, current
Outlays
Military personnel, Navy
Appropriation, current
Outlays
Military personnel, Marine Corps
Appropriation, current
Outlays
Military personnel, Air Force
Appropriation, current
Outlays
Reserve personnel, Army
Appropriation, current
Outlays
Reserve personnel, Navy
Appropriation, current
Outlays
Reserve personnel, Marine Corps
Appropriation, current
Outlays
Reserve personnel, Air Force
Appropriation, current
Outlays
National Guard personnel, Army
Appropriation, current
Outlays
National Guard personnel, Air Force
Appropriation, current
Outlays
Total Federal funds Military Personnel

See footnotes at end of table.




051
BA
0

23,052,501
22,229,933

23,701,252
23,630,400

24,418,500
24,319,400

BA
0

17,625,440
17,070,363

18,176,297
18,056,000

18,965,300
18,863,300

BA
0

5,407,053
5,291,397

5,542,842
5,477,300

5,716,200
5,650,900

BA
0

19,535,558
19,218,330

19,815,960
19,589,100

20,094,200
20,003,800

BA
0

2,114,539
2,073,758

2,262,885
2,236,800

2,260,000
2,233,900

BA
0

1,394,892
1,367,007

1,512,963
1,475,900

1,621,400
1,577,900

BA
0

277,947
279,117

295,411
289,000

315,700
309,600

BA
0

569,600
581,007

615,081
596,400

655,300
642,600

BA
0

3,083,997
2,969,295

3,234,299
3,139,300

3,325,300
3,221,000

BA
0

948,578
939,366

988,189
962,900

1,027,400
1,004,400

BA
0

74,010,105
72,019,573

76,145,179
75,453,100

78,399,300
77,826,800

051
051
051
051
051
051
051
051
051

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

6f-47

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1989
estimate

1988
estimate

Department of Defense—Military—Con
Operation and Maintenance
Federal funds
General and Special Funds:
Operation and maintenance, Army
Appropriation, current

051

Outlays
Total Operation and maintenance, Army
Operation and maintenance, Navy
ADDrooriation current

20,478,310

20,991,558

0

19,968,413

20,889,700

* 22,085,200
21,269,600

BA
0

20,478,310
19,968,413

20,991,558
20,889,700

22,085,200
21,269,600

BA

23,346,965

23,925,675

0

22,293,987

23,274,800

"24,945,800
24,130,000

BA
0

23,346,965
22,293,987

23,925,675
23,274,800

24,945,800
24,130,000

1,809,640

1,794,188

051

Outlays

Total Operation and maintenance, Navy
051

CO

Operation and maintenance, Marine Corps

BA

Appropriation, current
Outlays
Total Operation and maintenance, Marine Corps..

Operation and maintenance, Air Force
Appropriation, current

CD

K

1,722,191

1,784,200

1,792,000
1,774,600

BA
0

1,809,640
1,722,191

1,794,188
1,784,200

1,792,000
1,774,600

BA

18,954,220

19,740,191

BA
0

7,000
18,074,100

20,058,200

21,204,600

BA
0

18,961,220
18,074,100

19,740,191
20,058,200

21,950,000
21,204,600

BA

8,643,218

7,349,451

0

8,260,137

7,860,300

"7,725,700
7,559,000

BA
0

8,643,218
8,260,137

7,349,451
7,860,300

7,725,700
7,559,000

BA

770,873

857,540

0

706,534

798,500

"794,900
784,200

BA
0

770,873
706,534

857,540
798,500

794,900
784,200

051
* 21,950,000

ReaooroDriation
Outlays

Total Operation and maintenance, Air Force
Operation and maintenance, Defense agencies
Appropriation current

051

Outlays
Total Operation and maintenance, Defense agencies
Operation and maintenance, Army Reserve
Appropriation current

051

Outlays
Total Operation and maintenance, Army Reserve.

See footnotes at end of table.




6f-48

THE BUDGET FOR FISCAL YEAR 1989

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Department of Defense—Military—Con,
Operation and Maintenance—Con.
Operation and maintenance, Navy Reserve
Appropriation, current

051

Outlays

BA

889,261

929,896

0

817,754

863,600

979,200
919,800

889,261
817,754

929,896
863,600

979,200
919,800

Total Operation and maintenance, Navy Reserve.. BA
O

K

Operation and maintenance, Marine Corps Reserve
051
Appropriation current

BA

64,167

69,500

Outlays

0

59,321

65,100

77,500
72,300

64,167
59,321

69,500
65,100

77,500
72,300

BA

926,766

1,000,981

O

831,320

968,300

1,028,500
1,006,300

926,766
831,320

1,000,981
968,300

1,028,500
1,006,300

Total Operation and maintenance, Marine Corps
BA
Reserve
0
Operation and maintenance, Air Force Reserve
AoDroDriation current

K

051

Outlays

Total Operation and maintenance, Air Force ReBA
serve
0

K

Operation and maintenance, Army National Guard .051
ADDroDiiation current

BA

1,746,258

1,856,542

Outlays

0

1,581,240

1,750,800

* 1,797,000
1,753,600

1,746,258
1,581,240

1,856,542
1,750,800

1,797,000
1,753,600

Total Operation and maintenance, Army National
BA
Guard
0
Operation and maintenance, Air National Guard 051
Appropriation, current

BA

1,794,193

1,958,063

Outlays

0

1,681,750

1,904,600

1,965,400
1,930,500

Total Operation and maintenance, Air National
BA
Guard
0

1,794,193
1,681,750

1,958,063
1,904,600

1,965,400
1,930,500

National Board for the Promotion of Rifle Practice,
Army
051
BA
Appropriation, current
.

4,332

4,099

3,263

3,800

4,300
4,200

4,332
3,263

4,099
3,800

4,300
4,200

Outlays

0

Total National Board for the Promotion of Rifle
BA
Practice Army
0
See footnotes at end of table.




A

K

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

6f-49

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Department of Defense—Military—Con.
Operation and Maintenance—Con.
Claims, Defense
Appropriation, current
Outlays
Court of Military Appeals, Defense
Appropriation, current

051
BA
0
051
BA
0

Outlays..
Total Court of Military Appeals, Defense
Summer Olympics
Outlays
Tenth International Pan American games
Appropriation, current
Outlays
Environmental restoration, Defense
Appropriation, current
Outlays
Humanitarian assistance
Appropriation, current
Outlays

BA
0

144,400

193,574

145,691

186,800

3,237

3,241

2,829
3,237
2,829

3,100
3,241
3,100

*3,500
3,400
3,500
3,400

14,200

3,800

6,600

051
0

29

051
BA
0

15,000
5,409

BA
0

1,162
51,526

BA
0

7,500

Total Federal funds Operation and Maintenance... BA
0

79,606,502
76,205,494

10,000
7,300
80,684,499
80,433,300

BA

2,686,350

2,657,206

0

3,305,904

2,780,900

BA
0

2,686,350
3,305,904

2,657,206
2,780,900

BA

2,084,000

2,261,551

0

2,313,588

2,333,100

BA
0

2,084,000
2,313,588

2,261,551
2,333,100

Procurement of weapons and tracked combat vehicles,
Army
051
Appropriation, current
BA

3,591,543

3,093,487

0

4,173,073

3,250,200

"2,960,600
3,235,900

Total Procurement of weapons and tracked
combat vehicles, Army
BA
0

3,591,543
4,173,073

3,093,487
3,250,200

2,960,600
3,235,900

051
051

500,000
300,000
2,100
85,649,000
82,724,600

Procurement
Federal funds
General and Special Funds:
Aircraft procurement, Army
Appropriation, current

051

Outlays
Total Aircraft procurement, Army
Missile procurement, Army
Appropriation, current
Outlays
Total Missile procurement, Army

Outlays..

See footnotes at end of table.




* 2,791,500
2,772,800
2,791,500
2,772,800

051
"2,586,600
2,290,800
2,586,600
2,290,800

6f-50

THE BUDGET FOR FISCAL YEAR 1989

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Department of Defense—Military—Con.
Procurement—Con.

Outlays
Total Procurement of ammunition, Army....
Other procurement, Army
Appropriation, current

BA

2,014,715

2,266,392

0

2,111,295

1,858,700

2,007,800
2,130,400

BA
O

2,014,715
2,111,295

2,266,392
1,858,700

2,007,800
2,130,400

BA

4,847,894

4,997,024

0

3,933,716

4,471,300

4,646,000

BA
0

4,847,894
3,933,716

4,997,024
4,471,300

4,774,000
4,646,000

BA

9,368,362

8,999,999

0

9,614,372

9,681,500

* 8,980,000
9,126,300

BA
0

9,368,362
9,614,372

8,999,999
9,681,500

8,980,000
9,126,300

BA

4,991,204

5,445,619

O

3,946,350

4,266,800

* 6,271,800
4,836,300

BA
O

4,991,204
3,946,350

5,445,619
4,266,800

6,271,800
4,836,300

CD

051

8,940,489

15,751,055

CD CD

Procurement of ammunition, Army
Appropriation current

101,000
9,315,640

152,300
9,343,200

10,066,100

BA
0

9,041,489
9,315,640

15,903,355
9,343,200

9,130,100
10,066,100

BA

5,802,668

4,473,375

0

4,599,603

4,891,200

*4,789,700
5,022,000

BA
0

5,802,668
4,599,603

4,473,375
4,891,200

4,789,700
5,022,000

BA
0

200,000
47,448

20,000
111,700

143,800

K

051
H774,000

Outlays
Total Other procurement, Army
Aircraft procurement, Navy
Appropriation current

051

Outlays
Total Aircraft orocurement Naw
Weapons procurement, Navy
Appropriation, current

051

Outlays
Total Weapons procurement Navy
Shipbuilding and conversion, Navy
Appropriation, current

051

Reappropriation
Outlays
Total Shipbuilding and conversion, Navy....
Other procurement, Navy
Appropriation current

Total Other procurement Navy

See footnotes at end of table.




9,130,100

051

Outlays

Coastal defense augmentation
Appropriation, current
Outlays

K

051

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT
BUDGET BY AGENCY AND ACCOUNT

6f-51

(in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Department of Defense—Military—Con.
Procurement—Con.
Procurement, Marine Corps
Appropriation, current

051

Outlays
Total Procurement Marine Corps

Aircraft procurement, Air Force
Appropriation current

Total Aircraft procurement Air Force

Total Missile procurement, Air Force

Total Other procurement Air Force

Total Procurement, Defense agencies

Outlays
Total Defense production act purchases

1,674,330

1,450,900

* 1,157,300
1,354,800

BA
0

1,435,715
1,674,330

1,232,999
1,450,900

1,157,300
1,354,800

BA

16,123,081

11,990,938

0

20,036,136

17,176,500

"16,630,000
16,090,100

BA
0

16,123,081
20,036,136

11,990,938
17,176,500

16,630,000
16,090,100

BA

6,760,818

7,142,825

0

6,001,881

6,596,100

"8,158,000
7,736,700

BA
0

6,760,818
6,001,881

7,142,825
6,596,100

8,158,000
7,736,700

BA

9,075,547

7,953,327

0

7,776,845

8,873,600

"8,393,500
8,126,100

BA
O

9,075,547
7,776,845

7,953,327
8,873,600

8,393,500
8,126,100

BA

1,522,175

1,195,163

0

1,338,239

1,370,600

"1,216,100
1,302,500

BA
0

1,522,175
1,338,239

1,195,163
1,370,600

1,216,100
1,302,500

BA
0

557,000
506,617

1,182,100

BA

13,000

051

Outlays

National guard and reserve equipment
Appropriation, current
Outlays
Defense production act purchases
ADDrooriation current

0

051

Outlays

Procurement, Defense agencies
Appropriation current

1,232,999

051

Outlays

Other procurement, Air Force
Appropriation, current

1,435,715

051

Outlays

Missile procurement, Air Force
Appropriation current

BA

051

051
NATO cooperative defense programs
0
Outlays
Chemical agents and munitions destruction, Defense
051
Appropriation, current
BA
Outlays
0
See footnotes at end of table.




13,000

0
BA
0

799,700
584,900

051

13,000

118,700
46,313

"27,500
2,100

800
13,000
800

27,500
2,100

100

700

198,500
124,100

162,900
137,300

6f-52

THE BUDGET FOR FISCAL YEAR 1989

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Department of Defense—Military—Con.
Procurement—Con.
Procurement of aircraft and missiles, Navy
Outlays
Procurement of equipment and missiles, Army
Outlays

051
0

3,146

0

-135

051
.

BA
0

80,234,261
80,744,361

81,026,860
79,166,200

BA

4,589,101

4,656,659

0

4,720,736

4,538,500

* 5,030,700
4,801,900

4,589,101
4,720,736

4,656,659
4,538,500

5,030,700
4,801,900

BA

9,305,050

9,445,422

0

9,176,346

8,339,400

*9,216,200
8,803,400

Total Research, development, test, and evaluation, Navy
BA
0

9,305,050
9,176,346

9,445,422
8,339,400

9,216,200
8,803,400

Research, development, test, and evaluation, Air
Force
051
Appropriation, current
BA

14,902,684

14,687,726

13,347,496

12,904,800

* 14,932,100
14,241,900

Total Research, development, test, and evaluation, Air Force
BA
0

14,902,684
13,347,496

14,687,726
12,904,800

14,932,100
14,241,900

Research, development, test, and evaluation, Defense
agencies
051
Appropriation, current
BA

6,715,971

7,652,925

6,268,750

7,175,300

8,667,800
8,182,900

6,715,971
6,268,750

7,652,925
7,175,300

8,667,800
8,182,900

Total Federal funds Procurement

80,037,400
79,820,400

Research, Development, Test, and
Evaluation
Federal funds
General and Special Funds:
Research, development, test,
Army
Appropriation, current

and evaluation,
051

Outlays
Total Research, development, test, and evaluation, Army
Research, development, test, and evaluation, Navy
051
Appropriation, current
Outlays

Outlays

Outlays..

0

0

Total Research, development, test, and evaluation, Defense agencies
BA
0
See footnotes at end of table.




K

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

6f-53

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1989
estimate

estimate

Department of Defense—Military—Con.
Research, Development, Test, and
Evaluation—Con.
Developmental test and evaluation, Defense
Appropriation, current

051
BA

119,706

182,116

0

78,763

136,800

166,900
178,700

Total Developmental test and evaluation, Defense
BA
0

119,706
78,763

182,116
136,800

166,900
178,700

BA

11,300

70,221

0

4,396

31,900

Total Operational test and evaluation, Defense.... BA
0

11,300
4,396

70,221
31,900

* 143,400
85,800
143,400
85,800

Total Federal funds Research, Development,
Test, and Evaluation
BA
0

35,643,812
33,596,487

36,695,069
33,126,700

38,157,100
36,294,600

1,210,902

942,790

Outlays..

Operational test and evaluation, Defense
Appropriation, current

A

051

Outlays

Military Construction
Federal funds
General and Special Funds:
Military construction, Army
Appropriation, current

051
BA

Appropriation, permanent
Outlays
Total Military construction, Army
Military construction, Navy
Appropriation, current

Total Military construction, Navy

Outlays..
Total Military construction, Air Force

See footnotes at end of table.




1,807,063

BA
0

1,210,902
1,807,063

221,000
1,597,300
1,163,790
1,597,300

1,356,603

1,391,309

0

1,523,160

1,377,400

BA
0

1,356,603
1,523,160

1,391,309
1,377,400

BA

1,217,830

1,216,454

0

1,561,047

1,321,300

BA
0

1,217,830
1,561,047

1,216,454
1,321,300

* 930,300
214,000
1,452,400
1,144,300
1,452,400

051

Outlays

Military construction, Air Force
Appropriation, current

BA
0

K

1,611,200
1,462,900
1,611,200
1,462,900

K

1,300,600
1,412,700
1,300,600
1,412,700

051

6f-54

THE BUDGET FOR FISCAL YEAR 1989

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988

1989
estimate

Department of Defense—Military—Con.
Military Construction—Con.
Military construction, Defense agencies
Appropriation, current

051
BA

529,770

551,246

0

303,843

436,900

BA
0

529,770
303,843

551,246
436,900

North Atlantic Treaty Organization infrastructure 051
BA
Appropriation, current

232,000

373,000

223,010

Outlays
Total Military construction, Defense agencies

Outlays..

K

712,000
584,200
712,000
584,200

K

230,000

502,100
230,000

232,000
223,010

373,000
230,000

502,100
230,000

BA

140,879

181,905

0

114,346

112,100

140,879
114,346

181,905
112,100

BA

148,925

147,791

O

152,961

138,200

148,925
152,961

147,791
138,200

BA

86,753

93,300

0

57,740

74,800

* 79,900
82,700

BA
0

86,753
57,740

93,300
74,800

79,900
82,700

BA

44,500

72,537

0

45,840

46,600

"48,400
58,800

BA
0

44,500
45,840

72,537
46,600

48,400
58,800

0

Total North Atlantic Treaty Organization infraBA
structure
0
Military construction, Army National Guard
Appropriation, current

051
A

Outlays

Total Military construction, Army National Guard. BA
0
Military construction, Air National Guard
Appropriation, current

051

Outlays

Total Military construction, Air National Guard.... BA
0
Military construction, Army Reserve
Appropriation, current

Total Military construction, Army Reserve...

Outlays
Total Military construction, Naval Reserve..

See footnotes at end of table.




* 147,500
133,600
147,500
133,600

051

Outlays

Military construction, Naval Reserve
Appropriation, current

138,300
155,600
138,300
155,600

051

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

6f-55

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1989
estimate

1987
Account and functional code

estimate

Department of Defense—Military—Con.
Military Construction—Con.
Military construction, Air Force Reserve
Appropriation, current

051

Outlays
Total Military construction, Air Force Reserve
Foreign currency fluctuations, construction
Appropriation, current
Outlays

BA

58,900

77,300

0

63,627

58,400

BA
0

58,900
63,627

77,300
58,400

BA
0

66,174

BA
0

5,093,236
5,852,637

85,000
25,500
5,353,632
5,418,500

BA

1,555,961

1,537,965

0

1,444,546

1,487,400

1,527,900
1,587,200

BA
0

1,555,961
1,444,546

1,537,965
1,487,400

1,527,900
1,587,200

BA

699,563

756,865

0

624,872

650,200

BA
0

699,563
624,872

756,865
650,200

BA

797,661

828,160

0

803,672

865,700

922,900
903,000

BA
0

797,661
803,672

828,160
865,700

922,900
903,000

BA

16,313

20,700

0

28,411

18,400

BA
0

16,313
28,411

20,700
18,400

* 58,800
69,300
58,800
69,300

051

Total Federal funds Military Construction

25,500
5,743,100
5,667,700

Family Housing
Federal funds
General and Special Funds:
Family housing, Army
Appropriation, current

051

Outlays
Total Family housing, Army
Family housing, Navy and Marine Corps
Appropriation, current

051

Outlays..
Total Family housing, Navy and Marine Corps
Family housing, Air Force
Appropriation, current

Total Family housing, Air Force

OutlaysTotal Family housing, Defense agencies

See footnotes at end of table.




* 795,300
717,900
795,300
717,900

051

Outlays

Family housing, Defense agencies
Appropriation, current

K

K

051

* 20,700
20,300
20,700
20,300

6f-56

THE BUDGET FOR FISCAL YEAR 1989

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Department of Defense—Military—Con.
Family Housing—Con.
Public Enterprise Funds:
Homeowners assistance fund, Defense
Appropriation, current
Authority to borrow, permanent
Outlays

051
BA
BA
0

2,000
3,999
6,080

2,800
3,000
800

2,000
3,000
800

Total Homeowners assistance fund, Defense

BA
0

Total Federal funds Family Housing

BA
0

5,999
6,080
3,075,497
2,907,581

5,800
800
3,149,490
3,022,500

5,000
800
3,271,800
3,229,200

Special Foreign Currency Program
Federal funds
General and Special Funds:
Special foreign currency program
051
Appropriation, current
BA
Outlays
0

3,500
1,685

2,800

1,200

Revolving and Management Funds
Federal funds
Public Enterprise Funds:
National defense stockpile transaction fund
051
Appropriation,
current
BA
ppp
O
0
0
Outlays

10,000
-69,425

19,000
33,000

Total National defense stockpile transaction fund BA
0

10,000
-69,425

19,000
33,000

-50,000
' -40,000
-90,000

William Langer jewel bearing plant revolving fund
051
Outlays
Defense production guarantees
Outlays
Laundry service, Naval Academy
Outlays
Intragovernmental Funds:
Army stock fund
Appropriation, current

786
051
231
051
-212
051

Outlays
Total Army stock fund
Navy stock fund
Appropriation, current

BA

110,100

193,207

0

273,143

278,200

BA
0

110,100
273,143

193,207
278,200

BA

352,570

329,400

BA
0

164,902
677,126

428^66

461,700

BA
0

517,472
677,126

329,400
428,200

204,700
461,700

* 321,900
183,700
321,900
183,700

051
*204,700

Contract authority, permanent, indefinite
Outlays
Total Navy stock fund
See footnotes at end of table.




THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

6f-57

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Department of Defense—Military—Con.
Revolving and Management Funds—Con.
Marine Corps stock fund
Appropriation, current
Outlays
Air Force stock fund
Appropriation, current

051
0

822
8,431

051
6A

139,980

BA
0

61,661
301,020

484,700

280,300

BA
0

201,641
301,020

226,007
484,700

206,900
280,300

BA

47,200

62,600

BA
0

1,647,075
1,033,671

135,200

1,694,275
1,033,671

62,600
135,200

30,000
-9,700

830,214
1,359,300

763,500
826,000

226,007
"206,900

Contract authority, permanent, indefinite.,
Outlays
Total Air Force stock fund..
Defense stock fund
Appropriation, current

051
"30,000

Contract authority, permanent, indefinite.
Outlays
Total Defense stock fund..
Army industrial fund
051
Outlays
051
Navy industrial fund
Authority to borrow, permanent
Outlays
Marine Corps industrial fund
051
Outlays
Air Force industrial fund
051
Outlays
Defense industrial fund
051
Outlays
Army management fund
051
Outlays
Navy management fund
051
Outlays
Army conventional ammunition working capital
fund
051
Outlays

166,405
BA
0

77,200
846,240

0
-8,308
0
151,555
0
33,106
0
20,637
0
2,425
16,906

Total Federal funds Revolving and Management
BA
Funds
0

2,611,510
3,453,737

Allowances
Federal funds
Genera! and Special Funds:
Other legislation
Appropriation, current
Outlays
See footnotes at end of table.




051
BA
0

J

-185,300
J
33,000

6f-58

THE BUDGET FOR FISCAL YEAR 1989

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Department of Defense—Military—Con.
Allowances—Con.
Savings from reform of Davis-Bacon and Service Contract Acts
051
Appropriation, current
BA
Outlays
0
Total Federal funds Allowances

' -310,000
-196,400

J

BA
0

-495,300
-163,400

Trust Funds
Trust funds
Department of the Army trust funds
051
Appropriation, permanent, indefinite
Outlays
Department of the Navy trust funds
051
Appropriation, permanent, indefinite
Outlays
Department of the Air Force general gift fund 051
Appropriation, permanent, indefinite
Outlays
Surcharge collections, sales of commissary stores,
Army
051
Outlays
Department of the Navy trust revolving funds 051
Outlays
Department of the Air Force trust revolving funds
051
Outlays
Total Trust funds Trust Funds
Summary
Federal funds:
(As shown in detail above)
Deductions for offsetting receipts:
Proprietary receipts from the public
Total Federal funds
Trust funds:
(As shown in detail above)
interfund transactions
Total Department of Defense-Military

See footnotes at end of table.




BA
0

2,347
101

BA
0

29,592
24,657

BA
0
0

120
100
23,890
23,800

110
100
24,010
23,900

137
3,234

90
200

80
100

821

2,100

2,100

O

-19,915

7,000

3,500

0

16,929

9,300

9,300

BA
0

32,076
25,827

24,100
42,500

24,200
39,000

BA
0

280,278,423
274,781,555

283,884,943
277,982,400

291,525,900
286,227,100

051 BA

_

^

_mm

_

m m

BA
0

279,465,277
273,968,409

283,157,943
277,255,400

290,782,800
285,484,000

BA
0

32,076
25,827

24,100
42,500

24,200
39,000

051 BA
BA
0

^
279,469,150
273,966,033

_nm
283,159,143
277,275,000

_^m
290,784,000
285,500,000

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

6f-59

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Department of Defense—Civil
Cemeterial Expenses, Army

Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current
Outlays
Public Enterprise Funds:
Arlington National Cemetary parking fund
Outlays

705
BA
0

15,823
9,473

8,164
13,668

13,195
15,953

705
0

Total Federal funds Cemeterial Expenses, Army... BA
0

'-1,040
15,823
9,473

8,164
13,668

13,195
14,913

Corps of Engineers-Civil
General and Special Funds:
General investigations
Appropriation, current
Outlays
Construction, general
Appropriation, current
Outlays
Operation and maintenance, general:
(Water resources)
(Appropriation, current)
(Outlays)
(Recreational resources)
(Appropriation, current)
(Outlays)

301

See footnotes at end of table.




136,162
125,133

138,767
139,213

129,271
132,645

BA
0

1,122,918
950,897

1,162,175
1,116,357

1,150,103
1,167,646

BA
0

1,342,471
1,297,782

1,241,000
1,265,141

1,201,894
1,208,542

BA
0

12,500
12,500

12,000
12,110

15,000
14,340

BA
0

1,354,971
1,310,282

1,253,000
1,277,251

1,216,894
1,222,882

55,262
45,867

60,427
59,549

301

301
303

Total Operation and maintenance, general
General regulatory functions
Appropriation, current
Outlays
Flood control and coastal emergencies
Appropriation, current
Outlays
General expenses
Appropriation, current
Outlays
Flood control, Mississippi River and tributaries
Appropriation, current
Outlays
Permanent appropriations:
(Water resources)
(Appropriation, permanent, indefinite)
(Outlays)

BA
0

301
BA
0
301
BA
0

10,000
38,097

20,000
36,290

25,000
20,000

BA
0

118,232
112,118

115,200
116,416

123,465
121,812

BA
0

310,797
281,348

317,704
323,340

334,297
335,579

BA
0

7,231
10,281

3,000
7,181

3,000
3,000

301
301

301

6f-60

THE BUDGET FOR FISCAL YEAR 1989

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Department of Defense—Civil—Con.
Corps of Engineers-Civil—Con.

(Other general purpose fiscal assistance)
(Appropriation, permanent, indefinite)
(Outlays)
Total Permanent appropriations
Intragovernmental Funds:
Revolving fund
Appropriation, current
Outlays
Trust funds
Inland waterways trust fund
Appropriation, current
Outlays
Rivers and harbors contributed funds
Appropriation, permanent, indefinite
Outlays
Harbor maintenance trust fund
Appropriation, current
Outlays

806
BA
0
6A
0

7,719
6,869
14,950
17,150

6,000
5,319
9,000
12,500

6,000
6,000
9,000
9,000

301
BA
0

12,000
-86,435

10,000

35,174
28,139

BA
0

26,000
33,609

38,000
25,452

77,467
58,727

BA
0

114,943
74,870

233,000
233,000

241,000
241,000

BA
0

35,000
35,000

147,000
122,010

156,000
154,470

BA
0

3,080,030
2,748,590

3,071,108
3,077,234

3,083,631
3,097,252

Q

-11,395

-12,000

BA
0

3,064,917
2,733,477

3,053,008
3,059,134

3,064,531
3,078,152

BA
0

175,943
143,479

418,000
380,462

474,467
454,197

301
301
301

Summary

Federal funds:
(As shown in detail above)
Deductions for offsetting receipts:
Proprietary receipts from the public

301 BA
qnq

Total Federal funds
Trust funds:
(As shown in detail above)
Deductions for offsetting receipts:
Proprietary receipts from the public

DA

301

BA
0
BA
0

Total Trust funds

BA
0

Total Corps of Engineers-Civil

BA
0

See footnotes at end of table.




-119,586

-242,585

-13,000

-251,400
J

10,400

56,357
23,893
3,121,274
2,757,370

175,415
137,877
3,228,423
3,197,011

233,467
213,197
3,297,998
3,291,349

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

6f-61

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1989
estimate

Department of Defense—Civil—Con.
Military Retirement
Federal funds
General and Special Funds:
Payment to military retirement fund
Appropriation, permanent, indefinite..
Outlays
Retired pay, Defense
Outlays
Trust funds
Military retirement fund
Appropriation, permanent, indefinite..
Outlays

054
10,524,000
10,524,000

10,285,000
10,285,000

10,648,000
10,648,000

2,603

5,000

3,500

BA
0

31,919,262
18,077,875

33,562,632
19,123,400

35,059,600
20,320,200

BA
0

10,524,000
10,526,603

10,285,000
10,290,000

10,648,000
10,651,500

BA
0

31,919,262
18,077,875

33,562,632
19,123,400

35,059,600
20,320,200

-10,524,000

-10,285,000

-10,648,000

BA
0

31,919,262
18,080,478

33,562,632
19,128,400

35,059,600
20,323,700

502
... BA
... 0

10,000
10,000
271,100
131,000

255,900
200,000

602

8A
0
0

602

Summary

Federal funds:
(As shown in detail above)
Trust funds:
(As shown in detail above)..
Interfund transactions

054

Total Military Retirement.
Education Benefits
Federal funds
General and Special Funds:
Payment to the Henry M. Jackson Foundation
Appropriation, current
Outlays
Trust funds
Education benefits fund
Appropriation, permanent, indefinite..
Outlays

f

702

BA
0

275,830
45,265

BA
0

10,000
10,000

BA
0
702 BA
0
BA
0

275,830
45,265

271,100
131,000

255,900
200,000

-250,414

-229,650

-211,800

35,416
-195,149

41,450
-98,650

44,100
-11,800

Summary

Federal funds:
(As shown in detail above)
Trust funds:
(As shown in detail above)..
Interfund transactions
Total Education Benefits.,
See footnotes at end of table.




6f-62

THE BUDGET FOR FISCAL YEAR 1989

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Department of Defense—Civil—Con.
1

Soldiers and Airmen's Home

Trust funds
Operation and maintenance
Appropriation, current
Outlays
Capital outlays
Appropriation, current

705
BA
0

34,979
34,521

35,879
35,733

BA

15,284

15,445

13,215

12,274

17,407

5
5

5
5

51,329
48,012

49,863
53,891

705

Outlays

0

Payment of claims
Appropriation, permanent, indefinite
Outlays
Soldiers' and Airmen's Home revolving fund
Outlays

36,643
36,479

2,116

705
BA
0

7
7

705
0

-23

Summary

Trust funds:
(As shown in detail above)
Deductions for offsetting receipts:
Proprietary receipts from the public

BA
0
705 BA

AUn

A7nc

AQA7

—4,041/

—4,/Uu

—4,04/

BA

45,630

46,623

45,016

0

31,981

43,306

49,044

n

Total Soldiers' and Airmen's Home

50,270
36,621

Forest and Wildlife Conservation, Military
Reservations
Federal funds
General and Special Funds:
Forest products program
Appropriation, permanent, indefinite
Outlays
Wildlife conservation
Appropriation, permanent, indefinite

302
BA
0

-98
170

2,600
2,600

2,000
2,000

303

Outlays

BA

1,867

2,030

2,050

0

1,911

2,240

2,250

BA
0

1,769
2,081

4,630
4,840

4,050
4,250

0Rnn
—c,0UU

onnn
—Z,UUU

Summary

Federal funds:
(As shown in detail above)
Deductions for offsetting receipts:
Proprietary receipts from the public

302 BA
A
303

QA

Total Forest and Wildlife Conservation, Military
Reservations
0
Summary
Federal funds:
(As shown in detail above)
See footnotes at end of table.




QQ
JO

-lf867
312

-2,030
210

-2,050
200

BA

13,631,622

13,368,902

13,748,876

0

13,296,747

13,385,742

13,767,915

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

6f-63

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Department of Defense—Civil—Con.

Summary—Con.
Deductions for offsetting receipts:
Proprietary receipts from the public

301 BA

Q710

Q

— b,lUU

QA

98

303

j*A
BA
0

-13,262
13,614,740
13,279,865

-14,030
13,346,172
13,363,012

-15,050
13,725,726
13,744,765

BA
0

32,421,305
18,303,240

34,303,061
19,682,874

35,839,830
21,028,288

_mm

_ ^ ^

Trust funds:
(As shown in detail above)

301 BA

-2,600

QA
705

Total Trust funds
Interfund transactions

—o,WU

302

Total Federal funds

Deductions for offsetting receipts-.
Proprietary receipts from the public

—o,/lo

C1fln

Total Department of Defense-Civil

_ ^ ^
J

j*A

-4,640

-4,706

BA
0

32,297,079
18,179,014

34,055,770
19,435,583

054 BA _ ^
702

-2,000

m m

_m^m

10,400
-4,847

35,593,983
20,782,441
_ ^

m m

QA

-250,414

-229,650

-211,800

BA
0

35,137,405
20,684,465

36,887,292
22,283,945

38,459,909
23,667,406

Department of Education
Office of Elementary and Secondary
Education

Federal funds
General and Special Funds:
Compensatory education for the disadvantaged 501
Appropriation, current
BA
Outlays

0

Total Compensatory education for the disadvantaged
BA
0
Impact aid
Appropriation, current
Outlays
See footnotes at end of table.




3,951,663

4,336,543

3,209,923

3,840,830

'4,566,065
3,810,204
J
547,927

3,951,663
3,209,923

4,336,543
3,840,830

4,566,065
4,358,131

717,500
704,197

708,476
756,188

592,000
632,229

501
BA
0

6f-64

THE BUDGET FOR FISCAL YEAR 1989

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1987
actual

Account and functional code

1988
estimate

1989
estimate

Department of Education—Con.
Office of Elementary and Secondary
Education—Con.
School improvement programs
Appropriation, current

501
BA

939,490

1,040,312

0

889,478

732,542

BA
0

939,490
889,478

1,040,312
732,542

1,130,254
1,066,919

BA
0

83,000
16,600

16,600

BA
0

64,036
39,638

66,326
30,929

67,653
54,718

Total Federal funds Office of Elementary and
Secondary Education
BA
0

5,755,689
4,843,236

6,151,657
5,377,089

6,355,972
6,128,597

BA

188,981

190,504

BA
0

141,483

1,247
163,454

Total Bilingual, immigrant, and refugee education
BA
0

188,981
141,483

191,751
163,454

200,504
170,56