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BUDGET

OF THE
UNITED STATES
GOVERNMENT

FISCAL YEAR

1990

THE BUDGET DOCUMENTS
*Budget of the United States Government, 1990 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 1990
Budget, Federal receipts, and Federal spending. In addition it includes supplemental
information on Federal credit programs, 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, 1990 is designed for use by the general public. It
provides a more concise, less technical overview of the 1990 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, 1990—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, 1990 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, 1990 provides data on
budget receipts, outlays, surpluses or deficits, and Federal debt covering extended
time periods—in many cases from 1940-1994. 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 1990 Budget, so the data series are
comparable over time.
^Management of the United States Government, 1990 highlights the many significant achievements of the President's Management Improvement Program, Reform
'88 and provides a strategic planning guide to the Government in the Year 2000.
Also included are reports to Congress on the President's Private Sector Survey on
Cost Control, Debt Collection, Prompt Pay, and the First Progress Report of the
Chief Financial Officer of the United States.
*Major Policy Initiatives, 1990 summarizes the changes that are proposed in the
1990 Budget. It contains an overview of Budget policy and a description of each
initiative. The descriptions include an explanation of the reasons for the policy
change, and where relevant a summary chart showing the funding changes that
would occur if the policy change were enacted.
Recommendations for Executive, Legislative and Judicial Salaries provides the
recommendations of the President concerning the report of the Quadrennial Commission on Executive, Legislative and Judicial Salaries.
Instructions for purchasing copies of any of these documents are on the last two
pages of this volume.
GENERAL NOTES
1. All years referred to are fiscal years, unless otherwise noted.
2. Detail in the tables, text and charts of this volume may not add to the
totals because of rounding.
*For sale by the Superintendent of Documents, U.S. Government Printing Office
Washington, D.C. 20402




TABLE OF CONTENTS
Page

PART 1. THE BUDGET MESSAGE OF THE PRESIDENT
PART 2. BUDGET TRENDS AND PRIORITIES
Budget trends in the 1980's
Major changes in the 1980's
National defense
Entitlements and other mandatory programs
Discretionary programs
Conclusion
Priorities in the 1990 Budget
National defense
Discretionary programs
Entitlements and other mandatory programs
Revenues
Credit reform initiative
Privatization initiatives
Other management initiatives
Conclusion
PART 3. THE ECONOMY AND THE BUDGET
The economy in the 1980's—restoring stability
Economic developments in 1987-1988 and the outlook for 1989-1994
Long-run economic assumptions
The Administration's forecasting record
Changes in economic assumptions and the Budget
Sensitivity of the Budget to economic assumptions
PART 4. FEDERAL RECEIPTS BY SOURCE
Summary
Enacted legislation
Medicare Catastrophic Coverage Act of 1988
Family Support Act of 1988
Technical and Miscellaneous Revenue Act of 1988
Receipts proposals
Effect of enacted and proposed changes on receipts
Changes in receipts
Receipts by source
PART 5. FEDERAL PROGRAMS BY FUNCTION
Introduction
National defense
International affairs
General science, space, and technology
Energy
Natural resources and environment
Agriculture
Commerce and housing credit




1-1
2-1
2-2
2-3
2-4
2-5
2-9
2-14
2-15
2-16
2-18
2-30
2-34
2-38
2-39
2-40
2-41
3-1
3-2
3-5
3-13
3-16
3-20
3-22
4-1
4-2
4-3
4-5
4-6
4-7
4-12
4-15
4-17
4-19
5-1
5-2
5-5
5-17
5-27
5-36
5-49
5-61
5-69
III

IV

THE BUDGET FOR FISCAL YEAR 1990

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. FEDERAL CREDIT
Overview
The Reagan record in credit policy
Other types of credit activity
PART 7. 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 1988
Comparison of the actual and estimated relatively uncontrollable outlays
for 1988
PART 8. THE BUDGET SYSTEM AND CONCEPTS
The budget process
T.....
Coverage of the budget totals
Budgetary resources and related transactions
Federal credit
Collections
Other transactions
Basis for budget figures
PART 9. 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
Department of Defense—Civil
Department of Education
Department of Energy
Department of Health and Human Services, except social security
Department of Health and Human Services, social security
Department of Housing and Urban Development
Department of Interior
Department of Justice
Department of Labor
Department of State
Department of Transportation
Department of the Treasury




5-82
5-92
5-101
5-115
5-122
5-125
5-142
5-144
5-154
5-160
5-169
5-171
5-176
5-178
6-1
6-2
6-9
6-28
7-1
7-2
7-4
7-7
7-19
7-23
7-30
8-1
8-2
8-8
8-10
8-15
8-15
8-17
8-18
9-1
9-2
9-3
9-12
9-15
9-19
9-29
9-44
9-49
9-61
9-66
9-71
9-75
9-90
9-91
9-96
9-109
9-115
9-119
9-125
9-136

CONTENTS
Page

Department of Veterans Affairs
Environmental Protection Agency
General Services Administration
National Aeronautics and Space Administration
Office of Personnel Management
Small Business Administration
Other independent agencies
Allowances
Budget totals
Off-budget totals
Federal Government totals
PART 10. SUMMARY TABLES
Explanation of the summary tables
Table 1. Summary
Table 2. Receipts by source and outlays by agency, 1988-94
Table 3. Outlays by function, 1988-94
Table 4. Federal Government financing and debt
Table 5. Full-time equivalent of Federal civilian employment
Table 6. Budget authority by function, 1988-94
Table 7. Budget authority by agency, 1988-94
Table 8. Budget authority and outlays available through and without current action by Congress
Table 9. Relation of budget authority to outlays
Table 10. Balances of budget authority
Table 11. Receipts by source
Table 12. Offsetting receipts by type
Table 13. Legislative proposals for major new and expanded programs in
the 1990 budget, projection of costs
Table 14. Controllability of outlays, 1988-90
Table 15. Receipts by source, 1980-90
Table 16. Outlays by function and subfunction, 1980-90
Table 17. Federal finances and the gross national product, 1973-94
Table 18. Composition of receipts and outlays in current dollars: 1975-94
Table 19. Composition of receipts and outlays in constant (fiscal year 1982)
dollars: 1975-94
Table 20. Credit budget: new direct loan obligations, guaranteed loan commitments and subsidies by agency
Table 21. Credit budget: new direct loan obligations, guaranteed loan commitments and subsidies by function
Table 22. Direct loan obligations, guaranteed loan commitments, and Government-sponsored enterprise obligations by sector, 1980-94
Table 23. Direct loan obligations, guaranteed loan commitments, and Government-sponsored enterprise obligations, 1951-94
Table 24. Total receipts and outlays, 1789-1994
Table 25. On-budget and off-budget receipts and outlays, 1937-94
PART 11. GLOSSARY OF ACRONYMS
INDEX




9-143
9-148
9-150
9-152
9-155
9-157
9-158
9-189
9-190
9-191
9-192
10-1
10-3
10-8
10-9
10-10
10-11
10-13
10-14
10-15
10-16
10-17
10-18
10-19
10-22
10-25
10-26
10-28
10-30
10-38
10-39
10-40
10-41
10-42
10-43
10-44
10-45
10-46
11-1
Ind-1

PART 1

THE BUDGET MESSAGE
OF THE
PRESIDENT




1-1

1-2

The Federal Government Dollar
Fiscal Year 1990 Estimate
Where It Comes From ...
Excise Taxes
3%
7 Other
4%

Borrowing8%

Corporation
Income Taxes

10%

Social
Insurance
Receipts
34%

Individual
Income

Taxes
41%

Where It Goes
Grants to
States & Localities
11%




Other Federal
Operations
5%

National
Defense
26%

Direct Benefit
Payments for
Individuals
43%

THE BUDGET MESSAGE OF THE PRESIDENT
To the Speaker of the House of Representatives and the
President of the Senate:
Eight years ago many in this country were concerned about the
future of our economy, our government and, indeed, the Nation
itself. Unemployment was high and rising. Inflation and interest
rates were reaching record levels. Our Nation's defense capabilities
had been weakened by neglect. The international prestige of the
U.S. was at low ebb.
To resolve the economic problems then facing us, our administration proposed a recovery program centering on four fundamental
principles:
• Reduce personal and business tax rates.
• Reduce the rate of growth of Federal spending.
• Reduce the Federal regulatory burden by eliminating unnecessary restrictions while protecting the public's interest and
safety.
• Support a moderate and steady monetary policy to bring inflation under control.
To rebuild our defense capabilities and restore America's standing in the world we proposed expanded national security and international programs.
We also initiated the largest management improvement program
ever attempted in order to restore the proper relationships among
the Federal, State and local governments, and the private sector; to
eliminate waste in Federal programs; and to introduce management controls and efficiencies, while improving services.
Today, the American people can be proud of the progress that
has been made on each of these fronts. As a result of this progress,
America is internally stronger, internationally more secure, and
stands taller in the eyes of the world than it did eight years ago.
EIGHT YEARS OF ACCOMPLISHMENT

Working together, we have accomplished much over the last
eight years.
The Economy
• The current economic expansion, now in its seventy-fourth
month, has outlasted all previous peacetime expansions in




1-3

1-4

THE BUDGET FOR FISCAL YEAR 1990

U.S. history. Business investment and exports are rising, and
economic growth is expected to continue into the 1990's.
• Since this expansion began, 19 million new jobs have been
created, while the unemployment rate has fallen by more
than 5 percentage points—to 5.4 percent, the lowest level in
14 years.
• Inflation, which averaged 10.4 percent annually during the
four years before our administration began, has averaged less
than a third of that during the past six years.
• Real after-tax personal income has risen 24 percent since
1982, increasing our overall standard of living.
Taxes and Regulations
• Between 1981 and 1987, changes in the Federal tax code have
made the tax laws more equitable, cut income tax rates, and
eliminated Federal income taxes for 4.3 million low-income
individuals and families.
• Since 1981, the time spent by the public filling out forms
required by the Federal Government has been cut by 600
million hours annually, and the number of pages of regulations published annually in the Federal Register has been
reduced by over 45 percent.
Budget
• The growth in domestic spending has been slowed, and the
budget priorities have been shifted to those functions the
Federal Government should provide, such as national defense,
basic scientific research, and protecting the rights of all citizens.
• The social security system has been rescued from the brink of
insolvency and made sound into the next century.
• The runaway growth 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 needy. Basic benefits for the poor, the elderly, and others
in need of Federal assistance have been maintained.
• We have begun the process of putting other entitlement programs on a more rational basis, including medicare hospital
insurance, which was converted to a system that encourages
efficiency and lower costs.
Defense and International Affairs
• Our defenses have been strengthened. Weapons systems have
been modernized and upgraded. We are recruiting and retaining higher caliber military personnel. The readiness, training,
and morale of our troops have been improved significantly.




THE BUDGET MESSAGE OF THE PRESIDENT

1-5

• As a result of our greater strength, we were able to negotiate
with the Soviet Union a verifiable treaty that completely
eliminates an entire class of nuclear missiles.
• We began the Strategic Defense Initiative research and technology program that offers our best hope of a safer world in
which our security, and that of our allies, no longer rests on
deterrence through the threat of nuclear retaliation, but on
defenses that threaten no one.
• Our willingness to defend freedom throughout the world has
met with success in the spread of democracy and in turning
back the tide of communist expansion.
Management of the Government
• Federal agencies undertook a major management improvement program, "Reform '88," to carry out the cash, credit,
and financial operations of the Federal Government in a more
business-like manner, and to reduce waste, fraud, and abuse.
• Functions that were pre-empted by the Federal Government
are being transferred back to the private sector or to State
and local governments.
• Greater use is being made of cost sharing and user fees,
shifting the cost of projects and programs where appropriate
to those who benefit from them.
The Federal Deficit
The one area in which I have been persistently disappointed
throughout my term of office has been in the efforts to bring the
budget under control. Time and again I have proposed measures to
help curb Federal domestic program spending. Time and again
these proposals have been rejected by Congress.
The reasons for the rise in the Federal deficit in the early 1980's
are simple. First, we experienced one of the most severe recessions
of the post-war period. It has been estimated that 81 percent—over
$640 billion—of the growth of the deficit over the 1981-1986 levels
originally projected in my March 1981 budget was attributable to
that recession. The second reason is that, even after including
necessary increases for defense, my March 1981 budget called for
net spending reductions totalling $331 billion over five years; but
Congress approved less than 40 percent of those reductions. Wasteful programs continued to be funded. The necessary reductions
have still not been made.
If the deficit is not curbed by continuing to limit the appetite of
government, we put in jeopardy all that we worked so hard over
the years to achieve. Large deficits brought on by excessive domestic spending undercut the incentives to work and save by absorbing
the savings that would otherwise lead to productive investment.
We cannot allow this to happen.




1-6

THE BUDGET FOR FISCAL YEAR 1990

I am proud of America's accomplishments. Our economy is booming, our defenses are stronger, and our standing in the world is
again second to none.
THIS BUDGET REDUCES THE 1990 DEFICIT BELOW THE
G-R-H TARGET AND ACHIEVES BALANCE IN 1993

The fiscal year 1990 budget, my last, represents a continuation of
my efforts to reduce the Federal budget deficit through restraint in
domestic spending.
The budget I am submitting today complies with the deficit
targets set in the Gramm-Rudman-Hollings (G-R-H) Act, by proposing measures that meet the 1990 deficit target of $100 billion and
assure a steady reduction in the deficit leading to a balanced
budget in 1993.
Under my proposals, the deficit would decline to less than 2
percent of GNP in 1990, and the Federal debt held by the public
would also decline as a proportion of GNP.
BUDGET SUMMARY
(dollar amounts in billions)
1988

Receipts
Outlays

1989

1990

1991

1992

1993

1994

909.0
1,064.0

975.5
1,137.0

1,059.3
1,151.8

1,140.5
1,207.3

1,212.2
1,244.4

1,281.4
1,279.0

1,345.0
1,311.6

Surplus or deficit ( - )
Surplus or deficit ( —)
without asset sales
G-R-H deficit targets

-155.1

-161.5

-92.5

-66.8

-32.2

2.4

33.4

-155.1
-144.0

-161.5
-136.0

-98.6
-100.0

-69.2
64.0

-34.3
-28.0

1.6
0.0

32.6
NA

Difference
ADDENDUM
Surplus or deficit (—) as a
percent of GNP

11.1

25.5

-1.4

5.2

6.3

-1.6

NA

-3.2

-3.2

1.7

1.1

-0.5

0.0

0.5

Note.—Totals include social security, which is off-budget.
NA: Not available

This budget shows that a gradual elimination of the deficit is
possible without raising taxes, without cutting into essential social
programs, without devastating defense, and without neglecting
other national priorities. It can be done in a reasonable, responsible way—with discipline and fairness. New taxes are not required.
Receipts will grow dramatically between 1989 and 1990 because our
economy is growing. This budget simply proposes to increase spending by less than the increase in revenues, and therefore, reduce the
deficit. The proposed reforms will yield additional deficit reductions
in future years. We have an opportunity this year to put the worst
of the deficit problem behind us and enable the next Administration to begin its term of office with a clean slate and with the
promise of continuing prosperity.




THE BUDGET MESSAGE OF THE PRESIDENT

1-7

FUNDING NATIONAL PRIORITIES
To address urgent national priorities within the deficit limit set
by the G-R-H Act, my budget proposes that some programs—such
as those for AIDS research and prevention, drug enforcement, and
technology development—receive significant funding increases,
while others are reduced, reformed, or, in some cases, terminated.
Defense
Maintaining peace and protecting our country are the foremost
responsibilities of the Federal government. Defense budget authority declined in real (inflation-adjusted) terms for the fourth straight
year with funding of $299 billion for 1989. This trend cannot continue without severe impact on combat readiness. Therefore, my
budget requests defense funding of $315 billion in budget authority
and $303 billion in outlays for 1990, and $331 billion in budget
authority and $314 billion in outlays in 1991. These amounts provide 2 percent annual real growth in budget authority over the
1989 level, bringing it back up to the 1984 level in inflation-adjusted terms by 1991. The budget also projects 2 percent real growth in
these programs in future years.
We must continue to maintain our nuclear deterrent. For 1990,
the budget proposes $9.0 billion for atomic energy defense programs, a $0.9 billion increase over 1989. A total of $2.8 billion is
dedicated to the modernization of the nuclear materials production
complex and to increase environmental clean-up and waste management efforts.
International
To consolidate and build on the foreign policy gains of the past
eight years, additional funds are needed for international affairs
that would promote our foreign policy and national security interests in the Middle East, Central America, and elsewhere. A special
program is proposed to foster strong economic growth in the Philippines to support that country's return to democracy. Other increases in foreign aid would pay arrearages on contributions to
multilateral lending institutions and make payments to the United
Nations and related agencies.
Drug Abuse and Law Enforcement
Our fight against drug abuse must continue, as well as our
efforts to protect the individual against crime:
• For drug law enforcement, prevention, and treatment programs, I propose $5.7 billion in 1990, an increase of $164
million over 1989. This funding, together with the new authorities and sanctions contained in the Anti-Drug Abuse Act
of 1988, will enable us to move toward our goal of a drug-free
America.




1-8

THE BUDGET FOR FISCAL YEAR 1990

• To relieve prison overcrowding and adequately house a growing inmate population, I would provide $1.6 billion for prison
construction and operation, $193 million more than was devoted to this purpose in 1989.
AIDS Research and Education
This budget reflects my belief that addressing the problem of
AIDS must remain a top priority:
• Preventing and alleviating suffering from the Human Immunodeficiency Virus (HIV), which causes AIDS, is our highest public health priority. Federal support for research, prevention, and treatment exceeds $2.1 billion in 1989, and will
approach $2.8 billion in 1990. This budget asks for $1.6 billion,
or 24 percent over 1989, for Public Health Service HIV funding.
Research
One of our highest priorities is 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 continues the commitment to double National Science Foundation
support for academic basic research by 1993, increases support for training future scientists and engineers, and expedites transfer of the results of Government-funded basic research to industry.
• Our space program will provide $13.1 billion for continued
development of America's first permanently manned space
station; for increased support for improving the performance
and reliability of the space shuttle; for initiation of two major
new international planetary space science missions; and for
support to encourage the commercial development of space.
• Also included in the budget is $250 million in 1990 as the
Federal share of support for initiating construction of the
Superconducting Super Collider (SSC). Non-Federal cost sharing arrangements will be required to support one-third of the
project's costs. 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 well into the next century.
Other Priorities
Other areas of Federal responsibility receive priority funding in
this budget:
• To continue the Federal Aviation Administration's multi-year
program to increase its controller and inspector workforces
and to modernize the Nation's air traffic control systems, the




THE BUDGET MESSAGE OF THE PRESIDENT

•

•

•

•

•

•

1-9

budget provides $7.7 billion—a 17 percent increase over the
1989 level.
To alleviate the problems facing our savings institutions, I
propose that the Federal Savings and Loan Insurance Corporation (FSLIC) spend $16 billion in 1989 and $9 billion in 1990
to address the most serious thrift institution problems. The
Secretary of the Treasury is developing a comprehensive plan
to resolve the savings industry's problems, and reform the
financial institution regulatory structure and deposit insurance system to prevent a reoccurrence of these problems. I
expect the Secretary to submit his proposals to the new President shortly.
To improve coordination of Federal rural development programs and to redirect funding toward needy rural areas and
program recipients, I am continuing support of the rural development initiative coordinated by the Secretary of Agriculture.
By emphasizing housing vouchers, I would provide housing
assistance to 132,000 additional low-income households in
1990, 5 percent more than the 126,124 additional households
receiving housing subsidies in 1989. Housing vouchers can
serve more low-income households at a lower Federal cost and
provide greater opportunity for these families to rent housing
of their own choosing.
To maintain the progress we have been making in fostering
State and local education reform, I would sustain the present
level of spending on discretionary education programs at
$18.5 billion, but refocus those funds to put more money
where the needs of the disadvantaged and students with
handicaps are greatest.
To continue the significant progress we have made in cleaning up the environment, I recommend a $153 million increase
for the Environmental Protection Agency's regulatory, research and enforcement programs. I also recommend an increase of $315 million for the Superfund hazardous waste
cleanup program in order to maintain the program's momentum and support a stronger enforcement role.
Because changes in the earth's natural systems can have
tremendous economic and social effects, global climate change
is becoming a critical concern. Our ability to understand and
predict these changes is currently limited, and a better understanding is essential for developing policies. The budget proposes a coordinated and effective Federal research program
on global change. This budget is accompanied by a report by
the Committee on Earth Sciences that describes this program
and its strategy.




1-10

THE BUDGET FOR FISCAL YEAR 1990

• Last year's fires on Federal forestlands indicated the need for
more timely funding for annual fire-fighting costs. I therefore
propose that two new Federal wild land firefighting accounts
be established in the Departments of Agriculture and Interior.
• To further strengthen our energy security, I propose legislation authorizing the sale of the naval petroleum reserves to
the private sector in exchange for cash and oil to be added to
the strategic petroleum reserve. I also propose the establishment of a separate 10 million barrel defense petroleum inventory.
• To provide for the timely completion of my Reform '88 management improvement program I propose an additional $103
million for 1990, to further improve our management and
credit systems.

MAJOR PROGRAMS ARE REFORMED TO ACHIEVE
DEFICIT REDUCTION
The program structure and incentives underlying many domestic
Federal programs need to be altered to promote greater efficiency
and cost-effectiveness.
• Current farm price support programs are far too costly. For
the period 1986-89 an estimated $130 billion in Federal spending for farm-related assistance programs provided an average
of nearly $600,000 per farmer. Much of this assistance goes to
farmers with high incomes—more than twice the U.S. family
average. I therefore propose outlay reductions for the price
and income support programs of $2 billion in 1990 and additional annual reductions of between $2 and $2.5 billion in
each year from 1991 through 1994. In addition, I urge reform
of the counterproductive sugar price support program.
• The rapidly rising costs of the medicare program need to be
moderated. I propose a reasonable increase in the medicare
prospective payment system rate and reductions in hospital
capital payments and special graduate medical education payments. Also, in an effort to restrain excessive growth in supplementary medical insurance (SMI) costs, I propose extension
of the current law SMI premiums, limitations on physician
payments, reductions in payments for certain overpriced procedures, and reforms in the durable medical equipment payment system. Medicare spending would still grow by 9 percent
between 1989 and 1990 under these proposals—but not by the
13 percent that would occur under current law.
• I also propose reforms in the medicaid program to reduce
spending growth between 1989 and 1990 to $1.7 billion, or 5
percent, rather than the $3.3 billion, or 9 percent, that would




THE BUDGET MESSAGE OF THE PRESIDENT

1-11

occur under current law. These reforms reinstate successful
incentives employed in the early 1980's. My budget also proposes restructuring Federal financing of administrative expenses to give States greater incentives to operate their administrative systems as efficiently as possible.
• The Government often continues programs at the Federal
level that are either duplicative or are no longer needed, or
more appropriately undertaken by other levels of government
or the private sector. This is the case with the Economic
Development Administration, Amtrak, urban mass transit
discretionary grants, and most operating subsidies for the
Postal Service. Efforts to reverse this situation have been
undertaken by prior administrations as well as my own.
These programs should be eliminated. The budget proposes
termination of 82 programs that are not needed to satisfy
national priorities.
• Under current law, outlays for Federal employee retirement
and health benefits are estimated to grow from $51.3 billion
in 1989 to $55.9 billion in 1990. I propose freezing retirement
cost-of-living allowances (COLAs) and other reforms to hold
the 1990 level to slightly above that for 1989, reducing the
growth that would otherwise occur by $4.4 billion.
ACHIEVING A PROPER FEDERAL ROLE AND IMPROVING
MANAGEMENT

As the Federal Government grew, it took on improper responsibilities, and managed its programs inefficiently. We undertook to
return the Federal Government to its proper role. We also initiated
a major program to improve the management of the remaining
programs. These priorities are continued and expanded in this
budget.
Privatization.—The Government and the private sector should
each do what it does best. The Federal Government should not be
involved in providing goods and services where private enterprise
can do the job cheaper and better.
Accordingly, my budget proposes that a number of Federal enterprises be opened to the private sector, through public offerings or
outright sales. Following our success in the sale of Conrail and the
sale of $21 billion in selected loan portfolios, I am proposing sale of
the naval petroleum reserves, the Alaska Power Administration,
and the Southeastern Power Administration. I also propose sale of
the Federal Government's helium-processing assets, excess real
property, and a further $4.3 billion in loan portfolios. In addition,
my budget proposes legislation to establish a government corpora-




1-12

THE BUDGET FOR FISCAL YEAR 1990

tion for the uranium enrichment enterprise, as the first step towards eventual privatization.
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 propose a number of pilot
projects and studies in areas such as the private delivery of advertising materials and urgent mail, and the Department of Justice's
prison hospitals.
Improved Management

In 1981, I made a promise to the American people "to limit
Government to its proper role and make it the servant, not the
master, of the people." My "Management Improvement Program:
Reform '88" has helped make Government more efficient and more
responsive. We reduced waste and fraud in Federal programs by
combining the efforts of the inspectors general into the President's
Council on Integrity and Efficiency, resulting in over $110 billion
saved or put to better use—and their efforts are continuing.
I saw that the Federal Government did not have effective cash
management practices for dealing with what is now a $2 trillion
annual cash flow, nor did it have a government-wide credit management program for what is now a $1 trillion portfolio. This
resulted in the waste of billions of dollars each year. We built the
necessary government-wide controls in both areas and stopped the
drain.
Moreover, we began the establishment of the first governmentwide financial accounting system, consolidating and making uniform over 400 previously incompatible individual agency systems.
This was essential for any well-managed government, and is presently being implemented.
The Federal Government has a major effect on our daily lives
through the collection of taxes and fees, the direct provisions of
services, the payment of financial assistance through various entitlement programs, and the regulation of commercial enterprises.
Through modernization, improved administration, and automated
services the Government has made substantial reductions in the
time it takes to provide services to the public. As the 21st century
approaches, the Federal Government must adapt its role in our
society to changing conditions and changing technology. At the
turn of the century, the U.S. population will exceed 268 million,
with a larger proportion of elderly citizens. Changes in technology
and communication will increasingly link the world's economies,
trade, capital flows, and travel as never before.
The 1990 Management Report, which is being forwarded to the
Congress as part of the 1990 budget submission, reflects the highlights of OMB's report to me on "Government of the Future." That
Management Report has been expanded as a beginning to a plan-




THE BUDGET MESSAGE OF THE PRESIDENT

1-13

ning process that has, in part, shaped the proposals in this budget
and should become a part of the annual budget process.

BUDGET PROCESS REFORM IS DESPERATELY NEEDED
TO CONTINUE DEFICIT REDUCTION
The persistence of the budget deficit is overwhelming evidence
that the Federal budget process is fundamentally flawed. Past efforts at "reform" have been directed largely toward protecting a
large portion of domestic spending from real fiscal discipline. Fourteen years after passage of the Congressional Budget Act and three
years after enactment of the Balanced Budget and Emergency
Deficit Control Act, the Federal budget process remains unwieldy
and undisciplined. The American people expect better of their political system, and they deserve it.
Under the Congressional Budget Act, Congressional budget resolutions—Congress' proposed budgets—are passed each year. They
are not sent to the President for approval and, therefore, are not
law. They provide guidance to the committees of Congress, but the
guidance is often late and ambiguous. The resolutions are usually
passed well after the dates required by law, and well after they are
needed by the finance, authorizing, and appropriations committees.
Moreover, there is little agreement within Congress on the guidance provided. The House of Representatives and the Senate do not
agree, except in the most general terms, on the priorities implied
by resolutions both have approved.
Except for last year's on-time performance, Congress self-imposed
budget deadlines have usually been missed, and massive continuing
resolutions and reconciliation bills have been the rule rather than
the exception. These large, cumbersome bills provide cozy hiding
places for hundreds of special interest add-ons, which line-item veto
authority would permit the President to challenge.
A number of changes in the budget process—most of which I
have recommended before—are needed to instill budget discipline
throughout the legislative process. I urge Congress to adopt the
following measures:
Balanced budget amendment.—I remain committed to and urge
approval of a constitutional amendment requiring a balanced
budget. The amendment should require a super-majority vote (at
least 60 percent) in the Congress to increase taxes.
Line-item veto.—My successors should be given the authority,
subject to Congressional override, to veto line-items in annual appropriations bills, in authorizing legislation that provides or mandates funding for programs, and in revenue bills. Such authority
would permit the elimination of substantial waste and would be an
effective instrument for enforcing budget discipline.




1~14

THE BUDGET FOR FISCAL YEAR 1990

Enhanced rescission authority.—To enhance the President's ability to control Government spending, I recommend that line-item
veto authority be complemented by a change in law that would
require the Congress to vote "yea" o r "nay" on any rescission
proposed by the President. Current law allows the Congress to
duck responsibility by simply ignoring proposed rescissions for 45
days.
Biennial budgeting.—The annual budget process consumes too
much time and energy. A biennial budget would reduce the repetitive budget tasks, allow more time for considering key spending
and revenue decisions, provide less scope for gimmicks that give
the illusion of "savings," such as shifting spending from one year
to another without affecting the underlying programs, and permit
the realization of real savings that would be possible with a more
assured availability of funds. For these reasons, I recommend that
biennial budgeting be adopted.
Joint budget resolution.—To ensure the broader scrutiny and
stricter discipline that is needed in the congressional budget process, I propose that Congress be required to prepare a budget resolution covering a minimum of two years showing revenue proposals
individually and showing spending priorities. The Congress should
also be required to submit its budget resolution to the President for
his signature or veto. Subsequent legislation which exceeds these
allocations should not be considered without super-majority approval.
Individual transmittal of appropriations bills.—The practice of
transmitting full-year continuing resolutions covering a number of
appropriations bills does not permit the Legislative and Executive
Branches to exercise proper scrutiny of those bills. Too often in the
past, such continuing resolutions have provided convenient cover
for special-interest spending that would not survive close scrutiny.
To minimize this risk, I propose that appropriations bills be transmitted individually to the President.
Credit reform.—The effects of credit activities are recorded imperfectly under current budget accounting. The subsidy component
of Federal lending programs remains hidden.
To correct this major fault in the budget system, I recommended
credit reform legislation two years ago. This legislation, which I am
recommending again, would measure the true cost—the present
value—of the subsidies provided by Federal credit programs and
put that cost on an expenditure basis equivalent to the cost of
other Federal programs. This change must be an integral part of
the reform of the budget process.




THE BUDGET MESSAGE OF THE PRESIDENT

1-15

Measuring the effects of budget proposals.—Budget discipline and
lasting deficit reduction would be facilitated if the Legislative and
Executive Branches were to use a common set of principles for
scoring budget proposals and actions on them. I urge that the
Congressional Budget Office and the Office of Management and
Budget be charged with the responsibility to develop, in consultation with the budget, finance, authorizing, and appropriations committees, a common set of budget scoring principles for use by the
Legislative and Executive Branches.
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
The accomplishments of the American people in past eight years
will always be for me a source of pride. However, we must continue
our recent progress in reducing the Federal deficit.
Deficit reduction is a key national priority, written into law by
the G-R-H Act, which, despite its defects, legislated a process to
achieve a balanced budget.
This budget achieves the 1990 target of the amended Act, and
projects a budget balance in 1993. It preserves legitimate programs
for the aged and needy, provides for adequate national security,
devotes more resources to other high-priority activities, and accomplishes all this without raising taxes. Tax increases are not needed.
History shows that they would simply be used by the Congress to increase spending. Tax increases have been overwhelmingly voted
down in the last three Presidential elections.
I call upon the Congress to enact this budget. Higher taxes are
not needed—as this budget demonstrates—but genuine deficit reduction through moderating the growth in spending is essential to
enable the next Administration and Congress to address the Nation's agenda for the future.
Over the past eight years, we Americans have made our world a
safer place for freedom because we had the will to reinvigorate our
economy, rebuild our defenses, and provide for the less fortunate
among us. Together, we achieved a new beginning for our country
and prepared the way for the next Administration to build on our
accomplishments.
RONALD REAGAN
JANUARY 9,




1989




PART 2

BUDGET TRENDS
AND PRIORITIES
2-1

BUDGET TRENDS IN THE 1980s

This final budget of the Reagan administration comes at the end
of a decade of significant changes in both the growth and the
composition of Federal spending. These changes have sometimes
been overlooked and sometimes been misunderstood, as attention
has focused on the deficit. The 1990 budget is a convenient vantage
point from which to review the changes of this decade and place
them in a longer perspective.
Overall, the 1980s have witnessed a sharp reduction in the rate
of growth of Federal spending. Real outlays in 1990 are expected to
be 26 percent above their 1980 level; through 1988, the cumulative
growth rate has also been 26 percent.1 This is a much smaller
increase than in any previous decade since at least the 1920s, when
the Budget Act of 1921 established the Bureau of the Budget and
the modern budgeting process. Before then, the role of the Federal
Government and its budgeting system were so different that meaningful comparisons are not possible.
PERCENTAGE NCREASE IN REAL FEDERAL SPENDING BY DECADE
Decase
1920s
Real growth of Federal spending

-30.7

1930s
212.4

1940s

1950s

165.0

54.4

1960s

1970s

49.6

1980s

37.2

26.0

Because of the slowdown in the rate of growth of Federal outlays,
they will account for a slightly smaller share of GNP in 1990 than
they did in 1980—21.0 percent vs. 22.1 percent. This will be the
first decline over a full decade since the 1920s.
GOVERNMENT SPENDING AS A SHARE OF GROSS NATIONAL PRODUCT
Year
1920
Spending/GNP

6.9

1930

4.2

1940

9.9

1950
16.2

I960
18.0

1970
19.8

1990

1980
22.1

21.0

It is worth emphasizing that the 1980s have seen slower growth
and a restructuring of Federal Government spending, but not an
actual reduction in expenditures. Even after adjusting for inflation,
the level of Federal spending will be higher in 1990 than it was in
1

Unless otherwise indicated, all dollar magnitudes in this section are expressed in 1982 dollars.




2-2

BUDGET TRENDS IN THE 1980s

2-3

1980. The only sense in which the Government is smaller is in
relation to the national economy, and even in these terms the
reduction is slight; Government's share of economic output has
been stabilized rather than lowered significantly. But the changes
in the composition of the budget have been substantial.
MAJOR CHANGES IN THE 1980'S

An increasingly popular classification system for federal outlays
is the division into national defense, entitlements and other mandatory programs, and discretionary programs. This basic framework was used in the Bipartisan Budget Agreement negotiated in
late 1987 between the President and the leaders of Congress.
During this decade, outlays for these broad budget categories have
shifted in very different ways.
• Defense spending has been increased above the levels of the
late 1970s, but defense still constitutes a smaller share of the
budget and of GNP than at any time during the 1950s and
1960s.
• Entitlements and other mandatory programs have continued
to grow in real terms, albeit more slowly than in the past,
and now constitute about the same share of GNP as they did
15 years ago.
• Domestic discretionary programs have been cut back in real
terms; however, not all discretionary programs have been
scaled back—important priorities have been maintained and
expanded.
This is not a full picture. The broad domestic budget categories
mask substantial differences among various functions and programs. Entitlements for the elderly have grown as a share of GNP;
entitlements for the poor have increased in real terms, and have
about kept pace with the growth of the economy. Health outlays,
for both the elderly and the poor, have increased more rapidly
than other benefits, and are the most rapidly growing large programs in this decade, as they were in the 1970s. This is true of both
Medicare and Medicaid. Other entitlements have been reduced for
various reasons; unemployment compensation, for example, has
declined mainly because the strength of the economy has led to a
drop in the unemployment rate.
Among the discretionary programs, the administration has emphasized the basic traditional roles and functions of central government. More resources have been devoted to law enforcement activities; the war on drugs has received especially high priority. The
other core executive, legislative, and judicial functions, including
the conduct of foreign policy, have also been maintained and
strengthened. Administration priorities in drug education, basic
science, space, and AIDS prevention and research, have also re-




2-4

THE BUDGET FOR FISCAL YEAR 1990

ceived increased funding. At the same time, other domestic discretionary programs have been cut in real terms. These include grants
to state and local governments, for programs other than payments
to poor individuals.
The remainder of this section describes these changes in more
detail.
COMPOSITION OF BUDGET OUTLAYS, 1970-1990
(As percentages of GNP)

1970

National Defense
Net Interest
Entitlements and other mandatory programs
Payments to elderly and retirees
Low-income benefits
Other
Discretionary programs
Housing Assistance
Basic government functions
Administration priorities
Grants to State and local governments
Remaining programs
Undistributed offsetting receipts
Total outlays

1988

1990

8.3
1.5
6.4
4.2
1.0
1.2
4.5
0.1
0.7
0.5
1.6
1.7
-0.9

5.0
2.0
10.1
6.7
1.7
1.7
5.8
0.2
0.7
0.3
2.2
2.4
-0.7

6.1
3.2
10.2
7.2
1.6
1.4
3.8
0.3
0.5
0.3
1.3
1.4
-0.8

5.5
3.1
9.6
7.1
1.5
1.0
3.6
0.3
0.5
0.4
1.2
1.2
-0.8

19.8

22.1

22.3

21.0

NATIONAL DEFENSE
The administration has increased defense expenditures in order
to rebuild the nation's military capability, which had been allowed
to deteriorate in the aftermath of the Vietnam War. Annual real
outlays were cut by $100 billion, almost 40 percent, between 1968
and 1977, then rose by a modest $10 billion through 1980. Spending
by the late 1970s had fallen to levels well below those prevailing at
any time since the outbreak of the Korean War, measured either
in real terms or as a share of GNP. Strategic forces were in need of
modernization; conventional equipment was not receiving proper
maintainance, hampering our ability to engage in sustained operations; and the armed services were enlisting too many poorlyqualified recruits, and losing too many of their experienced personnel.
Thus when this administration took office, there was a broad
consensus that it was necessary to strengthen the defense program.
Between 1980 and 1988, real outlays were increased by $88 billion,
or 54 percent. Real funding for strategic and conventional forces
increased by more than 50 percent, and military pay was increased
to levels competitive with the private sector. As a share of GNP,
defense outlays are now at 6.1 percent, compared to 5.0 percent in




BUDGET TRENDS IN THE 1980s

2-5

1980. The American economy can readily sustain this level of expenditure. Indeed, during the prosperous peacetime decade of
1955-1964, the United States devoted 10 percent of GNP annually
to national defense.
As a result of the increase in spending, improvements have been
achieved in all aspects of defense: strategic and conventional weapons have been modernized; training, readiness, and the ability to
engage in sustained combat have been improved; and new weapons
systems have been developed. Naval and air forces have been
strengthened, and the quality of armed forces personnel has improved.
Since 1987, real outlays have been essentially constant. They
rose by $2.6 billion between 1987 and 1988 and will decline by $2.9
billion in 1989. In 1990 and later years, real outlays will be below
$250 billion. The lower level of outlays reflects the fact that defense program expenditures occur over several years after programs are authorized. Budget authority has declined in both nominal and real terms between 1985 and 1988, after rising by more
than 50 percent in 1982 dollars during the first half of the 1980s.
This budget projects a 2 percent real annual increase in budget
authority through 1994.
Although national defense objectives remain unchanged, the rebuilding of national security capabilities will proceed at a slower
pace, even with the real increase contained in this budget. The
proposals for 1990 and beyond represent an essential program for
maintaining the strength that has enabled us to negotiate fair
agreements with our adversaries, and to reduce the risk of major
military conflicts.
ENTITLEMENTS AND OTHER MANDATORY PROGRAMS

Entitlement spending in this decade, and indeed since 1975, has
generally fluctuated within the range of 10 to 11 percent of GNP.2
In 1988 entitlements and other mandatory programs accounted for
10.2 percent of GNP, not very different from the 10.0 percent
prevailing in 1980, or the 10.1 percent in 1975. This period of
relative stability has come after a decade of unsustainably rapid
growth, during which entitlements more than doubled, starting
from 4.2 percent of GNP in 1965.
Mandatory programs have grown substantially in real terms.
Total spending amounted to $270 billion in 1975, $314 billion in
1980, and $391 billion in 1988. This budget proposes changes in
several programs which will slow the growth of mandatory spending and reduce their share of GNP modestly in the early 1990s.
2
Most entitlement programs provide payments to individuals, and most programs providing payments to
individuals are also entitlements. The major exceptions are farm price support payments (an entitlement but
not a payment to individuals), and housing subsidies (a payment to low-income individuals, but not an entitlement).




2-6

THE BUDGET FOR FISCAL YEAR 1990
REAL OUTLAYS ON ENTITLEMENTS, 1965-1990
(In billions of dollars)
1965

1980

1988

1990

162.2
69.8
13.3
15.1
23.8
6.5
17.3
15.3
10.1
3.0

209.8
110.1
21.2
30.9
43.6
11.9
31.7
21.6
0.7
42.0

285.3
137.0
36.2
36.6
52.0
16.3
35.7
16.4
1.2
35.2

302.7
173.9
68.8
42.6
61.5
24.4
37.1
14.1
11.2
18.7

181.9
79.0
41.8
62.0
26.7
35.3
12.6
9.2
5.9

94.6

Total

1975

98.2
47.8
0.0
9.8
14.6
0.8
13.8
11.5
10.1
0.7

Retirement programs 57 6
Social security
Medicare
Other
Low-income benefits
Medicaid
Other
Veterans entitlements....
Farm income stabilization
Allother

1970

150.6

270.1

314.4

390.7

392.5

15.3

24.8

47.7

60.9

75.0

77.7

ADDENDUM
Total Low-Income Benefits

1

1

Includes discretionary benefits: housing assistance, commodity programs, low-income energy assistance, and refugee and entrant assistance.
Does not include administrative costs.

Although the overall share of GNP devoted to mandatory programs was constant, Social Security, Medicare, and Medicaid have
grown steadily over the last 15 years, and are now the three largest
mandatory programs. Medicare has grown the most rapidly, as a
share of GNP; indeed, it has grown almost as rapidly in constant
dollars as the much larger Social Security program. These increases have been offset by declines in unemployment compensation and veterans entitlements. Low-income benefit programs (including Medicaid) have fluctuated narrowly between 1.8 and 2.0
percent of GNP.
Social Security.—Real benefits for Social Security recipients have
been maintained in this decade. Social Security has grown slightly
as a share of GNP from 4.4 to 4.5 percent between 1980 and 1988;
total real outlays have increased from $137 billion in 1980 to $174
billion over the same period. The number of beneficiaries has increased from 35.1 million to 38.2 million individuals. By 1990, 39.5
million people will be receiving payments. Reforms to preserve
Social Security were enacted in 1983, that have put the program on
a sound actuarial basis well into the next century by bringing the
taxes paid by (and on behalf of) workers into closer balance with
the retirement benefits they can expect to receive. The Social
Security trust fund is projected to develop a substantial surplus
over the next 40 years, to fund retirement benefits for the "baby
boom" generation.
Medicare.—Medicare has grown rapidly in this decade, and
indeed since its inception in 1966. It has increased from 1.1 percent
of GNP in 1980 to 1.6 percent in 1988. Real outlays have nearly
doubled, from $36.2 billion in 1980 to $68.8 billion in 1988, while




BUDGET TRENDS IN THE 1980s

2-7

the number of Medicare enrollees has risen by only 1.5 percent.
The growth in Medicare outlays has been a serious fiscal problem
throughout this decade. The administration has proposed reforms,
and Congress has enacted them, almost every year. The enacted
reforms have differed from the administration's proposals in various ways, but there has clearly been a consensus that costs need to
be contained. This budget contains further proposals to restrain the
rise in program costs. Nonetheless, real Medicare outlays will still
increase to $79.0 billion in 1990, in large part because inflation in
health care has rapidly outpaced the overall rate of inflation in the
American economy. The catastrophic health bill enacted in 1988
will increase outlays in the future, as the new benefits are phased
in.
Federal Retirement Programs.—Federal civilian and military retirement outlays have risen in this decade, along with the number
of retirees. This is an inevitable result of the growth of Government employment over the last half century, beginning with the
New Deal. Retirement outlays have remained at almost exactly 1.0
percent of GNP over this decade, while rising in real terms from
$31.1 billion to $38.1 billion. Reforms in both the civilian and
military retirement systems are expected to save money in the
very long run; new systems have been established for newly hired
workers that will eventually reduce the cost of the retirement
programs, while maintaining income security for retired workers.
Low-Income Benefit Programs.—Spending on programs for the
poor and needy doubled as a share of GNP between 1965 and 1975,
and the share has remained almost constant since then. Outlays
amounted to 1.8 percent of GNP in 1975, 1.9 percent in 1980, and
1.9 percent in 1988; they are expected to be 1.8 percent in 1990.
Real outlays have therefore risen as the economy has grown, from
$47.7 billion in 1975 to $60.9 billion in 1980, $67.7 billion in 1985,
and $75.0 billion in 1988. Outlays have also risen relative to the
number of poor people; real benefits per person below the poverty
line reached a record high level of $1,920 in 1987, compared to
$1,816 in 1980 and $1,603 in 1975. This ratio has been rising for
several years, and will probably continue to do so. Real benefits in
1988 increased by $3.6 billion, and the continued strong economic
performance in 1988 makes it likely that the number of poor
people declined. (Data on poverty and income in 1988 will not be
available until the summer of 1989.)
The ratio does not measure benefits actually received by individuals and families below the poverty line, because many programs
provide benefits to individuals not classified as poor. One goal of
this administration has been to target benefits more narrowly to
the poorest part of the population.




2-8

THE BUDGET FOR FISCAL YEAR 1990
LOW-INCOME BENEFITS, 1960-1987
(1982 dollars)
1960

Outlays/GNP (percentage points)
Real outlays ($ billions)
Cash
Noncash
Real outlays/persons in povertyCash
Noncash

1965

1970

1975

1980

1987

0.8

1.1

1.8

1.9

1.9

11.2
10.1
1.1

15.3
13.1
2.2

24.8
15.3
9.5

47.7
21.2
26.5

60.8
22.7
38.2

71.5
23.4
48.1

281
253
28

460
395
65

975
600
375

160
821
782

318
777
1,039

161
718
1,202

0.7

The composition of benefits has changed substantially. There has
been a long-term shift from cash to in-kind transfers. Real cash
outlays have not kept pace with the number of poor people since
about 1973, and while real cash outlays per poor person are higher
in 1987 than they were in 1985, they are still below the 1980 level.
The decline in the 1980s is entirely accounted for by a $1 billion
reduction in veterans non-service pensions for poor elderly and
disabled veterans. From year to year, fewer of the veterans who
turn 65 are poor, and therefore fewer receive non-service pensions.
This is consistent with the steady decline in the proportion of the
elderly who are poor in the United States as a whole.
In-kind benefits, meanwhile, have been increasing. Total real
benefits were $11 billion higher in 1988 than in 1980, and $10
billion higher in 1980 than in 1975. Medicaid is responsible for
about three-quarters of this growth since 1980, partly because of
the relatively rapid increase in medical costs, and partly because
benefits have increased since 1984. Housing accounts for the rest of
the growth since 1980. So far in this decade, real outlays for
housing assistance have risen by $4.9 billion, and the number of
assisted families has grown from 4.2 million to 5.4 million (including both HUD and Farmers Home Administration programs), as
policy has shifted from building costly projects to utilizing the
existing stock of available decent housing.3 There has been a small
decline in real outlays for food stamps, of less than $0.5 billion; the
precise amount cannot be ascertained because the nutritional assistance block grant for Puerto Rico, enacted in 1981, combined
food stamps with other programs. The reduction is due primarily to
the economic recovery of the past six years. The number of food
stamp recipients is quite sensitive to economic conditions. It peaked
in early 1983 at 22.6 million; as of July 1988, the number is down
to 18.4 million.
3
Housing is the only major low-income benefit programs that is not classified as an entitlement; it is included
here to give a full picture of programs for the poor. Other small discretionary programs for refugees, energy
assistance, and commodity distribution are also included, for the same reason.




BUDGET TRENDS IN THE 1980s

2-9

Unemployment Compensation.—Outlays for unemployment compensation have come down dramatically since 1983, in a typical
business cycle pattern, reflecting the steady economic expansion of
the past six years, and the sustained decline in the unemployment
rate. As a share of GNP, outlays have been cut by more than half
so far in this decade, from 0.8 to 0.3 percent, and real outlays have
fallen by $10 billion. This is the most cyclically sensitive program
included in the federal budget.
Veterans Entitlements.—Changes in the eligible population,
rather than changes in policy, have led to reductions in real outlays for service-connected pensions and education benefits (the GI
Bill). Real outlays for veterans compensation have grown by 15
percent, from $8.7 billion in 1980 to $10.0 billion in 1988, while the
number of assisted veterans and survivors has fallen by 3.8 percent. Real outlays for veterans education benefits have decreased
sharply, from $2.9 billion in 1980 to $0.4 billion in 1988, as the
number of Vietnam-era veterans receiving education and training
has declined. This pattern is beginning to change, however, as the
Montgomery GI Bill has started to provide benefits to peacetime
veterans. Outlays are expected to rise rapidly until 1992.
Agriculture.—Farm price supports have grown during most of
this decade, continuing a trend that began in the mid-1970s. Real
outlays in 1980 were $8.9 billion; by 1986 they had grown to $24.6
billion. Since then, farm prices have risen, agricultural exports
have increased significantly, the financial position of the farm
sector has improved, and farm loan default rates have declined.
Despite additional Government payments because of the drought in
1988, real outlays have fallen from their peak to $12.2 billion in
1988, and are projected to decline further to $11.8 billion in 1990.
DISCRETIONARY PROGRAMS
Total outlays for nondefense discretionary programs have been
reduced in this decade, both in real dollars and as a share of GNP.
In 1980, these programs accounted for 5.8 percent of GNP; by 1988,
this was cut by one-third, to 3.8 percent. Real outlays have been
reduced by about 20 percent, from $182 billion to $146 billion. Real
outlays grew by about 50 percent during the 1970s, and this growth
has been reversed in the present decade; discretionary outlays are
now down to about their level in 1976. As a share of GNP, discretionary outlays are now lower than they have been for at least a
quarter century.
There has been a substantial reshaping of the nondefense discretionary budget, as well as an overall reduction. The President has
identified a number of national priorities that have received funding increases. They include the war on drugs, education and re-




2-10

THE BUDGET FOR FISCAL YEAR 1990

search to prevent and treat AIDS, basic scientific research, and the
space program. Total real outlays for these priorities will double in
this decade, from $9.1 billion in 1980 to $18.5 billion in 1990. At the
same time, the basic legislative, executive, and judicial functions of
the government have been maintained, and the nation's role in
international affairs has been strengthened. Other discretionary
programs have been given lower priority, and total real spending
on these programs has been reduced by more than 25 percent.
Drug Enforcement and Prevention Programs.—The war on drugs
has been one of the administration's top priorities. Since 1980, the
Federal budget for anti-drug programs has grown from just over $1
billion to a proposed level of $5.0 billion in 1990. In real terms,
outlays have grown from about $1.2 billion to $3.9 billion. Precise
comparisons are not possible before 1981, because activities are
carried out by several agencies and previous administrations did
not identify the share of agency outlays devoted to drug programs
as precisely as this administration has. Nonetheless, it is clear that
outlays have grown much more in the 1980s than in any previous
period. Agencies with major responsibilities in the war on drugs
include the Drug Enforcement Administration, the Coast Guard,
the Customs Service, and the FBI. All of these have received significant real increases in this decade, and will receive further increases in 1990.
AIDS.—Acquired Immune Deficiency Syndrome (AIDS) is the
highest public health concern of this administration. Real outlays
have risen from $30 million in 1982 to $1.4 billion in 1988; the
administration is proposing a further increase to $2.5 billion for
1990. Federal funds are spent for research on the causes and potential treatments for the disease, and also for health education, risk
prevention and treatment. Under a policy established in 1988, innovative treatments will be made available more rapidly to victims of
this disease, without requiring extensive testing by the Food and
Drug Administration.
Science.—Basic scientific research is an essential investment in
the Nation's economic future. Total real outlays for basic research
have risen from $5.2 billion in 1980 to $7.5 billion in 1988, and this
budget proposes a further increase to $8.3 billion in 1990, an increase of 60 percent during this decade. Nearly all of the increase
has come in nondefense basic research; real outlays for such research by all Federal agencies have risen from $4.6 billion in 1980
to $6.8 billion in 1988, with a further increase to $7.6 billion in
1990. Construction of the superconducting supercollider, which will
be the world's most powerful high energy physics accelerator, will
begin in 1990, with outlays of $206 million. While outlays for basic




BUDGET TRENDS IN THE 1980s

2-11

research have increased, expenditures on applied research and development have been reduced, from $14.0 billion in 1980 to $8.1
billion in 1988. Funding was curtailed for most exotic higher-cost
energy technologies. Many of these projects proved to be misconceived, and the sharp decline in oil prices in this decade undercuts
their original justification.
Space.—This administration has recognized the economic and
scientific value of space, 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 $7.5 billion in 1988, and a further
increase to $9.7 billion is proposed for 1990. This will support nine
shuttle flights during the year and further essential development
of the space station Freedom, which will serve as a base for significant research projects and a catalyst for commercial development
of space.
Core Functions of Government—The legislative, judicial, and central executive functions are fundamental to the conduct of Government. Real outlays for these activities have increased from $9.1
billion in 1980 to $12.9 billion in 1988, and are projected to rise to
$14.7 billion in 1990. Growth is occurring mainly in law enforcement and revenue collection activities.
International Affairs.—This administration has given high priority to increased spending for international programs, including
security assistance, the conduct of foreign affairs, and international
information and exchange programs. The administration has supported democratic governments and movements throughout the
world, and thanks in part to its efforts there has been a renaissance of democracy in this decade. The citizens of Argentina,
Brazil, the Phillippines, and the Republic of Korea have replaced
military or authoritarian regimes with democratic governments.
Soviet forces in Afghanistan are scheduled to leave that country by
February 15 of this year, and negotiations are well under way for
the removal of Cuban forces from Angola. A peaceful transition to
independence for Namibia is also in prospect. Democracy has been
restored to Grenada and strengthened in El Salvador. The administration has strongly supported the freedom fighters in Nicaragua.
Real outlays for discretionary international affairs programs
averaged about $14.5 billion annually during the first seven years
of this decade, a substantial increase above the $11.6 billion annual
average of the 1970s. Outlays were cut back by Congress, however,
to $12.6 billion in 1987 and have remained near that level under
the Bipartisan Budget Agreement. This budget proposes an increase to $13.7 billion for 1990, to stimulate further progress
toward democracy and freedom throughout the world.
240-000 O - 1989 - 2 QL 3




2-12

THE BUDGET FOR FISCAL YEAR 1990

Higher Education.—Real federal outlays for student aid have
increased during the 1980s, from $6.0 billion in 1980 to $7.1 billion
in 1988. 4 They are projected to rise further, to $8.0 billion by 1990.
Program reforms have reduced loan and grant subsidies to students
from middle- and upper-income families, while increasing funds for
poor students.
Federal programs have worked in conjunction for additional private and State government spending on education. The private
sector provides funds for loans that are guaranteed by the Federal
Government, and States and educational institutions provide
matching funds for Federal grants, direct loans, and work-study
funds. The total annual value of the aid generated by these Federal
programs increased by more than 20 percent in real dollars between 1980 and 1988.
Grants to State and Local Governments.—Federal grants to State
and local governments have been cut back sharply in this decade. 5
Grants have been cut almost in half as a share of GNP, from 2.2
percent in 1980 to 1.3 percent in 1988, and by more than a third in
real terms, from $68 billion in 1980 to $43 billion in 1988. Grants
have been reduced for programs where the benefits are primarily
local rather than national, among them local economic development, transportation systems, and State and local justice assistance
grants. Some unnecessary or unsatisfactory grant programs have
been eliminated, such as general revenue sharing and public service employment. Other grants have been restructured, such as
Federal job training programs, where the Comprehensive Employment and Training Act (CETA) was replaced in 1982 by the Job
Training Partnership Act (JTPA). In many areas, categorical programs were consolidated into block grants, simplifying State and
local program administration: several CETA programs for training
economically disadvantaged individuals were combined into a
single block grant under JTPA, numerous health and social services programs were combined into block grants, and 29 small elementary and secondary education programs were combined in the
Chapter 2 block grant. As part of the Omnibus Budget and Reconcilation Act of 1981, 57 categorical programs were combined into
nine block grants.
Other Domestic Programs.—Taken as a whole, the remaining
domestic discretionary programs have been substantially cut
during this decade. Real outlays were reduced by more than 25
4
Most student aid programs are discretionary, but Guaranteed Student Loans are regarded as mandatory.
This discussion includes all higher education programs administered by the Education Department, to give a full
picture of Federal Government involvement in higher education. Outlays for Guaranteed Student Loans are
included in the tables for mandatory programs.
5
This discussion excludes payments for individuals, primarily programs for the poor included in the previous
discussion of entitlements.




BUDGET TRENDS IN THE 1980s

2-13

percent, from $75 billion in 1980 to $56 billion in 1988, and the
share of GNP devoted to these programs has been cut from 2.4
percent to 1.4 percent. Many of these programs provide direct or
indirect subsidies to private business; the administration has been
successful in substantially reducing such subsidies. Nominal outlays for a number of small programs have been cut substantially.^
Regional economic development activities have been curtailed; dutlays by the Appalachian Regional Commission have been cut from
$348 million to $147 million, and a number of other regional economic commissions have been terminated. Amtrak subsidies have
been cut from $861 million to $581 million, and Conrail has been
sold, enabling the Federal Government to save annual subsidies
that amounted to $550 million in 1980 as well as to realize $1.9
billion from the sale itself. The Synfuels corporation was terminated in 1987, saving $200 to $300 million annually. Free and reducedrate mail appropriations were cut almost in half, in real terms,
from $782 million in 1980 to $577 million in 1988.
Where the beneficiaries of Federal Government activities can be
identified, the administration has sought to require payments such
as user fees for the services that it provides. This has had the effect
of reducing net outlays, both because of the receipts from the fees
and because the imposition of the fees has caused beneficiaries to
evaluate their need for the services more carefully. The Water
Resources Development Act of 1986 authorized fees for the use of
commercial harbors, amounting to $148 million in 1988, to help pay
for operating and maintenance costs. Customs service user fees
were established in 1986 and 1987 for processing passengers and
inspecting commercial cargo. These fees produced combined revenues of $787 million in 1988. Existing fees, such as the FHA mortgage insurance premium, have been brought into better alignment
with the value of the service. Finally, the Government has sold
some physical and financial assets, where appropriate. The Great
Plains Coal Gasification Plant, and Conrail, mentioned above, are
examples of physical asset sales. In 1988 the Government realized
$7.8 billion from the sale of loan assets; there were no such sales
prior to 1987. The proceeds of these sales are counted as offsetting
receipts, and therefore reduce the reported outlays in their respective budget functional categories. Their main purpose, however,
has been to improve the management of Federal direct loan programs and loan portfolios, by requiring the administering agencies
to improve their loan documentation and servicing practices, in
order to conduct the sales.

6

Dollar figures in this subsection are expressed in current dollars rather than constant dollars.




2-14

THE BUDGET FOR FISCAL YEAR 1990

CONCLUSION
Significant changes have indeed occurred in the budget during
this decade, but they should be put in the context of longer-term
trends. The year 1980 is sometimes taken as a reference point
against which succeeding budget policy should be evaluated, but it
should not be taken as a normative standard. In 1980, the public
was generally dissatisfied with both the rapid growth and the
composition of Federal spending. Defense outlays, which had been
declining in real terms for several years in the aftermath of the
Vietnam War, were too low, while domestic discretionary programs, which had been growing rapidly and in some cases haphazardly during the preceding decade, were too high. Entitlements
also were growing in real terms, though their share of the budget
stabilized after 1975. The policy of this administration has been to
reverse some of these trends, restoring national defense capabilities
and cutting back sharply on lower priority domestic discretionary
programs. Many of the entitlement programs have been restructured to a greater or lesser extent over the course of this administration but the basic entitlement programs for the elderly, the
poor, and other important groups have been preserved.
The President's budget for fiscal year 1990 is in many respects a
continuation and extension of the changes that have occurred
during this decade to date. The proposals contained in this budget
are designed to meet the Gramm-Rudman-Hollings deficit target of
$100 billion for 1990, and the subsequent targets, including a balanced budget in fiscal year 1993.




2-15

PRIORITIES IN THE 1990 BUDGET

PRIORITIES IN THE 1990 BUDGET

Under the 1990 budget proposals, outlays would increase by $14.8
billion from 1989 to 1990. Rather than allow all programs to grow
at the same rate, the administration has selectively proposed program reforms and initiatives to strengthen high priority programs
while reducing programs of lower priority. Entitlements and other
mandatory programs would grow by $4.6 billion between 1989 and
1990, slowing growth in programs that have exploded in size in
recent years. Spending for defense programs would increase by $4.7
billion while spending for international discretionary and domestic
discretionary programs would grow by $1.1 billion and $4.1 billion,
respectively.
1990 BUDGET PROPOSAL
(In billions of dollars)
1989

Receipts
Outlays:
Defense
International discretionaryDomestic discretionary:
Initiatives
Terminations
Other
Subtotal, domestic discretionary..
Entitlements and other mandatory
Asset sales x
User fees
Other collections
Net interest
Undistributed offsetting receipts
Total, outlays
Deficit ( - )
MEMORANDUM:
Deficit ( —) without asset sales..

1990

change

975.5

1,059.3

83.8

298.3
16.3

303.0
17.5

4.7
1.1

47.5
17.0
112.8

53.9
13.8
113.8

6.3
-3.3
1.0

177.4
523.3
-7.1
165.7
-36.9

181.5
528.0
-6.1
-1.0
-4.4
170.2
-36.6

1,137.0
-161.5

1,151.8
-92.5

4.1
4.6
0.9
-1.0
-4.4
4.5
0.3
14.8
69.0

-168.6

-98.6

69.9

* $50 million or less.
1
Includes related debt service.

The budget:
• Meets the deficit target for 1990 called for in the G-R-H Act.
The budget also meets the Act's requirement for a balanced
budget by 1993.
• Does not require new taxes.
• Does not tamper with social security, and assures that truly
needy beneficiaries are protected.
• Provides sufficient funding for national security needs as well
as high priority non-defense initiatives.




2-16

THE BUDGET FOR FISCAL YEAR 1990

• Includes appropriate entitlement reforms that affect only providers, states or local governments and middle and upperincome recipients.
• Reduces or terminates unnecessary Federal programs.
• Only includes increased revenues from extending existing revenues, reproposing user fees and proposing a moderate level
of loan and physical asset sales that are considered to be
"good government" proposals and are not needed to meet the
G-R-H targets.
• Includes expanded privatization initiatives, including efforts
to encourage marketplace competition in the public sector.
• Continues and expands management improvement initiatives.
• Proposes credit and budget process reform.
Under the 1990 budget proposals, the deficit is estimated to
decline from $161.5 billion in 1989 to $92.5 billion in 1990, $7.5
billion below the requirements of the G-R-H Act. Adoption of Presidential proposals would bring the budget into surplus by 1993. By
1994, the surplus would reach $33.4 billion and this is being accomplished without raising new taxes or reducing any benefits to
needy beneficiaries.
This section discusses the major proposals in the 1990 budget.
The following table shows the budget plan by category. The remainder of this section discusses proposals in each category. It also
discusses the administration's management and privatization initiatives.
COMPREHENSIVE BUDGET PLAN
(In billions of dollars)
1989

Receipts
Outlays:
Defense
International discretionary
Domestic discretionary
Entitlements and other mandatory..
Asset sales x
User fees
Other collections
Net interest
Undistributed offsetting receipts
Total, outlays
Surplus/deficit ( - )

1990

1991

1992

1993

1994

975.5

1,059.3

1,140.5

1,212.2

1,281.4

1,345.0

298.3
16.3
177.4
523.3
-7.1
165.7
-36.9

303.0
17.5
181.5
528.0
-6.1
-1.0
-4.4
170.2
-36.6

314.4
17.4
187.3
566.2
-2.4
-1.3
-1.6
165.8
-38.4

326.4
18.0
189.8
599.4
-2.0
-1.7
0.4
154.4
-40.2

339.9
17.8
192.2
630.7
-0.8
-2.0
-0.9
143.8
-41.7

354.3
17.9
194.6
659.6
-0.8
-2.2
0.1
132.1
-43.9

1,137.0
-161.5

1,151.8
-92.5

1,207.3
-66.8

1,244.4
-32.2

1,279.0
2.4

1,311.6
33.4

* $50 million or less.
1
Includes related debt service.

NATIONAL DEFENSE
The budget proposes $315.2 billion in budget authority for national defense for 1990 and $330.8 billion for 1991. These levels




2-17

PRIORITIES IN THE 1990 BUDGET

would provide about 2 percent annual real growth above the 1989
level, reversing a trend of four straight years of real decline in
defense funding. The budget proposal provides the funds needed to
continue modernization of U.S. strategic and conventional forces,
maintain readiness, and improve combat sustainability. These increases are sorely needed if a strong national defense is to be
maintained. The budget also proposes several initiatives for improving defense program management.
REQUEST FOR NATIONAL DEFENSE
(In billions of dollars)

1989

1990

1991

1992

1993

1994

290.2
289.8

305.6
253.8
4.0

320.9
304.7
14.9

335.7
316.2
26.4

350.7
329.4
39.6

365.6
343.5
53.7

8.6
8.5

9.5
9.2
0.7

9.9
9.7
1.3

10.4
10.2
1.7

10.7
10.5
2.1

11.0
10.8
2.4

298.8
298.3

315.2
303.0
4.7

330.8
314.4
16.2

346.1
326.4
28.2

361.4
339.9
41.7

376.6
354.3
56.1

DoD—Military:
Proposed budget authority
Proposed outlays
Outlay change from 1989 level..
Atomic energy defense and other:
Proposed budget authority
Proposed outlays
Outlay change from 1989 level..
Total, national defense:
Proposed budget authority
Proposed outlays
Outlay change from 1989 level..

The administration's strategic modernization program remains a
high priority. The budget requests $5.9 billion for the Strategic
Defense Initiative in 1990—an increase of $1.8 billion above the
level provided in 1989. Funds are provided to acquire the new B-2
strategic bomber, to continue acquisition of the Trident submarine
and missile system, and to develop rail garrison basing for the
Peacekeeper intercontinental ballistic missile. The budget also requests funds to modernize and upgrade strategic arms verification
capabilities. These capabilities will help our nation verify future
arms control agreements, assure compliance with these agreements, and keep pace with changes in technologies in other nations.
Conventional force capability improvements would continue as
new systems such as the A-12 attack aircraft complete development and enter production. Combat readiness would be maintained
at a high level, although there will be some delays in equipment
maintenance. The budget provides for military pay raises of 3.6
percent in 1990 and 3.2 percent in 1991, effective in January of
each year. These increases, which are higher than those requested
for Federal civilian employees, will help assure the continuation of
a high quality military force.
The budget requests $9.0 billion in budget authority for atomic
energy defense activities, an increase above the 1989 level of 8




2-18

THE BUDGET FOR FISCAL YEAR 1990

percent in real terms. This funding level includes $2.0 billion for
environmental, safety, health, and waste disposal activities and
$1.3 billion for modernization of the atomic energy defense production complex.
As budget pressures have increased there has been emphasis on
improved management of defense programs. Stretchouts of procurement programs are avoided and production rates are maintained at
or above minimum economic levels. Six low priority weapons programs and five ammunition lines have been terminated with
1990-91 savings of more than $1.0 billion. To improve program
stability, the budget proposes multi-year procurement of 32 additional weapons programs. These new multi-year programs are expected to result in savings of $8.6 billion over the next 8 years. The
budget also proposes a two-year pilot program to introduce copayments in the provision of health care to non-active duty beneficiaries. The purpose of this program is to explore how co-payments
can reduce costs and improve the quality of health care in military
medical facilities. Funds are included to initiate the base closings
recommended by the Secretary's Base Closures Commission. Expected savings from base closings are estimated to be $2.0 billion
by 1994.
DISCRETIONARY PROGRAMS

Funding for discretionary programs is determined by annual
appropriations actions. This category includes a wide diversity of
Federal programs ranging from basic activities of government such
as the conduct of foreign affairs, to grants to State and local
governments for education, highway construction and community
development.
International Affairs
This budget requests increased funding for international affairs
discretionary programs to meet emerging needs of developing countries, to respond to reform by the United Nations, and to enhance
U.S. Government and Government-sponsored radio broadcasting
abroad. The increases are partly offset by a program termination
and selective reductions. Overall, international discretionary programs are funded at $19.4 billion in budget authority, $1.1 billion
above the 1989 enacted level. Under the budget proposals, 1990
outlays are estimated to be $1.1 billion above 1989.
For the foreign aid component of international affairs the budget
proposes a $0.8 billion budget authority increase over 1989. One
major element of this increase is international security assistance
which provides grants for the export of U.S. military goods and
services and for related support of the economies of key recipient
governments. The $8.5 billion in budget authority proposed ($0.4




2-19

PRIORITIES IN THE 1990 BUDGET
REQUEST FOR INTERNATIONAL DISCRETIONARY PROGRAMS
(In billions of dollars)

1989

1990

1991

1992

1993

1994

Foreign aid:
Proposed budget authority
Proposed outlays
Outlay change from 1989 level..
Export-Import Bank:
Proposed budget authority
Proposed outlays
Outlay change from 1989 level..
Other-.
Proposed budget authority
Proposed outlays
Outlay change from 1989 level..
Total, international discretionary:
Proposed budget authority
Proposed outlays
Outlay change from 1989 level..

13.8
12.7

14.6
13.4
0.6

14.7
13.4
0.7

14.8
14.1
1.3

14.9
13.9
1.2

15.1
14.0
1.3

0.7
-0.3

0.1
-0.2
0.1

-0.4
-0.1

-0.5
-0.2

-0.6
-0.3

-0.7
-0.4

3.8
3.9

4.7
4.3
0.4

4.4
4.4
0.4

4.5
4.4
0.5

4.5
4.5
0.6

4.6
4.6
0.6

18.3
16.3

19.4
17.5
1.1

19.1
17.4
1.0

19.3
18.0
1.6

19.5
17.8
1.5

19.6
17.9
1.6

* $50 million or less.

billion over 1989) will continue or enhance activities promoting the
security of countries in such areas as the Middle East, Central
America and South Asia. Other increases in foreign aid would pay
arrearages on contributions due in past years to multilateral lending institutions such as the World Bank and finance the U.S. share
of a major multilateral effort to further democracy in the Philippines by strengthening that country's economy.
The budget also proposes a $0.3 billion increase in payments to
the United Nations and related agencies including some arrearages. This responds to the budget reforms these entities are undertaking at U.S. insistence and also would finance vital international
peacekeeping operations in the Persian Gulf, Southern Africa and
elsewhere. Further, the budget would provide for the construction
of new radio transmitters in three countries to be used by the
Voice of America and/or Radio Free Europe/Radio Liberty to
broadcast to Eastern Europe, the Soviet Union and other regions.
The budget proposes that the direct lending program of the
Export-Import Bank be terminated. This proposal is largely the
result of the successful efforts of the administration to reduce
subsidized export lending by all developed countries through international credit restraint agreements. The Bank's broad range of
guaranteed loan and insurance programs will continue to provide
comprehensive support for U.S. exporters.
Domestic Discretionary
As in the international affairs area, requests for domestic discretionary programs are based on the relative merits of each program.
Increases are requested for high priority programs, while those




2-20

THE BUDGET FOR FISCAL YEAR 1990

that are either of low priority or the responsibility of State and
local governments are proposed for termination or deep reductions.
Budget authority of $145.0 billion is requested for domestic discretionary programs in 1990, $1.4 billion over the 1989 enacted level.
Outlays for discretionary programs are estimated to total $181.5
billion in 1990.
REQUEST FOR DOMESTIC DISCRETIONARY PROGRAMS
(In billions of dollars)

1989

Space and science:
Proposed budget authority
Proposed outlays
Outlay change from 1989 level
Transportation and public works:
Proposed budget authority
Proposed outlays
Outlay change from 1989 level
Economic subsidies and development:
Proposed budget authority
Proposed outlays
Outlay change from 1989 level
Education and social services:
Proposed budget authority
Proposed outlays
Outlay change from 1989 level
Health research and services:
Proposed budget authority
Proposed outlays
Outlay change from 1989 level
Law enforcement and other:
Proposed budget authority
Proposed outlays
Outlay change from 1989 level
Allowances:
Proposed budget authority
Proposed outlays
Outlay change from 1989 level
Total, domestic discretionary:
Proposed budget authority
Proposed outlays
Outlay change from 1989 level

1990

1991

1992

1993

1994

12.7
12.6

15.5
14.8
2.3

17.4
16.6
4.1

18.9
18.0
5.4

19.9
19.1
6.5

20.7
20.1
7.5

16.2
32.2

15.5
32.3
0.1

15.3
32.4
0.2

15.3
32.1
-0.1

15.4
31.9
-0.3

15.4
31.6
-0.6

27.6
33.8

26.0
31.8
-2.0

25.8
30.1
-3.7

25.2
28.7
-5.1

25.1
27.3
-6.5

24.3
26.4
-7.4

40.6
47.0

40.8
49.1
2.1

49.6
51.0
4.0

49.1
52.1
5.1

48.3
53.1
6.1

48.0
54.1
7.1

25.7
24.8

26.3
25.9
1.1

27.4
26.8
2.0

27.9
27.5
2.7

28.5
28.0
3.2

29.1
28.6
3.8

20.8
27.0

21.3
27.9
0.9

21.7
29.4
2.4

22.2
29.4
2.4

22.4
29.8
2.8

22.3
29.4
2.9

-0.4
-0.4
-0.4

0.8
0.9
0.9

1.9
2.0
2.0

2.9
3.1
3.1

3.7
4.0
4.0

145.0
181.5
4.1

157.9
187.3
9.9

160.5
189.8
12.4

162.5
192.2
14.8

163.5
194.6
17.2

143.5
177.4

* $50 million or less.

Space and Science.—The programs in this category—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—help ensure U.S. strength
and leadership in science and space technology. The budget requests $15.5 billion in budget authority for these programs, 22
percent more than the 1989 enacted level.
The budget includes a major initiative to increase 1990 budget
authority for the National Science Foundation (NSF) to $2.1 billion,




PRIORITIES IN THE 1990 BUDGET

2-21

14 percent more than the 1989 enacted level. NSF would emphasize
the need for academic basic research and for science and engineering education. Continued U.S. leadership in science and industry
depends on the future availability of high-quality scientists and
engineers. Also proposed is a second competition for interdisciplinary basic science and technology centers to complement the 11
established in 1989. These centers would focus on research across
scientific disciplines and encourage substantial participation by industry and the States to speed the transfer of new 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 United States to compete in increasingly 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.
Budget authority of $12.2 billion is proposed for space-related
activities of NASA, a $2.3 billion increase above the 1989 level. The
administration continues to place a high priority on a safe and
sustainable space shuttle flight rate. The budget request would
allow for the completion of modifications and redesigns identified
by post-Challenger accident reviews. The total cost of these activities will be about $3.6 billion through 1991. Continued development
of a new advanced solid rocket motor is also proposed to improve
the safety, reliability, and performance of the shuttle fleet. Improvements to the shuttle that would extend the length of time in
orbit would also be continued with private sector financing sought
for elements of this program. A continued national commitment to
a permanently manned space station is essential to technological
and economic progress. The budget provides for continued expansion of the manned space station, which is to become operational in
the mid-1990's. Through 1989, $2.0 billion will have been spent on
definition and development of the space station. The administration proposes advance funding for 1991 and 1992 and a total development cost ceiling both to provide stable funding and to control
program costs. The administration reaffirms and strengthens its
commitment to private sector investment and involvement in the
space station. NASA is preparing guidelines and criteria for private sector participation in the space station. NASA will rely, to
the extent feasible, on private sector design, financing, construction, and operation of future space station requirements.
The budget requests $1.2 billion in budget authority in 1990, an
increase of 27 percent over the 1989 enacted level for Department
of Energy general science programs. This includes $0.2 billion for

the Federal share of the initiation of construction of the Superconducting Super Collider (SSC). The SSC will be the world's most




2-22

THE BUDGET FOR FISCAL YEAR 1990

powerful proton-proton collider, producing particle collisions with
total energies 20 times greater than can be produced today. The
actual start of site specific construction will depend on settling the
details of non-Federal cost sharing commitments to the project. The
budget projections assume one-third cost sharing by the host State
and by other nations, with the first cost sharing beginning in 1990.
Transportation and Public Works.—This category includes air,
water, and ground transportation programs as well as Federal
water resource projects. The budget requests $15.5 billion in budget
authority for these programs, a 4.5 percent decrease from the 1989
enacted level. Increases for modernizing the air traffic control
system would be offset by reductions in low priority programs such
as mass transit. The budget also proposes termination of unnecessary subsidy programs, such as payments to air carriers for providing service to certain communities, and grants to Amtrak.
The administration requests $0.1 billion in budget authority for
eleven new construction starts for the Corps of Engineers, including
the Santa Ana flood control project in southern California. Construction of these projects would be contingent on the willingness
of State and local governments, and other non-Federal project
sponsors, to share in project costs in accordance with the Water
Resources Development Act of 1986 (WRDA). By requiring nonFederal cost-sharing for water development projects, WRDA created a new partnership with project beneficiaries. This partnership
helps ensure that projects are supported locally, that they are the
appropriate size, and that they provide the benefits claimed.
For 1990, the administration requests $2.0 billion in budget authority to continue the Federal Aviation Administration's (FAA)
airspace modernization program, $0.6 billion more than the $1.4
billion enacted for 1989. This 41 percent increase above the 1989
level reflects the administration's continued strong commitment to
improving the reliability, capacity, and safety of the air traffic
control system. The increased funds would be used for a variety of
important activities and improvements, including acquisition of
terminal doppler weather radar systems designed to detect deadly
wind shears. It is estimated that the total cost of airspace modernization and other critical improvements from 1982 through 2000
will equal about $25 billion.
In addition, the budget includes a proposed 14 percent increase
in funding for FAA's operations. The administration requests $3.9
billion in budget authority for 1990 to continue the augmentation
and upgrading of FAA's safety-critical workforces, $0.5 billion more
than the $3.4 billion enacted for 1989. This increase in funding will
be used to provide for an additional 695 air traffic controllers, an
additional 400 aviation safety inspectors and support positions, and




PRIORITIES IN THE 1990 BUDGET

2-23

an additional 120 civil aviation security specialists. Funding will
also be provided to modernize the air traffic training program.
The budget recommends legislation to reform the operating differential subsidy program. The legislation would increase the competitiveness of the U.S. flag fleet by expanding carriers' operating
flexiblity, implementing certain cost-saving reforms and allowing
additional carriers to participate in the program.
In keeping with the administration's policy of reducing Federal
responsibility for rail activities unrelated to safety, the administration proposes terminating subsidies for Amtrak. Since 1970, the
Federal Government has provided Amtrak with about $14 billion
in direct and indirect subsidies, including $0.6 billion in 1989.
Amtrak serves less than one percent of all intercity travel. Given
limited budgetary resources and competing demands of higher priority Federal programs, the administration believes the Federal
Government cannot afford to continue subsidizing the trips of business travellers and vacationers.
The budget proposes an immediate end to mass transit discretionary grant funding, which has promoted the construction of
local transit systems that often have been too costly and underutilized. Funding for these grants is provided by the one cent of the
Federal motor fuel tax that is dedicated to transit. The administration believes it is inequitable to continue subsidizing the projects of
fewer than 20 cities by motor fuel taxes paid throughout the
Nation. The administration proposes terminating operating subsidies to large and medium-sized cities, but not those to small urban
and rural areas. Most of the operating subsidies are absorbed by
high wages and low labor productivity in public mass transit systems. Given that State and local support for transit accounts for
less than 2 percent of combined State and local spending, more
should be done at that level to address transit systems operating
costs.
Economic Subsidies and Development—This category includes
programs for energy, natural resources and the environment, agriculture, commerce and housing credit, and community and regional development. Many programs in this area are proposed for reduction or termination in the 1990 budget 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. The
administration proposes reducing budget authority for this category from $27.6 billion in 1989 to $26.0 billion in 1990.
The budget increases funding over the 1989 level for basic operations and maintenance by the Federal land management agencies:
the National Park Service, Forest Service, Fish and Wildlife Service, and the Bureau of Land Management. The budget also includes




2-24

THE BUDGET FOR FISCAL YEAR 1990

a proposal to fund future forest fire fighting costs (projected at $0.4
billion in 1990) outside the annual appropriations process. Fire
protection is an integral part of the maintenance of Federal land.
The budget proposes deducting these costs from timber and mineral receipts generated from Federal lands prior to the sharing of
those receipts between the Federal Treasury, States and counties.
The administration also proposes capping budget authority for the
Wallop-Breaux Sport Fish Restoration and the Pittman-Robertson
Federal Aid in Wildlife programs at $0.1 billion each, beginning in
1990. Savings from this proposal will allow continuation of other
Federal programs directly contributing to fish and wildlife restoration.
The administration proposes to increase funding for the Superfund hazardous waste cleanup program by $0.3 billion over the
1989 enacted level. The proposed level of $1.7 billion continues the
Superfund program's momentum and supports a stronger enforcement role. This level would keep the Environmental Protection
Agency on target to meet the statutory deadline for cleanup starts.
The budget proposes direct funding to fill the strategic petroleum,
reserve at an average rate of 50,000 barrels per day over the two
year period 1989-90. As a result of recent oil price reductions, a
portion of the planned 50,000 barrels per day rate in 1990 will be
accelerated into 1989. The budget also proposes to sell the Government-run naval petroleum reserves as discussed in the revenues
section below. Proceeds from the sale would include oil that would
be used to provide additional inventory for defense purposes and
accelerate the strategic petroleum reserve fill rate to an average
75,000 barrels per day from 1990 through 1994.
The budget proposes termination of the Small Business Administration's disaster assistance program, which provides loans to homeowners and businesses for uninsured losses suffered as a result of
physical disaster. Elimination of this program would encourage
homeowners and businesses to obtain and maintain adequate private insurance coverage against disaster-related losses instead of
relying on the availability of direct Federal loans at preferential
interest rates.
The administration again proposes to implement most of the
Postal Rate Commission's 1986 recommendations for reform of the
postal subsidy program, including elimination of 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




PRIORITIES IN THE 1990 BUDGET

2-25

religious and charitable mailings but shift the residual cost of these
lower subsidies from taxpayers to commercial mailers. In 1989, $0.4
billion in budget authority was provided for postal subsidies.
The budget requests $1.2 billion in budget authority for sewage
treatment construction grants for 1990, $0.8 billion less than the
1989 enacted level. This level is consistent with the administration's long-term plan of providing $12.0 billion for the period 1986
to 1993, first proposed in the 1988 budget. This program level was
designed to be sufficient to fund the Federal share for all projects
needed to meet the 1988 municipal compliance requirements, complete all treatment plants that were started with Federal funds,
and give States and localities the flexibility they need to make the
transition back to financial independence in this area.
The budget proposes major reforms in the repayment practices of
the Power Marketing Administrations (PMAs). The PMAs currently
have wide discretion in amortizing the Federal investments to be
repaid, including the ability to unilaterally re-schedule principal
payments. The PMAs also pay interest costs well below Treasury
borrowing costs. As a result of these financial subsidies, PMA
power rates are often significantly below prevailing electric power
rates. The proposed reforms would establish sound business practices by requiring a fixed straight line amortization schedule for
principal repayments and by establishing interest rates on unpaid
principal at the rate paid by equivalent private electric utilities.
The administration proposes shifting the Rural Electrification
Administration (REA) loan program from direct loans to partially
guaranteed loans. Since most REA borrowers are financially
healthy, they can and should increase their reliance on private
sector financing. Under the budget proposal, power supply borrowers would be eligible for 90 percent guarantees of private loans,
and electric distribution and telephone borrowers would be eligible
for 70 percent guarantees. A priority system would be established
to target guarantee assistance to borrowers of highest need.
Reforms are also proposed for Farmer's Home Administration
(FmHA) loan programs. The rural housing insurance fund would
reduce its direct loan program and rely more heavily on housing
vouchers. Vouchers increase family housing choices and permit
more efficient use of existing private market housing. The agricultural credit insurance fund, the "lender of last resort" to agricultural producers, would continue to shift toward guaranteed loans
as directed by the 1985 Farm Bill. The rural development insurance fund would also shift to greater use of guaranteed loans. This
assistance, part of the administration's rural development initiative, provides a bridge between rural borrowers and private lenders. Loans would be used by rural communities to obtain necessary
water, waste and community facilities, as well as to assist business




2-26

THE BUDGET FOR FISCAL YEAR 1990

development. No funding is requested for the rural development
grants program in 1990. This program has been poorly targeted
and is duplicative of other FmHA programs.
The administration proposes elimination of several grant programs currently providing support for local community development projects, including the Economic Development Administration
(EDA) and the Appalachian Regional Commission (ARC). There is
no evidence that these programs have resulted in net job creation
nationwide. EDA does not target assistance to those in need, but
instead serves narrow and specialized local and regional political
interests at the Nation's expense. Similarly, 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.
Education and Social Services.—This category includes funding
for elementary, secondary, and higher education, job training, and
a variety of social services. The Federal Government's role in this
area is primarily to provide support for meeting the educational,
social services, and training needs of the disadvantaged through
programs that allow States and localities flexibility to tailor solutions to their individual problems. The administration believes that
States and localities must continue to bear the major financial
responsibility for these programs. Programs in this category have
been strengthened with these priorities in mind, and the administration proposes termination and phase out of numerous programs
that are either highly categorical and thus restrict State options,
are duplicative of other Federal activities, have relatively low priority purposes or are best carried out by the private sector. Programs that serve the needs of the disadvantaged are maintained at
the 1989 level or increased. The request for budget authority for
this category is $40.8 billion, $0.2 billion above the 1989 enacted
level.
For the Education Department's programs, the budget requests
$21.9 billion in budget authority for 1990, the same as the 1989
enacted level. The administration proposes to increase compensatory education programs (grants to State and local school districts
that partially finance remedial education services for the educationally disadvantaged) by $0.2 billion in budget authority above
the 1989 enacted level. These programs provide the Federal Government's major contribution to improving the quality of education
for children most in need. Most of the increase is for concentration
grants, which provide aid to school districts with the highest proportions of disadvantaged children.
The administration proposes terminating 25 of the over 200 Education Department programs including impact aid 'b' payments.




PRIORITIES IN THE 1990 BUDGET

2-27

Under impact aid, the Federal Government makes payments to
school districts whose revenues are deemed to be adversely affected
by Federal activities. The budget proposes to terminate the portion
of impact aid funding Ob' payments) that is based on a category of
children who pose little or no burden to school districts. Other
programs proposed for termination are narrowly focused and provide benefits already available under one or more of the larger
education programs.
The budget maintains most job training programs assisting lowincome unemployed adults and youth at the 1989 enacted level.
However, a $0.1 billion increase over 1989 is requested for a new
program that helps dislocated workers find or train for new jobs
bringing the total amount for this program to $0.4 billion in 1990.
The budget proposes adding 132,000 new housing subsidies for
low-income households. Most of these are housing vouchers, the
cornerstone of the administration's housing policy. Vouchers,
which are targeted to very low-income households, provide tenants
with more housing choices, including the opportunity to live in
better neighborhoods with access to available jobs and higher quality schools. They also make more efficient use of private sector
housing and are far less costly than other housing programs. For
example, a new public housing unit costs over $700 per month for
each family served, while a voucher can provide the same assistance for around $300 a month. The administration also proposes a
new method of financing housing for elderly and handicapped persons using credit vouchers to generate private lending.
The administration again proposes terminating Federal funding
for the Legal Services Corporation, a private, non-profit organization that funds State and local agencies providing free civil legal
assistance to the poor. State and local bar associations have developed programs to provide assistance to indigent clients, and these
efforts are expected to continue to grow, consistent with private
attorneys' ethical obligations to provide such services. In 1989, $0.3
billion in budget authority was provided for this program. The
administration also reproposes termination of community services
block grants, which have been estimated to provide less than 15
percent of the funding for community action agencies. States may
continue community services programs using funds from the social
services block grant program.
The administration proposes $0.3 billion less in budget authority
than the 1989 enacted level of $1.4 billion for the low-income home
energy assistance program, which provides block grants to States to
help pay fuel bills for low-income families. With lower energy
prices, low-income households spend a much lower percentage of
their income for heat. Since many assistance programs include a




2-28

THE BUDGET FOR FISCAL YEAR 1990

component for energy, there is a decreasing need for a program
specializing in energy assistance.
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.
The budget authority request for health research and services is
$26.3 billion, a $0.6 billion increase over the 1989 enacted level.
Proposed increases for high-priority Human Immunodeficiency
Virus (HIV) research would be partially offset by reductions in
some programs of lesser priority such as subsidies for clinical
health professions training.
Combatting HIV is the administration's highest public health
priority. Supplementing State and local programs, the Federal
effort encompasses health education and prevention as well as
research on the causes of, potential treatment for, and vaccination
against HIV. The budget authority request for Public Health Service (PHS) HIV programs is $1.6 billion, a 24 percent increase over
the 1989 enacted level.
The budget requests $0.9 billion in budget authority for 1990 for
PHS drug abuse treatment, research, prevention, and deterrence
programs, a 9 percent increase over the comparable 1989 enacted
level. These funds will support the President's initiative to combat
drug abuse. The budget also requests an increase in budget authority over the 1989 enacted level for veterans medical care to $10.7
billion for 1990. This increase would provide the necessary resources to meet the objective of sustaining quality medical care for
American's disabled and needy veterans who use veterans' medical
services.
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 budget requests $21.3 billion in budget authority for
these programs in 1990, $0.5 billion more than the 1989 enacted
level.
The administration places a high priority on law enforcement
activities of the Federal Government. Budget authority requested
for criminal investigations of the FBI and DEA for 1990 is $2.1
billion, an increase of 10 percent over the 1989 enacted 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 275 new positions for DEA




PRIORITIES IN THE 1990 BUDGET

2-29

and allow for improved technical capabilities. It would also allow
the FBI to intensify its drug enforcement and other field investigative activities and enhance capital investment funding in automated data processing and technical field support.
The budget also requests increased funding for Federal prisons.
In response to the continuing growth of the Federal prison population, the administration is proposing to acquire three new facilities,
lease two new facilities, and expand capacity at nine existing facilities. This expansion would respond to the demands of tougher law
enforcement and longer sentencing created by a number of recent
initiatives. Budget authority requested for funding Federal prisons
in 1990 is $1.6 billion, a 14 percent increase over the 1989 enacted
level.
The budget provides a 19 percent increase for various civil and
criminal litigation activities, including organized crime, drug enforcement, environmental enforcement, and commercial litigation.
In addition, enhancements to continue implementation of office
automation for Department of Justice attorneys and computerized
litigation support are included. Resources are also requested to
administer payments authorized by the Civil Liberties Act of 1988
providing compensation for persons of Japanese ancestry who were
deprived of liberty or property during World War II.
The budget also requests an increase in budget authority for the
Internal Revenue Service to $5.5 billion, $0.3 billion above the 1989
enacted level. This funding would allow expanded tax law enforcement programs and improved accuracy and accessibility in taxpayer information services as well as redesigned tax processing systems.
Allowances.—This category includes budgetary transactions that
are expected to occur but are not reflected in program detail.
Allowances include funding to cover civilian agency pay raises and
savings from two proposed reforms. The proposed civilian agency
pay raises for 1990 are 2 percent for civilian personnel and 3.6
percent for Coast Guard military personnel. It is assumed that
agencies will absorb 75 percent of the increased costs associated
with the civilian pay raise in 1990. Reductions in the government
contribution for Federal employee health benefits, resulting from
reforms discussed in the Entitlements and Other Mandatory Programs section below, would save $0.3 billion in 1990. Savings from
the proposed establishment of new government mail subclasses
would also total $0.3 billion in 1990. Government mail is easier and
cheaper to handle than other mail and should be priced according-




2-30

THE BUDGET FOR FISCAL YEAR 1990

ENTITLEMENTS AND OTHER MANDATORY PROGRAMS
Spending for entitlement and other mandatory programs is determined by eligibility criteria and benefit formulas set in substantive law. Entitlements and other mandatory programs have been
one of the fastest growing parts of the budget. If currently enacted
policy continued unchanged, this category would grow by 4.5 percent between 1989 and 1990 and by an additional 27.3 percent by
1994. The administration seeks a number of important reforms in
these programs to slow their growth. Under the budget proposals,
this category would grow by 0.9 percent between 1989 and 1990 and
by an additional 24.9 percent by 1994.
ENTITLEMENTS AND OTHER MANDATORY PROGRAMS
(In billions of dollars)

1989

Social security benefits:
Proposed outlays
Proposed savings
Unemployment compensation and aid to the
poor:
Proposed outlays
Proposed savings
Medicare and medicaid:
Proposed outlays
Proposed savings
Federal employee health and retirement benefits:
Proposed outlays
Proposed savings
Agriculture:
Proposed outlays
Proposed savings
Other:
Proposed outlays
Proposed savings
Total, entitlements and other mandatory:
Proposed outlays
I savings

1990

1991

1992

1993

1994

230.0

244.3

259.9

274.5

288.2

301.0

60.3
-0.1

58.6
-2.0

61.0
-1.7

63.7
-1.6

66.5
-1.7

70.0
-1.8

118.8
-0.1

128.5
-6.7

143.7
-10.4

161.1
-13.5

176.1
-16.5

190.7
-19.9

51.3

51.5
-4.4

53.8
-5.5

56.8
-6.5

60.0
-7.2

63.0
-7.8

16.9
0.9

12.4
-2.6

12.5
-2.1

11.0
-2.5

8.5
-2.2

5.8
-2.1

46.1
0.2

32.7
-2.3

35.3
-3.3

32.5
-2.9

31.3
-3.0

29.1
-3.6

523.3
1.0

528.0
-18.0

566.2
-23.1

599.4
-26.9

630.7
-30.6

659.6
-35.1

* $50 million or less.

Social Security.—The budget does not propose any reductions in
social security benefits. Social security affects most Americans,
either through benefits received or through payroll taxes deducted
from earnings. Primarily because of benefit increases tied to the
consumer price index and increases in the number of beneficiaries,
outlays for social security benefits are expected to grow from $230.0
billion in 1989 to $244.3 billion in 1990.
Unemployment compensation and aid to the poor.—The budget
proposals also exempt unemployment compensation and aid to the
truly needy from fiscal restraint. No benefit reductions are pro-




PRIORITIES IN THE 1990 BUDGET

2-31

posed for regular unemployment compensation, food stamps, aid to
families with dependent children (AFDC), the earned income tax
credit, or supplemental security income. Improved targeting of nutrition aid is proposed. Under current law, over 15 percent of child
nutrition funding provides subsidies to families who earn more
than 185 percent of the poverty line—approximately $21,553 per
year for a family of four. Under the budget proposals, schools and
institutions would no longer receive Federal subsidies for meals
served to upper and middle-income households. Meal subsidies to
households with income below 185 percent of the poverty line
would be unaffected. One major program termination is also proposed— Trade Adjustment Assistance (TAA)9 which provides additional weeks of cash assistance and training to workers who have
lost their jobs to imports. This program inequitably favors one
group of unemployed workers over others. Workers who lose their
job because of imports would continue to receive the full range of
unemployment benefits paid to other unemployed workers and
would be eligible for training and adjustment services in other
programs.
Medicare and medicaid.—The Federal Government is the largest
payor of health care costs in the Nation. Spending for medicare,
which provides health care for the elderly, and medicaid, which
provides health care for low-income Americans, is projected to
increase by $16.3 billion from 1989 to 1990 and by $75.4 billion
from 1990 to 1994. The administration proposes reforms in both
programs to slow this rapid growth rate.
Medicare is one of the fastest growing segments of the budget.
The program expanded from $6.8 billion in 1970 to $34.0 billion in
1980 to $84.5 billion in 1989, an increase of more than twelve fold
since 1970. Under administration proposals, medicare would be
reduced by $5.0 billion from the current services level in 1990,
which would reduce growth between 1989 and 1990 from 15.4 percent to 9.5 percent. The administration proposes a moderate increase in the medicare prospective payment reimbursement rate
(one modestly below the inflation rate for hospital costs), and reductions in hospital capital payments as well as in medical education payments. In an attempt to restrain excessive growth in supplementary medical insurance (SMI) costs, the administration also
seeks the extension of the current law SMI premium, limitations
on physician payments, reductions in payments for certain overpriced procedures, and reforms in the durable medical equipment
payment system.
The administration also proposes reforms in the medicaid program that would reduce the growth between 1989 and 1990 to $1.7
billion rather than the $3.3 billion that would occur under current
law. The administration proposes renewal of cost containment in-




2-32

THE BUDGET FOR FISCAL YEAR 1990

centives that were originally authorized by the Omnibus Budget
Reconciliation Act of 1981, but which expired at the end of 1984.
This proposal provides the States with incentives to constrain program growth in order to receive a rebate on their reduced Federal
matching rate. The budget also proposes to restructure Federal
financing of administrative expenses from a matching formula to a
block grant indexed by inflation. The proposal to extend the current law medicare part B premium would moderately increase
costs for the medicaid program.
Federal employee retirement and health benefits.—Under current
law, outlays for Federal employee retirement and health benefits
are estimated to grow from $51.3 billion in 1989 to $55.9 billion in
1990. The administration proposes reforms in these benefits that
would reduce this growth by $4.4 billion in 1990. The administration proposes two reforms in the Federal employee health benefits
program, the world's largest multiple-choice health program. The
formula used to determine the Government's contribution to enrollees' health premiums would be changed from the current Big Six
formula (based on the premiums of six of the largest FEHB plans)
to reflect a weighted average of all plans. The new formula would
lead to a more equitable distribution of cost sharing between the
Government and its employees because it would reflect the premiums of all FEHB plans and the distribution of enrollees among
these plans. Under the weighted average formula, trends in the
program, such as the shift of enrollees from high to low option
plans, would be accounted for when the Government contribution
is determined. The budget also proposes that employer health insurance costs for all annuitants of the District of Columbia government and the Postal Service, who participate in Federal personnel
benefits, be paid by those entities rather than the Federal taxpayer. Costs for Postal Service annuitants who retired after October 1,
1986 are already funded in this manner.
The budget proposes that no cost-of-living adjustment (COLA) be
given to Federal retirees in 1990. After 1990, retirees would receive
cost-of-living adjustments equal to 1 percentage point less than the
annual percentage change in the consumer price index (CPI). This
would make the treatment of COLAs for Federal retirement programs generally consistent with the Federal Employees' Retirement System (FERS), which covers employees hired after January
1, 1984, and with the new Military Retirement System, which
covers members entering active duty after August 1, 1986. Between
1969 and 1976, COLAs exceeded inflation by 1 percent and were
made twice each year. Although COLAs have since been scaled
back to the CPI, and awarded on an annual basis, much remains to
be done to bring program costs under control. Consistent with the
administration's efforts to scale back overly generous features of




PRIORITIES IN THE 1990 BUDGET

2-33

the civilian retirement program, the administration also proposes
to end the ability of retirees covered by civilian employee retirement systems to receive lump-sum payments based on their contributions to the retirement system. Private sector and state retirement plans generally do not have such a provision. The budget also
proposes that, beginning in 1991, the Postal Service and D.C. Government make annual payments to the retirement fund to cover
the full cost of COLA liabilities for their annuitants.
Agriculture.—Under current service estimates, farm price and
income supports are projected to decline from $13.0 billion in 1989
to $12.6 billion in 1990, a level still far above normal historical
levels. In order to mitigate the adverse effect of the 1988 drought
on farm income, and to ensure that our farmers have a sufficient
level of operating funds for the 1989 crop year, the administration
proposes to increase the level of advance deficiency payments to 50
percent, the maximum allowable under current law. This increase
in advance payments adds $0.9 billion to 1989 outlays while reducing 1990 outlays by a like amount.
The administration's goal of developing more market-oriented
agricultural programs and enhanced competitiveness in export
markets is working. A limited number of actions are proposed to
bring program outlays back to historical levels. These proposals
would reduce farm price and income support outlays by $1.1 billion
in 1990. Outlay reductions could be achieved by a 5 percent reduction in target prices for the 1990 crops, with slightly higher percentage reductions for the 1991-1993 crops. It would also be possible to reduce the share of production eligible for deficiency payments. Either approach would continue the administration's policy
of shifting to a more market-oriented sector. In addition, outlays
for non-target price commodities would be reduced by a fixed percentage—5 to 7 percent—to lower costs and provide equitable reductions across the farming sector. Further, the counterproductive
sugar price support program needs to be modified. This program
poses significant problems in the areas of trade policy, foreign
policy and agricultural policy.
The Farm Credit System Financial Assistance Corporation (FAC)
provides assistance to Farm Credit System (FCS) institutions
mainly by purchasing their preferred stock using proceeds from
federally guaranteed debt issuances. Legislation enacted last year
transferred an unacceptable amount of the financial risks for the
corporation from the private sector to the Federal Government. As
a result, FAC outlays will be counted in the budget totals beginning in 1990. The administration proposes repealing the legislation
enacted last year, thus reducing 1990 budget outlays by $0.7 billion
below current law.




2-34

THE BUDGET FOR FISCAL YEAR 1990

Federal Savings and Loan Insurance

Corporation (FSLIC).—

During 1988 the FSLIC spent over $16.4 billion (net budget outlays
were $8.1 billion) as it accelerated its efforts to close or merge the
burgeoning number of insolvent thrift institutions. The 1990 budget
projects FSLIC spending another $15.9 billion in 1989 and $9.1
billion in 1990 to continue resolving insolvent thrift institution
cases. This spending would be offset, in part, by continuation of
normal and special assessment insurance premiums and receipts
from the Financing Corporation (FICO), an off-budget subsidiary of
the Federal Home Loan Banks created in the 1987 Competitive
Equality Banking Act to help recapitalize FSLIC. Net budget outlays for FSLIC are estimated to be $8.7 billion in 1989 and $2.1
billion in 1990. These projected levels of spending would allow
FSLIC to close at least 100 of the most unprofitable and insolvent
institutions, which accounted for over 77 percent of the third quarter losses realized by all insolvent thrifts. The administration has
also initiated an effort to formulate a comprehensive plan to resolve remaining thrift insolvency problems and reform the Federal
depository insurance system. It is expected to be presented to the
new President within 60 days.
FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION
(In billions of dollars)
1989
Disbursements
Receipts
Net outlays

1990

1991

1992

1993

1994

15.9
-7.2

9.1
-7.0

10.2
-3.6

8.6
-3.7

10.0
-5.1

10.2
-6.8

8.7

2.1

6.6

4.9

4.9

3.4

REVENUES
In addition to the programmatic changes discussed above, the
budget proposes a number of revenue changes, including increased
user fees, and sales of both loans and real assets—but no new
taxes.
Asset sales.—The budget estimates include proceeds from loan
asset sales and loan prepayments of $3.4 billion above the current
services level in 1990. The loans are to be sold without recourse.
Sales of new loans, which provide an incentive for agencies to
improve loan origination and documentation, and assist in determining the subsidies inherent in Federal credit programs, are estimated to yield $0.7 billion in 1990. In addition, the budget includes
$1.7 billion from the 1990 sale of loan assets for programs that are
proposed to be terminated.
The administration continues to promote the sale of real assets.
It again proposes that the Federal Government sell the two oil




2-35

PRIORITIES IN THE 1990 BUDGET

ASSET SALES
(In billions of dollars)

1990

Savings from loan asset sales:
Rural housing insurance fund
REA prepayments
Elderly and handicapped housing.
Other
Asset sale offsets
Subtotal, loan asset sales
Savings from real asset sales:
Naval Petroleum Reserve
Power marketing adminstrations..
Other
Asset sale offsets

1991

1992

1993

1994

-1.7
-0.5
-0.5
-0.7

-0.4
-0.2
-0.6
-0.2
0.7

-0.4
-0.2
-0.6
-0.2
0.9

-0.4

-0.4

-0.2
1.1

-0.2
1.1

-3.4

-0.8

-0.6

0.5

0.5

-1.5
-0.2
0.6

-1.2
-0.2
0.5

-1.0
-0.2
0.5

-1.0
-0.2
0.5

-1.0
-1.3
-0.1

Subtotal, real asset sales

-2.4

-1.1

-0.8

-0.6

-06

Total, asset sales savings..

-5.9

-1.9

-1.4

-0.1

-0.1

fields it operates—Elk Hills, California and Teapot Dome, Wyoming. Running an oil field is a business, not a Government activity. In addition to an estimated $1.0 billion in revenues from the
sale, the buyer of the fields would be required to provide oil to the
strategic petroleum reserve in order to accelerate the fill rate to
75,000 barrels per day for 1990 through 1994.
The administration is also reproposing the sale, by the end of
1990, of the Alaska Power Administration (APA), which supplies
electricity in the Anchorage and Juneau areas. State and local
groups in Alaska have offered to buy APA's two hydropower
projects. The administration believes that the divestiture of APA
would make operation of these systems more responsive to local
and customer needs, without significant increases in power rates.
The budget also proposes sale of the Southeastern Power Marketing Administration in 1990, as well as the sale of selected assets of
the other power marketing administrations in 1991 through 1994.
Other real assets proposed for sale are helium-processing operations of the Bureau of Mines and additional surplus property held
by the General Services Administration.
User fees.—The Federal Government provides numerous services
that directly benefit clearly-identifiable, narrow groups of business
and private users. Because these services evolved over time, the
Federal agencies providing them recover widely varying proportions of their costs through fees levied on the users. User fee
financing has several important advantages over general fund financing. It is more equitable for those receiving benefits to pay for
them. Also, it is more efficient for these types of Government
services to be allocated to those willing to pay for them. User fees




2-36

THE BUDGET FOR FISCAL YEAR 1990

for Government services also allow the private sector to compete
more effectively to provide such services. The budget proposes establishing or increasing a variety of fees that in total will reduce
the deficit by $1.0 billion in 1990 and $8.2 billion for 1990 through
1994. The fees include:
Credit fees.— The administration proposes increasing loan origination fees for a variety of Federal credit programs. The proposed
increases would bring Federal credit terms more in line with private sector alternatives. Fees for some Government-sponsored enterprises are also proposed. These enterprises would help pay for
the benefits they receive through lower interest costs due to their
association with the Government.
USER FEES AND OTHER REVENUE INITIATIVES
(In billions of dollars)

1990

Savings from user fees:
Credit fees
Coast Guard
FDA fees
Other

1991

1992

1993

1994

-0.6
-0.2
-0.1
-0.2

-0.9
-0.2
-0.1
-0.2

-1.2
-0.2
-0.1
-0.2

-1.5
-0.2
-0.1
-0.2

-1.8
-0.2
-0.1
-0.2

Subtotal, savings from user fees
Savings from other revenues:
Customs fees: 1
Offsetting collections
Governmental receipts
Offsetting collections:
FCC competitive bidding
CFC production rights
Arctic National Wildlife Refuge
OCS receipts
Governmental receipts:
HI coverage of State & local employees2..
R&E revisions
Airport and airway trigger repeal 2
IRS enforcement initiative
NRCfees
Other

-1.0

-1.3

-1.7

-2.0

-2.2

0.8
-0.6

0.9
-0.8

0.9
-0.8

1.0
-0.9

1.1
-0.9

-2.3
-0.4
-2.1
-0.5

-1.1
-1.4

-0.6

-0.6
-1.3

-1.0

-1.8
2.1
-0.9
-0.3
-0.3
0.1

-1.9
1.4
-1.6
-0.6
-0.3

-1.9
1.8
-1.7
-0.7
-0.3

-1.9
2.0
-1.8
-0.7
-0.4
0.2

-1.9
2.3
-1.9
-0.7
-0.4
0.2

Subtotal, savings from other revenues.

-6.2

-5.4

-3.2

-4.2

-3.1

Total, revenue initiatives

-7.3

-6.7

-4.9

-6.2

-5.3

* $50 million or less.
1
Part of the customs fee proposal involves repeal of a provision that requires OMB to account for the existing customs user fee as an
offsetting collection. Under the proposal, the fees would be classified as governmental receipts consistent with budget principles.
2
Net of income tax offsets.
NOTE: Increases in receipts are shown as negatives since they reduce the deficit.

Coast Guard.—A fee on recreational boaters who use the navigable waters of the United States is proposed. This largely highincome group receives substantial benefits from Coast Guard activities. Commercial boaters would be assessed similar fees and major
shipping companies would share licensing and inspection costs.
Food and Drug Administration (FDA).—The FDA protects consumers from unsafe and impure foods, unnecessary exposure to




PRIORITIES IN THE 1990 BUDGET

2-37

radiation from household and medical devices, and unsafe or ineffective drugs, medical devices, and biological products. User fees
totalling $0.1 billion are proposed to enhance these activities. The
fees will benefit consumers and lessen the economic cost of FDA
regulations by shortening the review time for drugs, medical devices, and consumer safety activities.
Other revenues.—Other revenue proposals include:
Customs Service.—The administration proposes reforms in the
existing ad valorem fee charged by the Customs Service. The current fee is inconsistent with provisions of the General Agreement
on Tariffs and Trade (GATT). Among other concerns, GATT has
ruled that the ad valorem structure of the merchandise processing
fee is not indicative of the cost of processing individual entries. The
proposed reforms would enable Customs to collect user fees that
conform to GATT requirements.
Competitive bidding of unassigned spectrum.—Beginning in 1990,
the United States Government will use a competitive bidding process to issue licenses for the exclusive use of unassigned spectrum.
The bids will reflect the economic value of the spectrum. The
competitive bidding process, expected to be more efficient than
current procedures, will raise an estimated $2.3 billion in 1990.
Charges for chlorofluorocarbon (CFC) production rights.—Because
CFCs deplete the ozone layer, CFC production has been limited by
international agreement, which will result in higher prices and
potential windfall profits to CFC producers. Charging market value
for these limited CFC production rights would eliminate this windfall and raise an estimated $0.4 billion in revenue in 1990.
Arctic National Wildlife Refuge (ANWR).—The budget includes
receipts from ANWR oil and gas lease sales. The sales are expected
to yield revenue of $2.1 billion in 1990 and $1.3 billion in 1993.
Congressional authorization for the leases is needed soon in order
to achieve ANRW's economic, energy-security, and deficit-reduction
benefits in 1990.
Outer Continental Shelf (OCS) receipts.—The budget proposes to
proceed in 1990 with four OCS lease sales currently or previously
under one-year oil and gas leasing moratoria for certain areas.
These sales are expected to generate $0.5 billion in 1990 receipts.
The leasing moratoria are costly and counterproductive, and circumvent effective OCS resource management as set forth in the
OCS Lands Act.
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
are not contributors to the program are entitled to the full range of
medicare benefits. Coverage of these employees, who are the only




2-38

THE BUDGET FOR FISCAL YEAR 1990

major group of employees not assured medicare coverage, would
eliminate this drain on the medicare trust fund and make eligibility uniform.
Initiation of a permanent research and experimentation (R&E)
tax credit and revision in R&E allocation rules.—To reduce taxpayers' uncertainty about future 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, 1989. In addition, the administration proposes allowing companies to allocate at least 67 percent of total
R&E expenditure to domestic source income.
Repeal airport and airway tax trigger.—Under current law, airport and airway trust fund taxes will automatically decline by
about 50 percent, beginning in calendar year 1990. The administration proposes repealing the tax trigger so that the taxes would
remain at their current rates. This will avoid a loss of $1.2 billion
in 1990 aviation tax revenues. These revenues will be needed in
future years to support improvements to the national aviation
system.
Internal Revenue Service (IRS) enforcement initiative.—To reduce
the gap between taxes owed and taxes voluntarily paid, the administration proposes to increase IRS funding for tax law enforcement.
This high yield initiative is designed to ensure that taxpayers are
correctly reporting income and to improve collections from past
due amounts.
Nuclear Regulatory Commission (NRC) fees.— The administration
proposes funding 100 percent of the expenses of the NRC through
user fees. Under current law, NRC fees would decrease from 45
percent of expenses in 1989 to 33 percent in 1990. The administration believes that the industry that benefits from these services
should pay for them.
CREDIT REFORM INITIATIVE

The administration proposes changing 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. 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.




PRIORITIES IN THE 1990 BUDGET

2-39

The administration's proposed legislation makes a major change
in accounting for direct and guaranteed loans. For direct loans,
agency accounts would reflect only subsidy amounts provided by
the loans, while the balance of the loan would be reflected in the
central direct loan fund; currently, net flows from direct loans
(disbursements minus repayments) are shown in the agency accounts. For guaranteed loans, agency accounts after implementation would reflect the subsidy provided by the loans; currently,
only defaults and receipts of fees associated with guarantees are
reflected in agency accounts.
The credit reform proposal does not affect the deficit. Estimates
for individual credit accounts reflect the new accounting structure.
However, all outlay effects of the proposal within the credit accounts are exactly offset in financing accounts. The credit reform
proposal does require an additional $10.9 billion in budget authority in 1990 over what would be required under the current accounting treatment.
PRIVATIZATION INITIATIVES

Privatization is an important management tool to raise productivity, cut costs and improve the quality of Government services.
Privatization, defined as the transfer of Government services,
assets and/or enterprises to private sector providers, replaces monopolies with competition, thereby allowing the competitive pressures of the marketplace to encourage efficiency, quality, and innovation in the delivery of goods and services within the Government. Privatization does not imply abrogation of Government responsibility for any of these services. Rather, it recognizes what
matters most is the service provided, not who provides it.
In order for Government departments and agencies to take full
advantage of the potential savings opportunities afforded by privatization, the administration has developed the following initiatives
designed to realize immediate cost efficiencies as well as long-term
fiscal savings.
Competition for Federal Services.—Reducing expenditures and

improving quality of service is a top priority of the administration.
An important method of achieving this is to inject the incentives of
marketplace competition into the public sector. At the Federal
level this competitive process is embodied in OMB Circular A-76,
which requires the Government to rely on the private sector for
the provision of commercially available goods and services. The
Circular provides for precise, measurable standards to determine
whether the private sector or the Government is best able to meet
Federal needs in the most cost effective manner. The administration proposes a series of revisions to the Circular to make greater




2-40

THE BUDGET FOR FISCAL YEAR 1990

use of competitive pressures within the Government framework.
These revisions should lead to further improvements in productivity and more contracting with private sector providers.
Specific areas where the Government could place greater reliance on private sector providers include arbitration and legal services, postal delivery, map-making activities, specialized weather
services, mass transit, financial services, prisons, prison hospital
operations, U.S. and Foreign Commercial Service domestic services,
and aircraft services.
Meeting Infrastructure Needs.—Despite significant Federal support, our Nation's public infrastructure (highways, bridges, airports, and harbors) needs improvement. The private sector represents an untapped source of capital resources and management
expertise of the magnitude needed to meet these infrastructure
needs. The administration proposes a series of initiatives that further the role of the private sector in these areas. In addition to
these areas, a major part of the national communications infrastructure is the United States Postal Service, which has increased
rates while service has declined. Comprehensive competitive
reform of the Postal Service is a top priority of the privatization
agenda.
Continuing Initiatives.—The administration continues to support
privatization proposals in previous budgets. These include pilot
projects on allowing conservation and other groups to manage
public lands, customs audit and inspection, and prison construction;
privatizing the railroad retirement system; and evaluating options
for the eventual transfer of the Transportation Systems Center to
the private sector. Finally, the administration continues to support
establishing a Government corporation for uranium enrichment as
a first step toward privatizing this commercial activity.
OTHER MANAGEMENT INITIATIVES

Improved management of the Federal Government has been a
high priority of this administration. The administration has successfully mobilized the extensive resources of the Federal Government to pursue its management improvement agenda.
The cornerstone of the administration's management improvement effort has been Reform '88. This program offered five strategies for achieving better Government through better management.
The first strategy was to eliminate the Federal Government role in
activities not properly Federal responsibilities. In the process, the
administration eliminated excessive and overlapping Federal regulations on State and local Governments, and reduced paperwork
burdens on the public. Activities more appropriately State or local
government responsibilities were returned to those entities or ter-




PRIORITIES IN THE 1990 BUDGET

2-41

minated, and enterprises that should have remained in the private
sector, like Conrail, were sold to private bidders.
The second strategy was to make full use of Inspectors General
and build on their significant record of accomplishment. This included launching an all-out campaign against fraud, waste, and
abuse. There have been over 27,000 successful prosecutions, and
almost 11,000 suspensions and debarments since 1981. Internal controls were made a part of every agency's management program and
Inspectors General were added in agencies where they did not
exist. In addition, the President's Council on Integrity and Efficiency was created to coordinate the activities of agency Inspectors
General.
The third strategy was to improve individual agency operations
through intensive management reviews and effective corrective actions. This strategy involved making formal management reviews
an inherent part of the annual budget review process and implementing recommendations of the President's Private Sector Survey
on Cost Control (the Grace Commission).
The fourth strategy was to put in place Government-wide management systems. Modern financial systems based on common
standards are being put in place by every executive branch agency.
All phases of loan programs are being coordinated between agencies. In addition, methods of handling cash receipts and disbursements have been improved vastly. New technology is being applied
to bring Government services into line with the private sector.
The fifth strategy was to improve the timeliness, quality, and
efficiency of Government services. Improvements in those programs with which the average taxpayer would have the most contact, including passport applications, income tax processing, and
social security benefits and payments have been realized. As the
strategy continues, all Federal programs will be subject to intense
quality improvement scrutiny.
CONCLUSION
In summary, the proposals put forth in this budget represent a
comprehensive program for reducing Federal spending that will
enable the Gramm-Rudman-Hollings deficit target for 1990 to be
met without an increase in taxes. It contains no cuts in social
security and preserves benefits for the truly needy. It provides for
strong national defense and high-priority non-defense initiatives
while eliminating programs that are ineffective or inappropriate to
the Federal Government.




PART 3

THE ECONOMY AND
THE BUDGET
3-1

240-000 O - 1989 - 3 QL 3




THE ECONOMY AND THE BUDGET
This part of the budget discusses the outlook for the economy
and the administration's economic assumptions. The first section
reviews economic developments in the 1980's.
This is followed by a discussion of the economic outlook for 1989
and beyond, including the presentation of the budget's economic
assumptions for calendar years 1989 through 1994, and an analysis
of the budget's effect on international competitiveness, as required
by the Omnibus Trade and Competitiveness Act of 1988.
The next section reviews the administration's forecasting record.
Administration forecasts are compared with those of the Congressional Budget Office (CBO) and the Blue Chip forecast, a consensus
of about 50 private forecasts. The last section reports on the sensitivity of the budget to changes in economic assumptions.
THE ECONOMY IN THE 1980's—RESTORING STABILITY

Six years into the longest recorded peacetime expansion in the
history of the United States, it is difficult to recall how troubling
the future seemed when President Reagan took office. Inflation
and high taxes were the main problems. The Government seemed
to have lost control of the price level. Inflation had pushed American families into higher and higher tax brackets. The expectation
of further inflation had driven interest rates to unprecedented
levels. A massive shift from financial assets to real assets was
underway as people sought to shelter their wealth. This held down
the prices of stocks and bonds, while driving up the prices of
precious metals, farmland, real estate, and collectibles. The excessively high rates of taxation, by reducing incentives to invest, had
brought productivity and economic growth to a standstill by the
end of the decade.
At the end of 1988, the economic situation is vastly improved.
The inflation rate has been cut by two-thirds. Marginal tax rates
have been reduced for the typical American family by more than
one-third. As a result, real GNP has increased by 27 percent in this
recovery, an annual average growth of 4.1 percent per year. Almost
19 million more Americans have jobs, and the unemployment rate
has been cut nearly in half.
The economic policies and political theories that were dubbed
"Reaganomics" in the late 1970's have been put to an eight-year
test. The results are in. The test was eminently successful. The




3-2

THE ECONOMY AND THE BUDGET

3-3

Nation's economy is far stronger than it was eight years ago, and is
poised for continued noninflationary growth.
Controlling inflation.—No action by this administration was
more important in restoring economic stability than the decision to
support the Federal Reserve in bringing the rate of inflation under
control. Controlling inflation was a prerequisite for the administration's other policies. Had the inflation rate not been brought down
and stabilized, the recovery of the last six years would have been
impossible.
In 1980, the inflation rate increased to over 12 percent, the most
rapid inflation since wage and price controls were lifted at the end
of World War II. But that proved to be the high point. In two
years, inflation was cut by two-thirds to just under 4 percent, and,
more importantly, the fear that nothing could be done to restrain
inflation was dispelled.
Since that time, the inflation rate has been kept in check, averaging under 4 percent per year. Wringing double-digit inflation out
of the economy, while vital to restoring our long-term economic
growth trend, was not achieved without its own short-run cost. It
resulted in a painful adjustment that contributed to the 1981-1982
recession.
Restoring economic growth.—The 1981-82 recession came as a
surprise to almost all forecasters. They failed to anticipate how
brief the upturn from the 1980 recession would be. That recovery
was the shortest since 1920, lasting only one year. In hindsight, the
1980 and 1981-82 recessions look like two phases of a single interrupted recession, but that pattern was not widely expected in early
1981. Most forecasters assumed that the 1980 recession would eventually be followed by a normal business cycle rebound, perhaps
following a few more quarters of sluggish growth in 1981. The
administration, for example, in its initial budget projections issued
in February 1981, actually underpredicted growth for 1981 because
it assumed that the economy would remain in the doldrums for
much of the year. A normal business recovery was then expected to
get underway in 1982. The mistake in the forecast was not that it
overestimated how fast the economy could grow once a rapid economic recovery began, but that it missed the start of the recovery
by over a year.
The administration assumed that, starting in the fourth quarter
of 1981, real GNP would grow at an average annual rate of 4.5
percent for the next five years. In fact, real GNP grew at an
average annual rate of 4.4 percent over the first five years of the
recovery. The faster growth, however, did not begin until 1983,
more than a year after the administration had expected. (More




3-4

THE BUDGET FOR FISCAL YEAR 1990

information about the administration's forecasting record is presented later in this part of the budget.)
Once the economy began to recover, it soared. The early quarters
of the recovery saw one of the strongest rebounds from a business
recession ever recorded. In the year and a half following the trough
of the recession, real GNP grew at an average annual rate of 7
percent. Employment rose by more than 6.5 million, and the total
unemployment rate plunged from 10.7 percent, at its high point in
December 1982, to 7.1 percent in June 1984. Real disposable income
per person climbed at an average annual rate of 4.3 percent. Business fixed investment, measured in constant dollars, surged ahead
at a 12.8 percent annual rate. Labor productivity in the nonfarm
business sector finally surpassed its previous peak, reached in 1978,
and then bounded forward.
To some observers, this was merely a normal cyclical reaction in
view of the severity of the economic downturn in 1980-1982. But
equally important were administration policies designed to promote
efficiency and a higher pace of economic activity: the individual
income tax rate reductions passed in 1981, which only became fully
effective in 1983; other provisions of the 1981 tax law that reduced
the after-tax cost of capital; and deregulation that opened markets
and reduced prices, benefiting consumers while reducing costs for
business.
In the second half of 1984, economic growth continued but at a
slower pace. For the next two years, the economy continued to
expand and millions of new jobs were created, but the average rate
of growth was only 2.7 percent, which was not fast enough to cut
into the unemployment rate. This slower pace of economic activity
was both inevitable and could be considered desirable following the
rapid initial rebound from the recession. While the rate of economic growth in 1983-1984 was not sustainable, the slowdown in
1985-1986 was greater than expected and one of the main reasons
was the deterioration in the U.S. trade balance. Stagnation in the
real volume of U.S. exports and the rapid increase in the volume of
imports contributed to a pause in the growth of industrial production.
Trade deficit—U.S. trade problems in this decade have prompted
a flood of analysis, much of it arguing that the trade deficit is a
sign of American weakness—of America's decline as an economic
power. In a narrow sense, U.S. price competitiveness certainly did
deteriorate in the early 1980's. The rise in the exchange rate of the
dollar drove down the dollar price that farmers received for their
crops, and U.S. manufacturers found that their international competitors could undersell them. These changes made it far more
difficult for them to compete in world markets. But it is only partly
correct to equate the rise in the dollar with U.S. weakness. If




THE ECONOMY AND THE BUDGET

3-5

foreign investors had shared that view, the dollar would never
have risen in the first place.
The dollar rose for many reasons and, even now, it is not possible
to quantify the factors that were most important. The high real
interest rates in the U.S. relative to those abroad encouraged the
inflow of foreign capital in search of the highest rate of return. The
U.S. recovery itself, which began earlier and was more robust than
the corresponding upturn overseas, was a factor. The political stability and security of the U.S. was also a contributing factor, especially in the early part of the decade when worldwide recession and
debt problems raised the risk of investment in many other countries.
The trade deficit can be explained in part by the dollar appreciation. Another factor was the more rapid recovery in the United
States in 1983-84 relative to that abroad. Still another was the
financial distress of some of the less developed countries. This cut
into U.S. exports as those countries sought to reduce their imports.
The trade deficit was not due to a decline in America's ability to
produce high-quality products.
Since 1985, the dollar has retreated. Currently, the trade-weighted exchange rate is only slightly higher than it was in the late
1970's. In these years, as the dollar has reversed direction, U.S.
competitiveness has returned in many industries and U.S. exports
have risen sharply. Foreign exports to the U.S. remain high, but
the trade balance has begun to turn around.
Indeed, in the last two years, the economic recovery that began
in 1982 has entered a new phase. Growth has picked up, unemployment has fallen, and productivity and investment are rising more
rapidly again. The expansion has become more balanced as the
manufacturing sector has responded favorably to the surge in U.S.
exports and the farm sector has recovered from its earlier extremely depressed level. This, along with the continuation of moderate
rates of inflation, provides a strong foundation for further growth
in the years ahead.
ECONOMIC DEVELOPMENTS IN 1987-1988 AND THE
OUTLOOK FOR 1989-1994

Recent Developments.—The economic resurgence of the last two
years can be traced partly to the turnaround in the foreign sector
of the economy. Measured in volume terms, U.S. net exports
reached a low point in the third quarter of 1986. Since then, they
have increased by $58 billion (in 1982 prices). Over this period, real
GNP has grown at an average annual rate of 3.8 percent, while
Americans' total real purchases were rising at only a 2.9 percent
rate. The difference is accounted for by a declining trade deficit.




3-6

THE BUDGET FOR FISCAL YEAR 1990

The recovery of net exports has reinvigorated the industrial
sector of the economy. In the past two years, about 840,000 new
manufacturing jobs have been created, and industrial production
has risen at an average annual rate of 5.5 percent. The export
boom has been accompanied by another strong increase in real
business fixed investment, which expanded at a 7.8 percent annual
rate between the third quarter of 1986 and the third quarter of
1988. Net business investment after adjustment for inflation rose
even more sharply, at a 25 percent annual rate. Net investment,
however, is still below its peak level reached earlier in the expansion, and below historical levels when measured as a share of total
net output.
While industrial output has risen, the growth of consumer spending and government purchases has slowed down. Over the last
eight quarters, real consumer spending has grown at an annual
rate of just 2.5 percent, while real government purchases of goods
and services have risen at just 0.4 percent a year. This is a sharp
contrast with earlier in the expansion. From the trough of the
recession until mid-1986, real consumer spending rose at an average annual rate of 4.8 percent, slightly outpacing the increase in
real GNP. Real government purchases were up at an average
annual rate of 4.1 percent.
Critics of the Reagan Administration have sometimes pointed
with alarm to the rapid growth of consumer spending. They call it
a consumption binge financed by borrowing from overseas, and
note that such "overindulgence" cannot go on forever. They argue
that, when the inevitable reduction in the trade deficit occurs, it
will cut into the American standard of living. The critics, however,
are only partly correct.
While the trade deficit in the mid-1980's was unsustainably high
and a correction was unavoidable, the fact that is often overlooked
is that the needed adjustment has already been taking place. It
began over two years ago, when the volume of U.S. exports first
began to increase more than the volume of U.S. imports.
The nominal balance of trade was slower to reverse direction
because import prices rose sharply in 1986-87, reflecting the decline in the exchange value of the dollar. The rising prices pushed
up the dollar value of imports even though the increase in the
volume of imports was beginning to slow down. Finally, in 1988,
the nominal trade deficit also fell sharply. The merchandise trade
balance was running at an annual rate of $161 billion in the fourth
quarter of 1987. By the third quarter of 1988, it had dropped to
$118 billion, the lowest level since early 1985.
Further improvements in the trade balance are needed, but the
progress already made is substantial and further improvements are
likely. In this process, real GNP should continue to grow more




THE ECONOMY AND THE BUDGET

3-7

rapidly than real spending by consumers and Government. An
actual decline in consumption is not needed to complete the adjustment, however, if the growth in government spending is also controlled. By holding the increase in government and consumer
spending below the increase in real GNP, the resources needed to
produce the extra exports will be released without requiring an
actual drop in consumption.
The stock market crash.—As 1988 began, there were widespread
fears that the economy was on the brink of a downturn. The single
most important reason for this alarm was the steep decline in the
stock market from August to October 1987, climaxed by the largest
one-day drop in the market's history on October 19th. The stock
market crash was frightening and brought pressure to bear on the
Congress to negotiate a two-year Bipartisan Budget Agreement in
late 1987.
The crash's effects on the economy, however, proved to be
ephemeral. Economic growth did slow down somewhat in 1988
compared with 1987, and the unemployment rate stopped falling in
the second half of the year, but that was all. Indeed, had it not
been for the effects of the drought on farm output, total output
growth for the year would have been up by an estimated 3.3
percent. As it was, real GNP rose at nearly a 3 percent rate
through the first three quarters of the year, despite the drought.
The effects of the stock market crash would be expected to show
up most clearly in consumer spending and business investment.
Consumers normally reduce spending when their wealth drops, and
businesses are inclined to reduce investment when their market
value has fallen. Neither effect, however, was especially noticeable
this time. The four quarters since the crash have been much like
the four quarters that immediately preceded them. Consumer
spending, for example, had already moderated. From the third
quarter of 1986 through the third quarter of 1987, real consumer
spending rose by 2.7 percent. Over the next four quarters, it grew
only slightly less—2.3 percent. There was a sharp drop in purchases of consumer durables in the fourth quarter of 1987, but that
was reversed over the next two quarters. Real business fixed investment continued to grow rapidly, rising 7.0 percent in the four
quarters following the crash, only slightly less than the 8.7 percent
pace over the previous four quarters. This modest deceleration may
reflect the fall in the market, but it could equally well be accounted for by other factors: the rise in interest rates since the beginning of 1987 or the slower pace of overall economic growth in 1988.
The crash also seems to have had little effect on investors' views
about the economy. Although well below the highs reached in the
summer of 1987, market averages are higher now than they were




3-8

THE BUDGET FOR FISCAL YEAR 1990

two years ago, and most of the one-day loss on October 19th has
been recouped.
Monetary policy.—Following the crash, interest rates fell as the
Federal Reserve acted promptly to maintain liquidity and bolster
public confidence; until then, they had been gradually rising for
most of the year. In 1988, interest rates, especially for short-term
securities, began rising again, partly as a result of a tighter monetary policy. Broad monetary aggregates were growing at annual
rates of 1 to 3 percent. This put them at the middle of the Federal
Reserve's target ranges for the year, after being at the upper ends
of their ranges earlier. The Federal funds rate reached 8% percent in December, compared to about 6V2 percent in March.
This tightening of monetary policy was a response to the stronger-than-expected pace of economic activity following the stock
market crash and the concern about the risk of inflation. Although
short-term rates have risen sharply, long-term rates have remained
quite stable. Since May, the yield on 10-year Treasury bonds has
fluctuated in a narrow range around 9 percent, suggesting that the
market has not changed its expectation of the inflation rate over
the longer term.
Current economic conditions.—During 1988, prices overall rose at
about the same rate as in 1987. The 12-month increase in the CPI
for 1987 was 4.4 percent; the increase over the most recent 12month period was 4.2 percent. The index rose more rapidly after
mid-year, led by sharp increases in the price of food, a result of the
drought. The underlying inflation rate excluding volatile food and
energy prices shows a modest acceleration this year, rising from 4.2
percent in 1987 to 4.4 percent in the most recent 12-month period.
Unemployment continued to decline in 1988, following a sharp
drop in 1987. The total unemployment rate fell one-half percentage
point in the first half of 1988, reaching 5.2 percent in June, its
lowest level since 1974. In the second half of the year, the unemployment rate fluctuated between 5.2 and 5.5 percent. The unemployment rate is now reaching levels that have not been seen since
before the first oil price shock in the mid-1970's.
The demographic changes that reduced the average age of the
working population and raised unemployment in the 1970's are
now reversing themselves. The work force is becoming older and
more experienced. That should lead to a slower rate of job turnover
and lower unemployment. It should also manifest itself in higher
productivity, permitting more rapid growth with less inflation. The
current unemployment rate does not necessarily signal excess labor
demand and, although wages are now rising somewhat more rapidly than they were earlier in the expansion, the average rate of




THE ECONOMY AND THE BUDGET

3-9

wage increase remains moderate. In the most recent 12-month
period, the hourly earnings index was up less than 4 percent.
Thus, the main macroeconomic indicators show a picture of stability in 1988: robust growth, moderate inflation and low unemployment. The only major shock to the economy came not from the
stock market, as feared at the beginning of the year, but instead
from the weather. This year was one of the driest and hottest on
record. The result of the bad weather was poor harvests, especially
for corn and wheat. From the fourth quarter of 1987 to the third
quarter of 1988, total farm output fell at a 26 percent annual rate.
The full effect will not be seen until the fourth quarter figures are
in, but the Commerce Department has already announced that real
GNP for the year will be held down 0.7 percent because of the
drought. There have also been sharp increases in food prices as a
result of the poor harvests. This is already showing up in the food
component of the CPI. Although the drought has had a drastic
effect on the farm economy, much of its macroeconomic effect will
be quickly reversed if the weather returns to normal this year. The
budget assumes that this will happen.
Economic assumptions for 1989 and 1990.—If it were not for the

effects of the drought, the assumptions would call for a slower
growth rate of real GNP this year than in 1988. The assumed
growth rate for 1989 is 3.5 percent but, without the expected rebound from the drought, it would be 2.8 percent measured on a
fourth-quarter over fourth-quarter basis. The fourth-over-fourth
quarter growth rate for 1988 would have been 0.7 percentage point
higher, or 3.3 percent, had it not been for the drought-induced
decline in farm output in the latter part of the year. Thus, adjusted
for the drought, real economic growth is lower in 1989 than in
1988.
A slower rate of growth in nonfarm output may occur for several
reasons. First, the rapid growth that resumed in late 1986 could be
pushing the economy closer to its capacity limits. The economic
assumptions underlying the budget last year projected a slowdown
in the rate of growth in 1988, and a return to the long-term path in
1989. Because 1988 was stronger than expected, the 1989 growth
rate could well be slower. The total growth rate over the two years
is essentially unchanged from last year's assumptions. Second,
monetary policy tightened somewhat last year, as reflected in a
slower rate of money growth and higher short-term interest rates.
This should reduce the rate of growth in dollar spending this year.
Third, the effects of the sharp dollar depreciation of recent years
have been largely realized so that slower growth of U.S. exports
can be expected, although the rapid expansion of the world economy ought to prevent a major falloff. Japan's real GNP growth
during the first three quarters of 1988 came in stronger than most




3-10

THE BUDGET FOR FISCAL YEAR 1990
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) 1
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:
Level (1982-84 = 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
1987

1988

1989

1990

8.3
5.0

6.6
2.6

7.4
3.5

7.0
3.4

3.1

3.9

3.7

3.5

4.6
5.8

4.2
5.3

3.6
5.2

3.5
5.1

4,527
6.8

4,857
7.3

5,211
7.3

5,570
6.9

3,847
3.4

3,994
3.8

4,123
3.2

4,254
3.2

3,780
2,248
277

4,052
2,434
301

4,326
2,605
351

4,633
2,780
396

117.7
3.3

121.6
3.4

126.4
3.9

130.9
3.6

112.5
3.6

116.9
4.0

121.4
3.8

126.0
3.7

6.1
2.4

5.4
2.1

5.2
2.0

5.1
1.9

3.0
3.0
5.8
8.4

2.0
2.0
6.7
8.9

4.1
4.1
6.3
8.3

3.6
2.0
5.5
7.2

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 2
required 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 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.

analysts had predicted earlier in the year, and the pace of economic activity has also picked up in Germany.
A slower rate of economic growth (adjusted for the effects of the
drought), together with the marked deceleration in the rate of
growth of the money supply, suggest a moderation in the rate of
inflation. The forecast assumes that the CPI will rise 3.7 percent
this year on a fourth quarter-over-fourth quarter basis. The implicit price deflator for GNP is expected to rise by the same percentage. This represents a modest slowdown in the CPI of about one-




THE ECONOMY AND THE BUDGET

3-11

half percentage point. For the deflator, there is only a marginal
decline from its 1988 rate of increase.
Continued weakness in oil prices should also contribute to moderating the rate of inflation. As the budget assumptions were being
drawn up, the oil market was in disarray. OPEC production has
recently been about 23 million barrels per day (mb/d), or about 5
mb/d greater than current demand. This excess supply has pushed
world oil prices down to levels not seen since 1986. Even though oil
prices recovered in late November, in the aftermath of OPEC's
most recent agreement on production quotas, crude oil prices
should remain weak for the foreseeable future. Few analysts believe the cartel has succeeded in permanently reversing the fundamental supply imbalance that has caused the downward pressure
on oil prices. In any case, the fall in crude oil prices over the last
few months should translate into falling prices for petroleum products in the first half of 1989. This will lower the rate of increase in
the overall price level. The effect on the CPI should be greater
than on the implicit price deflator because of the greater weight of
energy components in the CPI.
A lower inflation rate and slower economic growth (adjusted for
the effects of the drought) should also lead to some decline in
nominal interest rates this year. The economic assumptions call for
declines in both short-term and long-term rates, with short-term
rates expected to fall somewhat more from current levels. The
unemployment rate is not expected to decline much further this
year. Indeed, the total unemployment rate is expected to average
5.3 percent, which is the level it reached last November.
Taken altogether, then, the forecast for 1989 calls for continued
expansion, but at a slower pace than in 1988 allowing for the
effects of the drought. The slower growth should be accompanied
by moderating interest rates and inflation, and a stable rate of
unemployment.
The forecast for 1990 shows a pickup in the rate of economic
growth. Some of the special factors that are likely to restrain
economic growth this year (after adjusting for the drought) are not
expected to last into next year. The growth rate forecast for 1990 is
3.4 percent on a fourth quarter-over-fourth quarter basis. This is
about the same as it would have been in 1988 had it not been for
the drought, and is actually lower than the average growth rate
over the period since the real trade deficit began to improve. Further improvement in the trade deficit is expected to propel economic growth in 1990. Further reductions in inflation and interest
rates are also projected for 1990, along with a marginal decline in
the unemployment rate.




3-12

THE BUDGET FOR FISCAL YEAR 1990

IMPACT OF THE BUDGET ON U.S.

INTERNATIONAL COMPETITIVENESS

The Omnibus Trade and Competitiveness Act of 1988 (Public Law
100-418) requires that the Office of Management and Budget, after
consultation with the Chairman of the Council of Economic Advisers, prepare an analysis of the budget's impact on the international
competitiveness of U.S. business and the U.S. balance of payments
position.
The Act requires several forecasts for fiscal year 1990, including
the amount of borrowing by the Government in private credit
markets. Government borrowing from the public is discussed in
detail in Special Analysis E, and is estimated to be $125.6 billion
under the current services baseline and $91.2 billion with the
President's proposed budget. This compares to actual borrowing of
$162.1 billion in fiscal year 1988.
The Act also requires forecasts of several other variables related
to saving, investment, and trade. They include net private domestic
investment, net domestic saving by major sector, net foreign investment, the merchandise trade balance, and the current account
balance. A range of estimates for these variables is shown below,
based on the projected values of GNP, unemployment, and the
other economic assumptions, including underlying saving-investment relationships.
PROJECTIONS OF SAVING, INVESTMENT, AND TRADE
(Fiscal years; in billions of dollars)

S
Net domestic saving (excluding Federal saving)
Net private domestic investment
Net foreign investment
Merchandise trade balance
Current account balance

1

276
265
-142
-136
-135

19 et as
90 s t
me
i
285 to 315
300 to 330
- 1 2 0 to - 9 0
- 1 0 0 to - 70
- 1 2 0 to - 9 0

1
Defined for purposes of Public Law 100-418 as the sum of private saving and the surpluses of State and local governments. All series are
based on National Income and Product Accounts except for the current account balance.

The projected narrowing of the merchandise trade deficit reflects
the improved competitive position of U.S producers in foreign and
domestic markets. The gains expected through 1990 are a continuation of the trend of the past few years when the foreign sector
made significant contributions to real GNP growth. The current
account deficit is projected to be larger than the trade account's
because the current account includes net investment income. The
latter will decline as a consequence of the need to service our
growing international debt.
The Act also requires an estimate of the influence of the Government's borrowing on private credit markets, on U.S. interest rates,
and on the real effective exchange rate of the dollar. Projections
for interest rates are presented above. Interest rates, however,




THE ECONOMY AND THE BUDGET

3-13

depend on many factors besides Government borrowing. They are
determined through the complicated interaction of Government
policy with the private demand for and supply of credit. The projected decline in interest rates is consistent with the reduction in
Government borrowing that would be achieved by adopting the
administration's policy proposals, and also with the Federal Reserve's commitment to achieve a gradual reduction in the rate of
inflation.
Federal borrowing is just one of many influences on exchange
rates, and most experts agree that no consistent relationship can
be observed in recent data. The wide swings in the dollar so far in
this decade are not yet fully understood. Exchange rates are affected not only by the variables displayed above, but also by public
perceptions of future monetary and fiscal policy and the policies
and performance of our trading partners. While the administration's proposals in this budget are not projected to exert a substantial independent influence on exchange rates, exchange market
stability should be enhanced as the deficit reductions proposed in
this budget are achieved and the Federal Government comes closer
to budget balance.
LONG-RUN ECONOMIC ASSUMPTIONS

The economic assumptions shown here for 1991-1994 are not an
economic forecast in the usual sense. They presume that the policy
proposals in this budget are all adopted. That means, specifically,
an assumption that the budget deficit will be eliminated by 1993.
Moreover, the Federal Reserve is assumed to persist in its announced policy of eliminating inflation through a gradual program
of monetary restraint. Further restraint will curb inflation, while
the gradualness of the policy should allow the economy time to
adapt without slowing real economic growth.
If the budget is balanced within four years, and if inflation is
reduced to the levels assumed here, a modest improvement in
productivity growth is likely. Such an improvement would permit
the economy to achieve the average growth rate of 3.2 percent
assumed for 1991-1994.
The rate of economic growth can be divided into two parts: the
expected increase in the hours worked by the employed labor force
and the projected rate of increase in those workers' productivity.
The sum of these two components equals the overall growth rate.
Hours worked.—Most forecasters assume that total hours worked
will rise at an average rate between 1.0 and 1.5 percent a year in
the 1990's, based on population projections and reasonable estimates of labor force participation and rates of unemployment.
Hours could rise faster than this if, for example, the women's labor




3-14

THE BUDGET FOR FISCAL YEAR 1990
LONG-RANGE ECONOMIC ASSUMPTIONS
(Calendar years; dollar amounts in billions)
Assumptions
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) x
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 (1982-84 = 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 bill: (percent) 4
Interest rate, 10-year Treasury notes (percent)

1991

1992

1993

1994

6.4
3.3

5.8
3.2

5.3
3.2

4.7
3.2

3.0

2.5

2.0

1.5

3.0
5.0

2.5
5.0

2.0
5.0

1.5
5.0

5,939
6.6

6,296
6.0

6,640
5.5

6,968
4.9

4,396
3.3

4,539
3.2

4,684
3.2

4,834
3.2

4,924
2,969
442

5,202
3,159
475

5,461
3,342
498

5,719
3,515
522

135.1
3.2

138.7
2.7

141.8
2.2

144.2
1.7

130.0
3.2

133.5
2.7

136.4
2.2

138.7
1.7

5.0
1.8

5.0
1.8

5.0
1.8

5.0
1.8

3.2
3.0
4.5
6.0

3.0
2.8
4.0
5.0

3.0
2.3
3.5
4.5

3.0
1.8
3.0
4.0

1
CPj for urban wage earners and clerical workers. Two versions of the CPI are now published. The index shown here is that currently used,
as 2
required 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 a percentage of covered employment under that program; does
not4 include recipients of extended benefits under that program.
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.

force participation rate continues to rise rapidly, or they could rise
more slowly if women's labor force participation stabilizes near
current levels. Other factors, such as a change in the gradual trend
toward fewer hours worked per employee or a shift in men's labor
force participation, would also affect the outcome. The risk of a
major departure from the consensus estimate, however, is probably
less for this component of growth than for its counterpart, the
expected rate of change in productivity.




THE ECONOMY AND THE BUDGET

3-15

Productivity.—The behavior of productivity growth over the last
fifteen years is something of a mystery. Productivity growth slowed
sharply following the first oil price shock in 1973 and, for the rest
of the decade, the rate of improvement in output per hour in the
nonfarm business sector averaged only one-half percent a year. By
contrast, in the 25-year period prior to 1973, output per hour of
nonfarm workers rose at an average rate of 2.5 percent a year.
Since the last normal business cycle peak in the first quarter of
1980, productivity growth has picked up. In the nonfarm sector,
productivity has risen at an average rate of 1.3 percent, and in
manufacturing it has fully recovered from the 1970's slowdown; it
has been rising faster in the 1980's than at any other time in the
postwar period. But manufacturing accounts for only about a quarter of total output in the nonfarm economy, and other industries
have not matched its extraordinary productivity performance. Consequently, broader measures of productivity still show a subpar
performance relative to the earlier postwar period.
The economic assumptions project a return to rates of productivity growth that are closer to those that prevailed prior to 1973.
Such an improvement is possible if the policy proposals in this
budget are adopted. In that case, the deficit will be eliminated and
more resources will be available for capital formation. Price stability is also important if higher productivity growth is to be achieved.
Inflation lowers productivity through many subtle channels by distorting price signals and diverting management attention. A higher
rate of capital formation and lower inflation should raise the productivity growth rate noticeably.
Continued macroeconomic stability should also be conducive to
higher rates of productivity growth. The current expansion has
lasted six years. It is the longest peacetime expansion in the Nation's history, but just because it has lasted a long time does not
mean that it is about to end soon. Economic expansions do not
have a predetermined lifespan. In the post-World War II period,
expansions have varied greatly in length. The 1960's expansion
lasted almost nine years, while the brief 1980-81 expansion lasted
only a single year.
An expansion can continue indefinitely if the economy is not
shocked by disturbances that threaten growth. Oil prices, for example, are currently falling, and they are likely to remain subdued for
some time to come. If so, this would eliminate a major source of
potential disturbances, one that helped to bring on two recessions
in the 1970's. A stable U.S. dollar and a steadily improving trade
deficit would remove another potential source of economic disturbances. Other shocks are possible, of course, such as last year's
harsh weather conditions, and disturbances of some* type are inevitable in a dynamic economy. But, with macroeconomic policy




3-16

THE BUDGET FOR FISCAL YEAR 1990

geared to long-run stability rather than short-run demand management, the prospects for continued economic growth are excellent.
In this environment, long-range plans that boost productivity will
be more attractive.
Over most of the past century, the rate of growth of productivity
has averaged about 2 percent a year. That rate is achievable again
with appropriate government policies. If it is achieved and if inflation is kept under control and reduced, the long-run growth assumptions in this budget should be realized.
Inflation and interest rates.—The budget assumptions also call
for a decline in nominal interest rates. In 1994, the 91-day Treasury-bill rate is projected to reach 3 percent, and the 10-year Treasury bond rate is assumed to fall to 4 percent. These rates would be
lower than at any time since the early 1960's. These low nominal
rates are a direct consequence of the administration's policy objectives with respect to inflation. Inflation is assumed to reach the
lowest rate on a sustained basis since the early 1960's. A return to
price level stability would certainly mean a return to lower nominal interest rates. Moreover, these changes would go a long way
toward eliminating the risk premium that is incorporated in current interest rates, thus reducing real rates as well. The real
interest rates assumed in the budget are only moderately below
current levels. If the deficit is eliminated, as projected here, and if
inflation declines below 4 percent, lower real interest rates are
probable.
THE ADMINISTRATION'S FORECASTING RECORD

From the beginning, the administration has believed that appropriate policies could bring inflation under control, place interest
rates and unemployment on a downward path, and raise the economy's rate of real economic growth. These beliefs have been reflected in every set of economic projections made by the administration—from the first set, released in February 1981, to those in this
budget.
Economic performance during the past eight years has largely
vindicated the administration's vision. Despite this, however, there
is a widespread, but mistaken, view that its economic forecasts
have been wildly inaccurate because of excessive optimism. Economic forecasting is more art than science, and it is true that the
administration has made some large forecasting errors. But critics
typically forget that mistakes are common in economic forecasting,
and large mistakes are not infrequent. They also overlook the fact
that not all of these mistakes were on the optimistic side; some
forecasts proved to be too pessimistic.




THE ECONOMY AND THE BUDGET

3-17

The record shows that the administration's near-term forecasts
have been about as accurate as those prepared by the Congressional Budget Office (CBO), or by the private sector, as represented by
the Blue Chip consensus, an average of approximately 50 private
forecasts. The record also shows that the administration has not
been biased toward optimism or pessimism.
The comparisons of forecasting accuracy in this section are based
entirely on the administration's near-term economic forecasts presented in each budget and the comparable forecasts made by CBO
and the Blue Chip panel at about the same time. The comparisons
are for only two years into the future. This includes the calendar
year just begun when the forecast is published and the following
calendar year, which overlaps the budget year.
Comparisons of longer term forecasts are not appropriate. The
administration's outyear projections differ conceptually from those
of other forecasters. They are based on the assumption that all of
the administration's policies will be implemented and that steady
progress is made toward achieving its macroeconomic policy objectives. Private forecasters and CBO do not make the same policy
assumptions in preparing their long-term projections. They typically rely much more heavily on projections of existing trends.
The near-term forecasts are also affected by the difference in
policy assumptions, but the consequences are much less significant
because, in the near-term, the economic outlook is most strongly
influenced by the existing state of the economy and previous policy
actions that cannot now be modified. Although the predictions
made by all forecasts share these common background conditions
their interpretations of where the economy is headed differ significantly. However, differences in policies, as such, do not decide the
outcome. Only over a longer forecast horizon do differences in
policy assumptions come to dominate the forecast results. Therefore, while it is meaningful to compare the administration's nearterm forecasting record with that of other forecasters, it is not
meaningful to compare its long-term economic projections with
forecasts that do not share its policy assumptions.
There are different ways to measure forecast accuracy. One
common procedure is to compute the differences between the forecast and the actual outcome irrespective of the sign. On this
method, an error of — 1 and an error of +1 are both counted as an
error of +1, so that the average of these two errors would be 1,
rather than 0. Calculating the mean absolute errors in this way
shows how close a forecast comes, on average, to the actual outcome, because large errors of opposite sign do not cancel each other
out. But this method does not reveal the forecast's bias, if any. To
assess bias, it is necessary to take account of the direction of the
forecast errors. For this purpose, the errors should be averaged




3-18

THE BUDGET FOR FISCAL YEAR 1990

with regard for signs so that offsetting errors cancel each other
out. Both methods are used to measure forecast errors by the
administration, CBO, and Blue Chip in the accompanying table.
The table shows the most important economic variables for projecting the budget: GNP, inflation, interest rates and unemployment.
FORECASTING RECORD, CALENDAR YEARS 1981-1988*
(Forecast minus actual, in percentage points)
3P
N

Real GNP

GNP deflator

91-Day
Treasury Bill
Rate

Civilian
unemployment rate

MEAN ABSOLUTE ERRORS
Current year:
Administration.
CBO
Blue Chip

1.3
1.2
1.4

1.2
1.1
1.2

0.7
0.6
0.7

1.2
0.9
0.9

0.5
0.5
0.5

One year ahead:
Administration.
CBO
Blue Chip

3.1
2.9
2.8

2.0
1.5
1.5

1.4
1.8
2.0

1.3
2.2
1.6

1.2
1.1
1.3

Current year:
Administration.
CBO
Blue Chip

0.5
0.3
0.3

-0.2
-0.3
-0.4

0.7
0.6
0.7

-0.4
-0.2
-0.4

0.2
0.2
0.2

One year ahead:
Administration.
CBO
Blue Chip

2.6
2.4
2.6

MEAN ERRORS

1.1
0.6
0.4

1.4
1.8
2.0

0.0
1.3
0.9

0.0
0.0
0.1

* For the final quarter of 1988, which was not known at the time of these calculations, the actual outcome was assumed to be the December
1988 Blue Chip consensus forecast. For nominal GNP, real GNP, and inflation, the actual growth rate was measured as a percentage and
subtracted from the forecast growth. The errors in interest rates and unemployment are computed by subtracting the actual level, measured as a
percentage from the forecast values. Administration forecasts are from the Budgets for fiscal years 1983 through 1989 and from the fiscal year
1982 Budget revisions.

Two striking conclusions emerge from the error record for the
current year. First, the errors are remarkably close across forecasters. The mean absolute errors, which provide the best measure of
forecast accuracy, and the mean errors, which reveal bias, are
nearly the same for all variables. Even the widest difference, the
0.3 percentage point difference in the mean absolute error between
the administration's interest rate forecast and the other two, is
quite small compared with the average Treasury-bill rate of 8.6
percent during these eight years.
Second, contrary to the conventional view, there is no evidence of
an optimistic bias in the administration's current year forecasts. In
fact, the forecasts for real growth were too pessimistic, underestimating it by 0.2 percentage point per year on average. The administration was also too pessimistic concerning the rate of inflation,
overestimating it by 0.7 percentage point on average. Inflation
actually declined much faster in the 1980's than was anticipated in
the budget. Also, the administration tended to overestimate the




THE ECONOMY AND THE BUDGET

3-19

unemployment rate slightly. The only consistently optimistic forecast made by the administration was for interest rates, which were
higher than forecast. Taken together, the administration's forecasts
for all the variables do not display a consistent pattern of bias.
Exactly the same conclusions can be drawn about CBO and Blue
Chip. They also were not optimistically biased. Their errors were in
the same direction as the administration's—underpredicting
growth, overpredicting inflation, too high on unemployment, and
too low on interest rates. The extent of their bias was also about
the same as the administration's. This is further confirmation that
the administration's forecasts were not especially optimistic. Even
its forecasts of interest rates, which were too optimistic, were no
more biased than those of the Blue Chip consensus (—0.4 percentage point).
For the year-ahead forecasts, some differences in accuracy
emerge. As revealed by the mean absolute forecast errors, the
administration was less accurate than the other forecasters in predicting real economic growth; it was more accurate, however, in
predicting inflation and interest rates. The forecast errors are quite
similar for unemployment and nominal GNP growth. On balance,
the administration was about as accurate as the other forecasters,
although the pattern of its errors is different.
It is also true that, for all the variables, the year-ahead forecasts
made by the administration, CBO, and Blue Chip were less accurate than those for the current year. It is common for forecasting
errors to increase as the time horizon of the forecast lengthens.
As in the current year forecasts, the administration's year-ahead
forecasts were not biased in an optimistic direction. Although real
GNP growth was overestimated, as shown by the positive mean
error, the inflation rate was also overestimated. The first is an
optimistic error, while the second is pessimistic. The administration's mean errors in its forecasts of interest rates and unemployment were zero, so there is no evidence of bias either way in
forecasting these variables. The other forecasters' errors were in
the same direction as the administration's, once again. They, too,
overestimated real growth and inflation. They were less strongly
biased in terms of real growth but more strongly biased in terms of
interest rates and unemployment.
The administration's largest error occurred in February 1981. It
predicted 4.2 percent real growth for 1982, when real GNP actually
fell by 2.5 percent. The reason for this was the failure to anticipate
a second recession following so closely on the heels of the 1980
downturn (as explained in the first section of this part). Almost
without exception, other forecasters also missed the second recession, although the administration's mistake was larger than most.
Excluding 1981, the administration's mean error in forecasting real




3-20

THE BUDGET FOR FISCAL YEAR 1990

GNP growth was just 0.1 percentage point, evidence of an essentially unbiased forecast. (Over the same period the mean errors of
CBO and the Blue Chip were —0.2 and —0.5, respectively.)
Summing up this record, the administration has been about as
accurate and unbiased as CBO and the Blue Chip consensus—not
any better, but not any worse. This is clearly at variance with the
widespread perception that the forecasts underlying the budget
have been overly optimistic and highly inaccurate. The administration's largest mistake was in missing the onset and depth of the
1981-82 recession. Since that time, its near-term forecasts have
been much more accurate, but the earlier error is still remembered. What has been forgotten is that other forecasters made a
similar mistake at that time, and what has been ignored is the
administration's record in the following seven years. Taking those
mistakes into account as well, the administration's forecasting
record for the past eight years is not much different from that of
others; no one has a clear advantage in the art of forecasting the
economy's future.
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. The following table
shows how those changes affected the budget outlook for fiscal
years 1989-1993.
COMPARISON OF FEBRUARY 1988 AND CURRENT ECONOMIC ASSUMPTIONS
(Calendar years; dollar amounts in billions)
1989

1987

Nominal GNP:
1988 assumptionsl
1989 assumptions
Real GNP (percent change): 2
1988 assumptionsx
1989 assumptions
GNP deflator (percent change): 2
1988 assumptionsJ
1989 assumptions
Interest rate on 91-day Treasury bills (percent):
1988 assumptions
1989 assumptions
Unemployment rate (percent):
1988 assumptions
1989 assumptions
1
2

1990

1991

1992

1993

4,522
4,527

4,825
4,857

5,162
5,211

5,535
5,570

5,907
5,939

6,269
6,296

6,613
6,640

4.6
5.0

2.4
2.6

3.5
3.5

3.5
3.4

3.4
3.3

3.3
3.2

3.2
3.2

3.2
3.1

3.9
3.9

3.7
3.7

3.5
3.5

3.0
3.0

2.5
2.5

2.0
2.0

5.8
5.8

5.3
6.7

5.2
6.3

5.0
5.5

4.5
4.5

4.0
4.0

3.5
3.5

6.1
6.1

5.8
5.4

5.6
5.3

5.4
5.1

5.3
5.0

5.2
5.0

5.2
5.0

Adjusted for July 1988 revisions.
Fourth quarter to fourth quarter.

Several developments occurred in 1988 that affected the economic outlook and the forecast of the budget deficit. The Commerce
Department's benchmark revisions of the National Income and




3-21

THE ECONOMY AND THE BUDGET

Product Accounts in July revealed that incomes were higher in
1985-1988 than previously measured. An unexpected rise in shortterm interest rates altered the near term outlook for Federal interest payments. The drought and its effects on output and prices
have also affected the pattern of growth in the forecast.
EFFECTS ON THE BUDGET OF CHANGES IN ECONOMIC ASSUMPTIONS SINCE LAST YEAR
(Fiscal years; in billions of dollars)

1989

1990

1991

1992

1993

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

Deficit ( - )
-129.5
Policy and techical estimating changes since last year:
Receipts
-6.2
Outlays
30.9

-104.2

-79.3

-51.1

-23.3

-2.6
-7.0

-1.3
-2.0

37.1

-4.4

-0.7

958.5
1,125.1

1,041.5
1,141.3

1,123.1
1,201.7

1,192.9
1,242.8

1,258.1
1,281.5

-166.6

-99.8

-78.6

-49.9

-23.4

17.0

17.8

17.4

19.3

23.3

2.8
-1.3
11.2
-0.8
11.9

1.8
-1.4
11.3
-1.2
10.5

1.4
-1.4
7.4
-1.8

1.0
-1.0
4.1
-2.5

-1.2
-1.0
3.0
-3.3
-2.5

-5.1

-7.3

-11.8

-17.7

-25.8

975.5
1,137.0

1,059.3
1,151.8

1,140.5
1,207.3

1,212.2
1,244.4

1,281.4
1,279.0

-161.5

-92.5

-66.8

-32.2

2.4

Budget totals, February 1988 budget:
Receipts
Outlays

Deficit increase ( + )
Budget totals under February 1988 economic assumptions
and January 1989 policies-.
Receipts
Outlays
Deficit ( - )
Changes due to economic assumptions:
Receipts
Outlays:
Inflation and pay raises
Unemployment
Interest rates
Interest on changes in borrowing
Total, outlays
Decrease in deficit ( - )
Budget totals under January 1989 economic assumptions
and January 1989 policies-.
Receipts
Outlays
Deficit ( - )

5.6

3.0
1.8
-1.2

1.6

0.0
0.2
0.1

Real GNP grew 5.0 percent over the four quarters of 1987, which
was considerably higher than the 3.8 percent growth rate for the
year shown in last February's budget. This means that the jumping
off point for 1988 was higher than envisioned last year. The rate of
growth in 1988 is now expected to be 2.6 percent, slightly higher
than the 2.4 percent forecast in last year's budget. The discrepancy
would have been even larger had it not been for the drought. The
economy is expected to rebound in 1989 with a growth rate of 3.5
percent, of which 0.7 percent is due to the recovery from the
drought. By the end of next year the level of real GNP should be
considerably higher than was forecast in last year's budget.




3-22

THE BUDGET FOR FISCAL YEAR 1990

Inflation, as measured by the GNP deflator was about as expected in 1988, and the rate projected for 1989 and subsequent years is
unchanged. The CPI has risen slightly faster than expected in 1988,
but it is expected to return to the forecast path by 1990.
The net result of these changes upon the level of nominal GNP is
a substantial increase in all years from last year's projections. This,
in conjunction with adjustments to the income components of GNP
resulting primarily from the July 1988 GNP benchmark revisions,
results in significant increases in estimated receipts for 1989-1993,
compared to last year's estimates.
Changes in other economic assumptions—in particular higher
interest rates and higher cost-of-living adjustments to benefits such
as social security (due to higher CPI increases)—result in higher
estimated outlays for 1989 and subsequent years than were estimated in last year's budget. These offset part of the estimated
receipts gains, but the net impact of economic effects is a $7.3
billion deficit reduction in 1990, which grows to nearly $26 billion
by 1993.
Thus the performance of the economy in 1987-88 and the resulting changes in the economic assumptions have made the near-term
outlook somewhat better than expected in last year's budget and
produce a significant improvement in 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 concerning 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 be associated with a declining rate of unemployment. In the long run, however, changes in the average rate of
growth in real GNP result in large part from changes in the rate of
growth of productivity, and are not necessarily associated with
changes in the average rate of unemployment. Inflation and interest rates are also closely interrelated: a higher expected rate of
inflation raises interest rates while less expected inflation leads to
lower rates. The connections between nominal and real variables
are less predictable; there is no regular connection between
changes in the rate of inflation and the rate of real economic




THE ECONOMY AND THE BUDGET

3-23

growth or the unemployment rate. Finally, a change in either real
GNP growth or inflation has a much greater cumulative effect on
the budget over time if it is sustained than if it occurs for only one
year.
These patterns are the basis for the combinations of changes
examined in the table. The unemployment rate is generally assumed to vary by one-half percentage point for each one percentage point change in real growth. Inflation and interest rates are
generally assumed to vary directly by equal percentage point
changes; interest rates are higher by one percentage point for each
percentage point rise in the rate of inflation. Examples are also
shown where only one of these variables changes.
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 1990, then 1990 receipts will be lower by $6.7
billion, and 1990 outlays will be higher by $1.9 billion, primarily
for unemployment-sensitive programs. In 1991, receipts would decline further, by $11.5 billion, and outlays would increase by $3.5
billion, compared to the base, even though the growth rate after
1990 followed the path originally assumed. This is because the level
of real GNP would be permanently lower. 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 $83.0 billion higher than originally
projected by 1994.
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
$73.5 billion by 1994.
Changes in interest rates and inflation have a smaller effect on
the deficit, because their effects on receipts and outlays are substantially offsetting. The first example is the effect of a one percentage point higher rate of inflation and one percentage point
higher interest rates during fiscal year 1990 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 1990 would rise by $7.4 billion and receipts by $7.5
billion, for a net decrease of $0.1 billion in the 1990 deficit. In 1991,
outlays would increase further above the base, by $13.9 billion, due
in part to lagged cost-of-living adjustments, and the increase in
receipts would rise to $12.0 billion, for a net $1.9 billion increase in
the deficit. In subsequent years, the amounts added to receipts and




3-24

THE BUDGET FOR FISCAL YEAR 1990

to outlays would remain close and would continue to have roughly
offsetting effects on the deficit. The add-on to receipts would rise
slightly over time, while the add-on to 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 $66.5 billion to outlays
and $64.8 billion to receipts in 1994. 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 rise by nearly the same amount as outlays; the
net impact is only a $1.7 billion increase in the 1994 deficit.
The table also shows the interest rate and the inflation effects
separately, and rules of thumb for the added interest cost associated with higher or lower deficits (increased or reduced borrowing)
and changes in Federal pay rates.
The effects of changes in economic assumptions in the opposite
direction are approximately symmetric. The impact of a one percentage point lower rate of inflation or higher real growth would
be of about the same magnitude as shown in the table, but with the
opposite sign.
These rules of thumb ignore changes in the 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.




3-25

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

1991

1992

1993

1994

-6.7
1.9

-11.5
3.5

-12.4
4.3

-13.6
5.1

-14.4
5.7

8.6

15.0

16.7

18.7

20.1

-6.7
1.9

-18.7
5.5

-32.4
9.8

-46.8
14.9

-62.6
20.4

8.6

24.2

42.2

61.7

83.0

-19.3
1.2

-33.8
2.8

-49.2
4.7

-66.4
7.1

7.2

20.5

36.6

53.9

73.5

7.5
7.4

12.0
13.9

11.8
13.8

11.9
13.1

12.6
13.0

1990

REAL GROWTH AND EMPLOYMENT

Effects of 1 percent lower real GNP growth in fiscal year 1990
only, including higher unemployment:l
Receipts
Outlays
Deficit increase ( + )
Effects of a sustained 1 percent lower annual real GNP growth
rate during fiscal years 1990-1994, including higher unemployment: 1
Receipts
Outlays
Deficit increase ( + )
Effects of a sustained 1 percent lower annual real GNP growth
rate during fiscal years 1990-1994, with no change in
unemployment:
Receipts
Outlays
Deficit increase ( + )

-6.9
0.3

INFLATION AND INTEREST RATES
Effects of 1 percentage point higher rate of inflation and
interest rates during fiscal year 1990 only:
Receipts
Outlays
Deficit increase ( + )
Effects of a sustained 1 percentage point higher rate of
inflation and interest rates during fiscal years 1990-94:
Receipts
Outlays
Deficit increase ( + )
Effects of a sustained 1 percentage point higher interest rate
during fiscal years 1990-94 (no inflation change):
Receipts
Outlays
Deficit increase ( + )
Effects of a sustained 1 percentage point higher rate of
inflation during fiscal years 1990-94 (no interest rate
change):
Receipts
Outlays
Deficit increase ( + )

-0.1
7.5
7.4

-0.1

1.9
20.2
21.7
1.5

2.0
34.1
36.2
2.1

1.2
48.6
50.9
2.3

0.4

64.8
66.5

1.7

0.7
5.2

1.6
11.0

2.2
15.1

2.6
17.7

2.9
19.9

4.5

9.4

12.9

15.1

17.0

46.0
33.6

61.9
47.1

6.9
2.2

18.6
10.8

31.9
21.4

-4.7

-7.8

-10.5

-12.4

-14.8

INTEREST COST OF HIGHER FEDERAL BORROWING
Effect of $100 billion additional borrowing in fiscal year 1990

4.8

8.1

8.3

8.2

8.0

1.1

1.2

1.2

1.2

1.3

FEDERAL PAY RAISES
Outlay effect of a 1 percentage point increase in Oct. 1989
1

The unemployment rate is assumed to be 0.5 percentage point higher per 1 percent shortfall in the level of real GNP.







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. The difference between receipts
and outlays determines the surplus or deficit.
This section of the budget discusses receipts for 1989 and 1990,
and the legislative proposals and administrative actions affecting
them.1
SUMMARY
Total receipts in 1990 are estimated to be $1,059.3 billion, an
increase of $83.8 billion or 8.6 percent from the $975.5 billion
estimated for 1989. These estimates include the effects of:
• previously enacted tax legislation, including the Technical
and Miscellaneous Revenue Act of 1988; and
• the receipts proposals in this budget.
As a share of GNP, receipts are projected to rise from 19.1
percent in 1989 to 19.3 percent in 1990. This is primarily due to
real economic growth and an increase in the combined employeremployee social security (OASDHI) tax rate from 15.02 percent to
15.3 percent on January 1, 1990.
Composition of Receipts.—The Federal tax system relies predominantly on income and payroll taxes. In 1990:
• Income taxes paid by individuals and corporations are estimated at $466.7 billion and $117.4 billion, respectively. These
sources together account for 55.1 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 $391.5 billion, 37.0 percent of the total.
• Excise taxes imposed on selected products, services, and activities are expected to provide $35.3 billion, 3.3 percent of the
total.
1
Detailed estimates of receipts by source for 1989 and 1990 are shown in Tables 11 and 15 of Part 10. The
economic assumptions on which the receipts estimates are based are presented in Part 3, and estimates of
receipts for 1989—1994 are presented in Table 2 of Part 10. Part 7 analyzes the difference between the actual
receipts for 1988 and the estimates for 1988 transmitted to the Congress in January 1987. Part 8 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

Estate and gift taxes, customs duties and fees, and miscellaneous receipts are estimated at $48.4 billion, the remaining 4.6
percent of receipts.
RECEIPTS BY SOURCE
(In billions of dollars)
1988 actual

Individual income taxes
Corporation income taxes
Social insurance taxes and contributions.
On-budget
Off-budget
Excise taxes
Estate and gift taxes
Customs duties and fees
Miscellaneous receipts
Total receipts

1989
estimate

1990
estimate

1991

1992
estimate

401.2
94.5
334.3
(92.8)
(241.5)
35.2
7.6
16.2
19.9

425.2
107.0
363.9
(97.0)
(266.9)
34.0
7.8
16.3
21.4

466.7
117.4
391.5
(102.6)
(288.9)
35.3
8.1
18.0
22.4

508.5
129.2
419.0
(106.5)
(312.5)
33.7
8.3
19.2
22.6

549.3
137.2
441.9
(110.1)
(331.8)
33.1
8.3
20.2
22.2

909.0
(667.5)
(241.5)

Source

975.5
(708.7)
(266.9)

1,059.3
(770.4)
(288.9)

1,140.5
(828.0)
(312.5)

1,212.2
(880.4)
(331.8)

Because of legislated tax changes, the composition of receipts in
1990 is estimated to be much different than in 1980, the year
before the administration took office. Although the Federal tax
system relied predominantly on income and payroll taxes in 1980,
as it will in 1990, the income tax share of total receipts in 1990 is
expected to be 4.6 percentage points less than in 1980. In contrast,
the social insurance taxes and contributions share of receipts in
1990 is estimated to be 6.4 percentage points higher than in 1980.
The share of all other receipts is expected to decline 1.9 percentage
points, from 9.8 percent in 1980 to 7.9 percent in 1990.
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.




4-4

THE BUDGET FOR FISCAL YEAR 1990

NET EFFECT OF MAJOR ENACTED LEGISLATION ON RECEIPTS 1
(in billions of dollars)

1989

Economic Recovery Tax Act of 1981 -264.4
Tax Equity and Fiscal Responsibility
Act of 1982
57.3
Highway Revenue Act of 1982
4.9
Social Security Amendments of 1983....
24.6
Interest and Dividends Tax Compliance
-1.8
Act of 1983
Railroad Retirement Revenue Act of
1.2
1983
Deficit Reduction Act of 1984
25.4
Consolidated Omnibus Budget Recon2.9
ciliation Act of 1985
Federal Employees' Retirement System
Act of 1986
-0.2
Omnibus Budget Reconciliation Act of
1986
2.4
Superfund Amendments and Reauthorization Act of 1986
0.6
Continuing Resolution for 1987
2.8
Tax Reform Act of 1986
-8.9
Omnibus Budget Reconciliation Act of
1987
8.6
Continuing Resolution for 1988
2.0
Medicare Catastrophic Coverage Act of
2
1988
Family Support Act of 1988
Technical and Miscellaneous Revenue
Act of 1988
Net tax reduction ( - )

-142.6

ADDENDUM
Net effect on receipts by source:
Individual income taxes
-201.4
Corporation income taxes
24.0
Social insurance taxes and contributions
29.2
Excise taxes
12.9
Estate and gift taxes
-8.0
Customs duties and fees
0.2
Miscellaneous receipts
0.5

1990

1991

1992

1989-90

-290.9

-322.8

-357.7

-397.6

-613.7

55.7
5.1
30.9

57.2
5.1
23.4

61.2
5.1
23.8

64.7
5.1
25.2

112.9
10.2
54.4

-2.0

-2.5

-2.8

-3.1

-4.4

1.1
27.7

1.1
31.0

1.1
33.8

1.2
37.9

2.3
58.7

3.0

3.0

3.2

3.5

6.0

-0.2

-0.3

-0.4

-0.4

-0.5

2.0

1.0

0.1

1.0

3.0

0.8
3.0
-24.4

0.8
2.6
-20.3

0.8
2.6
-16.4

0.8
2.6
-20.9

1.6
5.6
-44.6

13.9
2.7

16.1
2.6

15.4
2.7

12.2
2.7

30.0
5.3

0.6
0.1

6.6
0.2

7.2
0.3

6.9
0.3

7.2
0.3

-0.4

-0.1

0.1

-0.3

-0.6

-171.3

-195.3

-219.8

-258.3

-366.6

-237.6
27.2

-259.4
33.7

-288.4
42.6

-326.9
43.7

-496.9
60.8

35.9
11.5
-8.9
0.2
0.3

27.6
11.7
-9.3

25.9
9.5
-9.6

27.8
8.0
-11.1

0.3

0.3

0.3

63.5
23.3
-18.1
0.2
0.7

*$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
Includes the effect on income .taxes of the substitution of cash benefits for a portion of employer medigap insurance that would have been
otherwise provided.

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
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 re2
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.




FEDERAL RECEIPTS BY SOURCE

4-5

placed 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 100
percent, from $1,000 in 1980 to $2,000 in 1989. In addition, effective
January 1, 1989, the individual income tax brackets and the standard deduction are adjusted annually for inflation; the personal
exemption will be adjusted annually 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 pre1981 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 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 more sound financial basis, established the Federal Employees' Retirement System (FERS), reauthorized the Superfund toxic
waste cleanup program, established a fund to finance the cleanup
of wastes from leaking underground petroleum storage tanks, provided catastrophic illness and prescription drug benefits to individuals eligible for medicare, and reformed the aid to families with
dependent children (AFDC) program.
As a result of these legislated changes, taxes have been reduced,
on net, by $171.3 billion in 1989 and $195.3 billion in 1990, relative
to what they would have been under pre-1981 tax law. Individuals
have benefited the most from these legislated changes, realizing
income tax reductions of $496.9 billion over these two years.
The provisions of the major laws enacted in 1988 affecting receipts—the Medicare Catastrophic Coverage Act of 1988, the
Family Support Act of 1988, and the Technical and Miscellaneous
Revenue Act of 1988—are described below.3
MEDICARE CATASTROPHIC COVERAGE ACT OF 1988

Under prior law, medicare consisted of two parts: (1) hospital
insurance (Part A), funded primarily by the medicare hospital insurance (HI) payroll tax, and (2) supplementary medical insurance
(Part B), the optional part of medicare, funded through a subsidy
from general revenue and a flat rate premium paid by enrollees.
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. Discussions of the Omnibus Budget Reconciliation Act of 1987 and the Continuing Resolution for 1988 are provided in Part 4 of the 1989 Budget.




4-6

THE BUDGET FOR FISCAL YEAR 1990

While the payroll tax is classified as a budget receipt, the flat rate
premium is classified as an offset to outlays.
The Medicare Catastrophic Coverage Act of 1988 provides benefits for catastrophic illness and outpatient prescription drugs to
elderly and disabled individuals eligible for medicare. These benefits are financed through a combination of a supplemental premium based on income tax liability and an additional flat rate premium, which is classified as an offset to outlays. The supplemental
premium based on income tax liability, which is mandatory for all
individuals eligible for hospital insurance (Part A), is classified as a
trust fund individual income tax receipt. The rate of this premium
for each $150 of Federal income tax liability is 15 percent in 1989,
25 percent in 1990, 26 percent in 1991, 27 percent in 1992, and 28
percent in 1993. Beginning in 1994, the rate of this premium will
be indexed in accordance with data on program costs, reserve
funds, and premium revenues; however, the annual increase in the
rate will be limited to 1 percentage point. The maximum annual
supplemental premium per enrollee is capped at $800 in 1989, $850
in 1990, $900 in 1991, $950 in 1992, and $1,050 in 1993. Beginning
in 1994, the maximum annual premium is indexed in accordance
with increases in the subsidized portion of Part B benefits. It is
estimated that collections from this supplemental premium based
on income tax liability will be $0.6 billion in 1989 and $6.5 billion
in 1990.
FAMILY SUPPORT ACT OF 1988

This Act reforms the aid to families with dependent children
(AFDC) program to encourage and assist parents of needy children
obtain the education, training, and employment necessary to avoid
long-term welfare dependence. The costs of the new program are
financed by the extension of the IRS debt refund offset program
(the collections of which are classified as an offset to outlays) and
several modifications in taxes. These changes in taxes, most of
which are discussed below, are estimated to increase receipts by
$0.1 billion in 1989 and $0.2 billion in 1990.
Modification of eligibility for the dependent care credit and the
exclusion for employer-provided dependent care assistance.—De-

pendent care expenses incurred by a taxpayer for children under
the age of 15 were eligible for the dependent care credit and
assistance exclusion under prior law. Effective for taxable years
beginning after December 31, 1988, expenses incurred for children
age 13 and above are no longer eligible for the credit and the
exclusion. In addition, for a given taxpayer, the amount of expenses eligible for the dependent care credit is reduced, dollar for




FEDERAL RECEIPTS BY SOURCE

4-7

dollar, by the amount of expenses excludable from the taxpayer's
income under the dependent care exclusion.
Provision of taxpayer identification number for dependent care
provider.—Effective for taxable years beginning after December 31,
1988, a taxpayer may no longer claim the dependent care credit or
exclusion for eligible dependent care expenses unless the correct
name, address, and taxpayer identification number of the child
care provider is reported to the Internal Revenue Service.
Provision of taxpayer identification number for dependents —
Under prior law, a taxpayer was required to report a taxpayer
identification number for each dependent who was at least five
years old and claimed as an exemption. Effective for taxable years
beginning after December 31, 1988, the reporting requirement is
extended to dependents who are at least two years old.
TECHNICAL AND MISCELLANEOUS REVENUE ACT OF
1988
This Act, which was signed by President Reagan on November
11, 1988, makes technical corrections to the Tax Reform Act of
1986, extends a number of expiring tax provisions, puts into place
tax administration changes, and restricts or closes several tax loopholes. The revenue provisions of this Act, many of which are highlighted below, are estimated to reduce receipts by a net $0.4 billion
in 1989 and $0.1 billion in 1990.
Acceleration of corporation estimated tax payments.—In order to
avoid an estimated tax penalty, a corporation that uses the annualization method to determine a quarterly estimated tax payment,
but does not use that method for a subsequent payment, must
make up 100 percent of any shortfall resulting from the use of the
annualization method in the subsequent payment. Under prior law
a penalty could be avoided if 90 percent of any shortfall in payment resulting from the use of the annualization method was made
up in the subsequent payment. This change is effective for estimated payments due after December 31, 1988.
Restrictions on single-premium life insurance.—A life insurance
contract that is fully funded more quickly than ratably over the
first seven years after issuance is defined statutorily as a modified
endowment contract. Any amounts (other than death benefits) received under such contracts entered into or materially changed
after June 20, 1988 are treated first as income and then as recovery
of basis. Amounts received are also subject to an additional 10
percent tax under rules similar to those applicable to premature
240-000 O - 1989 - 4 QL 3




4-8

THE BUDGET FOR FISCAL YEAR 1990

withdrawals from annuities and other retirement savings arrangements.
Repeal of Alaska Native Corporations loophole.—Special rules
that allowed Alaska Native Corporations to transfer tax losses and
credits to other corporations are repealed retroactive to April 26,
1988. However, substantial transition relief is provided.
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, 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. Effective for contracts entered into on or
after June 21, 1988, 90 percent of contract income must be reported
according to the percentage of completion method and 10 percent
according to the taxpayer's normal method of accounting.
Modification of railroad unemployment financing.—Railroad employment is the only sector not covered by the Federal/State unemployment insurance system. The separate Railroad Sickness and
Unemployment Insurance Fund (RSUI), which is financed by payroll taxes paid by rail employers, is deeply in debt to the rail
pension fund. To ensure sound financing of rail unemployment
benefits and repayment of debts to the financially ailing rail pension fund, several changes in railroad unemployment insurance
financing were provided. Effective January 1, 1989, the maximum
monthly wage base upon which the unemployment tax is levied
($600 in 1988) is increased annually, based on the index used to
increase the social security tax base. The 8 percent flat rate unemployment insurance tax, which has been in existence since January
1, 1981, will be replaced by a tax rate based on an experience
rating formula beginning in 1991. In addition, the temporary unemployment repayment tax, which would have been 2.9 percent in
1989 and 3.2 percent in 1990, is increased to 4 percent and will
remain in effect until all borrowing by the railroad unemployment
system from the rail pension fund prior to October 1, 1985 has been
repaid with interest.
Exemption from capitalization rules for authors, artists, photographers and certain animal producers.—Under the Tax Reform Act of
1986, self-employed authors, artists and photographers were required to capitalize expenses incurred in the production of creative
properties, generally meaning that deductions for such expenses
were deferred until the creative property was sold. The Act also




FEDERAL RECEIPTS BY SOURCE

4-9

required the capitalization of expenses incurred by certain animal
producers in the production of livestock with a preproduction
period of more than two years. Effective retroactive to January 1,
1987, these self-employed individuals are exempt from the capitalization requirement. Most animal producers—except corporations,
partnerships or tax shelters required to use the accrual method of
accounting—are exempt from the capitalization requirement effective for expenses incurred after December 31, 1988.
Depreciation of agricultural properties.—The useful life of singlepurpose agricultural and horticultural structures is lengthened
from 7 years to 10 years. Also, property used in a farming business
that was eligible to be depreciated under the double-declining balance method must now be depreciated under the 150 percent declining balance method. Both provisions apply to property placed in
service after December 31, 1988.
Relief from diesel fuel excise tax collection.—Under prior law,
waterway operators, farmers, fishermen and other off-road users of
diesel fuel (including the Department of Defense) were required to
pay the diesel fuel excise tax at the time the fuel was purchased.
Some of these users were then eligible to apply for a refund.
Effective January 1, 1989, all off-road users are exempt from the
tax at the time of purchase from a producer.
Restoration of exclusions for employer-paid educational assistance and group legal services.—The exclusions for employer-paid
educational assistance and group legal services, which had expired
effective December 31, 1987, are extended retroactively through
December 31, 1988. However, graduate level educational assistance
generally is no longer eligible for the exclusion.
Modification of low-income rental housing tax credit—In order
for a property to be eligible for the low-income rental housing tax
credit, prior law required that the property be placed in service
before January 1, 1991. This Act extends the deadline through
December 31, 1991; however, to be eligible for the credit, at least 10
percent of the expected project costs must be incurred before January 1, 1990.
Extension of authority to issue qualified mortgage bonds and
mortgage credit certificates.—The authority of State and local governments to issue tax-exempt qualified mortgage bonds and mortgage credit certificates is extended through December 31, 1989.
This authority had been scheduled to expire on December 31, 1988.
Extension of business energy tax credits.—Business energy tax
credits for solar, geothermal and ocean thermal properties and




4-10

THE BUDGET FOR FISCAL YEAR 1990

equipment, which were scheduled to expire on December 31, 1988,
are extended through December 31, 1989.
Extension of research and experimentation (R&E) tax credit—
The tax credit provided for certain incremental research and experimentation expenditures, which was scheduled to expire on December 31, 1988, is extended for one year through December 31,
1989.
Revision in research and experimentation (R&E) allocation
rules.— The rules for allocating R&E expenses to U.S. or foreign
source income are modified retroactively, effective for the first 4
months of the first taxable year beginning after August 1, 1987.
The change generally requires that 64 percent of U.S. R&E expenses be allocated to U.S. income and that 64 percent of foreign
R&E expenses be allocated to foreign-source income. The remaining expenses are to be allocated on the basis of gross income or
sales.
Extension of targeted jobs tax credit—The targeted jobs tax
credit, which was scheduled to expire December 31, 1988, is extended through December 31, 1989. The use of the credit is restricted by changes in the definition of "economically disadvantaged
youths" and by a reduction in the percentage of the credit applicable to summer jobs for disadvantaged employees.
Exemption of mutual fund expenses from the 2 percent floor for
miscellaneous deductions.—The prior law exemption of mutual
fund expenses from the 2 percent floor for miscellaneous deductions is made permanent, effective retroactive to January 1, 1988.
This exemption had expired on December 31, 1987.
Extension of Federal Savings and Loan Insurance Corporation
(FSLIC) relief provisions.—Three provisions providing tax relief to
financially troubled thrift institutions, which were scheduled to
expire on December 31, 1988, are extended through December 31,
1989. These provisions exclude certain FSLIC assistance payments
from gross income, relax the rules for tax-free reorganizations, and
permit the carryforward of net operating losses. The Act also requires that effective January 1, 1989, net operating losses and
certain other tax attributes be reduced by an amount equal to 50
percent of tax free FSLIC assistance payments. Effective from the
date of enactment through December 31, 1989, the relief provisions
are expanded to apply to troubled banks receiving assistance from
the Federal Deposit Insurance Corporation (FDIC).
Initiation of education savings bonds.—Interest on Series EE U.S.
Savings Bonds may be excluded from gross income if the bond




4-11

FEDERAL RECEIPTS BY SOURCE

(including both principal and interest) is transferred to an eligible
education institution to pay for qualified educational expenses. The
exclusion is phased out for taxpayers filing a joint return with
modified adjusted gross income from $60,000 to $90,000 and for
single taxpayers with modified adjusted gross income from $40,000
to $55,000. The exclusion applies to bonds issued after December
31, 1989.
Issuance of Taxpayer Bill of Rights.—A series of provisions, com-

monly know as the "Taxpayer Bill of Rights," creates and expands
certain rights of taxpayers in dealing with the Internal Revenue
Service. Generally, these rights address IRS collection activities,
and interview processes and procedures. In addition, IRS is required to provide a summary of rights to all taxpayers contacted
with respect to the collection or determination of taxes.
EFFECT OF MAJOR LEGISLATION ENACTED IN 1988 ON RECEIPTS

l

(In billions of dollars)
1988

1989

1990

1991

1992

Medicare Catastrophic Coverage Act of 1988
Individual income taxes

0.6

6.6

7.2

6.9

Total, Medicare Catastrophic Coverage Act
0U9882

0.6

6.6

7.2

6.9

Social insurance taxes and contributions..

*
*

0.2
0.1

0.2
0.1

0.2
0.1

Total, Family Support Act of 1988

0.1

0.2

0.3

0.3

-0.2
-0.1
0.1
*

Family Support Act of 1988
Individual income taxes

Technical and Miscellaneous Revenue Act of
1988
Individual income taxes
Corporation income taxes
Social insurance taxes and contributions..
Excise taxes
Estate and gift taxes
Total, Technical and Miscellaneous Revenue Act of 1988

-0.5
0.5
-0.1
-0.4

-02

-0.1

-0.2
0.2
0.1
*

-0.4

-0.1

0.1

-0.3

6.9
*

0.1

*

ADDENDUM

Total effect on receipts by source:
Individual income taxes
Corporation income taxes
Social insurance taxes and contributions
Excise taxes
Estate and gift taxes
Total effect on receipts
* $50 million or less.
1

0.1

6.6

72

0.5
-0.1
-04

0.1
*

0.3
0.1

0.1

*

*

*

6.7

7.6

6.9

*

0.2

-01

These estimates are based on the direct effect only of legislative changes at a given level of economic activity. Indirect 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
Includes the effect on income taxes of the substitution of cash benefits for a portion of employer medicap insurance that would have been
otherwise provided.




4-12

THE BUDGET FOR FISCAL YEAR 1990

RECEIPTS PROPOSALS
The receipts changes proposed in this budget are estimated to
increase receipts by $1.8 billion in 1990. However, because the
proposed reclassification of the ad valorem customs user fee is
estimated to increase 1990 outlays by $0.8 billion, the combined
impact is a reduction in the 1990 deficit of $1.0 billion.
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. 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
correct an inequity in coverage and eliminate this drain on the
medicare trust fund. The change in coverage, proposed to be effective October 1, 1989, is estimated to increase receipts to the HI
trust fund by $2.0 billion in 1990.
Revision in research and experimentation (R&E) allocation
rules.—For the first 4 months of the first taxable year beginning
after August 1, 1987, companies with foreign operations are allowed to allocate 64 percent of domestic R&E expenditures to their
domestic operations and 64 percent of foreign R&E expenditures to
their foreign operations. The remaining expenses are to be allocated on the basis of gross income or sales. For taxable years prior to
August 1, 1987, such companies were allowed to allocate at least 50
percent of R&E expenditures to domestic income. The administration is again proposing to allow companies to allocate at least 67
percent of total R&E expenditures to domestic source income. This
proposal is estimated to reduce 1990 receipts by $1.7 billion.
Initiation of a permanent research and experimentation (R&E)
tax credit—The 20 percent tax credit provided certain incremental
research and experimentation expenditures is scheduled to expire
on December 31, 1989. 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, which was reflected in last year's budget, is estimated to reduce 1990 receipts by $0.4 billion.
Internal Revenue Service (IRS) enforcement initiative.—To close
the gap between taxes owed and taxes voluntarily paid, the administration proposes to increase IRS funding for tax law enforcement
in 1990. This high yield initiative, designed to ensure that taxpay-




FEDERAL RECEIPTS BY SOURCE

4-13

ers are correctly reporting income and to improve collections from
past due amounts, is expected to result in increased collections of
$0.3 billion in 1990.
Increase in Nuclear Regulatory Commission (NRC) user fees.—
Under current law, 45 percent of NEC's costs incurred in regulating nuclear power plants are recovered through user fees in 1989,
decreasing to 33 percent in 1990. The administration proposes to
increase these fees to a level sufficient to recover 100 percent of
NEC's costs effective October 1, 1989. This proposal is estimated to
increase receipts by $0.3 billion in 1990.
Initiation of Federal Emergency Management Agency (FEMA)
user fees.—Under current law, FEMA's costs incurred, as NEC's
agent in regulating the evacuation plans of nuclear power plants,
are not recovered through user fees. The administration proposes
to recover 100 percent of FEMA's costs through user fees, effective
October 1, 1989. This proposal is estimated to increase receipts by
$10 million in 1990.
Modification of customs user fee.—Under the Omnibus Budget
Eeconciliation Act of 1987, the ad valorem fee on imported merchandise (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. A ruling of the General Agreement on Tariffs and Trade (GATT) requires correcting legislation
to make the user fee consistent with GATT requirements. The
Administration is again proposing that the ad valorem fee structure represent the costs of processing individual entries and that
collections from the fee be reclassified as budget receipts. In 1990,
this proposal is estimated to increase receipts by $0.6 billion; however, it will also increase outlays by $0.8 billion, for a net deficit
increase of $0.2 billion.
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
CSES; 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 budget
reflects a proposal making the D.C. government responsible for
paying costs of retirement cost-of-living adjustments (COLAs) paid
to D.C. government retirees and their survivors. Because the
budget proposes a COLA freeze for government annuitants in 1990,
the D.C. government's initial annual payment would begin in 1991
and is estimated to be $6 million.




4-14

THE BUDGET FOR FISCAL YEAR 1990

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
and result in the premature abandonment of producing wells, 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, 1990. These changes, which were proposed in last year's budget, are estimated to reduce 1990 receipts
by $39 million.
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 1988 and 1989 appropriations for the capital programs funded by these taxes are less than
85 percent of authorizations. Given congressional action for 1988
and 1989, airport and airway trust fund taxes would be reduced by
$1.2 billion in 1990 in accordance with this provision. The administration is proposing to override this tax reduction trigger, resulting
in increased receipts to the trust fund in 1990 of $1.2 billion.
Initiation of Federal marine fishing licenses and fees.—The costs
associated with Federal efforts to conserve and manage the Nation's marine fishery resources currently are borne by the general
taxpayer, rather than by those who benefit directly from Federal
fishery research, conservation, and management services. The administration is renewing its proposal to fund the conservation and
management of the Nation's federally managed fishing resources
through the establishment of a permit and an ad valorem fee on
commercial sales. This proposal would apply only to those fishermen who fish in the fishery conservation zone (3 to 200 miles
offshore) or who fish for federally managed species. These fees,
proposed to become effective January 1, 1990, are estimated to
increase 1990 receipts by $42 million.
Extension of reimbursable status to Amtrak.—Under the Technical and Miscellaneous Revenue Act of 1988, public commuter railroads are exempted from the full rail unemployment tax rate in
1989 and 1990; instead, they are required to reimburse the unemployment fund for the actual costs of their employees. This provision was enacted to prevent public subsidies, given to commuter




FEDERAL RECEIPTS BY SOURCE

4-15

lines to hold down fares, from being diverted to pay for the high
unemployment costs of the private sector railroads. Amtrak is in
much the same position as the commuter lines but was not given
the same treatment in the 1988 reforms. To help Amtrak reduce its
operating deficiency and prevent unintended cross-subsidization of
high unemployment freight railroads, the budget proposes to
extend the same reimbursable status to Amtrak. This proposal is
estimated to reduce 1990 receipts by $5 million.
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
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.
Other.—Additional changes affecting receipts include the administration's pay raise proposals; extension of the customs processing
fee, which is scheduled to expire September 30, 1990, at current
rates; and the establishment of a fee for the U.S. Travel and
Tourism Administration (USTTA).4 A user fee on taxpayer telephone information services is proposed for 1991; a design evaluation will be conducted in 1989 and 1990 that will include an actual
demonstration of the technologies and systems capabilities.
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 tax4
Fees are requested to recover the full cost of the USTTA program. Collections equal to the cost of the
program would offset outlays; anticipated excess fees would be classified as receipts. Once the fees are collected,
additional appropriations would be adjusted to allocate the excess fees to finance USTTA programs.




4-16

THE BUDGET FOR FISCAL YEAR 1990

EFFECT OF PROPOSED LEGISLATION AND ADMINISTRATIVE ACTION ON RECEIPTS *
(In billions of dollars)
1989

HI coverage of State and local employees
R&E allocation rules
R&E tax credit
IRS enforcement initiative
NRCfees
FEMA fees
D.C. contributions to CSRS. .
Oil and gas depletion rules
Aviation-related taxes 2
Marine fishing licenses
Reimbursable status to Amtrak
Other

1990

1991

1992

1.8
-1.7
-0.4
0.3
0.3
*

2

1.9
-0.8
-1.0
0.7
0.3
*
*
*
1.7
0.1
*
0.1

_*

1.2
0.6

1.9
-0.7
-0.7
0.6
0.3
*
*
_*
1.6
0.1
_*
0.1
3.2
0.6

*

1.8

3.8

3.6

0.8

0.9

0.9

Total deficit increase/decrease ( - )

-1.0

-2.9

-2.7

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

-0.3
-2.0
2.0
1.2
0.6
0.4

-0.4
-1.2
2.0
2.1
0.8
0.5

-0.4
-1.5
2.1
2.2
0.8
0.4

1.8

3.8

3.6

0.8

0.9

0.9

-2.9

-2.7

Subtotal, policy proposals
Subtotal, customs rectification
Total effect on receipts

*

Total effect on customs outlays

Total effect on receipts

_*

*

Total effect on customs outlays
Total deficit increase/decrease ( - )

*

*
0.9
*
_*
-0.1

-1.0

3.0
0.6

* $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
Net of income tax offsets.

induced 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; therefore, the
increased receipts resulting from the tax-induced increase in incomes are included in the baseline estimates of receipts. The estimates of the direct effect of the Economic Recovery Tax Act of 1981
on receipts therefore overstate, in this sense, the net loss to the




4-17

FEDERAL RECEIPTS BY SOURCE

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.
CHANGES IN RECEIPTS
Receipts are estimated to increase by $66.6 billion in 1989 and
$83.8 billion in 1990. 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 administration's forecast and the tax rates and structure in effect on January
1, 1981, receipts would have risen by $85.6 billion in 1989 and $79.1
billion in 1990. Administrative action and enacted and proposed
tax changes reduce the growth in 1989 receipts by $19.0 billion and
increase the growth in 1990 receipts by $4.7 billion.
COMPONENTS OF CHANGES IN RECEIPTS
(In billions of dollars)
1989

Growth in receipts:
Under existing law and administrative action and proposed legislation
Under tax rates and structure in effect January 1, 1 9 8 1 . . .
Difference




1990

66.6
85.6

83.8
79.1

-19.0

4.7

1991

81.2
85.4

1992

71.7
97.2

-4.3 -25.5

4-18

THE BUDGET FOR FISCAL YEAR 1990
CHANGES IN RECEIPTS
(In billions of dollars)
1988

1989

1990

1991

1992

1,002.6

1,088.2

1,167.3

1,252.7

1,349.9

0.8

0.8

0.6

0.2

0.2

-264.4
Economic Recovery Tax Act of 1981
Tax Equity and Fiscal Responsibility Act of
57.3
1982
Highway Revenue Act of 1982
4.9
2
Social Security Amendments of 1 9 8 3
10.9
Interest and Dividends Tax Compliance Act of
1983
-18
Railroad Retirement Revenue Act of 1983
1.2
25.4
Deficit Reduction Act of 1984
Consolidated Omnibus Budget Reconciliation
Act of 1985
2.9
Federal Employees' Retirement System Act of
1986
-02
Omnibus Budget Reconciliation Act of 1986 3 ..
1.2
Superfund Amendments and Reauthorization
Act of 1986
06
Continuing Resolution for 1987
28
Tax Reform Act of 1986
-8.9
Omnibus Budget Reconciliation Act of 1987
8.6
Continuing Resolution for 1988
2.0
Medicare Catastrophic Coverage Act of
4
1988
Family Support Act of 1988
•
Technical and Miscellaneous Revenue Act of
1988
Social security taxable earnings base increases: 5
529,700 to \532,400 on Jan. 1,1982
<
6.9
532,400 t o !535,700 on Jan. 1,1983
6.9
(535,700 t o !537,800 on Jan. 1,1984
3.6
((37,800 to! 539,600 on Jan. 1,1985
2.8
39,600 to! 542,000 on Jan. 1,1986
3.3
M3.800 on Jan. 1. 1987
542,000 to 1
<
2.2
543,800 to $45,000 on Jan 1 1988
0.5

-290.9

-322.8

-357.7

-397.6

55.7

57.2

61.2

64.7

5.1

5.1

5.1

5.1

11.8

14.5

17.2

18.1

-20
1.1

-25
1.1

-28
1.1

-31
1.2

27.7

31.0

33.8

37.9

3.0

3.0

3.2

3.5

-02
2.0

-03
1.0

-04
0.1

08
30

08
26

08
26

08
26

-24 4
13.9

-203
16.1

-16.4
15.4

-20.9
12.2

2.7

2.6

2.7

2.7

06
0.1

66
0.2

7.2
0.3

6.9
0.3

-0.1

0.1

-0.3

10.0
10.4

11.1
11.6

5.7
4.5
5.5
3.7
22
5.2
4.0
1.4

6.4
5.1
6.2
4.2
2.6
6.1
4.7
4.2
1.4

Receipts under tax rates and structure in
effect January 1,1981 *
Administrative action
Enacted legislative changes:

545.000 to $48,000 on Jan. 1. 1989

$48i666 to $5Oj66 on Jan \ 1990
$50,700 to $53,400 on Jan. 1,1991
$53,400 to $56,100 on Jan. 1,1992
Social security (OASDHI) tax rate increases: 5 6
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 7

-0.4

8.0
8.1
4.3
3.4
4.0
2.7
16
1.5

9.0
9.2
5.0
3.9
4.7
3.1
19
4.4
1.4

-0.4

1.0

1.8

2.0

2.0

2.2

2.2

13.6

14.5

15.3

16.1

16.8

2.5
4.5

2.7
4.8

2.8
5.1

2.9
5.4

3.1
5.7

10.8

15.8

16.7

17.7
10.4

18.6
10.7

3.4

3.8
*

6.1
33
1.8

29
3.8

3.0
3.6

909.0

975.5

1,059.3

1,140.5

1,212.2

* $50 million or less.
1
These estimates assume a social security taxable earnings base of $29,700 through 1992.
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 below.
4
Includes the effect on income taxes of the substitution of cash benefits for a portion of employer medigap insurance that would have been
otherwise provided.
5
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. Trie 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.
6
The combined employer-employee old age and survivors, disability, and hospital insurance (OASDHI) tax rate.
7
These estimates include both the direct and indirect effects of administrative action and legislative changes.




FEDERAL RECEIPTS BY SOURCE

4-19

RECEIPTS BY SOURCE
Individual income taxes.—Individual income taxes are estimated
to increase by $41.5 billion or 9.8 percent from 1989 to 1990, 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, the newly enacted medicare premium
based on income tax liability, and the changes proposed in this
budget. The administration's proposals are estimated to reduce
individual income taxes by $0.3 billion in 1990.
Corporation income taxes.—Corporation income taxes are estimated to increase from $107.0 billion in 1989 to $117.4 billion in
1990, 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, the Omnibus Budget Reconciliation Act of
1987, and other legislation 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 $2.0 billion in 1990.
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 $363.9
billion in 1989 to $391.5 billion in 1990. These estimates reflect the
scheduled increase in the combined employer-employee social security (OASDHI) tax rate from 15.02 percent to 15.3 percent on
January 1, 1990, and annual increases in the social security taxable
earnings base from $48,000 in 1989 to an estimated $50,700 in 1990.
The estimates also reflect the changes in railroad unemployment
financing provided in the Technical and Miscellaneous Revenue
Act of 1988 and the administration's proposal to extend medicare
coverage to State and local government employees, which is estimated to increase this source of receipts by $2.0 billion in 1990.
Excise faxes.—Excise taxes are levied on a variety of products,
services, and activities. Receipts from these taxes are estimated to
increase from $34.0 billion in 1989 to $35.3 billion in 1990. These
estimates reflect the provision provided in the Technical and Miscellaneous Revenue Act of 1988 that exempts off-road users of
diesel fuel from the tax at the time of purchase from the producer.
They also reflect the administration's proposal to repeal a current
law reduction in airport and airway trust fund taxes, which is
expected to become effective in 1990.




4-20

THE BUDGET FOR FISCAL YEAR 1990

Other receipts.—Estate and gift taxes, customs duties and fees,
and miscellaneous receipts (consisting primarily of deposits of earnings by the Federal Reserve System) are estimated to total $45.5
billion in 1989 and $48.4 billion in 1990. These estimates reflect the
administration's proposal to modify and reclassify the ad valorem
customs user fee as a budget receipt.

Receipts
$ Billions

$ Billions

1,400

1,200

U00

1,000

1,000

Total800

600

Taxes and
Contributions

Excite Taxes and
Other Receipts
600

600

400

400

Corporation Income Taxes

200

200

Individual Income Texes
1980

81




82

83

84

85

86

87

88

89

90

91

82




PART 5

FEDERAL PROGRAMS
BY FUNCTION
5-1

PART 5
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.—Although it is 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 functional 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.
One functional reclassification has been made for this budget.
This change involves the shifting of the ready reserve force from
the defense related activities subfunction in the defense function to




5-2

INTRODUCTION

5-3

the water transportation subfunction in the transportation function. The ready reserve force maintains Government-owned merchant ships in an advanced state of readiness to meet surge shipping requirements during a national emergency.
There are two additional modifications that involve changes in
subfunctions within the same function. The first involves the creation of an other undistributed offsetting receipts subfunction in
the undistributed offsetting receipts category. Estimated receipts
from the proposed sale by the Federal Communications Commission of the unassigned radio frequency spectrum, which were previously classified in the sale of major assets subfunction in this
category, are included in this new subfunction. Estimated receipts
from the proposal to charge for chlorofluorocarbon production
rights are also classified in this subfunction. The second subfunction change involves moving the account financing payments to the
Asia Foundation from the conduct of foreign affairs subfunction to
the foreign information and exchange activities subfunction, both
of which are in the international affairs 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 activity may also take the
form of direct loans or loan guarantees, which do not always
become budget authority or outlays. For example, Federal 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 Tables 18 and 19 in Special Analysis F, "Federal
Credit Programs."
The budget reflects the administration's proposal to separate the
subsidy from the non-subsidy portion of Federal credit activities.
The outlays for the subsidy portion are shown in the functional
locations of the credit programs, while the non-subsidy portion is
shown in the central Federal credit activities function.
The credit budget and the administration's credit reform proposal are explained in Part 6 of this volume and in Special Analysis F.
Tax Expenditures.—Tax expenditures are provisions of the 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




5-4

THE BUDGET FOR FISCAL YEAR 1990

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 7 of
this volume and in Special Analysis G, "Tax Expenditures/'
Relationship

to Other Budget Tables.—The following tables

appear in other parts of this volume and supplement the tables
shown in Part 5:
• Outlays by function and subfunction for 1980 through 1990, in
Table 16 of Part 10.
• Budget authority and outlays by function for 1988 through
1994, in Tables 6 and 3, respectively, of Part 10.
• Budget authority and outlays for 1988 through 1990 for each
agency and account, in Part 9. 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 1990.




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; strong maritime, 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.
Budget authority for national defense declined in real terms for
the fourth straight year with funding of $298.8 billion provided in
1989. This decline in real defense funding levels has resulted in
smaller annual procurements of equipment, ammunition, and war
reserve stocks than previously planned, slower development of new
weapons, and delays in equipment maintenance. To reverse this
adverse trend, the budget proposes sustained, moderate real growth
of about 2 percent per year in 1990 and after. In comparison to last
year's estimates, total 1989-1993 funding for national defense is
lower by $19.1 billion.
As required by the Defense Authorization Act of 1986, a two-year
budget for 1990 and 1991 is submitted for national defense. The
budget proposes $315.2 billion in budget authority and estimates
$303.0 billion in outlays for the national defense function in 1990
and $330.8 billion in budget authority and $314.4 billion in outlays
for 1991. These levels are below those projected in last year's
budget request, ($316.4 billion and $333.7 billion, respectively, for
budget authority).
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 $305.6
billion in 1990 and $320.9 billion in 1991 is requested for the
military functions of the Department of Defense (DOD). The budget
provides for continuing efforts to:
• modernize all components of U.S. strategic forces to ensure
that they deter nuclear attack by virtue of their ability to
survive and retaliate should an attack occur;
• develop and procure conventional equipment for essential
modernization of U.S. conventional forces;




5-6

THE BUDGET FOR FISCAL YEAR 1990
NATIONAL DEFENSE
(Functional code 050; in millions of dollars]
Estimate
Major missions and programs

Actual 1988
1989

1990

1991

1992

76,584
81,629
80,053
36,521
5,349
3,199
1,274
-855

78,566
85,939
79,232
37,542
5,703
3,266
749
-811

79,845
91,725
84,115
41,024
5,280
3,280
853
-786
309

82,060
95,518
91,894
41,252
5,937
3,671
968
749
358

84,283
97,245
99,759
42,372
7,104
3,958
1,224
-759
524

283,755

290,186

305,645

320,909

335,710

7,749

8,100

9,027

9,389

9,862

BUDGET AUTHORITY
Department of Defense—Military:
Military personnel
Operation and maintenance
Procurement .
Research, development, test and evaluation...
Military construction
Family housing
Revolving funds and other
Offsetting receipts
Allowances: Other legislation (proposed)
Subtotal, Department of Defense-Military
Atomic energy defense activities
Defense-related activities
Total, budget authority
OUTLAYS
Department of Defense—Military:
Military personnel
Operation and maintenance
Procurement ...
Research, development, test and evaluation...
Military construction
Family housing
Revolving funds and other
Offsetting receipts
Allowances: Other legislation (proposed)
Subtotal, Department of Defense-Military
Atomic energy defense activities
Defense-related activities
Total, outlays

504

519

521

525

531

292,008

298,805

315,193

330,823

346,103

76,337
84,475
77,166
34,792
5,874
3,082
1,065
-855

78,229
85,394
80,651
37,023
5,751
3,215
348
-811

79,377
88,673
78,711
38,700
5,361
3,353
330
-786
102

81,625
92,685
81,112
40,118
5,313
3,521
870
-749
226

83,833
95,558
85,840
41,072
5,747
3,735
870
759
354

281,935

289,800

293,820

304,721

316,250

7,913

7,945

8,647

9,177

9,653

512

510

524

528

535

290,361

298,255

302,991

314,426

326,439

• 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.
Budget authority estimates for the Department of Defense—Military are displayed by mission category in the following table.
Strategic Forces.— The budget continues the President's strategic
modernization program, which is essential for strengthening deterrence and achieving meaningful arms control agreements. Main-




5-7

NATIONAL DEFENSE

taining a modern triad of strategic forces remains the highest
defense priority. Nevertheless, some adjustments to individual strategic programs have been made as part of the administration's
efforts to fit within reduced defense budget levels.
U.S. bomber forces are being modernized by acquiring the B-2
bomber, a modernized short-range attack missile (SRAM II), and
the advanced cruise missile. B-1B bomber production was completed in 1988 with the delivery of the one-hundredth aircraft. Continued procurement of the Peacekeeper intercontinental ballistic missile (ICBM) is proposed, to provide for operational and reliability
testing and for deployment in rail garrisons. To continue the modernization of U.S. submarine-based forces, the budget provides for
procurement of one new Trident ballistic missile submarine each
year, as well as procurement of the new Trident II missile. Finally,
the budget also supports continued improvements to strategic command and control systems, as well as to early warning and Strategic defense capabilities. These programs for strategic forces are
essential to ensure that the U.S. deterrent remains strong in the
near term and through the 1990's.
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..

1988
actual

Estimate

1989

1990

1991

19.8
114.9
28.3
4.4
16.9
28.4
24.3
37.3
6.7
0.8
2.0

21.2
112.8
29.6
5.4
17.2
29.1
25.3
38.5
6.9
1.0
3.2

23.4
117.8
31.7
6.3
17.2
32.1
27.0
40.0
5.9
1.1
3.1

27.6
122.8
32.8
7.1
17.8
32.6
28.1
42.1
6.3
1.1
2.6

283.8

290.2

305.6

320.9

1

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

General Purpose Forces,—U.S. conventional 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 24 active-duty wings of Air Force tactical aircraft, a
574-ship Navy in 1990 and a 571-ship Navy (including strategic
missile submarines and support ships) in 1991.




5-8

THE BUDGET FOR FISCAL YEAR 1990

The Defense Appropriations Act for 1989 requires the submission
of information on the costs of overseas military units and dependents accompanying military personnel abroad. This information
will be provided separately by the Department of Defense.
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.
Under the 1990-91 budget request, the Army would procure 448
M-l Abrams tanks in 1990 and 261 in 1991. Also, the budget
proposes procurement of 600 Bradley fighting vehicles a year in
1990 and 1991. The budget would continue procurement of Apache
helicopters at a rate of 72 per year and includes funds for buying
83 Blackhawk utility and Special Operations Forces helicopters a
year in 1990 and 1991.
The budget continues procurement of air defense missile systems
such as the short-range Stinger and Chaparral missiles and the
long-range Patriot area defense system. Procurement of a new
Forward Area Air Defense (FAAD) system to provide short-range
air defense for mechanized infantry and armored divisions will
continue.
The 1990-91 budget would support the Army's 18 active and 10
reserve divisions. About 800 older utility helicopters would be
eliminated from the Army force structure.
Navy General Purpose Forces.—Naval forces are essential for
protecting our national interests in many parts of the world. In
peacetime, these forces demonstrate our capability to honor national commitments, as shown by our recent successful naval operations in the Persian Gulf. In wartime, they would engage in
offensive operations and protect the movement at sea of U.S. miltary forces and vital supplies.
The Navy's deployable battle force ships will increase from 568
ships in 1989 to 574 ships in 1990. As a result of retiring a large
number of older ships, however, the number will decrease to 571
ships in 1991. The 1990-91 shipbuilding plan provides for the construction of 32 conventional force ships, including 4 nuclear attack
submarines, 10 guided missile destroyers, 2 amphibious ships, and
16 other ships.
The budget continues modernization of the 13 Navy and 3
Marine Corps active tactical airwings and 24 active land-based
patrol air squadrons. Procurement of the F-14, F-18, and AV-8B
aircraft for tactical airwings as well as the SH-60B Lamps III shipbased and the SH-60F carrier-based anti-submarine helicopters is
proposed. The budget also funds development and initial procurement of the Advanced Tactical Aircraft, the A-12, which will replace the medium range A-6 attack aircraft.




NATIONAL DEFENSE

5-9

To sustain the substantial increase in naval readiness that has
occurred since 1980, the budget will fund the same levels of flying
hours per flight crew and steaming days per ship that have been
achieved in recent years. However, some maintenance of equipment and facilities will be deferred.
Air Force General Purpose Forces.—The Air Force's tactical

forces include fighter, attack, and support aircraft that are employed to gain air superiority and to conduct attacks against enemy
ground forces and interdiction targets. Active fighter and attack
aircraft comprise nearly 24 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 35
fully-equipped wings in 1990, a reduction of 3 wing equivalents
from the 1988 force level. In addition to these forces, units
equipped with the F-117A stealth fighter are now operational.
The Air Force plans to procure 36 F-15E aircraft a year in 1990
and 1991, as well as 150 F-16 multi-mission fighters each year.
Improvements in readiness and combat sustainability will continue. Monthly aircrew flying hours will be maintained near the 1989
level. To enhance air-to-air combat capability and sustainability,
the budget provides for procurement of 1,450 advanced medium
range air-to-air missiles for the Air Force in 1990 and 2,200 in 1991.
These are sizeable increases over the 1989 procurement level of 874
missiles.
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.
The budget requests funds to support an initiative in last year's
budget to modernize and upgrade our verification capabilities.
These capabilities will help the U.S. verify future arms control
agreements, ensure compliance with these agreements, and keep
pace with changes in technologies in other nations.
Airlift and Sealift Forces.—The ability to deploy military forces
to crisis areas and to sustain them once deployed depends on airlift
and sealift forces.




5-10

THE BUDGET FOR FISCAL YEAR 1990

The budget proposes increasing funded airlift capability to 48.2
million ton miles per day by 1991, compared to 28.5 million ton
miles per day in 1980. As previously planned, the procurement of
C-17 cargo aircraft increases from 6 in 1990 to 10 in 1991 as
production increases toward an economical production rate.
Government-controlled sealift capability will have increased
under this administration from 550,000 short tons in 1980 to
895,000 short tons in 1991 in this budget. Part of this sealift fleet,
the Ready Reserve Fleet maintained by the Maritime Administration, will be funded by the Transportation Department and in the
transportation function (subfunction 403) beginning in 1990.
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.—Guard and Reserve forces are
essential partners of the active forces in supporting national defense. Total Selected Reserve strength of 1,170,744 in 1989 will
increase to 1,178,300 in 1990 and 1,181,700 in 1991. Full-time support personnel, who provide training and administer Reserve programs, will increase from 71,814 in 1989 to 73,709 in 1990 and
74,772 in 1991. In addition, upgrading of Guard and Reserve equipment continues.
Research and Development.—This category includes funds for all
research and development (R&D) 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.
Major strategic force development programs include rail garrison
basing for the Peacekeeper ICBM, the Trident II submarinelaunched missile, the B-2 bomber, and the advanced cruise missile.
The budget requests $5.6 billion for R&D and military construction
for the Strategic Defense Initiative (SDI) in 1990. Additional SDI
funding of $0.3 billion is requested in the Department of Energy
budget. Overall, SDI funding for 1990 is $1.8 billion above the level
provided in 1989.
Development programs for general purpose forces that are approaching completion and transition to production include the
V-22 tilt-rotor aircraft, the C-17 transport aircraft, and the A-12
attack aircraft. Full-scale development of the advanced tactical
fighter aircraft would begin in 1991. Major anti-submarine warfare




NATIONAL DEFENSE

5-11

efforts are also funded, including development of the SSN-21
attack submarine and a new long-range maritime patrol aircraft.
In addition, the Army continues development of its new light helicopter, advanced anti-tank weapon systems, precision artillery munitions, as well as systems for air defense.
Training, Medical, and Other General Personnel Activities.—This
category includes recruiting, training, and providing medical care
to active duty personnel, dependents, and retirees. The budget
proposes an increase in resources for recruiting because of the low
U.S. unemployment rate, which tends to make recruiting more
difficult. Recent innovations to provide more rigorous and realistic
training are continued or expanded.
The budget proposes a two-year pilot program to introduce copayments in the provision of health care to non-active duty beneficiaries. The program will be conducted in several geographical
areas. Copayments will be consistent with those required in other
Federal programs including Department of Veterans Affairs programs. Families of junior enlisted personnel would be exempt. The
purpose of the program is to explore how copayments can reduce
costs and improve the quality of health care in military medical
facilities. The budget also proposes the establishment of an advisory panel whose members will be selected by the Secretary of Defense and will include medical experts from outside the Government. The panel will make recommendations on the design of the
pilot program and report these recommendations to the Secretary
by June 1, 1989. The Secretary will forward his own recommendations to Congress soon thereafter. The panel will also review the
conduct of the program, evaluate its results, and make recommendations for follow-on actions.
Special Operations Forces.—Special operations units include
Army Special Forces and Rangers, Navy SEALS, and Air Force
special units. Although special operations forces are mainly used
for low-intensity conflict situations, they can be employed across
the entire spectrum of military operations—from peacetime operations to conventional and nuclear war. Modernization of these
forces would continue with procurement and delivery of new and
specially modified helicopters, transport aircraft, and high-speed
boats.
Military Personnel and Compensation.—The budget proposes
military compensation levels that will continue to attract and
retain quality personnel. The budget provides for military pay
raises of 3.6 percent in 1990 and 3.2 percent in 1991 effective in
January of each year. Overall active forces manpower levels will
change little, declining from 2,138,200 in 1988 to 2,134,600 in 1991.
These strength levels will allow full manning of U.S. ships, aircraft
and front line forces, including new equipment and weapon sys-




5-12

THE BUDGET FOR FISCAL YEAR 1990

terns entering service. Some personnel reductions have been made
in support areas to meet budget constraints.
SUMMARY OF ACTIVE MILITARY PERSONNEL AND FORCES
(Year end—i.e., as of September 30)
1988
actual

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

1989

1990

1991

772
593
197
576
2,138

772
593
197
571

772
598
197
571

772
598
197
567

2,133

2,138

2,135

769
582
198
593
2,142

769
589
197
578
2,133

772
593
197
574

772
596
197
571

2,137

2,137

38
950
624
25

50
950
656
24

50
950
632
21

50
950
656
21

18
3

18
3

18
3

18
3

25.5
13
3

24.4
13
3

23.7
13
3

23.7
13
3

14
3
97
200
61

14
4
97
193
64

15
4
95
189
63

15
4
96
180
62

4
15
70

4
15
70

4
15
70

4
15
70

Consistent with proposals for Federal civil service retirees, the
budget proposes eliminating the cost-of-living adjustment planned
for January 1990 and changing future cost-of-living adjustments.
Under current law, military retirees who joined the armed services
before August 1986 receive cost-of-living adjustments equal to the
annual percent change in the Consumer Price Index (CPI). Those
who joined after 1986 will receive annual adjustments equal to the
percent change in the CPI, minus one percentage point. Beginning




NATIONAL DEFENSE

5-13

in 1991, it is proposed that all military retirees, current and future,
receive annual cost-of-living adjustments equal to the percent
change in the CPI, minus one percentage point.
Drug Interdiction Support—In the 1989 Defense Authorization
Act, Congress directed that the Department of Defense serve as the
single lead agency of the Federal Government for the detection and
monitoring of aerial and maritime transit of illegal drugs into the
United States. The Authorization Act also charged the Department
of Defense with developing a plan for the integration into an
effective communications network of all command, control, communication, and technical intelligence assets of the United States that
are dedicated to the interdiction of illegal drugs. In 1989, Congress
allocated $300 million for transfer to other appropriations once the
Department determined the best method for carrying out its new
responsibilities.
The Department of Defense will shortly determine how best to
carry-out Congress' drug interdiction and law enforcement assignment and will report its plans to Congress.
Management Initiatives.—Over the past eight 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 1990-91,
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.
For 1990, 32 additional programs will be proposed for multi-year
procurement to lessen the instability inherent in the traditional,
one-year-at-a-time approach to weapons procurement. Savings from
these multi-year procurement proposals are estimated to be $8.6
billion over the next eight years. Emphasis has also been placed on
avoiding procurement stretchouts and on maintaining production
rates at or above minimum economic levels. In addition, six lowpriority weapons programs and five ammunition lines have been
terminated with 1990-91 savings of more than $1 billion.
Competition will be encouraged in order to keep costs down,
quality up, and the industrial base strong. Commercially available
products will be used instead of custom-made items wherever possible. The administration proposes to streamline commercial products acquisition procedures, as well as to simplify the basic procurement statutes. A policy on contractors' rights to technical data
developed under Government contracts is going into force. DOD
plans to continue improving its cash management programs.




5-14

THE BUDGET FOR FISCAL YEAR 1990

The bipartisan Commission on Base Realignment and Closure
has submitted to both the Secretary of Defense and Congress its
report on bases recommended for closure and realignment. The
Secretary must decide on these recommendations by January 16,
1989, at which time planning for the implementation would begin.
The budget assumes approval of a significant closure and realignment package. The 1990-91 defense budget proposes appropriations
of $500 million each year for the initial costs of consolidation.
Savings are expected to be realized by 1992 and to increase to
about $2 billion a year by 1994.
As required by Executive Order 12615, the Department will accelerate its program of opening to competition some of its Government-operated commercially available activities. The Order requires studies covering over 29,000 full-time-equivalent positions
(FTE) in 1989. For 1990 and beyond, DOD will conduct studies
covering no less than 3 percent of its civilian employment annually
until all identified potential commercial activities have been studied. In 1988 this program covered 12,000 FTE, achieving cost reductions through increased productivity of $110 million.
The Department will initiate a pilot project to demonstrate innovative ways to organize, staff, reward, and compensate the workforce. Innovations to be explored include pay-for-knowledge experiments, the use of multi-skilled employees without job classifications, gainsharing, and other performance-based pay schemes.
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 and clean-up 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 $9.0 billion is requested for
1990 compared to $8.1 billion for 1989. Outlays are estimated to
increase from $7.9 billion in 1989 to $8.6 billion in 1990. Budget
authority of $9.4 billion is requested for 1991 with outlays estimated to be $9.2 billion.
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 1990 and 1991 would provide
for continuing warhead production for current and new weapon
systems, and for production of special nuclear materials for use in
these warheads.
The budget provides for conceptual design of two new production
reactors to replace the aging reactors at the Savannah River Plant.
Spending levels in 1990 and 1991 would maintain the same pace of
development for the heavy water reactor and high temperature gas




5-15

NATIONAL DEFENSE
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

1988
actual

Estimate
1989

1990

1991

1992

4,170
2,704
607
268

4,234
2,960
630
276

4,479
3,618
652
278

4,714
3,708
671
296

4,855
4,007
692
308

7,749

8,100

9,027

9,389

9,862

4,225
2,803
593
292

4,212
2,826
619
288

4,381
3,341
641
284

4,605
3,621
666
285

4,783
3,886
686
298

7,913

7,945

8,647

9,177

9,653

reactor designs. Additional activities in support of new production
reactor capacity include compliance with National Environmental
Policy Act requirements, development of the safety review process,
initiation of long lead procurement, and tritium target development.
The budget supports a significant increase in activities to bring
existing facilities into compliance with all Federal and State environmental, safety, and health requirements and to clean up contamination from prior activities. It also provides for modernization
of facilities throughout the nuclear weapons production complex.
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.
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 involve 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 and the Selective Service System.
The Federal Emergency Management Agency conducts civil defense and other preparedness programs. Budget authority of $152
million is proposed for 1990 and $154 million in 1991 for civil
defense programs in order to improve State and local preparedness




5-16

THE BUDGET FOR FISCAL YEAR 1990

to cope with emergencies. Total outlays for all defense-related activities of this agency are estimated at $318 million in 1990 and
$313 million 1991.
CREDIT PROGRAMS—NATIONAL DEFENSE
(In millions of dollars)

Actual
1988

Direct loans:
Navy industrial fund:
Change in outstandings
Outstandings
Total, direct loans:
Change in outstandings
Outstandings

Estimate
1989

1990

1991

1992

-29
1,759

-38
1,721

48
1,672

48
1,624

48
1,576

-29
1,759

-38
1,721

-48
1,672

-48
1,624

-48
1,576

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 has begun development of a post-mobilization system for the registration and classification of health care
personnel. Estimated outlays for 1990 and 1991 are $26 and $27
million, respectively.
To advance democracy in Nicaragua and security in all of Central America, it is intended that additional assistance to the Nicaraguan democratic resistance will be requested for 1989 and 1990
as needed 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 $2.3 billion
in 1990.




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.
For all international affairs programs in 1990, $18.9 billion in
budget authority is requested and outlays of $17.3 billion are estimated. These amounts represent increases over 1989 levels of $2.7
billion and $6.6 billion for budget authority and outlays, respectively. For 1990, new direct loan obligations for international affairs
are proposed to be $0.8 billion, and new guaranteed loan commitments are proposed to be $10.7 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. For 1990, budget authority of
$9.1 billion is proposed. Outlays for 1990 are estimated to be $8.4
billion, an increase of $5.6 billion over 1989. The substantial increase is because the large reduction in 1989 outlays resulting from
prepayments of past military loans will not recur in 1990.
Foreign Military Sales Financing.—This renamed program provides grant financing for foreign governments to purchase U.S.
military equipment, training, and design and construction services
for their security needs. In previous years, this activity was carried
in two separate accounts. For 1990, budget authority of $5.0 billion
is requested and net outlays of $3.8 billion are estimated. Much of
this assistance will be aimed at promoting peace in the Middle East
as well as maintaining democracy in Central America and the
Philippines.
Economic Support Fund.—This program provides grants to over
40 countries. The largest portion goes to countries where there are
major U.S. political and security concerns. The grants help accomplish two goals: (1) they provide general budget and balance of
payments support to friendly governments, and (2) they help finance individual development projects that also serve national security objectives. The proposed budget authority for 1990 is $3.3




5-18

THE BUDGET FOR FISCAL YEAR 1990

billion. Outlays for 1990 are estimated to be $3.5 billion. Middle
Eastern and Central American countries will also be major recipients under the program.
In the past the budget has contained funds to advance democracy
in Nicaragua and promote security throughout Central America. It
is intended that additional assistance to the Nicaraguan democratic resistance will subsequently be requested for 1989, as well as for
1990 in the context of future plans for peace and democratic reform
in the region.
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 through budgetary support, capital
projects, and technical assistance. They also provide funds for the
relief of major disasters and for on-going humanitarian purposes
such as refugee care. Budget authority requested for 1990 is $5.4
billion. Outlays for 1990 are estimated at $4.8 billion.
Multilateral Development Banks (MDBs).—The United States
purchases equity in the World Bank group of institutions and
regional banks for Latin America, Asia, and Africa. These institutions provided more than $25.4 billion in long-term loans and technical assistance in calendar year 1987 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 carry out U.S. pledges to the MDBs, budget authority of $1.6
billion is requested for 1990. More than half of this budget authority will be used to support the International Development Association, a World Bank affiliate that lends to the poorest countries on
concessional terms. Of the remaining funds, $314 million will be
used to make up for arrearanges on past commitments and the
balance will be used to make authorized annual payments to the
other multilateral banks.
International Organizations.—Contributions of $209 million in
budget authority are recommended for 1990 for several developmental, humanitarian, and scientific programs carried out by the
United Nations and other international organizations—$17 million
less than the 1989 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.




5-19

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

Actual 1988
1989

BUDGET AUTHORITY
Foreign aid:
International security assistance:
Foreign military sales (FMS) financing
FMS prepayments
Guarantee reserve fund
Military assistance
Economic support fund
Other
Offsetting receipts
Subtotal, International security assistance

1990

1991

1992

5,027

5,110

5,181

532
701
3,269
117
-70

4,273
-850
594
467
3,258
125
-127

720
40
3,349
98
-150

523
41
3,404
100
-203

489
42
3,452
101
-396

8,598

7,741

9,084

8,975

8,869

1,206
245

1,315
226

1,637
209

1,483
212

1,408
215

2,339

2,338

2,383
200
22

2,409
200
27

2,441
200
29

1,060

1,098

362

412

931
-208
380

1,056
-217
355

1,077
-222
343

341
31
-520

347
32
-545

4,049

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

293

308

-483

-480

334
28
-505

Subtotal, International development
and humanitarian assistance

5,022

5,216

5,411

5,376

5,325

13,620

12,957

14,495

14,351

14,194

2,038

2,061

515
78

521
82

2,280
*
832
91

2,329
*
831
89

2,376
*
861
90

2,631

2,665

3,204

3,249

3,326

1,056

1,127

1,386

1,184

1,159

-582

100
136
-500

163
-660

328
159
-420

-90

-92

150
-94

-96

-98

Subtotal, International financial programs

-123

-564

-208

-593

-31

Total, budget authority

17,184

16,185

18,877

18,191

18,647

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:
Export-Import Bank:
Existing law
Proposed credit reform
Foreign military sales trust fund (net)
International monetary programs:
Existing law
Proposed legislation
Offsetting receipts

* $500,000 or less.

240-000 O - 1989 - 5 QL 3




8
-835

110

796

5-20

THE BUDGET FOR FISCAL YEAR 1990
NATIONAL NEED: CONDUCTING INTERNATIONAL RELATIONS
(Functional code 150; in millions of dollars)
Estimate
Major missions and programs

Actual 1988

1989

1990

1991

1992

OUTLAYS
Foreign aid:
International security assistance:
Foreign military sales (FMS) financing...
FMS prepayments
Guarantee reserve fund
Military assistance
Economic support fund
Other
Offsetting receipts

3,078
-3,152
659
607
3,269
109
-70

3,227
-5,000
599
599
3,361
162
-127

3,791

3,901

4,528

720
499
3,467
101
-150

523
172
3,502
100
-203

489
71
3,551
100
-396

Subtotaljnternational security assistance

4,500

2,823

8,428

7,995

8,343

1,235
263

1,302
247

1,326
236

1,391
231

1,373
226

2,082

2,136

2,254
150
5

2,303
180
14

2,348
200
21

1,060

1,098

378

410

931
-208
404

1,056
-217
367

1,077
-222
347

170

195

-483

-480

212
1
-505

217
8
-520

241
13
-545

4,703
9,203

4,907
7,730

4,805

5,030

5,079

13,233

13,025

13,422

2,092

2,186

547
90
2,729

538
98
2,822

2,209
*
809
99
3,117

2,231
*
816
3,136

2,276
*
860
90
3,225

1,051

1,154

1,263

1,289

1,218

-894

-862

-216
61
120

-421
101
108

-530
130
135

International development and humanitarian assistance:
Multilateral development banks
International organizations
Agency for International Development:
Existing law
Proposed legislation
Proposed credit reform
P i . 480 food aid:
Existing law
Proposed credit reform
Refugee assistance
Other:
Existing law
Proposed credit reform
Offsetting receipts
Subtotal, International development
and humanitarian assistance
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:
Export-Import Bank:
Existing law
Proposed credit reform
Foreign military sales trust fund (net)
International monetary programs:
Existing law
Proposed legislation
Special defense acquisition fund
Exchange stabilization fund
Offsetting receipts
Subtotal, International financial programs

Total, outlays.
* $500,000 or less.




93

15
2

-136
13
-1,498
-90

-28
-100
-92

3
-57
-107
-94

5
-60
-107
-96

-107
-98

-2,513

-957

-291

-470

-470

10,471

10,748

17,322

16,980

17,394

INTERNATIONAL AFFAIRS

5-21

Agency for International Development (AID).—This agency carries out bilateral development assistance programs in more than 60
countries in Latin America, Africa, and Asia as well as being the
primary implementing agency for Economic Support Fund programs and P.L. 480 food aid. The agency also supports the overseas
humanitarian relief and development programs of U.S. private and
voluntary organizations and assists development-related research
activities in U.S. universities. Proposed budget authority for AID
programs for 1990 is $2.6 billion.
AID funds include $565 million for the Development Fund for
Africa with funding increases targeted for the economic policy
reform program. 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.
In 1990, the budget assumes the creation of a new account for
Special Assistance Initiatives (SAI). The SAI would provide funds
for joint efforts with bilateral and multilateral donors to meet
extraordinary economic assistance needs. The SAI would be inaugurated in 1990 with $200 million for the Philippines. These resources would be used to help nurture economic growth, thereby
fostering the consolidation of Philippine democracy.
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 through
grants. Food aid commodities are limited to those declared by the
Secretary of Agriculture to be available in excess of 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.
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.
Excluding the financing effects of credit reform, the budget includes a total P.L. 480 program level of $1.5 billion, with a request
of $931 million in 1990 budget authority and outlays. The budget




5-22

THE BUDGET FOR FISCAL YEAR 1990

authority and outlay amounts are nearly $167 million below 1989
because of technical financing changes. Program levels remain the
same as 1989.
Refugee Assistance.—Budget authority of $380 million is proposed
in 1990 for assistance to refugees abroad, primarily in Africa, the
Near East, Pakistan, and Southeast Asia; for the admission of up to
84,000 refugees and Asian-American immigrants to the United
States; and for refugee emergencies. Together with the continuing
needs of existing refugee populations, this admissions level will
cover the 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 under the domestic income security function of the
budget.
Conduct of Foreign Affairs.—Funds for this group of programs
primarily cover the operating costs of the Department of State in
carrying out diplomatic and consular activities with foreign governments. Contributions to international organizations of which the
United States is a member are also included here. For 1990, $3.2
billion of budget authority is requested, and $3.1 billion in outlays
are estimated. These figures represent an increase over 1989 of
$602 million and $361 million for budget authority and outlays,
respectively.
Administration of Foreign Affairs.—To promote U.S. interests
abroad, diplomatic and consular relations are maintained with foreign governments at 262 posts throughout the world. The overall
request for 1990 budget authority is $2.3 billion, $0,2 billion above
1989, with estimated outlays of $2.2 billion. The request for regular
State Department operations will increase funding for a more efficient Department of State telecommunications network and for
improved word and data processing capabilities. In addition, second
year funding is requested for a new Foreign Service Institute facility in Arlington, Virginia.
The 1990 request also provides for the diplomatic security program, which protects U.S. officials and facilities abroad against
terrorist or other attacks, as well as counteracting foreign intelligence gathering activities. Requested funding for diplomatic security operating expenses will enhance the surveillance of the construction of U.S. embassies. It will also permit the continuation of
high priority perimeter security, office equipment protection
against electronic spying, and replacement of certain foreign national employees in communist countries. In addition, the administration is requesting funds for three new high priority construction
projects in Thailand, West Germany, and Papua New Guinea,
while continuing work on 57 ongoing projects.




5-23

INTERNATIONAL AFFAIRS

International Organizations and Conferences.—The United States
remains committed to effective participation in international organizations in pursuit of important U.S. interests. In recent years,
the United States has successfully pressed for implementation of
the administrative and program budget reforms required to rebuild
confidence in the operational effectiveness and policy relevance of
these organizations. Budget authority of $832 million in 1990 is
proposed for assessed contributions to international organizations
and international peacekeeping activities and to begin the payment
of arrearages owed to international organizations. The request recognizes progress made thus far by the United Nations and other
international organizations in the area of budget reform by including funds for the full U.S. assessed contribution to these organizations. The request also provides for increased international peacekeeping needs in the Persian Gulf and southern Africa. In addition,
the budget requests $46 million to pay part of the arrearages that
have accumulated on past year's assessments. These funds would
be directed toward special activities that are mutually agreed upon
by the United States and the respective international organizations, and their payment would be conditional upon such agreements.
CREDIT PROGRAMS—INTERNATIONAL AFFAIRS
(In millions of dollars)
Estimate
Actual ]

1989

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.....
Overseas Private Investment Corporation (credit
reform):
New obligations
Change in outstandings
Outstandings
Overseas Private Investment Corporation:
New obligations
Change in outstandings
Outstandings
AID private sector loans (credit reform):
New obligations
Change in outstandings
Outstandings
AID private sector revolving fund:
New obligations
Change in outstandings
Outstandings




1990

1991

1992

4,049
-2,901
22,034

410
-4,899
17,135

466
17,601

322
17,923

-461
17,462

58
6,368

9
6,377

9
6,385

6
6,391

-37
6,354

49
-136
12,774

-199
12,576

-214
12,361

-227
12,134

-246
11,888
17
11
19

6
1

2
8

-5
24

-7
53

1
6

5-24

THE BUDGET FOR FISCAL YEAR 1990
CREDIT PROGRAMS—INTERNATIONAL AFFAIRS—Continued
(In millions of dollars)
Estimate
Actual 1988

1989

AID housing & other guarantee programs:
Change in outstandings
Outstandings
Public Law 480 food aid (credit reform):
New obligations
Change in outstandings
Outstandings
Public Law 480 food aid:
New obligations
Change in outstandings
Outstandings
Export-Import 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:
Foreign military sales credit:
New commitments
Change in outstandings
Outstandings
Overseas Private Investment Corporation (credit
reform)-.
New commitments
Change in outstandings
Outstandings
Overseas Private Investment Corporation:
New commitments
Change in outstandings
Outstandings
AID private sector loans (credit reform):
New commitments
Change in outstandings
Outstandings
AID private sector revolving fund:
New commitments
Change in outstandings
Outstandings
AID housing guarantee programs (credit
reform):
New commitments
Change in outstandings
Outstandings
AID housing & other guarantee programs:
New commitments
Change in outstandings
Outstandings
Export-Import Bank-.
New commitments
Change in outstandings
Outstandings
Export-Import Bank (credit reform):
New commitments




1990

1991

1992

26
145

34
179

21
199

19
218

747
740
740

26
119

759
731
1,471

770
758
2,229

837
413
11,632

791
582
12,214

-191
12,024

-176
11,847

-197
11,651

693
-1,308
9,905

695
-1,376
8,530

-658
7,871

-738
7,133

-775
6,358

1
634
1,966

1
593
2,560

1
720
3,279

1
523
3,803

1
489
4,292

5,759
-3,206
64,873

1,924
-5,253
59,620

768
911
60,531

777
465
60,996

788
-452
60,544

2,480
2,460
2,600

5,000
4,980
7,580

-223
7,357

-229
7,128

-237
6,892

175
12
12

178
69
81

180
114
195

92
529

64
594

-70
523

50

75
6
7

100
22
29

25

25

25

100
20
20

100
60
80

100
90
170

200
58
366

175
72
437

125
81
1,409

125
109
1,518

98
1,616

67
1,683

30
1,713

5,739
624
5,703

10,200
960
6,664

-968
5,696

-801
4,895

-650
4,245

10,384

10,555

10,703

5-25

INTERNATIONAL AFFAIRS
CREDIT PROGRAMS—INTERNATIONAL AFFAIRS—Continued
(In millions of dollars)
Estimate
Actual 1988
1989

Change in outstandings
Outstandings

1990

1991

1992

1,779
1,779

1,356
3,135

1,296
4,431

Total, guaranteed loans:
New commitments
Change in outstandings
Outstandings

8,544
3,224
10,079

15,550
6,145
16,224

10,709
810
17,034

10,908
594
17,628

11,083
595
18,223

Total, new obligations and new commitments

14,304

17,474

10f730

10,926

11,101

* $500,000 or less.

Foreign Information and Exchange Activities.—An important ob-

jective of this administration is to increase international understanding of American society and U.S. foreign policy. The United
States Information Agency (USIA) seeks to do so through personal
contacts, academic and leadership exchanges, 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
1990, the administration proposes $951 million in budget authority
for USIA. The budget reaffirms the administration's commitment
to a streamlined radio modernization program that focuses on completion of USIA's top two priority radio transmitter projects. To
accomplish this, the 1990 request provides $89 million in budget
authority for radio construction, primarily for new relay facilities
in Morocco and Thailand. In recognition of the congressional initiative to develop a television broadcast service for Cuba, the Administration is conducting tests in the Florida area in order to assess
the feasibility and technical requirements of such a system. Congress has indicated that it will not consider final action until the
tests are completed and results evaluated.
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 1990,
$425 million of budget authority is requested for the Board. This
includes $207 million for construction of a high priority shortwave
radio relay station in Israel, to be used by both RFE/RL and the
VOA. Funds totalling $28 million are proposed to complete the
refurbishment of a relay station in Portugal, another high priority
project that will improve the audibility of RFE/RL's broadcast.
International Financial Programs.—To assist in the steady

growth of the international economy, the United States conducts




5-26

THE BUDGET FOR FISCAL YEAR 1990

programs to improve the international financial system and to
facilitate U.S. participation in world trade, including arms sales.
For 1990, offsetting collections are expected to exceed outlays by
$291 million primarily because Export-Import Bank loan repayments are expected to exceed new loan commitments.
Export-Import Bank.—The Export-Import Bank (Eximbank) administers direct loan, guarantee, and insurance programs to promote U.S. export sales. The Reagan administration has had notable
success in international negotiations to reduce subsidies on direct
loans by about 90 percent since 1980. As a result, the administration proposes that Eximbank's direct loan program be terminated
in 1990. The Bank's broad range of loan guarantee and insurance
programs (89 percent of Eximbank's 1988 activity) can provide
comprehensive financial support for U.S. exporters, including small
businesses. A $100 million "war chest" grant program is retained
to ensure implementation of the international Tied-Aid Credit
Agreement and encourage improvement in the existing arrangement. Collections for 1990 are estimated to exceed outlays by $216
million.
International Monetary Fund.—The 1990 budget recommends a
U.S. contribution of $150 million to the Enhanced Structural Adjustment Facility (ESAF) of the International Monetary Fund. The
ESAF was created at the end of 1987 to provide balance of payments assistance on concessional terms to low-income developing
countries, particularly in Africa, that face serious economic problems. The U.S. contribution will be used to subsidize the interest
payments on ESAF loans. Total ESAF resources in 1990 are expected to be $9.6 billion (at current exchange rates), many times the
amount to be provided by the United States to this facility.
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 $0.7 billion
and $1.9 billion, respectively, for 1990. Additional estimated tax
expenditures of $4.7 billion, $100 million, and $105 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 $7.5 billion in 1990.




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 (NSF), the space programs of the
National Aeronautics and Space Administration (NASA), and the
general science programs of the Department of Energy (DOE) 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 $15.5 billion in
1990, an increase of $2.6 billion or 20 percent above the 1989 level.
Outlays for programs in this function are estimated to reach $14.9
billion in 1990, an increase of 18 percent or $2.3 billion over 1989.
The budget increases funding for general science programs, and
strengthens 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.
All programs in this function 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 1990 budget include:
• a 14 percent increase for the NSF, including a second competition for Science and Technology Centers and a continued
commitment to double the support for academic basic research.
• an increase of nearly 27 percent in DOE general science programs, including a total of $250 million to initiate construction of the Superconducting Super Collider; and
• a 20 percent increase for NASA space research and technology programs, including more than a doubling of support for
the development of the space station to $2.1 billion.
General Science and Basic Research.—This area covers all NSF
programs, as well as the general science projects and programs of
DOE in high energy and nuclear physics. Budget authority of $3.3
billion is proposed for these programs in 1990, an increase of 18
percent or $512 million over the 1989 level.




5-28

THE BUDGET FOR FISCAL YEAR 1990
NATIONAL NEED: INCREASING BASIC SCIENTIFIC KNOWLEDGE AND USE OF SPACE
(Functional code 250; in millions of dollars)
Estimate
Major missions and programs

Actual 1988
1989

1990

1991

1992

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 research and technology

1,737

1,906

2,171

2,410

2,699

805

922

1,169

1,398

1,529

2,542

2,828

3,340

3,808

4,228

4,759
2,488
1,075

6,080
2,805
1,268

7,808
3,164
1,236

8,778
3,488
1,366

9,577
3,677
1,413

8,322

10,154

12,207

13,632

14,667

10,864

12,982

15,548

17,440

18,895

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

1,665

1,850

2,014

2,261

2,524

763

884

1,119

1,348

1,399

Subtotal, General science and basic
research

2,428

2,734

3,133

3,610

3,923

5,007
2,261
1,145

6,245
2,727
886

7,512
2,996
1,221

8,414
3,269
1,376

9,313
3,479
1,296

8,413

9,859

11,730

13,060

14,088

10,841

12,593

14,863

16,669

18,011

Total, budget authority

Space research and technology:
Space flight
Space science, applications, and technology...
Supporting space activities
Subtotal, Space research and technology
Total, outlays

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 NASA, 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 1990 budget includes $2.2 billion in budget authority for
the NSF, an increase of 14 percent or $0.3 billion over the 1989
level. Within this amount, $1.8 billion is for the support of basic
research in 1990, an increase from $1.6 billion in 1989. In addition,
the budget projects a doubling of the 1987 level of support for
academic basic research through the NSF by 1993.
The NSF supports research at academic institutions through
grants to individual scientists and engineers. The increased level of
basic research support proposed for 1990 places special emphasis on




GENERAL SCIENCE, SPACE, AND TECHNOLOGY

5-29

interdisciplinary research. Basic research among several disciplines
often leads to the creation of important new fields of science (e.g.,
biotechnology). These activities also include the NSF contributions
to the U.S. Global Change Research Program being coordinated by
the Committee on Earth Sciences of the Federal Coordinating
Council for Science, Engineering, and Technology. The U.S. Global
Change Research Program is highlighted in a separate document
accompanying the budget. The administration proposes continued
support for the 11 interdisciplinary basic Science and Technology
Centers that were established in December 1988, as well as initiation of a second round of competition. All of these centers focus on
research between scientific disciplines, and encourage substantial
participation by industry and the States to speed the transfer of
new knowledge from the laboratory to the marketplace.
The budget request emphasizes research programs that contribute to the development of "human capital." 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 is reflected in the 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 mathematics 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.
The proposed budget includes a multi-year initiative to address
important health, safety, and environmental issues in the Antarctic.
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 1990, an increase of $247 million or 27
percent over the 1989 level.




5-30

THE BUDGET FOR FISCAL YEAR 1990

The budget proposes continued funding for research carried out
at the nuclear and particle physics accelerators supported by DOE.
The budget also proposes to upgrade the linear accelerator at
Fermi National Laboratory, currently the world's foremost experimental high energy physics facility. Substantial funds to increase
the operations of the new accelerators at the Stanford Linear Accelerator Center and the Fermi National Laboratory are also requested. In addition, the budget proposes continued funding for
advanced accelerator and detector research and development related to the next generation of high energy particle accelerators.
The administration is requesting budget authority of $250 million in 1990 for the Federal share of 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 20 times greater than the highest energies available in
the world today. The actual initiation of site specific construction
will be dependent upon the details of non-Federal cost sharing
commitments to the project. The budget projections assume approximately one-third cost sharing by the host State and other
nations, beginning in 1990.
Space Research and Technology.—This part of the function covers
the space-related activities of NASA. The budget proposes 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 $12.2 billion is proposed for these programs in 1990, compared to $10.2 billion in 1989, an increase of
about 20 percent. Outlays are estimated to increase 19 percent,
from $9.9 billion in 1989 to $11.7 billion in 1990. The proposed
budget authority provides for increases for the continued development of the space station, completion of shuttle recovery activities,
a build up in shuttle flights to achieve a safe and sustainable flight
rate, compensation for loss of previously planned reimbursements
for the use of the shuttle, and procurement of expendable launch
vehicle services for scientific and other missions. Increases are also
requested for program enhancements, such as continued development of the advanced solid rocket motor, and initiation of a new
space science mission.
Space Flight.—U.S. preeminence in critical areas of manned
space flight is ensured through programs to return the space shuttle to safe operations and achieve a safe and sustainable flight rate,
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 space encourages greater commercial use
of space. Specific activities are proposed to further implement the




GENERAL SCIENCE, SPACE, AND TECHNOLOGY

5-31

President's commercial space policy and initiatives. Budget authority of $7.8 billion is proposed for these programs in 1990, compared
to $6.1 billion in 1989, an increase of about 28 percent. Outlays are
estimated to be $7.5 billion in 1990, 20 percent or $1.3 billion over
the 1989 level.
The administration places high priority on a safe and sustainable
shuttle flight rate. The administration proposal includes planned
increases in the number of shuttle flights from five flights in 1989
to nine in 1990, nine in 1991, twelve in 1992, fourteen in 1993, and
thirteen in 1994. The budget calls for the completion of modifications and redesigns identified by post-Challenger accident reviews.
The total cost of these activities is estimated to be about $3.6
billion through 1991. The recommendations of the Rogers Commission provided valuable guidance to enhance the safe and effective
operation of the shuttle fleet. The orbiter logistics program provides hardware to support the buildup of the flight rate in 1990.
Proposed funding for operations supports training, mission planning, hardware and payload processing, and other preparations for
flights planned in 1990 and 1991. Work on the replacement orbiter
would continue, with delivery scheduled for 1991. Continued development of a new advanced solid rocket motor (ASRM) is proposed.
The ASRM is intended to improve the safety, reliability, and performance of the shuttle fleet. The first delivery of the new motor is
planned for 1994. NASA is currently examining options for private
financing of the production facility, which is a key element in the
ASRM development program. Development of improvements to the
shuttle for extending the time in orbit would be continued, with
NASA seeking private sector financing for elements of this program. The budget proposes using domestic commercial launch services for small, medium, and large classes of expendable vehicles.
NASA continues to explore new approaches for the use of commercial expendable launch vehicle services in support of approved
missions. The advanced launch system, a joint program of NASA
and DOD, would continue to develop technologies to meet future
national space transportation needs. The budget also proposes
funds for the lease of space for government payloads on a commercially-developed space facility beginning in 1992. This privately
financed, developed and operated man-tended facility is to be used
by both the government and the private sector for microgravity
research. NASA is supporting internal and external studies prior
to implementation of this program.
For the manned space station program, the administration is
requesting an increase in budget authority from $0.9 billion in 1989
to $2.1 billion in 1990, and a three-year advance appropriation for
$8.5 billion. This increase is necessary to maintain the current
schedule of development activities leading to an operating capabil-




5-32

THE BUDGET FOR FISCAL YEAR 1990

ity in the mid-1990s. For space station development, the administration also recommends legislation to establish a total development cost ceiling of $13.0 billion (in 1984 dollars, with adjustments
for inflation and commercialization). Through 1989, $1.4 billion will
have been committed for development activities. 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 provides stable funding and controls program costs. The administration's proposal further reaffirms and strengthens its commitment for private sector investment and involvement in the
space station and seeks to rely, to the greatest extent feasible, on
private sector design, financing, construction, and operation of
future space station requirements, including those currently under
study. Consistent with the administration's policy, NASA is developing guidelines for commercial participation in the space station
program. NASA is also actively pursuing approaches to encourage
the private sector to invest in ground-based facilities for the space
station as well as space-based elements such as the Flight Telerobotic System and the space station docking system. NASA continues
to evaluate other private sector proposals for participation in the
space station.
Space Science, Applications, and Technology.— This area includes
programs that study the solar system, the universe, and the
Earth's environment; support research on materials processing in
space; and develop technology for future space programs. Budget
authority of $3.2 billion is proposed for 1990, an increase of $359
million from the 1989 level. For space science and space applications, the administration's proposals are largely based on NASA's
strategic plan for space science and applications. In particular, this
plan maintains an appropriate balance between research areas,
and supports a vital and productive research base.
In space science, the administration proposes to continue broadbased, high-quality flight programs and supporting ground-based
research. Spacecraft development is funded for the gamma ray
observatory, the Magellan mission, and the Mars observer. Operational support is provided in 1990 for the Hubble space telescope,
the Galileo mission to Jupiter, and for the Voyager 2 after its
rendezvous with Neptune in 1989. Planning activities are continued 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. Funding is also proposed to initiate the development of the Comet Rendezvous-Asteriod Flyby (CRAF)/Cassini Mission. The initiation of these two missions has been combined due to
the planetary alignment required for launch and potential cost-




GENERAL SCIENCE, SPACE, AND TECHNOLOGY

5-33

savings from the purchase of two Mariner Mark II spacecraft. The
CRAF mission will fly by an asteroid and make on-site observations
of a comet. The Cassini mission will make detailed observations of
Saturn and its moons. The European Space Agency plans to participate by building the probe to investigate a large moon of
Saturn. The Federal Republic of Germany will provide propulsion
modules. This international participation will total about $250 million. In 1990, proposed funding provides for launch services for
small payloads on Scout-class rockets and for the explorer program.
The global geospace sciences program continues to expand spacebased 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 to
provide a better understanding of the effect of ocean circulation on
the Earth's climate. These NASA activities represent an important
contribution to the U.S. Global Change Research Program being
coordinated by the Federal Coordinating Council for Science, Engineering and Technology's Committee on Earth Sciences. The U.S.
Global Change Research Program is highlighted in a separate document accompanying the budget. In the area of materials processing, increased funding supports the operation of the microgravity
materials science laboratory and numerous ground-based microgravity experiments. The budget also provides for the continuation of
planning activities for space-based experiments on the space shuttle and space station.
For the generic space technology program, the administration is
proposing continued growth in funding for 1990 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 and the Pathfinder program begun in
1989 would continue in 1990. These programs are intended to
strengthen the technology base for continued U.S. leadership in
space. A new program to develop engineering experiments to be
flown aboard the space shuttle and space station is proposed to be
initiated in 1990.
The commercial space programs encourage and facilitate greater
private sector investment and involvement in space. The budget
provides for increased funding in 1990 to help non-aerospace firms




5-34

THE BUDGET FOR FISCAL YEAR 1990

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 for 1990 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 spacerelated 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 $1.2 billion is
proposed in 1990 for spacecraft tracking, data gathering, and data
processing support for the space program, about the same as the
1989 level. The budget also provides for continued repayments of
loan obligations for the tracking and data relay satellite (TDRS)
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 TDRS construction
and acquisition. No new obligations for this account are expected.
CREDIT PROGRAMS—GENERAL SCIENCE, SPACE, AND TECHNOLOGY
(In millions of dollars)
Estimate

Actual 1988

Direct loans:
NASA:
Change in outstandings..
Outstandings

84
899

1989

96
995

1990

-126
869

1991

-142
727

1992

-160
567

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 1990 estimate for this provision is $1.3 billion. A 20 percent tax credit to
encourage increases in certain basic research and experimentation
was extended through December 31, 1989, by the Technical and
Miscellaneous Revenue Act of 1988. This will cost $1.4 billion in
1990. The administration is proposing that this credit be made
permanent after 1989, which would result in a 1990 cost of 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




GENERAL SCIENCE, SPACE, AND TECHNOLOGY

5-35

would cost $1.7 billion in 1990. Tax expenditures for general science, space, and technology are estimated to total $3.0 billion in
1990.




5-36

THE BUDGET FOR FISCAL YEAR 1990

ENERGY
The Nation needs adequate supplies of energy at reasonable
prices. Experience shows that this is best achieved by minimizing
Government intervention in the operation of energy markets. This
market-based approach has produced significant benefits. For example, while the economy has expanded about 30 percent in the
past decade, the United States is using 10 percent less oil. Gasoline
prices, adjusted for the overall rate of inflation, are lower than
they were in the 1950's. Worldwide dependence on Persian Gulf oil
has decreased significantly.
Further progress in meeting the Nation's energy needs 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, and adopting 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 1990 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 1990 budget are:
• A legislative proposal to establish a Government corporation
for uranium enrichment activities, as the first step toward
privatization.
• A proposal to sell the Government-run oil fields at Elk Hills
and Teapot Dome. The proceeds from the sale would include
$1 billion in cash, plus oil that would be added to the strategic
petroleum reserve (SPR), and used to create an additional oil
stockpile for defense purposes. The sale proposal would
permit acceleration of the strategic petroleum reserve fill rate
to 75,000 barrels per day.
• A renewed initiative to transfer the Alaska Power Administration and selected assets of the other Federal power marketing administrations (PMAs) to local ownership and control,
coupled with financial reforms to put PMA repayments to the
Treasury on a sound business-like basis in the interim.
• Proposed major reforms to overhaul the lending practices of
the Rural Electrification Administration (REA) and reduce




ENERGY

5-37

costly subsidies by relying on partial REA guarantees of private loans rather than direct REA lending.
Total budget authority of $3.6 billion is requested for energy
programs in 1990, a reduction of $2.1 billion from the level in 1989.
This reduction includes a $1.4 billion decrease for REA, a $0.4
billion decrease for the power marketing administrations, a $0.2
billion reduction for energy conservation, and a $0.1 billion reduction in appropriations-funded SPR oil acquisition, offset in part by
a $0.3 billion increase for the proposed uranium enrichment corporation. Outlays are estimated to be $2.3 billion in 1990, a decrease
of $1.9 billion from the level in 1989. This decrease is due mainly to
the effect of PMA repayment reforms and the reduction in appropriations-funded oil acquisition for the strategic petroleum reserve.
The budget also includes $1.0 billion in cash receipts in 1990
from the proposed sale of the naval petroleum reserves and $0.1
billion from the proposed sale of assets of the Alaska Power Administration. The budget assumes sale of selected assets of the
other PMAs. 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.
Research and Development—A total of $2.7 billion in budget
authority is requested for energy supply R&D programs in 1990.
This is $0.1 billion below the funding level for 1989. Federal spending on energy technology R&D is focused on longer-term, high-risk
activities with high potential payoff. Federal support should complement, rather than duplicate or compete with, R&D investments
undertaken by the private sector.
Budget authority of $353 million is requested for nuclear fission
R&D in 1990. This program supports research and development on
advanced nuclear reactor technologies for the commercial sector
and space power requirements for NASA and Department of
Energy (DOE) applications. The budget assumes 50 percent private
sector cost sharing for R&D programs for advanced light water
reactors and the high temperature gas reactor. During 1989, a
study will be conducted by the National Academy of Sciences to
determine if Plutonium-238 production should be transferred from
the Savannah River site to the Hanford site.
For 1990, budget authority of $349 million is requested for nuclear fusion R&D, nearly the same as the enacted 1989 level. In 1990,
the program would continue to focus on resolving scientific questions key to the ultimate achievement of controlled fusion energy
generation. This includes R&D to understand and demonstrate control and burning in the fusion process. The 1990 budget again




5-38

THE BUDGET FOR FISCAL YEAR 1990
NATIONAL NEED: ENERGY
(Functional code 270; in millions of dollars)
Estimate
Major missions and programs

Actual 1988
1989

1990

1991

1992

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

331
331
521
148
942
406
-104

350
352
571
151
902
439

353
349
489
114
944
437

333
392
555
118
1,042
385

335
408
373
121
1,143
392

-493

-379

-318

-295
295

-294
294

-213

-102

-100
-373

-55
-97

3
-93

628
-43

545
-33

814
-23

1,021

648

-285
-112

-156

-34

-36

-38

50

*

16

*

*

1,265

1,488

31
78

30
16

29
4

3,807

4,263

2,571

3,195

3,470

153
157

161
154

SS
8

91
4

93
1

310

315

96

95

94

Emergency energy preparedness

609

422

329

394

340

Energy information, policy, and regulation...

799

717

618

809

815

5,526

5,717

3,614

4,493

4,719

Subtotal, Energy supply
Energy conservation:
Conservation research and development
Conservation grants
Subtotal, Energy conservation

Total, budget authority
* $500,000 or less.

proposes initiation of the Compact Ignition Tokamak, the next
generation fusion machine, with a total project cost of $567 million.
The budget also includes substantial funding to support cooperation with the Soviet Union and other foreign countries on magnetic
fusion research.
The administration requests total budget authority of $489 million for two R&D programs addressing the clean and economical
use of fossil fuels: a fossil energy R&D program and a clean coal
technology demonstration program. Budget authority of $164 million is requested for the research program, a reduction of $217
million from the 1989 level. The budget proposes to reduce funding
for R&D on synthetic fuels; to eliminate subsidies for company-




5-39

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

Actual 1988

1989

1990

1991

1992

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

329
318
355
142
884
404

357
359
446
153
900
436

322
349
383
140
952
417

362
371
420
130
933
442

346
389
361
133
1,017
438

-466

-392

-324

-304
304

-290
291

-451

-601

-610
-907

-617
-568

-561
-530

300
-43

254
-33

483
-23

-112
_

-69
69
-100

-166
166
-58

-328
328
-46

143

302

157

182

219

-1,738

148

442
-512
12

186
-273
20

-284
25

Subtotal, Energy supply..

746

2,436

978

1,750

1,882

Energy conservation:
Conservation research and development
Conservation grants

136
206

156
158

145
171

103
48

94
15

342

314

316

151

109

Emergency energy preparedness

568

652

348

368

374

Energy information, policy, and regulation.

640

735

635

802

811

2,277

3,071

3,176

Subtotal, Energy conservation

Total, outlays

992
-97

50
4

-67

2,297

4,137

specific proprietary technology development, such as fuel cells; and
to reduce lower priority R&D, such as magnetohydrodynamics, not
central to the core research program.
The budget request continues to support important, broad-based
research in coal chemistry and geosciences, the development of new
environmental control technology for coal, and enhanced oil recovery.
The 1990 budget continues the administration's commitment to a
$2.5 billion multi-year program of clean coal technology demonstration projects to stimulate development and application of innovative technologies to reduce emission of air pollutants. This initia-




5-40

THE BUDGET FOR FISCAL YEAR 1990

tive implements the recommendations of the U.S. and Canadian
Special Envoys on Acid Rain. The 1990 budget proposes continuing
congressional funding policy established in the appropriation for
1990 and reallocating the 1990 advance appropriation over three
years to support a third solicitation for demonstration projects to
be issued in 1989. In addition, the budget requests additional advanced appropriations of $1.2 billion in future years. The schedule
for this program has been revised to permit a more orderly pace of
technology development, including more time for technical feedback between each round of demonstration projects. Non-Federal
sources are expected to contribute at least equal amounts of funding to these projects, as well as provide for recoupment of the
Federal investment, as they did with the first two solicitations.
Outlays for this program are estimated to be $126 million in 1989
and $95 million in 1990.
Budget authority of $114 million is requested for solar and renewable energy R&D in 1990, a reduction of $37 million from 1989.
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 continued funding for
research on the potential use of the new high-temperature superconducting materials by electric utilities.
Energy-related basic and applied research in the physical, biological, environmental, and engineering sciences is supported through
the energy sciences program. This research is conducted at both
major universities and the DOE national laboratories. The objective of this work is to provide fundamental scientific knowledge
and a broadened engineering data base useful for the development
of a wide spectrum of high technology industries including energy
technologies.
The 1990 budget requests $944 million for the energy sciences
program, an increase of $42 million from the 1989 level. The increase in 1990 is actually $102 million, because the budget assumes
elimination of $60 million for congressionally earmarked university
building projects. The six building projects added by Congress in
the 1989 appropriation legislation have not been approved through
a merit review process and are not necessary to further program
objectives.
The increases for the on-going energy sciences research programs
emphasize research on new high-temperature superconducting materials and the development of methods for mapping the constituents of human DNA. In addition, the Department's basic research
programs that focus on global change would be substantially increased. These research efforts are part of the national global
change research program being considered by the Committee on
Earth Sciences of the Federal Coordinating Council on Science,




ENERGY

5-41

Engineering, and Technology. (The U.S. Global Change Research
Program will be highlighted in a separate document accompanying
this budget.)
The energy sciences program also supports the construction and
operation of DOE's major science "user" facilities, such as research
reactors and synchrotrons. The operations budgets for the scientific
user facilities would increase substantially to meet the continuing
demand for time on these machines. In addition, the budget proposes initiation of construction of a new 6-7 GeV synchrotron with
a total project cost of $637 million. This facility would enable
scientists to investigate the structure of matter and thereby make
significant contributions to materials science.
Budget authority of $437 million is requested for other energy
supply R&D activities in 1990. This category includes research by
the Environmental Protection Agency in support of the National
Acid Precipitation Assessment Program, which is expected to complete in 1990 its assessment addressing the major scientific questions associated with acid precipitation. DOE studies of health and
safety issues at its facilities and investments to conserve energy at
the national laboratories are also included in these activities. In
addition, funding is requested for environmental cleanup at DOE
civilian energy facilities and for the cleanup of wastes from uranium mining.
Direct Production.—The Federal Government's direct production
activities in the energy function include producing oil and gas at
the naval petroleum reserves (NPRs); the production and distribution of electric power by the Federal power marketing administrations and the Tennessee Valley Authority; enriching uranium; disposing of nuclear waste; and producing radioisotopes.
The Government operates two oilfields, at Elk Hills, California,
and Teapot Dome, Wyoming. These fields supply about 85,000 barrels of oil a day, one percent of domestic production. They are
called the naval petroleum reserves because they were originally
set aside to supply oil for the Navy when it converted its ships
from coal to oil. The administration proposes to sell these assets in
exchange for oil for the strategic petroleum reserve (SPR), and oil
for a separate 10 million barrel inventory dedicated to defense
purposes. In addition, the buyer is expected to pay the Government
a bonus payment in 1990 estimated to be $1.0 billion.
The SPR is a much better emergency source of oil than the
NPRs. It can pump out oil at a rate of 3 million barrels per day, 35
times faster than the NPRs can. The SPR is also more accessible to
key pipelines and refineries. Selling the NPRs for cash, SPR oil,
and oil for defense would thus increase energy security; get the
Government out of an activity best left to the private sector; in-




5-42

THE BUDGET FOR FISCAL YEAR 1990

crease State and local tax revenues; and help reduce the 1990
Federal budget deficit.
The Federal Government is a major producer of electric power. It
generates six percent of the country's power supply at 127 Federal
dams and other installations. It sells this power through TVA and
five power marketing administrations (PMAs) in the Department of
Energy. The PMAs are substantial government businesses, with
sales currently running $2.5 billion a year.
The administration proposes a two-fold strategy for the PMAs in
the budget. Where possible it proposes to sell Federal power assets
to the customers they now serve. That assures their continued
control. In the interim, it proposes a set of strict financial reforms
to ensure that the PMAs retained by the Federal Government are
run in a business-like way. This two-fold policy is designed to
benefit both PMA customers and Federal taxpayers.
The assets of the Alaska Power Administration, consisting of two
Federal dams together with their power houses and associated
transmission lines, are expected to be sold in 1990 for $85 million.
A consortium of three utilities has offered to buy the power system
that serves the Anchorage area and the State of Alaska has offered
to buy the system that serves Juneau. In addition, the budget
proposes sale of selected assets of the Southeastern Power Administration under terms and conditions that would protect the interests
of existing preference customers.
While the PMA systems remain as Federal Government entities,
the budget proposes a set of financial reforms designed to end the
subsidies that PMA customers currently receive. Thus, for example, the interest rates charged on the unrepaid Federal investment
would be raised to the rates non-Federal utilities now pay for
borrowing. In addition, the PMAs would be required to repay principal on a fixed, straight line amortization schedule. These financial reforms are estimated to reduce the budget deficit by $900
million in 1990.
The Tennessee Valley Authority (TVA) has pledged to hold electricity rates steady for three years and has undertaken a major
cost cutting program to meet this goal. As a result, TVA estimates
that $0.6 billion of its planned capital investment of $1.1 billion can
be financed from net revenues. The remaining capital investment
of $0.5 billion will be borrowed from the Federal Financing Bank.
Two of the five non-operating nuclear units returned to service in
1988. One of the remaining three non-operating units at Brown's
Ferry near Decatur, Alabama is scheduled to return to service in
1989.
The Federal Government's uranium enrichment enterprise is
expected to have sales revenues in 1990 of $1.5 billion and spending
of $1.5 billion. The budget proposes the creation of a wholly-owned




ENERGY

5-43

Government corporation t h a t would be responsible for maintaining
a reliable and economical domestic source of enrichment services
(enrichment of u r a n i u m and uranium compounds in the isotope
U-235). The corporation would be self-financing and would not
require appropriations or other sources of Government funding.
The corporation would be required to make annual payments to
the Treasury for interest on an initial debt of $364 million and
establish a fund in the Treasury to cover future expenditures for
decontaminating and decommissioning the enrichment plants. The
corporation would also pay dividends to the Treasury on Government-held stock. The proposed conversion of the uranium enrichment program into a Government corporation is the first step
toward eventual privatization of the enterprise.
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. As a result of recent legislative
changes in the program, DOE is now focusing its detailed study on
one waste repository site, located at Yucca Mountain, Nevada. If
this site proves technically feasible, DOE plans to build a repository there. The newly amended Nuclear Waste Policy Act provides
incentive payments to any State that agrees to host the repository.
The 1990 budget provides $500 million in budget authority for the
program, an increase of $130 million from 1989. Receipts are estimated at $733 million in 1990, including both fees and interest
earned on prior year fund balances.
The 1990 budget includes a separate new fund for isotope sales
and distribution. This new structure, along with focused management at DOE, would ensure t h a t this service is r u n on a businesslike basis t h a t fully recovers costs. In addition, the restructured
program would be better able to assure its customers a secure
supply of both radioactive and stable isotopes.
Other Subsidies.—The
Rural Electrification Administration
(REA), in the Department of Agriculture, provides heavily subsidized 5 percent interest direct loans and Treasury rate loans financed by the Federal Financing Bank (FFB) for the construction
and operation of electric utilities and telephone systems serving
rural areas. At the end of 1988 $34 billion in REA loans were
outstanding.
Because most REA borrowers are financially healthy and the
goals of the REA program have been largely accomplished, the
administration proposes t h a t rural electric and telephone systems
increase their reliance on private financing and that REA financing assistance shift to use of partially guaranteed loans. Under this
proposal power supply borrowers would be eligible for 90 percent
guarantees of private loans, and electric distribution and telephone




5-44

THE BUDGET FOR FISCAL YEAR 1990

borrowers would be eligible for 70 percent Federal guarantees. A
priority system would be used to target guarantee assistance to
borrowers of highest needs.
The administration proposes guarantee authority of $1.4 billion
for 1990, including $100 million for telephone loan guarantees.
Direct loans from the Rural Telephone Bank, a separate Department of Agriculture program, can be used to supplement financing
requirements for the most financially needy telephone borrowers.
In addition, the budget proposes incentives to shift current borrowers to private financing sources by allowing prepayments of loans
while waiving the usual prepayment penalty. Borrowers with loans
financed by the FFB can prepay using an 80 percent guarantee. All
prepaying borrowers must agree not to seek further REA financing
assistance.
The budget authority and outlays shown in the tables as proposed credit reform reflect the estimated subsidies implicit in Federal loan programs. The administration's proposed credit reform
initiative is discussed in Part 6. REA guarantee authority shown in
the credit program table includes guarantees for prepayments.
Energy Conservation.—The administration proposes $96 million
of budget authority in 1990 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 $88 million in 1990 for energy conservation R&D, a reduction of $73 million from 1989. The proposed
reduction would eliminate subsidies for development of
company-specific proprietary commercial products, such as heat
pumps and industrial cogeneration equipment. Subsidizing research and development projects for one company creates an unfair
competitive advantage relative to other firms that do not receive
Federal R&D funds. The proposed program continues support for
many broad-based and long-range technology developments, including new ceramic materials for high efficiency engines, advanced
chemical and biochemical processes for industry, and applications
for new superconductors. The budget also requests $8 million for
R&D on alternative automotive fuels and electric vehicles, including funds for implementation of the Alternative Motor Fuels Act of
1988.
Conservation grants to State and local governments are used to
weatherize the homes of low-income people, especially the elderly,
and school and hospital buildings. They also provide funding for
State energy extension activities. However, because States have
received more than $3.3 billion from the settlement of petroleum




5-45

ENERGY
CREDIT PROGRAMS—ENERGY
(In millions of dollars)
Estimate
Actual

1989

Direct loans:
TVA power program:
New obligations
Change in outstandings
Outstandings
TVA Seven States:
New obligations
Change in outstandings
Outstandings
Rural electrification and telephone loans (credit
reform):
New obligations
Change in outstandings
Outstandings
Rural electrification and telephone revolving
fund:
New obligations
Change in outstandings
Outstandings
Geothermal resources and other.Change in outstandings
Outstandings
Total, direct loans.New obligations
Change in outstandings..
Outstandings
Guaranteed loans:
Biomass energy development:
Change in outstandings
Outstandings
Rural electrification and telephone loans (credit
reform):
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:
Change in outstandings

1990

1991

1992

73
-6
260

74
-13
248

66
-16
232

59
-13
219

53
-21
198

348
339
2,162

214
108
2,271

233
37
2,308

242
75
2,383

292
20
2,404

1,590
-222
34,354

1,795
30
34,384

-147
34,237

-152
34,084

-421
33,663

34
56

-1
56

5
5

-1
55

-1
54

2,012
145
36,833

2,083
125
36,958

299
-126
36,832

302
-90
36,742

346
-421
36,321

-75
502

_7
495

-10
485

-13
472

-13
459

1,865
629
629

1,615
648
1,277

1,615
982
2,259

-15
3,338

-15
3,323

-15
3,308

2,000
1,435
2,868

500
485
3,353

-1

1
1

1
-57

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

2,000
1,303
3,372

500
477
3,849

1,865
604
4,453

1,615
620
5,073

1,615
954
6,028

Total, new obligations and new commitments

4,012

2,583

2,164

1,917

1,961

* $500,000 or less.

pricing violation cases and these amounts are available in 1990 to
fund the State grant programs, the budget requests $8 million for




5-46

THE BUDGET FOR FISCAL YEAR 1990

1990 for administrative costs only; no budget authority is proposed
for new grants.
Emergency Energy Preparedness.—The 1990 budget continues to
support the development of a 750 million barrel strategic petroleum reserve (SPR). The SPR is a Government stockpile of crude oil
that is intended to supplement the market in the event of a severe
disruption in world oil supplies. By the end of 1989, the SPR will
contain 573 million barrels of crude oil, an amount equal to three
months of 1988 net U.S. imports of crude oil and petroleum products.
The 1990 budget includes $322 million in budget authority for
storage facilities development and oil acquisition at an average
rate of 50,000 barrels per day over the two-year period 1989 and
1990. As a result of recent oil price reductions, a portion of the
planned 1990 acquisition will be accelerated into 1989. The budget
also assumes enactment of legislation to sell the naval petroleum
reserves (NPRs) in exchange for cash and additional oil to be
delivered to the SPR, increasing the average annual fill to 75,000
barrels per day. The NPR/SPR proposal also provides for a separate 10 million barrel inventory to assure a supply of oil for defense purposes.
Energy Information, Policy, and Regulation.—Net outlays for this
subfunction are expected to be $635 million in 1990, a decrease of
$100 million from the 1989 level. Included in this total are DOE
general administrative expenses and the operating expenses of the
Energy Information Administration, the Federal Energy Regulatory Commission (FERC), and the Nuclear Regulatory Commission
(NRCX The reduction is attributable to a one-time increase in
FERC fee collections, assuming successful resolution of a court
challenge to prior year fees. Proposed budget authority for the
FERC in 1990 is $117 million, which is completely offset by user
fees. FERC has played an important role in reducing or eliminating counterproductive regulations affecting natural gas and is pursuing similar reforms for electricity.
There is and will continue to be a strong need for nuclear generation of electricity in this country for both environmental and
economic reasons. In 1987, nuclear power produced about 18 percent of the Nation's electricity. To retain its position as a vital
contributor to the Nation's energy needs, it is essential that nuclear power remain safe and viable. The nuclear power industry is
continuing to improve both in terms of safety and electrical output.
In particular, indicators relating to safety concerns such as the
number of significant operating events, the number of unplanned
automatic shutdowns, and the average radiation exposure of plant
personnel, have all continued to improve in the past five years.




5-47

ENERGY

Recent data also show a significant increase in the average annual
capacity factors for U.S. nuclear reactors. This increase in productivity equates to savings of over $1 billion per year when measured
in terms of replacement power costs and also benefits the Nation's
balance of trade through reduced oil imports.
For 1990, the budget proposes $463 million in budget authority
for the Nuclear Regulatory Commission, an increase of $25 million
from 1989. This increase would ensure continued improvement in
this vital public health and safety program. In particular, the NRC
deals with new requests to extend the life of existing, plants, approve standardized designs, and support critical high-level and lowlevel radioactive waste programs. Under current law, the NRC
would collect fees in 1990 equal to 33 percent of its budget authority. The fees are classified as governmental receipts and are not
included in this function. The budget proposes increasing NRC fee
collections to 100 percent of 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.
TAX EXPENDITURES FOR ENERGY
(Outlay equivalents; In millions of dollars)
Estimates
Description
1988

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
Alternative, conservation and new technology credits:
Supply incentivies
Conservation incentives
Alternative fuel production credit
Alcohol fuel credit 1
Energy credit for intercity buses
Special rules for mining reclamation reserves
Exception from passive loss limitation for working interests in oil and gas
properties
Total (after interactions), energy s

1989

1990

385
35

-15
35

150
35

680
215

490
210

480
220

385

400

400

95
*
15
10
*

35
*
15
10
_*

20

45
75
831

45
70

920

15
10
_*
50
75
1040

* 500 thousand or less.
1
In addition, the exemption from the excise tax on alcohol fuel results in a reduction in excise receipts of $480 million in 1988, $430 million
in 1989, and $420 million in 1990.
2
The estimate of total tax expenditures for this function reflects interactive effects among the individual items. Therefore, the estimates cannot
simply be added.




5-48

THE BUDGET FOR FISCAL YEAR 1990

Special tax credits for business investments in specified energy
property, which were scheduled to expire at the end of 1988, were
extended through 1989 by the Technical and Miscellaneous Revenue Act of 1988.
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 again proposes to remove this restriction. The independents currently may not deduct more than 50
percent of the owner's net income from a property as percentage
depletion. The administration's proposal would raise the deduction
back to 100 percent. These proposed changes would raise the cost of
allowing percentage depletion by an additional $39 million in 1990.
Tax expenditures for energy are listed in the accompanying table
and discussed in more detail in Special Analysis G.




NATURAL RESOURCES AND ENVIRONMENT

5-49

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 $12.7 billion in budget authority
is requested for this function in 1990, a decrease of $4.1 billion
from 1989. This change results from a $2.1 billion estimate of
receipts from the proposed initial oil and gas leasing on the coastal
plain of the Arctic National Wildlife Refuge, a $750 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 $325 million increase for the Hazardous Substance Superfund.
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 $4.8 billion
for these programs in 1990, a decrease of $251 million from 1989.
Regulatory, Enforcement, and Research Programs.—Budget authority of $1.8 billion is proposed for these programs in 1990, an
increase of $143 million over the 1989 level. Increases are proposed
for high priority environmental problems including radon, nonattainment of Clean Air Act standards, and contamination of
groundwater by pesticides. Significant research increases are proposed for global climate change, long-term research, and purchase
of lab equipment.
Hazardous Substance Response Fund.—This trust fund finances
the cleanup of uncontrolled hazardous waste sites and hazardous
chemical spills. The administration proposes budget authority of
$1.7 billion for 1990, an increase of $325 million over 1989. The
requested level continues the Superfund program's momentum and
supports a stronger enforcement role. This level will keep EPA on
target to meet the statutory deadline for cleanup starts.
Sewage Treatment Plant Construction Grants.—This program
provides financial assistance to States and municipalities for the
construction of publicly owned treatment facilities. For 1990, funding of $1.2 billion is requested. One-third of the funds would be
used for the existing municipal grant program and two-thirds
would be used for capitalizing the State Revolving Fund (SRF)
program. Capitalization grants to SRFs will be used to set up selfsustaining financial mechanisms that make loans to municipalities,
enable refinancing, and provide loan guarantees. The 1990 funding
level, which is $750 million below the 1989 level, is consistent with




5-50

THE BUDGET FOR FISCAL YEAR 1990

1993, which was first proposed in the 1988 budget. This program
level was designed to be 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)
Estimate
Major missions and programs

Actual 1988

1989

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:
Existing law
Proposed legislation
Subtotal, Pollution control and abatement
Water resources:
Corps of Engineers:
Existing law
Proposed legislation
Bureau of Reclamation-.
Existing law
Proposed legislation
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):
Existing law
Proposed legislation
Management of public lands (BLM):
Existing law
Proposed legislation
Mining reclamation and enforcement
Conservation reserve program
Other conservation of agricultural lands:
Existing law
Proposed legislation
Other resources management:
Existing law
Proposed legislation
Arctic National Wildlife Refuge (proposed)..
Offsetting receipts-.
Existing law




1990

1991

1992

1,834
1,750
6
1,200

1,834
1,875
6
1,000

1,834
1,925
6
800

100

100

100

-81

-95
-6

-149
-6

-274
-6

4,932

5,040

4,789

4,660

4,385

3,396

3,413

3,365
13

3,376
14

3,279
14

1,034

1,100

215

212

1,073
-98
-15
142

1,074
-150
-2
149

907
-133
-1
139

-351

-389

-410
70

4,295

4,336

4,141

-408
83
4,136

-398
67
3,873

2,125

2,779

2,168
24

2,198
24

2,198
24

564

548

309
1,086

296
1,803

596
175
254
1,202

610
81
251
1,664

610
81
251
1,840

687

709

526

537

537

32
2

35
0

327
11
-2,101

332
-25
-1

332
-25
-1

-2,440

-2,502

-2,615

1,538
1,128
5
2,304

1,691
1,425
6
1,950

14

50

-58

-2,443

-2,792

5-51

NATURAL RESOURCES AND ENVIRONMENT

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 1988
1989

1990

Subtotal, Conservation and land management
Recreational resources:
Federal land acquisition.1
Existing law.
.
Proposed legislation
Urban park and historic preservation funds....
Operation of recreational resources:
Existing law
Proposed legislation
Offsetting receipts.Existing law
Proposed legislation
Subtotal, Recreational resources
Other natural resources:
Program activities:
Existing law
Proposed legislation
Offsetting receipts
Subtotal, Other natural resources
Total, budget authority
1

1992

-116

Proposed legislation

1991

-149

-217

2,650

3,648

633

3,029

3,024

188

195

87
-30

87
30

91
-30

27

30

1,539

1,727

1,442
7

1,449
12

1,452
13

-108

-115

-106
28

-110
-28

-111

1,647

1,838

1,372

1,379

1,384

1,868

1,994

-15

-30

1,760
42
-28

1,853
42
-28

1,818
42
-28

1,852

1,965

1,774

1,867

1,832

15,375

16,826

12,709

15,070

14,497

-30

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

Water Resources.—Total 1990 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 $4.1 billion, which is
$154 million less than the 1988 level, and $195 million below the
1989 level. Decreases for 1990 are due primarily to less construction and a proposed change in the method of financing operation
and maintenance for the Bureau of Reclamation. There is also 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 eleven new construction starts for
the Corps of Engineers, including the Santa Ana flood control
project in Southern California. Construction of these projects is
240-000 O - 1989 - 6 QL 3




5-52

THE BUDGET FOR FISCAL YEAR 1990

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 authorized an ad valorem user fee for use of the 200 U.S.
commercial harbors to recover annually up to 40 percent of the
Corps of Engineers harbor operation and maintenance expenses
that were previously financed entirely by general tax funds. The
fee is equivalent to 4 cents for every $100 of value of cargo loaded
or unloaded. In 1990, the administration proposes using $164 million of the ad valorem user fee receipts to offset harbor expenses.
In addition, the administration proposes to offset 1990 construction costs of inland waterway projects with $119 million in receipts
from the existing tax on fuel to transport cargo on the inland
waterway system (WRDA imposed a gradual increase in this tax,
doubling it by 1995). Both harbor and inland waterway revenues
are classified as governmental receipts.
WRDA also authorized 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 reflect 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
Offsetting receipts:
Existing law
Proposed legislation
Subtotal, Pollution control and abatement
Water resources:
Corps of Engineers:
Existing law
Proposed legislation
Bureau of Reclamation:
Existing law
Proposed legislation
Proposed credit reform..
Other
Offsetting receipts:
Existing law
Proposed legislation
Subtotal, Water resources..




Actual 1988

Estimate
1989

1990

1991

1992

1,813
1,375
7
2,350

1,826
1,625
6
2,220

1,819
1,850
6
1,780

43

67

92

-81

-95
-6

-149
-6

-274
-6

4,832

5,122

5,486

5,589

5,266

3,198

3,454

3,429
13

3,393
14

3,279
14

964

1,103

222

223

1,072
-107
-19
199

1,081
-148
3
167

934
-137
-1
145

-351

-389

-410
70

8
3

-398
67

4,034

4,391

4,247

1,531
829
3

1,625
1,150
6

2,514

2,390

14

32

-58

4,185

3,903

5-53

NATURAL RESOURCES AND ENVIRONMENT

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 1988

1989

Conservation and land management:
Management of national forests, cooperative
forestry, and forestry research (Forest
Service):
Existing law
Proposed legislation
Management of public lands (BLM):
Existing law
Proposed legislation
Mining reclamation and enforcement
Conservation reserve program
Other conservation of agricultural lands:
Existing law
Proposed legislation
Other resources management:
Existing law
Proposed legislation
Arctic National Wildlife Refuge (proposed)..,
Offsetting receipts:
Existing law
Proposed legislation
Subtotal, Conservation and land management
Recreational resources:
Federal land acquisition J
Urban park and historic preservation funds....
Operation of recreational resources:
Existing law
Proposed legislation
Offsetting receipts:
Existing law
Proposed legislation
Subtotal, Recreational resources..
Other natural resources:
Program activities.Existing law
Proposed legislation...
Offsetting receipts
Subtotal, Other natural resourcesTotal, outlays
1

1990

1991

1992

2,320

2,522

2,158
17

2,194
24

2,198
24

635

557

349
291

320
1,652

553
118
292
1,771

594
144
281
1,944

610
109
267
1,840

711

644
1

635

581

308

305
3
-2,101

325
-3
-1

-2,443

-2,792

-2,440
-116

-2,502
-149

331
-14
-1
-2,615
-217

2,189

3,278

1,204

3,493

3,121

258
26

236
33

168
15

87
6

6
6

1,497

1,572

1,576
5

1,534
21

1,501
16

-108

-115

-106
-28

-110
-28

1,673

1,726

1,630

1,509

-111
-30
1,442

1,893

2,000

-15
1,878

1,970

1,864
29
-28
1,865

1,941
39
-28
1,952

1,929
41
-28
1,942

14,606

16,487

14,434

16,728

15,674

722
316

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

Program levels for the Bureau of Reclamation are consistent
with the change in the Bureau's mission announced in October
1987, although a proposed change in the method of financing operation and maintenance reduces new budget authority. Specifically,
the proposed revolving fund would move the reimbursable portion
of the operation, maintenance, and replacement (O,M&R) program
to a more direct user-financed basis. This is in contrast with the
current arrangement of funding through annual appropriations




5-54

THE BUDGET FOR FISCAL YEAR 1990

from the reclamation fund and reimbursement by project beneficiaries.
As a result of the increased managerial flexibility afforded by
the revolving fund, the Bureau will be better able to coordinate its
plans for the operation and maintenance of existing dams, power
plants, and irrigation facilities. With respect to power generation
facilities, the Bureau of Reclamation, the Bonneville Power Administration, and the Western Area Power Administration will be full
partners in approving budgets, projects, and priorities for O,M&R
plans in order to ensure that funding is sufficient to meet operating needs, and is in the best interest of their respective rate payers.
Emphasis in the Bureau's program is placed on completion of
ongoing construction and planning activities that are substantially
underway. Funding for new activities and projects is restrained.
The administration does not repropose merging the SCS's small
watershed program accounts. However, funding for new starts is
not being proposed. The budget again reflects making SCS flood
control cost sharing consistent with WRDA provisions for the
Army Corps of Engineers. The administration is proposing $96
million in budget authority for the small watershed program in
1990.
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, maintain
efficient mineral-leasing programs, and place maximum feasible
responsibility with the States for surface coal mining regulatory
and reclamation programs. Proposed budget authority for these
programs decreases by $3.0 billion between 1989 and 1990 primarily due to a $2.1 billion estimate for offsetting receipts from initial
oil and gas leasing on the coastal plain of the Arctic National
Wildlife Refuge, and a $601 million decrease for the conservation
reserve program.
Management of National Forests, Cooperative Forestry, and Forestry Research.—Proposed budget authority in 1990 for management of national forests, cooperative forestry, and forestry research
is $2.2 billion, a decrease of $587 million from the 1989 level. This
occurs primarily as a result of the postponement of some construction projects, deferral of land acquisition and other lower priority
program activities, and the termination of financial assistance and
reduced technical support to State forestry agencies.
The administration proposes to improve the productivity of national forest management through careful control of costs and close
attention to benefit-cost relationships. The objective of this policy is
to produce timber, minerals, recreation, and other products or services at the lowest unit costs, considering both market and nonmarket benefits and the costs of resources.




NATURAL RESOURCES AND ENVIRONMENT

5-55

Planned timber sales from National Forest lands in 1990 are 11.4
billion board feet (BBF). Together with the estimated 20 BBF sold
but still uncut at the end of 1989, this level will be adequate to
respond to anticipated housing construction needs in 1990 and in
subsequent years.
Gross receipts from the harvest of timber are estimated to be
approximately $1.0 billion in 1990. 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 $87 million
in 1989 to $49 million in 1990. Funding will be retained 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 non-Federal
lands is not proposed in 1990.
Beginning in 1990, the budget assumes enactment of legislation
to fund all Agriculture and Interior Department forest, wild land,
and other fire-fighting costs from two new, permanent, indefinite
appropriations, one administered by each agency. This would replace the existing procedure whereby costs are financed piecemeal,
in part before and in part after costs are incurred, through current
appropriations to the Agriculture Department's Forest Service and
the Interior Department's Bureau of Land Management, Bureau of
Indian Affairs, National Park Service, and Fish and Wildlife Service.
Projected 1990 spending from the. new Agriculture forest firefighting account is $282 million, and from the new Interior account, $166 million. These amounts would support fire management, pre-suppression, suppression, and emergency rehabilitation
on all Federal lands. As in the past, fire protection will be afforded
to a variety of valuable resources located on Federal lands, including harvestable timber, mineral-extraction facilities, and recreation
facilities. States and localities receive a substantial share of Federal timber and mineral receipts, and significant local economic activity is generated by Federal land stewardship and by visitorship
to Federal recreation areas. Also, Federal fire-fighting efforts greatly assist in the protection of adjoining private properties, thereby
significantly reducing fire risks.
In recognition of the many benefits Federal fire-fighting provides
to non-Federal entities, the administration's proposal to establish
the new fire-fighting appropriations accounts would also provide
that an amount equal to the total estimated Federal cost of fighting fires in a given year would be deducted from Federal timber
and mineral receipts that year, before the receipts are deposited in




5-56

THE BUDGET FOR FISCAL YEAR 1990

the Treasury General Fund or shared with States and localities.
The projected impact in 1990 would be to continue payments to
States and localities at about 80 percent of payment levels under
current law. Federal lands, taken as a whole, should pay for their
own fire protection; neither the Federal Treasury nor States and
localities should receive income from those lands until necessary
fire protection has been paid for.
Management of Public Lands.—The Bureau of Land Management (BLM) administers 270 million acres of public lands for multiple use, and 300 million acres of other federally owned subsurface
mineral rights. The BLM will continue to emphasize mineral leasing, realty management, data support systems, and renewable resource activities that affect water, range, timber, wildlife and
recreation. Hazardous waste assessment and removal from public
lands will also continue to be emphasized. For BLM, the administration proposes $771 million in budget authority. This is an increase of $223 million over 1989, due primarily to the administration's recommended proposal to fund Department of the Interior
fire-fighting costs through a new, permanent, indefinite account in
BLM.
Mining Reclamation and Enforcement.—The administration requests budget authority of $254 million, $42 million below 1989 for
mining reclamation and enforcement. This proposal, coupled with
the program's unobligated balances, would accommodate reclamation requirements at a rate that can be effectively absorbed by
States and sustained each year until program completion in 1992.
For 1990, approximately 200 projects to reclaim abandoned mined
lands in 24 States and on three Indian reservations would be
financed by the $150 million of proposed budget authority.
Conservation of Agricultural Lands.—The Federal conservation
reserve program, authorized by the Food Security Act of 1985,
continues in 1990. 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. The 1990 budget proposes budget authority for 40 million
acres, the minimum authorized by law. This technical adjustment
is consistent with the assumption that under current market conditions, the program will not be sufficient to bring erosive corn acres
out of production. The budget does propose to terminate a number
of other conservation programs.
Arctic National Wildlife Refuge (ANWR).— During 1989, Congress will again consider opening the coastal plain of ANWR for
the exploration and development of potentially vast oil and gas
resources. Such development would greatly increase expected off-




NATURAL RESOURCES AND ENVIRONMENT

5-57

setting 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
should be used to benefit all the people by being returned to the
Treasury in order to serve the Nation's highest priorities. The
budget assumes passage of ANWR authorization legislation early
in calendar year 1989, with the first ANWR lease sale projected for
1990, and the second sale in 1993, with estimated receipts of $2.1
billion and $1.3 billion respectively.
Recreational Resources.—Overall proposed budget authority for
recreation decreases from $1.8 billion in 1989 to $1.4 billion in
1990. However, proposed funding for operation of the national park
system is increased. The overall reduction is due to postponing or
foregoing various construction and land acquisition projects. Proposed budget authority for Federal recreational land acquisition is
reduced from the $195 million appropriated in 1989 to $57 million
in 1990. The administration is proposing that discretionary acquisitions for park and refuge purposes be postponed through 1994—
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 1990. These needs can
be met through State, local, and private resources, and through 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 with
existing supply. In addition, the 1990 budget provides $10 million
in direct Federal funds for National Park Service employee housing rehabilitiation.
The budget fully utilizes entrance fees to national parks and
service charges for the recreational use of national parks, forests,
and other Federal recreation facilities as authorized by the Omnibus Budget Reconciliation Act of 1987. The budget assumes enactment of legislation to broaden the type of recreation fees that may
be charged by the Forest Service. This is estimated to increase total
fees by $10 million in 1990.
Total 1990 budget authority of $781 million, an increase of $41
million over 1989, is proposed to operate and maintain the national
park system's 354 units and 80 million acres. This includes $56
million to be financed by entrance and user fees collected in 1989.




5-58

THE BUDGET FOR FISCAL YEAR 1990

In addition, the administration proposes to charge entrance fees
at recreation units administered by the Army Corps of Engineers
beginning in 1990. This would increase receipts by an estimated
$20 million in 1990 and provide funding for the Corps of Engineers'
recreation program.
The administration proposes capping budget authority for the
Wallop-Breaux Sport Fish Restoration and the Pittman-Robertson
Federal Aid in Wildlife programs at $100 million each, beginning
in 1990. Unappropriated balances in the trust fund that finances
the sport fish restoration program will increase due to the cap and
continue to be available for appropriation in the future. The outlay
reduction resulting from this proposal will allow the continuation
of other Federal programs directly contributing to fish and wildlife
restoration.
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 1990 budget authority request totals $453 million.
This would permit USGS to undertake or expand several high
priority efforts, including global climate change and water quality
research initiatives, the land remote-sensing satellite (LANDSAT)
and other remote-sensing data-archiving, and a major increase over
1989 for the multi-year capitalization to develop advanced cartographic systems for USGS's mapping activities. The global change
effort contributes to the overall, multi-agency U.S. Global Change
Research Program being coordinated by the Federal Coordinating
Council on Science, Engineering, and Technology's Committee on
Earth Sciences.
Budget authority of $141 million is requested for the BOM in
1990. No funds have been requested for the Mineral Institutes
program, which generally focuses on short-term, local and regional
concerns. BOM research activities will reflect long-term basic research projects with high potential national benefit. The 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 will be considered for sale. However, BOM would retain a
sufficient crude helium inventory to ensure future supplies for
Federal agency use.
For the NOAA programs in this subfunction, the 1990 budget
authority request of $1.1 billion reflects a reduction of $184 million




5-59

NATURAL RESOURCES AND ENVIRONMENT

from the 1989 level. The 1990 budget proposes a number of initiatives to support the National Weather Service. Increased funding is
included for the procurement of next generation technologies, including doppler weather radars, a class VII supercomputer, the
Advanced Surface Observing System, an improved communications
system, and improved forecaster workstations. Funding is also included to continue the procurement of polar-orbiting and geostationary weather satellites. These advanced technologies will enable
the National Weather Service to provide improved weather forecasts and severe weather warnings to the public through a nationwide network of 115 enhanced Weather Forecast Offices. Also proposed are increases for an integrated NOAA program in earth
systems science that will support research to improve predictions
and scientific understanding of global climate change. Funding is
also included to acquire an additional Class VII supercomputer to
support this program.
NOAA's program is part of an integrated Government-wide
global change initiative that is described in more detail in the
separate Global Change Research Strategy. In 1990, an increase is
included for a coordinated NOAA Coastal Ocean Science program
to improve the monitoring and understanding of the problems of
coastal resource and environmental quality degradation. Increased
funding is included for the commercialization of the LANDSAT
program. Reductions are proposed for State and industry financial
assistance, and for research and service programs. Funding for
other life safety, resource management 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 $3.6 billion in 1989 to $5.3 billion in 1990. Receipts other than
those from the Arctic National Wildlife Refuge discussed above,
decline by $398 million to $3.2 billion in 1990. More than half of
these collections are rents and royalties.
CREDIT PROGRAMS—NATURAL RESOURCES AND ENVIRONMENT
(In millions of dollars)
Estimate
Actual 1988

Direct loans-.
Water resources and other-.
New obligations
Change in outstandings. . .
Outstandings
Total, new obligations and new commitments




1991

1990

1989

1992

41
-448
118

59
59
177

31
57
234

2
10
244

3
12
232

41

59

31

2

3

5-60

THE BUDGET FOR FISCAL YEAR 1990

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
these two provisions are $40 million and $330 million, respectively,
in 1990.
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 1990 is $2.3 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 1990 cost
estimate is $135 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 $360 million in 1990. Private forestry is also
encouraged because a limited amount of reforestation expenditures
are eligible for special tax credits and writeoffs that will cost $215
million in 1990.
Tax expenditures for natural resources and environment total an
estimated $3.3 billion in 1990.




AGRICULTURE

5-61

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. The programs operate under two major laws enacted recently to improve U.S. agriculture's competitive position in world markets and strengthen the
farm credit system: 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 Agricultural
Credit Act provides the needed authority and Federal assistance
for the Farm Credit System and the Farmers Home Administration
(FmHA) to deal effectively with their financial problems.
For 1990, the administration proposes to reduce outlays for the
farm price and income support programs carried out by the Commodity Credit Corporation. In addition, changes are needed to
modify the current domestic sugar program to implement more
equitable treatment for taxpayers, consumers, and farmers.
A total of $20.6 billion in budget authority is proposed for agriculture programs in 1990, a decrease of $4.5 billion from 1989.
Total outlays are expected to decrease from $20.9 billion in 1989 to
$15.9 billion in 1990. The $5.0 billion 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 $3.7 billion of lending assistance for agricultural credit in 1990 to help ensure that viable but
high-risk farmers have operating credit available to continue operations. Within this level of agricultural credit authority, direct
Government lending is reduced and guarantees of private loans are
increased.
Farm Income Stabilization.—Outlays for farm income stabilization programs are estimated to decline from $18.8 billion in 1989 to
$13.8 billion in 1990.
Commodity Price Support and Related Programs,—These pro-

grams were created to stabilize and support farm income and
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.
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




5-62

THE BUDGET FOR FISCAL YEAR 1990
NATIONAL NEED: IMPROVED AGRICULTURE
(Functional code 350; in millions of dollars)
Estimate
Major missions and programs

Actual 1988

1989

1990

1991

1992

BUDGET AUTHORITY
Farm income stabilization:
Commodity Credit Corporation:
Existing law
Proposed legislation
Proposed credit reform
Crop insurance
Agricultural credit:
Existing law
Proposed credit reform
Farm Credit System assistance:
Existing law
Proposed legislation
Other programs and unallocated overhead

11,131

15,274

429

314

4,757

12,936
-1,100
833
389

12,892
-1,900
650
480

11,955
-2,500
482
464

7,225

5,088
312

6,297
275

6,833
248

15
7

933
-810

434
-270

451
-270

16,317

22,988

18,581

18,858

17,662

912
358

925
361

900
325

911
325

911
325

138

143

142
-4

145
-4

145
-4

37
3

39
3

204
223
-96

211
232
-102

353
-68
224
235
-102

323
-68
222
235
-102

323
-68
222
234
-102

Subtotal, Agricultural research and
services

2,075

2,110

2,004

1,987

1,986

Total, budget authority

18,392

25,098

20,585

20,845

19,649

Subtotal, Farm income stabilization
Agricultural research and services:
Research programs
Extension programs
Marketing programs:
Existing law
Proposed legislation
Animal and plant health programs:
Existing law
Proposed legislation
Economic intelligence
Other programs and unallocated overhead
Offsetting receipts

* $500,000 or less.

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, surrendering the
crop to the Federal Government as settlement of the loan.
In order to mitigate the adverse effect of the 1988 drought on
farm income, and to insure that our farmers have a sufficient level
of operating funds for the 1989 crop year, the administration has
increased the level of advance deficiency payments to fifty percent,
the maximum allowable under current law.
Agricultural price and income support outlays were $12.2 billion
in 1988, down from the record level of $25.8 billion in 1986. Outlays
are estimated to be $13.9 billion in 1989 and $11.8 billion in 1990.
The administration's goal of developing more market-oriented agricultural programs that would enhance the U.S. competitiveness is
working. There has been major improvement in export markets.
Although farm income is expected to be down slightly due to the




5-63

AGRICULTURE

1988 drought, income will still be near record levels in 1989, and
farm debt is projected to decline again for the sixth straight year.
NATIONAL NEED: IMPROVED AGRICULTURE
(Functional code 350; in millions of dollars)
Estimate
Major missions and programs

Actual 1988

1989

1990

1991

1992

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

11,918
-1,100
833
586

12,892
-1,900
650
557

11,955
-2,500
482
551

3,435

1,958
-446

1,628
-208

1,577
-163

6

43

692
-652

366
-289

362
-271

15,246

18,804

13,788

13,696

11,993

842
318

928
353

981
327

964
330

930
333

142

128

150
-4

145
-4

145
-4

30
4

31
4

191
226
-96

208
244
-102

364
-68
222
236
-102

323
-68
222
236
-102

323
-68
222
235
-102

1,964

2,099

2,104

2,046

2,013

17,210

20,903

15,892

15,742

14,007

12,224

14,073

411

1,245

2,618

* $500,000 or less.

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 artificially high price supports should increase U.S. exports, thereby reducing the need for export subsidies.
The value of agricultural exports in 1988 was $35.5 billion, while
imports totalled $21.0 billion, resulting in a positive agricultural
trade balance of $14.5 billion. This is almost double the 1987 level.
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 for farm products.
While Federal outlays for the farm price and income support
programs have declined from their record high level in 1986, spending on these programs remains at historically high levels. The
administration plans to achieve further outlay reductions of $2




5-64

THE BUDGET FOR FISCAL YEAR 1990

billion in 1990 and additional annual reductions of between $2 and
$2.5 billion in each year from 1991 through 1994.
There are a limited number of actions that could be taken to
achieve the outlay reductions needed to bring this program back to
historic levels, and, at the same time, maintain the administration's commitment to a more market-oriented agricultural sector
and to the current round of GATT negotiations.
The most direct way to achieve these outlay reductions would be
a 5 percent reduction in target prices for 1990 crops, with slightly
higher percentage reductions for the 1991-1993 crops. This would
be consistent with proposals made by the administration in the
past and with the current farm bill. It would also be possible to
lower the share of production eligible for deficiency payments.
Either approach would continue the administration's policy of
shifting to a more market-oriented agriculture. In addition, outlays
for other commodities, e.g. soybeans, honey, wool, tobacco, peanuts
and dairy would be reduced by a fixed percentage, 5 to 7 percent,
to lower costs and provide equitable reductions across the farming
sector. Reductions include lower cash disbursements for loans or
producer assessments. Also, the April 1, 1989 dairy price support
amendment could be rescinded.
Only minor adjustments in export programs would need to be
considered to reduce program costs. The Targeted Export Assistance Program could be held at current levels and a small increase
in the administrative fee for the export credit programs could be
instituted.
It should be noted that higher loan rates and large acreage
reduction programs were specifically excluded from consideration.
While such actions would reduce outlays in the short term, they
would reverse the export expansion that has been underway since
the passage of the 1985 farm bill. In the longer term, such actions
would lead to higher foreign production, a return to burdensome
surpluses in the U.S. and in the end would require even larger
acreage reduction programs.
The current price support program for the sugar industry is in
direct conflict with the market-oriented goals of the 1985 farm bill
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. Accordingly, changes are needed in the sugar
program to make it more market-oriented and to reduce Government interference in trade.
Crop Insurance.—The Federal Crop Insurance Corporation (FCIC)
provides farmers with subsidized insurance against crop losses due
to a wide range of natural risks, including adverse weather condi-




AGRICULTURE

5-65

tions, insect infestation, and plant disease. Since 1980, FCIC has
rapidly expanded the availability of insurance by commodity and
by region with the intention of replacing disaster assistance.
Eighty-five percent of all commodity production is now eligible for
coverage. The private sector sells on commission and adjusts claims
for most of this all-risk crop insurance. The Federal Government
continues to provide a backstop against very large, catastrophic
losses. The insurance in force is projected to reach $9.1 billion in
1990, an increase of $128 million over the 1989 estimate.
Agricultural Credit—The Farmers Home Administration
(FmHA) is the "lender of last resort" to agriculture producers who
cannot obtain private financing for farm operating and ownership
purposes. Currently, FmHA holds about 15 percent of total outstanding agriculture-related debt. Nearly half of FmHA's $25 billion farm program loan portfolio is owed by borrowers who are
delinquent on one or more of their FmHA loans. The Agricultural
Credit Act of 1987 provided FmHA the authority to restructure
loans held by delinquent borrowers—allow them to buy-back their
loans at FmHA's "net recovery value" upon foreclosure—or to
proceed with foreclosure on a borrower in default. This foreclosure
authority will result in an estimated $9 billion in write-offs of
FmHA agriculture loans between 1989 and 1991.
The Administration proposes to continue the shift from direct to
guaranteed loans contained in the 1985 farm bill. For 1990, the
budget proposes authority of $3.7 billion for agricultural credit
insurance fund loans. This amount includes $3.0 billion of guaranteed loans, largely for farm operating purposes, and $0.7 billion of
direct loans for emergency disaster, farm ownership, and farm
operating purposes. In addition, an estimated $200 million in direct
loans to finance sales of FmHA inventory property will be made in
1990.
The Agricultural Credit Act of 1987 also created an assistance
mechanism for the Farm Credit System (FCS), a nationwide, nonFederal, agricultural lender. The FSC Financial Assistance Corporation (FAC) was authorized to issue securities guaranteed by the
Federal Government, proceeds of which are used to provide needed
capital and equity to FCS institutions. FAC was originally considered to be a non-Federal entity. However, legislation enacted in
1989 changed the FAC authorizing statute sufficiently to require
that FAC obligations, and the resulting outlays, be recorded in the
budget. The budget assumes enactment of legislation to return
FAC to its status as a non-Federal entity. Failure to enact this
change is estimated to increase Federal outlays by over $650 million in 1990.
The budget authority and outlays shown as proposed credit
reform reflect the estimated subsidies implicit in Federal loan pro-




5-66

THE BUDGET FOR FISCAL YEAR 1990

grams. The administration's proposed credit reform initiative is
discussed in Part 6 of the budget.
Agricultural Research and Services.—The proposed budget authority for agricultural research and services is $2.0 billion in 1990,
a decrease of $106 million from 1989.
Research Programs.—The budget requests budget authority of
$900 million for research programs in 1990, a $25 million decrease
from the 1989 level due to reduced funding for buildings and special grants to States. Agricultural research is carried out at Federal laboratories and in cooperation with the States at land grant
colleges and agricultural experiment stations. The proposed program emphasizes national priorities in basic research to advance
biotechnology in both plant and animal science. To promote environmental quality, a Goverment-wide initiative is proposed to address the potential for, and prevention of, groundwater contamination from farming activities. Assessment of the relationship between global climate change and agriculture is also an integral
part of the 1990 program.
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. The administration proposes a reduction in the Federal share of Extension
support, from $361 million in 1989 to $325 million in 1990. Federal
monies would still represent a third of all Extension funds available nationally in 1990. Federal funding for most categorical grants
would be lower, and States would be required to match these funds
as they now do with formula grants.
Marketing Programs.—The Federal Government provides unbiased, timely 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 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. The
Federal Government also provides grading and inspection services
for meat and poultry operations. The 1990 budget proposes $138
million in budget authority for these programs, a decrease of $5
million from 1989 levels. This decrease results from a proposal to
fund the development and maintenance of commodity grading
standards through increased grading user fees.
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. The budget includes funds to support a




5-67

AGRICULTURE
CREDIT PROGRAMS—AGRICULTURE
(In millions of dollars)
Estimate
Actual 1988

1989

Direct loans:
Agricultural credit insurance fund (credit
reform):
New obligations
Change in outstandings
Outstandings
Agricultural credit insurance fund:
New obligations
Change in outstandings
Outstandings
Commodity price support and related loans.New obligations
Change in outstandings
Outstandings

1991

1992

900
862
862

700
649
1,512

650
543
2,054

1,168
-2,119
25,481

1,767
-3,081
22,400

-4,733
17,666

-4,553
13,113

-2,377
10,736

13,302
-6,579
11,999

6,095
-2,180
9,819

8,040
-603
9,216

8,829
-121
9,095

8,092
-179
8,916

14,470
-8,697
37,480

Total, direct loans:
New obligations
Change in outstandings..
Outstandings
Guaranteed loans:
Agricultural credit insurance fund
reform):
New commitments
Change in outstandings
Outstandings
Agricultural credit insurance fund:
New commitments
Change in outstandings
Outstandings
CCC export loans (credit reform):
New commitments
Change in outstandings
Outstandings
CCC export guarantee loans:
New commitments
Change in outstandings
Outstandings

1990

7,862
-5,261
32,219

8,940
-4,474
27,745

9,529
-4,025
23,720

8,742
-2,014
21,706

3,000
1,300
1,300

3,000
2,410
3,710

3,000
2,043
5,753

263
5,472

-1,260
4,212

-1,118
3,094

5,500
5,500
5,500

5,500
3,783
9,283

5,500
2,067
11,350

(credit

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

1,255
1,018
3,507

3,325
1,703
5,209

4,557
1,187
4,919

5,500
3,018
7,937

-3,223
4,714

-2,516
2,198

-1,775
423

5,812
2,205
8,426

8,825
4,721
13,147

8,500
3,839
16,986

8,500
2,417
19,403

8,500
1,217
20,620

20,282

16,687

17,440

18,029

17,242

variety of pest monitoring, detection, and eradication activities in
the United States as well as in trading partners. Although the 1990
request of $285 million in budget authority for these programs is
$54 million less than the 1989 level, the difference reflects an
administration proposal to cover the total cost of inspections for
agricultural pests at ports-of-entry through user fees. These fees
would also pay for the development of new detection techniques
and regulate the movement of endangered species.




5-68

THE BUDGET FOR FISCAL YEAR 1990

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 $565
million and $110 million, respectively, in 1990.
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 is estimated to cost $10 million
in 1990.
Altogether, the estimated 1990 cost of tax expenditures in support of agriculture is $645 million.




COMMERCE AND HOUSING CREDIT

5-69

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 supported continued economic expansion, contributing to nearly 70,000 new business incorporations last year and the strongest sustained 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 administration is proposing $17.5 billion in budget authority
for commerce and housing credit in 1990, and 1990 outlays are
estimated to be $8.3 billion. Mortgage credit and deposit insurance
programs and activities are a major portion of the assistance, with
$11.6 billion in proposed budget authority in 1990. In addition, the
budget proposes $0.8 billion in new direct loan obligations and
$62.5 billion in new guaranteed loan commitments in 1990.
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 6 of this volume.
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 does not adequately serve.
Mortgage-Backed Securities.—The Government National Mortgage Association (GNMA) supports the mortgage market by guaranteeing mortgage-backed securities that are issued by private
lenders and backed by mortgages insured by the Federal Housing
Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA). The GNMA guarantee enhances the saleability of
these securities in the capital markets. In 1989, GNMA is expected
to issue new commitments on $62.6 billion in securities. For 1990,
the administration proposes a new commitment limitation of $75




5-70

THE BUDGET FOR FISCAL YEAR 1990
NATIONAL NEED: COMMERCE AND HOUSING CREDIT
(Functional code 370; in millions of dollars)
Estimate
Major missions and programs

Actual 1988

1989

1990

1991

1992

BUDGET AUTHORITY
Mortgage credit and deposit insurance:
Mortgage-backed securities (GNMA):
Proposed credit reform
Mortgage purchase activities (GNMA)
Mortgage credit (FHA):
Existing law
Proposed credit reform
Housing for the elderly or handicapped:
Existing law
Proposed legislation
Proposed credit reform
Rural housing programs (FmHA):
Existing law
Proposed legislation
Proposed credit reform
Federal Deposit Insurance Corporation
Federal Savings and Loan Insurance Corporation
Other
Subtotal, Mortgage credit and deposit
insurance
Postal service:
Payments to the Postal Service fund:
Existing law
Proposed legislation
Postal Service:
Existing law
Proposed legislation
Subtotal, Postal service
Other advancement of commerce:
Small and minority business assistance-.
Existing law
Proposed legislation
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

1,425
1,558

573

1,425

1,421
852

1,937
808

1,311
810

81
6

83
6

24

984

1,425

78
6

209

429

6,595

4,371

2,897

3,006
94"

1,014

2,500

98
1,000

2,658
-110
76

9,821

9,748

3,800
7

3,871

5,030

19,196

18,629

11,584

11,229

11,289

517

436

497
-481

560
500

578
-517

941

1,656

3,255
-448

2,524

2,266

1,458

2,093

2,823

2,584

2,327

458

459

388
473

-290
688

331
-13
120
284
1,530

409
-14
45
262
465

431
-16
-74
236
312

744

778

817
1

829

838

2,063

2,215

3,070

1,994

1,727

22,717

22,937

17,477

15,807

15,343

billion. Of that amount, new commitments are estimated to be
issued for $66.3 billion in securities.
GNMA mortgage-backed issuers earn a fee for servicing FHA
and VA mortgages underlying GNMA's securities. The administration has recently published a notice of intent to deregulate this fee,
thereby letting the market establish the rate. Currently, GNMA
sets the servicing fee paid to issuers at 44 basis points per annum
(44/100 of one percent) of the outstanding mortgage amount. This




COMMERCE AND HOUSING CREDIT

5-71

minimum fee was originally established to ensure 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 is also proposing to raise the fee paid to
GNMA for guaranteeing mortgage-backed securities beginning in
1991. The fee, which is currently set at 6 basis points, would be
increased to 10 basis points by 1991 and to 15 basis points by 1992
and thereafter. The fee increase would help bring GNMA's fee
structure closer to that charged by private issuers of mortgagebacked securities who provide similar guarantees, thereby improving opportunities for private sector activity in the secondary
market for home mortgages. The administration is proposing a
similar phase-in of fees for the housing Government-sponsored enterprises: the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. This fee is discussed in the
general government function.
Mortgage Credit.—The FHA provides mortgage insurance on
single-family homes, apartments, manufactured housing, and
health care facilities. This insurance protects lenders from loss in
the event of default on loans. The single-family mortgage insurance
program (the largest of the FHA programs) has underwriting and
downpayment requirements intended to assist low- and moderateincome families who otherwise would not be able to afford to buy a
home. However, many families using the FHA program can qualify
for private mortgage insurance. In 1989, nearly $57 billion in new
FHA mortgage insurance commitments are expected. For 1990, the
administration proposes a new commitment limitation of $67 billion on FHA guarantees, which exceeds the $59 billion of new
commitments estimated for 1990.
Housing for the Elderly or Handicapped.—The section 202 housing program provides direct loan financing at subsidized rates to
non-profit organizations for the development of housing for the
very-low-income elderly and handicapped. Housing for the elderly
and handicapped is also subsidized through other rental assistance
programs. These programs are described in the income security
function.
The administration proposes to replace section 202 direct loans
with $78 million in credit vouchers. These vouchers are expected to
help subsidize $389 million in private market loans for the construction of 7,000 elderly and handicapped units in 1990. The total
includes 3,000 units for the handicapped, of which 400 are set aside
for the mentally ill, otherwise handicapped, homeless.
Credit vouchers provide private lenders with a cash grant whose
value reflects both the interest subsidy and default risk associated




5-72

THE BUDGET FOR FISCAL YEAR 1990

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

OUTLAYS
Mortgage credit and deposit insurance:
Mortgage-backed securities (GNMA):
Existing law
Proposed legislation
Proposed credit reform
Mortgage purchase activities (GNMA)
Mortgage credit (FHA):
Existing law
Proposed credit reform
Housing for the elderly or handicapped:
Existing law
Proposed legislation
Proposed credit reform
Rural housing programs (FmHA):
Existing law
Proposed legislation
Proposed credit reform
Federal Deposit Insurance Corporation
Federal Savings and Loan Insurance Corporation
National Credit Union Administration
Other
Subtotal, Mortgage credit and deposit
insurance
Postal service:
Payments to the Postal Service fund:
Existing law
Proposed legislation
Postal Service:
Existing law
Proposed legislation
Subtotal, Postal service..
Other advancement of commerce:
Small and minority business assistance-.
Existing law
Proposed legislation
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.

Actual 1988

Estimate
1989

1990

1991

1992

-92

-210

-313

16

-3

863
-5

-364
-23
1,138
-4

-339
-75
1,186
-4

1,134

1,447

586
1,605

922
1,597

660
1,928

322

340

-143

-19

57
19
-5

3,612

3,295

2,146

3,807

1,596
-1,692
35
-1,324

1,312
140
34
-1,940

1,051
115
61
-2,624

8,075
-217

8,725
-164

2,067
-211
5

6,567
-197
2

4,934
-211

14,997

17,238

3,069

9,164

6,752

46
3

497
-481

560
-500

578
-517

1,712

12
4

2,198

1,429

1,372

2,229

579

2,214

1,489

1,433

334

396

141
365

351
704

232
-88
118
284
1,619

418
-90
48
269
445

365
-91
-69
247
350

742

772

813
1

816

821

1,581

2,223

2,980

1,906

1,623

20,040

8,262

12,559

57
1

with the project. The voucher amount is sufficient to provide lenders the same return that could be earned on a market-rate loan to
a comparable project. Credit vouchers provide a method of financing projects that is consistent with the goals of credit reform and a
more efficient use of budget resources.




5-73

COMMERCE AND HOUSING CREDIT

The administration proposes to address the needs of elderly and
handicapped households, as well as other very low-income households, primarily through the rental housing voucher program
rather than housing construction programs. Rental vouchers are
discussed in the income security function.
Rural Housing Programs.—The Farmers Home Administration
(FmHA) in the Department of Agriculture operates several loan
and grant programs to repair and construct housing in rural areas.
The largest of these programs is the rural housing insurance fund,
which makes single- and multi-family housing loans at deeply subsidized interest rates. The President proposes to build upon the
successful 1988 rural housing voucher initiative operated by HUD
in conjunction with FmHA. That initiative placed over 2,200 HUD
housing vouchers in rural areas traditionally served by FmHA.
Vouchers increase family housing choices and permit more efficient use of existing private market housing. For 1990, the administration is requesting 20,000 rural housing vouchers to be funded by
FmHA, and $100 million in direct loans for multi-family housing
construction targeted to areas experiencing housing shortages. The
administration is also proposing funding to bring substandard rural
homes up to housing code standards. Further discussion of these
programs can be found in the income security function. The budget
also reflects legislation to sell rural housing loans, without recourse, in 1990 through 1994.
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. FDIC handled over 200 failures and assistance transactions
in 1988, resulting in a net loss to the fund of $2 billion and a yearend equity balance of $16.3 billion. The loss was the first operating
loss in FDIC's history. FDIC's problem bank list continues to decline from its 1987 high of 1,624 institutions. FDIC anticipates bank
failures and assistance agreements will decrease to approximately
150 to 175 transactions in 1990. As a result, FDIC expects to add
about $1 billion to its reserve balance in 1990 as the number and
size of bank failures declines.
CREDIT PROGRAMS—COMMERCE AND HOUSING CREDIT
(In millions of dollars)
Actual 1988

Direct loans:
Mortgage-backed securities (GNMA):
Change in outstandings
Outstandings




176
278

Estimate
1989

-33
245

1990

-43
201

1991

-47
155

1992

-52
103

5-74

THE BUDGET FOR FISCAL YEAR 1990
CREDIT PROGRAMS—COMMERCE AND HOUSING CREDIT—Continued
(In millions of dollars)
Actual 1988

Mortgage-backed securities (GNMA) (credit
reform):
Change in outstandings
Outstandings
Mortgage insurance (FHA):
Change in outstandings
Outstandings
Mortgage purchase activity (GNMA):
Change in outstandings
Outstandings
FHA fund (credit reform):
New obligations
Change in outstandings
Outstandings
Housing for the elderly or handicapped:1
New obligations
Change in outstandings
Outstandings
Housing for the elderly or handicapped (credit
reform):
New obligations
Change in outstandings
Outstandings
Rural housing insurance loan (credit reform):
New obligations
Change in outstandings
Outstandings
Rural housing insurance fund:
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): 2
New commitments
Change in outstandings
Outstandings




Estimate
1989

1990

1991

1992

1
1

203
118
231

-313
6,851

-225
6,626

-177
6,449

30

2
8

550
458
458

-422
34

607
7,858

3
2

931
6,054

669
7,252

139
75
113

478
5,123

3
4

520
470
928

465
446
1,374

-34

565
298
6,863

480
301
7,165

528
6,582

2,319
587
27,098

2,325
335
27,432

-5,812
21,620

-2,181
19,439

-2,189
17,250

63
7
118

68
5
123

20
-52
71

20
66

20
-5
61

82
-358
4,149

82
-290
3,859

-413
3,446

-319
3,127

-377
2,749

559
3,649

-3,283
366

-4
361

-50
311

-50
261

84
83
1,852

75
66
1,918

35
26
1,944

20
10
1,954

20
10
1,964

3
-20
23

6
4
27

30
20
48

-9
39

-9
30

3,116
1,388
49,187

3,036
-1,999
47,189

756
-5,569
41,620

729
-1,610
40,010

736
-1,667
38,343

53,071
24,448
333,445

62,612
27,592 -18,609 -35,707 -36,609
361,037 342,428 306,721 270,112

5-75

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

Actual 1988

Mortgage-backed securities subsidies (GNMA):
New commitments
Change in outstandings
Outstandings
Mortgage insurance (FHA):
New commitments
Change in outstandings
Outstandings
FHA fund (credit reform):
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
GNMA:3
Change in outstandings
Outstandings
Total, guaranteed loans:
New commitments
Change in outstandings..
Outstandings
Total, new obligations and new commitments

1990

68,438
54,566
97,856

69,233
53,504
151,360

-9,791
312,013

-23,304
288,709

-19,212
269,497

58,979
32,754
32,754

56,762
21,046
321,804

1991

66,260
43,290
43,290
50,123
25,341
300,758

1989

60,690
44,622
77,376

62,566
44,445
121,821

1992

-127
50

-4
46

-5
41

-9
31

-9
22

3,553
681
9,972

3,740
595
10,568

3,535
592
11,160

3,535
503
11,663

3,535
438
12,101

64
-985
3,077

55
-73
3,005

19
-34
2,971

20
-30
2,941

20
-30
2,911

94
40
317

75
55
372

-26
346

-26
320

-25
295

422
-34

34

53,835
25,372
314,140

60,632
21,654
335,794

62,533
23,490
359,284

64,245
21,756
381,040

66,121
25,607
406,647

56,951

63,668

63,135

64,850

66,787

1

Does not include credit generated by credit vouchers.
2
GNMA guarantees securities that are backed by pools of loans previously insured by FHA, VA, or FmHA. These secondary guarantees of loans
are not included in the guaranteed loan totals on this table.
3
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.

During 1988, the Federal Savings and Loan Insurance Corporation (FSLIC) significantly increased the number of insolvent thrift
institutions it has closed or merged—the approximately 150 institutions closed or assisted from January through November represent
an historic high. Many of these institutions were in the oil-depressed southwest, reflecting the priority assigned by the Bank
Board to this region through its Southwest Plan. Although the
thrift industry as a whole continued to incur losses during 1988,
the aggregate loss during the third quarter of 1988 was only $1.6
billion, down sharply from the more than $3.5 billion in losses
realized in each of the previous two quarters. Losses were concen-




5-76

THE BUDGET FOR FISCAL YEAR 1990

trated among 434 General Accepted Accounting Principle (GAAP)
insolvent thrifts (with about 10 percent of thrift industry assets).
On the other hand, 2,590 GAAP solvent thrifts realized third quarter earnings (net income after taxes) of almost $800 million. The
1988 FSLIC financial assistance contributed to the decline in industry losses and reduction in insolvencies. From January to September, the number of GAAP insolvent thrifts, adjusting for new insolvencies, was reduced from over 500 to 434.
Net outlays for FSLIC in 1988 were $8.1 billion. Total gross
outlays of $16.4 billion (primarily for new thrift insolvency case
resolutions) were offset by $8.3 billion in 1988 collections. The
principal sources of income for FSLIC are insurance premiums—
both the regular deposit insurance premium of one-twelfth of 1
percent of deposits and the special assessment of one-eighth of 1
percent of deposits; receipts from the Financing Corporation
(FICO), an off-budget subsidiary of the Federal Home Loan Banks
created in the 1987 Competitive Equality Banking Act (CEBA) to
help recapitalize the FSLIC; and investment earnings and proceeds
from the sale of acquired assets of liquidated thrifts.
The budget projects that FSLIC will expend another $15.9 billion
in 1989, $9.1 billion in 1990 and $39 billion in the out-years to
continue resolving the worst of the remaining GAAP insolvent
thrift cases. Net budget outlays for FSLIC are estimated to be $8.7
billion in 1989 and $2.1 billion in 1990. This level of spending
should allow the FSLIC to close at least the 100 most unprofitable
of the remaining GAAP insolvent institutions, which accounted for
over 77 percent of the 3rd quarter losses realized by all the GAAP
insolvent thrifts. The administration has initiated an effort, led by
the Secretary of Treasury, to formulate a comprehensive plan to
resolve remaining thrift insolvency problems, including identifying
additional funding sources for FSLIC and essential reforms of the
Federal deposit insurance system to ensure that these problems do
not reoccur. This plan is expected to be presented to the new
President shortly after the budget is submitted. For more details,
see the discussion in Major Policy Initiatives, Fiscal Year 1990.
This budget does not reflect the use of any resources that may
become available pending completion of this comprehensive reform
plan. Should additional resources be made available, FSLIC has
prepared plans to proceed at a more rapid pace in 1989 and 1990.
The National Credit Union Administration charters and regulates Federal credit unions, provides liquidity assistance to member
credit unions, and insures depositors' accounts at both federallychartered and State-chartered credit unions. The equity of the
National Credit Union Share Insurance Fund (NCUSIF) reached
$1.9 billion in 1988, up from $1.6 billion in 1987. From 1989 to 1990,
NCUSIF equity is expected to grow from $2.0 billion to $2.2 billion.




COMMERCE AND HOUSING CREDIT

5-77

NCUSIF collections are expected to exceed its gross outlays by $167
million in 1990. The budget proposes that the Central Liquidity
Fund (CLF) discontinue its borrowing from the Federal Financing
Bank, relying instead on existing liquidity sources and credit union
industry resources.
Postal Service.—The U.S. Postal Service (USPS) is an independent federal corporation within the executive branch. There are
three components of Postal Service budget outlays: the subsidy for
religious and charitable mailings (the Revenue Forgone Appropriation), appropriation for nonfunded liabilities for former Post Office
Department employees, and the difference between total USPS
receipts (e.g., stamp sales receipts) and expenditures. Expenditures
are expected to exceed receipts in both 1989 and 1990. Net outlays
for 1989 are estimated to be $579 million, with a substantial increase in 1990 to $2.2 billion due to higher operating costs and
capital outlays. The Postal Service will operate at a cash loss in
both years despite a $4.3 billion revenue infusion from the 17
percent rate increase implemented in April 1988.
The budget reflects several administration initiatives to achieve
competitive postal service reform by: (1) endorsing phased implementation of the Privatization Commission's recommendations in
the 1990 management report that accompanies the President's
budget, (2) proposing two limited regional test projects to expand
private delivery of addressed third-class and urgent mail, and (3)
establishing a Presidential Commission on the future of the Postal
Service.
The budget also reflects legislation to terminate Federal subsidies for the Postal Service. Postal operating and capital costs would
be reduced to offset the Federal subsidy loss. The budget reflects
draft legislation to implement most of the Postal Rate Commission's remaining 1986 recommendations to eliminate abuses of Federal postal rate subsidies provided through Revenue Forgone Appropriation. The legislation would: (1) terminate certain categories
of the subsidized rate program, such as political advocacy mail,
materials with high commercial advertising content, and "educational" mail from organizations that do not maintain
student/teacher relationships; (2) request a small appropriation for
free-for-the-blind and overseas voters mail; and (3) shift remaining
subsidy costs for religious and charitable organizations to other
postal patrons. These reforms would reduce the 1990 appropriation
by $481 million.
The budget reflects legislation that would establish separate subclasses for Government mail to eliminate excess overhead charges
paid by the Government. Rates would be based on actual attributable costs and overhead charges equal to average overhead rates for
comparable classes of mail. Government mail would still be proc-




5-78

THE BUDGET FOR FISCAL YEAR 1990

essed in USPS's current mail stream, without change in service
standards, but would be charged rates more closely aligned with
actual costs incurred. The 1990 savings in government postage is
estimated at $346 million and is shown in the defense function ($85
million) and the allowances category ($261 million).
Finally, the budget reflects legislation that would require USPS
to fund new liabilities created with each new retirement COLA for
Postal Service and Post Office Department annuitants. USPS payments to the Retirement Fund would be equal to the present value
of new retirement COLA liabilities amortized over 10 years. Because the budget proposes a 1990 COLA freeze for government
annuitants, USPS's initial payment to the retirement fund would
begin in calendar year 1991. This proposal would also require
USPS to make annual Federal Employment Health Benefits
(FEHB) payments to the FEHB Fund for all postal annuitants and
survivors of annuitants, beginning in 1990.
To insure that these subsidy terminations are achieved without
service cutbacks, cash drawdowns, or increased postal rates, the
budget requests legislation to require $1.6 billion in outlay reductions in Postal's capital and operating budgets for 1990. The Postal
Service would be required to achieve these reductions through
contracting-out and other productivity improvements; capping 1990
pay and COLA raises at the Government-wide 2 percent level; and
hiring additional low-cost casual employees to replace attrition
losses. New capital commitments would be held at the 1987 recordhigh level of $2,136 million.
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 the
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 to provide Federal credit assistance to small
and minority businesses in the form of guaranteed loans. Direct
loans are proposed for termination. Guaranteed loans of $2.9 billion
are proposed in 1990 for the Small Business Administration (SBA)
general and handicapped business programs, small and minority
enterprise business investment company programs, and development company programs. 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.




COMMERCE AND HOUSING CREDIT

5-79

As part of the effort to improve Federal credit management, the
administration is proposing increases in guarantee fees for SBA's
programs, which are expected to result in $94 million in increased
receipts for 1990. In addition, measures are proposed to reduce the
Federal Government's contingent liability, by increasing both the
borrowers' and the lenders' share of default costs. These proposals
would encourage sounder credit origination decisions and should
result in lower default rates. The budget also proposes to sell loans
during 1990, resulting in $182 million in gross proceeds.
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. For 1990 and beyond, the administration proposes that the entire USTTA program be fee-funded.
The administration again requests legislation to establish a Travel
Facilitation Fee of $1 for each traveler arriving at ports of entry in
the United States, its possessions, and its territories. The charge
would be collected from airline and cruise ship carriers, which are
the primary beneficiaries of the program, and would be used to
fund existing and expanded USTTA programs in 1990 and beyond.
The administration proposes $1.5 billion in budget authority in
1990 for the Bureau of the Census, an increase of over $900 million
above the 1989 appropriation. This increase would finance activities associated with the 1990 Decennial Census, including the collection and processing of approximately 100 million census questionnaires.
The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are responsible for
ensuring that the Nation's financial markets are operated efficiently and fairly. The securities, futures and options markets perform
important roles in the economy. The administration proposes to
increase budget authority in 1990 for the SEC and CFTC by 19
percent and 8 percent, respectively, to permit these agencies to
keep pace with major changes in these markets and corresponding
increased workloads.
The administration is continuing its support for numerous initiatives in the International Trade Administration, directed at increasing exports and improving the nation's trade balance.
The National Bureau of Standards was renamed the National
Institute of Standards & Technology by the Omnibus Trade and
Competitiveness Act of 1988. The budget proposes increases over
the 1989 enacted level of $8.7 million for scientific initiatives to
strengthen U.S. competitiveness and $3 million for continued implementation of the Computer Security Act of 1987.
Tax Expenditures.—There are numerous tax expenditure programs designed to increase the supply of savings, to encourage




5-80

THE BUDGET FOR FISCAL YEAR 1990

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

1988

Commerce and housing credit:
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
Special merger rules for financial institutions
Special alternative tax on small property and casualty insurance companies
Tax exemption of certain insurance companies
Small property and casualty insurance company deduction
Small life insurance company deductions
Exemption of RIC expenses from the miscellaneous deductions floor
Deductibility of interest on consumer credit
Deductibility of mortgage interest on owner-occupied homes
Deductibility of property tax on owner-occupied homes
Exclusion of interest on State and local housing bonds for owner-occupied
housing
Exclusion of interest on State and local debt for rental housing
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
Carryover basis of capital gains on gifts
Investment credit (other than employee stock ownership plans, rehabilitation
of structures, energy property, and reforestation expenditures)
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
Exception from passive loss rules for $25,000 of rental losses
Treatment of Alaska Native Corporations
Permanent exceptions from imputed interest rules
Total (after interactions), commerce and housing credit :

1989

1990

3,435
275
120
7,260
1,225
85
20
20
80
285
6,530
33,675
10,100

3,475
295
65
7,940
2,145
120
25
45
85
345
3,280
32,180
10,410

3,335
315
35
8,740
2,320
120
25
40
85
415
1,740
35,110
11,765

2,375
1,650
260
265
3,700
3,835
16,030
70

2,360
1,630
670

2,230
1,720
735

3,910
4,195
17,310
75

4,110
4,250
18,695
85

11,785
8,355
5,255
440
540
660
510
620
780
35,000 48,300 53,300
660
535
480
245
230
245
4,200
4,470
5,275
1,370
1,480
1,535
400
700
240
175
140
160
143,245 152,860 160,660

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

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 depreciation and bank
bad debt reserve provisions, have been modified by the Tax Reform
Act of 1986; and 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 exempt from this floor.
Taxpayers are thus not required to include in their taxable income,
amounts greater than actually received from mutual funds. Altogether, the estimated 1990 budget outlays for these tax subsidies to




COMMERCE AND HOUSING CREDIT

5-81

commerce and housing credit is $160.7 billion, 5.1 percent more
than the $152.9 billion total for 1989. A detailed description of
these tax expenditure programs and the way they have been affected by the Tax Reform Act can be found in Special Analysis G.




5-82

THE BUDGET FOR FISCAL YEAR 1990

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 $28.8 billion of budget authority in
1990 for national ground, air, water, and other transportation systems, $0.6 billion less than for 1989. 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 is increased by $1.2 billion, or 16 percent, between 1989 and 1990, with the largest increase associated with the
need to continue 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. In 1981, 45 percent of the Department of Transportation's
(DOT) costs were funded by user fees. As a result of continual
efforts since 1981, the administration is able to propose that 74
percent of DOT's costs be financed through user fees in 1990.
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 1990 is
$15.9 billion for highway, highway safety, mass transit, railroad,
and regulatory programs, a $2.7 billion decrease from 1989. The
budget continues the administration's commitment to maintaining
the quality of the Federal-aid highway system within available
user fee resources, promoting highway, railroad and pipeline
safety, eliminating general taxpayer subsidies for Amtrak and




5-83

TRANSPORTATION
NATIONAL NEED: EFFICIENT TRANSPORTATION SYSTEMS
(Functional code 400; in millions of dollars)
Estimate
Major missions and programs

Actual 1988

1989

1990

1991

1992

13,807
402

14,222
328

13,850
335

13,850
337

13,850
339

3,337

3,317

1,394
223

1,490
123

1,521

676

672

61
-9

56
-15

56
-31

44

43

45
-14

18,267

18,582

15,885

45
-29
15,857

45
-29
15,835

6,143
740
24
6,906

6,631
815
25

7,743
940

8,235
1,002

8,420
1,003

7,472

8,683

9,237

9,423

2,541

2,953

3,451
-182

3,332
-188

3,430
-185

406

258

379
465

384
43

371
44

2,861

3,212

4,113

3,572

3,660

107

133

150

145

145

28,141

29,398

28,831

28,810

29,064

BUDGET AUTHORITY
Ground transportation:
Highways
Highway safety
Mass transit:
Existing law
Proposed legislation...
Railroads:
Existing law
Proposed legislation...
Regulation:
Existing law
Proposed legislation...
Subtotal, Ground transportation..
Air transportation:
Airports and airways (FAA)
Aeronautical research and technology..
Air carrier subsidies
Subtotal, Air transportation.
Water transportation:
Marine safety and transportation:
Existing law
Proposed legislation
Ocean shipping:
Existing law
Proposed legislation
Proposed credit reform
Reimbursement to Treasury from Panama
Canal
Subtotal, Water transportation.
Other transportation
Total, budget authority..

-86

* $500,000 or less.

mass transit, providing equitable distribution 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.
Consistent with previous policy, 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, as it did during the previous highway authorization period by $5.1 billion. Therefore, obligations for
the Federal-aid highways program are planned at $12.4 billion in
1990, compared to $13.4 billion projected for 1989. To ensure judicious use of user fee revenue, the administration also plans to
240-000 O - 1989 - 7 QL 3




5-84

THE BUDGET FOR FISCAL YEAR 1990

require a non-Federal cost sharing of at least 20 percent of project
costs for all so-called "demonstration" and special interest projects.
NATIONAL NEED: EFFICIENT TRANSPORTATION SYSTEMS
(Functional code 400; in millions of dollars)
Estimate
Major missions and programs

Actual 1988

1990

1991

1992

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

13,921
292

13,524
335

13,337
352

12,784
361

12,591
358

3,315

3,533

3,212
112

2,923
184

2,519
322

577

514

199
-9

121
-15

60
-31

43

43

Subtotal, Ground transportation..

18,148

17,949

45
-16
17,230

45
-29
16,373

45
-29
15,834

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

5,191
680
26

5,769
752
25

6,639
866
2

7,268
961

7,559
999

5,897

6,546

7,507

8,228

8,558

2,719

2,917

3,083
-182

3,335
-186

3,500
-188

478

478

514
-4
-4

576
3
-4

562
22
-4

3,111

3,395

3,406

3,724

3,893

Other transportation...

116

137

144

144

145

Total, outlays..

27,272

28,027

28,287

28,470

28,429

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

-86

Highway Safety.—The proposed funding level of $335 million in
1990 for Federal highway safety programs is 2 percent higher than
the 1989 level of $328 million. The proposed 1990 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 reduce the incidence of individuals driving under the influence
of alcohol or illegal drugs. The 1990 budget request is $11.1 million
more than the 1989 enacted level for programs to reduce the use of
alcohol and drugs while operating a motor vehicle.




TRANSPORTATION

5-85

Mass Transit.—The current Federal program for mass transit is
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 use Federal dollars as wisely as possible, the administration requests legislation to be effective in 1990 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. Most of the funds would be distributed
by formula to States and large urban areas, which could use grant
funds on public transportation capital projects provided they make
matching contributions of at least 50 percent. Based on these objectives, the administration is seeking $1.6 billion in budget authority
for mass transit in 1990.
The administration recommends an immediate end to transit
discretionary grant funding, which has promoted the construction
of local transit systems that often have been too costly and underutilized. 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. Adoption of this proposal would save $1.0 billion in
1990.
The administration also recommends termination of operating
subsidies to large and medium-sized cities, but not small urban and
rural areas. Federal operating subsidies, begun in 1974 in response
to the energy crisis to increase transit ridership and decrease fuel
consumption, have generally financed inefficiency. Given that
State and local support for transit accounts for less than 2 percent
of combined State/local spending, more should be done at that
level to pay the costs of operating transit systems.
The administration proposes a $42 million grant for the Washington, D.C., Metrorail, which is the amount needed in 1990 for
testing and training costs consistent with the Federal commitment
made in the 1986 full funding agreement. The Federal Government
has fulfilled its commitment for funding construction of the 89.5mile system. Through 1990, a total of $7.6 billion will have been
made available by the Federal Government 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 1990 is $52 million,
which includes $9 million in requested user fees. This amount is
$620 million less than in 1989. The decrease is attributable to the




5-86

THE BUDGET FOR FISCAL YEAR 1990

proposed elimination of subsidies for Amtrak as well as the elimination of the Northeast corridor improvement and local rail service
assistance programs. The administration recommends a new rail
safety user fee to offset the costs of the Government to ensure safe
rail operations nationwide.
Since 1970, the Federal Government has provided Amtrak with
approximately $14 billion in direct and indirect subsidies. Despite a
virtual monopoly on intercity rail passenger service and a subsidy
averaging about $30 per passenger in 1988, Amtrak serves less
than 0.5 percent of all intercity travel. Given scarce resources and
competing demands of high priority Federal programs, the administration believes the Federal Government simply cannot afford to
continue subsidizing the trips of business travellers and vacationers.
Regulation.—The administration proposes the continuation of 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. The administration again recommends complete deregulation of the motor carrier, household goods
freight forwarder, bus, and inland water transportation industries,
and termination of the Interstate Commerce Commission (ICC) as
an independent agency by October 1, 1989. Most ICC rail activities
would transfer to the Department of Transportation and 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.
At the same time the 1990 budget reflects significant increases in
the Federal Government's commitment to safety in the rail and
motor carrier industries. Beginning in 1990, the administration
proposes to add 34 additional rail and 150 additional motor carrier
safety inspectors.
Air Transportation.—Budget authority of $8.7 billion is requested
for air transportation in 1990, an increase of $1.2 billion over the
1989 level.
Airports and Airways.—The Federal Aviation Administration
(FAA) operates, maintains, and ensures the safety and efficiency of
the national airspace system; provides funds to the Nation's airports to ensure the safe and efficient movement of the Nation's air
traffic; and undertakes aviation-related research.
Budget authority of $7.7 billion is proposed for FAA in 1990, a 17
percent increase from the $6.6 billion provided in 1989. Aviation
tax receipts, primarily from passenger ticket and freight waybill
taxes, are estimated to be $2.7 billion in 1990, under current law, a
decrease of 26 percent from estimated 1989 receipts of $3.7 billion,
due to a tax reduction trigger in the Airport and Airway Safety




TRANSPORTATION

5-87

and Capacity Expansion Act of 1987. The administration requests
that this tax trigger be overridden, because meeting the future
year costs of modernizing and operating the air traffic system
requires the full level of current aviation tax receipts. With this
override, 1990 receipts are estimated at $3.9 billion, 7 percent more
than estimated for 1989.
Most of the requested 1990 funding increase is due to a proposed
41 percent increase in funding for the FAA's program to modernize
the Nation's airspace system. In 1990, the administration is requesting $2.0 billion in budget authority to continue the FAA's
airspace modernization program, $571 million more than the
amount appropriated in 1989. 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 would 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 is requested to begin work on FAA facilities
and equipment at the new Denver airport and to make major
improvements to facilities and equipment supporting aviation
growth in and around the Los Angeles and Dallas/Ft. Worth airports.
The proposed obligation limitation for the airport improvement
program is $1.3 billion in 1990, slightly less than the 1989 level. A
high priority of the administration is to direct these funds toward
improvements that would enhance national airway system capacity. Toward this goal, at least $250 million would be made available
for discretionary grants addressing national capacity and safety
needs.
The administration also proposes a 14 percent increase in funding for FAA operations from $3.4 billion in 1989 to $3.9 billion in
1990. This funding level will permit increases in all essential safety
workforces—controllers, inspectors, security personnel, and enforcement attorneys. Substantial funding increases are also requested to improve the recruitment, selection, training, and retention of employees in safety critical positions, including a pay demonstration project to enhance recruitment and retention in highcost areas. This results, in part, from the Office of Personnel Management (OPM) delegating to FAA the responsibility for hiring its
own workforce.
The administration is also recommending that an amount equal
to the estimated cost of operating the air traffic control system be
drawn from the trust fund for FAA operations. Currently, the trust
fund supports the airspace modernization program, the airport improvement program, and research efforts. Of at least equal impor-




5-88

THE BUDGET FOR FISCAL YEAR 1990

tance to the national aviation system is funding for the salaries
and related expenses of air traffic controllers and other critical air
traffic employees, upon whom the daily safety and efficiency of the
air traffic system rest. Though this is only a limited portion of the
total costs of FAA operations, the administration strongly believes
that these direct and essential costs of operating the air traffic
system should be borne by the users of the system through their
aviation taxes.
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. The 1990
budget reflects a strong program of fundamental research, including increased support for key areas such as high-speed and highperformance research. The budget also continues the joint
NASA/Department of Defense program of research and advanced
technology development in hypersonic flight, as part of the national aerospace plane program. The administration requests $940 million in 1990 budget authority for aeronautical research and technology, an increase of 15 percent from 1989.
Air Carrier Subsidies.—In 1989, $25 million was provided for air
carrier subsidies. The administration recommends termination of
the air carrier subsidy program in 1990. In some communities,
subsidies are as high as $500 per passenger, while service to 72
percent of the subsidized communities carry 10 or fewer passengers
per day.
Water Transportation.—To meet its Federal responsibility in
water transportation, the administration requests $4.1 billion in
budget authority for 1990, an increase of $0.9 billion from the 1989
level.
Marine Safety and Transportation.—Coast Guard services basically include drug enforcement, search and rescue, maintenance of
navigation aids, enforcement of maritime laws, and other activities.
The administration's request of $3.5 billion in 1990 budget authority for Coast Guard represents an increase of 16.7 percent
above the 1989 enacted level. The majority of these funds would
support Coast Guard operations, including drug enforcement,
search and rescue, and law enforcement activities. Proposed budget
authority in 1990 for Coast Guard's capital improvements is being
increased from $386 million in 1989 to $682 million in 1990. The
1990 capital request includes $244 million to obtain a third polar
ice breaker to augment Coast Guard's existing fleet of two. The
addition of a third ice breaker would provide back-up support to
the existing fleet.
As in 1989, drug law enforcement continues to receive major
emphasis in 1990, with 25 percent of Coast Guard's operating budg-




TRANSPORTATION

5-89

ets supporting interdiction of drug smuggling. Funds for drug enforcement will increase by 8 percent over the 1989 enacted level.
In keeping with the administration's user fee efforts, a new Coast
Guard user fee, collected from the sale of $25 decals to the approximately six million recreational and commercial boaters using U.S.
waterways, is being proposed. In addition, processing fees for inspections and other specific services are assumed. These fees are
estimated to generate $180 million annually.
Ocean Shipping.—Programs in ocean shipping are administered
by the Department of Transportation's Maritime Administration,
Saint Lawrence Seaway Development Corporation, the Panama
Canal Commission, and the Federal Maritime Commission. Proposed outlays for ocean shipping in 1990 are $506 million, which is
approximately the same as in 1989.
The Maritime Administration has traditionally provided subsidies to assist the U.S. merchant marine and shipbuilding industries
in competing with foreign maritime industries. The budget requests
funds to continue operating subsidies to offset the higher costs of
operating U.S.-flag vessels. The 1990 cost to fund current operations under existing operating subsidy contracts is estimated to be
$226 million. The administration recommends legislation that
would reform the operating subsidy program by expanding carriers' operating flexibility, substantially reducing the cost of subsidy
per ship, and allowing additional carriers to participate in the
program. In addition, the legislation contains reforms to reduce the
cost of administering the cargo preference program.
The administration 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, it is recommended that the State maritime schools require their graduates to accept a Naval Reserve
commitment.
The 1990 budget reflects the functional reclassification of funding for the Ready Reserve Force (RRF) from defense-related activities in the defense function to water transportation in the transportation function. The recommended 1990 RRF budget authority is
$116 million to acquire and upgrade nine additional ships for the
RRF, including one auxiliary crane ship. This compares to a 1989
funding level of $32 million.
The administration recommends 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.




5-90

THE BUDGET FOR FISCAL YEAR 1990
CREDIT PROGRAMS—TRANSPORTATION
(In millions of dollars)
Estimate
Actual 1988

1989

Direct loans:
Highway programs:
New obligations
Change in outstandings
Outstanding
Aid to railroads:
New obligations
Change in outstandings
Outstandings
Aircraft purchase guarantee defaults:
Change in outstandings
Outstandings
MarAd ship financing fund (credit reform):
New obligations
Change in outstandings
Outstandings
MarAd ship financing fund:
New obligations
Change in outstandings
Outstandings
Other transportation:
Change in outstandings
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:
New commitments
Change in outstandings
Outstandings
Other transportation:
Change in outstandings
Total, guaranteed loans:
New commitments
Change in outstandings..
Outstandings

Total, new obligations and new commitments

1990

1991

1992

45
-22
121

46
-20
101

48
...
...
...

11
-175
462

-318
144

-16
128

"—128

4
9

-9
40

40

40

5
4
4

5
3
7

5
2
9

5
130
1,603
1
17

5
81
1,684

5
82
1,766

4
15

5
184
1,478
1
16

1
7

1
7

57
-502
1,942

51
-162
1,781

53
119
1,899

53
-44
1,855

53
84
1,939

997

997

997

997

997

-84
115

-16
99

-18
82

-13
69

-11
58

26
-415
3,864

-348
3,516

-298
3,218

-249
2,970

-249
2,721

-363
4,613

-316
4,297

-262
4,035

-260
3,776

5
3

5
3

5
3

-317
1,294

48
101

"ioi

-1
26
-500
4,976
8
3

5
1

Credit Programs.—The budget assumes no new ship construction
loan guarantee commitments after 1989 on the basis that the maritime industry should be encouraged to rely on the private credit
market, without Federal intervention, as the source of capital. The
administration recommends the continuation of its policy of not
providing loans to private freight railroad companies, in light of
the health of the railroad industry. The administration is also




TRANSPORTATION

5-91

recommending the sale of its direct railroad loan portfolio; these
direct loans were made to private railroad companies from 1977 to
1985.
Tax Expenditures.—In addition to direct Federal funding, tax
expenditures provide assistance to shipping concerns and mass
transit systems. Certain companies that operate U.S.-flag vessels
were able to defer taxes indefinitely on income invested in construction, repair and modernization of ships, prior to 1987. Thereafter, the deferral has been limited to 25 years, which results in a
tax expenditure of $125 million in 1990. 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 $20 million in 1990. Total tax expenditures for transportation
are estimated to be $145 million in 1990.




5-92

THE BUDGET FOR FISCAL YEAR 1990

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.
The 1990 budget continues 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 policy 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 development projects.
The comprehensive and more flexible community development
block grant (CDBG) program would be the principal vehicle for
Federal support.
The administration is requesting budget authority of $6.4 billion
in 1990 for community and regional development, $0.3 billion below
the 1989 request. Outlays are also estimated to total $6.4 billion in
1990.
Community Development—The Community Development Block
Grant (CDBG) Program, administered by the Department of Housing and Urban Development (HUD), is the principal program in
this category. It 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 HUD Secretary's discretionary fund (which provides
grants for Indians, insular areas, technical assistance, a work-study
program 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
to be distributed to smaller communities and rural areas in their
jurisdictions.
The administration proposes to establish the CDBG program
level at $2.8 billion for 1990, slightly below the 1989 program level
of $3.0 billion. The 1990 program level includes $2.7 billion of new
budget authority and a transfer of $136 million from both the




5-93

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

Actual 1988

1989

1990

1991

1992

BUDGET AUTHORITY
Community development:
Community development block grants
Urban development action grants
Rental rehabilitation
Rental development
Pennsylvania Avenue Development Corporation
Other:
Existing law
Proposed legislation
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:
Existing law
Proposed legislation
Tennessee Valley Authority
Other
Offsetting receipts-.
Existing law
Proposed legislation
Subtotal, Area and regional development
Disaster relief and insurance:
Disaster relief:
Existing law
Proposed legislation
Other:
Existing law
Proposed legislation
Subtotal, Disaster relief and insurance.
Total, budget authority

2,650

2,650

2,650

130"

130

18

5

4

261

253

252

2,997

3,059

3,038

3,036

3,860

2,260
205

1,727
2
-7
9

1,197
*

207

2,039
-58
53
20

1,109

1,089

1,069
13

1,060
10

111

115

"iO3"

163"

4
-3
88
14

4
-4
91
14

93
15

—310

— 290

-296
4

-306
4

-313
4

5,080

3,482

2,948

2,606

2,069

120

100

270
50

279
50

287
50

85

100

97

98

98

205

200

416

426

435

8,831

6,679

6,423

6,070

5,540

2,880
216
205

2,650
-52
150

10

5

6

6

227

238

3,546

130"

3
4

* $500,000 or less.

unobligated balances of the section 312 rehabilitation loan fund
and 1990 recaptures in the Urban Development Action Grant
(UDAG) program. Although this reduces 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 repeal authorization for UDAG in 1990. Congress provided no funding for this program in 1989. This measure is part of




5-94

THE BUDGET FOR FISCAL YEAR 1990
NATIONAL NEED: COMMUNITY AND REGIONAL DEVELOPMENT
(Functional code 450; in millions of dollars)
Estimate
Major missions and programs

Actual 1988

1989

1990

1991

1992

OUTLAYS
Community development:
Community development block grants
Urban development action grants
Rental rehabilitation
Rental development
Pennsylvania Avenue Development Corporation
Other:
Existing law
Proposed legislation
Subtotal, Communitydevelopment
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:
Existing law
Proposed legislation
Tennessee Valley Authority
Other
Offsetting receipts:
Existing law
Proposed legislation

3,044
216
107
73

3,025
252
150
100

3,014
266
154
100

37

10

251

192

3,769

3,816

3,736

3,269

1,228

1,506
-151
-12
183

1,375
-71
-71
120

1,236
-79
-148
59

3,021
310
135
80
13

10
3,449

210

2,811
85
156
34
13
170

171

201

1,070

1,095

1,067
1

1,051
-2

1,049
-4

152

12
1

97
-5
-310

105
-6

110
-1
99
9

90
-4
91
9

52
-4
92
9

-290

-296
4

-306
4

-313
4

2,075

2,445

2,519

2,288

1,953

-348

-209

-236
-128

-258
-238

-160
-204

225
-78

236
40
-40

244
50
-41

251
50
-37

142

151

158

150

150

Subtotal, Disaster relief and insurance..

-230

8
9

3
1

-94

50

Total, outlays

5,294

6,303

6,365

5,930

5,272

Subtotal, Area and regional development
Disaster relief and insurance:
Small business disaster loans:
Existing law
Proposed legislation
Disaster relief:
Existing law
Proposed legislation
National flood insurance fund..
Other:
Existing law
Proposed legislation

187
.....
....

* $500,000 or less.

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 divert productive resources away
from private investment projects to Government-subsidized projects
that may provide local benefits, but are less efficient for the national economy as a whole. By approving awards to assist success-




COMMUNITY AND REGIONAL DEVELOPMENT

5-95

ful companies, major hotel chains, and large commercial banks, the
UDAG program unwisely spent Government dollars and diverted
scarce capital from its best possible use. Cities may, at their discretion, continue to use CDBG resources to assist economic development projects. The $252 million in outlays estimated for this program in 1990 reflect the continued spendout of funds for projects
approved in prior years.
The administration supports the use of the enterprise zoning
program as a more economically efficient approach to assisting
structurally depressed local economies. The administration believes
that State and local governments should be consulted to determine
the most effective ways Federal enterprise zones can be used to
support and expand business development.
Rental Rehabilitation Grants (RRG).—In 1983, the administration proposed, and the Congress enacted, a new housing rehabilitation program to support the rental voucher program in communities with substandard quality low and moderate-income housing.
The administration is proposing a $150 million program level for
RRG in 1990. The 1990 proposal includes $130 million of new
budget authority and an estimated $20 million in recaptures of
unused budgetary resources from prior years. Outlays in 1990 are
estimated to be $150 million.
The RRG program provides 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,
the administration proposes, as it did in last year's budget, 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 and 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. Although Congress
provided no new funding for the program in 1989, $5 million was
reappropriated from monies recaptured. The administration proposes no new funding in 1990 and requests repeal of the authorization language. This program has proven to be a costly subsidy




5-96

THE BUDGET FOR FISCAL YEAR 1990

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 1990 are
estimated to be $100 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 Pennsylvania Avenue between the White
House and the Capitol; an area that had experienced economic and
physical decline up to that time. The development plan was approved by the executive branch and Congress in 1975 and implementation began in 1978. Since then, over $200 million in U.S.
Treasury borrowings and appropriations has been obligated by
PADC for land acquisition and extensive improvement of the
public areas, including the creation of new parks and plazas; a
Federal investment that has directly contributed to attracting $1.5
billion in private investment on the project area's blocks. The $17.5
million in budget authority requested for 1990, combined with projected 1991-92 budget authority of $10 million would 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, continuing its Rural
Development Initiative, proposes a program to provide grants, and
direct and guaranteed loans to small communities through the
Farmers Home Administration in the Department of Agriculture.
The $75 million in grants, $200 million in direct loans, and $50
million in guaranteed loans proposed for 1990 will help small communities finance necessary water and waste treatment systems.
$96 million of guaranteed loans are proposed for qualified businesses and industries that establish or expand operations in rural
areas. $50 million of loan guarantees are also proposed for construction of community facilities, typically health care facilities.
The administration proposes to terminate rural development
grants, which have not been sufficiently targeted, and have proven
largely ineffective.
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 1990.
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




COMMUNITY AND REGIONAL DEVELOPMENT

5-97

that these programs create net new jobs nationwide. Rather, they
shift jobs between localities.
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 1990, the same as
the level enacted in 1989. This includes funds for direct loans,
guaranteed loans and economic development grants. Also included
is $15 million for recently enacted Indian Water rights settlements
in Colorado, California, and Arizona.
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 earlier. Total discretionary budget authority requested for special Indian programs Government-wide, including
programs in other functions such as income security and education,
is expected to be $3.2 billion in 1990. This amount does 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 $5.5 billion in
Federal funds has financed highway construction and community
development-related facilities. The administration proposes to terminate ARC in 1990. ARC highway funds unnecessarily duplicate
the Department of Transportation's Federal highways 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 should not be eligible for special
injections of Federal resources.
Tennessee Valley Authority (TVA).—The administration proposes
to terminate TVA's economic and community development programs, which are more appropriately private, or State and local
government responsibilities. These programs promote tourism, provide technical assistance to cities and towns, and encourage the
development of commercial resources in the region. TVA's basic
responsibilities continue to be water resources systems management and fertilizer research. For 1990, emphasis is placed on
TVA's stewardship role over Government resources in the region,
focusing on land use, water quality and fertilizer plant clean-up
activities. Outlays for TVA's activities in this function are estimated at $99 million in 1990, down $6 million from 1989. The TVA




5-98

THE BUDGET FOR FISCAL YEAR 1990

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 1988. 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 in 1995, including accumulation of reserves to
repurchase the $535 million of its class A stock that has been
purchased by Treasury. Consistent with this approach, the administration proposes $125 million in direct loan obligations for 1990,
and an increase in interest rates charged on RTB loans.
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 administration is proposing
to eliminate the Small Business Administration's (SBA) program
that provides loans to homeowners and businesses for uninsured
losses suffered as a result of physical disasters. Under current law,
recipients must be able to demonstrate the financial ability to
repay the loans. These loans are heavily subsidized 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).
Interest rates can be no more than 8 percent if credit can be
obtained from private sources. Eliminating SBA's disaster loan
program will encourage homeowners and businesses to obtain and
maintain adequate private insurance coverage against disaster-related losses instead of relying on direct Federal loans at preferential interest rates. Although elimination of this program will increase eligibility for the FEMA Individual Family Grant program,
savings are estimated to be $102 million in outlays for 1990. 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 5 years beginning in 1990.
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




5-99

COMMUNITY AND REGIONAL DEVELOPMENT

relief work performed under this authority. Outlays are estimated
at $276 million in 1990.
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 totalled more than $0.7 billion through 1988. A
series of rate increases have eliminated the annual losses in this
program, thereby recovering clearly allocable costs of flood insurance from beneficiaries of this program. Receipts for this program
are estimated to exceed outlays by $40 million in 1990.
CREDIT PROGRAMS—COMMUNITY AND REGIONAL DEVELOPMENT
(In millions of dollars)
Estimate
Actual 1988

1989

Direct loans:
Rural development insurance (credit reform):
New obligations
Change in outstandings
Outstandings
Rural development insurance fund:
New obligations
Change in outstandings
Outstandings
Rural development loan fund (credit reform):
New obligations
Change in outstandings
Outstandings
Rural development loan fund:
New obligations
Change in outstandings
Outstandings
Economic development assistance:
Change in outstandings
Outstandings
Small business disaster loans:
New obligations
Change in outstandings
Outstandings
Rural telephone bank (credit reform):
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 (credit reform):
New commitments
Change in outstandings




1990

1991

1992

20
0
426
-631
4,510

200
118
178

111
4,622

51
4,673

-91
4,582

14
1
1

426
-1,289
5,141

200
52
60

14
6

14
11
19

14
-1
32

14
6
38

46

6
52

1
53

-197
359

-50
309

-19
290

-21
269

-16
253

185
-459
3,260

280
-328
2,932

-574
2,358

-673
1,685

-551
1,134

125

125
34
41

125
59
100

-33
1,413

177
92
1,505

11
1,517

64
1,580

40
1,620

110
-338
1,293

33
-87
1,206

13
-149
1,057

13
-629
428

13
-63
366

816
-2,318
11,499

930
-998
10,501

352
-595
9,907

352
-1,111
8,796

352
-492
8,304

196
28

196
82

196
120

5-100

THE BUDGET FOR FISCAL YEAR 1990
CREDIT PROGRAMS—COMMUNITY AND REGIONAL DEVELOPMENT—Continued
(In millions of dollars)
Estimate

Actual 1988

Outstandings
Rural development insurance fund:
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

1989

1990

1991

28

1992

111

231

96
-231
1,688

296
-92
1,596

-114
1,483

-166
1,317

-194
1,123

28
123

20
2
125

-12
113

-11
102

-10
92

1

1

182
81
372

189
115
487

45
103
590

45
-20
569

45
-36
533

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

277
-122
2,185

505
25
2,210

241
5
2,214

241
-115
2,100

241
-120
1,980

Total, new obligations and new commitments

1,093

1F434

197

197

197

1

* $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 1990 tax expenditure for this provision is $1.1 billion. Development is also assisted by the exclusion of interest on State and local
industrial development bonds for airports, docks, and similar public
facilities. The Technical and Miscellaneous Revenue Act of 1988
expanded this category by providing tax-exempt financing to intercity high-speed rail facilities. The estimate for this provision is $1
billion for 1990. Special tax credits are also available for rehabilitation of older nonresidential buildings. For 1990, the estimated tax
expenditure for this program is $115 million. Total tax expenditures for community and regional development for 1990 are estimated to be $2.2 billion.




EDUCATION, TRAINING, EMPLOYMENT, SOCIAL SERVICES

5-101

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 jobs; (3) help employers and employees maintain stable and
productive relations; and (4) help provide social services for 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 $36.3 billion for 1990, $31
million below the 1989 level.
EDUCATION
Funding proposed for education activities in 1990 is intended to
provide support for the major programs assisting the educationally
disadvantaged, the handicapped, and low-income postsecondary students.
Excluding the financing effects of the proposed credit reform
legislation, outlays requested for education programs in 1990 are
$20.9 billion, $426 million or 2.1 percent above the level estimated
for 1989.
Elementary, Secondary, and Vocational Education.—The administration requests $10.3 billion in budget authority in 1990 for elementary, secondary, and vocational education programs, $130 million above the level estimated for 1989.
School Improvement Programs.—These programs provide assistance to States, school districts, and others, to design and implement education reform, operate drug abuse prevention education
programs, upgrade the teaching of mathematics and science, and
demonstrate new approaches to school reform. The largest of these
programs is the education block grant, for which the administration is proposing budget authority of $479 million in 1990. The
administration is seeking $367 million in budget authority for the
drug-free schools program in 1990.




5-102

THE BUDGET FOR FISCAL YEAR 1990
NATIONAL NEED: EDUCATION, TRAINING, EMPLOYMENT, AND SOCIAL SERVICES
(Functional code 500; in millions of dollars)
Estimate
Major missions and programs

Actual 1988
1989

1990

1991

1992

BUDGET AUTHORITY
Education:
Elementary, secondary, and vocational education:
School improvement programs
Compensatory education
Education for the handicapped
Impact aid
Vocational and adult education:
Existine law
ProDosed legislation
Other:
Existing law
Proposed legislation
Subtotal, Elementary, secondary, and
vocational education
Higher education:
Student financial assistance
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
Subtotal, Training, employment, and
other labor services
Social services:
Social services block grant
Community services block grant
Rehabilitation services




1,040
4,337
1,869
708

1,217
4,579
1,966
733

1,201
4,730
2,014
629

1,194
4,780
2,024
629

1,190
4,830
2,063
629

1,013

1,081

177
942

187
942

197
942

572

585

566
31

578
31

586
31

9,539

10,161

10,291

10,366

10,469

5,545

5,819

5,845

5,738

5,723

2,565

3,504

3,130
-167
4,013

2,675
-188
3,389

2,619
223
2,712

875

920

894
3

884
3

872
3

8,985

10,243

13,718

12,502

11,706

1,363

1,403

1,339
137

1,430
137

1,397
137

1,363

1,403

1,476

1,568

1,534

19,887

21,807

25,485

24,435

23,710

1,809
718

1,788
709

1,788
709

1,788
709

1,788
709

338

364

716
331
93
297
1,025

742
344
91
286
1,069

474
-74
762
336

469
-69
790
336

466
-66
816
336

262
1,002

248
1,044

249
1,082

5,327

5,393

5,259

5,315

5,379

778

802

815

831

846

6,106

6,195

6,075

6,146

6,225

2,700
382
1,590

2,700
381
1,657

2,700

2,700

2,700

1,726

1,782

1,841

EDUCATION, TRAINING, EMPLOYMENT, SOCIAL SERVICES

5-103

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

Actual 1988
1989

Payments to states for foster care and
adoption assistance:
Existing law
Proposed legislation
Human development services:
Existing law
Proposed legislation
Domestic volunteer programs
Interim assistance to States for legalization...
Other social services

1990

1991

1992

811

1,719

1,286
-571

1,433
-662

1,574
-753

2,456

2,574

163
930
25

170
645
28

2,571
483
170
444
27

2,612
499
174
433
27

2,648
513
176

Subtotal, Social services

9,057

9,873

8,836

8,997

8,726

Total, budget authority

35,050

37,875

40,395

39,578

38,661

27

Compensatory Education for the Disadvantaged.—These programs provide the major Federal support for remedial education
services for the educationally disadvantaged. For 1990, the administration is proposing $4.7 billion in budget authority, an increase of
$151 million over the 1989 enacted level.
Education for the Handicapped.—The administration is requesting $2.0 billion in budget authority for the education of handicapped children in 1990. An increase of $47 million over the 1989
enacted level is provided for the major State grant.
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 both live on
Federal property and whose parents work on Federal property. The
administration requests no funds in 1990 for school districts that
provide services to children who either live on Federal property or
whose parents work on Federal property, but not both. This change
in the impact aid program would ensure that funds go only to
those districts in which, in general, such "federally connected"
children pose a demonstrable burden on the school system.
Vocational and Adult Education.—The administration requests
$949 million for vocational education including $942 million under
an administration proposal. Budget authority of $170 million is
requested for adult education, $8 million more than the 1989 enacted level. Adult education programs are a key part of the administration's efforts to combat adult illiteracy.
Other Elementary and Secondary Education.—The administration is requesting budget authority of $204 million in 1990 for
bilingual, immigrant, and refugee education. In addition, $270 million is requested for the Department of Interior's Indian education




5-104

THE BUDGET FOR FISCAL YEAR 1990

programs and $74 million for the Department of Education's Indian
education programs. Increases over 1989 are proposed for an elementary and a secondary school for deaf children operated by
Gallaudet University, and for the American Printing House for the
Blind.
NATIONAL NEED: EDUCATION, TRAINING, EMPLOYMENT, AND SOCIAL SERVICES
(Functional code 500; in millions of dollars)
Major missions and programs

Actual 1988

Estimate
1989

1990

1991

1992

OUTLAYS
Education:
Elementary, secondary, and vocational education:
School improvement programs
Compensatory education
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
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




443
4,028
1,466
708

975
4,226
1,872
721

1,235
4,312
1,940
686

1,293
4,701
2,013
674

1,195
4,773
2,026
633

1,276

828

796
113

338
754

204
923

43
9

56
5

600
4

594
25

599
30

8,413

9,178

9,687

10,391

10,385

5,220

5,792

6,006

5,748

5,735

2,779

3,202
-21

3,182
-118
3,211

2,736
-178
3,514

2,601
-216
2,847

29
9

95
1

905
-258

917
34

8,299

9,889

12,927

12,771

885
24
11,876

1,261

1,413

1,449
55

1,487
106

1,406
137

1,261

1,413

1,503

1,593

1,544

17,972

20,480

24,117

24,755

23,804

1,901
707

1,873
696

1,799
701

1,788
701

1,788
709

205

344

689
324
90
262
1,037
5,215

698
334
97
295
1,047
5,384

402
-22
741
342
5
281
1,059
5,308

466
-58
780
336

464
-69
801
336

263
1,019
5,295

250
1,059
5,338

EDUCATION, TRAINING, EMPLOYMENT, SOCIAL SERVICES

5-105

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

Actual 1988
1989

Other labor services
Subtotal, Training, employment, and
other labor services
Social services:
Social services block grant
Community services block grant
Rehabilitation services
Payments to states for foster care and
adoption assistance:
Existing law
Proposed legislation
Human development services:
Existing law
Proposed legislation
Domestic volunteer programs
Interim assistance to States for legalization...
Other social services
Subtotal, Social services
Total outlays

1990

1991

1992

739

801

803

823

838

5,954

6,185

6,111

6,119

6,175

2,666
408
1,537

2,688
391
1,618

2,694
119
1,703

2,700
9
1,767

2,700

1,004

1,548

1,326
421

1,388
624

1,531
-724

2,216

2,485

153
10
17

169
756
30

2,572
352
171
759
28

2,594
477
172
551
27

2,629
506
175
339
27

8,011

9,686

9,303

9,061

9,007

31,938

36,351

39,531

39,934

38,987

1,825

Higher Education.—Excluding the financing effects of the proposed credit reform legislation, the administration requests $9.7
billion in budget authority for higher education in 1990, $538 million below the 1989 enacted level of $10.2 billion.
Student Financial Assistance and Guaranteed Student Loans.—
The budget continues the Federal Government's longstanding commitment to increasing 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 over $19 billion,
higher than ever before. Budget authority for student financial
assistance for 1990 is requested at $5.8 billion, $31 million higher
than 1989. Major proposals include:
• Expansion of the recently begun income contingent loan program from $4.9 million in 1989 to $20 million in 1990. Under
this program, repayments are adjusted annually to fit within
the income the student earns after leaving school.
• Budget authority of $4.7 billion in 1990 for the Pell grant
program for low-income students (including $96 million to
retire prior year funding shortfalls), with the maximum
award at $2,300.
• No funds are proposed in 1990 for new capital grants to
schools for Perkins loans or for State student incentive
grants, which were funded in total at $255 million in 1989.
The Perkins program provides unnecessarily high loan subsidies and is not needed, given the $12.5 billion in loans antici-




5-106

THE BUDGET FOR FISCAL YEAR 1990

pated under the guaranteed student loan programs. The State
student incentive grant program has long since fulfilled its
objective of stimulating State need-based aid programs.
Budget authority for guaranteed student loans is requested at
$3.0 billion, excluding financing effects of the proposed credit
reform legislation. Student loan defaults are estimated at over $1.8
billion in 1989. Under the administration's proposals, a small part
of the cost of financing defaults would be shared with lenders and
guarantee agencies, who will thus have incentives to improve their
performance in default prevention and debt collection. Other proposals would reduce the cost of the program by reducing lender
profit and would reduce the number of defaults.
The budget authority and outlays for the administration's credit
reform proposal reflect the estimated subsidies implicit in the guaranteed student loan program. The administration's proposed credit
reform initiative is discussed in Part 6 of this volume.
Other Aid to Higher Education.—Budget authority of $87 million
is requested for historically black colleges and universities. Funding increases are requested for the operations of Gallaudet University, the National Technical Institute for the Deaf and Howard
University, including an increase for endowment matching grants
to help Howard move more rapidly toward reduced dependency on
Federal funds. Policies are being developed with Howard to reduce
subsidies for foreign students. No funding is sought in 1990 for
certain small, relatively lower priority programs, some of which
also duplicate other programs.
The budget includes Education Department sales of college housing and higher education facilities loan assets in 1990. About $475
million of college housing and higher education facilities loans are
planned for sale with proceeds estimated at about $261 million.
Research and General Education Aids.—The administration pro-

poses to increase budget authority in 1990 for Education Department research and statistics to $88 million, $10 million over the
1989 enacted level. Funding of $137 million is sought under new
legislation to support library programs. Funding is proposed at the
1989 program level for the National Endowments for the Arts and
for the Humanities and for the Institute of Museum Services. The
administration is proposing that 1992 funding for the Corporation
for Public Broadcasting (which receives two-year advance appropriations) should be held at the 1991 level for general, not satellite,
support. This level is sufficient to meet programming requirements
while providing incentives for the development of non-Federal
sources of funding.
Tax Expenditures.—A variety of exclusions, exemptions, and deductions provide assistance for education. Student loans are subsi-




EDUCATION, TRAINING, EMPLOYMENT, SOCIAL SERVICES

5-107

CREDIT PROGRAMS—EDUCATION, TRAINING, EMPLOYMENT, AND SOCIAL SERVICES
(In millions of dollars)
Actual 1988

Direct loans:
Guaranteed student loans (credit reform):
Change in outstandings
Outstandings
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

Estimate
1989

1990

1991

1992

16
16

78
94

281
374

399
7,480

-28
7,452

-5
574

-6
568

801
5,593

806
6,399

-53
604

-15
588

682
7,081
_g
579

62
-615
848
-30
4,910

30
3
851

-442
408

29
438

25
463

4,910

-30
4,880

-30
4,850

-30
4,820

62
103
11,954

30
794
12,748

217
12,965

471
13,436

242
13,678

13,080
12,459
12,459

13,861
13,118
25,577

14,682
13,650
39,227

Guaranteed loans:
Guaranteed student loans (credit reform):
New commitments
Change in outstandings
Outstandings
Guaranteed student loans:
New commitments
Change in outstandings
Outstandings

11,812
4,875
47,610

12,090
4,433
52,043

-8,310
43,733

-8,989
34,744

-9,629
25,115

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

11,812
4,875
.47,610

12,090
4,433
52,043

13,080
4,149
56,192

13,861
4,129
60,321

14,682
4,021
64,342

11,874

12,120

13,080

13,861

14,682

Total, new obligations and new commitments

dized 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 $405 million and $720 million, respectively,
in 1990. Other assistance is provided through a 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 to educational institutions. Tax expenditures for these items are estimated at $450 million and $1.8 billion,
respectively, in 1990. The exclusion of interest on State and local
debt for private nonprofit educational facilities results in a tax
expenditure estimated at $330 million in 1990. A new program,




5-108

THE BUDGET FOR FISCAL YEAR 1990

enacted in 1988 at the request of the administration, creates a
college savings bond program to help lower- and middle-income
families save for the rising cost of a college education. Tax expenditures in 1990 would be $20 million. Current tax expenditures for
education are estimated to total $3.8 billion in 1990.
TRAINING, EMPLOYMENT, AND OTHER LABOR SERVICES

Federal training and employment programs are designed to improve individuals' abilities to obtain and retain jobs and to facilitate the operation of the labor market by contributing to a more
skilled and flexible workforce. 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 1990, outlays for these activities
are expected to be $6.1 billion, a decrease of $74 million from the
estimate for 1989.
Training and Employment—The major Federal activities for
training and employment are financed through grants to States. In
turn, States engage in training those economically disadvantaged
youths and adults who have the greatest difficulties in the job
market; help experienced workers displaced from their jobs find
new employment; provide subsidized jobs, remediation, and training for youth in the summer; and operate 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 funds. In each State and locality, the private sector
is heavily involved in planning and carrying out the programs. The
primary JTPA program is a block grant that provides States and
localities program discretion within broad Federal guidelines. To
provide lead time for adequate planning, the budget authority enacted for a fiscal year for JTPA and the Employment Service
finances a 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 local-




EDUCATION, TRAINING, EMPLOYMENT, SOCIAL SERVICES

5-109

ities, JTPA requires that at least 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 and
$1.8 billion in 1990 will provide services to over 1 million people in
each program year.
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
summer for disadvantaged youth between the ages of 14 and 21.
The 1989 budget authority provides jobs in the summer of 1990; the
1990 budget authority provides jobs in the summer of 1991. While
the program usually has been successful in providing summer jobs,
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.
The administration recommends that legislation be enacted to
change the existing summer youth employment program to allow
States and local areas to establish a comprehensive program of
services for low-income youth. The enhanced program would better
target resources to disadvantaged youth and 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 $709 million in 1990 is proposed for this program, the
same level as enacted for 1989.
Assistance to Dislocated Workers.—Two programs have been
available to help workers whose jobs have disappeared because of
changes in the economy.
JTPA provides grants to States to help dislocated workers find
new jobs, get training in new skills for which there is a demand, or
meet the costs of looking for work or moving to new locations
where they have found permanent employment. An appropriation
of $287 million was enacted to be distributed in this manner in
1988.




5-110

THE BUDGET FOR FISCAL YEAR 1990

Beginning with the 1989 program year, the current JTPA program will be replaced by a new dislocated worker training program. The Economic Dislocation and Worker Adjustment Assistance Act (EDWAA), which is an outgrowth of an administration
proposal, was enacted as part of the Omnibus Trade and Competitiveness Act of 1988 and amends the JTPA dislocated worker title
replacing all current provisions of that portion of the law. EDWAA
requires each State to designate an identifiable agency responsible
for the program at the State level that has the capability to respond rapidly to major layoffs and plant closures. In addition,
EDWAA establishes a sub-State service delivery system similar to
the other JTPA programs and authorizes funds for rapid response
assistance, basic readjustment and support services, retraining
services, needs related payments, and the promotion of labor-management committees to assist in transition activities during a plant
or facility closure. Individuals eligible for assistance include those
affected by layoffs or plant closings, unemployed persons who have
exhausted their eligibility for unemployment compensation, the
long-term unemployed, and self-employed persons, including farmers.
For 1989, the $284 million already appropriated for the previous
JTPA dislocated worker assistance program will be available for
transition to, and for activities authorized by, EDWAA. For 1990,
$400 million is requested and some 300,000 unemployed dislocated
workers will be served. Assistance to workers is expected to be
provided faster and more efficiently than under the previous JTPA
program.
The second program for helping dislocated workers is trade adjustment assistance (TAA), which provides unemployment benefit
payments for a period beyond that available from regular unemployment insurance. TAA also pays for retraining workers whose
skills are obsolete or for job search and relocation costs. This aid is
available only to workers who are determined to have been displaced from their jobs by increased imports. Experience under the
program suggests that the additional weeks of unemployment benefits encourage some workers to delay efforts to seek new opportunities in the hope that they will be recalled to their old jobs. In
addition, the separate TAA program assisting only one group of
unemployed workers raises serious questions about equity of treatment. TAA was amended and expanded in 1988 to cover workers in
the oil and natural gas industries and to make training an entitlement for TAA-certified workers. Congress provided $48 million for
retraining and relocation assistance and resources to finance $184
million in cash benefit payments under TAA in 1989. The administration is requesting supplemental to increase the amount for
training to $80 million and cash benefits to $276 million.




EDUCATION, TRAINING, EMPLOYMENT, SOCIAL SERVICES

5-111

The administration proposes to remove the authority for the
program and no resources are requested for serving new enrollees
in the TAA program in 1990. These workers would be served by the
new EDWAA program. Current TAA recipients would continue to
receive their benefits and complete their training.
Job Corps.—The Job Corps provides disadvantaged youth remedial education and job skills training in 105 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, it is important to help keep program costs
under control and improve program efficiency while maintaining
service levels. For 1990, savings would be achieved by implementing the results of several pilot and demonstration projects that
tested ways to reduce costs or improve performance. Finally, in
later years, savings will accrue from competitively bidding the
centers currently run by the Departments of Agriculture and Interior, starting in 1990. The 1990 budget authority request of $762
million would be sufficient to support 40,500 training slots, the
same level as in previous years, and to continue work on opening
new centers.
Older Americans Employment—Part-time public service employment for low-income older workers is provided under Title V of the
Older Americans Act through contracts with 9 national service
organizations, the U.S. Forest Service, and through grants to
States. Budget authority of $336 million is requested for 1990, with
outlays estimated to be $342 million. Some 64,300 job opportunities
would be provided for older workers in 1990.
Work Incentive Program/Job Opportunities and Basic Skills
Training Program.—The work incentive program (WIN) has provided grants to States for employment and training job services to
recipients of AFDC (aid to families with dependent children). Although the program's aim is to help curb welfare dependency, it
has not proved successful or cost-effective. The Family Support Act
of 1988 established a new, more comprehensive program, job opportunities and basic skills training program (JOBS) to replace the
WIN program. States can replace WIN jobs at the beginning of any
quarter from the last quarter of fiscal year 1989 until the end of
fiscal year 1990. For 1990, remaining Federal financing of WIN
would come out of the JOBS appropriation; therefore, no separate
funding is requested for WIN in 1990.
Other Training Programs.—Outlays of $281 million are estimated
in 1990 for other national training programs, including research
and demonstration projects and special programs for veterans,
native Americans, and migrant and seasonal farm workers.




5-112

THE BUDGET FOR FISCAL YEAR 1990

Federal-State Employment Services.—Grants are made to 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 cost of job search and placement
services for 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.
Beginning in 1990, States will receive special grants under the
new Economic Dislocation and Worker Adjustment Assistance program described earlier. States will 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 $4.7 billion and $205 million, respectively, in
1990.
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, 1989. 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 $280 million and $100 million, respectively, in 1990. Total tax expenditures for training and employment
are estimated to be $6.2 billion in 1990.
SOCIAL SERVICES

The Federal Government makes grants to States and to local
public and private institutions to help 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 $9.7 billion in 1989 and $9.3
billion in 1990.




EDUCATION, TRAINING, EMPLOYMENT, SOCIAL SERVICES

5-113

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 1990, the same level as enacted for 1989.
Community Services Block Grant.—In 1990, the administration
proposes to end Federal funding of the community services block
grant program. No budget authority is requested. States may continue community services programs under the social services block
grant.
Rehabilitation Services.—For vocational rehabilitation, budget
authority of $1.7 billion is requested, an increase of $69 million
over 1989, primarily for State formula grant programs. Most other
activities are proposed to be funded in 1990 at their 1989 enacted
levels.
Payments to States for Foster Care and Adoption Assistance.—In
1990, budget authority of $715 million is requested for payments to
States for maintenance payments to children eligible for the Federal foster care and adoption assistance programs. Funds support
State programs to reunite children with their families or, when
this not possible, to place them promptly in adoptive homes. The
budget reflects proposed legislation to transfer $483 million in estimated payments to States for foster care and adoption assistance
administration and training claims to a new discretionary comprehensive child welfare services formula grant. As proposed, funds
for the new formula grant are being requested as part of human
development services discussed below. In addition, a 1989 supplemental of $599 million is requested for States' prior years' claims
and reestimates of 1989 claims.
Human Development Services.—In 1990, budget authority of $3.1
billion is requested to support social services for children, victims
of family violence, the elderly, persons with developmental disabilities, and Native Americans. The request reflects the legislative
proposal for child welfare services discussed under foster care.
Domestic Volunteer Programs.—The ACTION agency operates
programs to help older citizens provide various social services, pays
stipends and other support costs of the volunteers in service to
America (VISTA) program , and provides small grants to stimulate




5-114

THE BUDGET FOR FISCAL YEAR 1990

other volunteer services. In 1990, the foster grandparent program
would support approximately 28,000 older volunteers who would
work with about 70,000 children with special needs. The senior
companions program would provide support for approximately
12,600 volunteers to work with 30,000 older people confined to their
homes. The retired senior volunteer program would support about
402,000 part-time volunteers in 1990 who work on a great variety of
community needs. Funds requested for the VISTA program would
provide 2,600 volunteer service years in 1990.
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 $11.1 billion in 1990.
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 $240 million in 1990. For social services, tax expenditures are estimated to total $11.6 billion in 1990.
Total tax expenditures for education, training, employment, and
social services are estimated at $21.6 billion in 1990.




HEALTH

5-115

HEALTH
The Federal Government helps to meet the Nation's health
needs by financing and supporting activities involving health care
services, disease prevention, research, training, and consumer and
occupational health and safety. Since 1960, per capita spending on
health care has increased rapidly—more than twice the rate of
inflation. Americans now spend 11.1 percent of GNP on medical
care, more than any other industrialized nation. Federal health
spending has grown even faster than medical spending generally.
Despite major policy reforms enacted since 1981, this spending will
more than double within a decade unless present trends are tempered.
Health Care Services.—Four-fifths of Federal outlays for health
are devoted to financing or supporting health care services provided directly to individuals. Federal outlays for health care services,
excluding medicare, military, and veterans medical programs, are
estimated to increase from $40.6 billion in 1989 to $42.4 billion in
1990.
Medicaid Grants.—Under current law, the Federal Government
is expected to finance 56 percent of the cost of the joint StateFederal medicaid program. In 1990, the State and local share is
projected to be $29.4 billion. The projected 1990 Federal share of
$37.4 billion is an increase of 9 percent over 1989. The medicaid
program will finance health care for 25 million Americans. Steep
growth in the cost of medical care will contribute to rapidly rising
Federal outlays, which are projected to increase by an average of 9
percent per year between 1989 ancf 1994.
The budget proposes a renewal of cost containment incentives
that were originally authorized by the Omnibus Budget Reconciliation Act of 1981 but which expired at the end of 1984. The budget
also proposes to restructure Federal financing of administrative
expenses from a matching formula to a block grant indexed to
inflation. A proposal to continue the current medicare Part B
premium levels (which is discussed in the medicare function) would
moderately increase costs for the medicaid program.
Federal Employees Health Benefits (FEHB).— The budget reflects
proposed legislation for two reforms in the FEHB program, the
world's largest multiple-choice health program, with estimated outlays in 1989 of $1.9 billion. The first reform proposes that the
formula used to determine the Government's contribution to enrollees' health premiums be changed to a program-wide weighted average that reflects the premiums of all FEHB plans and the distribution of enrollees among those plans. Currently, this contribution is
based on a simple average of the high-option coverage offered by
six of the largest plans. This outdated formula prevents the Gov240-000 O - 1989 - 8 QL 3




5-116

THE BUDGET FOR FISCAL YEAR 1990
NATIONAL NEED: HEALTH
(Functional code 550; in millions of dollars)
Estimate
Major missions and programs

Actual 1988
1989

1990

1992

1991

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

30,768

34,292

37,398
-1,437

41,356
-1,987

45,373
-2,358

1,789

2,374

3,780
-970

4,325
-1,191

5,338
-1,366

4,195

4,856

4,808
*

4,838

4,916

36,752

41,523

43,579

47,341

51,902

Health research:
National Institutes of Health research 1
Other research programs

6,365
653

6,834
843

6,453
1,847

6,567
1,960

6,655
2,082

Subtotal, Health research

7,018

7,677

8,300

8,527

8,737

301

313

324

328

333

208

198

37

40

41

45

7
-7
29
39

8
36

6
35

Subtotal, Education and training of
health care work force

550

556

392

409

413

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

908
405

976
417

869
432

881
441

883
448

Subtotal, Consumer and occupational
health and safety

1,313

1,393

1,301

1,322

1,331

45,634

51,149

53,571

57,599

62,383

Subtotal, Health care services

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

Total, budget authority

* $500,000 or less.
1
HIV funds are included in 1988-89, but excluded in 1990-92, where they appear under "other research programs."

ernment's contribution from reflecting the shift of enrollees from
high-option to low-option coverage and the dramatic growth in the
number of FEHB plans. The proposed formula would reflect these
and other changes in the FEHB program, providing more equitable
cost sharing between the Government and its employees.
The second reform proposes that the respective employer health
insurance costs for current annuitants and survivors be transferred
from the Federal Government to the U.S. Postal Service and the
District of Columbia government. This proposal expands a principle
already in current law, which requires the Postal Service to pay
the Government contributions for annuitants who retire on or after
October 1, 1986.




5-117

HEALTH

Of the $958 million in estimated 1990 FEHB outlay reductions in
this function, $806 million represents the transfer of annuitants'
costs to the Postal Service and the District of Columbia government. The remaining $152 million is in estimated 1990 outlay
savings from the program-wide weighted average proposal. An additional $256 million in outlay savings from the program-wide
weighted average proposal accrues to agencies throughout the Government, and is presented in the allowances section.
NATIONAL NEED: HEALTH
(Functional code 550; in millions of dollars)
Major missions and programs

Actual 1988

Estimate
1990

1989

1992

1991

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

30,462

34,292

37,398
-1,437

41,356
-1,987

45,373
-2,358

1,755

1,884

2,779
-958

3,706
-1,171

4,575
-1,336

3,802

4,373

4,595
-20
*

4,910

4,871

36,019

40,549

42,357

46,814

51,125

Health research:
National Institutes of Health research.
Other research programs

6,051
594

6,455
877

6,654
1,391

6,435
1,704

6,506
2,087

Subtotal, Health research

6,645

7,332

8,045

8,139

8,593

283

298

318

321

326

229

190

88
2
8
40

60
2
6
38

Subtotal, Health care services

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

29

48

75
-7
29
44

Subtotal, Education and training of
health care work force

541

536

459

460

432

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

886
398

934
411

890
426

890
440

888
447

Subtotal, Consumer and occupational
health and safety

1,285

1,345

1,316

1,330

1,335

44,490

49,761

52,177

56,743

61,484

Total, outlays
* $500,000 or less.

Other Health Care Services.—Budget authority of $1.6 billion is
requested for health block grants in 1990, $156 million more than
the 1989 level. This increase reflects a proposed family planning
block grant to give States greater latitude in delivering voluntary




5-118

THE BUDGET FOR FISCAL YEAR 1990

family planning services, and a proposed expansion of the Preventive Health and Health Services Block Grant. Block grants allow
States flexibility in coordinating and improving the effectiveness of
services for their citizens. Under such grants, unnecessary Federal
regulatory, legal, and reporting requirements are eliminated, allowing the States to streamline program administration and to
devote more resources to services.
Total budget authority of $1.1 billion is proposed for the Indian
Health services in 1990. This consists of separate requests of $266
million for Tribal Health Administration and $820 million for Federal Indian Health Administration. Separate appropriations are
requested to support advancement towards the 10-year goal of entrusting 75 percent of Indian health hospitals and clinics to tribal
organizations. The Tribal Health Administration proposal includes
$73 million for full funding of tribal contracts' indirect costs, a 64
percent increase over 1989. In addition, the tribal and Federal
Indian health services will collect an estimated $121 million in
third-party reimbursements for health services, including an additional $40 million in increased collections of third-party reimbursements authorized under the Indian Health Care Amendments of
1988.
Budget authority of $942 million is requested for drug abuse
treatment, research, prevention, and deterrence programs in the
Public Health Service (PHS), an 8.6 percent increase over the
comparable 1989 level. These funds will support the President's
initiative to combat drug abuse.
For 1990, $18 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 ninth 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 government. This payment is classified in the general government function.
Health Research.—The administration's 1990 budget request supports the view, long held by the National Institutes of Health
(NIH) and the university research community, that basic biomedical research should be a priority, and reflects the expressed scientific priorities of the biomedical research community. Unlike applied and developmental research, which have commercial applications and many other sources of funding, basic research is a core
Federal function. Specifically, the proposed funding request would:
• Stabilize and accelerate the accumulation of vital knowledge
through a 6.6 percent increase over 1989 for basic research.




HEALTH

5-119

• Commit $100 million in 1990 to the long-term h u m a n genome
project.
• Expand the funding for biomedical research training by 3
percent.
• Maintain support for applied and developmental research.
Excluding efforts on the H u m a n Immunodeficiency Virus (HIV,
commonly called AIDS), the health research request for the Department of Health and H u m a n Services totals $7.2 billion in
budget authority, an increase of $350 million over 1989. The 1990
request includes $6.5 billion for the NIH and $0.6 billion for the
Alcohol, Drug Abuse, and Mental Health Administration
(ADAMHA).
Preventing and alleviating suffering from HIV infection is the
highest public health priority of the administration. In implementing the President's 10-point action plan to combat HIV, support for
research, prevention, and treatment will exceed $2.1 billion in
1989. This complements multi-million dollar State, local and private efforts. The budget seeks a 24 percent increase over 1989
funding levels, or a total of $1.6 billion for Public Health Service
(PHS) HIV funding. The current sharing of HIV funding management among 23 separate PHS agencies impairs rapid, effective
responses to HIV issues. The budget seeks to lift this and other
impediments by consolidating HIV management and resources in
the National HIV Program of the Public Health Service.

Education and Training of the Health Care Workforce.—In 1990,
$392 million in budget authority is requested for these programs,
compared to $556 million appropriated in 1989. Between 1965,
when Federal subsidies for health professions training began, and
1988, the supply of physicians per capita grew by 60 percent. Surpluses are projected for most health care disciplines in the 1990s.
Because 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 1990.
In 1990, the budget proposes to support an estimated 10,000
students in health professions training programs—medical and
allied health professionals—with $100 million in new guaranteed
loan commitments under the health education assistance loan program. An additional 45,400 nursing and health professions students
would continue to receive assistance through revolving fund loans.
To expand the future pool of basic biomedical and behavioral scientists, the budget seeks a 3 percent increase for research training.
Consumer and Occupational Health and Safety.—Budget authority of $1.3 billion in 1990 is requested to protect consumers from




5-120

THE BUDGET FOR FISCAL YEAR 1990

CREDIT PROGRAMS—HEALTH
(In millions of dollars)
Estimate
Actual 1988

1989

1990

1991

1992

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

3
8

46
18
821

48
-163
658

46
28
686

50
25
711

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

3
8

46
18
821

48
-163
658

46
28
686

50
25
711

229
545
1,850

230
192
2,042

-41
2,001

-42
1,959

-42
1,917

100
100
100

100
100
200

75
75
275

Guaranteed loans:
Health profession graduate student loans:
New commitments
Change in outstandings
Outstandings
Health education assistance loans (credit
reform):
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

-164
672

-107
564

-107
457

-114
343

-122
221

229
381
2,522

230
85
2,606

100
-48
2,558

100
-56
2,502

75
-89
2,413

27
6

26
7

18
4

16
4

14
2

unsafe and defective products and to protect workers from occupational hazards.
Consumer Safety.—Budget authority for consumer safety activities is proposed to be $869 million in 1990. An additional $100
million in Food and Drug Administration user fees is proposed to
enhance these activities. 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.
Occupational Safety and Health.—The budget requests $432 million in budget authority to improve occupational safety and health
in 1990. 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. Both
OSHA and MSHA will continue efforts to revise or eliminate
standards that burden employers without enhancing protection of




HEALTH

5-121

workers, focusing resources 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 are also encouraged. All mine inspections required by the Mine Safety and Health Act in 1989 and 1990 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 $37.3 billion for 1990. Employees are also allowed to exclude from their taxable income the
employers' payments made on their behalf into the Hospitalization
Trust Fund which finances Medicare benefits. This tax expenditure
equals $6.7 billion in 1990. Individuals also are permitted to itemize
as deductions certain expenses for health care. In 1990, the estimate for this health-related tax expenditure is $2.3 billion. In
addition, health-related charitable contributions result in a tax
expenditure estimated at $1.6 billion for 1990, and the exclusion of
interest on State and local hospital bonds results in an estimated
1990 tax expenditure of $3.0 billion. Estimated tax expenditures for
existing health provisions total $51.0 billion in 1990.
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.




5-122

THE BUDGET FOR FISCAL YEAR 1990

MEDICARE
The Federal Government contributes to the health of aged and
disabled Americans through medicare. In 1990, 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 recently enacted Medicare Catastrophic Coverage
Act of 1988 (Public Law 100-360) will expand medicare coverage
and limit beneficiary out-of-pocket expenses for medicare covered
services.
Medicare consists of three parts. 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) pays
for physician services, hospital outpatient and laboratory services,
treatment for end-stage renal disease, and durable medical equipment. While enrollees pay about 25 percent of Part B costs through
premiums, a subsidy from general revenue finances the bulk of the
Part B program. In 1989, this subsidy is expected to total $30.7
billion, or an average of $79 per month per enrollee. With the
enactment of the Medicare Catastrophic Coverage Act of 1988,
beneficiary out-of-pocket expenses are limited under Part A and
Part B, and reimbursement for certain outpatient prescription drug
expenses will be phased in starting in 1990. In calendar year 1990,
medicare enrollees will pay $4.90 in special catastrophic monthly
premiums for this increased protection, with an estimated twofifths of higher-income medicare eligibles also paying an incomerelated supplemental premium.
Under current law, which assumes continuation of three provisions in effect in 1989, medicare outlays are expected to increase 11
percent annually—or a total of nearly $53 billion—between 1990
and 1994. Medicare's spending on physician services, one of the
fastest growing parts of the budget, is expected to increase 13
percent annually over the five-year period.
Even with the administration's savings proposals, medicare outlays are projected to increase from $94.9 billion in 1990 to $143.3
billion in 1994. This increase significantly exceeds general inflation
and the growth in the beneficiary population. The administration
proposes to modestly restrain the rate of increase in per capita
medicare spending but without adversely affecting beneficiaries or
altering the new Medicare Catastrophic Coverage Act benefits. In
the budget, medicare spending per beneficiary increases from
$2,857 in 1990 to $4,039 in 1994.
Hospital Insurance.—The budget proposes to reduce medicare
capital payments in 1990 by 10 percentage points below 1989 current law rates. The indirect medical education add-on would be




5-123

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

Actual 1

1989

1990

1991

1992

75,331

80,689
2,289
2,847

86,908
2,639
2,238

92,617
3,027
2,660

48,551
-1,130
4,915
833

54,501
-2,439
5,644
2,418

62,672
-3,593
5,724
2,697

-12,066
297
-1,838

-13,721
613
-2,130
-593

-15,416
877
-2,614
-957

BUDGET AUTHORITY
Medicare:
Hospital insurance (HI):
Existing law
Proposed legislation
Catastrophic hospital reserve fund
Supplementary medical insurance (SMI):
Existing law
Proposed legislation
SMI, catastrophic
Federal catastrophic drug insurance
Medicare premiums and collections:
Existing law
Proposed legislation
SMI, catastrophic premium
Catastrophic drug insurance premium
Total, budget authority
OUTLAYS
Medicare:
Hospital insurance (HI):
Existing law
Proposed legislation
Supplementary medical insurance (SMI):
Existing law
Proposed legislation
SMI, catastrophic:
Existing law
Proposed legislation
Federal catastrophic drug insurance
Medicare premiums and collections:
Existing law
Proposed legislation
SMI, catastrophic premium
Catastrophic drug insurance premium
Total, outlays..

67,999

554
35,002

42,070
1,169

-8,798

-10,511
••-U63"

94,203

107,450

125,387

136,078

147,694

52,730

58,383

64,290
-2,396

70,317
-3,022

76,614
-3,324

34,947

39,901

45,833
-985

52,648
-2,215

60,699
-3,415

123

1,724
-90
150

3,509
-160
1,831

4,619
-200
3,994

-10,511

-12,066
297
-1,838

-13,721
613
-2,130
-593

-15,416
877
-2,614
-957

94,918

107,077

120,877

-8,798

•

78,878

•

•

»

•

•

—

86,734

reduced from 7.7 percent to 4.05 percent (the best estimate of added
teaching costs historically experienced by hospitals). The prospective payment system hospital rate increase would be limited to
hospital inflation minus 1.5 percent (which is more generous than
previously enacted annual increases).
Supplementary Medical Insurance.—The Omnibus Budget Reconciliation Act of 1987 (OBRA 1987) limited payments for physician
and diagnostic clinical laboratory services, durable medical equipment, and hospital outpatient radiology. Current law reflects extension of the OBRA 1987 provisions for supplementary medical
insurance premiums and clinical laboratory payments. Without
further changes, physician payments are projected to continue to
increase 13 percent annually. Hospital outpatient and clinical laboratory payments are increasing 20 percent each year. Without




5-124

THE BUDGET FOR FISCAL YEAR 1990

additional savings measures, supplementary medical insurance
gross outlays are estimated to double from $39.9 billion in 1989 to
$79.7 billion 1994.
The administration proposes to restrain excessive growth in the
supplementary medical insurance program by limiting payments to
non-primary care physicians, by reducing anesthesiology, radiology
and surgery reimbursement, and by reforming the durable medical
equipment payment system. Additional savings from hospital outpatient services are proposed for 1991.
Catastrophic Drug Insurance.—Effective in calendar year 1990,
medicare will begin to phase in coverage for outpatient prescription drugs. Coverage for home intravenous and immunosuppressive
drugs, and coverage of certain other outpatient prescription drug
expenses will begin in calendar year 1990 and calendar year 1991,
respectively.




INCOME SECURITY

5-125

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 $136.9 billion in 1989 and $136.8 billion
in 1990.
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) administers retirement and disability benefits to an estimated 890,000
former railroad employees, their dependents, and survivors. 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 deductions and railroad employer contributions, payments from the social security trust funds, and direct
subsidies from taxpayers. Estimated 1990 outlays of $4.2 billion
include $333 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 subsidized by Federal 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 collectively bargain for new benefit levels and new funding arrangements, and (3) require sound financing of pensions for new rail
workers by placing rail pensions under the Employee Retirement
Income Security Act (ERISA). Although not included in the budget
estimates, privatization would generate long-term savings. The
budget also proposes limiting the Federal windfall subsidy. Under
current law, rail pensions, funded primarily from rail sector resources, are reduced by 25 percent of the windfall benefits paid to
rail retirees. The proposal would eliminate this reduction in rail




5-126

THE BUDGET FOR FISCAL YEAR 1990

sector financed benefits while maintaining the same total benefits,
in effect reducing the Federal windfall subsidy by 25 percent.
Finally, consistent with proposals in civil service and military
retirement, the budget proposes to eliminate the 1990 rail pension
cost-of-living adjustment (COLA). This proposal will not affect rail
social security equivalent benefits, which will continue to get the
full social security COLA. Beginning in 1991, the budget proposes
to pay uniform rail pension COLAs for all non-social security
equivalent benefits. These COLAs will be calculated by multiplying
the current law rail pension COLA factor of 32.5 percent by the
civil service COLA.
NATIONAL NEED: PROVIDING INCOME SECURITY
(Functional code 600; in millions of dollars)
Estimate
Major missions and programs

Actual 1988

1989

BUDGET AUTHORITY
General retirement and disability insurance (excluding social security):
Railroad retirement:
Existing law
Proposed legislation
Special benefits for disabled coal miners
Other
Subtotal, General retirement and disability insurance (excluding social
security)
Federal employee retirement and disability:
Civilian retirement and disability programs:
Existing law
Proposed legislation
Military retirement
Federal employees workers' compensation
(FECA)
Federal employees life insurance fund
Subtotal, Federal employee retirement
and disability
Unemployment compensation:
Existing law
Proposed legislation
Subtotal, Unemployment compensation.
Housing assistance:
Subsidized housing
Public housing operating subsidies
Public housing modernization
Low-rent public housing loans
Transitional housing and emergency shelter
for the homeless
Other housing assistance:
Existing law
Proposed credit reform
Subtotal, Housing assistance..




4,974

4,844

1,597
71

1990

1991

1992

1,579
87

4,702
-147
1,505
95

4,642
-88
1,488
101

4,550
-88
1,449
108

6,641

6,510

6,155

6,143

6,019

46,984

48,936

33,006

34,680

51,214
72
34,892

53f103
-21
37,075

54,633
76
39,193

213

242

217
3

265
9

278
14

80,203

83,858

86,397

90,430

94,194

23,620

24,341
-3

24,277
-176

23,620

24,338

24,101

24,058
-197
23,861

23,031
-184
22,847

6,938
1,450

7,155
1,618
856

14,857
1,733
1,033
270

13,604
1,792
1,062

1,050

6,683
1,694
1,000
567

73

128

72

71

71

186

207

9,698

9,963

217
-27
10,207

216
-27
18,153

216
-27
16,719

5-127

INCOME SECURITY
NATIONAL NEED: PROVIDING INCOME SECURITY—Continued
(Functional code 600; in millions of dollars)
Actual 1988

Major missions and programs

Food and nutrition assistance:
Food stamps and aid to Puerto Rico:
Existing Saw
Proposed legislation
Child nutrition and other programs:
Existing law
Proposed legislation

1991

1992

13,518

Other income security:
Supplemental security income (SSI)
Family support payments:
Existing law
Proposed legislation
JOBS training program for welfare recipients
Earned income tax credit (EITC)
Refugee assistance
Low-income home energy assistance
Other

Total, budget authority

1990

13,599

14,088
-80

14,642
91

15,070
-98

7,132

7,438
-80

7,875
-955

8,329
-1,025

8,728
1,114

20,650

20,957

20,928

21,856

22,585

12,563

12,474

12,052

13,818

14,476

11,125

10,892

11,172
-350

11,044
-357

11,512
-137

2,698
347
1,532
188

3,849
382
1,383
203

350
3,841
242
1,100
224

685
3,705
232
1,100
223

805
3,790
222
1,100
227

28,452

29,183

28,632

30,451

31,995

169,264

174,810

176,420

190,894

194,360

. ...

Subtotal, Food and nutrition assistance

Subtotal, Other income security

Estimate
1989

Special Benefits for Disabled Coal Miners.—Miners who suffer
from chronic dust disease of the lungs—black lung—and who meet
specified medical criteria, are entitled to monthly cash payments
and medical benefits. Cash payments are also made to their dependents and survivors. The basic monthly cash payment is based
on the GS-2 Federal salary level. In 1990, beneficiaries will receive
an estimated $1.5 billion. The black lung disability trust fund,
which is financed by a fee on coal production, is projected to have a
cumulative deficit of $3.1 billion at the end of 1990. 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 1987 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 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




5-128

THE BUDGET FOR FISCAL YEAR 1990

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. Effective in 1988, premiums were increased and a variable rate structure was started for single employer pension plans.
Federal Employee Retirement and Disability.—Of the several em-

ployee 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.
NATIONAL NEED: PROVIDING INCOME SECURITY
(Functional code 600; in millions of dollars)
Estimate
Major missions and programs

Actual 1988

1989

OUTLAYS
General retirement and disability insurance (excluding social security):
Railroad retirement:
Existing law
Proposed legislation
Special benefits for disabled coal miners
Pension Benefit Guaranty Corporation

Other

Subtotal, General retirement and disability insurance (excluding social
security)
Federal employee retirement and disability:
Civilian retirement and disability programs:
Existing law
Proposed legislation
Military retirement:
Existing law
Proposed legislation
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
Public housing operating subsidiesPublic housing modernization




1990

1991

1992

4,306
10
1,494
-346
95

4,346
-7
1,453
-338
102

3,934

4,155

1,562
-278
75

1,584
-231
81

4,186
-32
1,531
-342
89

5,294

5,589

5,432

5,559

5,556

28,399

29,908

32,567
-2,827

33,817
-3,454

35,636
-3,939

19,011

20,088

21,228
-617

22,465
-954

23,629
-1,221

212

231

207

259

272

-743

-782

-829
18

-842
23

-805
29

46,879

49,445

49,749

51,313

53,601

15,271

15,782

16,220
-170

16,382
-195

17,353
-187

15,271

15,782

16,050

16,187

17,166

11,057
1,489

12,366
1,547

13,645
1,652

14,719
1,711
120

15,278
1,760
454

5-129

INCOME SECURITY
NATIONAL NEED: PROVIDING INCOME SECURITY—Continued
(Functional code 600; in millions of dollars)
Estimate
Major missions and programs

Low-rent public housing loans
Transitional housing and emergency shelter
for the homeless
Other housing assistance-.
Existing law
Proposed credit reform
Subtotal, Housing assistanceFood and nutrition assistance:
Food stamps and aid to Puerto Rico:
Existing law
Proposed legislation
Child nutrition and other programs:
Existing law
Proposed legislation
Subtotal, Food and nutrition assistance
Other income security:
Supplemental security income (SSI)
Family support payments:
Existing law
Proposed legislation
JOBS training program for welfare recipients
Earned income tax credit (EITC)
Refugee assistance
Low-income home energy assistance
Other
Subtotal, Other income security.
Total, outlays

Actual 1988

1989

1990

1991

1992

1,173

1,096

634

394

76

34

80

70

57

64

154

209

13,906

15,299

167
28
16,197

186
-36
17,152

168
-26
17,774

13,145

13,776

13,606
-70

14,635
-89

15,063
-97

6,938

7,555
-72

7,852
-834

8,273
-1,024

8,673
-1,111

20,083

21,259

20,554

21,794

22,528

12,345

12,477

12,148

13,818

14,476

10,765

11,322

11,180
-350

11,044
-357

11,512
-137

2,698
321
1,585
186
27,899

3,849
345
1,373
207
29,574

350
3,841
287
1,125
226
28,806

685
3,705
241
1,102
224
30,463

805
3,790
227
1,100
226
31,999

129,332

136,947

136,788

142,468

148,624

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 2.2
million retirees and survivors will receive payments in 1990 totalling an estimated $29.7 billion for these two retirement systems.
The vast majority of these payments will be paid by CSRS. 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,
the retirement age will gradually increase to age 57. Retirement
benefits for Foreign Service employees covered under both systems
can begin at age 50 with 20 years of service. Benefit levels under
CSRS and FERS are based on the employee's three highest salary
years.
Under current law, participants in CSRS and FERS, as well as
participants in other civilian retirement systems, have the option, at




5-130

THE BUDGET FOR FISCAL YEAR 1990

retirement, to withdraw their own retirement contributions in the
form of a lump-sum payment and to receive a reduced annuity based
solely on the Government's contributions.

The FERS retirement plan consists of social security, a basic
retirement benefit, and the thrift savings plan. Currently, there
are approximately 800,000 active employees covered by FERS, and
that number will grow rapidly each year, because all new employees entering the Federal Government must now join FERS. The
number of annuitants under FERS is less than 5,000 because few
FERS participants currently meet retirement eligibility requirements. It is expected that the number of FERS annuitants will
grow to approximately 15,000 by 1995.
The thrift savings fund is a tax-deferred, voluntary savings fund
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 salaries to the thrift savings fund
and receive tax deferral benefits, but they receive no matching
Government contributions.
The thrift savings fund is not part of the budget because the
fund belongs to employee participants and is administered on
behalf of those participants by the Government in a purely fiduciary capacity. However, the costs of that administration are included in the budget in the general government function.
Consistent with the administration's efforts to scale back certain
overly generous features of the civilian retirement program, the
budget reflects proposed legislation that would eliminate the lumpsum annuity payment option beginning on January 1, 1990.
Current benefit levels under CSRS and FERS are based on the
employee's three highest salary years. The budget proposes legislation that, starting in 1991, permanently indexes CSRS benefit
levels to a formula based on the Consumer Price Index (CPI) minus
1 percent, with some variations. The FERS defined benefit is already indexed to a modified CPI formula.
The budget also seeks to slow the rate of growth of retirement
costs by not providing a cost-of-living adjustment (COLA) in 1990.
The administration has sought for several years to have the U.S.
Postal Service and the District of Columbia Government pay their
full share of COLA liabilities for their own annuitants. The budget
proposes enactment of legislation that, beginning in 1991, would
require the Postal Service and the District Government to make
annual payments to the retirement fund to cover the cost of
COLAs for their annuitants, including survivors. The proposal is
discussed in greater detail in the commerce and housing credit
function.




INCOME SECURITY

5-131

Military Retirement.—Approximately 1.6 million military retirees and survivors would receive an estimated $21.2 billion under
existing law in 1990. 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—50 percent of final pay at 20 years—up to
a maximum of 75 percent of final pay at 30 years. For personnel
entering after September 1980, however, the average of the member's highest three years of basic pay will be used, instead of final
basic pay. Benefits are fully indexed to the CPI.
Under legislation enacted in 1986, persons entering the military
after August 1, 1986, are subject to a reduction in their initial
retirement annuity if they retire before the age of 62 with less
than 30 years of service. Their initial annuity is reduced from 2.5
percent to 2.0 percent of the average of the member's highest three
years of basic pay per year of service—40 percent at 20 years—with
the annuity increasing by 3.5 percentage points for each additional
year of service up to the full 75 percent maximum for retirement
with 30 years of service. When the retiree reaches age 62, the
annuity is restored to the standard rather than the reduced annuity formula. This new class of beneficiaries will also receive a
COLA equal to the CPI minus 1 percent for life, subject to a onetime 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.
Consistent with proposals for civil service retirees, the budget
proposes to eliminate the January 1990 COLA for all military
retirees. The budget also proposes to permanently extend the CPI
minus 1 percent COLA formula to all military retirees, both current and future, beginning in 1991. 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 53,000 workers with long-term disabilities, or their
survivors, will receive monthly payments in 1989 and 1990.
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 of this volume, an
average of 1.8 million workers per week will receive unemployment
benefits during 1989 and 1990. Outlays are estimated to increase
from $15.8 billion in 1989 to $16.0 billion in 1990, as weekly benefit
amounts rise.
Regular benefits, usually paid for up to 26 weeks, are financed by
State taxes on employers and vary according to State law. Ex-




5-132

THE BUDGET FOR FISCAL YEAR 1990

tended unemployment benefits, which increase by 50 percent the
number of weeks an unemployed worker can receive unemployment compensation, are payable in States with high rates of unemployment among covered individuals. 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. Beginning in 1990, the administration
proposes to eliminate weekly benefits provided under the trade
adjustment assistance program for workers affected by imports, as
part of the changeover to the Economic Dislocation and Worker
Adjustment Assistance program (EDWAA). 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, those workers collecting
trade adjustment assistance benefits at the end of 1989 would
remain eligible to collect benefits in 1990.
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 Farmers Home Administration
(FmHA) in the Department of Agriculture. Outlays are estimated
to increase from $15.3 billion in 1989 to $16.2 billion in 1990.
The number of households receiving housing assistance through
HUD and FmHA has increased substantially since 1980, when
there were 4.2 million households receiving such help. By the end
of 1988, the number had grown to 5.4 million. By the end of 1990,
the number of assisted households is estimated to reach 5.6 million,
an increase of more than 1.4 million households since 1980.
Subsidized Housing.—There are two main types of housing assistance. Subsidies are either i'project-based" and earmarked specifically for a publicly or privately owned unit, or they are "tenantbased" and assigned to an eligible family or elderly household to be
used in private units of the household's choice, provided that such
units meet designated housing quality standards.
Tenant-based housing vouchers are the cornerstone of the administration's housing policy. The Housing and Community Development Act (HCDA) of 1987 permanently authorized HUD's voucher
program and authorized a voucher program in areas served by
FmHA.




INCOME SECURITY

5-133

Housing vouchers, which are targeted to very-low-income households (i.e., those whose incomes do not exceed 50 percent of the
local median income) provide tenants with more housing choice,
including the opportunity to live in better neighborhoods with
access to available jobs and higher quality schools. Vouchers also
cost about one-half as much as new construction, which often requires additional subsidies (such as rent subsidies or other assistance, even though such projects already receive mortgage assistance). Finally, housing vouchers make more policy sense because
the primary deficiency in metropolitan and rural areas is not a
shortage of adequate units nor a failure of housing market financial institutions, but rather an income deficiency among poor families. This problem is most efficiently addressed with tenant-based
housing vouchers.
The administration proposes to add approximately 132,000 more
subsidized households to those currently being served. Most of
these new subsidies would be tenant-based vouchers: 100,000
through HUD and 20,000 through FmHA. The remaining 11,793
units would be project-based, funded through both HUD and
FmHA. The proposed HUD program would include the construction of 7,000 new units for the elderly or handicapped, including at
least 400 units for permanent housing of the homeless handicapped; and rehabilitation of 2,000 single-room-occupancy (SRO)
units, specifically set aside for the homeless under the Section 8
moderate rehabilitation program. The proposed FmHA program
(Section 515 new construction program) includes construction of
2,793 project-based units in rural areas experiencing low vacancy
rates.
The budget requests $6.7 billion in budget authority for HUD's
and FmHA's subsidized housing program including $360 million for
FmHA's rural housing voucher program. The administration proposes to fund the smaller project-based FmHA program at $100
million through the FmHA rural housing insurance fund.
The request for HUD programs includes estimates of the costs of
renewing expiring housing subsidy contracts, although all such
contracts are assumed to be renewed under a voucher system. The
budget also assumes that HUD fees paid to public housing authorities (PHAs) shall be made comparable for both housing vouchers
and Section 8 certificates at the 7.65 percent level.
Public Housing Operating Subsidies.—HUD provides funds to
PHAs and Indian housing authorities (IHAs) to fund the difference
between total operating costs (based on a HUD-established cost
formula) and income from tenant rents and other sources. The
budget includes $1.7 billion in budget authority for operating subsidies to the 1.4 million existing public and Indian housing units.
This total reflects $40 million savings from implementation of re-




5-134

THE BUDGET FOR FISCAL YEAR 1990

cently passed income verification legislation. The Stewart B.
McKinney Homeless Reauthorization Act of 1988 allows HUD to
match tenant reported incomes with State employment security
agency data.
In order to curtail escalating costs of operating subsidies, the
1990 budget proposes a demonstration to give PHAs more flexibility in setting tenant rents. This reform would allow HUD to waive
the requirement that public housing residents pay 30 percent of
their adjusted income for rent if PHAs agree to eliminate operating subsidies over three years. These PHAs would be able to charge
more or less rent for a given unit depending on the condition and
location of the unit. As in the private market, public housing
families would be able to pay rent based on the condition and
location of housing, without automatic rent increases when their
income increases.
Public Housing Modernization.—In addition to operating subsidies, HUD also provides funds to PHAs and IHAs to modernize
public housing. The 1990 budget proposes $1.0 billion of budget
authority for public and Indian housing modernization. Of this
amount, $750 million is to be allocated through grants authorized
by Congress in the HCDA of 1987. The remaining $250 million is to
be made available to States for distribution to PHAs on a matching
basis.
Low-Rent Public Housing Loans.—The 1990 budget includes
budget authority of $567 million resulting form indefinite borrowing authority reserved prior to 1987 for public housing new construction and rehabilitation. Since 1987, funds reserved for new
construction and modernization have been provided directly
through capital grants. It is estimated that budget authority from
earlier loan commitments will be reduced to zero by 1992.
Transitional Housing and Emergency Shelter for the Homeless.—
The 1990 budget proposes budget authority of $71 million for the
supportive housing demonstration program, with all of this funding
targeted to transitional housing for the homeless. No funding is
requested for permanent housing for the handicapped homeless
because the budget includes a 400 unit setaside for the handicapped homeless within subsidized housing. As noted under subsidized housing, the budget also includes a request for 2,000 rehabilitated SROs for the homeless.
In addition to these programs, the budget for HUD includes
budget authority of $114 million for the emergency food and shelter program, currently operated by the Federal Emergency Management Agency and contained in the food and nutrition assistance
subfunction. The budget proposes to transfer this program to HUD
to improve coordination of the delivery of homeless services, given
HUD's lead responsibility for all housing and shelter programs.




INCOME SECURITY

5-135

All of HUD's housing assistance programs give preference to the
homeless on low-income housing waiting lists—a policy promulgated through HUD's 1988 preference rule. In addition, HUD continues to lease certain Federal Housing Administration properties for
$1 per year to providers of shelter to the homeless, and to sell
others at discounts for such use. Finally, the administration continues to support the Interagency Council for the Homeless at $0.9
million for 1990.
Other Housing Programs.—The 1990 budget proposes funding for
two FmHA rural housing repair programs: very-low-income housing repair grants, at $10 million; and housing preservation grants,
at $15 million. These programs represent cost-effective means for
preserving suitable housing in rural areas.
The 1990 budget also assumes the continuation of the public
housing homeownership program as authorized in the HCDA of
1987. In addition, the administration proposes to provide tenants in
public housing with more housing choices by offering them vouchers so that they may continue to live in public housing or choose to
live in 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.
Food and Nutrition Assistance.—Low- and middle-income families
and individuals receive food and nutrition assistance through a
number of Federal programs. The Hunger Prevention Act of 1988
represents a renewed national commitment to Federal nutrition
programs. The Act increased food stamp benefit levels and amends
the food stamp program in various other respects; increases assistance under the school breakfast and child care food programs; and
authorizes demonstration projects and makes other changes in nutrition 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 1989. During 1990, an estimated 18.1 million people will receive
food stamps each month, with associated Federal outlays of $12.8
billion under current law. Outlays for nutrition assistance for
Puerto Rico are estimated to be $825 million in 1990.
The Hunger Prevention Act of 1988 revised the food stamps
quality control system. Financial incentives will be given to States
with the lowest payment error rates, and States with high error




5-136

THE BUDGET FOR FISCAL YEAR 1990

CREDIT PROGRAMS—INCOME SECURITY
(In millions of dollars)
Estimate
Actual 1988

1989

Direct loans:
Flexible subsidy fund loans (credit reform):
New obligations
Change in outstandings
Outstanding
Flexible subsidy program:
Change in outstandings
Outstandings
Low-rent public housing:
Change in outstandings
Outstandings
Nonprofit sponsor assistance:
New obligations
Change in outstandings
Outstandings
Nonprofit sponsor assistance (credit reform):
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

1990

1991

1992

36
9
9

37
46

37
83

68
68

52
121

40
161

161

161

-37
2,037

-42
1,995

-44
1,951

-47
1,904

-50
1,853

1
2

1
32
2,110

1
11
2,121

38
5
2,126

3
-10
2,115

3
-12
2,103

-255
5,998

-300
5,698

-325
5,373

-350
5,023

-375
4,648

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

rates will be required to share the cost of payment error liabilities.
The 1990 budget assumes USDA will collect $101 million from the
States during the year.
States operate employment and training (E&T) programs for
able-bodied food stamp recipients. Besides a fixed E&T Federal
formula grant and a capped amount to reimburse participant expenses, the Federal Government pays 50 percent of States' additional administrative funds. The administration proposes to provide
$30 million annually for Federal matching of these additional State
E&T expenditures. Total Federal outlays for E&T will be nearly
$150 million in 1990.
The budget reflects legislation to fund Federal reimbursement of
State food stamp program administration costs at a 50 percent
level, fund 1990 costs at the 1989 level, and index costs after 1990
by the GNP deflator. This change will produce $70 million in




INCOME SECURITY

5-137

savings in 1990 and $465 million from 1990 to 1994. Similar legislation is being proposed under the AFDC and medicaid programs.
Child Nutrition and Other Programs.—The child nutrition programs subsidize institutions for meals served to students in schools,
child care facilities, and other institutions. Schools get cash and
commodity subsidies for meals served to all students, regardless of
income level. In 1989, schools and other institutions are anticipated
to get $5.0 billion in cash and commodities to subsidize meals
served to students. Of that amount, $860 million will subsidize
institutions for meals served to students from households with
income levels above 185 percent of the poverty level.
The budget reflects legislation to better target Federal funds to
the needy by maintaining institutional subsidies for meals served
to students whose family incomes are below 185 percent of the
poverty level. The proposal would discontinue subsidies to students
with incomes above that level. Under this proposal, nearly 12
million needy students would be given federally subsidized free and
reduced price meals in 1990, for total program costs of $4.4 billion.
Limiting the subsidy to students who need it would save budget
authority of $935 million in 1990. Other administration initiatives
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 two 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 three
million low-income women, infants, and children determined to be
at nutritional risk. WIC is designed to lessen health problems
associated with inadequate diets during the critical early stages of
child development, especially pre-natal. Federal funding for WIC
has expanded rapidly in recent years, more than doubling since
1980. The administration's 1990 request of $2.0 billion in budget
authority for the supplemental feeding programs is $44 million
above the 1989 level, and would continue to support over three
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 $657
million are expected to be donated in 1990.
Other Income Security.—A number of other income security programs assist the poor. Estimated Federal outlays for these programs are $29.6 billion in 1989 and $28.8 billion in 1990.




5-138

THE BUDGET FOR FISCAL YEAR 1990

Supplemental Security Income (SSI).—This program will make
cash payments to an estimated four million needy aged, blind, or
disabled persons in 1990. Benefits are to be automatically increased
in January 1990 by the same percentage as social security benefits.
Some States also supplement the basic Federal grant. SSI may be
administered by the Federal Government at no charge to the
States, at the States' option. Total Federal funding for SSI in 1990
is estimated to be $12.1 billion, based on an eleven month year.
Family Support Payments to States.—Aid to families with dependent children (AFDC) is a cash assistance program to
low-income families funded jointly by the States and the Federal
Government. States administer the AFDC program, and determine
AFDC eligibility criteria and benefit levels within broad Federal
guidelines. The AFDC program also administers emergency assistance cash payments to families experiencing a temporary tragedy
such as a fire or eviction. AFDC and emergency assistance payments to families will total approximately $17.3 billion in 1990,
including the State share. About 3.7 million families will receive
AFDC benefits in 1990. The Federal Government reimburses State
governments for, on average, 55 percent of the cash payments
administered, and greater than half of the costs of administering
the program.
The budget reflects legislation to fund Federal reimbursement of
State AFDC program administration costs at a 50 percent level,
fund 1990 costs at the 1989 level, and index costs after 1990 by the
GNP deflator. This change will produce $123 million in savings in
1990 and $620 million from 1990 to 1994. Similar legislation is
being proposed under the food stamps and medicaid programs.
Child suppport enforcement (CSE) complements AFDC by financing State and local administrative costs for establishing paternity
and collecting support from legally liable absent parents. Including
incentive payments to States, the Federal Government finances
about 86 percent of these costs, providing an estimated $1.3 billion
in 1990. Child support collections offset some State and Federal
AFDC costs. In 1990, child support collections are anticipated on
behalf of about one million families who receive AFDC benefits,
and 1.2 million families who do not receive AFDC benefits. Legislative proposals in the 1990 budget include efforts to increase the
number of children receiving health coverage from absent parents,
and to increase CSE services on behalf of additional low-income
families. Federal funding of AFDC and child support will total
approximately $11.2 billion in 1990.
The Family Support Act of 1988, commonly known as the welfare
reform bill, changed many aspects of the AFDC program. One
major change is that States will be required to provide at least six
months of AFDC coverage to two parent families in which the




INCOME SECURITY

5-139

principal wage-earner is unemployed. One parent would be required to work at least 16 hours a week as a condition of receiving
benefits. A second change is the transition to the job opportunities
and basic skills training program (JOBS) from the work incentives
program (WIN). The JOBS program will require that AFDC recipients with children over age three (or age one at State option) must
participate in a job training or education program. Another change
is the provision of transitional medicaid and child care coverage.
For parents leaving AFDC because of employment, medicaid and
child care coverage would continue for twelve months to facilitate
the transition to independence. The welfare reform bill also includes reforms to strengthen the establishment of paternity and
collection of child support payments, and is estimated to cost
around $3.4 billion over the first five years of implementation.
Earned Income Tax Credit (EITC).—Wage earners with children
are eligible for tax credits if they earn less than $19,340 beginning
in calendar year 1989. 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 1990 outlays for these
payments are estimated to be $3.8 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 1990, the EITC tax expenditure is estimated to be $2.1
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. Outlays in
1990 are estimated to be $287 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
1990, the administration requests low-income home energy assistance budget authority of $1.1 billion, a decrease of $283 million
from 1989.
The Federal Government provides heating assistance to millions
through HUD shelter cost subsidies, open-ended AFDC matching
for utility grants, and utility components in other entitlements.
Now that the energy crisis has ended, low-income households are




5-140

THE BUDGET FOR FISCAL YEAR 1990

spending smaller and smaller portions of their income on heat. As
a percent of income, heating costs have dropped 30 percent since
1984. As a result, there is a decreasing need for a assistance program specializing in energy.
TAX EXPENDITURES FOR INCOME SECURITY
(Outlay equivalents; in millions of dollars)
Estimates
Description

1989

Net exclusion of pension contribution earnings:
Employer plans
Individual Retirement Accounts (IRAs)
Keogh plans
Exclusion of income earned by voluntary employee beneficiary associations..
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
Special ESOP rules (other than investment credit)
Additional deduction for the elderly
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 employer—provided death benefits
;
Deductability of casualty losses
Exclusion of public assistance benefits
Earned income credit 1
Total (after interactions) income security 2 ....

1990

59,210
11,725
2,315
425

61,065
11,590
1,670
410

65,410
12,540
1,850
445

2,395
160
30
220
1,535
15
225
100
385
115
2,910
25
265
380
1,075
81,645

2,550
165
30
285
1,155
15
240
100
370
110
2,845
25
265
340
1,640
82,915

2,730
170
30
345
1,140
15
255
105
390
110
3,070
25
280
345
2,140
89,255

1
The figures in the table indicate the tax subsidies provided by the earned income tax credit. The effect on outlays is: 1988, $2,695 million;
1989, $3,850 million; and 1990, $3,700 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.

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
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




INCOME SECURITY

5-141

deductibility of contributions and the deferral of taxes on the earnings result in tax expenditures.
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. 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.




5-142

THE BUDGET FOR FISCAL YEAR 1990

SOCIAL SECURITY
The Federal Government contributes to the income security of
aged and disabled Americans through social security, which is
comprised of the old-age and survivors insurance (OASI) and the
disability insurance (DI) programs. Social security represents about
one-fifth of estimated total Federal outlays in 1990 and provides
benefits to one in every six Americans.
NATIONAL NEED: SOCIAL SECURITY
(Functional code 650; in millions of dollars)
Major missions and programs

Actual 1988

Estimate
1989

1990

1991

1992

BUDGET AUTHORITY
Social security:
Old-age and survivors insurance (OASI):
Existing law
Proposed legislation
Disability insurance (DI):
Existing law
Proposed legislation
Interfund transactions
Other
Total, budget authority..
On-budget
Off-budget

235,760

263,538

286,488

310,750

333,165

22,380

24,807

29,004

32,268

34,580

258,140
(4,852)
(253,289)

288,344
(5,414)
(282,931)

315,500
(6,167)
(309,332)

343,018
(4,921)
(338,097)

367,745
(5,517)
(362,228)

197,060

209,237

222,402
7

236,562
12

249,550
17

22,280

23,096

24,306
1

25,679
1

27,224
2

219,341
(4,852)
(214,489)

232,334
(5,414)
(226,920)

246,724
(6,167)
(240,557)

262,254
(4,921)
(257,333)

276,793
(5,517)
(271,276)

OUTLAYS
Social security:
Old-age and survivors insurance (OASI):
Existing law
Proposed legislation
Disability insurance (DI):
Existing law
Proposed legislation
Interfund transactions
Other
Total, outlays.
On-budget
Off-budget
* $500,000 or less.

The administration proposes no reductions 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 annual
benefit for a retired worker and spouse will be about $11,010 in
1989, an increase of nearly $4,176 over the 1981 level. Combined
outlays for OASI and DI are estimated to increase from $232.3
billion in 1989 to $246.7 billion in 1990, primarily because of benefit
increases tied to the consumer price index and increases in the
number of beneficiaries.




SOCIAL SECURITY

5-143

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 1990 amount to an
estimated $6.2 billion of federal fund outlays and trust fund offsetting collections.
The budget includes a legislative proposal to conform social security coverage for rail workers with that for workers covered by title
II of the Social Security Act. Under current law, certain individuals covered by the Railroad Retirement Act do not get full social
security equivalent benefits. The Social Security Administration
(SSA) is proposing to fill any social security coverage gaps for rail
workers and their families. SSA would pay these benefits from the
social security trust funds and deduct the amounts paid from the
yearly financial interchange transfers to the railroad social security equivalent benefit account. The social security trust funds would
therefore not be adversely affected by this legislative proposal.
Tax Expenditures.—The exclusion from income tax of a portion
of social security benefits, including those for dependents and survivors, results in a 1990 estimated tax expenditure of $18.2 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.




5-144

THE BUDGET FOR FISCAL YEAR 1990

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 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 to be $29.2 billion in 1989 and $29.9 billion
in 1990. In March 1989, after 58 years of serving the Nation's
veterans, the Veterans Administration will be established as a
Cabinet agency: the Department of Veterans Affairs (VA). Cabinet
status will provide veterans continued access to decision making at
the highest levels of government and give them the recognition
that they deserve.
The budget continues current administration policy for VA medical care. This policy is to maintain quality care for all patients and
provide medical care to veterans in the following order of priority
as prescribed in law: (1) veterans with service-connected disabilities; (2) veterans with low incomes without service-connected disabilities; and (3) moderate and higher income veterans without
service-connected disabilities. The administration also proposes to
ensure full and timely increases in veterans compensation benefits
by indexing the cost-of-living adjustment to the annual change in
the Consumer Price Index.
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 $15.6 billion in 1989 to $16.4 billion in
1990.
Service-Connected Compensation.—Veterans with disabilities resulting from or coincident with military service—combat and
non-combat veterans alike—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. Legislation passed last year increased these benefits by 4.1 percent;
payable starting in January 1989.




5-145

VETERANS BENEFITS AND SERVICES

The administration recommends that legislation be enacted to
link future veterans compensation cost-of-living adjustments
(COLA) to the annual change in the Consumer Price Index. This
legislation would ensure that veterans with service-connected disabilities and survivors of veterans who died from service-connected
conditions receive full and timely adjustments to their benefits,
protecting them from the erosion of their benefits and the uncertainties of an annually legislated COLA. For 1990, this adjustment
is expected to be 3.6 percent. Allowances provided to compensate
beneficiaries for dependents and clothing would be indexed similarly.
NATIONAL NEED: PROVIDING VETERANS BENEFITS AND SERVICES
(Functional code 700; in millions of dollars)
Major missions and programs

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 .
Supplemental for compensation, pensions,
and burial benefits
National service life insurance trust fund
All other insurance programs
Insurance program receipts
Subtotal, Income security for veteransVeterans education, training, and rehabilitation:
Readjustment benefits (Gl Bill and related
programs):
Existing law
Proposed legislation
Post-Vietnam era education
All-volunteer force educational assistance
trust fund
Other: Proposed credit reform
Subtotal, Veterans education, training,
and rehabilitation
Veterans housing:
Loan guaranty revolving fund:
Existing law
Proposed legislation
Proposed credit reform
Direct loan revolving fund: Proposed credit
reform
Subtotal, Veterans housing
Other veterans benefits and services:
Cemeteries, administration of veterans benefits, and other:




Actual 1988

Estimate
1989

1990

1991

1992

10,865

10,682

3,826

3,865

11,226
318
3,989

11,114
740
4,068

11,003
1,116
4,139

146

137

153
36

156
38

160
-39

1,407
31
-425
15,848

701
1,421
28
-405
16,429

1,419
27
-395
16,701

1,410
31
-383
17,098

1,372
31
-371
17,411

689

606

434
5

423
7

501
7

-186
*

-165
*

-171
*

409

253

265

338

1,484

970

1,364
-1,162
882
*

1,434
-1,240
793
*

1,527
-1,146
637
*

1,484

970

1,084

986

1,019

-178
511

-197

5-146

THE BUDGET FOR FISCAL YEAR 1990
NATIONAL NEED: PROVIDING VETERANS BENEFITS AND SERVICES—Continued
(Functional code 700; in millions of dollars)
Estimate
Major missions and programs

Actual 1988
1989

1990

1991

1992

68

77

70

61

61

863

883

926

875

878

10,151

10,543

240
563

259
543

10,741
-1
246
530

11,327
_\
247
764

11,597
_\
247
778

-119

138

304
-86

-361
-99

-378
-104

Subtotal, Hospital and medical care
for veterans

10,836

11,206

11,127

11,877

12,139

Total, budget authority

29,542

29,897

30,091

31,102

31,785

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

* $500,000 or less.

The number of veterans and survivors of deceased veterans receiving compensation benefits is expected to decline slightly from
2.53 million in 1989 to 2.51 million by 1990. However, outlays for
compensation benefits are estimated to increase from $10.8 billion
in 1989 to $11.5 billion in 1990, primarily because of the proposed
COLA.
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 4.0 percent cost-of-living increase
became effective with the January 1989 payments. The next cost-ofliving increase, effective with the January 1990 payments, is estimated to be 3.6 percent.
Outlays for veterans pensions are estimated to be $3.9 billion in
1989 and $4.0 billion in 1990. The number of veterans aged 65 and
over has continued to increase since 1980 and is expected to increase by 6 percent from 1989 to 1990. The number of pension
recipients is expected to continue to decline, however, from 1.17
million in 1989 to 1.12 million in 1990, because veterans over age
65 increasingly have higher incomes.
Burial and Other Benefits.—Families of deceased veterans who
received pension or compensation benefits and who are buried in
private cemeteries may receive burial benefits to assist in defraying funeral expenses of the veteran. The budget reflects proposed
legislation that would limit existing allowances for the purchase of




5-147

VETERANS BENEFITS AND SERVICES

burial plots to families of these same veterans. Outlays in 1990 are
estimated to be $116 million.
Insurance Programs.—Life insurance programs that assist veterans and their survivors will continue to provide in excess of $215
billion of coverage to nearly seven million veterans and active duty
personnel in 1990.
Veterans Education, Training, and Rehabilitation.—Several Fed-

eral programs support job training and finance education for the
general population including veterans, and several programs are
run by the Department of Labor exclusively for veterans. In addition, four VA programs—the Vietnam-era GI bill, the post-Vietnam
era education program, the all-volunteer force educational assistance 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 readjustment benefits are estimated to
decline from $620 million in 1989 to $451 million in 1990, because
of a continued decline in the number of eligible beneficiaries.
NATIONAL NEED: PROVIDING VETERANS BENEFITS AND SERVICES
(Functional code 700; in millions of dollars)
Major missions and programs

OUTLAYS
Income security for veterans:
Service-connected compensation:
Existing law
Proposed legislation
Non-service-connected pensions
Burial and other benefits:
Existing law
Proposed legislation
Supplemental for compensation, pensions,
and burial benefits
National service life insurance trust fund
All other insurance programs
Insurance program receipts
Subtotal, Income security for veterans.
Veterans education, training, and rehabilitation:
Readjustment benefits (GI Bill and related
programs):
Existing law
Proposed legislation
Post-Vietnam era education
All-volunteer force educational assistance
trust fund
Veterans jobs program
Other:
Existing law
Proposed legislation
Proposed credit reform




Actual 1988

Estimate
1989

1990

1991

1992

11,251

10,220

"T935"

'3,859

11,198
286
3,953

11,123
704
4,041

11,012
1,085
4,112

142

136

153
-36

156
-38

160
-39

1,096
-36
-425
15,963

664
1,163
-20
-405
15,617

37
1,197
4
-395
16,397

1,240
12
-383
16,856

1,273
20
-371
17,252

700

620

29"

73"

451
5
79

431
7
72

511
7
59

-294
25

-290
20

-272
2

-226

-194

-6

-7

-7

-7
*
*

-7
*

5-148

THE BUDGET FOR FISCAL YEAR 1990
NATIONAL NEED: PROVIDING VETERANS BENEFITS AND SERVICES—Continued
(Functional code 700; in millions of dollars)
Estimate
Major missions and programs

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

Actual 1988

44
5

1990

1989

45
1

1991

29
5

1992

28
7

38
7

13
5
1,292

1,112

1,458
1,162
882

1,428
1,240
793

1,521
1,146
637

-24

1,219

-18
-1

-14
-1

-11

1,088

1,159

95
6

1,001

822
-5
84

820
-5
70

Other veterans benefits and services:

Cemeteries, administration of veterans benefits, and other-.
Existing law
Proposed legislation
Non-VA support programs
Subtotal, Other veterans benefits and
services

79
9

79
9

7
7

6
5

851
-4
71

87
7

84
6

98
1

91
0

84
8

10,045

10,384

238
677

254
733

10,580
-1
246
704

11,157
-1
248
631

11,423
-1
247
649

-119

-138

-304
-86

-361
-99

-378
-104

Subtotal, Hospital and medical care
for veterans

10,842

11,233

11,140

11,575

11,836

Total, outlays..

29,428

29,218

29,872

30,574

31,350

Hospital and medical care for veterans:
Medical care and hospital services:
Existing law
Proposed legislation
Medical administration, research, and other..
Construction
Third-party reimbursement:
Existing law
Proposed legislation

* $500,000 or less.

Vietnam-era GI Bill.—The Vietnam-era GI bill provides benefits
payments for college courses as well as for vocational and on-thejob 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 if they begin their education within 10
years of discharge. The last year to have begun was 1986. 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 Vietnam-era GI
bill benefits. Trainees (veterans, survivors, and dependents) partici-




VETERANS BENEFITS AND SERVICES

5-149

pating in the program are expected to decrease from 201,600 in
1989 to 200,000 in 1990. In 1991, approximately 32,000 Vietnam-era
active duty members and veterans discharged after October 1984
will continue their training under the Montgomery GI bill described below.
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 78,600 veterans and servicepersons are expected to use
benefits under this program in 1990.
The Montgomery GI bill also provides education benefits to reservists. DOD pays these benefits, and the VA administers the
program. In 1990, 213,500 reservists are expected to use benefits
under this program.
Other Education and Training.—Effective in 1990, the administration proposes to increase assistance allowances for the dependents of veterans and vocational rehabilitation subsistence allowances by 5 percent. Neither of these allowances has been increased
since 1984.
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 178,000 veterans in obtaining mortgages in 1990.
Guaranteed loan commitments for mortgage loans in 1990 are estimated to be $14 billion.
The administration proposes to charge origination fees for participation in Federal credit programs in order that the borrower
shares the cost of the Federal subsidy. These fees would be large
enough to cover projected losses from default and obviate the need
for future appropriations. In line with this initiative, the budget




5-150

THE BUDGET FOR FISCAL YEAR 1990

proposes legislation to increase and make permanent the expiring
fee charged on VA-guaranteed housing loans and vendee loans
from the current 1.0 percent to 3.8 percent of the mortgage
amount. (Vendee loans are direct loans made to both veterans and
non-veterans who purchase property that the VA has acquired
through prior defaults.) The borrower would be able to add the
amount of this fee to the mortgage. Veterans with service-connected disabilities would continue to be exempt from the fee.
The administration also recommends enactment of legislation 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 also believes the executive
branch's discretion to sell loan assets without recourse to the Government should continue after 1989 when the current authority
expires. Selling loans without recourse reduces the Loan Guaranty
Revolving Fund's exposure to future default costs and promotes
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 6 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 initiatives to improve the management of delivering veterans' benefits. These include making greater
use of contractor support to perform services that private business
can provide more efficiently and investing in automated data processing equipment, which continues to yield productivity savings in
the form of smaller administrative staff.
The VA manages the national cemetery system for eligible veterans, active duty military personnel, and their dependents. 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 1990, funding is requested to expand the
National Cemeteries at Fort Snelling, Minnesota, and Jefferson
Barracks, Missouri.
Funding is also requested for the State cemetery grant program
to assist at least four States in establishing, improving, or expanding State-operated veterans cemeteries.
The administration also requests budget authority of $1.5 million
in 1990 for the court of Veterans Appeals, a new independent
agency. The court will provide judicial review for veterans, ena-




5-151

VETERANS BENEFITS AND SERVICES
CREDIT PROGRAMS—VETERANS BENEFITS AND SERVICES
(In millions of dollars)
Actual 1988

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 guarantees (credit reform):
New commitments
Change in outstandings
Outstandings
Total, guaranteed loans.New commitments
Change in outstandings..
Outstandings
Total, new obligations and new commitments

Estimate
1989

1990

1991

1992

971
201
201

1,001
11
212

761
-94
118

1
-19
19

1
-5
14

-5
9

-1

-1
6

849
62
1,364

910
9
1,373

-223
1,151

-3
1,148

9
1,156

850
43
1,383

911
4
1,388

971
-27
1,361

1,001
7
1,368

761
-87
1,281

17,682
3,386
149,705

13,486
-1,179 -14,313 -11,950 -10,627
148,526 134,213 122,263 111,636
13,851
13,824
13,824

14,342
12,869
26,693

13,694
10,741
37,434

17,682
3,386
149,705

13,486
-1,179
148,526

13,851
-489
148,037

14,342
919
148,956

13,694
114
149,070

18,533

14,397

14,821

15,343

14,455

* $500,000 or less.

bling them to appeal some veterans benefits decisions of the Department's Board of Veterans' Appeals to a higher level independent of the VA. The justices, once appointed, would propose whatever budget they deem necessary, which the President will transmit to the Congress.
Outlays for other veterans benefits and services are estimated to
be $864 million in 1989 and $918 million in 1990.
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
1990, this system will provide support for an estimated 23 million
outpatient visits and treat 1.1 million inpatients and nearly 74,000
nursing home patients in VA and community facilities and State
veterans' homes.




5-152

THE BUDGET FOR FISCAL YEAR 1990

This program is carried out in 172 hospitals, 233 outpatient
clinics, 126 nursing homes, 26 domiciliary facilities, 194 vet centers
and, in some situations, in other Federal facilities and the private
sector. Outlays, excluding receipts, for medical programs are estimated to rise from $11.4 billion in 1989 to $11.5 billion in 1990.
Medical Care and Hospital Services.—VA's primary health mis-

sion is to treat veterans who were injured during military service
for their service-connected disabilities. In addition, VA is obligated
by law to provide care on a first-priority basis to veterans who
have service-connected disabilities for medical conditions that are
not related to military services; certain special categories of veterans, such as former prisoners of war; and lower income veterans
who do not have service-connected disabilities. VA may provide
care, if resources are available after treating higher priority veterans, to veterans without service-connected disabilities with moderate to high incomes. Currently, most of the system's users are
either veterans with service-connected disabilities or lower income
veterans. Adequate medical care for America's disabled and lower
income veterans is one of the Nation's highest priorities. The administration's proposal for VA medical care provides sufficient resources to treat all service-connected, special categories, and lower
income veterans, and most moderate and higher income veterans
expected to apply for care.
The budget provides for opening newly completed medical facilities, increased funding for community and state nursing home
programs, continued funding for the treatment of veterans with
AIDS and homeless veterans, and additional funds for automation
investments intended to assist mental health professionals in providing care. In order to partially offset the rising costs of providing
medical care, the budget reflects legislation for nominal copayments for moderate and higher income veterans for their inpatient
and outpatient care, and to collect reimbursement from third party
insurers for the treatment of non-service-connected disabilities of
insured veterans who have relatively minor service-connected disabilities (20 percent or below). The budget also reflects legislation
to modify requirements in law for reimbursing veterans' travel
expenses to VA medical facilities. This proposal would return to a
policy of providing reimbursement only for emergency travel needs
of veterans who need special transportation, such as an ambulance
or a wheelchair van, and for veterans who live over 100 miles from
a VA medical center, thereby allowing maximum medical resources to be available for patient care.
Budget authority of $10.7 billion is requested for medical care
and hospital services in 1990, an increase of nearly $200 million
over 1989.




VETERANS BENEFITS AND SERVICES

5-153

Construction of Hospital and Extended Care Facilities.—New
budget authority of $530 million is requested for VA medical construction in 1990.
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
$366 million is requested in 1990 to support 13 major projects and
other maintenance, safety correction, and design activities. An additional $122 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 15 years, modernizing or replacing two
large hospitals each year. In 1990, construction funds are proposed
for two large hospital projects in Palm Beach, Florida, and Newington, Connecticut. The Palm Beach hospital is the first medical
center to be added to the VA system since 1977, and also includes
construction of a parking garage and laundry. The administration
also proposes to construct a new joint venture hospital with the Air
Force at Las Vegas, Nevada, and a large clinical addition project in
Dublin, Georgia.
Budget authority of $42 million is requested for 1990 for grants
to States for the construction or repair of State nursing homes for
the care of aging veterans. This continues the 1989 level and will
enable VA to support approximately 15 grants in 10 States. A total
of 36 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 1990 are $1.5 billion, $80
million, and $50 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 1990, the
tax expenditure estimate for this provision is $380 million. Total
tax expenditures for veterans are estimated to be $2.0 billion for
1990.
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.




5-154

THE BUDGET FOR FISCAL YEAR 1990

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 1990 for this function is $10.7 billion, an $800
million increase from the 1989 level.
Federal Law Enforcement Activities.—Of total Federal resources
for the administration of justice, over half is dedicated to law
enforcement. Proposed budget authority of $5.7 billion in 1990, $1.0
billion above the 1989 level, focuses on resources dedicated to drug
enforcement and computer and communications upgrades.
Criminal Investigations.—Budget authority requested for criminal investigations for 1990 is $2.3 billion, an increase of 15 percent
over the 1989 level. The Justice Department carries out criminal
investigations, primarily through the Federal Bureau of Investigation (FBI) and the Drug Enforcement Administration (DEA). The
FBI and DEA frequently work together with other Federal agencies, such as the Internal Revenue Service, the Bureau of Alcohol,
Tobacco and Firearms, and the Customs Service, in 13 regional
task forces on organized crime drug enforcement (OCDE) and have
concurrent jurisdiction to combat drug trafficking. In 1990, the
administration is requesting $215 million for these task forces, a 10
percent increase over 1989. Prior to 1990, funding for these task
forces was included in the budgets of the participating agencies but
in 1990, the full $215 million for OCDE is shown in a separate
account. The administration is also requesting funding for over 275
new domestic and foreign positions for DEA, as well as funding to
improve DEA's technical equipment capabilities. These resources
will allow DEA to expand and formalize its foreign suppression and
enforcement programs, seize more drug trafficker assets, destroy
more clandestine laboratories, and create new State and local task
forces. The Anti-Drug Abuse Act of 1988 provided several new tools
to the drug enforcement agencies, all of which generate increased
staffing needs.
The FBI enforces a broad range of Federal criminal statutes,
investigates criminal activity, works with other Federal agencies as
well as State and local authorities, and assists States and localities
through training, dissemination of information, and other law enforcement activities. A total of $1.5 billion in budget authority is
requested for the FBI in 1990, an increase of 4.6 percent over the




ADMINISTRATION OF JUSTICE

5-155

1989 level. (Without the transfer from the FBI to OCDE, the increase would be 8.2 percent over 1989 levels.) The increase will
support enhancements in drug enforcement, field investigation programs, automated data processing and telecommunications, foreign
counterintelligence and technical field support and equipment.
Border Enforcement Activities.—Budget authority of $2.3 billion
for 1990 is proposed for border enforcement activities, a slight
increase over 1989 levels. 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 1990, the INS will be in its fourth 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.
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 $1.3 billion is proposed
for 1990, of which $395 million is proposed for border enforcement
and the remainder is for customs processing activities.
Congress enacted legislation in 1986 requiring the imposition of
user fees to cover fully the costs of Customs' commercial merchandise processing. The structure of the current fee, however, 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 budget assumes enactment of 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
administration believes the fee collections should be recorded as
budget receipts in order to conform to appropriate budget concepts.
This proposal is discussed in more detail in Part 4 of this volume.
Law Enforcement Training.—The Federal Law Enforcement
Training Center provides both basic and advanced law enforcement
training courses for over 60 federal agencies. Demand for this type
of training has increased dramatically in recent years and the
number of student-weeks has doubled between 1986 and 1989. In
1989, a site in New Mexico will be acquired to serve as a satellite
facility for advanced training. The 1990 budget proposal contains
funding for a new dormitory, continuing the facilities expansion
efforts of the past several years.




5-156

THE BUDGET FOR FISCAL YEAR 1990
NATIONAL NEED: ADMINISTRATION OF JUSTICE
(Functional code 750; in millions of dollars)
Major missions and programs

Actual 1988

Estimate
1989

1990

1991

1992

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:
Existing law
Proposed legislation
Federal judicial activities
Representation of indigents in civil cases
Subtotal, Federal litigative and judicial
activities
Federal correctional activities
Criminal justice assistance
Total, budget authority

1,896

1,974

2,267

2,275

2,309

218

241

227

230

232

2,231

2,313

2,319

2,344

2,333

-637

-851
851
384
498

-936
936
414
501

384
411

376
451

-771
771
386
494

5,140

4,717

5,693

5,731

5,788

1,252

1,528

1,369
306

1,528
309

1,666
1
1,550

1,690
1
1,573

1,712
2
1,593

2,926

3,364

3,217

3,264

3,307

1,059

1,361

1,554

1,614

1,899

316

420

196

210

218

9,441

9,862

10,661

10,818

11,211

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. The administration requests
$3.2 billion in budget authority for civil and criminal prosecution
and representation and Federal judicial activities in 1990. This
amount represents an increase of $160 million over 1989 levels for
these two activities. (Without the $48 million transfer from U.S.
Attorneys to OCDE, the increase would be $208 million over 1989
levels.)
Civil and Criminal Prosecution and Representation.—Budget authority for civil and criminal prosecution and representation is
proposed to be $1.7 billion in 1990, $139 million higher than in
1989.
Increases over 1989 include additional resources to:
• prosecute offenders under organized crime and drug statutes,
and augment asset forfeiture and civil enforcement activities
to increase collections into the Asset Forfeiture Fund and the
Treasury;




5-157

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

Actual 1988
1989

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

1990

1991

1992

1,890

1,950

2,111

2,250

2,309

213

239

240

229

232

2,180

2,308

2,265

2,335

2,328

-637

-851
851
383
502

-936
936
409
500

382
396

396
453

-771
771
391
500

5,061

4,709

5,507

5,700

5,778

1,687
1
1,556

1,595
2
1,570

Federal litigative and judicial activities:
Civil and criminal prosecution and representation:
Existing law
Proposed legislation
Federal judicial activities
Representation of indigents in civil cases

1,208

1,337

1,365
306

1,516
298

1,598
1
1,546
40

Subtotal, Federal litigative and judicial
activities

2,880

3,150

3,184

3,245

3,167

Federal correctional activities

930

1,196

1,462

1,687

1,900

Criminal justice assistance

352

373

444

313

263

9,223

9,428

10,598

10,945

11,108

Total, outlays

• defend against the tens of thousands of civil suits filed annually against the Government and its officials;
• provide administration expenses to implement provisions of
the Civil Liberties Act of 1988 to recompense individuals of
Japanese ancestry who were deprived of their liberty during
World War II; and
• continue litigative efforts to combat fraud, waste, and abuse,
as well as recover billions of dollars in delinquent debt owed
the Government.
In addition, an $18 million increase is included to continue implementation of an office automation system for the Department of
Justice legal divisions and U.S. Attorneys and resources for computerized litigation support.
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
$1.6 billion in 1990 for judicial branch activities in this function, a
slight increase over the 1989 level. However, this budget includes a




5-158

THE BUDGET FOR FISCAL YEAR 1990

reduction to the overall requests of the Judiciary in anticipation of
expected action by the Congress to provide 1990 funding that is
consistent with the Gramm-Rudman-Hollings deficit reduction targets. This adjustment eliminates the portion of the request that
exceeds the 1990 current services 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 corporation provides grants to attorneys and legal organizations involved in cases for individual clients and in broader "law
reform" activities.
The- administration again recommends that the Corporation not
be reauthorized and asks that no further separate Federal funding
be provided. 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.
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 building three new facilities, leasing two new facilities, and
expanding capacity at nine existing facilities. This expansion will
meet the demand for additional prison capacity created by tougher
law enforcement and longer sentencing required by a number of
recent initiatives, including the 1986 and 1988 Anti-Drug Abuse
Acts and the U.S. Sentencing Commission Guidelines. Further, the
administration proposes reducing the level of overcrowding in the
Federal prison system from almost 60 percent in 1988 to 30 percent
by 1995. To reduce the detrimental effects that this level of overcrowding could cause, the administration supports prison staffing
increases to achieve a 1:3 staff-to-inmate ratio. Budget authority
requested for the expansion and operation of the prison system in
1990 is $1.6 billion, a 14 percent increase above the enacted 1989
level.
Criminal Justice Assistance.—Criminal
justice assistance is intended to provide financial, technical, and emergency assistance to
States and local governments 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 1990 is $196 million, a decrease of $224
million from 1989 levels.




ADMINISTRATION OF JUSTICE

5-159

The administration proposes termination of the juvenile justice
and delinquency prevention grants because its original goals have
largely been accomplished, namely the separation and removal of
juveniles from adult correctional facilities. The administration also
proposes terminating State and local assistance grants, anti-drug
abuse grants, the regional information sharing system, and Mariel
Cuban reimbursement grants. These programs primarily benefit
the States; therefore, the States should assume the costs. Federal
criminal justice assistance was never intended to establish dependence on Federal resources, even in the important area of anti-drug
abuse. Rather, funds were intended to be used to provide seed
money and to fund demonstration projects that would then be
turned over to the States for continued funding.
Deposits of criminal fines and penalties into the Crime Victims
Fund are estimated to be $100 million for 1990. All of these funds
will subsequently be made available for victim compensation and
assistance programs at the Federal, State, and local levels. In 1989,
the benefit paid to public safety officers killed in the line of duty
was increased from $50,000 to $100,000. In 1990, the estimated
outlays for this program are $25 million. Budget authority of $4.2
million is requested for the Missing and Exploited Children program, a slight increase over the 1989 level.
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.




5-160

THE BUDGET FOR FISCAL YEAR 1990

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—
work with other agencies on a variety of management reform
initiatives. These management improvements include procurement
simplification, real property management, personnel retention and
recruitment, quality and productivity improvement, business-like
cash management practices, financial management systems upgrades, and credit management and debt reform.
Budget authority proposed for general government activities for
1990 is $10.1 billion, an increase of $204 million from the 1989
enacted level. 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, budget requests of the legislative
branch are included in the budget without change. For 1990, $1.7
billion in budget authority is proposed for the legislative branch
activities in this function. In addition, the budget includes a reduction to the overall requests of the legislative branch in anticipation
of expected action by the Congress to provide 1990 funding that is
consistent with the Gramm-Rudman-Hollings deficit reduction targets. This adjustment would eliminate the portion of the request
that exceeds the 1990 current services level. Legislative functions
include the operation of Congress, the General Accounting Office,
the Congressional Budget Office, and other legislative branch agencies, boards, commissions, and activities. Portions of these activities
are also included in other budget functions. A complete listing of
all legislative branch accounts appears in Part 9 of this volume.
Executive Direction and Management—Budget authority of $275
million is included for the Executive Office of the President and
related activities in 1990. This office assists the President in the
discharge of his budgetary, management, policy development, and
other executive responsibilities. Beginning in 1990, the Office of
National Drug Control Policy will become part of the Executive
Office of the President. This office was established by the AntiDrug Abuse Act of 1988 and will be responsible for developing a
national strategy to fight drug abuse in the United States. In




5-161

GENERAL GOVERNMENT

addition, $84 million is requested in Funds Appropriated to the
President for Investments in Management Improvements. These
funds are requested to complete the implementation of Reform '88,
President Reagan's multi-year effort to establish accuracy, quality,
and speed standards for the internal management of the executive
branch that are as high as those of the private sector. Funds will
be transferred to agencies to complete ongoing projects in financial
accounting systems, and for the continued implementation of management initiatives in the areas of credit and cash management
and productivity improvements.
Central Fiscal Operations.—The central fiscal operations of the
Federal Government include collecting taxes, making payments on
behalf of the Government, administering the public debt, maintaining accountability for Federal funds, administering the Federal
Financing Bank, and carrying out certain other financial operations. For 1990, $5.8 billion of budget authority is requested, an
increase of $425 million from 1989.
NATIONAL NEED: GENERAL GOVERNMENT
(Functional code 800; in millions of dollars)
Estimate
Major missions and programs

Actual 1988
1989

1990

1991

1992

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

1,602

1,670

1,656

1,660

1,659

125

137

275

289

287

5,059

5,195

5,484

5,577

5,659

130

214

-348
693
4

154
196
4

197
189
4

5,189

5,408

5,833

5,932

6,050

General property and records management:
Property receipts
Records management
Other

-98
116
280

-287
122
259

-289
123
273

-316
119
281

-318
120
282

Subtotal, General property and records
management

298

94

107

84

84

145

151

190

164

166

145

151

190

164

166

520

526

464

458

445

301

356

362

372

387

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




5-162

THE BUDGET FOR FISCAL YEAR 1990
NATIONAL NEED: GENERAL GOVERNMENT—Continued
(Functional code 800; in millions of dollars)
Major missions and programs

Proposed legislation
Payments to States from receipts under the
Mineral Leasing Act:
Existing law
. .
Proposed legislation
Payments to States and counties.from Federal land management activities:
Existing law
Proposed legislation
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:
Existing law
Proposed legislation
Subtotal, Other general government

Actual 1988

Estimate
1989

1991

1990

1992

-64

-64

-62

396

449

423
-71

445
-79

491
-81

187

104

105
190
264

105
193
242

94
-14
105
196
259

94
-14
110
202
409

94
-15
110
206
410

1,963

1,974

1,756

1,933

1,986

161
120
1,409

319
121
349

206
74
349

189
69
349

193
69
349

116

92

114
19

114

103

1,805

882

761

721

714

Deductions for offsetting receipts:
Government-sponsored enterprise fees (pronosed) .
Other......

-694

-400

-59
-400

Subtotal, Deductions for offsetting receipts

-694

-400

Total, budget authority

10,435

9,916

-240
-400

555
-400

-459

-640

-955

10,120

10,144

9,990

Collection of Taxes.—The administration requests $5.5 billion in
budget authority for the Internal Revenue Service (IRS) in 1990,
$289 million more than the 1989 enacted level. This increase will
fund workload growth due to the larger number of returns expected to be filed in 1990 and service improvements, such as quicker
processing of tax refunds and correspondence with taxpayers and
greater accuracy in IRS responses to taxpayer questions. Major
investments in automated data processing systems are also budgeted for redesigning the tax processing system to improve tax
administration, increase tax law compliance, reduce staffing needs,
and improve taxpayer service. Additional revenues will be collected
through enforcement initiatives designed to reduce the current tax
gap—the difference between taxes owed and taxes voluntarily paid
by individuals and businesses as well as taxes owed from previous
tax years.
During 1989 and 1990, the Internal Revenue Service, with the
Treasury Department and the Office of Management and Budget,
will evaluate the feasibility of a user fee arrangement for parts of




5-163

GENERAL GOVERNMENT

the taxpayer services telephone program. This evaluation will include an actual demonstration of the technologies and systems
capabilities. The fee would be designed to recover the phone circuit
costs and to partially support the service cost of providing information to taxpayers.
Depending on the outcome of the steps outlined above, a decision
will be made on how to proceed. Estimated receipts from this
proposed fee are included in the budget beginning in 1991.
NATIONAL NEED: GENERAL GOVERNMENT
(Functional code 800; in millions of dollars)
Major missions and programs

Actual 1988

Estimate
1989

1990

1991

1992

OUTLAYS
Legislative functions
Executive direction and management..
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:
Existing law
Proposed legislation
Payments to States and counties from Federal land management activities:
Existing law
Proposed legislation
Payments in lieu of taxes
Payments to territories and Puerto Rico

Other




1,599

1,720

1,696

1,667

1,664

10
2

16
3

18
3

26
7

28
8

4,985

5,224

5,456

5,563

5,648

-175

232

-364
614
4

28
110
4
5,791

4,809

5,456

5,711

117
4
5,693

-332
-98
102
147

-14
-287
120
252

146
-289
118
245

450
-316
113
277

39
-318
113
277

-182

71

220

54
2

111

113

159

163

11
6

169

113

159

163

11
6

19
6

520

510

46
8

41
7

45
4

305

344

360
-47

372
-64

387
-62

36
9

49
4

423
-71

445
-79

491
-81

8
6

15
0

103
187
217

105
193
243

94
-14
105
196
259

94
-14
110
202
409

94
-15
110
206
409

5-164

THE BUDGET FOR FISCAL YEAR 1990
NATIONAL NEED: GENERAL GOVERNMENT—Continued
(Functional code 800; in millions of dollars)
Estimate
Major missions and programs

Actual 1988
1989

Subtotal, General purpose fiscal assistance
Other general government:
Compacts of free association
Territories
Treasury claims
Other-.
Existing law
Proposed legislation
Subtotal, Other general government

1990

1991

1992

1,816

1,948

1,793

1,947

1,985

165
108
1,409

319
120
349

206
82
349

189
72
349

193
69
349

211

111

94
1

101
3

224
7

1,893

900

732

714

842

Deductions for offsetting receipts:
Government-sponsored enterprise fees (proposed)
Other......

-694

-400

-59
-400

-240
-400

-555
-400

Subtotal, Deductions for offsetting receipts

-694

-400

-459

-640

-955

Total, outlays

9,474

9,990

9,993

10,341

9,895

General Property and Records Management—The General Serv-

ices Administration (GSA) is the Government's builder, landlord,
wholesaler, and retailer. Its services support the activities of other
Federal agencies. GSA is also responsible for disposal of properties
no longer needed by the Government. Planned disposal of surplus
properties in 1990 is estimated to generate $225 million in collections.
The cost of operating the National Archives and Records Administration, which is responsible for the recordkeeping activities 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 $163
million in 1990, an increase of $4 million from 1989.
General Purpose Fiscal Assistance.—Outlays in this subfunction
provide financial aid to State and local governments, including
payments to the District of Columbia, grants from Forest Service
and Interior Department timber and mineral receipts, and payments to territories and Puerto Rico. This assistance can generally
be used for State or local services, construction, debt retirement,
and other purposes of general government. Outlays for these programs are estimated to be $1.8 billion in 1990, a decrease of $155
million from 1989 primarily due to administration proposals.




5-165

GENERAL GOVERNMENT

CREDIT PROGRAMS—GENERAL GOVERNMENT
(In millions of doHan;)
Estimate

11988

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:
Payments to the Financial Assistance Corp.:
New commitments
Change in outstandings
Outstandings
General Services Administration (GSA):
Change in outstandings
Outstandings

1989

1990

1991

1992

-30
685

-34
652

-33
619

-35
584

-37
547

-8
387

-9
378

-11
367

-12
355

-14
341

-2
59

-2
57

-2
55

-2
53

-2
51

-39
1,131

-45
1,087

-46
1,041

-49
992

-53
938

450
450
450

1,000
1,000
1,450

810
810
2,260

270
270
2,530

270
270
2,800

-61
504

-26
478

-28
450

-30
421

-32
389

Payments and Loans to the District of Columbia.—The District of
Columbia's operating budget is financed in part by annual reimbursements for the net cost of the Federal presence in the city. The
administration requests $498 million in budget authority for the
District of Columbia in 1990 (excluding $34 million of proprietary
receipts for capital loan repayments). Of this total $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 Saint Elizabeths Hospital.
In lieu of providing the District of Columbia with a lump-sum
appropriation for water and sewer services, the administration recommends legislation that would require the District to bill Federal
agencies directly for these services. Federal agencies (e.g., Defense,
General Services Administration, Smithsonian, etc.) that own property in the District would make payments to the District for buildings under their control. This proposal (1) reduces appropriated
Federal payments for non-government entities, such as the American Red Cross and the Pan American Union, as well as for entities
outside the appropriations process, such as the U.S. Postal Service,
the Federal Savings and Loan Insurance Corporation, the National
Credit Union Administration, and the Federal Deposit Insurance
Corporation; (2) insures accuracy and accountability in water and




5-166

THE BUDGET FOR FISCAL YEAR 1990

sewer billings; and (3) creates incentives for agencies to economize
on water and sewer services.
The budget reflects legislation that would require the District to
cover its full share of the costs of retirement for District retirees
and their survivors.
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
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. Beginning in 1990, the administration proposes that
an amount equal to the total estimated Federal cost of fighting
fires in a given year be deducted from Federal timber and mineral
receipts that year before the receipts are deposited in the Treasury
General Fund or shared with States and localities.
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 (PILT).—The Federal Government pirovides payments based on a formula to local governments for certain Federal lands located within their jurisdictions. The administration proposes $105 million in outlays in 1990 for PILT.
Payments to Territories and Puerto Rico.—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 $193 million in 1989 to $196 million in
1990.
Other.—The Civil Liberties Act of 1988 provides for the payment
of reparations for Japanese Americans who were interned during
World War II. The budget includes $20 million to establish the
reparation fund.
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.—The Compacts of Free Association
with the Federated States of Micronesia and the Republic of the




GENERAL GOVERNMENT

5-167

Marshall Islands bind the United States to make annual payments
to these two freely associated states totaling $2.3 billion over a 15
year period. Similarly, funding for the Compact of Free Association
for Palau is proposed on the assumption that Palau and the United
States will implement the Compact in 1989. The Compact of Free
Association funds will aid all of these former U.S. territories in
their successful development as sovereign states. Budget authority
of $206 million is proposed for 1990.
Territories.—The administration proposes budget authority of $74
million in 1990 for continued support of the U.S. territories of
Guam, American Samoa, the Virgin Islands, and the Northern
Marianas. The budget requests $3 million for the Trust Territory of
the Pacific Islands in 1990. This amount includes funds to pay
liabilities remaining subsequent to the close down of the Trust
Territory government. A transition office has been established to
continue close out of Federal grants and to monitor the completion
of construction project grants. The only remaining Trust Territory,
Palau, will be operating under a new relationship in 1989 through
implementation of the Compact of Free Association. The territories
and the freely associated states receive grants and payments from
many other Federal agencies for programs classified in other functions.
Deductions for Offsetting Receipts.—The administration proposes
to impose on certain Government-sponsored enterprises (GSEs) a
fee on new securities issued after September 30, 1989. The GSEs
affected include the Student Loan Marketing Association, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, and the College Construction Loan Insurance
Association. The purpose of this fee is to reimburse the Federal
Government for the borrowing advantages these enterprises enjoy
as a result of their special relationship with the Government. The
fees will be phased in over three years and should eliminate most
of the interest rate advantage enjoyed by GSE securities in the
credit markets. Eliminating the competitive advantage of the housing GSEs will permit greater competition with private securities
issuers. Receipts from these fees are estimated to be $59 million in
1990.
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




5-168

THE BUDGET FOR FISCAL YEAR 1990

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 public purpose State and local debt is $16.0
billion in 1990.
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 $18.7 billion in 1990. 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 $3.1
billion in 1990. Altogether, tax expenditures for general purpose
fiscal assistance are an estimated $37.7 billion in 1990.
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
18.2 percent in 1988 of the financing of total State and local expenditures. Total grant-in-aid outlays to States and localities are
estimated to be $123.6 billion in 1990, the same amount as estimated for 1989.
Grants are discussed in more detail in Special Analysis H, "Federal Aid to State and Local Governments."




5-169

CENTRAL FEDERAL CREDIT ACTIVITIES

CENTRAL FEDERAL CREDIT ACTIVITIES
This new function is proposed to begin in 1990. 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. One of the new
revolving funds is to finance direct loans, the other fund finances
guaranteed loan insurance.
The Direct Loan Fund and Guaranteed Loan Fund are to be
established within the Department of the Treasury. Federal agencies would be required to obtain appropriations from Congress to
finance the subsidies implicit in all new direct loans obligated and
guaranteed loans committed in 1990 and later years. The financing
and payment of loans obligated or committed before 1990 would not
be affected.
CENTRAL FEDERAL CREDIT ACTIVITIES
(Functional code 870; in millions of dollars)
Major missions and programs

Actual 1988

Estimate
1989

1990

1991

1992

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

2,107

2,092

1,715

2,107

2,092

1,715

1,492

1,508

1,122

-8,648

-9,380

-8,547

-7,156

-7,872

-7,425

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

Under the administration's credit reform proposal, agencies
would continue to originate and close direct loans as they do now.
But as borrowers draw down obligated direct loans, the agency
would pay the subsidy component of each loan into the Direct Loan
Fund. This fund would finance the balance of the loan—the nonsubsidized portion—through borrowing from Treasury. The borrower would pay interest and repayments of principal to the agency
that originated the loan; the agency would deposit these amounts
in the Direct Loan Fund to repay the Treasury for its financing of
the loan.
For loan guarantees, the appropriated subsidy would be paid by
the agency to the Guaranteed Loan Fund when a loan being guaranteed is disbursed by a lender. All fees and premiums collected by
the agency would be deposited in the Guaranteed Loan Fund. In
turn, the Guaranteed Loan Fund would assume the financial re-




5-170

THE BUDGET FOR FISCAL YEAR 1990

sponsibility for payment of defaults. In all other respects, agencies
would continue to make loan guarantees as they do now.
Proposed budget authority in 1990 for this function is $2.1 billion; the outlay estimate in that year is —$7.2 billion because of
the large amounts of offsetting collections paid into the loan guarantee revolving fund from other budget accounts. The outlays,
however, are offset fully by corresponding adjustments in other
functions. Credit reform is discussed in more detail in Part 6 of this
volume.




NET INTEREST

5-171

NET INTEREST
The Federal Government engages in both borrowing and lending,
and as a result it both pays and receives interest. The principal
form of Federal borrowing is through issuance of public debt securities by the Treasury, and the largest subfunction in the net
interest function is the subfunction for interest on the public debt.
The other three subfunctions in this function are composed primarily of interest income; however, the "other interest" subfunction
includes both interest payments and interest income. Net interest
is thus defined as interest paid by the Government less the interest
it collects. Interest payments include the interest paid by Treasury
on trust fund holdings of public debt; however, the interest earned
on these holdings is also deducted in this function. Net interest
approximates the Government's net transactions with the public.
Net interest outlays are estimated to increase from $165.7 billion in
1989 to $170.1 billion in 1990.
Interest on the Public Debt—Virtually all Federal debt is in the
form of public debt issued by the Treasury, and all interest on the
public debt is interest paid directly by the Treasury. Outlays for
interest on the public debt are estimated to be $235.6 billion in
1989 and $248.1 billion in 1990.
Interest outlays are determined by the size of the debt and the
interest rates on that debt. As shown in the economic assumptions
in Part 3 of this volume, the rates for new 91-day Treasury bills
are assumed to decline steadily from an average of 6.6 percent in
calendar year 1988 to 4.0 percent by 1992. Similarly, the rates for
notes and bonds with more than 5 years to maturity are assumed
to decline from 8.9 percent in calendar year 1988 to 5.0 percent in
1992. These declining interest rates partially offset the rise in
interest payments due to higher Federal debt. Interest-bearing
public debt issued by the Treasury is estimated to increase by
$255.8 billion in 1989 and an additional $234.5 billion in 1990.
Interest Received by On-budget Trust Funds.—Interest earnings
of on-budget trust funds are estimated to be $39.8 billion in 1989
and $44.7 billion in 1990. More than half is received by the civil
service retirement and disability fund, and one-fifth is received by
medicare. Under law, most major trust funds are required to invest
any surpluses in Treasury debt, and the Treasury pays interest on
those holdings. The interest payments are included in the interest
on the public debt subfunction. However, since the trust funds are
part of the Government, these intragovernmental transactions are
deducted from Federal outlays in this subfunction.
The budget assumes legislation to restrain the growth in outlays
of the medicare and civil service retirement trust funds. These




5-172

THE BUDGET FOR FISCAL YEAR 1990

proposals, as well as other proposals affecting on-budget trust fund
balances, would increase the interest collections received by these
funds by $0.3 billion in 1990 relative to current law.
NET INTEREST
(Functional code 900; in millions of dollars)
Estimate
Major missions and programs

Actual 1988
1989

BUDGET AUTHORITY
Interest on the public debt:
Existing law
Proposed legislation

214,066

248,655
-569

251,715
80

246,569
902

214,066

235,618

248,086

251,795

247,471

-39,775

44,351
-301

48,369
-875

50,923
-1,612

-34,480

-39,775

-44,652

-49,244

-52,535

-7,416

-11,210

-15,758
870

-20,472
795

-24,718
710

-7,416

-11,210

-14,888

-19,677

24,008

-14,110
1,800

-13,420
1,776

-13,223
1,680

-13,049
1,613

20

21
205

22
512

22
750

-6,639

-7,020

-6,134
8

-5,777
18

trust

Subtotal, Interest received by onbudget trust funds
Interest received by off-budget
funds:
Existing law
Proposed legislation

235,618

34,480

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

1992

1991

1990

trust

Subtotal, Interest received by offbudget trust funds

Other interest:
Interest on loans to Federal Financing Bank.. -15,228
1,681
Interest on refunds of tax collections
Interest on uninvested funds:
Existing law
20
Proposed credit reform
Other:
Existing law
-6,900
Proposed legislation
Subtotal, Other interest

-20,426

-18,929

-18,437

-17,134

-16,423

Total, budget authority
On-budget
Off-budget

151,744

165,704

170,109

165,740

154,504

(159,160) (176,914) (184,997) (185,417) (178,512)
(-7,416) (-11,210) ( 14,888) ( 19,677) (-24,008)

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, the net interest function includes, as
a separate subfunction, the off-budget interest earnings that have
the same nature as the interest earnings of on-budget trust funds.
Interest earnings of the off-budget trust funds are estimated to be
$11.2 billion in 1989 and $14.9 billion in 1990.




NET INTEREST

5-173

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 Federal revolving funds.
The revolving funds generally borrow from the Treasury in order
to carry out lending or other business-type activities, and they pay
interest to the Treasury on the money they borrow. The Treasury
collection of interest from these revolving funds is included in this
subfunction. This subfunction also includes any interest payments
to the public on income tax refunds.
Interest on Loans to the Federal Financing Bank (FFB).—The
FFB is a revolving fund administered by the Treasury, which provides loans to finance 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 lendings, and in turn, pays interest
to the Treasury on its borrowings. Most of its borrowings are from
the Treasury, the interest on which is recorded as offsetting collections in this subfunction. Interest payments by the FFB to the
Treasury are estimated to be $14.1 billion in 1989 and $13.4 billion
in 1990.
Interest on Refunds of Tax Collections.—The Treasury pays interest on tax refunds if the money refunded has been held by the
Treasury for longer than a period specified by law. Interest on
these refunds is estimated to be $1.8 billion in 1990, about the same
as in 1989. 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 three years or less.
Federal Credit Revolving Funds.—A central element of the administration's proposal for credit reform (discussed in Part 6 of this
volume and in Special Analysis F, "Federal Credit Programs") is
the creation of two new funds in Treasury—the Direct Loan Fund
and the Guaranteed Loan Fund. If enacted, the Direct Loan Fund
would borrow directly from the Treasury to finance the non-subsidized portions of Federal direct 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 1990 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 the
Treasury, and their interest payments to the Treasury on existing
loans would gradually decline as the old loans were repaid or sold.
The Guaranteed Loan Fund is proposed to administer an insurance program to cover all Federal loan guarantees. The fund would




5-174

THE BUDGET FOR FISCAL YEAR 1990
NET INTEREST
(Functional code 900; in millions of dollars)
Major missions and programs

Actual 1988

Estimate
1989

1990

1991

1992

OUTLAYS
Interest on the public debt:
Existing law
Proposed legislation

214,066

Other interest:
Interest on loans to Federal Financing Bank.
Interest on refunds of tax collections
Interest on uninvested funds:
Existing law
Proposed credit reform
Other:
Existing law
Proposed legislation
Subtotal, Other interest

251,715
80
251,795

246,569
902
247,471

235,618
-39,775

-44,351
-301

-48,369
-875

-50,923
-1,612

-34,480

-39,775

-44,652

-49,244

-52,535

-7,416

-11,210

-15,758
870

-20,472
795

-24,718
710

-7,416

-11,210

-14,888

-19,677

-24,008

-15,228
1,681

-14,110
1,800

-13,420
1,776

-13,223
1,680

-13,049
1,613

24

20

21
205

22
512

22
750

-6,900

-6,639

-7,020

-6,134

trust

Subtotal, Interest received by offbudget trust funds

Total, outlays..
On-budget
Off-budget

248,655
-569
248,086

trust

Subtotal, Interest received by onbudget trust funds
Interest received by off-budget
funds:
Existing law
Proposed legislation

214,066

-34,480

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

235,618

-20,422 -18,929 -18,437 -17,134
151,748 165,704 170,109 165,740
(159,164) (176,914) (184,997) (185,417)
(-7,416) (-H210) (-14,888) (-19,677)

-5,777
18
-16,423
154,504
(178,512)
(-24,008)

collect insurance premiums from guaranteed borrowers and subsidy payments from other Federal accounts. In turn, the fund would
disburse money to make good on any Federal guarantee that went
into default. In the near-term, the fund would accumulate large
balances to finance future payments and it would maintain these
as uninvested balances in the Treasury. Treasury, in turn, would
pay interest on these uninvested balances based on the Treasury
cost of borrowing.
Other.—The remainder of this subfunction is estimated to collect
$6.6 billion in 1989 and $7.0 billion in 1990. 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.




5-175

NET INTEREST

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 Shelf (OCS) escrow account, and
interest collected from banks on Federal tax collections kept on
deposit in 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 are projected to be $18.0 billion in 1989 and
$18.6 billion in 1990. 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)
1988
actual

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

Estimates
1989

1990

1991

1992

151,748 165,704 170,109 165,740 154,504
17,163 17,950 18,618 18,861 18,225
134,585 147,754 151,490 146,879 136,279

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 $995 million in 1990.




5-176

THE BUDGET FOR FISCAL YEAR 1990

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
1990, allowances included in this category reduce budget authority
by $364 million and outlays by $360 million.
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.
The budget includes a 2 percent increase for civilian employees
and a 3.6 percent pay increase for Coast Guard military personnel,
effective in January 1990. It assumes that each agency will be
required to absorb 75 percent of the costs of these proposed increases. The allowance covers the remaining 25 percent of the
proposed increases. The pay raise allowances for 1991 and 1992
assume that Federal civilian employees will receive pay raises of
3.0 percent and 2.8 percent, respectively, effective in January, and
that Coast Guard military personnel will receive 3.2 percent and
3.0 percent, respectively, also effective in January.
Employees' Health Benefits Reform (FEHB).—The administration proposes a reform in the FEHB program that would change
the formula used to determine the Government's contribution to
enrollees' health premiums to a weighted average that reflects the
premiums of all FEHB plans and the distribution of enrollees
among those plans. This proposal is discussed in further detail in
the health function. The savings from this proposal would accrue to
agencies throughout the Government. These savings, estimated to
be $256 million in 1990, are included as an allowance.
Reduced Government Mail Rates.—The budget reflects a proposed
change in postal rates for Government mail. Separate subclasses
would be established to eliminate excess overhead charges paid by
the Government. Rates would be based on actual attributable costs
and overhead charges equal to average overhead rates for comparable classes of mail. Government mail would still be processed in
USPS's current mail stream, without change in service standards,
but would be charged rates more closely aligned with actual costs
incurred. The budget includes an allowance of $261 million in




5-177

ALLOWANCES
ALLOWANCES
(Functional code 920; in millions of dollars)
Estimate
Major missions and programs

Actual 1988
1989

1990

1991

1992

BUDGET AUTHORITY
Civilian agency pay raises:
Civilian agency pay raises*
Coast Guard military pay raises
Subtotal, Civilian agency pay raises
Employee health benefits reform:
Proposed legislation
Subtotal, Employee health benefits
reform
Reduced government mail rates:
Proposed legislation
Subtotal, Reduced government mail
rates

136
17

1,411
46

2,509
75

153

1,457

2,584

-256

-373

-423

-256

-373

-423

261

261

-261

-261

-261

-261

-364

823

1,900

140
17

1,445
46

2,634
75

157

1,491

2,709

-256

-373

423

-256

373

-423

-261

-261

-261

Allowance for contingencies:
Relatively uncontrollable programs
Other requirements
Total, budget authority
OUTLAYS
Civilian agency pay raises:
Civilian agency pay raises 1
Coast Guard military pay raises
Subtotal, Civilian agency pay raises
Employee health benefits reform:
Proposed legislation
Subtotal, Employee health benefits
reform
Reduced government mail rates:
Proposed legislation
Subtotal, Reduced government mail
rates

-261

261

-261

-360

857

2,025

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

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

outlay savings from the reduced rates. The Department of Defense
allowances for contingencies also contain $85 million for this reduced Government mail rate proposal.
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




5-178

THE BUDGET FOR FISCAL YEAR 1990

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.




5-179

UNDISTRIBUTED OFFSETTING RECEIPTS

UNDISTRIBUTED OFFSETTING RECEIPTS
Offsetting receipts are collections by the Federal Government
that are credited to receipt accounts but are deducted as offsets to
outlays rather than recorded as governmental receipts. Such collections may result from intragovernmental transactions or they may
arise from business-like transactions between the Government and
the public, such as sales of goods and services. Governmental receipts, by contrast, include those collections that arise from the
Government's sovereign power (mainly taxes and other compulsory
charges).1 Offsetting receipts are deducted from both budget authority and outlays.
UNDISTRIBUTED OFFSETTING RECEIPTS
(Functional code 950; in millions of dollars)
Estimate
Major missions and programs

Actual 1988
1989

1990

1991

1992

-18,382
-1,884

-18,798
-2,010

-16,608
2,131

-16,939
2,198

-17,257
2,294

-3,705

-3,436

-3,578

-4,066
-405
-6,262

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

-5,066

-5,183

-5,528

-3,905
-225
-5,890

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

-29,037

29,427

-27,844

-29,158

-30,283

Employer share, employee retirernent (offbudget)

-4,382

-4,849

-5,551

-5,928

-6,444

Rents and royalties on the Outer Continental Shelf fe

-3,548

2,655

-3,710

-3,283

-3,516

-1,000
-1,285

-1,500

-1,200

-2,285

1,500

1,200

-400
-2,252

-1,350
-1,126

-550

-2,652

-2,476

-550

Sale of major assets:
Sale of petroleum reserve (proposed)
Sale of power administrations (proposed)
Subtotal, Sale of major assets
Other undistributed offsetting receipts:
Chlorofluorocarbon production rights
Spectrum fees, FCC
Subtotal, Other undistributed offsetting receipts

.

Total, budget authority and out-36,967 -36,931
lays
42,042
42,345 -41,993
(-32,585 ( 32,082) (-36,491) (-36,417) (-35,549)
On-budget
(-4,382 (-4,849) (-5,551) (-5,928) (-6,444)
Off-budget

Most offsetting receipts are offset against the function that contains the activity that generates the receipts. Such offsetting re1
The conceptual basis for classifying certain amounts collected by the Federal Government as receipts and
other amounts as offsetting collections is explained in Part 8 of this volume.

240-000 O - 1989 - 10 QL 3




5-180

THE BUDGET FOR FISCAL YEAR 1990

ceipts are deducted before reaching functional 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."
There are five categories of undistributed offsetting receipts: 1)
on-budget collections of amounts paid by Federal agencies to Federal employee retirement funds and medicare; 2) off-budget collections of amounts paid by Federal agencies for Federal employee
retirement funds under social security; 3) collections from the
public of bonuses, rents, and royalties on the Outer Continental
Shelf; 4) collections from the public arising from the sale of major
Federal assets; and 5) collections from the sale of spectrum rights
and chlorofluorocarbon production rights.
Undistributed offsetting receipts are estimated to be $36.9 billion
in 1989 and $42.0 billion in 1990. Details of all offsetting receipts
are shown in table 12 in Part 10. The totals for undistributed
offsetting receipts shown on tables organized by agency exceed the
totals shown on tables organized by function. This is because interest received by on- and off-budget trust funds are included in the
net interest function rather than the undistributed function, but
they are undistributed in the agency displays.
Employer Share, Employee Retirement (on-budyet).—Classification within the functional structure is relatively straightforward
for most Federal Government accounts, because 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 agency" (for
the payment to the "receiving agency" for services provided) and
also to the receiving agency (for the expenditures it makes on
behalf of the paying agency). 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 agency 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 receiving agency 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




UNDISTRIBUTED OFFSETTING RECEIPTS

5-181

funds constitute a funding of 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.
Most of the $27.8 billion in 1990 that are collected by on-budget
accounts are used to finance the military retirement and the civil
service retirement trust funds.
The budget reflects proposed legislation that would require the
U.S. Postal Service (USPS) to fund new civil service retirement
liabilities created with each new retirement cost-of-living adjustment (COLA) for Postal Service annuitants and survivors. USPS
payments to the retirement fund would be equal to the present
value of new COLA liabilities amortized over 10 years. Because the
budget proposes a 1990 COLA freeze for Government annuitants,
USPS's initial annual payment to the retirement fund will begin in
1991.
Employee Share, Employee Retirement (off-budget).—Because, by
law, social security is off-budget, and because some of intragovernmental employer retirement contributions are used to finance
social security for Federal personnel, the collections by off-budget
accounts are recorded in a separate subfunction from the on-budget
retirement collections.
Rents and Royalties on the Outer Continental Shelf (OCS).—The
Federal Government administers the OCS and collects bonuses,
rents, and royalties from the companies that successfully bid for
the right to explore and produce oil and gas from the OCS. Because
these collections result from business-like transactions rather than
from compulsory collections, 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 function or agency that administers 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 programs in that




5-182

THE BUDGET FOR FISCAL YEAR 1990

function. To avoid this distortion, these collections are undistributed.
The collections in this category include cash bonuses from the
leasing of OCS lands with potential oil and gas resources; annual
rents on existing leases; and royalties, based on a percentage of the
value of production. Current estimates of proceeds from OCS sales
are $2.7 billion in 1989 and $3.7 billion in 1990. None of these sales
will be conducted until environmental impact studies and other
requirements of the National Environmental Policy Act have been
completed.
The administration opposes continuation of current "one-year"
leasing moratoria enacted in appropriations bills for certain OCS
areas, which circumvent the effective management of OCS resources set forth in the OCS Lands Act. The continuation of leasing
moratoria and a related prohibition on exploration and development activities on some existing OCS leases would be a clear signal
to private industry that the Federal Government can no longer be
considered a trustworthy partner, resulting in a retargeting of
industry investment in exploration activities to foreign areas. Such
moratoria and prohibitions prevent the Nation as a whole from
realizing the economic and energy security benefits, including revenues and employment, derived from exploration for and development of OCS oil and gas resources.
Sale of Major Assets.—Certain asset sales result in large offsetting receipts that are not closely related to any particular on-going
spending program. As a result, these collections are included as
undistributed offsetting receipts rather than as an offset to a function.
The administration's proposals for 1990 include the sale of two
Federal dams and associated hydropower systems in Alaska for $85
million, the sale of selected assets of Southeastern Power Marketing Administration for $1.2 billion, and the sale of the naval petroleum reserves (NPR) in Elk Hills, California. The buyer of the NPR
is expected to pay the Government $1.0 billion in 1990 and to
supply oil to fill the strategic petroleum reserve from 1990 through
1995 at no cost to the Government. These asset sales and swaps are
discussed in greater detail in the energy and natural resources
functions.
Charges for Spectrum and Chlorofluorocarbon Rights.—The
budget proposes that, beginning in 1990, the U.S. Government use
a competitive bidding process to grant licenses for exclusive use of
certain unassigned portions of the spectrum. These could be used
for services such as cellular radio and private land mobile radio
services. The 1990 budget estimates revenue of $2.3 billion in 1990




UNDISTRIBUTED OFFSETTING RECEIPTS

5-183

and $1.1 billion in 1991 for bidding on six megahertz of currently
unassigned portions of the spectrum.
Currently, the Federal Communicatons Commission (FCC) employs two methods—comparative hearings and lotteries—for awarding non-mass-media licenses. In comparative hearings, the FCC
compares the merits of rival applicants in an often complex, prolonged administrative process. In lotteries, the FCC processes thousands of applications prior to a drawing. Both methods are costly to
the FCC and delay the introduction of valuable new services. Lotteries also impose delays and costs on the public. In contrast to the
delay associated with these processes, competitive bidding would
immediately assign frequency channels to users who can put them
to their highest valued use without the need for costly, time-consuming allocations and resales.
The administration is also proposing to charge market value for
the rights to produce chlorofluorocarbons (CFCs) and related substances that deplete the ozone layer. CFCs are used as refrigerants
and solvents as well as to make insulation. Current regulations,
which require major reductions in the production of CFCs, will lead
to a significant rise in the price of CFCs. By charging market value
for these limited production rights, the revenue resulting from the
price rise would accrue to the Treasury for the benefit of the
general public, rather than to producers as windfall profits. Capturing this windfall will also remove the potential disincentive that
such profits might have on current producers to quickly develop
environmentally safer but potentially less profitable substitutes for
CFCs. The charges for these rights, whether by auction or permit
fee, are expected to generate proceeds in 1990 of $0.4 billion.







PART 6

FEDERAL CREDIT
6-1

PART 6

FEDERAL CREDIT
OVERVIEW
Introduction.—Since entering office in 1981, the administration
has placed a high priority on reforming Federal credit programs,
which had been neglected for too many years. There had been a far
greater emphasis on handing out funds, rather than managing loan
programs well, and it was costing the taxpayer billions of dollars
every year.
This reform effort has been comprehensive and far-reaching by
necessity. The administration has proposed to treat credit programs in the budget on a basis consistent with other operating and
grant programs and has improved the management of loan programs and loan portfolios, from origination through servicing to
default. The results of this effort are embodied in three documents:
Circular A-70, defining the appropriate Federal Government role
in credit and providing guidance for sound credit policy; Circular
A-129, establishing goals and procedures for better credit management and debt collection; and the proposed Credit Reform Act,
changing the way credit is treated in the budget. Together these
documents establish a framework for credit policy, program management, and effective budgeting.
The following sections review the scope of Federal credit programs; discuss the administration's accomplishments, along with
its continuing efforts at implementation; and review other forms of
credit activity that are not fully captured in the budget.
Summary of Federal Credit Activities.1—The Federal Government is the largest financial intermediary in the United States. At
the end of 1988, it held outstanding loans with a face value of $222
billion in its direct loan portfolio and had another $550 billion in
guaranteed loans outstanding. (All data in this discussion are based
on the face value of loans, not the unsubsidized market value.)
Government-sponsored enterprises had an additional $666 billion of
loans outstanding at the end of the year. Thus, directly or indirectly, the Government had influenced the allocation of $1.4 trillion of
1

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




6-2

6-3

FEDERAL CREDIT

outstanding credit. This is up 134 percent from 1980. An effective
credit management program was badly needed.

Total Federal Credit Budget
$ Billion*
7AA

S BSIions

600-

-eoo

TotalN

600-

1
1

-600

Nfpiil
i

400-

NewGSE
Loans

-400

i

300j

-300

I

200-

-200

New Direct Loans

i ^ ^ ^

100-

^New Guaranteed Loansp

1964

69

Fiscal Years

74

79

84

89

-100

94

Estimate

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, Indian tribes, and State, local, and foreign governments. In 1990, the estimated subsidies total $9 billion.
Most will go to students ($4 billion with an average subsidy of 31
percent), farmers (nearly $2 billion), and housing (over $3 billion).
The subsidies inherent in these Federal credit programs have come
at the expense of both taxpayers and those borrowers who did not
receive subsidized credit. Unsubsidized borrowers paid higher interest rates or fees for their credit or were not able to borrow at all.
Federally subsidized credit often results in unfair competition and
can, if primarily driven by political concerns, channel funds away
from more productive financing for the Nation's priorities. In 1990,
the Federal Government will provide an estimated $12 billion in
new direct loan obligations and $112 billion in new guaranteed
loan commitments. Government-sponsored enterprises (GSEs) are
expected to lend an additional $422 billion. The accompanying




6-4

THE BUDGET FOR FISCAL YEAR 1990

chart summarizes Federal and federally assisted credit activity
from 1964 to 1994.
Direct Loans.—The Federal Government makes direct loans to
individuals, businesses, and State, local, and foreign governments.
Direct loans are primarily disbursements 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 classified as direct
loans: (1) acquisition of defaulted private loans that were guaranteed by the Government and for which the Government made
direct payment to the lender to honor the guarantee; (2) purchase
by the Government of a private loan in the secondary market; and
(3) sales of Government assets on credit terms of more than 90
days.
Direct loans are financed from a variety of sources, including
borrowing, repayment of previous loans, and appropriated funds.
They 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. Although it is
questionable whether the Federal Government should be a direct
lender at all, a direct loan is best justified when the Federal
objective cannot be met with financing from private sources, even
with a Government guarantee. In most cases, however, the Federal
Government can meet its policy goals through the guarantee mechanism. The objectives of direct loan programs may require financing at interest rates that are lower or loan maturities that are
longer than those available from private lenders. These provide
subsidies and result in lending situations, such as in the foreign aid
program, where it could make more sense to provide grants to the
truly needy and eliminate others from the program.
The accompanying chart shows the shifting composition of new
direct loans issued over the past 35 years. Four sectors of the
economy receive almost all direct loans: housing, business, agriculture, and education.
During the 1950s and again from 1965 to 1975, housing accounted
for about 35 percent of direct loan obligations; however, this percentage has been trending downward; housing accounted for 14
percent of total obligations in 1988. Under this budget, the housing
share of direct loans would remain just below this level. The trend
reflects the increasing amount of direct lending to agriculture
during the same period, and, to a lesser extent, the conversion of
the rapidly expanding lending activity of the Federal National
Mortgage Association (FNMA) in 1968 from an on-budget program
to a Government-sponsored enterprise that is outside the budget.




6-5

FEDERAL CREDIT

New Direct Loans by Sector
Parcant of Total

Parcant of Total
i-KX)

100-r

80

1963

68

73

78

83

88

New direct loans provided to agriculture have been rising rapidly
both in absolute terms and relative to all direct loans in recent
years. Agriculture reached 69 percent of new direct loans in 1987,
receded from this share in 1988, but is expected to account for
about 82 percent of direct loans in the early 1990s. This includes
lending for farm ownership and operations, rural housing and
water treatment facilities, and the price support program of the
Commodity Credit Corporation.
During the early 1960s, business borrowers received 45 percent of
the Government's new direct loans. In recent years, the business
share was about a quarter. This budget reduces direct loans to
business further to about 4 percent of the total. The Export-Import
Bank, Small Business Administration, and deposit insurance agencies are the principal lenders to, or in support of, the business
sector.
Direct loans for education include loans for construction of facilities, direct financial assistance to students, and payments for defaulted guaranteed student loans. No new loans to schools are
proposed starting in 1990. Student loan defaults are expected to




6-6

THE BUDGET FOR FISCAL YEAR 1990

cost over $2 billion in 1990. Education loans have never been a
large share of direct loans, and their share has diminished in
recent years.
Since direct loans, depending on their financial terms and conditions, potentially provide greater subsidies to favored borrowers
than loan guarantees, the administration is continuing the policy
of minimizing the amount of direct loans originated. Under this
administration there has been a major shift away from direct
lending to Federal guarantees of privately originated loans. In
1980, direct loan obligations totaled $36 billion. By 1990, direct loan
obligations are estimated to be only $12 billion, or $4 billion excluding the Commodity Credit Corporation (CCC). Corresponding to this
decline in direct loans, guaranteed loan commitments are expected
to increase by $24 billion, from $88 billion in 1980 to $112 billion in
1990.
In sum, loans to agriculture and rural areas have come to dominate Federal direct lending. Under this budget, loans for housing
would comprise much of the remainder. Business loans, once the
largest share of Federal direct loans, have been reduced substantially; private lenders are better able to judge productive business
investments.
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 guaranteed loans 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, even in this case, 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 will have higher transaction costs. The administration has
initiated a policy to require agencies, to the extent permitted by




6-7

FEDERAL CREDIT

New Guaranteed Loans by Sector
Ptfcant of Total
100-r

Ptictitt of Total
rioo

80

80

60

60
m and Other t

1953

58

63

68

73

78

83

88

law, to reduce the amount of a loan covered by a Federal guarantee to not more than 80 percent from 1990 to 1994.
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
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.




6-8

THE BUDGET FOR FISCAL YEAR 1990

Many of the guarantee programs operated by the Federal Government began as 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 "balloon" mortgages.
As the accompanying chart shows, housing guarantees dominated Federal guarantee activities during the 1950s and 1960s. The
range of activities financed with Federal guarantees widened
during the 1970s and early 1980s. Guarantees of business-related
activities amounted to about a quarter of the total in the 1970s and
still make up about 14 percent. Guaranteed student loans are the
fastest growing category; they are expected to double their 1984
level by 1994, and amount to 14 percent of all Federal guaranteed
loans. Nevertheless, housing continues to be a large majority of all
new loan guarantees, particularly because falling interest rates in
recent years have led many homeowners to refinance their mortgages. Between 1985 and 1986, housing guarantees shot up from
$60 billion to $137 billion. For the 1990 budget, housing programs
account for an estimated $73 billion or 65 percent of all new
guaranteed loan commitments.
Government-sponsored Enterprise Lending.—The Government
also influences the allocation of credit through the creation and
use of Government-sponsored enterprises (GSEs). (GSEs are discussed in more detail later in this part of the budget.) Due to their
perceived "special relationship" with the Federal Government,
GSEs historically have been able to borrow in the credit markets at
yields carrying only slight premiums above those of Treasury securities of comparable maturity. The special relationship has arisen
both from the intangible nature of Government sponsorship and
through direct benefits that have been available to most GSEs,
including a line of credit at Treasury and an exemption of interest
income of investors from State and local income tax.
GSEs have traditionally operated in three major areas: (1) to
assist farmers and associated rural borrowers to have better access
to the credit markets, (2) to facilitate credit operations for the
housing industry, and (3) to facilitate the financing of higher education. While the focus of these areas has not changed in the past few
years, the contingent liability of the Federal Government has
grown dramatically. In 1980, GSE obligations equaled $99 billion.
By 1985, this lending had grown to $260 billion. In 1990, GSE
lending is projected to be $422 billion, a 327 percent increase over
the level ten years earlier.




FEDERAL CREDIT

6-9

THE REAGAN RECORD IN CREDIT POLICY
Perspective.—During the 1970s, the amount of credit advanced
under Federal auspices rose over four fold, reaching 23 percent of
all funds loaned to nonfinancial borrowers by 1980. This was clearly too high—and could be looked at as a Federal "intrusion" into
the private financial market. Although an OMB Circular issued in
1965 required agencies to answer a series of questions when proposing or reviewing new credit legislation, the Circular contained no
evaluation criteria and no guidance on measuring the cost of credit
programs. Similarly in 1980, no standards for managing credit
programs had been established. Agencies paid considerably more
attention to extending credit than to servicing loans or collecting
the debt owed. The credit budget was created in January 1980, in
an effort to control the volume of new lending.
Reducing Federal Intervention.—From its inception, the administration tried both to constrain the rapid growth of Federal credit,
and to improve credit management and establish cross-cutting policies based on sound economic principles. It was long overdue. The
March 1981 Budget Revisions expressed concern over the distortions and inefficiencies caused by undisciplined Federal intervention in financial markets. The criteria that the administration
applied to on-budget and off-budget credit programs were the same
as those applied to other programs. Generally, the administration
proposed to terminate or reduce lending to borrowers who were
able to obtain loans in the private market, and to raise interest
rates and fees which had not kept pace with market rates.
Many of the reductions to credit programs proposed in 1981 were
based on "applying sound economic criteria to subsidy programs."
Reductions and terminations were proposed for farm ownership,
operating, and disaster loans, and rural housing, development, and
electrification credit. Lending reductions were also proposed for the
Small Business Administration, various energy subsidy programs,
the Export-Import Bank, and the P.L. 480 export program. Terminations were proposed for the Economic Development Administration credit programs and the National Consumer Cooperative
Bank. The goal was to move away from special purpose subsidies
and rely instead on the President's broad program for economic
recovery.
As a way of "reducing subsidies to middle and upper income
families," proposals were made to reform the guaranteed student
loan program, to better target Federal Housing Administration
guarantees, to restrict the Student Loan Marketing Association
(Sallie Mae) from Treasury borrowing through the Federal Financing Bank, to terminate the college housing program, and to end the




6-10

THE BUDGET FOR FISCAL YEAR 1990

Government National Mortgage Association's tandem plan. Fiscal
restraint was also proposed for low priority loan programs.
Not all of these proposals were enacted by Congress. Among
those that were not, many have been resubmitted in subsequent
budgets, sometimes in modified form. Through continued efforts,
substantial reductions and reforms were achieved.
• The Farmers Home Administration and Rural Electrification
Administration loan programs were reduced. Agriculture
Credit Insurance Fund direct loan levels decreased from $3.0
billion in 1982 to $1.6 billion in 1989; REA direct loans decreased from over $4.0 billion in 1984 to $1.8 billion in 1989.
Other FmHA loan program levels, for rural housing and rural
development, have also been reduced.
• In 1981, SBA's non-physical disaster program, which permitted SBA assistance to counter economic dislocation, was terminated. Since 1986, SBA has not made drought-related loans
to farmers for farm losses under the SBA disaster assistance
program.
• Needs testing was reinstated in the guaranteed student loan
program, ensuring that credit subsidies were allocated to low
income families. A five percent origination fee was enacted in
the most subsidized program to help offset the interest subsidy costs.
• Sallie Mae ceased borrowing from the Federal Financing
Bank in 1982, and the National Consumer Cooperative Bank
was privatized.
• The administration and the Congress have worked together to
provide a more effective way for the Government to manage
its legal obligations resulting from foreclosed guaranteed
properties. The Deficit Reduction Act of 1984 changed VA's
prior practice of acquiring virtually all foreclosed guaranteed
properties. These changes have reduced the implicit full guarantee of the program.
The administration has also used the credit budget established in
1980 to propose annual appropriations bill limitations on the
volume of new direct loan obligations and new guaranteed loan
commitments. (See Special Analysis F, "Federal Credit Programs/'
for a detailed discussion of the credit budget.) In the 1986 budget
transmitted in February 1985, the administration suggested that
Congress establish binding aggregate limits on new direct loan
obligations and guaranteed loan commitments in the congressional
budget resolution and implement these limits through the reconciliation process. It also proposed that lending financed by the Federal Financing Bank (FFB) be included on-budget, with safeguards to
prevent agencies from financing outside the FFB. Congress included credit in the budget resolution enacted that year, and enacted




FEDERAL CREDIT

6-11

both reforms in the Balanced Budget and Emergency Deficit Reduction Act of 1985, commonly called Gramm-Rudman-Hollings.
The growth of Federal lending was also constrained by raising
the interest rates and fees that were charged. During the accelerating inflation of the 1970s, when market interest rates rose sharply,
interest rates on Federal loans became relatively cheaper by steadily larger amounts. This inadvertently increased the subsidies provided to Federal borrowers and increased the Federal "market
share." The administration proposed changes in laws and regulations to restore the intended relationship of Federal lending rates
to market rates.
• The administration has been a leader in reducing the subsidies on export credits in the industrial countries through a
series of international negotiations and agreements. As a
result, export credits provided by the U.S. Export-Import
Bank and its counterparts in other countries are tied to
market rates, requiring less taxpayer support than formerly.
• The guarantee fees for SBA's general business program were
increased from 1 percent to 2 percent in the 1985 Consolidated Omnibus Budget Reconciliation Act (enacted April 1986).
• For the Department of Veterans Affairs home loan guaranty
program, the administration has proposed increases in the
one percent loan origination fee since 1986. For 1990, the
administration proposes to increase the fee to 3.8 percent, a
level comparable to the FHA mortgage insurance premium.
• In the 1990 budget, origination fees are also being increased
by the Farmers Home Administration, the Rural Electrification Administration, the Commodity Credit Corporation, and
the Small Business Administration.
Establishing Credit Policy.—Following initial efforts to constrain
the growth of Federal lending, a Federal Credit Policy Working
Group was formed under OMB leadership in 1981. It reported to
the Cabinet Council on Economic Affairs and later to the Cabinetlevel Economic Policy Council. Its first task was to undertake a
comprehensive review of the Government's direct and guaranteed
loan programs in order to shape a consistent credit policy. The
result was a thorough revision of OMB Circular A-70, "Policies and
Guidelines for Federal Credit Programs," issued in August 1984.
Circular A-70 establishes policies to be followed by all agencies
when proposing or reviewing legislation on credit programs. It also
requires an annual review of existing program authority in conjunction with the annual budget submission.
Limiting the Federal Role: The Circular limits the Federal role
in credit programs to two broad categories: where Federal objectives require correction of a specific capital market imperfection
(which must be defined), or where a subsidy to specific beneficiaries




6-12

THE BUDGET FOR FISCAL YEAR 1990

is provided more efficiently through a loan than a grant. Agencies
are required to displace private lending activity to the smallest
degree possible.
Most Federal credit assistance meets Federal objectives by providing credit on more favorable terms than would otherwise be
available in private markets. Consequently, the Circular requires
that agency budget justifications for OMB and the Congress include
information on existing and potential private sources of credit and
the terms on which such credit would be available to borrowers
similar to those applying for a Federal loan or guarantee. Agencies
are required to explain why private sources are inadequate and to
calculate the subsidy that they propose using the method specified
in the Circular.
Increasing amounts of information on Federal credit subsidies
have been published in Special Analysis F. The special analysis for
the 1985 budget contained an extended discussion of subsidy estimation together with a table comparing Federal and private terms
for most direct loan programs. The following year, Special Analysis
F reported subsidies for loan guarantees as well as direct loans,
and showed the subsidy reductions inherent in proposals to increase interest rates and fees for a variety of programs.
Shifting to Guaranteed Loans: Circular A-70 specifies that direct
loans should be used only when loan guarantees cannot provide the
intended degree of subsidy. In accordance with this principle, the
composition of Federal credit has shifted from direct loans to loan
guarantees. The absolute amount of direct loan obligations peaked
in 1985, and the share of new credit extended in the form of direct
loans peaked at 39 percent in 1982. It declined to 21 percent in
1988, and is proposed to be only 10 percent in 1990. If CCC commodity price supports are excluded, the decline is even sharper.
The major remaining direct loan programs include VA vendee
loans, which are used to encourage the sale of homes on which
veterans have defaulted, P.L. 480 aid, farm operating loans, and
other rural assistance.
The shift away from direct loans has followed several routes.
• In a few cases, programs have been or should be terminated.
For example, the 1990 budget proposes to eliminate Small
Business Administration disaster loans. Businesses and homeowners can already obtain insurance against most disasters in
the private marketplace.
• In other cases, guaranteed loan programs can substitute for
terminated direct loan programs. One case where this can be
done is the Export-Import Bank direct loans, which are proposed for conversion to guarantees in this budget.
• Several loan programs that are heavily subsidized are being
transformed into grant programs. Many countries that had




FEDERAL CREDIT

6-13

previously received foreign military sales (FMS) credit are
experiencing growing debt service problems. Also, starting in
1985, military assistance has been reduced. To offset these
developments, the 1990 FMS financing program contains
grant funds only. This will not only reduce FMS debt collection problems, but will also increase the political benefit of
the programs in many countries.
• The 1990 budget proposes to substitute credit vouchers for the
Section 202 housing program direct loans. Credit vouchers
would provide a cash grant equal in value to the current
Federal loan subsidy. Private lenders will then make the
below-market-rate loans to borrowers to cover the cost of
constructing Section 202 housing for the elderly and handicapped.
Requiring Co-Insurance: Circular A-70 also requires that private
lenders should bear a substantial share of the risk of guaranteed
loans (at least 20 percent). This principle is important. Under a full
guarantee, the private lender has every incentive to make as many
loans as possible without screening borrowers for creditworthiness,
and he has no incentive to monitor the loans carefully after they
are made. Full guarantees lead to an inefficient allocation of credit,
they carry the risk of massive future default costs for the taxpayer,
and they encourage lax lending standards that increase systemic
risk for the economy as a whole.
In 1988, 70 percent of Federal loan guarantees still came from
programs that formally provide full guarantees. Much of the remainder was in the VA vendee program, which provides de facto
full coverage for the 75 percent of foreclosures in which the VA
takes over the property. In the remaining programs, either the
lender's risk was small or the program itself was small; altogether
lenders were at risk for only $7 billion out of a total of $400 billion
in guaranteed loans outstanding. For 1990, the administration proposes a change in the way VA determines whether or not to
acquire a foreclosed property. This change would reduce the provision of a full guarantee to 65 percent of foreclosed properties.
To the extent permitted by law, the administration is requiring
agencies to increase co-insurance (i.e., risk assumed by the private
sector) administratively starting in 1990 and to reach 20 percent by
1994. Where legislative change is necessary, the 1990 budget repeats several proposals to initiate or increase co-insurance.
Reducing Guarantee Levels: In the guaranteed student loan program, which has suffered very high default rates, incentives for
more careful origination would be improved by reducing the guarantee for lenders from 100 percent to 90 percent. For the State
agencies that provide the initial guarantee, Federal reinsurance
would be changed from the current 100 percent/90 percent/80




6-14

THE BUDGET FOR FISCAL YEAR 1990

percent pattern, depending on default rates, to a 90 percent/80
percent/70 percent pattern. For the Rural Electrification Administration, the Federal guarantee would be 90 percent for electricity
supply and 70 percent for electricity distribution and telephone
loans. Health education assistance loan guarantees would be reduced from 100 percent to 80 percent. By 1994, SBA business loan
guarantees would be reduced to 75 percent for loans over $75,000
and 80 percent for loans under that threshold.
Prudent Lending Rules: To avoid inadvertent changes in the
amount of the subsidy such as occurred in the 1970s, Circular A-70
requires that interest rates and fees set on Federal loans at the
time of origination be determined in relation to a relevant current
private sector rate; the rates and fees set at origination on Federal
loans and guarantees are to be subject to revision at least once a
quarter. The Circular also requires that borrowers retain an equity
interest, that loan maturity be shorter than the life of the asset or
project financed, that the Government's claim not be subordinated
to other lenders, and that contractual agreements protect the Government's interest.
Circular A-70 requires all of these policies to be used to modify
existing credit program legislation and to be incorporated in new
legislation. In this way, Federal competition with the private sector
is limited, and constructive incentives for borrowers and primary
lenders as part of prudent credit program management are created.
Improving Credit Management—The administration has been
concerned about the management of credit programs, as well as
credit policies. Mismanagement of Federal credit programs was
rampant before 1980—costing the taxpayers billions of dollars a
year. The Office of Management and Budget designed a nine-point
program to improve management, and the Federal Credit Policy
Working Group undertook a series of initiatives to upgrade the
origination and servicing of loans and guarantees and to collect
debts owed the Government.
This emphasis on better management was badly needed. Delinquencies over 30 days on Federal loans jumped 40 percent from
$6.5 billion in 1981 to $9.1 billion in 1982. The increase continued,
albeit at a slower pace, until it finally ground to a halt in 1988 as
the table below shows.
From 1981 through 1984, data on loan delinquencies were understated because of poor agency reporting of delinquencies to the
Treasury. In spite of the poor data prior to 1985, several trends are
evident. For the 6-year period from 1981 through 1987, the dollars
associated with delinquent loans increased from $6.5 billion to
$17.8 billion. The 1988 total of $17.6 billion delinquent is the first
sign that the upward trend in delinquencies may be reversing. The




6-15

FEDERAL CREDIT

DELINQUENT LOANS BY SECTOR l
(In billions of dollars)

1981

Loans receivable
Loans delinquent
Percent delinquent:
Total
Agriculture
Business
Education 2 ....
Housing
Other

1982 1983 1984 1985 1986 1987

1988

185.0 207.8 223.0 229.3 257.4 251.6 234.2 222.0
6.5
9.1 10.6 12.7 13.8 15.2 17.8 17.6
3.5
0.7
3.1
10.2
2.5
0.1

4.4
2.2
3.7
10.3
3.3
0.2

4.8
3.0
4.2
9.8
3.7
0.1

5.5
3.9
4.6
12.3
3.6
0.6

5.4
4.6
5.0
8.9
2.6
1.4

6.0
6.4
4.1
8.4
2.2
0.2

7.6
8.8
4.7
9.1
4.7
0.1

7.9
9.2
4.2
9.3
5.6
0.3

1
In the table, the amount delinquent represents the scheduled payment amounts in arrears only. The outstanding principal due is not
accelerated.
2
The education category includes federally guaranteed as well as direct loans.

growth in delinquencies was slowed by implementation of the administration's nine-point credit management program, a Government-wide initiative started in 1985, which is described below. Further, total loans receivable have been decreasing since 1986 as
direct lending levels have been reduced and loans have been sold
or prepaid. Together, management improvements and reductions in
receivables account for the first slight reversal in loans delinquent.
Four factors had contributed to the high and rising level of
delinquencies.
• First, by intent Federal programs often serve less creditworthy borrowers. The Farmers Home Administration and the
Small Business Administration require that borrowers be
turned down by private lenders before they apply for Federal
loans. Similarly, in comparison to private lenders, the VA and
FHA mortgage guarantees permit larger loans in relation to
the value of the house, effectively serving families who have
virtually no equity in the property. Private and public experience shows that defaults are higher for such borrowers.
• Second, Federal credit programs, like private financial institutions, were affected by the 1981 recession and by the debt
problems in less developed countries and in the agriculture,
energy, and real estate sectors.
• Third, Federal programs did not have sound lending policies
within the scope of their mission. Agencies did not screen
borrowers for creditworthiness even when they could have
done so. They did not require borrowers to have equity in the
project. Loan documentation was poor and often missing; the
contractual protections common in private loan contracts
were frequently missing. Loans were not monitored to ensure
that conditions in the contract were being fulfilled, nor were
there any early warning systems to signal when the loan
might be headed for trouble.




6-16

THE BUDGET FOR FISCAL YEAR 1990

• Finally, many Federal credit programs provided forbearance
on a habitual and highly discretionary basis. Loans had been
given to help these borrowers, not as in the private sector to
earn a profit. Delinquencies and defaults were not systematically recorded according to standard definitions. Thus, the
cost to the taxpayer was not known, and the advantages and
disadvantages of forbearance in specific circumstances could
not be analyzed. Part of the increase in delinquencies and
defaults under this administration was the documenting of
longstanding forbearance.
As a result of these policies, substantial proportions of Federal
loans are delinquent. For Federal direct loans to the housing and
business sectors, one loan out of every five is delinquent. In agriculture, the proportion is 15 percent, but half of all Farmers Home
Administration loans are to borrowers who are delinquent on at
least one loan.
The defaults which accumulated under these policies are now
being written off. Direct loan writeoffs will average $3.7 billion
over the next three years, much of it in loans to agriculture.
Guaranteed loan defaults will average $11.6 billion a year over the
next three years. About $8.6 billion a year of this is in mounting
mortgage defaults; another $1.8 billion a year is in losses on education loans.
Standards for Credit Management: The nine-point program was
developed to improve loan servicing and debt collection. This was
embodied in the original version of Circular A-129, "Managing
Federal Credit Programs," issued in May 1985. This Circular complemented Circular A-70 by setting standards for the administration of Federal credit programs after their authorizing legislation
had been enacted.
For all credit agencies, Circular A-129 required that (1) borrowers be prescreened by checking their creditworthiness with credit
bureaus, and that, in turn, (2) the status of all commercial and
delinquent consumer loans made under Federal programs be reported to credit bureaus. These actions linked Federal lending to
the borrower's private credit record and provided an incentive for
borrowers to keep current. Except where required by law or specifically approved by the head of the agency, no funds are to be
awarded to any applicant who is delinquent on a Federal loan until
the delinquency is made current or a satisfactory agreement is
reached between the affected agency and the debtor.
This Circular also required agencies (3) to upgrade and automate
regular loan servicing, or to contract for private loan servicing.
Standards were set for loan documentation, and agencies were
required to report to OMB annually on their progress in improving
loan servicing and debt collection.




FEDERAL CREDIT

6-17

Particular emphasis was placed on improving debt collection.
Agencies were encouraged (4) to use private debt collection services, (5) to recover delinquent debt through IRS income tax refund
offsets and (6) Federal employee salary offsets, (7) to refer delinquent accounts to the Department of Justice for litigation, and,
when all these failed, (8) to write off the account. For the purpose
of improving credit management, agencies were (9) to sell portions
of their loan portfolios, as discussed in the section on the pilot
program below.
Legislative support for this nine-point program was provided by
the Debt Collection Act of 1982, which authorized agencies to use
private debt collection tools, the Deficit Reduction Act of 1984,
which allowed an income tax refund offset experiment (recently
extended to early 1994), and the Federal Debt Recovery Act of
1986, which authorized the Department of Justice to use private
attorneys to collect debt. OMB and the Treasury Department
signed an accord defining their respective responsibilities to assist
and monitor agency follow-up.
Implementation of the Nine-Point Program: In the past, Federal
agencies did not check credit ratings before making a loan. And
they almost never reported a defaulted borrower to a credit
bureau. No more. (1) In 1988, the major Federal credit agencies
purchased 2 million credit bureau reports to help screen applicants
for direct loans. In 1989, agencies will also require primary lending
institutions to use credit bureau reports for all federally guaranteed loans. All application forms for Federal financial assistance
are now required to include a question as to whether the applicant
is delinquent or has defaulted on any Federal loan. The Department of Housing and Urban Development has established a data
base and voice response system that allows lenders for HUD-guaranteed mortgages to match applicants against debtors already delinquent on HUD loans. In 1989, this system will be expanded to
include delinquent accounts from other Federal credit programs
and to allow other agencies and the primary lenders for other
federally guaranteed loans to access the system to screen applicants. (2) At the other end of the credit cycle, in 1988 Federal
agencies reported to credit bureaus on 2.4 million accounts valued
at $79 billion. In 1989, emphasis will be placed on ensuring that
primary lending institutions report to credit bureaus for guaranteed loan programs, as well as Federal direct loan programs.
(3) Agencies are upgrading and automating loan servicing and
collection systems. The Department of Veterans Affairs, Small
Business Administration, and Commodity Credit Corporation are
installing or expanding automated systems. The Departments of
Education and HUD use private contractors for servicing much of
their portfolios. Agencies that have not upgraded their systems and




6-18

THE BUDGET FOR FISCAL YEAR 1990

cannot do so effectively will be required to contract with the private sector or other agencies for servicing. Innovative methods of
contracting out servicing are also to be explored.
(4) The Department of Education and the Public Health Service
have been contracting out debt collection since 1982, leading to a
successful pilot Government-wide contract with four private firms.
A new Government-wide effort with six contractors began at the
end of 1987. Agencies have placed $1.4 billion of seriously delinquent debt with these firms.
(5) Offsets of delinquent debts against tax refunds collected $318
million in 1988 for a total of $841 million over the three years that
this program has operated. Plans are underway to expand credit
agency participation and to offset corporate tax refunds for delinquent debt owed the Government. Collections are estimated to be
$2 billion over the next five years.
(6) In 1987 and 1988, five credit agencies matched their delinquent accounts with Federal employment rosters. Over 140,000
Federal employees were found to be delinquent on Federal loans
valued at $500 million, and $58 million has been recovered. The
legislative and judicial branches are also participating in a salary
offset program for their employees. The application for Federal
employment has been revised so that delinquent debtors can be
identified.
(7) Litigation collected $479 million in 1988, bringing to $2.5
billion the amount collected by the Department of Justice since
1982. The Department has reviewed its backlog of cases, returning
half to agencies for collection or write-off, and plans a multi-faceted
strategy to clean up the remainder. It has established an automated case management system, and is contracting for support from
private attorneys and credit agencies. (8) Finally, in 1988, $11.3
billion in uncollectable accounts was written off.
Loan Asset Sales: (9) In order to help agencies identify possible
management improvements by learning about private sector methods of loan origination and servicing, and to stimulate agencies to
adopt such improvements, the administration initiated a three-year
pilot project in 1987 to sell loan assets without recourse. (Previously, most Federal loan asset sales had carried a Government guarantee.) Guidelines for the sales were established by the Federal Credit
Policy Working Group.
The guidelines were designed to ensure that agencies met the
objectives of the loan asset sales program which were to:
• Reduce the Government's cost of administering credit by
transferring servicing, collection, and other administrative activities to the private sector;
• Provide an incentive for agencies to improve loan origination
and documentation;




FEDERAL CREDIT

6-19

• Provide information that will aid in the identification of the
subsidies inherent in Federal credit programs; and
• Increase offsetting collections in the year of sale.
Each major credit agency chose, through a competitive process, a
professional financial consultant to conduct a portfolio valuation,
to compare pricing options for the sale, and to recommend management improvements. Plans and proposed pricing options'were reviewed with OMB and Treasury prior to any offering.
The administration proposed to sell loans with a face value of
$4.4 billion in 1987; this amount was raised to $7.9 billion in the
Omnibus Reconciliation Act of 1986. Although the thrust of the
program was loan sales to the public, Congress also required that
certain borrowers be offered an opportunity to prepay before loans
were sold. Gross proceeds from the 1987 transactions totaled $5.6
billion, of which $3.1 billion came from sales. Sales proceeds are
less than face value because of the subsidy, and because interest
rates are generally higher and other conditions have changed since
the loans were made. Three major nonrecourse sales were conducted in that first year by the Department of Education's college
housing and academic facilities programs and by the Department
of Agriculture's rural development insurance fund and its rural
housing insurance fund.
In 1988, the sale or prepayment of loans with a face value of $9.8
billion produced $8.1 billion in gross proceeds, of which $858 million came from sales. These included another sale of the Department of Education's college housing and academic facilities loans,
two nonrecourse sales of the Department of Veterans Affairs
vendee loans, and three sales by the Department of Housing and
Urban Development—from the public facilities, multi-family assigned, and single family housing loan portfolios.
The loan asset sales program will continue in 1989, with sales
and prepayments involving seven Federal agencies. Proceeds are
estimated at $7.4 billion from portfolios with a face value of $8.3
billion. In 1990, loans with a face value of $7.8 billion and estimated proceeds of $4.3 billion are proposed for sale or prepayment.
Four programs are to sell newly originated loans in 1990: the rural
development, rural housing, Small Business Administration business and disaster, and VA vendee loan programs. These sales will
help to identify the Federal subsidy in these programs, and will
provide an incentive to improve loan origination and documentation. Four sales are to be made from portfolios that have been or
are proposed for termination or transformation into vouchers: college housing, Economic Development Administration drought,
rural housing, and elderly and handicapped housing loans. These
sales will reduce administrative costs. Finally, prepayment of rural
electrification and rural telephone loans will be encouraged as part




6-20

THE BUDGET FOR FISCAL YEAR 1990

of the administration's proposal to shift borrowers away from these
programs to private sources of credit that will be only partially
guaranteed by the Federal Government.
The effect of loan asset sales on agency management is becoming
evident. Preparation of loan portfolios for sale has made selling
agencies aware of the private sector's standards for loan documentation and their own deficiencies in that regard. The financial
advisors selected by the agencies to counsel them on how to obtain
the best price for their loans have prepared post-sale management
evaluations. In addition to better documentation, these evaluations
have recommended improvements in account servicing and computer support.
In response, agencies have developed and are implementing specific improvement plans. For example, the Department of Education now contacts delinquent borrowers promptly and uses audited
financial statements and management reports to monitor a borrower's financial status and trigger intensified collection efforts in
advance of defaults. The Farmers Home Administration is upgrading its data on rural development projects and its system of tracking loan cases. Legal review of origination documents is being
undertaken by agency general counsel staff to ensure enforceability of contracts.
Revised Credit Management Standards: Lessons learned from implementation of the nine-point program and from the loan asset
sales have been incorporated in an extensive revision of OMB
Circular A-129 issued in November 1988. The new Circular is
expressly designed to complement Circular A-70. Circular A-70
prescribes how Federal credit should be allocated and how the cost
of providing such credit should be determined, and Circular A-129
sets the standards for the management of approved credit programs. In particular, the A-129 data integrity standards enhance
the validity of the A-70 subsidy calculations.
The revised Circular A-129 requires each agency to establish
clear lines of authority over all phases of the credit cycle and to
create a credit board to coordinate credit management policies
within the agency. It distinguishes OMB's role in setting Government-wide credit management policy from Treasury's role in monitoring agencies and facilitating implementation of that policy. It
also recognizes the Federal Credit Policy Working Group as the
interagency forum for credit policy issues.
The revised Circular explicitly requires that agency credit management improvement plans be submitted annually to OMB. Agencies are supposed to evaluate options of contracting out servicing
with private firms or with other agencies. Where the decision is to
continue in-house operations, the Circular sets standards for computer systems supporting loan servicing activities, and for mainte-




FEDERAL CREDIT

6-21

nance of credit histories and other accounting and reporting systems comparable to those used in the private sector. Uniform definitions of delinquency, default, and write-off are to be used by all
agencies.
The new Circular makes clear that its standards cover loan
guarantee, as well as direct loan, programs. Agencies are expected
to exercise effective oversight over primary lenders. The ways in
which the Circular applies to grants and contracts have also been
elaborated.
Much more emphasis is placed in the new version on improving
originations.
• Loan documentation is expected to be comparable to private
sector practices in quality and, to the extent possible, in
standard usage.
• Borrowers' rights and responsibilities are to be spelled out;
conditions under which forbearance or prepayment may occur
are to be spelled out, and changes in these provisions would
require amending the contract.
• To the extent permitted under law, agencies are to implement
administratively the provisions of Circular A-70 requiring
that interest rates and fees at origination be linked to comparable market rates, that the borrower retain equity, that the
term of the loan be shorter than the life of the asset or
project financed, and that the Government's interests be contractually protected and not be subordinated.
• Prescreening for creditworthiness continues to be required,
and loan applications are to be amended to include certification of non-delinquency. Each loan is to be analyzed and given
a credit rating at origination, using the classification system
of the Comptroller of the Currency or a similar one.
• Uniform standards for property appraisals are to be applied,
and formation of a State certification procedure for property
appraisals is to be encouraged.
Finally, the revised Circular requires agencies to have an explicit
debt collection strategy, adds emphasis on charging interest and
penalties, and sets tighter standards for referral to the Justice
Department and the treatment of write-offs. These debt collection
tools are to be applied to loan guarantees, grants, and contracts, as
well as direct loans.
In 1989, a major effort will be undertaken to evaluate agency
compliance with the requirements of Circular A-129. Agencies not
in compliance will be directed to take corrective action.
Reforming the Budgetary Treatment of Credit—The administration has made an important legislative proposal that would reform
the way credit programs are treated in the budget.




6-22

THE BUDGET FOR FISCAL YEAR 1990

Credit Program Costs are Hidden: The Federal budget serves to
allocate resources among Federal programs, to disclose the effect of
that allocation on the economy, and to facilitate control of budgetary resources. For most programs, the budget performs these functions well. Credit programs have been recognized as the major
exception, at least since the Report of the President's Commission
on Budget Concepts in October 1967.
The extension of credit constitutes an exchange of assets. For a
direct loan, the lender provides cash and receives in exchange the
borrower's promise to repay it with interest over time. For a loan
guarantee, the guarantor agrees to provide cash in the future,
under specified conditions, in exchange for a fee. No resources are
consumed in such transactions. Private lenders do not ordinarily
expect their wealth to decline as a result of their lending. The
Government, however, does deliberately reduce its wealth through
its credit activities.
As explained above, Federal credit programs provide a subsidy to
help particular borrowers or to encourage particular activities. Federal credit is generally provided on easier terms and conditions
than would be available to a similar borrower for a similar purpose
in the private marketplace. Interest rates and fees are lower, terms
may be longer, loan-to-value ratios may be higher, and credit is
provided to less creditworthy borrowers. Thus, the cash flows on a
Federal direct loan, when discounted by the rate of return that the
market would require to bear that loan's risk, yield a present value
smaller than the amount disbursed. Similarly, guarantee fees are
not high enough to cover the risk assumed.
What the Government gives the borrower is thus worth more
than what the borrower gives the Government. This difference in
value is a subsidy, equivalent to a grant to the borrower. The
subsidy transfers resources to the borrower in order to achieve
Federal program objectives. In this sense, credit subsidies are the
same as other grants, transfers, and purchases in the Federal
budget.
The subsidy lowers the cost of credit to borrowers served by
Federal credit programs. The size of the subsidy—along with the
elasticity of the supply of funds and the elasticity of target group
demand—determines the extent of credit reallocation caused by the
Federal credit program. This credit reallocation, together with the
transfer of resources, determines the effects of the credit program
on the economy.
Thus, Federal credit programs have a unique characteristic.
They combine in a single transaction a direct Federal subsidy and
a pure loan or loan guarantee. Special budgetary treatment is
required in order to separate the two components and to measure
properly the grant component of credit programs, which is compa-




6-23

FEDERAL CREDIT
SUBSIDIES BY SECTOR IN 1990
Sector

Direct loans

Guaranteed
loans

Total credit
budget

PERCENT OF LOAN

11
42

10
2
31
4
28

14
2
31
4
36

26

8

8

78
2

12
3
49
36

19
3
44
34

100.0

100.0

39
11

Agriculture
Business
Education
Housing
Other
Total
PERCENT OF TOTAL SUBSIDIES
Agriculture

Business
Education
Housing
Other
Total.. .

18
2
100.0

rable to outlays for other programs. The present budgetary treatment does not do this.
The President's Proposal for Credit Reform: To record the true
cost of Federal credit programs—the subsidy cost—in the budget, a
Credit Reform Act was developed under the sponsorship of the
Federal Credit Policy Working Group, and was transmitted to Congress by the President in March 1987. This proposal was introduced
in both the Senate and the House, and drew bipartisan support as
an improvement in budgeting. 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 resulting Balanced Budget
and Emergency Deficit Control Reaffirmation Act of 1987 directed
the Congressional Budget Office, 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. That report is expected to be published
shortly. Meanwhile, the administration revised its original proposal, and in August 1988 submitted a modified bill, which was introduced in both Houses of Congress.
The modified proposal requires agencies to estimate the subsidies
inherent in the direct loans or loan guarantees they plan to make
in the budget year and to request appropriations for these subsidy
costs. For programs which now have credit budget limitations,
annual definite appropriations would be requested; for programs
which now have no credit budget limitations, permanent indefinite
appropriations would be requested. New subsidy accounts would be
established in the agencies for each program.




6-24

THE BUDGET FOR FISCAL YEAR 1990

Agencies would continue to operate credit programs, as they do
now, handling origination, servicing, workout, and collections on
loans and loan guarantees. No changes would be made to program
design. Two Funds would be established in the Department of the
Treasury: a Direct Loan Fund to finance the unsubsidized portion
of direct loans, and a Guaranteed Loan Fund to cover guaranteed
loan defaults.
When a program obligates the Government to make a direct
loan, the subsidy would be calculated by Treasury or by the lending agency under guidelines established by the Treasury Department. This amount would be a direct obligation of the program's
subsidy account and an obligation reimbursable from the program's
subsidy account for the Direct Loan Fund. The nonsubsidy portion
of the loan would be a direct obligation of the Fund.
When the borrower draws down all or part of the loan, the
subsidy portion of that outlay would be transferred from the program's subsidy account to the program subaccount at the Fund, the
nonsubsidy portion of the outlay would be borrowed from Treasury
by the Direct Loan Fund and deposited in the program subaccount
in the Fund, and the loan would be disbursed to the borrower from
the program subaccount in the Fund. All fees, interest, and repayments would be sent by the borrower to the credit program, but
deposited by the agency in the program's subaccount at the Fund
and used to pay interest on and repay principal of the loan from
Treasury. The proceeds from the sale of any loan or the collateral
from defaults would be similarly used.
In parallel, when a program commits the Government to guarantee a loan, the inherent subsidy would be calculated by Treasury or
by the agency under guidelines established by Treasury. This
amount would be obligated from the program's subsidy account.
When the underlying loan is paid out by the non-Federal lender,
the subsidy inherent in the guarantee of that amount would be
transferred from the program's subsidy account to the program
subaccount in the Guaranteed Loan Fund, along with any fees paid
for the guarantee. The Fund would then become liable for any
defaults to the same extent that the program would have been
liable.
Thus, under the administration's proposal, the subsidy amount
for all new loan obligations or commitments would be charged to
the program, the agency, and the function. All nonsubsidy financial flows would be shown under the Funds in Treasury, and would
be reported in a newly created budget function for central credit
revolving funds. For all loan obligations and commitments made
prior to credit reform, payments and collections would continue to
be made from the existing agency accounts.




FEDERAL CREDIT

6-25

The administration's credit reform proposal has no effect on the
deficit, but it does represent a much more accurate accounting for
the true cost of the lending programs. Additional budget authority
would be needed to accommodate the fact that guaranteed loan
subsidies would now require budget authority; this one-time increase would be specifically earmarked for credit programs. Similarly, a one-time adjustment would be needed in the congressional
budget 302(A) allocations to accommodate the difference in functional distribution between the current appropriations and those
needed under credit reform. Budget authority would generally increase for functions which contain large amounts of loan guarantees, because appropriations would cover the subsidies on the
larger volume of new guarantees, rather than the defaults on the
smaller volume of guarantees made in prior years; it would decrease for functions with direct loans, because the nonsubsidy financing costs would no longer be included.
Advantages: Under the administration's proposal, credit programs would be put on an expenditure basis equivalent to other
Federal spending. The subsidies provided by credit programs would
be accurately and equitably measured. This would encourage benefits to be delivered in the form most appropriate to the needs of
beneficiaries, rather than the form with the least effect on the
budget. It would also improve the allocation of resources among
credit programs and between credit and other forms of spending.
Credit reform would improve the way credit is now reflected in
the budget for two reasons. First, the true resource cost of credit
programs, which is the subsidy, would be treated the same as
spending on other Federal programs. Under the current budget
treatment, the full amount of a direct Federal loan is scored as an
outlay when the loan is made; then interest and principal repayments are shown as offsetting collections in later years. The value
of the subsidy is shown nowhere in the budget for any year. For
loan guarantees, any initial premium shows up as an offsetting
collection when the loan is made; then in subsequent years no cost
is shown unless or until there is a default. At that point, the
default is shown as an outlay. The current budget accounting
system does not contain information on default rates, and therefore
does not indicate the cost of providing the guarantee incurred by
the Federal Government.
Second, the cost would be recorded and controlled at the time of
the decision to extend credit. This is far from being the case now.
For direct loans, repayments and interest on prior loans are generally netted against new loan disbursements within accounts and for
the budget as a whole. Most on-going direct loan programs are
made from revolving funds and so can make new loans using funds
provided by repayments of old loans without requesting new au-




6-26

THE BUDGET FOR FISCAL YEAR 1990

thority. The timing and size of requests for appropriations is determined as much by the volume and default rate on past loans as by
the plans for new loans. For loan guarantees, collections from
upfront fees offset outlays at the time of commitment, whereas
defaults are future outlays.
Credit reform would correct this timing problem. It would require appropriations in advance of obligation or commitment, and
it would record obligations at the time the decision was made to
extend or to guarantee credit. The amounts appropriated and obligated would be the amounts of resources absorbed by the new
credit planned in the budget and extended in the budget year—not
the net cash flows due to decisions made over a long span of time.
At present, the main system of budgetary control over credit
programs is the credit budget. This system of control is described in
Special Analysis F. Credit reform is superior to the credit budget
for two reasons. First, the credit budget records and limits the total
volume of new credit obligated or committed through loans and
guarantees, but it does not distinquish between loans or guarantees
that have a relatively large subsidy component and those that have
a relatively small subsidy. The volume of credit does not measure
the amount of resources absorbed, nor does it measure the reallocations of credit to meet program objectives. Credit reform would
identify, record, and control the subsidies—the amount of Federal
spending—rather than the volume of new credit extended. Second,
credit reform would incorporate spending for all credit programs
into the budget itself, whereas the credit budget is an auxiliary
system that is not part of the regular budget and whose measures
are not comparable with budget outlays. Credit reform would facilitate decisions about allocation of resources among all Federal programs in a single comprehensive system of comparable measures.
In the original draft bill, transmitted in March 1987, the administration had proposed that newly made direct loans be sold immediately and competitively to measure the subsidy cost, with exceptions for loans deemed unsuitable for sale due to sensitive foreign
or domestic policy reasons. Reinsurance for loan guarantees was
proposed to be gradually phased-in as the market for reinsurance
developed. In order to make clear that the thrust of its proposal
was to improve the budgetary treatment of credit programs, the
administration now proposes to estimate these subsidy costs by
calculating the present value of the cash flows from Federal loans
and loan guarantees using comparable private sector internal rates
of return. The modified proposal also includes a separate Direct
Loan Fund and a Guaranteed Loan Fund in order to clarify accounting, instead of a single Fund.
The administration's August 1988 legislative proposal is being
resubmitted with this 1990 budget. The budget shows the effects of




FEDERAL CREDIT

6-27

this proposal account by account. The inherent subsidy estimates
have been improved, although further improvement is needed.
Achievements and Agenda.—In sum, this administration has established a consistent framework of credit policy, set forth standards for credit management, and proposed a major reform in the
budgetary treatment of credit programs. Much progress has been
made in implementing these principles, but more remains to be
done. In particular, credit reform legislation is necessary to improve the allocation of scarce Federal resources and scarce private
credit and capital. Further improvements in the management of
credit programs will also reduce the cost of credit programs and
ensure consistent and equitable treatment for borrowers.
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 other than loan guarantees may
be placed in three categories that reflect activities that generate
the liability: Government-sponsored 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 1988, the contingent liability of the Government due to all of these activities
amounted to approximately $3.8 trillion.
Government-Sponsored Enterprises.—One of the major forms of

Federal intervention in credit markets is the creation and sponsorship of Government-sponsored enterprises (GSEs). GSEs engage in
financial transactions that, although not 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 insured against default. That perception has been underscored recently by several
events discussed below. Financial statements for GSEs appear in
Part IV of the Appendix, and their borrowing and lending are
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.
GSEs 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
240-000 O - 1 9 8 9 - 1 1 QL 3




6-28

THE BUDGET FOR FISCAL YEAR 1990

roughly equivalent to Federal agencies, even though some of the
statutes governing their creation and operation 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
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 Federal programs and 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 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.
The 1990 budget proposes to levy user fees on a number of GSEs.
The fees, which would be structured differently for each entity, are
designed to reduce or eliminate the special advantages these entities enjoy in competition with private financial institutions performing similar functions. The GSEs' ties to the Federal Government enable them to borrow more cheaply than their private counterparts, as evidenced by the fact that financial markets ordinarily
price their securities close to Treasury issues of comparable maturity. The GSEs subject to the proposed fees include the Student
Loan Marketing Association, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, and the
College Construction Loan Insurance Association.
Four new GSEs have been established in the past two 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 Commis-




FEDERAL CREDIT

6-29

sion's report with regard to private ownership. However, they all
have greater direct governmental involvement than entities identified as GSEs before 1985. Their categorization as GSEs may
change, as the new entities are more closely examined both as to
structure and as to the perception of them by the financial markets.
Agriculture.—Two new GSEs were created in January 1988 as
part of the rescue package developed for the Farm Credit System
(FCS).1 In each case, private firms will be the sole owners of the
two entities, with the Federal Government taking no equity position in them.
• The Farm Credit System Financial Assistance Corporation
(FAC) was chartered to provide the mechanism through which
the Farm Credit System could raise needed capital. FAC is
authorized to issue up to $4.0 billion in debt obligations, with
the Federal Government guaranteeing the timely payment of
principal and interest to investors. No other GSE has this
explicit guarantee on its debt obligations. Moreover, for all
but a small amount of FAC debt the Treasury Department is
responsible for the interest cost in whole or in part for the
first 10 years of the bonds' 15-year maturities. Legislation
enacted in 1989 changed the private, FCS capital contribution
required in the FAC authorizing statute. As a result, FAC is
reclassified as a Federal agency as of October 1990. However,
under proposed legislation the original contribution formula
will be restored. As a result, the budget totals reflect FAC as
a GSE for all years.
• The Federal Agricultural Mortgage Corporation (FAMC) was
created to guarantee the timely repayment of interest and
principal on securities representing interests in or obligations
backed by pools of farm mortgages and certain rural housing
loans. FAMC will guarantee loans originated both by Farm
Credit System banks and by qualified commercial banks,
thrifts, and insurance companies. It has available a line of
credit of up to $1.5 billion with the Treasury. Initial capital
has been raised through a stock offering, and ongoing operations will be financed by assessments on participating institutions for the Corporation's guarantee and by occasional additional stock offerings. The FAMC is expected to begin providing guarantees of qualified pools during 1989.
Housing.—The Federal Savings and Loan Insurance Corporation
(FSLIC), an on-budget Federal agency, provides Federal insurance
to the thrift industry, which historically has been a principal
source of housing finance. This industry has been under severe
1
The Act also created the Farm Credit System Insurance Corporation. It was initially considered to be a GSE
but, upon further examination, was reclassified as a Federal agency as of its inception.




6-30

THE BUDGET FOR FISCAL YEAR 1990

pressure in the past few years due to several factors, including the
depressed conditions in the oil and agriculture sectors, the increased importance of mortgage-backed securities, and outright
mismanagement of some institutions. While many of the thrifts are
profitable, over 400 institutions are insolvent and others are solvent and profitable only because of continuing FSLIC assistance.
This state of affairs has caused the FSLIC to deplete its resources
to such an extent as to become technically bankrupt by the end of
1986 and to project continued losses into the near future.
During 1988, the FSLIC significantly increased the number of
insolvent institutions it closed or merged—the approximately 150
institutions assisted or closed from January through November
represent an historical high. Many of these thrifts were in the
depressed Southwest and reflect the priority the Bank Board has
given to this region through its "Southwest Plan." Although the
thrift industry as a whole continued to incur losses during 1988,
the aggregate loss during the third quarter of calendar year 1988
was only $1.6 billion, down sharply from the more than $3.5 billion
losses in each of the two previous quarters. The losses were concentrated among 434 thrifts (with about 10 percent of thrift industry
assets) that were insolvent by Generally Accepted Accounting Principles (GAAP); on the other hand, the 2,590 GAAP-solvent thrifts
realized third quarter net income of almost $0.8 billion. The 1988
FSLIC financial assistance contributed to the decline in industry
losses and the reduction in insolvencies. From January to September, the number of GAAP-insolvent thrifts was reduced from 509 to
434, adjusting for new insolvencies.
The principal sources of income for FSLIC are insurance premiums—both the regular assessment of one-half of one percent of
deposits and a special assessment of one-eighth of one percent of
deposits; investment earnings; proceeds from the sale of acquired
assets of liquidated thrifts; and receipts from the Financing Corporation (FICO), a subsidiary of the Federal Home Loan Banks created in the 1987 Competitive Equality Banking Act (CEBA) to help
recapitalize the FSLIC.
• The Financing Corporation (FICO), created by the Act, provides a 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 sale of debt
obligations to the public and, in turn, to purchase FSLIC
capital certificates. The Federal Government does not directly
guarantee the payment of principal or interest. However, the
interest payment is financed through a mandatory assessment-sharing arrangement with FSLIC. If additional funds
are needed, a special assessment may be levied on insured
institutions. FSLIC currently levies this special assessment on




FEDERAL CREDIT

6-31

insured thrifts, and FICO may claim as much of that assessment as necessary to cover its interest obligations. The principal will be repaid with the proceeds of zero-coupon Government securities purchased by FICO with funds provided by
the Federal Home Loan Banks. The initial capital for FICO
was provided by the Federal Home Loan Banks through a
stock purchase plan. Most FICO 30-year bond issuances in
1988 were priced to yield 90-100 basis points over U.S. Treasury bonds of comparable maturity. While there is no net
impact on the Federal budget when the FICO proceeds are
spent by FSLIC, industry premiums are diverted to pay the
interest. This reduction in offsetting collections will affect the
budget over the next 30 years.
Education.—In 1987, a congressionally created entity to assist in
the financing of college construction and renovation was incorporated.
• The College Construction Loan Insurance Association (Connie
Lee) was organized as a 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 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, with funds
specifically appropriated for that purpose, and Sallie Mae has
purchased $2 million. The Federal Government has appointed
four of the eleven members of Connie Lee's Board of Directors. The Corporation expects to initiate insurance activity in
1989.
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's share insurance fund.
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 (or transfer deposits to
another institution); (2) merge the troubled institution with a
healthier institution, in some cases providing financial assistance




6-32

THE BUDGET FOR FISCAL YEAR 1990

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, direct loans and loan guarantees, and income maintenance
agreements.
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 Federal deposit insurance may give
insured institutions an incentive to take on more risk than they
would otherwise, either by making riskier loans or by increasing
leverage. To this extent, 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 portfolios of failing financial institutions. Both of these transactions increase Federal outlays and are included in the budget. In addition,
the budget records the volume of Federal Home Loan Bank System
advances to troubled thrifts that FSLIC has guaranteed.
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 Government contracts, 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.




FEDERAL CREDIT

6-33

This 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 costs of the transaction. The administration is strongly
opposed to any efforts by agencies or the Congress that would hide
outlays and debts of the Government.







PART 7

PERSPECTIVES
ON THE BUDGET
7-1

PART 7

PERSPECTIVES ON THE BUDGET
This part of the budget explains several topics that help to
interpret the budget totals and 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 1988 for:
—receipts,
—outlays, and
—the deficit; and
• comparison of the actual and estimated relatively uncontrollable outlays in 1988.

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 1990, the Administration proposes $1,331.2 billion of new budget authority for
the Federal Government. Of this amount, $1,042.3 billion is for
agencies included in the budget and $288.9 billion is for off-budget
Federal entities.
Of this total new budget authority, both on-budget and offbudget, $607.8 billion will require congressional action. New budget
authority of $960.4 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 $237.0 billion of deductions
for offsetting receipts, which consist of proprietary receipts from
the public and collections of one Government account from another.




7-2

7-3

PERSPECTIVES ON THE BUDGET
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

1988
actual

572.7

1989
estimate

1990
estimate

1991
estimate

1992
estimate

595.2
602.6

661.8

691.6

5.0

0.5

-2.7

0.2

1.5

2.6

2.3
-0.1
-0.1

572.7

597.3

607.8

663.7

691.5

506.8
(247.7)
(259.1)
214.1
92.0

559.7
(270.4)
(289.3)
235.6
95.8

606.1
(290.7)
(315.5)
248.7
105.6

647.2
(304.2)
(343.0)
251.7
87.1

689.4
(321.6)
(367.7)
246.6
88.2

812.9

891.1

960.4

986.0

1,024.1

-215.7
(-193.3)
(-22.4)

-237.0
(-210.4)
(-26.6)

-246.6
(-216.1)
(-30.5)

-263.2
(-227.3)
(-36.0)

1,272.7
(1,005.8)
(266.9)

1,331.2
(1,042.3)
(288.9)

1,403.1
(1,090.6)
(312.5)

1,452.4
(1,120.6)
(331.8)

-200.2
(-182.6)
(-17.6)
1,185.5
(944.0)
(241.5)

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

Not all of the new budget authority for 1990 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.




7-4

THE BUDGET FOR FISCAL YEAR 1990

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, $420.9 billion of the
outlays in 1990 (37 percent of the total) will be made from budget
authority enacted in previous years. At the same time, $600.2
billion of the new budget authority proposed for 1990 (45 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 8 of this volume, "The Budget System
and Concepts," and are displayed in table 9 of Part 10.
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




7-5

PERSPECTIVES ON THE BUDGET

Relation of Budget Authority to Outlays - 1990
$ Billions

To be spent in 1990

New Authority
Recommended
for 1990
1,331.2

Outlays
in 1990
1,151.8

731.0

Authority
written off,
expired, and adjusted
(net)

Unspent Authority
Enacted in
Prior Years
1,425.1

30.5
^
^

To be spent in
Future Years

^
^

Unspent Authority
for Outlays in
Future Years
1,574.0

973.7

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 1989 appropriation of $993 million for Operation of
Indian programs in the Department of the Interior includes
language specifying that an amount not to exceed $71 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.




7-6

THE BUDGET FOR FISCAL YEAR 1990
SELECTED LIMITATIONS THAT AFFECT THE TOTAL LEVEL OF OUTLAYS
(In billions of dollars)
1988
enacted

Administrative expenses
Direct loan obligations
Program levels (other than loans)
Total, selected limitations...

1989
estimate

1990
estimate

7.0
11.2
17.5

7.5
8.4
18.0

7.1
2.3
17.9

35.7

33.9

27.3

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 results 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 6 of this volume, "Federal Credit," and in Special
Analysis F, "Federal Credit Programs," in Special Analyses, Budget of the United States Government, Fiscal
Year 1990.




PERSPECTIVES ON THE BUDGET

7-7

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 6
of this volume, "Federal Credit/' together with Federal direct
loans. Part 6 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
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




7-8

THE BUDGET FOR FISCAL YEAR 1990

the budget or created outside the budget. Subsequently, 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 for 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 show the on-budget and off-budget
amounts separately, but these tables also add 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 consistent comparisons over time, the on-budget and off-budget amounts
3
The "Perspectives" part of the 1986 and preceding Budgets describes the history of the off-budget Federal
entities.
4
Financial statements for the off-budget Federal entities are published in the chapter entitled "Department
of Health and Human Services, Social Security," in the Appendix, Budget of the United States Government,
Fiscal Year 1990, 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 8 of this volume, "The Budget System and
Concepts."




7-9

PERSPECTIVES ON THE BUDGET
COMPARISON OF TOTAL, ON-BUDGET, AND OFF-BUDGET TRANSACTIONS *
(In billions of dollars)
Receipts
Fiscal year

Total

Onbudget

1970..
1971..
1972..
1973..
1974..

192.8
187.1
207.3
230.8
263.2

159.3
151.3
167.4
184.7
209.3

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

279.1
298.1
81.2
355.6
399.6
463.3

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

Outlays
Offbudget

Total

Onbudget

33.5
35.8
39.9
46.1
53.9

195.6
210.2
230.7
245.7
269.4

168.0
177.3
193.8
200.1
217.3

216.6
231.7
63.2
278.7
314.2
365.3

62.5
66.4
18.0
76.8
85.4
98.0

332.3
371.8
96.0
409.2
458.7
503.5

517.1
599.3
617.8
600.6
666.5

403.9
469.1
474.3
453.2
500.4

113.2
130.2
143.5
147.3
166.1

1985
1986
1987
1988
1989 est...

734.1
769.1
854.1
909.0
975.5

547.9
568.9
640.7
667.5
708.7

1990 est...
1991 est...
1992 est...
1993 est...
1994 est...

1,059.3
1,140.5
1,212.2
1,281.4
1,345.0

770.4
828.0
880.4
927.1
970.7

1

Surplus or deficit ( - )
Offbudget

Offbudget

Total

On-budget

27.6
32.8
36.9
45.6
52.1

-2.8
-23.0
-23.4
-14.9
-6.1

-8.7
-26.1
-26.4
-15.4
-8.0

5.9
3.0
3.1
0.5
1.8

271.9
302.2
76.6
328.5
369.1
403.5

60.4
69.6
19.4
80.7
89.7
100.0

-53.2
-73.7
-14.7
-53.6
-59.2
-40.2

-55.3
-70.5
-13.3
-49.7
-54.9
-38.2

2.0
-3.2
-1.4
-3.9
-4.3
-2.0

590.9
678.2
745.7
808.3
851.8

476.6
543.0
594.3
661.2
686.0

114.3 - 7 3 . 8 -72.7
135.2 -78.9 -73.9
151.4 -127.9 -120.0
147.1 -207.8 -208.0
165.8 -185.3 -185.6

-1.1
-5.0
-7.9
0.2
0.3

186.2
200.2
213.4
241.5
266.9

946.3
990.3
1,003.8
1,064.4
1,137.0

769.5
806.8
810.0
861.4
926.2

176.8
183.5
193.8
202.7
210.9

-212.3
-221.2
-149.7
-155.1
-161.5

-221.6
-237.9
-169.3
-193.9
-217.5

9.4
16.7
19.6
38.8
56.0

288.9
312.5
331.8
354.4
374.2

1,151.8 931.7
1,207.3 975.6
1,244.4 1,003.6
1,279.0 1,029.3
1,311.6 1,053.8

220.1
231.7
240.8
249.8
257.8

-92.5
-66.8
-32.2
2.4
33.4

-161.3
-147.6
-123.2
-102.2
-83.1

68.8
80.8
91.0
104.6
116.4

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

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 1990 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 $68.8 billion is large relative to the on-budget deficit of $161.3
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 1994. The offbudget entities in total had deficits during 1976-82, but because of
the Social Security Amendments of 1983 and an expanding econo-




7-10

THE BUDGET FOR FISCAL YEAR 1990

my they have had surpluses beginning in 1983 and are estimated to
have growing surpluses through 1994.
Taxation and Tax Expenditures.—Taxation provides the Govern-

ment with receipts, which withdraw purchasing power from the
private sector in order to finance direct Government expenditure.
In addition to this effect, the structure of the tax system has
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 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 policy decisions are considered regarding the overall level of tax receipts. As listed in Part




PERSPECTIVES ON THE BUDGET

7-11

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 not only
cash income but also imputed income, such as the consumption
benefit received from owner-occupied homes; and would tax income
when it was accrued instead of when it was realized. Thus, for
example, the failure under present law to tax imputed income
would be regarded as giving rise to tax expenditures. On the other
hand, the failure under present law to take account of inflation in
measuring capital gains, depreciation, and interest income would
be regarded as negative tax expenditures, 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 the estimated amounts would be different from what
they are now.




7-12

THE BUDGET FOR FISCAL YEAR 1990

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 roughly similar 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 aftertax income to the taxpayer that was equal to the amount provided
by the special tax provision (and that would thereby also 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 pay higher salaries (a taxable
direct expenditure) in place of this tax expenditure—and still provided 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




PERSPECTIVES ON THE BUDGET

7-13

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 reduction in the individual and corporation income tax rate schedules provided by the
Tax Reform Act of 1986, for example, 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 1988-90.
Special Analysis G in the past has normally shown tax expenditures only for the individual and corporation income taxes. This
year, however, it also includes estimates for the estate and gift
taxes. The Treasury Department plans to extend the analysis to
excise and payroll taxes as well.
As discussed in Part 4 of the 1988 Budget, 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 long-term 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




7-14

THE BUDGET FOR FISCAL YEAR 1990

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 tradeoff for each other.
A number of minor changes in tax expenditures were enacted by
the Technical and Miscellaneous Revenue Act of 1988. 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 it
permanent. Other proposed measures would change receipts but
not tax expenditures, such as extending medicare (hospital insurance) coverage to the minority of State and local employees who
are now exempted.
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. 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.7
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
7
For a short discussion of regulation and recent efforts at regulatory reform, see chapter 5, "Rethinking
Regulation," in the Economic Report of the President (January 1989).




PERSPECTIVES ON THE BUDGET

7-15

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
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




7-16

THE BUDGET FOR FISCAL YEAR 1990

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
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 September 1988.
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.




PERSPECTIVES ON THE BUDGET

7-17

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,
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 estab-




7-18

THE BUDGET FOR FISCAL YEAR 1990

Used. 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
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 nine 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




PERSPECTIVES ON THE BUDGET

7-19

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 "regulatory 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, in the main, are derived from
tax receipts and borrowing and are used for the general purposes
of the Government. Most of these funds are part of the general
fund, which is not restricted by law to any specific Government
program. The trust funds, on the other hand, are financed by
certain taxes and other receipts earmarked by law for specified




7-20

THE BUDGET FOR FISCAL YEAR 1990

purposes, such as paying social security and unemployment insurance benefits. The social security trust funds (old-age and survivors
insurance and disability insurance) are excluded from the budget
by law and consequently 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 following
table, 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)
1988
actual

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

1989
estimate

1990
estimate

1991
estimate

1992
estimate

695.7
744.2
560.2
643.6
593.8
300.1
270.5
285.5
232.2
250 2
-124.9 -135.3 -143.8 -153.2 -163.9
667.5
241.5

708.7
266.9

770.4
288.9

828.0
312.5

880.4
331.8

909.0

975.5

1,059.3

1,140.5

1,212.2

946.3
924.6
813.1
877.2
884.6
221.2
204.1
173.2
190.8
184.3
-124.9 -135.3 -143.8 -153.2 -163.9
926.2
210.9

931.7
220.1

975.6
231.7

1,003.6
240.8

1,064.0 j 1,137.0

1,151.8

1,207.3

1,244.4

861.4
202.7

-252.9 -283.4 -241.0 -228.9 - 2 0 2 . 1
79.7
81.4
78.9
59.0
65.9
-193.9 -217.5 -161.3 -147.6 -123.2
91.0
68.8
38.8
56.0
80.8

Total, Federal Government surplus or deficit
- 1 5 5 . 1 -161.5
(-)

-92.5

-66.8

-32.2

Therefore, as shown in the table on the next page the total
Federal Government deficit or surplus is the principal determinant
8
Special Analysis C, "Funds in the Budget," discusses further the two major groups of funds and the offbudget Federal entities.




7-21

PERSPECTIVES ON THE BUDGET
FEDERAL GOVERNMENT FINANCING AND CHANGE IN DEBT OUTSTANDING 1
(In billions of dollars)
Description

1988 actual

Surplus or deficit ( - )
On-budget
Off-budget

1990 estimate

1991 estimate

1992 estimate

-155.1
.

..

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
L

-161.5

-92.5

-66.8

-32.2

(-193.9)
(38.8)

(-217.5)
(56.0)

(-161.3)
(68.8)

(-147.6)
(80.8)

(-123.2)
(91.0)

1.7
-0.9
0.6

0.6

0.6

*

*

0.6

0.6

-8.0

14.4

0.5
-0.6
0.5

2.9
_*
0.6

0.6

*

Total, means of financing other
than borrowing from the public

-7.0

Total, requirements for borrowing
from the public

-162.1

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

1989 estimate

17.9
-143.6

1.3
-91.2

-66.2

-31.6

162.1

143.6

91.2

66.2

31.6

-2.6
57.0

2.8
67.5

2.2
76.2

81.4

78.9

38.9
-0.2

55.2
-1.0

68.8

80.8

91.0

93.1

124.4

147.2

162.1

169.8

255.2

268.0

238.4

228.4

201.5

•$50 million or less.
1
Several amounts have been assumed to be zero in 1991-92 because they are usually small and cannot be estimated accurately.
2
Estimates for 1991 and 1992 are equal to the surplus of the trust funds on-budget.
3
Estimates for 1991 and 1992 are equal to the surplus of the trust funds off-budget.
4
Only those deposit funds classified as Government accounts.

of the change in the Federal debt held by the public.9 The Federal
Government deficit, together with the other factors noted in that
table, is estimated to increase the Federal debt held by the public
by $143.6 billion in 1989 and $91.2 billion in 1990. These borrowing
projections are based on deficits that are consistent with the economic assumptions explained in Part 3 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 1990 gross Federal debt
9
Table 4 in Part 10 of this volume contains more detail on budget financing through 1994 and shows the
levels of debt from 1987 to 1994. 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 1990. The historical data since 1956 have been revised conceptually, as explained in
Special Analysis E.




7-22

THE BUDGET FOR FISCAL YEAR 1990

is estimated to be $3,107.2 billion, of which debt held internally by
the Government itself is $822.2 billion and debt held by the public
is $2,285.0 billion. Thus, gross Federal debt is much larger than the
Federal debt held by the public.
Gross Federal debt is estimated to rise by $238.4 billion during
1990. As indicated in the lower section of the previous table, $147.2
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 1988 the public held $12.4
billion of agency debt, most of which was issued recently by the
Federal Savings and Loan Insurance Corporation and the Federal
Deposit Insurance Corporation. These agencies borrow from the
public in a way that is inherent in the operation of their programs.
As part of some agreements to resolve the financial problems of
troubled thrift institutions and banks, they may issue notes to
prospective purchasers or others. The issuance of these notes is an
outlay and a borrowing.10 The remaining agency debt was largely
issued some years ago by agencies that now borrow only from the
Federal Financing Bank, which is an entity within the Treasury
Department. Borrowings from the Federal Financing Bank are not
included in gross Federal debt in order to avoid double counting.
Almost all Treasury securities are subject to a general statutory
debt limitation. The present limit is $2,800 billion. The debt subject
to limit is estimated to rise to $2,845.4 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.
Trust fund surpluses for the most part are invested in Treasury
debt securities, rather than being held as cash assets. The Federal
funds deficit must therefore be financed primarily by issuing debt.
This debt, including the Treasury securities issued to trust funds, is
almost entirely subject to the statutory limit. As shown in the table
10

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




7-23

PERSPECTIVES ON THE BUDGET
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 x
Increase or decrease ( - ) in Federal debt not subject to limit
Total, requirements for borrowing subject to debt limit
Increase or decrease ( - ) in unamortized discounts (less premiums) on
Treasury debt held by the public
Change in debt subject to limit

1988
actual

1989
estimate

1990
estimate

-252.9

-283.4

-241.0

-8.0

14.4

2.3
-0.6
0.5
0.6

2.1
*
0.6
*

5.1
-0.9
0.6
*

-5.1

17.1

4.8

2.9
8.5

-1.8
12.2

-2.2
3.6

-246.7

-255.8

-234.8

4.2
250.9

2.6
258.5

3.8
238.6

*$50 million or less.
1
Only those deposit funds classified as Government accounts.

above, the estimated Federal funds deficit is $241.0 billion in 1990,
and the estimated increase in debt subject to statutory limit is
$238.6 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 1988
The following sections compare the actual 1988 receipts, outlays,
and deficit with the amounts estimated in the 1988 budget, which
was transmitted to the Congress in January 1987 for the fiscal year
ending on September 30, 1988.
Comparison of Receipts.—Receipts in 1988 were $909.0 billion,
which is $7.6 billion less than the January 1987 estimate of $916.6
billion. This shortfall was the net effect of differences in tax law
from the legislation proposed in the 1988 budget, economic conditions that differed from the budget forecast, and different collection
patterns and effective tax rates than had been assumed.
Differences in tax law from the legislation proposed in the
budget increased 1988 receipts by $4.5 billion. These legislative
differences consisted of congressional inaction on, or modification
of, the proposals in the 1988 budget, and of changes in law that the
Administration did not propose at that time.
In keeping with President Reagan's pledge that the changes
provided in the Tax Reform Act of 1986 must not be undone with




7-24

THE BUDGET FOR FISCAL YEAR 1990
COMPARISON OF ACTUAL 1988 RECEIPTS WITH THE JANUARY 1987 ESTIMATES
(In billions of dollars)
January
1987
estimate

Individual income taxes
Corporation income taxes
Social insurance taxes and contributions
Excise taxes
Estate and gift taxes
Customs duties and fees
Miscellaneous receipts
Total

Differences
in tax law
from 1987
proposals

Different
economic
conditions

Technical
factors

Net change

Actual

392.8
117.2
333.2
33.4
5.8
15.3
18.9

-0.6
3.7
-0.3
0.8
1.0
-0.1

3.1
-17.3
-0.2
-0.1
-0.5
2.2
0.8

5.9
-9.1
1.6
1.1
1.3
-1.3
0.3

8.4
-22.7
1.2
1.8
1.8
0.9
1.0

401.2
94.5
334.3
35.2
7.6
16.2
19.9

916.6

4.5

-12.0

-0.2

-7.6

909.0

*$50 million or less.

income tax rate increases, the receipts proposals in the 1988 budget
were limited to initiatives to collect taxes owed but not paid, increased user charges for Federal services, and trust fund reforms.
These initiatives included increases in IRS funding; extension of
medicare hospital insurance coverage to all State and local government employees; repeal of exemptions from gasoline and other
highway excise taxes; extension of social security coverage to certain earnings; and increases in customs, Nuclear Regulatory Commission, and IRS user fees. Altogether, the January 1987 proposals
were estimated to increase 1988 receipts by $6.1 billion.
The Omnibus Budget Reconciliation Act of 1987 and the Continuing Resolution for 1988 were the only major laws enacted after
January 1987 that affected 1988 receipts. The provisions of the
Omnibus Budget Reconciliation Act of 1987 primarily affected corporations and wealthy individuals, and met the Bipartisan Budget
Agreement target of $23 billion in tax increases over two years
(1988 and 1989) 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. Several of the
provisions of this Act were modifications of the 1988 budget proposals, but others, such as the extension of the 3 percent telephone
excise tax, the extension of the temporary 0.2 percent Federal
unemployment tax, and the extension of the 55 percent maximum
estate and gift tax rate, had not been proposed by the Administration. The Continuing Resolution for 1988 provided funds to the IRS
for increases in staffing and equipment, as proposed by the Administration in the 1988 budget. These two Acts, together with some
minor legislative changes, increased 1988 receipts by $10.7 billion,
which is $4.5 billion greater than the $6.1 billion proposed by the
Administration.
Differences between the economic assumptions upon which the
original receipts estimates were based and the actual outcome ac-




7-25

PERSPECTIVES ON THE BUDGET

counted for a net decrease in receipts of $12.0 billion. The greatest
effect was on corporation income taxes, which were $17.3 billion
below the budget estimate because of substantially lower corporate
profits than had been assumed. Individual income taxes were above
the budget estimate by $3.1 billion due to higher than expected
personal incomes, while social insurance taxes and contributions
were slightly below the budget estimate due to lower than expected
wages and salaries. Higher than expected imports increased customs duties and fees by $2.2 billion; higher than anticipated interest
rates increased deposits of earnings by the Federal Reserve System,
which are classified as miscellaneous receipts, by $0.9 billion.
Different collection patterns and effective tax rates than had
been assumed in January 1987—attributable in large part to the
difficulty in accurately assessing the effect of the changes provided
in the Tax Reform Act of 1986 on taxpayer behavior and the
timing of collections—reduced receipts by a net $0.2 billion.
Comparison of Outlays.11—Outlays for 1988 were $1,064.0 billion,
which is $36.4 billion higher than the initial estimate (adjusted for
the removal of the Federal Retirement Thrift Savings Fund) made
by the Administration in its budget transmitted to Congress in
January 1987. 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 $36.4 billion or 3.5 percent above the initial estimate.
Actual outlays for defense were $7.2 billion or 2.4 percent less than
the initial estimate, while outlays for nondefense were $43.6 billion
or 6.0 percent higher.
1988 OUTLAY DIFFERENCES
(Dollars in billions)
January 1987
estimate1

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

1,027.7
297.6
730.1
21.7

Actual

1,064.0
290.4
773.7
22.3

Change
Amount

36.4
-7.2
43.6
0.5

Percent

3.5
-2.4
6.0
2.5

'See footnote 11 for the adjustment to the originally published estimate.

Chronology of the outlay increase,—The Administration's initial
estimate for outlays for 1988 was $1,027.7 billion. The following
table shows subsequent revisions to this estimate. In August 1987,
1x
The original outlay estimates published in the fiscal year 1988 Budget have been adjusted retroactively to
reflect moving the Federal Retirement Thrift Savings Fund to a nonbudgetary status during 1988. As a result,
the original estimate shown in this section is $3.3 billion higher than originally published. This adjustment
makes the original estimate of outlays comparable with the actual outcome. This change applies throughout the
discussion and tables in this section.

240-000 O - 1989 - 12 QL 3




7-26

THE BUDGET FOR FISCAL YEAR 1990

the estimate was increased by $8.0 billion. The major increase was
for net interest, largely due to higher than expected interest rates.
The estimate was increased by $20.3 billion in the budget in February 1988. The largest decreases were for national defense and
higher estimated foreign military sales loan prepayments. These
were more than offset by increases for medicare, failure to achieve
proposed physical asset sales, technical reestimates of the Federal
Deposit Insurance Corporation and the Federal Savings and Loan
Insurance Corporation, and other revisions. The outlay estimate
was increased in July 1988 by $9.9 billion, as a result of many
increases and decreases. The actual amount at the end of the year
was $1,064.0 billion, about the same as the July estimate.
CHRONOLOGY OF THE 1988 OUTLAY INCREASE
(In billions of dollars)

1988 Budget (January 1987)

1,027.7

Changes from previous estimate:
August 1987 (Mid-Session Review): The major changes were increases for net interest ($5.7
billion), medicaid ($1.4 billion), higher education ($1.4 billion), and the Federal Housing
Administration ($1.3 billion), partially offset by decreases for CCC agricultural price support
payments ($5.2 billion)
8.0
February 1988 (1989 Budget): The major changes were decreases for national defense ($12.1
billion) and higher foreign military sales loan prepayments ($5.9 billion), more than offset by
many increases, the larger ones being for medicare ($5.7 billion), failure to achieve proposed
physical asset sales ($4.4 billion), FDIC and FSUC deposit insurance ($4.1 billion), medicaid
($2.4 billion), and net interest ($2.9 billion)
20.3
July 1988 (Mid-Session Review): The major changes were increases for fewer than estimated foreign
military sales loan prepayments ($3.7 billion), FDIC and FSUC deposit insurance ($4.6 billion),
and net interest ($3.2 billion), partially offset by decreases for CCC agricultural price support
payments ($4.5 billion)
9.9
September 30,1988: The major changes were an increase for national defense ($4.9 billion), more
than offset by decreases, the major ones being for international affairs ($2.3 billion) and
medicare and medicaid ($1.0 billion)
:
-1.7
Total increase
Actual

36.4
1,064.0

Major causes of the increase.—The following table distributes the
$36.4 billion increase in outlays according to three categories: (1)
policy changes, (2) economic conditions, and (3) technical estimating
differences and other changes. The amounts in the first two categories are approximations for the major items, while the third category is a residual.
Policy changes to the 1988 budget proposals were a result of
revised Administration proposals and congressional action that differed from the initial Administration request. The final action was
consistent with the Bipartisan Budget Agreement between Congress and the Administration in November 1987. The net effect of
all policy changes was a $13.8 billion increase in outlays. Outlays
for national defense programs were $12.6 billion lower than proposed due to policy changes, because of lower defense appropria-




PERSPECTIVES ON THE BUDGET

7-27

SUMMARY OF REASONS FOR DIFFERENCE IN 1988 OUTLAYS
(In billions of dollars)
Total

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

13.8
6.8
15.7
36.4

tions than initially requested by the Administration. Outlays for
nondefense programs were $26.4 billion higher. This pattern of
decreased defense outlays and increased nondefense outlays due to
policy changes also occurred for the budget proposals in the six
previous years.
Outlays for nondefense programs are composed of several groups.
Outlays for nondefense discretionary programs (i.e., programs generally subject to control by annual appropriations) were $6.3 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 $7.4 billion
above the Administration's proposals due to policy changes. The
largest single change was in medicare. The medicare reforms enacted by the Congress saved $2.6 billion less than the reforms
proposed by the Administration. 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 $5.6 billion. (Mandatory programs are mostly
formula benefit programs not normally controlled by annual appropriations.) Most of this increase, $4.3 billion, was for advanced
deficiency payments for farm price supports.
Policy differences affecting collections that offset outlays increased net outlays by $6.7 billion. Increases of $7.0 billion, from
the failure to enact most of the physical asset sales and user fees
proposed by the Administration, were slightly offset by higher than
originally expected loan asset sales and prepayments.
The remaining increase for nondefense policy outlays, $0.5 billion, is the effect on net interest of policy changes for outlays and
receipts.
Economic conditions differed from those forecast in January 1987
as shown in the following table. Growth in real GNP exceeded the
growth projected by 1.8 percentage points in 1987 but fell short by




7-28

THE BUDGET FOR FISCAL YEAR 1990

1.1 percentage points in 1988. Inflation, as measured by the GNP
deflator, was about the same as projected for 1987 and 1988 but it
was higher than projected using the Consumer Price Index. The
total unemployment rate was 0.6 percentage points lower than
anticipated in 1987 and 0.9 percentage points lower in 1988. Interest rates, as measured by the 91-day Treasury bill rate, were 0.4
percentage points higher than projected in 1987 and 1.1 percentage
points higher in 1988.
COMPARISON OF JANUARY 1987 ECONOMIC FORECAST AND ACTUAL ECONOMIC PERFORMANCE
(Calendar years)
January 1987 estimate
1987

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)
1

1988

Actual

Difference

1987

1987

3.2

3.7

5.0

2.6

1.8

-1.1

3.6
3.8
6.7
5.4

3.5
3.6
6.3
5.6

3.1
4.6
6.1
5.8

3.9
4.2
5.4
6.7

-0.5
0.8
-0.6
0.4

0.4
0.6
-0.9
1.1

Preliminary and partly estimated.

The difference between the economic forecast and economic performance resulted in a net outlay increase of $6.8 billion for 1988.
Most of this revision, $5.7 billion, was made in the forecast in the
1988 Mid-Session Review in August 1987, before fiscal year 1988
began. The revised economic forecast at that time projected outlays
that eventually changed about $1.1 billion for economic reasons.
Estimates of the major components of the $6.8 billion increase
are shown in the following table. The total unemployment rate was
lower than forecast, which decreased unemployment compensation
and related outlays by $2.2 billion. Higher inflation increased outlays by $2.4 billion primarily due to cost-of-living adjustments for
social security and other programs linked to the Consumer Price
Index. Outlays increased by $6.4 billion due to interest differences,
with net interest outlays increasing $5.5 billion due to higher interest rates.
Technical estimating differences and other changes account for a
net $15.7 billion increase in 1988 outlays. A decrease of $0.7 billion
for nondefense discretionary programs was more than offset by
increases for national defense ($5.4 billion), net interest ($5.7 billion), major mandatory programs ($3.6 billion), and lower than
expected major offsetting receipts ($1.6 billion). For major mandatory programs, technical increases for the Federal Savings and Loan
Insurance Corporation ($8.8 billion), medicare and medicaid ($5.1
billion), the Federal Housing Administration ($3.5 billion), and
other programs were partially offset by decreases in agricultural




PERSPECTIVES ON THE BUDGET

7-29

EFFECT OF DIFFERENCES BETWEEN ESTIMATED AND ACTUAL ECONOMIC CONDITIONS ON 1988
OUTLAYS
(In billions of dollars)

Unemployment assumptions (primarily 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

—2.2
1.1
0.8
0.3
0^
2J

5.5
0.8
(U
M
0^
6.8

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

price support payments ($12.3 billion) due to higher agricultural
prices resulting from the drought and net decreases of $1.5 billion
for other major mandatory programs.
Comparison of the Deficit12—The preceding two sections discuss
the differences between the January 1987 budget estimates and the
actual amounts of Federal Government receipts and outlays in
1988. This section summarizes the net impact of these differences
on the deficit.
The deficit for 1988, adjusted for the removal of the Federal
Retirement Thrift Savings Fund, was originally estimated to be
$111.1 billion; the actual deficit was $155.1 billion, a $44.0 billion
increase. The following table shows the approximate distribution of
this difference according to three categories: (1) policy; (2) economic
conditions that were different from the original forecast; and (3)
technical estimating differences and other changes. 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.

12
The original deficit estimate published in the fiscal year 1988 Budget has been adjusted retroactively to
reflect moving the Federal Retirement Thrift Savings Fund to a nonbudgetary status during 1988. As a result,
the original estimate shown in this section is $3.3 billion higher than originally published. This adjustment
makes the original estimate comparable with the actual outcome. This change applies throughout this section.




7-30

THE BUDGET FOR FISCAL YEAR 1990

SUMMARY OF REASONS FOR CHANGES IN THE 1988 DEFICIT
(In billions of dollars)
Total

January 1987 estimate of the 1988 deficit

1

Changes:
Policy:
Receipts increase
Outlay increase
Subtotal, increase in deficit due to policy..
Economic conditions:
Outlay increase
Subtotal, increase in deficit due to economic conditions
Technical estimating differences and other changes:
Receipts decrease
Outlay increase
Subtotal, increase in deficit due to technical estimating differences and other changes.
Total, net increase in deficit..
Actual deficit
Recapitulation:
January 1987 estimate of 1988 deficit..
Net effect of lower receipts
Net effect of higher outlays
Actual 1988 deficit

-111.1

4.5
-13.8
-9.3
-12.0
-6.8
-18.8
-0.2
-15.7
-15.9
-44.0
-155.1
-111.1
-7.6
-36.4
-155.1

•See footnote 12 for the adjustment to the originally published estimate.
Note: Outlay increases and receipt decreases are shown as negative because they increase the deficit.

Policy changes increased the deficit by $9.3 billion. Receipts increased $4.5 billion, but outlays increased $13.8 billion, more than
offsetting the receipts increase. Changes in economic conditions
accounted for a $18.8 billion increase in the deficit largely due to a
loss of receipts of $12.0 billion. The latter was more than accounted
for by lower than expected corporate profits. Outlays increased $6.8
billion due to economic reasons largely because of higher than
expected interest rates. Technical estimating differences and other
changes increased the actual deficit $15.9 billion from the original
estimate.
COMPARISON OF THE ACTUAL AND ESTIMATED
RELATIVELY UNCONTROLLABLE OUTLAYS FOR 1988
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




PERSPECTIVES ON THE BUDGET

7-31

service retirement are 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 1988 and the amounts
originally estimated in the 1988 budget in January 1987. The list of
programs is the same as in Table 14 (Controllability of Outlays) in
Part 10 of this volume. Actual outlays for relatively uncontrollable
programs in 1988 were $807.4 billion, which is $11.9 billion or 1.5
percent more than the initial estimate of $795.5 billion based on
existing law in January 1987. Outlays for open-ended programs and
fixed costs were $18.3 billion more than the initial estimate, and
outlays from prior-year contracts and obligations were $6.4 billion
less than the initial estimate.
Payments for individuals, which are essentially income transfers,
were 72.1 percent of all open-ended programs and fixed costs in
1988. Actual outlays for these payments were $2.7 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.
Outlays for social security and railroad retirement, the largest
category of payments for individuals, were almost identical to the
original estimate.
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. In contrast to automatic adjustments, veterans
service-connected compensation has been adjusted by law each year
for cost-of-living increases. Total outlays for this category were $1.5
billion higher than the original estimate, due in part to higher
cost-of-living adjustments than originally estimated.




7-32

THE BUDGET FOR FISCAL YEAR 1990
RELATIVELY UNCONTROLLABLE OUTLAYS FOR 19881
(In billions of dollars)
January 1987
estimate
(existing law)

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 assistance
Medical care
Assistance to students
Food and nutrition assistance
Public assistance and related programs
Other

Actual

Change

220.4
57.8
(18.9)
(38.9)
16.4
111.4
3.7
4.5
28.2
2.9

220.3
59.3
(19.0)
(40.3)
13.8
114.7
3.9
4.3
28.8
2.9

-0.1
1.5
(0.1)
(1.4)
-2.6
3.3
0.1
-0.2
0.6
*

Subtotal, payments for individuals

445.3

448.0

2.7

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

139.4
21.0
-3.4

151.7
12.2
8.7

12.3
8.8
12.1

Subtotal, other open-ended programs and fixed costs

157.0

172.7

15.7

Total, open-ended programs and fixed costs

602.3

620.6

18.3

117.1
76.1

115.3
71.5

-1.8
-4.6

Total, outlays from prior-year contracts and obligations....

193.2

186.8

-6.4

Total, relatively uncontrollable outlays

795.5

807.4

11.9

. ..

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

L

* $50 million or less.
1
The January 1987 estimate shown in this table is $2.0 billion higher than originally published to reflect moving the Federal Retirement Thrift
Savings Fund to a nonbudgetary status during 1988. This adjustment makes the initial estimate of relatively uncontrollable outlays comparable to
the actual outcome.

Outlays for unemployment compensation programs were $2.6 billion below the initial estimate due primarily to lower than assumed unemployment rates.
Outlays for medical care were $3.3 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.
Assistance to students consists of GI bill benefits and the guaranteed student loan program. Outlays for these programs were about
the same as the original estimate.
Food and nutrition assistance includes the child nutrition and
special milk programs. Outlays for these programs were also 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.




PERSPECTIVES ON THE BUDGET

7-33

Outlays for these programs were $0.6 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 about the same as originally estimated.
Open-ended programs and fixed costs other than payments for
individuals were $172.7 billion or 27.8 percent of all open-ended
programs and fixed costs in 1988. Outlays for net interest were
$12.3 billion or 8.8 percent higher than the original estimate. This
increase was primarily the effect of higher than expected interest
rates.
Outlays for farm price supports (Commodity Credit Corporation)
were $8.8 billion below the initial current law estimate. This was
due in part to higher prices resulting from the drought, which
decreased outlays. The remaining category increased $12.1 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 $6.4 billion
below the initial estimate. Outlays for nondefense programs were
$4.6 billion lower than the initial estimate, and outlays for defense
programs were $1.8 billion lower.




PART 8

THE BUDGET SYSTEM
AND CONCEPTS




8-1

PART 8

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, the 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. This budget
also includes appropriations requests for both 1990 and 1991 for the
Department of Defense and related agencies and for the Coast
Guard, as required by law.
The President transmits his budget to the Congress early in each
calendar year, eight to nine months before the next fiscal year
begins on October first. In a year in which a new President takes
office, as in this year, the outgoing President submits a budget.
Usually, the new President proposes changes to that budget.
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 18 months before the budget fiscal year
begins. For the 1990 budget, which is being transmitted to the
Congress in January of 1989, the process began in the spring of
1988.
During the formulation of the budget, there is a continual exchange of information, proposals, evaluations, and policy decisions




8-2

THE BUDGET SYSTEM AND CONCEPTS

8-3

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
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.
Agencies submit budget requests 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 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
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 1990.
2




8-4

THE BUDGET FOR FISCAL YEAR 1990

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
future outlays. For the majority of Federal 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 authority to incur obligations takes forms
other than budget authority, and such obligational authority usually becomes available for obligation without further congressional
action. In recent years, more obligational authority has become
available under permanent appropriations than by current actions
of the Congress. In turn, the outlays from permanent appropriations, together with the outlays from obligations incurred in prior
years, comprise the majority of the outlay total for any year in the
budget. Therefore, most outlays in any year are not controlled
through appropriations actions for that year. The 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—January 9 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. 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. 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 1990, the maximum deficit is $100 billion.




THE BUDGET SYSTEM AND CONCEPTS

8-5

Congressional budget resolutions do not require Presidential approval. Frequently, however, there is informal consultation between the congressional leadership and the Administration, because legislation developed to attain congressional budget targets
must be sent to the President for his approval. In some recent
years, the Congress enacted omnibus reconciliation legislation that
reduced budget authority and outlays or increased receipts to
achieve specified levels of budget authority and outlays. In 1987,
the President and the joint leadership of Congress reached an
agreement on the broad outlines of a deficit reduction strategy for
1988 and 1989. This agreement, known as the Bipartisan Budget
Agreement, was reflected in the budget legislation passed for those
years.
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 completed action on all of the 13
regular appropriations bills for 1989 before the start of the fiscal
year so such a resolution was not needed.
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 1990,
the target is $100 billion. For 1991 through 1993, the targets are
$64 billion, $28 billion, and zero, respectively.




8-6

THE BUDGET FOR FISCAL YEAR 1990

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 (i.e.,
cancel or withhold from obligation) budgetary resources to reduce
outlays by the amount required to meet the specified target for the
year ahead.
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 amount of reductions in
budgetary resources 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.
Events after October 15 that affect the deficit do not result in new
or additional spending reductions under the Act.
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.
Budgetary resources have been sequestered only once since the
Act was passed. That was in 1986. On November 20, 1987, the
President issued a sequester order for FY 1988 but the order was
reversed and the sequestered resources restored as a result of the
enactment of the Omnibus Reconciliation Act of 1987.
Budget Execution and Control—Once approved, the President's
budget, as modified by the Congress and reduced by sequestration,
if necessary, becomes the basis for the financial plan for the operations of each agency during the fiscal year. Under the law, most
budget authority and other budgetary resources are made available




THE BUDGET SYSTEM AND CONCEPTS

8-7

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 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.
Budget Calendar for 1989.—The following timetable highlights
significant dates during calendar year 1989.
BUDGET CALENDAR FOR 1989
January 3
January 9
January 20
February 25
April 15
May 15
June 15
June 30
July 15
August 15
August 25
October 1
October 15

3

Congress convenes.
President Reagan transmits FY 1990 budget.
Inauguration Day.
Congressional committees report budget estimates to Budget
Committees.
Action to be completed on congressional budget resolution.
House consideration of annual appropriations bills may begin.
Action to be completed on reconciliation.
Action on appropriations to be completed by House.
President Bush transmits Mid-Session Review of FY 1990
Budget, including preliminary estimates of the G-R-H baseline.
Initial snapshot of the G-R-H baseline.
OMB issues initial G-R-H report to the President and Congress,
and President issues initial sequester order.
Fiscal year begins and initial sequester order becomes effective.
OMB issues final G-R-H report to the President and Congress,
and President issues final sequester order, which becomes
effective immediately.

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




8-8

THE BUDGET FOR FISCAL YEAR 1990

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 budget totals by the Balanced Budget and Emergency
Deficit Control Act of 1985 (Public Law 99-177). Such receipts and
outlays are referred to as being off-budget. However, the law that
shifted these outlays and receipts off-budget also specified that they
be 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.
Neither the on-budget nor the off-budget totals include transactions of private, Government-sponsored enterprises, such as the
Federal National Mortgage Association 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.
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
4
See Part 6, "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 1990.
5
Part 5, "Federal Programs by Function," in this volume discusses the budget by function.




THE BUDGET SYSTEM AND CONCEPTS

8-9

Federal Government seeks to accomplish rather than the
means of accomplishment, the objects purchased, or the clientele or geographic area served.
• A function must be of continuing national importance, and
the amounts attributable to it must be significant.
• Each basic unit 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 is
also financed by the proceeds of general borrowing. General fund
appropriation accounts record general fund expenditures. Special
funds account for Federal receipts earmarked for specific purposes,
other than for carrying out a cycle of operations, and the associated expenditure of those receipts. Public enterprise (revolving) funds
conduct 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, conduct business-type operations primarily
within and between Government agencies and are financed by
collections, which are credited directly to the fund.
Trust funds are established to account for the receipt and expenditure of monies by the Government for carrying out specific




8-10

THE BUDGET FOR FISCAL YEAR 1990

purposes and programs in accordance with the terms of a statute
that designates the fund as a trust fund (e.g., the Highway Trust
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; the purchase of other financial assets; and the conduct of research, development, education, and training. Investment outlays are displayed
in Special Analysis D, "Federal Investment 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.,
postal revenues from the sale of stamps), 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 administrative expenses of entitlement programs and for direct loans.6
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 (such as unobligated
balances and offsetting collections) 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 gener6

See "Limitations on the Availability of Funds," in Part 7 of this volume.




THE BUDGET SYSTEM AND CONCEPTS

8-11

ally is requested to be appropriated in the first year, even though it
may be obligated over several years. This policy, sometimes referred to as "full funding," is intended to avoid piecemeal funding
of programs and projects that cannot be used until they have been
completed.
For lease-purchase arrangements, budget authority adequate to
cover the Federal Government's maximum current liability is requested. Where lease-purchases contain contract clauses that condition the Federal Government's obligation to pay on the availability
of appropriations, the policy is to request sufficient budget authority to cover the full lifetime cost of the lease.
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, when specifically authorized by law, 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 appropriationone made to become available one year or more beyond the fiscal
year for which the appropriations act is passed.7 Appropriations
related to multi-year budget requests include advance appropriations language.8 To meet the special timing requirements of many
7
A list of advance appropriations included in this budget appears in Part III, "Other Materials," in the
Appendix.
8
Multi-year budget requests are discussed under "Data for 1991 through 1994," which appears later in this
part.




8-12

THE BUDGET FOR FISCAL YEAR 1990

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.
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. 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.
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 or expenditure of
funds within the year that the action is taken. Deferrals are not
identified separately 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. Current budget authority usually is provided annually in
appropriations acts, 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
9
Rescissions and deferrals are discussed further in this part under the previous section, "Budget Execution
and Control."




THE BUDGET SYSTEM AND CONCEPTS

8-13

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
revolving fund accounts comprise more than half of the budget
totals. Put another way, less than half of the obligations and outlays in the budget result from current actions 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 a definite 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
current liabilities for salaries, wages, and interest; agreements to
make 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

10

See "Relationship of Budget Authority to Outlays," in Part 7 of this volume.




8-14

THE BUDGET FOR FISCAL YEAR 1990

bonds outstanding); or by the issuance of bonds, debentures, notes,
or monetary credits.11
Refunds of receipts12 are treated as reductions of receipts, 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 authority provided for
the year in which the money is spent.13 Outlays are stated net of
offsetting collections, and total outlays for the Federal Government
include both on-budget and off-budget outlays.
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 balance 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.
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
11

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.
13
See "Relationship of Budget Authority to Outlays," in Part 7 of this volume.
14
Additional information is provided in a separate report, "Balances of Budget Authority," which is available
from the National Technical Information Service, Department of Commerce, shortly after the budget is transmitted.
12




THE BUDGET SYSTEM AND CONCEPTS

8-15

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 15

In addition to the resource measures previously described, Government programs may be carried out through federally supported
credit in the form of direct loans or loan guarantees. These are
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 controlled and budgeted.
This proposal is described in Part 6 of this volume.
COLLECTIONS
In General—Money collected by the Government is classified
into 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.
15
Part 6, "Federal Credit," in this volume and Special Analysis F, "Federal Credit Programs," discuss this
subject in detail.
16
Part 4, "Federal Receipts by Source," of this volume discusses governmental receipts in more detail.




8-16

THE BUDGET FOR FISCAL YEAR 1990

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 collections of payments
from other Government accounts. They are classified into two
major categories: offsetting collections credited to appropriation or
fund accounts and offsetting receipts (that is, offsetting collections
deposited in receipt accounts). The offset is applied differently for
each type.
Offsetting Collections Credited to Appropriation or Fund Accounts.—¥or all revolving funds and some appropriation accounts,
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, that arise out
of the business-type or market-oriented activities of the Government. While most proprietary receipts are deducted at the
agency and subfunction level, some are classified as undistributed offsetting receipts and are deducted from total budget
authority and outlays (e.g., collections of rent and royalties
from Outer Continental Shelf lands.)
• 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 trans-




THE BUDGET SYSTEM AND CONCEPTS

8-17

actions, where the payment is from one fund group (either
Federal funds or trust funds) to a receipt account in the other
fund group; (2) Federal intrafund transactions, where the 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-budget receipt accounts, and from off-budget accounts to on-budget receipt accounts.
OTHER TRANSACTIONS

Borrowing and Repayment—Borrowing and debt repayment are
not treated as receipts or outlays. If they were, the budget would
be balanced 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. Where Federal loan assets are
sold with recourse (i.e., 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 the deficit other than borrowing.
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). Deposit fund balances
may be held in the form of either invested or uninvested balances.
Changes in deposit fund balances, if they are not invested, affect
Treasury's cash balances, even though the transactions are not a




8-18

THE BUDGET FOR FISCAL YEAR 1990

part of the budget. To the extent that deposit fund balances are not
invested, changes in the balances are reflected as a means of
financing the deficit other than borrowing from the public.
Exchange of Cash.—The Government's deposits with the International Monetary Fund (IMF) 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.
Interest on special issues of the debt securities held by trust funds
and other Government accounts is normally stated on a cash basis.
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 the Education Benefits Trust Fund,17 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.
Data for 1988.—The past year (1988) 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
17

See "Department of Defense—Civil" in Part I, "Detailed Budget Estimates," in the Appendix.




THE BUDGET SYSTEM AND CONCEPTS

8-19

not discovered in time to be reflected in Treasury's published data.
The "Explanation of the Summary Tables" at the beginning of
Part 10 in this volume notes the sources of such differences.
Data for 1989.—The current year (1989) 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 1989, and that are expected to become available during
the year. For the first time in 40 years, all of the 13 appropriations
bills for 1989 were enacted as separate acts by the start of the
fiscal year.
Where the word "enacted" is used with reference to 1989, 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 1990.—The budget year (1990) column pf 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 amoiints proposed
to be appropriated.18 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 1990 include
both the amounts requested with the transmission of the budget
and the amounts planned for later transmittal.
Data for 1991 Through 1994.—To place emphasis on longer term
objectives and plans consistent with the multi-year budget planning system, the budget presents estimates through 1994. These
data often reflect specific Presidential policy determinations and
are shown in a number of budget tables.
This budget also includes multi-year budget requests, which differ
from multi-year planning estimates in that advance appropriations
for 1991 are proposed to be enacted in the 1990 appropriations
process. The 1986 Defense Authorization Act (Public Law 99-145)
18

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




8-20

THE BUDGET FOR FISCAL YEAR 1990

requires 2-year requests (1990 and 1991) for accounts of the Department of Defense and related agencies in the national defense function. Similarly, the 1988 Coast Guard Authorization Act (Public
Law 100-448) requires 2-year requests for Coast Guard programs.
There are also multi-year requests for several other accounts. Advance appropriations language for multi-year budget requests is
included in the Appendix presentation for the affected budget accounts. The schedules in the Appendix include a 1991 column only
for Coast Guard, Defense, and Defense-related accounts. The
"Budget by Agency and Account" in the Budget19 includes a 1991
column for all accounts in the budget; those that represent multiyear budget requests, rather than planning estimates, are footnoted.
Allowances.—Lump-sum allowances are included in the tables to
cover certain forms of budgetary transactions that are expected to
result in increases or decreases in budget authority or outlays but
are not reflected in the program details, such as allowances for
civilian agency pay increases.20
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.
In addition, allowances are included for the legislative and judicial branches that reflect the President's recommendation that
these branches reduce their budget requests to current services
levels.

19
20

See Part 9, "The Federal Program by Agency and Account," in this volume.
See Part 5, "Federal Programs by Function," in this volume for a further discussion of allowances.




PART 9

FEDERAL PROGRAM
BY AGENCY AND ACCOUNT




9-1

PART 9

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.
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.




9-2

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

9-3

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)
1989
estimate

1988
actual

Account and functional code

1990
estimate

1991
estimate

Legislative Branch
Senate
Federal funds
General and Special Funds:
Compensation of members, Senate
801
Appropriation, permanent, indefinite
Outlays
Mileage of the Vice President and Senators
801
Appropriation, current
Outlays
Expense allowances of the Vice President, President
Pro Tempore, Majority and Minority Leaders
and Majority and Minority Whips
801
Appropriation, current
Outlays
Representation allowances for the Majority and Minority Leaders
801
Appropriation, current
Outlays
Salaries, officers and employees
801
Appropriation, current

BA
0

10,800
10,596

14,676
14,676

17,675
17,675

17,675
17,675

BA
0

60
48

60
60

60
60

60
60

BA
0

71
47

56
56

56
56

56
56

BA
0

5

20
20

20
20

20
20

BA

95,222

85,804

85,804

0

94,637

49,255
M90
49,255
M90

85,804

85,804

BA
0

95,222
94,637

49,745
49,745

85,804
85,804

85,804
85,804

BA
BA
0

1,761
137
1,619

1,799

3,036

3,036

1,799

3,036

3,036

Total Office of the Legislative Counsel of the
Senate
BA
O

1,898
1,619

1,799
1,799

3,036
3,036

3,036
3,036

Outlays
Total Salaries, officers and employees
Office of the Legislative Counsel of the Senate
801
Appropriation, current
Reappropriation, indefinite
Outlays

Expense allowances of the Secretary of the Senate,
Sergeant at Arms, and Doorkeeper of the
Senate and secretaries for the majority
and
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
0
Expenses of United States Senate Caucus on International Narcotics Control
801
Appropriation, current
BA
Outlays
0
See footnotes at end of table.
240-000 O - 1989 - 13 QL 3




12

12

12

12

7

12

12

12

633
478

646
646

676
676

676
676

2,203
1,875
57,161
59,684

325
307

2,203
2,203

2,203
2,203

2,203
2,203

62,673
62,673

65,108
65,108

65,108
65,108

325
325

325
325

325
325

9-4

THE BUDGET FOR FISCAL YEAR 1990

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1989
estimati

1990
estimate

1991
estimate

Legislative Branch—Con.
Senate—Con.
Miscellaneous items
Appropriation, current

801
BA

5,632

0

Senators' official personnel and office expense account
801
Appropriation, current
Outlays
Secretary of the Senate
801
Appropriation, current
Outlays
Sergeant at Arms and Doorkeeper of the Senate
801
Appropriation, current
Reappropnation..
Outlays

6,276

8,071

6,276

6,276

5,632
8,071

6,750
6,750

6,276
6,276

6,276
6,276

BA
0

105,526
105,390

151,065
151,065

160,866

160,866

BA
0

666
487

727
727

727
727

727
727

BA

68,021

65,643
"157

81,520

81,520

BA
0

Total Miscellaneous items

6,276

BA

Outlays

6,180
"570
6,180
"570

2^50..
50,840

Total Sergeant at Arms and Doorkeeper of the
Senate
BA

"65,643"
"157

8l"520

65,800
65,800

81,520
81,520

81,520
81,520

B
A
0

13
-25

13
13

13
13

13
13

BA
0

2,000
929...

0

Stationery (revolving fund)
Appropriation, current
Outlays
Congressional use of foreign currency, Senate

70,271
50,840

248

801

801
Appropriation, permanent
Outlays
Public Enterprise Funds!
Recording studio (revolving fund)
Outlays
Senate barber and beauty shops
fund)

801
(revolving
801
-3

Total Federal funds Senate

BA
0

352,498
335,235

356,570
356,570

424^77
424,377

424,377
424,377

BA
0

50,250
46,665

50,250
50,250

50,250
50,250

50,250
50,250

BA
0

90
90

358
358

BA
0

210
98

210
210

210
210

210
210

House of Representatives
Federal funds
General and Special Funds:
Compensation of Members and related administrative expenses
801
Appropriation, permanent
Outlays
Payments to widows and heirs of deceased members of Congress
801
Appropriation, current
Outlays
Mileage of Members
801
Appropriation, current
Outlays
See footnotes at end of table.




THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

9-5

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1990
estimate

1989
estimate

1991
estimate

Legislative Branch—Con.
House of Representatives—Con.
Salaries and expenses
Appropriation, current

801
BA

Outlays

0

513,487
517,538

505,500
A

593,244

593,244

593,244

593,244

6,102

505,500

^6,102
T o y Salaries and expenses

BA

Stationery (revolving fund)
801
Outlays
Congressional use of foreign currency, House of
Representatives
801
Appropriation, permanent
Outlays
runic enterprise Funds.
Recording studio (revolving fund)
801
Outlays
Beauty shop (revolving fund)
801
Outlays
House barber shops (revolving fund)
801
Outlays
Office of the attending physician (revolving
fund)
801
Outlays
Page residence hall and meal plan
801
Outlays

513,487

511,602

0

517,538

511,602

593,244
593,244

593,244
593,244

0

-123

-123

-123

-123

BA
0

2,000
2,508

3,360
3,360

3,360
3,360

3360

0

-41

-41

-41

-41

0

-13

-13

-13

-13

0

-14

-14

-14

-14

0

- 1

- 1

-1

-1

0

-165

-165

-165

-165

566,037

565,780

566,542

565,423

647,064
646,707

647,064
646,707

3^555

3,555
3,555

1,326
1,326

1,326
1,326

Total Federal funds House of Representatives.. BA

0

3,360

Joint Items
Federal funds
General and Special Funds:
Joint Economic Committee
Appropriation, current
Outlays
Joint Committee on Printing
Appropriation, current

Outlays

801
BA
0

3,179
2,860

3,330
3,330

BA

1,037

1,143

985

1,143

801

0

Joint Committee on Inaugural Ceremonies of
1989
801
Appropriation, current
BA
Outlays
0
Joint Committee on Taxation
801
Appropriation, current
BA
Outlays
0
Office of the Attending Physician
801
Appropriation, current
BA
Outlays
0
General expenses, Capitol police
801
Appropriation, current
BA
Outlays
0
Salaries, Capitol Police
801
Appropriation, current
BA
Outlays
0
See footnotes at end of table.




775
775
4,219
3,901

4,346
4,129

4,422
4,201

4,422
4,422

1,493
2,361

1,414
1,414

1,414
1,414

1,414
1,414

1,734
1,912

1,887
1,887

2,292
2,292

2,292
2,292

52,922
52,922

59,453
59,453

59,453
59,453

9-6

THE BUDGET FOR FISCAL YEAR 1990

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1991
estimate

1990
estimate

1989
estimate

Legislative Branch—Con.
Joint Items—Con.
Officidl mail costs
Aoorooriation current

801
BA

82,163

0

78,483

Total Official mail costs

.

114,025

77,368

114,025

77,368

82,163
78,483

60,983
60,983

114,025
114,025

77,368
77,368

1,137
1,088

1,220
1,220

1,397
1,397

1,397
1,397

19

20
20

20
20

20
20

0

94,981
91,590

128,040
127,823

187,904
187,683

151,247
151,247

BA
0

Outlays

53,926
7,057
53,926
A
7,057

17,886
17,199

18,361
18,382

19,950
19,793

20,170
20,143

BA
0

5,925
5,613

BA
0

48
60

6,532
6,542
100
199

6,936
6,916
100
100

6,936
7,006
100
100

BA
0

12,793
13,652

15,471
20,074

24,916
26,275

22,221
22,220

BA
0

3,404
3,156

3,771

4,536
4,363

4,567
4,713

.. BA

0
Capitol Guide Service
ADDrooriation current
Outlays
Statements of appropriations
Appropriation, current
Outlays

A

801
BA
.
0
801
BA

o
BA

Total Federal funds Joint Items

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

801

Architect of the Capitol
Federal funds
General and Special Funds:
Office of the Architect of the Capitol: Salaries

801
Appropriation, current
Outlays
Contingent expenses
801
Appropriation, current
Outlays
Capitol buildings
801
Appropriation, current
Outlays
Capitol grounds
801
Appropriation, current
Outlays
West central front of the Capitol
801
Outlays
Congressional cemetery
801
Outlays
Senate office buildings
801
Appropriation, current
Outlays
Construction of an extension to the New Senate
Office Building
801
Outlays
House office buildings
801
Appropriation, current
Outlays
Acquisition of property, construction, and equipment, additional House Office Building 801
Outlays
See footnotes at end of table.




4,224
0

20,585..

2,633

5,000
0
BA
0
0
BA
0
0

- 8
23,265
27,273

26..
24,086
30,291

234

28,895
36,959

35,446
36,134

49,295
42,948

33,219
36,349

225

30,547
26,834

45,118
40,774

64.,

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

9-7

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1989
estimate

1991
estimate

1990
estimate

Legislative Branch—Con.
Architect of the Capitol—Con.
Installation of solar collectors in House office buildings
801
Outlays
Capitol Power Plant
801
Appropriation, current
Outlays
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
Public Enterprise Funds:
Senate restaurant fund
801
Outlays
House of Representatives restaurant fund (revolving
fund)
801
Outlays

0
BA
0

8
24,583
21,942

0

39.
24,785
27,615

35,258
28,641

27,894
31,999

54.

0

365

236

0

255

150

6,741
16,268

7,500
35,256

BA
0

0

-24

560

10
5

8,825
16,814

8,882
27,568

306

0

10
5

101

BA

107,306

111,140

0

118,821

167,361

174,984
187,566

139,265
166,239

BA
0

Total Federal funds Architect of the Capitol

BA
BA
0

138,866
122,356
11,130
150
10,262

148,042
147,485
11,663

169,114
166,239
12,990

181,400
179,800
13,900

12,249

12,825

13,800

BA
0

11,280
10,262

11,663
12,249

12,990
12,825

13,900
13,800

43,022
42,822

44,684
45,011

49,806
49,315

53,300
52^800

36,186
36,245

36,474
35,944

39,205
36,610

43,100
40,100

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
National Film Preservation Board.Salaries and expenses
503
Appropriation, current
BA
Outlays
0
Collection and distribution of library materials (special foreign currency program)
503
Outlays
0
See footnotes at end of table.




20
5
250
45
0

159

9-8

THE BUDGET FOR FISCAL YEAR 1990

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1989
estimate

1990
estimate

1991
estimate

Legislative Branch—Con.
Library of Congress—Con.
Furniture and furnishings
503
Appropriation, current
Outlays
Civic Achievement Award Program in Honor of the
Office of Speaker of the House of Representatives
801
Appropriation, current
Outlays
Payments to copyright owners
376
Appropriation, permanent, indefinite
Outlays
Oliver Wendell Holmes devise fund
503
Appropriation, permanent, indefinite
Outlays

BA
0

5,816
1,499

3,381
5,513

1,600
4,178

3,280
3,280

BA
0

4,378
6,316

3,300
3,300

BA
0

283,722
62,317

202,000
235,949

205,000
202,009

200,000
200,000

BA
0

3
-1

5
13

5
9

5
9

BA
0

9,203
7,330

7,889
9,662

7,889
8,945

6,927
6,927

Total Federal funds Library of Congress

BA
0

518,895
275,905

446,499
482,573

483,778
476,603

496,605
493,987

Total Trust funds Library of Congress

BA
0

9,203
7,330

7,889
9,662

7,889
8,945

6,927
6,927

935

3,063

Trust funds
Gift and trust fund accounts
Appropriation, permanent, indefinite
Outlays

503

Government Printing Office
Federal funds
General and Special Funds:
Printing and binding
801
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
BA
0

70359
80,565

72,000
72,922

84,900
83,953

87,700
86,700

BA
0

19,162
21,841

13,731
22,871

25,500
23,715

26,200
24,100

-25,134

22,757

13,632

89,521
78,207

85,731
121,613

110,400
121,300

113,900
110,800

329,847
326,316

347339
338,477

385354
380,715

387,107
383,547

0

Total Federal funds Government Printing
Office
BA
0

General Accounting Office
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current
Outlays
See footnotes at end of table.




801
BA
0

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

9-9

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1990
estimate

1989
estimati

1991
estimate

Legislative Branch—Con.
United States Tax Court

Federal funds
General and Special Funds:
Salaries and expenses
752
Appropriation, current
Outlays
Tax courts independent counsel, U.S. Tax Court
752
Appropriation, permanent, indefinite
Outlays

BA
0

27,500
24,246

29345
29,198

28,120
28,120

29,300
29,300

BA
0

353

10
50

10
50

10
50

BA
0

449
96

350
108

386
108

425
108

Trust funds

Tax Court judges survivors annuity fund
Appropriation, permanent, indefinite
Outlays

602

Total Federal funds United States Tax Court.... BA
0
Total Trust funds United States Tax Court

BA
0

27,853
24,246

29355
29,248

28,130
28,170

29,310
29,350

449
96

350
108

386
108

425
108

701
699

741
704

912
866

795
869

790
692

88

10

Other Legislative Branch Agencies
Legislative Branch Boards and
Commissions

Federal funds
General and Special Funds:
Commission on Security and Cooperation in Europe:
Salaries and expenses
801
Appropriation, current
BA
Outlays
0
National Commission on Children
801
Appropriation, current
BA
Outlays
0
International conferences and contingencies: House
and Senate expenses
801
Appropriation, current
BA
Appropriation, permanent
BA..
Outlays
0
Total International conferences and contingencies
BA
0
Botanic Garden: Salaries and expenses
801
Appropriation, current
BA
Outlays
0
Copyright Royalty Tribunal-. Salaries and expenses
376
Appropriation, current
BA
Outlays
0
Prospective Payment Assessment Commission
551
Outlays
0
Physician payment review commission
801
Outlays
0
Railroad Accounting Principles Board: Salaries and
expenses
801
Outlays
0
See footnotes at end of table.




290
290

340
340

340
340

340
340

290
290

340
340

340
340

340
340

2,221
2,091

2,521
2,613

3,161
3,104

3,180
3,178

129
-73

123
208

135
135

135
130

161
-1,487
121

-209
1

9-10

THE BUDGET FOR FISCAL YEAR 1990

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1990
estimate

1989
estimate

1991
estimate

Legislative Branch—Con.
Other Legislative Branch AgenciesCon.
Legislative Branch Boards and
Commissions'—Con*
Commission on Railroad Retirement Reform
Appropriation, current
Outlays
Biomedical Ethics: Salaries and expenses
Appropriation, current

801
BA
0

988
988

801
BA

2,359

2,462

1,768

2,402

1,145
835

2,359
2,020

2,462
2,402

1,033
868

165

3,780
1,973

7,681
7,040

6,907
6,718

6,912
6,929

BA

16,901

17,937

19,655

20,523

0

16,902

17,634

19,176

20,258

BA
0

3
3

4
4

4
4

4
4

0

2

48...

Reappropriation

BA

Outlays

100

0

Total Biomedical Ethics

BA
0

Payment to the Congressional Award Board 801
Appropriation, current
BA
Outlays
0
United States Bipartisan Commission on Comprehensive Health Care
801
Appropriation, current
BA
Outlays
0
Total Federal funds Legislative Branch Boards
and Commissions
BA
0

150

4

904
241

183
652
250

189 .
171

Office of Technology Assessment

federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current

Outlays

801

«
Trust funds

Contributions and donations
Appropriation, permanent, indefinite
Outlays

801

Dwlght David Elsenhower Centennial
Commission

Federal funds
General and Special Funds:
801
Outlays
John C. Stennls Center for Public
Service Training and Development
Federal funds
General and Special Funds:
Payment to the John C. Stennis Center
Appropriation, current
Outlays
See footnotes at end of table.




801
BA
0

7,500..
7,500..

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

9-11

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1989
estimate

1990
estimate

1991
estimate

Legislative Branch—Con.
Other Legislative Branch Agencies—
Con.
John C. Stennls Center for Public
Service Training and DevelopmentCon.
Trust funds

John C. Stennis Center for Public Service Development trust fund
801
Appropriation, permanent, indefinite
BA
Outlays
0

656
656

Total Federal funds Other Legislative Branch
Agencies
BA
0

20,681
18,877

Total Trust funds Other Legislative Branch
Agencies
BA
0

3
3

33,118
32,222
660
660

656
656
26,562
25,894
660
660

656
656
27,435
27,187
660
660

Allowances
Federal funds
General and Special Funds:
Technical adjustment*
801
Appropriation, current
BA
Outlays
0
Adjustment recommended by the President to the
estimates of the Legislative Branch
801
Appropriation, current
BA
Outlays
0
Total Federal funds Allowances

—29,826
-29,826
-318,625
-284,235

-251,573
-266,416

-348,451
-314,061

BA
0

—29,826
-29,826

-281,399
-296,242

*Corrects double counting in data shown above. The Legislative Branch has requested funding for the Senate portion of Capitol Police salaries under
both the Senate account, "Sergeantat Arms andDoorkeeperofthe Senate/'and'the JointItem, "Salaries, Capitol Police."

Summary
Federal funds:
(As shown in detail above)
Deductions for offsetting receipts:
Intrafundtransactions

BA
0

Trust funds:
(As shown in detail above)
Deductions for offsetting receipts:
Proprietaryreceiptsfrom the public
See footnotes at end of table.




2,121,933
2,239,692

2,140,052
2,184,747

QA

-2,197

-2,005

-2,005

BA
0

2,122,119
1,849,552

2,117,728
2,235,487

2,135,311
2,180,006

BA
0

9,655
7,429

8,899
10,430

2,155,081
2,157,342

803 BA
908

Total Federal funds

2,125,505
1,852,938

503 BA

_ ^

_fm

8,935
9,713
_5m

-2,005
2,149,793
2,152,054
8,012
7,695

9-12

THE BUDGET FOR FISCAL YEAR 1990

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1989
estimate

1988
actual

Account and functional code

1990
estimate

1991
estimate

Legislative Branch—Con.
Summary—Con.
908 BA
0
BA
0

Total Trust funds

Interfund transactions

-245

-150

-125

-125

4,632
2,406

3,921
5,452

3,614
4,392

2,737
2,420

2,114,149
2,233,439

2,138,925
2,184,398

2,152,530
2,154,474

15,247
15,181

15,901
15,793

17^13
17,192

17^46
17,228

(14,160)

(14,814)

(16,159)

(16,259)

2,110
2,283

2,131
3,104

5,714
5,017

4,962
5,067

17^57
17,464

18,032
18,897

23,027
22,209

22308
22,295

7,430
7,396

8300
8,267

8,985

8,943

9,115
9,079

(6,222)

(7,092)

(7,775)

(7,905)

801 BA

-7,500

0 '"
Total Legislative Branch....

BA
0

2,126,751
1,851,958

The Judiciary
Supreme Court of the United States

General and Special Funds:
Salaries and expenses
752
Appropriation, current
BA
Outlays
0
Salaries and expenses excluding salaries of
judges
Care of the buildings and grounds
752
Appropriation, current
BA
Outlays
0
Total Federal funds Supreme Court of the
United States
BA
0

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
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

See footnotes at end of table.




7,768
7,709

7,996

8,423
8,411

8,571
8,558

(6,908)

(7,140)

(8,411)

(7,711)

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

9-13

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1989
estimate

1990
estimate

1991
estimate

The Judiciary—Con.
Courts of Appeals, District Courts,
and other Judicial Services
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current

752
BA

1,180,100
"2,800

BA
0

1,353,174

1,369,435

1,175,674
"2,679

7,000
1,341,245
"121

7,000
1,363,957

(988,981)

(1,073,538)

(1,250,567)

(1,226,828)

BA
0

1,081,447
1,091,113

1,182,900
1,178,353

1,360,174
1,341,366

1,376,435
1,363,957

BA
0

85,100
81,951

110,100
100,376

145,135
126,511

149,061
129,810

BA

43,135

50,188

48,082

44,135
"2,465
44,329
"2,349

48,585

0

48,376
"116

49,972

BA
0

Appropriation, permanent, indefinite
Outlays

1,081,447

1,091,113

43,135
48,082

46,600
46,678

48,585
48,492

50,188
49,972

41,423
"1,080
40,549
"765

56,490

58,322

51,054
"315

52,709

42,503
41,314

56,490
51,369

58,322
52,709

56

1

Salaries and expenses excluding salaries of

Defender services
Appropriation, current
Outlays
Fees of jurors and commissioners
Appropriation, current

752

752

Outlays
Total Fees of jurors and commissioners
Furniture and furnishings
Outlays
Court security
Appropriation, current

752
0
BA

36,913

BA
0

Total Court security

40,853

0

Outlays

Special rail reorganization court
Outlays
Registry administration
Appropriation, current, indefinite
Appropriation, permanent, indefinite
Outlays

57

382

752

40,853
36,913

752
0

170

752
BA
BA
0

21,000

21,000
21,000

21,000
21,000

BA
0

Total Registry administration

21,000

21,000
21,000

21,000
21,000

21,000
21,000

1,250,535
1,258,286

1,403,103
1,388,159

1,631,384
1,588,739

1,655,006
1,617,448

31,167
31,654

33,600
33,443

33,600
33,598

33,862
33,692

Total Federal funds Courts of Appeals, District
Courts, and other Judicial Services
BA
0

Administrative Office of the United
States Courts
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current
Outlays
See footnotes at end of table.




752
BA
0

9-14

THE BUDGET FOR FISCAL YEAR 1990

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1989
estimate

1990
estimate

1991
estimate

The Judiciary—Con.
Administrative Office of the United
States Courts—Con.
Study of construction of office building
Outlays

752
0

Total Federal funds Administrative Office of
the United States Courts
BA

13
31,167

33,600

33,600

33,862

0

31,667

33,443

33f598

33,692

BA

10,548

11,200

13,170

13,413

0

10,829

11,144

12,857

13,094

Federal Judicial Center
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current

752

Outlays
Commission for the Judiciary Office
Building

Federal funds
Intragovernmental Funds:
Judiciary office building development and operations
fund
752
Outlays
0

663

Bicentennial Expenses, The Judiciary
Federal funds
General and Special Funds:
Bicentennial activities
Outlays

808
0

234

558

418

Judiciary Retirement Funds
Federal funds
General and Special Funds:
Payment to judicial officers' retirement fund 752
Appropriation, current, indefinite
BA

4,000

5,000

4,000

5,000

4,000
4,000

5,000
5,000

M,000
Outlays

0
H000

Total Payment to judicial officers' retirement

fund
Trust funds
Judicial officers' retirement fund
Appropriation, current
Indefinite
Appropriation, permanent
Indefinite
Outlays
Total Judicial officers' retirement fund

BA
0

4,000
4,000

BA
BA
BA
BA
0

M,000
667

602

667
^ 4,000

4,000
167
4,167

13,000
5,000

See footnotes at end of table.




BA

4,667

4,167

13,000

0

4,667

4,167

5,000

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

9-15

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988

1989

1990
estimate

1991
estimate

The Judiciary—Con.
Judiciary Retirement Funds—Con.
Judicial survivors' annuities fund
Appropriation, permanent, indefinite
Outlays

602
BA
0

13,647
3,669

Total Trust funds Judiciary Retirement Funds... BA
0

23,386
5,231

4,000
4,000

5,000
5,000

23,410
8,941

25,342
8,920

36,386
10,231

-203,312
-171,144

13,647
3,669

21,175
4,753

4,000
4,000

Total Federal funds Judiciary Retirement Funds BA
0

18,743
4,274

-205,520
-191,161

Allowances

Federal funds
General and Special Funds:
Adjustment recommended by the President to the
estimates of the Judiciary
752
Appropriation, current
BA
Outlays
0

Summary
Federal funds:
(As shown in detail above)

BA
0

Interfund transactions

1,486,235
1,473,127

1,519,277
1,508,031

1,541,755
1,518,005

BA
0

Trust funds:
(As shown in detail above)

1,324,805
1,333,585
13,647
3,669

23,410
8,941

25342

8,920

36,386
10,231

-4,000

-4,000

-5,000

1,505,645
1,478,068

1,540,619
1,512,951

1,573,141
1,523,236

752 BA
0

Total The Judiciary

BA
0

1,338,452
1,337,254

Executive Office of the President
Compensation of the President

General and Special Funds:
Compensation of the President
ADorooriation current
Outlays

802
BA
0

250
230

250
250

250
250

250
250

BA
0

26,426
25,374

27,950
27,788

28,639
28,567

28,987
28,951

The White House Office

Federal funds
General and Special Funds:
Salaries and expenses
Appropriation current
Outlays

See footnotes at end of table.




802

THE BUDGET FOR FISCAL YEAR 1990

9-16

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1990
estimate

1989
estimate

1991
estimate

Executive Office of the President—Con.
Executive Residence at the White
House
Federal funds
General and Special Funds:
Operating expenses
Appropriation, current

802
BA

7,403

5,698

6,773

5,816

0

Outlays

5,152

6,531

6,375

6,621

Official Residence of the Vice
President
General and Special Funds:
Operating expenses
Appropriation, current

802
BA

258

258

378

389

0

102

227

310

383

Donations for the Official Residence of the Vice
President
802
Outlays
0

4

Outlays

Trust funds

Special Assistance to the President
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current

802
BA

2,163

2,199

2,335

2,372

0

2,140

2,193

2,314

2,366

BA

2,500

2,787

2,906

2,932

0

Outlays

2,463

2,760

2,895

2,930

826
839

850
849

861
860

861
861

850
849

861
860

861
861

Council of Economic Advisers
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current

802

Outlays

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
Total Federal funds Council on Environmental
Quality and Office of Environmental
Quality
BA
0
See footnotes at end of table.




352

826
1,191

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

9-17

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1989
estimate

1990
estimate

1991
estimate

Executive Office of the President—Con.
Council on Wage and Price Stability
Federal funds
General and Special Funds:
Salaries and expenses
Outlays

802
0

2

Office of Policy Development
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current
Outlays

802
BA
0

3,000
2,979

3,000
2,998

3,079
3,073

3,103
3,101

BA
0

5,000
4,743

5,100
5,080

5,409
5,409

5,474
5,474

National Security Council
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current
Outlays

802

National Critical Materials Council
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current
Outlays

802
BA
0

350
200

225
342

22

Office of Administration
Federal funds
General and Special Funds:
802
Appropriation, current
Outlays

BA
0

16,000
16,479

16,850
16,648

18,325
18,017

18,676
18,602

BA
0

39,000
38,923

39,640
39,587

42,435
42,207

42,831
42,799

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
See footnotes at end of table.




2,300
1,753

41,300
40,676

2,353
2,302

41,993
41,889

2,660
2,591

45,095
44,798

2,680
2,675

45,511
45,474

9-18

THE BUDGET FOR FISCAL YEAR 1990

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1989
estimate

1988
actual

Account and functional code

1990
estimate

1991
estimate

Executive Office of the President—Con.
Office of National Drug Control
Policy
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current
Outlays
Intragovernmental Funds:
Special forfeiture fund
Appropriation, current
Outlays

802
BA..
0 ..

3,500
2,625

3,500
3,500

3,500
3,500

802

150,000
136,000

BA..
0 ..

Total Federal funds Office of National Drug
Control Policy
BA.

3,500
2,625

139,500
3,500

153,500
139,500

2,027
1,851

2,043
2,043

Office of Science and Technology
Policy

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

802
BA
0

1,888
1,911

1,587
1,707

BA

15,229

15,229

Office of the United States Trade
Representative
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current

802
16,546

0

15,221

15,229
14,638

15,229
15,221

16330
16,622

BA

Total Salaries and expenses

14,638

BA
0

Outlays

* 16,830
16,622

2,500
3000

200

90

127,476
127,308

272,407
134,953

16,583
16,546
16,583

White House Conference for a Drug
Free America
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation current
Outlays

551

o

Trust funds
Gifts and donations
Outlays

551
0

_2

Summary
Federal funds:
(As shown in detail above)

BA
121280

See footnotes at end of table.




286,460
273,139

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

9-19

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1989
estimate

1988
actual

Account and functional code

1990
estimate

1991
estimate

Executive Office of the President—Con.
Summary—Con.
Trust funds:
(As shown in detail above)

o

2 .
272,407
134,953

286,460
273,139

1,000
1,000

1,000
1,000

BA
0

5,000
3,000

2,000

BA
0

Total Executive Office of the President...

1,000
1,000

BA
0

125,093
121,282

127,476
127,308

Funds Appropriated to the President
Unanticipated Needs
Federal funds
General and Special Funds:
Unanticipated needs
Appropriation, current
Outlays

802
... BA
0

1,000
1,000

1,000
437

Investment in Management
Improvement
General and Special Funds:
Investment in management improvement:
(Energy information, policy and regulation)
276
(Appropriation, current)
(Outlays)
(Water resources)
(Appropriation, current)
(Outlays)
(Conservation and land management)
(Appropriation, current)
(Outlays)
(Other nautral resources)
(Appropriation, current)
(Outlays)
(Mortgage credit and deposit)
(Appropriation, current)
(Outlays)
(Other advancement of commerce)
(Appropriation, current)
(Outlays)
(Other transportation)
(Appropriation, current)
(Outlays)
(Higher education)
(Appropriation, current)
(Outlays)
(Health care services)
(Appropriation, current)
(Outlays)
(Health care services)
(Appropriation, current)
(Outlays)
(Unemployment compensation)
(Appropriation, current)
(Outlays)
See footnotes at end of table.




301

302
BA
0

,

500
300

200

306
BA
0

1,500
1,500

BA
0

6,600
4,600

2,000

BA
0

3,000
2,250

750

BA
0

3,000
2,500

500

BA
0

3,000
450

1,800

BA
0

5,000
750

3,000

BA
0

2,000
2,000

BA
0

1,000
1,000

371

376

407

502

503

551

603

9-20

THE BUDGET FOR FISCAL YEAR 1990

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1989
estimate

1990
estimate

1991
estimate

Funds Appropriated to the President—Con.
Investment in Management
Improvement—Con.
(Housing assistance)
604
(Appropriation, current)
BA..
(Outlays)
0 ..
(Food and nutrition assistance)
605
(Appropriation, current)
BA..
(Outlays)
0 ..
(Other income security)
609
(Appropriation, current)
BA..
(Outlays)
0 ..
(Social security)
651
(Appropriation, current)
BA..
(Outlays)
0 ..
(Other veterans benefits and services)
705
(Appropriation, current)
BA..
(Outlays)
0 ..
(Federal law enforcement activities)
751
(Appropriation, current)
BA..
(Outlays)
0
(Executive direction and management)
802
(Appropriation, current)
BA..
(Outlays)
0 ..
(Central fiscal operations)
803
(Appropriation, current)
BA..
(Outlays)
0
(General property and records management)
804
(Appropriation, current)
BA..
(Outlays)
0 ..
(Central personnel management)
805
(Appropriation, current)
BA.,
(Outlays)
0

1,000..
500

50
0

1,000..
1,000..
3,000..
3,000..
7,500..
7,500..
7,500..
6,900
2,500..
2,240
1,000..
750

60
0
20
6

250..
3,650..
2,650

1,000

200..
200..
26,000.
26,000..

Total Federal funds Investment in
ment Improvement

BA...
0 ...

1,000
750

83,950..
69,590

12,610

BA..
0 ..

Total Investment in management improvement

1,000
750

83,950..
69,590

12,610

International Security Assistance
Federal funds
General and Special Funds:
Foreign military sales financing
Appropriation, current
Outlays
Limitation on direct loan obligations
Total Foreign military sales financing

See footnotes at end of table.




152
BA
0

BA

4,049,000

4,272,750...

-74,644
(4,049,000)

-922,541
(410,000)

4,049,000
-74,644

4,272,750
-922,541

A

5,109,946
5,027,000
3,791,033

3,900,900

5,027,000
3,791,033

5,109,946
3,900,900

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

9-21

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1989
estimate

1990
estimate

1991
estimate

Funds Appropriated to the President—Con.
International Security Assistance—
Con.
Economic support fund
Appropridtion, current

152
BA

3,188,320

3,258,500..

3,390,360
* 3,331,100

BA

81,045.

14,000

0

Military assistance
Appropriation, current

3,361,153

3,269,365
3,268,907

3,258,500
3,361,153

3349,100
3,467,333

BA

Total Economic support fund

3,268,907

BA
0

Outlays...

* 18,000
3,467,333

700,750

467,000

41,116

607,409

599,248

BA
0

700,750
607,409

467,000
599,248

40,432
499,014

International military education and training 152
Appropriation, current
BA

47,400

Outlays....

Outlays

0

Total International military education and
training
BA

Outlays

47,400..

172,003
41,116
172,003

55^99

48,921

49,857

* 54,500
53,093

47,400
48,921

47,400
49,857

54,500
53,093

31,689

31,689

55,473

55^99
55,473

152
BA
0

Total Peacekeeping operations

3,404,360
3,501,977

152
* 40,432
499,014

Peacekeeping operations
Appropriation, current

3,501,977

BA

36,401
31,689
36,401

33,928

29,397

'33,377
36,238

33,757

31,689
29,397

33,377
36,238

33,928
33,757

Assistance for relocation of facilities in Israel
152
Outlays
0
Public Enterprise Funds:
Guarantee reserve fund
152
Appropriation, current, indefinite
BA
Authority to borrow, current, indefinite
BA..
Authority to borrow, permanent, indefinite
BA..
Outlays
0
Total Guarantee reserve fund

-300

158..

532,000..
594,027.
659,418

599"074

719,545
719,545

523,000
523,000

BA
0

532,000
659,418

594,027
599,074

719,545
719,545

523,000
523,000

BA
0

8,630,204
4,546,112

8,671^66
3,716,346

9,223,954
8,566,256

9,167,749
8,187,110

-70,152

-976,585

Summary
Federal funds:
(As shown in detail above)
Deductions for offsetting receipts:
Proprietary receipts from the public

See footnotes at end of table.




152 BA
0

-150,000

9-22

THE BUDGET FOR FISCAL YEAR 1990

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1989

1990

1991

Funds Appropriated to the President—Con.
International Security Assistance—
Con.
908 BA
0

-365,135

-403,482

-430,620

BA

8,442,153
4,358,061

7,329,646
2,374,626

8,670,472
8,012,774

8,534,139
7,553,500

BA
0

40,176
230,181

50,001
91,388

90,252
31,526

70,126
70,126

BA
0

915,000
620,000

995,000
827,000

965,000
903,000

824,000

0

38,257

9,723..

BA
0

20,300
20,300

4,892
4,892

BA
0
BA
0

58,635..
138,298*
43,057
105,698

BA
0

Total International Security Assistance

-117,899

International Development Assistance
Multilateral Assistance

Federal funds
General and Special Funds:
Contribution to the International Bank for Reconstruction and Development
151
Appropriation, current
Outlays
Contribution to the International Development Association
151
Appropriation, current
Outlays
Contribution to the special facility for Sub-Saharan
Africa
151
Outlays
Contribution to the International Finance Corporation
151
Appropriation, current
Outlays
Contribution to the Inter-American Development
Bank
151
Appropriation, current
Outlays
Contribution to the Asian Development Bank 151
Appropriation, current
Outlays
Contribution to the African Development Fund

114,936..
35,032

40,228

152,392
132,538

120,843..
147,907
230,712
113,738

246,070
117,338

75,000
50,849

105,000
73,483

105,000
84,243

105,000
99,060

8,999

7,345
7,335

10,641
10,651

8,987
8,987

155,612

100,305

151
Appropriation, current
Outlays
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

44,403..
22,202..
1,052,464
131,154
244,648

212,000

226,115..
A

Outlays

0

Total International organizations and programs BA
BA

0
Total Federal funds Multilateral Assistance..

See footnotes at end of table.




BA
0

262,754
244,648
262,754
1,450,218
1,497,538

246,629
226,115
246,629
1,540,745
1,548,600

209,000
235,914
209,000
235,914
1,846^84
1,562,011

230,984
212,000
230,984
1,694,647
1,622,182

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT
BUDGET BY AGENCY AND ACCOUNT

(in thousands of dollars)—Continued
1988
actual

Account and functional code

Funds Appropriated to

9-23

the

1989
estimate

1990
estimate

1991
estimate

President—Con.

International Development
Assistance—Con.
Agency for International Development
Federal funds
General and Special Funds:
Functional development assistance program
Appropriation, current

151
BA

1,141,689

1,175,526

1,209,635
* 1,190,000
"793

Reappropriation

BA

Outlays

0

Total Functional development assistance proBA
gram

0
Sub-Saharan Africa, development assistance
Appropriation, current

BA

26,000

1,473,515

1,272,382

* 39,000
1,271,890
"63

1,246,645
1,473,515

1,234,526
1,272,382

1,229,793
1,271,953

550,000

550,000

1,249,619
"270
1,235,635
1,249,889
574,323

0

30,443

251,760

* 565,000
365^655

550,000
30,443

550,000
251,760

565,000
365,655

574,323
442,524

79,286

0

Total Sub-Saharan Africa, development assistBA
ance

55,104

37,061

24,460

442,524

151
151

•"200,000
' 150,000

BA
0

•"200,000

30,495

151
BA

40,000
33,064

40,418

* 30,000
35,603

40,000
33,064

35,000
40,418

30,000
35,603

28,000

28,000.

•"180,000

35,000.

0

Outlays

Total American schools and hospitals abroad... BA
0
International disaster assistance
Appropriation, current

59,000

151

Outlays..

Sahel development program
Outlays
Special assistance initiatives
Appropriation, current
Outlays
American schools and hospitals abroad
Appropriation, current

104,956

32,043
30,495
32,043

151
BA

25,413
"25,000

Reappropriation..
Outlays

BA
0

167..
34,004

45,376

33^165'

29,421

BA
0

28,167
34,004

28,000
45,376

25,000
33,165

25,413
29,421

Operating expenses Agency for International Development
151
Appropriation, current
B
A

406,000

414,000..

Total International disaster assistance

458,221
"447,684

Outlays...
Total Operating expenses Agency for International Development
See footnotes at end of table.




BA.
0

"367,657

4,000.
405,505

431,939

446^148

406,000
367,657

418,000
405,505

447,684
431,939

458,221
446,148

9-24

THE BUDGET FOR FISCAL YEAR 1990

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
Account and functional code

actual

1990
estimate

estimate

1991
estimate

Funds Appropriated to the President—Con.
International Development
Assistance—Con.
Agency for International
Development—Con.
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

40,532
40,532

23,970

40,147
40,147

28,500

40,107
40,107
32,189

17,696

26,673

*31,194
29,818

23,970
17,696

28,500
26,673

31,194
29,818

32,189
31,249

BA
0

"21,530
"4,306
y
(100,000)

"19,140
"12,440
"(100,000)

BA
0

Outlays

"4,207
"84
"(3,500)
y
(50,000)

6,563
"636

0

Total Operating expenses of the Agency for
International Development Office of Inspector General
BA
Housing guarantee loan subsidies
Appropriation, current
Outlays
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, current

35,132
35,132

31,249

151

151

"(75,000)

151
0

74..

151
BA

25,000

30,000

45,000

BA
0

Total Housing and other credit guaranty programs
BA
0
Private sector revolving fund
Appropriation, current

29,864

(125,000)

Umitation on guaranteed loan commitments

23,865

(125,000)

25,000
23,865

30,000
29,864

6,337

"200
45,000
"200
(100,000)

* 48,000
"850
48,000
"850
(100,000)

"1(-100,000)

Indefinite
Outlays

"(-100,000)

45,200
45,200

48,850
48,850

8,500

151
BA

* 5,000
"-5,000
Reappropriation

BA

Outlays

0

2.186
3,989

(12,000)

Umitation on direct loan obligations

4,350

(12,000)
(50,000)

Limitation on guaranteed loan commitments
Total Private sector revolving fund
See footnotes at end of table.




BA
0

8,523
4,350

8,500..
3,989

-1,345
"350
(3,500)
"(-3,500)
(50,000)
"(-50,000)

-5,416
"-435

(75,000)
"(-75,000)

-995

-5,851

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

9-25

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1989
estimate

1990
estimate

1991
estimate

Funds Appropriated to the President—Con.
International Development
Assistance—Con.
Agency for International
Development—Con.
Development loans-revolving fund
151
Outlays
0
IntragoverniMntal Funds!
Advance acquisition of property-revolving fund
151
Outlays
0

-3

129

Trust funds
Miscellaneous trust funds, AID
Appropriation, permanent indefinite
Outlays

151
BA
0

11,033
17,445

5,000
5,000

5,000
5,000

5,000
5,000

BA
0

2,363,437
2,099,212

2,373,058
2,171,603

2,639,755
2,443,936

2,670,936
2,531,916

QA

-353,110

-350,000

-345,000

BA

1,576,388

1,593,058

1,839,755

1,860,936

0

1,312,163

1,391,603

1,643,936

1,721,916

11,033
17,445

5,000
5,000

5,000
5,000

5,000
5,000

Summary
Federal funds:
(As shown in detail above)
Deductions for offsetting receipts.Proprietary receipts from the public

151 BA
908

Total Federal funds

Trust funds:
(As shown in detail above)

BA
0

Deductions for offsetting receipts.Proprietary receipts from the public

-340,000

151 BA

Total Trust funds

0

Total Agency for International Development

6,412

BA

1,576,388

1,593,058

1^39,755

1,860,936

0

1,318,575

1,391,603

1,643,936

1,721,916

25,000

25,000

Trade and Development Program

Federal funds
General and Special Funds:
Trade and development program
Appropriation, current

151
BA

25,413

Total Trade and development program

See footnotes at end of table.




0

19,872

21,342

BA

25,000

25,000

25,000

25,413

0

Outlays

* 25,000
22,978

19,872

21,342

22,978

26,475

26,475

9-26

THE BUDGET FOR FISCAL YEAR 1990

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1989
estimate

1990
estimate

1991
estimate

Funds Appropriated to the President—Con.
International Development
Assistance—Con.
Peace Corps

Federal funds
General and Special Funds:
Peace Corps
Appropriation, current

151
BA

146,200

153,500

K

166,314

0

155,155

BA

Total Peace Corps

146,125
146,200

153,500

163,614

166,314

0

Outlays

163,614
163,359

146,125

155,155

163,359

165,756

165,756

Trust funds
Peace Corps miscellaneous trust funds
Appropriation, permanent, indefinite
Outlays

151
BA
0

326
306

300
300

300
300

300
300

Overseas Private Investment
uorporauon

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

0

(23,000)

(200,000)

Limitation on guaranteed loan commitments

-107,783

(23,000)

Umitation on program level (obligations)
Limitation on direct loan obligations

-110,388

(175,000)

"30,555
" 11,337
" (17,264)
" (177,713)

-110,238
"-606

-118,656
*-3,625

(3,000)
(17,000)

(3,000)
(17,264)

"(-17,000)

Outlays

"28,343
" 1,971
" (17,000)
" (175,000)

"(-17,264)

(175,000)

(177,713)

"(-175,000) "(-177,713)
Total Overseas Private Investment Corporation. 0

-110,388

-107,783

-110,844
28,343

30,555

-110,388

-107,783

-108,873

-110,944

13,000
15,628

16,600
13,652

16,932
15,614

17,211
17,423

Total Federal funds Overseas Private Investment Corporation
BA

0

-122,281

rounosuon

Public Enterprise Funds:
Inter-American Foundation
Appropriation, current
Outlays

151
BA
0

Trust funds
Gifts and contributions, Inter-American Foundation
151
Appropriation, permanent, indefinite
BA
Outlays
0
See footnotes at end of table.




THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

9-27

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1989
estimate

1988
actual

Account and functional code

1991
estimate

1990

Funds Appropriated to the President—Con.
International Development
Assistance—Con.
Afrtcsn Dov0loptn0tit Foundation
Federal funds
General and Special Funds:
African Development Foundation
Appropriation, current

151
BA

Total African Development Foundation

BA
0

Total Federal funds International Development
Assistance
BA
Total Trust funds International Development
Assistance
BA
0

8,000..

6,846

Outlays

7,000

7,665

'9,000
8,420

'9,149
8,843

7,000
6,846

8,000
7,665

9,000
8,420

9,149
8,843

3,217,806
2,887,784

3336,903
3,030,234

3,929,028
3,307,445

3,804,225
3,451,651

330
6,721

300
307

300
300

300
300

•"150,000
'3,000

'5,000

International Monetary Programs
Federal funds
General and Special Funds:
United States quota, International Monetary
Fund
155
Outlays
Maintenance of value adjustments, International
Monetary Fund
155
Appropriation, permanent, indefinite
Enhanced structural adjustment facility
155
Appropriation, current
Outlays

0

-136,042..

BA

795,615..

BA
0

Total Federal funds International Monetary
Programs
BA
0

150,000..
3,000

795,615...
-136,042...

5,000

Military Sales Programs
Federal funds
Public Enterprise Funds:
Special defense acquisition fund
Outlays
Limitation on program level (obligations)

155
13,379
(236,865)

-27,922
(236,865)

-57,186
(325,000)

-59,541
(325,000)

8,128,932
(8,964,275)
9,057,318

8,012,000
(8,594,000)
8,719,000

7,830,000
(8,330,000)
8,450,000

7,195,000
(7,855,000)
7,963,000

13,379

-27,922

-57,186

-59,541

8,128,932
9,057,318

8,012,000
8,719,000

7,830,000
8,450,000

7,195,000
7,963,000

Trust funds
Foreign military sales trust fund
155
Contract authority, permanent, indefinite
B
A
Liquidation of contract authority, permanent
Outlays
0
Summary
Federal funds:
(As shown in detail above)
Trust funds:
(As shown in detail above)
See footnotes at end of table.




BA
0

THE BUDGET FOR FISCAL YEAR

9-28

1990

BUDGET BY AGENCY AND ACCOUNT (in thousands <3f dollars)—Continued
1988
actual

A*Hunt and functional code
c

Funds

1990
estimate

1989
estimate

1991
estimate

Appropriated to thePresident—Con.
>

Military Sales Programs—Con.
Deductions for offsetting receipts:
Proprietary receipts from the public

155 BA

-8,964,275

-8,594,000

-8,330,000

-7,855,000

Total Trust funds

BA
0

-835,343
93,043

-582,000
125,000

—500,000

Total Military Sales Programs

B
A
0

835^43
106,422

—582,000
97,078

500,000
62,814

-660,000
48,459

BA
0

27,700
12,301

BA
0

7,128
16,531

270

432

1,568

34,828
29,264

36,340
73,409

13,466,502
8,127,983

12,826,609
7,573,817

14,187,932
12,690,105

13,782,974
12,407,830

-433,939

-430,000

-455,000

-470,000

-70,152

-976,585

-150,000

-202,990

-471,009

-715,135

-748,482

-770,620

BA
0

12,491,402
7,152,883

10,704,889
5,452,097

12,834,450
11,336,623

12^39,364
10,964,220

BA
0

8,140,295
9,075,072

8,017,300
8,724,307

7,83530
8,455,300

7,200,300
7,968,300

-11,033

-5,000

-5,000

-5,000

woo

Special Assistance for Central
America
General and Special Funds:
Central American reconciliation assistance
Reappropriation
Outlays
Assistance to the Nicaraguan democratic
ance
Appropriation, current
Outlays
Promotion of security and stability in Central
ica
Outlays

152
36,340.
71,571

resist054

Amer153
0

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

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
151 BA
0
152 BA
0
908 BA
0

151 BA
0

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

9-29

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1989
estimate

1990
estimate

1991
estimate

-8,330,000

-7,855,000

Funds Appropriated to the President—Con.
Summary—Con.
155 BA
0

-8,964,275

-8,594,000

Total Trust funds

BA
0

-835,013
99,764

-581,700
125,307

-499,700
120,300

-659,700
108,300

Total Funds Appropriated to the President

BA
0

11,656389
7,252,647

10,123,189
5,577,404

12334750
11,456,923

11,679,664
11,072,520

Department of Agriculture
Office of the Secretary
Federal funds
General and Special Funds:
Office of the Secretary
Appropriation, current
Outlays

352
BA
0

5,710
4,434

5,953
5,953

6,115
6,094

6,272
6,272

BA
0

1,585
41

2328
4,004

50
50

50
50

BA
0

24,916
23,010

25,922
29,959

27,054
26,863

28,180
28,180

BA
0

2,000
708

5,000
6,087

25,688
25,471

25,688
25,688

BA
0

68,969
66,449

70,764
70,764

74,268
74,271

74^78
74,378

BA
0

1308
951

1,494
1,494

1,494
1,494

1,494
1,494

BA
0

5,708
1,455

4,708
10,416

3,750
3,750

1,001

Total Federal funds Departmental Administration
BA
0

102,901
92,573

107,888
118,720

132,254
131,849

129,740
130,741

8,673
8,520

8,859
8,859

9,068
9,077

9,219
9,219

Trust funds
Gifts and bequests
Appropriation, permanent, indefinite
Outlays

352

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
Intragovernmental Funds:
Working capital fund
Appropriation, current
Outlays

352

304
352
352

352

Office of Governmental and Public
Affairs
Federal funds
General and Special Funds:
Office of Governmental and Public Affairs
Appropriation, current
Outlays
See footnotes at end of table.




352
BA
0

9-30

THE BUDGET FOR FISCAL YEAR 1990

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1989
estimate

1990
estimate

1991
estimate

Department of Agriculture—Con.
Office of the Inspector General
Federal funds
General and Special Funds:
Office of the Inspector General
Appropriation, current
Outlays

352
BA
0

48,795
48,609

50,510
50,510

52,530
52,148

53,871
53,871

BA
0

18,734
18,543

20,836
20,836

22,340
22,340

21,966
21,966

BA
0

540,684
514,155

563381
550,459

581,118
583,004

592,237
592,237

BA
BA
0

15,300

18,500

18,500

23,113

5,390
10,631
30,127

16,105

18,500

BA
0

15,300
23,113

16,021
30,127

18,500
16,105

18,500
18,500

5,000
5,000

5,000
5,000

5,000
5,000

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
Reappropriation
Outlays

352

352

Total Buildings and facilities

Trust funds
Miscellaneous contributed funds
Appropriation, permanent, indefinite
Outlays

352
BA
0

3,509
3,123

Total Federal funds Agricultural Research
Service
BA
0

555,984
537,268

579,402
580,586

599,618
599,109

610,737
610,737

Total Trust funds Agricultural Research Service
BA
0

3,509
3,123

5,000
5,000

5,000
5,000

5,000
5,000

BA
BA
0

349,169
2,850
301,775

338,067
2,850
342,485

295,398

295,685

376,592

348,553

BA
0

352,019
301,775

340,917
342,485

295,398
376,592

295,685
348,553

Cooperative State Research Service
Federal funds
General and Special Funds:
Cooperative State Research Service
Appropriation, current
Appropriation, permanent
Outlays
Total Cooperative State Research Service

See footnotes at end of table.




352

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

9-31

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1989
estimate

1990
estimate

1991
estimate

Department of Agriculture—Con.
Extension Service
Federal funds
General and Special Funds:
Extension Service
Appropriation, current

352
BA

357,963

361,370

324,840

325,167

0

317,529

352,982

326,955

330,135

BA
0

12,194
12,359

13,268
13,519

14,947
14,719

15,165
15,165

BA
0

Outlays

61,176
57,801

63,588
63,089

71,038
70,026

66,310
66,310

National Agricultural Library
General and Special Funds:
National Agricultural Library

352

Appropriation, current
Outlays
National Agricultural Statistics
Service
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current
Outlays

352

Trust funds
Miscellaneous contributed funds
Appropriation, permanent, indefinite

352
BA
0

165
275

200
200

200
200

200
200

Economic Research Service
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current
Outlays

352
BA
0

48,186
47,153

49,336
49,030

51,714
50,702

53,308
53,308

Trust funds
Miscellaneous contributed funds
Appropriation, permanent, indefinite
Outlays....

352
BA
0

91
63

200
200

200
200

200
200

BA

1,730

1,820

2,045

2,102

0

1,747

1,799

2,027

2,102

98,620
98,509

99,769
99,769

World Agricultural Outlook Board
Federal funds
General and Special Funds:
World agricultural outlook board
Appropriation, current

352

Outlays
Foreign Agricultural Service
Federal funds
General and Special Funds:
Foreign Agricultural Service
Appropriation, current
Outlays
See footnotes at end of table.




352
BA
0

92,217
84,354

95,417
93,466

9-32

THE BUDGET FOR FISCAL YEAR 1990

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1989
estimate

1990
estimate

1991
estimate

Department of Agriculture—Con.
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

5,295
14,587

5,319
5,319

4,983
4,983

5,074
5,074

1,500
3,563

1,000
1,000

400

121

3,213
5,186

3,935
3,935

3,935
3,935

3,935
3,935

6,319
6,319

4,983
5,383

5,074
5,195

3,935
3,935

3,935
3,935

3,935
3,935

1,059,596

1,098,100

1,059,596

1,098,100

930,945
" -739,530
930,945
"-739,530

1,056,000
"-736,371
1,056,000
"-736,371

1,059,596
1,059,596

1,098,100
1,098,100

191,415
191,415

319,629
319,629

"531,864
" 531,864

"519,847
" 519,847

723,279
723,279

839,476
839,476

Trust funds
Miscellaneous contributed funds
Appropriation, permanent, indefinite
Outlays

352
BA
0

Total Federal funds Office of International Cooperation and Development
BA
0
Total Trust funds Office of International Cooperation and Development
BA
0

6,795
18,150
3,213
5,186

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
Public law 480 loan subsidies
Appropriation, current
Outlays

151
BA
0

Total Federal funds Foreign Assistance Programs
BA
0

1,059,596
1,059,596

1,098,100
1,098,100

Agricultural Stabilization and
Conservation Service
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current
Outlays
Rural clean water program
Outlays
Agricultural conservation program
Appropriation, current
Outlays
See footnotes at end of table.




351
BA
0

223
-12,671

345
3,635

304
0

5,207

4,990

4,558

3,033

176,935
202,741

176,935
166,283

8,000
103,513

8,000
90,843

302
BA
0

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

9-33

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1990
estimate

1989
estimate

1988
actual

Account and functional code

1991

Department of Agriculture—Con.
Agricultural Stabilization and
Conservation Service—Con.
Colorado river basin salinity control program
Appropriation, current
Outlays
Conservation reserve program
Appropriation, current
Outlays
Water Bank program
Appropriation, current

304
BA
0

5,452
5,037

10,420
10,046

10,420
10,177

BA
0

1,085,760
291,477

1302,539
1,651,966

1^02,000
1,771,212

1,663,961
1,944,310

BA

8371

0

8,744

9,808

'8371
7,841
'787

'8371
6,796
'8,371

BA
0

8371
8,744

8371
8,628

8371
15,167

BA
0

1,000
4,763

5,000..
7,742

BA
0

95
545

5..
971

BA
0

11391

12,446..
11,471

302

302

Outlays
Total Water Bank program
Emergency conservation program
Appropriation, current
Outlays
Dairy indemnity program
Appropriation, current
Outlays
Forestry incentives program
Appropriation, current
Outlays

4,904
3,568

453
9,045.,

351

302

Total Federal funds Agricultural Stabilization
and Conservation Service
BA
0

12,373

3,669

1,289,179
516,747

2,011,722
1,861,903

1328,791
1,916,014

1,690,752
2,067,199

BA
0

200,000
188,163

201,992
195,669

225,626
214,754

276,681
253,195

BA
0

228,523
222^375

112,000
1,049,142

162,939
370,764

203317
303,370

428,523
410,538

313,992
1,244,811

388365
585,518

479,998
556,565

"797,950
"797,950

"706,650
"706,650

Federal Crop Insurance Corporation
Federal funds
General and Special Funds:
Administrative and operating expenses
Appropriation, current
Outlays
Public Enterprise Funds:
Federal Crop Insurance Corporation fund
Appropriation, current
Outlays

351

351

Total Federal funds Federal Crop Insurance
Corporation
BA

Commodity Credit Corporation
Federal funds
General and Special Funds:
Commodity Credit Corporation export loan guarantee
subsidies
351
Appropriation, current
Outlays
Temporary emergency food assistance program
351
Appropriation, current
Outlays
See footnotes at end of table.




BA
0

BA
0

50,000
49,172

170,000
178,208
(170,000)

120,000..
131,850..
(120,000)..

9-34

THE BUDGET FOR FISCAL YEAR 1990

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1990
estimate

1989
estimate

1991

Department of Agriculture—Con.
Commodity Credit Corporation—Con.
Public Enterprise Funds:
Commodity Credit Corporation Fund
Appropriation, permanent, indefinite
Authority to borrow, current

351
BA
BA

152,130

4,527

10,929,150
(7,333,612)
12,174,834

15,099398

88,509
-1,100,000
* 34,580
12,727,779

97,817
-1,900,000
" -56,412
12,794,538

13,894,812

11,785,725
'-1,100,000
"34,580

12,892,355
'-1,900,000
"-56,412

(7,157)

(7,200)

(7,630)

(7,630)

BA
0

11,081,280
12,174,834

15,103,925
13,894,812

11,750,868
10,720,305

10,935,943
10,935,943

Total Federal funds Commodity Credit Corporation
BA
0

11,131,280
12,224,006

15,273,925
14,073,020

12,668,818
11,650,105

11,642,593
11,642,593

30,862
31,757

29,773
29,880

"78,106
"11,075
"(1,365,000)

"16^88
"20,076
"(1,365,000)

"19,163
"1,150
"(125,000)

"10,138
"4,633
"(125,000)

1,329
1,404

1331
1,390

Authority to borrow, permanent
Liquidation of contract authority, current
Outlays

BA
0

Limitation on administrative expenses and direct
loans
Total Commodity Credit Corporation Fund

Office of Rural Development Policy
Federal funds
General and Special Funds:
Salaries and expenses
Outlays

452
2

0

Rural Electrification Administration
Federal funds
General and Special Funds:
271
Appropriation, current
BA
Outlays
0
Reimbursement to the Rural electrification and telephone revolving fund for interest subsidies
and losses
271
Appropriation, current
BA
Outlays
0
Purchase of Rural Telephone Bank capital stock
452
Appropriation, current
BA
Outlays
0
Rural electrification and telephone revolving fund
loan subsidies
271
Appropriation, current
BA
Outlays
0
Limitation on guaranteed loan commitments
Rural telephone bank loan subsidies
452
Appropriation, current
BA
Outlays
0
Limitation on direct loan obligations
Public Enterprise Funds:
Rural communication development fund
452
Appropriation, current
BA
Outlays
0
See footnotes at end of table.




30,868
27,505

31,284
32,985

327,675
327,675

341,000..
341000

28,710
28,710

1,309
1,052

28,710
28,710...,

1,447
1,416

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

9-35

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1989
estimate

1988
actual

Account and functional code

1990
estimate

1991
estimate

Department of Agriculture—Con.
Rural Electrification AdministrationCon.
Rural

electrification and telephone
fund
Appropriation, current.
Authority to borrow permanent
Outlays

revolving
271
BA .
BA
906,272
0
-2,093,290

540
1,114,751
-226,230

(1,590,133)

(1,794,375)

Limitation on direct loan obligations
Limitation on guaranteed loan commitments

156,497
'-273,126

'(1,365,000) '(1,365,000)
" ( - 1 , 3 6 5 , 0 0 0 ) " (-1,365,000)

Total Rural electrification and telephone reBA
volving fund
0
Rural telephone bank
Appropriation current indefinite
Authority to borrow permanent indefinite

410,305
'-511,791
"477

906,272
-2,093,290

1,115,291
-226,230

-101,009

-116,629

88,101

'-57,911
57,911

'2,054
51,368
"-53,422
39,575
'2,054
"-32,338
(125,000)
"(-125,000)

452
BA
BA

0

Outlays

Limitation on direct loan obligations

-117,024

(80,139)

41,218
'-76,411
" -7,208
(125,000)
(177,045)
"(-125,000)
16,063

B
A
0

-117,024

88,101
16,063

-42,401

9,291

Total Federal funds Rural Electrification Administration
BA
0

1,294,834
-1,825,372

1,605,833
193,944

129,460
-98,024

57,630
-51,359

BA
0

408,441
397,427

415,517
411,933

418,334
414,700

420,520
416,900

BA
0

109,395
136,054

109395
151,441

75,000
128,323

75,000
113,638

BA
0

3,091
2,840

3,091
2,970

2,150

310

BA
0

9,513
7,488

9,513
12,636

5,000
12,636

5,000
10,242

BA
0

"38,600
"1,863
"(200,000)
"(195,700)

"41,190
"10,648
"(200,000)
"(195,700)

BA
0

"98,370
"43,128
"(100,000)

"94,410
"79,717
"(100,000)

Total Rural telephone bank

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
Rural housing insurance fund loan subsidies 371
Appropriation, current
Outlays
Limitation on direct loan obligations
See footnotes at end of table.
240-000 O - 1989 - 14 QL 3




9-36

THE BUDGET FOR FISCAL YEAR 1990

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1991
estimate

1990
estimate

1989

Department of Agriculture—Con.
Farmers Home Administration—Con.
Rural development loan fund loan subsidies
452
Appropriation, current
Outlays
Limitation on direct loan obligations
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
Rural housing preservation grants
604
Appropriation, current
Outlays
Rural development grant program
452
Appropriation, current
Outlays
Agricultural credit insurance fund loan subsidies

BA
0

v

BA
0

8,000
6,938

BA
0

12,500
12,674

BA..
0

8,000..
6,483

"9,440
"944
(14,000)

v

"9,064
"4,211
(14,000)

8,720

5,126

12,500
12,218

10,000
10,125

10,000
10,000

14,845

15,677

360,000
34,689

405,000
89,013

BA
0

713
258

500
500

250
250

250
250

BA
0

19,140

19,140
19,851

15,000
19,504

15,000
16,905

BA
0

6,500
520

2,490

939

"312,180
"236,968
"(700,000)
v
(3,000,000)

"274,600
"263,105
"(500,000)
"(3,000,000)

6,500..
9,500

351
Appropriation, current
BA
Outlays
0
Limitation on direct loan obligations
Limitation on guaranteed loan commitments
Public Enterprise Funds:
Agricultural credit insurance fund
351
Appropriation, current
BA
Authority to borrow, permanent, indefinite
BA
Outlays
0

3,605,153
1,152,128
2,617,671

Limitation on administrative expenses...
Limitation on direct loan obligations

(16,515)
(1,049,337)

Limitation on guaranteed loan commitments

(1,254,879)

Total Agricultural credit insurance fund
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

BA
0

See footnotes at end of table.




5,088,067
1,275,085

6,297,225
1,156,715

84

-23

2,677,897
218,945

2,761,899
244,285

1,595,394
'-1,692,000
*_8,000

1,311,563
' 140,400
"-46,000

(100,000)
"(-100,000)

(100,000)
"(-100,000)

2,896,842
-104,606

3,006,184
1,405,963

7,224,841
3,435,238

371
0

6
(500)

58
(500)...

371

BA
0

2,964,249
149,587
3,479,998
3,611,339

3,660,061
182,428
527,905
3,294,690

(275,310)
(1,844,990)

BA
BA
BA
0

Limitation on administrative expenses
Limitation on direct loan obligations
Total Rural housing insurance fund

4,757,281
2,617,671

4,462,159
6,297,225
625,908..
1,958,425
"i~627~508
"-683,340
"-470,793
(100,000)
(75,000)
(100,000)
(500,000)
(700,000)
(1,617,156)
'(-700,000) "(—500,000)
(3,000,000)
(3,000,000)
(2,777,000)
v
{ -3,000,000) "(-3,000,000)
3,467,596
3,757,245
3,435,238

(290,310)
(1,844,990)

6,593,834
3,611,339

4,370,394
3,294,690

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

9-37

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1989
estimate

1990
estimate

1991
estimate

Department of Agriculture—Con.
Farmers Home Administration—Con.
Rural development insurance fund
452
Appropriation, current
BA
Authority to borrow, permanent, indefinite
BA
Outlays
0

Limitation on direct loan obligations

(426,080)

Limitation on guaranteed loan commitments

(95,700)

Total Rural development insurance fund
Rural development loan fund
Appropriation, current

835,182
2,460,361
449,808

1,596,047

1,474,499

1,166,654

595,803

902,367
788,578
/ _ 74,097
'-72,732
w_ 7 f 6 7 5
* _ 51,635
(426,080)
(200,000)
(200,000)
"(-200,000) "(-200,000)
(295,700)
(195,700)
(195,700)
"(-195,700) "(-195,700)

BA
0

3,295,543
449,808

1,596,047
595,803

1,474,499
820,595

1,166,654
664,211

BA

7,500

11,000

12,000
"-14,000
13,772
w_ 1,400
(14,000)
"(-14,000)

12,091
"-14,000
13,876
"-6,230
(14,000)
"(-14,000)

11,000
10,030

-2,000
12,372

-1,909
7,646

15,231,451
7,276,960

13,786,438
7,979,028

10,799,582
2,920,020

11,818,188
4,255,516

444,391
449,699

465,368
475,291

474,750
477,069

485,397
485,397

7,830
7,945

8,022
8,022

452

Outlays

0

Limitation on direct loan obligations

212
(14,000)

Total Rural development loan fund

BA
0

Total Federal funds Farmers Home Administration
BA
0

7,500
212

10,030
(14,000)

Soil Conservation Service
Federal funds
General and Special Funds:
Conservation operations
Appropriation, current
Outlays
Watershed planning
Appropriation, current
Outlays
River basin surveys & investigations
Appropriation, current
Outlays
Watershed and flood prevention operations
Appropriation, current
Outlays
Great plains conservation program
Appropriation, current
Outlays
Resource conservation and development
Appropriation, current
Outlays

302
BA
0
301
BA
0

8,651
8,515

8,651
8,846

301
BA
0

12,051
9,439

12,051
13,348

9,600
9,747

9,810
9,810

BA
0

175,873
184,698

172,373
181,780

96,100
155,997

97,611
119,303

BA
0

20,474
20,823

20,474
20,979

18,623
21,593

18,824
21,721

BA
0

25,120
27,147

25,120
26,826

24,487
24,873

24,959
26,420

301

302

302

Trust funds
Miscellaneous contributed funds:
(Water resources)
(Appropriation, permanent, indefinite)
(Outlays)
See footnotes at end of table.




301
BA
0

211
1,044

460
1,825

460
1,595

460
1,822

9-38

THE BUDGET FOR FISCAL YEAR 1990

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1989
estimate

1990
estimate

1991
estimate

Department of Agriculture—Con.
Soil Conservation Service—Con.
(Conservation and land management)
(Appropriation, permanent, indefinite)
(Outlays)

302
BA
0

Total Miscellaneous contributed funds

BA

0
Total Federal funds Soil Conservation Service... BA

0
Total Trust funds Soil Conservation Service

BA

0

100
100

100
100

100
100

100
100

311

560

560

560

1,144

1,925

1,695

1,922

686,560

704,037

631,390

644,623

700,321

727,070

697,224

670,673

311

560

560

560

1,144

1,925

1,695

1,922

Animal and Plant Health Inspection
Service
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current

352
BA

Outlays

0

Total Salaries and expenses

329,330
330,682

331,207
331,207

332,756

J

— 68,056

3

-68,056

34M27

314,179

J

— 68,056

J

314,179

-68,056

Buildings and facilities
Appropriation, current
Outlays

BA

329,330

331,207

264,700

246,123

0

330,682

331,207

278,371

246,123

352
BA
0

2,246
4,011

2,546
4,400

15,172
12,554

3,672
3,672

BA
0

5,039
5,309

5,000
5,000

5,000
5,000

5,000
5,000

Total Federal funds Animal and Plant Health
Inspection Service
BA
0

331,576
334,693

333,753
335,607

279,872
290,925

249,795
249,795

Total Trust funds Animal and Plant Health
Inspection Service
BA

Trust funds
Miscellaneous trust funds
Appropriation, permanent, indefinite
Outlays

352

5,039

5,000

5,000

5,000

0

5,309

5,000

5,000

5,000

BA
0

7,020
7,239

8,115
8,115

8,255
8,255

8,472
8,472

7,020

8,115

8,255

8,472

2,293

8,115

8,255

8,472

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

352
0

Total Federal funds Federal Grain Inspection
Service
BA

0
See footnotes at end of table.




-4,946

THE

FEDERAL PROGRAM BY AGENCY AND ACCOUNT

9-39

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1989
estimate

1990
estimate

1991
estimate

Department of Agriculture—Con.
Agricultural Marketing Service

Federal funds
General and Special Funds:
Marketing services
Appropriation, current

352
BA

Outlays

0

Total Marketing services

BA
0

Payments to States and possessions
352
Appropriation, current
BA
Outlays
0
Perishable Agricultural Commodities Act fund
352
Appropriation, permanent, indefinite
BA
Outlays
0
Funds for strengthening markets, income, and
supply (section 32)
605
Appropriation, permanent, indefinite
BA
Outlays
0
Total

Funds for strengthening markets,
income, and supply (section 32)
BA
0

32,409
36,635
32,409
36,635
942
776

33,373
40,361
33,373
40,361
942
1,164

32,242
^-4,246
39,469
J
-4,246

J

J

27,996
35,223

34,780
-4,246
34,780
-4,246
30,534
30,534

795

5,676
4,500

5,500
5,500

5,500
5,500

366,742
382,040

405,873
382,240

522,746
363,247
' _ 6,685

5,500
5,500

J

363,547
363,547
- 8,007

366,742
382,040

405,873
382,240

522,746
356,562

363,547
355,540

82,473
88,831

85,979
63,088

85,979
85,979

85,979
85,979

Trust funds
Miscellaneous trust funds
Appropriation, permanent, indefinite
Outlays
Milk market orders assessment fund
Outlays

352
BA
0
351
0

3,282

Total Federal funds Agricultural Marketing
Service
BA
0

405,769
423,951

445,688
429,265

556,242
398,080

399,581
391,574

Total Trust funds Agricultural Marketing Service
BA
0

82,473
88,831

85,979
66,370

85,979
85,979

85,979
85,979

BA
0

2,397
2,489

2,397
2,397

BA
0

392,009
389,757

404,954
404,954

Office of Transportation
Federal funds
General and Special Funds:
Office of Transportation
Appropriation, current
Outlays

352
1,395
1,581

1,539
1,539

Food Safety and Inspection Service
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current
Outlays
See footnotes at end of table.




554
422,799
422,799

431,898
431,898

9-40

THE BUDGET FOR FISCAL YEAR 1990

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1989
estimate

1990
estimate

1991
estimate

Department of Agriculture—Con.
Food Safety and Inspection
Service—Con.
Trust funds
Expenses and refunds, inspection and grading of
farm products
352
Appropriation, permanent, indefinite
BA
Outlays
0

1,043
1,129

1,050
1,050

1,150
1,150

1,150
1,150

Food and Nutrition Service
Federal funds
General and Special Funds:
Food program administration
Appropriation, current
Outlays
Food stamp program
Appropriation, current

605
BA
0

85,828
84,831

89,223
88,954

96,830
96,357

88,423
94,558

BA

12,638,880

12,690,705

13,263,485
' -79,921

13,817,419
' -90,663

0

12,264,964

12,867,642

12,780,781
'_70,147

13,809,551
' -89,349

BA
0

12,638,880
12,264,964

12,690,705
12,867,642

13,183,564
12,710,634

13,726,756
13,720,202

BA
0

879,250
880,261

908,250
908,010

825,000
825,166

825,000
825,000

BA

21,500

19,925

0

18,342

23,626
'-3,583

20,449
'-19,749
22,113
'-15,943

22,823
' -21,481
23,202
'-21,110

BA
0

21,500
18,342

19,925
20,043

BA

679,826

BA
0

3,817,803
4,286,242

497,544
'-80,348
4,093,272
4,697,508
'-68,793

693,426
'-935,334
4,156,554
4,989,036
'-811,331

1,249,484
'-1,003,356
4,156,554
5,348,584
'-995,167

BA
0

4,497,629
4,286,242

4,510,468
4,628,715

3,914,646
4,177,705

4,402,682
4,353,417

BA
0

1,852,363
1,852,446

1,979,362
2,000,883

2,023,390
2,021,235

2,087,637
2,083,500

BA
0

194,108
193,937

239,147
243,023
(40,000)

246,510
245,302
(40,000)

244,475
243,497
(32,000)

Total Federal funds Food and Nutrition Service BA
0

20,169,558
19,581,023

20,437,080
20,757,270

20,290,640
20,082,569

21,376,315
21,322,266

605

Outlays
Total Food stamp program

Nutrition assistance for Puerto Rico
Appropriation, current
Outlays
Special milk program
Appropriation, current

605

605

Outlays
Total Special milk program
Child nutrition programs
Appropriation, current

Total Child nutrition programs

See footnotes at end of table.




1,342
2,092

605

Appropriation, permanent
Outlays

Supplemental feeding programs
Appropriation, current
Outlays
Cash and commodities for selected groups
Appropriation, current
Outlays

700
6,170

605

605

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

9-41

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1989
estimate

1990
estimate

1991
estimate

Department of Agriculture—Con.
Human Nutrition Information Service
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current
Outlays

352
BA
0

8,623
10,621

8,823
8,910

9,468
9,200

9,598
9,598

BA
0

9,402
9,240

9,562
9,562

9,562
9,633

10,150
10,150

BA
0

4,611
4,517

4,655
4,655

2,303
2,968

2,533
2,533

1,329,488
250,000

1,265,614

1,290,331

' -258,139

' -262,361

1,246,116

1,287,043

'-180,697

'-261,799

Packers and Stockyards
Administration
Federal funds
General and Special Funds:
Packers and Stockyards Administration
Appropriation, current
Outlays

352

Agricultural Cooperative Service
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current
Outlays

352

Forest Service
Federal funds
General and Special Funds:
National forest system
Appropriation, current

302
BA

1,239,991

A

Reappropriation, indefinite
Outlays

BA
0

Total National forest system
Construction
Appropriation, current
Outlays
Forest research
Appropriation, current
Outlays
State and private forestry
Appropriation, current
Outlays
Federal wildland firefighting
Appropriation, current
Outlays
Other appropriations
Appropriation, current
Outlays
See footnotes at end of table.




964,476

9,117
1,316,512
* 250,000

BA
0

1,239,991
964,476

1,588,605
1,566,512

1,007,475
1,065,419

1,027,970
1,025,244

BA
0

214,078
243,214

225,518
213,563

221,000
219,941

224,020
223,348

BA
0

132,510
135,758

137,867
129,347

133,799
134,816

136,306
135,686

BA
0

79,869
74,430

86,668
91,225

48,606
53,567

49,070
48,948

'281,992
'197,394

'286,214
'285,653

302

302

302

302
BA
0
302
BA
0

37,000
- 4 8

35,999
26,363

9,764

9-42

THE BUDGET FOR FISCAL YEAR

1990

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1990
estimate

1989
estimate

1991
estimate

Department of Agriculture—Con.
Forest Service—Con.
Operation and maintenance of recreation facilities
303
Appropriation, current
BA.

9,000
'7,500
7,200
'6,000
16,500
13,200

Outlays...
Total Operation and maintenance of recreation
facilities
BA..
0 ...
Range betterment fund
302
Appropriation, current, indefinite
BA
Outlays
0
Land acquisition
303
Appropriation, current
BA
Outlays
0
Acquisition of lands for national forests, special
acts
302
Appropriation, current
BA
Outlays
0
Acquisition of lands to complete land exchanges
302
Appropriation, current, indefinite
BA
Outlays
0
Operations and maintenance of quarters
302
Appropriation, permanent, indefinite
BA
Outlays
0
General and Special Funds:
Resource management-timber receipts
302
Appropriation, permanent, indefinite
BA..
Outlays
0 ..
Forest Service permanent appropriations
302
Appropriation, current, indefinite
BA..
Appropriation, permanent, indefinite
BA
Outlays
0

9,000
'7,500
9,000
'7,500

16,500
16,500

3,605
3,330

3,946
4,265

4,700
4,646

4,700
4,700

49,076
63,339

64,205
49,392

5,554
39,656

5,641
11,454

966
247

966
966

1,068
1,058

1,068
1,068

385
92

335
408

1,070
989

1,070
1,070

5,610
4,976

5,805

5,852
5,856

5,852
5,852

73,125.
58,500

14,625.,

84,007
145,201

-40,000..
112,294
130,341

140,747
128,228

140,747
140,747

84,007
145,201

72,294
130,341

140,747
128,228

140,747
140,747

BA
BA
0

300,761
305,025

355,954
343,919

'-64,254
362,133
359,830
'-46,699

'-63,521
371,910
371,910
'-63,718

Total Forest Service permanent appropriations. BA
0

300,761
305,025

355,954
343,919

297,879
313,131

308,389
308J92

30,000
30,000

30,000
30,517

30,000
30,000

Total Forest Service permanent appropriations. BA
0
Forest Service permanent appropriations
Appropriation, current, indefinite
Appropriation, permanent, indefinite
Outlays

Intragovernmental Funds:
Working capital fund
Outlays

806

302
7,716

Trust funds
Reforestation trust fund
Appropriation, permanent, indefinite
Outlays
See footnotes at end of table.




302
BA
0

30,907
33,434

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

9-43

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1989
estimate

1990
estimate

1991

Department of Agriculture—Con.
Forest Service—Con.
Cooperative work trust fund
Appropriation, current, indefinite
Appropriation, permanent, indefinite
Outlays
Total Cooperative work trust fund

302
296,334
706,753

250,000
267,748
265,037

315,117
308,067

315,117
315,117

BA
0

296,334
706,753

517,748
265,037

315,117
308,067

315,117
315,117

3
36

30
30

30
30

30
30

Gifts, donations and bequests for forest and rangeland research
302
Appropriation, current
BA
Outlays
0
Highway Construction: Mount St. Helens National
Monument
401
Contract authority, current
BA
Liquidation of contract authority, current

Outlays

A

BA
BA
0

5,333.
(5,333)..

0

4,596..
2,651,351
2,620,606
553,111
299,075

2,166,242
2,202,290
345,147
343,210

2,207,547
2,208,462

BA
0

2,147,858
1,947,756
327,244
740,223

BA
0

56,273,323
44,619,951

60,805,908
53,467,372

52,002,173
43,587,966

53,565,073
46,370,293

-1,070,200

-1,171,234

-1,091,103

Total Federal funds Forest Service

BA
0

Total Trust funds Forest Service

345,147
345,147

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).
Deductions for offsetting receipts:
Proprietary receipts from the public

302 BA
0
BA
0
303 BA
0 "
BA
0

-107,043

-9,000
'-7,500

-9,000
1

-7,500

55,203,123
43,549,751

59,626,603
52,288,067

50,812,553
42,398,346

52,336,401
45,141,621

BA
0

424,673
845,324

657,363
386,759

447,221
446,419

447,221
448,583

302 BA
0
352 BA
0
BA
0

Total Department of Agriculture..

BA
0




-8,071

-82,017

-1,105,129
J

BA
0

Total Trust funds

See footnotes at end of table.

J

-296,334

-517,748

-315,117

-315,117

-95,844

-101,924

-102,024

-102,024

32,495
453,146
55,235,618
44,002,897

37,691
-232,913
59,664,294
52,055,154

30,080
29,278
50,842,633
42,427,624

30,080
31,442
52,366,481
45,173,063

9-44

THE BUDGET FOR FISCAL YEAR 1990

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
Account and functional code

actual

1990
estimate

estimate

1991

Department of Commerce
General Administration
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current
Outlays
Office of the Inspector General
Appropriation, current
Outlays
Special foreign currency program
Outlays
Grants and loans administration
Appropriation, current
Outlays
Economic development assistance programs
Appropriation, current

376
BA
0

40,404
37,888

39,204
44,096

29,009
28,519

29,466
29,606

14,341
13,739

14,496
14,289

452
BA.
0 .
376
0

122

284

BA
0

24,742
23,986

24,742
23,943

20,000
20,579

9,400
10,693

BA

182,028

0

210,614

167,087
^-444

115,103
*-444

(187,500)

182,028
-1,431
198,295
^ —143
(187,500)

182,028
210,614

180597
198,152

166,643

114,659

-21,200

-4,000

-5,000

391
372
244,433
215,264

200
200
245,743
239,567

200
200
63,350
225,480

200
200
53,362
164,247

391
372

200
200

200
200

200
200

452

452

Outlays
Limitation on guaranteed loan commitments

Total Economic development assistance proBA
grams...
0
Miscellaneous appropriations-.
(Other advancement of commerce)
(Appropriation, current)
(Area and regional development)
(Outlays)
(Disaster relief and insurance)
(Outlays)
(Training and employment)
(Outlays)

A

376
BA

-1,541

452
0

84

0

400...

-46..

453
504
0
BA
0

Total Miscellaneous appropriations
Public Enterprise Funds:
Economic development revolving fund

5

100

1,541
4
3

50
0

452
-63,444

Intragovemmental Funds:
Working capital fund
Outlays

376
-153

Trust funds
Gifts and bequests
Appropriation, permanent, indefinite
Outlays

376
BA
0

Total Federal funds General Administration

BA

Total Trust funds General Administration

BA
0

See footnotes at end of table.




THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

9-45

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1989
estimate

1990
estimate

1991
estimate

Department of Commerce—Con.
Bureau of the Census

Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current
Outlays
Periodic censuses and programs
Appropriation, current
Reappropriation
Outlays

376
BA
0

94,835
82,649

96,035
114,579

116,635
114,369

120,381
119,969

BA
BA
0

346,444

1,380,579

311,364

249,960

517,304
42,012
557,008

1,472,244

291,484

Total Periodic censuses and programs

BA
0

346,444
249,960

559,316
557,008

1,380,579
1,472,244

311,364
291,484

Total Federal funds Bureau of the Census

BA
0

441,279
332,609

655,351
671,587

1,497,214
1,586,613

431,745
411,453

BA
0

32,079
32,438

32,899
32,759

32,861
32,865

33,163
33,130

72

70

174,591
176,533

175,586
174,989

376

Economic and Statistical Analysis

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

376

Economic Development Assistance
Regional Development Program

Federal funds
General and Special Funds:
Regional development programs
Outlays

452
0

Promotion of Industry and
Commerce
International Trade Administration

Federal funds
General and Special Funds:
Operations and administration
Appropriation, current
Outlays
Participation in United States expositions
Outlays

376
BA
0

161,432
160,922

167,502
166,784

376
0

Total Federal funds International Trade Administration
BA
0

- 1

405

161,432
160,921

167,502
167,189

174,591
176,533

175,586
174,989

37,465
26,902

40,106
35,923

42,284
41,515

43,419
42,871

Export Administration

Federal funds
General and Special Funds:
Operations and administration
Appropriation, current
Outlays
See footnotes at end of table.




376
BA
0

9-46

THE BUDGET FOR FISCAL YEAR 1990

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1989
estimate

1988
actual

Account and functional code

1990
estimate

1991

Department of Commerce—Con.
Promotion of Industry and
Commerce—Con.
Minority Business Development
Agency

Federal funds
General and Special Funds:
Minority business development
Appropriation, current
Outlays

376
BA
0

39,705
40,346

39,705..
33,691..

BA
0

11,724
11,954

13,800..
11,837

Total Federal funds Promotion of Industry and
Commerce
BA
0

250,326
240,123

1,154,412

United States Travel and Tourism
Administration

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

376
3,052

1,035

261,113
248,640

216,875
221,100

219,005
218,895

1,257,252
'2,500

887,424

1,092,614

'41,992
145,724
1,142,653
'5,425
'28,555

'41,992
1,181,220
'1,085
'39,053

1,075,140
1,176,633

1,134,606
1,221,358

Science and Technology
National Oceanic and Atmospheric
Administration

Federal funds
General and Special Funds:
Operations, research, and facilities
Appropriation, current

306
B
A

K

Outlays....

Total Operations, research, and facilities

1,191,064

BA
0

1,241,561
'14,756

1,154,412
1,191,064

1,259,752
1,256,317

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

-47,022
56,337
5,800

Total Promote and develop fishery products
and research pertaining to American
fisheries
BA
0

9,315
5,800

See footnotes at end of table.




156

170..

2,625
138

3,000..
3,474

-48,600
53,688
12,945

5,088..
12,945

2,763

-53,700
53,700
6,840

-53,700
53,700
2,205

6,840

2,205

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

9-47

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1991
estimate

1990
Account and functional code

estimate

actual

Department of Commerce—Con.
Science and Technology—Con.
National Oceanic and Atmospheric
Administration—Con.
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
v

BA.,
0

82
6

92
7

BA
0

719
724

BA
0

1,919
1,482

0

o
0

1
9
4,722
14
7

719
692

1,000
1,000
750
748

1,000
1,000
750
750

1,919
2,810

2,000
2,024

2,000
2,000

-5,200

-5,200

-5,400

-5,400

-169
-5,800
86
0

Trust funds
Aviation weather services program
Appropriation, current
Outlays

306
BA
0

28,291
28,291

28,717
28,717

30,000
30,000

30,000
30,000

Total Federal funds National Oceanic and Atmospheric Administration
BA
0

1,168,990
1,195,659

1,270,478
1,272,217

1,078,890
1,179,408

1,138,356
1,216,713

Total Trust funds National Oceanic and Atmospheric Administration
BA
0

28,291
28,291

28,717
28,717

30,000
30,000

30,000
30,000

120,000
95,164

109,000
134,974

101,912
105,102

86,026
93,174

Patent and Trademark Office
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current
Outlays

376
BA
0

Technology Administration
Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current

376
BA..

K

BA..
0 ..

4,183

4,100
3,526

Outlays..,
Total Salaries and expenses

4,196
4,100
3,526

4,196
4,183

50,000
50,000

53,000
53,000

Trust funds
Information products and services
Appropriation, permanent, indefinite
Outlays
See footnotes at end of table.




376
BA
0

41,849
43,278

47,000
47,000

9-48

THE BUDGET FOR FISCAL YEAR 1990

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1989
estimate

1990
estimate

1991
estimate

Department of Commerce—Con.
Science and Technology—Con.
National Institute of Standards and
Technology

Federal funds
General and Special Funds:
Scientific and technical research and services
376
Appropriation, current
Outlays
Intragovemmental Funds:
Working capital fund
Appropriation, current

BA
0

140,788
129,071

BA

157,491
159,406

3,995

152,179
153,116

155,600
155,056

376

Outlays

1,509

0

-10,258

2,752

BA
0

3,995
-10,258

1,509
2,752

Total Federal funds National Institute of
Standards and Technology
BA
0

144,783
118,813

159,000
162,158

13,814

2,522
*3,430
2,469

2,976

3,430
2,469

2,522
2,976

155,609
155,585

158,122
158,032

13,630

Total Working capital fund

National Telecommunications and
Information Administration

Federal funds
General and Special Funds:
Salaries and expenses
Appropriation, current

376
BA

14,713

0

14,311

14,595

* 14,554
14,380

BA
0

13,814
14,311

13,630
14,595

14,554
14,380

14,713
14,866

Public telecommunications facilities, planning and
construction
503
Appropriation, current
BA
Outlays
0

21,290
20,185

20,000
23,654

22,463

10,523

Total Federal funds National Telecommunications and Information Administration
BA
0

35,104
34,496

33,630
38,249

14,554
36,843

14,713
25,389

Outlays
Total Salaries and expenses

14,866

Total Federal funds Science and Technology

BA
0

1,468,877
1,444,132

1,572,108
1,607,598

1,355,065
1,480,464

1,401,413
1,497,491

Total Trust funds Science and Technology

BA
0

70,140
71,569

75,717
75,717

80,000
80,000

83,000
83,000

BA
0

2,436,994
2,264,638

2,767,214
2,800,221

3,165,365
3,546,522

2,138,688
2,325,216

_m

_m

Summary
Federal funds:
(As shown in detail above)
Deductions for offsetting receipts-.
Intrafund transactions
Proprietary receipts from the public
See footnotes at end of table.




908 BA
306 B
A

_
_

l m

i

m

_

m 8

_26m

_m
_27W

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

9-49

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1989
estimate

1990
estimate

1991
estimate

Department of Commerce—Con.
Summary—Con.
376

Total Federal funds

QA

-8,129

-16,555

-15,885

BA
0

2,420,827
2,248,471

2,729,857
2,762,864

3,121,476
3,502,633

2,095,006
2,281,534

BA
0

70,531
71,941

75,917
75,917

80,200
80,200

83,200
83,200

BA
0

32,507
33,917

35,777
35,777

34,880
34,880

35,150
35,150

376 BA

_3g25

_6gfi0

_4g60

_4950

BA
0

2,449,509
2,278,563

2,758,774
2,791,781

3,151,496
3,532,653

2,125,206
2,311,734

Trust funds:
(As shown in detail above)
Deductions for offsetting receipts:
Proprietary receipts from the public

376 BA

Total Trust funds
Interfund transactions

Total Department of Commerce

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
See footnotes at end of table.




051
BA
0

23,918,252
23,849,142

24,525,037
24,545,500

24,997,600
24,916,200

"25,702,300
"25,646,800

BA
0

18,237,199
18,438,594

19,021,360
18,710,800

19,439,800
19,334,600

"20,019,900
"19,921,900

BA
0

5,557,442
5,590,626

5,719,198
5,698,200

5,818,900
5,795,500

"5,984,100
"5,970,100

BA
0

20,009,860
19,764,080

20,200,155
20,244,100

20,431,200
20,321,400

"20,781,100
"20,687,400

BA
0

2,240,740
2,176,958

2,211,800
2,223,900

2,261,400
2,225,900

"2,378,200
"2,338,500

BA
0

1,512,963
1,489,169

1,590,269
1,572,700

1,583,100
1,570,700

"1,649,900
"1,635,900

BA
0

295,411
276,843

315,100
316,800

319,200
312,200

"337,700
"330,600

BA
0

615,081
597,116

654,444
647,100

668,700
660,500

"696,300
"686,200

BA
0

3,209,299
3,169,808

3,299,100
3,259,100

3,277,700
3,210,700

"3,422,100
"3,338,500

051

051

051

051

051

051

051

051

9-50

THE BUDGET FOR FISCAL YEAR 1990

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1989
estimate

1990
estimate

1991
estimate

Department of Defense—Military—Con.
Military Personnel—Con.
National Guard personnel, Air Force
Appropriation, current
Outlays

051
BA
0

1,029,591
1,011,200

1,047,000
1,029,000

"1,087,900
" 1,069,100

BA
0

76,584,436
76,336,847

78,566,054
78,229,400

79,844,600
79,376,700

82,059,500
81,625,000

BA

Total Federal funds Military Personnel

988,189
984,511

21,157,664

22,390,128

Operation and Maintenance
Federal funds
General and Special Funds:
Operation and maintenance, Army
Appropriation, current

051

0

21,157,664
22,205,610

22,390,128
22,358,300

24,262,500
23,323,400

24,135,975

25,233,432

25,551,200
24,610,900

"27,626,000

0

25,529,575

25,410,700

^26,364,300
25,755,800

BA
0

24,135,975
25,529,575

25,233,432
25,410,700

26,364,300
25,755,800

BA

Total Operation and maintenance, Navy

1,800,488

1,819,334

"26,826,700
27,626,000
26,826,700

051
"1,802,500
K

Outlays

0

Total Operation and maintenance, Marine
Corps
BA
0
Operation and maintenance, Air Force
Appropriation, current

" 24,610,900

051

Outlays

Operation and maintenance, Marine Corps
Appropriation, current

22,358,300

BA

Total Operation and maintenance, Army

22,205,610

BA
0

Outlays

Operation and maintenance, Navy
Appropriation, current

"25,551,200
* 24,262,500
23,323,400

1,860,392

1,840,800

1,745,100
1,728,300

1,800,488
1,860,392

1,819,334
1,840,800

1,745,100
1,728,300

20,080,585

21,911,918

"1,782,900
1,802,500
1,782,900

051
BA

"23,869,600
K

0

Total Operation and maintenance, Air Force

20,826,988

21,616,200

BA
0

20,080,585
20,826,988

21,911,918
21,616,200

23,265,200
22,714,500

BA

Outlays

23,265,200
22,714,500

7,270,377

7,709,179

"23,452,900
23,869,600
23,452,900

Operation and maintenance, Defense agencies
051
Appropriation, current
Outlays

0

Total Operation and maintenance, Defense
agencies
BA
0
Office of the Inspector General
Appropriation, current
Outlays
See footnotes at end of table.




A

"8,408,100

7,373,066

7,408,000

8,085,000
7,887,600

7,270,377
7,373,066

7,709,179
7,408,000

8,085,000
7,887,600

8,408,100
8,205,300

95,800
71,900

"97,600
" 90,400

"8,205,300

051
BA
0

THE FEDERAL PROGRAM BY AGENCY AND ACCOUNT

9-51

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1989
estimate

1990
estimate

1991
estimate

Department of Defense—Military—Con.
Operation and Maintenance—Con.
Operation and maintenance, Army Reserve
Appropriation, current

051
BA

879,685

792,600

"907,600
A

Outlays

0

Total Operation and maintenance, Army Reserve
BA
0
Operation and maintenance, Navy Reserve
Appropriation, current

800,301

807,500

867,100
828,200

879,685
800,301

792,600
807,500

867,100
828,200

929,896

976,425

"868,800
907,600
868,800

051
BA

"1,014,100

902,336

936,900

*984,400
935,700

Total Operation and maintenance, Navy Reserve
BA
0

929,896
902,336

976,425
936,900

984,400
935,700

Operation and maintenance, Marine Corps Reserve
051
Appropriation, current
BA

69,500

77,631

Outlays

0

0

Total Operation and maintenance, Marine
Corps Reserve
BA
0

1,014,100
964,200

"79,400
K

Outlays

"964,200

65,807

72,900

77,400
74,800

69,500
65,807

77,631
72,900

77,400
74,800

1,000,981

1,031,540

" 76,400
79,400
76,400

Operation and maintenance, Air Force Reserve
051
Appropriation, current

BA

Outlays

0

Total Operation and maintenance, Air Force
Reserve
BA
0
Operation and maintenance,
Guard
Appropriation, current

Army

"1,043,100

974,439

1,053,600

* 1,007,400
1,004,100

1,000,981
974,439

1,031,540
1,053,600

1,007,400
1,004,100

1,881,542

1,796,100

" 1,022,200
1,043,100
1,022,200

National
051
BA

"1,904,500
K

Outlays

0

Total Operation and maintenance, Army National Guard
BA
0

1,752,958

1,751,000

1,873,200
1,811,500

1,881,542
1,752,958

1,796,100
1,751,000

1,873,200
1,811,500

1,958,063

1,967,640

" 1,840,400
1,904,500
1,840,400

Operation and maintenance, Air National Guard
051
Appropriation, current

BA

"2,184,900
K

Outlays

0

Total Operation and maintenance, Air National
Guard
BA
0

See footnotes at end of table.




1,951,029

1,980,000

2,055,800
2,018,000

1,958,063
1,951,029

1,967,640
1,980,000

2,055,800
2,018,000

"2,130,200

2,184,900
2,130,200

9-52

THE BUDGET FOR FISCAL YEAR 1990

BUDGET BY AGENCY AND ACCOUNT (in thousands of dollars)—Continued
1988
actual

Account and functional code

1989
estimate

1990
estimate

1991
estimate

Department of Defense—Military—Con.
Operation and Maintenance—Con.
National Board for the Promotion of Rifle Practice,
Army
051
Appropriation, current
BA
Outlays

0

Total National Board for the Promotion of
Rifle Practice, Army
BA
0
Claims, Defense
Appropriation, current
Outlays
Court of Military Appeals, Defense
Appropriation, current

4,099

4,300

"5,600

3,423

4,200

*4,700
4,400

4,099
3,423

4,300
4,200

4,700
4,400

195,174
188,889

4,100

"5,200
5,600
5,200

051
BA
0
051
BA

3,241

3,500

"4,200

0

Drug interdiction, Defense
Appropriation, current
Outlays
Goodwill games
Appropriation, current

3,300

BA

3,241

3,500

4,000

4,200

3,212

3,300

3,800

4,100

BA
0

210,000
135,000

80,100

"44,100

BA

5,000

0

2,200

9,200

" 7,700

BA
0

Total Court of Military Appeals, Defense

3,212

0

Outlays

*4,000
3,800

5,000
2,200

15,000
9,200

7,700

"4,100

051

051
* 15,000

Outlays
Total Goodwill games
DoD Base closure account
Appropriation, current

051
BA

"500,000
K

0
BA

Total DoD Base closure account

Foreign currency fluctuations, Defense
Reappropriation
Summer Olympics
Outlays
Tenth