Full text of Budget of the United States Government : Fiscal Year 1993 : Part One. Agenda for Growth and Priorities for the Future

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1. The Budget Message
of the President

Part One-1

1. THE BUDGET MESSAGE OF THE
PRESIDENT
To the Congress of the United States:
I am pleased to present the Budget of
the United States Government for Fiscal Year
1993.
In the State of the Union message, which
I delivered yesterday, I presented to the
Congress and the Nation a comprehensive
agenda for economic growth. I stated that
we must not only get the economy moving
again in the short term, but also set America
firmly on the path toward long-term economic
growth and competitiveness.
I emphasized in that message the importance of: stimulating the investment necessary
to create jobs, addressing problems related
to real estate and health care, improving
America's capacity to compete in a global
economy, eliminating unnecessary Federal regulation, and accomplishing these objectives
in a way that brings the deficit under

control. I outlined specific incentives for investment, savings, and homeownership; tax relief
for families; investments in the future; and
proposals for reform in areas ranging from
health to education.
This document translates the agenda for
growth into a set of specific budget and
policy recommendations. These are summarized in the Introduction and presented in
detail in the chapters and appendices which
follow.
I have asked the Congress to lay aside
partisanship and to join me in enacting
this growth agenda promptly. To that end,
I pledge my full cooperation.
GEORGE BUSH
THE WHITE HOUSE

January 29, 1992

Part One-3

2. Director's Introduction
(and Overview Tables)

Part One-5

2. DIRECTOR'S INTRODUCTION
(AND OVERVIEW TABLES)
HOPES, FEARS, AND FALLIBLE
FORECASTS
A year ago, the Budget was published
in a context of major uncertainty. Iraq's
invasion of Kuwait had destabilized the Middle
East. That caused obvious problems for the
American economy, which was already experiencing sluggish growth. The allied military
counter-offensive had begun. But the outcome
was not yet clear. Understandably, the mood
was somber.
In the intervening year, the international
situation improved dramatically. Kuwait was
liberated. A proud and grateful nation welcomed its returning troops with near-euphoric
celebration. Comprehensive Mideast peace
talks commenced. Imperial Communism and
the Soviet Union were disbanded. And clearly,
market-oriented democracy has been on the
rise.
Yet, here at home, the euphoria of summer
has been displaced by another winters gloom.
The domestic economy has not recovered
in the manner that had been widely forecast.
The economy turned up, as predicted, in
the middle of the year. When the Wall
Street Journal published its mid-year survey,
39 of 40 private sector forecasters predicted
positive real GNP growth—an average of
2.4 percent—for the second half of 1991.
Thirty-eight of 40 predicted positive growth
for the first half of 1992. But the recovery
faltered. Economists scurried to reestimate.
The sputtering economy seemed to support
the cautionary note in last year's Introduction:
"macroeconomics is a highly fallible 'science';
macroeconomists are often closer to each
other than to reality."

By several conventional statistical measures,
the economy is not as weak as in some
previous recessions. But confidence is remarkably low. And although the unemployment
rate is not as high as in some earlier
periods, its level is unacceptable.
Many current problems are different from
those associated with traditional business
cycles. In general, there has not been an
excessive inventory build-up. Rather, it is
the accumulation of public and private debt
that has been viewed generally as excessive.
The financial sector has been under unusual
stress. The real estate sector has been depressed. Much of the service sector (as well
as white collar employment within the manufacturing sector) is in the process of restructuring. Such problems have been felt across
a wider geographic and socio-economic range
than was characteristic of earlier "blue collar"
(or "rust belt") recessions. A more generalized
sense of worry has developed among "middle
class" workers and families.
For these reasons, and for all the conventional reasons, the current context requires
a strong program and prompt action to get
the economy moving again. But the character
of the underlying problems makes clear: There
must be more than just a short-term program.
What is required is a comprehensive program
to address not only the short-term, but also
the long.
The President has advanced such a comprehensive program—to renew confidence, and
to secure American growth in a competitive
global economy. This Budget reflects that
program.

Part One-7

Part One-lO

THE PRESIDENT'S
COMPREHENSIVE AGENDA FOR
ECONOMIC GROWTH
In his State of the Union Address, the
President has highlighted his agenda for
growth.
Because unemployment remains high, the
President has proposed a further extension
of Unemployment Insurance Extended Benefits. But such benefits are obviously not
a satisfactory substitute for a program to
restore, expand, and secure jobs.
The President's agenda for job-creating
growth is comprised of both short-term measures to get the economy moving and longerterm measures to secure American growth
for the future.
The short-term agenda for growth includes
the following:
(1) Executive Actions: to strengthen economic activity in areas where the executive branch can proceed without depending upon Congressional action,
• a reduction of excessive personal income
tax withholding by an average of $345 per
year (joint return) for those taxpayers who
wish to have this burden reduced;
• continued acceleration of previously appropriated federal spending;
• prudent execution of measures to reduce
the "credit crunch";
• reinvigorated action to reduce the burden
of regulation; and
• management of monetary policy (through
the Federal Reserve) on a basis that yields
both lower interest rates and low inflation;
(2) New Investment Incentives: to stimulate job-creating investment (see Chapter
22),
• a capital gains incentive that reduces the
tax on long-term gains to 15.4 percent
(also important for the long term);

THE BUDGET FOR FISCAL YEAR 1993

(3) New Real Estate Incentives: to increase home sales and real estate values
(see Chapter 22),
• a new $5,000 tax credit for first-time
home-buyers;
• a modified "passive loss rule" for active
real estate investors;
• penalty-free IRA withdrawal for first-time
home-buyers;
• extension of tax preferences for mortgage
revenue bonds and low-income housing;
• allowance of deductions for losses on personal residences—
• all in addition to the favorable effects of
a capital gains incentive.
This set of short-term initiatives unquestionably would help get the economy moving.
But to strengthen growth for the intermediate
and longer term, as well, a serious agenda
must be more complex and comprehensive.
The list of necessary initiatives is long,
and its reach is broad. A narrower focus
simply will not get the long-term job done.
The President's comprehensive agenda for
growth involves both reform and restructuring.
In addition to short-term measures, it includes
such initiatives as the following:
(4) Investment in the Future: to shift
public expenditures toward investment in
the future and to improve private productivity,
• record investment in federal research and
development ($76.6 billion) and in federal
support of both basic research and applied
civilian R&D (see Table 6-2 and Chapter
6)—along with permanent extension of the
R&D tax credit (see Chapter 22);
• record investment in Head Start ($2.8 billion)—for the first time covering all participating eligible 4-year-olds;

• a new 15% Investment Tax Allowance;

• record investment in children (over $100
billion) and in preventive health (see Tables 5-3 and 5-1 and Chapter 5);

• simplified and liberalized treatment of depreciation under the Alternative Minimum
Tax;

• record investment in Education generally,
and in Math and Science Education (see
Chapter 4);

2. DIRECTOR'S INTRODUCTION (AND OVERVIEW TABLES)

• record investment in combatting crime and
drug abuse (see Chapter 9);
• record investment in infrastructure (see
Chapter 7);
• "Job Training 2000", to improve the delivery and effectiveness of job training and
vocational education programs (see Chapter 4);
• major expansion of 'Weed and Seed" ($500
million—see Chapter 8) linking law enforcement and social services—and linking
these, in turn, with:
• Enterprise Zones—to bring entrepreneurship and opportunity to areas of "hard
core" distress (see Chapter 8);
(5) International Market Expansion: to
expand opportunities for American exports in a regime of free and fair trade,
• GATT negotiations;

Part One- 9

(8) Budget Discipline: to bring the
growth of the federal budget and deficit
under control (and to reduce the drain
on savings),
• a freeze on federal domestic discretionary
budget authority; and a cut in total discretionary budget authority;
• complete elimination of 246 programs and
over 4000 projects whose funding is not
sufficiently justified (see Chapter 16);
• a freeze on federal domestic government
employment, and a cut of total federal personnel by nearly 4 percent (see Table 2-8).
• in response to changes in the external
threat, an orderly and carefully-planned
further reduction in defense spending of
$50.4 billion by 1997—making the total
real defense cut 29 percent since 1989.

• negotiations to establish a North American
Free Trade Agreement;

• an enforceable cap on the growth of
unfinanced "mandatory" spending (see
below and Chapter 18);

• the President's Enterprise for the Americas Initiative; and

• a cap on cumulative subsidies of hidden
liabilities (see Chapter 18);

• continued bilateral efforts to open markets
for U.S. exports.

• extension and refinement of the caps, accounting improvements, and pay-as-you-go
discipline of the Budget Enforcement Act
(see Chapter 18);

(6) Pro-family Incentives: to ease the financial burdens of raising a family and
saving for the future (see Chapter 22),
• a new Flexible IRA—with penalty-free
withdrawal for medical and educational
expenses (in addition to first-time purchase of a home), and with tax- free withdrawal after 7 years;
• tax deductibility of interest paid on student loans;
• an increase in the personal income tax exemption of $500 per child (i.e., $2,000 per
year for a family with four children)—as
well as:
(7) Health Reform: to increase the affordability and security of health insurance for all, while making the high-quality American health system cost-effective
and economically sustainable,
• The President's Plan for Comprehensive
Health Reform (outlined further below);

• initiatives for Management Improvement
(see Chapter 15);
• all in addition to the most important deficit-reduction measure: enactment of the
rest of the President's agenda for growth.
Most of the elements of the President's
growth agenda noted above are new. In
addition, there are major reform proposals
still before the Congress awaiting action.
The fact that the Congress has not yet
acted on these does not make them any
less important for long-term growth. They
are, indeed, essential.
Among the comprehensive reforms still
awaiting Congressional action are those to
reform education, modernize the financial
services sector, increase productivity, and reduce energy vulnerability:

Part One-lO
(9) America 2000: to revolutionize American education, strengthen accountability,
and improve performance—through a nation-wide reform movement and such federal programmatic initiatives as New
American
Schools
and
Educational
Choice (see Chapter 4);
(10) Financial Service Sector Reform: including deposit insurance reform, interstate banking, and provisions for integrating financial services (see Chapter

12);

THE BUDGET FOR FISCAL YEAR 1993

(11) Legal Reform: including tort reform,
product liability reform, malpractice reform, and civil justice reform; and
(12) The President's National Energy
Strategy: which received heightened, if
fleeting, interest after the Iraqi invasion;
and which, like the other major areas of
unfinished business, continues to await
Congressional action. For convenient reference, this outline of the President's
Agenda for Growth is presented as Chart
2-1.

CHART 2-1. THE PRESIDENT'S GROWTH AGENDA
Immediate Agenda:
(1) Executive Actions
• Withholding adjustment
• Regulatory relief
• Spending acceleration
• Monetary policy
(2) Investment Incentives
• Capital gains
• 15% Investment Tax Allowance
• Modified AMT
(3) Real Estate Incentives
• $5,000 tax credit (first home)
• Modified Passive Loss Rule
• Penalty-free IRA Withdrawal
• Mortgage revenue bonds
• Low-income housing credit
• Loss deduction for personal residences
• Capital gains
Intermediate and Long-Term Agenda:
(4) Investment in the Future
• R&D (record level)
• Infrastructure (record level)
• Head Start/Children (record level)
• Prevention (record level)
• Education (record level)
• Math & Science Initiative
• Anti-crime/drug abuse (record level)
• Job Training 2000
• Weed & Seed
• Enterprise Zones
(5) International Market Expansion
• GATT
• North American FTA
• Enterprise for the Americas
• Continued bilaterals

(6) Pro-family Incentives
• Flexible IRA
—Penalty-free withdrawal for health/
educatioryYirst home purchase
• Student loan interest deduction
• Personal exemption increase
• Health reform
(7) Comprehensive Health Reform
• The President's Plan
• Health Insurance Market Reform:
—Pooling
—Guaranteed issue/coverage
—Health Insurance Networks
• Health Insurance Tax Credit/Deduction
• Cost-effectivenes^containment measures
• Coordinated care incentives
• Prevention
(8) Budget Discipline
• Orderly cut in Defense
• Domestic discretionary freeze
• Personnel freeze
• Program and project eliminations
• Mandatory cap and subsidy cap
• BEA extension
• Management initiatives
Unfinished Reform Agenda (still before the Congress):
(9) America 2000 (Education Reform)
• New American Schools
• Choice
• National Goal^/America 2000 Communities
(10) Financial Sector Reform
(11) Legal Reform
• Tort reform
• Malpractice reform
• Civil justice reform
(12) National Energy Strategy

2. DIRECTOR'S INTRODUCTION (AND OVERVIEW TABLES)

OF DEBT AND DISCIPLINERESTRAINING DEFICIT
GROWTH
Almost all would agree with the proposition
that economic growth should be increased.
Most would also agree with a second proposition: that growth of the federal deficit
should not be increased—indeed, that deficit
growth should be restrained and then reversed.
Fortunately, these two propositions need
not be in conflict. A responsible growth
program can have a powerfully favorable
effect on the deficit. And a responsible deficit
reduction program can have a favorable effect
on growth. The two popular propositions
can complement and reenforce each other.
That might be thought of as good news.
It might suggest that if the political system
were to reflect these two propositions, it
would not only do what is popular, but
also what is responsible.
Unfortunately, however, the pleasant political complementarity of the two propositions
depends on their being abstract. Regrettably,

Chart 2-2.
$ BILLIONS

Part One- 11

when it comes to particulars, only one of
the propositions remains widely popular.
To cite the obvious as examples: A middle
class tax cut is popular. But restraint on
the growth of middle class entitlements is
not. Investment in infrastructure is popular.
Restraint on the growth of arguably "worthy"
discretionary spending is not. Tax incentives
to increase private savings are widely popular.
The removal of broad-based tax preferences
in order to increase public savings (i.e.,
to reduce deficits) is not.
Similarly, financing current expenditures
with future payments (i.e., debt) is naturally
much more popular than financing with current taxes or spending reduction. The taxpayers and consumers of the present are
here and voting. Those of the future are
not. (This lack of democratic representation,
and the need to protect future rights, is
the justification for a constitutional amendment requiring a balanced budget.)
The practical facts of political reality amount
to a formula for rising deficits and rising
debt. That, of course, is the observable pattern.
(See Chart 2-2.)

NOMINAL DEBT & DEBT AS A PERCENT OF GDP
PERCENT

Part One-lO
While individuals and corporations have
recently been strengthening their balance
sheets, the Federal government has not. It
is little wonder that, in observing the political
dynamics of Washington, those in long-term
financial markets have reflected concern about
inadequate fiscal discipline.
The concern is legitimate.
With this concern in view, the President
has proposed a budget that can fully accommodate his growth agenda—and that can be
enacted in its entirety without abandoning
the discipline of the Budget Enforcement
Act. That is, the President's program does
not require increasing any discretionary spending caps. It does not require transfers from
one category of expenditure to another. And,
if fully implemented, the President's program
can meet the pay-as-you-go requirements without triggering a sequester. Indeed, it can
exceed the pay-as-you-go requirements, and
thereby contribute further to deficit reduction.
A summary of the pay-as-you-go accounting
is at Table 2-1, with related detail at Tables
2-4 and 2-5. There will, as usual, be differences with respect to particular proposals
reflected in these tables. But it is important
to underline: The President's strong and responsible agenda for growth can be fully
enacted without abandoning the budget discipline of the Budget Enforcement Act.
It is clear, however, that some in Congress
do not wish to stay within the Budget
Enforcement Act. Some wish to abandon
its discipline entirely. Others wish to amend
the Act in order to re-allocate defense savings
for other purposes.
With these Congressional interests in view,
the President's proposed defense savings are
displayed at Table 2-2. The defense outlay
savings are roughly sufficient to offset the
President's proposed $500 per child increase
in the personal exemption. Such an offset
is not now possible under the Budget Enforcement Act; nor is it necessary under the
President's program. But if the Congress
were unwilling to accept fully the President's
proposed pay-as-you-go financing of tax initiatives, the President would be prepared
to consider modifying the Budget Enforcement

THE BUDGET FOR FISCAL YEAR 1993

Act to allow the projected defense outlay
savings to offset the proposed increase in
the personal exemption. This would be contingent, however, on the following:
• limitation of any defense savings to those
that are consistent with national security
interests;
• extension and refinement of the discipline
of the current system of caps, mini-sequesters, and pay-as-you-go requirements;
• allocation of savings primarily to deficitreduction and to families via tax reduction;
• corresponding downward adjustment of
the total discretionary spending caps.
Even with adherence to the discipline of
the Budget Enforcement Act, the near-term
outlook for debt and deficits remains unattractive. (See Chart 2-3 and Table 2-3.)
There are three major reasons for this:
• Carryover. One major reason is the carryover effect of rising debt, the associated
interest burden, and the coverage of deposit insurance. Chart 2-3 shows graphically that interest and deposit insurance
alone are almost equal to the entire federal deficit. Indeed, if interest and deposit
insurance were not included, the federal
deficit would quickly turn to surplus. This,
of course, is not meant as a policy suggestion! It is simply to underline again a
point that is increasingly evident: continuing to build up excessive debt and hidden
liabilities has substantial costs that carry
forward to the future. And at some point,
the future is now.
• Recession. A second major reason for the
near-term deficit problem is the recession
and the continuing weakness of the economy. Chart 2-4 shows the extent to which
enactment of the President's growth agenda would improve the deficit outlook relative to the likely pattern if Congress were
to follow a conventional "business-asusual" approach. (The deficit effect of alternative economic assumptions is displayed at Table 3-2, Chapter 3.)

Part One- 13

2. DIRECTOR'S INTRODUCTION (AND OVERVIEW TABLES)

Table 2 - 1 .

PAY-AS-YOU-GO PROPOSALS
(Savings, in billions of dollars)
1992

(1) Carryover pay-go balance
Mandatory outlay proposals (except health reform and UI/EB)
(3) Revenue proposals (except personal exemption)

1993

1.1

1994

1.1

1995

1996

1.0

0.5

1.4

1997

1992-97

-0.9

4.2

(2)

0.5

Subtotal, before accruals and personal exemption
(5) Deposit insurance reforms1
(6) PBGC reforms1
(7) Subtotal, before personal exemption and
Extended benefit^Unemployment Insurance
(8) Unemployment Insurance/Extended Benefits ....
(9) Personal exemption

3.4

5.3

5.9

9.9

9.8

34.9

-5.2

0.7

3.1

0.9

-1.1

-0.7

38.3

(4)

(10)

8.9

7.8

12.2

7.8

0.7

1.6*
1.8

0.5

4.4

5.4

3.4

16.2

8.7

2.5

2.7

1.7

3.3

2.9

21.8

5.7

9.6

12.1

13.9

20.9

14.1

76.3

-2.2

—

-4.4

—

-4.4

—

3.5

Total paygo scoring

—

-4.6

-4.7

-5.0

-5.2

-23.9

3.0

7.5

9.1

15.9

8.9

48.0

* Section 252(b) of the Balanced Budget and Emergency Deficit Control Act of 1985, as amended by the Budget Enforcement Act,
requires the Office of Management and Budget to take into account the impact of all direct spending and revenue legislation
enacted as of the end-of-session sequestration report for both the current year (FY 1992) and the budget year (FY 1993).
1 Assumes enactment of previously proposed reforms that reduce the competitive disadvantages of depository institutions and
limit deposit insurance coverage, and reforms that revise minimum funding requirements, improve bankruptcy recoveries, and
change the guarantee limits of the PBGC. In addition, assumes that the savings from these reforms are accounted for utilizing the
long-established principles of accrual accounting. PBGC savings are estimated by applying reforms to only single-employer pension
plans of publicly-traded firms.

Table 2-2. BUDGET IMPACT OF PROPOSED DEFENSE SAVINGS AND
INCREASES IN THE PERSONAL EXEMPTION
(In billions of dollars)
1992

Department of Defense (Discretionary):
Summit Baseline (extended):
Budget Authority
Outlays
Inflation Adjustments
Budget Authority
Outlays
Adjusted Baseline
Budget Authority
Outlays
Proposed Defense Levels
Budget Authority
Outlays
Proposed Defense Savings
Budget Authority
Outlays
Increase in the Personal Exemption by $500 per
child (effective Oct. 1, 1992):
Revenues

1993

1994

1995

1996

1997

1992-97

278.2
283.9

278.6
279.7

279.0
274.0

281.5
275.3

283.4
279.4

288.2
284.8

1,688.9
1,677.1

0.0
0.0

-2.3
-1.0

-2.4
-1.7

-2.4
-2.0

-2.7
-2.4

-2.8
-2.6

-12.5
-9.7

278.2
283.9

276.3
278.7

276.6
272.3

279.1
273.3

280.7
277.0

285.4
282.2

1,676.4
1,667.4

271.6
283.3

268.4
273.5

268.6
268.2

270.7
268.7

271.3
271.7

275.5
274.5

1,626.0
1,639.9

-6.6
-0.6

-7.9
-5.2

-8.0
-4.1

-8.4
-4.6

-9.4
-5.2

-10.0
-7.7

-50.4
-27.4

—

-4.4

-4.6

-4.7

-5.0

-5.2

-23.9

Part One-14

THE BUDGET FOR FISCAL YEAR 1993

Chart 2-3.
$ BILLIONS
-500

THE IMPACT OF INTEREST AND DEPOSIT INSURANCE
ON THE DEFICIT

-400

i
s

DEFICIT

DEFICIT EXCLUDING^
INTEREST & DEPOSIT
INSURANCE

-300 "

-200 -

-100

DEFICIT EXCLUDING
INTEREST

TT^V"
cn

100

T
1992
NOTE:

1993

1
1995

1996

1997

includes deposit insurance and pension guarantees on a cash basis

Chart 2-4.
$ BILLIONS
-450

1994

DEFICIT OUTLOOK: PRESIDENTS GROWTH AGENDA
VERSUS SLOW GROWTH

-400 BUSINESS AS USUAL WITH
LOWER REAL GROWTH

-250 -

-200

WITH PRESIDENTS
GROWTH AGENDA

-150

T
1992
NOTE:

T
1993

1994

1995

includes deposit insurance and pension guarantees on a cash basis

1996

1997

Part One- 15

2. DIRECTOR'S INTRODUCTION (AND OVERVIEW TABLES)

• Mandatory Program Growth. A third
major reason for both the near-term and
the long-term deficit problem is the continuing unrestrained growth of so-called
mandatory programs. These are programs
that do not come up for annual review
or decision by either the Congress or the
President. They are not "discretionary" in
that they do not require annual appropriation; and they are not available for vote
or veto. They just keep on going and growing automatically. Sometimes referred to
as "uncontrollable," these programs are
clearly out of control.
"Mandatory" programs for 1993 now
amount to $766.8 billion in spending per
year ($980.6 billion including interest).
They are projected to grow at an average
of 7.2 percent over the next five years (excluding deposit insurance). Mandatory programs now account for over half of the

Chart 2-5.
tTT______

federal budget (64.4 percent including interest). By contrast, it is interesting to
note that such programs amounted to only
23 percent of the budget in President Kennedy's day. (See Chart 2-5.)
Apart from returning to strong economic
growth, slowing the growth of "mandatory"
programs is the most important key to bringing the deficit under control. To illustrate
this point, one might suppose that "mandatory" programs were allowed to grow only
at the rate necessary to accommodate increases in the eligible population and increases
in the CPI. (These are, perhaps, what many
naturally assume to be the causes of mandatory program growth.) But if mandatory programs were to grow only for population
and the CPI, there would be enormous savings.
Indeed, the cumulative deficit savings (relative
to business-as-usual) would amount to a shocking total: almost $390 billionl

"MANDATORY1' PROGRAMS ARE TAKING OVER THE BUDGET
(OUTLAYS IN 1993 DOLLARS)

NOTE: includes deposit insurance and pension guarantees on a cash basis; excludes undistributed offsetting receipts

Part One-lO

THE BUDGET FOR FISCAL YEAR 1993

Chart 2-6 shows graphically how much
this seemingly rather modest proposal could
do for deficit reduction. There is no realistic
or responsible set of additional discretionary
program reductions that is remotely close
in its deficit-reduction potential. Chart 2-6
also suggests what is inescapably the case:
the budget can be brought into balance
in the intermediate term only by enacting
both a growth agenda and restraint on the
growth of "mandatory" programs.
For this reason, the President's Budget
goes beyond defense reductions and a domestic
discretionary budget freeze. It also includes
proposals to reduce the growth of mandatory
spending by $68.4 billion by 1997. (See
Table 2-4 for a summary of the proposed
mandatory program changes.) This total does
not include the very substantial additional
savings that can and should be achieved
with a serious approach to health reform
(as discussed below).
In addition to specific proposed program
changes, the Budget proposes to reduce the

Chart 2-6.

growth of hidden liabilities by capping cumulative total subsidies. (See Chapter 18.)
Further, the Budget proposes to remedy
what is a fundamental flaw in the present
system of budget discipline. The Administration supports an expanded and refined variation of the "entitlement cost cap" recently
endorsed by the majority of the House Budget
Committee. In order to give the Budget
Committee's general concept focus and to
move toward workable legislation, a more
specific proposal is offered here:
• to cap "mandatory" program growth in aggregate;
• to set the cap at one growth rate prior
to the enactment of comprehensive health
reform, and at a lower growth rate following the enactment of comprehensive
health reform;
• to
set
these
growth
rates
at
population-plus-CPI-plus an average of
2.5 percent and 1.6 percent, respectively;

ALTERNATIVE LONG-RANGE DEFICIT PROJECTIONS

$ BILLIONS

NOTE:

includes deposit insurance and pension guarantees on a cash basis

2. DIRECTOR'S INTRODUCTION (AND OVERVIEW TABLES)

• to require that any projected growth beyond the mandatory cap trigger the legislative reconciliation process to correct the
excess spending growth; and
• as a fail-safe, to modify the pay-as-yougo system so that any uncorrected breach
of the aggregate mandatory cap automatically triggers the sequester provisions for
mandatory programs (while exempting Social Security from any such sequester).
If enacted, this addition would force legislative action on what is now "uncontrollable".
It would slow the growth of the "mandatory"
spending that is the largest part of the
budgetary problem. This one procedural reform
would go a long way toward remedying
the most serious weakness in the discipline
system of the current Budget Enforcement
Act.
The existing Budget Enforcement Act system
is really a combination of two systems. One
is the old "Gramm-Rudman-Hollings" system,
enacted in 1985. It was the principal disciplinary system for fiscal years 1986 through
1990. It returns to full force for application
in 1994. But while that may be somewhat
helpful, its earlier record does not offer
great promise. The originally legislated
Gramm-Rudman-Hollings deficit target for
1990 (its fifth year) was $36 billion. The
actual result was $220 billion! It was this
failure of the original Gramm-Rudman-Hollings system, in part, that necessitated the
addition of a second system in 1990.
The second disciplinary system includes
credit reform accounting, discretionary spending caps and associated mini-sequesters, and
the pay-as-you-go system for new "mandatory"
and revenue legislation. Each of these reforms
has proved valuable and workable. All have
been honored. But unfortunately, there is
a vast area of spending they do not reach:
the entire inherited structure of automatic
expenditure under pre-1990 law governing
mandatory programs.

311-000 0 - 92 - 2 (Pt.l)

Part One- 17

This inherited structure is built into an
explosively expanding spending "baseline."
And although it amounts to more than half
the budget, it is largely exempt from budgetary
discipline. Hence: the inescapable need for
an enforceable cap on the growth of total
mandatory spending.

THE NEED FOR
COMPREHENSIVE
HEALTH REFORM
Individuals, families, businesses, and governments—all are increasingly strained to
meet the growing burden of financing health
(or more correctly, financing health care).
Within the vast "mandatory" program structure, health is increasingly dominant in its
influence upon spending growth. It is the
most rapidly growing. It is about to surpass
Social Security in scale. And federal spending
on health is rising sharply both as a percent
of the federal budget and as a percent
of GDP. (See Chart 2-7.)
What is true for the federal budget is
also true for the nation as a whole. U.S.
national health expenditures per capita have
been rising dramatically in real terms. (See
Chart 2-8.) U.S. per capita health expenditures have grown out of line with other
developed countries. (See Chart 2-9.) Total
U.S. public and private spending on health
is literally on an unsustainable path—threatening to consume an impossible proportion
of Gross Domestic Product. Even assuming
a slowing of the trend, health expenditures
will soon exceed 15 percent of GDP—up
from slightly over 5 percent in President
Kennedys day. (See Chart 2-10.)
The fact that the current financing trends
are unsustainable is sufficient to necessitate
reform. But in addition, there is a strong
equity argument for reform.

Part One-lO

THE BUDGET FOR FISCAL YEAR 1993

Chart 2-7. FEDERAL HEALTH OUTLAYS:
GROWING RAPIDLY - BY SEVERAL MEASURES

Chart 2-8.

REAL PER CAPITA NATIONAL HEALTH EXPENDITURES
(IN 1993 DOLLARS)

$ MILLIONS
3,500

1929
SOURCE:

1934

1939

1944

1949

1954

1959

Health Care Financing Administration, Office of the Actuary

1964

1969

1974

1979

1984

1989

Part One- 19

2. DIRECTOR'S INTRODUCTION (AND OVERVIEW TABLES)

Chart 2-9.

HEALTH SPENDING AND WEALTH IN OECD COUNTRIES, 1989

PER CAPITA HEALTH SPENDING ($PPP)
2,500
A- United States G. Norway

M. Italy

S. New Zealand

B. Canada

N. Japan

T. Ireland

H. Germany

C. Switzerland

I. Luxembourg O. Australia

U. Spain

D. Sweden

J. Netherlands P. Belgium

V. Portugal

E. Iceland

K. Austria

Q. Denmark

W. Greece

F. France

2,000 -

L. Finland

R. United Kingdom X. Turkey

1,500 -

Eh]
1,000 -

KjidfH Li'xf:

500 -

PER CAPITAL GDP (THOUSANDS $PPP)
Sources: Exhibit 3 in Schieber, et al., Health Affairs, Page 26 (Fall 1991).
Note: PPP - purchasing power parity. PCH-per capita health spending. PCGDP - per capita gross domestic product PCH - -419 + 0.107 X PCGDP.
Both the constant term and the regression coefficient are statistically significant at the .01 level. R" - .85 (adjusted correlation coefficient squared).

Chart 2-10.
RET
CN

HEALTH SPENDING IS PROJECTED TO REACH 16.4% OF GDP
b y 2 0 0 0 " RISING FROM 5.3% IN 1960

Part One-lO

THE BUDGET FOR FISCAL YEAR 1993

Notwithstanding the enormous national
health expenditure, millions of Americans
have inadequate or insecure health insurance
coverage. For many middle-income Americans
there are reasons to worry that insurance
may become unaffordable or unavailable. And
for millions of poor and working poor Americans, basic health insurance is already
unaffordable. Further, to the extent that
federal health expenditures are thought of
as filling the financing gap for the needy,
there is a basic misconception. In reality,
most of the growth in federal health spending
has gone to the non-poor. (See Chart 2-11.)
With both the cost and "access" problems
in view, the President directed the Secretary
of Health and Human Services, Dr. Louis
Sullivan, to lead the development of a comprehensive approach to health reform. The
President determined that several principles
should be applied in this effort.
The approach to reform should:
• build on the strengths of the high-quality
American health system;
• assure access to basic health insurance
coverage for Americans and increase the
affordability of such coverage;
Chart 2-11.

• strengthen incentives for cost control and
consumer choice;
• emphasize prevention;
• reduce abuse and wasteful excess;
• meet the requirements of fiscal responsibility and budget discipline.
The approach should not:
• lead to comprehensive governmental price
controls and rationing by government;
• create new spending mandates for states
and employers;
• require a net increase in taxes; or
• threaten older Americans with the prospect of either benefit cuts or premium increases.
These tests cannot be met by either "Canadian-style" or "Play-or-Pay" approaches to
reform. Such approaches necessarily involve
comprehensive governmental price controls,
governmental rationing, or major tax increases. Over time, they threaten to degenerate and require a combination of these
undesirable characteristics.

FEDERAL HEALTH SPENDING

(OUTLAYS AND TAX EXPENDITURES IN 1993 DOLLARS)

$ BILLIONS
350

300

250

200

150 -

100
50 -

'
1965

• I
1970

| • i i i |•
1975

1980

1985

1990

1995

NOTE: Federal spending for Medicare, Medicaid, hospital and medical care for veterans, and other payments to individuals for
health purposes; and tax expenditures for employment-provided health plans and for deductions of health expenses.
Spending share to poor reflects percent of recipients with money incomes below poverty thresholds.
SOURCE: Census Bureau publication on receipt of noncash benefits

Part One- 21

2. DIRECTOR'S INTRODUCTION (AND OVERVIEW TABLES)

By contrast, the President's Plan meets
the tests of a responsible approach—without
forcing either a major tax increase or a
government take-over of the health sector.
It gives far greater emphasis to individual
choice and to incentives for more cost-effective
delivery of high-quality American health care.
The details of the President's Plan will
be released in early February.

RESTRUCTURING AND
REFORMLOOKING BEYOND THE
MOMENT
At the moment, the number one concern
for most Americans is to get the economy
moving again. Understandably, this is the
immediate priority. Hence, the President's
call for prompt Congressional action on his
Agenda for Growth.
Among other major issues of current concern, perhaps the highest priority is to reduce
the burden of rising health costs. Hence,
the President's Plan for comprehensive health
reform.
These two areas of concern have received
the most attention in the discussion above—
as they have in decisions about the allocation
(and reallocation) of budgetary resources. It
is likely that they will also be the predominant
focus of near-term Congressional interest.
The American political system is better designed than any to reflect the public's concerns
of the moment.
This is thoroughly appropriate. If the political system acts responsibly in these areas
of current concern, it will not only make
the economic lives of most Americans better
in the near term. It will also go a long
way toward relieving the current sense of
uncertainty and insecurity—the sense of worry
noted at the start of this Introduction.
But a President's Budget must not only
address concerns of the moment. It must
also look toward the future.
Whether explicitly or implicitly, a budget
inescapably addresses the future. In responding to current concerns, for example, a budget
might allow debt to rise (as a percent of

GDP) without attention to future returns.
If there were no such attention to future
returns, that would be an important (although
regrettable) value statement. It would implicitly weigh the interests of future generations
less heavily than the interests of the present.
The President's Budget rejects such a perspective. As each of the President's previous
Budgets has done, this Budget explicitly treats
both:
• Hidden Liabilities
through 14); and

(see

Chapters

• Investment in the Future (see Chapters 4
through 11).
In assessing a budget's relationship to
the future, one must also look beyond the
balance sheet and numbers. Numbers can
be misleading. This is true not simply because
specific numbers can be wrong (as has been
amply demonstrated). It is also true because
even their relative proportions can be a
poor guide to returns on investment.
Small investments can have large future
returns. One might consider, for example,
this Budget's investments in high performance
computing,
materials
processing,
biotechnology, and a host of other generic areas
of research and development. (See Chapter
6.) Several of these have enormous and
exciting potential to increase radically both
American productivity and the quality of
life.
Conversely, the mere fact that an area
of investment is large and increasing does
not necessarily mean that its return will
be high. Education, for example, is an area
of investment that should have high future
returns. But the history of the past several
decades shows that a rise in investment
can be accompanied by a decline in performance. In such cases, clearly, one must look
beyond the numbers to the associated policies
for reform and restructuring. (See Chapter
4.)

As a general matter, particular budget
proposals are given greater meaning by reference to the larger policies with which
they are associated. The chapters which follow,
therefore, attempt to frame the President's
budgetary proposals in their larger policy
context. They are presented in relation to

Part One-lO
longer-term themes that comprise an agenda
for restructuring and reform.
Thus, for example:
• Increasing Investment vs. Consumption. The Budget includes thousands of
recommendations for discretionary funding
of specific projects—in areas ranging from
high-technology R&D to low-technology infrastructure. Although the projects have
specific merit, their funding should be understood as part of a larger pattern: an
intended shift (at the margin) away from
current consumption, toward investment in
the future. (See Chapters 4 through 11.)
• Limiting Future Liabilities. The Budget
includes mandatory caps, subsidy caps, accounting reforms, and other such arcane
technical modifications to the Budget Enforcement Act. These should be understood
as part of the larger effort to limit the
future burden of debt and hidden liabilities. (See Chapters 12, 13, and 18.)
• Encouraging Entrepreneurship. The
Budget includes proposals for tax incentives to increase investment in capital assets, R&D, and Enterprise Zones. These
should be understood not merely as shortterm economic stimuli. They are also part
of a longer-term effort to reinvigorate
American risk-taking, pioneering, and the
entrepreneurial spirit
• Using States as Laboratories. The
Budget includes seemingly technical proposals to consolidate federal grants to
States and to facilitate the use of waivers.
These should be seen as part of a larger
effort to take greater advantage of the innovative power of the American federal system by using "States as Laboratories(See
Chapters 19 and 20.)
• Fostering Personal Responsibility. The
Budget includes increased investment in
crime prevention, drug-abuse prevention,
incentives for savings, homeownership,
and preventive health. This should be seen
in conjunction with a related effort to
strengthen the values and habits of personal responsibility. (See Chapters 5, 8, 9,
22, and the President's Plan for comprehensive health reform.)

THE BUDGET FOR FISCAL YEAR 1993

• Increasing Choice and Competition in
Service Delivery. The Budget includes
measures to encourage States to adopt
educational funding systems that allow
funds to "follow the child" in accordance
with parental choice. Similarly, the Budget increases investment in housing vouchers and child care certificates. And the
President's Plan for health reform proposes a major shift toward transferrable
tax credits for basic health insurance. All
such measures should be understood as
means to increase individual and family
choice. They are also necessary to provide
bottom-up competitive pressure for innovation and reform. They thus help in the
larger effort to accelerate the cost-effective
restructuring of large-scale, bureaucratic
service systems. These service systems (as
in health and education) are now often inefficient or ineffective—and, in many cases,
in need of radical, longer-term reform.
While the American political system is
unrivaled in its sensitivity to current interests,
it is often less-than-exemplary in its attention
to the longer term. So, one can be relatively
confident that the short-term economic agenda
will command intense attention. But it may
be somewhat more difficult to sustain a
focus on the long-term agenda of restructuring
and reform.
It is important to emphasize, however,
that America's economic difficulties are not
merely a function of a cyclical short-term
downturn. Many problems would have demanded attention with or without a recession.
The most important of these, perhaps, is
the need to increase America's long-term
productivity growth. This is a key to future
economic growth, to the capacity to support
an improving quality of life, and to American
competitiveness in a global economy.
But substantial improvement in productivity
will not come quickly or easily. It will
demand more than just a tax incentive here
or a bridge there. It demands action on
the full agenda for restructuring and reform:
investing in the future; limiting future liabilities; encouraging entrepreneurship; using
States as laboratories; increasing choice, competition, and cost-effectiveness in the delivery

Part One- 23

2. DIRECTOR'S INTRODUCTION (AND OVERVIEW TABLES)

of services; and fostering personal responsibility.
The Budget includes important initiatives
in all these areas of reform. They are rooted
in policies which seek to remedy current
weaknesses by building on traditional American strengths and values. They look not

only toward economic recovery for the shortterm, but toward a responsible basis for
confidence in the future.
RICHARD DARMAN
DIRECTOR,
OFFICE OF MANAGEMENT AND BUDGET

Additional Tables Attached:
Table 2-3:
Outlays, Revenues, and Deficits (Excluding Comprehensive
Health Reform)
Table 2-4:
Mandatory Outlay Proposals (Excluding Comprehensive Health
Reform)
Table 2-5:
Revenue Proposals (Excluding Comprehensive Health Reform)
Table 2-6:
Proposed Spending by Agency (Excluding Comprehensive Health
Reform)
Table 2-7:
Discretionary Proposals by Appropriations Subcommittee
Table 2-8:
Federal Employment in the Executive Branch
Table 2-9:
Economic Projections Assuming President's Program

p. 25
p. 26
p. 28
p.
p.
p.
p.

29
30
31
32

Part One- 25

2. DIRECTOR'S INTRODUCTION (AND OVERVIEW TABLES)

Table 2-3. OUTLAYS, REVENUES, AND DEFICITS (Excluding
Comprehensive Health Reform)
(In billions of dollars)

Categories

Outlays
Discretionary:
Domestic
Defense:
Department of Defense
Other Defense
Total Defense
International
Total Discretionary
Mandatory:
Deposit insurance
Federal retirement
Means-tested entitlements
Medicaid
Medicare
Social Security
Unemployment insurance
Other
Subtotal Mandatory
Net Interest *
Total Outlays
Revenues
Deficit
Deficil/Surplus (excluding interest)
Deficit/Surplus (excluding deposit insurance & interest)

1991
Actual

1992
Budget

1993
Budget

1994
Budget

1995
Budget

1996
Budget

1997
Budget

195.4

216.2

224.7

229.3

232.2

236.9

236.8

309.0
10.7

300.4
12.5

278.7
12.9

270.2
13.4

269.6
13.9

271.8
14.7

274.4
15.3

319.7
19.7
534.8

312.9
20.1
549.2

291.6
20.6
537.0

283.7
21.4
534.3

283.5
21.3
537.0

286.5
21.5
544.8

289.8
21.2
547.8

66.3
75.8
62.6
52.5
102.0
266.8
25.3
-57.7
593.7
194.5

80.1
78.3
74.8
72.5
116.0
284.3
32.0
-10.9
727.2
198.8

75.7
81.1
77.4
84.5
126.5
299.7
25.6
-4.6
765.9
213.8

-25.0
85.6
82.5
98.2
140.1
315.1
25.0
-12.0
709.5
231.0

-27.2
88.7
87.5
113.7
156.0
330.8
24.7
-17.8
756.3
242.2

-21.7
91.2
89.4
131.1
176.2
347.4
24.3
-28.2
809.6
253.0

-32.2
96.4
95.5
150.7
197.7
364.8
24.6
-24.9
872.6
263.2

1,323.0
1,054.3
-268.7

1,475.1
1,075.7
-399.4

1,516.7
1,164.8
-351.9

1,474.8
1,263.4
-211.4

1,535.5
1,343.5
-192.1

1,607.5
1,427.5
-180.0

1,683.6
1,501.8
-181.8

-74.2

-200.6

-138.1

+19.6

+50.1

+73.0

+81.4

-7.9

-120.5

-62.4

-5.5

+22.9

+51.3

+49.3

-268.7

-365.2

-332.7

-242.8

-217.8

-193.7

-203.3

53.5
20.2

50.2
23.9

63.4
27.0

75.9
31.1

86.9
35.7

101.1
41.1

115.0
47.4

73.7

74.1

90.4

107.0

122.6

142.2

162.4

Memorandum
Deficit on an accrual basis
Social Security (included above):
Operating Surplus
Interest
Total

* Slight variation from estimates printed in appendices due to a late correction in the rate of redemption of State and local

governments' holdings of Treasury Securities.

Part One-lO

THE BUDGET FOR FISCAL YEAR 1993

Table 2-4. MANDATORY OUTLAY PROPOSALS (Excluding Comprehensive
Health Reform)
(In millions of dollars)
1992
Agriculture:
Commodity Credit Corporation: reduce subsidies to those
with off-farm income over $100,000
Food stamps: effect of increased child support enforcement
(net)
Agriculture marketing service: user fees
Child nutrition: more equitable distribution of school lunch
subsidies
Cooperative State Research Service: eliminate Morrill-Nelson funds
Commerce:
Patent and Trademark Office: extend user fee surcharges
Corps of Engineers:
Expand existing user fees for day use of developed recreational sites
Education:
Guaranteed student loans:
Extend the current law elimination of the statute of limitations on collecting defaulted loans
Net cost from GSL loan limit increase and other policy
changes
Energy:
Power marketing reform: recover the Federal Government's
financing costs by changing PMA debt repayment practices
Alaska Power Administration: pay-as-you-go effect of asset
sale
HHS:
Family support program:
Improve the child support enforcement system
Raise the asset limit to $10,000 for families already on
AFDC and allow families on AFDC to exclude some income and resources needed to meet the objectives of a
"self-support" plan at State option (includes Medicaid
and food stamp effects)
Limit AFDC emergency assistance to statutory limit provided in one 30-day period every 12 months
Medicaid: enhance medical support for children
Medicare:
Place hospital update on calendar year basis
Limit Federal subsidy to 25% of SMI program costs for
high income persons ($100K single/$125K couple)
Establish a single fee for supervisory anesthesia services ..
Authorize HHS Secretary to adjust DME reimbursements
to reflect market factors
Reform payment of laboratory services by lowering cap
from 88% to 76% of the median and update, as needed
to reflect market factors
SSI: recover overpayments by withholding other Social Security payments

1993

1994

1995

1996

1997

1992-97

-5

-65

-150

-670

0
0

0
-7

0
-10

-5
-10

-30
-10

-33
-10

-68
-47

-1

-5

-18

-11

-3

-15

-107

-214

-10

-20

-110

-266

121

208

255

277

864

-399

-432

-453

-458

-454

-2,196

-134

-149

-164

-181

-186

-814

249

0
0

-39
-5

-40
-10

-41
-10

-41
-15

-42
-15

-203
-55

-630

-1,050

-1,160

-1,210

-1,330

-5,380

-59
0

-313
-100

-427
-140

-580
-200

-757
-230

-963
-250

-3,099
-920

-20

-80

-110

-130

-140

-480

-310

-560

-770

-1,020

-1,320

-3,980

-34

-25

-24

-23

-129

Part One- 27

2. DIRECTOR'S INTRODUCTION (AND OVERVIEW TABLES)

Table 2-4. MANDATORY OUTLAYS PROPOSALS (Excluding Comprehensive
Health Reform)—Continued
(In millions of dollars)
1992
Interior:
Arctic National Wildlife Refuge (ANWR): oil and gas exploration rights
State of Alaska's share of ANWR oil and gas exploration
rights
Coastal communities impact assistance: Outer Continental
Shelf (OCS) revenue sharing
Justice:
Civil liberties public education fund: request additional
funds required for additional eligible recipients
Labor:
Trade adjustment assistance: consolidated with EDWAA
Unemployment insurance extended benefits: expand and extend to December 31, 1992
Treasury:
IRS: uniform application to all taxpayers of 45 day processing rule
Veterans:
Home loans: consider government losses on resale when deciding whether to purchase foreclosed property or pay
lenders the guaranty claim, and require veterans who are
second and subsequent users to pay a 2.5% fee and 10%
down payment
Medical cost recoveries: extend sunset on authority to recover costs from health insurers of service-connected veterans for treatment of non-service connected conditions
Pensions: extend eligibility verification with IRS match, reduce benefits to veterans receiving medicaid-covered nursing home care, and other provisions
Readjustment benefit: provide eligibility for vocational rehabilitation to veterans rated 30% disabled or greater, and
restore 9:1 service members' benefit/contribution ratio for
contributions to GI bill
Federal Communications Commission:
Spectrum auction
Farm Credit System Financial Assistance Corporation:
Accelerate system repayments of FAC (bailout) debt
Office of Personnel Management:
Civil service retirement: permanently extend elimination of
lump-sum option
Federal employee health benefits:
Apply Medicare Part B payment limits to all FEHBP enrol lees age 65 and older (not just FEHBP/Medicare dual
enrol lees)
Cross-cutting:
Credit collection reforms

1994

1993

1995

1996

1992-97

1997

-2,561

-1

-1,531

-1

-4,094

1,280

765

2,045

181

250

-116

-193

-199

-198

-196

-902

2,203

2,220

4,423

-21

-310

-335

-361

-391

-422

-1,840

-660

-124

-125

-124

-130

-1,163

-225

-255

-274

-280

-1,034

-161

-181

-202

-226

-250

-1,020

-43

-49

-59

-56

-60

-267

-1,253

-1,665

-833

-3,751

-212

-2,144

-2,926

-5,070

-85

-40

-75

-85

-95

-380

-96

1,745

-1,181

-5,336

-5,901

-9,929

-9,830

-30,432

Subtotal, mandatory proposals (except deposit insurance and
PBGC)
Deposit insurance: expanded powers, interstate banking, and
account limitations (accrual basis)
PBGC: improved funding and changes to bankruptcy status
(accrual basis)

-700

-1,800

-500

-4,400

-5,400

-3,400

-16,200

-8,700

-2,500

-2,700

-1,700

-3,300

-2,900

-21,800

Subtotal, deposit insurance and PBGC (accrual basis)

-9,400

-4,300

-3,200

-6,100

-8,700

-6,300

-38,000

Total, mandatory proposals (accrual basis)

-7,655

-5,481

-8,536

-12,001

-18,629

-16,130

-68,432

Part One-lO

THE BUDGET FOR FISCAL YEAR 1993

Table 2-5. REVENUE PROPOSALS (Excluding Comprehensive Health
Reform)

(In millions of dollars. See Table 2-1 for pay-as -you-go totals that meet the Budget Enforcement
Act requirements.)
1992
Jobs and Investments:
Enhance long-term investment: capital gains
Provide passive loss relief for real estate
Adopt investment tax allowance
Simplify and enhance AMT depreciation
Extend R&E tax credit
Extend R&E allocation rules
Extend low-income housing tax credit
Extend targeted jobs tax credit
Extend business energy tax credits
Extend first-time farmer bonds
Establish enterprise zones

1993

1994

1995

1996

1997

600
-130
-6,055
-204
-183
-155
-37
-56

3,800
-418
-1,580
-376
-823
-482
-167
-154
-42

2,100
-396
3,529
-354
-1,353
-278
-312
-161
-27

300
-449
941
-261
-1,577

300
-516
810
-179
-1,804

-200
-592
623
-123
-2,104

-390
-92
-7

-416
-48
3

-417
-26
3

-50

-160

-310

-520

-750

-1,790

-7

-58
112

-443
481

-655
68

-721
-371

-796
-989

-882
-2,096

-3,555
-2,795

279

365

389

1,148

-22
-57
344

-123
-261
1,545
-3
-13

-126

-128

-131

1,548
-3
-14

1,544

-7

-118
-246
1,567
-3
-12

-3
-15

1,543
-3
-17

-648
-564
8,091
-15
-78

-201
-41

-2,067
-412

-2,535
-392

-637
-372

167
-354

110
-336

-5,163
-1,907

-5
-1

-79
-20

-97
-62

-117
-82

-125
-77

-92
-73

-515
-315

—

1992-97

—

6,900
-2,501
-1,732
-1,497
-7,844
-915
-1,739
-537
-70
-1

Facilitate real estate investments by pension funds and othRepeal luxury tax on airplanes and boats and repeal diesel
fuel exemption 1
Families, Health, Education and Savings:
Permit deduction of interest on student loans
Establish flexible IRA accounts
Promote retirement saving and simplify taxation of pension
distributions
Waive penalty for withdrawals from IRAs for medical and
educational expenses
Extend health insurance deduction for self-employed
Extend HI coverage to State and local employees1
Double and restore adoption deduction
Expand public transit exclusion
Homebuyers:
Provide credit to first-time homebuyers
Allow deduction for loss on sale of principal residence
Waive penalty for withdrawals from IRAs for first-time
homebuyers
Extend mortgage revenue bonds
Other:
Support revenue neutral tax simplification
Revise rules for charitable contributions
Conform book and tax accounting for securities inventories ...
Disallow interest deductions on corporate-owned life insurance loans
Prohibit double dipping by thrifts receiving Federal financial
assistance
Equalize tax treatment of large credit unions and thrifts
Modify taxation of annuities without life contingencies
Expand communications excise tax 1
Extend orphan drug tax credit
Establish FCC non-application processing fees
Extend abandoned mine reclamation fees
Increase employee contributions to CSRS
Conform definition of compensation under Railroad Retirement Tax Act to that of social security
Implement Uruguay Round

—

108
597

116
753

125
773

144
798

166
826

622
3,992

121

269

386

521

591

650

2,538

350
103
42
15
-2

417
177
156
82
-12
71

57
187
239
86
-13
71

4
197
318
91
-14
71

143
219
512
102
-16
71
251
1,209

931
1,091
1,676
472
-72
355
479
5,145

—

448

1,053

1,216

-40
208
409
96
-15
71
228
1,219

—

13
-4

17
21

17
13

17
-50

17
-86

81
-106

721
-4,356

3,052
-4,553

883
-4,740

903
-4,993

-1,103
-5,176

-789
-23,819

-3,635

-1,501

-3,857

-4,090

-6,279

-24,608

—

-5,244

Grand total

—

-37
245

Total effect of proposals (excluding personal exemption)
Personal exemption ($500 per child)

-5,244

* $500 thousand or less.
1 Net of income tax offsets.

—

Part One- 29

2. DIRECTOR'S INTRODUCTION (AND OVERVIEW TABLES)

Table 2-6. PROPOSED SPENDING BY AGENCY (Excluding Comprehensive
Health Reform)
(In billions of dollars)
1992 1
Agency

Discretionary
BA

Cabinet Agencies:
Agriculture
Commerce
Defense-Military
Education
Energy
Health & Human Services
Housing & Urban Development
Interior
Justice
Labor
State
Transportation
Treasury
Veterans Affairs
Major Agencies:
Corps of Engineers
Deposit Insurance
Environmental Protection Agency
General Services Administration
National Aeronautics and Space Administration
Office of Personnel Management
Small Business Administration
Other Agencies:
Executive Office of the President
Foreign Assistance and related programs
Judicial Branch
Legislative Branch
Other Independent Agencies
Allowances
Undistributed offsetting receipts
Net Interest
Total

Mandatory
Outlays

14.9
3.0
282.0
22.6
18.9
29.9
24.7
7.1
8.8
9.4
4.3
14.2
9.6
15.6

14.0
3.0
300.5
20.9
17.8
30.3
22.9
7.2
8.3
9.5
4.2
33.1
9.6
15.2

3.6
6.7
0.4

3.4
0.1
6.1
0.6

80.1
-0.1
-0.2

14.3
0.1
0.8

13.8
0.2
0.7

35.9
-0.2

0.2

26.7
2.2
2.4
11.2
0.0
0.0
0.0

12.9
2.2
2.4
10.3
0.0
0.0
0.0

533.9

549.2

Includes impact of supplemental and recissions.
* $50 million or less.
1

Outlays

1993

47.8
-0.1
-5.8
5.6
-1.9
513.8
1.3
*

1.1
34.7
0.3
0.3
2.1
18.4
*

•

Total
Outlays

Discretionary
BA

Outlays

Mandatory
Outlays

61.8
2.9
294.7
26.5
16.0
544.1
24.2
7.2
9.4
44.2
4.5
33.4
11.6
33.6

14.4
2.9
267.9
24.3
19.4
29.3
23.7
6.5
9.7
9.4
5.0
12.8
10.2
16.3

14.4
3.0
278.7
22.6
18.4
30.8
25.5
6.7
9.3
9.5
4.8
34.2
10.2
16.1

3.4
80.2
5.9
0.4

3.5

3.5
0.1
6.4
1.4

75.7
-0.2
-0.2

37.5
-0.3

•

7.0
0.5

45.0
-0.1
-0.8
7.8
-1.9
554.4
2.7
*

1.1
28.3
0.4
0.3
2.7
18.1
*

Total
Outlays

59.4
2.9
277.9
30.4
16.5
585.2
28.1
6.7
10.4
37.8
5.2
34.5
12.9
34.1
3.5
75.8
6.2
1.2

13.8
36.1
0.5

15.0
0.5

14.1
0.1
0.6

0.2

0.3

-0.7
0.2
0.4
33.0
-0.1
-38.8
198.8

12.2
2.4
2.8
43.3
-0.1
-38.8
198.8

13.7
2.6
2.5
10.7
-0.5
-1.4
0.0

12.7
2.6
2.5
10.7
-0.4
-1.4
0.0

-0.7
0.2
0.3
35.9
0.0
-40.1
213.8

12.0
2.8
2.8
46.6
-0.4
-41.5
213.8

926.0

1,475.1

506.3

537.0

979.7

1,516.7

14.1
37.6
0.3
0.3

Part One-lO

THE BUDGET FOR FISCAL YEAR 1993

Table 2-7. DISCRETIONARY PROPOSALS BY APPROPRIATIONS
SUBCOMMITTEE
(In millions of dollars)
1992 Budget1
Appropriations Subcommittee

1993 Budget

Outlays

Change: 1992 to
1993

Outlays

Domestic Discretionary
Commerce, Justice, State and Judicary
Defense
District of Columbia
Energy and Water
Interior
Labor, HHS, Education
Legislative Branch
Rural Development, Agriculture
Transportation
Treasury-Postal Service, and General Government
Veterans Affairs, HUD, Independent Agencies
Allowances
Less Designated Emergencies and Desert Shield/Desert
Storm amounts
Total Domestic Discretionary ("BA Freeze")

15,971

15,519

700

690

9,860

9,251

16,578

16,619

607

1,100

-75

-46

688

698

-12

8,910

8,452

-950

-799

—

13,141

12,610

12,486

12,475

-655

-135

60,563

59,467

61,985

61,848

1,422

2,381

2,343
11,812

2,338

2,494

2,435

151

11,071

11,166

11,172

-646

101
1,065

13,764

32,435

12,368

33,500

-1,396

11,050

11,329

11,217

12,124

167

795

65,408

61,430

65,748
-562

65,927

4,497

-524

340
-562

-142

-544

1,789

828

202,757 214,827 202,936 224,195

179

9,368

—

-1,931

—

-1,372

-524

International Discretionary
Commerce, Justice, & State—Funcition 150
Foreign Operations
Labor, HHS, and Education
Rural Development, Agriculture and Related
Less Designated Emergencies and Desert Shield/Desert
Storm amounts
Total International

4,978

4,886

5,661

5,477

683

591

15,683

15,144

13,724

-539

13,697
12

1,484

1,474

1,323

1,378

—

-80

—

-23

—

-161
—

-1
-96

-57

22,156

19,989

22,139

20,568

281,987

300,429

267,957

278,748

11,980
234
207
335

11,685
227
225
336

12,132

11,901

152

216

487
203
322

466
186

239

329

253
-4
-13

-5,522

10,356

11,613

284,385 295,767 281,101 286,107

-3,284

-9,660

509,298 530,583 506,176 530,870

-3,122

287

-17

579

Defense Discretionary
Defense, including Military Construction
Energy and Water, Function 050
Commerce, Justice, State and Judiciary
Transportation
Veterans Affairs, HUD, and Independent Agencies
Less Designated Emergencies and Desert Shield/Desert
Storm amounts
Total Defense Discretionary
Total Discretionary
1

-10,356 -17,135

—

FY 1992 amounts include supplemental and rescissions submitted subsequent to the FY 1992 Budget.

-14,030 -21,681
-39
-7

Part One- 31

2. DIRECTOR'S INTRODUCTION (AND OVERVIEW TABLES)

Table 2-8. FEDERAL EMPLOYMENT IN THE EXECUTIVE BRANCH1
(Full-Time Equivalent Employment)

Fiscal Year
Agency

Civilian Cabinet Agencies:
Agriculture
Commerce
Education
Energy
Health and Human Services
Housing and Urban Development
Interior
Justice
Labor
State
Transportation
Treasury
Veterans Affairs
Other agencies (excluding FDIC and Postal Service):
Agency For International Development
Corps of Engineers
Environmental Protection Agency
General Services Administration
National Aeronautics and Space Administration
Nuclear Regulatory Commission
Office of Personnel Management
Panama Canal Commission
Small Business Administration
Tennessee Valley Authority
United States Information Agency
All other agencies 2

1991 attuai
j%% x actual
. j J

1992
estimate

1993
estimate

Change: 1992
to 1993

110,316
38,988
4,630
17,790
121,121
13,601
72,346
84,073
17,720
25,409
66,010
160,192
217,665

111,882
35,594
4,927
19,950
125,784
14,331
74,900
94,286
18,241
25,895
70,134
162,949
220,641

111,021
35,682
5,032
19,950
125,704
13,837
74,000
97,958
18,265
26,012
70,212
161,984
221,818

4,347
27,241
16,323
19,704
24,149
3,300
5,762
8,551
4,887
22,273
8,226
38,125

4,562
27,725
17,622
20,013
24,737
3,335
6,156
8,603
4,697
25,000
8,543
40,453

4,454
27,444
17,917
19,858
24,947
3,377
6,156
8,603
4,637
23,000
8,679
40,413

1,132,749

1,170,960

12,130
969,059

16,300
938,669

16,969
897,772

669
-40,897

2,113,938

2,125,929

2,085,701

-40,228

2,125,731
37,653

1,929,870
38,920

1,807,506
39,417

-122,364
497

Total, uniformed personnel

2,163,384

1,968,790

1,846,923

-121,867

Grand total, executive branch employment

4,277,322

4,094,719

3,932,624

-162,095

Subtotal, Civilian employment (excluding
FDIC and RTC)
Federal Deposit Insurance Corporation and Resolution
Trust Corporation
Defense—military functions 3
Total, Civilian employment in the executive
branch
Military (uniformed personnel):
Defense
Coast Guard (Department of Transportation)

-861
88
105
—

-80
-494
-900
3,672
24
117
78
-965
1,177
-108
-281
295
-155
210
42
—
—

-60
-2,000
136
-40
—

Excludes developmental positions under the Worker-Trainee Opportunity Program; participants in the Cooperative Education
Program; disadvantaged and part-time workers under such Office of Personnel Management programs as Summer Aides, stay-inschool, and junior fellowship; and certain statutory exemptions. Totals do not include Postal Service Employment of 757,798 in
1993—down 6,670.
2Includes 108 FTE's as a contingency allowance in 1993.
3 By law (10 U.S.C., Chapter 4, section 140b), the Department of Defense is exempt from full-time equivalent employment
controls. Data shown are estimated.

Part One-lO

THE BUDGET FOR FISCAL YEAR 1993

Table 2-9. ECONOMIC PROJECTIONS ASSUMING PRESIDENT'S
PROGRAM1
(Calendar years; dollar amounts in billions)
Actual
1990

Gross Domestic Product (GDP):
Levels, dollar amounts in billions:
Current dollars
Constant (1987) dollars
Implicit price deflator (1987 = 100),
annual average
Percent change, fourth quarter over
fourth quarter:
Current dollars
Constant (1987) dollars
Implicit price deflator (1987 = 100)
Percent change, year over year:
Current dollars
Constant (1987) dollars
Implicit price deflator (1987 = 100)
Gross National Product (GNP):
Levels, dollar amounts in billions:
Current dollars
Constant (1987) dollars
Implicit price deflator (1987 = 100),
annual average

Projections
1991

1992

1993

1994

1995

1996

1997

5,514
4,885

5,675
4,848

5,926
4,919

6,307
5,066

6,712
5,218

7,141
5,374

7,589
5,532

8,054
5,689

112.9

117.1

120.5

124.5

128.6

132.9

137.2

141.6

4.1
-0.1
4.2

3.5
0.2
3.3

5.4
2.2
3.2

6.5
3.0
3.4

6.4
3.0
3.3

6.2
2.9
3.2

6.1
2.8
3.2

5.1
1.0
4.1

2.9
-0.8
3.7

4.4
1.5
2.9

6.4
3.0
3.3

6.3
2.9
3.2

6.1
2.8
3.2

5,524
4,895

5,689
4,860

5,938
4,929

6,319
5,076

6,726
5,228

7,156
5,385

7,604
5,544

8,070
5,701

112.9

117.1

120.5

124.5

128.6

132.9

137.2

141.6

Incomes, billions of current dollars:
Personal income
Wages and salaries
Corporate profits before tax

4,680
2,739
332

4,832
2,810
313

5,037
2,943
341

5,378
3,134
423

5,712
3,335
456

6,084
3,548
493

6,458
3,771
524

6,854
4,002
556

Consumer Price Index (all urban):2
Level (1982-84 = 100), annual average
Percent change, Q4/Q4
Percent change, year/year

130.7
6.2
5.4

136.2
2.9
4.2

140.2
3.1
3.0

144.8
3.3

154.2
3.2

159.2
3.2

3.3

149.4
3.2
3.2

3.2

164.1
3.1
3.1

Unemployment rate, civilian, percent: 3
Fourth quarter level
Annual average
Federal pay raises, January, percent ...

5.9
5.5
3.6

6.9
6.7
4.1

6.8
6.9
4.2

6.4
6.5
3.7

6.0
6.1
4.7

5.7
5.8
4.7

5.3
5.4
4.5

5.3
5.3
3.5

Interest rates, percent:
91-day Treasury bills 4
10-year Treasury notes

7.5
8.6

5.4
7.9

4.1
7.0

4.9
6.9

5.3
6.7

5.3
6.6

5.2
6.6

5.1
6.6

1 Based on information available as of January 10, 1992. These projections differ slightly from those of early December, which
were used to prepare the detailed budget estimates (see Appendix One, Chapter 8, "Explanation of Estimates").
2 CPI for all urban consumers. Two versions of the CPI are now published. The index shown here is that currently used, as
required by law, in calculating automatic adjustments to individual income tax brackets.
3 Percent of civilian labor force, excluding armed forces residing in the U.S.
4 Average rate on new issues within period.

3. Economic Assumptions
and Sensitivities

Part One-33

3. ECONOMIC ASSUMPTIONS AND
SENSITIVITIES
INTRODUCTION
Economic growth, which has been essentially
flat in recent months, is widely expected
to gather momentum in the second half
of the year and into 1993. Sharply falling
interest rates, low inflation, and healthier
corporate and household balance sheets are
establishing a foundation for expansion. The
President's growth agenda, discussed in Chapter 2, if enacted, would significantly strengthen economic activity and create new jobs.
RECENT DEVELOPMENTS
Real gross domestic product (GDP) increased
at an average 1.6 percent annual rate in
the second and third quarters of 1991, following declines at an average 3.2 percent
rate in the prior two quarters.1 The pace
of economic activity in the fourth quarter
is not yet known for certain, but monthly
measures of production and employment now
available suggest that activity was sluggish
at best. Industrial production decreased 0.6
percent at an annual rate from the third
to fourth quarter, while the Nation's payrolls
declined. The inability of the recovery to
gather momentum has contributed to a sense
of caution among consumers and businesses.
ECONOMIC PROJECTIONS
Short-Term Prospects.—The Administration's economic projections are not a forecast.
As part of the benchmark revision to the national accounts released in December, GDP replaced GNP as the aggregate measure
of economic activity. GDP is the value of goods and services produced in the United States. It includes the income earned by nonresidents in the U.S. and the income from assets in the U.S. owned
by foreigners. In contrast, GNP is the value of goods and services
produced by U.S. residents in the U.S. and abroad and the income
from their assets located here and abroad. For the U.S., GDP is almost as large as GNP (99.8 percent in 1990), and trends in GDP
and GNP are similar. Most other countries use GDP rather than
GNP to measure overall economic activity.
The benchmark revision also changed the base year used to calculate real aggregate output from 1982 to 1987. The shift in base
year lowered measured real growth over the past 14 years by an
average of 0.2 percentage point per year and raised the implicit
price deflator by a similar percentage.
1

They are predicated on the enactment of the
President's program. They have been developed jointly by the Council of Economic Advisers, the Treasury and the Office of Management and Budget to project the effects of the
President's policies in the current context. The
projections show economic growth resuming
this spring. The pace is projected to accelerate
through 1992, putting the civilian unemployment rate on a downward path (Table 3-1).
The majority of private sector forecasters and
the Congressional Budget Office share this assessment, although the projected strength of
the upturn varies among forecasters.
The expectation that a sustained upturn
will soon begin is based on several factors.
First, interest rates have fallen to their lowest
levels since the early 1970s. Inflation has
also eased during the past year, which should
contribute to further reductions in long-term
rates. Real interest rates (nominal rates minus
inflation) have fallen as well.
Lower mortgage interest rates have helped
make purchasing a new home more affordable
than at any time since 1974 and will serve
to boost home sales and new construction.
Declining interest rates should also stimulate
spending on other interest-sensitive goods
such as consumer durables and business
investment. The initial step-up in these expenditures is likely to contribute to widespread
employment and income gains, propelling subsequent rounds of increased expenditure.
Second, economic policy is focused on reviving economic growth. In December 1991,
the Federal Reserve reduced the discount
rate by a full percentage point. The moderation
of inflation provides the Federal Reserve
ample room to ease interest rates further
if this appears warranted. The Administration's fiscal policy initiatives would also aid
the economy both in the short- and longterm (see Chapter 2).
Third, households and businesses have begun
to reduce the debt burdens amassed in the
Part One-35

Part One-lO

THE BUDGET FOR FISCAL YEAR 1993

Table 3-1. ECONOMIC PROJECTIONS ASSUMING PRESIDENT S
PROGRAM1
(Calendar years; dollar amounts in billions)
Actual
1990

Projections
1991

1992

1993

1994

1995

1996

1997

5,514
4,885

5,675
4,848

5,926
4,919

6,307
5,066

6,712
5,218

7,141
5,374

7,589
5,532

8,054
5,689

112.9

117.1

120.5

124.5

128.6

132.9

137.2

141.6

4.1
-0.1
4.2

3.5
0.2
3.3

5.4
2.2
3.2

6.5
3.0
3.4

6.4
3.0
3.3

6.2
2.9
3.2

6.1
2.8
3.2

5.1
1.0
4.1

2.9
-0.8
3.7

4.4
1.5
2.9

6.4
3.0
3.3

6.3
2.9
3.2

6.1
2.8
3.2

5,524
4,895

5,689
4,860

5,938
4,929

6,319
5,076

6,726
5,228

7,156
5,385

7,604
5,544

8,070
5,701

112.9

117.1

120.5

124.5

128.6

132.9

137.2

141.6

Incomes, billions of current dollars:
Personal income
Wages and salaries
Corporate profits before tax

4,680
2,739
332

4,832
2,810
313

5,037
2,943
341

5,378
3,134
423

5,712
3,335
456

6,084
3,548
493

6,458
3,771
524

6,854
4,002
556

Consumer Price Index (all urban):2
Level (1982-84 = 100), annual average
Percent change, Q4/Q4
Percent change, year/year

130.7
6.2
5.4

136.2
2.9
4.2

140.2
3.1
3.0

144.8
3.3
3.3

149.4
3.2
3.2

154.2
3.2
3.2

159.2
3.2
3.2

164.1
3.1
3.1

Unemployment rate, civilian, percent: 3
Fourth quarter level
Annual average
Federal pay raises, January, percent ...

5.9
5.5
3.6

6.9
6.7
4.1

6.8
6.9
4.2

6.4
6.5
3.7

6.0
6.1
4.7

5.7
5.8
4.7

5.3
5.4
4.5

5.3
5.3
3.5

Interest rates, percent:
91-day Treasury bills4
10-year Treasury notes

7.5
8.6

5.4
7.9

4.1
7.0

4.9
6.9

5.3
6.7

5.3
6.6

5.2
6.6

5.1
6.6

1980s. Consumers trimmed their outstanding
installment debt almost every month last
year. Corporations have been substituting
equity for debt and shifting from shortterm to longer-term debt. With healthier

balance sheets, households and businesses
should become increasingly willing to boost
spending, and would be in a better position
to sustain those increases.

Part One-37

3. ECONOMIC ASSUMPTIONS AND SENSITIVITIES

Finally, an improving economy will help
to restore consumer and business confidence.
With an easing of apprehension about the
future, consumers and businesses should be
willing to make the long-term spending decisions that add impetus to an upturn.

cit. They result in a significant improvement
in the outlook from a "business-as-usual" projection, which assumes that Congress rejects
the President's proposals and adopts a more
conventional response to the current economic
situation. (See Table 3-2.)

Long-Term Projections.—After 1993, with
enactment of the President's program, real
GDP is projected to grow about 3 percent per
year through 1997, accompanied by declining
unemployment and stable or slightly lower interest rates and inflation. The real GDP
growth is based on an assumed faster growth
in labor productivity and in employment.

GDP adjusted for inflation is estimated
to increase about 0.4 percentage point per
year faster through 1997, attaining a level
that is about $160 billion higher than on
a business-as-usual path. This should create
an additional half a million jobs during
the next four years.

As in the case of previous budgets, these
long-term projections reflect goals for economic
performance that are contingent on the adoption of the President's economic policy proposals. The projections are not a forecast in
the usual sense.
EFFECTS OF THE ADMINISTRATION'S
PROPOSALS
The proposals discussed in Chapter 2 are expected to create more jobs, more income and
more growth, thereby lowering the budget defi-

Relative to "business as usual/' the policy
package is estimated to reduce the 1993 deficit
by $14 billion; by 1997 the deficit-reducing effect mounts to $66 billion. (See Table 3-3.)
Higher real incomes raise receipts while lower
unemployment and interest rates trim outlays.
Cumulatively over the six years through 1997,
budget deficits are estimated to be reduced by
$201 billion relative to business as usual. If
failure to enact the President's proposals were
to result in a reduction of one percent per year
in the real growth assumed in the Administration's policy, the 1993 deficit would be almost

Table 3-2. ECONOMIC PROJECTIONS: ADMINISTRATION POLICY
VERSUS BUSINESS AS USUAL
(Calendar years)
1992
Percent increase, fourth quarter over fourth
quarter:
Real GDP:
Business as usual
Administration policy
GDP deflator:
Business as usual
Administration policy
Calendar year average in percent:
Civilian unemployment rate:
Business as usual
Administration policy
91-day Treasury bill rate:
Business as usual
Administration policy
10-year Treasury note rate:
Business as usual
Administration policy

1993

1994

1995

1996

1997

1.6
2.2

2.4
3.0

2.5
3.0

2.6
3.0

2.5
2.9

2.4
2.8

3.3
3.2

3.4
3.4

3.3
3.3

3.2
3.2

7.1
6.9

6.9
6.5

6.7
6.1

6.3
5.8

5.8
5.4

5.6
5.3

4.2
4.1

5.1
4.9

5.5
5.3

5.4
5.2

5.3
5.1

7.2
7.0

7.3
6.9

7.1
6.7

7.0
6.6

6.9
6.6

Part One-lO

THE BUDGET FOR FISCAL YEAR 1993

$23 billion higher, and cumulatively over 6
years deficits would be nearly $350 billion
higher.
Omnibus Trade and Competitiveness Act
of 1988.—As required by this Act, Table 3-4
shows a range of estimates for economic variables related to saving, investment and foreign
trade. From fiscal years 1991 to 1993, the merchandise trade balance is expected to improve
moderately. The current account deficit and
net foreign investment are expected to be
about unchanged: the improvement in the
trade balance is projected to be approximately
offset by the end to the contributions of our
Allies toward the cost of Desert Shield and
Desert Storm. Net domestic saving, excluding
the Federal Government and net private investment, is projected to rebound significantly
as the economy grows.
It is difficult to gauge with precision the
effect of Federal Government borrowing from

the public on interest rates and exchange
rates, as required by the Act. Both are
influenced by many factors besides Government borrowing in a complicated process
involving supply and demand of credit and
perceptions of fiscal and monetary policy
here and abroad. The proposals in this budget
are not expected to exert a substantial independent influence on exchange rates.
STRUCTURAL DEFICIT
The sharp increase in outlays for deposit
insurance, together with the weakness in
the economy, have temporarily raised the
consolidated budget deficit substantially. Removing these factors to produce an adjusted
structural deficit, as shown in Table 3-5,
reduces the consolidated deficit by approximately $130 billion in both 1992 and 1993.
The shortfall of economic activity from
its previously estimated high employment

Table 3-3. IMPACT ON BUDGET DEFICITS: ADMINISTRATION POLICY
VERSUS BUSINESS AS USUAL
(In billions of dollars)
1992
Additions to deficit if, instead of Administration policy, there is:
Business as usual
1% per year lower real growth
than Administration policy ...
1% per year lower real growth
than business as usual

1993

1994

1995

1996

1997

1.9

13.5

27.8

40.1

51.9

65.8

201.0

6.1

22.5

43.2

65.3

91.3

119.1

347.5

8.0

36.0

71.0

105.4

143.2

184.9

548.5

Table 3-4. SAVING, INVESTMENT, AND TRADE BALANCE
(Fiscal years; in billions of dollars)
1991 actual
Merchandise trade balance
Current account balance
Net foreign investment
Net domestic saving (excluding Federal saving)1
Net private domestic investment

-83
-20
-4
282
Ill

1993 estimate
- 4 5 to
0 to
0 to
350 to
190 to

-65
-25
-25
370
210

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.

Part One-39

3. ECONOMIC ASSUMPTIONS AND SENSITIVITIES

Table 3-5. ADJUSTED STRUCTURAL DEFICIT
(In billions of dollars)
1992

1993

1994

1995

1996

1997

Consolidated surplus or deficit ( - ) 1
Cyclical component

-401
53

-353
50

-212
38

-193
25

-181
13

-183
3

Structural surplus or deficit ( - )
Deposit insurance outlays

-348
80

-303
76

-174
-25

-168
-27

-168
-22

-180
-32

Adjusted structural deficit

-268

-227

-199

-195

-190

-212

Cash basis.

level is projected to add about $50 billion
to the budget deficit in 1992 and 1993.
Assuming that the economy returns to its
high employment level in 1997, the cyclical
component would be virtually eliminated by
that year.
On a cash basis, outlays for deposit insurance are projected to reach a peak in 1992
at $80 billion, but still be substantial in
1993. Thereafter, large inflows from asset
sales would result in deposit insurance reducing the consolidated deficit; these net inflows
are excluded from the adjusted structural
deficit.
SENSITIVITY OF THE BUDGET TO
ECONOMIC ASSUMPTIONS
Both receipts and outlays are powerfully
affected by changes in economic conditions.
This sensitivity seriously complicates budget
planning because deviations in actual outcomes from what was assumed lead to errors
in the budget projections. Many of the budgetary effects of changes in economic assumptions are fairly predictable, however, and
a set of rules of thumb embodying these
relationships can be used to estimate how
various changes in the economic assumptions
would alter outlays, receipts and the deficit.
Table 3-6 summarizes these rules of thumb.
Economic variables that affect the budget
do not usually change independently of one
another. Output and employment tend to
move together in the short run: a higher
rate of real GDP growth is associated with
declining unemployment, while weak or negative growth is accompanied by rising unem-

ployment. In the long run, however, changes
in the average rate of growth of real GDP
are mainly due to changes in the rate
of growth of productivity and labor force,
and are not necessarily associated with
changes in the average rate of unemployment.
Inflation and interest rates are also closely
linked: a higher expected rate of inflation
increases interest rates, while lower expected
inflation reduces rates. Changes in real GDP
growth or inflation have a much greater
cumulative effect on the budget if they are
sustained for several years than if they
occur for only one year.
Table 3-6 shows that if real GDP growth
is lower by one percentage point in calendar
1992 only, and the unemployment rate rises
by one-half percentage point, the 1992 deficit
will be increased by $6.1 billion. The budget
effects are much larger if the real growth
rate is assumed to be one percentage point
less in each year, 1992-1997, and the unemployment rate correspondingly rises one-half
percentage point in each year. The levels
of real and nominal GDP are reduced by
a steadily growing percentage, and the deficit
is $119 billion higher by 1997.
The effects of slower productivity growth
are shown in a third example where real
growth is one percentage point lower per
year, while the unemployment rate is unchanged. In this case, the estimated budget
effects mount steadily over the years, but
more slowly. The effect on the deficit reaches
$108 billion by 1997.
Joint changes in interest rates and inflation
have a smaller effect on the deficit than

Part One-lO
equal percentage point changes in real GDP
growth because their effects on receipts and
outlays are substantially offsetting. If the
rate of inflation and the level of interest
rates are permanently raised by one percentage point, the price level and nominal GDP
rise by a cumulatively growing percentage.
In this case, the effects on receipts and
outlays mount steadily in successive years,
adding $62 billion to outlays and $85 billion
to receipts in 1997, reducing the deficit
by $23 billion.
Table 3-6 also shows the interest rate
and the inflation effects separately, and rules
of thumb for the added interest cost associated
with higher or lower deficits (increased or
reduced borrowing).

THE BUDGET FOR FISCAL YEAR 1993

The effects of changes in economic assumptions in the opposite direction are approximately symmetric to those shown in the
table. The impact of a one percentage point
lower rate of inflation or higher real growth
would be of about the same magnitude,
but with the opposite sign.
These rules of thumb hold the income
share composition of GDP constant. Because
different income components are subject to
different taxes and tax rates, estimates of
total receipts can be affected significantly
by changing these income shares. These relationships are too complex, however, to reduce
to simple rules.

Part One-41

3. ECONOMIC ASSUMPTIONS AND SENSITIVITIES

Table 3-6. SENSITIVITY OF THE BUDGET TO ECONOMIC ASSUMPTIONS
(In billions of dollars)
Budget effect

1992

1993

1994

1995

1996

1997

Real Growth and Employment
Effects of 1 percent lower real GDP growth in calendar year 1992 only, including higher unemployment: 1
Receipts
Outlays

-5.5
0.6

-12.3
3.7

-14.6
4.3

-15.1
5.7

-15.5
7.1

-16.0
8.6

6.1

16.0

19.0

20.8

22.5

24.6

-5.5
0.6

-18.2
4.3

-33.7
9.5

-50.3
15.0

-68.0
23.2

-87.1
32.0

6.1

22.5

43.2

65.3

91.3

119.1

-5.5
0.1

-18.2
0.9

-34.2
2.6

-52.0
5.6

-71.4
9.7

-92.6
15.3

5.7

19.1

36.8

57.6

81.1

107.9

6.1
4.9

12.8
13.0

13.3
11.4

12.8
10.0

13.4
8.9

14.1
8.7

Deficit increase (+)
Effects of a sustained 1 percentage point higher
rate of inflation and interest rates during
1992-1997:
Receipts
Outlays

-1.1

0.2

-1.9

-2.8

-4.5

-5.4

6.1
4.9

19.6
18.5

34.6
30.7

49.9
41.0

66.6
50.8

85.0
61.5

Deficit increase (+)
Effects of a sustained 1 percentage point higher interest rate during 1992-1997 (no inflation
change):
Receipts
Outlays

-1.1

-3.8

-8.9

-15.9

-23.4

0.7
4.6

1.9
14.8

2.5
22.0

2.7
27.2

2.9
31.9

3.2
36.8

Deficit increase (+)
Effects of a sustained 1 percentage point higher
rate of inflation during 1992-1997 (no interest
rate change):
Receipts
Outlays

4.0

13.0

19.6

24.5

29.0

33.6

5.4
0.3

17.7
3.7

32.1
8.7

47.2
13.8

63.7
18.9

81.8
24.7

-5.1

-14.1

-23.5

-33.4

-44.8

-57.1

2.1

6.5

7.0

7.5

8.0

8.4

Deficit increase (+)
Effects of a sustained 1 percent lower annual real
GDP growth rate during 1992-1997, including
higher unemployment:1
Receipts
Outlays
Deficit increase (+)
Effects of a sustained 1 percent lower annual real
GDP growth rate during 1992-1997, with no
change in unemployment:
Receipts
Outlays
Deficit increase (+)
Inflation and Interest Rates
Effects of 1 percentage point higher rate of inflation and interest rates during calendar year 1992
only:
Receipts
Outlays

Deficit increase (+)
Interest Cost of Higher Federal Borrowing
Effect of $100 billion additional borrowing during
1992
1

The unemployment rate is assumed to be 0.5 percentage point higher per 1.0 percent shortfall in the level of real GDP.

Investing in the Future

Part One-43

Investing in the Future:
4. Reforming American Education
and
Investing in Human Capital

Part One-45

4. REFORMING AMERICAN EDUCATION
AND INVESTING IN HUMAN CAPITAL
I. HIGHLIGHTS
Education Department funding.—The
budget proposes total discretionary budget authority for the Department of Education of
$24.3 billion, an increase of more than $1.6
billion, or 7 percent, over 1992—the largest
such increase for any department. Total budget outlays for the Education Department are
$30.4 billion, an increase of $3.9 billion or 15
percent over 1992. Total budget authority for
Education is $32.3 billion, $2.9 billion or 10
percent over 1992.
Head Start.—The budget requests $2.8 billion, an increase of $600 million, or 27 percent,
over 1992. The 1993 level represents an increase of $1.6 billion, or 127 percent, since
1989. This level will support 779,206 children,
an increase of 157,206 over 1992—enough to

provide one year of Head Start participation
for all eligible children wanting to participate
in the program.
Public and private school choice initiatives.—Two initiatives would result in over
$1 billion for innovative local choice proposals
that would help middle- and low-income families have more of the same choices of schools
that wealthier families have. The Choice
Grants for America's Children Act would
be funded at $500 million, to be matched by
an equal amount of State funds, for a total
of $1 billion for the program. States and localities that develop model choice programs would
receive up to $500 in Federal matching funds
for each eligible middle- and low-income child.
This could mean up to $1,000 or more to each
child offered the opportunity to choose public
or private schooling.

Table 4-1. THE BUDGET PROPOSES A 45 PERCENT INCREASE OVER
1989, AND AN 11 PERCENT INCREASE OVER 1992, FOR THE
EDUCATION DEPARTMENT AND HEAD START
(Budget authority; dollar amounts in millions)
1992
Enacted

1989
Actual

Selected Department of Education Programs:
Educational Excellenc^Choice Programs ..
Mathematics and science education
Drug-free schools
Education for the disabled
Compensatory education
Guaranteed student loans
Pell grants
Presidential achievement scholarships
Disadvantaged student support services ...
Historically Black Colleges
Research, statistics and assessment
Total discretionary budget authority
(non-add)
Total budget authority
Head Start
Total, Education and Head Start

1993
Proposed

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

Percent
Change:
1989 to
1993

—

100

768

+668

+668%

N/A

137

268

316

+48

+18%

+131%

355

624

654

+30

+5%

+84%

1,961

2,855

2,943

+88

+50%

4,579
4,285

6,707
4,820

6,828
6,046

+121
+1,226

+3%
+2%
+25%

+49%
+49%

4,484

5,463

+48%

6,641

+1,178

+22%

—

170

+170

tyA

227

395

417

+22

+6%

+85%

112

122

+10

+9%

+45%

148

243

+90

+64%

+212%

+42%

17,059

22,628

24,257

+1,629

+7%

22,956

29,441

32,339

+2,898

+10%

+41%

1,235

2,202

2,802

+600

+27%

+127%

24,191

31,643

35,141

+3,498

+11%

+45%

Part One-47

Part One-lO

THE BUDGET FOR FISCAL YEAR 1993

The budget also includes $30 million for
the Low-Income School Choice Demonstration Act, designed to answer clearly
many of the concerns about the viability
of providing the full cost of public and
private school choice to low-income families,
without adversely affecting local education
programs.
AMERICA 2000.—In April 1991, the President announced his AMERICA 2000 education
reform strategy, aimed at helping communities
achieve the National Education Goals by the
year 2000. By the end of December 1991, over
half of the States and 1,000 communities
across America had already accepted the challenge of AMERICA 2000 and had begun to
develop comprehensive strategies to meet the
National Education Goals.
Federal funding in support of the National Education Goals.—Under the budget
proposals, support provided for the goals by
25 Federal agencies, would increase to $81.3
billion. This is an increase of 44 percent since

1989. It is an increase of $6.1 billion, or eight
percent over 1992.
Mathematics and science education.—
The Administration proposes to help States
provide training to 770,000 elementary and
secondary school teachers, and to launch a
new, intensive teacher training initiative
through the coordinated efforts of the Education Department, the National Science Foundation, and Federal laboratories.
Pell Grants.—A 22 percent increase over
1992 is proposed for Pell grants, the primary
Federal post-secondary grant program—by far
the largest annual increase in program history.
Low- and middle-income families would be
granted major new relief from the rising cost
of higher education. Funding would increase
by $1.2 billion, to $6.6 billion. The maximum
award would increase 54 percent, from $2,400
to $3,700. Compared to 1992, more aid and
higher average awards would be available to
3.4 million students. Students from families
at all income levels would receive higher average awards. All family income groups up to

HEAD START FUNDING MORE THAN DOUBLES SINCE 1989, AND WILL
SUPPORT ONE YEAR OF HEAD START FOR ELIGIBLE CHILDREN*
$ MILLIONS
4,000

(BUDGET AUTHORITY)

CHILDREN
r 800,000

600,000

3,000-

2,000

- 400,000

1,000-

- 200,000

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
•NOTE: The 1993 budget request would fund one year of program participation for all expected enrollees. Based on program
experience, 20 percent of income-eligible children will not participate in Head Start because either they participate
in other pre-school programs or their parents choose not to enroll them.

Part One-49

4. REFORMING AMERICAN EDUCATION AND INVESTING IN HUMAN CAPITAL

$50,000 would receive more grant funds than
in 1992.
Rewards for academic achievement.—
The Administration proposes a new scholarship program for the Pell grant recipients with
the highest levels of academic achievement in
high school and college. Qualified students
would receive a $500 merit-based bonus to
their Pell grant. In addition, all student aid
recipients would have to maintain certain academic standards in order to continue to receive
their awards.
Job Training 2000.—The Administration
proposes to replace the fragmentation and inefficiency of current Federal job training programs, with a new, coordinated, market-driven
system. It would greatly improve services to
clients, provide $2.2 billion for new job training vouchers, provide training based on locally
determined needs, ensure that only quality
training providers receive Federal subsidies,
and allocate most funding in the form of
voucherable aid to individuals.
Tax incentives.—The Administration proposes to permit deduction of interest paid on
existing and new student loans for postsecondary education. The Administration also proposes penalty for withdrawal of money from
individual IRAs if the funds are used for medical or educational expenses.

Table

II. FEDERAL FUNDING
Education Department Funding
The budget provides an increase for domestic
discretionary outlays for Education Department programs of $1.7 billion, or 8 percent,
over 1992, for a total of $22.6 billion. The
increase in new discretionary budget authority,
$1.6 billion, or seven percent, is the largest
of any Department.
These increases reflect the high priority
given to education in the budget and permit
the highest Education Department funding
levels for discretionary programs ever.
Federal Resources for Education and
Training Programs
The first inventory of Federal resources
in support of the National Education Goals
was prepared for the first annual report
of the National Education Goals Panel (September 1991). The inventory covered the
years 1989 through 1991. Information was
provided by 26 Federal agencies that support
education, training and related services to
individuals, improvements to the educational
system, or activities to improve the mental,
physical or emotional condition of children
and adults who will be or are participants
in the educational system. Because it was
the first such inventory, it was expected
that the estimates would change as agencies

4-2. EDUCATION DEPARTMENT FUNDING INCREASES 10
PERCENT OVER 1992 AND 41 PERCENT OVER 1989
(Dollar amounts in millions)
1989
Actual

Budget Authority:
Discretionary Programs
Mandatory Programs
Outlays:
Discretionary Programs
Mandatory Programs
Total:
Budget Authority
Outlays

311-000 0 - 92 - 4 (Pt.l)

1992
Enacted

1993
Proposed

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

Percent
Change:
1989 to
1993

17,059
5,897

22,628
6,813

24,257
8,082

+1,629
+1,269

+7%
+19%

+42%
+37%

16,181
5,427

20,895
5,632

22,585
7,825

+1,690
+2,193

+8%
+39%

+40%
+44%

22,956
21,608

29,441
26,528

32,339
30,410

+2,898
+3,882

+10%
+15%

+41%
+41%

Part One-lO

THE BUDGET FOR FISCAL YEAR 1993

gained experience with the definitions and
concepts.
For the budget, agencies have revised data
provided in the first inventory and provided
estimates for 1992 and 1993.
• For this update, 25 Federal agencies reported.
• The most important program for the education of disadvantaged pre-school children, Head Start, is funded in the budget
at $2.8 billion, more than double the 1989
level, and a 27 percent increase over 1992.
• Programs in the Department of Education
constitute the largest source of Federal
funds for school age children.

ed services, have grown rapidly. The budget
provides $81.3 billion in support of the goals,
or $6.1 billion, 8 percent higher than the
level in 1992, and $24.9 billion, or 44 percent,
over 1989. This growth reflects the high
priority given education programs in the
past three years.
Federal investment in education research and development.—Federal funding
for education research and development has
increased $152 million, or 66 percent, since
1989. Activities range from basic research on
the biologic processes involved in learning to
development of new curricula.

• The Education Department and the Department of Defense account for 85 percent of the resources devoted to education
and training services for persons beyond
high school age.
Federal resources in support of the National
Education Goals, including training and relat-

The urgency of finding answers to the
questions of how to improve American education has also generated significant investment in research and development in the
foundation and other private sector arenas.
Most importantly, in 1991, the nations business community accepted the President's challenge to become more prominently involved.
Business leaders established the New American Schools Development Corporation and

Table 4-3. FEDERAL PROGRAM RESOURCES IN SUPPORT OF THE
NATIONAL EDUCATION GOALS INCREASE 44 PERCENT OVER
1989, AND 8 PERCENT OVER 1992
(Dollar amounts in millions)
1989
Actual

1992
Enacted

1993
Proposed

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

By Age Category

Total

9,260
15,783
30,119
1,242

17,664
20,684
35,381
1,497

20,297
21,996
37,496
1,515

+2,633
+1,312
+2,115
+18

+15%
+6%
+6%
+1%

56,404

Preschool years
School years
Post-high school
Not age specific

75,225

81,305

+6,080

+8%

22,421
7,950
12,823
7,354
3,776
892
1,187

28,998
15,636
13,748
9,862
4,073
1,044
1,862

31,821
17,830
13,756
10,632
4,153
1,164
1,950

+2,823
+2,194
+8
+770
+80
+119
+87

+10%
+14%
+8%
+2%
+11%
+5%

56,404

75,225

81,305

+6,080

+8%

By Department/Agency
Education
Health and Human Services
Defense
Agriculture
Labor
Veterans
Other
Total

—

Part One-51

4. REFORMING AMERICAN EDUCATION AND INVESTING IN HUMAN CAPITAL

and the entire family. Parents are encouraged
to become actively involved in both participating and planning Head Start activities.

are providing millions of dollars to finance
its activity. Free of government limitations,
the Corporation will fund a number of design
teams to develop radical new "break the
mold" approaches to teaching and learning.
The most successful teams will then be
funded to help States and school systems
implement the designs.

The budget provides Head Start with
the largest one-year increase in its 25
year history, raising Head Start funding
by $600 million or 27 percent over 1992
to a total of $2.8 billion.—This record
level represents an increase of 127 percent
over 1989. With the unprecedented increase
in the budget, Head Start will support the
enrollment of an estimated 779,206 children,
157,206 more than in 1992. The budget
will support full participation in one year
of Head Start for all eligible children wanting
to participate in the program before they
enter school.

III.
PROGRAMS
AND
STRATEGIES
THAT SUPPORT PRE-SCHOOL AND
ELEMENTARY
AND
SECONDARY
EDUCATION
Helping Children Get Ready to Learn
The first National Education Goal calls
for all children to start school ready to
learn. The best preparation for school comes
from a caring family, devoted to and able
to provide for a child's health, well-being
and education. The Federal Government
shares responsibility for preparing children
to learn in a variety of ways.

Some Head Start children may be from
families at-risk for drug abuse. To help
these children and their families confront
the problem of drug abuse, the budget includes
$30.6 million to continue the Head Start
anti-substance abuse initiative. Through this
initiative, Head Start grantees can assist
children whose families are at high risk
for involvement in alcohol or drug abuse.
The anti-substance abuse initiative is one
component of the Department of Health and
Human Services' two generational strategy.
The Department is working to develop collaborative partnerships to address parental literacy and employment as well as address
drug exposure and to develop early intervention strategies to combat drug abuse in
Head Start families.

Head Start.—Some children, especially
those from low-income and disadvantaged
backgrounds and children with disabilities,
may face additional challenges when competing in school and may be at-risk for starting
behind their peers. Head Start makes available extra help to these children. Head Start
offers a wide range of comprehensive developmental services, which include educational
instruction,
nutritional
services,
health
screenings, immunizations, dental treatment,
mental health services, and other social services. Head Start services help the children

Table 4-4. THE FEDERAL INVESTMENT IN EDUCATION R&D INCREASES
68 PERCENT OVER 1989 AND 20 PERCENT OVER 1992
(Budget authority; dollar amounts in millions)

Department/Agency

Education
Health and Human Services
National Science Foundation
Defense
Total

1989
Actual

1992
Enacted

1993
Proposed

Dollar
Change:
1992 to
1993

134
45
21
27

171
65
53
30

216
74
62
30

+45
+9
+9

227

319

382

+57

—

Percent
Change:
1992 to
1993
+26%
+14%
+17%
—

+20%

Part One-lO

THE BUDGET FOR FISCAL YEAR 1993

The budget also supports enhanced efforts
to evaluate the benefits to be gained from
increased investments in Head Start services.
While there is evidence to show that Head
Start children experience substantial immediate gains in cognitive ability, school readiness and achievement, less is known about
the long-term effects of many Head Start
services. Building upon efforts begun in 1992,
the budget includes $12 million for studies
to inform policy on these matters. To ensure
Head Start's quality remains high, every
grantee will be monitored at least every
three years by a team of experts in the
field.

lars, or 47 percent. Through WIC, pregnant
women, infants and young children receive the
food they need for proper nutrition. Proper nutrition during pregnancy and infancy is important to later physical and mental development.
In 1989, WIC served 3.3 million eligible
women and children each month. At the budget level, WIC would serve 5.3 million women
and children, an increase of 61 percent over
1989.

Even Start.—The budget includes $90 million for the Even Start family literacy program, an increase of $20 million, or 29 percent,
over 1992. First funded in 1989, Even Start
programs now operate in every State, helping
young at-risk children to obtain the skills they
will need to succeed in school while helping
improve the educational and parenting skills
of their parents.

Child nutrition programs.—The budget
includes $6.5 billion for subsidies for school
lunch, school breakfast, and day care homes.
This is an increase of $412 million, or 7 percent over 1992; an increase of $1.9 billion, or
42 percent over 1989. Legislative proposals
would increase support for families with incomes from between 130 percent and 185 percent of the poverty level by reducing subsidies
in the school lunch and breakfast programs
to students from families with higher incomes.

WIC.—The budget funds full participation in
the Women's, Infants and Children Supplemental Feeding Program (WIC) for all eligible
pregnant women and infants. Funding would
increase over 1992 by $240 million, or 9 percent, to a total of $2.8 billion. Compared to
1989, WIC would grow by almost a billion dol-

Expanded State competitive bidding programs for infant formula have helped hold
down prices. Competitive bidding helps supplement funding increases and supports continued growth in the number of families served.

Child care assistance.—The Child Care
and Development Block Grant, which the Administration negotiated with Congress in 1990,
provides several new forms of day care assistance to lower income families. The new block

Table 4-5. THE BUDGET SUPPORTS FULL PARTICIPATION* OF
DISADVANTAGED CHILDREN IN HEAD START FOR ONE YEAR
(Budget authority; dollar amounts in millions)
j

1992

Actual
m

Appropriation
Enrollment

1975

404

1980

735

1985

1,075

1988

1,206

1989

1,235

1990

1,552

1991

1,952

1993

Enacted

Proposed

2,202

2,802

349,000 376,000 452,000 448,000 451,000 488,000 582,000 622,000

779,206

Annual increases since 1988:
Increase over previous year's
enrollment

+3,000 +37,000 +94,000 +40,000 +157,206

Total enrollment increase
since 1988

+331,206

Note: The 1993 budget request would fund one year of program participation for ail expected enrollees. Based on program
experience, 20 percent of income-eligible children will not participate in Head Start because either they participate in other preschool programs or their parents choose not to enroll them.

4. REFORMING AMERICAN EDUCATION AND INVESTING IN HUMAN CAPITAL

grant program, funded at $850 million, makes
payments to States to help low-income families
pay for day care. The program provides 75 percent of its funds for child care vouchers, which
parents can use to choose a provider. The program ensures a broad choice of providers, allowing parents to choose a local church program, a day care center, a family day care
home, or a neighbor to care for their children.
The remaining 25 percent of the block
grant may be used for improving the quality
and availability of services. With these funds,
States can provide start up funds and operating grants for before- and after-school day
care or other child development activities.
Several States plan to use these funds to
provide after-school care to low-income students at their schools.
Tax credits.— Under the same child care
legislation the Administration negotiated with
Congress in 1990, substantial changes also
were made in the earned income tax credit
to augment resources for low-income families.
The refundable tax credit for working families
with one child was increased. An adjustment
was made to provide a higher credit for families with two or more children. Over five years
(1993-1997), these changes will provide payments of $22 billion and lower taxes by $4
billion for eligible families.
A new "Wee Tot" credit was enacted for
families with young children that provides
an additional tax credit of 5 percent of
earnings. Over five years, this will provide
$1 billion of benefits to eligible families.
Another tax credit of 6 percent
was enacted to help families
cost of health insurance policies
their children. Over five years,
will add $4 billion in payments
taxes for eligible families.

of earnings
defray the
that cover
this credit
and lower

Individuals with Disabilities Education
Act (IDEA).—Under IDEA, States would receive $320 million for additional services to
an estimated 380,000 disabled pre-school children.
Under IDEA's Infants and Families program, States would receive $181 million.
Funds are primarily for administrative support
to State-wide systems that coordinate comprehensive interagency programs of early

Part One-53

intervention services to all children, birth
through two years of age, who have disabilities
or are "at risk" of having developmental
delays. These grants support State efforts
to coordinate State and local activity with
the 18 Federal programs, including Medicaid,
that provide billions of dollars for services
to this population.
"Ready to learn99 Primary Health Care
Grants.—The budget includes $6 million for
a demonstration program in the Department
of Health and Human Services to develop ways
to improve access to primary health care for
young children in low-income communities.
Grants will fund local schools and health care
providers to bring services to families that do
not otherwise receive them.
Elementary and Secondary Education
Programs and Strategies
The AMERICA 2000 strategy outlined below
provides the framework within which elementary and secondary education reform can
thrive. In addition, Federal programs for
elementary and secondary education fund specific education reform and school improvement
strategies for all children, and finance additional support for remedial services for the
educationally disadvantaged and the disabled.
Choice.—Many States and communities
have already recognized the importance to
school reform of allowing parents to choose the
public or private school their child will attend.
In 1991, 10 States approved some form of
choice legislation. The Federal Government
needs to add its support to accelerate the
growth of this growing movement and would
do so under several proposals in this budget.
The Choice Grants for America's Children
Act.—$500 million would be available to States
and localities that want to experiment with
various ways to provide education certificates
to middle- and low-income children for public
and private schooling. Federal funds would
match State funds, up to $500 per child,
so that eligible children could receive $1,000
or more to use at the public or private
school of their choice.
Enactment of this proposal would provide
new impetus to State efforts to implement
choice plans by providing new funds to support

Part One-lO

THE BUDGET FOR FISCAL YEAR 1993

SELECTED PROGRAMS THAT SUPPORT EARLY CHILDHOOD
DEVELOPMENT INCREASE 49 PERCENT OVER 1989 AND 10
PERCENT OVER 1992

Table 4 - 6 .

(Budget authority except where noted; dollar amounts in millions)

IX.
1-rogram

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

2,202
2,600

2,802
2,840

+600
+240

+27%
+9%

4,005

7,170

7,895

+725

+10%

4,875
4,556

3,605
825
6,068

3,805
850
6,480

+200
+25
+412

+6%
+3%
+7%

16,600

22,470

24,672

+2,202

+10%

—

model State and local initiatives. For example,
in 1991, Pennsylvania, in a bipartisan effort,
came very close to adopting the first Statewide public/private school choice program in
the Nation. The Pennsylvania plan would
have provided parents with a certificate valued
at up to $900 a year, if they chose to
send their child to either a private school
or a public school outside their neighborhood.
The availability of Federal matching funds
for part of the cost of the program would
surely have made this approach even more
attractive to the State.
The Low-Income School Choice Demonstration Act—$30 million would support
comprehensive public and private school choice
experiments to help States and school districts
develop models to provide low-income families
with educational choice. These demonstrations
are designed to address and answer concerns
about the viability of providing the full cost
of choice to low-income families without adversely affecting local education programs.
Chapter 1 "follow the child"—The Chapter
1 program of grants to school districts for
remedial education ($6.2 billion of the $6.8
billion requested for compensatory education)
would be amended. A child receiving Chapter
1 services, whose parents choose another
school under a local choice plan, would take

1993
Proposed

1,235
1,929

Head Start
WIC
Earned Income tax Credit:
Refunded Credits (Outlays)
Dependent Care Tax Credit (Outlay Equivalent)
Child Care and Development Block Grant ..
Child Nutrition (Outlays)
Total

1992
Enacted

1989
Actual

his Chapter 1 funds with him to that new
school.
New American Schools.—The many impressive education reforms being tested all
across the country should improve current
forms of education. But the demands of the
competitive global economy of the future and
the distance the education system has to go
to meet them call for bold new forms of learning. They require "break the mold" schooling
designs. The States and communities that are
making public commitments to the AMERICA
2000 strategy are committed to creating such
schools. A public and a private sector initiative
provide additional support for this requirement:
(a) New American Schools Development Corporation.—In response to the President's challenge, American business has formed a nonprofit corporation and is raising funds to
support creative education designs that government funding is unlikely to generate.
The private sectors stake in an educated
workforce is a driving force behind its willingness to put millions of dollars into support
for new education designs. Over the next
five years, the Corporation will fund a series
of design teams and implementation tests
of whole school and whole school district
radical restructuring. Out of these efforts
should come many of the successful models

REFORMING AMERICAN EDUCATION AND INVESTING IN HUMAN CAPITAL

for the learning environment of the next
century.
(b) Grants for New American Schools.—
The proposed AMERICA 2000 Excellence in
Education Act would provide competitive
grants of up to $1 million each to help
over 535 communities develop new schooling
designs. These designs may take as many
as three years to develop and would build
on the best research on how to improve
the local school situation. Depending on timing, some of the designs implemented could
be those developed by the Corporation.
Standards, curriculum frameworks, and
assessments.—The Nation needs objective,
widely accepted standards that clearly define
the knowledge and skills children should have
in at least the five core subjects—English, history, mathematics, science, and geography.
Independent subject matter experts are
working on such standards. The National
Council on Education Standards and Testing
has developed a framework for creation of
national standards and assessments. The
budget includes $25 million to help States
redesign their curriculum and assessment
systems.
AMERICA 2000 Excellence in Education
Act.—For three years, the Administration has
sought Congressional approval for a series of
programs that would help States raise the
quality of education for all students. For this
legislation, including the Choice Grants for
America's Children Act, the Low-Income
School Choice Demonstration Act, and the New
American Schools described above, the budget
proposes funding of $768 million, an increase
of $668 million over the $100 million contingently appropriated for 1992.
The other major program components are:
• Merit schools—funds to each State to reward schools that succeed in improving
student achievement over a period of several years.
• Governors' academies for teachers—grants
to each State to establish programs to provide intensive training for experienced
teachers in the core academic subjects.

Part One-55

• Governors' academies for school leaders—
grants to each State to support training
for prospective and current school leaders.
• Alternative certification of teachers and
principals—grants to help States or school
districts develop alternative routes to the
certification of persons who wish to become teachers or principals.
Compensatory education.—For remedial
education for the disadvantaged, the budget
requests $6.8 billion to support programs for
more than 5 million children. Over 90 percent
of the Nation's school systems receive these
funds. Funding has increased $2.2 billion, or
49 percent, since 1989.
Drug-free schools.—The budget requests
$654 million for programs under the Drug-free
Schools and Communities Act, a $30 million
increase over 1992. The request includes $60
million, double the 1992 level, for emergency
grants, which provide extra funding for prevention programs in school districts with the
most substantial drug-related problems.
Children with disabilities.—Under the
Grants to States program of Part B of the
Individuals with Disabilities Education Act
(IDEA), States receive funds in return for providing all children with disabilities a free appropriate public education in accord with the
procedures of the Act. For 1993, the budget
proposes $2.1 billion for Part B, an increase
of five percent over 1992, to supplement State
and local funds for the education of 4.6 million
children. Funding for all IDEA programs for
children with disabilities has increased 50 percent since 1989.
Mathematics and Science Education
National Education Goal 4 calls for U.S.
students to be first in the world in science
and mathematics achievement. The President
established a special committee, under the
Federal Coordinating Council on Science, Engineering and Technology (FCCSET), to recommend a coordinated strategy to use Federal
assets and expertise, and to work with the
States to achieve that goal. The budget
provides the resources to support that strategy.
The budget proposes $2,092 million for
mathematics and science education programs

Part One-lO

THE BUDGET FOR FISCAL YEAR 1993

in 11 agencies, an increase of $137 million,
or 7 percent, over 1992. The largest increases
are for the Education Department's Eisenhower Mathematics and Science Education
programs, which would be funded at $316
million, $48 million, or 18 percent, over
1992.

the number of teachers receiving federally-assisted longer term, in-depth training. Shorterterm training will be provided for another
725,000 teachers. Almost half the Nations
precollege math and science teachers, a total
of 770,000 individuals, would participate in
federally-funded training.

The highest priority of FCCSET is improvement of pre-college math and science education, for which $768 million is proposed,
an 18 percent increase over 1992. After
a first year of data collection and analysis,
Federal agencies will be implementing during
1992 the initial aspects of a comprehensive
and integrated Federal math and science
education strategy. The development of this
strategy and the initiatives for 1993 described
below will help States and localities make
significant improvements in math and science
achievement and make progress toward the
National Education Goals. There are three
new initiatives:

Demonstrations of electronic dissemination of math/science education learning
methods.—The teaching of math and science
is ideally suited to the use of electronic dissemination technologies because of the variety
of subject matter that otherwise may not be
included in the standard curricula. To further
the AMERICA 2000 objective of establishing
electronic networks linking schools and other
learning centers, the budget proposes a series
of demonstrations of the use of Federal agency
electronic communication technology to enhance matVscience curricula. This initiative
links the expertise of the Education Department, NSF and the other experienced Federal
agencies (such as Defense); the private sector;
and States and localities. Demonstration models will be selected on the basis of a 1992
national conference on existing programs and
new ideas.

Teacher training.—The most important
Federal policy to improve math and science
education is support for enhancing the quality
and enthusiasm of the current teaching corps.
The Governors' teachers academies proposed
under the AMERICA 2000 Excellence in Education Act will improve teaching skills for
teachers in the five core subject areas. The
budget would increase specific efforts to train
math and science teachers through the programs of the Education Department and the
National Science Foundation (NSF), and the
use of Federal laboratory personnel and facilities. The budget proposes to double, to 45,000,

Computers and scientific equipment.—
Studies show that student performance in
math and science is enhanced by use of computers and scientific equipment. In times of
tight school budgets, investment in such equipment is often deferred. Federal agencies will
be directed to make available to schools excess
computers and scientific equipment that are
suitable for use in their curricula.

Table 4-7. THE MATHEMATICS AND SCIENCE EDUCATION BUDGET
INCREASES 69 PERCENT OVER 1989 AND 7 PERCENT OVER 1992
(Budget authority; dollar amounts in millions)
Program

Pre-college programs
Undergraduate and graduate programs
Science literacy
Total

1989*
Actual

1992
Enacted

1993
Proposed

Dollar
change:
1992 to
1993

Percent
change:
1992 to
1993

296
923
18

651
1,213
91

768
1,231
93

+117
+18
+2

+ 18%
+1%
+2%

1,236

1,955

2,092

+137

+7%

•Before the FCCSET Committee was established, such data were not collected. Values are OMB staff estimates.

4. REFORMING AMERICAN EDUCATION AND INVESTING IN HUMAN CAPITAL

AGENDA FOR EDUCATION REFORM
Education spending by all levels of government has mushroomed in the past decade,
but there has been no such dramatic improvement in educational achievement. Money is
important to quality schooling, but the Nation
has learned that achievement does not improve
without true reform from the classroom to
the state house to go with it.
Shortly after taking office, President Bush
called on the Nations Governors to join
him in a first ever National Summit Conference on Education. Held in Charlottesville,
Virginia in September 1989, the Conference
began a close working relationship among
the Nations Chief Executives. The first major
product of that collaboration was the development of the six National Education Goals.
These goals, which have been widely accepted,
set ambitious targets for the year 2000.

Part One-57

AMERICA 2000 Education Strategy
The AMERICA 2000 education strategy
is a long-term plan to achieve the six National
Education Goals. It seeks major change in
all 110,000 public and private elementary
and secondary schools and in every community. It is a national strategy, not a Federal
program. It supports and relies upon the
initiative of States, local officials, the private
sector, educators, and families. The strategy
has four major Tracks:
• For Todays Students: Better and More Accountable Schools.
• For Tomorrow's Students: A New Generation of American Schools.
• For Today's Workforce: A Nation of Students.
• Communities Where Learning Can Happen.
All the major initiatives described in this
Chapter support one of these four Tracks.

Goal 1:
Goal 2:
Goal 3:

Goal 4:
Goal 5:
Goal 6:

The National Education Goals
By the year 2000, all children in America will start school ready to learn.
By the year 2000, the high school graduation rate will increase to at least 90 percent.
By the year 2000, American students will leave grades four, eight and twelve having demonstrated competency in challenging subject matter, including English,
mathematics, science, history, and geography, and every school in America will
ensure that all students learn to use their minds well, so they may be prepared
for responsible citizenship, further learning, and productive employment in our
modern economy.
By the year 2000, U.S. students will be first in the world in science and mathematics.
By the year 2000, every adult American will be literate and possess the knowledge
and skills necessary to compete in a global economy and exercise the rights and
responsibilities of citizenship.
By the year 2000, every school in America will be free of drugs and violence and
offer a disciplined environment conducive to learning.

The AMERICA 2000 Commitment
Each
1.
2.
3.
4.

State or community agrees to undertake four tasks:
Adopt the six National Education Goals as its own.
Develop a State/community-wide strategy to achieve them.
Design a report card to the public to measure results.
Plan for and support a New American School.

Part One-lO
Because AMERICA 2000 is first and foremost
an agenda for State and local action, the
key to its success lies in adoption of its
principles by each State and community.
Only the full participation of all citizens
and sectors of society can bring about the
sustained effort necessary to improve student
achievement. To this end, States and communities are making commitments to locally
tailored implementation of the principles and
actions described in the AMERICA 2000
strategy.
By the end of December 1991, over half
the States and more than 1,000 communities
had already made formal commitments to
AMERICA 2000.
Leadership for Education Reform
The Administration took up the challenge
of leadership in education reform from the
beginning of the President's term and has
pursued it vigorously ever since. The Bush
Administration:
• Transmitted to Congress the first Excellence in Education Act in April 1989.
• Formed the first President's Education
Policy Advisory Committee so that leading
citizens from business, education, and the
public can provide advice directly to the
President on education problems and solutions.
• Convened the historic Education Summit
with the Nation's Governors in Charlottesville, Virginia, September 1989.
• Promulgated the six National Education
Goals, which have been adopted by the
Nation's Governors.
• With the Nation's Governors, formed the
National Education Goals Panel to report
on progress toward the goals. The panel
published its first annual report in September 1991.
• Established the Federal Coordinating
Council on Science, Engineering and Technology, Committee on Education and
Human Resources, to analyze and coordinate Federal policy for mathematics and
science education.

THE BUDGET FOR FISCAL YEAR 1993

• Convened SCANS—the Secretary of Labor's Committee on Achieving Necessary
Skills—to analyze the education needs of
the workplace of the future.
• On April 18, 1991, launched AMERICA
2000, a four-pronged strategy to transform
American Education.
• In June 1991, transmitted the AMERICA
2000 Excellence in Education Act to Congress, containing new program initiatives
to help States achieve the National Education Goals.
• In June 1991, transmitted the Higher
Education Act Amendments of 1992.
• Asked the business community to form the
private non-profit New American Schools
Development Corporation, to fund development of new models of schooling.
• Signed the National Literacy Act.
• Obtained Congressional approval for a National Council on Education Standards
and Testing.
IV. INCREASING ACCESS TO HIGHER
EDUCATION FOR FAMILIES AT ALL
INCOME LEVELS, AND REWARDING
ACADEMIC ACHIEVEMENT
The Federal Government, through the programs of title IV of the Higher Education
Act (HEA), provides for 75 percent of all
funds for grants, loans, and work-study jobs
available to postsecondary students. While
States provide the largest share of funding
for higher education, most State aid is provided to institutions without regard to the
financial needs of students. The Federal Government's aid makes financial access to higher
education possible for students of all incomes.
The Administration's proposals for reauthorization of the Higher Education Act were
transmitted in June 1991 and are modified
for the budget.
Pell Grants and Rewards for Academic
Achievement
Pell Grants.—The budget proposes the
highest funding for Pell grants and the largest
one year increase in history, with a 1993 request of $6.6 billion, $1.2 billion, or 22 percent,
over 1992, to support awards to 3.4 million

4. REFORMING AMERICAN EDUCATION AND INVESTING IN HUMAN CAPITAL

students. The maximum Pell grant would be
raised to $3,700, a 54 percent increase over
the 1992 level of $2,400. The average award
would increase for all income categories, and
the overall average award would rise from
$1,452 to $1,846.
A primary limitation on middle-income family access to Pell grants is the requirement
to provide a contribution toward the cost
of education based on home value. Home
values have risen much faster than family
income, but the law still assumes a family
can borrow a correspondingly larger share
of home equity, even if its income cannot
support the payments. In response, the budget
proposes to cap the amount of home value
assessed for the family contribution at three
times the family's income level.
The budget increases Pell grant funds for
students from all income categories up to
$50,000. Low- and middle-income persons
would see substantial increases in Pell grant
aid. For those with incomes less than $20,000,
the average award would increase 31 percent,
and program funds would increase by almost
$545 million.
Presidential
achievement
scholarships.—The budget again proposes scholarships of up to $500 to every Pell recipient who
demonstrates high academic achievement.
High school seniors and college students who
are eligible for Pell grants could receive an

Part One-59

additional $500 on top of their Pell grants in
recognition of their superior academic achievement. Eligible high school seniors would be
those that rank in the top 10 percent of their
graduating class, or who score at high levels
(to be set in regulation) on national standardized tests. Qualifying college students would
be those who rank in the top 20 percent of
their college class.
For the first time ever, the Federal government would be signaling to the 3.4 million
Pell grant recipients that improved academic
performance should be their goal and will
be rewarded.
Student aid reform proposals would make
determinations of dependency more accurate,
remove more abusive proprietary schools with
bad student completion, job placement and
default records from the programs, and institute a modest academic achievement standard
as a qualification for aid. These program
improvements have the indirect effect of lowering the number of students who might otherwise receive Pell grants, but these reforms
are clearly necessary to assure program integrity.
Guaranteed Student Loans and Other
Student Aid
Guaranteed student loans (GSL) program reforms.—The GSL program requires
extensive improvements in program manage-

Table 4-8. ADJUSTING PELL GRANT ASSESSMENTS TO INCREASE
ACCESS FOR MIDDLE-INCOME FAMILIES
Note: Proposal expands middle-income student access to Pell grants by placing a limit on
assessment of home values. Home values have risen faster than incomes and family
ability to support debt.
(In dollars)
Example
Current Law
Family Income
Calculation:
Assessecl/Capped Home Value 1
Less mortgage outstanding
Assessed Equity 2
1
2

40,000

200,000
-40,000

120,000
-40,000

160,000

80,000

Proposal excludes all home value above three times income.
Assessed equity is further reduced by an asset protection allowance based on parents' age.

Proposal

Part One-lO

THE BUDGET FOR FISCAL YEAR 1993

Table 4-9. THE BUDGET INCLUDES A 22 PERCENT INCREASE IN
PELL GRANT FUNDING OVER 1992 AND A 48 PERCENT INCREASE
OVER 1989
1992
Enacted

1993
Proposed

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

Pell grants in total:
Budget authority (in millions of dollars)
Maximum award (in dollars)
Average award (in dollars)

5,463
2,400
1,452

6,641
3,700
1,846

+1,178
+1,300
+394

+22%
+54%
+27%

Funding by Income Category (in millions of dollars):
Under $10,000
$10,000 to $20,000
$20,000 to $30,000
$30,000 to $40,000
$40,000 to $50,000
$50,000 and above

3,398
1,355
616
165
38
10

3,697
1,601
712
221
47
10

+299
+246
+95
+57
+9

+9%
+18%
+15%
+34%
+24%

Average Award by Income Category (in dollars):
Under $10,000
$10,000 to $20,000
$20,000 to $30,000
$30,000 to $40,000
$40,000 to $50,000
$50,000 and above

1,635
1,466
1,100
809
649
552

2,137
1,921
1,305
999
764
752

+502
+455
+205
+190
+115
+200

170
500

+170
+500

Presidential Achievement Scholarships:
Budget authority (in millions of dollars)
Scholarship award (in dollars)

ment, as well as legislative restructuring, to
restore its integrity and ensure that the largest student aid program functions effectively
and efficiently. The Administration has undertaken significant management reforms and
proposed responsible reform legislation.
Program management reforms are based
on the recommendations of a study conducted
by the Department of Education and the
Office of Management and Budget in
1990-1991. The legislative changes were proposed in June 1991, for the Higher Education
Act reauthorization. Recognizing the urgency
of the problems, Congress moved quickly
to enact several important changes in the
Emergency Unemployment Compensation Act
of 1991. These include: garnishment of wages
for defaulted borrowers; credit checks for
borrowers age 21 and over; requiring a creditworthy co-signer if a negative credit history

—
—

—

+31%
+31%
+19%
+23%
+18%
+36%
—
—

is found; and authorizing data matches with
Federal agencies to locate defaulters.
Additional essential structural changes proposed would:
• Improve School Quality.—The budget includes $50 million to help States take an
active role in licensing schools, the first
step toward improving school quality.
Eventually, as described more fully in the
Job Training 2000 section below, the modified Private Industry Council (PIC) system
would help assure that only quality vocational programs are eligible for aid.
• Reduce Federal risk.—Lenders with default rates in excess of 20 percent would
have their subsidy payments reduced by
.25 percentage points. States would support their guarantee agencies with the
equivalent of "full faith and credit" backing, increasing State incentives to work

Part One-61

4. REFORMING AMERICAN EDUCATION AND INVESTING IN HUMAN CAPITAL

with the Education Department to avert
a financial collapse that threatens student
access to loans. States would pay a share
of excessive default costs at schools they
license.
• Stabilize guarantee agencies.—Guarantee
agencies would be required to maintain
minimum reserve levels and be subject to
new requirements for financial oversight.
In the event of impending collapse of a
guarantee agency, the Secretary would be
able to take over the agency and prevent
harm to students.
• Prevent defaults and enhance collections.—
The proprietary school gross default rate
is currently 45 percent. Students at fouryear colleges default at a rate of 13 percent. High defaults generated by abusive
proprietary schools are taking funds from
good students at good schools—including
good vocational schools. Reform is essential.
Proposals would: require 60-day delayed
disbursement for first-year students at
schools with default rates over 30 percent;
require lenders to offer graduated repayment schedules; eliminate eligibility for
programs of less than 600 hours; bar foreign schools, which are hard to monitor;
and extend indefinitely the elimination of
statutes of limitations for collecting defaulted loans.
• Increase loan amounts.—Substantial increases in the annual and cumulative loan
limits are requested to further help students meet the cost of education.
Support services for disadvantaged students—The budget proposes $417 million, an
increase of 6 percent over 1992, for programs
to help disadvantaged students learn about

and prepare for college, complete college educations, and attend graduate programs. The
Administration proposes legislative reforms for
the pre-college programs that would link them
with State and local education programs to
maximize effectiveness. Currently, these programs operate through individual colleges and
are not required to be part of State and local
strategies to prepare their students for higher
education.
Tax incentives for education.—The Administration proposes two major tax incentives
to help meet the rising cost of education:
• Allow deduction of interest on student
loans for postsecondary education tuition,
fees and reasonable living expenses. Interest could be deducted as of July 1, 1992
on existing and new student loans. The
deduction is estimated to save families
$443 million in 1993, and $3.6 billion
through 1997.
• Allow penalty-free withdrawal of money
from individual IRAs if that money is used
for educational or medical expenses. Education expenses could be for the IRA
owner or spouse or children of the IRA
owner.
V. WORK FORCE DEVELOPMENT
JOB TRAINING 2000—Transforming the
Federally-Funded Vocational Education
and Job Training Programs into a
Market-Driven, Effective and Efficient
System
More than 60 programs administered by
seven Federal agencies offer vocational education and job training at a cost of about
$18 billion each year. Services are disjointed,
administration is inefficient, and few individuals—especially young, low-income, unskilled

Table 4-10. NEW TAX INCENTIVES FOR EDUCATIONAL DEVELOPMENT
(In millions of dollars)
1993
Deductibility of student loan interest
Penalty-free IRA withdrawal*

443
118

* Includes estimates for penalty-free withdrawal for both educational and medical expenses.

1992-97
3,555
648

Part One-lO
people—can get good information on program
quality, job opportunities or skill requirements.
Eligible populations overlap, and business
has only limited input to the system. Weak
quality controls have allowed hundreds of
unscrupulous proprietary institutions to take
billions of dollars in Federal subsidies without
providing effective training.
Business' extensive investment in training—
about $30 billion per year for formal training,
mainly by large firms—meets the needs of
many workers. But for those who want
and need help from federally supported job
training and postsecondary vocational education, only a bewildering maze of programs
awaits. Programs must be improved and
delivery streamlined to meet the demands
of the changing work place.
The Administration proposes to transform
this incoherent complex of programs into
a vocational training system responsive to
the needs of individuals, business, and the
national economy. The Job Training 2000
initiative would be coordinated through the
Private Industry Councils (PICs) formed under
the Job Training Partnership Act (JTPA).
A modified, expanded, accountable PIC system
would receive grants to administer or coordinate service delivery of the major Federal
vocational training resources. It would provide
training program quality control in cooperation
with the States, and assure an effective,
efficient system to meet the workforce development needs of the Nation into the next
century.
The Client's Perspective.—In contrast to
the current program maze, individuals would
enter the Federal job training system through
"one-stop shopping" Skill Centers. These centers would replace the dozens of entry points
now in each community. Centers would
present a coherent menu of options and services: training referral, vouchers, job placement
assistance, information on training institutions
and job market projections. Disadvantaged individuals would continue to be eligible for support services.
Two kinds of clients would be served:
(1) the unemployed who are job ready and
seek placement assistance; and (2) youth
and adults—many of whom are disadvantaged—who want or need a vocational

THE BUDGET FOR FISCAL YEAR 1993

or job training program before they can
obtain a job. All would benefit from better
information on area job prospects. All would
make better training choices based on information provided by Skill Centers on institutional
quality and on the needs of the local employer
community.
PIC structure.—Now located in 641 JTPA
local service delivery areas, PICs would form
the management core of the new system. PIC
membership would continue to be centered
around business representatives; local education and social service program officials also
would sit on the board. The benefits of this
business community input, now available only
to JTPA, would be extended to the other major
Federal vocational training programs.
Program structure.—The new PIC would
manage or coordinate local delivery of services
for about $12 billion from Federal programs.
Federal resources would continue to be appropriated through current agencies, but local delivery would be coordinated and streamlined.
No post-secondary vocational school or program could have access to Federal aid without
local PIC certification. Business and community leaders on PICs are best able to assess
the ability of local vocational institutions to
meet local labor market needs.
Certain programs—vocational training under
title IV of the Higher Education Act, JTPA's
dislocated worker assistance, AFDC/JOBS, vocational rehabilitation, and Veterans vocational education—would retain their existing
local program structure, but certification and
approval of vocational training programs
would be coordinated through PICs. Only
participation in certified training programs
would be funded.
The often ineffective Employment Service
(ES) would be restructured and its resources
incorporated into Skill Centers. Skill Centers
would offer testing, counseling, job market
information, and referral to jobs, JTPA, AFDC/
JOBS, and other vocational training programs
or postsecondary institutions at which student
aid would be available. Certain current ES
activities, such as veterans employment services and alien labor certification, would continue as adjunct activities of the Skill Centers.

4. REFORMING AMERICAN EDUCATION AND INVESTING IN HUMAN CAPITAL

CURRENT APPROACH:
Maze of Programs
with Multiple Offices and
Confusing Bureaucracy

Part One-63

JOB TRAINING 2000
One Stop Shopping
for Counseling and
Services
PIC/Skill
Center

Job Corps

Vocational
Education

Where To Go?

Certifying programs.—Working with State
approving agencies, a PIC certifying committee
would approve all training programs based on
curricula; reasonable costs; the record on student retention, completion, job placement, duration on the job; and loan default rates. Ineffective programs could no longer receive Federal funds. The focus would be on program
quality and the needs of labor markets.
$2.2 billion in new training vouchers.—
A portion of current JTPA contract funds, Food
Stamp employment and training funds, and all
Perkins Act postsecondary funding would be
allocated to the PICs to finance training vouchers. The JTPA and Perkins Act resources
would be allocated to each PIC by formula
based on its relative share of unemployment
and the poverty population. PICs would issue
vouchers for classroom training, on-the-jobtraining, and training-related and support
services. Recipients of these vouchers would
be low-income and disadvantaged youth and
adults, as defined by the eligibility criteria
spelled out in the Administration's proposed

Youtii and adults looking for new jobs or
training, as well as dislocated workers,
would have a single community skill center
to identify the best program for each
student/worker and match the business
community with quality trainees.

JTPA amendments. Of the total, $683 million
could be used at PIC discretion for summer
youth jobs program vouchers.
Voucher programs of the Higher Education Act and Veterans vocational training program.—The current voucher programs
for vocational training under the Higher Education Act—Pell grants and Guaranteed student loans (GSL)—and Veterans vocational
training would continue as now, but could be
used only in PIC-certified vocational programs.
Pell and GSL applicants would consult with
the Skill Center on vocational programs. Recipients would no longer be limited to information they receive from an institution. They
would learn about job prospects by occupation,
the quality and track record of area institutions, and availability of financial aid.
Training and services contracting.—In
rural areas, areas in which there are insufficient training opportunities, and where existing training programs are unable to serve the
extremely disadvantaged effectively, a PIC

Part One-lOO

THE BUDGET FOR FISCAL YEAR 1993

would retain the authority and resources to
contract for services.
Recruiting for Job Corps.—Job Corps provides residential education and training services for a particular group of very disadvantaged young people. To ensure that eligible young people select the best option to meet
their needs, Skill Centers would refer eligible
youth who are interested in and could benefit
from attending a residential training program
to Job Corps.
Incentives for better training.—Job Training 2000 would improve accountability for results through financial incentives to training
institutions. Whether funded by contract, new
vouchers, Pell grants or GSLs, at least 20 percent of the amount the training institution
would otherwise receive (excluding student living expenses) would be withheld until the
trainee completes the program and holds a job
in the field of training for at least 90 days.

Budget effects.—Overall, the initiative is
expected to be budget neutral within the significantly increased education and job training
budget totals proposed for 1993. The Job
Training 2000 reforms would generate budget
savings through administrative efficiencies,
training cost controls, and almost certainly
lower student loan default rates. Savings
should be offset by increased demand for the
higher quality services, as the system becomes
fully operational and known to people seeking
job training and placement services.
Next steps.—In early 1992, the Administration will forward detailed legislation to Congress to implement Job Training 2000. In the
interim, the appropriations request for 1993
is based on existing statutory authority and
reforms proposed for individual programs.
Job Training 2000
effective job training
needs of the labor
needs to be a part of

will give America an
system that meets the
market. That system
a still broader strategy

Table 4-11. RESOURCES FOR JOB TRAINING 2000
(Budget authority; dollar amounts in millions)
1993
Proposed
I. Direct PIC/Skill Center Resources:
Training vouchers
Training and support service contracts
Administrative grants to localities
Job Corps recruitment
Skill center operations
Veterans employment service, other
Total
II. Programs coordinated through PICs:
AFDC/JOBS
Pell grants for vocational training
GSL for vocational training
Other student aid for vocational training
Vocational rehabilitation training
Veterans vocational training
"Tech-Prep" 4 year programs
JTPA title III dislocated worker program
Subtotal
Total

2,204
472
275
40
2 1,029
90

4,110
1,000
2,395
2,524
100
400
495
100
577
7,591
11,701

1 Includes: $1,025 million from JTPA Title II; $396 million from Perkins Act postsecondary vocational training;
$100 million from Food Stamp employment and training; $683 million from summer youth program.
2 Includes: $971 million from the Employment Service; $58 million from Food Stamp employment and training.

REFORMING AMERICAN EDUCATION AND INVESTING IN HUMAN CAPITAL

linking business, education, and lifelong learning, as outlined in Track III of AMERICA
2000. It is supported by other policy initiatives
and resources. These components are described
next.
Additional Programs and Strategies in
Support of Workforce Development
AMERICA 2000 calls for America to become
"A Nation of Students," acquiring the education and skills necessary for the competitive
economy of today and tomorrow and committed
to lifelong learning. The Departments of Labor
and Education are the principal agencies
for workforce development activities.
Skills standards.—Just as the elementary
and secondary education system needs standards by which to judge the adequacy of teaching and learning, so, too, do industries need
to develop voluntary, specific skills standards
to ensure a qualified workforce. In July 1991,
the Secretary of Labor's Committee on Achieving Necessary Skills (SCANS) identified general competencies and a foundation of skills
and personal qualities necessary good job performance.
In 1992, the Education and Labor Departments will be working with committees representing individual industries and their workers to identify their specific training requirements. The Secretary of Labor's National
Advisory Committee on Work-based Learning
continues to support voluntary industry-based
skill standards, and to research methods
and incentives for private investment in workrelated education.
Youth apprenticeship and the transition
from school to work.—The Labor and Education Departments will work together to encourage establishment of a nationwide system
of structured apprenticeship training programs, tied to the skills standards being developed. Students choosing apprenticeships would
make formal agreements with the school, the
employer and the parents or guardian, for a
structured combination of academic instruction, classroom training, paid on-the-job-training and work experience, and mentoring. One
incentive for employers to participate in such
programs will be expanded authority under the
Fair Labor Standards Act to pay training

Part One-65

wages to workers enrolled in approved apprenticeship programs.
Federal aid for lifelong learning.—The
pace of change in the workplace is accelerating. Skills learned for today may not be relevant a few years later. Older workers re-entering the job market may need one or more
courses to update their skills. The Administration proposes that subsidized loans under the
Guaranteed student loans program (GSL) be
available to help pay for this training.
To facilitate access to this and other Federal
training aid, the budget includes $2 million
for a feasibility study and demonstration
of bank-card-like education cards. It would
contain data a training institution would
need to determine eligibility for loan programs
and other aid. This would make applying
for aid easier and encourage more people
to get the training they need. The card
could also carry a summary of education
and work history to facilitate job applications.
Vocational education.—The budget requests $1.2 billion for Vocational education
programs. This includes $991 million for basic
grants to States, a four percent increase over
1992. States are beginning a major overhaul
of vocational education programs, beginning
with assessments of their population's needs
and the quality of the programs. The budget
provides $100 million, an 11 percent increase
over 1992, for "Tech-Prep" vocational education
programs, which integrate secondary and postsecondary education for students entering
technical occupations.
Job Corps.—The budget requests $910 million for Job Corps, a residential education and
training program for severely disadvantaged
youth, ages 14 to 21 years. This level of funding would support 69,367 young people at 109
centers.
The National Literacy Act.—On July 25,
1991, the President signed the National Literacy Act signaling renewed Federal priority
for programs and policies to raise literacy levels. One of its most significant provisions created the National Institute for Literacy Research and Practice, for which the budget requests $5 million. The Institute will be a national resource center on adult literacy issues,
conducting research and providing technical

Part One-lOO
assistance to States and other program providers.
The Literacy Act also created the National
Workforce Literacy Assistance Collaborative
in the Labor Department. The budget provides
$1.2 million for this activity, which provides
technical assistance on literacy training to
small- and medium-sized firms.
Adult education.—The budget provides
$304 million for literacy and basic education
for adults under the Adult Education Act. Included is $261 million, an 11 percent increase,
for grants to States. The National Literacy Act
requires each State to develop a system of indicators of program quality, to evaluate programs, and to assess State-wide progress on
adult literacy.
AFDC/JOBS.—The budget includes $1 billion, the full amount authorized, to finance the
Federal share of the Job Opportunities and
Basic Skills program (JOBS). JOBS helps eligible parents receiving assistance under the Aid
to Families with Dependent Children program
(AFDC) obtain education, training, and employment services, and thus avoid long-term
welfare dependency.
The AFDC demonstration authority will
fund two new employment-related demonstrations. One set of projects would provide
incentives to for-profit companies to train
and place welfare clients in jobs. Another
set would provide lump-sum payments to
recipients who work their way off AFDC.
Worker adjustment and the North American Free Trade Agreement (NAFTA).—
During negotiations over the extension of "fast
track" authority last spring, the Administration agreed to work with Congress to ensure
that there is adequate assistance and effective
retraining for workers who may be displaced
as a direct result of the NAFTA. While the
best worker adjustment program is a healthy

THE BUDGET FOR FISCAL YEAR 1993

and expanding U.S. economy, the Administration recognizes that effective retraining and
adjustment programs facilitate smooth adaptation to shifts in technology and industrial competitiveness. Adjustment services for NAFTAdisplaced workers, whether provided through
the improvement of an existing program or
through the creation of a new program, will
be timely, comprehensive and effective. The
Administration is committed to working with
Congress to ensure that the objectives outlined
above are met and are adequately funded. The
Administration's plan will be forwarded to
Congress when the NAFTA is developed more
fully.
National
Adult
Litercuy
Survey
(NALS).—In early 1992, the National Center
for Education Statistics will sponsor the first
quadrennial national household survey to
measure levels of literacy among the Nation's
adult population, ages 16 and over. The new
survey will, for the first time, provide policy
makers information about the skill with which
various segments of the population can use
printed information. Results should be available in 1993.
Davis-Bacon Act reforms.—Job and skills
development opportunities will be increased as
a result of regulatory and legislative reforms
of the Davis-Bacon Act, which governs construction paid for with Federal funds. Labor
Department regulations, planned for 1992,
would allow the use of "helpers" in a ratio
of two helpers to three journeymen. Under
these regulations, there will be more jobs for
lower skilled workers, providing immediate
employment and potential steps up the job ladder. Additional job opportunities would result
from the legislative proposal to raise the
threshold for contracts to which Davis-Bacon
applies from $2,000 to $250,000. This change
would permit more construction work to be
done within available funds.

Investing in the Future:
5. Focusing on Prevention
and the Next Generation

Part One-67

5. FOCUSING ON PREVENTION AND THE
NEXT GENERATION
HIGHLIGHTS
Through careful investment in prevention,
the Nation can avert premature deaths, extend
average life expectancy, and reduce illness
and disability. To maximize the effectiveness
of the resources devoted to prevention, the
budget focuses on those activities which will
yield the greatest results in terms of improved
health outcomes. The budget proposes to
increase investment in programs serving children to $100 billion, up from $60 billion
in 1989.
The budget accelerates and expands the
investments in prevention and children highlighted in the 1992 budget, including increased
funding for:

• women, infants, and children (WIC) nutritional assistance (+9%);
• Head Start (+27%);
• access to primary care serviced/community
and migrant health centers (+21%);
• National Health Service Corps (+9%);
• nutrition education (+17%);
• breast and
(+24%);

cervical

cancer

screening

• total HIV/AIDS funding (+13%);
• smoking cessation (+5%);
• injury prevention (+9%);

• childhood immunizations (+18%);

• family planning (+8%);

• infant mortality/Healthy Start (+17%);

• tuberculosis prevention (+106%);

Table 5-1. THE BUDGET PROVIDES SUBSTANTIAL INCREASES FOR
PROGRAMS FOCUSED ON PREVENTION AND THE NEXT GENERATION
(Obligations in millions of dollars)

Initiative

CDC Childhood Immunization
Infant Mortality Reduction
(Healthy Start)
Women, Infants, and Children Nutrition Assistance (WIC)
Head Start
Access to Primary Health Care Services
(Community/Migrant Health Centers)
(National Health Service Corps)
Nutrition Education
Breast and Cervical Cancer Mortality Prevention
Smoking Cessation
Physical Fitness and Diet
Injury Prevention
Family Planning
CDC Lead Poisoning Prevention
Tuberculosis Control

1989
Actual

141
5,681
—

1,929
1,235
4,184
482
48
138
—

78
68
1,482
333
—

1992
Enacted

1993
Proposed

Percent
Change:
1992 to
1993

297
7,950
64

349
9,365
143

+18%
+18%
+123%

+148%
+65%
N/A

2,600
2,202
6,334
594
100
152
416
106
100
1,862
461
21
32

2,840
2,802
7,643
684
120
178
515
111
102
2,026
498
40
66

+9%
+27%
+21%
+15%
+19%
+17%
+24%
+5%
+2%
+9%
+8%
+90%
+106%

+47%
+127%
+83%
+42%
+150%
+23%
IS/A
+42%
+50%
+37%
+50%
WA
+214%

Percent
Change:
1989 to
1993

Part One-69

Part One-lOO

THE BUDGET FOR FISCAL YEAR 1993

• evaluations of prevention and children's
programs designed to ensure that Federal
investments yield the highest possible return.

Through coordinated efforts at all levels
of government and the private sector, the
Nation has achieved a 98 percent immunization rate for children entering school.

The budget proposes funding these initiatives at the levels shown on Table 5-1.
These initiatives will yield substantial results,
a number of which are included in Table
5-2.

While the immunization rate for American
children entering school is one of the best
in the world, the Nation still faces difficulties in getting its young children, particularly those living in the inner cities,
immunized on schedule. A recent assessment of immunization levels in selected
low-income inner city neighborhoods revealed that the percentage of two yearolds that had received their recommended
dose of vaccines on schedule ranged from
only 27 to 55 percent.3

INVESTING IN AMERICA'S CHILDREN
The budget reflects the continuing high
priority that the Administration places on
programs serving children. Government-wide
funding for children is projected to rise
from $60 billion in 1989 to over $100 billion
in 1993, a 66 percent increase since 1989
(see Table 5-3).

The budget will increase Federal support
for Centers for Disease Control (CDC)
childhood immunization activities by $52
million, an 18 percent increase over the
1992 enacted level (see Table 5-4). CDC
will use this increased investment to target more of its efforts toward raising immunization levels in inner cities and other
areas where the expected health returns
on these activities are certain to be high.
Further, the budget continues to support
other Federal programs providing immunizations.

Substantial increases are provided for:
• Childhood Immunizations. Childhood immunizations are among the most cost-effective prevention activities. A $1 investment in Measles-Mumps-Rubella (MMR)
vaccine may return $14 in averted medical
care costs.1 Other routinely administered
vaccines such as Diphtheria-Tetanus-Pertussis (DTP) and Oral Polio are reported
to have similarly high rates of return.2 Because of the well established payoffs of
childhood immunizations, the Federal Government has continued to make increasingly large investments in this activity.
1 White CC, Koplan JP, Orenstein WA, American Journal of Public Health, 1985 p. 739-744.
2 Hinman AR, Koplan JP, Developments in Biological Standardization, 1985 p. 429-437.

• Healthy Start/Infant Mortality Prevention.
The Nation's infant mortality rate continues to decline, having reached its lowest
level ever (9.1 deaths per 1,000 live births)
in 1990. But while the overall infant mor3 Department of Health and Human Services, Centers for Disease Control, Center for Prevention Services, 1991.

Table 5-2. THE BUDGET FOR PREVENTION WOULD PROVIDE:
Immunizations
6.7 million polio vaccinations
4.1 million measles-mumps-rubella vaccinations
2.6 million hepatitis b vaccinations

Head Start
157,000 additional children enrolled

Prevention screenings
96,000 additional women screened for breast cancer or cervical cancer
125,000 more children will be screened for lead poisoning

Access to Health Services

445,000 more disadvantaged Americans will have access to primary health care services

Part One-71

5. FOCUSING ON PREVENTION AND THE NEXT GENERATION

Table 5-3 THE BUDGET PROVIDES $100 BILLION FOR CHILDREN'S
PROGRAMS, UP 66 PERCENT SINCE 1989
(Obligations in millions of dollars)
1989
Actual

Nutrition:
WIC
Child Nutrition
Other Nutrition
Nutrition Education
Health:
Maternal/Child Health
Medicaid
Community/Migrant Health
Immunizations
Healthy Start
Other Health
Education and Social Services:
Head Start
Handicapped Education
Compensatory Education
Educational Excellence
Eisenhower Math and Science
Education Programs
Other School Improvement
Child Care Block Grant
Foster Care and Adoption
Social Security
Aid to Families with Dependent
Children and Child Support ..
Refundable Tax Credits
Total Children's Funding

1992
Enacted

1993
Proposed

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

Percent
Change:
1989 to
1993

1,929
4,556
6,863
138

2,600
6,068
11,863
152

2,840
6,451
11,874
178

+240
+383
+11
+26

+17%

554
7,020
180
141

650
15,750
235
297
64
267

674
17,780
265
349
143
298

+24
+2,030
+31
+52
+79
+31

+4%
+13%
+13%
+18%
+123%
+11%

+22%
+153%
+47%
+148%

2,202
2,855
6,707
100

2,802
2,942
6,828
768

+600
+87
+121
+668

+27%
+3%
+2%
+668%

+127%
+40%
+49%

316
1,372
850
2,835
13,876

+48
+34
+25
+335
+639

+18%
+3%
+3%
+13%
+5%

+147%
+26%

1,543
11,262

268
1,338
825
2,500
13,237

11,166
5,785

15,014
10,410

15,303
11,376

+289
+966

+2%
+9%

+37%
+96%

60,465

93,402

100,120

+6,718

+7%

+66%

—

193
1,235
2,103
4,580
—

128
1,089
—

+9%
+6%
—

+47%
+42%
+73%
+29%

—

+54%

—

+84%
+23%

tality rate continues to decline, mortality
for African American infants remains
twice that for white infants—demonstrating the need for intensely targeted
assistance.4

did not adequately fund Healthy Start in
1992. The budget follows up this effort by
requesting a 123 percent increase in funding, raising funding for Healthy Start to
$143 million in 1993.

The budget proposes over $9.3 billion for
all Federal activities to reduce infant mortality, 18 percent above 1992 levels (see
Table 5-5). In the 1992 budget, the President proposed Healthy Start, an important
initiative that targets Federal resources to
15 areas with exceptionally high rates of
infant mortality. Unfortunately, Congress

Additional investment in prenatal care
and nutritional assistance targeted to lowincome women continues to yield high returns. Overall, nearly 25 percent of all
women and nearly 40 percent of African
American and Hispanic women do not
begin prenatal care during their first trimester of pregnancy, the most crucial time

4 Department of Health and Human Services, National Center
for Health Statistics, Monthly Vital Statistics Report, November 28,
1990.

Part One-lOO

THE BUDGET FOR FISCAL YEAR 1993

Table 5-4. INCREASES FOR CHILDHOOD IMMUNIZATIONS
(Obligations in millions of dollars)
Actual
1980

CDC Childhood Immunizations Grants
Other Federal Financing
Sources:
Medicaid EPSDT Screening
Maternal and Child Health
Block Grant
Healthy Start Initiative
Total Resources Available
for Immunizations

1985

1991

141

187

218

297

349

+52

+18%

N/A

100

110

281

423

524

+101

+24%

JN/A

478

554

—

587
25

650
64

674
143

592

795

851

1,111

1,434

1,690

for prenatal care.5 One study has indicated that investment in prenatal care can
yield significant returns: each dollar invested in prenatal care for high-risk
women might save $3 in treatment costs.6
A recent evaluation of the Special Supplemental Food Program for Women, Infants,
and Children (WIC) found that for each
dollar spent on nutritionally at-risk pregnant women and infants, Medicaid spending fell by between $1.92 and $4.21 during
the first 60 days after birth.7
• Women, Infants, and Children Nutrition
Assistance (WIC). The budget continues
the President's strong commitment to WIC
with the largest one-year increase ever
proposed for the program, $240 million (9
percent), for a total of $2.84 billion (see
Table 5-6). This level of support represents a 47 percent increase in WIC since
1989, and a $490 million increase in the
last two years alone. This level of funding
provides sufficient funds for full participation by eligible pregnant women and infants, and allows the number of women,
5 Department of Health and Human Services, National Center
for Health Statistics, Health United States, 1990, (Washington,
D.C.: U.S. Government Printing Office, 1991) p. 57.
6 Institute of Medicine Committee to Study the Prevention of
Low Birthweight, Preventing Low Birthweight (Washington, D.C.:
National Academy Press, 1985).
7 United States Department of Agriculture, Food and Nutrition
Services, "The Savings in Medicaid Costs for Newborns and Their
Mothers from Prenatal Participation in the WIC Program: Addendum" (Washington, D.C., October 1991) p. 5.

1990

1989

Dollar Percent
1992
1993 Change: Change:
Enacted Proposed 1992 to 1992 to
1993
1993

+24
+5%
+79 +123%
+256

+18%

infants and children served to increase by
33 percent since 1989.
• Head Start/Early Childhood Development.
Additional investment in early childhood
education programs such as Head Start
continues to produce significant returns.
Head Start provides a range of comprehensive early childhood development
services, including education, nutrition,
health and other social services. Several
studies indicate that children who enroll
in Head Start experience immediate gains
in cognitive growth, social development,
and health status.8 One study even suggests that for every dollar invested, Head
Start may eventually save $6 in averted
costs associated with special education,
crime, and income support.9
The budget contains the largest singleyear funding increase in the history of
Head Start, proposing an additional $600
million for a total of $2.8 billion (see Table
5-7). With the Administration's proposal,
Head Start will serve an estimated
157,206 more children in 1993, for a total
of 779,206 eligible children receiving a
year of Head Start before entering gram8 Department of Health and Human Services, Office of Human
Development Services, The Impact of Head Start on Children,
Families, and Communities: Head Start Synthesis Project, (Washington, D.C.: U.S. Government Printing Office, 1985).
9 Weikart, David, P., Quality Preschool Programs: A Long-Term
Social Investment, (New York, NY: Ford Foundation, 1989).

Part One-73

5. FOCUSING ON PREVENTION AND THE NEXT GENERATION

Table 5-5. THE BUDGET EXPANDS PROGRAMS TO REDUCE INFANT
MORTALITY
(Obligations in millions of dollars)
Actual
1989

HHS:
Public Health Service:
Services
Research
Training
HCFA Medicaid:
Services
Research
Agriculture (WIC):
Services
Research

1990

1991

1992
Enacted

1993
Proposed

Dollar
Percent
Change: Change:
1992 to 1992 to
1993
1993

764
185
3

747
210
4

1,122
259
17

1,233
292
20

1,383
310
27

+150
+18
+6

+12%
+6%
+32%

2,800

3,100
1

3,500
3

3,800
4

4,800
5

+1,000
+1

+26%
+25%

1,924
5

2,121
5

2,345
5

2,595
5

2,833
7

+238
+2

+9%
+40%

5,681

6,189

7,251

7,950

9,365

+1,415

+18%

5,488
190
3

5,968
216
4

6,967
267
17

7,628
301
20

9,016
322
27

+1,388
+21
+6

+18%
+7%
+32%

—

Total Federal Spending
Total Federal Spending by Function:
Services
Research
Training

Table 5-6. WIC INCREASES BY $240 MILLION—A 47 PERCENT INCREASE
OVER 1989
(Obligations in millions of dollars)
Actual
1989
Women, Infants and Children Nutrition Assistance (WIC)

1991

1992
Enacted

1,929

2,350

2,600

mar school. This unprecedented increase in
Head Start supports participation of all eligible and interested disadvantaged children for one year.
The budget also requests $850 million for
the child care and development block
grant, which was part of the child care
legislation that the President proposed
and subsequently signed in 1990. Funds
from this block grant provide low-income
families with vouchers they can use with
the child care provider of their choice, and

1993
Proposed

2,840

Dollar
Change:
1992 to
1993

+240

Percent
Change:
1992 to
1993

Percent
Change:
1989 to
1993

+9%

47%

provide additional early childhood development services for pre-school age children.
The budget further includes $6 million for
a new initiative in HHS to use local
schools as a way to bring primary health
care services to children from low-income
families who might not already have access to these services. These "Ready to
Learn" grants will enable community
health centers and local schools in selected
low-income communities to provide health
outreach services through local schools.

Part One-lOO

THE BUDGET FOR FISCAL YEAR 1993

Table 5-7. HEAD START INCREASES BY $600 MILLION
(Obligations in millions of dollars)
Actual
1980

1985

1992

1989

1990

1991

1993

Enacted

Dollar Percent
Change: Change:
^ ^
^ t o

Head Start
Child Care Block Grant
"Ready To Learn" Grants

735 1,075
—
—

1,235
—

1,552 1,952
—
732

2,202
825

2,802
850
6

+600
+25
+6

+27%
+3%
JS/A

Total Federal Spending

735 1,075

1,235 1,552 2,684

3,027

3,658

+631

+21%

OTHER PREVENTION INVESTMENTS
• Access to Primary Health Care/Expanding
Community
Health
Centers.
Comprehensive primary health care services
include diagnosis and treatment as well
as education designed to encourage
healthy behavior. Continued investment in
improving access to primary health care
is important to many communities and can
yield sizable returns. There is evidence
that increased access in low-income communities can improve overall health status
and reduce the use of emergency services.10
To put primary health care services within
the reach of people who do not currently
have adequate access (in addition to the
President's comprehensive health care reform strategy), the budget includes an additional $1.3 billion for programs supporting primary and preventive health care
(see Table 5-8).
• National Health Service Corps.—The
budget also contains $120 million, $19 million over 1992, for the National Health
Service Corps (NHSC). This 19 percent increase will enable the NHSC to expand
the program and train additional physicians to provide health services in low income and underserved areas, increasing
the availability of primary case—particularly in low-income underserved areas.
This initiative is a vital part of the President's comprehensive health care reform.
Department of Health and Human Services, Public Health
Service, Healthy People 2000 (Washington, D.C.: U.S. Government
Printing Office, 1990), p. 534.
10

• Nutrition Education.—The budget includes
a large increase to improve services to
WIC participants. USDA's nutrition education initiative includes funding to increase the Expanded Food Nutrition Education Program (EFNEP) in the Extention
Service, allowing additional WIC participants to participate. This program provides intensive nutrition education, food
preparation, and budget management
skills to low-income families with children.
In studies, EFNEP has been shown to be
a cost-effective program which improves
food and nutrition knowledge and practice.
• Breast and Cervical Cancer. Despite increasing Federal investment in breast and
cervical cancer screening, NIH predicts
that over 45,000 women are expected to
die from these two diseases in 1993.11 Unless medical research can produce a treatment to prevent these conditions, the key
to successful treatment of breast and cervical cancer remains early detection. The
earlier these diseases are discovered, the
sooner treatment can begin and the greater the chance of survival.
Screening for breast and cervical cancer
has been increasingly effective at preventing mortality, and the Federal investment
has risen to enable more women to benefit
from such preventive measures. Over the
past 15 years, the incidence of invasive
cervical cancer among women age 65 and
older has dropped at an estimated annual
11 Department of Health and Human Services, Testimony of Dr.
Bernadine Healy, Director of the National Institutes of Health, before the House Government Operations Committee, December 11,
1991.

Part One-75

5. FOCUSING ON PREVENTION AND THE NEXT GENERATION

Table 5-8. THE BUDGET INCREASES SUPPORT FOR PRIMARY CARE
SERVICES BY 21 PERCENT
(Obligations in millions of dollars)
Actual
1989

Community and Migrant Health Centers
Maternal and Child Health Block
Grant
Health Care for the Homeless
National Health Service Corps
HCFA—Medicaid and Medicare

1990

1991

1992
Enacted

1993
Proposed

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

Percent
Change:
1989 to
1993

+15%

+42%

482

506

530

594

684

+90

554

587

650

674

+24

+4%

+22%

+12

+21%

+353%

Total Federal Spending

100

120

+19

+19%

+150%

3,085

3,493

4,292

4,934

6,097

+1,163

+24%

+98%

5,551

6,334

+1,308

+21%

+83%

4,184

4,640

7,643

rate of about 4 percent, due largely to the
increased use of pap smears. While breast
cancer remains a leading cause of death,
the use of mammography for early detection is the best current hope for preventing breast cancer deaths.12

fold increase since 1990. This investment
will focus resources on screening low-income, high-risk women in age groups for
which screening is recommended who otherwise would have no other access to these
prevention activities.

The budget will invest an additional $99
million for screening through the Medicare
program and through the Public Health
Service (see Table 5-9). Of these amounts,
CDC will spend $70 million on breast and
cervical cancer screening grants, a 40 percent increase over 1992 levels, and a 14-

• HIV/AIDS Funding.—Total HIV/AIDS
funding increases by 13 percent to $4.9
billion. This represents an increase of 118
percent in total HIV/AIDS funding since
1989. Funding for HIV/AIDS treatment
also increases substantially (+20 percent)
over 1992.

1 2 Department of Health and Human Services, Health Care Financing Administration, Medicare and Medicaid Guide, (Washington, D.C.: U.S. Government Printing Office, 1990).

• Smoking Cessation.—According to a report
of the Surgeon General, continued investment in smoking cessation, particularly if

Table 5-9. THE BUDGET INCREASES SUPPORT FOR BREAST AND
CERVICAL CANCER SCREENING
(Obligations in millions of dollars)
Actual
1989

HCFA—Medicare:
Mammograms
Pap Smears
PHS (CDC Screening Grants, IHS
Screening, NIH and AHCPR Research and Education Activities)
Total Federal Spending

1990

Enacted

Proposed

Dollar
Change:
1992 to

1992

1991

1993

Percent
Change:
1992 to
1993

—

170
60

290
60

360
70

+70
+10

+24%
+17%

—

+19

+29%

—

272

416

515

+99

+24%

Part One-lOO

THE BUDGET FOR FISCAL YEAR 1993

Table 5-10. TOTAL AIDS FUNDING INCREASES 13 PERCENT OVER
1992 AND 118 PERCENT OVER 1989
(Obligations in millions of dollars)
1989
Actual

1992
Enacted

1993
Proposed

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

Percent
Change:
1989 to
1993

HIV/AIDS:
Research
Treatment
Prevention
Income Support

892
737
483
153

1,189
2,096
594
492

1,238
2,507
621
570

+49
+411
+27
+78

+4%
+20%
+5%
+16%

+39%
+240%
+29%
+273%

Total Federal

2,265

4,371

4,936

+565

+13%

+118%

Note: The figures above are preliminary estimates for programs in the Departments of Health and Human
Services, Defense, Veterans Affairs, Education, Justice, State, Labor, and independent agencies. The total also
includes estimated obligations for the Social Security Administration. In addition to the spending identified above,
the budget includes other initiatives, most notably those related to drugs and infant mortality, that contribute to
the fight against HIV and AIDS.

targeted towards pregnant women, is likely to yield beneficial returns. Smoking during pregnancy retards fetal growth, reduces birthweight, and doubles the risk of
having a low-birthweight baby.13 Studies
have shown a 25-50 percent higher rate
of fetal and infant deaths among women
who smoke during pregnancy compared
with those who do not.14 One study even
suggests that each dollar invested in
smoking cessation for pregnant women
may yield about $6 in averted costs for
neonatal intensive care and extended care
for low-birthweight infants.15 Beyond the
damage tobacco use during pregnancy may
cause, smoking is also a factor in the
deaths of over 400,000 Americans every
single year.16
The budget increases support of smoking
cessation by 5 percent over 1992 levels
(see Table 5-10). Included in this increase
is an additional $3 million for the CDC
Office on Smoking and Health, enabling
CDC to expand its smoking cessation edu1 3 Department of Health and Human Services, The Health Benefits of Smoking Cessation: A Report of the Surgeon General (Washington, D.C.: U.S. Government Printing Office, 1990), p. 367-411.
14 Ibid.
1 5 Marks JS, Koplan JP, Hogue CJ, Dalmat ME, American Journal of Preventive Medicine, 1990 p. 282-289.
16 Department of Health and Human Services, The Health Consequences of Smoking: 25 Years of Progress, A Report of the Surgeon General, (Washington, D.C.: U.S. Government Printing Office,
1989).

cation activities for specific at-risk populations, including minority and low-income, pregnant women.
• Lead Poisoning Prevention. Lead poisoning
is the most common environmental disease
of young children, disproportionately affecting poor, minority children in the inner
cities. Yet childhood lead poisoning may
be preventable.
Preventing lead poisoning is a two-step
process: first, lead poisoning must be detected, and second, the source of the poisoning should be abated. The budget includes $40 million, a 90 percent increase,
for CDC Lead Poisoning Prevention
Grants which support about 30 state-wide
lead poisoning screening programs. CDC
grants allow states to identify low-income
children at risk of lead poisoning and refer
those with high blood lead levels for medical treatment.
In addition to the CDC grant program, the
Department of Housing and Urban Development (HUD) will continue assisting lowand moderate-income private residential
property owners abate lead-based paint by
providing $24 million in grants to States
and localities. HUD's public housing modernization program will continue to be the
main source of funding for lead-based
paint testing and abatement activity in

Part One-77

5. FOCUSING ON PREVENTION AND THE NEXT GENERATION

Table 5-11. THE BUDGET INCREASES SUPPORT FOR SMOKING
CESSATION
(Obligations in millions of dollars)
Actual
1989
HHS:
NIH and ADAMHA Evaluation of
Smoking Cessation Interventions
and Health Effects
CDC (Office on Smoking and
Health)
Total Federal Spending

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

+2%

+30%

106

111

+5%

• Injury Prevention. Preventing injury
through encouraging increased personal
responsibility can also save lives. For example, every one percent increase in seat
belt use saves more than 160 lives per
year. If the U.S. were to increase the national average of seat belt use from the
1990 rate of 48 percent to the Administration's goal of 70 percent by the end of
1992, 3,800 lives could be saved annually
and 100,000 injuries could be prevented—
yielding potential economic benefits of $2.5
billion.17
The budget increases funding for injury
prevention to almost $2 billion, a 9 percent
increase over 1992. These funds will be
used primarily within the Department of
Transportation (DOT) for aviation, rail,
highway, marine, and pipeline and hazardous material transportation safety. An
estimated 50,000 lives are lost annually
in incidents in the transportation sector.
DOT will use these funds for safety inspection and enforcement, research and development, and education programs all aimed
at reducing accidents in the transportation
sector. The budget also includes increased
emphasis on reducing drunk driving and
increasing occupant protection.
National Highway Traffic Safety Administration staff estimates.

1991

1993
Proposed

public housing. It is estimated that approximately $50 million will be spent on
these activities in 1993.

1990

1992
Enacted

• Family Planning. Studies suggest that investments in family planning may also
yield high returns. Some studies attribute
reductions in infant mortality achieved
over the last 20 years in part to effective
family planning.18 Recognizing the importance of these services, the budget contains an additional $37 million for HHS
family planning grants and Federal Medicaid payments, an increase of 8 percent (see
Table 5-12).
• Physical Fitness and Diet. Additional investment in efforts to improve physical fitness and diet may yield significant returns. Studies show that regular physical
activity can help prevent or manage coronary heart disease, hypertension, non-insulin dependent diabetes, osteoporosis,
and obesity. People who are active have
lower rates of colon cancer and stroke, as
well as fewer back injuries. Moreover,
changes in diet have been shown to reduce
the risk of cardiovascular disease and
stroke.
The budget increases funding for health
education, disease prevention, and physical fitness activities. The budget also focuses on bringing health promotion and
disease prevention activities to older
Americans. The Administration on Aging
will provide more health risk assessments,
18 Institute of Medicine Committee to Study the Prevention of
Low Birthweight, Preventing Low Birthweight (Washington, D.C.:
National Academy Press, 1985).

Part One-lOO

THE BUDGET FOR FISCAL YEAR 1993

Table 5-12. THE BUDGET INCREASES SUPPORT FOR FAMILY PLANNING
(Obligations in millions of dollars)
Actual

1992
Enacted

1993
Proposed

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

1989

141
253

144
281

150
311

155
343

+5
+32

+3%
+10%

333

Total Federal Spending

1991

138
195

PHS Family Planning
HCFA—Medicaid

1990

394

425

461

498

+37

+8%

nutritional counseling, group exercise programs and other health promotion activities. These activities might improve the
health and quality of life of older Americans and allow many older people to receive these services regularly.19
• Tuberculosis Control For years, the Nation has been making great strides toward
eliminating tuberculosis (TB). The disease
has been curable and preventable for almost four decades. The long-term decline
in TB morbidity enjoyed by the United
States ended in 1984. TB cases in the U.S.
have been increasing since 1985.20
TB diagnosis and treatment could be an
effective health intervention and the Administration is determined to stem the recent growth of TB levels by attacking the
recent outbreak of this preventable disease
19 Institute of Medicine, The Second Fifty Years: Promoting
Health and Preventing Disability, (Washington, D.C.: National
Academy of Sciences, 1990), p. 182.
2 0 Department of Health and Human Services, Centers for Disease Control, Morbidity and Mortality Weekly Report Surveillance
Summary, January 1992.

head on.21 Therefore, the budget includes
a 106 percent increase over 1992 for CDC
Tuberculosis Control Grants (see Table
5-13).
The budget also includes several policies
designed to enhance the investment in prevention and children:
• Prevention Research. As the Nation's investment in prevention continues to grow,
it will become increasingly important to
know what improvements in health outcomes will result from additional resources. For example, if outcomes (such as
the number of lives saved, the number of
disease cases averted, the years of life extended or the medical costs averted) associated with increased investment in a
given activity could be predicted with accuracy, the Nation could make even better
decisions for allocating Federal resources.
CDC will continue its efforts, beginning
in 1992 to produce innovative, measurable
21 Centers for Disease Control, Center for Prevention Services
staff estimate of the cost-effectiveness of Tuberculosis diagnosis
and treatment.

Table 5-13. THE BUDGET RESPONDS TO RECENT OUTBREAKS OF
TUBERCULOSIS
(Obligations in millions of dollars)
Actual
1989
HHS (CDC Tuberculosis Control Grants
and HIV/AIDS Tuberculosis Control)

1990

1991

1992
Enacted

1993
Proposed

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

+34

+106%

5. FOCUSING ON PREVENTION AND THE NEXT GENERATION

assessment techniques that combine the
overall level of investment in prevention
activities with traditional cost-effectiveness measures. CDC's leadership will
allow the Nation to develop priorities
among prevention activities based on a
thorough understanding of the returns on
possible future investments.
• Improving Program Effectiveness Through
Evaluation. The budget supports efforts in
several programs to maximize the investment in prevention through program evaluation:
Head Start.—Following upon a 1992
budget initiative, this budget includes $12
million in Head Start for enhanced evaluations, research and demonstrations. Although research indicates that children
enrolled in Head Start experience substantial immediate gains in cognitive growth,
school readiness, and achievement, less is
known about the program's long term effects and about the effect of the wide
range of Head Start services.
Healthy Start.—An integral part of the
Healthy Start infant mortality initiative is
a comprehensive evaluation and monitoring component. Healthy Start grantees
have set the goal of reducing infant mortality rates in each grantee's area by 50
percent within five years. The budget continues this effort to assess the progress
of grantees in reducing infant mortality.
Childhood Immunizations.—The budget
encourages innovative efforts to improve
immunization rates, particularly for lowincome, inner city children. The budget
continues to support a $9 million infant
immunization initiative to investigate and
evaluate the potential effectiveness of linking eligibility for continued participation
in low-income assistance programs (WIC,
Medicaid, AFDC) with documented immunization of young children.
HIV Prevention.—While the budget includes a 5 percent increase over 1992 levels for CDC HIV prevention activities, recent reports from the General Accounting
Office and the Institute of Medicine have
indicated that the effects of CDC HIV prevention activities have yet to be fully docu-

Part One-79

mented. This year, CDC and other Federal
agencies will undertake efforts to evaluate
and document how well HIV prevention
funds are currently being used and make
recommendations for improving this vital
investment in the future.
OTHER SOURCES OF INVESTMENT IN
PREVENTION
The Federal contribution is only one—
albeit sizable—component of the Nation's investment in prevention. States, local governments, employers, and health insurers also
invest in prevention and have important
roles to play as well.
States spend billions of their own funds
on public health activities (an estimated
$5.1 billion in 1989), and for the FederalState financed Medicaid program (an estimated $64 billion in State funds in 1993—
up from an estimated $24 billion in 1989).
Local governments also spend billions on
prevention activities ($2.3 billion in 1989),
and play an essential role in directing resources towards their unique problems.
Employers paid an estimated $145 billion
for private health insurance premiums in
1989, a portion of which goes toward preventive services.22 According to the Health
Insurance Association of America (HIAA),
some screening procedures are already
widely available in group policies; 68 percent of employees with job-based health
insurance are covered for mammography,
and 67 percent are covered for pap
smears.23
Health insurers are financing more preventive health care services than in the
past. Major health insurers such as the
Blue Cross and Blue Shield Association
now offer coverage of medical tests for
breast, colon, cervical and lung cancer;
heart disease; hypertension; diabetes; thyroid disease; and osteoporosis.24
2 2 Health Insurance Association of America, Source Book of
Health Insurance Data (Washington, D.C. 1991), p 17.
2 3 Health Insurance Association of America (HIAA) 1990 employer survey.
24 New York Times, June 19, 1991.

Part One-lOO

THE BUDGET FOR FISCAL YEAR 1993

THE FOCUS ON PREVENTION
The current generation of Americans enjoys
the longest life expectancy (over 75 years)
of any in the country's history.25 Many of
the most dreaded diseases that plagued the
U.S. during the 19th and early 20th centuries,
such as cholera, typhoid fever, smallpox,
and polio, have virtually been eradicated
through advances in medical knowledge and
technology, public health, and sanitation.
Despite these advances, significant health
status improvements remain to be made
as Americans still face disease, death and
disability from preventable illnesses. The U.S.
currently ranks 22nd in the world in terms
of life expectancy for males and 16th for
females (The Japanese live longest with males
averaging 76 years and females averaging
2 5 Department of Health and Human Services, National Center
for Health Statistics, Health United States, 1990, (Washington,
D.C.: U.S. Government Printing Office, 1991), p. 67.

82 years.)26 About half of the 2.2 million
deaths which occur in the U.S. every year
are potentially preventable, as are many
of the illnesses that afflict millions of Americans (see Table 5-14).
Three Important Reasons for Investing
in Prevention and Children: One reason is
that careful investment in prevention is simply
good health care policy. As a society, Americans value life. By investing carefully in prevention, hopefully the Nation can continue to
make progress in averting premature deaths,
and thereby extend the average life expectancy
for Americans. Further, if the Nation makes
reasoned choices in prevention, it may also reduce illnesses and disabilities that prevent
people from leading healthy, productive lives.
A second reason to invest in prevention
is that such investments may help to avert
acute conditions and the associated costs
of treating them. For example, it is far
26

Ibid. p. 74.

Table 5-14. LEADING CAUSES OF DEATH AND ILLNESS IN AMERICA,
1992
Cause of Death
Heart Disease
Cancer
Stroke
Injuries
Lung Disease
Pneumoniq/Tnfluenza
Suicido^Homicide
Diabetes
AIDS
Infant Mortality
Liver Disease and Cirrhosis
Additional Causes of Death
Total

Deaths

YPLL

712,254
522,450
142,542
95,085
93,745
84,022
56,430
50,468
51,000
38,118
25,903
332,297

1,286,000
1,870,000
234,000
2,212,000
147,000
179,000
1,527,000
168,000
1,546,000
2,635,000
224,000
629,000

2,204,314

12,657,000

Hospital Discharges
3,528,000
1,364,000
682,000
2,335,000
463,000
1,130,000
IS/A
407,000
154,000
NA
57,000
N/A

N/A

Prevalence
21,010,000
7,076,000
2,516,000
59,161,000
13,967,000
126,224,000
0)
6,221,000
91,000
0)
900,000
NA
IS/A

ItyA= Not applicable.
1 Prevalence figures are not available for Suicide/Homicide and Infant Mortality since prevalence is less
applicable for these causes.
Source: Public Health Service and Centers for Disease Control projections.
NOTE: Prevalence figures are estimates of the number of persons in the United States who have a particular
disease or who will experience serious injury some time during the given year. Years of potential life lost before
age 65 (YPLL), prevalence, and hospital discharges data are provided in addition to cause of death figures since
these three sets of data provide a broader sense of the impact a particular disease has on society. These additional
indicators illustrate, for example, that while some diseases (e.g. diabetes) cause fewer deaths than others (e.g.
cancer), those diseases causing fewer deaths nonetheless affect the lives of a great many Americans. These
indicators also show that since some causes of death, such as infant mortality and AIDS, affect the young
disproportionately, they produce a high number of potential life years lost. Taking a variety of such indicators into
account is thus important when considering prevention activities.

5. FOCUSING ON PREVENTION AND THE NEXT GENERATION

better to pay $65 to immunize a child
fully for measles, mumps, and rubella than
pay the roughly $7,000 it costs to hospitalize
a child for a case of measles.27
Third, investments in prevention activities
which focus on children can help prepare
the Nations children for a healthy and productive future. Many of the most important
risk factors for chronic disease in adults
have their roots in behaviors acquired during
childhood.28 This generation has a responsibility to ensure that children get a good start
in life, and that the Nation's children can
continue to improve on the current 75-year
life span. As the next generation of Americans
grows up, it should enjoy the benefits of
efforts to prevent many of the diseases and
deaths that afflict this generation.
While many activities may be included
under the broad heading of "prevention,"
not all prevention activities lead directly
to a reduction in disease or in lives saved.
A useful framework for distinguishing among
prevention activities is to separate them by
type:
"Salk-like Solutions"—In 1953, Dr. Jonas
Salk developed the polio vaccine and since that
time polio has nearly been eradicated from the
Western Hemisphere. Interventions like Dr.
Salk's polio vaccine are the ultimate preventive measure; they directly prevent a specific
disease from occurring. Further, such "Salklike Solutions" are generally the most effective
since success does not depend upon follow-up
actions. Through intensive medical research,
the Nation is trying to find more "Salk-like
Solutions".
Diagnostic Interventions—Such prevention activities include blood lead level screening, pap smears, mammograms, and blood cholesterol screening. Diagnostic interventions are
generally intended to detect a condition or to
assess the likelihood that a condition could
2 7 Based upon Centers for Disease Control estimates of the cost
to immunize one child for the full schedule of measles, mumps,
rubella vaccine as recommended by the Advisory Committee on Immunization Practices, and on CDC estimates of the cost of hospitalization for measles. The estimates assume that each vaccine is
purchased at the projected 1993 Federal contract price.
2 8 Department of Health and Human Services, Testimony of Dr.
J. Michael McGinnis, Deputy Assistant Secretary for Health, U.S.
Department of Health and Human Services, before the Senate Governmental Affairs Committee, November 14, 1991.

311-000 0 - 92 - 6 (Pt.l)

Part One-81

exist before it becomes a serious health risk.
For example, mammograms do not prevent
breast cancer, but with early detection and
proper medical follow-up, can reduce or prevent breast cancer mortality.
Interventions to Modify Behavior—Such
prevention activities include educational campaigns to reduce smoking or increase the use
of seat belts, or the purchase and delivery of
nutritional food to low-income pregnant women
and infants. Diagnostic interventions and
interventions designed to modify behavior are
not necessarily mutually exclusive. Certain
prevention activities may be diagnostic interventions which require medical follow-up and
may also be designed to modify behavior (for
example, testing for HIV or sexually transmitted diseases; or giving nutrition assistance and
counseling to a pregnant woman).
Identifying effective preventive measures,
so prevention can be promoted and encouraged, is a most important step in achieving
a healthier society. Unfortunately, there are
few "Salk-like Solutions," so most prevention
activities depend upon personal responsibility,
focusing on further medical follow-up or
changes in personal behavior to be effective.
PREVENTION AND THE IMPORTANCE
OF PERSONAL BEHAVIOR
Preventing Deaths and Illnesses: Better
control of fewer than 10 factors—such as
diet, prenatal care, exercise, the use of tobacco,
alcohol and illegal drugs, and the use of
seat belts—could prevent between 40 and
70 percent of all premature deaths, a third
of all cases of acute disability, and twothirds of all cases of chronic disability (see
examples in Behavior Change chart). Many
of these factors involve freely-made individual
choices. Since the preservation of individual
choice is a cornerstone of American democracy,
disease and injury prevention must become
personal as well as national priorities.
The Past: Favorable health effects of past
changes in behavior have been significant,
as investments in prevention and associated
policies designed to promote healthy behavior
have yielded results.
• Smoking. The Nation has witnessed the
effects of changes in behavior across soci-

Part One-lOO

THE BUDGET FOR FISCAL YEAR 1993

CHANGE IN BEHAVIOR, EARLY DETECTION AND
INTERVENTION COUID PREVENT:

4 5 % OF DEATHS

50% OF
DISABILITY

— .
0

1
10

•
I

—

20
30
40
ESTIMATED % OF DEATHS OR DISABILITY PREVENTED

SOURCE: HHS Office of Disease Prevention and Health Promotion

ety as the incidence of one of the leading
contributors to preventable deaths, smoking, has declined from 40 percent in adults
in 1965, to 28 percent in 1990. This dramatic behavior change was brought about
through a complex combination of actions
by individuals, private industry, health
providers, and all levels of government
(see chart).
• Traffic Accidents. Increased use of safety
belts, declines in drunk driving, and better
vehicle crashworthiness have cut the traffic fatality rate by 50 percent since 1973.
If the traffic fatality rate had remained
at the 1973 level, an additional 40,000
lives would have been lost in 1991 alone.
One of the most important factors in reducing the traffic fatality rate has been
the growing use of seat belts and child
safety seats. As shown in the accompanying chart, simply accepting the personal
responsibility for using these safety devices has saved numerous lives. As people
increase their use of seat belts, child safe-

ty seats, and air bags, the Nation will see
more lives saved every year. Air bags will
be installed in an estimated 90 percent
of all new cars sold in the United States
by 1995.
• Heart Disease and Stroke. During the
1980s, death rates declined for two of the
leading causes of death among Americans:
heart disease and stroke. Much of this
progress is attributable to changes in behavior. The more than 40 percent decline
in heart disease mortality since 1970 reflects dramatic increases in high blood
pressure detection and control, the decline
in cigarette smoking, and increasing
awareness of the role of blood cholesterol
and dietary fat. Stroke death rates, which
have dropped by more than 50 percent in
the same period, also reflect gains in hypertension control and reductions in smoking.
The Future: Building on the successes
of these previous prevention investments, the
1992 President's Budget focused resoruces

5. FOCUSING ON PREVENTION AND THE NEXT GENERATION

Part One-83

PERCENTAGE OF ADULT AMERICANS WHO SMOKE CONTINUES TO DECLINE
PERCENT

SOURCE:

HHS Office on Smoking and Health

on prevention. This budget will expand and
deepen the nation's commitment to careful
investment in prevention. There will be many
beneficial results from this investment in
1993, including:
• 6,710,000 polio immunizations, 4,147,000
measles, mumps, and rubella immunizations, and 2,600,000 hepatitis b immunizations;
• an additional 157,206 children per year
will be enrolled in Head Start (all expected
eligible enrollees will have access to one
year of Head Start);
• 445,000 more persons will have access to
primary care services through community
health centers;
• at least 96,000 more women per year will
be screened for breast and cervical cancer;
• 191,000 more adults and adolescents per
year will either quit or never begin smoking; and

• 125,000 more children per year will be
screened for lead poisoning.
The combination of additional dollars contained in the budget and continued improvements in healthy behavior should help maintain the declining trends in morbidity and
mortality—providing better lives for all Americans.
The importance of personal responsibility: Each individual citizen is the final and
perhaps most crucial player in improving
the health of the Nation. Measurable improvements in health outcomes can result from
changes in individual health behaviors. The
normal course of daily activity presents each
person with numerous opportunities for promoting health and preventing disease. Yet
with each opportunity comes the responsibility
that each person has for his or her own
personal health habits.29
2 9 U.S. Department of Health and Human Services, Public
Health Service, Healthy People 2000: National Health Promotion
Continued

Part One-lOO

THE BUDGET FOR FISCAL YEAR 1993

INCREASING USE OF SEATBELTS AND CHILD SAFETY SEATS SAVES LIVES
NUMBER OF LIVES
5,000

4,000

PERCENTAGE USE

100

3,000

2,000

1,000 -

1983
•
SOURCE:

1984
1985
1986
1987
1988
1989
1990
% OF DRIVERS USING SEAT BELTS • % CHILD SEATS USED

DOT National Highway Traffic Satety Administration

and Disease Prevention Objectives (Washington, D.C.: U.S. Government Printing Office, 1990), p. 85.

Investing in the Future:
6. Enhancing Research and
Development and Expanding
the Human Frontier

Part One-85

6. ENHANCING RESEARCH AND
DEVELOPMENT AND EXPANDING THE
HUMAN FRONTIER
It is by now widely recognized that a
key to enhancing long-term economic growth
in America is improving productivity. Productivity growth will enable our economy
to grow faster than our population—thus
making possible improvements in America's
standard of living.
The Bush Administration has proposed,
over the past three fiscal years, a pattern
of investment in areas of research and development that will help to boost productivity
and improve economic performance. This budg-

et continues that pattern of aggressive investment in both basic and applied R&D. Today
new frontiers are emerging in science, space
and technology, including new materials, advanced computing, manufacturing methods,
space exploration, and biotechnology. By helping to expand America's knowledge base in
these and other areas, and by advancing
the development of new technologies, the
budget lays the groundwork for growth.
This chapter discusses a range of Federal
research and development programs and is-

Table 6-1. ENHANCING RESEARCH AND DEVELOPMENT AND
EXPANDING THE HUMAN FRONTIER—HIGHLIGHTS
(Dollar amounts in millions)

Budget Authority

Applied Research:
High Performance Computing and Communications
Advanced Materials and Processing
Biotechnology Research
Energy R&D
Moving Fusion Energy from Science to Engineering
Advanced Manufacturing R&D (non-defense)
Transportation R&D
Protecting the Public Health
Expanding R&D at the National Institute of Standards and
Technology
Space Technology
Basic Research:
Doubling the NSF Budget by 1994
Support for Individual Investigators (HHS, NSF, DOE) ,
Human Genome Project
Superconducting Super Collider
U. S. Global Change Research Program
Astronomy and Astrophysics
National Research Initiative (USDA)
Maintaining National Security: Defense R&D:
Defense
Energy
Expanding the Geographic Frontier:
Improving Access to Space
Space Exploration

1989
Actual

1992
Enacted

1993
Proposed

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

WA
IS/A
N/A
397
347
N/A
802
3,482

655
1,659
3,759
774
337
252
1,224
4,757

803
1,821
4,030
914
360
321
1,433
4,849

+148
+162
+271
+140
+23
+69
+209
+92

+23%
+10%
+7%
+18%
+7%
+27%
+17%
+2%

159
256

247
273

311
305

+64
+32

+26%
+12%

1,923
5,884
IS/A
98
N/A
617
N/A

2,572
7,273
164
484
1,110
836
98

3,026
7,939
175
650
1,372
890
150

+454
+666
+11
+166
+262
+54
+52

+18%
+9%
+7%
+34%
+24%
+6%
+53%

38,031
2,321

40,043
2,668

40,509
2,640

+466
-28

+1%
-1%

4,411
1,433

5,312
2,646

5,412
2,836

+100
+190

+2%
+7%

Part One-87

Part One-lOO

THE BUDGET FOR FISCAL YEAR 1993

sues, including space and defense, that are
related to these frontiers. The budget proposes
to invest over $76 billion for research and
development, including R&D facilities, in 1993.
This represents an increase of nearly $2
billion, or 3 percent over 1992. Within this
total, Federal civilian R&D would increase
by 7 percent, while defense-related R&D
would increase by 1 percent. The budget
proposes over $14 billion for basic research,
an increase of over $1 billion, or 8 percent,
over 1992. The budget also proposes over
$17 billion for civilian applied research and
development, an increase of over $1 billion
or 6 percent.
The budget proposes several crosscutting
investments that will build the base for
the continuing expansion of the frontier of
knowledge: a new initiative to improve the
synthesis, processing and performance of both
new and traditional materials; a new initiative
to increase funding for biotechnology research,
especially in applications; and continuation

and strengthening of initiatives in high performance computing and communications and
global change research. In addition, the budget
proposes to expand the initiative to improve
mathematics and science education at all
levels, as discussed in Chapter 4, "Reforming
American Education and Investing in Human
Capital."
The budget proposes to provide support
for several important civil space programs,
including Space Station Freedom, space
science missions such as the Advanced Xray Astrophysics Facility and the Earth Observing System, and new initiatives such
as the new launch system, the National
Aerospace Plane, and technology related to
exploration of the Moon and Mars. Because
of the President's desire to constrain the
overall growth of Federal spending, however,
and in response to Congressional directives,
the total increase for civil space programs
is only $738 million, or 5 percent.

HIGHLIGHTS
APPLIED RESEARCH
These initiatives help to spur innovation
and the movement of new products and
processes from the laboratory to the marketplace.
High Performance Computing and Communications.—The budget proposes an increase of $148 million, or 23 percent, to a total
of $803 million for the second year of an interagency program to help establish American
pre-eminence in the fields of high performance
computing and communications. This Presidential Initiative initiative, involving nine Federal agencies (in addition to the private sector),
will focus on the underlying research and the
academic training needed to accelerate significantly the availability of the next generation
of high performance computing systems and
digital communications networks. The goal is
to assist in the development of computing capability with roughly 1,000 times improvement
over current systems by 1996 and communications systems 100 times faster than those currently in use.

Advanced Materials and Processing.—
The budget proposes $1,821 million, an increase of 10 percent over 1992, for a 10-agency
program intended to improve the manufacture
and performance of materials. This new Presidential Initiative is intended to achieve advances in materials that will enable improvements in a wide range of other technologies.
Emphasis will be placed on research on materials synthesis and processing, two areas critical to developing new materials and to improving the quality of all materials.
Biotechnology Research.—The budget proposes $4,030 million, an increase of $271 million or 7 percent over 1992, for biotechnology
research programs in 12 agencies. This new
Presidential Initiative capitalizes on the current U.S. leadership in biotechnology, and recognizes the key role biotechnology plays in enhancing the Nations technological strength,
economic growth, and the health and quality
of life of its people. The program will emphasize potential new applications of biotechnology
in
health,
manufacturing/
bioprocessing, and the environment; will

6. ENHANCING R&D AND EXPANDING THE HUMAN FRONTIER

strengthen research and infrastructure for
structural biology; and will expand interdisciplinary training at the interfaces of biology, chemistry, physics, mathematics, computer science, materials science, and engineering.
Energy Technology R&D.—The budget
proposes $914 million, an increase of $140 million, or 18 percent, for investments in targeted
high-payoff technologies and strategies to increase the efficiency of energy use, to develop
cost-effective alternatives to petroleum and to
advance new electricity technologies, including
battery technology. This investment is guided
by the National Energy Strategy which was
announced by the President in February, 1991.
Fusion R&D.—The budget proposes $360
million, an increase of $23 million or nearly
7 percent for the development of energy from
nuclear fusion. This National Energy Strategy
initiative maintains the strong national commitment to the International Thermonuclear
Experimental Reactor (ITER) engineering design activity. The ITER experiment is carried
out in partnership with Japan, the European
Community, and Russia.
Advanced Manufacturing R&D.—The
budget includes over $1 billion for R&D on
advanced manufacturing technologies. This includes an increase of 27 percent for
nondefense-related manufacturing R&D. In addition, the budget proposes an increase of $25
million to a total of $105 million for the National Science Foundation for a new initiative
in manufacturing research. The budget also
proposes $27 million for manufacturing R&D
at the National Institute of Standards and
Technology.
Transportation R&D.—The budget proposes $1,433 million, an increase of 17 percent,
for transportation R&D, funded primarily by
the Department of Transportation (DOT) and
the National Aeronautics and Space Administration (NASA). The increase will support continued high-priority R&D on aviation and
high-speed rail projects. For R&D in DOT, the
budget proposes $498 million, an increase of
12 percent, for research programs to improve
air traffic management, to increase the use of
satellites for aviation navigation and communications, for improved intelligent vehicle/highway systems and for magnetically levitated

Part One-lOl

trains. For aeronautics R&D in NASA, not including high-performance computing, the budget proposes $855 million, an increase of $98
million or 13 percent. The increase will support continued high-priority R&D on environmental issues associated with supersonic flight
and on high-temperature propulsion materials.
The budget also includes $80 million for continued technology development for the joint
NASA/DOD National Aerospace Plane program, leading to a future decision on a flight
research vehicle.
Protecting the Public
Health—Biomedical Research: The budget proposes $4.8
billion for applied research and development
at the Department of Health and Human Services, an increase of $92 million, or 2 percent.
The budget includes a total of $10.6 billion
for basic and applied research and development at the Department of Health and Human
Services. Women's Health Initiative: The budget includes an 80 percent increase for a recently-launched NIH study on women's health,
which is designed to answer difficult questions
about how best to prevent deaths from cancer,
heart disease, and the bone fractures common
with advancing age in women. HIV/AIDS: The
budget proposes a 4 percent increase to over
$1.2 billion for biomedical and behavioral research on Human Immunodeficiency Virus/Acquired Immune Deficiency Syndrome. (The
budget proposes a total increase of $565 million, or 13 percent, for HIV/AIDS research,
treatment, prevention and income support.)
Expanding R&D at the National Institute of Standards and Technology.—The
budget proposes a 26 percent increase to a
total of $311 million for NIST. The 1993 proposal will continue an effort begun in 1991
to expand NIST's ability to perform generic
applied research and technology development
and to address a growing number of important
standards and measurement issues. In addition, the budget proposes $68 million for the
Advanced Technology Program, an increase of
36 percent over 1992.
Creating Technology for Space and
Earth—The budget proposes $305 million, an
increase of 12 percent, for NASA space technology development. This increase recognizes
the central role of new technology in the future
of the U.S. space program. Strengthening cur-

Part One-lOO
rent investments in technology will later pay
off in new capabilities for scientific research,
communications, robotics, launch vehicles, and
other space-related areas.
BASIC RESEARCH
These initiatives lead to the creation of
new knowledge which will enable future innovation.
Doubling the National Science Foundation (NSF) Budget by 1994.—The budget
proposes an increase of 18 percent overall for
NSF, including a 21 percent increase for basic
research. This will continue the Administration's commitment to double NSF's budget by
1994. This increase is targeted toward investments in the people, equipment and unique
research facilities that underpin the U.S. scientific enterprise.
Increasing Support for Individual Investigators.—The budget proposes nearly $8 billion for the support of individual investigators
funded by the Departments of Health and
Human Services and Energy and the National
Science Foundation. This is an increase of over
9 percent over 1992. Individual investigators
are the backbone of the U.S. scientific and engineering enterprise. These researchers, located primarily at the Nation's colleges and
universities conduct most of the fundamental
research on which technological progress is
founded. In addition, and perhaps more importantly, they educate and train the next generation of scientists and engineers.
Human Genx>me Project.—The budget proposes an increase of $11 million, or 7 percent,
to a total of $175 million in the Departments
of Energy and Health and Human Services
(National Institutes of Health). The goal of the
project is to analyze within 15 years the entire
complement of human genetic material at the
molecular level. The Departments are developing capabilities and tools, constructing maps,
sequencing human chromosomes, developing
accessible data bases, and characterizing disease-related genes. Both agencies are also addressing ethical, legal, and social issues surrounding the uses of knowledge about the
human genome and are developing educational
activities on genome issues for the general
public.

THE BUDGET FOR FISCAL YEAR 1993

Superconducting
Super
Collider
(SSC).—The budget proposes an increase of
$166 million for the SSC to a total of $650
million. This will support continued work toward
the
transition
from
prototype
superconducting magnets to production and
continued construction of support facilities. It
will also provide for the construction of a tunnel segment for testing purposes. The funding
level maintains the 10-year design and construction schedule approved last year. The
total cost of slightly over $8 billion assumes
one-third non-Federal contributions including
$233 million in 1993.
U.S. Global Change Research Program
(USGCRP).—The budget proposes an overall
increase of $262 million, or 24 percent, to a
total of $1,372 million for this Presidential
Initiative-the most advanced program on global change research issues in the world. The
proposed increase will assist efforts to understand more fully the earth's climate system.
That understanding will facilitate development
of sound policies concerning global environmental issues such as ozone depletion and
global warming.
Astronomy and Astrophysics.—The budget
proposes a total of $890 million for these two
closely related disciplines which are funded
primarily by the National Science Foundation
and the National Aeronautics and Space Administration. The objective of these programs
is to increase our understanding of the universe. The budget proposals are consistent
with the recommendations of a recent report
of the National Research Council ("The Decade
of Discovery in Astronomy and Astrophysics")
concerning ground- and space-based astronomy
and astrophysics research for the next decade,
including increased operations and maintenance support for existing facilities, increased
support for individual investigators, and the
development of small and medium-sized instruments.
National Agricultural Research Initiative.—The budget continues the commitment to the National Research Initiative
(NRI), first proposed in the 1991 budget, by
proposing $150 million, an increase of $52 million, or 53 percent, over 1992. In 1991, $100
million was proposed as the initial installment,
to be increased by $50 million each year to

6. ENHANCING R&D AND EXPANDING THE HUMAN FRONTIER

the extent that funds were awarded competitively and not earmarked for specific sites or
institutions. Six categories of research will continue to be funded: natural resources and the
environment; nutrition, food quality and
health; plant systems (including mapping of
plant genomes); animal systems; markets,
trade, and policy; and processes antecedent to
adding value and developing new products.
MAINTAINING NATIONAL SECURITY
Defense R&D.—The budget proposes a total
of over $43 billion for R&D for national security activities, an increase of $438 million, or
1 percent over 1992. This amount includes
more than $40 billion for R&D supported by
the Department of Defense, and almost $3 billion for defense-related R&D supported by the
Department of Energy.
IMPROVING TECHNOLOGY TRANSFER
Accelerating the Pace of Technology
Transfer.—The budget projects a continuing
significant increase in the level of technology
transfer activities, including almost 1,700 Cooperative Research and Development Agreements, an increase of 40 percent over the two
years since 1991: about 3,300 new invention
disclosures; 1,500 patent applications; and almost 500 technology licenses awarded.
Expanding the Role of the National Laboratories.—The budget assumes that the National Laboratories will play an increasing role
in high priority areas of civilian applied research and development, including high performance computing, space exploration, advanced materials research, and others. The
laboratories could play an important role in
helping to form R&D consortia and other collaborative R&D arrangements led by industry
and universities.
STIMULATING PRIVATE SECTOR R&D
INVESTMENTS
R&E Tax Credit.—The budget proposes to
make the Research and Experimentation tax
credit permanent.

Part One-lOl

Encouraging R&D by Multinational
Companies.—The budget proposes a 18month extension in the rules for allocation of
foreign and domestic expenditures for companies with foreign operations.
EXPANDING THE GEOGRAPHICAL
FRONTIER: SPACE
Improving Access to Space.—The budget
proposes $5.4 billion, an increase of 2 percent,
for civil space transportation. Plans for the
Space Shuttle include improving its operational efficiency, updating key components to
protect against obsolescence, and using the
new, commercially-developed SpaceHab module to carry more experiments for microgravity
research. In the area of expendable launch vehicles, NASA and the Department of Defense
will jointly develop a new launch system to
reduce the cost of access to space, improve reliability, increase operability and flexibility, and
extend U.S. launch capability to support heavier payloads. First launch of this new system
is planned for 2002. The two agencies will also
sponsor research that can lead to improvements in existing launch systems. The government will continue to procure commercial
launch services, including use of the new Commercial Experiment Transporter (COMET) system.
Space Exploration.—The exploration of
space continues to excite and capture the
imagination of people all over the world. Building on three decades of robotic and manned
missions of discovery, the budget proposes a
total of $2.8 billion, a 7 percent increase, for
programs leading to exploration of the Moon
and the planets. Plans for 1993 include continuing work on Space Station Freedom, analyzing data from ongoing planetary missions,
designing and constructing new exploration
spacecraft, and advancing key technologies
needed for future robotic and manned missions
to the Moon and Mars. The budget proposes
about $15 billion for the National Aeronautics
and Space Administration, an increase of 5
percent over 1992.

Part One-lOO

THE BUDGET FOR FISCAL YEAR 1993

ENHANCING RESEARCH AND DEVELOPMENT
Research and development (R&D) yields
new knowledge, products and processes that,
over the long term, result in economic growth
and an improved quality of life for all
Americans. Investment in research and development is a top priority for an Administration
that believes in investing in the future.
Investments in research and development
form the foundation for the exploration of
all of the new frontiers of today and tomorrow.
INVESTMENTS IN R&D PROVIDE
LARGE BENEFITS TO THE NATION
The Federal Government has a long history
of funding R&D with the goal of spurring
innovation. Examples can be found as far
back as research sponsored by the Navy
in the late 1700's. Other examples include
the establishment in the 1860's of the landgrant college system with its emphasis on
research to improve agricultural productivity,
and the 50-year history of support for aeronautics research and technology, an effort
which has contributed to today's large positive
balance of trade in the aerospace sector.
Since World War II, the Federal Government
has been a major sponsor of R&D performed
by industry, either directly or indirectly such
as through the tax code.
It is widely accepted that R&D investments
lead to new knowledge and innovation, which,
in turn, leads to economic growth. For example, recent work (Romer) has emphasized
this relationship by showing that new knowledge is as important an investment as capital
and labor in determining the output of the
economy. Romer asserts that increased knowledge, like increased capital, raises the return
on investment, and, in turn, more investment
spurs the creation of new knowledge. There
is also strong analytical evidence that R&D
is an important contributor to productivity
growth. Studies by Griliches (1973), Sherer
(1982), Terleckyj (1982), Sveikauskas (1982)
and Mansfield (1984), inter alia, have shown
that R&D tends to be the strongest and
most consistent positive influence on productivity growth.

The Bureau of Labor Statistics (BLS) prepares and publishes official measures of productivity growth and carries out research
to improve them. The results of a study
by Sveikauskas (BLS, 1989) suggest that
privately-funded R&D in the non-farm business sector has resulted in average annual
productivity improvements of 0.15 percent
between 1948-1973 and 0.14 percent from
1973-1987. The contribution of R&D to productivity calculated by BLS appears to account
for roughly 14 percent of the total multifactor
productivity growth over these time periods.
Significantly, the BLS study also noted that
the direct influence of R&D on productivity
growth was greatest in manufacturing, accounting for an average annual productivity
growth of 0.49 percent between 1948-1987.
Other studies (Levy and Terleckyj, 1983;
Griliches, 1986) have provided evidence that
Federally-financed R&D also has a positive
direct impact on productivity, albeit somewhat
smaller and more difficult to find with consistency.
In addition, empirical evidence from as
far back as the 1950's indicates that increased
governmental R&D funding can result in
increased private R&D funding. Recent work
(Leyden and Link, 1991) offers some evidence
that not only is there a complementary
relationship between governmental and private
R&D, but that governmental R&D affects
the behavior of private performers of R&D,
i.e., it stimulates more sharing of technical
knowledge, and thus contributes to the greater
social benefit of the Nation.
All of the scholarly work has identified
R&D as a major positive influence on productivity. But much remains to be learned
about this phenomenon, particularly with respect to: (1) the differences between direct
benefits (i.e., to the financing firm or sector)
and indirect benefits (i.e., to firms downstream); (2) between product and process
R&D; (3) the mechanisms and the time
frame over which R&D (and even different
types of R&D) depreciate; and (4) the most
accurate way to deflate research expenditures
over time. BLS, NSF and others will support
research on these problems during 1993.

6. ENHANCING R&D AND EXPANDING THE HUMAN FRONTIER

THE NEED FOR INCREASED R&D
INVESTMENTS
The goals of R&D are to generate new
knowledge; train the future skilled workforce;
and to provide a catalyst for economic activity.
Taken together, these goals provide the most
compelling rationale for increased Federal
support for R&D.
The combination of public and private national investments in R&D have contributed
to the unprecedented advance of human
knowlege and improvement in the quality
of life for much of the world. All of the
available empirical evidence suggests that
"more is better" in that (1) increased total
R&D investment adds to the productivity
of the Nation, and (2) Federal R&D investments are important. Thus, there is ample
justification for increased Federal investment
in R&D as well as for Federal action to
increase the levels of private R&D investment.
One measure that historically has been
used to gauge the appropriate level of R&D
is the total size of the national R&D investment relative to the Gross National Product
(GNP). Using this measure, R&D as a share
of GNP stood at about 2.7 percent in the
early 1960's, fell during the decade of the
1970's, and returned to that level in the
1980's. Total U.S. R&D investments have
increased in absolute terms over that period.
Compared with our major trading partners,
U.S. R&D as a percent of GNP is less
than that of Japan and Germany, but larger
than France or the United Kingdom.
Over the past decade, the ratio of Federal
R&D outlays to GNP has hovered at about
1.2 percent. In each of the past three budgets,
President Bush has proposed increases that
would have increased this share. Congress
has not fully funded these requests.
Recently, the Federal Government has
begun to use the Gross Domestic Product
(GDP) as an indicator of the overall strength
of the economy, rather than the more traditional GNP. When a similar comparison is

Part One-lOl

made to GDP, it shows that R&D as a
share of GDP declined through the 1970's
and most of the 1980s. Since 1989, R&D
has been steadily increasing as a share
of GDP. The budget provides increases and
incentives designed to continue to increase
R&D investment as a percent of GDP.
THE FEDERAL R&D BUDGET:
OVERVIEW AND TRENDS
The budget proposes to allocate $76.6 billion
for R&D, including R&D facilities. This is
an increase of nearly $2 billion, or 3 percent,
over 1992. Within this total, $14.3 billion
will be allocated for basic research, an increase
ofover $1 billion, or 8 percent, and over
$59 billion for applied research, an increase
of about $1.5 billion, or 3 percent, over
1992. Federal civilian R&D will increase
by 7 percent while defense-related R&D (in
the Departments of Defense and Energy)
will increase by 1 percent.
As a percentage of total Federal domestic
discretionary spending, total civilian R&D
has declined from a peak of 26 percent
in the Apollo years to a trough of 10
percent in 1983. It has begun to increase
again to about 14 percent in recent years.
The President proposed to increase this share
to 15 percent in 1992, but Congress cut
this request. The budget seeks to increase
this share once again to 15 percent in
1993.
The Federal Government currently accounts
for about 44 percent of the total U.S. investment in R&D. Industry, academia, and nonprofit organizations make up the remaining
56 percent. In 1991, it is estimated that
total U.S. R&D expenditures, Federal and
non-Federal, were $151.6 billion, an increase
of over 4 percent over 1991. In total, the
U.S. investment in R&D is about 2.7 percent
of GDP. Trends in industry R&D funding,
and initiatives to spur increased industry
investment through making permanent the
tax credit for research and experimentation,
are discussed later in this chapter.

Part One-lOO

THE BUDGET FOR FISCAL YEAR 1993

Table 6-2. THE BUDGET PROPOSES AN INCREASE OF $2.5 BILLION
IN FEDERAL INVESTMENT IN RESEARCH AND DEVELOPMENT
(Dollar amounts in millions)
Budget Authority
Department or Agency

1989
Actual

Outlays

Dollar Percent
1992
1993
Change: Change:
Enacted Proposed 1992 to 1992 to
1993
1993

1989
Actual

Government-wide totals:
Conduct of R&D:
Basic Research
Civilian
Defense1
Applied Research and
Development
Civilian
Defense1

13,254
12,053
1,201

14,322 +1,068
13,086 +1,034
1,236
+35

+8% 10,255
+9% 9,312
+3%
943

51,298 57,839
11,620 16,257
39,678 41,582

59,302 +1,463
17,313 +1,056
41,988
+406

Subtotal, Conduct of
R&D
R&D Facilities

61,913 71,093
2,293
3,498

Total, Conduct of
R&D and Facilities2
Conduct of R&D by Agency:
Defense-military
Health and Human Services
Energy
National Aeronautics and
Space Administration ....
National Science Foundation
Agriculture
Interior
Environmental Protection
Agency
Commerce
Transportation
Agency for International
Development
Veterans Affairs
Other Agencies 3

10,615
9,650
965

Dollar Percent
1992
1993
Change: Change:
Enacted Proposed 1992 to 1992 to
1993
1993

12,491
11,325
1,166

13,405
12,142
1,263

+914
+817
+97

+7%
+7%
+8%

+3% 50,626 53,890
+6% 11,030 15,132
+1% 39,596 38,758

56,253 +2,363
15,958
+826
40,295 +1,538

+4%
+5%
+4%

73,624 +2,531
2,933
-565

+4% 60,881 66,381
2,054
-16%
3,286

69,658 +3,277
3,189
-96

+5%
-3%

64,206 74,592

76,557 +1,965

+3% 62,935 69,666

72,847 +3,181

+5%

38,031 40,043

40,509

+466

+1% 37,545 37,175

38,847 +1,672

+4%

7,894
5,362

10,216
6,514

10,649
6,578

+433
+65

+4%
+1%

7,486
5,692

9,468
6,195

10,199
6,219

+731
+23

+8%

5,303

7,706

8,673

+967

+13%

4,975

7,272

7,710

+438

+6%

1,671
1,050
467

1,967
1,328
583

2,375
1,332
552

+408
+4
-31

+21%
-5%

1,557
1,021
478

1,840
1,245
580

2,056
1,285
546

+216
+40
-34

+12%
+3%
-6%

389
417
313

496
580
446

525
614
498

+29
+34
+52

+6%
+6%
+12%

345
363
322

454
542
410

495
582
457

+41
+40
+47

+9%
+7%
+11%

261
212
542

322
230
662

325
245
750

+3
+15
+88

+1%
+7%
+13%

379
187
532

314
247
639

303
262
699

-11
+14
+60

-4%
+6%
+9%

—

Includes the military-related programs of the Departments of Defense and Energy.
Components may not add to totals because of rounding.
3 Includes the Departments of Education, Justice, Housing and Urban Development, Labor, the Treasury, the Nuclear
Regulatory Commission, Tennessee Valley Authority, Smithsonian Institution, and the Corps of Engineers.
1

APPLIED R&D: EXPANDING THE FRONTIER OF
TECHNOLOGICAL DEVELOPMENT
Federal investments in applied research
and development provide a strong foundation
for the development of new technologies,
which, when successfully applied by the private sector, can yield large benefits in terms
of productivity improvements, economic growth

and new jobs. In total, the budget proposes
about $59.3 billion, an increase of about
$1.5 billion or nearly 3 percent to support
R&D investments across a wide range of
technology areas.

Part One-lOl

ENHANCING R&D AND EXPANDING THE HUMAN FRONTIER

RATIO OF FEDERAL CIVILIAN R&D OUTLAYS TO GROSS DOMESTIC PRODUCT
PERCENT

1962
SOURCE:

1967

1972

1977

1987

1992

National Science Foundation, Office of Management and Budget

The Administration has sought to foster
technological advancement through a multifaceted technology policy that includes:
• increased Federal investments in highpayoff applied research and development,
including increased emphasis on pre-competitive, generic technologies;
• increased government-industry collaboration, including both formal consortia arrangements (such as the Advanced Battery
Consortium) and informal interaction
(such as the Computer Systems Policy
Project);
• accelerated technology transfer from government laboratories;
• greater emphasis on investments in new
technologies as part of several National
Strategies to address transportation and
energy issues, and to advance the U.S.
space program;
• support for incentives to encourage greater
private sector R&D investments including

1982

making permanent the R&E tax credit, expansion of the National Cooperative Research Act (NCRA) to include joint production ventures, and the proposed reduction
in the taxation rate for capital gains.
Elements of this policy are embodied in
each of the budget initiatives in applied
research and development.
Overview of Applied Research and
Development
The principal strategy for the Federal applied civilian R&D programs is to invest
in areas of R&D that support agency mission
requirements, but also have potentially broad
applications in the private sector, even though
the commercial applications themselves would
not be funded by the government. In such
cases, the Government's role is to support
the development of generic or enabling technologies at the pre-competitive stage of R&D:
• generic or enabling technologies have the
potential to be applied to a broad range
of products or processes across many firms

Part One-lOO

PERCENT
30

THE BUDGET FOR FISCAL YEAR 1993

RATIO OF FEDERAL CIVILIAN R&D OUTLAYS
TO DOMESTIC DISCRETIONARY SPENDING

25 -

ALL CIVILIAN
15 -

WITHOUT SPACE

0 """T
1962

T
1967

• I •

1972

1977

1982

1987

1992

SOURCE: Office of Management and Budget

or industrial sectors; and, because the benefits are not necessarily appropriable to
individual firms, the private sector is likely to underinvest;
• pre-competitive R&D is the stage of the
R&D process where the results can be
shared widely within and between industrial sectors, without reducing the incentive for individual firms to develop and
market commercial products and processes
based upon the results.
Many of these generic technologies have
been identified as "critical" technologies that
are important to a number of industries.
Lists of these technologies have been compiled
by both Federal agencies (Defense, Commerce),
by private groups (Council on Competitiveness), and by the National Critical Technologies Panel. These lists provide a useful
benchmark, but should not necessarily be
viewed as definitive. Technology breakthroughs can occur in new fields long before
such areas are widely recognized as "critical
technologies",
e.g.,
high-temperature

superconductivity. The Federal Government
has invested in many of these "critical"
technologies for many years, e.g., biotechnology, computer hardware and software,
rocket propulsion.
Mechanisms for Government-IndustryUniversity R&D Collaboration
There are a number of different mechanisms
that the Federal Government may use to
support generic applied research and technology development. These include: cost-sharing of individual projects; formation of R&D
consortia (often involving government, industry and university laboratories); and more
informal governmeni/university/industry collaboration.
Industrial R&D Collaboration.—Strategic alliances and partnerships among industries are
not new. Individual firms have often looked
to other companies for new technology, innovation and new markets to complement their
own efforts. But in order to be successful over
the longer term, such alliances must provide

6. ENHANCING R&D AND EXPANDING THE HUMAN FRONTIER

Part One-lOl

mutual, and generally comparable, benefits to
the partners. The National Cooperative Research Act (NCRA) of 1984 enabled private
companies to form research alliances (consortia, joint ventures, partnerships) among
themselves without the fear of per se antitrust
violations. As of December 1991, a total of 263
private sector consortia had been registered
with the Justice Department.

• The National Aerospace Plane joint-venture partnership merged the best ideas of
five contractors into a single design and
permitted the sharing of advances in materials and propulsion technology and
aerospace design. It also has helped ensure that there will be a broad U.S. industrial base for future operational hypersonic
and aerospace vehicles.

The Administration has supported legislation to expand the NCRA to include joint
production ventures. In addition, the Department of Commerce has proposed an initiative,
the Strategic Partnerships Initiative, to promote voluntary R&D collaboration among private firms for the development and application
of large-scale enabling technologies, with no
direct Federal funding.

• In Energy R&D, the Administration has
pursued several R&D consortia. For example, the Administration recently initiated
the Advanced Battery Consortium with the
major U.S. auto companies, battery manufacturers and electric utilities. Over the
past several years, the Administration has
supported a collaborative R&D program in
photovoltaics technology, including both individual cost-shared contracts as well as
a consortium arrangement. In addition,
the Administration proposed funding in
the 1991 budget to establish an R&D consortium for geosciences research in support
of advanced oil and gas recovery, but Congress did not support the request.

In recent years, a number of authors (Ouchi;
Coase; Porter; Badaracco; Dertouzos, Lester
and Solow) have written extensively on industrial R&D cooperation and consortia. These
authors have noted the potential benefits
of increased R&D collaboration, particularly
where the industrial technologies are not
fully "appropriable" to individual firms, or
where there are generic problems or agreedon multiple research paths which must be
explored to enable new technologies to be
developed.
They have also noted the limitations of
R&D collaboration. Consortia may not be
beneficial if allowed to extend to product
development, or if the collaboration is not
well-defined in advance, or if excessive reliance
on collaboration results in inhibiting competition. The Federal Government has had
limited involvement in consortia, but generally
has had success in those consortia in which
it has participated. For example:
• The Concurrent Supercomputing Consortium acquires computers with unprecedented capabilities and uses them to enable member scientists to tackle new classes of computational problems. This consortium, which consists of numerous government agencies (Defense, Energy, NSF,
NASA), and academic and industrial institutions, has combined its resources to acquire the Intel Touchstone Delta System,
the world's first general-purpose computer
with a peak speed of 30-gigaflops.

Because U.S. R&D consortia are relatively
new, there is no firm track record to measure
success. There is continuing debate about
the role of R&D consortia in innovation
and economic growth.
For example, in an informal survey of
a number of senior industry officials conducted
in 1990 by the National Research Council,
many of these officials expressed doubt that
generic research conducted in consortial arrangements with other companies and universities would offer significant commercial advantage, since the results would have to
be shared broadly and are too remote from
the marketplace. These officials were much
more enthusiastic about the benefits of more
informal researcher-to-researcher collaborations.
In addition, several articles have questioned
the effectiveness of the Sematech consortium,
and recently two of its member companies
have withdrawn. However, many of the issues
surrounding Sematech appear to be unique
to it, and cannot be extrapolated to all
consortia.

Part One-lOO
There are attributes of joint research alliances that may increase the likelihood of
long-term success. In the case of Federallysupported consortia, such attributes would
include the following:
• The private sector participants should
agree to share at least half of the total
costs of the R&D.
• The area of interest for the consortium
should be supportive of Federal missions,
and should complement Federal R&D programs.
• The R&D itself should use existing Federal, private or university laboratories and
research expertise.
• The R&D should not involve technologies
where one or more of the private sector
participants has a strong proprietary position or existing commercial production.
• The setting of R&D priorities within the
area of interest should be led by the private sector participants.
• The R&D should be focused on generic or
enabling technologies which have the potential to benefit a broad range of companies, processes or products.
These attributes are clearly embodied in
the most recent Federally-supported R&D
consortium, the U.S. Advanced Battery Consortium, and can be found in other Federal
R&D consortia as well. Because consortial
R&D arrangements are new, it will be necessary to experiment with different forms
of collaboration, and the performance of each
will need to be continuously assessed.
The Role of the National Laboratories in Cooperative R&D.—As a result of the major
changes now taking place in the world, there
are new opportunities to redeploy the Nation's
national security R&D assets in support of
broader objectives. In particular, the government's National Weapons Laboratories, which
have historically been at the forefront of the
development of advanced defense-related technologies, could make significant contributions
to advanced generic technologies for a broader
range of government and commercial applications. The National Laboratories could serve
as catalysts in the formation of new, industryled consortia that could make important tech-

THE BUDGET FOR FISCAL YEAR 1993

nical contributions in a variety of the applied
R&D areas discussed in this chapter. In this
way the U.S. economy may benefit and receive
additional return from the investments which
have been made developing defense technology.
The National Laboratories already have
a solid base of expertise in a number of
critical technology areas, including biotechnology, advanced materials including both
semi- and superconductors, advanced manufacturing, high performance computing including
massively parallel processing, and advanced
optical technologies, including flat panel displays. The R&D programs of the National
Laboratories are discussed further in the
section on "Maintaining National Security"
later in this chapter.
Other Technology Policy Activities.—The
technology policy principles embodied in the
1991 budget are, in part, an outgrowth of the
U.S. Technology Policy statement issued in
September, 1990 by the Office of Science and
Technology Policy. To further assist in the development and implementation of this policy,
the budget proposes $1 million for the Critical
Technology Institute (CTI). The CTI, a new
Federally-funded research and development
center, will undertake studies and analyses
that can assist Federal agencies in determining whether increased investments in these
technologies will serve both agency mission
needs and broader national needs. Together
with funding provided in prior years, a total
of $7.6 million will be available to the CTI
in 1992 and 1993.
In addition, the budget proposes $6 million,
an increase of 32 percent, for the Technology
Administration within the Department of Commerce. This Administration was established
in 1990 in recognition of the importance
of technology to the Nation's long-term competitiveness and the need to integrate and
manage numerous Department of Commerce
technology functions. The enhanced budget
will allow the Technology Administration to
pursue more aggressively its efforts to coordinate Federal programs and actitivies which
facilitate commercial application of existing
and emerging technologies. In addition, it
will allow the Technology Administration to
enhance its efforts to stimulate greater co-

Part One-lOl

6. ENHANCING R&D AND EXPANDING THE HUMAN FRONTIER

casting severe weather events; solving the
molecular riddle of the genome; predicting
new superconducting materials; minimizing
air pollution; designing better aircraft; improving energy conservation; designing and packaging new computer chips; understanding and
predicting global change.

operation among private sector entities with
the aim of fostering better quality and higher
productivity in U.S. manufacturing.
Budget Initiatives in Applied Research
and Development
High Performance Computing arid Communications.—The budget proposes $803 million for the second year of the High Performance Computing and Communications (HPCC)
program. Planning and execution for this program has proceeded through nine participating
Federal agencies working under the Federal
Coordinating Council on Science, Engineering
and Technology (FCCSET). The HPCC program focuses on the underlying research and
the human talent needed to develop and apply
the next generation of supercomputer systems
(including hardware, software, and networks).

Achieving this goal will require a 1,000fold improvement in computing capability and
100-fold improvement in communications.
These advances will also permit the private
sector to "leap frog" over the otherwise incremental improvements in supercomputers and
networks.
Investments in research and technology
development are planned in four HPCC program components:
• High Performance Computing Systems
(Hardware): Development of the underlying technology required for scalable parallel computer systems capable of sustaining trillions of operations per second on
large projects (a thousand-fold improve-

The goal of the HPCC initiative is to
meet, by 1996, the needs of Federal research
agencies to investigate and understand a
wide range of fundamental scientific and
engineering "grand challenge" problems: fore-

FEDERAL CIVILIAN APPLIED RESEARCH AND DEVELOPMENT BUDGET AUTHORITY
1991 $ BILLIONS
7

SPACE

3 -

1 -

ENERGY

1978

1980

1982

SOURCE:

1
1984

•

T
1986

National Science Foundation, Office of Management and Budget

1988

1990

1992

Part One-lOO

THE BUDGET FOR FISCAL YEAR 1993

Table 6-3. THE BUDGET INCLUDES INITIATIVES IN SEVERAL KEY
AREAS OF APPLIED R&D
(Dollar amounts in millions)
1989
Actual

Initiative

High Performance Computing and Communications ...
Advanced Materials and Processing
Biotechnology Research
Energy R&D
Moving Fusion Energy from a Science to Engineering
Advanced Manufacturing R&D (non-defense)
Improving the Efficiency of the Transportation Sector
through Technology
Protecting the Public Health: Health Research and
Disease Prevention
Expanding R&D at the National Institutes of Standards and Technology
Space Technology

1992
Enacted

1993
Proposed

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

N/A

655
1,659
3,759
774
337
252

803
1,821
4,030
914
360
321

+148
+162
+271
+140
+23
+69

+23%
+10%
+7%
+18%
+7%
+27%

802

1,224

1,433

+209

+17%

3,482

4,757

4,849

+92

+2%

159
256

247
273

311
305

+64
+32

+26%
+12%

tyA
IS/A
397
347

ment in computing capability). These systems will be the bases for the commercial
supercomputers and workstations of tomorrow.

research, increase the number of students
in computational science, and transfer
technology for industrial grand challenge
applications.

• Advanced Software Technology and Algorithms (Software): Development of generic
software technology and algorithms for
grand challenge research applications to
realize the performance potential of high
performance computing systems in a
networked environment. This component
recognizes that software improvements
have increased computational performance
much more than have hardware components.

In the first year of operation, the HPCC
program has realized several notable technical
and programmatic achievements. Major new
scalable high performance computing systems
have been announced and delivered. New
software applications have been developed
for emerging high performance systems. Traffic
on the network has doubled in the past
year, as has the number of interconnected
local and regional networks. Participating
Federal agencies have begun solicitation to
fund high performance computing research
groups, centers, and consortia on various
grand challenge problems, and a large number
of researchers, scholars, students, scientists,
and engineers have been trained to use
these emerging new technologies.

• National Research and Education Network
(Networks and Communications): Upgrade
of the existing federally supported networks to provide distributed computing capability to research and educational institutions and further advanced research on
very high speed gigabit (billion bit per second) networks and applications. Ultimately, this technology will be the foundation for sophisticated commercial networks.
• Basic Research and Human Resources (Research/Training): Support long term basic

Moreover, additional substantial advice and
recommendations have come from various
industrial, professional, and scientific organizations such as Educom, representing numerous universities, and the Computer Systems
Policy Project (CSPP), representing leading
U.S. computer companies. As an example
of the dynamism and flexibility of the HPCC

6. ENHANCING R&D AND EXPANDING THE HUMAN FRONTIER

Part One-lOl

program, many of the CSPP recommendations
presented in December 1991 are already
being incorporated into the program. The
CSPP has noted that the HPCC program
is a significant, critical and necessary undertaking by the Federal Government, and have
provided four valuable recommendations:

technology transfer, the Department of
Energy is supporting the development of
a model Cooperative Research and Development Agreement (CRADA) that will
ease significantly the exchange of computing technology between private industry
and government laboratories.

• Expand the vision of the HPCC to include
research on generic, enabling technologies
to support a wider range of applications
such as better health care, lifelong learning, improved services for senior citizens,
enhanced industrial design, and broad access to public and private databases. In
recognition of the importance of these applications, the program is investing in
many of the supporting advanced technologies such as open scalable systems,
portable software, mass data storage, and
advanced network protocols. In addition,
the HPCC program is also providing opportunities for industry and academia to
propose specific grand challenge applications such as those listed above.

• Reorder the HPCC budget priorities to
achieve a more balanced program. In response to this recommendation, the budget
proposes the largest dollar increase ($68
million) of any of the HPCC program components for software research. The program will continue to support basic research, generic technologies, and broad applications, but will work in the coming
year to achieve the appropriate funding
balance between software research and
computer equipment and facilities.

• Establish a technology and policy foundation for an information and communications infrastructure for the future. To address this issue, the Federal Networking
Council, an interagency coordination group
that supports the National Research and
Education Network, has formed a policy
committee to address critical network issues such as security and privacy, intellectual property rights, and network access,
interoperability, and technology transfer.
• Improve management and governance of
the HPCC program and increase opportunities for industry participation. To improve management in the near term, the
HPCC program will strengthen its current
management structure. This should provide a clearer emphasis on implementation
of policies and plans, enable monitoring
of progress towards goals and objectives,
better satisfy Congressional reporting requirements, and serve as a single pointof-contact for industry, academia, and
other government agencies. Over the coming months, the Administration will be exploring new management approaches that
might bring better coordination and accountability to the program. To improve

The HPCC effort received added impetus
in 1991 with the enactment of a multiyear authorization, the High Performance
Computing Act of 1991 (Public Law 102-194).
Passage of this legislation is yet another
example of the broad national support for
this program.
Advanced Materials and Processing Program.—The budget proposes $1,821 million,
an increase of 10 percent, for a new interagency program to improve the synthesis, processing and performance of materials.
Everything is composed of materials. Faster,
smaller semiconductor chips; flexible concrete
skyscrapers; a biomaterial artificial hip; and
strong, lightweight aircraft and spacecraft
are but a few of the advances made possible
through improved materials. New methods
of preparing materials, virtually atom by
atom, have become available in the past
few years, which offer unprecedented opportunities for tailoring materials to meet the
needs of society.
The Federal Government has long played
a supporting role in materials science and
engineering. The importance of strengthening
the Federal commitment to materials R&D
to take advantage of the unique scientific
opportunities now present has been widely
recognized. The National Critical Technologies
Panel identified materials technology as one
of six broad technology areas, and materials

Part One-lOO

THE BUDGET FOR FISCAL YEAR 1993

Table 6-4. THE BUDGET PROPOSES A 23 PERCENT INCREASE FOR
ALL ASPECTS OF HIGH PERFORMANCE COMPUTING
(Dollar amounts in millions)
Budget Authority
Description

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

1992
Enacted

1993
Proposed

152
278
92
132

178
346
123
156

+26
+68
+30
+24

+17%
+24%
+33%
+18%

232
201
92
71
41
10
5
2

275
262
109
89
45
11
8
4

+43
+61
+17
+18
+4
+1
+3
+2

+18%
+30%
+18%
+25%
+8%
+10%
+60%
+95%

655

803

+148

+23%

Program Components
High Performance Computing Systems
Advanced Software Technology and Algorithms
National Research and Education Network
Basic Research and Human Resources
Agency
Defense (DARPA)
National Science Foundation
Energy
National Aeronautics and Space Administration
Health and Human Services
National Oceanic and Atmospheric Administration
Environmental Protection Agency
National Institute of Standards and Technology
Total, All agencies

figure prominently in lists of key technologies
prepared independently by the Departments
of Defense and Commerce.
To address these opportunities and needs,
a multi-year program involving 10 Federal
agencies has been initiated within FCCSET
to enhance R&D efforts in materials science
and technology. The Advanced Materials and
Processing Program (AMPP) will also focus
increased attention on the interfaces between
universities, government laboratories and industry, and on transferring technology from
basic research to application.
The program targets four areas of materials
science and technology for enhancement. The
budget proposes to increase funding for: Synthesis and Processing of Materials by $65
million (9 percent); Theory, Modeling, and
Simulation by $30 million (13 percent); Materials Characterization by $29 million (6 percent); and funds for Education and Human
Resources in materials science and engineering
by about $6 million (27 percent). Specific
programs within these areas were selected

for enhancement through a FCCSET interagency coordination and evaluation process.
The evaluation criteria used in that process
included technical merit, environmental/social
merit, readiness, costs, and linkages to existing programs.
Over the course of the next year, the
Federal agencies plan to work closely with
the private sector to identify in more detail
specific R&D priorities and to develop specific
collaborative R&D programs.
Many of the programs cannot be assigned
solely to specific classes of materials. Nonetheless, the classes of materials that will receive
the largest increases in the budget proposal
are: polymers ($10 million or 12 percent
over 1992), ceramics ($18 million or 14 percent
over 1992), composites ($24 million or 13
percent over 1992), biological materials ($21
million or 13 percent over 1992), and electronic
materials, including semiconductors ($15 million or 9 percent over 1992).

Part One-lOl

6. ENHANCING R&D AND EXPANDING THE HUMAN FRONTIER

Table 6-5. THE BUDGET PROPOSES A 10 PERCENT INCREASE FOR
A NEW INITIATIVE IN ADVANCED MATERIALS AND PROCESSING
(Dollar amounts in millions)
Budget Authority
Description

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

1992
Enacted

1993
Proposed

683
224
474
21
257

748
253
503
27
291

+65
+30
+29
+6
+33

+9%
+13%
+6%
+27%
+13%

603
449
266
125
77
57
46
25
9
3

678
432
319
154
82
66
48
24
16
4

+75
-17
+53
+29
+5
+9
+2
-1
+7
+1

+12%
-4%
+20%
+23%
+7%
+16%
+4%
-4%
+76%
+33%

1,659

1,821

+163

+10%

Program Component
Synthesis and Processing
Theory, Modeling and Simulation
Materials Characterization
EducatioiyHuman Resources
National User Facilities

Agency
Energy
Defense
National Science Foundation
National Aeronautics and Space Administration
Health and Human Services
Agriculture
Commerce
Interior
Transportation
Environmental Protection Agency
Total, All agencies

Biotechnology Research—Biotechnology is
a set of powerful tools that can ultimately lead
to products for conquering disease, easing
world hunger and reducing pollution. Broadly
defined, biotechnology includes any technique
that uses living organisms to make or modify
products, to improve plants or animals, or to
develop microorganisms for specific use (Office
of Technology Assessment, 1984). New biotechnology involves recombinant DNA, DNA
transfer techniques, macromolecular structure,
and bioprocessing, among other fields.

techniques have enabled the development of
a new generation of methods for disease
diagnosis including the genetic causes of
disease.

If projected technical advances are realized,
the effect of biotechnology on society and
the economy is likely to be dramatic. In
1991, according to a report by Ernst and
Young, sales of biotechnology products approached $4 billion and sales are expected
to increase to over $50 billion during the
next ten years. Not only are new vaccines
and drugs being developed, but biotechnology

In early 1991, the President's Council on
Competitiveness issued its "Report on National
Biotechnology Policy." The report described
three areas of concern: (1) science and technology; (2) risk-based regulation; and (3)
a flourishing free market for biotechnology.
The budget proposals are responsive to the
Council's recommendations on science and
technology. In the area of regulatory policy,

Nationwide, hundreds of companies representing every industrial sector from agriculture to energy and manufacturing are
using biotechnology to develop products and
processes. Central to U.S. efforts in biotechnology is Federal support for research
in scientific and engineering disciplines that
will underpin future advances.

Part One-lOO
the Council's Biotechnology Working Group
considers proposals to remove unnecessary
regulatory burdens by improving interagency
coordination, streamlining the regulatory agencies' evaluation processes, and reevaluating
regulations. Descriptions of Federal policies
for the commercialization of food, animal,
plant and microbial products will be published
soon.
The budget proposes a total of about $4
billion for biotechnology research, an increase
of $271 million or 7 percent over 1992.
These resources will be contributed by 12
Federal agencies with biotechnology programs
in a number of research areas as part
of a set of FCCSET coordinated programs.
A number of these programs are new and
their various foci provide evidence of the
growing and diverse applications of different
biotechnology techniques. Examples of these
programs include: biological sensor technology
(funded by Defense) to improve threat detection at sea and drug interdiction efforts;
conservation and renewable energy research
(funded by Energy) to develop cost-effective
biofuels; forensic DNA analysis for identification and testing (funded by Justice) to develop
reliable and valid methods for conducting
DNA profiling; and engineering research in
the areas of bioprocessing and applied biotechnology (funded by NSF).
Coordination of agency programs maximizes
the effectiveness of the total Federal effort.
For example, nine agencies have existing
programs in environmental biotechnology and
eight have existing programs in manufacturing/bioprocessing. These programs have been
developed in response to individual agency
missions and, although they are largely complementary rather than duplicative, their independent existence indicates the need for enhanced interagency coordination.
While the first effects of biotechnology
R&D have been felt in the areas of human
health and disease, the impact of biotechnology
will also soon be felt in many areas besides
health. The next decade will see unprecedented applications of different biotechnology
to agriculture and aquaculture, the restoration
and protection of the environment, and the
production of chemicals and fuels.

THE BUDGET FOR FISCAL YEAR 1993

• Environment.—Biotechnology
products
hold great promise for environmental restoration and protection. The budget proposes $83 million for research on environmental biotechnology, a 20 percent increase over 1992. Environmental biotechnology research has a direct and fundamental role in developing applications
like bioremediation, biorestoration and development
of
other
environmental
diagnostics. Examples of recent developments in this field include the engineering
of microorganisms that degrade specific
toxic organic chemicals and others that
emit visible light signals when they encounter specific chemicals in the environment.
• Manufacturing/Bioprocessing.— Industry
is just beginning to apply biotechnology to
a wide spectrum of manufacturing processes. Biotechnology research in manufacturing/bioprocessing is likely to have increasingly important applications to the
manufacture of pharmaceuticals, food-related products, chemical feedstocks, fuels,
and a variety of novel products such as
biomolecular
materials.
Modern
bioprocessing is able to achieve economically efficient manufacture of many desirable products by using renewable resources and biocatalysts that minimize energy consumption and reduce waste products. The budget proposes $124 million for
manufacturing/bioprocessing research, an
increase of 25 percent over 1992.
• Health.—The basic science and health
components of biotechnology represent a
powerful driving force in health care technologies today. Earlier basic research on
recombinant DNA (rDNA) has already
come to fruition. The first generation of
rDNA drugs included proteins such as insulin and white blood cell stimulators. The
near future may see the use of animals
as factories to produce large quantities of
these proteins at lower cost. It is now possible to use these techniques to make
biomaterials such as synthetic collagen to
preserve liver cells in a matrix, thus creating alternatives to whole organ transplants for liver failure. A better understanding of the molecular basis of disease
will lead to the identification of specific

6. ENHANCING R&D AND EXPANDING THE HUMAN FRONTIER

targets for disease intervention. The budget proposes nearly $1.7 billion in this area,
an increase of $86 million or 5 percent.
• Agriculture.—Agricultural
biotechnology
research is applicable to food, feed, fiber
and forestry production. While USDA has
the primary responsibility within the Federal Government, seven other agencies
support agricultural biotechnology research. Traditional biotechnologies have
been practiced in agriculture since the beginning of civilization to improve plants
and animals. New techniques vastly expand this potential. However, the knowledge base for application of modern biotechnology to plants, animals and microbes of agricultural significance has not
been put to commercial use to the same
degree as that for human health and medicine. Agricultural techniques now exist to
produce better quality food and fiber, foods
with higher nutrient content, crops and
animals with greater tolerance to stresses,
and better soil productivity and waste
management. The budget proposes $208
million in this area, an increase of $17
million or 9 percent.
• Energy.—Decreasing petroleum reserves,
coupled with increasing consumption, have
made this country increasingly dependent
on imported oil. The National Energy
Strategy promotes conservation and the
development of alternative energy resources. Biotechnology offers one key to
such development through the use of products from plants and microorganisms. Energy-related biotechnology research is
aimed at developing methods to produce
and convert biomass (cell wall material of
plants) to liquid fuels and chemical feedstocks, enhance petroleum recovery, and
convert coal into environmentally benign
fuels. The increased use of biological systems for energy will maximize the efficient
and economic use of both renewable and
fossil resources. The budget proposes $107
million, an increase of $27 million or 33
percent.
The Future.—The Federal investment in biological research of the past thirty years has
contributed to the foundation for today's strong
biotechnology enterprise. The U.S. is currently

Part One-lOl

poised to exploit the promise of biotechnology.
During 1993, the Federal Government will continue to coordinate and encourage research
into unexplored areas and identify areas of opportunity for Federal investment.
Advancing New Energy Technologies.—
A major element of the Administration's National Energy Strategy (NES) continues to be
increasing investment in energy technology
R&D. The budget proposes $914 million, an
increase of $140 million or 18 percent, for increased investments in R&D in support of the
Administration's NES R&D initiatives.
The Department of Energy's (DOE) NES
related R&D strategy is intended to foster
a results-oriented approach, based on the
following key elements:
• an emphasis on R&D areas that, if successful, could lead to significant reductions
in U.S. oil vulnerability;
• selection of R&D areas based on high R&D
payoff potential, i.e., the potential to
achieve significant cost and performance
improvements;
• a comprehensive, interagency R&D program that includes both technology enhancements, e.g., more efficient engines,
and more fundamental system changes,
e.g., the potential for high speed rail and
Maglev systems to displace automobile
and air travel (rail and highway transportation systems are discussed later in this
chapter in the section on Transportation
R&D);
• a collaborative, cost-shared approach to research in applied areas where private industry ultimately will be responsible for
the commercialization of the technology.
This approach is intended to involve industry more in R&D planning and management to obtain significant cost sharing,
with the research performed by industry
or universities (except in situations where
Government labs, such as DOE's National
Laboratories, have unique research and
testing capabilities). DOE encourages Government-assisted R&D consortia when
they meet the criteria outlined earlier in
this chapter.

Part One-lOO

THE BUDGET FOR FISCAL YEAR 1993

Table 6-6. THE BUDGET PROPOSES A 7 PERCENT INCREASE IN
FEDERAL INVESTMENTS IN BIOTECHNOLOGY
(Dollar amounts in millions)
Budget Authority
Description

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

1992
Enacted

1993
Proposed

3,759
191
80
69
99
1,594
1,418
9
301

4,030
208
107
83
124
1,680
1,500
9
320

+271
+17
+27
+14
+25
+86
+82
+19

+6%

2,963
(2,801)
179
174
182
86
81
37
21
16
13
5
2

3,125
(2,944)
168
206
243
90
87
45
31
18
13
5
2

+162
(+143)
-11
+32
+61
+4
+6
+8
+10
+2

+6%
(+5%)
-9%
+18%
+34%
+5%
+7%
+22%
+48%
+13%

3,759

4,030

+271

Program Component
Research Areas
Agriculture
Energy
Environment
Manufacturing^Bioprocessing
Health
General/Foundations
Social Impact Research
Infrastructure

—

+7%
+9%
+33%
+20%
+25%
+5%
+6%
—

Agency
Health and Human Services
(National Institutes of Health)
Agriculture
National Science Foundation
Energy
Veterans Affairs
Defense
National Aeronautics and Space Administration
Agency for International Development
Environmental Protection Agency
Commerce
Interior
Justice
Total, All agencies

DOE estimates that the NES R&D Initiative
can be expected to lead to reductions in
oil consumption by the year 2030 of 5-8
million barrels per day, depending on the
success of the proposed R&D programs.
The NES initiatives include:
• Electric and Hybrid Vehicles. On October
25, 1991 the President and members of
the U.S. Advanced Battery Consortium
(USABC) announced a jointly-funded, four
year, $260 million research effort to develop a new generation of batteries that
would enable electric vehicles to be widely
available within the next 10 years. These

—

+7%

improved batteries could improve the practicality of electric cars by extending their
range up to 120-200 miles. In 1993, proposed DOE funding for the second year
of the USABC and supporting battery research is increased by 56 percent to nearly
$42 million. The Federal investment will
be matched on a 50:50 basis by the private
sector.
The budget also proposes funding for the
creation of a new Government-industry
R&D consortium for hybrid vehicle propulsion technology. This new generation of vehicles would use combinations of battery
technology with other systems such as fuel

Part One-lOl

6. ENHANCING R&D AND EXPANDING THE HUMAN FRONTIER

Table 6-7. THE BUDGET PROPOSES AN 18 PERCENT INCREASE FOR
NATIONAL ENERGY STRATEGY R&D INITIATIVES
(Dollar amounts in millions)

Initiative

Displacing Oil in the Transportation Sector
Surface and Air Transportation Efficiency
Electric/Hybrid Vehicles R&D
Improved Vehicle Propulsion Technology
Intelligent Vehicle/Highway Systems R&D ....
High Speed Rail/Magnetic Levitation
Energy Efficient Air Traffic Control R&D
Energy Efficient Aeronautics R&D
New Fuel Sources
Fuels from Biomass
Alternative Fuel Utilization
Advancecl/Enhanced Oil Recovery
Natural Gas R&D
Increased Energy Efficiency in Buildings and Industry
Targeted Industrial Energy Efficiency R&D
Targeted Buildings Energy Efficiency R&D
Advanced Electricity Technology
Photovoltaics
Superconductivity R&D
Advanced Light Water Reactor R&D
Advanced Reactor Concepts R&D
Total, All activities
Total, Energy

cells or gas turbines. The effort will be
aimed at producing technologies which
lead to economical,
environmentally
friendly vehicles by the end of the century.
If successful, it could also contribute to
a technological and economic rejuvenation
of the U.S. auto industry.
• Improved Vehicle Propulsion Technology
through research on high temperature diesel engines and gas turbine engines. Conventional spark-ignited and diesel engines
have efficiencies of up to 31 percent. Technologies are being developed, such as gas
turbines, which could achieve efficiencies
approaching 40 percent.
• Advanced Transportation Fuels from Biomass research programs will demonstrate
use of industrial and agricultural waste

1989
Actual

1992
Enacted

1993
Proposed

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

171
121
14
33
0
0
24
50
50
13
2
24
11

326
226
43
40
28
20
32
63
100
35
17
37
12

464
299
75
44
38
28
46
68
165
46
32
47
40

+138
+73
+32
+4
+10
+8
+14
+5
+65
+12
+15
+10
+28

+42%
+32%
+74%
+10%
+36%
+40%
+44%
+8%
+65%
+35%
+88%
+27%
+233%

64
30
34
162
35
22
26
79

146
97
49
302
60
21
63
158

160
105
55
290
64
22
59
145

+14
+8
+6
-12
+4
+1
-4
-13

+10%
+8%
+12%
-4%
+7%
+5%
-6%
-8%

397
323

774
626

914
725

+140
+99

+18%
+16%

feedstocks, including woody materials, to
produce alcohol fuels on a scale which can
verify the technology and its commercial
costs. The production of ethanol from food
crops is currently not cost effective without substantial Federal tax subsidies. The
goal of this R&D initiative is to get the
production cost of ethanol from non-food
crops down to levels that are competitive
with current fuels. In 1993 DOE will expand its research effort to include more
industry involvement in order to study advanced conversion technologies. Additionally, DOE has signed a cooperative research
and
development
agreement
(CRADA) with a major oil company to
demonstrate the economics of ethanol production from industrial waste.

Part One-lOO
• Alternative fuels utilization will continue
vehicle testing activities that will provide
the information to facilitate greater use
of alternative fuels. In addition to this
testing program, in 1993 the Department
of Energy is requesting $15 million for the
purchase of alternative fuel vehicles by
Federal agencies. These funds will be used
to pay for the incremental cost of the vehicles. Several thousand vehicles for Government use are expected to be purchased,
thus helping to create "market pull" for
U.S.-manufactured, alternative-fueled vehicles.
• Advanced/Enhanced Oil Recovery Technologies research will improve reservoir
understanding to better target oil drilling
and develop better instrumentation, chemical injectants and reservoir interpretation
techniques. Currently, up to two-thirds of
oil resources remain in the ground after
conventional production is completed. It is
estimated that up to 3 million barrels per
day in incremental production could be recovered through advanced/enhanced recovery techniques by the year 2010. In 1993,
DOE will increase NES-related advanced
oil recovery research to nearly $47 million,
more than 25 percent over 1992.
• Natural Gas Research and Development
will increase substantially in 1993, emphasizing advanced production and extraction
from conventional reservoirs and improved
utilization technologies. The NES concluded that expanded use of domestically
abundant and environmentally acceptable
natural gas resources could increase energy security and improve the environment. The new gas program will speed
achievement of these goals by focusing on
the recovery of the resource and developing ultra high efficiency technologies for
its consumption. DOE will increase funding for gas-related R&D to $40 million,
over 230 percent above 1992.
• Energy Efficiency in Buildings and Industry can be improved by developing advanced technologies. The industrial and
building sectors account for about twothirds of all U.S. primary energy consumption. DOE's R&D efforts are aimed at assisting the building sector in developing

THE BUDGET FOR FISCAL YEAR 1993

advanced technologies in lighting, heating
and cooling, e.g., solar heating and lighting, advanced heat pumps, and more efficient lights, as well as to assist industry
in developing advanced industrial processes which reduce both waste streams
and energy use. Building and industry-related R&D is proposed to increase to $160
million, or 10 percent over 1992.
• Photovoltaic Research will continue to advance efforts to increase the cost-competitiveness of photovoltaic (PV) systems. Past
research by industry and DOE has enabled today's PV systems to compete successfully with primary batteries, small engine generators, and utility line extensions
in many remote applications. In 1993, $64
million is requested, an increase of 7 percent over 1992, to help U.S. industry develop photovoltaic technology and systems,
particularly those materials and devices
that will reduce electricity generation costs
and serve a growing energy market in the
process.
• Advanced Light Water Nuclear Reactors
research will continue in 1993 to develop
passive safety features in a standardized
design. This will reduce the time needed
to license new plants, while assuring that
safety issues are adequately addressed.
The Department of Energy is also using
existing funds to continue first-of-a-kind
engineering work that will assist companies in their efforts to achieve safety of
new standardized designs that will meet
the requirements of the Nuclear Regulatory Commission.
• Advanced Reactor Concepts will have safety features that go beyond the standardized designs currently before the Nuclear
Regulatory Commission. High Temperature Gas Cooled Reactors use speciallycoated fuel elements that will not fail even
under the high temperatures that could
occur during an accident. Liquid metal reactors use liquid sodium as the heat exchange medium. Researchers have demonstrated that both reactor types can shut
themselves down safely under conditions
that would be extremely serious for
present-day reactors. The Department of
Energy continues R&D support for both

6. ENHANCING R&D AND EXPANDING THE HUMAN FRONTIER

of these advanced concepts. In addition,
the budget provides funding for DOE to
continue its assistance to university nuclear engineering departments and students by providing fellowship and scholarship support.
The NES R&D initiatives are supported
by increased investments in related areas
of basic research. Basic research in areas
such as advanced materials, superconductors,
geo- and biosciences, and catalysis research
will be continued in 1993.
The NES R&D initiatives encompass a
broad range of new technologies that would
permit the more efficient use of energy,
or the substitution of petroleum with other
energy sources. While these advances have
the potential to make significant improvements in the Nation's energy secruity, it
should be recognized that other significant,
even larger, improvements can be achieved
through more fundamental system changes
in the transportation sector. Several of these
changes, such as development of maglev and
high speed rail as an alternative to air
and surface transportation and improvement
in airspace management are discussed elsewhere in this chapter and in Chapter 7,
"Improving the Transportation Infrastructure."
In addition, other changes, such as
telecommuting, offer great energy savings
potential. The Federal Government, and others, such as the State of Washington, are
experimenting with the use of telecommuting
centers as alternative worksites to reduce
commuting. Currently, about 50 percent of
total U.S. vehicle miles traveled (VMT) is
work-related, and there are estimates that
telecommuting may be possible for about
46 million persons. The energy savings potential of telecommuting is enormous. For example, a 50 percent reduction in the miles
traveled by a single individual represents
the equivalent of a doubling of the fuel
efficiency of his or her vehicle.
Moving Fusion Energy From Science to
Engineering.—Fusion energy offers the potential to be a clean, plentiful fuel for the production of electricity for the longer term. Fusion is expected to be more environmentally
benign relative to fission or fossil sources of
electricity. The development of fusion as a

Part One-lOl

power source is an important part of the National Energy Strategy.
The budget proposes $360 million for fusion,
an increase of nearly 7 percent over 1992.
Funding is included for conceptual design
and R&D on a small tokamak experiment
at Princeton University to understand basic
physical principles of fusion. Much of the
increase will support the strong U.S. commitment to the International Thermonuclear Experimental Reactor. This 6-year collaboration
among four equal partners (U.S., European
Community, Japan, and Russia) is a model
for international cooperation in science and
technology. Such a joint project has the
advantages of sharing knowledge and personnel, reducing the financial burden for each
party, and optimizing the use of special
facilities and capabilities for the common
goal of achieving energy from fusion.
Enabling New Products and Processes—
Advanced Manufacturing R&D.—The budget proposes $1.1 billion for advanced manufacturing R&D, a key enabling technology. This
includes an increase of over 27 percent for nondefense related manufacturing R&D. For the
purposes of this initiative, advanced manufacturing R&D includes activities within two
broad areas: (1) efforts designed to use technology to improve the efficiency or quality by
which a product is brought from design to completion; and (2) activities directed at expanding
the technical capability to bring a product
(which is new and fundamentally different in
character from existing products) from design
to completion.
In an effort to focus on those programs
which are exclusively devoted to manufacturing R&D, the budgetary resources shown
for Advanced Manufacturing R&D exclude
funding for projects included in other crosscutting efforts (e.g., Advanced Materials and
Processing). As a result, these resources cannot be directly compared to resources reported
for Advanced Manufacturing in the 1992
budget (which included all manufacturingrelated R&D).
Improvements in U.S. manufacturing technology can increase productivity and quality,
leading to new or more competitive products.
While industry has the central role in R&D
to improve manufacturing technology, an ap-

Part O n e - l O O
propriate role in such R&D exists for the
government as well. The Federal role in
advanced manufacturing R&D lies in supporting (1) generic manufacturing technologies
which have broad applications and (2) those
technologies which are directly applicable to
the procurement needs of government programs.
The budget proposes increases for several
agencies, including a $25 million increase,
to a total of $105 million, for the National
Science Foundation for a new manufacturing
R&D effort that will focus on the next
generation of manufacturing systems. The
results of this research will shift the present
focus on automating and linking separate
mechanical components to integrating entire
new systems based on advanced computers
and information technologies (e.g., sensors,
visualization, information management systems, artificial intelligence, networks). This
research will be conducted in concert with
industry and other Federal agencies and
will develop several state-of-the-art manufacturing experimental testbeds for research,
education, and training. The budget also
proposes a $27 million increase for manufacturing R&D at the National Institute of
Standards and Technology. This increase will
be devoted to generic manufacturing R&D
such as development of standards for electronically communicating the design of products.
In addition, a portion of the increase for
NIST will provide matching funds for industryled and performed R&D projects.
In addition, the Federal agencies have
undertaken a new initiative to exchange
manufacturing R&D information with industry, and to improve coordination of government-industry efforts. The initial step was
a conference held in December, 1991 on
Intelligent Processing Equipment. Other conferences are planned for 1992 in flexible
computer integrated manufacturing; microand nanofabrication; and systems management
technologies.
Improving the Efficiency of the Transportation Sector through New Technologies.—With increasing demands on the
nation's highways and at airports, and with
the high cost of building or expanding new
facilities, the Federal Government is concerned

THE BUDGET FOR FISCAL YEAR 1993

with stimulating transportation technologies
that can alleviate the burdened infrastructure.
In addition, new transportation technologies
offer significant opportunities to move people
and goods more efficiently, reducing petroleum
consumption.
Two agencies, the Department of Transportation (DOT) and the National Aeronautics
and Space Administration (NASA), support
the majority of transportation-related R&D.
DOTs programs span the modes of transportation, both ground and air. NASA's aeronautics program focuses on research and
technology for both civilian and military aircraft. The budget proposes a total of $1,433
million for both agencies, $498 million for
DOT and $855 million for NASA, an overall
increase of 17 percent, for transportation
R&D activities.
Department of Transportation—The budget
proposes $498 million, an increase of 12
percent, for all of DOT R&D. The Federal
Aviation Administration (FAA) funds research
to improve airport and airspace utilization.
FAA research includes projects to explore
and define the next-generation of aviation
technologies, including the use of satellites
in aviation navigation and communications.
Nearer-term projects include research to determine if the separation between two heavy
class aircraft from the current 4 miles can
be reduced to 3 miles to increase efficiency
without a degradation of safety. FAA is
also conducting research aimed at improving
communications with oceanic aviation traffic.
With better oceanic communications, air traffic
controllers could allow more wind efficient
traffic patterns, saving time and fuel and
improving safety. FAA will also emphasize
energy-efficient air traffic control R&D as
a part of the national effort to modernize
the air traffic control system. The budget
proposes $254 million for FAA R&D.
Intelligent Vehicle/Highway Systems (IVHS)
are intended to increase highway safety,
reduce congestion and decrease highway fuel
consumption. IVHS uses state-of-the-art electronics, communications, and computer technology to improve traffic control systems,
warn drivers of dangerous situations, and
generally make more efficient use of the
existing road system. IVHS can reduce conges-

6. ENHANCING R&D AND EXPANDING THE HUMAN FRONTIER

tion, improve traffic flow, reduce idling at
traffic signals, and allow drivers to choose
more efficient routes to their destination.
The Department of Energy National Energy
Strategy analysis showed that actual onthe-road fuel economy can be significantly
lower than the theoretical potential due to
congestion. A study by Mobility 2000, an
expert group of Federal and State highway
officials and corporate and academic technical
experts, estimated that IVHS has the potential
to save up to 20 million gallons per day
of gasoline. The budget proposes a total
of $138 million including $38 million for
R&D, and $100 million for demonstration
projects in this area.
High speed rail and Maglev systems offer
opportunities to displace automobile and air
travel with a concomitant increase in efficiency. A particularly promising technology
is magnetic levitation trains, or "maglev."
Current efforts include investigations into
the economic and technical feasibility of
maglev and the safety of maglev and highspeed rail. Maglev trains move above a
guideway, supported and guided by powerful
magnets and can achieve speeds of up to
300 miles per hour. In 1992, $20 million
was provided to DOT and the Army Corps
of Engineers for maglev and high-speed rail
R&D. The budget proposes $28 million ($15
million for DOT and $13 million for the
Corps of Engineers), an overall increase of
40 percent, for maglev and high-speed rail
R&D.
National Aeronautics and Space Administration—The goal of NASA's aeronautics research
and technology program is based on a strategy
that calls for developing a broad technology
base in support of the commercial aviation
industry; enhancing the safety and capacity
of the national airspace system; and helping
assure U.S. aeronautical superiority for national security. Aeronautics R&D has traditionally been a highly successful close cooperative effort between the Federal Government
and the private sector.
The budget proposes $855 million for aeronautics R&D (excluding High Performance
Computing and Communications), an increase
of 13 percent over the 1992 enacted level.
Work in focused high-speed research will

Part One-lOl

expand its emphasis on enabling propulsion
materials necessary to develop future aircraft.
In addition, the budget proposes increased
funding for a program focused on advanced
subsonic aircraft. This program will develop
nondestructive evaluation technology to help
ensure the safe operation of aging transport
aircraft now in operation and will also provide
the technology base for application by industry
and certification by the FAA of fly-by-light
and power-by-wire control systems.
In addition to the work proposed above,
the budget proposes $80 million as NASA's
share of the joint NASA/Defense National
Aerospace Plane Program (NASP). Defense
will provide $180 million in 1993. This program is focused on development of hypersonic
technology, leading to a future decision on
a flight research vehicle, the X-30 that
can demonstrate airbreathing single-stage-toorbit performance. The NASP industry contractors are uniquely organized under a jointventure partnership that will permit technical
innovation to be shared and will ensure
a broad industrial base for future hypersonic
programs. This singular focus has permitted
relatively fast-paced advances in key enabling
technologies such as air-breathing propulsion,
advanced materials, actively cooled structures,
dense fuel, and computational fluid dynamics.
Protecting the Public Health Through
Biomedical and Behavioral Research
Federally supported research has helped
Americans live longer, healthier lives by
improving the quality of medical practice
and by developing new preventive measures.
The U.S. leads the world in biomedical research. Both the pace of new discoveries
and America's continued dominance of scientific Nobel prizes attest to that pre-eminence.
The budget assures that the next generation
will reap similar benefits by seeking substantial increases in the country's investment
in basic and applied biomedical and behavioral
research and development. In the Department
of Health and Human Services alone, this
increase amounts to $433 million, or 4 percent,
over 1992 funding levels to a total of $10.6
billion.

Part One-lOO
Advances in biomedical and behavioral research can improve the quality of health
care while helping to control health care
costs. One example is the research-induced
changes in medical practice which reduced
coronary heart disease death rates and the
duration of heart diseases-related hospital
stays—saving hundreds of thousands of lives
and billions of dollars. Current path-breaking
research, such as the human gene therapy
experiments conducted at the National Institutes of Health (NIH), proffers the hope
of similar advances in human health and
cost efficiency in the future. Research at
the Alcohol, Drug Abuse, and Mental Health
Administration (ADAMHA) into the causes
of human addiction to drugs and alcohol
offers hope of finding ways to reduce the
human and societal toll caused by substance
abuse.
The Federal investment in basic and applied
biomedical and behavioral research is large.
In total, the budget proposes $10.6 billion
for the Department of Health and Human
Services, an increase of 4 percent over 1992.
While $5.8 billion of this research is basic,
$4.8 billion is invested in applied research
and development. The applied research and
development helps ensure that basic research
discoveries are translated into marketable
therapies. Indeed, NIH funding of clinical
trials, through which promising new therapies,
preventive interventions and cures are examined for safety and efficacy, will total over
$830 million in 1993. For example, since
pharmaceutical companies traditionally have
been slow to develop medications for substance
abuse, the budget contains a $64 million
initiative for medications development in
ADAMHA, a 13 percent increase over 1992.
This Federal investment in biomedical and
behavioral research has increased as a proportion of GDP from 0.12 percent in 1970
to an estimated 0.17 percent in 1993.
NIH Strategic PZan. During the past year,
NIH has begun to develop its first long-range
Strategic Plan, to be completed in the Spring
of 1992. The Plan is focused on 15 promising
areas of science that hold exceptional opportunities for future breakthroughs. The Plan will
also address the major policy issues that relate
to the efficient and responsible conduct of

THE BUDGET FOR FISCAL YEAR 1993

NIH-sponsored research. Broad public input is
being sought on the Plan.
The Plan is not intended to direct the
details of NIH-supported research, but rather
to provide an overarching corporate framework—one that is dynamic and that can
be changed in response to the extraordinary
promise of future opportunities in biomedicine.
It will help ensure that the promise of
a healthier future for the citizens of tomorrow
can be fully realized.
Women's Health Initiative.Three of the leading causes of death among women are cardiovascular disease, cancer and fractures related
to osteoporosis. NIH has initiated a decadelong clinical trial to test three preventive approaches to reducing this toll through the
adoption of low-fat dietary patterns, hormone
replacement therapy, and calcium and Vitamin
D supplementation. The budget proposes to increase this initiative by $20 million, or 80 percent over 1992.
In addition to testing the effectiveness
of these therapies, the study will include
an observational component to study the
predictors of disease and a community trial
to test strategies for organizing community
resources to help individuals achieve healthy
behaviors of established value, including smoking cessation and prevention, improved diet,
increased physical activity, and early cancer
detection.
The study, which will include a crosssection of American women of all races and
economic levels, will give us scientifically
validated advice for women, their physicians,
and public health care workers concerning
healthy behaviors and treatments, and ways
of achieving these behaviors.
Relating Research Investments to Selected
Diseases.—Although most HHS research funds
are utilized for basic research which advances
knowledge for combatting many diseases, some
research can be loosely classified as related
to one specific disease or another, as shown
on Table 6-8. By comparing these data with
the data in Table 5-14 in Chapter 5, it can
be seen that this investment by disease roughly corresponds to the toll these afflictions take
in terms of death, illness, and human suffering.

Part One-lOl

6. ENHANCING R&D AND EXPANDING THE HUMAN FRONTIER

Some have argued that a disproportionate
share of health-related research dollars is
being devoted to HIV/AIDS. It is true that
spending per death from HIV/AIDS is high
compared to that for heart disease, cancer,
and stroke, the three leading causes of death
in the country. HIV, however, often strikes
early in life. More than 45 percent of AIDS
sufferers are younger than 35, and a growing
number are children. As a result, some
suggest that research spending per year of
potential life lost before age 65 for HIV
and the three killer diseases is more comparable than that for spending per death,
as shown in the following chart. In addition,
a comprehensive assessment of relative funding levels must consider other factors, such
as morbidity and quality of life. The chart
also shows substantial investments in diabetes, a disease that is a major contributor
to disability as well as the Nation's eighth
leading cause of death.
Deaths and years of potential life lost
attributable to the three major killers and
diabetes are projected to grow, individually
and collectively, by less than 5 percent over
the 4 years between 1990 and 1993. In
contrast, deaths and years of potential life
lost due to HIV will increase much more
quickly, rising by 30 to 80 percent. These
projections further support the priority given
to HIV research in the budget.
The Budget Includes a Major Investment to
Confront Human Immunodeficiency Virus/Acquired Immune Deficiency Syndrome (HIV/
AIDS).—Since the greatest hope for devising

better treatments, or even a cure or vaccines,
for HIV/AIDS will come from advances in
knowledge, the budget continues to place a priority on maintaining our investment in biomedical and behavioral research related to
HIV/AIDS. As shown in table 6-9, governmentwide HIV/AIDS funding will increase
by $565 million or 13 percent. This includes
a 4 percent increase for research and a 20
percent increase for treatment.
The budget would enable the Nation to
continue making progress in the battle against
HIV/AIDS. Additional candidate therapies will
be screened and tested, education programs
will continue to discourage behaviors that
lead to transmission of the virus, and treatment and income support funds will continue
to be made available to those already afflicted.
Indeed, the largest increase related to HIV/
AIDS will come from Federal spending for
Medicaid and Medicare, which are projected
to increase by a total of 23 percent over
1992. Additional research and education are
the best methods for ensuring that future
generations will not bear so heavy a burden,
and the budget, therefore, makes substantial
efforts in these areas.
Expanding Civilian Applied R&D at the
National Institute of Standards and Technology (NIST).—The budget proposes $311
million, an increase of 26 percent over 1992,
for NIST. The R&D supported by NIST includes standards development and advanced
measurement techniques, both of which are
critical to improving product quality, enabling
the effective use of new technologies, and en-

Table 6-8. HHS RESEARCH FUNDING ATTRIBUTED TO SELECTED
CAUSES OF ILLNESS
(In millions of dollars)
Cause of Illness

Cancer
Heart Disease
Stroke
Diabetes
Injuries
HIV/AIDS

311-000 0 - 92 - 7 (Pt.l)

Budget Authority
1992 Enacted

1993 Proposed

1,984
729
94
279
162
1,164

2,042
772
100
292
168
1,211

Part One-lOO

THE BUDGET FOR FISCAL YEAR 1993

RESEARCH INVESTMENT IN SELECTED DISEASES
(BUDGET AUTHORITY)
DOLLARS
25,000

DOLLARS
2,000
1992 HHS RESEARCH FUNDING PER 1992 DEATH (LEFT SCALE)
1992 HHS RESEARCH FUNDING PER YEAR OF POTENTIAL
LIFE LOST IN 1992 (RIGHT SCALE)

20,000

- 1,500

15,000
- 1,000

10,000
- 500
5,000

CANCER

STROKE

HIV

HEART DISEASE DIABETES

SOURCE: PHS STAFF ESTIMATES AND PROJECTIONS

Table 6-9. THE BUDGET PROPOSES A 13 PERCENT INCREASE IN
FEDERAL FUNDING FOR HIV AND AIDS1
(Dollar amounts in millions)

HIV/AIDS:
Research
Treatment
Prevention
Income Support
Total 2

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

1992
Enacted

1993
Proposed

892
737
483
153

1,189
2,096
594
492

1,238
2,507
621
570

+49
+411
+27
+78

+4%
+20%
+5%
+16%

2,265

4,371

4,936

+565

+13%

1989
Actual

1 These are preliminary estimates for programs in the Departments of Health and Human Services, Defense,
Veterans Affairs, Education, Justice, State, Labor, and independent agencies. Total also includes estimated
obligations for the Social Security Administration.
2 In addition to the spending identified above, the budget includes other initiatives, most notably those related to
drugs and infant mortality, that contribute to the fight against HIV and AIDS.

hancing public health and safety. In addition,
NIST supports generic applied research and
technology development, often in collaboration
with industry, which has the potential to benefit the U.S. economy broadly. The budget pro-

posal continues an effort begun in 1991 to expand NIST's ability to provide for generic applied research and technology development
and to address a rapidly growing number of
important standards and measurement issues.

6. ENHANCING R&D AND EXPANDING THE HUMAN FRONTIER

The R&D performed at NIST facilities
covers a wide range of technologies including
electronics, manufacturing, materials science,
chemistry, physics and information systems.
The budget includes $202 million, a 16 percent
increase, for this in-house R&D. The research
community and industry depend on NIST
R&D for the precision measurement bases
which form the foundation of R&D projects
and industrial quality control. NIST transfers
its metrology R&D to practical use through
several means including sales of products,
data and services. In 1991 NIST performed
more than 11,000 calibration services and
sold over 47,000 standard reference materials
and 1700 standard reference databases (used
by researchers and industry as a benchmark to calibrate their equipment). In addition, in 1991 NIST accredited 934 private
laboratories to carry out specific types of
tests in key areas of commerce, health and
safety.
Due to the broad applicability to U.S.
industry of NIST's metrology and other generic
R&D, NIST often performs its research cooperatively with industry. Through 1991 NIST
has signed over 150 cooperative research
and development agreements and in 1991
received approximately $65 million in inkind contributions from industry. Over 25
of NIST's agreements are with industry consortia that further increase the impact of
NIST's R&D expenditures and highlight the
generic nature of its research. While NIST
emphasizes widespread dissemination of its
research results, protection of intellectual
property resulting from NIST R&D is frequently needed in order to facilitate commercialization of its research results through
licensing agreements. Since 1989 NIST R&D
has resulted in over 40 patent disclosures
per year.
The budget proposes $23 million to maintain
and refurbish NIST facilities, as well as
to plan for the facility needs of the future.
As a result of the technical obsolescence
of many NIST facilities, experiments are
often delayed or subject to costly reworking,
and scientists often must accept levels of
precision and accuracy below those desired.
The budget provides for initiation of an
architectural and engineering study and immediate amelioration of safety-related problems.

Part One-lOl

The budget also includes $68 million, a
36 percent increase, for the Advanced Technology Program (ATP). This program provides
matching funds to U.S. business and R&D
joint ventures for industry-led, generic, precompetitive R&D. Projects must have the
potential for a broad-based economic impact.
In a broad sense, the goal of the program
is to help make the transition between fundamental research and the more applied
research and technology development that
will enable commercialization of products and
processes by the private sector. Many studies
have suggested that, for a variety of reasons,
U.S. industry often fails to make this transition effectively, and, thus, is often unable
to commercialize technology as rapidly as
competitors. While the ATP is still experimental, it is intended to stimulate increased
R&D at the generic, pre-competitive stage,
and, thus, holds promise for improving the
ability of U.S. firms to compete in global
markets. The increase will allow NIST to
fund approximately 25 to 35 new projects
in 1993 while continuing to monitor closely
and evaluate the program's impact.
The NIST Manufacturing Technology Centers are intended to enhance U.S. competitiveness by transferring manufacturing technologies to small and medium-sized business.
The budget proposes $18 million to support
the continuation of the seven centers planned
by the end of 1992. During 1992 NIST
will contract for an in-depth study which
will focus on how the centers should be
structured to obtain the greatest leverage
for Federal expenditures. Any decision on
initiating new centers will be deferred until
this study is completed.
Creating New Technology for Space and
Earth: Space Technology. —A vigorous program to improve existing technologies and create new ones is essential for long-term
progress in any major technological endeavor,
but is particularly important in the space program. Reasons for this include the continuing
need for new capabilities to support new missions and the long lead times needed to develop a new technology before it can be used
with confidence in space. Consequently, the future success of the U.S. space program depends in part on near-term investments in a
number of technological disciplines.

Part One-lOO
There is considerable evidence that the
funding of space technology activities has
not kept up» with the rest of the space
program. Recent spending on space technology
has fallen to 2 percent of the NASA budget
in 1992 from the level of over 4 percent
that was sustained throughout the 1960's.
This trend was viewed with concern in the
report of the Advisory Committee on the
Future of the U.S. Space Program: .. unfortunately, NASA has not been permitted to
sustain an adequate level-of-effort program
in space technology due in recent years
to externally imposed budget reductions. We
believe that this is a consequence of a
lack of appreciation of the key role that
technology development plays in enabling future missions, reducing future systems' costs
and increasing America's competitiveness."
To help remedy this deficiency, the budget
proposes $305 million, an increase of 12
percent, for NASA space technology development that is not directly related to space
exploration. The 1993 program emphasizes
such areas as advanced materials, electronics
and sensors, communications, life support,
power, propulsion, and robotics. In addition,
NASA is implementing a new strategic planning process to address more effectively space
technology needs foreseen by potential users
within NASA as well as in other government
agencies and industry. The budget proposal

THE BUDGET FOR FISCAL YEAR 1993

is based on the results of the first cycle
of this planning process.
Experience shows that technologies and
products developed for the space program
often find useful applications here on Earth
in a wide variety of fields. Medical Magnetic
Resonance Imaging uses image-processing
techniques originally developed for analyzing
data from earth observation satellites. Some
health monitoring equipment in hospitals uses
technology developed for monitoring crew
health in manned space missions. A low
temperature laser that opens clogged arteries
without surgery is based on technology developed for satellite-based atmospheric studies.
A tornado detector for homes was derived
from NASA electronics research. Fire resistant
materials originally developed for astronaut
garments have found uses ranging from sheets
and furniture in pressure chambers to protective clothing for race car drivers and their
pit crews. A lightweight shock-absorbing material now used in some athletic shoes was
originally developed for astronaut moon boots.
A new oil-saving seal for automobiles uses
synthetic rubber material developed for interplanetary spacecraft. A highly accurate ice
detection system to prevent aircraft accidents
and some scratch-resistant coatings for eyeglasses and cameras are also based on NASA
research.

EXPANDING THE FRONTIER OF KNOWLEDGE THROUGH
BASIC RESEARCH
Future innovation, productivity growth and
economic performance depend on the constant
creation of new knowledge.
As Vannevar Bush stated in "Science: The
Endless Frontier":
"New products, new industries, and more jobs require continuous additions to knowledge of the
laws of nature, and the application of that knowledge to practical purposes. Similarly, our defense
against aggression demands new knowledge so
that we can develop new and improved weapons.
This essential, new knowledge can be obtained
only through basic scientific research.
Science can be effective in the national welfare
only as a member of a team, whether the conditions be peace or war. But without scientific
progress no amount of achievement in other direc-

tions can insure our health, prosperity, and security as a nation in the modern world."1

Basic research provides new knowledge that
leads to new products and processes. Basic
research, especially at universities, is an
essential investment in the Nation's scientific
and technological future, including its future
scientists and engineers. For this reason,
the budget places a high priority on increasing
basic research. In total, the budget proposes
an increase of 8 percent, or $1 billion,
above 1992 for Federal basic research support.
1 Vannevar Bush. Science, the Endless Frontier: A Report to the
President. U.S. GPO, July, 1945, p. 1.

6. ENHANCING R&D AND EXPANDING THE HUMAN FRONTIER

The strength of U.S. investment in basic
research is illustrated by several recent
achievements:
• Researchers at Stanford University have
developed a miniaturized process using lasers to produce small-diameter fibers of
high-temperature superconducting material. These fibers may be the precursor to
superconducting wire needed for motor
and magnet applications of high-temperature superconductors.
• Using a recently purified, naturally-occurring bone growth factor, scientists have
succeeded in using muscle exposed to this
factor to form bone in a mold. This opens
the possibility, long dreamed of, that replacement bones in the precise shape
needed by patients may one day be grown
from muscle or other specialized tissues.
• Following on last year's success with the
first-ever human gene therapy on a child
with a severe genetic immune deficiency,
NIH scientists have now used gene transplantation to initiate the first experimental gene therapy for cancer. A gene
for a natural tumor-killing substance was
inserted into white blood cells that are
known to seek out tumors as a way of
increasing the concentration of this
antitumor substance at the tumor site.
The Vitality of Basic Research
Funding Trends.—The historical trend in
Federal support for basic research shows that
during the 1980s such support increased overall by 50 percent in real terms, with significantly larger increases in health-related basic
research. Real support for basic research has
continued to climb in the early 1990's, as a
result of the increases recommended by the
Bush Administration.
But as the Office of Technology Assessment
(OTA) notes:
"Given the extraordinary strength of the U.S. research system and the character of scientific research, there will always be more opportunities
than can be funded, more researchers competing
than can be sustained, and more institutions seeking to expand than the prime sponsor—the Federal Government—can fund. The objective, then,
is to ensure that the best research continues to
be funded, that a full portfolio of research is main-

Part One-lOl

tained, and that there is a sufficient research
work force of the highest caliber to do the job."2

Measuring the Direct Economic Benefits.—Most basic research is performed in universities. Until recently, there has been no way
to gauge reliably the impact of academic research on industrial innovation.
Research (Mansfield, 1991) carried out over
the past two years has found that a significant
proportion of new products or processes in
several important sectors, including information processing, drugs, and instruments, would
not have reached the market when they
did without the contribution of academic
research. Thus, the benefit of academic research appears to be considerable, even apart
from its more traditional benefits to the
education of students and to the acquisition
of knowledge for its own sake.
Mansfield (1991) has estimated that the
average annual social rate of return to past
investments in academic R&D is about 28
percent. This finding, however, does not necessarily imply that investing more money
in academic R&D will yield similarly high
returns. Factors such as geographical proximity of interested industries and the strength
of the research faculty in individual departments on individual campuses appear to
play an important role, as noted in more
recent unpublished work by Mansfield. A
discussion of the specific contribution of academic institutions to the national R&D infrastructure appears later in this chapter.
Although support for university researchers
is most often cited as the key indicator
of the health of overall Federal support
for basic research, a number of other measures
have traditionally been used to measure research output (new knowledge). None of these
are, by themselves, definitive indicators of
the vitality of research, and none are universally accepted as an adequate output measure,
since the "amount" of new knowledge contained in a research finding has no natural
unit of measure. Taken together with information on support for researchers, these measures provide some insight into the overall
strength of the national research enterprise.
Several such measures are (1) numbers of
2 Office of Technology Assessment, Federally Funded Research:
Decisions for a Decade. U.S. GPO, May, 1991.

Part One-lOO
publications, (2) "quality" of publications as
measured by citation indices, (3) patents
and (4) Nobel and other prizes.
By all of these measures, the U.S. continues
to lead the world in the generation of knowledge. For example:
• The number of science articles published
by U.S. academic researchers (which
produce about two-thirds of all U.S.
science and engineering articles in major
journals) has increased markedly. By this
measure, the U.S. is maintaining its large
share of world scientific and engineering
literature.
• The influence of publications as measured
by the level of citation of U.S. papers by
foreign researchers suggests that U.S. researchers continue to exert a substantial
impact on foreign research, and thus on
the world's store of scientific knowledge.
• U.S. universities received 2 percent of patents awarded to U.S. inventors in 1988,
more than double the share in 1978, thus
new ideas that have potential value in the
marketplace are flowing from universities
in even greater numbers.
• The U.S. continues to dominate the Nobel
lists, and Americans often win other
maj or, internationally-recognized prizes
such as the Fermi, the Wolf and the
Lasker. This provides evidence of the
strong and consistent support for basic research over the last 30 years.
This lead can be lost without adequate
investment in knowledge. The Administration's
strategy of investing in basic research is
designed to maintain and strengthen America's
leadership in scientific innovation.
The budget recognizes that the level of
support for individual and small groups of
investigators, primarily at academic institutions, is an important indicator of the vitality
of the Nation's basic research effort. These
"individual investigators" are the wellspring
of many of the Nation's discoveries and
inventions and they form the backbone of
American science. Therefore, the Administration has proposed significant 1993 increases
for this group.

THE BUDGET FOR FISCAL YEAR 1993

Budget Initiatives in Basic Research
The budget proposes a number of major
increases or new programs reflecting the
President's support for basic research. These
increases are intended to bolster basic research
funding, especially that which supports individual investigators, and to provide those
researchers with state-of-the-art equipment
and specialized world-class research facilities.
Overall, the budget proposes over $14 billion
for basic research, an increase of over $1
billion, or 8 percent, over 1992.
Doubling the Budget of the National
Science Foundation by 1994.—The President
remains committed to doubling the budget of
the National Science Foundation (NSF) by
1994. The budget proposes $3,026 million, an
overall increase of $454 million, or 18 percent,
over 1992. Over 70 percent of NSF's budget
supports basic research, primarily at universities and colleges. These funds provide support for individual investigators and small
groups ($1,581 million), research centers ($148
million) and research instrumentation and specialized research facilities ($483 million), including the National High Field Magnet Laboratory, the Laser Inferometer Gravity Wave
Observatory, and two matched 8-meter optical
telescopes. Each of these elements are keys
to maintaining the preeminent U.S. position
in science and basic research.
The budget proposes $33 million for NSF's
instrumentation initiative. This initiative,
funded at about $17 million in 1992, will
continue to provide state-of-the-art instrumentation, costing from $200,000 to $4 million,
to university researchers through a meritbased competitive process. The Federal funding will be matched 50:50 from non-Federal
sources.
NSF also plays a significant role in the
government-wide initiative to improve the
quality of science, mathematics, and engineering education, particularly at the precollege
level. These education activities are highlighted in Chapter 4, "Reforming American
Education and Investing in Human Capital".
Increasing the Support for Individual
Investigators.—The budget proposes a significant increase for individual investigators located primarily at universities and colleges.

Part One-lOl

6. ENHANCING R&D AND EXPANDING THE HUMAN FRONTIER

Table 6-10. THE BUDGET INCREASES FUNDING FOR BASIC RESEARCH1
(Dollar amounts in millions)
Budget Authority
Department or Agency

Health and Human Services
(National Institutes of
Health)
National Science Foundation
Energy
National Aeronautics and
Space Administration
Defense-military
Agriculture
Other Agencies 2
Total

1989
Actual

Outlays

Dollar Percent
Change: Change:
1992
1993
Enacted Proposed 1992 to 1992 to
1993
1993

1989
Actual

5,459

5,800

+341

(4,052) (5,019)
1,839
1,563
1,789
1,383

(5,328)
1,859

(+309)
+382
+70

2,068
1,203
639
532

+208
+33
+28
+6

+11%

1,346

+3%
+5%
+1%

929

14,322 +1,068

+8%

4,413

1,385
951
486
434

1,860
1,170
611
526

10,615

13,254

2,221

5,143

5,541

+398

+8%

(+6%) (3,988) (4,748)
+21%
1,455
1,730
+4%
1,377
1,695

(5,109)
1,917

(+361)
+187
+76

(+8%)

+6%

4,234

Dollar Percent
1992
Change: Change:
1993
Enacted Proposed 1992 to 1992 to
1993
1993

1,771

+11%

+4%

1,851
1,230
589
505

+136
+96

+8%
+8%

477
438

1,715
1,134
576
498

+13

+2%

+1%

10,256

12,491

13,405

+914

+7%

1 Amounts reported in this table are included in totals for conduct of R&D.
2 Includes the Departments of Interior, Commerce, Veterans Affairs, Education, Labor, the Treasury, Justice, the Smithsonian
Institution, Environmental Protection Agency, Tennessee Valley Authority, Agency for International Development, and the Corps of
Engineers.

Three agencies support the majority of individual investigators: the National Science Foundation, and the Departments of Health and
Human Services and Energy. In total, the
budget proposes over $7.9 billion, an increase
of over 9 percent, for these investigators.

will enable future life-extending and life-enhancing therapies to be developed. By focusing
these additional resources on basic biomedical
research, the budget helps to ensure that continued advances against disease will take
place.

For HHS, the budget proposes $5.9 billion,
an increase of $389 million, or 2 percent
real growth, for investigator-initiated research.
This sizeable increase will allow a record
total of 24,600 grants to be supported, an
increase of 500 over 1992's record levels.
For NSF, $1,581 million is being proposed
in this area, an increase of $230 million
or 17 percent over 1992. For Energy, the
budget proposes a total of $482 million,
an increase of 11 percent, for support of
university-based basic research by the Office
of Energy Research.

Unlocking the Secrets of Human Heredity—the Human Genome Project.—The
budget proposes a 7 percent increase, to a total
of $175 million, for the fourth year of this 15year effort to decode the information locked
in the chemical building blocks that form
human genetic inheritance.

Increasing Basic Research in HHS.—HHS is
the largest supporter of both government basic
research and individual investigators in the
Federal Government. The budget continues to
focus on basic biomedical and behavioral research at HHS, and proposes $5.8 billion in
1993. Building on the record levels reached
in 1992, this $341 million, or 6 percent, increase will allow HHS research agencies to further extend the frontiers of knowledge which

The Project is being conducted jointly by
the Departments of Energy and Health and
Human Services. The budget proposes a total
of $175 million for the project, $65 million
at Energy and $110 million at Health and
Human Services. These funds are also included
in the totals for the broader Biotechnology
Research Initiative involving many other Federal agencies.
DOE and HHS are working together to
develop capabilities and tools, to construct
gene "maps", to discern the chemical sequence
of human chromosomes, and to characterize
disease-related genes.

Part One-lOO
Concurrent with the project's efforts to
advance the state-of-the-art in genetic "mapping," the project is also exploring safeguards
that may be necessary as new genetic information is put to practical uses, addressing
issues related to privacy of such information
and fairness in its use.
Recent advances include completion of mapping of several large chromosome segments,
isolation of genes for several genetic diseases,
and establishment of an international Genome
Data Base for maintaining and distributing
genome data to researchers all over the
world.
Future generations will benefit greatly from
the knowledge gained through this investment.
Future scientists will have tremendous
amounts of new information about the molecular basis of human inheritance available
to assist them in their search for therapies
and cures for disease. The budget ensures
that this project is able to forge ahead
expeditiously.
Unlocking the Secrets of Matter and Energy—The Superconducting Super Collider
and High Energy and Nuclear Physics:
The Superconducting Super Collider.—The
Superconducting Super Collider (SSC) will provide a collision energy 20 times greater than
the current capability, resulting in new fundamental knowledge of matter and energy. The
SSC Laboratory, under construction in Ellis
County, Texas, will comprise a 54-mile circular
tunnel in which superconducting magnets will
accelerate counter-rotating proton beams. The
SSC will employ 2,500 scientists, engineers,
and technicians, and host an additional 500
visiting scientists.
The budget provides $650 million for the
SSC, an increase of $166 million over 1992.
Much of the current effort focuses on research
and development of the superconducting
magnets. Work on other SSC components
is also progressing. A segment of tunnel
which will be used for magnet testing will
be under construction by the end of 1992.
The total cost of the SSC has been estimated
at slightly over $8 billion. One-third of the
total is expected to be contributed by nonFederal sources. The State of Texas has
committed up to $875 million for construction

THE BUDGET FOR FISCAL YEAR 1993

of on-site facilities and other SSC systems,
as well as the land required for the SSC
laboratory.
Foreign partners are expected to contribute
substantially to the construction and operation
of the SSC, as well as to the experimental
program. During 1993, follow-up delegations
will continue discussions already underway
with Canada, Europe, India, Japan, Korea
and Russia.
The SSC holds the potential for new breakthroughs in science, technology and education.
Although the primary purpose of the SSC
is to acquire new knowledge, such knowledge
has always resulted in developments in technology and practical products which profoundly
affect the quality of life for all Americans
and which enhance the economic competitiveness of the Nation. U.S. world leadership
in high energy physics will be maintained
far into the next century by the scientific
and technological advances emanating from
the SSC. For example, the SSC will introduce
the first massive, U.S. industrial manufacture
of superconducting accelerator magnets. The
experience gained will help in the development
of magnetically levitated, high-speed trains,
energy storage systems for fuel conservation
and low loss electrical power systems.
High Energy and Nuclear Physics.—Research in high energy and nuclear physics is
directed at understanding the nature of matter
and energy at the most fundamental level and
the basic forces which govern all processes in
nature. Much of the research program is aimed
at verifying and explaining the particles, or
"building blocks", that comprise the interior of
atoms and the forces acting on them.
Research is conducted at universities and
national laboratories. Most university funding
goes to individual investigators for support
of graduate students and research at university facilities or at the national laboratories.
Funding provided to the national laboratories
allows construction and operation of large
accelerator and collider facilities which are
open to researchers from other national or
international sites. Industry also uses the
national laboratory facilities for non-proprietary testing and development.

Part One-lOl

ENHANCING R&D AND EXPANDING THE HUMAN FRONTIER

The budget proposes $1 billion for High
Energy and Nuclear Physics programs (other
than the SSC), an increase of 2 percent
over 1992. The budget reflects planned decreases as construction projects such as the
Continuous Electron Beam Accelerator Facility
(Newport News, VA) for nuclear physics are
completed, and as other research facilities
are phased down. Support for ongoing nuclear
physics projects such as the Relativistic Heavy
Ion Collider (Brookhaven National Laboratory,
NY) increases as these projects continue on
schedule.
The budget proposes for high energy physics
(other than the SSC) a new Main Injector
Ring at Fermilab which is currently planned
for completion in 1996. Scientists are confident
that this new capability will enable them
to discover evidence of the "top quark",
the elusive final particle in verifying the
theoretical model that predicts the interaction
between matter and energy. The budget provides total funding of $246 million for all
high energy physics programs at Fermilab,
an increase of $18 million, or 8 percent.
Understanding the Earth: The U.S. Global
Change
Research
Program
(USGCRP).—The USGCRP is designed to assist efforts to understand more fully the
earth's climate system in order to support national and international policymaking activities associated with global and regional environmental issues (e.g., ozone depletion, global

warming). This FCCSET interagency research
effort (eleven agencies) promises not only the
information to aid today's policy decisions, but
also to maintain the strong foundation of
multi-disciplinary science required to address
the unanticipated issues of tomorrow.
The budget proposes $1,372 million for
the USGCRP, an increase of $262 million
or 24 percent over 1992. The USGCRP addresses three parallel but interconnected
streams of activities: 1) documenting global
change through the establishment of longterm monitoring programs; 2) enhanced understanding of key physical, chemical, biological,
and social processes that influence and govern
the Earth's evolution, and 3) predicting global
change through the development of predictive
Earth system models.
Planning for the USGCRP has been shaped
by a strategic and scientific priority framework
that has been extensively reviewed by the
scientific community. Over the past two years,
this framework has been extended to include
a set of integrating themes that address
the scientific uncertainites identified by the
U.N.-sponsored Intergovernmental Panel on
Climate Change, and the economics research
and important policy questions identified as
a result of the 1990 White House Conference
on Science and Economics Research Related
to Global Change. The further integration
of economics research into the USGCRP is
particularly important since an understanding

Table 6-11. THE BUDGET PROPOSES A 12 PERCENT INCREASE FOR
A BALANCED PROGRAM IN HIGH ENERGY AND NUCLEAR PHYSICS
(Dollar amounts in millions)
Budget Authority
1992
Enacted

1993
Proposed

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

770

484
988
77
78
15
818

650
1,003
96
76
30
801

+166
+15
+19
-2
+15
-17

+34%
+2%
+25%
-3%
+100%
-2%

913

1,472

1,653

+181

+12%

1989
Actual

Superconducting Super Collider
High Energy and Nuclear Physics
Relativistic Heavy Ion Collider
Continuous Electron Beam Accelerator Facility
Fermilab Main Injector Ring
Other High Energy and Nuclear Physics
Total

98
815
—

45
—

Part One-lOO
of the relationship between global change
and the economy is fundamental both to
assessing the magnitude of the potential
impact on human society and to developing
effective responses.
During the past year, and in response
to the recommendations of an independent
Earth Observing System Engineering Review
Committee, NASA has restructured the Earth
Observing System (EOS) to fly remote sensing
instruments on a series of intermediate and
small spacecraft, in contrast to the original
plan for a series of large spacecraft. This
reconfiguration will maintain the scientific
objectives of the EOS program and will
allow important scientific data to be acquired
earlier than otherwise would have been the
case. At the same time, the program's flexibility to respond to changes in data requirements
and advances in technology will be greatly
increased and will reduce risks associated
with single large platforms. This reconfiguration has resulted in a different temporal
sequence of measurements as well as potential
changes in the volume of data. The National
Academy of Sciences has been asked to
examine the EOS Data and Information System (EOSDIS) to ensure that its architecture,
management and distribution schemes are
compatible and complementary to the restructured EOS program.
The ultimate success of the USGCRP requires progress and integration of data collection, process studies, and modeling across
all the various disciplines. Central to this
strategy is a balance between ground- and
space-based research activities. Ground-based
observations and theoretical process studies
will be complemented by a comprehensive
space-based program to provide global observations of key environmental parameters. For
example, while NASA's Mission to Planet
Earth (including the Earth Observing System)
is a major contributor to the USGCRP, many
of the ground-based data sets will be used
to calibrate the complementary Mission to
Planet Earth satellite data sets.
Landsat.—Acquisition of data from land remote sensing satellites is an important element in understanding global change and for
national security purposes. The Administration
is committed to a policy of the continued acqui-

THE BUDGET FOR FISCAL YEAR 1993

sition of Landsat-type data. The Administration proposes to operate the Land Remote
Sensing Satellites (Landsats 4 and 5) until
Landsat 6 is launched; to complete the procurement and launch of the next satellite
(Landsat 6); and to initiate the procurement
of the next follow-on satellite (Landsat 7).
Several agencies will provide a total of
$17 million to cover the operation of Landsats
4 and 5 through the end of 1992. Landsat
6 is expected to become operational by early
1993. Landsat 6 will be operated by, and
at the expense of, the Earth Observing Satellite Company. NASA and the Department
of Defense are proposing a total of $111
million for Landsat 7, which is planned
to succeed Landsat 6. The budget proposes
$86 million for DOD, which will be responsible
for the acquisition and launch of the spacecraft, and $25 million for NASA, which
will be responsible for ground support for
data acquisition and distribution of Landsat
7 data. These data will be used to support
global change research and will be incorporated into the EOS Data and Information
System (EOSDIS).
One area within global change research
that has received special emphasis is Arctic
research, although U.S. activities in the Arctic
go well beyond the range of programs included
in the USGCRP.
U.S. policy in the Arctic consists of four
elements: protection of essential security interests; support for sound, rational development
of the region; promotion of scientific research
contributing to knowledge about the Arctic;
and promotion of mutually beneficial international cooperation in the Arctic. Federal
Arctic research is guided by a 5-year research
plan developed by the Interagency Arctic
Research Policy Committee (IARPC) in consultation with the Presidentially-appointed
Arctic Research Commission and other interested groups. The most recent biennial revision
of the plan was published in July 1991.
The budget includes $147 million for Arctic
research, an increase of about $4 million
over 1992. Within the total for 1993, $58
million is proposed to implement the four
integrated programs covering the western
Arctic: oceans research, geodynamics, studies
of the Bering Sea and land mass, and

Part One-lOl

6. ENHANCING R&D AND EXPANDING THE HUMAN FRONTIER

Table 6-12. U.S. GLOBAL CHANGE RESEARCH PROGRAM
(Dollar amounts in millions)
Budget Authority
Description

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

1992
Enacted

1993
Proposed

733
62
33
80
7
4
547
378
188
190

—

915
85
51
92
9
13
665
457
308
139
10

+182
+23
+18
+12
+2
+9
+118
+80
+120
-51
+10

+25%
+37%
+55%
+15%
+29%
+225%
+22%
+21%
+64%
-26%

756
109
77
47
44
40
24
6
6
1

891
163
113
78
48
36
26
11
7
1

+135
+54
+36
+31
+3
-4
+2
+4
+1

+18%
+50%
+47%
+66%
+7%
-9%
+8%
+68%
+5%

Program Component
Ground-based
Oceans
Modeling
Land Processes
Human Dimensions
Economics
Other
Space-based
Earth Observing System (NASA)
Other Programs (NASA)
Energy

—

Agency
National Aeronautics and Space Administration
National Science Foundation
Energy
Commerce (NOAA)
Agriculture
Interior
Environmental Protection Agency
Smithsonian
Defense
Health and Human Services
Tennessee Valley Authority
Total

1,110

1,372

—

+262

+24%

"Less than $500 thousand.

monitoring and data collection activities. Approximately $6 million of this amount is
for ship and aircraft support in five agencies,
NSF, Transportation, NOAA, Interior, and
DOD/Navy. These programs support bilateral
and multilateral environmental, space, oceans,
and social science agreements and cooperative
activities.
Observing the Universe: Astrophysics
and Astronomy.—The programs of these two
disciplines increase our understanding of the
origin and evolution of the universe, the formation of stars and planets, and the fundamental
laws of physics. Astronomy and astrophysics
are currently supported by the National

Science Foundation, the National Aeronautics
and Space Administration, and the Smithsonian Institution. The budget proposes $890
million, an increase of $54 million or about
6 percent, for astronomy and astrophysics in
the three agencies.
In 1991, the National Research Council
commissioned a group of astronomers and
astrophysicists to survey these fields and
make recommendations concerning groundand space-based astronomy and astrophysics
for the next decade. This report, "The Decade
of Discovery in Astronomy and Astrophysics",
was the third in a series of decadal reviews
of these two disciplines. It recommended

Part One-lOO

THE BUDGET FOR FISCAL YEAR 1993

Table 6-13. UNDERSTANDING THE ARCTIC
(Dollar amounts in millions)
Budget Authority
Category

Resource development1
Arctic as laboratory2
National security3
Total

Dollar
Change:
1992 to
1993

1992
Enacted

1993
Proposed

43
42
23

50
69
24

54
69
24

108

143

147

1989
Actual

Percent
Change:
1992 to
1993
+8%

—

+3%

Includes the Departments of Commerce, Agriculture, Energy, the Interior, Transportation, State, and the
Environmental Protection Agency.
2 Includes the Department of Health and Human Services, and the National Aeronautics and Space
Administration, the National Science Foundation, and the Smithsonian Institution.
3 Includes the Department of Defense. The 1992 enacted level includes a one-time increase for Defense of about
$5 million specifically for upper atmosphere research and associated facilities including the High Frequency Active
Auroral Research Program. For purposes of comparison with 1993 levels, this funding has been excluded.
1

as the highest priority increased support
for operations and maintenance of existing
astronomical facilities and individual grant
programs. The report also recommended a
balanced program of space-based observations
and offered a prioritized list of future projects,
consolidated from both space- and groundbased candidates. The budget addresses many
of the Report's recommendations and these
are highlighted below.
• The National Aeronautics and Space Administration (NASA) is the principal agency supporting space-based astronomy.
NASA supports a broad range of astronomy and astrophysics missions, including
instruments flown on large free-flying
spacecraft, smaller Explorer spacecraft,
the Space Shuttle, small sub-orbital rockets, balloons and aircraft. The budget proposes $732 million for NASA activities, an
increase of $42 million or 6 percent over
1992. This will support continued development of the Advanced X-Ray Astrophysics
Facility (AXAF). AXAF is the third of four
NASA Great Observatories and is scheduled for launch in 1999. To date, AXAF
has met or exceeded all of its design criteria. The first two Great Observatories,
Hubble Space Telescope (launched in
1990) and the Gamma Ray Observatory
(launched in 1991), continue to provide
significant scientific breakthroughs despite

some technical problems. All of these
space-based observatories have presented
significant technical and budgetary challenges. The budget includes $257 million
for operations, servicing, and data analysis
for the Hubble Space Telescope. The first
servicing mission is planned for late 1993.
The NRC Report recommended the initiation of the fourth Great Observatory, the
$1 billion Space Infrared Telescope Facility (SIRTF), as its highest priority for a
new start in the "large project" category.
While the budget supports the NRC Report's recommendations for other large
projects (i.e., AXAF and the 8-M telescopes
mentioned under NSF), it defers a decision
on SIRTF, while providing an increased
emphasis on small and moderate missions.
The budget proposes a 10 percent increase
over 1992 to a total of $138 million for
support for individual investigators.
• The National Science Foundation (NSF) is
the principal agency supporting groundbased astronomy. NSF supports a broad
range of astronomy programs and facilities, including the National Radio Astronomy Observatory, the National Optical Astronomy Observatories, and the National
Astronomy and Ionosphere Center. The
budget proposes $137 million for NSF's
programs, an increase of about $13 million
or 10 percent over 1992. This increase ad-

ENHANCING R&D AND EXPANDING THE HUMAN FRONTIER

dresses most of the priorities enumerated
in the NRC report. Within this total, support for individual investigators will increase by nearly $4 million or 9 percent.
Funding will also increase for operations
and maintenance of existing facilities and
for research on adaptive optics. Work will
continue on research leading to the design
of a millimeter array for radio astronomy,
and construction of matched 8-meter optical telescopes in Hawaii and Chile and the
new radiotelescope at Greenbank, WV will
all proceed on schedule. In 1993, the Very
Long Baseline Array (VLBA) will commence operations. VLBA is a coordinated
set of radiotelescopes located from Maine
to Hawaii, which is expected to open new
vistas to radioastronomers and to contribute to other fields such as geodesy and
theoretical physics.
• Smithsonian Institution.—The Smithsonian Astrophysical Observatory (SAO) conducts fundamental research in astronomy
and astrophysics cooperatively with the
Harvard College Observatory at the Center for Astrophysics located in Cambridge,
Mass. SAO also operates the Oak Ridge
Observatory in Massachussets and Fred
Lawrence Whipple Observatory at Mt.
Hopkins, Arizona. NASA has selected SAO
to plan, develop, and operate an international center for AXAF data. The budget
proposes $21 million for SAO activities, essentially the same as in 1992. Work will
continue on the development of a
submillimeter telescope array and the conversion of the Mt. Hopkins Multiple Mirror Telescope to a single 6.5-m mirror.
SAO will also continue to work with NASA
in planning the AXAF data center.
• Federal Funding for Related Areas.—Apart
from these three agencies, there is support
for astronomy and astrophysics within the
Departments of Defense and Energy for
activities that complement the programs
of NSF, NASA and the Smithsonian.
These include research on astrometry, optical interferometry, sensor development
(especially in the infrared region), and
cryogenic and adaptive optics.
• Non-Federal Support for Astronomy and
Astrophysics.—Astronomy has enjoyed a

Part One-lOl

long history of private and state support,
including large philanthropic donations for
the construction of major instruments,
e.g., Hale 5-m telescope at the Palomar
Observatory and the Keck 10-m telescope
at Mauna Kea Observatory. The Keck telescope is the world's first computer-controlled segmented mirror telescope and
embodies state-of-the-art technology in
mirror design and computer alignment.
Currently, it is estimated that private
sources and the states provide about $190
million annually for astronomy. The Keck
Foundation is planning to provide funding
for a second 10-m telescope adjacent to
the first. When operated together, these
two telescopes will provide the resolution
of an 85-m telescope, making it possible
to search for planets around nearby stars.
• International Efforts.—Astronomy and astrophysics have long been characterized by
extensive international collaboration. Europe, Canada, and Japan all support major
astronomical facilities that are often used
in conjunction with similar instruments in
the U.S. For example, the Very Large
Array Radiotelescope in New Mexico is
often linked to other radiotelescopes in
Britain for observations of extremely distant quasars and pulsars. In these cases,
essentially the entire Earth becomes one
large radiotelescope. Both Europe and
Japan are currently constructing major optical telescopes embodying the newest
technology.
Improving the Productivity of the Nation's Agriculture (The National Research
Initiative).—The budget continues the Administration's commitment to the National Research Initiative by proposing $150 million, a
$52 million, or 53 percent, increase over 1992.
With the creation of the NRI in 1991, a $50
million increase each year was proposed to the
extent that funds were awarded competitively
and not earmarked for specific sites or institutions.
The National Research Initiative competitive
grants program addresses research areas
which are known to possess unique opportunities for improving agriculture in concert with
social, economic and environmental needs.
In 1991, the first year of the program,

Part One-lOO

THE BUDGET FOR FISCAL YEAR 1993

74 percent of the funding for NRI was
directed toward the basic, fundamental end
of the research spectrum. The remaining
funding was directed to mission-oriented research—research that bridges the basic and
applied sciences, resulting in practical outcomes. Of the $73 million appropriated for
the NRI in 1991, 11 percent of total program
funds were directed toward attracting new
scientists into careers in high priority areas
in agriculture. These funds provide support
for postdoctoral fellows and new faculty and
strengthen research capabilities of individuals
at small and mid-sized institutions. The same
pattern of distribution is expected for 1993.
Each
funded
include
ment;

of the six categories
in 1992 will continue.
natural resources and
nutrition, food quality

of research
Those areas
the environand health;

plant systems (including mapping of plant
genomes); animal systems; markets, trade,
and policy; and processes antecedent to adding
value and developing new products. In 1993,
increased emphasis will be placed on the
areas of human nutrition research and research to find new non-food, non-feed uses
for agricultural products. Human nutrition
research will be expanded to include the
areas of food choices and food survey methodology. Within the increase for new uses, research
on alcohol fuels made from agricultural and
forestry feedstocks and conversion technologies
will expand.
The Administration is especially concerned
about the amount of special project earmarks
within the USDA budget, and believes that
the NRI is a more effective mechanism to
address the national needs of agriculture.

MAINTAINING NATIONAL SECURITY: DEFENSE R&D IN
THE BUDGET
For all defense-related R&D, including R&D
supported by the Departments of Defense
and Energy, the budget proposes $43 billion,
an increase of over $438 million, or 1 percent,
above 1991. Defense-related R&D will com-

prise 59 percent of overall Federal R&D
funding in 1992.

Table 6-14. MAINTAINING NATIONAL SECURITY
(Dollar amounts in millions)
Budget Authority
Department

Defense—military functions
Basic research
Applied research
Total, Technology Base
Development
Energy-atomic energy defense programs
Weapons Research and Development
Weapons Testing
Naval reactors
Arms Control Research
Environmental Restoration Technology

Total, Conduct of R&D

1989
Actual

1992
Enacted

1993
Proposed

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

38,031
951
2,541
3,492
34,540
2,321
1,050
518
555
146
52

40,043
1,170
2,995
4,165
35,878
2,668
1,183
458
600
181
246

40,509
1,203
3,056
4,259
36,251
2,640
1,143
430
634
188
245

+466
+33
+61
+94
+372
-28
-40
-28
+34
+7
-1

+ 1%
+3%
+2%
+2%
+1%
-1%
-3%
-6%
+6%
+4%

40,352

42,711

43,149

+438

+1%

—

6. ENHANCING R&D AND EXPANDING THE HUMAN FRONTIER

Part One-lOl

Department of Defense

Department of Energy

A strong defense R&D program is a key
element of national security strategy. As
was shown in Operation Desert Shield/Desert
Storm, the deployment of advanced weapons
can save lives and lead to decisive victory.
The Defense R&D program also provides
important benefits to the nation's technology
generally. In this budget, funding for conduct
of DOD R&D totals $40.5 billion in 1993.

The budget proposes $2,640 million for
conduct of R&D in support of Department
of Energy (DOE) Atomic Energy Defense
Programs, a decrease of $28 million, or
about 1 percent below 1992, but $319 million
or 14 percent above the 1989 level. This
total is comprised of several program components, including:

Technology Base.—The budget proposes
$4.3 billion for the technology base, an increase of $94 million over the 1992 level. Basic
and applied research programs provide options
for future military capabilities and guard
against technological surprise by potential adversaries. The basic research portion of the
DOD technology base supports a wide range
of scientific disciplines, including mathematics,
chemistry, biochemistry, meteorology and
solid-state physics. It is essential for the U.S.
to develop and exploit advanced technologies
to maintain superiority in fielded weapon systems as force levels decline. The weapon systems used in Operation Desert Storm were
made possible by technology programs started
decades ago in the areas of precision guidance
and navigation, night vision and stealth.
DOD technology-base R&D programs have
also led to many civilian applications. These
include navigation systems used by civilian
aircraft and ships, advanced structural materials used in commercial aircraft and such
common devices as cellular radios and computers. Defense R&D plays a lead role in
developing technology to increase computer
performance dramatically. This continues the
pioneering efforts of the Department of Defense that led to today's advanced parallel
processors and digital communications networks.
Development.—The budget proposes $36.3
billion for development programs. This category includes funding to develop advanced
systems for production and to improve existing
systems. There will be special emphasis on
technology development efforts and the fabrication of prototype systems.

Weapons Research and Development—
This activity includes a wide range of basic
and applied R&D that is related to new weapons systems. Almost all of these R&D activities
are performed by the three DOE National Laboratories: Los Alamos, Sandia and Lawrence
Livermore. The budget proposes $1,143 million
for this activity, a decrease of $40 million, or
3 percent from 1992. Within this total, there
is increased emphasis on improving the safety
of nuclear weapons.
Weapons Testing.—This activity involves
the testing of nuclear weapons devices. The
budget proposes $430 million for these activities, a decrease of $28 million, or 6 percent
from the 1992 level.
Naval Reactors.—This activity
R&D related to reactor systems for
powered submarines. The budget
$634 million in 1993, an increase of
lion or 6 percent over 1992.

involves
nuclearincludes
$34 mil-

Arms Control Research—The budget proposes $188 million, an increase of $7 million
for research related to verification of arms control agreements.
Environmental
Restoration
Technology.—The environmental cleanup of atomic
energy defense facilities is one of the fastest
growing programs in the Federal Government.
Technology development activities play a
major role in the clean-up effort, resolving
major technical issues related to effective
waste management and cleanup and advancing technologies to attain and maintain compliance with current laws and regulations. The
budget proposes to maintain this investment
in technology development at $245 million in
1993.

Part One-lOO
The Changing Role of the National
Weapons Laboratories.—The decreases in
funding for nuclear weapons research, development, and testing are consistent with the declining number and types of nuclear weapons
in the U.S. stockpile and reduced requirements
for new nuclear weapons. This decline, however, could adversely affect the DOE National
Laboratory system, principally the three weapons laboratories. These labs have historically
received 40-50 percent of their funds for nuclear weapons research, development and testing. The laboratories possess a core set of
unique scientific and technical capabilities that
could be applied to a wide variety of civilian
R&D needs.
Over the past year, an effort has been
underway within the Administration to assess
the laboratories' capabilities and to examine
expanded civilian missions for them. In particular, it appears likely that the National
Laboratories can play a key role in a number
of civilian R&D initiatives, including materials
research, advanced manufacturing R&D, biotechnology and space exploration. The specific
roles to be performed by the laboratories
in each technology area would be determined
based on: (1) the unique technical capabilities
offered by the laboratories (so as to avoid
duplication with work that better can be
performed in industry or universities) and
(2) industry-led proposals, so as to ensure
that the results of the R&D will be applied
by the private sector in new products and
processes. In particular, the National Laboratories could serve as catalysts to form
R&D consortia with industry and universities,
following the general criteria discussed earlier
in this chapter. Under this approach, the
laboratories would be receiving increased fund-

THE BUDGET FOR FISCAL YEAR 1993

ing from the domestic programs as direct
funding from the Atomic Energy Defense
programs decreases.
Two initiatives now underway include:
• High Performance Computing—Energy is
developing a model Cooperative Research
and Development Agreement (CRADA)
with the Computer Systems Policy Project
(CSPP) to enable CSPP member companies (e.g., IBM, Cray, Apple) to cooperate
with the National Laboratories on R&D
projects in high performance computing
technology.
• Space Exploration—Defense, NASA and
Energy are developing cooperative R&D
programs at the Laboratories to develop
nuclear power and nuclear propulsion
technologies to support space exploration.
The Energy Laboratories have recognized
competency in nuclear propulsion, radiation-hardened microelectronics and robotics, which are all key technologies for
space exploration missions.
It is likely that the laboratories will play
an important role in other applied civilian
R&D initiatives, including advanced materials
and processing, advanced manufacturing, and
other critical technologies. In addition, the
laboratories are continuing to move aggressively to transfer new, non-sensitive, dual
use technologies, funded by Atomic Energy
Defense programs, to commercial use. The
budget includes $91 million, an increase of
$41 million, or 82 percent, for technology
transfer activities in DOE defense programs.
This funding will support cost-shared, collaborative technology transfer activities with the
private sector.

IMPROVING TECHNOLOGY TRANSFER TO INCREASE THE
RETURN ON FEDERAL R&D INVESTMENTS
During the past decade there has been
increasing public concern about U.S. scientific
and industrial strength and competitiveness
in the world economy. One consequence of
this concern has been enhanced efforts to
encourage the transfer of technology developed
in Federal laboratories to the private sector.

As new policies have been put in place
to promote technology transfer, the Administration's emphasis has shifted to implementation. This section reports on progress to
date in technology transfer by Federal agencies. The Aministration plans to intensify

6. ENHANCING R&D AND EXPANDING THE HUMAN FRONTIER

its efforts in technology transfer over the
coming months.
OMB has begun a comprehensive effort
to measure the extent of Federal technology
transfer activities. By collecting data on technology transfer on an annual basis. For
purposes of collecting this data, technology
transfer has been defined as those efforts
and activities intended to result in the application or commercialization of Federal laboratory-developed innovations by the private
sector, State and local governments, and
other domestic users. These activities may
include, but are not limited to:
• Technical/cooperative interactions (direct
technical assistance to private sector users
and developers; personnel exchanges; and
cooperative research and development
agreements);
• Commercialization activities (patenting
and licensing of innovations and identifying markets and users, including payment
of royalties and cash awards to inventors);
and
• Information exchange (dissemination to
potential technology users of technical information: papers, articles, reports, seminars, etc.).
Twelve Federal agencies provided data on
technology transfer activities undertaken and
proposed for 1991, 1992 and 1993. The agencies submitting data include: the Departments
of Agriculture (Agricultural Research Service
and Forest Service), Health and Human Services (National Institutes of Health, Centers
for Disease Control, Public Health Service,
Food and Drug Administration), Housing and
Urban Development, Transportation (Federal
Aviation Administration), Commerce (National
Institute of Standards and Technology), Interior, Energy, and Defense (Army, Navy and
part of Air Force); NASA (Office of Commercial
Programs), the Environmental Protection
Agency, the Tennessee Valley Authority and
the Army Corps of Engineers.
It should be noted that most of the data
for 1992 and 1993 are projections that are
inherently difficult to make since they are
based, in part, on inventions, patents, etc.
that are "in the pipeline" but not yet fully
realized. As a consequence, comparison of

Part One-lOl

the data for the same year between subsequent
budgets may show significant differences. Over
time, however, these data should yield an
historical database that can be used to measure the impact of government policies to
enhance the value of government technology
to the private sector.
Funding for Technology Transfer Activities.—In general, the data show significant increases in all aspects of technology transfer
from 1992 to 1993. The budget proposes to
allocate about $579 million to direct support
of technology transfer activities in 1993, up
3 percent over 1992, but 16 percent over 1991.
Funds allocated to departmental and agency
Offices of Research and Technology Applications are projected to rise 19 percent from
1992 to 1993 to a total of about $32 million.
Cooperative Research and Development
Agreements.—Cooperative Research and Development Agreements (CRADAs) are contracts between one or more Federal laboratories and one or more non-Federal parties
under which a laboratory provides personnel,
services, facilities, equipment or other resources to conduct specific R&D efforts that
are consistent with the missions of the laboratories. All agencies were given the authority to use CRADAs in the Technology Transfer
Act of 1986, although some agencies, e.g.,
NASA, already had statutory authority to conduct research and technology development cooperatively with industry.
Since 1986, the use of CRADAs has been
on the rise. In the Department of Health
and Human Services, the National Institutes
of Health has entered into over 400 with
private industry, primarily in biotechnology.
In addition, the National Institute of Standards and Technology has entered into over
150 agreements in a broad range of technical
areas.
The actual number of active CRADAs is
projected to grow by 10 percent from 1992
to 1993 to a total of 1,689. The number
of CRADAs with small business is projected
to reach 389 in 1993, an increase of 20
percent, which accounts for 44 percent of
the total increase in numbers of active
CRADAs. The dollar value of active CRADAs
is projected to grow 22 percent from 1992
to 1993, to $466 million.

Part One-lOO

THE BUDGET FOR FISCAL YEAR 1993

Table 6-15. TECHNOLOGY TRANSFER ACTIVITIES ARE INCREASING
IN 1993
(Dollar amounts in millions)
1992
Enacted

1991
Actual

Direct funding for technology transfer activities:
Funds allocated to technology transfer
Funds allocated to ORTAs
Cooperative Research and Development Agreements:
Number of active CRADAS
Number with small businesses
Dollar Value (cash and non-cash) of all
CRADAs
Measures of Productivity:
Number of invention disclosures
Number of patent applications
Number of licenses (exclusive and non-exclusive) awarded
Royalties and other income from all licenses ....
Royalties and cash awards paid to federallyemployed inventors
Royalties and cash awards paid to non-federal
employee inventors
Number of new companies formed
1

1993
Proposed

Change:
1992 to
1993

Percent
Change:
1992 to
19931

498
22

561
27

579
32

+18
+5

+3%
+19%

1,215
203

1,538
323

1,689
389

+151
+66

+10%
+20%

283

380

466

+85

+22%

3,275
1,423

3,128
1,515

3,313
1,546

+185
+31

+6%
+2%

283
9

358
11

446
13

+88
+2

+25%
+24%

—

+19%

8
24

9
31

10
35

+1
+4

+15%
+13%

Percent change is calculated on dollar amounts in thousands.

Measures of Productivity.—There are several indicators of the productivity of government researchers and the value of government
inventions. Productivity can be measured by
the numbers of invention disclosures and numbers of licenses of existing patents. The value
of government inventions can be measured by
the amounts of royalties collected from licensing activity and, to a lesser extent, cash
awards paid to government-employed and contractor inventors. By all these measures, the
technology transfer process is a healthy one,
with projected increases in patents, licenses,
royalties and cash awards.
Scientific and Technical Information.—
The Federal Government supports the largest
R&D complex in the world, which, in turn,
generates the largest volume of Scientific and
Technical Information (STI) from any single
funding source. The information produced
takes numerous forms including technical reports, journal articles, and research in

progress listings. In 1991 alone the five largest
Federal R&D performing agencies (DOD, DOE,
NASA, NIH and USDA) generated well over
150,000 STI items. This information represents one of the most identifiable "products"
of Federal R&D and acts as a conduit for enabling the private sector to use the results of
Federal R&D more effectively.
The scientific and technical knowledge base
made available by the five largest R&D
agencies together with the National Technical
Information Service is impressively large.
Through the network of agency databases,
over 23 million summaries of the results
of R&D can be searched to allow industry
to make informed decisions based upon what
is known and where future research may
be needed. This includes approximately 5
million foreign STI items (obtained through
exchange and translation programs) for which
the Federal Government is virtually the only
domestic source. This knowledge base rep-

6. ENHANCING R&D AND EXPANDING THE HUMAN FRONTIER

resents the product of a multi-billion dollar
investment made in the original research.
Access to the STI knowledge base maintained by Federal agencies has been considerable. Nearly 8 million items were disseminated
in 1991 alone. Of those items, almost 6
million went to non-Federal users in the
U.S. In addition, access through electronic
databases continues to increase dramatically.
Researchers gained access to references of
over 81 million STI items during searches
of on-line data bases provided by Federal
agencies in 1991—over 10 million more than
just three years earlier. Each item referenced
in a search is a potential source of information
which the researcher can either order directly
from the Federal Government or, as is often
done, simply obtain a copy from his or
her company, university, or public library.
Advances in information system technology
are rapidly changing the way in which STI

Part One-lOl

is created, stored and disseminated. A world
once firmly linked to paper and microfiche
has been rapidly shifting to electronic formats.
For example, two years ago the Federal
Government had never disseminated any STI
on CD ROMs, while in 1991 over 1,100
were disseminated. The infrastructure for
electronic storage and dissemination of Federal
STI will be critical to continuing and enhanced
access by Federal and non-Federal users
alike. The National Research and Education
Network being funded through the High Performance Computing and Communications Initiative will be an essential part of the
future STI infrastructure. With such a vast
knowledge base being generated and managed
by numerous Federal agencies, and with
the rapid changes in technology, interagency
coordination in STI is critically important.
For this reason, the Administration has recently moved to reinvigorate interagency coordination of STL

STIMULATING INCREASED PRIVATE SECTOR R&D
INVESTMENTS
The budget proposes making permanent
the research and experimentation tax credit
and an 18-month extension of the tax rules
governing the allocation of foreign and domestic R&D expenditures.
Industry is the largest supporter of R&D,
providing slightly over 50 percent of the
total national R&D investment. It also performs much of the R&D funded by the
Federal Government. In total, over 70 percent
of all R&D is performed by industry.
From the early 1960s through the mid1980s, total real industrial R&D expenditures
increased significantly, mostly in development.
Since the mid-1980s, however, the rate of
growth in industrial R&D spending has leveled
off, dropping from a rate of more than
7 percent average annual percent real growth
between 1980-1985 to less than 2 percent
between 1985-1991. For 1992, the Industrial
Research Institute forecasts that industrial
investment in R&D is likely to experience
no growth, and will decline as a percentage
of revenues for the first time since the
mid-1980s. However, this slowdown may be

due to factors other than a simple reduction
in funding for R&D. These factors could
include greater efficiency in the private R&D
process (embodied in a much greater use
of concurrent design and engineering), and
the shifting of private investment in R&D
from products to process technologies.
The Federal Government can stimulate R&D
in the private sector directly with increased
government R&D spending. The Federal Government can also stimulate R&D in the
private sector indirectly through tax incentives. The use of tax credits for R&D has
been a net near-term revenue loser to the
Treasury. It is anticipated, however, that
in the longer-term these losses will be more
than offset by the revenues from new products
and processes resulting from the private
investment stimulated by the credit. However,
since only the short-term losses can be estimated (the long-term benefits are simply
too diffuse), these incentives are essentially
a form of increased Federal R&D spending
in areas of greatest potential benefit to

Part One-lOO

THE BUDGET FOR FISCAL YEAR 1993

the economy as identified by the private
sector.
Tax Credit and Allocation Rules
The Research and Experimentation (R&E)
tax credit was originally adopted in 1981
to encourage increased private R&D spending.
The credit was never made permanent, but
was renewed in 1986, 1988, 1989, 1990,
and 1991 (only until Spring, 1992) at a
lower rate than originally granted.
Tax credits prior to 1989 reduced the
cost of increments to R&D for most qualifying
firms by about 6 to 9 percent. In 1989
the incentives provided by the credit were
improved. The version of the credit enacted
in 1989, and extended in the 1990 Omnibus
Budget Reconciliation Act, reduces, for most
qualifying firms, the cost of increments to

R&D by 20 percent. Bailey and Lawrence
have estimated that this version of the tax
credit should increase corporate R&D spending
in the 1990s by about 4 percent. Making
the credit permanent would help reverse
the recent trend toward leveling off of corporate R&D spending.
The budget proposes two changes in the
tax code designed to provide additional incentives for industry to increase its investment
in R&D. The budget proposes to make the
20 percent tax credit permanent. In addition,
the budget proposes to extend for 18 months
the rules, as extended in the Tax Extension
Act of 1991, for the allocation of foreign
and domestic R&D expenditures for companies
with foreign operations. This proposal would
apply to all tax years beginning after the
current rules expire on June 30, 1992.

INDUSTRY SUPPORT FOR R&D
1991 $ BILLIONS

SOURCE:

National Science Foundation, Office of Management and Budget

6. ENHANCING R&D AND EXPANDING THE HUMAN FRONTIER

Part One-lOl

THE CONTRIBUTION OF ACADEMIC INSTITUTIONS TO
THE NATIONAL R&D INFRASTRUCTURE
Following the end of World War II, the
Federal Government adopted a set of policies
that propelled academic institutions into the
forefront of the national research enterprise.
These policies (1) identified the Federal Government with the primary responsibility for
the quantity and quality of basic research
in the U.S. and (2) identified academic institutions as the primary performers of basic
research which would be directly coupled
to graduate education. Thus, the Federal
Government invested its future in science,
both in terms of discovery and talent, in
universities and colleges.
This arrangement has led to nearly 5
decades of unprecedented success in scientific
discovery and to world preeminence of the
U.S. academic research and education system.
Today, however, new questions are being
raised about both the adequacy of academic
institutions to carry out forefront fundamental
research and the education of new scientists
and engineers, as well as the adequacy
of the special partnership developed between
the Federal Government and universities.
These questions include: how big should the
academic research and education enterprise
be? How diversified, both geographically and
otherwise, should the enterprise be? What
is the fundamental role of universities in
science and technology in a world of global
economic competitors? Should other sectors
assume an even greater role in funding
academic research (based on perceived payoffs), and, as a corollary, how much should
the Federal Government actually pay for
academic research and training, both directly
and indirectly?
The answers to these questions are not
clear. What is clear is that the nations
future in science and engineering continues
to be inextricably tied to the vitality of
academic research and education. This part
of the chapter will discuss the status of
funding for and issues surrounding the funding of academic R&D, the education of future
scientists and engineers, the provision of
the tools, both equipment and facilities, for

world-class research, and the management
of R&D at academic institutions.
The total number of research grants made
to individual researchers has been growing
for two decades. However, the ratio of new
awards made annually to the total number
of proposals ("funded rate for new awards")
by the two largest Federal supporters of
university research, the Department of Health
and Human Services (National Institutes of
Health) and the National Science Foundation,
has declined over the 1980's from around
40 percent to 33 percent in 1991 (adjusted
to exclude both multiple submissions by any
one individual and for awards for research
centers, which may serve many investigators).
This decline is due, in part, to the rapid
growth since 1970 in the pool of researchers
seeking funding, which has outpaced the
sizeable, real growth in basic research funding
to academic institutions. In addition, average
award sizes (both direct and overhead components), award lengths, or both, have tended
to increase. This trend, while providing increased stability and productivity for a given
investigator, tends also, within a relatively
fixed total, to depress the number of subsequent new awards that can be made.
The increases in the number of staff supported
on each grant have also affected the number
of grants that could be made by NIH. At
least in the case of NIH, the move to
longer grants was an explicit choice, made
in response to the biomedical research community's calls for more stability.
Awards to groups of investigators (either
small groups or larger centers) have also
been increasing, driven primarily by the need
for interdisciplinary approaches to scientific
problems. Each of these group or center
awards is counted as a single grant, even
though these awards support many researchers. Thus, considering only the absolute numbers of awards is misleading. A more appropriate consideration should be the total number of researchers supported. By this measure,
there are more researchers supported by

Part One-lOO

THE BUDGET FOR FISCAL YEAR 1993

research grants today than at any previous
time.
Funding for R&D at Universities and
Colleges
Over the past 35 years, academic institutions have assumed a more prominent role
in basic research within the nation's R&D
system. Academic institutions' share of basic
research expenditures (from all sources) has
doubled from about 25 percent in 1953 to
50 percent since the early 1970's. In addition,
total academic R&D expenditures as a percent
of the GDP have risen sharply over this
same period, from about 0.07 percent in
1953 to 0.30 percent in 1989. Federal academic
R&D expenditures have also risen as a
share of the GDP, from 0.04 percent in
1953 to 0.18 percent in 1989.
The budget proposes $11.5 billion for Federal support for R&D at universities and
colleges. This is an increase of almost $600
million, or 5 percent over 1992, and 31
percent over 1989.

Modes of Support for Educating the Next
Generation of Scientists and Engineers
The U.S. system of scientific education,
particularly at the graduate level, continues
to be best in the world. Foreign students
flock in increasing numbers to U.S. universities seeking degrees in science and engineering, many of them choosing to stay for
the rest of their professional careers. The
markets for the "products" of this system,
the students, include both industry and academia itself. But these students are important
participants throughout our society.
The path from grade school to Ph.D. is
commonly referred to as the "pipeline". Today,
one-third of college graduates earn a baccalaureate degree in a field of science or
engineering. Over the past 15 years, the
number of Ph.D.s awarded annually increased
from about 17,000 to over 20,000. However,
the number of foreign students on temporary
visas earning Ph.D.s has nearly doubled over
that same period, to almost 5,000. Within
the total of U.S. nationals awarded degrees
in science/engineering fields, the number of
women earning Ph.D.s has increased dramatically and the numbers of Asian and Hispanic
students have also increased, but there has

Table 6-16. THE BUDGET INCREASES FUNDING FOR R&D IN ACADEMIC
INSTITUTIONS1
(Dollar amounts in millions)
Budget Authority
Department or Agency

Health and Human Services
(National Institutes of Health)
National Science Foundation
Defense
Energy
National Aeronautics and Space Administration ..
Agriculture
Other Agencies 2
Total

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

1992
Enacted

1993
Proposed

4,584
(4,008)
1,260
1,329
507
434
315
343

5,804
(4,922)
1,597
1,417
629
632
425
407

6,071
(5,181)
1,917
1,445
591
675
417
387

+267
(+259)
+321
+28
-38
+43
-8
-20

+5%
(+5%)
+20%
+2%
-6%
+7%
-2%
-5%

8,772

10,910

11,501

+591

+5%

1989
Actual

Amounts reported in this table are included in totals for conduct of R&D.
Includes the Departments of Commerce, the Interior, Veterans Affairs, Education, Labor, the Treasury, Justice,
Transportation, Housing and Urban Development, Environmental Protection Agency, Tennessee Valley Authority,
the Corps of Engineers, Nuclear Regulatory Commission, and Agency for International Development.
1

6. ENHANCING R&D AND EXPANDING THE HUMAN FRONTIER

Part One-lOl

been no gain in the number of Ph.D.s awarded
to Black students.

in computer science, a field once believed
to suffer from serious personnel "shortages".

Since the late 1940's, the Federal Government has been the primary supporter of
graduate training. There are three primary
forms of such support: fellowships (awarded
to students for study at the institution of
their choice), traineeships (awarded to institutions to build capacity for graduate education),
and research assistantships (awarded to established individual investigators as part of
their research grants—the student is "employed" by the grant). Over the past 35
years, the balance between these has changed.
Today, research assistantships are the dominant form, accounting for 64 percent of
all students for whom the Federal Government
is the major source of support.

Part of the problem, at least in many
fields, is that the academic model is the
only one that most students are exposed
to in the course of their training. A faculty
member supports graduate and post-doctoral
students in order to launch those students
into academic research careers as faculty
members training a second generation of
students, and so on. However, over the past
20 years this has had the result of putting
more and more researchers in competition
for what must necessarily be a limited—
although increasing—supply of research funds.

There have been conflicting views over
the past several years as to whether the
supply of Ph.D.s entering the workforce, either
academic or industrial, will be adequate to
meet future demand. Some have predicted
large "shortfalls" (relative to demand), with
concomitant "shortages" in many fields, while
others have projected the supply and demand
for scientists and engineers to be in rough
balance. However, many experts in the field
of labor utilization in science and engineering
have called into question the wisdom of
using these projections to develop Federal
policies to affect the supply of researchers—
such projections are notoriously unreliable,
and predicting the demand for scientists/
engineers is extremely complex.
There is already some evidence-although
no firm conclusions-that the production of
researchers in the biomedical sciences may
have outstripped the demand. Some preliminary National Institutes of Health estimates
indicate that the number of post-doctoral
students supported on certain types of research grants has increased 5-fold since the
early 1980's. While post-doctoral study for
1-2 years is commonplace in these fields,
the large increase in numbers supported
on grants indicates that these young researchers are extending their "apprentice" period,
perhaps partly because the demand in academia has lessened. There is also anecdotal
evidence that the same situation is developing

One way that the Federal Government
can respond to this is by encouraging different
models of training, such as by increasing
the emphasis on interdisciplinary, team-oriented research (the industrial model), through
programs such as the NSF-sponsored Engineering Research Centers (ERCs). The budget
proposes to continue support for ERCs, for
Science and Technology Centers and for programs in other agencies that encourage this
interdisciplinary approach to science and engineering.
Even if the projections of Ph.D. supply
and demand are inconsistent and, perhaps,
flawed, there is no question of the need
for a workforce of the future that is highly
skilled, and literate in the language, if not
the practice, of science and technology. Thus,
it may be more prudent for the Federal
Government to concentrate its science education efforts not on increasing the number
of Ph.D.s, particularly American citizens, but
rather on increasing the preparedness of
the "pipeline" to produce Ph.D.s, i.e., the
undergraduate years. This approach would
appear to offer the flexibility needed for
the market to respond in a timely way
to demands for science/engineering skills in
all sectors, as well as provide college graduates
who could offer the perspectives of science
and technology to other vocations.
In any case, there continues to be a
compelling rationale for the Federal Government, in concert with the Nation's universities,
to effect changes not so much in the size
of the pipeline as in its composition. The
objective should be to prepare more of our

Part One-lOO
best graduates, for industrial and non-academic careers. The scientific community and
the Nation would benefit greatly by the
diversity of research interests that results
from continuing to increase the number of
new entrants, particularly those from traditionally underrepresented groups.
Providing the Tools for World-Class
Research: Equipment and Facilities
To sustain a strong national research capability and to enable expansion of research
capacity, R&D infrastructure must be maintained and replenished.
Federal Support for University Research
Facilities.—The Federal Government directly
funds facilities and equipment necessary for
the conduct of R&D at Federal facilities. Private industry and universities have primary
responsibility for the R&D infrastructure
under their respective jurisdictions. However,
since the Federal Government supports basic
research at universities, it directly funds university R&D facilities and equipment where
they are closely related to federally funded research. In 1988-89, the latest period for which
estimates are available, private institutions
initiated $738 million of new construction and
public institutions initiated $1.73 billion of
new construction. The Federal Government
provided an estimated 11 percent and 16 percent of these funds, respectively.
Expenditures for the repair and renovation
of research facilities totalled an estimated
$1 billion in 1988-89, with private institutions
accounting for one-third of this total ($311
million). Direct Federal funding accounted
for 9 percent of repair and renovation activity
at private institutions, and 4 percent at
public institutions. Added to this direct funding is indirect support for academic research
facilities through payments of use allowances,
depreciation and operations and maintenance
expenses in allocated overhead. This funding
has increased dramatically over the decade
of the 1980s to almost $1 billion in 1988.
Even with this large Federal expenditure
for academic research facilities, the perception
of a large "backlog" of unfilled desires for
research facilities has led to increased calls
from the institutions and many members
of Congress for an expansion of direct Federal

THE BUDGET FOR FISCAL YEAR 1993

support for academic research facilities. There
has been Congressional action in two areas:
• "Earmarking" of Federal funds to construct new research facilities at particular
institutions. The Office of Science and
Technology Policy, as part of its continuing
evaluation of the state of university research facilities, estimates that about $276
million was appropriated for such projects
in 1991. (The issue of earmarking is discussed in more detail in a later section
of this chapter.)
• Providing direct grants for academic research facilities repair and renovation
through the National Science Foundation,
funded at about $17 million in 1992.
The budget does not contain funding for
either of these practices. Earmarking that
does not involve merit review of any kind
is an inefficient use of scarce resources.
Further, it has the effect of weakening the
Nation's overall R&D effort. Funds earmarked
for academic research facilities by Congress
in 1992 and previous appropriations bills
not only were without the benefit of meritbased review, but most often came at the
expense of needed increases in support for
academic researchers and in other key activities at Federal laboratories.
For example, the NASA construction of
facilities budget has been burdened in 1992
by over $60 million in unrequested,
unreviewed,
earmarked
projects.
These
projects came at the expense of high priority
construction, repair and renovation projects
at critical space launch and support facilities.
In another instance, the 1992 budget proposed
$25 million for university research facilities
to be awarded by the Department of Agriculture in conjunction with its National Research Initiative. Instead, the Congress not
only earmarked all of that money for special
interest projects, but actually increased the
funding to $75 million and earmarked that
entire increase, all to projects with little
or no relevance to the NRI.
The Administration will continue to support
direct Federal funding for construction or
renovation of academic research facilities
where such facilities are presented as an
integral part of merit-based, competitive re-

6. ENHANCING R&D AND EXPANDING THE HUMAN FRONTIER

search projects. In addition, the Federal Government will continue to provide funds that
universities should invest in new facilities
through payments of allocated overhead.
Federal Support for University Research
Equipment.—Forefront research at academic
institutions is increasingly dependent on stateof-the-art equipment. The most recent triennial survey by NSF (1991) indicated that
total expenditures (Federal and non-Federal)
for research equipment (costing $500 or more
per item) increased rapidly over the 1980,s
from about $400 million in 1982 to about $830
million in 1989. The amount of research equipment stock that was Federally-funded increased 46 percent in real terms between 1985
and 1989. The survey also revealed that there
is substantial turnover in academic research
equipment, with 40 percent of the equipment
in use in 1989 had been acquired since 1985.
The mean time to obsolescence is also decreasing.
The NSF survey noted that the mean
purchase price of academic research equipment
has increased modestly. It should be noted,
however, that the mean purchase price for
computing equipment has declined, but it
has increased for other types of instruments,
particularly in life sciences and chemistry.
Equipment is usually provided for as a
part of research grants. The purchase price
of equipment provided by grants, however,
is generally less than $50,000. In many
fields, notably biological sciences and chemistry, there is an increasing demand for
state-of-the-art instruments such as electron
microscopes, surface chemistry analyzers, and
DNA sequencers that are considerably more
expensive, in the range of $200,000 to $4
million. This is far more than can be provided
for in the average research grant. In addition,
the purchase price represents only a part
of the total "cost" of equipment. Expenditures
for personnel to operate equipment and maintenance over the life of the instrument now
represent a significant portion of the total
"cost" of equipment.
Most Federal agencies that support R&D
at academic institutions also provide funding
for instrumentation. The 1993 budget proposes
$33 million for NSF to continue its initiative
begun last year to provide state-of-the-art

Part One-lOl

equipment costing from $200,000 and $4
million.
Managing the Costs of Research at
Academic Institutions
Few systematic analyses have been done
to elucidate the underlying reasons why the
expenses incurred by universities and researchers in conducting academic research
have been increasing faster than the rate
of inflation. Some justify these increases
by arguing that the scientific questions that
must be answered are increasingly complex,
e.g., modelling completely integrated global
climate phenomena instead of just oceans,
or just atmosphere. Academic institutions also
cite the increased cost of complying with
more layers of regulation, ranging from animal
care to human subjects protection to hazardous
waste disposal.
It is also true, however, that some items
that previously were high-cost (either the
item itself or the labor needed for it) have
dropped in unit cost dramatically. The best
example is computing resources (both equipment and time), where computer capability
costing tens of thousands of dollars just
a few years ago is now available for a
few thousand or less. Other examples include
many laboratory chemicals and other reagents
that can now be purchased off-the-shelf instead of being made laboriously by each
individual researcher.
The average grant is composed of two
major categories of expenditures:
• Direct costs.—Salaries (principal investigators, student research assistants, technicians); equipment; supplies; other direct
costs (travel, services); and
• allocated overhead payments (payments for
that portion of grantee overhead that universities allocate to research supported by
the Federal Government, commonly referred to as indirect costs).—Facilities depreciation, operations and maintenance,
student services, libraries, administrative
expenses.
Of these, allocated overhead payments as
a percentage of the total have been rising
faster than have direct costs, although that
growth has leveled off in recent years. Within

Part One-lOO
direct costs, salaries are, by far, the fastest
growing component. This category has risen
faster than the CPI for several years. In
1988, personnel expenditures accounted for
an estimated 65 percent of the direct costs
budgeted for individual investigator awards
(ROl) at NIH. The result of all of this
is that constant dollar expenditures (1988
dollars) per FTE investigator (as noted by
the Government-University-Industry Research
Roundtable in 1989) have risen from about
$155,000 in 1980 to about $225,000 in 1988.
Allocated overhead payments, both the total
amounts and the elements, have been a
continuing source of controversy and friction
between the Federal Government and academic institutions. Each institution proposes
and receives a rate for these payments that
is the result of often long and difficult
negotiations with the cognizant Federal agencies. The rates vary widely among institutions
with, on average, higher rates for private
and lower rates for public institutions. In
many cases there has not seemed to be
an analytic basis for the difference in rates,
particularly in the administrative expense
category.
The controversy over allocated overhead
has not only caused friction between academic
institutions and funding agencies, but has
also caused friction between the researchers
and administrators at the institutions themselves. Researchers argue that higher allocated
overhead payments increase the total cost
of research but add nothing to the actual
performance, while reducing the number or
sizes of awards. Administrators assert that
even at the negotiated rate, the expenses
the institution incurs (whether by choice
or necessity) in conducting Federally-supported
research are not fully covered by the allocated
overhead payments. The Federal Government
and academic institutions could both benefit
from a simpler, less contentious system for
determining allocated overhead.
Current Proposals.—In 1991, the Administration implemented changes to OMB Circular
A-21, which sets out guidelines for determining allocated overhead payment rates for academic institutions. These changes will be
phased in over the next year as institutions
begin their fiscal years. They were designed

THE BUDGET FOR FISCAL YEAR 1993

to: (1) clarify that a number of items would
not be eligible for payment, e.g., entertainment, alumni activities, donations and contributions, civic, community, or social organization memberships; and (2) set an upper limit
of 26 percent on the administrative expenses
portion of allocated overhead payments. This
latter change was made to encourage and provide greater incentives to academic institutions
to examine their adminstrative expenses very
closely and reduce unnecessary internal bureaucracy. This change is consistent with the
spirit of the Federal Demonstration Project,
which seeks to reduce the Federal bureaucracy
(and thus expenses) for the administration of
academic research.
Future Issues.—There are still a number
of issues regarding allocated overhead payments that will be examined by an interagency
group over the next year. Academic institutions and organizations will be consulted during this process. The issues include:
• a further examination of administrative
expenses; of current incentives for administrative efficiency and how these can be
strengthened; and, whether differences
among institutions and geographic regions
have a bearing on allocated overhead payment policies;
• whether payments for facilities or equipment should reflect different academic
fields of research and/or rates of obsolescence;
• whether there could be a better balance
between elements assigned as direct costs
and elements placed in the allocated overhead pool, i.e., should specific elements be
reassigned from the allocated overhead
pool to direct costs?
The Federal Government and academic institutions have together built a research enterprise that is without peer in the world.
This enterprise has been based on the concept
of a partnership, where each partner contributes and each benefits. But, as in any
partnership, a periodic and thorough reexamination is both healthy and necessary, if
only to revalidate the original conditions
of the partnership.
To some extent, the issue of allocated
overhead is a symptom of the need for

6. ENHANCING R&D AND EXPANDING THE HUMAN FRONTIER

a more fundamental reexamination of the
funding incentives of the academic research
enterprise. The challenge for academic institutions is to consider the future in terms
of the prospective funding environment and
adjust their expectations accordingly. The
challenge for the Federal Government is
to understand and cope with rising expenditures while maintaining a strong national
research capability in academic institutions.
The challenge for both partners is to manage
these issues in ways that will strengthen
the partnership and expand the future benefits
accruing to each partner. As was noted
at the beginning of this section, the scientific
future of the Nation rests with academic
institutions. In continued strong partnership
with the Federal Government, that future
should be a bright one.
EARMARKING OF R&D FUNDING
The hallmark of the Federal Government's
support for R&D has been the awarding
of R&D grants and contracts through a
competitive process. This merit-based approach
is intended to maximize the potential return
on these investments by selecting only the
highest quality research for support.
This merit-based approach, however, has
been increasingly eroded in recent years due
to the Congressional practice of "earmarking",
i.e., requiring that funds for R&D and R&Drelated facilities be awarded to particular
institutions or even to particular researchers.
This practice is most visible in the area
of new buildings, particularly those specified
for individual academic institutions. However,
the practice of earmarking is actually much
more pervasive, reaching down to individual
research projects.
The Office of Science and Technology Policy
recently revised its detailed analysis of earmarking in appropriation bills and reports
to reflect final action for 1992. The major
findings of the analysis and a comparison
to the results from 1991 follow.
• The analysis identified 566 "earmarks" for
both facilities and research, totaling $993
million, an increase of 23 percent over
1991. Of these 334 (totaling $180 million)
were in Agriculture, where specific ear-

Part One-lOl

marking by Congress has historically been
common.
• In other areas, R&D earmarking is on the
rise, with 66 separate actions in Energy
and 20 to 40 each in Defense, Interior,
Commerce and the Environmental Protection Agency. Noteworthy in 1992 was the
large increase in earmarks for NASA, and
the first appearance in some years of earmarks in NSF. In fact, the VA, HUD and
Independent Agencies Appropriations bill
experienced the greatest increase over
1991 in dollar value of earmarks (+$187
million) and nearly the greatest increase
in number (+79 percent), second only to
the Commerce, State, Justice and the Judiciary bill. The NASA example is particularly noteworthy since a number of the
projects have little or no connection to
space research or technology.
• Earmarks for facilities at academic institutions appear to have increased relative to
1991. Included in the total of $346 million
is an increase of $95 million, to a total
of $177 million, for research projects at
academic institutions. This is a dangerous
trend because it represents a much more
serious long-term threat to the meritbased system for selection of research
projects than does earmarking for facilities.
• OSTP estimates that these R&D earmarks
have put an extra burden of nearly $500
million on the R&D programs proposed in
the President's 1992 budget, because the
earmarks were made in programs where
the overall funding level was the same or
less than the President's 1992 request.
The most serious impacts appear to be in
Defense, NASA, NSF, and some parts of
Agriculture. The other $489 million of
R&D earmarks were covered, at least in
part, by Congressional increases in the affected R&D accounts, which presumably
means that a corresponding reduction was
taken elsewhere in the budget.
• Many of the earmarks appear to establish
new centers, institutions, or other organizations. In most of these cases, continued
Federal support in future years seems
clearly implied. Thus, the 1992 earmarks
have put a built-in burden on the 1993

Part One-lOO

THE BUDGET FOR FISCAL YEAR 1993

and future budgets, an effect that will be
compounded if additional earmarks are
made in future years.
As the Office of Science and Technology
Policy has noted, its information was based
only on a review of the often vague information in Congressional appropriations bills and
reports. Therefore, the analysis does not identify the sponsorship of the earmarks and
does not provide a basis for judgments on
the merits of the earmarked items or on
the motivations of the earmarking. However,
a recent press report (Science, November
1991) examined the fate of several earmarked

projects from previous years. The report noted
that the projects examined: (1) have supported
R&D, but not the original claims that were
made for them; (2) have changed in response
to technical difficulties encountered; (3) were
simply outright promotion of local interests
disguised as R&D projects. A more in-depth
case-by-case review of other such projects,
with agency and Congressional staff directly
involved, would be helpful in determining
to what degree each earmark was (1) a
response to advocacy by a particular institution; (2) a parochial initiative of the Congress
or a Federal agency; or (3) a recognition
by Congress of a significant national or
programmatic need.

EXPANDING THE GEOGRAPHIC FRONTIER: SPACE
The exploration of space provides tangible
benefits to the Nation in the form of new
materials and other scientific and technological

discoveries that will stimulate economic
growth and improve life on Earth. Space
also provides large intangible benefits to

Table 6 - 1 7 . CONGRESSIONAL EARMARKING OF R&D FACILITIES AND
RESEARCH IN 1992 APPROPRIATIONS BILLS 1
(Dollars in millions)
Agency

Defense
Energy
Agriculture
Commerce
Interior
Health and Human Services
Education
General Services Administration
Environmental Protection Agency
National Aeronautics and Space Administration
National Science Foundation
Housing and Urban Development
Federal Emergency Management Agency
Transportation
Office of Science and Technology Policy
Total, All Agencies
Facilities
Operations
Academic Institutions
1

Source: Office of Science and Technology Policy

1991

1992

Number

Amount

Number

Amount

28
48
325
14
25
2
5
21
20
4

253
186
182
14
18
3
8
61
67
18

36
66
334
38
42
1
3

263
197
180
36
31
8
3

—

492
(HI)
(381)
(101)

810
(428)
(382)
(348)

—

24
11
2
4
1
3
1

55
191
20
2
3
3
2

566
(116)
(450)
(139)

993
(402)
(590)
(346)

Part One-lOl

6. ENHANCING R&D AND EXPANDING THE HUMAN FRONTIER

the Nation with activities that lift the spirit
of people everywhere. The will to explore
the unknown frontier of space, both with
robotic probes and manned missions, is one
measure of the vision and maturity of the
Nation.
The key to the successful exploration of
space is stable and sustainable funding of
a balanced program of science, applications
and manned space activities. The budget
provides clear evidence of the President's
continued commitment to his long-term space
goals, and to active American leadership
in space science and exploration.
The budget proposes to allocate a total
of almost $15 billion for the National Aeronautics and Space Administration (NASA).
This represents an increase of nearly 5

percent over 1992. The budget continues
to support the strategy laid out by the
Advisory Committee on the Future of the
U.S. Space Program. The budget provides
increases for space activities, including research, development, and operations, to continue to explore the frontier with both manned
and unmanned missions. Resources in the
budget will improve access to space by supporting critical elements of space transportation (which provides the enabling infrastructure for all other space activities) and by
encouraging innovative commercial ventures
that will provide increased access.
SPACE EXPLORATION
This part of the space program includes
Space Station Freedom and activities leading

Table 6-18. THE BUDGET CALLS FOR A 5 PERCENT INCREASE FOR
MAJOR SPACE ACTIVITIES
(Dollar amounts in millions)
Budget Authority
Objective

Space Exploration
Space Station Freedom
Exploring the Frontier
Lunar Exploration
Planetary Exploration
Mission Studies
Technology for Future Exploration
NASA
Energy
Improving Access to Space
Space Shuttle
New Launch System
Expendable Launch Vehicles
Commercial Programs
Tracking and Data Acquisition
Research and Program Management
Construction of Facilities
Other NASA Programs1
Total, All Agencies
Total, NASA 2

1989
Actual

1992
Enacted

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

67
2
820
1,927
275
2,192

536
5
76
31
45
5,312
4,965
93
195
59
918
1,578
525
3,441

2,836
2,250
586
29
487
3
67
27
40
5,412
4,867
250
218
77
921
1,660
319
4,010

+190
+221
-31
29
-49
-2
-9
-4
-5
+100
-98
+157
+23
+18
+3
+82
-206
+569

-9%
-40%
-12%
-13%
-11%
+2%
-2%
+169%
+12%
+31%

11,058
10,969

14,420
14,320

15,158
14,993

+738
+673

+5%
+5%

1,433
900
533
—

417
5
111
23
88
4,411
4,342
—

2,646
2,029
617

1993
Proposed

—

+7%
+11%
-5%
—

—

+5%
-39%
+17%

1 Includes funding for all other NASA activities including space science and applications, space technology
(excluding exploration), academic programs and aeronautics.
2 Program amounts for 1989 do not reflect revised NASA budget structure instituted in 1992. Program amounts
for 1992 and 1993 include funds for institutional support previously shown in Research and Program Management.

Part One-lOO
to robotic and manned exploration of the
Moon and planets. Together, these programs
support the long-term goal of expanding
human presence and activity beyond Earth's
orbit into the solar system. The budget proposes a total of $2.8 billion, an increase
of 7 percent, for space exploration. The strategy for these activities has four major elements: (1) build and operate Space Station
Freedom to provide unique capabilities for
life sciences and microgravity research; (2)
continue robotic missions to explore the other
planets in our Solar System; (3) begin several
small near-term robotic missions to increase
knowledge of the Moon and to provide data
for planning future exploration activities; and
(4) continue work on "long pole" technology
building blocks that will be needed for future
manned and robotic exploration of the solar
system.
Space Station Freedom.—This program,
the largest international R&D project ever undertaken, will enable the performance of life
sciences and materials research in a premier
space laboratory for extended periods. Specific
experiments during the initial operation of
Freedom will lead to new knowledge in semiconductor and biotechnology fields, and may
lead to eventual production of unique commercial products from space. When Freedom's crew
is aboard full time, emphasis will shift to life
sciences research, necessary for the long-term
space flights of the next century.
With core Station elements being provided
by U.S. firms, Freedom will drive advancements in aerospace technology that will maintain U.S. leadership in this important area.
Technologies and systems that will be advanced as part of Space Station Freedom
development and operations include environmental control and life support, power generation, data storage and management, thermal
control, crew health care, data processing
and distribution, structures and materials,
robotics and automation, and operations and
maintenance techniques and logistics support.
As in the past, many of the advances made
in the course of this program will be quickly
used in Earthbound applications.
This past year NASA instituted major adjustments in the program as a result of
a restructuring activity that simplified the

THE BUDGET FOR FISCAL YEAR 1993

design, focused on providing a quality facility
for users, maintained agreements with international partners, and placed the program
on a more sustainable budget path. The
program is now designed to provide early
use with a man-tended capability consisting
of Shuttle visits and free-flyer support, and,
later, a permanently manned capability with
a crew of four. This phased approach with
a simplified design will better enable Space
Station Freedom to accomplish successfully
its major objectives as a life sciences and
materials research facility in space.
The budget provides $2,250 million for
Space Station. This includes an increase
of 10 percent over the 1992 enacted level
for development, and initial funding for Space
Station operations. This amount will support
finalization of detailed designs, and allow
fabrication, qualification, and assembly tests
of various critical components in preparation
for first element launch in 1996, the attainment of a man-tended capability in 1997,
and a permanently manned capability in
late 2000.
Also included is funding for detailed design,
schedule and cost studies for an Assured
Crew Return Vehicle (ACRV). NASA will
examine a wide range of options for providing
this capability as an expedient means of
returning Space Station crewmembers to
Earth during the permanently manned phase
of the program. In addition to the ACRV
studies, an independent panel (the Aerospace
Safety Advisory Panel), will review the justification and requirements for an ACRV
in anticipation of a decision on whether
to proceed with development.
Exploring the Frontier.—The President remains firmly committed to his long-term goal,
articulated in 1989, of manned and unmanned
exploration of the solar system. The budget
reflects this commitment by proposing $586
million for exploration activities in NASA and
the Department of Energy. For 1993, the budget is based on a strategy of (1) supporting
near-term small missions that will take advantage of the unique proximity and characteristics of the Moon; (2) supporting exploration
of the near and outer planets in the Solar System; and (3) supporting research focused on
key, long-lead technologies that will be nec-

6. ENHANCING R&D AND EXPANDING THE HUMAN FRONTIER

essary for any future exploration endeavors.
These technologies include: space nuclear and
conventional propulsion, life sciences and life
support technologies, and space surface nuclear power.
Planetary Exploration.—The objectives of
these programs are to determine the nature
of planets, comets, and asteroids as a means
for understanding the origin and evolution
of the solar system, to examine how the
appearance of life is related to the chemical
history of the solar system, and to provide
the scientific basis for the future use of
available resources in the solar system.
U.S. planetary exploration programs are
guided by recommendations of NASA's scientific
advisory
council.
These
recommendations outline exploration missions
through the year 2000 (i.e., inner planets,
small bodies, and the outer planets). The
Magellan (Venus), Galileo (Jupiter), and Ulysses (Sun) missions have been launched in
the last two years and are providing exciting
new scientific information. The Mars Observer
mission designed to examine the geologic
and climatic evolution of Mars will be
launched in late 1992.
For 1993, the budget proposes $487 million
for planetary exploration, a decrease of $49
million or 9 percent below 1992. Most of
this decrease is due to planned reductions
in development funding as missions are
launched. The 1993 funding level will also
provide for the operation of Mars Observer,
Galileo, and Magellan and for support of
university researchers to analyze data from
planetary missions.
In the current constrained budget environment, it is unlikely that multi-billion dollar
planetary exploration missions, which often
span a decade or more, can continue to
be sustained over the long-term. This is
particularly true because these missions are
often linked to immutable planetary launch
"windows" in order to achieve their objectives.
Long delays caused by budgetary reductions,
launch constraints or technical problems, or
all three, often mean that graduate students
are well along in their professional careers
before instruments they helped develop actually collect any data.

Part One-lOl

Thus, the budget proposes that development
of the Cassini mission to Saturn be continued,
but that it undergo a thorough review in
1992 which will focus on the technical and
schedule risk remaining in this program.
However, the budget proposes to terminate
the Comet Rendezvous/Asteroid Flyby mission
because the scientific benefits of this mission
no longer justify the investment. In order
to contain cost growth, the scope of the
CRAF mission was recently reduced by deleting the comet penetrator and several other
instruments. Thus, much of the planned
science was already lost.
In the longer term, a robust planetary
science program should emphasize more,
smaller, and less costly missions. In order
to give the planetary science community an
opportunity to consider its future direction
in a structured fashion, the budget proposes
to initiate studies and research on future
small planetary missions (i.e., with total
costs of less than $150 million per mission).
All of these decisions are generally consistent
with the recommendations of NASA's scientific
advisory council.
Robotic Exploration of the Moon and
Mars.—The budget proposes $99 million, an
increase of 22 percent, for exploration activities that focus on the Moon and Mars. The
initial emphasis will be on the Moon for several reasons. The Moon is accessible because
of its proximity and will be a useful mid-point
in a long-term plan to send people to Mars.
Further lunar exploration is also attractive because it offers opportunities for scientific research, and the possibility that its mineral and
energy resources could one day be harnessed
for use in the space program or back on Earth.
The Synthesis Group, an independent advisory
panel on the exploration program chartered by
the Vice President, considered these factors
last year when it recommended that the U.S.
plan an active program of robotic and manned
missions to the Moon before sending people
to Mars.
As a first step, the budget proposes to
start work on two small, low-cost, robotic
exploration missions to the Moon. These spacecraft, to be launched in 3-4 years, will
carry instruments for mapping the Moon
and surveying lunar resources. NASA and

Part One-lOO
other participating agencies will continue architecture and mission studies focused on
longer-term options for both robotic and
manned exploration of the Moon and Mars.
Technology for Exploration.—Some future
robotic exploration missions are feasible using
technology that is already available. However,
more ambitious missions—particularly manned
exploration of the Moon and Mars—will require significant improvements and breakthroughs in space transportation and other
areas. Advancing U.S. capabilities in these
areas will likely require many years of focused
research and engineering, so coherent longterm technology development efforts should be
implemented as future needs are identified.
Some priorities for exploration-related technologies have already been identified by NASA
and the Synthesis Group, which produced
a comprehensive report on the Space Exploration Initiative. The budget proposes $67
million to address many of these established
priorities, particularly "long pole" technologies
required to make key exploration missions
feasible, or to significantly reduce their cost.
One such area is nuclear propulsion, which
offers shorter travel times and more payload
mass compared to conventional propulsion
technologies. Technologies and mission applications for nuclear propulsion will be addressed by both NASA and the Department
of Energy (DOE) in 1993. In addition, NASA
will continue technology development for advanced chemical propulsion, life support and
radiation protection. The budget proposes a
total of $45 million in funding by Energy
and NASA for space nuclear reactor power
system technology (specific allocation of this
funding will be made in the Spring of 1992
after a reassessment of potential applications
and technology alternatives).
IMPROVING ACCESS TO SPACE
Space transportation is the foundation for
all U.S. space activities because space missions
require launch vehicles to get off the ground.
Consequently, the Nation's space transportation capabilities must be adequate to meet
both near-term and long-term national needs.
At present, the U.S. has one manned launch
system, the Space Shuttle, and a fleet of

THE BUDGET FOR FISCAL YEAR 1993

expendable launch vehicles with a broad
range of payload capabilities. Many of the
latter are now operated on a commercial
basis for use by both the government and
private customers.
The budget proposes $5.4 billion, an increase
of 2 percent, for civil space transportation.
The strategy reflected in the budget is founded
on three underlying principles: (1) enhance
the Space Shuttle's efficiency and schedule
predictability while increasing the reliability
and lifetime of the existing fleet; (2) develop
a new launch system to offer operational
improvements over existing vehicles and to
reduce the long-term burden on the Shuttle;
and (3) encourage the commercial space sector
to provide goods and services that will increase
access to space for all sectors.
New Launch System.—All sectors of the
U.S. space program, including scientific, exploration, national security, and commercial applications, would benefit greatly from reductions in launch system operating costs and improvements in reliability, responsiveness, and
mission performance. To this end, the budget
proposes $250 million, nearly a three-fold increase, for the joint NASA/Department of Defense program to develop a new launch system
with several configurations, including a heavy
lift capability. The Advisory Committee on the
Future of the U.S. Space Program recommended developing this capability to take
pressure off the Space Shuttle and to enable
new types of future space missions. In addition, developing this new family of vehicles
will strengthen the technical base for improvements in commercial launch vehicles. The first
launch of this new system is planned for 2002.
Funding for common program elements will be
shared between NASA and DOD on a 50:50
basis. Planned 1993 activities focus on continued development of a new liquid-fueled rocket
engine for the vehicle. Vehicle design studies
will also continue. During 1992, Defense and
NASA will initiate a review of the NLS program plan to identify opportunities to reduce
the total cost of the program.
Space Shuttle.—The budget proposes $4.9
billion, a decrease of 2 percent, for the Space
Shuttle, including operations. The Shuttle will
continue to be important to the civil space program through at least the next decade because

Part One-lOl

6. ENHANCING R&D AND EXPANDING THE HUMAN FRONTIER

Table 6-19. THE BUDGET INCLUDES FUNDING FOR 8 SHUTTLE FLIGHTS
AND INVESTMENTS TO IMPROVE THE NATION'S ACCESS TO SPACE
(Dollar amounts in millions)
Budget Authority
1992
Enacted

1993
Proposed

250
125
125
4,867
3,989

93
38
55
4,965
3,851
315
105
694
195
59
39
18
2

4,411

5,312

1989
Actual

New Launch System
NASA
DOD
Space Shuttle
Space Shuttle production and operations
Advanced Solid Rocket Motor
Assured Shuttle Availability
Space transportation capability development ....
Expendable launch vehicle (ELV) services
Commercial Programs
SpaceHab
Commercial Experiment Transporter (COMET)
Other
Total

of its unique abilities to retrieve satellites,
carry people and material to build the Space
Station, and serve as a short-term orbiting laboratory for scientific research. However, the
budget also recognizes that the Shuttle system
has proven to be very expensive and complex
to operate, and that development of new
launch systems will be needed to meet longterm U.S. needs.
Because the Shuttle is a precious resource
that should be conserved, its use will be
limited to payloads requiring manned presence
or other unique capabilities. The planned
flight rate has been reduced to 8 missions
per year through 1996, a level that is both
realistic and prudent. The budget also proposes $139 million, an increase of 32 percent,
for the Assured Shuttle Availability (ASA)
program. ASA projects are intended to prevent
component obsolescence and extend the useful
life of the current fleet of orbiters. Taken
together, these measures will reduce the
long-term risk exposure of continued use
of the Shuttle system.
Several measures are proposed that will
reduce the Shuttle's funding requirements

—
—

4,342
3,549
51
68
674
67
2
—
—

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

139
739
218
77
51
22
4

+157
+87
+70
-98
+138
-315
+34
+45
+23
+18
+12
+4
+2

+169%
+229%
+127%
-2%
+4%
-100%
+32%
+6%
+12%
+31%
+31%
+22%
+100%

5,412

+100

+2%

—

while continuing the program's strong commitment to safety and mission success. Cost
reduction targets of 3 percent per year,
resulting in a 15 percent reduction by 1996,
have been established to improve the efficiency, and thus reduce the cost, of Shuttle
operations, without compromising flight safety
or the Shuttle manifest.
Termination of the development of the
Advanced Solid Rocket Motor (ASRM) program
as well as the construction of its production
facility is proposed. The ASRM project represents major funding requirements, nearly
$500 million in 1993, over $400 million
in 1994, with a total of $2.5 billion to
reach flight status. Unlike other projects
competing for these scarce budget resources,
alternatives exist to offset the loss of the
ASRM capability. The Redesigned Solid Rocket
Motor (RSRM), which entered service after
the ASRM was initiated, has already flown
successfully in 20 Shuttle missions, with
no safety or reliability problems. The impact
on the Space Station Freedom program can
be compensated for by adding several Shuttle
flights using the current RSRM. It is estimated
that two additional assembly flights plus

Part One-lOO
one additional utilization flight would be
required to achieve the Permanently Manned
Capability milestone, which would slip 9
months (from early 2000 to late 2000).
In recent years the President has requested
significant increases for NASA, including funding for the ASRM program. Congress has
been unable to fund fully these requests.
In the Senate and Conference Reports accompanying NASA's 1992 appropriations, Congress
directed that increases in the NASA budget
be limited to 3-5 percent in 1993. ASRM
has been recommended for cancellation, in
part, to accomodate the Congressionally-imposed cap. If a higher budget allocation
were to be provided for NASA in 1993
by the Appropriations Committees, the Administration would be prepared to work with
the Congress toward the possibility of continued support for ASRM.
When the ASRM was proposed for development four years ago in the 1989 budget
to Congress, its first use was planned for
early to mid-1994, and the estimated cost
up to first use was $1.9 billion. According
to the most recent plans, first use of ASRM
would occur no earlier than February 1997,
and estimated cost up to first use including
prior year funds would be $3.4 billion. Thus,
ASRM would be available three years later
than originally proposed, at 80 percent higher
cost.
It should also be noted that when development funding for the ASRM was proposed
four years ago, 14 Shuttle missions per
year were planned after the ASRM entered
service. The projected Shuttle flight rate
in the late 1990's has since fallen to 9
missions per year. Thus, while it was originally thought that more than 70 Shuttle
missions in the 1990s would use ASRMs,
fewer than 30 would do so now if the
program were continued.

THE BUDGET FOR FISCAL YEAR 1993

Production of additional Shuttle orbiters
is not planned. However, production of spare
parts will continue in the near term to
support the existing Shuttle fleet and to
help preserve an option to acquire a replacement orbiter in the event of orbiter loss
or other demonstrable need.
Commercial Space.—In the National Space
Policy and its implementing guidelines, the
commercial sector is encouraged to provide
goods and services that will improve access
to space for all sectors. A result of this policy
is that NASA and other agencies are increasing their use of commercial launch services.
A noteworthy milestone in late 1992 will be
the first launch of the Commercial Experiment
Transporter (COMET), which is being procured
through the NASA-sponsored Commercial Centers for the Development of Space.
Another important planned milestone in
1993 is NASA's first use of SpaceHab, a
commercially-developed, reusable module that
will enable the Space Shuttle to carry more
experiments. NASA has contracted to use
part of this module for multiple missions,
and its developer is marketing the remaining
capacity to commercial customers.
The commercial sector can also benefit
from launch technology activities that are
planned by NASA and DOD for 1993. While
planned technology work is focused on meeting
future needs and objectives identified by
government agencies (e.g., increasing the costeffectiveness of space launch systems), some
results of this work will also be applicable
to commercially-operated systems. In addition,
development of new launch vehicles (such
as the new launch system being built by
NASA and DOD) for the government may
provide new opportunities for commercial operators in the long term.

Investing in the Future:
7. Improving Transportation
and Other Infrastructure

Part One-147

7. IMPROVING TRANSPORTATION AND
OTHER INFRASTRUCTURE
ernization of the air traffic control system;
and

The Federal Government conducts directly
and assists the States in a wide variety
of public infrastructure investment activities.
This chapterdiscusses the highlights of this
investment in transportation and other areas.
In 1993, Federal capital outlays for major
physical capital infrastructure will grow from
the 1992 level of $46.5 billion to $50.4
billion, an increase of eight percent. A more
complete discussion of Federal capital spending is provided in Table 7-8 and in Part
Three, Chapter 29, "Physical and Other Capital Presentation."
HIGHLIGHTS—TRANSPORTATION

• $437 million, a $108 million or 33 percent
increase over 1992, for new weather satellites and $177 million a $21 million or
14 percent increase, for Weather Service
modernization, which will improve weather forecasts and storm warnings. (Key
Federal funding for transportation infrastructure is shown in Table 7-1.) A discussion of other Federal infrastructure investments is presented at the end of this chapter.

• $19.2 billion, a $2.2 billion or 13 percent
increase over 1992, for highway construction and rehabilitation; which will finance
over 1 million jobs in 1993;

The next century's transportation system
also will be built upon investments in new
transportation technologies. In the future,
magnetically levitated or other high-speed
trains may move passengers directly between
major city centers at speeds up to double
that of today's conventional railroads. "Intelligent" vehicles operating on "intelligent" highways will permit monitoring of congestion,
speed and vehicle spacing to reduce accidents
and delays. The budget requests $498 million
for Department of Transportation research
supporting possible deployment of these and
other future systems.

• $2.7 billion, a $306 million or 13 percent
increase over 1992, for continued mod-

Stimulating Economic Growth.—Transportation infrastructure improvements will pay

Building for Tomorrow.—The transportation system of the 21st Century will carry
more people to their destinations faster, safer,
and more efficiently than ever before. The
foundation of this system will be investments
made today. To this end, key elements of the
transportation budget proposal include the following:

Table 7 - 1 . KEY FEDERAL INVESTMENTS IN AMERICA'S
TRANSPORTATION AND SAFETY INFRASTRUCTURE
(Budget authority; dollar amounts in millions)

Initiative

Federal-Aid Highways (Obligations)
FAA Modernization
Weather Satellites
Weather Service Modernization
Total

1989
Actual

1992
Enacted

1993
Proposed

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

13,507
1,384
330
62

16,986
2,394
329
156

19,198
2,700
437
177

+2,212
+306
+108
+21

+13%
+13%
+33%
+14%

15,283

19,865

22,512

+2,647

+13%
Part One-149

Part One-lOO

THE BUDGET FOR FISCAL YEAR 1993

growth and productivity dividends today, as
well as tomorrow. Virtually every good produced uses transportation services. Almost 20
percent of consumer spending goes to transportation. One-tenth of the American workforce
is employed by transportation or transportation-related businesses.
A growing economy and population will
increase demand for transportation services.
Americans are expected to become increasingly
mobile, with highway traffic growth estimated
at 2.5 percent annually. Airline passenger
growth is estimated to grow even faster,
at more than 4 percent annually. The Nation
needs to be able to respond to this increased
travel demand.
Renewing the Transportation Partnership.—A solid foundation for the next century's transportation system has been built
through a strong partnership among the Federal government, State and local governments
and the private sector. To support and renew
this partnership, the Administration will pursue policies designed to use public resources
more wisely, unleash private investment and
remove barriers to a more efficient transportation system.
IMPROVING THE NATION'S HIGHWAYS
Economic growth and productivity increases
can be constrained by deteriorating highways
and bridges. Recognizing this, the Administration proposes $19.2 billion in 1993 obligations
for Federal-aid highways. This reflects a
13 percent increase over 1992 and a 114
percent increase since 1981. Within the $19.2
billion in Federal-aid obligations, States primarily determine the funding mix among

the following major programs: the National
Highway System (NHS), State Block Grant
program, Interstate Maintenance and Bridge
Rehabilitation. The $2.2 billion increase in
the budget will finance a significant increase
for each program. These programs, either
created or expanded in the 1991 Intermodal
Surface Transportation Efficiency Act (ISTEA),
each provide States different means to address
local highway infrastructure needs and are
described below. (Federal funding for Federalaid highways is shown in Table 7-2.)
Together with the new tools provided in
the Surface Transportation Act, the 1993
request will ensure that the physical condition
of the Nation's highways and bridges will
continue to improve, the most critical highway
infrastructure needs of the nineties will be
addressed, and jobs will continue to be created.
Creating New Jobs
Americans are put to work through the
Federal investment in constructing and repairing the Nation's highways and bridges. The
$19.2 billion included in the budget for Federal-aid highways spending is a $2.2 billion
increase over 1992. This increase would support more than 120,000 jobs, bringing total
employment supported by Federal highway
infrastructure investments to over one million
in 1993.
The National Highway System (NHS)
The new Surface Transportation Act enacts
the Administration proposal to designate a
National Highway System. The 155,000 mile
NHS concentrates Federal resources on the
rehabilitation and improvement of those highways most critical to interstate commerce

Table 7-2. THE FEDERAL COMMITMENT TO AN IMPROVED HIGHWAY
SYSTEM
(Dollar amounts in millions)
1989
Actual

Obligations
Outlays

13,507
13,306

1992
Enacted

16,986
15,803

1993
Proposed

19,198
16,909

Dollar
Change:
1992 to
1993
+2,212
+1,106

Percent
Change:
1992 to
1993
+13%
+7%

Part One-151

7. IMPROVING TRANSPORTATION AND OTHER INFRASTRUCTURE

and travel. Comprising only four percent
of the country's public road mileage, the
NHS will carry 40 percent of all vehicle
miles traveled and 75 percent of all intercity
truck miles traveled. An efficient NHS will
keep prices of American goods down, thereby
benefiting both consumers and manufacturers
whose products, in turn, will be more competitive overseas.
More Flexible State Block Grants
The Surface Transportation Act incorporates
the Administration's proposal to consolidate
an array of existing narrow, categorical highway programs into a new Surface Transportation Program (STP). The STP will give
States greater flexibility in the use of funds
to solve local transportation problems in ways
that best meet local needs, whether the
States choose traditional highway construction
or other forms of support for the ground
transportation infrastructure.
A Focus on Maintenance
Since 1983, there has been a dramatic
decline in the percent of highway miles

PERCENT
20

rated in poor physical condition. For example,
between 1983 and 1989 the percent of urban
interstate highway miles rated in poor physical
condition was cut almost in half. This achievement stands in contrast to the common
assertion that the Nation's infrastructure is
"crumbling". (Improvement in highway pavement quality is shown in the accompanying
chart, "The Percentage of Highway Mileage
With Pavement Rated as 'Poor' Continues
to Decline"). The new Surface Transportation
Act builds on this progress through a new
Interstate Maintenance program and addresses bridge needs through an expanded Bridge
Rehabilitation program. Furthermore, States
are required to develop and implement bridge
and pavement management systems to assure
that Federal investment in these areas is
well utilized.
The Public^Private Partnership and Toll
Roads
For the first time since 1916, States will
have broad discretion to use Federal funds
for the construction and reconstruction of
toll roads. They will also be allowed to

THE PERCENTAGE OF HIGHWAY MILEAGE WITH
PAVEMENT RATED AS "POOR" CONTINUES TO DECLINE

15 "

1983

URBAN INTERSTATE

1985

RURAL INTERSTATE

1987

URBAN ARTERIALS

1989

RURAL ARTERIALS

Part One-152

THE BUDGET FOR FISCAL YEAR 1993

Table 7-3. FEDERAL HIGHWAY SPENDING WILL EXCEED USER
PAYMENTS
(In billions of dollars)
1992

1993

16.2
16.3

17.3
15.8

Trust Fund Outlays
Trust Fund Receipts

mix tolls and Federal funds to upgrade
certain existing Federal-aid highways. States
will now have access to an entirely new
source of funding to expand capacity and
improve and maintain existing highways.
Financing the Highway System
The Administration proposes to spend more
in 1993 on highways, including safety programs, than users will pay into the Highway
Account of the Highway Trust Fund—$17.3
billion in outlays compared to $15.8 billion
in receipts. This trend is proposed to continue.

(A comparison of Highway Trust Fund outlays
and receipts is shown in Table 7-3.)
Mass Transit
As a companion and complement to needed
highway investment, capital funds will also
be provided to permit a sustained level
of effort in mass transportation. Transit patronage continues to grow and transit systems
will be called upon to carry even more
passengers in the future as States and localities develop strategies to meet new environmental standards for air quality.

HIGHWAY FATALITY RATE HITS HISTORIC LOW
(FATALITY RATE PER 100 MILLION VEHICLE MILES TRAVELED)

1 -

1968

1973

1977

1983

1988

1989

1990

1991

Part One-153

7. IMPROVING TRANSPORTATION AND OTHER INFRASTRUCTURE

Improving Highway Safety
The U.S. traffic fatality rate in 1991
achieved an all-time low of 1.9 deaths per
100 million vehicle miles traveled. (The highway fatality rate trend is shown in the
accompanying chart, "Highway Fatality Rate
Hits Historic Low"). Highway crashes account
for 95 percent of transportation deaths, and
one out of every two crashes is alcoholrelated. The budget includes $459 million,
an increase of 20 percent over 1992, to
improve highway safety. The Administration
will continue to work in partnership with
State and local governments, the private
sector and the general public to ensure
a safer transportation infrastructure. Among
the Administration's safety goals are keeping
drunk and drugged drivers off the road,
increasing safety belt use, and improving
public awareness of the need for safe driving
behavior.

continue modernization of aviation facilities
and equipment and will expand airport capacity. The proposal also provides increased
funding for air traffic controllers, security
staff, and research and development. In 1993,
the Administration is proposing an aviation
reauthorization that will provide the flying
public a safe and efficient aviation system.
Completing the Modernization Program
The budget includes $2.7 billion for FAA's
facilities and equipment account, an increase
of $306 million or 13 percent over 1992,
to continue the modernization and consolidation of air traffic control facilities. The modernization plan will provide near-term improvements to solve immediate problems and
will result in greater operating efficiency
and safety. It also provides the foundation
for sustained improvements for the future.
The modernization effort includes:
• $805 million, a 33 percent increase over
1992, for the Advanced Automation System (AAS) and Voice Switching and Control System (VSCS). AAS and VSCS will
provide new air traffic controller screens
and communications processors which will
improve air traffic management and accommodate increased air traffic in the
1990s and beyond.

MODERNIZING THE AVIATION SYSTEM
Continuing growth in air travel will place
unprecedented demands on the National Airspace System (NAS) from now through the
turn of the century. Significant investment,
by all involved, is necessary to ensure that
the aviation system continues to be safe,
efficient and reliable. Many parts of the
aviation infrastructure need to be modernized
and expanded to handle increasing air traffic.

• $160 million, a 23 percent increase over
1992, for radar and communications equipment modernization for the en route aviation sector. This will improve communications and tracking of aircraft movement
which will enhance aviation safety.

The budget includes $9.4 billion, a $564
million or 6 percent increase, for aviation
programs. (Federal funding for aviation programs is shown in Table 7-4.) This will

Table 7 - 4 . TOTAL FEDERAL COMMITMENT TO AVIATION
(Budget authority; dollar amounts in millions)
Initiative

Operation of the Aviation System
Modernization Program
Airport Improvement
Research and Development
Total

1989
Actual

1992
Enacted

1993
Proposed

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

3,445
1,384
1,600
160

4,360
2,394
1,900
218

4,606
2,700
1,900
230

+246
+306

+6%
+13%

+12

+6%

6,589

8,872

9,436

+564

+6%

Part One-lOO

THE BUDGET FOR FISCAL YEAR 1993

• $48 million, a 14 percent increase over
1992, to deploy weather tracking systems
that will detect dangerous windshear conditions and warn aircraft away from violent storms.
Reaping the Benefits of Modernization
Together, system users and the general
taxpayer will realize more than an estimated
$204 billion in lifecycle benefits through the
year 2025 from the modernization effort.
System users, including passengers and airlines, will enjoy some $166 billion in benefits
from reduced airline delays and more efficient
aircraft routing. Users also will benefit from
improved safety, realizing some $11 billion
in benefits through fewer accidents, largely
due to improved weather-related equipment.
Taxpayers will benefit from the more efficient
operation of the air traffic control system.
For example, savings will be achieved from
improving air traffic controller productivity
through the use of better equipment and
by reducing maintenance requirements. (The
distribution of modernization benefits is shown

in the accompanying chart, "Beneficiaries of
Air Traffic Control Modernization").
Keeping the Skies Safe and Secure
The budget includes $4.6 billion, a $246
million or 6 percent increase over 1992,
to support, operate, maintain and ensure
the security of the aviation system. This
includes the air traffic control system and
FAA's programs to ensure safety and security
in aviation. This level of funding will add
150 air traffic controllers and 25 security
staff over estimated 1992 levels. Additional
staff are needed because of forecasted growth
in aviation activity and security workload.
Researching Today's Needs and
Tomorrow's Opportunities
Aviation research, proposed to grow by
6 percent to $230 million in 1993, will
focus on developing state of the art technologies and techniques to make air travel
of the future faster, safer, and more efficient.
A significant portion of the research, $68
million in 1993, will incorporate next generation computer-based traffic management capa-

BENEFICIARIES OF AIR TRAFFIC CONTROL MODERNIZATION - $204 BILLION IN LIFECYCLE BENEFITS TO BE REALIZED

f
USER BENEFITS THROUGH
REDUCED DELAYS
AND MORE EFFICIENT
ROUTING: $166 BILLION

USER BENEFITS THROUGH
ACCIDENTS AVOIDED: $11 BILLION
TAXPAYER SAVINGS
THROUGH FAA
PRODUCTIVITY:
$27 BILLION

7. IMPROVING TRANSPORTATION AND OTHER INFRASTRUCTURE

bilities into the air traffic control system,
resulting in reduced operating costs, fewer
delays and increased airport capacity. Other
1993 aviation research and development
projects include:
• $27 million, a 17 percent increase over
1992, for research on next-generation aviation communications and navigation technology to increase capacity through the
more efficient use of the National Airspace
System. This includes using satellites instead of ground-based radar to track and
route aircraft and using satellites instead
of ground-based radio links for communications between pilots and air traffic
controllers.
• $38 million, a 12 percent increase over
1992, for research to improve aircraft safety, including fire prevention, airframe
crash worthiness, and aging aircraft issues.
• $36 million, a 13 percent increase over
1992, for research to improve aviation systems security technology, including explosives and weapons detection on passengers
and in baggage. Research also will explore
increasing aircraft survivability by reducing damage caused by an onboard explosion.
Expanding Airport Capacity Through the
Transportation Partnership
Over 20 major airports each currently experience more than 20,000 hours in annual
flight delay. Flight delays cost the economy
and passengers an estimated $5 billion annually. Anticipated increases in airline travel
will cause the number of airports with these
delays to double by the year 2000 unless
action is taken to address capacity problems.
As discussed below, the budget proposes
a comprehensive program to increase capacity
through the combined efforts of the Federal
government, the aviation industry, and State
and local governments.
Federal
Funding
for
Capacity
Projects.—The budget provides $1.9 billion in
new spending for Federal airport grants. Together with State and local government matching funds, these funds will be used to construct
capacity enhancements such as runways,

Part One-155

taxiways and terminal expansions. The program funds grants for airport development
projects at large commercial airports, as well
as grants to improve smaller airports.
The State Block Grant program permits
States to administer grants for their smaller
airports. Based on the success of a three
State pilot program, the Administration will
propose that the program be expanded to
allow participation by all States. This will
permit States, rather than the Federal government, to allocate grant funds to better meet
local needs for increased capacity.
Enhanced Local Revenues.—The Administration's proposal to permit airports to raise
revenues through a passenger facility charge
(PFC) was enacted in 1990. A PFC is a charge
levied on departing passengers for the use of
aviation facilities. This put the United States
on par with 138 other countries which already
provide for such charges.
PFCs allow locally generated revenue to
go directly towards reducing delays at the
facilities where charged, and to open competitive opportunities for airline expansion that
will hold fares down for the consumer. It
is estimated that PFCs could generate an
estimated $1 billion per year for U.S. airports.
This will provide a new, stable source of
additional revenue for airport development
less encumbered by Federal regulations and
restrictions. Currently, 16 airports have applied for permission to charge PFCs, with
a total of 200 expected to do so by the
end of 1993.
Encouraging
More
Public/Private
Projects.—More public/private airport projects
are being encouraged as another means to enhance capacity. For example, Alliance Airport,
owned by the City of Fort Worth, is a new
facility designed to ease crowding at the Dallas-Fort Worth International Airport. A partnership between private business and State,
local and Federal governments allowed the airport to be built quickly. A creative financing
arrangement combined private land donation,
State-local-Federal construction funding, and
ad valorem taxes on business revenues to cover
airport operating and maintenance costs.
Another public/private partnership involves
the FAA working with two private companies

Part One-lOO

THE BUDGET FOR FISCAL YEAR 1993

Table 7-5. FEDERAL SPENDING FOR AVIATION EXCEEDS RECEIPTS
(In billions of dollars)
1984

1986

3.8
2.5

Aviation Outlays
Aviation User Fees

to explore the use of satellites as a precision
landing tool. Current earth-bound landing
systems define a limited number of safe
flight paths into and out of an airport.
A more flexible satellite system could permit
a significantly larger number of safe paths,
thereby improving safety and expanding capacity.
Peak Period Pricing.—The Administration
will encourage peak period pricing by airports
to ensure that existing capacity is used as efficiently as possible. This entails charging higher landing fees during periods of peak demand

4.7
2.7

1988

1990

5.2
3.2

1992
Estimate

1993
Proposed

8.0

8.7
5.7

6.4

3.7

5.2

and offering discounts to encourage off-peak
use. This would shift demand that would otherwise require additional capacity to other periods when facilities are underutilized.
In addition, the Administration is exploring
other ways to increase existing capacity.
These include improved air traffic procedures,
encouraging general aviation aircraft to use
smaller, reliever airports and converting existing military facilities, in whole or in part,
to public use.

THE AVIATION ACCIDENT RATE IS DECLINING

(COMMERCIAL PASSENGER TRANSPORT*)
TOTAL ACCIDENTS PER 100,000 FLIGHT HOURS

1982

1983

1984

1985

1986

1987

* Includes scheduled and nonscheduled air carriers, air taxis, and commuters.
SOURCE: NTSB

1988

1989

1990

Part One-157

7. IMPROVING TRANSPORTATION AND OTHER INFRASTRUCTURE

Financing the Aviation System
The aviation system has been financed
in large part through user fees deposited
in the Airport and Airway Trust Fund. In
this way the aviation user is a partner
in financing a safe and efficient system.
Proposed spending on aviation programs in
1993 will exceed the fees paid by users
of the aviation system—$8.7 billion in spending compared to $5.7 billion in fees. This
continues the trend in place since the Airport
and Airway Trust Fund's inception whereby
Federal spending on FAA programs has far
exceeded aviation receipts. (Aviation spending
is compared to receipts in Table 7-5.) Users
should finance their fair share of aviation
spending, including equipment modernization,
research, airport grants, and a portion of
the staffing costs necessary to keep flying
safe and secure.

MODERNIZING WEATHER
FORECASTING CAPABILITIES
Weather plays a critical role in transportation, through its impact on aviation, shipping and overland commerce. Sixty percent
of all aviation delays are caused by weather.
By the year 2000, weather related aviation
delays will cost airlines an estimated $1.7
billion annually. (The causes of aviation delays
are shown in the accompanying chart, "Weather Related Delays are FAA's Biggest Air
Traffic Challenge"). Modernizing the Nation's
weather forecasting infrastructure is essential
to obtaining the most efficient use of the
existing transportation system. More timely
and accurate forecasts will increase system
capacity by permitting all modes of transportation to accommodate more accurately severe
weather events.
The budget proposes $614 million, an increase of $129 million or 27 percent over
1992, to modernize the Nation's weather
forecasting system. (Federal funding for weather systems modernization is shown in Table
7-6.) The impetus for modernization is twofold. First, obsolete equipment must be replaced and gaps in weather data observations
reduced. Secondly, modernization will permit
the National Weather Service to take advantage of technological advances in the detection
and prediction of severe weather patterns,
such as wind shear, which can prove deadly
to aircraft and passengers.

Continuing Aviation Safety
Aviation has the safest record of any mode
of passenger transportation in the nation,
with aviation accidents decreasing dramatically over the last 20 years. This is due
in large part to past Federal investment
in both people and systems. (The trend
in aviation accidents is shown in the accompanying chart, "The Aviation Accident Rate
Is Declining".)
The budget requests $619 million, a 4
percent increase over 1992, for aviation safety
programs to ensure continued high levels
of safety in the face of aviation traffic
growth.

Table 7 - 6 . FEDERAL SPENDING ON WEATHER FORECASTING
INFRASTRUCTURE
(Budget authority; dollar amounts in millions)
Initiative

Weather Service Modernization
Weather Satellites
Total

1989
Actual

1992
Enacted

1993
Proposed

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

62
330

156
329

177
437

+21
+108

+14%
+33%

392

485

614

+129

+27%

Part One-lOO

THE BUDGET FOR FISCAL YEAR 1993

Modernizing the Weather Forecasting
System
The modernization plan includes several
key elements as follows:
• NEXRADs, next generation weather radars, will employ Doppler radar technology not only to identify severe weather
events, but also to look inside developing
storms to calculate speed, direction and
composition. The budget requests $132
million, a $25 million or 23 percent increase over 1992, to deploy 159 operational
NEXRADs to provide virtual nationwide
coverage.
• Automated weather observation systems
provide continuous weather readings, replacing the current manual readings. The
budget requests $19 million, a $5 million
or 36 percent increase over 1992, to continue deploying a nationwide weather observation network.
• $26 million is requested in 1993 for advanced forecaster computer workstations,
communications links, and supercomputer
capacity which will greatly improve mete-

orologists' ability to analyze
events rapidly and accurately.

weather

• Next generation weather satellites will
vastly increase the critical data which
forms the basis of the nation's weather
forecasting models. These satellites will
have approximately twice the resolution
and three times the accuracy of those now
in use. The budget includes $437 million,
a $108 million or 33 percent increase over
1992, for continued satellite operations
and development of next generation satellites.
Benefits of Modernization
The modernized weather infrastructure will
generate significant benefits for both the
traveling and general public. For example,
severe weather detection capability will increase from 65 percent today to over 90
percent in ten years. (The projected improvement in weather forecasting is shown in
the accompanying chart, "Modernization Will
Improve Severe Weather Detection"). Advance
warning of severe storms will improve significantly because the new systems will be

WEATHER RELATED DELAYS ARE FAA'S BIGGEST AIR TRAFFIC CHALLENGE

(CAUSES OF AVIATION DELAYS AT MAJOR AIRPORTS)

SOURCE: FAA Air Traffic Operations Management System (ATOMS)

Part One-159

7. IMPROVING TRANSPORTATION AND OTHER INFRASTRUCTURE

able to detect the precursors of such events.
Weather forecasts also will be more precise
in terms of size, location and duration. These
improvements will allow users of transportation systems to plan better for and, if
necessary, avoid severe weather events. By
the mid-1990s, the National Weather Service
will operate one of the most advanced warning
and forecast systems in the world.
DEVELOPING
TIONS
TO
NEEDS

INNOVATIVE
SOLUMEET
TOMORROW'S

To spur development of new transportation
systems for the future, the Federal government
will act as a catalyst for research and
innovation. Innovative technologies will be
part of the solution to increased capacity
needs. The budget requests $498 million,
a $51 million or 12 percent increase over
1992, for transportation research and development. Examples of projects include:
• Maglet/High-Speed Rail.—Magnetically
levitated trains, or "maglev", might serve

to augment existing air and highway
transportation. Maglev trains move above
a guideway without contact, supported and
guided by magnets, achieve speeds of up
to 300 miles per hour, and are environmentally clean.
The budget includes $28 million, an $8
million or 40 percent increase over 1992,
to fund maglev and high-speed rail research and development. This work will
assess the technical and economic potential of maglev in the nation's transportation future, as well as maglev and highspeed rail safety. While there is funding
for maglev prototype development included
in the new Surface Transportation Act, the
Administration believes it is prudent to
complete the research currently underway
and make a full and fair evaluation of the
technology before moving to the prototype
phase.
• Intelligent Vehicle/Highway System
(IVHS).—'The budget includes $138 million to continue the ongoing partnership

MODERNIZATION WILL IMPROVE SEVERE WEATHER DETECTION
PERCENT DETECTION
100 t

1990

1992

1994

1996

1998

2000

Part One-lOO

THE BUDGET FOR FISCAL YEAR 1993

with auto manufacturers and others developing IVHS. IVHS, often referred to as
"smart car^smart highways", will improve
traffic control systems, warn drivers of
dangerous situations and make more efficient use of the existing highway infrastructure. It will combine state-of-the-art
communications, warning systems, electronic displays, and computer technology.
• Advanced Driving Simulator.—The
budget requests $9.5 million to begin construction of a state-of-the-art simulator to
be used for research to improve highway
safety through research on crash avoidance and driver performance and more efficient use of highways through support
of IVHS research. It will permit studying
potentially risky situations without putting people at risk, including the effects
of drugs and alcohol on driving.
OTHER FEDERAL INFRASTRUCTURE
INVESTMENT
EPA Waste Water Treatment Grants.—
The budget includes $2.5 billion for
wastewater treatment grants, a $100 million
or 4 percent increase over 1992. Under this
proposal, 95 percent of the program's authorized funding will be appropriated by the end
of 1993.
Too many of America's largest cities lack
adequate secondary sewage treatment, the
level generally considered the minimum necessary to protect human health and the
environment. The budget will expedite achievement of secondary treatment standards while
prompting economic growth and employment.
Americans will be employed both constructing
treatment facilities as well as through new
business creation and expansion allowed by

providing sufficient water treatment capacity.
A more detailed discussion of this request
is contained in Chapter 10, "Preserving America's Heritage, Protecting the Environment,
and Providing For a More Secure Energy
Future."
Improving Access to Space (NASA/
DOD).—The Nation's space transportation capabilities must continue to meet both nearterm and long-term national space needs. The
U.S. presently has one manned launch system,
the Space Shuttle, and one expendable lauch
vehicle fleet with a broad range of payload
capabilities. Many of the latter are commercially operated with both government and private customers.
The budget proposes $5.4 billion for civil
space transportation, a $100 million or two
percent increase over 1992. The budget reflects
three underlying principles: (1) enhance the
Space Shuttle's efficiency and schedule reliability and life span; (2) develop an operationally improved launch system that will also
reduce the long-term burden on the Shuttle;
and (3) encourage the commercial space sector
to provide goods and services to increase
access to space for all. A more detailed
discussion of this request is contained in
Chapter 6, "Enhancing Research and Development and Expanding the Human Frontier."
Army Corps of Engineers.—Outlays for the
Army Corps of Engineers construction activities will increase by $198 million over 1992.
Included are eight new traditional construction
projects and five major hydropower and inland
waterway rehabilitation projects. In addition,
the Corps will continue several significant infrastructure research initiatives, including
maglev and construction productivity.

Table 7-7. SELECT OTHER PUBLIC INFRASTRUCTURE INVESTMENT
(Budget authority; dollar amounts in millions)
1989
Actual

EPA Wastewater Treatment Grants
Access to Space (NASA/DOD)
Corps of Engineers New Construction Starts

1,950
4,411

1992
Enacted

1993
Proposed

Dollar
Change:
1992 to
1993

2,400
5,312

2,500
5,412
27

+100
+100
+27

Percent
Change:
1992 to
1993
+4%
+2%
IN/A

Part One-161

7. IMPROVING TRANSPORTATION AND OTHER INFRASTRUCTURE

Table 7-8. FEDERAL OUTLAYS FOR MAJOR PUBLIC PHYSICAL CAPITAL
(Dollar amounts in millions)
1992
Estimate

Grants:
Surface transportation
Air transportation
Pollution control and abatement
Other natural resources and environment
Other community and regional development .
Other construction
Other physical assets
Subtotal, grants
Direct Federal Programs:
National defense
Water resource projects
Other natural resources and environment
Energy
Transportation
Veterans hospitals and other health facilities
Postal Service
Federal Prison System
Federal Buildings Fund
Other construction
Subtotal, direct Federal progams
Total

311-000 0 - 9 2 - 9

(Pt.l)

1993
Estimate

Percent
Change:
1992 to
1993

18,859
1,556
2,540
231
3,987
382
591

19,775
1,759
2,509
170
4,114
634
641

+5%
+13%
-1%
-26%
+3%
+66%
+9%

28,145

29,602

+5%

5,316
2,401
2,020
2,658
392
1,149
1,777
250
874
1,565

7,028
2,231
2,171
3,562
415
1,232
780
442
1,345
1,543

+32%
-7%
+8%
+34%
+6%
+7%
-56%
+77%
+54%
-1%

18,402
46,547

20,748
50,350

+13%
+8%

Investing in the Future:
8. Providing Hope to
Distressed Communities

Part One-163

8. PROVIDING HOPE TO DISTRESSED
COMMUNITIES
INTRODUCTION
The Administration's policies over the past
three years have been designed to increase
opportunity, choice, and hope for all Americans. The budget includes proposals that
will
• create opportunity and hope for economically and socially distressed neighborhoods
and communities;
• change the welfare system to help low-income families escape dependency, build assets, and generate wealth;
• give parents more choice in both child care
and education;
• give low-income Americans who, traditionally, have not been able to generate assets,
a chance to own the places where they
live;
• reform the way the Federal government
assists poor renters—families, disabled, or
elderly—to ensure that they have more
choice in where they live and that they
live in well-managed, decent housing; and
• provide shelter, services, and hope to the
homeless.
A summary of these initiatives is provided
in Table 8-1.
THE PROBLEMS OF ECONOMICALLY
DISTRESSED FAMILIES AND COMMUNITIES
From 1982 through the beginning of 1990,
the United States enjoyed a record economic
expansion. The number of jobs increased
by more than 19 million. Manufacturing productivity rose at an average annual rate
of 4.5 percent over the same period. Incomes
increased and poverty declined for white
families and black families, and for urban,
suburban, and rural families alike. White
employment rose 15 percent, from 87.9 to

102.1 million, and black employment rose
29 percent, from 9.2 to 12.0 million.
The proportion of Americans forced to live
in substandard housing was reduced as a
result of this progress. A 1991 report by
the Department of Housing and Urban Development (HUD), found that between 1974
and 1989, the proportion of very-low-income
renters (those whose incomes are at or below
50 percent of the local median income) who
lived in severely inadequate housing dropped
substantially. The percentage of households
living in such housing declined from 11
percent to 4 percent, and the, number of
such units was halved, dropping from 850,000
to 425,000.1
Yet poverty was by no means abolished
during the economic expansion. It remains
especially persistent in some inner city neighborhoods with high percentages of nonworking
adults, high-school dropouts, and single-parent
families. In neighborhoods defined by the
Bureau of the Census as central city poverty
areas,2 38 percent of all residents were
poor in 1990, nearly three times the national
poverty rate.
In all poverty areas, whether central city
or not, 41 percent of related children live
in families with a female head. In other
(non-poverty) areas, only 17 percent do. In
poverty areas, 42 percent of all persons
aged 25 and older did not complete high
school. In other areas, the number is 18
percent. In poverty areas, a higher percentage
of working-age males does not work at all
during the year compared to working-age
males in other areas.
1 Department of Housing and Urban Development, Priority Housing Problems and "Worst Case" Needs in 1989, a Report to Congress, June 1991.
2 In its publications, the Bureau of the Census defines "poverty
areas" as census tracts or minor civil divisions with poverty rates
of 20 percent or higher in the most recent decennial census data
available. Poverty areas may be found in central cities, other metropolitan areas, or non-metropolitan areas.

Part One-165

Part O n e - l O O

THE BUDGET FOR FISCAL YEAR 1993

Table 8-1. PROPOSALS FOR INCREASING OPPORTUNITY, CHOICE,
AND HOMEOWNERSHIP
Enterprise Zones—Creating Solid Economic Foundations in Distressed Communities
• Offer a wage tax credit to encourage the employment of low-income inner-city and rural residents.
• Defer income taxes for small investors who purchase stock in businesses located in enterprise zones.
• Implement a zero capital gains tax rate for investments in businesses located in enterprise zones.
Weed and Seed—A New Effort to Reclaim Impoverished and Embattled Communities
• Eliminate the fear of drugs and violence with enhanced law enforcement.
• Provide hope and assistance through job training, drug treatment and prevention, educational activities,
health care, and transportation.
• Complement Enterprise Zones, which will help to create jobs and opportunities in these areas.
• Improve the housing stock and physical infrastructure.
Expanding Opportunities and Building Assets for Low-Income Families
• Raise the AFDC assets limits to $10,000 for families already on the rolls.
• Establish, through a demonstration, "escrow" savings accounts for long-term AFDC recipients working their
way off the rolls.
• Expand use of electronic benefit transfer cards for Food Stamp recipients
• Extend application of the Plan for Achieving Self-Sufficienpy (PASS).
• Offer financial incentives to private welfare-to-work firms.
• Demonstrate choice in unemployment insurance.
• Expand State flexibility through Federal waiver authority.
• Give low-income families help if they wish to move from high poverty areas to mixed income areas through
the "Moving to Opportunity7' demonstration.
Implementing the President's Comprehensive Health Reform Program
Increasing Choice in Child Care and Education
• Implement higher tax credits for parents.
• Increase parental choice in child care grant programs.
• Increase educational choice for low- and middle-income families.
• Provide educationally disadvantaged children with more educational choice.
• Increase choices available to students pursuing higher education.
Expanding Homeownership Opportunities Among Low-Income Families
• Enable low-income families to achieve homeownership through HOPE grants.
• Preserve low-income housing by discouraging prepayment by landlords of FHA-insured mortgages.
• Permit the penalty-free withdrawal of IRA funds for the purchase of afirsthome.
• Provide up to a $5,000 tax credit for eligiblefirst-timehome buyers.
• Allow voucher recipients to apply rental subsidies toward the purchase of a home and not just toward rent.
Enhancing Choice, Quality, and the Availability of Housing
• Provide low-income tenants portable rent subsidies in the form of housing vouchers.
• Help the frail elderly retain their independence through HOPE: Elderly Independence.
• Widen opportunities for public housing tenants to change the management of troubled projects through
"Perestroika for Public Housing."
• Reduce operating subsidies paid for vacant public housing units.
• Eradicate unsafe and unhealthy conditions for tenants through the Restore program for FHA-insured
projects.
• Abate lead-based paint in low- and moderate-income housing.
• Furnish HOME grants to cities and States to construct or rehabilitate low-income housing, or to provide
rent subsidies to low-income tenants.
• Reduce barriers to affordable housing for low- and moderate-income tenants and homeowners, e.g., by extending the Low Income Housing Tax Credit, Mortgage Revenue Bonds, and eliminating needless housing
regulations.
Addressing the Needs of the Homeless
• Provide over $1 billion in housing and supportive services to the homeless.
• Increase the availability of support services in combination with housing.
• Reach out to the homeless who are mentally ill and unwilling or unable to commit to existing programs.
• Request all Federal agencies to produce and implement a Federal Plan to Help End Homelessness.

Impoverished and embattled communities
are a problem not only for the people who
live there, but for all of American society.
The high incidence of crime, drug use, and
wasted human potential translates into a

lower quality of life and lower productivity
for the entire country.
Maximizing the potential of America's economy and of its society requires that the
tools and the hope for a better life for

8. PROVIDING HOPE TO DISTRESSED COMMUNITIES

these communities be restored. In purely
economic terms, America's workforce needs
are such that it cannot afford to lose the
potential contributions of entire generations
of people who are raised in these communities.
But in larger moral terms, the country has
an obligation to tap the potential of every
citizen. America needs all hands on deck
if it is to continue to lead the world in
the next century.
High poverty neighborhoods may already
account for a disproportionate share of government spending for social programs, welfare,
and police protection. However, the effectiveness of such services is dissipated in fragmented, uncoordinated delivery.
The problems facing America's most distressed neighborhoods are complex and intertwined. The policies outlined in this chapter
constitute a multi-faceted attack on those
problems that contribute to the spiral downward into hopelessness and despair. They
are specifically designed to avoid the problems
associated with certain previous government
programs that fostered a culture of dependency. Instead, they are intended to create
opportunities for low-income individuals to
work and own their own homes, to begin
to build assets and wealth as a means
of achieving self-sufficiency.
The Administration's approach is to eliminate joblessness, drugs, crime, and other
causes of hopelessness and barriers to
progress, and to replace them with additional
opportunities for jobs, education, homeownership, and supportive services.
ENTERPRISE
ZONES—CREATING
A
SOLID ECONOMIC FOUNDATION IN
DISTRESSED COMMUNITIES
The budget proposes tax incentives to create
jobs and entrepreneurial activity in blighted
urban neighborhoods and poor rural areas.
Fifty zones in total are proposed over the
next four years.
The Administration's Enterprise Zone proposal will promote entrepreneurship and job
creation in distressed urban and rural communities. It includes three tax incentives:

Part One-167
• A five percent refundable credit on personal income taxes for the first $10,500
of wages earned in an enterprise zone by
workers with total annual wages below
$20,000. The proposed wage tax credit is
designed to encourage low-income innercity and rural residents to obtain employment, become self-supporting, and leave
welfare.
• Deferral of personal income taxes for small
investors who purchase stock in businesses located in enterprise zones. With
this incentive, investors would be able to
deduct on their personal income taxes
amounts up to $50,000 in equity investment in enterprise zone businesses in the
year the investment is made, with a
$250,000 lifetime limitation. (The entire
amount of the investment will be taxed,
however, as ordinary personal income at
the time the investment share is sold, so
taxes are deferred rather than eliminated.)
This incentive will make zones attractive
to new capital by giving an immediate tax
saving to individuals who invested in the
zones. It is also designed to provide innercity entrepreneurs with seed capital to
start small businesses.
• A zero capital gains rate for gains on investment in tangible property located
within an enterprise zone for at least two
years. This is another incentive to create
more seed capital for investment in new
enterprises within the zone area. To qualify for this proposed exemption, the capital
gains must accrue during the time the
asset is used in an enterprise zone business, and the business must have operated
in the zone for at least two years.
The evidence suggests that Enterprise Zones
will be a critical factor in helping poorer
cities and rural areas become economically
more vital. Enterprise Zones established by
States, but without Federal tax incentives,
appear to have had a significant economic
impact. Business Facilities Magazine reported
in May 1989 a survey showing that
the Nation's State-level enterprise zone programs have generated approximately 184,600
new jobs, have been instrumental in retaining
169,600 existing jobs, and have brought in
$18.1 billion in new capital investment."

Part One-lOO
More rigorous efforts to evaluate State
Enterprise Zone programs have also demonstrated the efficiency of various tax incentives:
• New Jersey.—State officials say that more
than $1 billion has been invested in State
zones and that more than 14,000 jobs have
been created by this investment since Enterprise Zones were enacted in the mid1980s.
• Indiana.—About 12,000 jobs have been
created in Indiana's enterprise zones. A
1989 study of growth of jobs and use of
incentives in the zones reported that the
average "tax expenditure" per new job created in 1987 was just over $4,000—a figure that compares favorably with costs per
job assisted by direct loan or grant incentives.
State experience with Enterprise Zones demonstrates the flexibility and adaptability of
this concept. This experience also suggests
that Enterprise Zones offer a mechanism
for marshalling the energies and potential
of the urban and rural poor.
WEED AND SEED—A NEW EFFORT TO
RECLAIM IMPOVERISHED AND EMBATTLED COMMUNITIES
Weed and Seed is a new initiative designed
to help reclaim and rejuvenate embattled
neighborhoods and communities. It can benefit
from the economic foundation that would
be created by the Administration's Enterprise
Zone proposal.
The budget proposes $500 million in new
and earmarked Federal funding to support
this comprehensive initiative in 1993, a $491
million increase over 1992. In concert with
other cabinet officials, the Attorney General
will lead this effort to combine the might
of Federal law enforcement with the expertise
and resources of Federal and local social
services and community assistance programs.
Weed and Seed uses a neighborhood-focused,
two-part strategy to control violent crime,
and to provide social and economic support
to areas where high crime rates and social
ills are prevalent. Consistent with the President's Drug Strategy, the initiative first seeks

THE BUDGET FOR FISCAL YEAR 1993

to remove or "weed" gang leaders, violent
criminals, and drug dealers from the neighborhoods. Second, the initiative attempts to prevent a reinfestation of criminal activity by
"seeding" the neighborhoods with public and
private services, community-based policing,
and the tax incentives of Enterprise Zones.
Weed and Seed is built on the premise
that community organizations, social services
providers, the criminal justice system, and
community residents must work together to
regain control and revitalize crime-ridden and
drug-plagued neighborhoods.
Existing Weed and Seed Program.—In
1991, the Department of Justice (DOJ) spent
about $500,000 on two Weed and Seed demonstrations in Trenton, New Jersey and Kansas City, Missouri. In 1992, DOJ expects to
spend an additional $9 million on eight to ten
new Weed and Seed neighborhoods. In a similar effort, an additional four to six sites around
the country will be funded through a joint program supported by DOJ, New York University,
and non-profit foundations.
DOJ has sought to assure that the projects
funded to date have the full, unqualified
backing of the local communities. In general,
DOJ has required that certain minimum
commitments be in place, including: multiagency leadership; coordination of law enforcement and social service activities; partnerships
between police and residents to implement
community policing; and concentrations of
residents and organizations with an active
interest in the Weed and Seed effort.
The Weed and Seed Initiative in 1993.—
The budget proposes a new and substantially
expanded Weed and Seed effort in 1993. The
initiative will take advantage of the economic
revitalization and job generation incentives in
Enterprise Zones and will offer a more comprehensive set of social services.
The 1993 initiative includes:
• A combination of Federal, State and local
resources and stiff Federal laws and mandatory sentencing are used to remove drug
dealers, violent criminals, and gang leaders from the neighborhoods.
• Coordinated social services will be provided to improve residents' health, edu-

Part One-169

8. PROVIDING HOPE TO DISTRESSED COMMUNITIES

Table 8 - 2 . PROGRAMS CONTRIBUTING TO WEED AND SEED
(Obligations in millions of dollars)
Programs

1993 Obligations

Department of Justice:
US Attorneys
Office of Justice Programs (OJP) Demonstrations

20
10

Subtotal, Justice
Department of Labor:
Job Training Partnership Act
Youth Opportunities Unlimited
Senior Community Service Employment
Job Corps

30
28
5
9
50

Subtotal, Labor
Department of Health and Human Services:
Treatment Improvement Grants
Capacity Expansion Grants
High Risk YoutlyPregnant Women Prevention
Community Partnership Grants
Aid to Families with Dependent Children (AFDC) JOBS
Head Start
Community Health Centers
Subtotal, HHS
Department of Housing and Urban Development:
Public Housing Modernization
Housing Vouchers
Community Development Block Grants
Public Housing Drug Elimination Grants

92
36
47
7
4
43
54
35
226
20
20
44
6

Subtotal, HUD
Department of Education:
Compensatory Education
School Improvemenl/Pre-College Outreach
Family Literacy and Adult Education

Subtotal, Education
Department of Transportation: Reverse Commute Demonstration Grants
Department of Agriculture: Women, Infants, Children (WIC) Nutrition

56
1
5

Total for 1993

cation, and job skills and prepare them
for employment.
• Tax incentives provided by Enterprise
Zones will stimulate economic growth and
create jobs. Weed and Seed areas will frequently be sited in Enterprise Zones to
take maximum advantage of these incentives.

16
30
10

500

• Improved housing and community infrastructure will create a better physical environment.
The combination of intensive law enforcement, concentrated social services, housing
assistance, and Enterprise Zone tax incentives
will have a synergistic effect on the opportunities available to residents of targeted neighborhoods. The goal of the program is to attract

Part One-lOO

potential employers through the tax incentives,
through the safer environment provided by
law enforcement and community policing, and
through the more ready-to-work labor force.
Residents will gain from social services, such
as job training, when there are jobs available
to make use of newly learned skills.
Under the Attorney General's leadership,
the Office of National Drug Control Policy
and the Departments of Education, Health
and Human Services, Housing and Urban
Development, Labor, and Transportation will
coordinate social services and community assistance programs, including those to expand
drug treatment, provide job training, keep
schools open in the afternoon and evening,
offer adult classes, modernize public housing,
and improve local community infrastructure.
This coordinated agency initiative will enhance
the linkages between law enforcement and
social service programs and, thereby, increase
the prospects for positive results from any
individual program.

THE BUDGET FOR FISCAL YEAR 1993

Of the total $500 million in Federal resources, up to $400 million will go to neighborhoods that are designated as urban Enterprise
Zones by the Secretary of Housing and Urban
Development. Fifty Enterprise Zones are proposed over the next four years, with twothirds of them in urban areas. Up to $100
million will go to Weed and Seed neighborhoods that are not designated as Enterprise
Zones.
Weed and Seed: A Coordinated Initiative
1. Law Enforcement: Eliminating Crime
and Violence.—The efforts of too many neighborhoods to fight against crime have been frustrated by inadequate policing, lengthy delays
in prosecution, and mild punishment of narcotics cases. Narcotics traffickers and violent
criminals, once arrested, often immediately return to the streets to continue distributing
drugs and terrorizing local residents. Weed
and Seed is designed to begin to break this
disturbing cycle of despair and frustration.

Part One-171

8. PROVIDING HOPE TO DISTRESSED COMMUNITIES

Table 8-3. WEED AND SEED FUNDING GROWS IN 1993
(Budget authority; dollar amounts in millions)

Initiative

Weed and Seed

1989
Actual

—

Under Weed and Seed, a total of $30
million in specially targeted DOJ 1993 funds
will help finance State and local law enforcement activities in over 30 neighborhoods.
In addition, Federal law enforcement activities
will be redirected and targeted to supplement
this effort. The United States Attorney will
coordinate with local and other Federal law
enforcement agencies to prosecute drug and
violent crime offenders in Federal court. In
total, the budget proposes an increase of
$93 million or 13 percent over 1992 to
enable the U.S. Attorneys to prosecute crime.
Twenty million dollars of the total 1993
request for U.S. Attorneys is targeted to
Weed and Seed communities to focus resources
on the hardest hit communities. Federal law
enforcement methods such as extensive case
building, pre-trial detention, and mandatory
minimum sentencing will be used to overcome
often inadequate local procedures. The features
of this approach are:
• Immediate removal of offenders from the
streets, providing visual proof to the community that law enforcement is effective.
• Longer sentences for offenders, preventing
further criminal acts in years to come and
allowing communities to rebuild the social
and economic infrastructure of their neighborhoods.
• Use of sophisticated case-building techniques such as audic/visual evidence gathering, wiretaps and witness protection—
substantially increasing the efficiency and
effectiveness of case development and
prosecution of offenders and destruction of
criminal organizations.
Under the President's Weed and Seed proposal, law enforcement will be delivered in
a planned, powerful, and efficient manner,

1992
Enacted

—

1992
Proposed

1993
Proposed

Dollar
Change:
1992 to
1993

500

+491

Percent
Change:
1992 to
1993
+5,456%

which will better enable communities to accommodate job training, recreational, health
care, drug treatment, and educational activities.
2. Social Services: Providing Hope and
Assistance.—Law enforcement alone cannot
accomplish a lasting revitalization of socially
troubled and drug-infested neighborhoods. The
revitalization effort must also address underlying social and economic problems to prevent
a reinfestation of drug trafficking and crime
and to assist residents and neighborhoods in
attaining economic self-sufficiency. Weed and
Seed seeks to do this by providing a comprehensive and focused framework for public
agencies to improve the targeted community's
overall quality of life. A broad range of social
program resources will be available for use in
targeted neighborhoods, including:
• Educational and Prevention Activities such
as school drug use prevention, after-hour
tutoring, adult education, GED programs,
dropout prevention, preparation for college, and teacher training.
• Job Training for youths and adults including counseling, skill assessment and training, day care assistance, referral to Job
Corps, and job search and placement.
• Drug Treatment including central intake
and referral; a full range of treatment
services; specialized treatment for adolescents and pregnant women; aftercare; and
referrals to education, literacy training,
job training, and other social services.
• Access to Health Care including primary
and prenatal care, appropriate referrals to
specialized treatment, and to nutrition assistance, HIV counseling and testing, and
transportation services.

Part One-lOO
• Head Start for one year for eligible children.
• Transportation services that link inner
city workers with suburban jobs.
Based on published guidelines and designation of targeted Weed, and Seed sites,
these social services will be administered
by six Cabinet agencies, all of which will
work closely with the Department of Justice
to: (1) review and approve the single, consolidated plans submitted jointly by States and
local communities; (2) provide funding for
social services identified in these plans; (3)
provide technical assistance to public agencies
and community organizations in these neighborhoods; (4) coordinate available services
to maximize the return on each (e.g., link
drug treatment and job training to give
recovering addicts a means of support when
they leave treatment).
3. Creating Jobs and Economic Opportunity.—Weed and Seed areas will benefit
from the tax incentives in the Administration's
Enterprise Zone proposal that has been carefully designed to create jobs and entrepreneurial activity. Up to $400 million of the money
available under Weed and Seed will be targeted to Enterprise Zones in urban areas. Enterprise Zones can lay the foundation for successful supportive service programs.

THE BUDGET FOR FISCAL YEAR 1993

How Weed and Seed Will Work
State and local applicants will designate
a local official to be responsible for all
aspects of program implementation and operation. This will ensure the integrated approach, which is the key to Weed and Seed.
The nominated local manager will coordinate
job creation, social services, and law enforcement at the local level. Community plans
will permit "one-stop "shopping'' for the social
services described above.
States and localities will apply jointly for
Weed and Seed designation by putting together consolidated applications that:
• Target to previously designated Enterprise
Zones with documented drug, gang and
violent crime problems;
• Identify existing Federal, State, and local
resources for the targeted community that
will be dedicated to the Weed and Seed
effort;
• Demonstrate a strong commitment of community groups in the targeted community
to the Weed and Seed plan and community
policing activities;
• Explain how social service providers will
be accountable to the local manager, how
the community will measure success, and
how progress will be reported to the public;

4. Housing and Community Development.—Public housing developments in Weed
and Seed areas will be eligible for targeted
funds for drug elimination grants to help rid
the complexes of drug users. They will also
be able to receive specially designated modernization funds to make necessary repairs
and make them more viable. A special setaside
of housing vouchers will be available for verylow-income families in need of assistance in
these areas.

• Identify private sector resources, including
corporate contributions, and individual
commitments, to be included in the Weed
and Seed effort; and

To improve the physical infrastructure in
these neighborhoods, community development
block grant funds will be available for such
purposes as street and sidewalk repair,
streetlighting, rehabilitation of private housing, park and recreational area improvements,
as well as economic development activities.

Drug use and crime are often deeply rooted
in and act as barriers to the success of
social service programs in poor or economically
deprived central city neighborhoods. Weed
and Seed is a concerted effort to assist
these areas by stripping away crime and
drugs and replacing them with the tools

• Demonstrate a balanced, comprehensive
plan, which addresses getting violent offenders off the streets, supports drug and
crime prevention, and includes other efforts
at neighborhood
revitalization
through strategies to create jobs and opportunities.

8. PROVIDING HOPE TO DISTRESSED COMMUNITIES

to create opportunity. By evaluating carefully
what happens through this effort, the foundation can be laid for the future.
EXPANDING
OPPORTUNITIES
AND
BUILDING ASSETS FOR LOW-INCOME FAMILIES
The budget contains several initiatives to
help low-income families escape welfare dependency, build assets, and generate wealth.
The current welfare system relies on income
transfers and may encourage day-to-day consumption, rather than savings, enterprise,
and investment for the future. These proposals
were developed by a special Presidential
Task Force. They represent the beginnings
of a new and different approach to help
families achieve self-sufficiency.
• Raise the AFDC assets limits to
$10,000 for families already on the
rolls.—Currently, when countable assets
exceed $1,000, families are no longer eligible for AFDC. For those families willing
to save some of their income to achieve
independence from welfare, educate their
children, or start a business, this assets
limit can present a barrier.
The proposal gives States the option to
increase to $10,000 the assets limit the
Aid to Families with Dependent Children
(AFDC) program applies to families who
are already on the rolls. The assets limit
for families applying for AFDC would remain at the current $1,000, so this proposal does not increase the number of people initially eligible for AFDC. The intent
of raising the assets limit is to encourage
self-support by families on AFDC, not
make it easier for families to join the rolls
of welfare recipients.
• Establish, through a demonstration,
"escrow" savings accounts for longterm AFDC recipients working their
way off the rolls.—Many families who receive AFDC do so for only a relatively
short period. However, a large share of
total AFDC costs are devoted to families
who remain on the rolls for long spells.
The JOBS program targets long-term and
potentially long-term recipients for education, training, and support services to

Part One-173
promote their independence from welfare.
This proposal would demonstrate the effects of a monetary incentive in encouraging long-term recipients to obtain jobs and
become independent of welfare.
When the head of an AFDC family takes
a job, the AFDC benefit the family receives generally is reduced. This may act
as an effective tax on work effort, discouraging families from leaving welfare to
work. Some studies show effective tax
rates on people leaving welfare may approach 100 percent or more. The proposal
would test the effects of setting aside the
amount by which a long-term AFDC family's benefits are reduced once the family
head takes a job, then paying it in a lumpsum to the family if they succeed in working their way off the rolls. Well-designed
demonstrations would show whether this
approach could induce long-term recipient
families to leave the rolls through employment.
This proposal is similar to HUD's Family
Self-Sufficiency Program enacted into law
in 1990 as part of the National Affordable
Housing Act. Assisted housing tenants
participating in this program have escrow
accounts established for them that they
can receive once they leave public housing.
These escrow savings accumulate when
tenants increase their earned income
while the subsidized rents charged to them
remain stable. The difference between
what they would have paid (30 percent
of their higher income) and the frozen
rents (30 percent of their pre-employment
income) is put into an escrow account. The
escrow savings can be used for buying a
home or as a downpayment under the
homeownership voucher program.
• Expand use of electronic benefit transfer cards for Food Stamp recipients.—
The Department of Agriculture has developed regulations to allow any State to operate electronic benefit transfer systems
for food stamp recipients assuming the results of current pilots prove positive.
• Extend application of the Plan for
Achieving Self-Support (PASS)—PASS
was designed for blind and disabled SSI
recipients determined to achieve self-sup-

Part One-lOO
port. Based on an individual's plan to
achieve economic independence, the income or resources related to carrying out
the plan can be disregarded when SSI benefit amounts are calculated. The recipient's benefits are not lowered by the disregarded income or resources.
The billion dollar JOBS program provides
AFDC families with education, training,
and support services to promote their selfsupport. However, JOBS is not designed
to promote entrepreneurial activities
among AFDC families.
The proposal is to extend the concept of
the PASS to AFDC, with a focus on selfemployment. At the State's option, income
and resources related to achievement of
a recipient's approved plan to move from
dependency to self-employment could be
excluded when calculating AFDC eligibility and the amount of AFDC benefits.
This would also be true in calculating a
family's food stamp eligibility.
• Offer financial incentives for private
welfare-to-work firms.—Early experience with private-sector welfare-to-work
firms has been promising. Welfare recipients have moved into employment and left
the rolls, and the firms have received payments based upon the welfare savings.
The Administration supports several new
demonstrations of this model involving
more than $20 million in welfare payments. These demonstrations will be evaluated rigorously, to provide more reliable
information on how effective these firms
are.

THE BUDGET FOR FISCAL YEAR 1993

• Demonstrate choice in unemployment
insurance.—Currently,
unemployed
workers who prefer to become self-employed or relocate for employment rather
than remain on Unemployment Insurance
(UI) rolls are not permitted to receive their
bi-weekly UI benefits in a lump-sum for
those purposes. Demonstrations have
shown that some UI recipients will follow
the entrepreneurial course if allowed.
These demonstrations should be expanded
to those with different options, including
payment of UI lump-sums to workers with
plans to relocate where employment is
available.
At this point, demonstrations, rather than
a national program change, Eire proposed
because more needs to be learned about
how workers would respond to these sorts
of incentives and what the costs would be.
Different targeting plans, Such as
targeting those with permanent layoffs or
plant closings, arid different lump-sum
amounts will be tested in a controlled setting.
• Expand State flexibility through Federal waiver authority.—Where they
have been provided with flexibility, States
have shown great interest in making more
effective use of current resources. This
proposal would expand existing authority
to waive Federal requirements to permit
States to demonstrate more effective use
of funds. This proposal is described more
fully in Chapter 19.
• Give low-income families help if they
wish to move from high poverty neigh-

Table 8-4. PROPOSALS TO BUILD ASSETS AND EXPAND
OPPORTUNITIES FOR LOW-INCOME FAMILIES
• Raise the AFDC assets limits to $10,000 for families already on the rolls.
• Establish, through a demonstration, "escrow" savings accounts for long-term AFDC recipients
working their way off the rolls.
• Expand use of electronic benefit transfer cards for Food Stamp recipients.
• Extend application of the Plan for Achieving Self-Support (PASS).
• Offer financial incentives for private welfare-to-work firms.
• Demonstrate choice in unemployment insurance.
• Expand State flexibility through Federal waiver authority.
• Give help to low-income families to move from high poverty neighborhoods to mixed income
areas through the "Moving to Opportunity" demonstration.

Part One-175

8. PROVIDING HOPE TO DISTRESSED COMMUNITIES

borhoods to mixed income areas
INCREASING CHOICE IN CHILD CARE
through the "Moving to Opportunity99
AND EDUCATION

demonstration.—The budget supports a
four-year demonstration, called "Moving to
Opportunity." Counseling and other kinds
of assistance (e.g. help in finding an apartment or home in these new neighborhoods)
will be provided to 1,500 families who
wish to make such a move.
This demonstration is similar to the courtordered Gautreaux program in Chicago
where the same kind of assistance is provided to tenants in Chicago public housing
who move to private housing in neighborhoods.

Families participating in the Chicago program, most of whom are single-parent
households with children, have clearly
benefitted from these moves. Of those who
moved to suburbs, almost two-thirds of the
family heads had jobs within five years
after the move. More significantly, of those
family heads who had never before worked
before moving, 46 percent were employed
within five years.

The principle of parental choice shaped
the President's child care legislation, which
became law in 1990. Over the next five
years, refundable tax credits enacted in the
child care legislation will increase the income
of low-income families by $31 billion in
payments and lower taxes. By insisting that
the new assistance be provided through refundable tax credits and vouchers, the President assured that parents, not government
employees, have maximum control over the
necessary care arrangements for their own
children. This makes it possible for parents
to receive credits and vouchers to make
care more affordable even when the care
is provided by relatives, neighborhoods, or
churches, which is how the majority of child
care in America is provided.
• Implement higher tax credits for parents.—The child care legislation increased
the amount of the refundable Earned Income Tax Credit for working families with
one child, and introduced an adjustment

PARENTS WILL HAVE A WIDER RANGE OF
CHOICES IN CARING FOR THEIR CHILDREN
$ BILLIONS

$ BILLIONS
1.6

m PAYMENTS TO FAMILIES THROUGH
REFUNDABLE TAX CREDITS

CHILD CARE GRANTS EMPHASIZING
PARENTAL CHOICE

14 -

1.4 -

10 -

0.8 -

4 -

1992

1993

1997

NOTE: Grants include CCDBG, JOBS child care, IV-A transitional and at-risk child care funds, all of which provide
for parental choice. Refundable credits include basic EITC and young child supplemental credit.

Part One-lOO
that provides a higher credit for families
with two or more children. (This tax credit
provides $22 billion in payments and $4
billion in lower taxes to families over the
1993 to 1997 period.)
In addition, a new credit for .families with
young children was enacted. Over the next
five years, this additional five percent
credit will result in $1 billion in payments
and lower taxes for eligible families.
To help working parents defray the costs
of their children's health insurance, a new
six percent credit will add another $4 billion in payments and tax reductions over
the 1993-97 period.
• Increase parental choice in child care
grant programs.—The 1990 child care
legislation created the first Federal child
care grant program giving control over
child care arrangements to parents. Under
the Child Care and Development Block
Grant ($4 billion over the next five years),
parents must be given the option of receiving a voucher that allows them to select
the care-giver of their choice.
One of the most important choices parents
will make is the choice of the schools their
children will attend. Increasingly, parental
choice is becoming the engine of education
reform. Each year, more States approve
educational choice legislation. As part of
the President's AMERICA 2000 initiative,
the Budget includes several proposals to
promote educational excellence through
expanding parental choice.
• Increase educational choice for lowarid middle-income families.—
—The Choice Grants for America's
Children Act: This new program,
which is being proposed by the Administration in this budget as part of its
broader education reform effort, would
make at least $1 billion available to
fund the education of elementary and
secondary students. States would match
$500 million in Federal funds for demonstrations of education choice programs
for children from low- and moderate-in-

THE BUDGET FOR FISCAL YEAR 1993

come families. Eligible children could receive up to $1,000 or more for use at
the public or private school of their
choice.
This program would increase Federal
support for the growing number 6f State
choice programs. In 1991, ten States approved choice legislative programs.
—The Low-Income School Choice
Demonstration Act: The budget proposes $30 million for comprehensive
public and private school choice experiments. Under this proposal, States and
local districts would have flexibility to
develop models for providing low-income
families with full-cost educational
vouchers. These demonstrations would
address concerns about the effects of
providing full-cost choice programs to
low-income families.
• Provide educationally disadvantaged
children
with
more educational
choice.—The President proposes to amend
the authority for basic grants for remedial
education under the Chapter 1 compensatory education program to permit funds
to "follow" educationally disadvantaged
children who change schools under a local
choice program. The budget proposes $6.2
billion for basic grants within the $6.8 billion compensatory education account.
These funds will be allocated among about
90 percent of the Nation's school districts.
• Increase choices available to students
pursuing higher education.—The budget proposes a 22 percent increase in Pell
Grants over 1992 levels. For 1993, outlays
for Pell grants, the largest Federal higher
education grant program, would total $5.8
billion. Along with Guaranteed Student
Loans, Pell Grants have been the core of
a successful voucher system for higher
education assistance that has operated for
many years. Pell Grants and Guaranteed
Student Loans are flexible, portable, and
provide students with maximum choice
while helping them to meet the rising
costs of higher education.

Part One-177

PROVIDING HOPE TO DISTRESSED COMMUNITIES

FEDERAL SUPPORT FOR EDUCATIONAL CHOICE WILL GROW

$ MILLIONS
700

"6401
600 -

500 n

•RPMHit
400 -

/ tsoot

300 -

"""

200 -

l 3~
~0 |

100

1 110 I
0
•
•

1992
1993
MAGNET SCHOOLS FOR DESEGREGATION
E CHOICE GRANTS FOR AMERICA'S CHILDREN
U
LOW-INCOME SCHOOL CHOICE DEMONSTRATION

EXPANDING
HOMEOWNERSHIP
OPPORTUNITIES AMONG LOW-INCOME
FAMILIES
One of the more successful asset-based
antipoverty programs in American history
got underway over a hundred years ago:
Abraham Lincoln's Homestead Act of 1862.
Homeownership remains today a fundamental
building block of prosperity in America and
a stabilizing force in its communities. The
ownership of private property is a powerful
incentive for developing an individual's skills
and talents, and the responsibilities of citizenship.
The opportunity to own one's home, therefore, should be available to all Americans,
not just to those of middle and upper income.
The budget continues and expands the Administration's strong support for expanding homeownership opportunities to low-income families
and first-time homebuyers. Resident management and homesteading offer solutions to
the troubles endemic to certain public housing
communities.

311-000 0 - 9 2 - 1 0

(Pt.l)

• HOPE Homeownership Grants.—The
budget requests $1 billion for Homeownership Opportunities for People Everywhere
(HOPE) Grants, a 185 percent increase
over the 1992 enacted level of $351 million.
The goal of HOPE is to give low-income
families a stake in their community by
providing funding and other assistance for
resident ownership of public housing, Federally insured multifamily housing, Federal Government-held vacant and foreclosed properties, and financially distressed properties currently held in the
Federal Government's portfolio or owned
by State or local governments.
• HOPE:
Preservation/Prepayment.—
HOPE for Preservatior^Prepayment of Assisted Housing is primarily directed at the
preservation of privately-owned federally
assisted housing. About 360,000 of these
units will become eligible over the next
15 years to prepay FHA-insured mortgages and terminate HUD-controlled and
subsidized rents.

Part One-lOO

THE BUDGET FOR FISCAL YEAR 1993

Table 8 - 5 . THE BUDGET PROPOSES A 102-PERCENT INCREASE IN
THE HOMEOWNERSHIP OPPORTUNITIES FOR PEOPLE EVERYWHERE (HOPE) PROGRAM
(Budget authority; dollar amounts in millions)

Budget Authority

Federal:
HOPE Homeownership Grants
Elderly Independence1
Low Income Housing Preservation
Shelter Plus Care for the Homeless
Family Self-Sufficiency 3
HOPE Vouchers4
Enterprise Zones Tax Incentives (receipt loss)
Low Income Housing Tax Credit (receipt loss)
IRAs for first-time homebuyers (receipt loss)

1989
Actual

1992
Enacted

1993
Proposed

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

1,000
48
2 1,159
266

+649
+2
+540
+155

+185%
+4%
+87%
+140%

—

351
46
619
111

—

—
—
—

—

400
—

Total Federal
State/Local Match:
HOPE Grants
Shelter Plus Care

400

Total Resources

400

—
—

—

356
50
1,337
79

+356
+50
+277
+79

iVa
p/a
+26%
ij/a

2,187

4,295

+2,108

+96%

104
111

288
266

+184
+155

+177%
+140%

2,402

4,849

+2,447

+102%

—

1,060
—

1 1992

and 1993 include $10 million in supportive services and the remainder in vouchers.
About $280 million of this amount is offset through the recapture and rescission of budget authority for
subsidies previously tied to these projects.
3 At least 10 percent of incremental Section 8 vouchers and certificates and public housing development must be
set aside for Family Self-Sufficiency in 1992; all incremental units must be set aside in 1993.
4 These vouchers are for tenants who do not wish to buy their units when a building converts to homeownership.
They also are used to meet the statutory requirement to replace converted units with other subsidies.
2

Under the National Affordable Housing
Act of 1990, HUD has been authorized to
negotiate extensions of existing subsidy
contracts on these units. If owners of these
buildings do not want to accept financial
incentives to maintain their properties as
affordable rental housing, they will be required to provide the residents with a
right of first refusal to purchase the property. HUD may authorize grants to tenant
councils to purchase and rehabilitate the
properties for homeownership.

first-time buyers have difficulty accumulating the savings necessary for a down
payment.
The
Administration
is
reproposing that Individual Retirement
Accounts (IRAs) be allowed to be used for
buying a home. Beginning February 1992,
first-time homebuyers could withdraw
funds in their tax-deferred IRAs without
penalty. They would be allowed to withdraw up to $10,000, and the maximum
house price would be 110 percent of the
average area purchase price.

The budget requests $1.2 billion for Preservation/Prepayment, almost double the
$618.5 million enacted in 1992.

In addition to the HOPE proposals, the
budget contains new initiatives to support
homeownership for low-income families and
first-time buyers.

• HOPE: IRAs for First-Time Homebuyers.—The Federal Government provides substantial support for homeownership through the tax code and Federal
credit programs. However, some potential

• Vouchers to Help Own a Home.—The
budget proposes a homeownership voucher
(or certificate) providing even more opportunities to low-income households for

Part One-179

PROVIDING HOPE TO DISTRESSED COMMUNITIES

homeownership. Currently, housing vouchers and certificates can only be used to
help low-income tenants pay rent. If the
Administration's proposal is adopted, they
will be able to use them to pay the rent
or the mortgage payment on a home.
Currently, about 1.2 million households
have Section 8 certificates or vouchers
which they use to help pay their rent.
Under this proposal, these existing subsidized tenants, as well as any new vouchers or certificates funded by Congress,
could be used toward mortgage payments.
The budget proposes 82,699 new (incremental) vouchers in HUD, a 74 percent
increase over 1992's enacted level. All of
these would be available for buying a
home if low-income families so decided and
could meet program requirements for personal equity contributions.

ENHANCING CHOICE, QUALITY, AND
AFFORDABILITY OF HOUSING
In addition to promoting homeownership
opportunities for low-income families, the Administration's 1993 proposals also reform existing low-income housing programs and address problems raised by regulations that
significantly affect the cost of homes and
rental apartments.
• Perestroika for Troubled Public Housing: New Choices for Residents.—^Unfortunately, a relatively small but very visible percentage of the 1.3 million units in
the public housing inventory is inadequate
in many respects—in poor physical condition, with high vacancies, and a host of
other problems (e.g. vandalism, gang control, drugs).
The Administration is committed to improving public housing by supporting
those public housing authorities (PHAs)
that provide decent housing to their tenants and keep vacancies low. The Administration is also committed to dramatic re-

PROPOSALS FOR MOVING THE POOR FROM POVERTY TO HOMEOWNERSHIP

Secure, Stabilize and
Improve the
Community
• Enterprise Zones tax
incentives to create job
opportunities
• Weed and Seed to reclaim
embattled communities
• Law and drug
enforcement
• Concentrated and
coordinated support
services
» Ties to Enterprise
Zones
• Improved housing
and community
infrastructure

Help the Poor Become
Self-Sufficient and
Build Assets
•Higher AFDC assets limits
•AFDC "Escrow" savings
accounts
•HUD Family
Self-Sufficiency program
•Choice in unemployment
insurance
•Plan for Achieving
Self-Support (PASS)

Increase Choices for
Low-Income Families

Promote and
Encourage
Homeownership
» $1 billion HOPE program

• Itax credits for parents
• Parental choice in child
care grants
• Educational choice for
low-income families
• Rental housing vouchers
• Choice in public housing

• Section 8 homeownership
> Homeownership in
prepayment projects and
assisted housing
•IRAsforfirst-time
homebuyers
•FHA sing)e-4amily mortgage
'Mortgage Revenue Bonds for
first-time homebuyers
'Reduced barriers to
affordable housing

Part One-lOO
form in the case of highly substandard
public housing. The budget requests $4.7
billion for public housing: $2,292 billion
for modernizing it; $2,282 billion for operating subsidies to cover the gap between
tenant rents and operating costs; and $165
million for grants to help rid public housing projects of drug dealers and help tenants with drug use problems.
The initiative, Perestroika for Troubled
Public Housing: New Choices for Residents, focuses on the limited number of
severely troubled public housing developments where either a change in management may be desirable or where there may
be better uses for the buildings. To help
these troubled projects, $292 million in
public housing modernization funds will be
set aside for two components of this initiative: (1) "Choice in Management" for
which $100 million is set aside; and (2)
"Operation Take The Boards Off," for
which $192 million is set aside.
"Choice in Management:" Public housing residents in substantially occupied
public housing developments would be
able to choose whether they want their
project (1) turned over to a private entity
for management or (2) sold to a private
entity for continuation as a rental project.
Under the private management option,
both for-profit entities and non-profit entities, including States and cities, would be
eligible to manage the development. Under
the private ownership option, purchase
would be limited to non-profit entities, in
order to ensure that owners would be committed to operating and maintaining the
development as low-income housing.
Under this proposal, the non-profit, alternative public owner or private manager
would receive the development's operating
subsidies and modernization funds directly
from HUD and would maintain the same
income targeting and rent rules as public
housing.
Projects whose titles would be transferred
to private ownership would be exempt
from current statutory provisions requiring one-for-one replacement of such units.
These units would continue as low-income
housing. These developments will be eligi-

THE BUDGET FOR FISCAL YEAR 1993

ble for a special pool of $100 million in
modernization funds to ensure that the
properties are physically improved before
title is transferred.
In either case, the development would remain as low-income housing, receiving
both operating subsidy and modernization
funds from HUD and serving very-low-income families who pay public housing statutory rents (generally 30 percent of their
adjusted income.)
"Operation Take the Boards Off:" The
Administration is proposing that substantially vacant public housing developments,
which are dragging down their neighborhoods, can be removed from the public
housing inventory and sold to communitybased non-profit organizations (including
tenant groups) for substantial rehabilitation, rental reoccupancy, or tenant ownership.
These developments will be eligible for a
special pool of $192 million of modernization funds and for short-term transitional funding—the equivalent of operating subsidies for up to five years to cover
lease-up and stabilization of the development. These funds would be awarded competitively.
The current or former residents of partially occupied developments will have a
"right of first refusal" to retain the development as low-income housing. If the development is sold to a Community Housing
Development Organization, (CHDO), or a
State or city, the housing authority will
receive replacement vouchers.
• Housing Choice Through Vouchers.—
Giving low-income families housing vouchers offers them more choice and opportunity than consigning them to live in a
particular unit in a particular neighborhood. It is also more efficient and effective,
as the chart on New HUD-Assisted Housing Units shows. Given the budget authority requested in 1993 for new housing subsidies administered by HUD, $3.0 billion,
the Administration is able to serve 87,241
new households. (Almost all of these are
vouchers; 4,542 subsidies for the elderly
and disabled are tied to buildings.) With

Part One-181

8. PROVIDING HOPE TO DISTRESSED COMMUNITIES

NEW HUD ASSISTED HOUSING UNITS
THOUSANDS

1992

PRESIDENT'S PROGRAM VS. CURRENT PROGRAM MIX

1993

1994

1995

1996

1997

Table 8 - 6 . THE BUDGET PROPOSES A 67-PERCENT INCREASE FOR
CHOICE-BASED NEW HOUSING ASSISTANCE
(Budget authority; dollar amounts in millions)

Budget Authority

1989
Actual

1992
Proposed

1992
Enacted

1993
Proposed

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

HUD Vouchers
FmHA Vouchers

1,840

2,416
190

1,693

2,681
140

+988
+140

+58%
iVa

Total Vouchers

1,840

2,606

1,693

2,821

+1,128

+67%

this same amount of budget authority, the
current "market basket" approach used in
1992 for HUD would serve 56,691 new
households, 35 percent fewer. Extrapolating these differences through 1997, the
total additional families served under the
Administration's housing choice approach
is almost 153,000. As shown in Table 8-6,
the budget authority requested in 1993 for

HUD vouchers is 58 percent higher than
enacted in 1992.
Additionally, 5,895 housing vouchers are
proposed for rural areas. Vouchers administered by the Farmers Home Administration (FmHA) will give rural residents more
freedom to choose where they live than
the current project-specific FmHA Rental
Assistance program. Many rural areas suffer from vacant housing stock problems

Part One-lOO
that a new construction rental program
only exacerbates. Vouchers will address affordability problems in these areas without limiting new construction in areas
short of adequate, decent housing.
• HOPE: Elderly Independence.—This
demonstration program, funded in the
budget at $48 million, will test the effectiveness of combining housing vouchers
with supportive services to assist frail elderly persons to continue to live independently rather than be institutionalized. Of
the $48 million, $10 million will be for
supportive services appropriate to the
needs of the frail elderly; $38 million will
cover the costs of the vouchers. Funds for
supportive services will have to be
matched. HUD will contribute 40 percent
of the services cost, with State/local entities contributing 50 percent, and the elderly recipients, themselves, responsible for
10 percent. The $10 million in HUD funds
for services will, therefore, leverage $15
million additional for such services.
• Operation Occupancy.—The Administration intends to publish proposed regulations in 1993 that discontinue the current
practice of full Federal operating subsidies
to housing authorities for vacant public
housing units. The Department of Housing
and Urban Development proposed this
rule in September 1991, but Congress
placed a provision in HUD's 1992 appropriations bill that prevented any further
action by the Department in 1992.
Currently, over 100,000 public housing
units are vacant. The current practice does
not make policy sense given the large
number of poor families in desperate need
of housing assistance, and the adverse
uses to which vacant units are too often
put.
• Restore.—While the Administration regards housing vouchers as the subsidy of
choice, it is still protecting the interests
of tenants who live in projects developed
under older FHA multifamily housing programs. Restore is a $412 million Administration initiative to improve the housing
conditions, financial health, and affordability of an estimated 1,800 troubled
projects insured by FHA that are in dan-

THE BUDGET FOR FISCAL YEAR 1993

ger of defaulting on their mortgages. Like
Perestroika, Restore maximizes resident
involvement in managing and owning
these projects.
• Lead Abatement.—The budget also proposes $24 million in grants to States and
localities so they can assist low- and moderate-income homeowners and landlords
with low-rent properties to abate leadbased paint. Preference for financial assistance will be given to households with
children.
The $2,292 billion requested in the budget
to renovate or repair public housing units
can also be used to test for and abate lead
paint. It is estimated that $50 million of
these funds will be used for this purpose.
• HOME.—The budget also proposes $700
million for HOME grants, which can be
used to rehabilitate housing, provide tenant subsidies to very-low-income households, or less often, construct new housing.
The Administration is very concerned that
the requirement that States and locals
provide a matching amount for HOME
grants, originally contained in the National Affordable Housing Act of 1990, and
agreed to by Congress on a bipartisan
basis at that time, was waived in the VA,
HUD, Independent Agencies appropriations bill for 1992. The Administration
strongly opposes any 1993 waiver of this
matching requirement, which was a key
feature of the HOME program. In fact, if
the match is restored, the Administration
would be willing to submit a budget
amendment to increase funding for HOME
to $950 million.
• Reducing barriers to creating more affordable housing in all communities.—
In 1990, the Administration established a
bipartisan commission to study the impact
of government regulation on housing affordability. In July 1991, the Commission
submitted its report, Not in My Back
Yard: Removing Barriers to Affordable
Housing, to the President and Secretary
Kemp.
Nationally, affordability for homebuyers
improved in the 1980s and 1990s, after
deteriorating during the 1970s. The im-

8. PROVIDING HOPE TO DISTRESSED COMMUNITIES

provement occurred largely because of economic policies, which reduced inflation and
mortgage interest rates. Mortgage interest
rates were below 9 percent in 1970. They
increased up to 13 percent in 1980, and
15 percent in 1982. Today, mortgage interest rates are below 9 percent, their lowest
level in 15 years.
Over time, however, barriers to housing
affordability were erected that countered
the trend of improving affordability. Foremost are government housing regulations
that drive up the cost of building and buying a home.
The Commissions report concluded that
millions of Americans are being priced out
of buying or renting the kind of housing
they otherwise could afford were it not for
this web of government regulations.
Low-income and minority persons have an
especially hard time finding suitable housing. Middle-income workers, such as police
officers, firefighters, teachers, and others,
often live many miles from the communities they serve, because they cannot find
affordable housing there. Workers who live
far from their jobs commute long distances
by car, which contributes to clogged roads
and highways and air pollution.
Examples of regulations that can add to
costs or reduce the potential supply of
housing include:

Part One-183
—Exclusionary zoning, one of the most
common actions taken by local governments that wish to preserve exclusivity;
—Subdivision controls, which ensure that
the physical and design characteristics
of communities meet overly demanding
standards;
—High impact fees that bear little resemblance to the cost of services that subdivisions require;
—Burdensome permit approval processes
that can add years to the time required
to build a home;
—Rent control, while having short-term
benefits of helping hold down the cost
of housing, can also contribute to the
housing supply problem in the long run.
First, it can act as a disincentive to
building new rental properties. Second,
much of its benefits go to middle- and
upper-income households rather than
low-income households. Third, in some
situations, it can result in poorly maintained properties because other costs are
rising faster than rent.
To address these issues, the Barriers Commission made several recommendations to
the President and Secretary Kemp. Most
of these recommendations have been
adopted by the Administration and are
summarized in Table 8-7.

Table 8 - 7 . PROPOSALS ADOPTED FROM THE ADVISORY COMMISSION
ON REGULATORY BARRIERS TO AFFORDABLE HOUSING
•
•
•
•
•
•
•
•
•

Provide $10 million to fund planning grants to States for barrier-removal.
Require HUD's approval of State and local barrier-removal plans as part of their Comprehensive Housing Affordability Strategy (CHAS).
Reduce the burden on localities of complying with CHAS requirements.
Extend the Low-Income Housing Tax Credit and Mortgage Revenue Bond programs for oneand-a-half years and require HUD approval of CHAS.
Establish an Interagency Affordable Housing Regulatory Review Board to expedite waivers to
Federal regulations.
Work with public interest groups to build support for regulatory reform.
Create a Regulatory Reform Clearinghouse in HUD for States, localities, and others interested
in reform.
Encourage the development of model zoning and other types of housing regulations for States
and localities to follow.
Appoint a Barrier Removal Officer within HUD to assist States and localities to initiate barrier-removal programs.

Part One-lOO

THE BUDGET FOR FISCAL YEAR 1993

ADDRESSING THE NEEDS OF THE
HOMELESS
Helping the homeless has been a major
goal of the Administration. Few issues have
touched upon the sensitivities of the American
people more than the presence of homeless
men, women, and children in communities
across the country.
For those who are homeless, providing
food and emergency shelter is important
but usually not enough to help them achieve
or regain self-sufficiency. Temporary shelter,
while allowing people to escape from the
elements, does not address the root causes
of why individuals become homeless. For
those able to benefit, job-training must be
available. Homeless families often need an
array of support services, without which,
homeless recidivism is likely. For those homeless individuals suffering from severe, disabling conditions, such as severe mental illness, different responses are necessary to
ensure these individuals receive requisite
housing, counseling and other supportive services.
For the past three years, the Administration
has worked diligently to reduce the number
of homeless persons and to alleviate the
burdens of those who remain homeless. In
1989, the Federal government spent slightly

more than $600 million on homeless programs.
The recommendations contained in this budget
represent a 76 percent increase over 1989
enacted levels. The effectiveness of this dramatic increase in spending is difficult to
quantify, in part because some of the assistance afforded by this increase aims to prevent
persons from ever becoming homeless.
In the budget, the Administration demonstrates its continuing resolve to end the
tragedy of homelessness by:
• Proposing over $1 billion for 1993.—
This request represents a 6 percent increase above funding enacted by Congress
for homeless programs in 1992. Table 8-8
delineates by Federal agency this request
for increased assistance for the homeless.
For HUD homeless programs, the budget
recommends an increase of $87 million, or
19 percent, above 1992 enacted levels. The
chart on HUD's homeless programs points
out Congress's consistent underfunding of
the Administration's request for funding
for HUD's homeless programs.
• Increasing the availability of support
services in combination with housing.—The Administration requests $266
million for HUD's Shelter Plus Care, more
than a 140 percent increase over the
amount appropriated by Congress in 1992.

Table 8 - 8 . THE BUDGET PROPOSES A SIX-PERCENT INCREASE FOR
HOMELESS ASSISTANCE
(Budget authority; dollar amounts in millions)

Housing and Urban Development
Health and Human Services
Agriculture
Federal Emergency Management Agency
Veterans Affairs
Education
Defense
Interagency Council on the Homeless
Total
lrThe

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

537
209
128
100
35
35
17
3
1

+87
-14
+9
-34
+2

+19%
-6.5%
+8%
-25%
+5%

1,064

+56

1992
Enacted

1993
Proposed

172
140
117
126
24
12
9
3
1

450
223
119
134
33
35
9
3
1

604

Budget Authority

1,008

1989
Actual

1993 proposed level is $200,000 more than the 1992 enacted level.

—

+8
—
—

—

+83%
—

1 +20%

+6%

Part One-185

PROVIDING HOPE TO DISTRESSED COMMUNITIES

HUD'S HOMELESS PROGRAMS

$ MILLIONS

PRESIDENT REQUESTED VS. CONGRESS ENACTED

600 n

1990

1991

1992

1993

M PRESIDENT REQUESTED • CONGRESS ENACTED

• Reaching out to the homeless who are
mentally ill and unwilling or unable
to commit to existing treatment programs.—Safe Havens, a new $50 million
Administration initiative in 1993, offers a
stable living environment and the opportunity, but not the requirement, to participate in mental health services for those
individuals who are unable or unwilling
to commit to existing programs, such as
HUD's Shelter Plus Care or HHS' Transition From Homelessness.
• Requesting that all Federal agencies
produce and implement a Federal
Plan to Help End Homelessness.—The
goal of the plan is to reduce homelessness
by improving the coordination and delivery
of assistance.
The Administration's homeless program
strategy recognizes that there are many homeless individuals with problems not amenable
to a solution by a short-term infusion of
housing and support services. The Shelter
Plus Care Program provides rental assistance
and appropriate resources and treatment to

homeless persons who are mentally ill, chemically dependent, or afflicted with AIDS. Safe
Havens is a new initiative designed to reach
those mentally ill homeless who do not want
or are afraid to commit to the long-term,
comprehensive treatment offered by Shelter
Plus Care. Both initiatives highlight the Administration's commitment to meeting the
varied and multiple needs of the homeless.
The Stewart B. McKinney Homeless Assistance Act of 1987 has been the major Federal
vehicle specifically targeted to help the homeless. McKinney Act programs fund housing,
job training, food and nutrition assistance,
health care, mental health, and supportive
services for the homeless and demonstration
treatment projects for the large number of
homeless who are chronically mentally ill
or substance abusers. The Departments of
Veterans Affairs and Labor fund programs
for veterans and job training demonstrations.
The Department of Education provides funds
to enable States to establish educational
programs for homeless children and adults.

Part One-lOO
In addition to McKinney Act programs,
the homeless receive assistance through other
Federal programs such as the Community
Support Program of HHS and at least 70
more traditional Federal programs such as
AFDC and Supplemental Security Income
(SSI), and block grants for community development and social services.
Substantial efforts have been undertaken
to increase participation of the homeless
in these programs. For example, Secretary
Kemp has pledged that up to 10 percent
of all units in HUD's single-family acquiredproperty inventory will be targeted to the
Single Family Homeless Initiative. In total,
about 1,800 homes are now under lease
and HUD has sold over 230. Secretary Sullivan of HHS has supported demonstration
projects and other outreach strategies for
the Supplemental Security Income Program
and has made it a Department priority
to help homeless children and their families.
The solution to homelessness must, of
course, involve more than the Federal government. Communities, non-profit groups, and
State and local governments must be a
part of any viable solution. Fortunately, all
sectors of the Nation have been responding
to the homelessness problem. A 1988 National
Survey of Shelters for the Homeless showed
that 9 of every 10 shelters are operated

THE BUDGET FOR FISCAL YEAR 1993

by private non-profit groups, aided by many
volunteers. In 1987-88, private philanthropic
foundations provided $28.5 million while the
United Way raised an additional $118.6 million directly for homeless programs. State
and local governments have also been supporting programs to provide emergency health
care, social services, emergency shelter, and
transitional housing to homeless individuals
and families. These programs were funded
by State and local governments at $430
million in 1988.
CONCLUSION
Many of the proposals discussed in this
chapter are new. Some maintain or expand
resources for proposals in previous Administration budgets. Together, they represent a comprehensive, coordinated, and creative package
to enable this Nation's low-income families
and low-income communities to become safe,
productive and self-sustaining.
The key themes underlying these proposals
are "opportunity" and "choice." One of the
main attractions of this country to citizens
of other nations is that America is a "land
of opportunity," where they are able to choose
how and where they wish to live. The
proposals discussed in this chapter go a
long way to ensure this is true for all
Americans.

Investing in the Future:

9. Ending the Scourge
of Drugs and Crime

Part One-187

9. ENDING THE SCOURGE OF DRUGS AND
CRIME
HIGHLIGHTS
Ending The Scourge of Drugs
The Administration's drug control funding
request is $12.7 billion, an increase of $776
million, or a 6.5 percent increase over 1992,
and nearly double the amount appropriated
when President Bush took office.
The budget reflects the Administration's
continuing commitment to ending the scourge
of drugs and drug-related crime by expanding
drug law enforcement programs, improving
drug use prevention efforts, and increasing
the availability of substance abuse treatment.
It builds on the success made thus far,
and it directs new funding to the toughest
problems—dismantling drug trafficking organizations, preventing drug use by the hardest
to reach users, and treating those most
damaged by drug use.
• To attack drug trafficking organizations at
the source and on the street, interdict the
flow of illicit drugs into the country, and
deny traffickers the profits from their illegal activities, the budget proposes $8.6 billion for expanding and targeting drug law
enforcement, an increase of $443 million,
or 5.4 percent over 1992. This is $4 billion
or 88 percent more than was spent for
drug law enforcement in 1989.
• To prevent people from becoming users—
especially our youth—and persuade current users to stop, the budget proposes
$1.8 billion for expanded and targeted
drug use prevention programs, an increase
of $77 million, or 4.5 percent over 1992.
This is nearly $1 billion or 121 percent
more than was spent for drug prevention
programs in 1989.
• To treat and rehabilitate those whose lives
and families have been disrupted by drug
use, improve the quality of treatment, and
to focus treatment on those with special
needs, the budget proposes $2.3 billion to
provide drug treatment services, an increase of $256 million, or 12.3 percent. In

1993, drug treatment will be provided to
over 311,000 drug users, an increase of
nearly 19 percent over 1992. This is over
$1.1 billion or 94 percent more than was
spent for drug treatment in 1989.
Fighting Crime
The Administration's request to help fight
crime is over $15.8 billion, an increase of
$1.2 billion, or 8.3 percent over 1992, and
59 percent larger than 1989. (These figures
include some of the drug law enforcement
programs discussed above.) The last section
of this chapter discusses all Federal law
enforcement expenditures, of which the drug
control programs are one component. Law
enforcement spending targets all criminal
activity and reflects the Administration's commitment to strengthen all aspects Federal
law enforcement.
• To investigate, arrest, and prosecute criminal enterprises, the budget proposes $9.0
billion in 1993, an increase of $653 million, or 7.7 percent over 1992. This is $2.9
billion or 48 percent more than was spent
in 1989.
• To make neighborhoods safe from criminal
gangs and violent armed criminals, the
Departments of Justice and Treasury have
created numerous special task forces in
cities across the country to target the activity of these dangerous criminals.
• To ensure that criminals are punished for
their crimes, the budget proposes $2.2 billion to house Federal prisoners and expand Federal prison capacity, an increase
of $185 million, or 9 percent over 1992.
These efforts will ensure that violent
criminals serve their full sentences. This
is $638 million or 44 percent more than
was spent for prisons in 1989.
• To insure that criminals are held fully accountable, Federal criminal
statutes
should be reformed to protect law abiding
citizens and not the criminals preying
upon them.
PartOn^l89

Part 0ne-190

THE BUDGET FOR FISCAL YEAR 1993

ENDING THE SCOURGE OF DRUGS
The Administration's total request for drug
control programs for 1993 is over $12.7
billion, a $776 million increase over 1992,
or 6.5 percent, and nearly double the amount
spent in 1989 (see Table 9-1).
The National Drug Control Strategy represents an integrated attack on the problem
of drug use and drug-related crime—law
enforcement, prevention and education, and
drug treatment. Through expanded and focused law enforcement programs, Federal,
State, and local law enforcement entities
are better able to attack the drug distribution
chain from the source countries where drugs
are grown to the street corner vendor where
they are sold. Through expanded and improved
prevention and education programs, Federal
agencies, private organizations, and corporations are getting the word out to children
and the workforce on the dangers of drug
use. Through the expansion of public and
private care facilities, more and more victims
are receiving rehabilitative care and are returning to society drug-free. The Federal
funding split between law enforcement funding
and prevention and treatment funding is
shown in the chart "Drug Control Rises
with Increasing Emphasis on Treatment and
Prevention."
BUILDING A STRONG DRUG LAW
ENFORCEMENT SYSTEM
The Administration's drug law enforcement
request is $8.6 billion, an increase of $443

million, or 5.4 percent, and nearly double
the amount spent in 1989.
A strong law enforcement system is essential
if the availability of and demand for illegal
drugs in this country are to be reduced.
Since the publication of the first National
Drug Control Strategy, spending on efforts
to reduce the supply of illicit drugs on
the streets has increased substantially (see
accompanying Table 9-2). Much of the increased funding was needed to: put pressure
on drug traffickers by stemming the flow
of drugs over U.S. borders; put more agents
and investigators into the field; equip them
with state-of-the-art tools to do their jobs
and; create the communications and intelligence systems to assist in focusing law
enforcement efforts. This pressure deters
would-be users and dealers, and removes
drug criminals from the streets. The budget
builds on the progress made to date.
The American people want and deserve
the protection of effective law enforcement,
swift prosecutions of those arrested, and
the surety of punishment of those convicted
of crimes. Federal law enforcement agencies
continue to attack the drug trafficking industry in many ways: by working cooperatively
in joint anti-drug task forces; by creating
specialized drug law enforcement entities that
target drug trafficking organizations at all
levels; and by providing assistance to state
and local law enforcement agencies. As a
result, arrests for drug violations have esca-

Table 9--1. FIGHTING THE SCOURGE OF DRUGS
(Budget authority; dollar amounts in millions)
1989
Actual

1992
Enacted

1993
Proposed

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

Percent
Change:
1989 to
1993

War On Drugs:
Law Enforcement
Prevention
Treatment

4,584
806
1,202

8,166
1,707
2,080

8,609
1,784
2,336

+443
+77
+256

+5%
+5%
+12%

+88%
+121%
+94%

Total Drugs

6,592

11,953

12,729

+776

+7%

+93%

Part One-191

9. ENDING THE SCOURGE OF DRUGS AND CRIME

DRUG CONTROL FUNDING RISES WITH INCREASING EMPHASIS ON
PERCENT
$ BILLIONS
TREATMENT AND PREVENTION

- 30

- 15

10
1986
1987
1988
1989
1990
1991
1992
1993
H TREATMENT/PREVENTION FUNDING gg IAW ENFORCEMENT FUNDING
NOTE: Research Funding Included In Appropriate Bars.

Table 9-2. DRUG LAW ENFORCEMENT RESOURCES GROW BY ALMOST
$450 MILLION
(Budget authority; dollar amounts in millions)
1989
Actual

Law Enforcement

4,584

lated rapidly, increasing by 70 percent between 1981 and 1990. (See accompanying
chart, "More Drug Violators Are Arrested.")
Targeting Street Sales and Violence
The Department of Justice has expanded
its domestic anti-drug efforts significantly
to meet the challenge to law and order
posed by drug trafficking and drug-related
crime.
• To fight drugs at home, the budget requests $7.7 billion in domestic drug-related funding, an increase of $470 million

1992
Enacted

1993
Proposed

Dollar
Change:
1992 to
1993

8,166

8,609

+443

Percent
Change:
1992 to
1993
+5%

Percent
Change:
1989 to
1993
+88%

over 1992 and almost double the amount
spent in 1989.
• To focus Federal law enforcement efforts
on locations most affected by drug trafficking, the budget provides $50 million to the
Office of National Drug Control Policy for
High Intensity Drug Trafficking Areas.
These resources are targeted to support
Federal law enforcement activity in
Miami, Houston, New York, Los Angeles,
and the Southwest Border.

Part 0ne-192

THE BUDGET FOR FISCAL YEAR 1993

MORE DRUG VIOLATORS ARE ARRESTED
THOUSANDS OF ARRESTS
1.4
1,089,500

1.2 "

937,400

1 0.8

640,882

0.6 ~

0.4

0.2 "

1981

1984

• POSSESSION ARRESTS

1987

1990

I TRAFFICKING ARRESTS

SOURCE: FBI Uniform Crime Report, 1990

• To attack organized crime's participation
in drug crime, the Organized Crime Drug
Enforcement Task Force (OCDETF) was
established. By sharing assets and information, OCDE Task Forces have been responsible for the conviction of 16,658
members of criminal organizations and the
forfeiture of considerable drug assets. The
1993 budget requests $399 million for
OCDETF, an increase of $36 million, or
9.9 percent over 1992.
• To prosecute drug dealers and users, the
budget proposes $235 million for the drug
components of U.S. Attorneys and the
Criminal and Tax Divisions of the Department of Justice, an increase of $27.4 million, or 13.2 percent over 1992. These increases allow for the efficient prosecution
and processing of the growing number of
arrestees.
Stemming The International Flow Of
Drugs
The Administration is requesting nearly
$3 billion in 1993 for international and

interdiction programs to stem the flow of
drugs into the United States, nearly double
the amount spent in 1989.
Drug smuggling organizations have become
sophisticated criminal enterprises. Major drug
trafficking organizations are most susceptible
to disruption at their organizational center,
the traffickers' foreign base of operations.
Investment in international cooperation and
expanded detection, monitoring, and interdiction has begun to pay off. Interdiction successes have forced traffickers to shift their
tactics, alter routes of entry, and try bolder
moves of large quantities of cocaine and
other drugs. The recent seizure of 12 tons
of cocaine concealed in imported concrete
fence posts testifies to the magnitude of
financial loss being forced upon trafficking
organizations. Since 1989, the Medellin Cartel
has been incapacitated and the Cali Cartel
has come under attack.
• To take the war to the drug traffickers'
home territory, the budget proposes $768
million to support the Administration's
Andean Strategy and other international

9. ENDING THE SCOURGE OF DRUGS AND CRIME

Part One-193

narcotics-related
assistance
programs.
Funding for international counter-drug efforts has more than doubled since 1989.

budget proposes $18.2 million for Treasury's FinCEN operations, an increase of
$2 million over 1992.

• To protect U.S. borders from the inflow
of illcit drugs, the budget proposes a total
of $2.2 billion for interdiction activities, including the addition of 200 Border Patrol
agents on the Southwest border.

• To conduct money laundering investigations, enforce Federal government regulations, and to detect and deter money laundering through the domestic banking system, the budget proposes $111 million for
Internal Revenue Service drug money
laundering investigations, an increase of
$8.3 million over 1992.

• To stop smugglers and seize their illicit
cargo, interdiction operations by the Coast
Guard, U.S. Customs Service, and the Immigration and Naturalization Service are
supported by detection and monitoring assistance from the Department of Defense.
Targeting Illicit Financial Operations
The Administration is requesting $117 million in 1993, $12 million over 1992, to
attack the flow of illegal drug profits. Halting
money laundering is essential to the overall
strategy of dismantling drug trafficking organizations. The laundering of illegal drug profits through domestic and international banking organizations continues to be a lucrative
target for Federal investigators. Recently, in
a joint agency effort, Customs, IRS and
the U.S. Attorneys arrested a major money
launderer and broke his nationwide organization which is believed to have laundered
over $750 million in drug proceeds. The
Treasury Department's recently created Financial Crimes Enforcement Network (FinCEN)
has principal responsibility for providing information to aid law enforcement agencies in
attacking illegal cash flows and confiscating
drug cash assets.
• To assist in the interception of funds and
to help deny trafficking organizations the
use of international banking systems, the

INCREASING EMPHASIS ON
PREVENTION
To help curb drug use in America, the
budget proposes $1.8 billion for drug prevention and associated research, an increase
of $77 million, or 4.5 percent over 1992,
and over twice the amount spent in 1989.
For example, Drug Free Schools Emergency
Grants which target localities with the most
serious drug problems are increasing by 100
percent over 1992.
The costs imposed on society by the drug
using population run into the tens of billions
of dollars—over $60 billion annually by one
recent calculation. Successful prevention programs keep people from ever using drugs
and, for those who have started, get them
to stop. The Administration continues to
be committed to an aggressive drug abuse
prevention strategy.
Drug Use Continues To Fall
According to the National Institute on Drug
Abuse (NIDA) 1991 Household Survey, "current use of illicit drugs"—use within the
past 30 days—has continued to fall. In 1985,
an estimated 36.8 million Americans age

Table 9-3. THE INVESTMENT IN DRUG PREVENTION GROWS BY
$77 MILLION
(Budget authority; dollar amounts in millions)
1989
Actual

Prevention

806

1992
Enacted

1,707

1993
Proposed

1,784

Dollar
Change:
1992 to
1993

+77

Percent
Change:
1992 to
1993
+5%

Percent
Change:
1989 to
1993

+ 121%

Part 0ne-194

THE BUDGET FOR FISCAL YEAR 1993

12 and older (19.3 percent of the population)
had used marijuana, cocaine, or some other
illicit drug at least once in the past year.
In 1991, that estimate was down to 26
million Americans (12.8 percent of the population)—still too high, but progress nonetheless.
Particularly promising gains have been
made among youth aged 12 to 17 years
old. Current use among this group fell from
8.1 percent in 1990 to 6.8 percent in 1991—
less than half the level of 1985 according
to the 1991 Household Survey. These results
indicate that the best chance of prevailing
over drug use, preventing use by the youngest
population, has so far been successful. Other
major indicators of drug use, such as the
High School Senior Survey and the Partnership for a Drug Free America's Attitude
Tracking Survey, support these findings. The
accompanying charts show these favorable
overall trends.
The Partnership For A Drug Free America
Survey shows similar results. When the Part-

nership Survey asked pre-teens if "smoking
marijuana is OK sometimes," 8.6 percent
responded "Yes" in 1987, while far fewer,
4.9 percent, responded "Yes" in 1991. These
results indicate that the message about the
dangers of drug use is getting out.
Although drug use in the population generally has fallen, some difficult-to-reach segments of society have made much less progress
in ridding themselves of drugs. In 1991,
the rate of current cocaine use among the
age twelve-and-over population was 0.9 percent—essentially unchanged from 1990. However, the results show increased cocaine use
among older age groups. One possible explanation for the increased use among individuals
over age 35 is the aging of the high drugusing generation which may have begun
taking drugs during the 1970's and early
1980's, or a relapse of hard-core users. This
also points out one of the tragic facts of
drug use—once you start using drugs, it
is very difficult to get off and stay off.

HIGH SCHOOL DRUG USE CONTINUES STEADY DECLINE
(SENIORS REPORTING ANY USE WITHIN LAST 12 MONTHS)

1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991
SOURCE:

1990 National High School Senior Survey, National Institute on Drug Abuse

Part One-195

ENDING THE SCOURGE OF DRUGS AND CRIME

OVERALL DRUG USE FALLS; HARD-CORE COCAINE USE REMAINS A PROBLEM
(DRUG USE WITHIN THE LAST YEAR BY PERSONS 12 AND OVER)

SOURCE:

1990 National Household Survey, National Institute on Drug Abuse

While the 1991 Household Survey shows
that casual use by the population as a
whole continues a downward trend, other
evidence suggests that hard-core drug use
is largely unchanged. The Drug Abuse Warning Network (DAWN) collects data on the
number of drug-related medical emergencies
and deaths from hospitals across the country.
After an encouraging period of declining reports since the third quarter of 1989, DAWN
is reporting a slight upturn in emergency
room "mentions" in the first two quarters
of 1991. The results of these surveys indicate
that fewer people are starting to use drugs,
while some of those who started are having
difficulty stopping.
Expanding and Targeting Prevention
Efforts
Of the $1.7 billion requested for prevention
programs, a substantial portion is targetted
to specific key areas. Drug prevention programs target children and adolescents, seek
to prevent the onset of substance abuse
among non-users, encourage current users

to quit, and seek to discourage current users
from progressing to more dangerous practices
(e.g., from experimentation to regular use
or from non-intravenous to intravenous use).
Many of the Federal government's prevention programs are aimed at the high-risk
segments of our society.
• To prevent drug use among high-risk
youth, the budget includes $63.3 million,
a 9 percent increase over 1992, for demonstration projects that identify and improve protective factors and diminish risk
factors among youth at risk for drug
abuse.
• To help local government agencies and
community organizations coordinate drug
prevention strategies, the budget proposes
to increase funding for HHS's Community
Partnership Grants by $15 million to $114
million in 1993, or 15 percent over the
1992 level.
• To educate the young about the evils of
drug use, the Education Department's

Part 0ne-196

THE BUDGET FOR FISCAL YEAR 1993

Drug-Free Schools and Communities
Grants will provide funds for programs
which reach 90 percent of the eligible
school aged children. Total Drug-Free
Schools funding is being proposed at an
all time high, $654 million in 1993.
• To reach communities most devastated by
drug use, the targeted emergency grants
in the Drug Free Schools and Communities program are proposed to increase
100 percent from the 1992 level, from $30
million to $60 million.
• To protect citizens living in public housing,
the Department of Housing and Urban Development will provide $165 million, including $69 million for drug use prevention activities in and around public and
assisted housing projects.
Preventing Drug Use in the Workplace
The workplace presents special opportunities
to reduce drug use. Of the estimated 13
million current drug users in America, about
68 percent are employed. Employers have
a vested interest in deterring drug use because
drug users are more likely to miss work,
have health problems, be involved in accidents,
and either quit or be terminated.
The Administration has led the way in
workplace prevention, by implementing drug
testing of Federal employees to insure that
the Federal workplace is drug-free and safe,
encouraging States to assume a greater leadership role in deterring workplace drug use,
requiring Federal grantees and contractors
to maintain drug-free workplaces, and encouraging implementation of drug-free workplaces
throughout the private sector. In 1991, legislation was enacted which requires expanded

drug and alcohol testing of safety-related
employees in the transportation sector. Increased testing will be required for safetyrelated aviation, railroad, trucking, and mass
transit employees.
TREATING DRUG USERS
The budget provides over $2.3 billion for
drug treatment and associated research, an
increase of $256 million or 12 percent over
1992 and 94 percent over 1989. This funding
will provide drug treatment to approximately
311,000 people in 1993, an increase of 49,000
or 18.6 percent over 1992, and 116,000 more
annually since 1989.
To provide more drug treatment services,
HHS Capacity Expansion Grants will be
funded at $86 million, or eight times the
amount provided in 1992. These grants supplement other funding received by the States
to increase the number of treatment slots.
Additionally, to enhance the quality of drug
treatment, HHS Treatment Improvement
Grants funding would grow to $124 million,
an increase of 48.9 percent over 1992. These
grants help States expand capacity and provide higher quality treatment services as
well as better facilities and staff. They also
finance "treatment campuses," where researchers and practitioners work together to provide
patients with new treatment methods and
associated social services.
Focusing On Children, Families, And
Those With Special Needs
The budget provides treatment assistance
to select groups, as follows:
• To treat inmates of Federal prisons, the
1993 budget provides $28 million, an in-

Table 9-4. FEDERAL RESOURCES FOR DRUG TREATMENT RISE BY
OVER 12%
(Budget authority; dollar amounts in millions)
1989
Actual

Treatment

1,202

1992
Enacted

2,080

1993
Proposed

2,336

Dollar
Change:
1992 to
1993

+256

Percent
Change:
1992 to
1993

+12%

Percent
Change:
1989 to
1993
+94%

9. ENDING THE SCOURGE OF DRUGS AND CRIME

Part One-197

crease of $5 million over 1992. These programs provide aftercare services for up to
six months to over 1,000 inmates participating in the Bureau of Prisons' drug
treatment programs.

ciated with pregnant women, infants, children,
and families:

• To treat persons awaiting trial, the Judiciary requests $44 million for substance
abuse services.
• To treat the Nation's veterans with drug
and alcohol related problems, the budget
provides $591 million to the Department
of Veterans Affairs, an increase of $46.3
million over 1992.
• To provide treatment services directly to
residents of public housing, the budget includes $20 million for treatment as part
of the Department of Housing and Urban
Development's Public and Assisted Housing Drug Elimination Grants.
Treatment services for individuals within
the criminal justice system—prisoners, parolees, and probationers—are beneficial to the
extent that they reduce criminal behavior
and help these drug abusers lead productive,
drug-free lives. According to the Institute
of Medicine, "... pressure from the criminal
justice system is the strongest motivation
for seeking public treatment." Drug users
who are on probation or parole have an
added incentive to stay in a treatment program if they face the threat of being returned
to prison.
Drug use by pregnant women and young
mothers imposes great costs on their children,
families, and society. Infants exposed to drugs
can suffer from numerous ailments and disabilities, including fetal damage, premature
delivery, malnutrition, and behavioral disorders which are difficult and costly to treat.
The HHS Office of the Inspector General
estimated in 1990 that the cost for hospital
care, prenatal care, and foster care through
age 5 was over $55,000 per "crack baby."
The number of crack babies has been estimated at one to two percent of all live
births, or 30,000 to 50,000 babies annually.1
The budget funds several programs that
specifically address drug abuse problems asso^reshalov, Douglas , "The Children of Crack," Public Welfare,
Fall 1989, pp. 6-11.

• To prevent and reduce drug use among
pregnant women, the budget includes
$57.8 million, a 10 percent increase over
1992, for demonstration projects that provide pregnant women and their children
with a full range of coordinated health and
social services (e.g., intensive outreach,
nutrition
assistance,
prenatal
care,
parenting skills training, and child care)
to help them resist pressure to use drugs
and to help them stop using drugs.
• To help the most disadvantaged in society,
it is anticipated that $30 million more will
be provided for treatment services for the
poor and medically needy by the Health
Care Financing Administration, primarily
through Medicaid.
• To accelerate and help sustain the recovery process for those who receive drug
treatment, the budget requests $72 million
for the Vocational Rehabilitation State
Grant program, an increase of 5.7 percent
over 1992. These funds will assist those
with serious drug dependencies to develop
vocational skills.
Drug Treatment Research
The budget for treatment research will
increase by $9 million, from $204 million
in 1992 to $213 million in 1993. Treatment
should address multiple dependencies (such
as drugs and alcohol), mental illness, and
other medical complications. Research sponsored by the National Institute on Drug
Abuse (NIDA) has found that the longer
drug users stay with a treatment program,
the higher the probability they will remain
drug-free.
The Administration continues to support
research efforts to learn more about the
nature and extent of addictive disorders:
causes and consequences of drug abuse; the
costs, benefits, and overall effectiveness of
treatment methods; and new medications to
treat drug abuse. This is evidenced in three
ways:
• To expand efforts to improve drug treatment, the budget proposes $211 million for
National Institute of Drug Abuse treat-

Part 0ne-198

THE BUDGET FOR FISCAL YEAR 1993

ment research, an increase of $9 million,
or 9 percent over 1992.
• To track and evaluate the effectiveness of
treatment resources, the budget allocates
$17 million within the Alcohol, Drug and
Mental Health Services (ADMS) block
grant for the development of State data
collection and information systems.
• Research funding will continue to provide
for research into the relationship between
drug use and the spread of HIV/AIDS.
Improving Accountability
To improve State accountability in the
financing of drug treatment the budget includes funds for the second year of the
State Systems Develop Program (SSDP), administered by the Department of Health
and Human Services. The technical assistance
that HHS will provide to the States through
this program will help States measure more
accurately the demand for and supply of

drug abuse treatment, as well as assess
and improve treatment quality. If the States
have better information about who needs
treatment and the quality of available treatment, they will be able to spend drug treatment resources—including Federal block grant
funds—more effectively. The General Accounting Office recently recommended that the
Federal government use the SSDP to improve
accountability in the financing of drug abuse
treatment.2
HHS will also improve accountability by
requiring States to write Statewide drug
treatment plans that describe how the State
intends to spend Federal drug treatment
funds. While continuing to pursue legislation
for this purpose, the Administration proposes
to effectuate as much of this change as
possible through notice-and-comment rulemaking. Statewide drug treatment plans will
allow HHS to ensure that States are spending
their treatment resources effectively and to
offer technical assistance where it is needed.

FIGHTING CRIME
The Administration's request to help fight
crime in 1993 is $15.8 billion, over $1.2
billion or 8 percent more than 1992, and

59 percent higher than 1989. (See Table
9-5.)

2 General Accounting Office, ADMS Block Grant: Drug Treatment
Services Could Be Improved by New Accountability Program, GAO/
HRS-92-27, October 1991, p. 3.

Table 9-5. FEDERAL SPENDING TO FIGHT CRIME GROWS BY $1.2
BILLION
(Budget authority; dollar amounts in millions)
1989
Actual

Fighting Crime:
Criminal Investigations
Border Enforcement
Prosecution
Corrections
Judiciary and Other
Total Crime
1

1993
Proposed

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

Percent
Change:
1989 to
1993

2,214
2,459
1,476
1,553
2,261

3,389
2,767
2,285
2,051
4,109

3,625
2,939
2,530
12,236
4,477

+236
+172
+245
+185
+368

+7%
+6%
+10%
+9%
+9%

+64%
+20%
+71%
+44%
+98%

9,963

14,601

15,807

+1,206

+8%

+59%

Excludes $49 million in receipts from proposed fee.

1992
Enacted

9. ENDING THE SCOURGE OF DRUGS AND CRIME

Part One-199

Fighting crime requires an effective law
enforcement system to investigate and arrest
criminals, prosecute and adjudicate their
cases, and fine and imprison convicted offenders. The key elements of the Administration's
fight against crime are:

in inner cities neighborhoods. A new "Weed
and Seed" program which is discussed further
in Chapter 8, "Providing Hope To Distressed
Communities," will root out the violent criminals and provide investments to revitalize
neighborhoods.

• To ensure that criminals are held accountable for their crimes, Federal laws should
be reformed to protect law abiding citizens
rather than criminals.
• To attack organized and violent criminals,
the Administration will invest $589 million for Federal law enforcement agencies
to focus their resources on violent criminal
activity through cooperative task forces.
• To remove violent street gangs from U.S.
cities, special FBI, Bureau of Alcohol Tobacco and Firearms (BATF), and State and
local task forces have been established.
• To fight white-collar crime, the Administration will invest $864 million for the Departments of Justice and Treasury to coordinate their efforts to investigate and
prosecute financial, insurance, Medicaid,
and bankruptcy fraud, as well as computer
crime.
• To provide adequate prison space to insure
convicted felons serve the full term of their
sentences, the Bureau of Prisons will add
4,200 new prison beds in 1993, a 9 percent
increase over the bedspace available in
1992.
• To provide assistance to the Federal partners, State and local governments, in
fighting crime.
While State and local law enforcement
shoulders most of the burden of fighting
violent crime, there is much the Federal
Government can contribute. Federal resources
and Federal law attack the organizations
that are often the root source of violent
and drug crime. For example, racketeering
laws strike at the heart of the most well
established criminal organizations. In addition,
Federal agents work side-by-side with State
and local officers to counter the rising influence of drug and other inner city gangs.
The budget contains a first, but bold,
step to marry law enforcement operations
with programs to support social regeneration

Strengthening Criminal Statutes
Strong Federal statutes that protect citizens,
rather than the criminal, are at the foundation
of effective law enforcement. Violent criminals
must be taken off the streets and kept
off the streets. The Administration has invested substantial resources in the criminal
justice system, and sentencing guidelines have
been adopted that ensure violent criminals
pay the full price for their crimes; but
more needs to be done. Federal laws must
be reformed:
• To remove loopholes that allow convicted
murderers to escape justice through repetitive delays in the carrying out of their
sentences;
• To allow the use in court of evidence obtained in good faith by law enforcement
officers performing their duties; and
• To ensure an appropriate punishment is
meted out for the most heinous acts of
violence, murder, and attempted murder.
Attacking Organized and Violent Crime
To fight violent crime, the Administration
is devoting over $589 million, an increase
of $99 million or 20 percent over 1992,
and double the amount spent on violent
crime in 1989.
Crime statistics show that while overall
crime rates are edging down, rates for certain
violent crimes, particularly in cities, continue
to rise. There is still much to do in these
areas of the country. Among the principal
expanded activities are:
• To get violent criminals off the street, the
Federal Bureau of Investigation (FBI) will
field over 2,000 agents, devoting 385 to
a national network of violent crime task
forces working with BATF and State and
local law enforcement agencies. These task
forces are to target criminal street gangs
and other violent criminals. This task
force initiative will add $46.7 million by

Part 0ne-200
1993 to FBI resources, reflecting an 83
percent increase in FBI's spending on violent crime since 1989.
• To identify fugitive felons and other violent criminals apprehended for often minor
violations, the budget includes $100 million for the FBI to continue development
of a state-of-the-art Fingerprint Identification System, double the amount spent in
1992. The system, which will be operational in 1995, will provide Federal, State
and local law enforcement agencies with
the ability to identify within hours fugitive
rapists, murderers, and other violent
criminals and get them off the streets.
• To prosecute violent offenders and increase the certainty that they are held accountable for their offenses, and to prosecute other crimes as well, $814 million
is requested for the U.S. Attorneys, an increase of $93 million over 1992. The 1993
increase will add 161 new prosecutors to
deal with more violent crime cases, weapons offenses, and drug cases generated by
crime task forces.
• To apprehend and incarcerate criminal
aliens, the Immigration and Naturalization Service (INS) will add 73 criminal investigators to expand law enforcement.
The budget for INS will increase by $174
million over the 1992 level of $1.3 billion.
• To assist Federal and State and local law
enforcement agencies to rapidly identify illegal aliens who are arrested for criminal
activity, the Immigration and Naturalization Service will establish a National Enforcement Operations Center.
• To respond to increasing crime with other
than additional personnel, an infusion of
research and development and high-tech
investigative equipment is also needed. In
1993, $32 million is requested to advance
new FBI law enforcement technologies.
The initiatives are necessary as a result
of technological advances in the target environment
and
expanding
countermeasures capabilities. Investigative efforts
require advanced technological support for
undetectable effective surveillance and
other forms of information collection. This
1993 funding will assure that agents have

THE BUDGET FOR FISCAL YEAR 1993

the tools to investigate organized criminal
structures.
• To remove violent repeat offenders from
the Nation's streets, the budget proposes
$103 million for BATF's Armed Career
Criminal program. This adds $2.1 million
and 67 new agents in 1993.
• To provide for the protection of judges, the
transportation of prisoners, and the management of an expanded witness protection program, the budget proposes an 8.6
percent increase for the U.S. Marshals
Service, from $314 million in 1992 to $341
million.
• To try and to sentence violent criminals,
the Judiciary is requesting a $452 million
increase over 1992, from $2.2 billion to
$2.7 billion in 1993. By 1993, a total of
85 new judgeships, authorized by Congress
in 1991, will be fully staffed and operational.
New Efforts To Control Criminal Gangs
Criminal gangs and gun violators terrorize
inner city neighborhoods and inflict death
and injury on thousands of law abiding
citizens each year. Gang control over "turf'
virtually eliminates opportunities for youth
to avoid their influence, stifles efforts to
renovate blighted urban areas, and discourages new businesses from entering these
areas. Where local groups working with law
enforcement agencies have stood up to drug
dealers and drug-financed gangs, progress
has been made in making those neighborhoods
safer. Much more, however, can be done.
Since 1989, the Administration has become
increasingly involved in fighting violent crime
through programs specifically designed to remove the most violent offenders from the
streets.
• To rid cities of the influence of criminal
street gangs and the violence associated
with their activities, the FBI and the Bureau of Alcohol, Tobacco, and Firearms
(BATF) have established a joint anti-gang
task force with squads in cities most heavily plagued by violent gang activity. Since
1989 the number of these squads has increased from 15 to 31.

Part One-201

ENDING THE SCOURGE OF DRUGS AND CRIME

• To assist and enhance Federal, State, and
local law enforcement agencies in their
fight against criminal gang activity, the
FBI and BATF will establish a Gang Analysis Center. The center will provide Federal, State and local law enforcement officers with the information they need to investigate, arrest, and prosecute criminal
gang members.
• To get the most dangerous criminals off
the street and keep them off, the FBI,
DEA, U.S. Attorneys, and BATF established Project Triggerlock in 1991, a comprehensive cooperative effort to use Federal firearms laws to target the most dangerous criminals in each community and
put them in Federal prison. Through
Triggerlock armed career criminals face
mandatory 15-year prison terms. Since its
first operation in 1991, Triggerlock has
sent over 500 gun felons to prison to serve
a total of over 2,500 years behind bars.
• To target the illicit movement of firearms,
explosives and ammunition, and to deny
these dangerous weapons to international
narcotics dealers, terrorists, and international criminals the BATF will devote
$8.1 million and 101 agents to its International Trafficking in Arms program.
• To enforce Federal laws pertaining to firearm violence, an increase of $6 million and
37 attorneys is requested. This will permit
the U.S. Attorneys to target the most violent criminals in each community and incarcerate in Federal prisons. Also, $3.4
million more is requested to design a prototype system for identifying, through a
fingerprint check, felons who attempt to
purchase firearms.
• To go after violent gang members, the
BATF will devote $38 million and 48
agents to its National Violent Gang Enforcement Program. This will add 58 new
agents devoted to investigating gang members who are weapons violators. The total
BATF request for 1993 is $352 million,
an increase of $16 million or 5 percent
over 1992.

Fighting White-Collar Crime
The Administration will devote $864 million
to white-collar crime investigations, an increase of $70 million, or 8.8 percent over
1992.
So-called "white-collar" crime robs the public
through increased costs, and attacks the
financial institutions which hold the nation's
savings. The financial strength of America
is weakened by financial institution fraud;
insurance, bankruptcy, pension, and health
care fraud; and fraud by wire. These economic
crimes have eroded public confidence and
placed an added burden on the American
taxpayer.
By 1993, the Administration will have
more than doubled the resources devoted
to white-collar crime since 1989.
• To attack the white-collar criminal, the
FBI's white-collar crime program will grow
to over 2,600 agents with the addition of
136 new agents in 1993. The budget proposes $371 million, over twice the 1989
figure for white-collar crime investigations.
• To address financial institution fraud, the
budget proposes a force of over 1,440 FBI
and Secret Service agents to investigate
an estimated 700 failed financial institutions.
• To strengthen investigations, the Internal
Revenue Service and the Secret Service
have joined with FBI agents and U.S. Attorneys to form Financial Fraud Task
Forces to target these sophisticated criminals.
• To investigate losses sustained by the
American public through fraudulent activities in the $1 trillion health care industry,
the FBI will add 100 new investigators
to health care fraud cases. A total of over
170 agents will be assigned to cases involving billing scams by health care professionals, hospital and clinic fraud, and
Medicaid fraud.
• To target other fraud, such as bankruptcy
fraud, wire fraud, and computer crime, the
FBI has formed special fraud task forces,

Part 0ne-202

THE BUDGET FOR FISCAL YEAR 1993

primarily in the Southeast and West.
These task forces, which primarily address
telemarketing scams, are in place across
the country with over 400 agents devoted
to wire fraud alone.

• To continue construction of new prisons,
the 1993 budget proposes to spend $339
million for prison construction and rehabilitation projects. When completed, these
new prisons will add nearly 3,400 new
prison beds to the prison system.

Jailing Criminals And Assisting Their
Victims

• To operate existing prison facilities and activate new prisons coming on line, the
budget proposes $1.9 billion, an increase
of 19 percent over 1992, and more than
three times the amount spent in 1989.

The budget proposes $2.2 billion for Federal
prisons, an increase of $185 million, or 9
percent over 1992, and 43.8 percent more
than was spent in 1989.

• The budget proposes levying a fee on certain newly sentenced prisoners. In effect,
it would require that prisoners pay a part
of the cost of their incarceration. It is estimated that it costs $18,000 per year, exclusive of construction costs, to house a
Federal prisoner. It is estimated that the
newly proposed fee will save U.S. taxpayers $48 million annually.

It does little good to apprehend and convict
criminals if prison space does not permit
their incarceration for the full term of their
sentence. To insure that adequate space is
available, so violent criminals will stay locked
up, the Federal Government has invested
over $2 billion in prison construction since
1989. This investment is now paying off
as many new prisons open in the next
five years. In 1993, space for an estimated
4,200 prisoners will be added to the Federal
prison system.

• To provide for expedited deportation proceedings against criminal aliens, an increase of $26 million is proposed for a
1,000 bed detention facility in southern

NEW PRISON SPACE COMING ON LINE
PERCENT
75

"BEDSPACE" IN THOUSANDS
100
PERCENT OF PRISONERS
OVER CAPACITY

85,804

60 -

- 45

40 -

- 30

20 -

- 15

1989

t m
SOURCE:

1993

1991

1995

RATED PRISON CAPACITY

Department of Justice, Bureau of Prisons

1997

9. ENDING THE SCOURGE OF DRUGS AND CRIME

Part 0ne-203

California. In addition, to meet the requirements of the Immigration Act of
1990, $3.2 million is requested for new immigration judges and INS attorneys to expedite deportation proceedings for criminal
aliens currently servicing sentences in
Federal, State and local prisons and jails.

and to fund programs that offer support
to overcome the traumas caused by violent
criminals. The funds for this assistance come
not from the pockets of hard-working, decent
citizens, but from the pockets of the criminals
convicted of crimes through fines imposed
on them.

• To address the processing of Mariel Cubans awaiting release from Federal detention, $8.5 million is requested for the Community Relations Service. Without the
availability of halfway house resources
and hospital spaces, these individuals remain in Federal custody, thereby increasing the tension in these facilities.

Assisting State and Local Law
Enforcement
The budget proposes almost $1 billion in
State and local assistance. Federal law enforcement agencies work directly and cooperatively with State and local law enforcement
agencies to concentrate law enforcement where
it is needed most—inner city gangs, organized
criminal activity, and major drug trafficking
operations. Each year the Federal Government
provides assistance to State and local law
enforcement agencies, through direct involvement in State and local task forces, drug
law enforcement assistance grants, and the
sharing of proceeds from forfeited assets
from drug and other crimes.

Ensuring that justice is done requires more
than apprehending and incarcerating criminals; it also requires assisting the innocent,
law-abiding victims—particularly those who
are the victims of violent crime. Every year
nearly 6 million people are victims of violent
crimes—murder, rape, robbery or assault.
In 1993, the Department of Justice will
provide $144 million to assist such victims

CRIME RATES EDGE DOWN AS FEDERAL LAW ENFORCEMENT
APPROPRIATIONS RISE
$ MILLIONS
CRIME RATE
16,000220
14,000 •

200

FEDERAL LAW
ENFORCEMENT APPROPRIATIONS

12,000-

- 180

10,000
8,000 -

- 140

/
CRIME RATE PER
100,000 PERSONS

2,000 -

mm \
Jm

1981

- 120

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

100

1982

SOURCE: National Crime Victimization Survey

160

1993

Part 0ne-204

THE BUDGET FOR FISCAL YEAR 1993

• To help States expand and improve local
law enforcement, the Federal government
provides funds directly to local law enforcement agencies. The budget proposes
to spend $496 million for State and local
drug law enforcement grants. This program has tripled since 1989.
• To use the spoils of crime against the
criminal, nearly half of the assets seized
by Federal law enforcement agencies
working with State and local law enforcement are shared with those agencies. In
1993, an estimated $252 million of Federally forfeited assets will be shared with

State and local governments. Since 1989
over $2.2 billion in assets have been forfeited by convicted felons, and almost $1
billion of these funds have been shared
with State and local law enforcement
agencies.
The Administration's fight against crime
will be long and costly. As the chart below
shows, the overall crime rate in the past
decade has declined as Federal law enforcement appropriations have increased. In major
cities, where fighting crime is the most
difficult, crime rates are still far too high,
especially for the most violent crimes.

Table 9 - 6 . JUSTICE FUNDING TO FIGHT CRIME AND DRUGS INCREASES
BY 10%
(Budget authority; dollar amounts in millions)

Bureau of Prisons
Drug Enforcement Administration
Federal Bureau of Investigation
Immigration & Naturalization Service
Legal Activities
Organized Crime Drug Task Forces ....
U.S. Attorneys
U.S. Marshals
Other Justice
Total Department of Justice
1 Excludes
2 Excludes

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

Percent
Change:
1989 to
1993

1992
Enacted1

1993
Proposed

460
205
1,150

2,061
717
1,926
1,355
384
363
721
314
1,968

2,246
788
2,143
1,529
420
399
814
341
2,115

+185
+71
+217
+174
+36
+36
+93
+27
+147

+9%
+10%
+11%
+13%
+9%
+10%
+13%
+9%
+8%

+44%
+48%
+49%
+35%
+70%
N/A
+77%
+67%
+84%

6,732

9,809

2 10,795

+986

+10%

+60%

1989
Actual

1,562
534
1,439
1,135
247
—

transfer of appropriations from other agencies for drug trafficking.
$49 million in receipts from proposed fee.

Investing in the Future:
10. Preserving America's Heritage,
Protecting the Environment, and
Providing For a More Secure
Energy Future

Part 0ne-205

10. PRESERVING AMERICA S HERITAGE,
PROTECTING THE ENVIRONMENT, AND
PROVIDING FOR A MORE SECURE ENERGY
FUTURE
The budget reflects the President's commitment to protect and enhance America's natural
resources and environment in a way that
is consistent with the Administration's efforts
to promote economic growth. The budget
marks the fourth year in a pattern of increased
investment in parks, forests, outdoor recreation, pollution control, and hazardous waste
cleanup. Within the context of an overall
freeze in domestic discretionary spending,
the budget includes a $3.2 billion (21 percent)
increase in priority environmental investments. The budget also creates a more secure
energy future by harnessing the power of
the marketplace and accelerating investment
in energy R&D as called for in the National
Energy Strategy.

• Accelerate the construction of sewage
treatment plants in major coastal cities—
New York, Boston, Baltimore, Los Angeles,
San Diego, and Seattle;

HIGHLIGHTS

• Expand research into the causes of global
change, thereby extending America's leadership in this critical area;

• Protect and expand America's national
treasury of parks, forests, wildlife refuges,
and other public lands;
• Nearly triple the Federal government's
contributions to the partnerships with
State governments to enhance State parks
and other outdoor recreation facilities;
• Target special funds to protect the natural
resources in America's "crown jewel" national parks;
• Significantly increase funding to clean up
Federal facilities, both nuclear and nonnuclear, in order to ensure that the Federal government meets the legal requirements of various signed agreements, court
decrees, statutes, and regulations;
• Provide increases in pollution control and
resource protection for a range of programs along the U.S.-Mexican border in
support of a North American Free Trade
Agreement;

• Continue the full and timely implementation of the recently enacted Clean Air Act;
• Accelerate the cleanup of superfund hazardous waste sites;
• Emphasize a targeted effort to reduce contamination in specific geographic areas
such as the Great Lakes;
• Fully implement the President's strategy
to protect and enhance the Nation's wetlands without unduly interfering with
needed economic growth or private property rights;

• Improve the efficient use of energy in the
Federal Government and assure development of even more energy efficient technologies in the future by increasing the
budget for conservation research and development by 24 percent;
• Implement initiatives in the National Energy Strategy to increase the availability
and use of abundant and clean natural
gas. The Administration proposes initiatives to change outmoded regulations
that discourage natural gas use and increase funding for gas related R&D by
over 200 percent;
• Propose environmentally responsible development of America's domestic oil and
gas resources which would save $250 billion in payments to foreign oil producers;
and
Part 0ne-207

Part 0ne-208

THE BUDGET FOR FISCAL YEAR 1993

• Increase Government purchases of alternative fueled vehicles by about 5,000.
THE BUDGET
INCLUDES
AN INCREASE OF 17 PERCENT TO EXPAND AND PROTECT AMERICA S NATIONAL PARKS, WILDLIFE REFUGES,
FORESTS,
AND
OTHER
PUBLIC
LANDS.
America's treasury of public lands is among
her most important assets. The budget reflects
the President's commitment to the outdoors
by providing the resources to expand, improve,
and maintain these assets, and to increase
the access of all Americans to them.

The budget continues to build upon the
joint Department of the Interior (DOI) and
Department of Agriculture (USDA) initiative,
America the Beautiful (ATB), introduced in
1991. The budget provides nearly $2 billion
(17 percent above the enacted 1992 level
and over 100 percent above 1989) for improved
stewardship of national parks, wildlife refuges,
forests, and other public lands. America the
Beautiful resource protection and recreation
activities are increased by $150 million, or
13 percent above 1992. Reforestation is increased by $73 million (+111 percent). Land
and Water Conservation Fund (LWCF) State
grants are proposed to increase by $37 million
over 1992 (+158 percent). The budget for
Federal acquisition of park, refuge, forest,

Table 10-1. THE BUDGET INCLUDES $3.2 BILLION IN NEW FUNDING
FOR ENVIRONMENTAL PROTECTION INITIATIVES
(Budget authority; dollar amounts in millions)

Summary of Major Initiatives

America the Beautiful
Reforestation
State LWCF: Partnership with States for Parks
and Outdoor Recreation
Federal Facility Cleanup:
Department of Energy
Department of Defense1
Other Agencies
Border Pollution: Pollution Control Along the
U.S.-Mexico Border in Support of NAFTA
Providing Clean Waters for America's Cities:
Boston
New York
Baltimore
Los Angeles
San Diego
Seattle
EPA Operating Budget
Superfund
Protecting America's Wetlands
Army Corps of Engineers: Protection and Restoration of Environmental Resources
Global Change Research
Total 2

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

1992
Enacted

1993
Proposed

863
12

1,491
66

1,653
139

+162
+73

+11%
+111%

+37

+158%

1,762
1,155
106

4,407
2,761
203

5,534
3,718
236

+1,127
+957
+33

+26%
+35%
+16%

103

201

+98

+95%

100
70
40
55
40
35
2,578
1,616
600

100
70
40
55
40
35
2,698
1,750
812

+120
+134
+212

+5%
+8%
+35%

361
1,110

408
1,372

+47
+262

+13%
+24%

15,132

18,292

+3,160

+21%

1989
Actual

—
—
—
—
—

1,752
1,410
295
196
—

7,388

—

— -

—

Does not include anticipated $1 billion 1992 supplemental for the Department of Defense.
Total has been adjusted to eliminate double counting, including DOI wetlands and federal facility cleanup
already included in America the Beautiful; and global change research, border pollution, and wetlands activities
included in EPA's operating budget and the Army Corps of Engineers.
1

Part 0ne-209

10. PRESERVING AMERICA'S HERITAGE

and other public lands is 4 percent over
1992.
The initiative includes the following features:
Enhancing Recreation and Restoration
of Natural Resources.—America the Beautiful focuses Federal funding and expertise on
a wide range of threatened natural resources
and key recreation areas in need of improvement. The DOI budget includes $358 million
(23 percent above 1992) for improved resource
protection, including wetlands conservation
and restoration, endangered species activities,
and enhanced recreational opportunities in national parks, wildlife refuges, and other public
lands.
Included in the program will be the establishment of a new America the Beautiful
Passport specially designed to provide 12
months of access to the wide variety of
federally administered outdoor recreation facilities available in federally managed parks,
forests, refuges, and other special designated
recreation areas. Revenues generated by Federal and private sector sales of this 12month, $30 entry passport will be used
to improve federally managed lands and waters and expand the recreational opportunities
they provide to every American. The initiative

will increase the number of boat ramps,
campsites, trails, and interpretive centers for
America's growing population of outdoor enthusiasts; improve the access of disabled
Americans to public lands; and ensure that
key environmental features of these lands
are not threatened.
Important new components of America the
Beautiful in 1993 include 1,000 more seasonal
rangers to enhance visitor assistance and
resource protection in national parks during
peak-use ($8 million over 1992), Parks as
Classrooms to transport thousands of school
children to parks to learn about the Nation's
natural and cultural wonders ($3 million
over 1992), and establishment of a strategic
planning office to develop long-range options
for the National Park Service to more effectively carry out its vital mission through
the 1990s and into the next century.
Land and Water Conservation Fund
(LWCF).—The budget continues the President's commitment to the protection of nationally significant natural and cultural resources.
Proposed 1993 funds for Federal acquisition
and LWCF State park and outdoor recreation
grants are $366 million, an increase of $49
million, or 15 percent over 1992.

Table 10-2. AMERICA THE BEAUTIFUL
(Budget authority; dollar amounts in millions)

Acquisition of Park, Forest, Refuge, and Other
Public Lands
Partnership with the States to Create State
Parks and Enhance Outdoor Recreation (LWCF
State Grants)
Reforestation
Enhanced Resource Protection/Recreation:
National Forests
National Parks, Wildlife Refuges, and Other
Public Lands
Improved Environmental Infrastructure (DOI) .
Subtotal
Total America the Beautiful

311-000 0 - 9 2 - 1 1

(Pt.l)

1989
Actual

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

1992
Enacted

1993
Proposed

190

294

306

+12

+4%

17
12

23
66

60
139

+37
+73

+158%
+111%

—

109

+32

+42%

161
513

291
829

358
880

+67
+51

+23%
+6%

674

Funding Summary

1,197

1,347

+150

+13%

892

1,580

1,852

+272

+17%

Part 0ne-210

THE BUDGET FOR FISCAL YEAR 1993

The budget increases the vital funding
and acquisition partnership with States
through the LWCF State park and outdoor
recreation grant program. 1992 was the first
time in 10 years that funds for these grants
were requested. Proposed 1993 funding of
$60 million would provide States with increased Federal matching funds for the acquisition of parks and open spaces, and for
the development of outdoor recreation resources. These lands and facilities are important to States because of their regional and
local significance. Expanded LWCF State
grants are proven cost-effective alternatives
to Federal acquisition and operation. The
State grant partnership represents the type
of collaboration that can leverage the maximum return on Federal dollars.
Concurrent with the submission of the
budget, the Administration will also propose
to Congress a list of priority lands to be
acquired by the National Park Service, the
Fish and Wildlife Service, the Forest Service,
and the Bureau of Land Management. This

list has again been developed through a
competitive rating system in which particular
importance is placed on proximity to population centers, increased recreational opportunities to the public, valuable wetlands, protection of endangered species, and other characteristics of such national significance that
the land's early acquisition for public purposes
is of special importance.
The President's outdoor recreation program
reflected in this budget includes full funding
for efforts such as protection of lands in
the Santa Monica Mountains (CA), continued
implementation of legislation to expand and
protect Everglades National Park (FL) and
initial funding for a joint Federal/State effort
to protect the Headwaters Forest in California,
a 4,500 acre stand of old growth virgin
Redwoods.
Targeted Parks Initiative.—Last year,
over 265 million visitors visited America's national parks. To help meet the increasing public interest in experiencing and understanding
America's natural wonders and rich history

AMERICA'S PARKS, FORESTS, REFUGES AND OTHER PUBLIC LANDS WILL BE EXPANDED
(BUDGET AUTHORITY FOR ACQUISTION OF PARK, FOREST, REFUGE, AND OTHER PUBLIC LANDS)
$ MILLIONS

1985

1986

1987

1988

1989

1990

1991

1992

1993

(PROPOSED)

Part 0ne-211

10. PRESERVING AMERICA'S HERITAGE

preserved in national parks, the budget again
proposes a Targeted Parks initiative. In 1992,
Congress did not fund the program. The President proposes a $10 million program that establishes special identification and monitoring
of critically significant resources that have
been placed under stress by over use, and will
develop management methods for long-term resource recovery and preservation that provide
for continued public access and enjoyment.
The following national parks are under
consideration for inclusion in the program:
—Acadia National Park (ME)
—Big Bend National Park (TX)
—Cape Cod National Seashore (MA)
—Death Valley National Monument (CA)
—Everglades National Park (FL)
—Grand Canyon National Park (AZ)
—Great Lakes Parks (including Indiana
Dunes National Lakeshore (IN), Isle
Royale National Park (MI), and others)
—Olympic National Park (WA)
—Sequoia and King's Canyon National
Parks (CA)
—Southern Arizona Parks (including
Organ Pipe Cactus and Montezuma Castle National Monuments, Fort Bowie
National Historic Site, and others)
—Yellowstone National Park (WY, ID,
MT)
—Yosemite National Park (CA)
Protecting American Battlefields.—The
budget contains $10 million for a five-fold expansion of a 1992 initiative, the American Battlefield Protection Program. While some Battlefields are managed by the National Park
Service, many important sites remain unprotected and threatened by economic development without their historic values being taken
into account. In order to meet this challenge,
the Administration is proposing to expand this
initiative to develop partnerships with Federal,
State, regional, and local governments and private conservation organizations to provide permanent protection for these threatened sites.
Efforts will be made to explore all options for
their protection. These include creative use of
public and private land-use tools, such as zoning, historic district designation, non-Federal
land and easement acquisition, technical assistance, and land-banking, while maintaining
economic growth and private property rights.

The Department of the Interior has identified several potential Civil War battlefields
that could be part of the initiative's second
phase, including:
—Gettysburg (PA)
—Antietam (MD)
—Wilderness (VA)
—Shenandoah Valley (VA)
—Harpers Ferry (WV)
—Kennesaw Mountain (GA)
—Corinth (MS)
—Franklin Battlefield (TN)
—Glorietta Pass (NM)
Challenge Cost-Share Programs.—The
America the Beautiful initiative also encourages expanded partnerships with private parties and State and local governments through
a new challenge cost-share program for the
National Park Service. Federal funds will be
matched by non-Federal contributions for the
protection and enjoyment of national parks.
Modeled after successful programs already underway in the Forest Service, Bureau of Land
Management, and Fish and Wildlife Service,
this program will involve the public in improving natural resources by increasing direct citizen efforts and financial contributions.
Reforestation: Planting Trees for America's Future.—The budget contains funds to
expand the reforestation initiative begun in
1991 and increased in 1992. The budget proposes $139 million to expand tree planting and
care activities on privately-owned rural lands
and Indian trust lands, and in the Nation's
40,000 rural communities. The President's goal
remains to plant, maintain, and conduct timber stand improvements affecting one billion
trees per year.
The President's proposal for 1991 was authorized in law in the 1990 Farm Bill,
and $70 million was appropriated to begin
tree planting activities. Although the legislation did not provide full funding for the
President's goal of planting 1 billion trees
per year, each State now has a coordinating
committee to develop a network of leadership,
expertise and corporate and private sector
involvement in tree planting activities. Also
in 1991, the President's proposed National
Tree Trust Foundation was enacted and capitalized with a one-time appropriation of
$20 million. The Foundation will direct its

Part 0ne-212
efforts to mobilize individuals, businesses,
governments, and community organizations
to plant and care for trees in cities and
towns throughout America.
Funding for 1993 will ensure that the
program continues its fast start. The program
commitment also recognizes the remarkable
value of trees as a resource. In addition
to their use for wood products and wildlife
habitat, trees sequester carbon dioxide from
the atmosphere; reduce energy consumption
by providing shade in summer and wind
abatement in winter; and reduce erosion
and the flow of pesticides into the Nation's
lakes and streams.
The National Forest: America's Great
Outdoors.—The budget includes $109 million
for the second year of a 4-year effort to enhance outdoor recreation opportunities on national forest lands, thereby meeting the increasing demands and helping to reduce the
current overcrowding of other Federal recreational facilities, including the national
parks. This initiative will help to implement
the Secretary of Agriculture's 1990 Forest and
Rangeland Resources Planning Act (RPA) program to begin reducing a nearly 50-year backlog of recreation enhancement needs.
1993 funding will allow the Forest Service
to reopen 40 or more campgrounds and
picnic sites that have been previously closed
to the public. An additional 882 miles of
the agency's highest priority trails will be
reconstructed to reduce the deferred maintenance and reconstruction backlog. About $4
million will be provided for new trails linking
existing trails to other jurisdictions. Approximately 14,000 miles of additional trails will
be maintained under the initiative to arrest
further deterioration. Funding to complete
river studies on 50 Wild and Scenic rivers,
management plans on 40 rivers, and operation
and maintenance on another 27 rivers will
also be provided.
Recreation visitor days at national forest
facilities will increase from 218 million in
1989 to approximately 255 million in 1993,
with projections of over 280 million by the
year 2000. This 4-year Recreation Initiative
will be critical in providing a quality experience for all recreation visitors.

THE BUDGET FOR FISCAL YEAR 1993

Legacy '99: Rehabilitation and Improvement of Park, Refuge, and Public Land
Infrastructure.—The budget continues and
expands the Department of the Interior's "Legacy '99" effort, begun in 1991, to leave a legacy
of improved conditions at national parks, wildlife refuges, and other public lands by the end
of the century. It also incorporates the effort
into America the Beautiful since enhanced resource protection and improved infrastructure
are complementary.
The budget proposes funding of $880 million,
an increase of $367 million or 72 percent
over 1989 and $51 million or 6 percent
over 1992, to repair and rehabilitate facilities
and to reduce the backlog of facility rehabilitation projects. The increases also make possible
an acceleration of dam safety work and
the cleanup of hazardous materials.
Higher funding levels will provide for the
restoration of important facilities in existing
parks and recreation areas and improve the
day-to-day operating maintenance of DOI facilities such as visitor centers, campgrounds,
roads, boat ramps, and other recreational
facilities. This increased funding will also
allow Interior to upgrade its infrastructure
on a periodic basis to prevent long-term
deterioration that could increase costs and
ultimately threaten public safety.
Included in Legacy '99 for 1993 are funds
for certain facilities and areas of special
importance:
• $9 million to begin sharing maintenance
responsibility with Department of the
Army at the Presidio (CA).
• $7 million to restore natural waterflows
to Everglades National Park (FL).
• $2 million to rehabilitate and restore to
their original appearance the historic
buildings and surrounding yards that
make up Martin Luther King's home block
on Auburn Avenue at the Martin Luther
King, Jr., National Historic Site (GA).
• $11 million to continue stabilizing and repairing the Lincoln Memorial built in 1922
and the Jefferson Memorial erected in
1943.

Part 0ne-213

10. PRESERVING AMERICA'S HERITAGE

• $21 million to continue implementation of
the Yosemite National Park General Management Plan (CA).
• $1 million to expand campground facilities, recreational trails, and interpretive
displays at the Bureau of Land Management Steens Mountain Special Recreation
Management Area (OR).
• $11 million for continued cleanup of hazardous materials at Crab Orchard National Wildlife Refuge (IL).
Exxon Valdez.—The budget fully incorporates the receipts and mandatory spending
associated with the October 1991 Exxon
Valdez settlement, the largest natural resource
damage settlement ever. Receipts and spending for 1992-2001 are currently estimated to
total over $400 million as the Federal part
of the restoration program for Prince William
Sound and surrounding adversely affected
areas. The State will also receive in excess
of $400 million as its part of the restoration
program. If after ten years funding is found
to be insufficient to restore the sound and sur-

rounding areas, the Federal and State trustees
are also entitled to an additional recovery of
up to $100 million for injuries caused by the
spill that were not foreseeable at the time of
the spill. These estimates are tentative and
subject to approval by all Federal and State
trustee agencies of a specific restoration plan
and projects.
Of the $125 million criminal fine and
restitution payment levied against Exxon as
part of the October settlement, $12 million
has been deposited into the North American
Wetlands Conservation Fund to be used to
protect and restore the Nation's highestpriority wetlands, and $100 million will be
used by the Federal trustees and the State
of Alaska for restoration projects within Alaska. In addition, $13 million has been deposited
into the Department of Justice's Victims
of Crimes Fund.
The civil part of the settlement provides
$900 million, and possibly as much as $1
billion, to the Federal Government and the
State of Alaska from Exxon over the next

Table 10-3. LEGACY '99—DEPARTMENT OF THE INTERIOR
(Budget authority; dollar amounts in millions)
Funding Summary

Percent
Change:
1992 to
1993

1993
Proposed

347
50
78
38

481
156
122
70

515
167
119
80

+34
+11
-3
+10

+7%
+7%
-2%
+14%

513

Maintenance
Rehabilitation
Dam Safety 1
Hazardous Material Cleanup
Total
1

Dollar
Change:
1992 to
1993

1992
Enacted

829

880

+51

+6%

1989
Actual

Funding reflects reduced project needs in the Fish & Wildlife Service for 1993.

Table 10-4. EXXON VALDEZ: RESTORATION OF PRINCE WILLIAM
SOUND AND THE GULF OF ALASKA
(Federal offsetting collections; dollar amounts in millions)
1992

Criminal Fines and Restitution
Civil Restoration
Total

1993

1994

1995-2001

Total

62
18

250

62
358

250

420

Part 0ne-214
10 years for natural resources restoration
and reimbursement of past costs. Based upon
an assessment of damages, this recovery
will provide sufficient funds to undertake
and complete the needed restoration of Prince
William Sound and other Gulf of Alaska
areas affected by the March 1989 oil spill.
Natural Resource Damage Assessment
Fund.—The budget proposes continuation and
expansion of DOFs Natural Resource Damage
Assessment Fund. The fund will support timely, comprehensive, high-priority damage assessment activities, litigation strategies, coordination with other agencies, and negotiations with parties potentially responsible for
damage to DOFs lands and natural resources.
This identified funding will allow Interior
to fulfill its obligation to this and future
generations to protect natural resources and
the public's use of these resources; increase
the likelihood that polluters, not taxpayers,
will pay for the costs of restoring injured
resources; and help prevent hazardous substance and oil spill incidents from occurring
in the future.
The Presidio.—During 1993, the Presidio,
located in San Francisco (CA), will begin its
transition from an active U.S. Army installation to a component of the Golden Gate National Recreation Area managed by the National Park Service. In 1993, the Army will
provide $34 million for operations and maintenance at the Presidio. To provide for an orderly transition, the budget includes an additional $15 million for the National Park Service to begin sharing operational and maintenance responsibilities with the Army and to
accelerate planning as well as other preparation required to have the Presidio ready for
complete transfer to the Park Service in 1995.
Phoenix Indian School Land Exchange.—After agreement of mutually acceptable Indian Trust Fund payment arrangements to be completed by June 1992, the Administration will consumate one of the largest
land exchanges in the history of the Department of the Interior ($80 million in land and
cash contributions from the private sector).
This Arizona-Florida land exchange offers enhanced wetlands protection for one of the Nation's most vital national parks (Everglades)
and one of its most vital national wildlife ref-

THE BUDGET FOR FISCAL YEAR 1993

uges (Florida Panther), increased educational
opportunities for Native Americans, improved
Department of Veterans Affairs facilities, and
expanded local economic development and recreational amenities in the Phoenix, Arizona
area.
National Recreational Trails.—The budget proposes to provide $15 million in 1993 to
implement the National Recreational Trails
Fund provisions of the 1991 Intermodal Surface Transportation Efficiency Act. This discretionary program administered by the Department of Transportation (DOT) will make
grants to States to establish and maintain new
multiple-use recreational trails on Federal and
non-Federal lands. The State grant program
will complement an ATB increase that the
budget proposes for the National Park Service
Rivers and Trails technical assistance program. In 1993, the budget will provide $8 million, an increase of $3 million over 1992, for
such technical assistance.
Federal Lands Highways.—In addition to
America the Beautiful-related infrastructure
improvements, the budget in 1993 includes a
total of $445 million ($74 million or 20 percent
over 1992) for DOT funding of roads through
Federal recreational lands and Indian reservations: $83 million for Parkways and Park
Roads, $171 million for Forest and Public
Lands Highways, and $191 million for Indian
Reservation Roads. The budget also includes
$13 million for DOT Federal-Aid Highway
grants to States to develop Scenic Highways.
POLLUTION CONTROL
EPA's Operating Program is at the highest level in history.—The budget provides an
all-time high level of funding and staffing for
EPA's operating program: nearly $2.7 billion
and more than 14,000 employees. Since the
Bush Administration took office, EPA's operating program will have increased by 54 percent,
and the workforce involved in research, regulatory, and enforcement responsibilities will
have expanded by 22 percent. This commitment to environmental protection will fulfill
statutory mandates and allow EPA to fund the
most cost-effective ways to reduce risk to
human health and the environment while fos-

Part 0ne-215

10. PRESERVING AMERICA'S HERITAGE

tering
environmentally
growth.

sound

economic

• Achieving the goals of the Clean Air
Act.—Clean Air Act implementation continues with increases of $42 million in
1993. This is on top of the $187 million
in Clean Air Act increases provided in
1991 and 1992. The budget provides all
the funds and staff EPA needs to achieve
the objectives of the 1990 Amendments in
the most cost-effective manner possible.
• Emphasizing enforcement of existing
laws.—EPA's enforcement efforts will increase by $15 million, with increased emphasis on multimedia enforcement, which
is a cross-media approach to identifying
and enforcing against polluters. This approach allows for more efficient use of
agency resources. The enforcement budget
in EPA's operating program has increased
by 72 percent since President Bush took
office.
• Developing an improved knowledge
base for better environmental decisions.—EPA needs a strong research capability so that regulatory decisions are
based on sound science allowing cost effective risk management solutions to be identified. More than a $26 million increase
will allow EPA to make needed improvements in the quality of information it uses.
During the past two years, EPA has formulated a framework for a program on
ecological research, taking into account
work already underway in other federal

agencies. This increase will allow EPA to
expand the ecological research program,
the Environmental Monitoring and Assessment Program (EMAP), and obtain an
overall picture of the ecological health of
the nation's natural resources. This increase also improves EPA's information
systems infrastructure to allow for better
data management.
Geographically targeted efforts to address high human health and ecological
risks.—The budget provides funding to expand
and intensify multi-media initiatives to protect
areas such as the Great Lakes, Chesapeake
Bay, Mexican Border, and the Gulf of Mexico.
These four high profile programs will share
increases of more than $95 million. This builds
on a $20 million increase requested last year
for the Great Lakes, to aggressively implement
the Great Lakes Water Quality Initiative and
the Great Lakes Critical Programs Act.
Great Lakes efforts will target cleanup
of "hot-spots" of contaminated sediments,
which may have been created long ago but
are still posing unacceptable risks today.
There will also be a major thrust to enlist
the private sector's cooperation in pollution
prevention—preventing problems before they
are created.
The Chesapeake Bay effort will bolster
Baltimore's sewage treatment capabilities with
a $40 million targeted construction grant,
investigate the connection between air pollution and water quality, and help control
the significant pollution loadings from live-

Table 10-5. EPA's OPERATING BUDGET WILL INCREASE BY 5 PERCENT
(Budget authority; dollar amounts in millions)

Funding Summary

Implementing Clean Air Act changes
Enforcing environmental laws
Improved Knowledge Base
Geographic/Ecological Targeting
Other operating programs
Total EPA operating program
Operating program workyears

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

1992
Enacted

1993
Proposed

126
125
176
1,325

187
201
237
243
1,710

229
216
264
247
1,742

+42
+15
+26
+4
+32

+22%
+8%
+11%
+2%
+2%

1,752
11,649

2,578
13,929

2,698
14,217

+120
+288

+5%
+2%

1989
Actual

Part 0ne-216

THE BUDGET FOR FISCAL YEAR 1993

stock operations in the northern Chesapeake
Bay drainage area.
Mexican border activities will address air,
water, and hazardous waste issues consistent
with the U.S/Mexican Border Environmental
Plan and the proposed North American Free
Trade Agreement.
In the Gulf of Mexico, EPA will work
closely with the States to achieve better
control of toxic and hazardous pollutants,
which impair the quality of life of the residents
of the Gulf region, and threaten the high
biological productivity of the Gulf itself.
In addition, each EPA regional office will
emphasize high-priority targeted areas, such
as the Long Island Sound, the Puget Sound,
the San Francisco Bay Delta Estuary (including the S acramentc/San Joaquin River Basins),
the Everglades, and the Merrimack River
Basin in New England. These regional efforts
will involve all of EPA's relevant media
programs and be cooperative ventures with
affected States.
Enhancing Mexican Border Anti-Pollution Initiatives.—The budget includes $201
million governmentwide for environmental
projects along the Mexican border. This is a

95 percent increase over 1992 which will enable the Administration to continue to carry
out the initiatives in the Environmental Action
Plan it provided to the Congress on May 1991.
The United States and Mexico have worked
intensively throughout 1991 to develop a joint
U.S.-Mexico Environmental Border Plan that
will address major environmental problems in
the border region, including air and water
quality, hazardous waste management, and
emergency planning. This detailed plan will
guide the activities carried out in response to
commitments made in connection with negotiations on the North American Free Trade
Agreement (NAFTA). The U.S. and Mexico will
begin implementing the Border Plan in 1992
and maintain and substantially enhance these
efforts in 1993.
The proposed resource level will assure
funding for wastewater treatment at major
shared population centers, provision of drinking water and wastewater treatment to communities along the U.S. side of the border
that currently lack such services, expedited
action on air quality problems in twin border
towns, and a more aggressive enforcement
posture against illegal hazardous waste and

Table 10-6. GEOGRAPHIC TARGETING OF RISK REDUCTION FOR
A HEALTHIER ENVIRONMENT
(Budget authority; dollar amounts in millions)

Targeted Area

Mexican Border (EPA budget)
San Diego
Boston Harbor
Long Island Sound/New York Bright
Chesapeake Bay
Great Lakes
Los Angeles
Puget Sound
Gulf of Mexico
San Francisco Bay Delta Estuary
Merrimack River Basin
Other
Total (Operating Program and Construction
Grants)

1992
Enacted

1989
Actual

151

137

139
40
100
71
66
61
55
36
20
2
1
126

221

632

717

—

25
— •

12
11
—
—

1
—

—

57
40
100
71
63
59
55
36
12
2

1993
Proposed

—

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

+82

+144%

+1
-11

-8%

+85

+13%

—

+3
+2

—

+5%
+3%

—

+8
—

+67%
—

N/A

Part 0ne-217

10. PRESERVING AMERICA'S HERITAGE

disposal as well as other environmental violations.

drinking water by installing the necessary
infrastructure.

• Sewage treatment plants.—In keeping with
the U.S.-Mexico Environmental Border
Plan, the budget includes $80 million to
continue construction of the new Tijuana
sewage treatment plant near San Diego,
to expand treatment capacity at the plant
at Nogales, Arizona, and to initiate work
on improvements which will clean up the
New River, in California. These projects
will dramatically improve water quality
along the border with Mexico.

• Air quality.—Additional resources will be
allocated to air quality monitoring programs. The air emissions inventory in Ciudad Juarez/El Paso will be completed and
air quality monitoring programs and emissions inventories will be initiated in
Mexicalj/Calexico and Tijuana/San Diego.

• Wastewater grants.—The budget includes
$50 million in state grants to address
wastewater treatment needs in "colonias"
(unincorporated sub-divisions) along the
border in Texas. These border communities lack the health and environment infrastructure enjoyed by other areas of the
country.
• Drinking water grants.—The budget proposes $25 million in new resources for
Rural Development Administration grants
to "colonias" to improve the quality of

• Enforcement and Inspection.—The budget
includes $6 million for increased enforcement and inspection by EPA and the Food
and Drug Administration of hazardous
waste and sanitary and phytosanitary regulations, and for joint enforcement activities with the Mexican authorities. Efforts
will be targeted on potential hazardous
waste violators, and on more efficient
tracking of hazardous materials used by
border area industries.
Providing Clean Water for all Americans.—The budget includes $2.5 billion for
wastewater treatment grants, a $100 million
increase over the 1992 level. If Congress approves the budget, 95 percent of the authorized

Table 10-7. THE BUDGET PROPOSES TO DOUBLE RESOURCES TO
IMPLEMENT THE MEXICAN BORDER PLAN
(Budget authority; dollar amounts in millions)

Funding Summary

1989
Actual

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

80
50
25
3
6
37

+31
+50
+25
+1

+63%
IS/A

—9

-20%

1992
Enacted

1993
Proposed

Sewage Treatment Plants
Wastewater Grants for Colonias
Drinking Water Grants for colonias
Air Quality
Enforcement and Inspection
Other

—

2
6
46

Total
Mexican Border by Agency:
EPA
USDA
DHHS
IBWC
Export Import Bank

103

201

+98

+95%

—

+82
+25
+4
-13

+144%
N/A
+13%
+15%
-72%

+98

+95%

Total
1

—

1
—

—

2
26
18

139
25
2
30
x5

103

201

—

Program level remains constant in 1993; decrease reflects change in subsidy scoring.

—

+50%
—

Part 0ne-218

THE BUDGET FOR FISCAL YEAR 1993

funding for the program will have been appropriated by the end of 1993.

to assume full responsibility for providing
wastewater treatment infrastructure.

An unacceptably high number of America's
largest cities do not yet have adequate secondary sewage treatment, generally considered
the minimum acceptable level of treatment
necessary to protect human health and the
environment. The Administration's proposed
funding will expedite achievement of secondary
treatment standards while promoting economic
growth and employment. Jobs will be created
not only by the physical construction of
the facilities, but also by providing sufficient
water treatment capacity to allow new businesses to enter areas and existing firms
to take advantage of opportunities for expansion.

• Coastal City Grants.—For the second consecutive year, the budget requests costshared grants targeted at specific municipalities. The budget provides $340 million
in grants for secondary or advanced treatment of municipal sewage to six of the
cities with the Nation's largest, unmet
treatment needs—Boston, New York, Los
Angeles, San Diego, Seattle, and Baltimore. These cities are located in coastal
areas with significant recreational and ecological resources where expedited construction can have significant impact on
coastal water quality.

• State Revolving Funds.—More than $2 billion will be devoted to capitalizing State
Revolving Funds. This will allow States

SuperfuncL—For the fourth year in a row,
the Administration is requesting a substantial
increase to clean up hazardous waste sites.
The budget requests $1.75 billion, $134 million

Table 10-8. STATUS OF WATER QUALITY IN AMERICA'S 25 LARGEST
CITIES
(Budget authority; dollar amounts in millions)
City

New York, NY
Los Angeles, CA
Chicago, IL
Houston, TX
Philadelphia, PA
San Diego, CA
Detroit, MI
Dallas, TX
Phoenix, AZ
San Antonio, TX
San Jose, CA
Indianapolis, IN
Baltimore, MD
San Francisco, CA
Jacksonville, FL
Columbus, OH
Milwaukee, WI
Memphis, TN
Washington, DC
Boston, MA
Seattle, WA
El Paso, TX
Nashville-Davidson, TN
Cleveland, OH
New Orleans, LA
Total

Status of Sewage Treatment

Not Yet Secondary
Not Yet Secondary
Secondary
Secondary
Secondary
Not Yet Secondary
Secondary
Secondary
Secondary
Secondary
Secondary
Secondary
Not Yet Secondary
Secondary Fully Funded
Secondary
Secondary
Secondary
Secondary
Secondary
Not Yet Secondary
Not Yet Secondary
Secondary
Secondary
Secondary
Secondary

Administration
Proposed Grant for
1993

70
55
—
—
—
40
—
—
—
—
—
—
40
—
—
—
—
—
—
100
35
—
—
—
—
340

Part 0ne-219

10. PRESERVING AMERICA'S HERITAGE

For forty years, the agencies conducting
the atomic weapons production activities of
the government were not adequately attentive
to the environmental consequences of this
necessary but nevertheless hazardous activity.
There
were
several
causes
of
this
underattention. For much of this time, the
country did not have either the detailed
knowledge base or the sophisticated environmental cleanup and compliance laws that
exist today. There was sometimes an excessive
bias toward production of materials and weapons at the expense of prudent environmental
management in the allocation of resources.

more than Congress appropriated for 1992.
The budget maintains the Administration's enforcement emphasis, requiring polluters to
clean up the problems they created but continues the shift of resources begun under the
Bush Administration from support activities to
actual cleanup.
As shown on the chart depicting Superfund
budget authority since 1989, Congress has
repeatedly cut the President's requested funding for Superfund, despite the ongoing need
to eliminate the risks hazardous waste sites
pose to public health.
CLEANING UP FEDERAL FACILITIES

Whatever the causes, the Administration
has been determined to reverse the imbalance
between production and cleanup since coming
into office in 1989. In June 1989 the Secretary
issued a 10-point initiative requiring resetting
of priorities so that environment, safety, and
health objectives now take precedence over
production objectives. This budget represents
the continuance and acceleration of the President's efforts to bring all Federal facilities
into compliance with the nation's environmental laws and to clean up the legacy
of past neglect.

Department of Energy (DOE)
The President is committed to ensuring
that Federal facilities live up to the same
environmental standards that apply to private
facilities. Since coming to office, he has
tripled funding for the cleanup of wastes
at Federal facilities and for bringing them
into compliance with applicable environmental
laws and regulations.
The amounts requested in 1993 for both
the defense and civilian components of DOE's
Environmental Restoration and Waste Management (ERWM) program total $5,317 billion
in new budget authority. This represents
an increase of $1,034 billion, approximately
24 percent above the amount appropriated
by Congress for 1992 for this program. When
combined with amounts in the uranium enrichment account for ERWM activities, the total
available for ERWM program activities in
1993 is $5,534 billion, an increase of 26
percent above enacted 1992 levels.

The level of funding in the budget was
the result of an extensive interagency effort
designed to ensure that budgetary resources
provided in 1993 would be adequate to:
—allow the Federal government to meet
required milestones and legal requirements included in compliance agreements, consent orders, and Federal and
State statutes and regulations;

Table 10-9. FOCUSING SUPERFUND ON CLEANUP
(Budget authority; dollar amounts in millions)
1989
Actual

Cleanup
Enforcement
Support
Total Superfund

1992
Enacted

1993
Proposed

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

562
178
670

742
217
657

896
225
629

+154
+8
-28

+21%
+4%
-4%

1,410

1,616

1,750

+134

+8%

Part 0ne-220

THE BUDGET FOR FISCAL YEAR 1993

CONGRESS HAS CUT THE BUSH ADMINISTRATION'S REQUEST FOR
SUPERFUND BY $467 MILLION OVER THE PAST THREE YEARS
$ BILLIONS

1-8 T

1989

1990

1991

1992

1993

• REQUESTED BY PRESIDENT ^ APPROVED BY CONGRESS

—fully implement required DOE Orders
related to environment, safety, and
health (ES&H); and
—fund all DOE management orders and
a prudent amount of discretionary activities.
The OMB and Army Corps of Engineers
organized joint review teams which visited
DOE Headquarters and all field offices at
which ERWM activities are being conducted.
The teams met and consulted with DOE
site personnel, EPA regional personnel, and
representatives of the relevant State governments. The teams reviewed all of the more
than 2,000 Activity Data Sheets (ADSs) which
summarize work in the ERWM programs
and each sub-activity contained within each
ADS.
Each team's findings were presented to
a senior interagency review panel which included the Department of Energy, the EPA,
the OMB, the Department of the Army,
the Department of Justice, and the Department of Defense. The supporting analysis
was subsequently examined by DOE and

EPA personnel, and adjustments to the teams'
findings were made in all instances in which
additional documentation of legal requirements
or urgent needs was provided. The $5,534
billion in the budget request for environmental
restoration and waste management activities
accommodates every appeal received from
DOE or EPA in the detailed follow-up process.
Table 10-10 provides the distribution of funding by category of activity.
After reviewing the results of this extensive
effort, each agency represented on the interagency panel expressed confidence that all legal
requirements, DOE ES&H Orders, DOE management orders and necessary and prudent discretionary activities in the environmental restoration and waste management program, including the uranium enrichment account, can
be funded at the $5,534 billion level for 1993.
The OMB/Corps review teams also presented
recommendations to the interagency review
panel addressing long-term management improvements to the ERWM program. These
issues will be addressed in a separate report.

Part 0ne-221

10. PRESERVING AMERICA'S HERITAGE

GROWTH IN DOE CLEANUP BUDGET
$ MILLIONS
7,000

6,000

5,534

5,000

4,000

3,000 "

2,000 "

1,000 -

1991

The key issues are summarized later in
this Chapter.
The Department of Energy cleanup program
encompasses four major categories of program
activities: environmental restoration, waste
management, corrective activities, and technology development.
Environmental restoration activities include assessment, cleanup, and decontamination and decommissioning at contaminated facilities and sites that are no longer a part of
active operations, to meet the requirements of
applicable environmental laws, regulations,
and standards.
The program consists primarily of activities
related to corrective actions upon closure
of waste treatment, storage, and disposal
facilities, and remediation of inactive waste
disposal sites, uncontrolled release sites, and
underground storage tanks. Currently, assessment activities are in progress at all facilities,
and remedial actions are underway at hundreds of locations nationwide. The scopes,

1993

schedules, and cleanup standards for these
activities are negotiated with the EPA and
the States and are the subject of Resource
Conservation and Recovery Act (RCRA) permits, Consent Orders, Compliance Agreements,
and Federal Facility Agreements under the
Comprehensive
Environmental
Response,
Compensation, and Liability Act (CERCLA).
Proposed funding in 1993 for environmental
restoration is $1,940 billion, a 34 percent
increase over 1992.
The increase for environmental restoration
reflects the Department's commitment to meeting the requirements of compliance agreements it has entered into with EPA and
affected States. These compliance agreements
contain aggressive schedules for assessment
and cleanup. During 1991 the Department
signed 11 agreements, and an additional
agreement was completed in early 1992, bringing the total to 71 agreements completed
to date. An additional 27 agreements will
be signed shortly or are under negotiation.
In addition, significant increases in funding

Part 0ne-222
for the environmental restoration program
are required in 1993 as program activities
continue to shift into the detailed investigation, characterization, and cleanup phases
of remediation. A large portion of the 1993
funding will be for investigation and feasibility
studies leading to the selection of actual
remediation actions.
The environmental restoration program also
includes the Formerly Utilized Sites Remedial
Action Project (FUSRAP) and the Uranium
Mill Tailings
Remedial Action
Project
(UMTRAP). The FUSRAP program provides
for remedial action at privately owned former
nuclear processing facilities that became contaminated as a result of Manhattan District
or Atomic Energy Commission work, or have
been specifically assigned to DOE by Congress.
There are currently 33 sites in 10 States
under this project, including six sites on
the EPA National Priorities List. The Uranium
Mill Tailings Radiation Control Act of 1978
authorizes DOE to conduct a mill tailings
stabilization and control program at 24 inactive uranium mill tailings sites and an estimated 5,000 associated vicinity properties.
In addition, the Uranium Mill Tailings
Groundwater Restoration Project will restore,
as necessary, the groundwater of 24 designated
uranium mill tailings sites.
Waste management operations provide for
the management of wastes generated as a result of ongoing operations at active facilities.
This is accomplished through minimization,
treatment, storage and disposal of various
waste types including radioactive, hazardous,
mixed and sanitary wastes, in compliance with
applicable local, State and Federal requirements and internal DOE requirements. Funding for waste management activities comprises
the largest portion of the proposed environmental restoration and waste management
budget, totaling $3,145 billion in 1993, a 28
percent increase over 1992.
The large increase for waste management
includes major initiatives in the management
of high-level radioactive waste (HLW) and
transuranic waste. For high-level wastes, two
treatment facilities have been constructed,
the Defense Waste Processing Facility at
Savannah River, South Carolina, and the
West Valley Demonstration Project in West

THE BUDGET FOR FISCAL YEAR 1993

Valley, New York. In addition, facilities are
being planned and designed at Hanford, Washington (the Hanford Waste Vitrification Plant),
and at the Idaho National Engineering Laboratory. These facilities will convert highlevel waste into a stable form that is acceptable for permanent disposal in a Federal
repository. The HLW management program
also includes the operation of waste storage
tanks at Savannah River, Hanford, and Idaho
and waste calcining facilities at Idaho. The
waste management budget also includes $185
million for the Waste Isolation Pilot Plant
in New Mexico, a pilot facility to test whether
transuranic waste can be safely disposed
in a geologic repository.
Significant increases Eire also associated
with low-level radioactive waste (LLW) management and DOE's waste minimization program. LLW treatment will occur at a number
of sites. Two incinerators are operating, the
Waste Experimental Reduction Facility incinerator at the Idaho National Engineering
Laboratory and the Toxic Substances Control
Act Incinerator in Oak Ridge, Tennessee,
and one more is planned at Savannah River.
In addition, the Savannah River Saltstone
Facility and the Grout Treatment Facility
at Hanford will solidify liquid LLW and
mixed LLW into stable waste forms for
disposal. The waste minimization program
is working to reduce waste generation through
source reduction, recycle of materials that
cannot be eliminated, and treatment of waste
to reduce volume, toxicity and mobility prior
to storage.
Corrective activities include those actions
needed to bring currently operating and standby facilities into compliance with applicable
air, water, and solid waste regulatory requirements, negotiated agreements, other local,
State and Federal requirements, and internal
DOE requirements in an expeditious manner.
Most of the corrective activity requirements
are in the near term, reflecting the need for
prompt action to bring operational facilities
into compliance with existing standards, such
as the Clean Air and Clean Water Acts. Significant progress has been made in achieving
compliance. As a result, many activities will
be completed by the end of 1992. This is reflected in the decreased funding request for

10. PRESERVING AMERICA'S HERITAGE

corrective activities, totaling $84 million in
1993.
Technology development provides for research and development activities which will
develop and apply more effective technologies
to help meet the Department's environmental
restoration and waste management goals. To
support environmental restoration goals, emphasis is on improved or new technology for
characterization of sites to determine the magnitude and extent of contamination spread and
its physical and chemical nature and on soil
and groundwater remediation technologies. To
support waste management operations, emphasis is on waste retrieval and processing, creating waste forms suitable for disposal, and
minimizing production of future wastes
through process changes, materials substitution and recycling. The budget proposes to
increase the investment in technology development more than six-fold over 1989 levels, to
a total of $315 million.
An additional $49 million for transportation
management and program direction brings
the total Administration proposal for 1993
cleanup activities at DOE sites to $5,534
billion, as noted above.
Uranium enrichment.—Of the $5,534 billion total, the budget proposes $217 million,
an increase of $93 million or 75 percent over
1992, for environmental restoration, waste
management, and corrective activities funded
by the DOE Uranium Enrichment Program.
These activities are funded from a separate
account that collects the proceeds from the sale
of uranium enrichment services. The funding
requirements are based on an overall cost allocation to this account of approximately 50 percent of the total environmental restoration
costs, with the remaining 50 percent allocated
to the government, to be funded from the Defense Environmental Restoration and Waste
Management account. This 50-50 split reflects
the historical allocation of costs within the
Uranium Enrichment program between National Defense and Commercial applications.
Corrective action and waste management activities at the operating enrichment sites are
fully funded by the URE program.
The budget proposes to establish a new
environmental cleanup fee, to be applied
to all U.S. nuclear power plants which at

Part 0ne-223
any time utilized DOE uranium enrichment
services, whose proceeds would be used exclusively for remediation and decontamination
and decommissioning (D&D) at the uranium
enrichment sites. A fee of one-third mill
per kilowatt-hour of electricity generated
would be assessed to each domestic nuclear
power reactor. The proposed fee would not
apply to the cost of activities needed to
permit currently operating uranium enrichment facilities to achieve compliance with
current emission limitations, i.e., it would
not apply to corrective actions and waste
management activities.
For 1993, the fee is proposed at a level
to cover the projected average five-year
(1993-97) cost of remediation and D&D activities attributable to commercial users, based
on historical cost allocation assumptions (i.e.,
based on the quantity of enrichment services
delivered to non-government customers over
the life of the facilities). It is intended
that the proposed level be maintained for
at least three years. The actual level of
the fee does not prejudge the development
and adoption of a revised estimate of total
costs for remediation and D&D of the uranium
enrichment facilities, including any possible
revision of the historical cost allocation assumptions. The Administration would propose
to adjust the fee to reflect any such changes
that may be adopted in the future.
Long-term recommendations.—The budget's recommendation of a 26 percent increase
to $5,534 billion for DOE Federal facility
cleanup reflects the commitment to clean these
facilities up on an accelerated basis and provide the funds necessary to meet all legal requirements. Nevertheless, the Administration
is concerned about management and overhead
expenses which inevitably plague a program
experiencing this type of cost growth. To address emergent problems in this rapidly growing program, the members of the interagency
review panel have developed a set of long-term
recommendations for the ERWM program.
They are summarized below.
Tracking budgets to legal requirements.—The interagency review found that
the current budget and management systems
do not relate estimates to legal requirements,
do not track expenditures to legally-required

Part 0ne-224

THE BUDGET FOR FISCAL YEAR 1993

milestones, and do not measure accomplishments against those milestones. In the President's 1992 budget, the Administration proposed the establishment of a management
tracking system to ensure that resources and
planned funds were targeted in actual use toward meeting legal requirements and milestones, and to measure progress against those
milestones. DOE has taken initial steps towards implementing such a system. A fully
operational progress tracking system should be
in place in the near future.
Reducing excessive overhead costs.—The
review found apparent excessive overhead
costs at many sites, and wide variability by
site, unrelated to programmatic factors. Excessive overhead costs reduce the amount of funding available for actual cleanup and compliance. As a result of this finding, the DOE is
initiating a more detailed review of management procedures and overhead policies at all
its field office sites, led by the Chief Financial
Officer. This problem nevertheless remains an
issue of serious concern to the interagency
group—current overhead and program management costs far exceed those for comparable
Federal or private sector activities.
Improving DOE ERWM cost estimating.—The review identified a number of estimates that included individual items with excessively high costs. There are several factors
that lead contractors and ERWM site personnel to include cost estimates in the budget that
probably exceed the amount that will be re-

quired. Contingencies are often a major part
of the estimate due to major unknowns and
uncertainties regarding the scope of clean-up
requirements, threat of enforcement actions,
and personal liability, among other reasons.
The review identified a number of contingency
estimates that were excessively high. These
must be brought into line with normal practice
for major construction projects. This, too, is
an area of major concern identified by the
interagency group.
Improving contractor oversight.—The review teams found numerous instances of a lack
of effective Federal oversight of contractors at
the ERWM field sites. In response to this finding, the budget contains funds to permit a
large increase in FTE levels from 1991 to 1992
and a further increase in 1993, with most of
the increase going to field offices. As a result,
the ERWM program will have adequate FTE
levels to effectively manage its program. In
part, another concern of the interagency group
was the disproportionate growth of ERWM
headquarters FTE relative to field personnel.
The group concluded that both current and future FTE should be re-allocated with emphasis
on field oversight of contractors.
Department of Defense (DOD)
The Defense Department continues making
major progress in environmental cleanup and
compliance. Over the past year significant
advances have been made in environmental
planning, compliance, pollution prevention,

Table 10-10. TOTAL DOE CLEANUP BUDGET
(Budget authority; dollar amounts in millions)
1989
Actual

Total Cleanup Programs:1
Environmental Restoration
Waste Management
Technology Development
Corrective Activities and Other
Total DOE Cleanup Program
FTEs
1

Includes both ERWM and URE programs.

...

1992
Enacted

1993
Proposed

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

466
1,105
52
139

1,453
2,463
303
188

1,940
3,145
315
133

+487
+682
+12
-55

+34%
+28%
+4%
-29%

1,762

4,407
1,551

5,534
1,598

+1,127
+47

+26%
+3%

373

Part 0ne-225

10. PRESERVING AMERICA'S HERITAGE

and restoration. The budget provides $3.7
billion, an increase of 35 percent above the
enacted 1992 level for cleanup and compliance
with environmental laws. In addition, the
Administration anticipates a $1 billion supplemental for the DOD in 1992 to enable
the DOD to accelerate cleanup of contaminated
sites and bring all of its operations into
full compliance with Federal, State, and local
environmental laws.
Including the anticipated 1992 supplemental, the DOD plans to spend $2.0 billion
in both 1992 and 1993 to clean up existing
contaminated Defense facilities. In addition
to cleaning up existing contamination, the
DOD plans to spend another $1.8 billion
in 1992, and $1.7 billion in 1993 to comply
with Federal, State, and local environmental
laws. Environmental program initiatives begun
in 1987 have reduced DOD's hazardous waste
generation by over 40 percent to date, and
by over 50 percent by the end of 1992.
These actions are coupled with thousands
of initiatives at local installations, ranging
from basewide recycling programs to massive
reductions in energy use. Taken together,
these steps will help ensure environmental
compliance at all Defense facilities.
Department of the Interior (DOI)
The budget proposes $80 million, a 14
percent increase above 1992, for environmental
compliance and hazardous materials manage-

ment activities, such as assessment and remediation of potentially contaminated DOI sites,
emergency responses to illegal disposal, and
accidents involving hazardous materials. This
will allow DOI to implement prevention and
minimization of wastes, management of wastes
to protect natural resources and the users
of DOI lands and facilities, and aggressive
cleanup and restoration of DOI sites that
may be contaminated. There will be 260
assessments and investigations in 1993. The
budget also fully funds all remedial actions
scheduled for 1993. DOI hazardous materials
sites include authorized and unauthorized
landfills, potential discharges from abandoned
mining operations, illegal drug labs, contaminated irrigation drainage, and leaking underground storage tanks.
Department of Agriculture (USDA)
The budget proposes $39 million, an increase
of 3 percent above 1992, for hazardous waste
management activities in USDA. USDA operates a centrally managed Hazardous Waste
Management program, which is responsible
for coordinating and monitoring all compliance
actions. The Forest Service, the Agriculture
Research Service, and the Commodity Credit
Corporation account for over 90 percent of
all hazardous waste compliance activities within USDA. Problems consist mainly of leaking
underground storage tanks, potential discharge of toxic wastes from abandoned mines,

Table 10-11. THE BUDGET INCLUDES AN ADDED $3.15 BILLION IN
1992 AND 1993 TO SPEED THE CLEANUP OF FEDERAL FACILITIES
(Budget authority; dollar amounts in millions)
1989
Actual

Department of Energy
Department of Defense
Department of Agriculture
Department of the Interior
Department of Transportation
NASA, DOJ, and DOC
Total
DOD 1992 Anticipated Supplemental

1,762
1,155
8
41
29
28
3,023
—

1992
Enacted

1993
Proposed

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

4,407
2,761
38
70
54
41

5,534
3,718
39
80
59
58

+1,127
+957
+1
+10
+5
+17

+26%
+35%
+3%
+14%
+9%
+41%

7,371

9,488

+2,117

+29%

+1,034

—

N/A

IS/A

Part 0ne-226

THE BUDGET FOR FISCAL YEAR 1993

and potential contamination from past discharges of chemicals from research facilities.
Department of Commerce (DOC)
The budget requests $2 million to continue
a program of environmental cleanup and
compliance at National Oceanic and Atmospheric Administration (NOAA) facilities.
NOAA is monitoring the cleanup of environmental problems at its facilities nationwide
and has begun replacing leaking underground
storage tanks on its properties.
Department of Transportation (DOT)
The budget provides $59 million, a 9 percent
increase above 1992, for hazardous waste
cleanup and compliance activities in DOT.
The Federal Aviation Administration (FAA)
and the Coast Guard account for nearly
all of DOT's cleanup and compliance needs.
Much of the work involves replacement of
underground fuel storage tanks.

National Aeronautics and Space
Administration (NASA)
The budget requests $40 million, an increase
of 11 percent above 1992, for cleanup and
compliance activities in NASA. NASA cleanup
projects include soil and groundwater remediation, upgrade of various facilities, leaking
underground storage tanks, and addressing
facilities' deficiencies and corrective action
requirements.
Department of Justice (DOJ)
The budget requests $16 million for environmental cleanup and compliance activities at
DOJ facilities. The Bureau of Prisons accounts
for most of the DQJ's activities, with resources
devoted to RCRA and Superfund cleanups,
and compliance with the Clean Air Act and
Clean Water Act. In addition, in 1993 the
Immigration and Naturalization Service will
continue projects to replace existing underground storage tanks before leakage occurs.

SPEEDING THE CLEANUP OF FEDERAL FACILITIES
$ BILLIONS

1989

1990

1991

1992

1993

10. PRESERVING AMERICA'S HERITAGE

MAINTAINING
THE
ADMINISTRATION'S
COMMITMENT
TO
THE
PRESIDENT'S GOAL OF "NO NET
LOSS" OF WETLANDS
In his August 9, 1991, statement, the
President announced a comprehensive plan
that seeks a balance between wetlands protection, enhancement, and restoration and sustained economic growth and the protection
of private property rights. The budget implements the programs announced in the wetlands plan, and represents an increase of
$212 million (+35 percent) over 1992 for
wetlands protection, enhancement and restoration. Since 1989 the Administration has
proposed more than a 170 percent increase
in wetlands funding.
• The budget funds USDA's Wetlands Reserve Program at 1 million acres through
1995 for a voluntary program of conservation easements. The budget proposes
nearly $800 million during 1993-1995 to
encourage farmers to remove higher-priority wetlands from production through
these easements.
• The budget again proposes $15 million in
discretionary funding to fully fund the
North American Wetlands Conservation
Act. This will accelerate implementation
of the North American Waterfowl Plan to
restore declining migratory bird populations. Under this program Federal/State/
private partnerships are formed to match
Federal funds to acquire, restore, and enhance wetlands in Canada, Mexico, and
the United States. Congress failed to fund
this program in 1992.
• The budget proposes $50 million to fully
fund the Wetlands Protection and Restoration Programs managed by the Department of the Interior and the Army
Corps of Engineers for the conservation
and restoration of coastal wetlands.
• The budget also funds various multi-agency programs for the conservation and management of wetlands habitat for migratory
bird populations and endangered species,
conservation and restoration of other highpriority wetlands, and ongoing wetlands
research, education, and development.

Part 0ne-227
• The Administration will continue to make
wetlands a priority in the allocation of
Land and Water Conservation Funds
(LWCF) to Federal agencies. In addition,
the Administration proposes to target a
portion of LWCF State grant funds to nonFederal wetlands enhancement.
• The budget proposes the continuation of
the Coastal America program within existing funding levels. EPA, Commerce, the
Army Corps of Engineers, and DOI will
focus on the preservation and cleanup of
polluted coastal estuaries and eroding
coastal wetlands. This program is a practical, action-oriented approach for the protection and restoration of the Nation's
coastal resources.
• The budget proposes a total of $15 million
to keep construction and land acquisition
for the Everglades National Park on
schedule to further carry out the Administration's
commitment
to
restoring
waterflows at the park.
All of the actions listed above are designed
to protect habitat or enhance restoration.
At the same time, the Administration will
continue to pursue program reforms to streamline the permit approval process, increase
flexibility for States and harness market
mechanisms in wetlands protection so that
the objectives of the wetlands program can
be met in a way that is consistent with
a dynamic, growing economy.
WATER RESOURCE AGENCIES WILL
EMPHASIZE ENVIRONMENTAL PROTECTION, MITIGATION, AND RESTORATION
Protecting and Restoring Environmental
Resources—Army Corps of Engineers.—The
budget above includes $93 million to strengthen environmental protection while streamlining the regulatory program. In order to reduce
delays and the cumbersomeness of the regulatory process, the budget provides for an increase in staffing to improve performance and
speed in both permit evaluation and compliance monitoring. There will be $35 million for
cooperative wetland projects in the State of
Louisiana, authorized under the Coastal Wetlands Planning, Protection and Restoration Act

Part 0ne-228

THE BUDGET FOR FISCAL YEAR 1993

Table 10-12. FUNDING FOR WETLANDS RESEARCH, PROTECTION AND
ENHANCEMENT WILL INCREASE BY 35 PERCENT
(Budget authority; dollar amounts in millions)
1989
Actual

Wetlands Funding by Activity:
ResearclyEducation
Conservation/Restoration
CoordinatioiyRegulation
Mapping
Construction
Water Rights
Land Acquistion
Total
Wetlands Funding by Agency:
USDA
DOI
EPA
ARMY
NOAA
Total

of 1990. Nationwide, Corps wetlands restoration implementation studies, projects, and
research will be funded at $57 million.
The budget for the Corps includes about
$75 million and $56 million, respectively,
for the protection and restoration of environmental resources other than wetlands.
Mitigating Environmental Impacts of
Projects•—The Army Corps of Engineers'
budget includes $108 million to continue mitigating substantial environmental impacts of
specific water resources projects. Examples of
mitigation projects include land purchases for
the Tennessee-Tombigbee Waterway ($10 million), Richard B. Russell Dam and Lake ($12
million), and the Missouri River ($6 million).
The Corps will acquire and develop lands to
mitigate for wildlife habitat lost from construction of the projects. When completed, 88,000,
22,000, and 30,000 acres respectively will be
acquired. In addition, existing publicly-owned
lands will also be managed for wildlife mitigation at these projects.
Significant work on the Columbia and Snake
Rivers is included in Corps mitigation efforts.

1992
Enacted

1993
Proposed

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

19
39
102
37
27
2
69

33
238
152
33
3
6
135

34
383
164
38
8
9
176

+1
+145
+12
+5
+5
+3
+41

+3%
+61%
+8%
+15%
+167%
+50%
+30%

295

600

812

+212

+35%

79
93
9
98
16

152
223
29
173
23

276
291
33
190
22

+124
+68
+4
+17
-1

+82%
+32%
+14%
+10%
-4%

295

600

812

+212

+35%

Completion of fish hatcheries to provide 27
million juvenile salmon and steelhead annually, construction of wildlife compensation
facilities, and purchase of 24,000 acres of
land along the lower Snake River for fisherman access, wildlife habitat, and hunting
access are funded at $12 million. The Columbia River Juvenile Fish Mitigation project,
funded at $45 million, will continue construction of fish bypass facilities at six existing
locks and dams, and various mechanisms
to improve downstream migration of juvenile
salmon. These fish bypass projects, with a
total cost of over $300 million, will assist
the passage of juvenile fish around the turbines at Lower Granite, Lower Monumental,
Little Goose, McNary, The Dalles, and Ice
Harbor Dams.
Bureau of Reclamation—Protecting and
Restoring Environmental Resources.—
Studies will evaluate the potential for improving fish and wildlife habitat and preserving
and restoring wetlands in cooperation with the
Fish and Wildlife Service and State and local
partners. Site specific studies have been identified in areas affected by the development of

Part 0ne-229

10. PRESERVING AMERICA'S HERITAGE

Table 10-13. ARMY CORPS OF ENGINEERS (CIVIL WORKS); PROTECTION
AND RESTORATION OF ENVIRONMENTAL RESOURCES
(Budget authority; dollar amounts in millions)
1992
Enacted

1993
Proposed

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

+8%

—

- —

—

8
126
47

10
139
53

+2
+13
+6

+25%
+10%
+13%

147

267

300

+33

+12%

10
39

32
15
47

45
10
53

+13
—5
+6

+41%
-33%
+13%

108

+14

+15%

196

361

408

+47

+13%

1989
Actual

Protection and Restoration:
Increase the Responsiveness of the Regulatory
Program
Wetland and Other Aquatic Habitat Creation
(Section 307a)
Project Modification for Improvement of Environment (Section 1135)
Protection and Restoration Activities
Other Environmental Programs1
Total—Protection and Restoration
Mitigation:
Columbia River Juvenile Fish Mitigation
Tennessee-Tombigbee Waterway Mitigation
Other Mitigation Projects
Total—Mitigation
Total Environmental Program
1

—

Wetlands Research Program, Coastal Wetlands Restoration Trust; and Evironment R&D.

Federal projects to determine how current operations could be modified to restore fish and
wildlife habitat, and for sediment control,
water quality improvement, flood control, and
groundwater recharge. Reclamation will complete a general wetlands inventory on 8.5 million acres of Reclamation lands, begin data collection at demonstration sites, and continue activities to ensure an adequate water supply
for wetlands.
Bureau of Reclamation—Mitigating Environmental Impacts of Projects.—The
budget proposes $84 million to mitigate adverse impacts of water resource projects. Proposed activities include modification of project
facilities and operational changes to improve
anadromous fisheries, migratory waterfowl
habitat, and other environmental resources, including:
• Environmental restoration activities at the
Central Valley Project in California, including restoration of fish and wildlife resources along the Trinity and Sacramento
Rivers.

• Work on the Yuma Desalting Plant in Arizona as part of a commitment by the United States to meet certain water quality
standards for Colorado River water entering Mexico.
• Land acquisition and mitigation development at the Audubon and Arrowwood
Wildlife Refuges, the Kraft Slough, and
the Lonetree Wildlife Management Area
in North Dakota.
• Continued implementation of the provisions of the Truckee-Carson-Pyramid Lake
water rights settlement legislation.
This budget places greater emphasis on
the improved management, use, and conservation of the water and land resources
associated with Reclamation projects, thus
significantly reducing their future adverse
environmental impacts.

Part 0ne-230
CONSERVING,
PROTECTING,
AND
MANAGING MARINE AND COASTAL
RESOURCES AND HABITAT
National Marine Fisheries Service
(NOAA)—Protecting and Restoring Fisheries.—The budget provides a total of $219
million to strengthen the Federal role in fisheries management and conservation. "Our Living Oceans," the first annual report on the
status of U.S. living marine resources, published by the U.S. Department of Commerce,
shows that the majority of the Nation's fish
stocks are in poor condition. The budget supports the restoration of living marine resources
through major strategic initiatives to: rebuild
U.S. fisheries by reducing overfishing, stabilizing currently productive fisheries, and improving stock assessment; promote recovery of
endangered or threatened species, including
marine mammals and sea turtles, by integrating conservation of species and fisheries management; protect and restore coastal and estuarine fishery habitats; and improve seafood
safety.
National Ocean Service (NOAA)—Protecting and Managing the Coastal and
Marine Environment.—The budget provides
over $7 million (a 46 percent increase over
1992) for the designation of national marine
sanctuaries. A total of $17 million is provided
for the Coastal Ocean Program (a 48 percent
increase over 1992) to continue to strengthen
and provide focus for NOAA's coastal programs. Coastal ocean research will improve
predictions of human influence on fisheries
productivity, environmental quality, and coastal hazards, within the context of natural variability.
GLOBAL CLIMATE CHANGE
The U.S. Global Change Research Program
(USGCRP) is designed to produce a predictive
understanding of the entire Earth system
to support the national and international
policymaking activities associated with global
and regional environmental issues such as
ozone depletion and global warming. This
interagency research effort (eleven agencies)
promises not only the information to support
today's policy questions but the maintenance
of a strong foundation of multi-disciplinary

THE BUDGET FOR FISCAL YEAR 1993

science required to address the unanticipated
issues of tomorrow.
The budget proposes $1,372 million for
the USGCRP, a $263 million or 24 percent
increase over the 1992 funding level. The
USGCRP addressed three parallel interconnected streams of activities: 1) documenting
global change through the establishment of
a long-term monitoring program; 2) enhanced
understanding of key physical, chemical, biological, and social processes that influence
and govern the Earth evolution, and 3)
predicting global change through the development of predictive Earth system models.
Planning for the USGCRP has been driven
by a strategic and scientific priority framework
that has been extensively reviewed by the
science community. Over the past two years,
this framework has been extended to include
a set of integrating themes that address
the scientific uncertainties identified by the
U.N-sponsored Intergovernmental Panel on
Climate Change, and the economic research
and important policy questions identified as
a result of the 1990 White House Conference
on Science and Economics Research Related
to Global Change. The further integration
of economics research into the USGCRP is
particularly important since an understanding
of the relationship between global change
and the economy is fundamental to assessing
the magnitude of the potential impact on
a society, as well as to developing effective
responses.
The critical role of economics in understanding and responding to global change was
widely acknowledged by world leaders, including President Bush, at the 1990 White House
Conference on Science and Economics Research Related to Global Change.
The ultimate success of the USGCRP requires progress and integration of data collection, process studies, and modeling across
all the various disciplines. Central to this
strategy is a balance between ground- and
space-based research activities. Ground-based
observations and theoretical process studies
will be complemented by a comprehensive
space-based program to provide global observations of key environmental parameters. For
example, while NASA's Mission to Planet
Earth (including the Earth Observing System)

Part 0ne-231

10. PRESERVING AMERICA'S HERITAGE

is a fundamental contribution to the USGCRP,
many of the ground-based data sets will
be used to calibrate the complementary Mission to Planet Earth satellite data sets.
The USGCRP is described in further detail
in the Enhancing Research and Development
and Expanding the Human Frontier chapter
of the budget.
HISTORIC PRESERVATION PROGRAMS
The budget requests $41 million for the
Historic Preservation Fund Program of the
National Park Service, $5 million more than
enacted in 1992. The Historic Preservation
Fund provides matching grants to States
and the National Trust for Historic Preservation for historic preservation planning,
projects, and activities.

The budget requests an additional $1 million
for the National Trust for Historic Preservation for comprehensive planning and technical
assistance to preserve and restore Montpelier
located in Orange County (VA). Montpelier
was the ancestral home of James Madison,
one of America's founding fathers, the Nation's
fourth President, and primary architect of
the Bill of Rights.
Also, the DOI and the United Negro College
Fund have reached an agreement in principle
to jointly sponsor a preservation effort on
the campuses of Historically Black Colleges
and Universities (HBCU) across the Nation.
For 1993, the budget proposes an increase
of $4 million in Historic Preservation Grants
to implement this Federal/non-Federal partnership.

Table 10-14. U.S. GLOBAL CHANGE RESEARCH PROGRAM
(Budget authority; dollar amounts in millions)
Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

1992
Enacted

1993
Proposed

By Space/Ground Compoment
Ground-based
Space-based
NASA-EOS
NASA-EOS Precursors
DOE

1,110
733
377
188
189

—

1,372
915
457
308
139
10

+263
+182
+80
+120
-50
+10

+24%
+25%
+21%
+64%
-26%
NA

By Integrating Theme
Climate Modeling and Prediction
Global Water and Energy Cycles
Global Carbon Cycle
Ecological Systems and Population Dynamics
Economics
Other

1,110
123
385
202
174
4
222

1,372
143
463
252
246
13
256

+263
+20
+79
+49
+72
+9
+34

+24%
+16%
+20%
+24%
+41%
+225%
+15%

1,109.8
755.9
108.5
77.0
47.0
44.3
39.4
24.0
6.3
6.3
1.0
0.1

1,372.4
890.8
162.5
113.0
78.2
47.6
35.8
26.0
10.6
6.6
1.2
0.1

+263
+135
+54
+36
+31
+3
-4
+2
+4

+24%
+18%
+50%
+47%
+66%
+7%
-9%
+8%
+68%
+5%
+20%

By Agency
National Aeronautics and Space Administration
National Science Foundation
Energy
Commerce
Agriculture
Interior
Environmental Protection Agency
Smithsonian
Defense
Health and Human Services
Tenessee Valley Authority

—
—
—

—

Part 0ne-232
Advisory Council on Historic Preservation.—Advisory Council on Historic Preservation (ACHP) advises the President and Congress on historic preservation matters, and formally comments on Federal, federally-assisted,
and federally-licensed undertakings that may
affect historic properties. The budget requests
$2.8 million, an increase of 7 percent over
1992. The increase will allow ACHP to meet
increasing project review caseloads and to consider long-term improvements in the historic
preservation program.
Energy: Fueling Economic Growth
The Administration's National Energy Strategy (NES), released by the President February
20, 1991, lays the foundation for increasing
U.S. competitiveness and future economic
growth through a more efficient, less vulnerable and environmentally sustainable energy
future. The objective of the NES is to assure
reliable supplies of clean and affordable energy
to fuel an expanding economy.
The Administration believes that market
mechanisms should determine the allocation
of resources and investments. Unlike many
energy plans which have been proposed in
the past, a fundamental assumption in the
NES is that capital investment in energy
technologies and supplies should be voluntary
rather than the result of mandated constraints
on American businesses and households.
The budget proposes investments to help
implement the NES and achieve its energy
policy objectives. The budget initiatives are
intended to balance energy conservation and
energy production in a way that enhances
international competitiveness. Two of the keys
for achieving this balance are regulatory
reform and development of new technology.
In the last decade, deregulation initiatives
in the energy sector have provided substantial
benefits to energy producers and consumers
alike. Building upon these initiatives, the
National Energy Strategy seeks to remove
institutional and regulatory barriers to the
efficient use of the Nation's energy resources.
The budget proposes almost $1 billion a
year in NES-related R&D investments, which,
combined with the initiatives in the NES,
will spur more efficiency and productivity
throughout the energy sector.

THE BUDGET FOR FISCAL YEAR 1993

Implementation of these initiatives is expected to add more than half a new million
jobs to our economy over the next fifteen
years, while substantially reducing the economic risks of future oil supply disruptions
and price shocks.
Increasing Energy and Economic
Efficiency
The Administration's energy initiatives reflect a national commitment to greater efficiency in every element of energy production
and use. Greater energy efficiency can reduce
energy costs to consumers and increase the
productivity and competitiveness of U.S. industry. The Administration has proposed regulatory reform measures aimed at increasing
efficiency in electricity generation and use.
The principal measure is to amend the Public
Utility Holding Company Act of 1935 to
eliminate barriers to entry into the wholesale
electricity generation market, while ensuring
continued protection of consumer interests.
The Administration also is working with
the Federal Energy Regulatory Commission
to expand access to electricity transmission
services. In addition, the budget provides
increasing funding to assist State regulatory
authorities and utilities in implementing integrated resource planning, a process in which
both supply and demand resources compete
to satisfy electricity needs in the most efficient
way.
The budget proposes over $350 million
for conservation research and development,
an increase of about 25 percent over 1992
levels and more than double the 1989 levels
when this Administration took office. These
investments will spur the development of
new technologies to increase efficiency in
residential and commercial buildings, in industry and in the transportation sector.
Of particular note, the budget proposes
$162.4 million for research and development
of cleaner, more efficient transportation technologies that will improve U.S. economic
competitiveness and create jobs in this important manufacturing sector. This budget initiative represents a 47 percent increase over
comparable 1992 levels, and includes funding
for:

Part 0ne-233

10. PRESERVING AMERICA'S HERITAGE

FUNDING FOR CONSERVATION & RENEWABLE ENERGY R&D HAS ABOUT
DOUBLED SINCE 1987
$ MILLIONS

800

616
600 -

400 -

200 -

1989

1990

1991

1992

1993

I SOLAR &RENEWABLES 0 CONSERVATION

• U.S. Advanced Battery Consortium, a fouryear, $260 million joint research venture
with the Nation's three largest automobile
manufacturers, the electric utility industry
and others. This consortium, begun last
year, will work to develop a new generation of batteries to make electric vehicles
attractive and available by the year 2000.
• Increased purchase of alternative-fueled vehicles (AFVs).—DOE will fund the incremental cost and allow the purchase of at
least 5,000 additional AFVs. When combined with already announced Government purchases, the Federal government
will be two years ahead of the AFV purchase schedule required by the Clean Air
Act.
The NES also contains an extensive list
of cost effective measures to promote energy
efficiency and conservation that are being
implemented administratively. These include:
• Clarification by the IRS in Revenue Ruling
91-36, issued July 1, 1991, that utility efficiency incentive payments provided in

the form of discounts on electric bills are
not taxable income to the recipient.
• Improved building
and guidelines.

efficiency standards

• Expansion of appliance efficiency labeling
to permit more informed consumer choice
at time of purchase.
• Expansion of DOE-supported Energy Analysis and Diagnostic Centers for improving
energy efficiency in business and commerce sectors.
• Improved Transportation energy efficiency
througha modification to Treasury regulations increasing the amount of mass transit subsidies that employers may provide
to employees up to the maximum allowed
under current law.
• Issuance of an Executive Order 12759, directing all Federal agencies to undertake
cost-effective actions which reduce energy
consumption by 20 percent. Not only does
this Order provide Federal leadership in
energy conservation but it also will save

Part 0ne-234
taxpayers up to $800 million annually,
and 100,000 barrels of oil equivalent per
day.
• Removing market and regulatory barriers
to alternate and renewable fuels.
Securing Future Energy Supplies
Regulatory reform and increased R&D for
oil, natural gas, coal, nuclear and renewable
will expand the fuel and technology choices
available to the Nation to stimulate economic
growth, improve our energy security and
enhance our environment.
Oil
For the foreseeable future, oil will remain
a critical fuel for the United States and
the world. The Administration is pursuing
a balanced approach to improve our energy
security by reducing our economy's dependence
on oil and increasing the environmentally
responsible production of oil. On the demand
side, increased efficiency, expanded use of
natural gas and the introduction of alternative
fuels and technology are projected to reduce
our need for oil by 3.4 million barrels per
day by the year 2010. On the supply side,
R&D investments of $47 million in 1993
for advanced oil recovery (27 percent over
the 1992 enacted level) and actions to remove
unwarranted barriers to domestic production
are projected to increase domestic supplies
of oil by 3.8 million barrels per day by
2010.

THE BUDGET FOR FISCAL YEAR 1993

ued loss of domestic oil production capacity
on Federal lands, the Administration is proposing royalty relief for stripper wells on Federal
lands so that the cost of the royalty payments
do not force the premature abandonment
of these low volume wells. The Administration
has issued an export license for California
heavy crude and it will issue a Presidential
finding permitting the export of an initial
25,000 barrels per day of California heavy
oil, subject to adjustment by the Secretary
of Commerce. The Administration also supports deregulation of oil pipelines, except
for those not subject to competition, in order
to reduce consumer costs and encourage the
most efficient use of the oil pipeline system.
Taken together these demand and supply
measures along with the other oil-related
NES initiatives are projected to reduce oil
imports by more than 7 million barrels per
day by the year 2010. Reducing our oil
dependence will substantially reduce the vulnerability of our economy to costly future
oil supply disruptions and price shocks while
improving our trade deficit. In 2010, these
initiatives are projected to save billions of
dollars a year in payments to foreign oil
producers and governments, keeping that
money at work in the United States.
Natural Gas

As part of this effort, the Administration
supports opening access to a discrete portion
of the coastal plain of the Arctic National
Wildlife Refuge with environmental safeguards. The environmentally responsible development of this area potentially could save
$250 billion in payments to foreign oil producers and governments, while providing $125
billion in revenues for Federal and State
governments and as many as 200,000 U.S.
jobs. The budget proposes that revenues from
oil and gas lease sales in the ANWR be
divided evenly between Federal government
and the State of Alaska.

Natural gas is a relatively abundant, economical, and clean domestic fuel. The natural
gas industry, however, remains hampered
by inefficient and outmoded regulation that
often discourages greater use of natural gas.
The Administration supports a sweeping program of regulatory reforms to replace unnecessary regulation with competition and to create
market opportunities for the expanded use
of natural gas. These reforms include expedited permitting and construction of pipelines
to provide service to new customers, deregulation of pipeline sales of natural gas where
the pipeline is providing nondiscriminatory
transportation services, and provisions for
greater flexibility in setting pipeline charges
for gas transportation.

Whenever possible, the Administration also
is taking administrative actions to increase
domestic oil production and create new jobs
in the energy industry. To prevent the contin-

These reforms could increase natural gas
consumption by about 1 trillion cubic feet
per year after 1995, displacing 300,000 to
400,000 barrels per day of oil. Not only

Part 0ne-235

10. PRESERVING AMERICA'S HERITAGE

are such regulatory reforms projected to provide substantial cost savings for natural gas
customers, but also increased use of natural
gas will create new jobs in the natural
gas industry. In addition to the economic
and energy security benefits, natural gas
regulatory reform actions also will benefit
the environment. In the year 2000, the resulting increased use of natural gas would produce
an annual decrease of 670,000 tons of sulfur
dioxide emissions, 200,000 tons of nitrogen
oxide emissions, and 11 million metric tons
of carbon dioxide emissions compared with
the estimated projections without the proposed
regulatory reform initiatives.
The budget also provides for a 233 percent
increase in natural gas related research and
development compared with 1992. Over $40
million is proposed in the budget to implement
a restructured natural gas R&D program
that would address production issues as well
as cleaner and more efficient use of natural
gas.
Coal
New technologies to use coal more cleanly
and efficiently are required in order to enable
the U.S. to take full advantage of its enormous, low-cost coal resources. New clean
coal technologies can substantially improve
efficiency and reduce emissions from the
powerplants that generate currently more
than one-half of our electricity. The budget
proposes $500 million to fully fund Rounds
4 and 5 of the Clean Coal Technology Program,
a $5 billion Government-industry cost-shared
demonstration program aimed at introducing
innovative methods of using coal more cleanly,
efficiently and economically. In addition, the
Administration actively is promoting the export of coal and clean coal technologies,
producing jobs at home while ^helping other
nations (especially in Eastern Europe and
the developing world) to achieve common
goals: a cleaner environment and less dependence on oil.
Nuclear Power
Nuclear power, which today provides about
20 percent of our electricity, can cleanly,
economically and safely meet a substantial
portion of future electricity needs if three
barriers are addressed. The Administration

supports (1) reform of the nuclear powerplant
licensing process; (2) the responsible management and disposal of high-level nuclear waste;
and (3) development of new, standardized
reactor designs that incorporate passive safety
features.
The budget provides $392 million, an increase of $117 million, or 45 percent, for
nuclear waste management programs, including $248 million for studies of the suitability
of the Yucca Mountain site as a permanent
repository, and $41 million for planning for
a Monitored Retrievable Storage Facility
(MRS). The Office of the Nuclear Waste
Negotiator will be pursuing arrangements
for sitting an MRS with interested States,
Counties and Indian tribes. The authorization
for this Office may need to be extended
if final negotiations continue past January
1993. In addition, the budget includes $59
million for R&D on Advanced Light Water
Reactor Technology and $145 million for
Advanced Reactor Concepts, including both
the High Temperature Gas Reactor and the
Liquid Metal Reactor. These budget initiatives,
coupled with licensing reforms and license
renewal for existing plants where safety can
be assured, will ensure that nuclear power
will contribute significantly to our future
economic growth.
Renewable Energy
The Administration also recognizes the considerable potential contribution of renewable
energy resources to achieving national economic, environmental and energy security
goals. The most effective way to improve
the competitiveness of renewable energy is
through increased investments in research
and development and regulatory reforms.
The Administration supports major regulatory reforms, including licensing reform and
removing projects smaller than five megawatts
from federal jurisdiction to take full advantage
of domestic hydroelectric power resources,
especially those at existing dams, while protecting environmental quality. The Administration also seeks to reduce the costs of,
and to increase investor confidence in, solar,
wind, biomass, and geothermal technologies
to generate electricity; expand the conversion
of municipal solid waste to energy; develop

Part 0ne-236
economical liquid fuels from biomass as alternatives to petroleum-based fuels; and use
larger amounts of renewable energy for direct
heating, cooling and lighting in buildings.
The budget proposes $250 million for renewable R&D, a slight increase over the 1992

THE BUDGET FOR FISCAL YEAR 1993

enacted level and 68 percent greater than
1989 level. The initiatives in this area will
maintain America's competitiveness in developing renewable technologies and create new
jobs associated with the manufacture of those
technologies.

Investing in the Future:
11. Preserving National Security
and
Advancing America's Interests
Abroad

Part One-237

11. PRESERVING NATIONAL SECURITY AND
ADVANCING AMERICA'S INTERESTS
ABROAD
INTRODUCTION
The budget requests $281.0 billion in budget
authority and $285.8 billion in outlays for
National Defense (050), and $20.6 billion
in budget authority and $18.0 billion in
outlays for International Affairs in 1993.
The purpose of this request is to provide
for programs that preserve the Nation's security—through diplomatic, political, and military means; through advancing the U.S. agenda on economic and trade issues; and through
advancing the cause of democracy, human
rights, international cooperation and the rule
of law.
CONTEXT
During the past year there were remarkable
changes. The Warsaw Pact was dissolved.
The Soviet Union collapsed and was replaced

by twelve independent states, eleven of which
formed a Commonwealth of Independent
States. Eastern European and Latin American
nations moved forward in their efforts to
establish democratic governments. The United
States, joined by a coalition of nations, liberated Kuwait. A number of long standing
regional conflicts were resolved or are in
international negotiations.
U.S. defense strategy has also changed.
The focus of the new strategy is on regional
threats and related requirements for forward
presence and crisis response. Because the
Cold War is over, United States strategy
is no longer focused on the threat of a
Soviet-led, European-wide conflict leading to
global war. Significant reductions, therefore,
are being made in U.S. military forces and
programs.

Table 11-1. FUNDING SUMMARY FOR NATIONAL DEFENSE AND
INTERNATIONAL AFFAIRS
(Dollar amounts in billions)1

1992
Enacted 2

1992
Proposed

1993
Proposed

Dollar
Change:
1992
Enacted
to 1993

Percent
Change:
1992
Enacted
to 1993

299.6
303.6

290.4
295.8

283.8
295.2

281.0
285.8

-9.4
-9.9

-3%
-3%

(290.8)
(294.9)

(277.5)
(283.1)

(270.9)
(282.5)

(267.6)
(272.8)

(-9.8)
(-10.4)

(-4%)
(-4%)

21.0
17.8

20.6
18.0

-0.4
+0.2

-2%
+1%

311.4
313.6

304.8
313.0

301.5
303.8

-9.8
-9.8

-3%
-3%

1989
Actual

National Defense (050):3
Budget Authority
Outlays
Department of Defense—Military (051):3
Budget Authority
Outlays
International Affairs (150):
Budget Authority
Outlays
Total:
Budget Authority
Outlays

17.3
9.6
316.8
313.1

Includes both discretionary and mandatory programs.
A portion of the funds for International Affairs programs is covered by a continuing resolution. See footnotes to Table 11-5.
3 Funding for Operation Desert Shield/Desert Storm is excluded.
4 Excludes International Monetary Fund quota increase.
1

Part 0ne-239

Part 0ne-240

THE BUDGET FOR FISCAL YEAR 1993

The emphasis of international affairs programs has changed as well. Security assistance
will focus more on supporting the resolution
of regional disputes. The United States will
provide strong support for United Nations
forces that are helping to implement regional
peace settlements. Assistance will be provided
to emerging democracies, including those of
Eastern Europe and the former republics
of the Soviet Union. Assistance will also
be provided to countries that make serious
efforts to reform their economies under free
market principles.

Because of the reduced threat of a major
war, substantial savings are possible. Active
duty, selected reserve, and civilian personnel
levels are being reduced, and several major
weapons programs are being terminated. Reductions have also been made in nuclear
weapons production. Active forces will be
maintained at current high readiness levels
and equipped with modern equipment to
be able to respond appropriately to continuing
threats. Special efforts will be made to maintain U.S. technological capabilities.
National Defense Budget

PRESERVING NATIONAL SECURITY

Tables 11-2 and 11-3 show the budget
authority and outlays for the three national
defense subfunctions: military activities of
the Department of Defense, atomic energy
defense activities, and defense-related activities of other agencies.

U.S. military forces must be capable of
deterring aggression and protecting American
citizens around the globe. They must be
able to repel or defeat military attacks that
threaten vital U.S. interests.

Table 11-2. NATIONAL DEFENSE BUDGET AUTHORITY BY FUNCTION
AND PROGRAM
(In billions of dollars)
1989
Actual
050 National Defense Discretionary
excluding Operation Desert Shielcl/
Desert Storm:
051 Department of Defense—Military
053 Atomic energy defense activities
054 Defense-related activities
Subtotal, Discretionary
050 National Defense Mandatory:
051 Department of Defense—Military
054 Defense-related activities
Subtotal, Mandatory
050 National Defense Totals:
051 Department of Defense—Military
053 Atomic energy Defense activities
054 Defense-related activities
Total
050 National Defense Operation
Desert Shield/Desert Storm
Offsetting foreign cash contributions
Net Budget Authority
1

Estimate.

1992
Enacted

291.5

Proposed
1992

1993

1994

278.2

271.6

268.4

268.6

270.7

271.3

275.5

8.1
0.5

12.0
0.8

12.1
1.0

12.7
1.0

13.4
0.9

14.1
0.9

14.8
0.9

300.1

291.0

284.4

281.6

282.3

285.0

286.3

291.2

-0.7
0.1

-0.7
0.2

-0.8
0.2

-0.6

290.8

277.5

270.9

267.6

267.8

269.9

270.4

274.6

8.1
0.6

12.0
1.0

12.1
1.2

12.7
1.1

13.4
1.1

14.1
1.1

14.8
1.1

299.6

290.4

283.8

281.0

281.6

284.3

285.7

290.6

10.4
^.O

10.4
-5.0

5.4

—

1995

1996

1997

—

11. PRESERVING NATIONAL SECURITY AND ADVANCING AMERICA'S INTERESTS ABROAD

Part One-241

Table 11-3. NATIONAL DEFENSE OUTLAYS BY FUNCTION AND
PROGRAM
(In billions of dollars)
1992
1989
Actual Enacted 1992
050 National Defense Discretionary excluding Operation Desert Shield/Desert Storm:
051 Department of Defense—Military
053 Atomic energy defense activities
054 Defense-related activities

1994

1995

1996

1997

295.6
8.1
0.4

283.9 283.3 273.5 268.2 268.7 271.7 274.5
11.7
11.7
11.9
12.5
14.4
13.0
13.7
0.8
0.8
1.0
0.9
0.9
0.9
0.9
296.4 295.8 286.4

281.6 282.7 286.4 289.8

-0.7
0.1

-0.8
0.2

-0.6

Subtotal, Mandatory
050 National Defense Totals:
051 Department of Defense—Military
053 Atomic energy Defense activities
054 Defense-related activities

-0.6

294.9
8.1
0.6

283.1 282.5 272.8 267.4 267.9 270.9 273.6
11.7
11.7
11.9
12.5
13.0
13.7
14.4
1.2
1.0
1.1
1.0
1.1
1.1
1.1

303.6

Total

295.8 295.2 285.8 281.0 282.1 285.8 289.2

Shield/

Net Outlays
1

1993

304.1

Subtotal, Discretionary
050 National Defense Mandatory:
051 Department of Defense—Military
054 Defense-related activities

050 National Defense Operation Desert
Desert Storm
Offsetting foreign cash contributions

Proposed

17.1

J -5.0

17.1
-5.0

5.5

2.4

1.1

0.5

0.1

—
—

12.1

5.5

2.4

1.1

0.5

0.1

—

Estimate.

Department of Defense—Military.—The
budget includes $267.6 billion for budget authority and $272.8 billion for outlays in 1993
for the Department of Defense, excluding Operation Desert Shield/Desert Storm. A description of the main programmatic features of this
request will be provided in the 1992 Annual
Report by the Secretary of Defense to the
President and Congress. Table 11-4 compares
the proposed Department of Defense budget
to summit baseline levels.
Intelligence.—Most of the funding for the
National Foreign Intelligence Program is included in the defense budget. The exact level
is classified. The budget provides for obtaining
information on potential threats, improving capabilities to counter foreign intelligence services, monitoring arms reduction treaties, detecting changes in foreign military capabilities
and technologies, developing advanced technologies for intelligence, and conducting covert
action operations in support of national security objectives in accordance with law. The
budget emphasizes intelligence concerned with
the potential proliferation of nuclear, chemical,

311-000 0 - 9 2 - 1 2 (Pt.l)

biological, and missile technologies and support for the war on drugs.
Atomic Energy Defense Activities.—These
activities, conducted by the Department of Energy (DOE), include research, development,
testing, and production of nuclear weapons;
production of nuclear materials including the
construction of a new production reactor; environmental restoration and waste management
within DOE's defense complex; technical support for verification of arms control agreements; and design of reactors for nuclear-powered Navy vessels.
The budget for these purposes is $12.1
billion in 1993 compared to $12.0 billion
in 1992. Within this total, there is a major
shift to environmental restoration and waste
management from weapons production related
activities. The budget for defense environmental restoration and waste management
increases from $3.7 billion in 1992 to $4.6
billion in 1993—a 25 percent increase. The
increase is required to comply with agreements
with the Environmental Protection Agency
and several States for cleaning up the DOE

Part 0ne-242

THE BUDGET FOR FISCAL YEAR 1993

Table 11-4. DEPARTMENT OF DEFENSE (051) DISCRETIONARY LEVELS
COMPARED TO SUMMIT BASELINE
(In billions of dollars)
1992

Summit Baseline:1
Budget Authority
Outlays
Inflation Adjustment:
Budget Authority
Outlays
Adjusted Baseline:
Budget Authority
Outlays
Proposed Defense Savings:
Budget Authority
Outlays
Proposed Levels (excluding Operation Desert
ShiekyDesert Storm):
Budget Authority
Outlays
1

1993

1994

278.2
283.9

278.6
279.7

279.0
274.0

-2.3
-1.0

278.2
283.9

Cumulative
1992-97

1996

1997

281.5
275.3

283.4
279.4

288.2
284.8

1,688.9
1,677.1

-2.4
-1.7

-2.4
-2.0

-2.7
-2.4

-2.8
-2.6

-12.5
-9.7

276.3
278.7

276.6
272.3

279.1
273.3

280.7
276.9

285.4
282.2

1,676.4
1,667.4

-6.6
-0.6

-7.9
-5.2

-8.0
-4.1

-8.4
-4.6

-9.4
-5.2

-10.0
-7.7

-50.4
-27.4

271.6
283.3

268.4
273.5

268.6
268.2

270.7
268.7

271.3
271.7

275.5
274.5

1,626.0
1,639.9

—
—

1995

Defined as January 1991 budget levels extended to 1997 and adjusted for 1992 Congressional action and technical corrections.

defense complex and to safely manage radioactive and hazardous wastes.
The budget for nuclear weapons related
activities, conducted by the Office of Defense
Programs and the Office of New Production
Reactors, decreases from $7.2 billion in 1992
to $6.5 billion in 1993—a 10 percent decrease.
The Department of Energy will begin to
consolidate its existing facilities and continue
planning for a reconfigured weapons production complex that will be smaller and more
efficient than the existing complex.
Defense-Related
Activities.—Defense-related activities include civil defense and emergency preparedness activities of the Federal
Emergency Management Agency, the Selective
Service System, the Intelligence Community
Staff, CIA retirement funding. It also includes
the Maritime Administration's Ready Reserve
Force, which provides for a standby fleet that
can be activated when needed. Also included
are certain elements of the foreign counterintelligence program of the Department of Justice and compensation for certain people who
were exposed to radiation. The budget requests
$1.2 billion in budget authority and outlays
for these purposes in 1993, compared to $1.0

billion for budget authority and outlays in
1992.
ADVANCING AMERICA'S INTERESTS
ABROAD
International Affairs
The basic objective of international affairs
programs is to support U.S. interests abroad.
The President has identified five broad challenges facing America in international affairs:
promoting and consolidating democratic values; promoting market economies and
strengthening U.S. competitiveness; promoting
peace; protecting against transnational threats
(e.g., environmental degradation, narcotics,
terrorism); and meeting urgent humanitarian
needs.
Changing world circumstances are reflected
in several important shifts in emphasis and
priorities among international affairs programs. The budget reflects:
• a reorientation and selective phasing down
of security assistance programs—budget
authority for these programs declines by
8 percent from the 1992 level;
• significant increases for UN Peacekeeping
operations to ensure peace settlements in

11. PRESERVING NATIONAL SECURITY AND ADVANCING AMERICA'S INTERESTS ABROAD

Africa, Asia and Central America—a $350
million 1992 budget amendment and an
additional $350 million in 1993 is requested for new peacekeeping requirements;
• increases in assistance to Eastern Europe
and to the new states of the former Soviet
Union to encourage the formation of stable
democracies with market based economies—a two-year $500 million program is
requested for humanitarian assistance to
the former republics of the Soviet Union;
• continuation of development and financial
assistance programs that encourage economic reforms and that open markets to
U.S. trade; and
• expansion of diplomatic, information and
exchange activities into the countries of
the former communist bloc and the Middle
East.
International Security Assistance
Security assistance serves U.S. national
security and foreign policy goals by promoting
the physical security and economic stability
of friendly and allied countries. Developing
country purchases of military goods and services are funded through foreign military financing (FMF), primarily a grant prograipi
managed by the Departments of State and
Defense. Economic stabilization and growth
are promoted through the economic support
fund (ESF). The ESF program, which is
directed by the State Department and implemented by the Agency for International Development, provides grant support for the economies of countries that face security threats.
The FMF and ESF programs account for
most of security assistance. The remaining
programs are for training of members of
friendly armed forces, for anti-terrorism assistance grants, and for voluntary peacekeeping
contributions. Budget authority for international security assistance in 1993 is requested to be $7.4 billion and outlays are
estimated to be $7.4 billion.
The requested budget authority level of
$4.2 billion for FMF in 1993 is 11 percent
less than the 1992 request. Programs in
Central America are being phased down and

Part One-243

programs in the Philippines and Pakistan
significantly reduced.
FMF assistance for Portugal, Greece and
Turkey will continue to be an important
priority for the Administration. These key
allies were especially important during the
Persian Gulf deployments. A significant portion of FMF assistance to these countries
in 1993 will be in the form of loans.
Both FMF and ESF resources provided
to countries involved in the Middle East
peace negotiations will remain at about 1992
levels. The United States will also continue
to provide FMF and ESF assistance to Andean
countries to fight cocaine trafficking.
Up to $100 million of 1992 ESF funds
and $100 million of 1993 ESF funds will
be provided to the former Soviet republics
for technical assistance. The U.S. is considering a range of initiatives including food
distribution and marketing, energy and environment, financial and economic institution
building, democratic institution building, and
defense conversion. Special humanitarian aid
to the republics is discussed below.
The ESF program will continue to provide
large scale support to Central America to
help consolidate the gains from the peace
settlement.
The International Military Education and
Training program is proposed to be $47
million in 1993. This program is a lowcost and effective means of influencing the
military establishments of developing countries. Assistance to foreign governments to
combat terrorism is proposed at a level
of $16 million.
The Peacekeeping Operations (PKO) program provides voluntary contributions to
peacekeeping forces. In 1993, $9 million is
proposed for the United Nations force in
Cyprus, and $18 million for the Egypl/Israel/
United States peacekeeping force in the Sinai
peninsula.
International Development and
Humanitarian Assistance
The United States continues to play a
major role in alleviating suffering and promoting sound economic policies in the developing

Part

0ne-244

THE BUDGET FOR FISCAL YEAR 1993

Table 11-5. INTERNATIONAL AFFAIRS DISCRETIONARY PROGRAMS
(In millions of dollars)
Budget Authority

International Security Assistance—152:
Foreign military financing
Economic support fund
Military training and other
Peacekeeping operations
Total, International Security Assistance—152
International Development and Humanitarian Assistance—151:
Agency for International Development Cess Eastern Europe assistance)
Eastern Europe assistance
Humanitarian and technical assistance to the former republics of the Soviet
Union
Enterprise for the Americas debt forgiveness
Multilateral development banks
Public Law 480, food aid
Title I (market development)
Title II humanitarian aid
Title III economic development
Refugee assistance
International organizations and programs (voluntary)
Peace Corps
State Department narcotics assistance
Overseas Private Investment Corp
Trade and development program
Regional development foundations
Total, International Developmental and Humanitarian Assistance—151

1989
Actual

Dollar
1992
1993
Change:
Enacted
Proposed Proposed 1992 to
1993

Percent
Change:
1992 to
1993

4,738
3,302
94
32

4,667
3,240
63
28

4,163
3,123
63
27

-504
-117
-1

-4%

8,166

7,999

7,376

-623

-8%

2,347

2,894
400

2,916
450

+22
+50

+1%
+13%

350
286
1,759
1,323
[356]
[640]
[327]
570
257
218
173
20
40
48

+200
-24
-26
-161

+133%
-8%
-1%
-11%

+59
+7
+18
+1
+3
+5
+4

+12%
+3%
+9%

25
25

150
310
1,785
1,484
[440]
[710]
[334]
511
250
200
172
17
35
44

+18%
+14%
+9%

5,779

8,252

8,409

+157

+2%

486
141
[141]

820
438
[88]
[350]
115
2,131
600
81
48
45
11

+68
+19

+9%
+5%

-13
+116
+55
+6
+3
+3

-10%
+6%
+10%
+8%
+7%
+7%

—

1,315
1,098
[399]
[699]
—

489
226
154
101
—

—

-11%
-4%
—

Conduct of Foreign Affairs—153:
United Nations programs (assessed)
United Nations peacekeeping
Regular programs
Special programs1
UN Progs. & Peacekeeping Arrearages
State Department salaries and expenses
Foreign buildings including Moscow embassy
Other State Dept. programs and activities
Arms Control and Disarmament Agency
International Trade Commission
U.S. Institute of Peace (USIP)

1,789
240
43
31
36
7

752
419
[69]
[350]
128
2,015
545
75
45
42
11

Total, Conduct of Foreign Affairs—153

2,773

4,033

4,290

+256

+6%

882
228
14
2

1,082
207
16
1

1,144
220
17
1

+62
+13
+1

+6%
+6%
+6%

1,126

1,306

1,382

+75

+6%

695

567
12,314

682

+115

+20%

Foreign Information and Exchange Activities—154:
U.S. Information Agency
Board for International Broadcasting
Asia Foundation
Japan U.S. Friendship Commission
Total, Foreign Information and Exchange Activities—154
International Financial Programs—155:
Export-Import Bank of the United States
International Monetary Fund (IMF) quota increase
Other
Total, International Financial Programs—155
Total Discretionary Programs
Total Discretionary Programs less IMF

—
—

—

695

12,881

682

18,538

34,470

22,139

18,538

22,157

22,139

-18

—

Note: Programs under the headings International Security Assistance, International Development and Humanitarian Assistance (except Public Law
480 food aid) and International Financial Programs have not yet received an annual appropriation for 1992 and are currently operating under
continuing resolution Public Law 102-145. Except for special budget amendments for peacekeeping and humanitarian and technical assistance to the
former republics of the Soviet Union, as well as the technical changes for credit programs, the budget authority amounts shown in the 1992 column of
tiie budget tables for these accounts are the original Administration budget request for that year.
1 For 1992, $350 million requested in peacekeeping operations but displayed here.

11.

PRESERVING NATIONAL SECURITY AND ADVANCING AMERICA'S INTERESTS ABROAD

Part One-245

Table 11-6. INTERNATIONAL AFFAIRS DISCRETIONARY PROGRAMS
(In millions of dollars)
1

Outlays
*

If9,
Actual

International Security Assistance—152:
Foreign military financing
Economic support fund
Military training and other
Peacekeeping operations

qqo

Dollar

Enacted/ p . 1 9 9 3 . Change:
Proposed Proposed 1992 3
1 9 9 to

Percent
Change:
1992 3
1 9 9 to

3,425
3,488
92
42

-141
-41
-69
-11

-3%
-1%
-35%
-29%

7,628

7,366

-262

-3%

2,102

2,389
185

2,635
259

+246
+74

+10%
+40%

180
286
1,527
1,378
[377]
[672]
[330]
565
271
207
164
-129
36
47

+112
-24
-59
-96

+165%
-8%
-4%
-6%

481
247
153
100
-133
26
27

68
310
1,586
1,474
[347]
[672]
[455]
561
257
190
148
-139
34
40

+4
+14
+17
+16
+10
+2
+7

+1%
+5%
+9%
+11%
+7%
+6%
+18%

5,346

7,102

7,425

+323

+4%

515
100
[100]

Total, International Developmental and Humanitarian Assistance—151

3,968
3,241
130
27

7,047

Total, International Security Assistance—152
International Development and Humanitarian Assistance—151:
Agency for International Development Cess Eastern Europe assistance)
Eastern Europe assistance
Humanitarian and technical assistance to the former republics of the Soviet
Union
Enterprise for the Americas debt forgiveness
Multilateral development banks
Public Law 480, food aid
Title I (market development)
Title II humanitarian aid
Title III economic development
Refugee assistance
International organizations and programs (voluntary)
Peace Corps
State Department narcotics assistance
Overseas Private Investment Corp
Trade and development program
Regional development foundations

4,109
3,282
199
38

819
435
[85]
[350]
115
2,104
447
80
48
45
11

+68
+6

+9%
+1%

-13
+82
+51

-10%
+4%
+13%

+2
+2
-1

+4%
+5%
-8%

—

1,245
1,098
[399]
[699]
—

Conduct of Foreign Affairs—153:
United Nations programs (assessed)
United Nations peacekeeping
Regular programs
Special programs1
UN Programs and Peacekeeping Arrearages
State Department salaries and expenses
Foreign buildings including Moscow embassy
Other State Dept. programs and activities
Arms Control and Disarmament Agency
International Trade Commission
U.S. Institute of Peace (USIP)

1,816
332
42
28
36
7

751
429
[79]
[350]
128
2,022
396
80
46
43
12

Total, Conduct of Foreign Affairs—153

2,877

3,908

4,106

+198

+5%

888
199
15
3

1,084
240
16
1

1,128
236
17
1

+44
-4
+1

+4%
-2%
+6%

1,105

1,341

1,382

+40

+3%

47
50
115

109

307

+198

+181%

—

—
—

+222

+246%

Adjustment for enacted appropriations scoring in 1992 (CJS, Agric,
HHS, DOD)

+522

+3%

312

20,069

20,591

16,587

Total Discretionary Programs less IMF

—

+23

212

Total Discretionary Programs

—

16,587

Total, International Financial Programs—155

-18

—

20,069

20,591

—

-236

—

For 1992, $350 million requested in Peacekeeping operations but displayed here.

world. In 1993, the budget proposes $8.4
billion in budget authority and $7.4 billion
in outlays for this program category. These
programs are intended to promote the growth

of market-oriented economies through budgetary support, the financing of development
projects and the provision of expert advice
to foreign governments and private entities.

Part 0ne-246
They also provide relief supplies and funds
to meet major natural and manmade disasters
and to aid refugees abroad and resettle
them in the United States.
Agency for International Development
(AID).—AID is the primary source of U.S. bilateral development and humanitarian assistance. For 1993 $2.9 billion in budget authority
is proposed for regular AID programs, about
the same as requested in 1992. AID provides
grants, primarily for individual projects, to
more than 90 developing countries. The grants
range in size from several hundred thousand
to tens of millions of dollars for purposes such
as agricultural development, population control, primary education, health, and the environment.
There are about 1,700 on-going projects,
with about 200 new multi-year projects started
every year. About 80 percent of each year's
budget request for development assistance
is committed to projects begun in earlier
years. Countries undertaking significant economic reforms will be given priority in the
allocation of AID funds for new projects.
As in previous years, the Administration
is seeking one basic AID program account
for all development assistance to allow greater
flexibility to program managers in carrying
out their mission. Moreover, the Administration also proposes a $100 million capital
projects fund to help recipient countries invest
in the infrastructure necessary to development.
The 1993 AID request also continues humanitarian aid programs at or above requested
1992 amounts. In line with the U.S. position
at the 1990 World Summit for Children,
special emphasis is placed on child survival,
health and nutrition, and education.
In addition to development grants, AID
makes disaster relief grants and guarantees
loans for housing and for support of private
sector entities.
Eastern Europe Assistance.—Beyond its
regular program, AID also manages U.S. assistance to Eastern Europe under State Department direction. Budget authority for this
program is requested to grow by 13 percent
to $450 million in 1993.

THE BUDGET FOR FISCAL YEAR 1993

The Eastern European countries, particularly Czechoslovakia, Hungary, and Poland
continue to make progress toward establishing
market-oriented economies. In 1993, U.S. assistance will be heavily oriented toward encouraging a viable private sector in the
recipient countries. It will support enterprise
funds that make grants and loans to private
businesses. It will also support technical
assistance to governments for privatization
of government industries and for strengthening democratic processes.
The 1993 increase will provide funds for
Lithuania, Latvia and Estonia. In addition,
$70 million is being proposed as part of
the request for multilateral development banks
for the third of five equal annual payments
to capitalize the European Bank for Reconstruction and Development. The Bank was
established in 1991 to make loans in support
of market-oriented economic reforms in Eastern Europe.
Humanitaricm and Technical Assistance
to the Former Republics of the Soviet
Union.—The budget proposes a two-year $500
million program of humanitarian aid and technical assistance to the former Soviet republics.
This recognizes that instability or resurgent
totalitarianism in the region could threaten
U.S. national security. It also recognizes the
substantial savings in U.S. defense spending
made possible by the changes in the former
Soviet Union and the need to secure these
changes in order to achieve continued savings.
Enterprise for the Americas Initiative
(EAT).—The EAI seeks to promote strong economic growth in Latin America through trade
liberalization, investment reform, and debt reduction. These efforts will benefit the United
States by stimulating greater demand for U.S.
exports to Latin America, creating more jobs
for American workers, expanding U.S. direct
investment in the region, and strengthening
America's competitiveness in global markets.
The democratic revolution that swept
through Latin America in the 1980s is being
followed in the 1990s by an equally profound
economic shift from statism and import substitution to free markets and more openess
to trade. The EAI aims to encourage and
strengthen this trend through three interrelated and mutually reinforcing efforts:

11.

PRESERVING NATIONAL SECURITY AND ADVANCING AMERICA'S INTERESTS ABROAD

• Trade Liberalization.—The EAI seeks to
establish a hemispheric free trade area
from the "Northern tip of Alaska to the
southernmost point of Tierra del Fuego."
The negotiation of a North American Free
Trade Agreement with Mexico and Canada
is the first step in this process. This process would be extended to other countries
or groups of countries associated for the
purposes of trade liberalization. In the
meantime, the U.S. has entered into
framework agreements with 30 countries,
apart from Mexico, as stepping stones to
eventual free trade agreements.
• Investment Reform.—The EAI aims to support Latin efforts to make their investment regimes more attractive to domestic
and foreign capital by establishing two
new programs at the Inter-American Development Bank (IDB). These programs
provide technical advice and financial support to assist Latin investment reforms.
The Investment Sector Lending Program
is already underway having extended
loans to Chile, Bolivia, Jamaica and Columbia; preparations are being made for
additional loans. The Multilateral Investment Fund (MIF) is anticipated to get underway in 1992. The budget proposes $100
million per year during 1992-96 for the
MIF. Other developed and larger Latin
American countries are expected to contribute $200 million per year.
• Debt Reduction.—The EAI offers to reduce
debt to the U.S. Government by Latin
American and Caribbean countries undertaking growth-oriented economic and investment reforms. Debt reduction will help
restore confidence in Latin economies, reversing capital flight and promoting domestic as well as foreign investment. Action on debt to the U.S. is especially significant for smaller Latin countries which
owe a large share of their debt to official
creditors. In 1991, the U.S. negotiated
agreements reducing Chile's, Bolivia's, and
Jamaica's Public Law 480 debt. The budget proposes $310 million in 1992 and $286
million in 1993 to pay the subsidy costs
for other Latin American and Caribbean
countries that may qualify for debt reduction.

Part One-247

Multilateral Development Banks.—These
institutions, the World Bank Group and the
African, Asian, European and Inter-American
development banks, are the primary source of
development loans to third world countries.
Their lending for 1991 was more than $29 billion. Financing for the banks' new loans is provided from funds directly contributed by developed country members, from funds borrowed
on world capital markets with developed country repayment guarantees, and from loan repayments. Each bank offers loans at its cost
of funds to advanced developing country members and at low interest with long repayment
terms to the poorest member nations.
In providing direct contributions to the
banks, member governments, including the
United States, agree on total contribution
levels covering multi-year periods—usually
three or four years. Member shares of the
total are paid in annual installments during
these periods. As Table 11-7 shows, nearly
$1.6 billion, 90 percent of the total funds
requested for 1993, represent installment payments to be made under previous multiyear agreements. A new four-year capital
replenishment is proposed for the Asian Development Bank's low interest loan fund with
an initial U.S. installment of $170 million
in 1993.
Public Law 480 Food Aid.—This foreign
assistance program provides financing for exports of U.S. agricultural commodities to increase foreign markets for such commodities,
to provide humanitarian relief, to promote economic development, and to serve other foreign
policy objectives. The total Public Law 480 program level in 1993 is $1.5 billion. This will
provide an estimated 6.6 million tons of commodities, the same as estimated for 1992.
As revised in the 1990 farm legislation,
the program has three components.
• Under Title I of the legislation, the Department
of
Agriculture
provides
concessional loans to foreign governments
primarily to promote market development
for U.S. commodities. The proposed 1993
Title I budget authority is $356 million,
representing the subsidies needed to export $474 million of commodities.

Part 0ne-248

THE BUDGET FOR FISCAL YEAR 1993

Table 11-7. U.S. CONTRIBUTIONS TO MULTILATERAL DEVELOPMENT
BANKS
(Budget authority; dollar amounts in millions)
Institution

Previous Multi-Year Commitments:
World Bank Group
Inter-American Development Bank1
European Bank for Reconstruction and Development2
Asian Development Bank
African Development Fund
Subtotal
New Multi-Year Commitments:
Asian Development Bank—low interest loans ...
Total

1989
Actual

1992
Enacted

1993
Proposed

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

1,180
190

1,180
178

-12

152
112

70
201
144

70
26
135

-175
-9

-87.1%
-6.3%

1,314

1,785

1,589

-196

-11.0%

170

+170

1,759

+26

1,050
—

—

1,314

—

1,785

—

-6.3%
—

-1.5%

Includes the Multilateral Investment Fund for the Enterprise of the Americas Initiative, $100 million in 1992
and 1993.
2 Created in 1991.
1

• Under Title II, AID provides food grants
to governments in response to emergencies
and humanitarian relief to individuals
through private voluntary organizations
and the United Nations World Food Program. The 1993 proposed budget authority
is $640 million.
• Title III, also managed by AID, is a government-to-government grant program
that targets the poorest, food deficit countries. Budget authority of $327 million is
requested for 1993.
Refugee Assistance.—For 1993, the budget
proposes $570 million for refugee programs,
which is $59 million above the pending request
for 1992. This amount willfinancethe admission of up to 122,000 refugees into this country, nearly the same as 1992 admissions. The
refugee program pays the costs of overseas
processing of these people and of their transportation to the United States. It also provides
grants to private and voluntary organizations
to cover a portion of the expense of initial settlement here. Total 1993 admissions costs of
$208 million are requested.
Most of the funding increase in 1993 will
support the care and maintenance of refugees

in UN managed camps abroad ($330 million
in total). Of this, $50 million would be
for the resettlement of refugees in Israel.
Although some refugee situations are being
resolved, for example through the Cambodia
peace settlement, it is estimated that over
16 million other refugees will require assistance in 1993.
International Organizations and Programs (Voluntary).—In addition to the larger
mandatory payments to the United Nations
and related institutions discussed below, the
State Department makes voluntary contributions to 24 United Nations and other
international organizations that carry out development, humanitarian and scientific activities. Budget authority of $257 million is requested for these contributions.
The largest of the recipient organizations
is the UN Development Program (UNDP),
which finances and coordinates technical assistance to developing countries through the
various UN agencies. In 1991, the UNDP
committed over $1 billion in technical aid.
The 1993 U.S. contribution to UNDP is
proposed to be $124 million. The UN Children's Fund (UNICEF) is proposed to receive

11. PRESERVING NATIONAL SECURITY AND ADVANCING AMERICA'S INTERESTS ABROAD

Part One-249

Table 11-8. INTERNATIONAL ORGANIZATIONS AND PROGRAMS
(VOLUNTARY)
(Budget authority; dollar amounts in millions)
1992
Enacted

1993
Proposed

Dollar
Change:
1992 to
1993

Percent
Change:
1992 to
1993

110
60
22
14
20

115
55
25
20
35

124
60
28
22
23

+9
+5
+3
+2
-12

+8%
+9%
+12%
+10%
-34%

226

250

257

+3%

1989
Actual
UN Development Program
UN Children's Fund
International Atomic Energy Agency (IAEA)
Environmental Programs
Other
Total

a $60 million voluntary contribution in 1993.
Other programs receiving voluntary funding
directly serve U.S. interests in controlling
nuclear non-proliferation and improving the
environment.
Peace Corps.—This agency supports volunteers who help foster economic development
and promote mutual understanding between
the peoples of the United States and the host
foreign countries. In 1993, the $218 million
in budget authority sought will support volunteers in 95 developing countries. It will also
finance activities in 6 Eastern European countries and up to 500 volunteers in the former
Soviet republics (Russia, Ukraine and Armenia).
State Department Narcotics Assistance.—Most of the funds supporting the
counter-cocaine effort in the Andean countries
are provided through the Foreign Military Financing and Economic Support Fund programs
discussed above. The State Department also
provides law enforcement assistance under
this program, for which $173 million in budget
authority is proposed in 1993. The Andean
countries will receive $58 million in law enforcement assistance. A $27 million program
will be carried out in Mexico aimed at both
cocaine and marijuana. The remaining funds
will be provided to other Latin American countries and for heroin control programs in Asia
and elsewhere.
Overseas Private Investment Corporation (OPIC).—This government corporation insures U.S. investors in developing

countries against the risks of war, expropriation and currency inconvertibility. It also provides limited amounts of loan guarantees, direct loans and experimental equity investments for overseas private ventures. The intent is to promote investments that are mutually beneficial to the United States and recipient countries and that might not otherwise
take place. For 1993, the $20 million in budget
authority requested represents the subsidy
costs of $1.5 billion of new insurance, $500
million in guaranteed loans, $30 million in direct loans, and $5 million in equity investments. A major initiative in 1993 will be the
issuance of insurance and up to $125 million
in loan guarantees to the former republics of
the Soviet Union.
Trade and Development Program.—This
independent agency provides grants to middle
income and developing countries which in turn
contract with U.S. firms to conduct feasibility
studies and training and related services for
large scale capital projects. These projects generally take place in the more advanced developing countries. The budget proposes $40 million in budget authority, a $5 million increase
over 1992.
Regional Development Foundations.—
The African Development Foundation (ADF)
and the Inter-American Foundation (IAF) provide small scale grants to indigenous private
organizations in their respective regions. Their
objective is to create self-sustaining private
sector entities that will improve economic and
social welfare. The budget proposes to increase

Part 0ne-250
each program by $2 million in 1993 with the
ADF receiving $17 million in budget authority
and the IAF receiving $31 million.
Conduct of Foreign Affairs
This category includes annual payments
that the United States makes to the United
Nations, its affiliated agencies, and to other
international organizations. It also includes
the cost of State Department operations and
diplomatic activities abroad. Budget authority
of $4.3 billion is proposed with outlays estimated at $4.1 billion.
United Nations Programs and Other
International Organizations
Ongoing Programs.—The United States
makes contributions to the United Nations, to
UN affiliated agencies such as the World
Health Organization and the International
Atomic Energy Agency (IAEA) and to other
organizations such as NATO and the Organization of American States. These organizations
provide a range of political, economic, and humanitarian benefits to their members including the United States. For example, the World
Meteorological Organization (WMO) supplies
important information to the U.S. Weather
Service for use in developing weather forecasts, and the IAEA furthers the U.S. objective
of preventing the proliferation of nuclear weapons. The U.S. contribution to each UN or other
organization is mandated by a treaty which
provides for payment of a specified share, usually 25 percent, of the organization's budget.
Budget authority in 1993 to meet these treaty
commitments, called assessed contributions, is
$820 million.
Peacekeeping Programs.—The United
States also makes assessed contributions, normally 30.4 percent of total assessments, to
temporary peacekeeping operations under UN
auspices. These operations have been critical
to the implementation of peacekeeping agreements supported by the United States such
as the settlement making Namibia an independent country.
Over the past several years as longstanding
regional conflicts have been resolved, the
United States has looked to the UN for
peacekeeping forces in Angola, the Western
Sahara, Central America and elsewhere. For

THE BUDGET FOR FISCAL YEAR 1993

1992, $69 million was requested and enacted
for ongoing UN peacekeeping forces, and
$88 million is needed for their continuation
in 1993. In addition, a number of unanticipated new peacekeeping requirements have
led to further calls by the United Nations
for assessed U.S. contributions. A $350 million
budget amendment is proposed for 1992 and
an additional $350 million is requested for
1993 to meet these needs.
For 1992 the amendment would provide
$93 million in U.S. contributions for UN
peacekeeping forces that have recently been
deployed in Central America, Africa and the
Middle East. The amendment would also
fund U.S. contributions to initiate new UN
peacekeeping activities in El Salvador and
Cambodia. For 1993, the additional funds
are needed to continue the special new programs.
Arrearages.—The budget reaffirms the U.S.
commitment to eliminate arrearages owed to
the UN and other international organizations.
By 1991 total arrearages owed by the U.S.
were over $590 million. For 1991, in response
to budget reform in the UN system, the Administration requested that the Congress provide the full amount of assessments for that
year. The U.S. also paid the first of five annual
installments to eliminate the arrearages. Similar action was taken in 1992. In addition to
the assessed contributions proposed for 1993,
the budget also requests the third, $115 million, installment on the arrearage elimination
plan. It also requests advance appropriations
for the 1994 and 1995 installments. Arrearage
payments will be used for special activities
mutually agreed upon by the United States
and the respective international organizations,
and their payment will be conditional upon
such agreements.
State Department Salaries and Expenses.—$2.1 billion is requested in 1993 for
the salaries and expenses account to carry out
normal functions and important new foreign
policy initiatives. Developments during the
past year require the establishment of a United States presence in the Baltic nations, the
former Soviet republics and Cambodia. The
budget also includes funds to meet increased
passport processing requirements, as well as

11. PRESERVING NATIONAL SECURITY AND ADVANCING AMERICA'S INTERESTS ABROAD

Part One-251

improvements to the State Department's financial management systems.

Foreign Information and Exchange
Activities

Foreign Buildings.—For 1993, the budget
includes $600 million in budget authority for
the foreign buildings program to continue a
plan for constructing physically secure embassies in locations abroad that are subject to terrorist threats or espionage. Initial facility requirements in the Baltic nations and former
Soviet republics will be accommodated within
the foreign buildings program. Within the
total, $140 million is requested to complete
construction of embassy facilities in Moscow.

U.S. government programs that provide
information about the United States and
its policies, termed "public diplomacy", are
carried out principally by the United States
Information Agency (USIA). This category
of programs also includes support through
the Board for International Broadcasting for
Radio Free Europe/Radio Liberty, Inc. (RFE7
RL), which provides radio broadcasts to the
peoples of Eastern Europe and the former
Soviet Union. Budget authority and outlays
of $1.4 billion are proposed for this category.

Other State Programs.—This includes
funding for emergency evacuations overseas,
the Inspector General's office, bilateral science
and technology activities and other administrative programs. The budget includes $81 million
in 1993 budget authority for these activities.
Arms Control and Disarmament Agency
(ACDA).—ACDA advises the President and
the Secretary of State on arms control and
disarmament activities and participates in negotiations with other countries seeking international agreements to control, reduce, or
eliminate arms. In 1993, this includes support
of arms control delegations, research on arms
control, verification and compliance, nonproliferation and arms transfers. The budget
requests $48 million in 1993, an increase of
$3 million over the 1992 level.
International
Trade
Commission
(ITC).—The ITC compiles and analyses data
on foreign trade and its impact on the U.S.
economy. Periodically, in response to questions
raised under the trade statutes, it formally determines whether specific U.S. industries are
injured by imports. By law, the budget request
is transmitted without review by the Office
of Management and Budget.
U.S. Institute of Peace (USIP).—This
independent institution was established by
Congress to conduct and support research and
scholarship in international peace and conflict
resolution. Activities include grants and fellowships, publication and dissemination of education and research materials, preparation of
public workshops, development of a library
network and a national student essay contest.
Proposed budget authority for USIP is $11 million in 1993.

United States Information Agency
(USIA).—The mission of this agency is to provide to peoples of other countries accurate information about the United States and its policies and a good understanding of American society and its values. The budget includes $734
million for the USIA salaries and expenses account to fund operations at overseas posts,
publications, television and radio broadcasting,
libraries, and exhibits. Funds are included for
increased broadcasting activities for China. In
addition, $200 million is requested for educational and cultural exchanges including Fulbright scholarships and the international visitors program.
Radio broadcasting was a key element
of public diplomacy throughout the Cold War.
USIA's Voice of America (VOA) and the
RFEJ/RL were principal ways to reach mass
audiences in communist countries. Their
broadcasts made valuable contributions to
the political revolutions in the countries of
Eastern Europe and the former Soviet Union.
Broadcasting will continue to play an important role as these countries build and develop
democratic institutions and market economies.
In recent years, U.S. broadcasting has been
augmented by Radio Marti and TV Marti,
which provide surrogate local broadcast media
for Cuba.
In the late 1980's, VOA initiated a major
modernization of its transmitter network to
assure that all key target audiences receive
a clear signal. The budget includes $106
million in 1993 to continue that radio modernization program.

Part 0ne-252
Board for International Broadcasting
(BIB).—The budget request of $220 million
maintains this program at about the 1992
level. As democratic governments are established in the countries of Eastern Europe and
the former Soviet Union and as these countries
develop reliable, free media, the need for RFE/
RL broadcasts will gradually diminish. Over
time, certain RFEJ/RL surrogate broadcast
services will be phased down.
Asia Foundation.—The United States provides most of the funding for this private, nonprofit organization. The foundation finances
exchange of persons programs, book distributions, conferences and other activities intended to acquaint promising Asian leaders
and others with the United States and its people. Budget authority of $17 million is requested for 1993.
Japan-United States Friendship Commission.—This inter-governmental entity uses
the interest on funds previously invested by
the two governments to promote mutual understanding between the United States and
Japan. Activities include academic programs,
policy-oriented research, professional exchanges and public affairs programs. The program is proposed to remain at 1992 levels in
1993.
International Financial Programs
This category of international affairs spending includes funding for two major financial
institutions.
The Export-Import Bank of the United
States.—The Eximbank finances U.S. exports
through a variety of direct loan, loan guarantee and insurance programs. Eximbank programs assist U.S. exporters who require subsidized financing to compete with foreign exporters who receive subsidies from their governments. The requested 1993 budget authority of $682 million will support about $11.4
billion in face value of financing. The large
percentage increase in 1993 outlays over 1992
is due mainly to the new credit reform accounting. In 1993, Eximbank will expand its

THE BUDGET FOR FISCAL YEAR 1993

assistance to small businesses, particularly
through a working capital guarantee program.
Through the efforts of Eximbank and other
Federal agencies, the developed countries have
agreed to reduce subsidies for tied aid credits,
in which export credits are offered in combination with direct foreign aid grants. This
will support the Administration's free trade
objectives.
International Monetary Fund.—The Administration has proposed an appropriation for
an increase in the IMF quota for fiscal year
1992 with budget authority estimated at $12.3
billion. The purpose of the Fund is to promote
a stable world monetary order, creating conditions for sustained economic growth. It does
so in part by drawing on funds deposited by
member governments to make medium term
loans to governments with balance of payments problems. Loans are provided on conditions that promote economic reforms in borrowing countries.
Roughly every five years, the Fund's members assess whether their deposits, called
quotas, are adequate to meet the Fund's
objectives. As a result of such an assessment
in 1990, it was decided to increase quotas
by 50 percent which the 1992 request represents for the United States.
The exact appropriation amount for the
U.S. quota will depend on the exchange
rates of the U.S. dollar and other currencies
at the time the quota increase is provided
to the IMF. The quota increase does not
lead to budget outlays because the United
States receives an increase in its usable
international monetary resources equivalent
to any resources transferred to the IMF.
Other International Financial Programs.—The only active program under this
heading is the Special Defense Acquisition
Fund. This revolving fund is intended to reduce procurement costs and delivery time by
purchasing defense articles in anticipation of
their sale to foreign governments. Because the
fund can use the proceeds of sales, no budget
authority is required in 1993.

Addressing Inherited Claims
and Hidden Liabilities

Part One-253

Addressing Inherited Claims
and Hidden Liabilities:
12. Modernizing the
Financial Services Sector

Part One-255

12. MODERNIZING THE FINANCIAL
SERVICES SECTOR
dustry, Congress must provide additional
funds early in 1992.

HIGHLIGHTS
• The competitive disadvantages of banks—
partly arising from Government regulation
and deposit insurance—threaten continued
large deposit insurance losses unless and
until the reform process begun in 1991 is
completed.

RESTORING THE HEALTH OF BANKS
WILL REQUIRE FURTHER REFORMS
A healthy financial services sector promotes
the flow of resources to their most productive
use. In recent years, very rapid financial
product innovation, driven by new computer
and communications technology, has made
markets more efficient and altered the relative
competitiveness of the different providers of
financial services. Government regulation has
both fostered and hampered this evolution.
Piecemeal and ill-timed legislation exacerbated
the thrift problem. Where Government's response has failed to keep pace, the results
have been costly to regulatedfirms,taxpayers,
and the economy.

• To improve incentives for reform, this
budget proposes to change the way deposit
insurance outlays are measured so that
costs are estimated as they arise, rather
than when institutions are closed—sometimes years later.
• Congress's failure to adopt the entire set
of Administration banking reforms will
contribute to larger Bank Insurance Fund
losses than expected a year ago. Early
adoption of these reforms would yield substantial savings through 1997.

The most highly regulated financial sectors—banks and other depository institutions—have been most disadvantaged during
this period of rapid change. These firms
play a central role in the economy by providing
a reliable payment system, a safe haven
for small savings, and funding for business,
particularly small business. They are also

• The 1989 Financial Institutions Reform,
Recovery, and Enforcement Act (FIRREA)
reforms have reduced the rate at which
new savings and loan costs accrue. But,
to finish the Resolution Trust Corporation's clean-up of failed thrifts and
further stabilize the savings and loan in-

Table 12-1. TOTAL DEPOSIT INSURANCE CASH OUTLAYS ASSUMING
NO FURTHER REFORMS, 1992-1997
(Cash outlays; in millions of dollars)
1994

1992

Resolution Trust Corporation ...
Bank Insurance Fund
FSLIC Resolution Fund
Savings Associations:
Insurance Fund
National Credit Union Share
Insurance Fund
AllOther
Total

1993

40,437
32,960
7,020

32,503
38,047
6,383

-30,055
13,690
253

-26,008
7,545
240

-11,651
-4,508
432

-18,996
-19,284
297

-1,012

-864

3,040

846

-1,652

-312
11

-227
-2

-242
-1

-257
-1

-273
-1

-288
-1

80,116

75,692

-17,219

-15,441

-15,155

-39,924

—

1995

1996

1997

Part One-257

Part 0ne-258

THE BUDGET FOR FISCAL YEAR 1993

a major focus of concern because more failures
result in larger deposit insurance losses.

in a regulatory straightjacket, while less
regulated competitors grow at their expense.

Deposit insurance cash outlays anticipated
under current law, shown in Table 12-1,
reflect the problems that have afflicted many
banks and thrifts.

Banks Have Lost Ground To Competitors

• The costs that have accrued are recognized
as the Government steps in to close failed
institutions.
• At that point, to protect depositors, the
deposit insurance funds must pay to cover
losses that, in recent years, have averaged
18 percent of the assets of failed banks
and 36 percent of the assets of failed
thrifts.
The Task of Reform Must be Completed
Last year, the Administration proposed comprehensive reforms to strengthen banks and
attract new bank capital. The proposed Financial Institutions Safety and Consumer Choice
Act of 1991 (FISCCA) was intended to remove
archaic legal barriers, correct weaknesses in
the deposit insurance system that encouraged
excessive risk, and bolster the Federal Deposit
Insurance Corporation (FDIC) Bank Insurance
Fund (BIF). The proposals carefully balanced
reforms to tighten control of failing or mismanaged banks with reforms that would
allow banks to remain competitive.
The legislation that emerged, the Federal
Deposit Insurance Corporation Improvement
Act of 1991, recapitalized the BIF and improved the tools available to regulators, in
particular permitting them to shift a fairer
share of costs to firms that take greater
risks. However, the parts of the Administration's package that would have broadened
banks' role in the financial system, and
eliminated costly barriers to diversification
and consolidation through interstate branching, were rejected. This produced a onesided measure that will hamper banks' ability
to raise new capital. Because the Congress
did not enact these Administration proposals,
and because of general weakness in the
economy, deposit insurance losses will be
deeper and bank earnings will recover more
slowly than expected a year ago. Until additional reforms are enacted, banks will remain

The banking system has lost ground competitively in the United States and in global
markets. In 1990, 1,712 banks, holding 20
percent of the industry's assets, lost money.
There are large banks in weak condition.
Banks have lost competitive position on
both sides of their balance sheets, and the
links between their deposit-taking and lending
have weakened. These intermediation services
once were performed mainly by banks. Now,
they are more often handled by different,
more specialized firms. Companies and individuals that once would have gone to the
bank for financing now go elsewhere. Alternative instruments—for instance, companyissued commercial paper—tap capital markets
directly. Securitization of mortgages, auto
and consumer credit, and now other lending
also shifts the ultimate source of funding
from bank deposits to whoever holds those
securities. Larger companies have been reducing their reliance on external funds, including
bank lending, for some time now. Net funds
raised in financial markets by nonfinancial
corporations fell from about 3 percent of
GNP in the 1960s and early 1970s to less
than one percent in 1990 and 1991.
Similarly, from a saver's perspective, banks
and other depositories are far from the only
option. Money market and other mutual funds
provide financial management and payment
services. Insurance companies and pension
fund managers channel savings directly to
investment. Banks' share of the assets of
all financial intermediaries has dropped from
52 percent in 1950 to 31 percent today.
While the multiplication of financial services
options is healthy for the economy, it works
to the disadvantage of a banking sector
hemmed in by regulations and burdened
by an increasingly costly deposit insurance
system.
Small Businesses Must Rely on Banks for
Credit
Small, new, and expanding businesses still
rely heavily on banks. Because of small
business' important role in job creation, the

Part One-259

12. MODERNIZING THE FINANCIAL SERVICES SECTOR

BANKS' ROLE AS AN INTERMEDIARY BETWEEN SAVERS AND BORROWERS HAS DIMINISHED
ASSETS OF BANKS AND OTHER FINANCIAL INTERMEDIARIES AS A PROPORTION OF ALL
INTERMEDIARY ASSETS, 1050,1970,1991
PERCENT
100

22%
20%

19%

40 -

20 -

1950

1970

1991*

• BANKS • SAVINGS AND LOANS • LIFE INSURERS BALL OTHERS
* NOTE: As of June 30,1091

availability of bank credit to this sector
must be assured. To the extent that banks
are burdened with higher costs than competitors or find their lending capacity constrained,
these borrowers must pay more for funds.
Moreover, a huge secondary mortgage market
has developed with Government support, giving that sector a cost advantage relative
to commerce and industry. Partly because
of active secondary markets, banks' mortgage
and consumer lending have been growing
while their business lending has recently
declined. Small businesses are disadvantaged
in equity markets as well. These patterns
may have the unintended effect of shifting
investment away from more productive uses,
thereby reducing the economy's potential to
create new employment.
A Flawed Deposit Insurance System Has
Added to Losses
Competitive
pressures
have
been
compounded by a system in which healthy,
cautious banks actually subsidized risk-avid
and unprofitable banks. Each group has paid
the same deposit insurance premium and,

until recently, was required to meet the
same capital standards. The combination of
these factors has encouraged excessive risktaking and delayed the elimination of unprofitable lines of business. These trends, in turn,
increased the volatility of bank earnings
and the probability that more banks would
fail. More failures led to higher premium
rates and other regulatory burdens. To the
extent that these costs were reflected in
higher charges for services, good customers
were driven away. Unless reforms soon reverse
this pattern, higher insurance fund losses
will require even higher insurance premiums,
further weakening the competitive position
of healthy and marginal banks.
The mismeasurement of capital and delay
in closing institutions that fail have added
to deposit insurance losses. Insolvency often
was not recognized until it became a sunk
cost; therefore, regulators could not act in
a timely fashion. Insolvent banks were given
time to gamble for resurrection, often increasing the loss borne by healthy banks and
taxpayers. The 1991 bank reform act partially

Part 0ne-260
addressed this problem by .mandating early
supervisory intervention at banks whose capital begins to fall and by requiring regulators
to take into account new types of risk
in establishing capital standards. This process
must be carefully monitored to ensure that
adequate capital measures are being developed.
Past Deposit Insurance Losses Must Be
Recognized
The numbers of failing banks and thrifts
will moderate gradually as the economic recovery gathers momentum and as the weakest
banks are liquidated or merged with healthy
institutions. Nevertheless, the absence of opportunities for diversification and consolidation
and the recent volatility of returns to bank
capital suggest that failure costs will not
return soon to levels observed prior to the
mid-1980s. Moreover, a large backlog of costs
has accrued that must be recognized over
the next few years, as illustrated by the
increasing proportion of bank loans written
off as uncollectible.

THE BUDGET FOR FISCAL YEAR 1993

Unless further reforms are undertaken soon,
gross cash loss payments from the Bank
Insurance Fund are projected to total $89
billion from 1992 through 1997. Premiums
totaling $53 billion will offset part of this
cost; the rest must be borrowed and repaid
from future premiums.
In last year's budget, the net worth of
the BIF was estimated to reach a negative
$22 billion in 1996. The 1991 banking legislation authorized the FDIC to borrow up to
$30 billion from the iVeasury Department
to fund this deficit, with the banking industry
repaying the loan over time through higher
deposit insurance premiums. The July 1991
Midsession review increased the negative net
worth estimate to $25 billion, with a pessimistic scenario at $32 billion. Now, however,
it appears that, without further reforms,
the BIF net worth is likely to fall to a
negative $39 billion in 1996 before starting
to recover.
The changed estimates reflect not only
Congress's failure to adopt the entire Administration reform package but also general weak-

THE PERCENTAGE OF BANK LOANS WRITTEN OFF AS UNCOLLECTIBLE HAS
RISEN OVER FOUR DECADES
CHARGE OFFS AS A % OF ALL BANK LOANS

1948-52 1953-57 1958-62 1963-67 1968-72 1973-77 1978-82 1983-87 1988-91

12. MODERNIZING THE FINANCIAL SERVICES SECTOR

ness in the economy and problems specific
to the real estate sector that have reduced
bank profits. However, early adoption of the
reforms discussed in the latter part of this
Chapter would reduce BIF losses over the
1992-1997 period. In that case, the net
worth would fall to a negative $28 billion,
and the borrowing authority provided in the
1991 banking legislation would be roughly
adequate. Otherwise, additional funding would
be necessary by 1995.
Many uncertainties, apart from changes
in policy, make it difficult to forecast deposit
insurance spending accurately. Economic conditions affect the numbers of institutions
that fail. In a given year, the unexpected
closing of a single large bank could result
in spending in excess of the forecast level.
The timing and method of handling failed
or failing institutions can change the time
pattern of spending and, in some cases,
affect losses. The ability of regulators to
control undercapitalized institutions also can
work to limit losses.
Improving the Budgetary Treatment of
Deposit Insurance
The way past budgets have treated deposit
insurance encourages the view that deposit
insurance outlays are a sunk cost. This
has provided an incentive to delay recognition
of growing problems and little incentive to
enact reforms. In the mid-1980s, cash accounting for deposit insurance delayed recognition
of the numbers and depth of savings and
loan failures. An earlier effective response
to that growing debacle could have saved
many billions of dollars of Federal spending.
To address this problem, Congress instructed OMB and the Congressional Budget
Office (CBO) to study the feasibility of changing the method of accounting for deposit
insurance and other insurance programs and
make reform recommendations. In reports
to Congress last year, the OMB and CBO
agreed that costs should be measured as
they arise, rather than later when they
must be paid.
Consistent with Congress' interest in reform
and the recommendations made in last year's
OMB report, the Administration proposes a
new method of budgeting for deposit insur-

Part One-261
ance. With this change, budget outlays would
be calculated in terms of a new measure
of accrued cost, instead of cash disbursements,
for all costs in 1992 and thereafter. This
budgetary treatment is similar to that currently applied to Government credit programs.
The proposed change is part of a broader
initiative, which is described in Chapter 13.
Measuring Costs as They Accrue.—For
banks and thrifts, accrued costs can be measured from financial information provided quarterly to regulators by each institution. The current value of a depository's assets is estimated
by capitalizing its reported income, adjusted
for anticipated loan losses, at each institution's
cost of capital. This estimate of asset value,
less the face value of the institution's deposits
or other liabilities, provides a measure of the
economic value of its capital. When aggregated, the estimates approximate what it
would cost the insurance fund to recognize all
current insolvencies.
The new measure is highly correlated with
economic values as reflected in stock prices
and debt markets. It has reliably predicted
continued unprofitability and closure for
groups of insolvent institutions. Moreover,
loss estimates for failed thrifts based on
the new measure are highly correlated with
cost estimates made by the Resolution Trust
Corporation (RTC) at the time the same
institutions were closed.
For budgeting, the rate at which costs
will accrue in future years must be estimated.
This has been done, for banks and thrifts,
using simulations that begin with the currently observed distribution of institutions'
financial conditions. Estimates of how this
distribution will change in the future require
assumptions regarding the trend in industry
earnings, earnings volatility, and the regulators' policies on the timing and method
of closure. These assumptions extrapolate recent trends, modified by expected changes
in the market, regulation, and proposed legislation.
Changing Budgetary Treatment: A New
Outlay Measure.—Beginning with 1992, it is
proposed that this measure of accrued cost be
used in a new budgetary treatment of deposit
insurance. Outlays would incorporate an estimate of the expected one-year change in ac-

Part 0ne-262

THE BUDGET FOR FISCAL YEAR 1993

crued costs for the whole set of insured institutions. Additions to accrued costs would be
based on the number and size of firms projected to become insolvent during the year or
those whose insolvency is expected to worsen.
Reductions in accrued costs would be based
on the number and size of insolvent firms expected to improve during the year.

of assets taken from failed institutions. Under
the new concept, these repayments already
have been taken into account when estimating
the accrued costs for 1992.
Savings from Further Reforms.—Prompt
enactment of further reforms of the type described below, including all elements of the Administration's proposals for modernizing the financial system that were not adopted last
year, would reduce BIF cash payments to cover
losses over the 1992-1997 period by an estimated $10 billion. As noted, the insurance
fund's negative net worth would fall to -$28
billion before starting to recover. Expressed on
the new accrual basis, BIF outlays would be
$16 billion lower over the 1992-1997 period
if a comprehensive set of additional reforms
were adopted early in 1992. These effects are
shown in Table 12-2.

In future years, newly accrued costs would
be recorded in a program account and paid
each year to a financing account outside
the budget totals. The budget authority to
make this payment would take into account
premium receipts. Payments from the program
account would be required to cover all resolution costs, but the financing account could
borrow working capital from the Treasury
and repay it with interest. Because of the
transition to a new outlay concept, losses
that have accrued prior to the change in
accounting would continue to be paid to
the financing account from the current budget,
or liquidating, account.

The savings would result partly from an
improvement in bank earnings, increased cost
efficiencies, diversified risk and an ability
to raise new capital, producing a reduction
in the rate at which new costs accrue.
Savings also would result from reduced risktaking with insured deposits.

Total budget outlays would be the sum
of new losses as they accrued, payments
from the liquidating account for old losses,
and administrative costs, less premiums collected. On this basis, BIF outlays are expected
to total $32 billion from 1992 through 1997,
unless additional reforms are adopted. Expressed on the old cash basis, BIF outlays
for the same period are expected to be
$68 billion. The difference is largely a result
of the exclusion of cash flows associated
with the financing and subsequent liquidation

MODERNIZING THE REGULATION OF
FINANCIAL SERVICES
The reforms needed to reduce future Bank
Insurance Fund losses include critical elements of last year's comprehensive Administration proposals that were omitted from
the 1991 legislation.

Table 12-2. REFORMS CAN SUBSTANTIALLY REDUCE BANK INSURANCE
FUND COSTS
(In billions of dollars)
1992

Outlays on Accrual Basis:
Current Law
With Further Reforms ..
Potential Savings
Fund Net Worth:
Current Law
With Further Reforms ..
NA = Not applicable.

1993

1994

1995

1996

1997

19921997

13.2
12.5
0.7

23.9
22.2
1.8

3.7
3.2
0.5

0.6
-3.8
4.5

-3.4
-8.8
5.4

-6.4
-9.8
3.3

31.6
16.2
15.5

-2
-2

-18
-18

-28
-25

-35
-28

-39
-27

-38
-25

NA
NA

12. MODERNIZING THE FINANCIAL SERVICES SECTOR

Restoring the Banking System to Good
Health
The Administration urges adoption of reforms that were included in FISCCA, as
introduced on March 20, 1991. They include:
• Interstate Branching.—Enactment of
the Administration's proposal to authorize
interstate banking and branching would
remove archaic and costly restraints.
Doing so would make banks safer because
they could diversify their risks geographically and increase their profitability
by avoiding costly legal barriers to efficient operation. Most importantly, additional capital may be attracted that would
be available to absorb unexpected loan
losses and thus serve as a buffer for the
deposit insurance fund.
• New Financial Activities.—The Administration's proposal to authorize diversified
financial services holding companies balances the need for banks to adapt to
changes in the market and technology
with the need for safety. This would allow
banks to seek economies of scope by offering related services, thereby maintaining
their competitiveness and attracting new
capital.
• Commercial Ownership.—The opportunity for indirect commercial ownership
of banks through a financial services holding company would bring new capital,
management expertise, and strategic potential to a troubled sector. The present
restrictions leave banks at a competitive
disadvantage relative to savings and loans
and non-bank financial companies.
• Limiting the Scope of Deposit Insurance.—The 1991 Act limited insurance for
brokered deposits and bank insurance contracts. Enactment of the Administration's
proposal to limit individuals to two
$100,000 insured accounts per institution
would be a modest step to further reduce
taxpayer exposure and draw in an overextended safety net.
Ideas for Further Reform
As called for in the 1991 legislation, prompt
efforts should be made to improve the measurement of bank capital.

Part One-263
• Improved Measurement of Capital.—
The newly enacted early corrective action
program can reduce losses and operate
fairly only if capital measures accurately
distinguish weak from strong banks.
Therefore, risk-based capital rules will be
reviewed as called for in the 1991 Act to
incorporate weights for interest rate and
credit concentration risk. In addition,
greater distinction should be made between higher- and lower-risk business
loans.
Some ideas have more far-reaching implications and will require further study and
discussion before taking the form of specific
proposals. These include:
• Risk-based Premiums Set by the Market.—Either the newly authorized private
reinsurance
demonstration
or yield
spreads on banks' uninsured debt could be
used to establish benchmark premium
rates. Based on experience, the deposit insurance premium structure could be revised so that each bank pays a premium
that is proportionate to the risk it poses
to the deposit insurance fund. Because private insurers would participate in monitoring the condition of banks they reinsure, their judgments could be used to reinforce Government supervision.
• Encouraging a Secondary Market for
Small Business Loans.—Following on
the enormous growth of a secondary market for mortgages and other consumer
credits, some banks have begun to explore
securitization of business loans. The
growth of a more efficient market for business loans is of interest not only because
it would help banks manage their risks
but also because it might lower the cost
of that credit and thereby promote economic growth. Without creating a new
Government-sponsored enterprise and
thus a potential taxpayer liability, the
Government can encourage such financial
innovation, including the development of
a deep, liquid secondary market for bank
loans to smaller businesses. It can do this
by identifying barriers to this innovation
and trying to overcome them. In addition,
the Securities and Exchange Commission
is currently exploring ways to improve

Part 0ne-264

THE BUDGET FOR FISCAL YEAR 1993

small business access to debt and equity
markets. Government might foster the development of a secondary market for business loans by setting standards, providing
incentives for safety, and policing new
markets as they develop.
SAVINGS AND LOANS: FINISHING THE
CLEAN-UP
The savings and loan industry has experienced an even sharper decline than have
banks. In the 1980s, a combination of turbulent markets and ill-conceived or inadequate
legislative remedies contributed to hundreds
of thrift failures. Fraud, delays in funding,
and weak supervision compounded costs.
There are now 900 fewer thrifts, with
$400 billion less in assets, than in 1988.
However, the FIRREA reforms enacted in
1989 have been effective in limiting the
growth of thrift problem costs. Stronger supervision, rapid progress in closing failed institu-

tions, and other reforms have sharply reduced
the rate at which new costs accrue. Continued
rapid reduction of the overhang of insolvent
institutions through the activity of the RTC,
combined with recent changes in asset and
interstate branching regulations, promise to
stabilize the savings industry soon at a
sustainable size.
Table 12-3 highlights the need for additional
RTC funding. The total cost of the thrift
debacle remains uncertain. Thrift industry
earnings continue to be sensitive to interest
rate movements. Relative to banks, many
are thinly capitalized and operate on narrow
margins. Final costs also will depend on
the strength of real estate markets and
on how efficiently the RTC manages and
disposes of real estate and other assets
acquired from failed institutions. So that
the cleanup can be finished and to avoid
cost increases that result from delays, it
is essential that the Congress provide the
necessary additional funds early in 1992.

Table 12-3. THE RTC NEEDS SUFFICIENT FUNDS TO FINISH THE
CLEAN-UP
(In billions of dollars)
1989-1991
Net Cash Outlays
Loss Funds UsecJ/Needed
Failed Assets Resolved

1992

1993

106.4
74.5
187.6

40.4
30.0
112.0

32.5
24.6
136.0

Addressing Inherited Claims
and Hidden Liabilities:
13. Identifying Long-Term
Obligations and
Reducing Underwriting Risks

Part One-265

13. IDENTIFYING LONG-TERM
OBLIGATIONS AND REDUCING
UNDERWRITING RISKS
The Federal Government becomes obligated
to make large future outlays by extending
credit, underwriting insurance, promising social security and medicare benefits, and contracting to pay annuities and health benefits
to Federal retirees as part of their compensation. This Chapter estimates these future

costs and discusses the measures that have
been taken or are proposed in this budget
to constrain them. The first section of the
Chapter analyzes credit and insurance risks.
The second section highlights public and
Federal employee retirement and health care
obligations.

REDUCING UNDERWRITING RISKS
The Federal Government continues to be
the Nation's largest source of credit and
underwriter of risk. At the end of 1991,
the face amount of Federal and federally
assisted credit and insurance was $6.3 trillion,
up 3 percent from the previous year and
117 percent from 1980.
Three-fifths of all non-Federal credit outstanding has been assisted by Federal credit
programs, Government-sponsored enterprises,
or deposit insurance. The proportion of credit
for housing that is federally assisted was
82 percent last year. Most credit for agriculture and education is also federally aided.
The proportion of business credit that receives
Federal support is much smaller. Indeed,
the substantial Federal intervention on behalf
of other borrowers draws credit away from
business, allocating credit inefficiently and
slowing the growth of productive investment.
Estimating Costs
Federal assistance can produce a substantial
budgetary cost to the Government when failures and defaults occur, as they have with
increasing frequency. This budget takes another step in an on-going effort to foresee
such costs sooner and estimate their size
more accurately. For each Federal credit
and insurance program, Table 13-1 shows
the face value outstanding at the end of
1991, the present value of all expected future
costs, and the sum of budget outlays for

new subsidies or accrual costs over 1992-97.
These are compared with last year's face
value and the costs shown in last year's
budget.
• Face Value.—Deposit insurance is the
largest program, with 45 percent of the
face value of the total of all Federal credit
and insurance outstanding. However, the
most rapidly growing share of the total
continues to be the implicitly guaranteed
Government-sponsored enterprises, led by
the Federal National Mortgage Corporation (Fannie Mae), the Federal Home
Loan Mortgage Corporation (Freddie Mac),
and the Farm Credit System.
• Deposit Insurance Cost.—Measured in
terms of both outlays and the present
value of future costs, deposit insurance
tops the cost list. Deposit insurance costs
for thrifts continue to be larger than those
for banks, reflecting the Resolution Trust
Corporation's vigorous efforts to close insolvent thrifts. But the gross budgetary
cost for new liabilities (see Table 13-4) is
two to three times larger for commercial
and savings banks than for thrifts.
• Pension Guarantee Cost.—The present
value of future costs for pension guarantees is much higher than last year's figure
due to an improved method of estimation.
The old estimates focused on plans of
firms that had a significant probability of
Part One-267

Part

0ne-268

THE BUDGET FOR FISCAL YEAR 1993

Table 13-1. FACE VALUE AND ESTIMATED COST OF FEDERAL CREDIT
AND INSURANCE PROGRAMS
(In billions of dollars)
1992 Budget
Face Value1
1990

Program

Direct Loans:3
Farmers Home4
REA and RTB4
Export-Import
AID
P.L. 480
Foreign Military Financing
Small Business
Other Direct
Inactive

Present
Value of
Future
Costs1

53
37
9
18
13
17
7
4
19

19-33
11-15
3-6

Total Direct Loans

177

Guaranteed Loans:
FHA Single-Family
VA Mortgage
FHA Multi-Family4
Guaranteed Student
Small Business
Farmers Home
Export-Import
CCC Export Credits
Other Guaranteed
Inactive
Total Guaranteed Loans
Federal Insurance:
Deposit Insurance:
Commercial and Savings Banks
Thrifts
Credit Unions
Total Deposit Insurance
PBGC
Other Insurance
Total Federal Insurance
GSEs:6
Freddie Mac
Fannie Mae
FHLBanks
Sallie Mae7
FCS
Total GSEs
1
2

,....

1993 Budget
Face Value
1991

Present
Value of
Future
Costs2

Subsidy or
Accrual Outlays 1992-97

52
39
9
21
12
9
7
5
20

11-15
4-5
4-6
6-7
7-9
1-2
1-2
1-3
1-2

3-4
0-1
0-1

50-77

174

36-51

5-12

285
161
71
53
12
6
5
3
8
19

(6>-0
3-6
14-16
30-37
1-3
1-3
4-6
1-4
3-9
1-2

301
158
77
57
14
6
6
4
7
19

(5H>
3-6
2-3
38-42
1-3
1-3
4-6
2-3
0-1
0-1

1-3
0-1
16-18
0-2
0-1
1-2
0-1
0-1

623

52-86

649

46-68

18-29

1,911
726
178

m
[51

1,942
654
197

34-51
55-60

4-20
10-12

2,815

—
—
—
—

17-23
—

—

2-3
0-1
0-1
0-1
—

—

[]
6-20
3-6

2,793

89-111

14-32

873
738

900
750

30-60
2-3

(3M6
1-2

4,426

t5l

4,443

121-174

12-50

317
372
117

—

369
456
107

—

—
—

1-2

0-1

—

856

1-2

1,006

0-1

—

Costs are as they were displayed in the 1992 budget, uncorrected for errors. Outstandings for 1990 have been updated.
For guarantees, these are liquidating plus program account outlays projected into the future. Direct loan future costs are the program
account plus the embedded loss from outstanding loans. Future insurance costs are program plus liquidating costs through 1997, plus the
accrued l a i i y remaining at the end of 1997.
iblt
8
Excludes loans and guarantees by deposit insurance agencies and programs not included under credit reform, such as CCC farm price
supports. Defaulted guarantees which become direct loans are acounted for in guarantee volume and costs. 1990 cost estimates for AID,
P.L. 480, Foreign Miliary Financing, Small Business, and "Inactive" direct loans were included in "Other Direct" in the 1992 budget.
4
Estimated costs change primarily from improved data and estimation procedures, and lower interest rates.
6
Outlays on the incompatible cash basis were: $42-78 billion for banks, $70-83 billion for thrifts.
6
Net of borrowing from Federal sources and federally guaranteed loans.
7
The face value and Federal costs of guaranteed student loans in Sallie Mae's portfolio are included in the guaranteed student loan
account above.

13. IDENTIFYING LONG-TERM OBLIGATIONS AND REDUCING UNDERWRITING RISKS

failure in the near future. The new estimates cover a wider range of plans and
look much farther into the future at a
growing pension system. (The new estimates are discussed below.) This large
contingent liability contrasts sharply with
the short-term view provided by net cash
outlays, where premiums and other income are expected to exceed payments and
expenses for several years.
• Credit Costs.—Among credit programs,
the largest Federal costs, whether on a
total present value or a 1992-97 outlay
basis, are for guaranteed student loans
and the programs of the Farmers Home
Administration.
Managing Risk
Historically, the Federal Government has
given inadequate attention to managing the
risk of these credit and insurance programs.
Many of them were viewed as self-financing;
credit was expected to be repaid, and the
cost of insurance was assumed to be covered
by premiums. To the extent that costs occurred, they were mostly "unexpected" and
"uncontrollable."
There has been a growing awareness in
recent years that both the intended beneficiaries of these programs and the Nation
are badly served when the principles of
risk-management are not followed. The principle that the beneficiary should have a
substantial stake has focused greater attention
on the size of the borrower's downpayment
and on banks' and businesses' capital. The
principle that borrowers or insureds who
take more risk should pay more has highlighted the need to relate premiums, fees,
and interest rates to risk. Following these
principles reduces the incentive that now
exists for borrowers and insureds to take
greater risks that may yield them larger
gains, whereas the Federal program would
bear or share any losses without additional
compensation for these additional risks. Putting programs on a sounder financial footing
can expand, rather than reduce, their social
benefits while cutting Federal costs.

Part One-269

Controlling Costs
In addition to the indirect costs associated
with excessive risk-taking, Federal credit and
insurance programs also result in direct costs
to the Government. Much of this cost is
paid by healthy firms—for example, through
higher deposit insurance or pension guarantee
premiums. The remaining costs must be paid
by taxpayers.
Prior to 1992, these costs were not controlled
before the liability was incurred, in contrast
to other budgetary outlays. For credit programs, this changed with the Federal Credit
Reform Act of 1990. Starting in 1992, the
cost of new direct loans or loan guarantees
must be estimated in advance and appropriations enacted or budget authority otherwise
provided before credit can be extended. This
law is discussed further below.
Consistent with Congressional interest in
accounting reforms, this budget proposes that
the principles underlying credit reform be
extended to budgeting for Federal insurance
programs. The Office of Management and
Budget and the Congressional Budget Office
both reported to Congress last spring on
ways in which these principles could be
extended to deposit insurance.1 Since then,
OMB staff has done further analysis to
make feasible their extension to other insurance programs. This budget includes a legislative proposal to apply these principles to
deposit insurance and pension guarantees
effective in 1992; this change would be proposed for the other insurance programs in
1993. Implementation of the change would
force recognition of costs much earlier than
is now the case, and, by providing an incentive
to enact much-needed reforms, would increase
budgetary control of insurance costs.
CREDIT PROGRAMS
Credit Reform
Implementation of the Federal Credit Reform Act of 1990 was a major development
of the past year for credit programs. The
1

Budgeting for Federal Deposit Insurance, published by the Of-

fice of Management and Budget, June 1991, and Budgetary Treatment of Deposit Insurance: A Framework for Reform, published by

the Congressional Budget Office, May 1991.

Part 0ne-270
law requires agencies to assess the risks
of their direct loans and loan guarantees
and to estimate their cost. Cost is defined
as the present value, discounted at Treasury
rates of comparable maturity, of the expected
cash outflows from the Government minus
the expected cash inflows to the Government.
If borrower repayments and interest are not
sufficient to cover the principal of a direct
loan and the Treasury's cost of borrowing,
the shortfall is a cost to the Government;
if guaranteed loan defaults (and interest
subsidies, where paid) are larger than the
fees that borrowers pay to the Government,
that too is a cost.2
Default costs are not estimated for particular loans as they become delinquent. Nor
is an attempt made to predict exactly which
loans will become delinquent or default. Instead, the probability of default for a large
group of loans is based on an analysis
of the historical relationship between default
and the specific characteristics on which
defaults depend. For example, borrowers who
have built up equity in their homes are
unlikely to default on their mortgages; at
worst, they would sell the house, repay
the mortgage, and recoup their equity. Similarly, students who receive a valuable education and begin paying off their loans may
become delinquent if they become unemployed
and have exhausted their deferments, but
they are likely to find a new job and
resume payments. The size of these probabilities under different economic conditions
can be estimated based on econometric analysis of experience with the program's previous
loans.
For international credit programs, a common
set of risk-based categories was developed
to assess the subsidies of direct loans and
loan guarantees. They take into account such
factors as a country's payment history, its
export potential to service foreign debt, and
its ability to implement macroeconomic and
financial policies, including the International
Monetary Fund's conditionality criteria for
advancing loans. The subsidy amounts for
specific risk categories were derived using
2
Subsidies are shown in Tables 13-2 and 13-3. Additional information may be found in Appendix One, Chapter 3, "Federal Credit
Programs."

THE BUDGET FOR FISCAL YEAR 1993

financial market default estimates on sovereign debt.
Budget Justification.—In the 1992 budget,
appropriations were requested or budget authority required for Federal credit programs
to cover the full subsidy costs—the default, interest, and other costs-—of loans and guarantees. In the Congressional budget process, allocations of budget authority to Committees included the costs of credit programs. For the
first time, these costs had to compete for resources on the same basis as other Federal
spending in the same spending category. For
discretionary
programs,
larger
subsidy
amounts—for example due to more loan volume, greater risk, or lower interest rates or
fees—had to be traded off against other outlays for grants, benefit payments, or purchases. Even where subsidies were small, the
need to request appropriations required consideration of the potential costs.
Budget Execution.—Credit reform is also
making a substantial difference in budget execution. In effect, funding to cover future costs
is charged against the appropriation for each
loan and guarantee as it is made. When a
direct loan is made, the subsidy lowers the
amount borrowed from Treasury to disburse
the loan by enough to allow for expected defaults; for loan guarantees, it provided a reserve for future claims. Credit reform requires
much more careful record keeping, which identifies loans or classes of loans by the appropriation that provided authority, their maturity and date of origination, and their subsequent cash outflows and inflows. Some programs in 1992 and many programs in 1993
also identify loans by "risk category"—those
characteristics that determine the likelihood of
defaults and other costs. These records will
be used in reestimating the subsidies for each
program-year in each succeeding budget, and
they will influence the subsidy calculations for
new loans and guarantees. These records
would also assist programs to underwrite and
service loans better.
Program Reforms
In addition to credit reform, the Omnibus
Budget Reconciliation Act of 1990 (OBRA)
and other recent legislation enacted specific
reforms for the Federal Housing Administra-

Part One-271

13. IDENTIFYING LONG-TERM OBLIGATIONS AND REDUCING UNDERWRITING RISKS

Table 13-2. E S T I M A T E D S U B S I D Y R A T E S , B U D G E T A U T H O R I T Y , A N D
OUTLAYS F O R DIRECT LOANS
1993
WeightedsublidyTs a
percent of disbursements

Agency and Program

Funds Appropriated to the President:
Foreign military financing
Overseas Private Investment Corporation
AID Private Sector Investment Program
Agriculture:
Agricultural credit insurance fund ..
Rural development insurance fund .
Rural development loan fund
Rural housing insurance fund
Public Law 480 export credits
Rural Electrification Administration:
Rural electric and telephone
Rural telephone bank

In millions of dollars
Subsidy Budget Authority
1993

1994

1995

Subsidy Outlays
1993

1994

1995

17.5

13.9

6.4
19.7
13.7
52.3
38.5
67.1

111
96
20
392
318

100
83
20
380
318

98
73
19
370
318

106
6
2
342
335

96
5
2
362
318

93
4
2
364
318

11.3
2.1

181
10

128
9

124
8

118
1

93
3

107
5

Housing and Urban Development: Restore loans

Interior: Bureau of Reclamation loan
program

48.5

State
Department:
Loans

5.4
8.4
7.7
2.9
12.4
10.0

Repatriation

Veterans Affairs:
Direct loan revolving fund
Loan guaranty revolving fund
Guaranty and indemnity fund
Vocational rehabilitation
Education loan fund
Transitional housing loans
Small Business Administration:
Disaster loans
Business Loans: Handicapped Assistance
Export-Import Bank
Total, direct loan subsidies1

67
16

52
25

41
35

52
25

41
35

•

18.7

6.1

128

9.4

1,489

8.2

67
16

128

105

1,394

1,359

1,126

1,135

1,207

*$500 thousand or less.
1 Weighted average.

tion (FHA) and Guaranteed
(GSL) programs.

Student Loan

Furthermore, many programs undertook administrative reforms to reduce costs and
improve management. The Department of

Veterans Affairs (VA) is more carefully comparing the return from cash sales of acquired
properties with returns from sales financed
by new Federal direct loans to the buyers
(vendee loans). The FHA multi-family program

Part

0ne-272

THE BUDGET FOR FISCAL YEAR 1993

Table 13-3. ESTIMATED SUBSIDY RATES, BUDGET AUTHORITY, AND OUTLAYS
FOR LOAN GUARANTEES
(In millions of dollars)

Agency and Program

Funds Appropriated to the President:
AID private sector loans
AID housing and other credit
Overseas Private Investment Corporation
Agriculture:
Agricultural credit insurance fund
Rural development insurance fund
Rural housing insurance fund
Agricultural
Resource
Conservation
Demonstration
Rural Electrification Administration:
Rural electric and telephone
Commodity Credit Corporation: Export
credits
Education:
Guaranteed student loans, Stafford
Guaranteed student loans, PLUS
Guaranteed student loans, SLS
Health and Human Services:
Health professions graduate student
Housing and Urban Development:
Federal Housing Administration mutual
mortgage
Federal Housing Administration general
and special risk
GNMA secondary mortgage guarantees ..
Interior: Indian loan guaranty and insurance fund
Veterans Affairs:
Loan guaranty revolving fund
Guaranty and indemnity fund
Small Business Administration: Business
loans
Export-Import Bank
Total, loan guarantee subsidies1

1993
Weightedaverage
subsidy as a
percent of
disbursements

In millions of dollars
Subsidy Outlays

Subsidy Budget Authority
1994

1993

1995

1993

1994

1995

4.7
17.3

5
16

1
1

3
5

5
9

1.5

3.6
2.7
14.7

83
5
103

131
5
104

138
6
105

66
4
90

102
5
102

107
5
104

36.4

0.04

2.8

158

157

158

157

17.6
8.5
12.2

2,387
116
360

2,793
128
407

2,986
140
443

2,073
103
293

2,444
117
358

2,699
128
394

9.1

-2.7

-1,386

-1,363

-1,356

-1,386

-1,363

-1,356

2.0

184

128

167

—

12.9

4.0
1.3

C)
192

C)
246

o
192

O
246

C)
246

1.8
5.3

87
495

131
213

83
315

83
412

2.8

2,849

3,438

3,677

2,103

2,776

3,185

* $500 thousand or less.
Weighted average.

has begun to delegate underwriting and processing of insurance applications for insuring
rental housing properties to HUD-approved
processors. HUD field staff review the decisions. This procedure replaces the poorly
designed and implemented coinsurance program. The Department of Education is reviewing the default experience of schools and
monitoring the performance of lenders and

guarantee agencies more closely. The Farmers
Home Administration has promulgated new
rules to reduce error and fraud in the
rural housing program. The minimum private
capital needed to operate a Small Business
Investment Company has been raised, and
staff monitoring increased.

13.

IDENTIFYING LONG-TERM OBLIGATIONS AND REDUCING UNDERWRITING RISKS

Budget Proposals
Additional credit program reforms are being
proposed in this budget.
• For the VA mortgage guaranty program,
the "no-bid" formula used to determine
when it is cost-effective to acquire foreclosed property rather than pay the guaranty would be changed to include any expected losses on the resale of property.
This change is estimated to reduce acquisitions from 85 percent of foreclosures to
70 percent. The VA also proposes to increase the loan origination fee by 0.75 percent (from 1.25 percent to 2.00 percent for
a no-downpayment loan) and to require a
2.50 percent fee and a 10 percent downpayment for second and subsequent uses
of the program.
• The Administration seeks to build on last
years changes to strengthen the Guaranteed Student Loan program through its
Higher Education Act reauthorization proposals. Federal cost would be reduced by
lowering origination and servicing payments to lenders with high default rates.
States would be required to strengthen
their licensing so that only qualified
schools become eligible for the GSL program; they would also be responsible for
a portion of default costs when State-approved schools have high default rates.
Guarantee agencies would be stabilized by
requiring management plans from weak
agencies, setting minimum reserve requirements, and giving the Secretary of
Education the necessary authority to deal
with a troubled guarantor. Students who
borrow or receive other Federal student
aid, such as Pell grants, would be subject
to minimum performance standards, as determined by the Secretary. This is an important step to ensure that recipients of
Federal student aid are making satisfactory progress toward the completion of a
certificate or degree.
• The Administration favors many of the
specific reforms to reduce defaults in the
Health Education Assistance Loan (HEAL)
program contained in the Senate-passed
HEAL reauthorization bill. These include:
limiting participation of schools with high
default rates, assessing penalty fees and

311-000 0 - 9 2 - 1 3

(PT.l)

Part One-273

other risk-sharing to encourage policies to
reduce defaults, and enhancing the collection authority of the Government.
• Farm lending would be targeted to meet
the needs of new and beginning farmers
and those who are disadvantaged. Borrower eligibility would be limited to 7
years for direct loans and 10 years for loan
guarantees. Shifts to guarantees from direct loans will again be proposed for both
farm loans and rural housing.
• The Small Business Administration also
will be shifting toward guaranteed loans,
and will seek legislation to increase private risk-sharing from 15 percent to 25
percent. Higher fees will be sought to
cover a larger share of the cost of these
programs. These reforms would reduce the
current 19 percent default rate, lowering
the subsidy cost to the Federal Government.
• The Rural Telephone Bank (RTB) is scheduled by law to be privatized in 1996. A
reserve account would be established from
the proceeds of borrower RTB stock purchases to help achieve privatization
through the redemption of federally held
RTB stock.
An evaluation of the FHA multi-family
housing program, which is scheduled to be
completed soon, is expected to result in
additional proposals for reform.
INSURANCE PROGRAMS
As used to be the case for credit programs,
the cash outlays of insurance programs do
not provide a clear and timely measure
of their cost to the Government. Insurance
programs commit the Government to costs
that are not delimited or estimated when
Congress authorizes the insurance to be provided. The costs are not recorded when
they accrue. Instead, the budget records them
months, years, or, in the case of pension
guarantees, even decades later. They are
recorded only when cash payments are made
to protect the depositors in failed banks
or the pensioners in underfunded plans of
failed firms, or in response to the occurrence
of other federally insured events.

Part 0ne-274
Cash budgeting for insurance programs thus
delays the recognition of emerging problems.
It does not help decision-makers to see what
is occurring or what is ahead. As a result,
they cannot act in time to ensure adequate
resources or to reform the insurance system
in ways that might limit costs. Under the
current system, these are "sunk costs" by
the time they appear in the budget. By
that time, they are the Government's legal
and moral responsibility, and little can be
done to control them.
Toward Insurance Reform
Even before credit reform was enacted,
the Administration had begun to explore
how its principles could be extended to Federal
insurance programs. In enacting credit reform,
the Congress also indicated its interest in
improving the budgeting and accounting for
Federal insurance programs. As the Act required, the Office of Management and Budget
and the Congressional Budget Office each
reported to Congress on the appropriate way
to budget for Federal deposit insurance. Both
reports agreed that cash accounting for deposit
insurance had served the Nation poorly; it
delayed recognition of growing liabilities, and
thus added to costs. Both reports agreed
that costs should be measured as they arise,
rather than later when they are paid.
The OMB report defined the accrual cost
of deposit insurance and developed an innovative way to estimate this cost in an options
pricing framework by estimating economic
value using publicly available financial statements that all insured banks and thrifts
file every quarter with regulators. Subsequently, the estimates were refined and
validated by comparison with other measures
of economic value. Starting from the observed
distribution of financial condition, future deposit insurance costs were projected using
Monte Carlo simulations, which permit the
earnings of firms to vary randomly in a
recently-experienced pattern. Further details
of this method are described in Chapter
12, "Modernizing the Financial Services Sector."
A similar options pricing approach was
developed to estimate the accrual cost of
the Pension Benefit Guaranty Corporation

THE BUDGET FOR FISCAL YEAR 1993

(PBGC). The pension guarantee model is
complicated by the fact that not one but
two events must occur before Federal payments are made, and they are interrelated.
Federal payments are made only if a firm
with a defined benefit pension plan fails
and if its pension fund is inadequate to
cover guaranteed payments. This work is
discussed further below.
The Administration's Proposal
The Administration is proposing to shift
the budgetary treatment of insurance programs to an accrual basis. By recognizing
costs as they are incurred, this approach
provides policymakers with the information
and incentives necessary to control such costs.
Rapid progress has been made in developing
the appropriate concepts and measures. Legislation will be proposed to shift deposit insurance and pension guarantee programs to
the new basis starting in 1992; a similar
shift will be proposed for all other Federal
insurance programs in 1993.
Measuring Accrual Cost.—For deposit insurance, the gross accrual cost in any year
is the amount by which the resolution costs
for insolvent firms increase between the beginning of the year and the date of their closure
or, for those that remain open, the end of the
year. New costs are recorded both for firms
whose insolvency worsens, and those that become insolvent during the year. Offsetting cost
reductions are recorded to the extent that insolvent firms improve during the year. The
resolution cost is the present value of all expected costs of dealing with these insolvencies,
taking account of collections from the sale of
acquired institutions' assets. As described in
Chapter 12, these costs have been estimated
as of 1991 and projected for future years,
based on data for 400 bank holding companies,
other large banks, and all thrifts.
Similarly for pension guarantees, the gross
accrual cost is the difference between the
accrued cost at the beginning of the year
and that at the end of the year (or at
termination, if that occurs during the year).
The accrued cost is the present value as
of a given date of all active plans' estimated
future insurance claims over the expected
life of the firm. These costs have been

13. IDENTIFYING LONG-TERM OBLIGATIONS AND REDUCING UNDERWRITING RISKS

estimated, as described below, based on publicly available data for about 1,800 firms
and their pension plans.
Accrual costs for some other Federal insurance programs can be estimated using methods
similar to those used in the private sector.
The measure for veterans' life insurance is
the same as for any private life insurance.
The measure for flood or crop insurance
is the same as for any private casualty
insurance. Such costs are commonly measured
and projected by actuaries. Where the Federal
Government insures against unusual or catastrophic risks, such as war or expropriation,
a further assessment of costs is needed.
Budgeting for Accrual Cost.—For deposit
insurance and pension guarantees, the Administration proposes that the new measure of accrual cost, instead of cash disbursements, be
included in budget outlays in 1992 and thereafter. (See Appendix One, Chapters 23 and 33.)
Three accounts would work in tandem
to show the full accrued and accruing costs
of these programs in the budget on a more
timely basis, but also to continue to track
all cash flows.
• The program account would focus attention on the new cost of these programs,
recorded as it accrues. As conditions
change, any change in cost would be
shown here. The new accrual costs would
be paid each year on a mandatory basis
to a financing account. Administrative expenses would be separately accounted for
and paid from the program account.
• Consistent with credit reform, all of the
costs accrued prior to 1992 would be paid
from the current budget account, which
would become a liquidating account. At
the time the Government takes over failed
depository institutions or pension plans
are terminated, any cost for that firm or
plan which had accrued as of October 1,
1991, would be paid by the liquidating account to the financing account.
The liquidating and program accounts together show the full use of general fund
resources for the insurance programs; they
are included in total budget outlays. Because
the payments by both of these accounts
are made to a financing account outside

Part One-275

the budget, the total budget outlays and
budget deficit reflect these costs and reflect
them on a timely basis. The financing account
itself will include all cash flows associated
with the insurance program. Thus, the countability of cash will not be lost, and the
total amount of financing required by the
Government will be known.3
Total budget outlays for each program
would be the sum of accrual cost, liquidating
account costs that had accrued before the
change in budgeting, and administrative costs,
less premiums and interest received. Thus,
outlays would be shown only if, and to
the extent that, they become a charge on
the general taxpayer, rather than premium
payers.
Budget authority would be required to
make payments from the program and the
liquidating accounts for any amounts exceeding the income of the financing account,
including premiums. An annual appropriation
would be needed, which the present proposal
would classify as direct (mandatory) spending.
However, the Administration is willing to
consider other approaches that would assure
sufficient funding flexibility and adequate
control over annual expenditures. Payments
would be required to cover all resolution
or termination costs. But the financing account
could borrow working capital, as needed,
from the Treasury and repay it with interest.
In the case of deposit insurance and pension
guarantees, the expectation is that a cost
increase would be offset to the extent possible
either by reducing future costs through program reforms or by increasing premiums.
By providing a more timely assessment of
resource needs, accrual budgeting would help
to avoid unpleasant surprises.
Results.—Table 13-4 depicts deposit and
pension insurance on this new basis. The first
column shows the portion of the liabilities outstanding at the start of 1992 which is expected
to be paid as terminations and failures occur
through 1997. The projection depends partly
on future economic conditions, and partly on
closure policies. Column two shows the additional liabilities that are expected to accrue
3
Financing accounts are discussed further in Chapter 14, "Accounting for Federal Borrowing and Debt," and in Appendix One,
Chapter 7, "Off-Budget Federal Entities."

Part 0ne-276

THE BUDGET FOR FISCAL YEAR 1993

from 1992 through 1997. The lower end of the
range assumes that Administration policy will
be enacted; costs would be higher under current law. The last column shows outlays excluding administrative expenses.4
Pension Benefit Guarantees
The conversion to accrual budgeting is
particularly meaningful for the Pension Benefit Guaranty Corporation (PBGC) because
its commitments extend far into the future;
and the farther ahead one looks, the more
urgent is the case for reform. PBGC's true
financial condition is inadequately portrayed
by comparing annual cash receipts to current
cash outlays. Over the next several years,
premiums and investment income are projected to exceed benefit payouts and program
administration. However, other data show
the PBGC's financial condition deteriorating.
The agency is increasingly vulnerable to large
losses.
This worsening in PBGC's financial condition occurred despite a period of strong
economic growth and stock market gains
in the 1980s. Insurance claims on the PBGC
increased substantially. Further, despite a
decline through most of the decade in pension
underfunding, PBGC's exposure to imminent
losses has grown because the financial condi4
Appendix Two, Chapter 37, "Current Services Estimates,"
shows deposit and pension insurance on both a cash and an accrual
basis, and separately shows the effects of proposed reforms for
these programs.

tion of some companies with the largest
pension underfunding weakened. For example:
• The Eastern and Pan Am plans that terminated in fiscal year 1991 alone represent roughly 25 percent of the losses
that the PBGC has incurred since it was
set up in 1974.
• Between 1989 and 1991, the PBGC's deficit for the single-employer plans that it
has already taken over—the present value
of benefits it must pay in excess of the
value of assets—grew 127 percent to $2.5
billion.
• The agency's exposure to "reasonably possible" losses has grown approximately $10
billion since 1989, as sponsoring companies' financial condition has worsened and
underfunding has increased.
The reforms enacted to reduce pension
underfunding in 1987 are not working fast
enough to increase benefit security or to
reduce PBGC's expected costs. Nor are PBGC's
recoveries from sponsors of terminated underfunded plans under current law enough to
offset its growing deficit. In addition, the
PBGC's condition in bankruptcy has been
put in doubt by recent court decisions.
Because the PBGC guarantees pensions
under plans that extend far into the future,
policymakers need to have available a more
comprehensive method of estimating PBGC's
long-run financial condition. Without such

Table 13-4. FEDERAL INSURANCE PROGRAM COSTS: ACCRUED BASIS
(In billions of dollars)
1992-1997
Gross Budgetary Cost
For pre1992
Liabilities

Bank Insurance Fund
Resolution Trust CorporatioiVSAIF
National Credit Union Share Insurance Fund
Pension Benefit Guaranty Corporation
Total

For post1992
Liabilities1

Premiums

Net Budgetary Costs2

42
50
—
6

33-50
16
21
(l)-23

53
6
1
9

(4)-20

52-92

83-124

22-39
60
—

is the increment to the outstanding cost during the 1992-97 period. The range reflects lower costs if
Administration proposals are enacted, to higher costs under current law.
2 Excluding administrative expenses.
lrrhis

13.

IDENTIFYING LONG-TERM OBLIGATIONS AND REDUCING UNDERWRITING RISKS

tools, policymakers would not be able to
fully assess the potential costs of the pension
insurance program and to adequately monitor
and plan for the program's future. New
estimates of potential costs, based on more
relevant factors and shifting the focus from
the near- to the long-term, have been developed. These estimates show that the accrued
cost of the PBGC's contingent liability was
$43 billion at the beginning of fiscal year
1992 and will grow under current law.
Measuring Pension Guarantee Costs.—
The Administration is using a simplified options pricing model to assess the cost of publicly traded firms holding 70 percent ($567 billion) of the single-employer pension liabilities
insured by the PBGC. Omitted from this sample are the remaining single-employer plans
and the $88 billion in multi-employer pension
liabilities insured by the PBGC.
The model starts from actual data on
these firms and their pension plans, including
the firm's equity and the plan's assets and
liabilities. The model also uses information
on funding requirements from current pension
law, recent PBGC recovery rates from bankrupt firms, historical growth rates of pension
fund assets and liabilities, and estimates
of the variability and covariance in firm
equity and plan assets and liabilities. Based
on experience, the assumptions differ between
overfunded and underfunded plans.
Estimates of the accrued cost to PBGC
of potential insurance claims over the expected
life of covered firms are made for each
plan. Indeed, the larger plans are subdivided
into smaller units with the same characteristics so as to provide a smooth estimate
of their probability of failure and the probable
size of underfunding at closure. The model
is then used to estimate the aggregate cost
to PBGC. At the beginning of 1991, this
accrued liability was $47 billion. Low stock
market values at the start of that year
triggered a requirement for increased funding
by many firms during 1991; at the same
time, stock prices rose. These factors helped
to reduce the accrued liability to an estimated
$43 billion at the beginning of 1992.
Predicting the future is an uncertain business, but one thing is certain: change will
occur. These changes will cause some firms

Part One-277

to fail. Future costs can be projected better
by starting from current financial conditions
and assuming random probabilities of change
with a recently observed pattern, rather than
either assuming no change or attempting
to identify the future failure of specific firms.
Currently underfunded pension plans, with
20 percent of outstanding pension liabilities,
account for two-thirds of PBGC's accrued
cost. Some cost is due to currently overfunded
plans and currently solvent firms that may
some day become underfunded and insolvent.
Under current law and baseline assumptions,
the PBGC's costs are estimated to grow
at an average rate of $3.4 billion a year
over the next six years.
A more comprehensive options pricing model
incorporating more variables and relationships
is under development. PBGC is also collecting
data on the remaining funds covered by
its guarantees. This work will further improve
understanding of the current and future exposure of PBGC under various economic and
financial conditions, and across different industrial sectors and pension fund types.
Reforming the Pension Guarantee System
In view of the PBGC's large and growing
exposure, the Administration is proposing
a three-part legislative program.
Minimum Funding Requirements.—The
Administration will propose that annual pension contributions required of sponsors of underfunded single-employer pension plans with
100 or more participants be the largest of contributions calculated under:
• a new solvency maintenance rule that
would require sponsors to contribute as
much as a plan paid out during a year
and interest on the plan's underfunded liability at the beginning of the year;
• a revision of the underfunding reduction
rule enacted in 1987 that would accelerate
the effects of the 1987 reform; and
• the ERISA funding standard account rules
enacted in 1974.
The new requirements would result in
faster
amortization
of
pension
plan
underfunding than current law rules. To
ensure that no firm is unduly burdened

Part 0ne-278
by the proposed solvency maintenance rule,
a cap would be placed on the new requirement
for a transition period. In addition, other
transition provisions that recognize pre-enactment expectations are part of the package.
Guarantee Growth in Chronically Underfunded Plans.—To further improve funding incentives and limit PBGC's exposure from
structurally underfunded pension plans, the
Administration will propose to freeze the guarantee with respect to plan amendments that
increase promised benefit payments in plans
that remain underfunded. This proposal would
apply prospectively to new plan amendments.
Bankruptcy Reform.—To improve the
PBGC's recoveries, the Administration will repropose bankruptcy law amendments to clarify
and improve the status of PBGC claims in
bankruptcy, revise the legal treatment of contingent early retirement benefits provided in
some pension plans, and give the PBGC the
option of becoming a member of creditors' committees in bankruptcy proceedings.
The cumulative effect of these reforms
would be to lower the PBGC's accrued cost
by $8.7 billion in the year the savings
are first counted and reduce substantially
the growth of costs thereafter.
GOVERNMENT-SPONSORED
ENTERPRISES
The large and rapidly growing Governmentsponsored enterprises have continued to be
profitable. They have a low borrowing cost
due to their perceived Federal guarantee,
the geographic diversity and economies of
scale that come from their nationwide operations, and the flexibility to respond to market
changes due to their private ownership. Stress
tests on the Federal National Mortgage Association (Fannie Mae) and the Federal Home
Loan Mortgage Corporation (Freddie Mac)
show that they continue to be resistant
to credit and interest rate risks. The Student
Loan Marketing Association (Sallie Mae) is
similarly resistant to interest rate risk, and
its credit risk is almost entirely borne by
the Federal Guaranteed Student Loan program.
The Administration, however, continues to
support legislation that would for the first

THE BUDGET FOR FISCAL YEAR 1993

time put in place a comprehensive approach
to ensure the safety and soundness of Fannie
Mae and Freddie Mac and reduce the exposure
of the Federal Government to losses. This
legislation would establish: (1) a separate,
arms-length Office of Secondary Market and
Examination within the Department of Housing and Urban Development; (2) a threepart capital standard (including risk-based
capital); and (3) authority for the Director
of the new Office to take enforcement actions
when capital is at unacceptable levels.
The Farm Credit System (FCS) is continuing
its slow recovery from the mid-1980s agricultural recession, which precipitated the 1987
Federal bailout of the System. FCS earnings
are rising, and all but three FCS banks
have already reached the target of seven
percent at-risk capital that all banks must
reach by 1994. However, two FCS banks
remain at some risk of failure. The FCS
is getting stronger, but it remains vulnerable
to any future downturn in the agricultural
economy, and it risks the flight of high
quality borrowers whenever its loan rates
are not competitive. Insurance companies have
re-entered the farm real estate market, and
new legislation which permits the Federal
Agricultural Mortgage Corporation (Farmer
Mac) to hold, as well as guarantee, securitized
farm loans could stimulate increased competition for FCS from commercial banks.
Legislation will be proposed to require the
FCS to set funds aside for the repayment
of federally guaranteed bailout debt, and
to reimburse the Government for the interest
it has paid on this debt.
Management Risks.—The risks from management and operations decisions, while difficult to measure, can be quite substantial for
large and growing enterprises. Several GSEs
have experienced management and operations
risk in the past year. Fannie Mae, Freddie
Mac, Sallie Mae, the FHLBanks, and FCS
were affected by the overstatement of customer
interest by investment bankers in the Government and agency debt markets. As a result,
Fannie Mae and Freddie Mac have taken remedial steps, including disciplining the members of their selling groups and changing their
debt sales procedures. The Administration continues to support a requirement that the proposed risk-based capital levels be increased by

13.

IDENTIFYING LONG-TERM OBLIGATIONS AND REDUCING UNDERWRITING RISKS

30 percent to cover management and operations risk.
Policy and Market Risks.—Two GSEs in
particular are exposed to changes in future
policy and market circumstances. Sallie Mae
could be affected by changes in legislation reauthorizing the GSL program. Although
strongly opposed by the Administration, proposals are under discussion in Congress that
might shift all or part of this program from
guaranteed to direct loans. Other proposals
could reduce the payments to lenders and portfolio holders, like Sallie Mae, for operating the
loan program.
The Federal Home Loan Bank System
is affected by continued shrinkage in the
size of the thrift industry. The resulting
decline in System membership has led to
reduced Federal Home Loan Bank advances,
earnings, and dividends. The Federal Housing
Finance Board has taken steps to manage
this shrinkage while permitting the Banks
to respond to earnings pressure by investing
in mortgage-backed securities and bank "Federal funds." While this has allowed the
System to remain profitable, it has also
diminished its primary mission as a source
of financing for mortgage origination and
may have led to the assumption of increased
interest rate risk. Although capital is still

Part One-279

strong and there does not appear to be
any immediate risk to the Federal Government, if the thrift industry's demand for
FHLBank loans continues to decline, contingency plans should be developed to address
issues that arise.
Conclusion
The Administration has for the first time
systematically assessed the risk and cost
of most Federal credit and insurance programs. The estimates for mortgage guarantees
(VA, FHA, Fannie, and Freddie), student
loans, deposit insurance, and PBGC are based
on an options pricing approach and substantial
historical data. International loans and the
Farm Credit System have also been analyzed.
Further work is in progress on small business
and farm lending and the Government National Mortgage Association.
Drawing on improved understanding of the
nature and size of the inherent risks, legislation has been proposed and administrative
changes made to reduce these costs. Further
legislative changes are proposed in this budget. The enactment of credit reform and the
changes in the budgetary treatment of insurance programs proposed in this budget would
further control and reduce Federal underwriting risk.

IDENTIFYING LONG-TERM RETIREMENT OBLIGATIONS
The Government plans to spend $516 billion
in 1993 for social security, medicare, railroad
retirement, and Federal employee retirement
and health care benefits. This is 34 percent
of total budget outlays, up sharply from
31 percent in 1980 and 22 percent in 1970.
Federal outlays in these areas have been
on the rise, reflecting increased real benefits,
rapidly rising medical costs, and the aging
of the population. Americans have been living
longer after age 65, and more of the elderly
have been retiring early.
The proportion of the elderly will increase
in the early part of the 21st century as
the baby-boom generation reaches retirement
age. This would seriously stress the social
security trust funds and would bankrupt
the medicare hospital insurance (HI) trust

fund by 2005 under intermediate assumptions.
If health care costs continue to grow faster
than the overall economy, liabilities for medicare and Federal retiree health programs
would continue to expand as a share of
the budget.
PUBLIC ANNUITY AND HEALTH
INSURANCE PROGRAMS
Medicare
The escalating costs of medical care services
and alternative measures to constrain them
were highlighted in Chapter 2. According
to the actuaries' most recent estimates, the
unfunded liability of medicare hospital insurance was $402 billion as of September 1990.
Table 13-5 shows actuarial deficiencies for

Part 0ne-280

THE BUDGET FOR FISCAL YEAR 1993

major public and Federal employee retirement
programs.
Social Security
Social security consists of Old-Age and
Survivors Insurance (OASI) and Disability
Insurance (DI). Total spending on these two
programs is estimated to be $302 billion
in 1993. This is more than triple the amount
in constant dollars spent in 1970.
Growing Retirement Burden.—Table
13-6, prepared by the social security actuaries
under three alternative economic and demographic projections, shows the system's latest
long-term financial condition. Although the
health of the program is assured over the next
25 years, long-term stresses are likely to occur
as the nearly 80 million people born during
1946-64 begin to retire in about 20 years.
• The number of social security beneficiaries
per 100 covered workers—an indicator of
burden—will rise sharply in the future.
The ratio increases 70 percent (from 30
to 51) between 1990 and 2040 under social
security's intermediate economic and demographic assumptions, and more than
doubles under the pessimistic scenario.

• On a combined basis, the OASDI trust
funds are solvent over the next 25 years
in all three sets of assumptions, measured
as a percent of taxable income or in terms
of present value dollars. Over a 75-year
horizon, however, a substantial actuarial
deficiency exists. Under the intermediate
assumptions, the present value of future
social security benefits exceeds by $1.1
trillion the present value of total future
receipts from (a) payroll taxes; (b) income
tax receipts on social security benefits; and
(c) interest on the Treasury securities held
by the system.
• Without further statutory changes, the
combined OASDI trust funds would be depleted by 2041 in the intermediate case,
and by 2022 in the pessimistic case.
• Considered separately, the DI trust fund
would become depleted by 2015 under intermediate assumptions, and could be depleted during the next ten years using
more pessimistic assumptions.
Eroding Surpluses.—The Social Security
Amendments of 1983 restored the long-run solvency of the OASDI program. The Trustees'
report for that year projected surpluses suffi-

Table 13-5. ACTUARIAL DEFICIENCIES OF RETIREMENT ANNUITY
AND HEALTH PROGRAMS 1
(In billions of dollars)
Amount

Annuity Programs:
Social Security-OASDI
Civil Service Retirement System
Military Retirement System
Federal Employees Retirement System
Railroad Retirement Board
Other Retirement Systems 2
Health Programs:
Medicare—HI
Federal Employees Health Benefits Program
Military Treatment Facilities and CHAMPUS

1,111
660
533
6
33
21
402
115
295

1 The actuarial deficiencies are not fully comparable. First, they differ in their underlying economic assumptions.
Second, for social security and medicare, the deficiencies are calculated on an "open system" basis, which accounts
for new entrants into these programs, as well as the active work force and current retirees. Deficiencies for CSRS,
FERS, and MRS are calculated on a "closed system" basis. The estimates for Federal employee health programs
are based on service accrued to date.
2 These retirement programs include Coast Guard Military, Public Health Service Commissioned Corps, State
Department Foreign Service, Tennessee Valley Authority, National Oceanic and Atmospheric Administration, and
the Central Intelligence Agency Retirement and Disability System.

13.

Part One-281

IDENTIFYING LONG-TERM OBLIGATIONS AND REDUCING UNDERWRITING RISKS

Table 13-6. ALTERNATIVE INDICATORS OF SOLVENCY FOR OASDI
Trustees' Assumptions

I
Beneficiaries per 100 covered workers in:
1990
2015
2040
2065

III

30
34
42
41

30
37
51
55

30
41
62
78

Income rate minus cost rate as a percent of taxable payroll in:
2015
2040
2065

2.18
0.19
0.68

0.47
-3.43
-4.52

-1.27
-7.76
-12.50

Actuarial deficiency (-) as a percent of taxable payroll:
25 years
50 years
75 years

2.63
1.59
1.35

1.47
-0.21
-1.08

-2.27
-4.12

1,591
1,717
1,911

980
46
-1,111

314
-1,669
-4,442

Present value of actuarial deficiency (-) in billions of dollars:
25 years
50 years
75 years

cient to finance the program over a 75-year
horizon in all but the most pessimistic economic and demographic assumptions. Recent
experience and revised assumptions, however,
have significantly reduced the trust fund surpluses, as shown in the chart. This has advanced by 22 years the time when the trust
fund balance would be exhausted.
A major cause of the reduced surpluses
is the downward revision in the projection
of covered workers' real wage growth, from
1.5 percent a year in the 1983 report to
1.1 percent in the 1991 report. Real wage
growth is closely related to productivity
growth. This change alone accounted for a
reduction in the 75-year income balance of
0.4 percent of taxable payroll, or $479 billion
in present value dollars. The Trustees also
revised upward the long-term ratio of beneficiaries to covered workers, again reducing
the solvency of the trust funds.
As discussed in Chapter 2, the Administration has proposed a growth package designed
to promote higher rates of saving and investment, and to enhance long-run productivity
growth. Enactment of this program would
improve the solvency of the OASDI programs

0.11

without reducing benefits or increasing contributions.
Railroad Retirement Board
With 300 retirees for every 100 rail employees—the exact opposite of social security's
ratio—the rail pension system has required
Federal subsidies to continue benefit payments.
Declining
employment,
past
underfunding by the rail sector, and inadequate financing plans have taken their toll
on the rail pension system. The Railroad
Retirement Board has been rescued from
insolvency by the Congress five times in
the past 16 years, and its current unfunded
liability is estimated at $33 billion. The
Administration has continually opposed increases in subsidies to the rail sector fund,
and believes that self-sufficiency is desirable
for the rail pension system.
FEDERAL EMPLOYEE RETIREMENT
AND HEALTH INSURANCE
The Federal Government is by far the
largest employer in the country, and operates
several systems of retirement, disability, and
medical care for its employees. The largest

Part 0ne-282

THE BUDGET FOR FISCAL YEAR 1993

OASDI TRUST FUND BALANCE
$ TRILLIONS

NOTE: Social Security Trustees' Intermediate Assumptions

are the civilian and military retirement and
disability funds. Next largest are the payment
of health benefits for civilian annuitants
and the Defense Department medical care
program for retired military personnel and
their dependents. Outlays on these programs,
excluding military retirees' health benefits,
are projected to total $64 billion in 1993.
Retirement Pensions
Actuarial Deficiencies and Accruing
Costs.—The actuaries for the Federal civilian
and military annuity programs provide estimates of unfunded accrued liabilities in their
annual reports required by Public Law 95-595.
These deficiency estimates are shown in Table
13-5. A distinction can be drawn between programs that are fully funded on an accrual
basis and those that are partially funded or
unfunded. The purpose is to assess how much
of the actuarial deficiency arises from current
and future service, and how much results from
past service obligations.

For programs on an accrual basis, an
actuarial deficiency exists only for obligations
related to past service. Contributions for
current service equal the estimated future
Government liabilities. This results in more
accurate trade-offs between personnel costs
and other types of expenditures.
Actuarial estimates of accruing costs for
defined benefits, as a percentage of basic
pay, are shown in Table 13-7. The table
also shows current agency and employer
contributions to the trust funds set up to
finance these plans.
Fully Funded Retirement Programs.—
The Military Retirement System (MRS) and
the Federal Employees Retirement System
(FERS) are already on an accrual basis. Under
these programs, the sum of employee and employer contributions to retirement trust funds
in a given year is required to equal the actuarially determined cost of retirement annuities.

13.

Part One-283

IDENTIFYING LONG-TERM OBLIGATIONS AND REDUCING UNDERWRITING RISKS

Table 13-7. ACCRUAL COSTS AND FUNDING FOR MAJOR RETIREMENT
SYSTEMS
(1991 estimates)
Number of
Active
Personnel
(thousands)

Actuaries
Estimated
Accrual
Cost

Current Payments
Agencv
ii

Employee
Contributions

as as*

Plans on Full or Partial Accrual
Military

Retirement:l.

FINAL PAY
HI-3
REDUX

Civil Service

575
523
967

49.6
43.6
36.8

1,691
1,194

28.3
13.7

7.0
12.9

7.0
0.8

7
5

36.2
23.2

7.0
21.7

7.0
1.4

37
6

29.2
37.1

—
—
—

Retirement:2

CSRS
FERS

Foreign Service Retirement:
FSRS
FSPS

Pay-As-You-Go Plans
Coast Guard
Public Health Service

—

FINAL PAY is the plan for military personnel entering the armed forces prior to September 1980. REDUX
applies to all entrants since August 1986. HI-3 is the plan for entrants in the intervening time period. Military
pay is only about 70 percent of total salary, and the percentages would be lower if computed on the basis of total
compensation.
2 Costs given for the typical employee. Costs for certain employees (law enforcement officers, firefighters,
congressional staff and members, etc.) are higher than shown. For FERS, costs do not include Government
contributions for social security or matching Thrift Savings Plan contributions.
1

MRS carries an actuarial deficiency valued
at $533 billion, while FEES has a small
actuarial deficiency of only $6 billion. The
FERS deficiency largely reflects the prior
service of transferees into the new system.
The MRS deficiency is being amortized over
60 years, ending in 2043. An annual amortization payment is made by the general fund
to the Military Retirement Fund.
Partially Funded Retirement Programs.—The Civil Service Retirement System
(CSRS) is the major annuity program that is
only partially funded. The combined employed
employer contributions of 14 percent of basic
pay cover only about one-half of accruing costs.
For this program, the actuarial deficiency is
about $660 billion.
Converting CSRS to full accrual funding
would eliminate $97 billion of liability related
to future service. This would still, however,

leave $563 billion of liability for benefits
earned by employees and retirees for previous
service. Treasury now pays about $19 billion
a year to the Civil Service Retirement and
Disability Trust Fund, which limits the growth
of CSRS unfunded liability.
A few small retirement programs continue
to operate strictly on a pay-as-you-go basis.
These include the Coast Guard, the National
Oceanic and Atmospheric Administration, and
the Public Health Service (PHS) Commissioned
Officers. This budget recommends converting
PHS to an accrual basis, as in the previous
two budgets.
Program Reform.—The budget proposes to
increase the employee contribution for CSRS
by 1 percentage point of base pay in January
1993 and by an additional percentage point
in January 1994. This would increase total
contributions by about $400 million in 1993

Part 0ne-284
and by $5.1 billion over 1993-1997. It would
moderately reduce the actuarial deficiency for
this program.
Retiree Health Care Benefits
Unfunded Liabilities.—The Federal Government operates a pay-as-you-go system for
retiree health benefits for both civilian and
military retirees. These programs have an actuarial deficiency equal to the present value
of future retiree benefits. Preliminary estimates, shown in Table 13-5, have been made
for the future health costs for current retirees
and for the service-to-date of active employees.
The estimate for the Federal Employees
Health Benefits Program (FEHBP) deficiency,
$115 billion as of October 1, 1989, is based
on calculations analogous to those required
by private sector employers under Financial
Accounting Standards Board guidelines. The
estimate for military health programs, $295
billion, uses a somewhat different method
and is calculated as of the beginning of
1993. Both estimates are highly sensitive
to assumptions about health care costs and
usage.
Civilian Employee Retiree Health Benefits.—Civilian retirees pay the same insurance
premium as active employees under FEHBP
if they continue to participate in the plan.
These premiums cover only a portion of the
costs. Although the Government contribution
for the premiums of active employees in
FEHBP is paid by the employing agency, the
Government contribution for civilian retirees
who continue to participate in the FEHBP is
paid directly by the general fund to OPM.
With the exception of the Postal Service, the
agencies that employed them pay nothing.
Outlays for FEHBP annuitant coverage totaled
$1.6 billion in 1987, and are estimated at $3.9
billion in 1993.
Federal employees retiring after December
31, 1983, also qualify for medicare coverage
at age 65. For employees who elect to participate in FEHBP and medicare, all covered
hospital and physician visits are reimbursed
with no deductibles and no coinsurance, and
most FEHBP plans also provide 100 percent

THE BUDGET FOR FISCAL YEAR 1993

payment for prescription drugs. In contrast,
most business retiree health plans provide
for some cost-sharing to be paid by the
retirees after medicare eligibility. Many firms
are planning to increase employee cost-sharing
and limit coverage in the future.
As currently structured, FEHBP provides
poor incentives for appropriate health care
usage by retirees with medicare coverage.
Active employees have to pay significantly
higher levels of deductibles and coinsurance
than do retirees with medicare. FEHBP also
offers more generous protection than most
retirees receive in the private sector.
To encourage greater cost consciousness
by FEHBP enrollees with medicare coverage,
this budget proposes cost-sharing arrangements for this group. This would provide
incentives for medicare enrollees to economize
in such areas as purchasing prescription
drugs and in selecting providers who accept
medicare assignment (or charge equivalent
fees).
Military Retiree Health Plans.—Military
retirees are entitled to essentially free health
care in military medical facilities if the facility
can provide the needed care. Until they reach
age 65, military retirees are also entitled to
health care financed by the Civilian Health
and Medical Program of the Uniformed Services (CHAMPUS). No premium is charged for
CHAMPUS financed care, but there are deductible and copayment requirements. After
they reach 65 years of age, military retirees
are entitled to medicare.
The Department of Defense costs for retiree
health care consist of the costs of building,
equipping, staffing, operating and maintaining
the military medical treatment facilities. They
also include expenses of the claims paid
by CHAMPUS and the administration of
this program. Costs are funded annually
by direct appropriations in the year the
services are rendered (or, in the case of
CHAMPUS, billed). The accruing costs for
future health care of current employees when
they retire is not now being recorded in
the budget, but a proposal to convert to
accrual is being studied.

Addressing Inherited Claims
and Hidden Liabilities:
14. Accounting for
Federal Borrowing and Debt

Part One-285

14. ACCOUNTING FOR FEDERAL
BORROWING AND DEBT
Debt is the most explicit and legally binding
obligation of the Federal Government. At
the end of 1991 the Government owed $2,687
billion of principal to the people who had
loaned it the money to pay for past deficits.
The gross Federal debt, including the amount
held by trust funds and other Government
accounts, was $3,599 billion. This year the
Government is estimated to pay about $217
billion of interest to the public on its debt.
The total interest on gross Federal debt
is about $294 billion, including $77 billion
paid to trust funds.
The present deficit is continuing to increase
the amount of debt substantially. However,
the reduction in the deficit and borrowing
will resume as soon as the economic recovery
gathers momentum and the Government
ceases to incur large outlays for deposit
insurance due to the closing of insolvent
thrift institutions and banks.
DEBT HELD BY THE PUBLIC AND
GROSS FEDERAL DEBT
The Federal Government issues debt for
two principal purposes. First, it borrows from
the public in order to finance the Federal
deficit. Second, it issues debt to Government
accounts, primarily trust funds, that accumulate surpluses. By law, most trust fund
surpluses must be invested in Federal securities. The gross Federal debt is thus defined
to consist of both the debt held by the
public and the debt held by Government
accounts. Nearly all the Federal debt has
been issued by the Treasury and is formally
called "public debt," but a small portion
has been issued by other Government agencies
and is called "agency debt."1
Borrowing from the public, whether by
the Treasury or some other Federal agency,

has a significant impact on the economy.
Borrowing from the public is normally a
good approximation to the Federal demand
on credit markets (although this is generally
offset by an additional supply of funds to
the credit market when the borrowing is
used to fund the cost of resolving insolvent
thrifts and banks). The Federal demand on
credit markets, even if used productively
for additional tangible or intangible investment, has to be financed by the saving
of households and businesses, the State and
local sector, or the rest of the world.2 Borrowing from the public moreover affects the
volume of securities sold in the credit market,
the size and composition of assets held by
the private sector, and the perceived wealth
of the public. It also affects the amount
of taxes required to pay interest to the
public. Borrowing from the public is therefore
an important concern of Federal fiscal policy.
Issuing debt securities to Government accounts is an essential element in accounting
for the operation of these funds. The balances
of debt represent the cumulative surpluses
of these funds due to the excess of their
tax receipts and other collections compared
to their spending. These balances can be
used in later years to finance future payments
to the public. The interest on this debt
compensates these funds—and the members
of the public who pay earmarked taxes or
user fees into these funds—for spending some
of their income at a later time than when
they receive it. Public policy may deliberately
run surpluses and accumulate debt in trust
funds and other Government accounts in
order to finance future spending or to measure
the accrual cost of employee retirement plans,
2

The Federal sector of the national income and product accounts
provides a better measure of the deficit for analyzing Federal dis1
The term "agency debt" i defined more narrowly in the budget saving than does the budget deficit or Federal borrowing from the
s
public. The Federal sector and i s differences from the budget are
t
than in the securities market, where i includes not only the debt
t
of the Federal agencies listed in table 14-3 but also the debt of the discussed in Chapter 27. Federal expenditures for tangible and intangible capital are not, however, counted as saving in the national
Government-sponsored enterprises listed in table 3-8 of Appendix
income and product accounts.
One, Chapter 3, and certain Government-guaranteed securities.

Part One-287

Part 0ne-288

THE BUDGET FOR FISCAL YEAR 1993

Table 14-1. TRENDS IN FEDERAL DEBT HELD BY THE PUBLIC
(Dollar amounts in billions)
Debt held by the public
Current
dollars

Constant
1987
dollars1

Debt held by the public as Interest on
a percent of:
debt held by
the public
Credit
as a percent
GDP
market
of total
debt2
outlays3

1950
1955
1960
1965
1970
1975

219.0
226.6
236.8
260.8
283.2
394.7

1,100.6
1,002.3
908.1
922.5
819.2
829.6

82.5
59.0
46.8
38.8
28.7
26.1

55.3
43.3
33.7
26.9
20.7
18.4

11.4
7.6
8.5
8.1
7.9
7.5

1980
1981
1982
1983
1984

709.3
784.8
919.2
1,131.0
1,300.0

1,004.9
1,009.2
1,100.2
1,229.8
1,430.8

26.8
26.5
29.4
34.1
35.2

18.6
18.7
20.1
22.3
22.5

10.6
12.1
13.6
13.8
15.7

1985
1986
1987
1988
1989

1,499.4
1,736.2
1,888.1
2,050.3
2,190.3

1,589.7
1,787.6
1,888.1
1,978.4
2,023.8

37.8
41.1
42.4
42.6
42.4

23.0
23.2
22.9
22.7
22.4

16.2
16.1
16.0
16.2
16.5

1990
1991
1992 estimate
1993 estimate
1994 estimate

2,410.4
2,687.2
3,079.8
3,433.2
3,646.1

2,139.4
2,295.0
2,551.2
2,752.3
2,830.4

44.2
47.8
52.5
55.1
55.0

22.8
24.3

16.1
16.2
15.1
15.6
16.6

1995 estimate
1996 estimate
1997 estimate

3,841.3
4,026.1
4,213.7

2,886.7
2,931.9
2,973.3

54.4
53.6
53.0

...
...

16.5
16.4
16.0

1
2

Debt in current dollars deflated by the G D P deflator with FY 1987 = 100.
Source: Unpublished and preliminary estimates from the Federal Reserve Board flow of funds accounts. Total credit market
debt owed by domestic nonfinancial sectors, modified to be consistent with budget concepts for the measurement of Federal debt.
Projections not available.
3
Interest on debt held by the public is estimated as the interest on the public debt less the "interest received by trust funds"
(subfunction 901 less subfunctions 902 and 903). It does not include the comparatively small amount of interest on agency debt or
the offsets for other interest received by Government accounts.

as it is doing now with social security,
military retirement, and certain other funds.
However, the issuance of debt to Government accounts does not have any of the
economic effects of borrowing from the public.
It is an internal transaction between two
accounts, both within the Government itself.
It does not represent either current transactions of the Government with the public
or an estimated amount of future transactions
with the public. If the account conducts
a retirement program, the debt that it holds
does not represent the actuarial present value
of future benefits. (However, if the costs
to a retirement program for past and present
services are fully accrued, the debt does

approximately represent the actuarial present
value of future benefits net of future contributions. The future transactions of the
major Federal retirement programs, which
own about four-fifths of the debt held by
Government accounts, are important in their
own right and are discussed in Chapter
13, "Identifying Long-Term Obligations and
Reducing Underwriting Risks.") Debt held
by the public is therefore a better concept
than gross Federal debt for analyzing the
effect of the budget on the economy.
Table 14-2 summarizes Federal borrowing
and debt from 1991 through 1997. This
table is supplemented for earlier years by
the data in "Historical Tables," tables 7.1-7.3,

Part One-289

14. ACCOUNTING FOR FEDERAL BORROWING AND DEBT

Table 14-2. FEDERAL GOVERNMENT FINANCING AND DEBT 1
(In billions of dollars)

Estimate

1991
actual

1992

-268.7
(-320.9)
(52.2)

-366.7
(-416.1)
(49.4)

1993

1994

1995

1996

1997

-333.5
(-395.3)
(61.8)

-243.6
(-318.2)
(74.5)

-218.6
(-304.4)
(85.8)

-194.6
(-296.4)
(101.8)

-204.1
(-320.1)
(116.0)

FINANCING
Surplus or deficit (-)
(On-budget)
(Off-budget)
Means of financing other than borrowing from the public:
Decrease or increase (-) in Treasury
operating cash balance
Increase or decrease (-) in:
Checks outstanding, etc.2
Deposit fund balances
Seigniorage on coins
Deduct (-): Net financing disbursements:
Direct loan financing accounts
Government loan financing accounts
Insurancefinancingaccounts
Total, means offinancingother
than borrowing from the public
Total, requirement for borrowing
from the public
Reclassification of debt3
Change in debt held by the public

-1.3

10.2

-6.9
-0.3
0.4

-0.3
-0.2
0.3

-0.9
-1.4
0.4

0.4

0.3

-3.1

-3.5

-4.8

-5.5

-6.2

-6.5

1.5
-34.2

6.1
-19.2

3.8
31.4

2.8
25.7

2.0
13.7

1.1
21.5

-8.1

-25.8

-18.5

30.7

23.3

9.8

16.4

-276.8

-392.5

-352.1
-1.4

-212.9

-195.2

-184.8

-187.7

276.8

392.5

353.4

212.9

195.2

184.8

187.7

3,581.2
17.8

4,065.0
15.3

4,528.9
17.7

4,872.5
19.0

5,216.4
20.1

5,564.4
21.0

5,927.1
21.7

3,599.0

4,080.3

4,546.6

4,891.5

5,236.5

5,585.4

5,948.8

911.8
2,687.2
(258.6)
(2,428.7)

1,000.5
3,079.8

1,113.4
3,433.2

1,245.5
3,646.1

1,395.2
3,841.3

1,559.3
4,026.1

1,735.0
4,213.7

3,581.2

4,065.0

4,528.9

4,872.5

5,216.4

5,564.4

5,927.1

-15.6
0.3

-15.6
0.2

3.4

3,569.3

4,053.1

4,516.9

4,860.5

5,204.4

5,552.4

5,915.1

DEBT, E N D O F Y E A R
Gross Federal debt:
Debt issued by Treasury
Debt issued by other agencies
Total, gross Federal debt
Held by:.
Government accounts
The public
(Federal Reserve Banks)
(Other)
DEBT SUBJECT TO STATUTORY

LIMITATION, E N D O F Y E A R

Debt issued by Treasury
Deduct (-): Treasury debt not subject to
limitation4
Agency debt subject to limitation
Unamortized discount Qess premium) on
Treasury notes and bonds other than
zero-coupon bonds
Total, debt subject to statutory
limitation 5

treasury securities held by the public are almost entirely measured at accrual value (i.e., sales price plus amortized discount or less amortized
premium). Agency debt and Treasury securities held by Government accounts are almost entirely measured at face value.
2 Besides checks outstanding, includes accrued interest payable on Treasury debt, miscellaneous liability accounts, allocations of spccial drawing
rights, and, as an offset, cash and monetary assets other than the Treasury operating cash balance, miscellaneous asset accounts, and profit on sale of
gold.
3 The Farm Credit System Financial Assistance Corporation is estimated to be reclassified from a Government-sponsored enterprise to a Federal
agency as of October 1, 1992, and its debt is accordingly reclassified as Federal agency debt.
4 Consists primarily of Federal Financing Bank debt.
5 The statutory debt limit is $4,145 billion.

Part 0ne-290
which will be published subsequently. In
1991 the borrowing from the public was
$276.8 billion, and Federal debt held by
the public increased to $2,687.2 billion. The
issuance of debt to Government accounts
was $115.8 billion, and gross Federal debt
increased to $3,599.0 billion. Borrowing from
the public is estimated to increase to $392.5
billion in 1992, decline moderately to $352.1
billion in 1993, and then decline sharply
to $212.9 billion in 1994.
Borrowing from the public depends both
on economic conditions and on the Federal
Government's expenditure programs and tax
laws. The sensitivity of the budget to economic
conditions is analyzed in Chapter 3.
MEASUREMENT OF BORROWING AND
DEBT
Debt held by the public was measured
until recent years as the par value (or
face value) of the security, which is the
principal amount due at maturity. The only
exception was savings bonds. However, most
Treasury securities are sold at a discount
from par, and some are sold at a premium.
If Treasury sells a bill with a $10,000
par value at a price of $9,300, it raises
$9,300 of cash and finances $9,300 of the
deficit. For both economic and budgetary
analysis, it is more meaningful to say that
the Government has borrowed $9,300 than
to say it has borrowed $10,000.
The budget has adopted the accrual method
of measuring almost all Treasury debt held
by the public.3 At the time of sale, the
accrual value equals the sales price. Subsequently, the accrual value equals the sales
price plus the amount of the discount that
has been amortized up to that time. In
equivalent terms, the accrual value equals
the par value less the unamortized discount.
(For a security sold at a premium, the
definition of accrual value is symmetrical.)
Agency debt, with one minor exception, is
recorded at par.
Debt held by Government accounts consists
almost entirely of "special issues" of Treasury
3
See Special Analysis E, "Borrowing and Debt," in Special Analyses, Budget of the United States Government, Fiscal Year 1990,
E-5 to ES.

THE BUDGET FOR FISCAL YEAR 1993

debt, which are reported at par with only
one exception. As a result, only a small
part of debt held by Government accounts
is recorded in the budget at accrual value.
Gross Federal debt—the sum of debt held
by the public and debt held by Government
accounts—is therefore reported in the budget
largely on an accrual basis but partly at
par. For the same reason, total Treasury
debt, which includes almost all Federal debt,
is also reported in the budget largely on
an accrual basis but partly at par.
BORROWING AND GOVERNMENT
DEFICITS
Debt Held by the Public.—Table 14-2
shows the relationship between borrowing
from the public and the Federal deficit. The
total deficit of the Federal Government includes not only the budget deficit but also the
surplus or deficit of the off-budget Federal entities, which have been excluded from the
budget by law. Under present law the off-budget Federal entities are the old-age and survivors insurance trust fund, the disability insurance trust fund, and the Postal Service fund.
Since they had a large combined surplus in
1991 and are estimated to have a growing surplus during most of the years 1992-97, they
reduce the requirement for Treasury to borrow
from the public by a substantial amount.
The total Federal deficit is financed either
by borrowing from the public or by several
other means, shown in table 14-2, such
as a decrease in Treasury's cash balance.
Many of these other means of financing
are normally small relative to borrowing
from the public. This is because they are
limited by their own nature. Decreases in
cash balances, for example, are inherently
limited by past accumulations, which themselves required financing when they were
built up. In 1991 these other accounts added
up to a negative amount, -$8.1 billion, and
themselves had to be financed by borrowing
from the public.
A new type of means of financing was
created for credit programs by the Federal
Credit Reform Act of 1990 and is proposed
in the budget this year for deposit insurance
and pension guarantees. As explained in
pp.
Chapter 13, "Identifying Long-Term Obliga-

14. ACCOUNTING FOR FEDERAL BORROWING AND DEBT

tions and Reducing Underwriting Risks," this
is part of a proposal to record the cost
of these programs as an outlay in the budget
as the cost accrues, instead of recording
the cash flows that result from the closure
of failed depository institutions or the bankruptcy of corporations with guaranteed and
underfunded pension plans. These cash flows
may occur well after the time when the
costs begin to accrue. The portion of the
net cash flow that does not represent a
cost to the Government is non-budgetary,
recorded as a transaction of a financing
account for each program.4
The "net financing disbursements" of a
non-budgetary financing account are defined
in the same way as the "outlays" of a
budgetary account and may be either positive
or negative. They are positive if the gross
disbursements by the account—whether to
the public or to a budgetary account—exceed
the collections from both of these sources;
they are negative if the collections exceed
the gross disbursements. If the net financing
disbursements are positive, they must be
paid in cash and they increase the requirement
for Treasury borrowing; if the net financing
disbursements are negative, they provide cash
to the Treasury that can be used to pay
the Government's bills just like tax receipts,
borrowing, or any other cash collections. The
financing accounts are therefore a means
of financing the Government, positive or negative, just like the other means listed in
table 14-2.
The nature of the financing transactions
was explained in last year's budget for direct
loans and loan guarantees. The transactions
are analogous for deposit insurance and pension guarantees. The program account in
the budget is proposed to pay the accrual
cost of insurance liabilities to a non-budgetary
insurance financing account, which handles
all transactions with the public. This account
holds these collections, collects premiums from
the public, and pays default claims. It accumulates balances to the extent that its collections
of cost payments, premiums, and interest
exceed its gross disbursements. These balances
4
As explained in Appendix One, Chapter 7, "Off-Budget Federal
Entities," thefinancingaccounts are non-budgetary in concept because they do not measure costs and do not represent a
reallocation of resources caused by Federal policy.

Part One-291

are deposited vgjth Treasury in interest-earning, uninvested funds, which are not part
of the Federal debt. If, in the case of
deposit insurance, its balances are inadequate
for working capital—i.e., for the financing
that it needs to acquire assets from failed
depository institutions and hold them prior
to resale—it may borrow the difference from
Treasury, paying interest on its debt. As
in other instances where an account borrows
from Treasury to finance cash disbursements,
this debt is not included in gross Federal
debt in order to avoid double counting.
When the insurance financing account collects payments that represent the accrual
cost from the insurance program account
in the budget, the decrease in its net financing
disbursements exactly offsets the increase
in budget outlays and the budget deficit.
No borrowing from the public is needed
to finance the additional deficit; the decrease
in net financing disbursements is itself the
means of financing the increase in the deficit.
When the insurance financing account collects
payments from the insurance liquidating account that represent costs that accrued prior
to the new method of budgeting for insurance,
the effects are the same. When the insurance
financing account collects premiums from the
public, the collection decreases its net financing disbursements. Since the collection is
from the public, it provides cash to the
Treasury.
Similarly, when the insurance financing
account pays claims to the public, its disbursements require cash financing just like any
other cash payments by the Government.
And when the insurance financing account
temporarily acquires assets prior to resale,
its disbursements for these acquisitions also
require cash financing just like any other
cash disbursements by the Government.
A decrease in net financing disbursements
by the insurance financing accounts is therefore a means of financing the Federal deficit,
just like a decrease in outlays by a budgetary
account; and an increase in net financing
disbursements adds to the Government's total
financing requirements. Table 14-2 thus shows
a positive amount of net financing disbursements by a financing account as having
a negative sign.

Part 0ne-292

THE BUDGET FOR FISCAL YEAR 1993

As shown by the net financing disbursements in table 14-2, the proposed conversion
of the deposit insurance and pension guarantee
programs to accrual accounting has a significant effect on the relationship between the
Federal deficit and Federal borrowing from
the public. In 1992 and 1993, the cash
transactions recorded in the financing accounts
are estimated to add substantially to Federal
borrowing requirements above and beyond
the amount of the Federal deficit. To a
major extent this is because large cash payments are made in these years to acquire
the assets of failed banks and thrifts, which
have to be financed by borrowing, and these
payments are recorded in the financing accounts instead of the budget. In 1994-97,
on the other hand, the cash transactions
recorded in the financing accounts reduce
Federal borrowing requirements below the
amount indicated by the Federal deficit. Assets
acquired in earlier years from failed banks
and thrifts are sold, which reduces Federal
borrowing needs, and these collections are
recorded in the financing accounts instead
of the budget.
Debt Held by Government Accounts.—The
amount of Federal debt issued to Government
accounts depends largely on the surpluses of
the trust funds, both on-budget and off-budget,
which owned 95 percent of the total Federal
debt held by Government accounts at the end
of 1991. In 1991, for example, the total trust
fund surplus was $112.3 billion and Government accounts invested $115.8 billion in Federal securities. The small difference is because
some other accounts hold Federal debt and because the trust funds may change the amount
of their cash assets not currently invested.
AGENCY DEBT
Several Federal agencies, shown in table
14-3, sell debt securities to the public and
in one case to other Government accounts.
The reason for issuing agency debt differs
considerably from one agency to another.
During 1991, agencies repaid $15.0 billion
or almost half of their debt to the public.
At the end of 1991, agency debt was only
one percent of Federal debt held by the
public.

The predominant agency borrowers from
the mid-1980s to 1989 were the Federal
Savings and Loan Insurance Corporation
(FSLIC) and the Federal Deposit Insurance
Corporation (FDIC) permanent insurance fund.
(The latter was subsequently renamed the
Bank Insurance Fund, or BIF.) They issued
notes to help resolve the financial problems
of certain failing thrifts and banks, primarily
by providing notes to prospective purchasers
as parts of agreements for them to buy
the failing institutions. Issuing notes to pay
the Government's bills is equivalent to borrowing from the public and then paying the
bills by disbursing the cash borrowed, so
it was recorded as being simultaneously an
outlay and a borrowing. The notes were
therefore classified as agency debt. The borrowing by these agencies was thus inherent
in the operation of their programs,5
During 1991, the FSLIC resolution fund
repaid $13.2 billion of its notes, reducing
the amount outstanding by two-thirds; and
BIF repaid $2.9 billion of its notes, almost
the entire amount. FSLIC is estimated to
repay about half of its remaining debt in
1992 and to repay further amounts in the
following years.
Some types of lease-purchase contracts are
equivalent to direct Federal construction financed by Federal borrowing. The Federal
Government guaranteed the debt used to
finance the construction of buildings for the
National Archives and Architect of the Capitol
and is exercising full control over the design,
construction, and operation of the buildings.
The construction and interest expenditures
are therefore classified as Federal outlays,
and the borrowing is classified as Federal
agency borrowing from the public. The securities used to finance the construction of the
building for the Architect of the Capitol
were zero-coupon certificates, for which the
sales price was about one-fourth of par value.
As an exception to the normal treatment
of agency debt, they are recorded in the
5
The FHA and Interior debt securities are also issued as a
il.
means of paying specified b l s The budgetary treatment of these
securities i further discussed in Special Analysis E of the 1989
s
budget, pp. E-25 to E-26; and Special Analysis E of the 1988
budget, pp. E-27 to E-28.

Part One-293

14. ACCOUNTING FOR FEDERAL BORROWING AND DEBT

Table 14-3. AGENCY DEBT
(In millions of dollars)
Borrowing or repayment (-) of debt
Description

1991
actual

Borrowing from the public:
Defense
Housing and Urban Development:
Federal Housing Administration
Interior
Small Business Administration:
Participation certificates: SBIC and section 505 development company
Architect of the Capitol
Farm Credit System Financial Assistance Corporation1
Federal Deposit Insurance Corporation:
Bank Insurance Fund
FSLIC Resolution Fund
National Archives
Postal Service
Tennessee Valley Authority
Total, borrowing from the public
Borrowing from other funds:
Housing and Urban Development:
Federal Housing Administration
Total, borrowing from other funds
Total, agency borrowing

1992
estimate

1993
estimate

Debt end
of 1993
estimate

-8

28
13

-16

-100

-69

-2,886
-13,215

-95
-3,698

-389

-30
1,123

2,037
302

1,320

1,534

13,357

-15,012

-2,567

1,094

17,573

-6

74
176
1,361

220

146

-6

-15,018

-2,561

1,094

146
17,719

*$500 thousand or less.
1 The Farm Credit System Financial Assistance Corporation is estimated to be reclassified from a Governmentsponsored enterprise to a Federal agency as of October 1, 1992, and its debt is accordingly reclassified as Federal
agency debt. This reclassification does not constitute borrowing.

budget at accrual value and the interest
is accrued as an outlay.6
The proper budgetary treatment of leasepurchases was further examined in connection
with the Budget Enforcement Act of 1990.
Several changes were made. Among other
decisions, it was determined that outlays
for a lease-purchase in which the Government
assumes substantial risk will be recorded
in an amount equal to the asset cost over
the period during which the contractor constructs, manufactures, or purchases the asset;
if the asset already exists, the outlays will
be recorded when the contract is signed.
Agency borrowing will be recorded each year
6
Table 14-3 r f e t corrections t the calculation of accrual
elcs
o
value.

to the extent of these outlays. The agency
debt will subsequently be redeemed over
the lease payment period by a portion of
the annual lease payments. This rule was
effective starting in 1991. However, no leasepurchase agreements in which the Government
assumes substantial risk have yet been authorized or are estimated for 1992 or 1993.
Besides the lease-purchases financed in
these ways by agency borrowing from the
public, the budget also reflects the cost
of lease-purchases financed by the Federal
Financing Bank (FFB). The FFB, established
within the Treasury Department, can lend
to agencies by purchasing agency debt or
in other specified ways. It finances these
transactions by borrowing from the Treasury,

Part 0ne-294
which in turn borrows from the public. This
reduces the cost of financing below what
the agency or guaranteed private borrower
would have had to pay in the credit market.
In 1988, 1989, and 1990 Congress authorized
the General Services Administration to enter
into lease-purchase contracts for a number
of buildings to be constructed over five years
at a total cost of $1.9 billion. The FFB
is financing these contracts. The outlays will
be recorded in the budget as payments are
made for construction and other costs, and
the financing will consist of Treasury borrowing from the public. Borrowings from the
FFB are not included in table 14-3 or
other tabulations of Federal debt in order
to avoid double counting.
DEBT HELD BY GOVERNMENT
ACCOUNTS
Trust funds, and some public enterprise
revolving funds and special funds, accumulate
cash in excess of current requirements in
order to meet future obligations. These cash
surpluses are invested mostly in Treasury
debt and, to a very small extent, in agency
debt.
Investment by trust funds and other Government accounts was around $10 billion per
year a decade ago. Primarily due to the
Social Security Amendments of 1983, an
expanding economy, and the creation of the
military retirement trust fund, investment
has risen greatly since then. It was $115.8
billion in 1991 and, as shown in table
14-4, it is estimated to be nearly the same
in 1993. The holdings of Federal securities
by Government accounts are estimated to
rise to $1,113.4 billion by the end of 1993.
This will be 24 percent of the gross Federal
debt.
The great rise of investment by Government
accounts is concentrated among a few trust
funds. The two social security trust funds—
old-age and survivors insurance (OASI) and
disability insurance (DI)—have large surpluses
and invest increasing amounts almost each
year: a total of $166.8 billion during 1991-93,
which constitutes 53 percent of the total
estimated investment by Government accounts. The hospital insurance trust fund
(HI), also financed by the social security

THE BUDGET FOR FISCAL YEAR 1993

payroll tax, has large surpluses at present
and accounts for 15 percent of the total
investment over this period.
In addition to these three funds, the largest
investors are the two major Federal employee
retirement funds: the civil service retirement
and disability trust fund and the military
retirement trust fund. They account for 36
percent of the total investment by Government
accounts during 1991-93. Altogether, the investment of these two retirement funds and
the three funds financed by the social security
tax equals 104 percent of the investment
by all Government accounts during this period.
At the end of 1993, they will account for
85 percent of the total holdings by Government
accounts.
The debt held by Government accounts
is ordinarily measured at face value, as
explained in a preceding section, but with
one exception. During 1991 Treasury issued
zero-coupon bonds to the Pension Benefit
Guaranty Corporation at a total purchase
price of $1.2 billion and a face value of
$9.2 billion. These securities are recorded
in table 14-4 at an accrual value (the
estimated market or redemption price).
LIMITATIONS ON FEDERAL DEBT
Definition of Debt Subject to Limit.—
Statutory limitations have normally been
placed on Federal debt. Until World War I,
the Congress ordinarily authorized a specific
amount of debt for each separate issue. Beginning with the Second Liberty Bond Act of
1917, however, the nature of the limitation
was modified in several steps until it developed into a ceiling on the total amount of most
Federal debt outstanding. The latter type of
limitation has been in effect since 1941. The
limit currently applies to most debt issued by
the Treasury since September 1917, whether
held by the public or by Government accounts;
and other debt issued by Federal agencies
that, according to explicit statute, is guaranteed as to principal and interest by the United
States Government.
The lower part of Table 14-2 compares
total Treasury debt with the amount not
subject to limit. Most of the Treasury debt
not subject to limit was issued by the FFB.

Part One-295

14. ACCOUNTING FOR FEDERAL BORROWING AND DEBT

Table 14-4. DEBT HELD BY GOVERNMENT ACCOUNTS 1
(In millions of dollars)

Investment or disinvestment (-)
Description

Investment in Treasury debt:
Overseas Private Investment Corporation
Defense-Military: Defense Cooperation
Defense-Civil: Military retirement trust fund
Energy: Nuclear waste fund
Health and Human Services:
Federal old-age and survivors insurance trust fund3
Federal disability insurance trust fund3
Federal hospital insurance trust fund
Federal supplementary medical insurance trust fund
Housing and Urban Development:
Federal Housing Administration
Other
Interior: Outer Continental Shelf deposit funds
Labor:
Unemployment trust fund
Pension Benefit Guaranty Corporation1
State: Foreign Service retirement and disability trust fund
Transportation:
Highway trust fund
Airport and airway trust fund
Treasury: Exchange stabilization fund
Veterans Affairs:
National service l f insurance trust fund
ie
Other trust funds
Federal funds
Environmental Protection Agency: Hazardous substance trust fund
Office of Personnel Management:
Civil Service retirement and disability trust fund
Employees l f insurance fund
ie
Employees health benefits fund
Federal Deposit Insurance Corporation:
Bank Insurance fund
FSLIC Resolution fund
Savings Association Insurance fund
National Credit Union Administration: Share insurance fund
Postal Service fund3
Railroad Retirement Board trust funds
Tennessee Valley Authority
Other Federal funds
Other trust funds2
Total, investment in Treasury debt1
Investment in agency debt:
Housing and Urban Development:
Government National Mortgage Association
Total, investment in agency debt
Total, investment in Federal debt1

1991
actual

1992
estimate

1993
estimate

Holdings
end of
1993
estimate

143
7,607
11,304
531

118
-5,316
16,480
482

63
-2,291
12,151
287

104,687
3,793

51,841
1,600
13,078
1,955

49,435
533
15,659
-1,109

62,281
1,159
18,998
-4,549

367,272
14,798
143,984
10,583

13
348
74

249
514
53

120
-2,073
-1,225

7,017
989
11

-2,958
789
540

-11,568
380
570

-2,320
458
589

33,681
3,215
6,580

2,711
882
515

1,702
782
-470

-701
-451
-570

20,390
15,524
1,338

233
44
297
1,080

176
39
-54
441

117
21
-61
193

11,443
1,598
1,014
3,945

22,863
857
958

25,051
1,176
312

27,127
1,184
242

310,727
13,823
6,123

-2,330
37
35
261
276
1,163
-1,877
452
532

-5,608
-939
345
1,161
677
-3,070
465
100

1,011
210
550
464
-250
-257
221

1,059
2,699
5,050
11,575
250
3,136
4,647

115,850

88,766

112,699

1,113,277

-6

1,828

500

146

-6

_»

146

115,844

88,773

112,699

1,113,422

6,814
276
55,240
53,440
74

-12,896
1,161
50,487
49,968
53

-3,353
550
53,285
63,440
-1,225

26,983
5,050
699,309
382,070
11

MEMORANDUM
Investment by Federal funds (on-budget)1
Investment by Federal funds (off-budget)
Investment by trust funds (on-budget)
Investment by trust funds (off-budget)
Investment by deposit funds4

* $500 thousand or less.
1 Debt held by Government accounts is measured at face value except for the Treasury zero-coupon bonds held by the Pension Benefit Guaranty
Corporation, which were issued in 1991 and recorded by an accrual method (the estimated market value). If recorded at face value, PBGC'is holdngs at
the end of 1991 would be $10,338 million, an increase of $8,751 million compared to 1990: and total holdings by Government accounts would be
$929,713 million, an increase of $123,806 million.
2 Includes the Farm Credit System Financial Assistance Corporation, which is estimated to be reclassified from a Government-sponsored enterprise to
a Federal agency as of October 1, 1992. Its holdings of Federal securities ($199 million at the beginning of 1993) are accordingly reclassified as debt
held by Government accounts. This reclassification does not constitute investment, but the change in holdings from the beginning to the end of 1993 is
so classified.
3 Off-budget Federal entity.
4 Only those deposit funds classified as Government accounts.

Part 0ne-296
It is authorized to have outstanding up
to $15 billion of publicly issued debt, and
this amount has been issued to the civil
service retirement and disability trust fund.
The remaining Treasury debt not subject
to limit consists almost entirely of silver
certificates and other currencies no longer
being issued.
The sole type of agency debt currently
subject to the general limit is the debentures
issued by the Federal Housing Administration,
which were only $336 million at the end
of 1991. Some of the other agency debt,
however, is subject to its own statutory
limit. For example, the Postal Service is
limited to $15 billion of securities outstanding
and $3 billion of annual borrowing (including
its debt to the FFB). Besides Treasury debt
and agency debt, the debt subject to limit
also includes a few very small adjustments.
The amount of debt subject to limit was
formerly defined by law as the par value
of the securities (except for savings bonds,
which were measured at redemption value).
This was modified by law in August 1989
in a way that currently applies to Treasury
bills and zero-coupon bonds. These securities
do not pay any cash interest. They are
sold at a discount and pay their entire
interest through the periodic amortization
of the discount over the term of the security.
For Treasury bills, with a maturity of one
year or less, the difference between par
value and sales price is large enough to
be significant. For zero-coupon bonds with
a 30-year maturity, the par value could
be around ten times the sales price. Measuring
zero-coupon bonds at par reduced Treasury's
flexibility in debt management, because these
securities increased the debt subject to limit
by a large multiple of the cash raised to
finance the deficit. Furthermore, measuring
these securities at par produced a significant
difference between the recorded debt and
the accrual value, which, as previously explained, is more meaningful for economic
and budgetary analysis such as relating
changes in debt to the deficit.
The law now provides that Treasury securities issued on a discount basis are to be
measured at accrual value for calculating
the debt subject to limit. The new method

THE BUDGET FOR FISCAL YEAR 1993

is not applied to regular notes and bonds;
except for zero-coupon bonds, accrual methods
are also not applied to "special issues," which
are issued almost exclusively to Government
accounts and comprise most of the debt
that is held by Government accounts. These
securities are still recorded at par for calculating the debt subject to limit. However,
regular notes and bonds account for only
a small part of the unamortized discount
(less premium) on Treasury securities: $3.4
billion out of $84.1 billion at the end of
1991.
An adjustment for measurement differences
is thus needed in order to derive debt
subject to limit from Treasury debt and
agency debt. The unamortized discount (less
premium) on regular notes and bonds is
excluded from the amount of Treasury debt
as recorded in the budget but is not excluded
from the measured amount of debt subject
to limit. Therefore, as shown in Table 14-2,
the unamortized discount (less premium) on
regular notes and bonds must be added
to Treasury debt in order to derive debt
subject to limit.
Methods of Changing the Debt Limit—
The statutory debt limit has frequently been
changed. Since 1960, Congress has passed 62
separate acts to raise the limit or to extend
the duration of a temporary increase.
The statutory limit can be changed by
normal legislative procedures. It can also
be changed as a consequence of the annual
Congressional budget resolution, which is not
itself a law. The budget resolution includes
a provision specifying the appropriate level
of the debt subject to limit at the end
of each fiscal year. The rules of the House
of Representatives provide that, when the
budget resolution is adopted by both Houses
of the Congress, the vote in the House
of Representatives is deemed to have been
a vote in favor of a joint resolution setting
the statutory limit at the level specified
in the budget resolution. The joint resolution
is transmitted to the Senate for further
action. It may be amended in the Senate
to change the debt limit provision or in
any other way. If it passes both Houses
of the Congress, it is sent to the President
for his signature. This method directly relates

14. ACCOUNTING FOR FEDERAL BORROWING AND DEBT

the decision on the debt limit to the decisions
on the Federal deficit and other factors
that determine the change in the debt subject
to limit. Both methods have been used numerous times.
Recent Changes in the Debt Limit.—The
debt limit was part of the budget negotiations
between the President and the Congress in the
summer and fall of 1990, and the limit was
temporarily raised or extended six times. The
budget negotiations were concluded with the
Omnibus Budget Reconciliation Act of 1990,
which the President signed on November 5,
1990. This increased the debt limit to $4,145
billion, which was large enough that no increase was needed in 1991.
Unlike some previous years when the debt
limit was under consideration, the debt limit
in 1990 never temporarily dropped below
the actual level of debt on a business day.
Treasury was always able to fully invest
the trust funds and never had to suspend
the sales of savings bonds, State and local
government series issues, or other securities.
However, the debt was virtually at the limit
for a number of days, and Treasury postponed
several auctions because of uncertainty about
congressional action.
Federal Funds Financing and the
Change in Debt Subject to Limit—The
change in debt held by the public, as shown
in table 14-2, is determined principally by the
total Government deficit. The debt subject to
limit, however, includes not only debt held by
the public but also debt held by Government
accounts. The change in debt subject to limit
is therefore determined both by the factors
that determine the total Government deficit
and by the factors that determine the change
in debt held by Government accounts.
The budget is composed of two 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. The trust funds, on the other hand,
are financed by taxes or other collections
earmarked by law for specified purposes,
such as paying social security or unemployment benefits.

Part One-297

A Federal funds deficit must generally
be financed by borrowing, either by selling
securities to the public or by issuing securities
to Government accounts. Federal funds borrowing consists almost entirely of the Treasury
issuing securities that are subject to the
statutory debt limit. Trust fund surpluses
are almost entirely invested in these securities,
and trust fund holdings include most of
the debt held by Government accounts. The
change in debt subject to limit is therefore
determined principally by the Federal funds
deficit, which is equal to the arithmetic
sum of the total Government deficit and
the trust fund surplus.
Table 14-5 derives the change in debt
subject to limit. In 1991 the Federal funds
deficit was $381.0 billion, and other factors
increased the change in debt subject to limit
by $27.0 billion. The largest other factor
was the repayment of $15.0 billion of agency
debt not subject to limit. As a result, the
debt subject to limit increased by $408.1
billion, which was $131.3 billion more than
the increase in debt held by the public.
As long as the trust fund surplus is
large, the Federal funds deficit will be much
more than the total Government deficit; and
the increase in debt subject to limit will
be much more than the increase in debt
held by the public. The trust fund surplus
is estimated to increase substantially above
its present level in the future, so the debt
limit will have to be increased by much
more than the total Government deficit.
DEBT HELD BY FOREIGN RESIDENTS
During most of American history the Federal
debt was held almost entirely by individuals
and institutions within the United States.
In the late 1960s, as shown in table 14-6,
foreign holdings were just over $10.0 billion,
less than 5 percent of the total Federal
debt held by the public.
Foreign holdings began to grow much faster
starting in 1970. This increase has been
primarily due to foreign decisions, both official
and private, rather than the direct marketing
of these securities to foreign residents. At
the end of fiscal year 1991 foreign holdings
of Treasury debt were $443.4 billion, which

Part 0ne-298

THE BUDGET FOR FISCAL YEAR 1993

Table 14-5. FEDERAL FUNDS FINANCING AND CHANGE IN DEBT
SUBJECT TO STATUTORY LIMIT
(In billions of dollars)

Description

Estimate

1991
actual

(On-budget)
(Off-budget)
Means of financing other than borrowing:
Decrease or increase (-) in Treasury operating
cash balance
Increase or decrease (-) in:
Checks outstanding, etc.1
Deposit fund balances2
Seigniorage on coins
Deduct ( ) Net financing disbursements:
-:
Direct loan financing accounts
Guaranteed loan financing accounts
Insurancefinancingaccounts
Total, means of financing other than
borrowing

Decrease or increase (-) in Federal debt held by
Federal funds and deposit funds3
Increase or decrease (-) in Federal debt not subject to limit
Total, requirement for Federal funds
borrowing subject to debt limit

Increase or decrease (-) in unamortized discounts Qess premiums) on Treasury notes and
bonds other than zero-coupon bonds
Adjustments including increase in debt subject
to limit but not part of Federal debt
Increase in debt subject to limit

1993

1994

-381.0

-463.1

-450.6

(-379.7)
(-1.3)

Federal funds surplus or deficit ( - )

1992

(-462.2)
(-0.8)

(-449.0)
(-1.6)

-1.3

-0.2

1996

- 376.7

- 368.3

(-375.4)
(-1.3)

(-367.3)
(-1.1)

-358.7

(-359.4)
(0.7)

1997
- 379.8

(-380.8)
(1.0)

10.2

-3.3
-0.3
0.4

1995

-4.4
0.3

-2.1
-1.4
0.4

0.4

-3.1
1.5
-34.2

-3.5
6.1
-19.2

.
.
0.4

0.3

-4.8
3.8
31.4

-5.5
2.8
25.7

-6.2
2.0
13.7

-6.5
1.1
21.5

23.3

9.8

16.4

-29.9

-19.7

30.7

-7.2

11.7

4.0

1.1

-15.0

-2.5

2.5

1.3

1.1

0.9

0.6

-483.8

-463.8

-343.6

-343.9

-348.0

-362.7

408.1

483.8

463.8

343.6

343.9

348.0

362.7

3,569.3

4,053.1

4,516.9

4,860.5

5,204.4

5,552.4

5,915.1

-4.4

-407.6

0.4
•

ADDENDUM

Debt subject to statutory limit4 .

* $50 million or less.
1 Besides checks outstanding, includes accrued interest payable on Treasury debt, miscellaneous liability accounts, allocations of special drawing
rights, and, as an offset, cash and monetary assets other than the Treasury operating cash balance, miscellaneous asset accounts, and profit on sale of
gold.
2 Does not include investment in Federal debt securities by deposit funds classified as part of the public.
3 Only those deposit funds classified as Government accounts.
4 The statutory debt limit is $4,145 billion.

was 16.5 percent of the total debt held
by the public.
Although the amount of debt held by
foreigners has grown greatly in the past
ten years, the proportion is now slightly
lower than during the late 1970s. In 1991,
the proportion remained stable. At the end
of 1991, foreign central banks and other
official institutions owned 66 percent of the
Federal debt held by foreign residents; private
investors owned nearly all the rest. All of
the Federal debt held by foreign residents
is currently denominated in dollars.

Foreign holdings of Federal debt are about
one-fifth of the foreign-owned assets in the
U.S., and foreign purchases of Federal debt
securities are normally only a moderate part
of the total capital inflow from abroad. The
foreign purchases of Federal debt securities
do not measure the full impact of the capital
inflow from abroad on the market for Federal
debt securities. The capital inflow supplies
additional funds to the credit market generally, which affect the market for Federal
debt. For example, the capital inflow includes
deposits in U.S. financial intermediaries that
themselves buy Federal debt.

Part One-299

14. ACCOUNTING FOR FEDERAL BORROWING AND DEBT

Table 14-6. FOREIGN HOLDINGS OF FEDERAL DEBT
(Dollar amounts in billions)
Debt held by the public
Fiscal year

Total

Foreign1

Percentage
foreign

Borrowing from the public
Total2

Foreign1

Percentage
foreign

Interest on debt held by the
public
Total3

Foreign4

Percentage
foreign

1965
1966
1967
1968
1969

260.8
263.7
266.6
289.5
278.1

12.3
11.6
11.4
10.7
10.3

4.7
4.4
4.3
3.7
3.7

3.9
2.9
2.9
22.9
-1.3

0.3
-0.7
-0.2
-0.7
-0.4

6.4
n.a.
n.a.
n.a.
n.a.

9.6
10.1
11.1
11.9
13.5

0.5
0.5
0.6
0.7
0.7

4.9
5.1
5.1
5.6
5.3

1970
1971
1972
1973
1974

283.2
303.0
322.4
340.9
343.7

14.0
31.8
49.2
59.4
56.8

5.0
10.5
15.2
17.4
16.5

3.5
19.8
19.3
18.5
2.8

3.8
17.8
17.3
10.3
-2.6

107.2
89.8
89.5
55.3
n.a.

15.4
16.2
16.8
18.7
22.7

0.8
1.3
2.4
3.2
4.1

5.5
7.9
14.2
17.2
17.9

1975
1976
TQ
1977
1978
19795

394.7
477.4
495.5
549.1
607.1
639.8

66.0
69.8
74.6
95.5
121.0
120.3

16.7
14.6
15.1
17.4
19.9
18.8

51.0
82.2
18.1
53.6
58.0
32.6

9.2
3.8
4.9
20.9
25.4
-0.7

18.0
4.6
26.9
39.0
43.5
n.a.

25.0
29.3
7.8
33.8
40.2
49.9

4.5
4.4
1.2
5.1
7.9
10.7

18.2
15.1
14.9
15.0
19.5
21.5

1980
1981
1982
1983
1984

709.3
784.8
919.2
1,131.0
1,300.0

121.7
130.7
140.6
160.1
175.5

17.2
16.7
15.3
14.2
13.5

69.5
75.5
134.4
211.8
168.9

1.4
9.0
9.9
19.5
15.4

2.0
12.0
7.4
9.2
9.1

62.8
81.7
101.2
111.6
133.5

11.0

16.4
18.7
19.2
20.3

17.5
20.1
18.5
17.2
15.2

19855
1986
1987
1988
1989

1,499.4
1,736.2
1,888.1
2,050.3
2,190.3

222.9
265.5
279.5
345.9
394.9

14.9
15.3
14.8
16.9
18.0

199.4
236.8
152.0
162.1
140.1

47.4
42.7
14.0
66.4
49.0

n.a.
18.0
9.2
40.9
35.0

152.9
159.3
160.4
172.3
189.0

22.9
23.8
24.9
28.6
34.8

15.0
14.9
15.5
16.6
18.4

2,410.4
2,687.2

403.5
443.4

16.7
16.5

220.1
276.8

8.6
39.9

3.9
14.4

202.4
214.8

37.2
39.0

18.4
18.2

1990
1991

n.a. = Not applicable due to negative numbers or benchmark revision.
1 Estimated by Treasury Department. These estimates exclude agency debt, the holdings of which are believed to
be small. The data on foreign holdings are not recorded by methods that are strictly comparable with the data on
debt held by the public.
2 Borrowing from the public is defined as equal to the change in debt held by the public from the beginning of
the year to the end, except to the extent that the amount of debt is changed by reclassification.
3 Estimated as interest on the public debt less "interest received by trust funds" (subfunction 901 less
subfunctions 902 and 903). Does not include the comparatively small amount of interest on agency debt or the
offsets for other interest received by Government accounts.
4 Estimated by Bureau of Economic Analysis, Department of Commerce. These estimates include small amounts
of interest from other sources, including the debt of Government-sponsored enterprises, which are not part of the
Federal Government.
5 Benchmark revisions reduced the estimated foreign holdings of Federal debt as of December 1978 and
increased the estimated foreign holdings as of December 1984. As a result, the data on foreign holdings in
different time periods are not strictly comparable, and the borrowing from foreign residents in 1979 and 1985
reflects the benchmark revision as well as the net purchases of Federal debt securities.

Part 0ne-300

THE BUDGET FOR FISCAL YEAR 1993

FEDERALLY ASSISTED BORROWING
The effect of the Government on borrowing
in the credit market arises not only from
its own borrowing to finance Federal operations but also from its assistance to certain
borrowing by the public. Federally assisted
borrowing is of two principal types: Government-guaranteed borrowing, which is another
term for guaranteed lending, and borrowing
by Government-sponsored enterprises (GSEs).
The Federal Government also exempts the
interest on most State and local government
debt from income tax.
Federal guarantees and GSEs are discussed
in Chapter 13, "Identifying Long-Term Obligations and Reducing Underwriting Risks." Detailed data are presented in Appendix One,
Chapter 3, Tables 3-7 and 3-8. Table 14-7
brings together the totals of Federal and

federally assisted borrowing and lending and
shows the trends since 1965 in terms of
both dollar amounts and, more significantly,
as percentages of total credit market borrowing or lending. The Federal and federally
assisted lending is recorded at face value.
It does not take into account the degree
of subsidy and does not indicate the extent
to which the credit assistance changed the
allocation of financial and real resources.
The Federal borrowing participation rate
increased from an average of 17 percent
in the 1960s to 27 percent in the 1970s
and 41 percent in the 1980s. After peaking
at a little over 50 percent in 1982 and
1983, it was around 40 percent until 1990
despite the decline in Federal borrowing.
The major factor keeping up the participation
rate was the marked rise in GSE borrowing.

Table 14-7. FEDERAL PARTICIPATION IN THE CREDIT MARKET
(Dollar amounts in billions)
Actual
1965
Total net borrowing in credit
market1
Federal borrowing from the public
Guaranteed borrowing
Government-sponsored enterprise
borrowing2

67.0

1970 1975

1980 1985 1987

Estimates
1988

1989

1990

1991

1992 1993

89.0 163.0 327.0 767.0 780.0 795.0 711.0 656.0 496.0

3.9
5.0

3.5
7.8

51.0
8.6

1.2

4.9

5.3

69.5 199.4 152.0 162.1 140.1 220.1 276.8 392.5 353.4
31.6 21.6 60.4 40.3 41.7 40.7 22.1 36.8 43.6
21.4

57.9 111.7

87.1 123.2 115.4 124.6 111.5 119.0

Total, Federal and federally
assisted borrowing
Federal borrowing participation rate (percent)

10.1

16.2

65.0 122.5 278.9 324.0 289.4 305.0 376.2 423.5 540.8 516.0

15.0

18.2

39.8

Total net lending in credit market1

67.0

89.0 163.0 327.0 767.0 780.0 795.0 711.0 656.0 496.0

Direct loans
Guaranteed loans
Government-sponsored enterprise
loans2
Total, Federal and federally
assisted lending
Federal lending participation
rate (percent)
1

37.5

36.4

41.5

36.4

42.9

57.4

85.4

2.0
5.0

3.0
7.8

12.7
8.6

24.2
31.6

28.0 -19.0 -13.4 -14.6
21.6 60.4 40.3 41.7

2.8
40.7

-7.5
22.1

1.4

5.2

5.5

24.1

60.7 107.8

90.0

90.7 103.4 120.1

8.3

15.9

26.9

79.9 110.3 149.2 109.4 128.6 133.5 105.3 144.8 167.1

12.4

17.9

16.5

24.4

14.4

19.1

82.5 101.5

13.8

18.1

20.4

4.6
36.8

3.4
43.6

21.2

Total net borrowing (or lending) in credit market by domestic nonfinancial sectors excluding equities. Financial sectors are
omitted to avoid double counting, sincefinancialintermediaries both borrow and lend in the credit market.
2
Most Government-sponsored enterprises (GSEs) are financial intermediaries. GSE borrowing (lending) i nevertheless compared
s
with total credit market borrowing (lending) because GSE borrowing (lending) i a proxy for tthe borrowing Qending) by
s
nonfinancial sectors that is intermediated by GSEs. It assists the utlimate nonfinancial borrower (lender) whose loans are
purchased or otherwise financed by the GSEs. In order to avoid double counting, GSE borrowing and lending are calcualated net of
transaction with Federal agencies, transactions between GSEs, and transaction in guaranteed loans.
n.a. = Not available.
Source: Total net borrowing and lending are unpublished and preliminary estimates from the Federal Reserve Board flow of
funds accounts. Projections are not available.

14. ACCOUNTING FOR FEDERAL BORROWING AND DEBT

In 1990, however, the participation rate rose
to 57 percent because of the increase in
Federal borrowing; and in 1991 it reached
85 percent, as Federal borrowing increased
further and total net credit market borrowing

Part One-301

dropped by one-quarter. The Federal lending
participation rate has been much more stable
over time than the borrowing participation
rate, because Federal direct loans are much
smaller than Federal borrowing.

Managing for Integrity
and Efficiency

Part One-303

Managing for Integrity
and Efficiency:
15. Strengthening Management
and Accountability

Part 0ne-305

15. STRENGTHENING MANAGEMENT AND
ACCOUNTABILITY
The Administration remains committed to
providing integrity and efficiency in managing
Federal programs. Waste must be rooted
out; fraud and abuse stopped. The quality
of Government services must become second
to none. The management of programs that
consume nearly a quarter of the Nation's
GNP must be both efficient and effective.

• Improving Federal Statistics

To this end, this chapter describes investments and progress in:

• Managing Areas of High Risk

• Building Management Capacity
• Improving Federal Service

• Strengthening Financial Management
• Strengthening
Management

Information

Resources

• Reforming the Procurement Process
• Reforming the Civil Justice Process
The budget requests $7.6 billion in budget
authority and $7.3 billion in outlays for
these activities—$770 million and $672 million, respectively, more than in 1992.

BUILDING MANAGEMENT CAPACITY
The Federal Government funds thousands
of programs affecting each and every American. These programs involve roughly 5 million
collection and disbursement transactions aver-

aging $10 billion each work day. They are
operated and managed by 4.3 million public
servants (2.3 million civilians and 2.0 million
personnel in the uniformed services). Federal

Table 15-1. INVESTMENTS IN MANAGEMENT IMPROVEMENT
(In millions of dollars)
Improvement

Net Total:1
Budget Authority
Outlays
Improved Service Delivery:
Budget Authority
Outlays
Major Statistical Programs:
Budget Authority
Outlays
Investments in Financial Management:
Budget Authority
Outlays
Program for Priority Systems:
Budget Authority
Outlays
Investments to Reduce Risks in High Risk Areas:
Budget Authority
Outlays

1992
Enacted

1993
Proposed

Dollar
Change:
1992 to
1993

6,814
6,662

7,584
7,334

+770
+672

1,294
1,197

1,682
1,581

+388
+384

975
1,057

1,170
1,098

+195
+41

2,122
2,063

2,205
2,205

+83
+142

2,274
2,177

2,802
2,701

+528
+524

1,936
1,855

2,053
1,971

+117
+116

Budget authority and outlay totals for 1992 and 1993 are adjusted for duplication of items included in more than one category.

Part One-307

Part 0ne-308
employees are assisted in this by expenditures
of $24 billion (1993) for systems—providing
information on the operations and results
of the programs and aiding the provision
of services.
Often, Federal programs are well executed.
Eighty-three percent of Social Security recipients surveyed rated the Agency's services
"good" to "very good". The Internal Revenue
Service significantly improved its taxpayer
service, increasing accuracy by 27 percent
in two years. Airline delays are less than
5 years ago, despite an average of 124,000
takeoffs and landings a day, an increase
of 11 percent in 5 years at FAA controlled
airports.
Nonetheless, individual scandals occur and
contribute to the public's generalized perception of Government. Regardless of frequency,
poor management, inefficiency and ineffectiveness are unacceptable. Further, the Government's capacity to know what is working
well and what is not, and to act on that
knowledge, remains inadequate. There is a
need for improved tools, including reliable
cost projections. And, most important, Federal
managers must be held accountable for their
performance.
The Administration's strategy is to concentrate concrete efforts in selected areas—
moving from specific "fix" to specific "fix."
The Administration has done this, in part,
through joint agency-OMB SWAT and review
teams. SWAT teams are short term action
teams designed to investigate and propose
remedies to specific problems. They normally
complete action within 2 to 3 months. Review
teams work on a longer term basis. The
teams generally include 10 to 20 people
from the affected agency and OMB's management and budget divisions. The teams also
often include experts from other Federal
agencies. The Director of OMB and the
agency head initiate the efforts and review
the results.

THE BUDGET FOR FISCAL YEAR 1993

1991 ACCOMPLISHMENTS
To date, the Administration has initiated
20 joint agency-OMB reviews involving 14
agencies. Among the 14 reviews active during
1991, several themes and common problems
emerged:
• Most reviews sought to control waste and
excessive costs or prevent imminent harm
to programs. Examples include the Railroad Retirement Board's efforts to eliminate an 80,000 claim backlog and the Department of Education's effort to restore
management integrity to its Guaranteed
Student Loan Program.
• A common problem involved systems and
procedures that could not provide timely
and accurate information to policy and
program decision-makers.
—Credit program losses were not known
until claims were paid.
—Thousands of deposit tickets and expenditure vouchers were never recorded
in accounting systems.
—"Supplemental" funds were requested
even though agency needs did not exceed typical requirements.
—Critical mandatory budget estimates
were off by billions.
• Another common problem was inadequate
management capacity and controls with
respect to decentralized operations.
—There are no standard lender agreements for private lenders participating
in Federal credit programs.
—Too many people have access to agency
accounting systems.
—Reconciliation of payments between
agencies (the depositors) and the Department of the Treasury (the bank) is
erratic.
—Audit coverage of contractors is insufficient.
—Agency management expertise is not
adequately matched to program needs.
A summary of the 1991 accomplishments
of the SWAT and review teams follows.

15.

STRENGTHENING MANAGEMENT AND ACCOUNTABILITY

Part 0ne-309

SWAT TEAM RESULTS
Problem

Team Results

Department of Education: Student
Financial Aid Program Management
($57 billion in loans outstanding).

Escalating student loan defaults ($3.4
billion expected in 1992) involving
students attending proprietary
schools of dubious quality.
Inadequate expertise in Office of Postsecondary Education in running
credit programs.

A 14 point management improvement
plan was announced by Director
D arm an and Secretary Alexander in
April 1991.
Improved oversight over guarantee
agencies and lenders, consolidation
of student aid operations under a
single official, and improved
information management were
agreed.
The June 1991 Administration
proposal for reauthorizing the
Higher Education Act included
needed legislative proposals.

Federal Emergency Management
Agency (FEMA): Management of $650
millioiVyear disaster assistance
program.

$800 million budget shortfall due to
FEMA's inability to estimate and
control costs.
The FEMA program was operating
without sufficient attention to
growing liabilities at the same time
that Congress was shortfunding
disaster relief. This practice
assumed that there would be an
emergency supplemental.

FEMA's budget and accounting
methodology and procedures for
determining disaster assistance
eligibility and managing declared
disasters are being improved.
Legislation ensuring non-emergency
appropriations for an average level
of disasters was signed by the
President in December 1991.

Department of Health and Human
Services, Health Care Financing
Administration (HCFA): Management
of $85 billion Federal-State Medicaid
Program.

Medicaid estimates (for 1992)
escalated, on average, $1 billion
each month from January 1990 to
January 1992.
HCFA's budget forecasting system
lacked a formal structure for
tracking State-level factors affecting
Medicaid growth. This resulted in
substantial unforeseen growth in
Federal Medicaid spending.

Joint HHS-OMB management
initiative was announced in July
1991 to strengthen the Federal
system that collects, analyzes and
uses State-based Medicaid program
spending estimates and forecasts
Federal program spending.
Specific improvements included
providing Medicaid Bureau with full
accountability and responsibility for
managing the Medicaid program,
improved Federal and State
Medicaid information and estimates,
a new Medicaid management
partnership with the States, and an
enhanced Medicaid budget
forecasting system.

Department of Housing and Urban
Development (HUD): Section-8
Housing Subsidy Budget Estimates.

$1.25 billion in unanticipated
additional requirements was
identified during appropriations
markups.
HUD lacked a central system for
identifying and estimating in a
timely fashion Section-8 contract
renewals.

Revised estimate of 1992 requirements
was provided to Congress in October
1991.
New automated system will begin
operation in March 1993.

Agency and Topic

Part 0ne-310

THE BUDGET FOR FISCAL YEAR 1993

SWAT TEAM RESULTS—Continued
Problem

Team Results

Department of the Interior, Bureau of
Indian Affairs (BIA): Accounting
Systems.

BIA subjected to two Inspector
General audits of possible AntiDeficiency Act violations in three
years ($95 million in accounting
discrepancies in 1990).
BIA accounting system accessible to
over 12,000 individuals allowing an
average 10 adjustments for each
transaction (500,000 adjustments in
1990).

Access to system limited and
adjustments reduced to 6,000 per
year.
New accounting system (with stringent
accounting controls over obligations
and disbursements) installed in
October 1991.
$425 million in cash disbursements
were assigned and entered into the
system for the first time.
Thousands of previously undiscovered
deposit tickets were brought under
accounting control.

Railroad Retirement Board (RRB):
Management Weaknesses.

Major claims backlogs (80,000 cases),
significant error rates, widespread
beneficiary fraud, underpayment by
railroads of employment taxes, and
inadequate systems.

Agreement on a five-year plan to
correct 104 deficiencies identified by
the SWAT team.
$13.9 million 5-year investment
proposed to assist RRB in achieving
its improvement plan.

Agency and Topic

REVIEW TEAM RESULTS
Agency and Topic

Problem

Team Results

Department of Agriculture: Food Stamp
Program.

Excessive illegal food stamp coupon
trafficking—benefits worth over
$100 million per year being
exchanged for cash and drugs.

Final recommendations for reducing
food stamp fraud agreed in July
1991.
Federal regulations to enable States to
use electronic benefit transfers were
approved and issued for comment.

Department of Defense (DoD): Use of
Contracted Advisory and Assistance
Services (CAAS).

Inadequate management controls over
the use of Contracted Advisory and
Assistance Services (CAAS),
including tracking and reporting
deficiencies.
DoD Inspector General report
indicates that under some
definitions, CAAS may be
underreported by several billion
dollars.

Draft OMB policy letter, mandating
greater management control over
service contracts, was published in
the Federal Register for comment in
December 1991.

Department of Energy (DOE):
Environmental Cleanup.

DOE's $5.5 billion annual cleanup
activities are not prioritized based
on risk to public health, safety and
the environment, and costeffectiveness.
DOE cannot measure cleanup progress
versus expenditures through time.

Pilot test of risk based prioritization
methodology for evaluating 24
cleanup projects is being conducted.
Progress Tracking System is being
developed to report on the progress
of DOE installations in meeting
scheduled milestones.

15.

STRENGTHENING MANAGEMENT AND ACCOUNTABILITY

Part O n e - 3 1 1

REVIEW TEAM RESULTS—Continued
Agency and Topic

Problem

Team Results

Department of Health and Human
Services, Health Care Financing
Administration: Medicare Durable
Medical Equipment (DME) Costs ($2
billion estimated in 1992).

Medicare paying suppliers excessive
amounts for the purchase of DME.

Action Plan's proposals expected to
save $1 billion over the next five
years.
Plan includes issuance of regulations
to consolidate oversight and claims'
payments and to close
reimbursement loopholes exploited
by Medicare providers.
Plan also establishes stricter eligibility
requirements for suppliers and
contains proposals to update some
pricing schedules, initiate
competitive bidding, and increase
pricing discretion to reflect market
prices.

Department of Labor: Job Training
Partnership Act (JTPA) Controls

Inadequate controls over some
contractors participating in this
block grant program ($1.4 billion in
procurements) led to administrative
cost overruns, unallowable costs,
and inappropriate program activities
(over $100 million at risk).

Legislation enhancing the States'
responsibility to establish and
monitor improved accounting and
procurement practices was
submitted to the Congress in May
1991.

National Aeronautics and Space
Administration (NASA): Contractor
Oversight

Some NASA contractors overstaffed
and overpaid (total contract
expenditures are projected to be $12
billion annually).

NASA reassigned 100 FTEs for
contractor oversight functions.
Training program developed to alert
key procurement personnel and
program managers to contract
management issues.
NASA's acquisition regulations and
directives revised to include
priorities for contractor oversight.
OFPP guidance on contract
management issued.

Department of the Treasury, Internal
Revenue Service (IRS): Accounts
Receivable and Tax Systems
Modernization

Inadequate strategy and systems for
collecting accounts receivable and
setting allowance for doubtful debt.
Outmoded computer and
telecommunications systems
undermine the effectiveness of tax
administration.

Performance targets were set to limit
the growth in accounts receivables
and boost collections.
Allowance for doubtful accounts was
developed to determine the
collectibility of accounts receivable.
Design Master Plan (DMP) for IRS's
systems modernization activities
was reviewed.

Department of Veterans Affairs (VA):
Home Loan Guaranty Program.

Inadequate risk exposure and default
trend data for $158 billion in
guaranteed loans.

New methodology for predicting
defaults and calculating the implicit
credit subsidy in new housing loan
guarantees was implemented in May
1991.

Part 0ne-312

THE BUDGET FOR FISCAL YEAR 1993

IMPROVING FEDERAL SERVICE
The budget requests $1.7 billion in budget
authority, $388 million more than in 1992,
to improve service delivery by the Internal
Revenue Service (IRS), Social Security Administration (SSA), Federal Aviation Administration (FAA), and Railroad Retirement Board
(RRB).
SELECTED SYSTEMS IMPROVEMENTS
IRS Tax System Modernization (TSM).—
TSM will accelerate tax processing by decentralizing many of the processing functions currently performed at IRS central computing
centers. It will reduce the burden associated
with tax filing, and allow the IRS to respond
to taxpayer inquiries faster and with more accurate information. For example, the electronic
filing program for tax returns speeds up taxpayer receipt of refunds by as much as four
weeks. Without TSM, IRS will lack the ability
to provide "one-stop service" that the public
has come to expect from the private sector.
This kind of service will allow taxpayers to
resolve all questions relating to their tax returns, refunds or correspondence, by speaking
to one IRS employee instead of being bounced
around the bureaucracy.
SSA Strategic Plan— In 1991, SSA released plans to address ways to serve the public better and satisfy future workloads. Some
of the improvements include pre-retirement
notification of benefit status and eligibility and
increased public service access over the phone.
By the year 2000, it is estimated that 80 percent of SSA transactions will use teleservices,
thus saving time and money for the public.
These plans also call for improvements with
respect to the settlement of disability claims
(reducing processing time by more than half).

FAA Advanced Automation System
(AAS).—The nation's air traffic control system
is approaching obsolescence and becoming increasingly difficult and expensive to operate,
increasing delays and the risk of aircraft accidents. AAS will use recent advances in technology to improve the safety and efficiency of
air transportation, supporting 185 million aircraft flights annually by the year 2000; this
is a 27 percent increase over 1990 levels. The
traveling public will face fewer flight delays
and also benefit from cost savings obtained by
the airlines through reduced fuel consumption
and maintenance expenses.
RRB Special Management Improvement
Fund.—Over 800,000 retired railroad workers
and their families receive Social Security
equivalent, Medicare and railroad pension benefits from the RRB. This year a new Special
Management Improvement Fund was approved
and the first of five years of funding provided
to finance reforms that evolved out of a joint
RRE/OMB Management Review. The RRB is
ahead of schedule in reducing backlogs. The
claim case backlog has been cut from over
80,000 to under 60,000 cases. The backlog is
expected to decline to under 40,000 in 1992,
and to almost zero by the end of the fiveyear Management Improvement Plan period.
This will provide more timely and accurate
benefit checks to retired railroad workers and
their survivors.
SELECTED IMPROVEMENTS IN
FEDERAL SERVICE
The Administration continues to strive to
improve the quality, performance, and service
delivery of the Federal workforce.

Table 15-2. INVESTMENTS IN IMPROVED SERVICE DELIVERY
(In millions of dollars)
1992 Enacted
Budget Authority
Outlays

1,294
1,197

1993 Proposed
1,682
1,581

Dollar Change:
1992 to 1993
+388
+384

15.

STRENGTHENING MANAGEMENT AND ACCOUNTABILITY

In 1991, all necessary pay reform regulations under the Federal Employees Pay Comparability Act of 1990 (FEPCA) were implemented on time, enabling agencies to begin
using the pay incentives and exercising the
flexibility needed to recruit and retain the
highest possible quality workforce. The Bureau
of Labor Statistics has begun to gather
the salary survey data required under FEPCA
to set pay scales by locality beginning in
1994. In addition, to address the Federal
Government's most pressing recruitment and
retention problems, the President approved
an 8 percent interim geographic adjustment
in pay for employees in the New York,
Los Angeles, and San Francisco metropolitan
areas.
In 1992 and 1993, continued attention
will be directed toward making long term
investments and changes that improve the
effectiveness of the Government's pay and
personnel systems. Expanded use of computers
and telecommunications systems will provide
timely vacancy information to prospective hires
and speed up and simplify the hiring process.
Reviews will be made of a number of pay
and personnel management systems, including: pay-for-performance, blue collar pay, classification, and pay and classification of law
enforcement officers and health professionals.
The objective of these reviews is to identify
ways to improve the productivity and performance of Federal employees and encourage
more cost-effective delivery of services to
the public.

Part One-313

Federal awards are given annually in recognition of excellence in achieving quality
improvement. Winning agencies serve as models for the rest of government.
The President's Award for quality was
given in 1991 to the Air Force Logistics
Command (AFLC). The AFLC credits its
quality improvement effort for much of its
success in supporting Desert Shield and Desert
Storm. One example was Desert Express,
modeled after Federal Express (the 1990
Baldrige Quality Award winner in the private
sector). Through Desert Express, the Military
Airlift Command and AFLC provided overnight shipment of a total of more than
300,000 pounds of critical spare parts to
military forces in the Middle East, with
shipments arriving on average 50 minutes
ahead of schedule.
Winners of awards from the President's
Council on Management Improvement in the
domestic area include the IRS's Ogden, Utah,
Service Center and the Regional Office and
Insurance Center in Philadelphia of the Department of Veterans Affairs (VA). The IRS
Ogden Service Center reduced misapplied
payments by over 150,000 and undelivered
mail by over 14 percent. The VA Regional
Office and Insurance Center now handles
98.3 percent of veteran assistance telephone
inquiries on the first call.

Quality

An important part of the Federal quality
effort is the work of the Office of Personnel
Management's Federal Quality Institute (FQI).
FQI helps train agency officials in quality
concepts on a regular basis and organizes
an annual conference and workshop on quality
improvement. The Institute also serves as
a clearinghouse and forum for sharing quality
improvement information.

The 45 million Americans who receive
monthly Social Security checks or the 600
million passengers who annually fly on commercial aircraft that rely on the Federal
air traffic control system know the importance
of quality in Government. A commitment
to quality must exist in every agency. To
build this commitment, a significant Federal
effort to provide higher quality services and
products has been underway since 1988. This
effort corresponds to major initiatives in the
private sector to improve quality.

The awards and FQI data show progress.
But even award-winning agencies need to
improve areas where performance is substandard. As the Social Security Administration acknowledges, the average of 87 days
to process an initial disability claim far
exceeds the time specified in its stated service
objective. A common complaint received by
the Internal Revenue Service (IRS) concerns
its timely and accurate response to 10 million
pieces of annual correspondence from taxpayers. As a result of cost effective quality

QUALITY IMPROVEMENT AND
PERFORMANCE MEASUREMENT

Part 0ne-314
improvement initiatives, the level of satisfactory IRS response to correspondence rose
from 60 percent in 1988 to 85 percent
in 1991.
The Administration is committed to Federal
agencies providing quality services and products to American taxpayers. Building on
progress to date, the Administration is launching quality demonstrations in the Internal
Revenue Service, the Social Security Administration, and the Department of Veterans
Affairs. The purpose of this effort is to
demonstrate and evaluate what works in
order to improve Federal quality in programs
that touch tens of millions of Americans.
Performance Measures
Taxpayers should not be asked to pay
for programs unless they can see results.
The public deserves an accounting of how
programs are working. Too many Government
managers know too little about what their
programs Eire actually doing. Federal agencies
have not adequately identified measurable
goals against which to track and compare
performance.
Several fact finding and analytical efforts
are underway.
• In the Fall of 1991, the General Accounting Office (GAO) surveyed Federal agencies' current and planned performance
measurement systems. The survey showed
that, while virtually all agencies selectively measure some performance, most
agency officials are less than fully satisfied
with the data derived from such measurement, particularly as it relates to making
budget decisions, managing programs, or
assessing accountability.
• OMB, GAO, and the Congressional Budget
Office are completing a set of visits to
State and local governments to review performance measurement systems at these
levels. These visits have been useful in
determining those elements (e.g., using
strategic plans to define goals and objectives and holding managers accountable
for results) that are necessary for successful performance measurement.
• OMB is participating in an Organization
for Economic Cooperation and Develop-

THE BUDGET FOR FISCAL YEAR 1993

ment (OECD) experts group engaged in a
special study of performance measurement
in OECD member countries. This will
produce, by the summer of 1992, comparative case studies of performance measurement systems in other countries.
• The Department of the Treasury's Financial Management Service is undertaking
an effort to prepare periodic reports on
private sector performance measurement
systems (where analogies might be drawn
with governmental operations).
• OMB is beginning work on typologies of
illustrative performance indicators and
standards. The initial indicator typology
will be ready in March 1992 and show
examples of common measures for common
functions. The examples will be developed
with the agencies, so as to begin a process
of consensus building.
Performance indices include output measures (e.g., workload, production, transactions);
quality of service measures (e.g., complaints,
customer satisfaction levels, responsiveness
rates); efficiency and productivity measures
(e.g., unit costs); outcome measures (e.g.,
reduction in measles as a result of inoculation
programs); and status of conditions measures
(e.g., dam safety, highway pavement conditions).
The Chief Financial Officers Act of 1990
(CFOs Act) requires performance measures
as part of financial statements. OMB's guidance on implementing the CFOs Act includes
guidance on providing these measures. OMB
is also working with selected agencies, including the Internal Revenue Service and the
Social Security Administration, to help them
develop appropriate performance indicators,
which can serve as models for others. The
OMB approach is to identify a select number
of representative measures that can reflect
overall performance and be useful to managers, the Congress, and the public.
OMB is also continuing to work with
the Congress on several legislative proposals
that have been introduced to establish performance standards and performance measurement systems throughout the Federal Government.

Part One-315

15. STRENGTHENING MANAGEMENT AND ACCOUNTABILITY

IMPROVING FEDERAL STATISTICS
The Federal Government collects and disseminates statistics because the unhindered
flow of unbiased, timely information about
the state of the economy, society, health
and the environment is critical. Federal statistical activities affect the lives of virtually
every citizen: they determine how much Social
Security benefits and labor contracts change,
monitor the quality of air and the safety
of food, chart the competitiveness of American
industry and the status of health, and measure
crime in the streets.
The Administration's efforts are designed
to improve the efficiency, quality, and relevance of statistical programs while protecting
the integrity of statistical information products, respecting pledges of confidentiality, and
minimizing the reporting burden on the public.
The Administration's statistical program is
aimed at modernizing Federal statistics so
that they recognize:
• The shift from manufacturing to services
and the greater role of international markets.
• The increase in two-earner and single parent families, lengthened life-expectancies,
and postponed marriage and child-bearing.
• The increased demand for environmental
monitoring.
The budget for major statistical agencies1
is $1.2 billion, an increase of 20.1 percent
1
Major statistical agencies include the Department of Agriculture's Economic Research Service and National Agricultural Stat s i s Service, the Department of Commerce's Bureau of Economic
itc
Analysis and Bureau of the Census, the Department of Education's
National Center for Education Statistics, the Department of Energy's Energy Information Administration, the Department of Health

over the 1992 enacted level and 14.2 percent
over the 1992 President's budget. This continues a trend of Administration support for
improving statistical programs as shown in
the accompanying table.
This budget includes an increase of $12
million over 1992 enacted levels for the
Economic Statistics Initiative announced in
the 1992 budget. Congress funded 60 percent
of the 1992 request. The 1993 request for
the Initiative provides for the first installment
of more than $150 million over the fiveyear period 1993-97. The budget also contains
a $52 million increase for education statistics—to assess progress in implementing the
America 2000 strategy and in reaching the
National Education Goals, as well as meet
legislative requirements for improved data.
In addition, the budget requests funds
for continued production of current data used
to monitor health trends and use of health
services and to explore the relationships between risk factors and diseases. The budget
also funds the collection of new criminal
justice information necessary for allocation
of State and local anti-drug abuse formula
grants. Continued planning for the year 2000
Decennial Census is supported, including preparation of field experiments for data collection
among groups that are difficult to enumerate.
and Human Services' National Center for Health Statistics, the Department of Justice's Bureau of Justice Statistics, the Department
of Labor's Bureau of Labor Statistics (BLS), and the Department
of the Treasury's Statistics of Income Division. To provide a more
consistent comparison, the budget totals do not include funding for
the 1990 Decennial Census; they do, however, include funds for
planning and research for the 2000 Decennial Census. The 1993
total includes $16.8 million in the BLS budget transferred from the
Occupational Safety and Health Administration for BLS' occupational safety and health programs.

Table 15-3. INVESTMENTS IN MAJOR STATISTICAL PROGRAMS
(In millions of dollars)
1991

Actual

Budget Authority

863

Enacted

Proposed

Dollar
change:
1992 to

975

1,170

+195

1992

1993

Part 0ne-316
1991 ACCOMPLISHMENTS
Economic Statistics
• Reinstatement of estimates of GNP by industry that were discontinued in 1989.
• Availability of more reliable and consistent
data on manufacturers new orders, shipments, and inventories, and progress in
automating import data.
• Improvements in the coverage and accuracy of both current and constant dollar
estimates of construction activity in the
National Accounts.
• Expansion of information on changes in
employers' cost of employee compensation
to include the nursing and personal care
facilities industry.
• Production, for the first time, of annual
information on the $200 billion communications industry.
• The National Energy Information System's
success in meeting the increased demand
for energy information during the Persian
Gulf War (dispelling rumors and speculation about reductions in energy supplies
and resulting price increases).
• U.S. statistical agency technical assistance
to statistical units in the emerging market
economies of Eastern Europe and the
former Soviet Union.
Education Statistics
• Issuance of the Congressionally mandated
report on education indicators (including
indicators for learner outcomes, quality of
educational institutions, readiness for
school, societal support for learning, education and economic productivity, and educational equity).
• Release, for the first time, of State level
reports containing National Assessment of
Educational Progress data on mathematics
achievement in grade 8.
Health Statistics
• A special supplement to the National
Health Interview Survey to collect data for
measuring progress in meeting the Nation's Health Objectives for the Year 2000.

THE BUDGET FOR FISCAL YEAR 1993

• Development of health status indicators at
National, State, and local levels. A special
minority health chartbook published as
part of Health, United States, 1990.
Social and Demographic Statistics
• Early availability of 1990 Decennial Census data (including detailed population
and housing data at the block level) to
local and regional planners.
1992 AND 1993 OBJECTIVES
The 1992 and 1993 budgets for statistical
agencies build on their base programs as
well as their 1991 accomplishments to improve
the quality and relevance of Federal statistical
programs. Specific objectives include:
Economic Statistics Initiative
• Enhanced accuracy, breadth, and international comparability of the National Income and Product Accounts.
• Improved coverage and detail in reports
on international payments and investment
flows.
• Refined price-change data (adjusting for
changes in the quality of goods).
• Increased coverage and detail on the composition of the service sector.
• Legislation to establish a standardized
mechanism for limited sharing of confidential statistical information between
statistical agencies (solely for statistical
purposes).
• An upgraded Government statistical work
force (through establishment of a specialized graduate-level program to develop the
skills needed in the conduct of Federal statistical surveys).
Agricultural Statistics
• 1992 and 1993 measurements of the growing specialty commodity output of the agricultural sector.
• Collection of comprehensive information
on the use of agricultural chemicals, including pesticides, on a wide range of
crops.

15.

STRENGTHENING MANAGEMENT AND ACCOUNTABILITY

Labor Force Statistics
• Publication of detail for 36 new service industries (18 each in 1992 and 1993).
• Introduction of modern data collection
technology to reduce the frequency and extent of revisions in preliminary estimates
of employment and earnings.
Other Economic Statistics Program
Improvements
• Linkage in 1992 of enterprise and establishment data for foreign-owned enterprises (to provide an improved basis for
assessing the impact of foreign direct investment on the U.S. economy).
• Design of a new quarterly survey to measure nonresidential reconstruction.
• Basic improvements in 1993 in measures
of portfolio investment in the international
economic accounts (resulting from the first
benchmark survey of U.S. portfolio investment abroad in over 50 years).
• A new capital investment survey in 1993
of business expenditures for equipment
and buildings, quarterly financial surveys
of the business services industry, and expansion of the Quarterly Financial Report
to small companies.
• The largest expansion since the 1930,s in
the 1992 Economic Censuses, to be conducted in 1993, adding 95 new service sector industries (increasing coverage of the
Economic Censuses from 75 to 98 percent
of the Gross Domestic Product).

Part One-317

Education Statistics
• Continued improvement of the quality and
comparability of education data (including
information on family formation, work history, and postsecondary completion rates).
Enhanced data in 1993 on elementary and
secondary education (including finance,
staffing, teachers, and school discipline).
• Availability in 1993 of the results of the
1992 National Assessment of Educational
Progress (NAEP).
• Expansion of the 1994 NAEP, field tests
of the international comparability of math
and science assessments, and assessments
of postsecondary students.
Health Statistics
• Additional efforts in 1993 to improve statistics on the health status of minority
populations (including the association between socioeconomic status and health,
and the interactions among race, ethnicity,
poverty, and other social and economic factors).
Social and Demographic Statistics
• Improved questionnaires for the Current
Population Survey (CPS) and the Survey
of Income and Program Participation—to
make them more understandable to respondents, reduce data entry and editing
errors, reduce individual respondent burden, and allow for greater flexibility in the
questions asked.
• Completion of research in 1993 to determine whether a fundamentally new design
will be used for the year 2000 Decennial
Census.

STRENGTHENING FINANCIAL MANAGEMENT
The budget requests $2.2 billion for financial
management improvements, $83 million more
than enacted in 1992 (see Table 15-4).
In 1992 and 1993, the Administration will
build on its efforts in 1991 to strengthen
financial management. Implementation of the
Chief Financial Officers (CFOs) Act will be
a comprehensive effort, aimed at correcting

long-standing shortcomings in financial systems, internal controls, and the use of assets,
and at producing more reliable and useful
financial information. Principal activities will
include establishing:
• CFO organizations;

Part 0ne-318

THE BUDGET FOR FISCAL YEAR 1993

• improved accounting, reporting, and auditing practices;
• improved financial systems; and
• improved asset management policies.
These activities will, in time, bring Federal
financial practices in line with what is routinely expected from privately held businesses
and State and local governments. For example:
(1) accounts will be reconciled on a timely
basis; (2) loans and accounts receivable will
be controlled so that more of them will
be converted into available resources, rather
than written off; (3) liabilities will be better
understood and the Government better prepared to meet those obligations; (4) electronic
transfers for both disbursements and collections will be used to a greater degree;
and (5) accounting for assets and liabilities
will be improved.

authority and control by the CFO over agency
financial management functions. In 19 of
the plans, both budget and finance have
been located under the CFO, a move designed
to integrate and strengthen agency financial
management. In 1992, the CFO Council will
be reorganized to provide for improved policy
consultation and address practical implementation needs associated with the CFOs Act.
IMPROVED ACCOUNTING, REPORTING,
AND AUDITING PRACTICES
Agencies will prepare more reliable and
useful financial information to help prevent
waste and support better decisions. The Administration is requesting $1 million for establishing accounting and reporting standards;
$34 million for preparing financial statements;
and $66 million for auditing the statements.
Accounting and Reporting Standards

ESTABLISHING CFO ORGANIZATIONS
To lead financial management improvements, the President nominated and the
Senate confirmed in 1991, a Deputy Director
for Management of OMB (designated by the
CFOs Act "as the chief official responsible
for financial management in the United States
Government") and a Controller (as the head
of the newly established Office of Federal
Financial Management (OFFM)). The President also designated or appointed (with Senate
confirmation) 14 agency CFOs.
Twenty-two of 23 major agencies have now
submitted, and received OMB approval of,
CFO reorganization plans pursuant to the
CFOs Act. The approved plans provide for

Accounting and reporting standards define
the qualitative basis for financial information.
Without them, decision-makers and the public
will have no assurance of timely, comparable
and useful financial information.
1991 Accomplishments.—The Federal Accounting Standards Advisory Board (FASAB)
was established in 1990 to recommend standards for accounting in the Federal Government. It published in November 1991 proposed
standards for financial resources, funded liabilities, and net financial resources of Federal
entities.
To establish a financial reporting framework
for agencies, OMB published in September
1991 guidance directing agencies to produce

Table 15-4. INVESTMENTS IN FINANCIAL MANAGEMENT
(In millions of dollars)
1992
Enacted

Improved Financial Reporting
Improved Financial Systems
Improved Asset Management
Total Budget Authority

1993
Proposed

Dollar
Change:
1992 to
1993

57
628
1,437

101
659
1,445

+44
+31
+8

2,122

2,205

+83

15.

STRENGTHENING MANAGEMENT AND ACCOUNTABILITY

financial statements containing both traditional financial information and measures
of program performance.
1992 and 1993 Plans.—To improve financial control in key areas, FASAB plans to propose standards in 1992 for direct loans and
loan guarantees, inventories, and unfunded liabilities. It also intends to issue a paper that
identifies user needs and reporting objectives
for Federal agencies.
OMB will update the guidance for financial
reports. It will also provide guidance for
the selection and presentation of information
on program and financial performance. The
focus will be on developing common performance measures for programs with similar
activities.
Preparation and Audit of Financial
Statements
Audited financial statements will improve
the reliability of financial information.
1991 Accomplishments.—In accordance
with the requirements of the CFOs Act, the
Department of Labor, the General Services Administration, and the Social Security Administration issued audited financial statements,
covering 1990 activity. Twenty-seven Government corporations covered by the Act also issued 1990 financial statements. OMB identified 133 entities (revolving funds, trust funds,
and commercial functions) for which 1991 financial statements should be prepared. Seventy of these entities will issue their first audited financial statements in 1992.
OMB published in September 1991 audit
requirements for Federal financial statements
that go beyond the requirements of generally
accepted government auditing standards. They
require the auditor to (1) review the processes
by which weaknesses are reported under
the Federal Managers' Financial Integrity
Act (FMFIA); (2) ascertain whether there
are conflicts between the entity's FMFIA
report and material weaknesses identified
during the audit; (3) ascertain whether the
agency is in compliance with relevant laws;
and (4) ensure that the agency can document
and support reported performance information.
1992 and 1993 Plans.—'To strengthen auditor effectiveness, the President's Council on In-

Part One-319

tegrity and Efficiency (PCIE) will (1) develop
a policy and procedures manual for the audits
of Federal entities' financial statements; and
(2) define the appropriate level of auditor assistance to management for the preparation
of financial statements. The Inspectors General Audit Training Institute will provide the
IG community with training on conducting financial audits.
IMPROVED FINANCIAL SYSTEMS
The CFOs Act calls for a strategy to
develop and integrate agency accounting systems, and bring existing systems into compliance with new standards and requirements.
The budget requests $659 million for financial systems improvements, $31 million more
than enacted in 1992. Efforts will be made
in three areas: (1) establishing or improving
financial information and functional standards;
(2) improving individual agency financial systems; and (3) upgrading the central systems.
Financial Information and Functional
Standards
1991 Accomplishments.—In last year's
budget, OMB proposed that financial systems
development be enhanced by codifying financial data standards and issuing additional
functional standards. Both were accomplished.
The Joint Financial Management Improvement
Program (JFMIP) issued a report defining all
financial data elements required by Treasury
and OMB.
In addition, a joint OMiyiYeasury team
issued a document defining the explicit data
base requirements for direct and guaranteed
loan accounting systems.
1992 and 1993 Plans.—Further tightening
of informational and functional requirements
is planned in 1992.
• Treasury will integrate the financial data
standards into the U.S. Standard General
Ledger.
• OMB will define technical linkages between financial information at the Government's various organization levels.
• Functional requirements for consumable
inventories and fixed assets systems will
be developed.

Part 0ne-320
During 1993, OMB will expand information
requirements to cover Government-wide performance information, and explore ways to
maximize information transfers through the
use of electronic technology.
Agency Systems
1991 Accomplishments.—A project was
started to test the conformance of commercially available "off-the-shelf' administrative
accounting system software with the core financial systems requirements, and certify
their acceptability. This project will be completed in early 1992.
The major agencies' five-year systems improvement plans were reviewed and determinations made of the needed levels of investment. Direct intervention was used in selected
cases, such as the Bureau of Indian Affairs'
accounting system, where a joint OME/Interior
team led the successful conversion to a new
system in October 1991.
Cross-servicing agreements were made that
transferred accounting and payroll operations
for several small agencies to Treasury or
the Department of Agriculture. The Department of Health and Human Services extended
electronic grant payment services to thirtyone external bureaus and small agencies.
1992 and 1993 Plans.—During 1992, OMB
will perform reviews of five agencies to ensure
that plans are strategically and technically appropriate and can provide a basis for informed
investment decisions. Cross-servicing of agency
payroll systems will also be expanded; the Departments of Justice and Treasury are scheduled to receive payroll servicing from the Department of Agriculture commencing in late
1992.
During 1993, new initiatives will (1) expand
the coverage and improve the quality of
packaged financial system software solutions
available to Federal agencies; (2) reduce the
time required to purchase and implement
software packages and (3) develop techniques
to reduce the maintenance costs of financial
management software solutions.
Central Systems
1991 Accomplishments.—Treasury and
OMB have embarked on a major project to

THE BUDGET FOR FISCAL YEAR 1993

achieve basic integration of their financial data
bases by 1994.
OMB has automated its budget execution
data base. Previously, budget execution data
was reported on paper to OMB and did
not reside in any central system. Now, monthly execution data is electronically reported
(by agencies) to a Treasury data base and
then electronically transmitted to OMB.
1992 and 1993 Plans.—In 1992, the content of the integrated Treasury/OMB database
will be expanded to provide a special electronic
database for credit programs and reporting of
budget execution information below the appropriation level.
During 1993, OMB and Treasury will study
the technology, and related costs, necessary
to transfer data electronically between central
and individual agency databases. This study
will include assessing the information needs
of senior government officials.
ASSET MANAGEMENT
Significant efforts are underway to manage
more effectively the Federal Government's
assets, valued at $1.4 trillion at the end
of 1990. The CFOs Act requires agency
CFOs to oversee systems to manage these
assets (which range from gold and cash
to inventories of consumable materials and
public lands). To be effective, the systems
must:
• hold, utilize, and dispose of assets in the
most cost-effective manner, consistent
with public policy;
• prevent and minimize losses from theft,
fraud, damage, and deterioration; and
• properly value the assets for financial
statements and other management purposes.
Most government-wide efforts have focused
on credit managemenl/debt collection ($230
billion in loans and accounts receivable and
$70 billion in taxes due, and $653 billion
in guaranteed loans) and cash management
(over $2 trillion annually; $40 billion on
hand at the end of the year).

15.

STRENGTHENING MANAGEMENT AND ACCOUNTABILITY

Credit Management and Non-Tax Debt
Collection
For 1993, $1.4 billion is requested for
credit management and non-tax debt collection, approximately the same amount as
enacted in 1992. Increases for agency initiatives include:
• $11.5 million for the Department of Veterans Affairs, providing for guaranteed
loan workload requirements and debt collection;
• $6.4 million for Treasury's Financial Management Service to improve governmentwide credit management activities, including $1.8 million for a Credit Management
Training Institute; and
• $4.6 million for the Department of Justice
to improve litigation and debt collection
information systems, and to provide training in debt collection litigation for U.S.
Attorneys.
1991 Trends and Accomplishments.—At
the end of 1991, the Government's loan and
non-tax debt portfolio totaled about $883 billion, up slightly from $879 billion in 1990. Of
this amount, $230 billion was in loans and
other non-tax debts owed Government agencies
(down from $249 billion in 1990) and $653 billion was in loans guaranteed by the Government (up from $630 billion in 1990). Delinquencies on non-tax receivables decreased in
1991 by $192 million, to $45.5 billion. Over
$18 billion in uncollectible debt was written
off in 1991, and agencies reported a year-end
loss allowance of $59 billion.
The Administration moved forward in 1991
in strengthening guaranteed loan management. It began implementation of the recommendations in Treasury's "Assessment of
Guaranteed Loan Management" report. OMB
and Treasury Financial Management Service
initiatives included standard lender agreements, lender monitoring, and improved disposition of foreclosed property. In 1991, the
major credit agencies developed performance
standards and began quarterly reporting on
early warning indicators. High risk reviews
were conducted in four of the five major
credit agencies and the Department of Justice
to address serious deficiencies in credit management and debt collection.

Part One-321

1992 arid 1993 Plans.—The Administration
will:
• Increase collections. In 1992 and 1993, the
major credit agencies are expected to increase collections by over $1 billion.
• Propose credit management and debt collection legislation. The legislative package
includes:
—Mandating the use of income tax refund
offsets for delinquent debt.
—Allowing Federal agencies to obtain current debtor address information from
the IRS for debt collection purposes.
—Barring delinquent debtors from obtaining new Federal loans or guarantees.
—Requiring collection of taxpayer identification numbers for loan applicants,
grant recipients, and contractors, for future offset purposes.
—Requiring guaranteed loan program
agencies to establish standard lender
agreements, collect information on the
status of guaranteed loans, and collect
fees to cover the costs of lender reviews.
—Simplifying the late charge fee structure.
—Expanding reporting to credit bureaus.
—Removing the exemption of the Social
Security Administration (SSA) from the
Debt Collection Act of 1982.
—Providing the Justice Department with
permanent authority to contract with
private sector attorneys for litigation
and collection of delinquent debt referred to Justice by other agencies.
Enactment of this legislative package will
lead to an estimated increase in collections
of over $170 million in 1993. In addition,
an estimated $140 million in losses would
be avoided annually by barring delinquent
debtors from receiving Federal loans or
loan guarantees.
• Improve credit information. The Federal
Credit Reform Act of 1990 reforms budgeting for credit by requiring annual appropriations for the subsidies inherent in direct and guaranteed loan programs. OMB
is working with agencies to improve their
financial systems in order to produce accurate and timely data for credit reform. The
Act also requires that OMB submit to Con-

Part 0ne-322
gress a report on administrative costs for
credit and grant programs. This report
will provide the Congress with information
on the appropriate treatment of administrative costs under credit reform accounting.
• Improve credit screening. In 1992 the
major credit agencies will begin using a
credit screening system operated by the
Department of Housing and Urban Development to ensure that new credit is not
given to individuals already delinquent on
Federal loans.
• Increase collections of Civil Monetary Penalties (CMP). For 1991, agencies reported
CMP assessments of $548.9 million, collections of $320.2 million, and delinquent
CMPs of $235.5 million. OMB will work
with agency CFOs during 1992 to set
meaningful performance objectives for decreasing delinquencies and increasing collections.
• Stop erroneous payments to deceased beneficiaries. In February 1991, GAO estimated that 20 Federal benefit programs
erroneously paid over $4.3 million in a single month to beneficiaries listed in SSA
records as deceased. In 1992, OMB will
require Federal agencies to acquire death
information from SSA, match the data
with their benefit rolls, promptly terminate benefits to deceased beneficiaries, initiate efforts to recover overpayments, and
share death information from their records
with SSA. OMB will also work with Treasury to improve Treasury's methods of stopping checks and canceling electronic funds
transfers to deceased beneficiaries. SSA
will work with the States to conduct pilot
studies to assess the feasibility and costeffectiveness of automated transmission to
SSA of deceased beneficiary information.
• Recover SSA overpayments. SSA has accounts receivable of over $3 billion, due
mainly to overpayments of benefits. SSA
routinely recoups overpayments to current
beneficiaries by offsetting future benefit
payments. In 1992, SSA will begin participating in the income tax refund offset program by referring debts of former beneficiaries no longer entitled to benefits.

THE BUDGET FOR FISCAL YEAR 1993

Tax-Related Debt
Congress denied additional resources requested in the Presidents 1992 budget for
tax-related accounts receivable collections initiatives. For 1993, the Administration proposes
providing additional resources of $16.2 million
and 397 full-time equivalent positions,
annualized in 1994 to 800 actual positions,
to collect delinquent tax debt.
1991 Trends and Accomplishments.—Due
in part to a weak economy, IRS accounts receivable increased during 1991 from $64 billion
to $70 billion, an increase of 9 percent. Collections dropped from $25.5 billion to $24.3 billion, a decrease of 5 percent. Collections as
a percent of accounts receivable dropped from
40 percent to 35 percent, although collections
as a percent of new receivables rose from 73
to 77 percent during the same period. At the
end of the year, delinquent tax debt had risen
from $61 billion in 1990 to $67 billion, an increase of 10 percent.
In May 1991, the IRS appointed an Accounts
Receivable Executive Officer (AREO) to oversee agency-wide actions and limit growth
of accounts receivable. The AREO developed
an agency-wide action plan that brings direction, focus and coordination to accounts receivable. In addition, a set of key performance
indicators for tracking IRS management of
accounts receivable is in place and quarterly
performance assessments will begin in 1992.
The IRS also developed in 1991 an Allowance for Doubtful Accounts to present a
clearer picture of the value and collectibility
of accounts receivable. At the end of 1991,
the IRS reported an allowance of $41 billion
(indicating that up to 59 percent of the
$70 billion in accounts receivable may be
uncollectible).
1992 arid 1993 Plans.—To stem the further
growth of accounts receivable and boost collections, the IRS will:
• Implement an accounts receivable strategy.
IRS is committed to halting the growth
of accounts receivable during 1992 and
boosting collections of delinquent taxes by
8 percent ($1.9 billion) over 1991.
• Use private sector tools. During 1992, the
IRS will continue to expand electronic fil-

15.

STRENGTHENING MANAGEMENT AND ACCOUNTABILITY

ing, which enables private sector tax preparers to submit tax returns electronically
to the IRS. Electronic filing also speeds
refunds to the taxpayers. The Administration will support legislation that will permit the use of credit card payments on
tax accounts. OMB will also work with the
IRS to determine the feasibility of using
private collection agencies to assist in the
collection of certain delinquent tax debt.
• Simplify and redesign the tax deposit system. The payroll tax deposit reporting system processes more than $800 billion each
year from more than 5 million businesses.
The present system makes compliance expensive and frustrating for businesses.
The Administration's reform proposal includes:
—A single wage reporting system that
would eliminate the multiple filings currently required to comply with Federal
and State tax systems.
—Simplified payroll tax deposit rules that
would include revenue neutral changes
to current Treasury regulations.
—Emphasis on up-front compliance that
would shift much of IRS enforcement
emphasis to initiatives to improve voluntary compliance.
The Administration's proposal also includes continued funding for the Federal
Tax Deposit Redesign project to test in
1993 electronic receipt, processing, and deposit of annual employer tax deposits. Full
implementation will begin in 1994, if testing is successful.
Cash Management
1991 Treruls and Accomplishments.—The
Administration's goal is to convert, to the maximum extent possible, the Government's $2.6
trillion annual cash flow to a fully electronic
collection and payment system. Currently, over
900 million Federal disbursements are made
annually, amounting to $1.4 trillion. Approximately 43 percent of the number of payments
(and 56 percent of the dollar amounts) are issued electronically. This is an improvement
over 1988, when 38 percent of the number of
payments (and 42 percent of the dollars) were
issued electronically.

Part One-323

Electronic payment of recurring benefits
for social security, supplemental security income, civil service annuity, railroad retirement, and veterans benefits has increased
from 19 percent in 1982 to 47 percent
in 1991.
Federal and State governments are developing and testing Electronic Benefit Transfer
(EBT) payment mechanisms. EBT delivers
Federal and State benefits electronically
through plastic cards, automatic teller machines, and card scanning devices in grocery
stores. EBT demonstrations are underway
in Maryland, Pennsylvania, Minnesota, New
Mexico, Iowa, and Wyoming. Planning has
begun in fifteen States, and statewide implementation of EBT was approved in 1991
for Maryland by the Department of Health
and Human Services and the Department
of Agriculture's Food and Nutrition Service.
Although agencies report that 90 percent
of payments to vendors were made on time
in 1990, OMB has concerns about the accuracy
of agency reporting. OMB will continue to
sponsor improved payment techniques that
streamline the payment process (e.g., use
of Small Purchase Bank Cards and third
party drafts). At the same time, agencies
need to improve their data on the timeliness
of payments through the use of quality assurance programs as demonstrated by GSA in
1991.
1992 and 1993 Plans.—The Administration
will:
• Continue to refine disbursement mechanisms. The costs of disbursements will be
lessened through electronic funds transfer
and other disbursement alternatives.
Treasury will work with OMB and the
agency CFOs to examine Federal disbursement strategies and costs, including nonelectronic payments to employees.
• Improve flows of payments to States. The
Administration plans to publish, in early
1992, proposed regulations for implementing the Cash Management Improvement
Act of 1990 (CMIA). Implementation of the
CMIA will significantly increase the equity
and efficiency of the processes used by
Federal agencies to make over $150 billion
in payments to States each year.

Part 0ne-324

THE BUDGET FOR FISCAL YEAR 1993

• Modernize payments to individuals. The
Administration will continue to increase
use of electronic funds transfer by direct
deposit (EFT/DD) into recipients' bank accounts to reduce paper costs further and
to improve security for individuals.
• Complete testing and, if positive, expand
use of Electronic Benefit Transfers. If eval-

uation of the Maryland pilot (noted above)
proves positive, a large-scale single card
multi-program EBT demonstration in 1994
will be designed to test whether EBT will
work across State lines for Federally-operated programs combined with State-operated programs.

STRENGTHENING INFORMATION RESOURCES
MANAGEMENT
The Paperwork Reduction Act requires agencies to manage their information and information technology in an efficient, effective, and
economical manner. Information resources
management (IRM) is a critical area, both
because of the importance of Government
information and because of the heavy reliance
Federal agencies place on information technology to deliver programs to the public.
The Administration's goal is to maximize
the usefulness of information collected, maintained, and disseminated by the Federal
Government, and to improve the Government's
use of information technology in the execution
of its responsibilities.

THE PROGRAM FOR PRIORITY
SYSTEMS (PPS)
The PPS was established to focus toplevel management attention on important
agency information technology initiatives with
government-wide significance. Agency information technology initiatives are selected for
the PPS based on system size, complexity
or sensitivity, or proposed use of precedentsetting technology or implementation strategy.
PPS initiatives are typically removed from
the Program after the design and development
stage. Lessons learned during the PPS review
process are shared with agencies planning
similar or new initiatives.
The PPS currently includes:

Table 15-5. PROGRAM FOR PRIORITY SYSTEMS
(In millions of dollars)

_
oystem
SSA Strategic Plan
IRS TSM
FAA's AAS
SEC's EDGAR
FDA Drug Approval
FBI IAFIS
IBIS
Government-wide FMS's
FTS 2000
DoD CIM
Total Budget Authority

1991
Actual

1992
Enacted

225
278
585
12
—
—
10
442
20
100

260
427
604
9

1,672

2,274

—

48
10
628
10
278

1993
Proposed

260
612
806
11
3
100
10
659
10
331
2,802

Dollar
Change:
1992 to
1993

+185
+202
+2
+3
+52
—

+31
—

+53
+528

15.

STRENGTHENING MANAGEMENT AND ACCOUNTABILITY

• The Social Security Administration's
(SSA) Strategic Plan. The SSA's Strategic Plan, released in 1991, is designed to
meet the challenges of substantially increasing future workloads. The Agency Information System Plan (ISP) aims to help
SSA better serve the public. In next steps,
SSA will develop tactical plans, review existing and proposed business processes,
and test the effectiveness of the proposed
information technology architectures to determine which will best satisfy SSA's
goals.
• Internal Revenue Service (IRS) Tax
System Modernization (TSM). IRS currently relies on computer systems designed over twenty years ago that are expensive to maintain, increasingly unreliable, and not flexible enough to respond
to taxpayer inquiries. TSM will modernize
these antiquated systems, make tax administration less expensive, and improve
IRS' ability to provide high quality service
to taxpayers. During 1991, the IRS published a Design Master Plan (outlining the
new system's architecture and laying out
plans for transition from the current to
target architecture). TSM is projected to
be largely completed in 1998.
• The Federal Aviation Administration's
(FAA's) Advanced Automation System
(AAS). The FAA is engaged in a comprehensive program for modernizing the
national air traffic control and airway
management system. AAS forms the backbone of the revamped air traffic control
system, providing new controller work stations, tower control facilities, rationalized
operating facilities, and improved communications (including satellite technology for
safer, more efficient aircraft navigation).
The first AAS subcomponents are now
being introduced to area control facilities
throughout the nation. Installation of the
system is projected to be completed in
2003.
• The Securities and Exchange Commission's (SEC's) Electronic Data Gathering, Analysis, and Retrieval (EDGAR)
System. The purpose of EDGAR is to increase the efficiency and fairness of the
securities market for the benefit of inves-

Part One-325

tors, corporations, and the economy.
EDGAR is designed to accelerate the processing, dissemination, and analysis of
time-sensitive information filed with the
SEC (over 9 million pages per year). Filing
this information electronically will make
it accessible in minutes instead of days.
The SEC began the EDGAR program as
a pilot in 1984, awarded the full contract
in 1989, and expects to have the entire
system implemented in 1997.
• The Food and Drug Administration's
(FDA's) Drug Approval Process. FDA is
reviewing its existing paper-intensive drug
approval process for pharmaceutical products. FDA will develop a master plan that
will identify, review, and streamline the
existing drug approval process, and then
identify ways in which information technology can be utilized to accelerate the
process. Under current procedures, the
bound materials germane to an FDA approval of a proposed drug average 20 packing boxes and require an average of 28
months for review. The objectives of an
improved process are to minimize the volume of hard-copy documents submitted,
allow for better tracking, and reduce the
time required for FDA approval to less
than 14 months.
• The Federal Bureau of Investigation's
(FBI's) Integrated Automated Fingerprint Identification System (IAFIS).
The FBI's IAFIS will allow law enforcement officers to process and transmit fingerprint information, criminal histories,
and other data electronically. IAFIS will
serve as a component of the FBI's information sharing program currently offered to
over 63,000 State and local law enforcement authorities. Currently, the FBI receives 30,000 fingerprint submissions per
day (most of which take between 15 and
20 days to process). By 2000, IAFIS will
receive 60,000 submissions per day, and
will process these submissions within 2
hours. This faster response will greatly reduce the possibility of an individual wanted on other criminal charges from being
inadvertently released by local magistrates. The FBI is in the process of preparing the requirements and concept studies for IAFIS.

Part 0ne-326
• Interagency Border Inspection System
(IBIS). Three agencies (the Department of
State, the Customs Service, and the Immigration and Naturalization Service) created IBIS, a shared system, to assist law
enforcement officials at U.S. borders. All
incoming international passengers will
have their names checked twice. In selected airports where IBIS is installed,
IBIS has freed Customs Service inspectors
to move among travelers and expedite the
processing of travellers who warrant no
more than a cursory inspection. IBIS will
also improve border law enforcement
through ensuring cooperation in the development of border information systems.
• Government-wide Financial Management Systems (FMS). Improved financial
management systems are necessary to enable CFOs and OMB to implement the requirements of the CFOs Act. Investments
in financial management systems will establish or improve informational and functional standards and improve the individual agency and central financial systems
necessary to achieve the goals of the CFOs
Act.
• General Services Administration Federal
Telecommunications
System
(FTS) 2000 Program. The FTS 2000 is
a nationwide, interagency telecommunications system that uses digital switching
and transmission to provide voice, data,
and video communications services. The
Federal Government is the largest single
user of telecommunications services in the
world, and Federal agencies depend heavily on these services for program delivery.
Two 10-year contracts (aggregating up to
$15 billion) were awarded in December
1988 to replace the 1960s-vintage FTS
voice communications network. The transition for 1.2 million Federal users from the
former FTS was completed ahead of schedule in June 1990. FTS 2000 contracts are
structured so that Federal telecommunications benefit from constantly upgraded
technology.
• Department of Defense (DoD) Corporate
Information
Management
(CIM). In October 1989, DoD initiated
CIM to increase management efficiencies

THE BUDGET FOR FISCAL YEAR 1993

and eliminate unnecessary redundancy in
automated systems that support DoD business processes. DoD estimates that consolidating information systems and eliminating unnecessary software development
will result in savings exceeding $2 billion
by 1996. DoD also attributes about $35
billion in potential operational and defense
management savings to the application of
CIM processes. Through an examination
of existing automated systems during
1991, the CIM program seeks to establish
uniform system requirements and data
formats across common functional areas.
In 1992 and 1993, the Department will
focus on establishing standards and implementing these standards to improve business processes throughout DoD.
OTHER IRM INITIATIVES
A central challenge of IRM is achievement
of efficient and concurrent management of
both information and the technology used
to collect, process, and disseminate that information. Other initiatives to improve Federal
IRM include:
• Consolidation in 1991 of two IRM reporting documents (one on information
collection and the other on ADP) into one
report titled Information Resources Management Plan of the Federal Government
This consolidation will promote an integrated agency approach to these matters.
• Revision of OMB Circular No. A-130
"Management of Federal Information
ResourcesIn
the past few years, new
technologies have fundamentally changed
the way the Government collects, maintains, and disseminates information. In
1991, OMB published notice of proposed
Circular A-130 revisions and evaluated
comments on potential changes to address
emerging technological and policy issues.
OMB will propose further revisions in
early 1992. These will include revised policies to ensure that (i) information created
at taxpayer expense (including electronic
records) is available to citizens on an
equal and equitable basis; (ii) the Computer Matching and Privacy Protection Act
of 1988, as amended, is implemented; and
(iii) benefit-cost analysis is used to assist

15. STRENGTHENING MANAGEMENT AND ACCOUNTABILITY

agencies in the development of their required five-year plans for information
technology acquisition.
• Improvements to Federal Computer Security. It is important to improve the security of Federal computer systems, given
the degree to which agencies rely on their
systems and the potential for service disruptions due to internal error or external
attack. In 1991, agencies increased their
awareness of computer security; prepared
and implemented security plans for sensitive systems; tested back-up systems;
and identified security of individual systems as material weaknesses under the
Federal Managers Financial Integrity Act
(FMFIA). In addition, NIST released for
comment a new data encryption standard
that will improve security of data transmitted and stored by Federal systems. In
1992 and 1993, agencies will continue to
assess the vulnerabilities of their computer systems and work to mitigate these
vulnerabilities. Agencies will also expand
use of the FMFIA in reporting material
weaknesses relating to agency computer
security.
• Expanding the Use of Electronic Data
Interchange (EDI). EDI is saving the
Government time and money by eliminating paper transfers for routine transactions. For example, the U.S. Treasury
can issue an electronic payment for 4.5
cents, while issuing and mailing a traditional paper check costs 30.2 cents. The
Customs Service's Automated Commercial
System used EDI to improve system productivity by 10 percent annually and reduce error rates from one error in six filings to one error in 64 filings. Ten Federal
agencies are currently engaged in workshops to develop standards and share in-

Part One-327

formation in order to facilitate Federal use
of EDI.
• Participation in the Development of
the Federal High Performance Computing and Communications Program
(HPCC). A description of the HPCC may
be found in Chapter 6.
• Improvement of Federal
Electromagnetic Spectrum Management. Cellular telephones, satellite systems, and
microwave transmission have revolutionized global communications. They have
also substantially increased demand for
electromagnetic spectrum allocations, and
challenged the ability of national and
international spectrum management organizations to allocate the spectrum in an
efficient and effective manner. In the United States, separate portions of the spectrum are managed independently by the
Federal Communications Commission, the
Departments of Commerce and Defense,
and other Federal agencies. In 1992, these
agencies will work together, and with
international organizations, to improve the
Federal information systems which support spectrum management.
• Development of Guidance on Computer
Matching. Computer matching is used by
agencies to detect fraud, waste, and abuse
in Federal benefit programs, and to collect
debts owed the Federal Government. As
required by the Privacy Act as amended,
agencies will begin to utilize cost-benefit
analysis as a decision tool for deciding
whether to implement computer matching.
OMB will issue by March 1992 guidance
on analytic methodologies and program
changes due to passage of the Computer
Matching and Privacy Protection Amendments of 1990.

REFORMING THE PROCUREMENT PROCESS
The Federal Government buys almost $200
billion in goods and services each year—
ranging from tanks to paper clips, and from
building maintenance to advanced research.
The Department of Defense spends 75 percent
of the procurement budget—more than the

combined annual purchases of IBM, General
Motors and Exxon. Procuring agencies take
about 20 million contracting actions each
year, an average of 70,000 actions every
working day. Approximately 250,000 firms—
both large and small businesses—provide com-

Part 0ne-328
modities and services to the Federal Government as prime contractors. The number of
subcontractors is far greater.
While, after substantial effort, nearly twothirds of current procurement dollars are
now awarded competitively, problems with
integrity, faulty products, and uncontrolled
costs still plague the process.
The Administration is engaged in five areas
of reform: enhancing integrity, correcting problems, removing impediments, improving quality, and improving efficiency and effectiveness.
Enhancing Integrity
Procurement
Integrity
and
Ethics
Laws.—Congress has over time enacted a confusing mix of laws in this area. Each incident
of fraud or abuse has given rise to new requirements. Some Government employees are,
as a result, subject to up to five different postemployment statutes, three of which contain
multiple prohibitions. In an effort to simplify
the law, the Administration submitted to Congress in June 1990 a proposed Procurement
Ethics Reform Act; it did so again in February
1991. Although there have been Congressional
hearings, reform legislation has not been enacted. The Administration will continue in
1992 to work toward enactment of a uniform,
clear and enforceable statute.
Lobbying.—There is a similar welter of lobbying laws—many of them conflicting and
many of them unused and unenforced, or unusable and unenforceable. In 1990, Congress
enacted legislation (sponsored by Senator
Byrd) that imposed controls on the expenditure
of funds to influence the award of a contract,
grant or cooperative agreement. The legislation
endeavored to increase the visibility of lobbying activities through reporting requirements.
The Administration developed guidelines to
implement the contracting aspects of the statute in 1990. The guidelines require firms to
submit disclosure statements when Federal
funds are spent for lobbying activities. The
guidelines, however, need refinement because
they continue to permit certain kinds of "program lobbying" to escape the new controls.
These loopholes will be closed in 1992.

THE BUDGET FOR FISCAL YEAR 1993

Correcting Problems
Service Contracting.—This is the fastest
growing area of Government contracting. Current expenditures exceed $87 billion annually.
Tighter controls are needed to prevent cost
overruns, performance delays and quality deficiencies. For example, it took one agency eight
months and $1.9 million before discovering
that a study it had commissioned was not feasible. OMB's Office of Federal Procurement
Policy (OFPP) tightened controls in 1989; these
controls were implemented in final form on
a Government-wide basis in October 1991.
OFPPs April 1991 policy letter also required
that the acquisition of services be based upon
performance standards and best value. In December 1991, OFPP published for comment
two supplementary directives: (i) defining functions that should not be performed by contractors (i.e., "inherently governmental functions"), and (ii) providing guidance for determining whether the Government is getting its
money's worth. Taken together, these four policy initiatives, when fully implemented, should
help improve service contracting.
Acquisition of Environmentally Sound
and Energy Conserving Products.—The Administration has increased emphasis on the
purchase of environmentally safe, energy conserving products and services. President Bush
issued Executive Order 12759 (Federal Energy
Management) in April 1991 and Executive
Order 12780 (Federal Agency Recycling and
the Council on Federal Recycling and Procurement Policy) in October 1991. The Executive
Orders provide for departments and agencies
to work with the General Services Administration to make greater use of energy conserving,
environmentally-sound products and services.
These products and services will be highlighted in Federal supply catalogs; energy-efficient light bulbs will be made available to Federal agencies; and greater use will be made
of recycled paper.
International Markets.—U.S. firms want
assurances that they can compete in emerging
international markets—particularly those in
Central and Eastern Europe. Assistance is
being provided to those countries to help them
develop fair and open procurement systems.
The first in a series of seminars was held in
November 1991 for representatives of Poland.

15.

STRENGTHENING MANAGEMENT AND ACCOUNTABILITY

It will serve as a prototype for subsequent programs for Hungary, Bulgaria and Czechoslovakia in 1992.
Contract Administration Programs.—
General Accounting Office reports indicate
that too little management attention is being
paid to contract administration functions, particularly within the civilian agencies. For example, statements of work are poorly drafted,
contract clauses are ambiguous, actions of program officials exceed their authority under the
contracts, and improper use is being made of
contract modifications. To address these problems, OFPP issued detailed guidance in March
1991 prescribing practices to be employed from
acquisition planning through contract enforcement. The guidance requires contracting officials to plan and implement competitive acquisition strategies and ensure effective oversight
and enforcement, in particular, of contractor
performance.
Cost Accounting Principles for Educational Institutions.—Responding to widely
publicized abuses, the Administration published in October 1991 revisions to OMB Circular A-21 (Cost Principles for Educational Institutions). These clarified cost principles for
reimbursements to colleges and universities
under Federal research grants, and capped administrative costs at 26 percent. Proposed
standards now under development by the Cost
Accounting Standards Board (CASB) will, in
part, require educational institutions to (1) disclose their accounting practices, (2) consistently follow established accounting practices
and allocate costs, and (3) agree to a contract
price adjustment, with interest, for any increased costs due to an accounting change or
failure to comply with applicable standards.
Upon issuance of the final CASB decision in
1992, OMB Circular A-21 will be revised further.
Removing Impediments
Letters of Credit in Lieu of Bonds.—
Small construction firms have found it increasingly difficult under the 1935 Miller Act to
obtain performance or payment bonds from
corporate sureties. To help eliminate this impediment for small business, OFPP issued a
new policy directive, effective in December
1991, allowing firms to use letters of credit

Part One-329

in lieu of surety bonds to satisfy the Act's
bonding requirements. In addition, the Administration is developing a proposed amendment
to the Miller Act that would raise the statutory
threshold for bonding from $25,000 to at least
$100,000. Raising the threshold should increase access, stimulate more competition, and
result in lower prices to the Government.
Access to High Technology.—High technology firms complain that Government procurement practices cause them to segregate
the work they do for Government from their
normal commercial work. This results in higher prices to the Government and fewer spinoff benefits to the economy from Government
procurement. The major impediments to integrating commercial and Government work are
unique Government specifications and standards, cost accounting requirements, and technical data demands imposed by Government.
The Administration is working to reduce these
impediments through requiring fewer detailed
specifications and relying more on competition
and financial incentives (as opposed to requiring cost, technical and other data, inspections
and audits). The Administration is also reviewing current rules and policies to ensure that
the Government is not inhibiting unnecessarily
the transfer of technologies from the Department of Defense to the commercial market.
Improving Quality
Past Performance.—Critics of the Federal
procurement process argue that the Government fails adequately to take into account past
contractor performance in awarding contracts.
Such a result significantly reduces a contractor's incentive to perform well. OFPP proposed policies in December 1991 requiring
agencies to make past performance a significant factor in making contract awards. In a
related effort, NASA is establishing a past performance data base on contractor performance
to be used by the agency's source evaluation
boards.
Nonconforming Products.—The Federal
Government purchases millions of individual
parts and products each year through its 2500
procurement offices. Parts and products which
do not meet contract specifications are called
nonconforming. Until 1991, there was no Government-wide system to communicate informa-

Part 0ne-330
tion about nonconforming parts among Federal
agencies. The Executive Branch established
such a system in June 1991 and all departments and major procurement agencies now
participate in it. The system will help eliminate instances where individual agencies or
their contractors acquire products previously
identified as nonconforming by other agencies
and assist in reducing parts fraud.
Improving Efficiency and Effectiveness
Commercial Products.—Nearly every procurement reform study since 1972 has recommended that the Government rely more on
commercial products, in place of ones designed
specifically for Government use. For the most
part, there is no need for Government-unique
foods, drugs, medical devices, office equipment,
or even computers. Standard commercial products are often better and less expensive than
products produced to Government specifications. In order to provide for routine access
to commercial products—taking advantage of
the short lead-times, economies of scale, and
innovations available commercially—contracting officers need more flexible competitive procedures. While the Administration first proposed legislation in this area in 1990, very
few provisions have been enacted. The Administration will in 1992 continue to work for legislative reform and adopt further administrative measures, where practicable, in an effort
to allow agencies to rely more on commercial
products.
Electronic Commerce.—Most Government
and industry officials continue to criticize the
Government's acquisition process as archaic,
cumbersome and unnecessarily paper intensive. For example, most agency automated acquisition systems generate paper forms and
other hard copy outputs to accommodate traditional manual processes. Many of these paper
outputs are unnecessarily re-keyed into other
government and industry computers. According to some private sector sources, 70 percent
of all computer outputs are inputs to other
computers. Unfortunately, this situation and
the adherence to entrenched manual processes
and practices perpetuates ineffective and inefficient operations throughout the Federal acquisition community. Small businesses are
particularly concerned about these shortcomings.

THE BUDGET FOR FISCAL YEAR 1993

The Defense Department initiated in November 1991 a pilot program at Wright
Patterson Air Force Base in Ohio to demonstrate the use of automated, electronic
issuance of requests for quotations and purchase orders and the making of payments.
OFPP, the Defense Department and the Small
Business Administration are now modeling
a Government-wide program along the lines
of the Wright Patterson pilot. The goal is
to convert most small purchase transactions
to electronic means by the end of 1996.
The system is expected to allow electronic
dissemination of information about all Government open market small purchases—approximately 50,000 daily—to millions of small
businesses. It should also permit small businesses to submit nearly 500,000 quotations
daily by electronic means to Federal contracting officers and to Government prime contractors (with ensuing large cost reductions
over present practices).
Streamlining Procedures.—The Government currently uses streamlined "small purchase" procedures only for purchases of
$25,000 or less. The Administration is working
with the Congress to increase this statutory
threshold to $50,000. When enacted, this
change will capture an additional 30,000 procurement actions each year—reducing procurement lead-times in these cases from 90 days
to less than two weeks and accelerating the
procurement of $1 billion worth of purchases.
In addition, NASA is developing a new simplified procurement procedure aimed at medium sized contracts (i.e., up to $500,000).
Improving the Procurement Workforce.—
A recent Merit Systems Protection Board survey of the acquisition workforce revealed major
dissatisfaction among both Government and
private sector individuals involved in the procurement process. Complaints focused on the
educational background, training and negotiating skills of the workforce, as well as the time
necessary to effect procurements. An OFPP
interagency working group will continue its
work in 1992 to address needed improvements
in the training, educational qualifications and
recruitment of acquisition personnel.
Wage Rates in Construction Contracts.—
The 1931 Davis-Bacon Act requires the Secretary of Labor to determine the minimum

15.

Part One-331

STRENGTHENING MANAGEMENT AND ACCOUNTABILITY

wages to be paid to workers on Federal or
federally assisted construction, alteration or
repair projects. The threshold of coverage has
not been revised since it was originally set
at $2,000. A legislative proposal will be submitted to raise the threshold for contracts subject to the Act's provisions from $2,000 to
$250,000 and to reduce paperwork requirements. Savings of $128 million in budget au-

thority and $68 million in outlays are expected
from the proposed threshold increase. In addition, the Department of Labor will implement
a regulation permitting the use of "helpers"
on federally funded construction projects. Savings of $567 million in budget authority and
$479 million in outlays are included in the
budget from implementation of these regulations.

REFORMING THE CIVIL JUSTICE PROCESS
In the past 30 years, our legal system
has become burdened with excessive costs
and long delays. Overuse and abuse of the
legal system impose tremendous costs upon
American society. This puts America at a
competitive disadvantage internationally, retards growth, and results in higher prices
for American consumers. To address these
probems, the Administration will propose legislation developed through the Council on Competitiveness to reduce costs and delays in
the civil justice system. One of the major
reforms will be to deter meritless litigation

by requiring, for many private civil cases
in Federal court, that the losing party reimburse the winning party for its attorney
fees. The legislation also proposes to authorize
Federal agencies, in certain cases, to enter
into agreements (subject to appropriations)
for the losing party to reimburse the winning
party for its attorney fees. For 1993, the
budget includes an account for each of the
largest affected agencies (the Departments
of Agriculture, Defense and Transportation)
which will receive payment for its own attorney fees when it wins and disburse attorney
fee payments when it loses.

MANAGING HIGH RISK AREAS
The High Risk List focuses attention and
resources on eliminating major risks confronting the Federal Government.
The budget requests over $2 billion for
management investments to reduce the risk
in high risk areas, $117 million more than
enacted in 1992. The requested funding includes:

—$732.9 million to correct computer system
deficiencies at nineteen agencies;
—$440.7 million to correct health and safety
problems at four agencies;
—$255.2 million to correct asset management weaknesses at five agencies;
—$69.1 million to correct credit management
problems at seven agencies; and

Table 15-6. INVESTMENTS TO REDUCE RISKS IN HIGH RISK AREAS
(In millions of dollars)
1992
Enacted

Budget Authority

1993
Proposed

Dollar
Change:
1992 to
1993

1,936

2,053

+117

Part 0ne-332
—$20.7 million to correct contractor oversight deficiencies at five agencies.
The budget defines management investments as the critical, marginal amounts of
funding needed to ensure that the corresponding program funding is spent efficiently and effectively. (Funding identified
in the 1992 budget for correction of high
risk areas generally represented the sum
of these two items.) Management investments
being requested in the 1993 budget range
from computer system upgrades to funding
for SWAT and review teams, training, acquisition of specialized personnel, and organizational restructuring.
Progress is being made as a result of
the High Risk Program. Since establishment
of the High Risk List in the fall of 1989,
a total of 28 areas have been removed
from the List based on agency correction
of problems. During the same period, 19
areas have been added. Agencies and the
Administration remain committed to identifying and addressing critical Federal management problems, rather than ignoring them.
At the start of 1991, the High Risk List
contained 106 areas. During 1991, 17 of
these areas were removed from the List;
seven new areas were added; and, due to
risk redefinition, two areas were included
in a new high risk area, and four areas
were split into nine. Thus, at the beginning
of 1992, the High Risk List contains 99
items.
In assessing agency progress in the 92
high risk areas that have been on the
High Risk List throughout 1991, OMB concluded that:
—In 30 of the areas, agencies have made
significant progress in correcting the deficiencies.
—In 48 of the areas, agencies have active
efforts underway to improve progress in
correcting the deficiencies.
—In 13 of the areas, OMB has reservations
about the adequacy of agency plans and/
or progress.
—In one area, agency progress is dependent
on the results of Governmentwide studies.

THE BUDGET FOR FISCAL YEAR 1993

OMB's commitment is to ensure that reasonable resources are provided in the budget
to assist agencies in taking appropriate and
timely corrective actions in their high risk
areas. Since establishment of the High Risk
List, OMB has also endeavored, through
ongoing oversight activities, to heighten agencies' awareness of, and action on, their high
risk areas. The benefits of these efforts
are reflected in the fact that, at the start
of 1991, OMB had reservations about the
adequacy of agency plans and progress in
23 high risk areas; by the end of 1991,
that number had been reduced to 13.
In 1990 and 1991, the Administration took
the further step of identifying selected high
risk areas where the pace of corrective action
needed to be accelerated. Agency/OMB SWAT
and special review teams were established
to ensure that result. (See section on Building
Management Capacity.)
1992 PRIORITIES
In 1992, the Administration plans intensive
efforts in 14 areas.
Continuing Efforts
In the following eight areas, SWAT and
review teams initiated in 1991 will continue
their work in 1992. Progress has been made
in these areas, but additional effort is needed
to ensure that corrective actions are firmly
institutionalized.
• Department of Agriculture's Farmers
Home Administration Loan Program
(FmHA): management controls over loan
making and servicing.
• Department of Defense: controls over Contracted Advisory and Assistance Services
(CAAS).
• Department of Defense: financial accountability over real and personal property.
• Department of Education: management of
the Guaranteed Student Loan Program.
• Department of Housing and Urban Development: financial systems.
• Department of the Interior: Indian Trust
Funds.
• Department of Justice: debt collection.

15.

STRENGTHENING MANAGEMENT AND ACCOUNTABILITY

• Department of the Treasury, Internal Revenue Service: accounts receivable collection.
New Initiatives
In 1992, OMB will undertake intensive
efforts in the following six areas:
• Department of Health and Human
Services (HHS): Third Party Liability.—Each year Federal and State taxpayers pay $1-3 billion for health care
that should be paid by employer health,
Workers' Compensation, no fault, property
and casualty and other insurance coverage. This occurs because there is no systematic method of collecting and using insurance data. In 1992, OMB will work
closely with HHS and other affected agencies to develop (i) a Federal third party
liability policy and (ii) mechanisms to ensure systematic identification of employerbased and other health coverage.
• Department of Housing and Urban Development: Multifamily Property Management and Disposition.—HUD's inventory of multifamily properties and assigned mortgages has increased significantly in recent years. From 1989 to 1991,
the number of HUD-owned multifamily
units grew by 200 percent, while the number of multifamily assigned mortgage
units increased by 156 percent. Almost
half of the inventory results from the high
default rate in the Multifamily Coinsurance programs. In 1992, OMB and HUD
will work together to secure enactment of
proposed legislative reforms to manage
more effectively, and reduce the size of,
HUD's property inventory.
• Department of Interior Office of Territorial and International Affairs: Financial Management.—In 1992, OMB
will work with the Office of Territorial and
International Affairs (OTIA) to address
concerns about the effectiveness of finan-

Part One-333

cial management, grant administration,
and technical assistance provided by OTIA
to the territories, as well as financial management practices in the territories themselves, and recommend improvements.
• Agency for International Development
(AID): Project administration, policies
and procedures.—Serious deficiencies in
management control systems have been alleged by the AID Inspector General and
the General Accounting Office. To address
these deficiencies, AID and OMB will work
together to develop improved accountability of personnel engaged in contract, grant
and project management, improved procurement and contract/grant administrative processes, and improved audit and
evaluation efforts.
• National Labor Relations Board
(NLRB): Accounting System and Inventory.—Conversion to a new accounting
system in 1990 failed due to poor testing
procedures and inappropriate controls over
data conversion. A new system was implemented in August 1991. However, the
quality of the new system needs to be
independently reviewed. In 1992, OMB
and NLRB's Inspector General will jointly
review the operation of the system to determine whether it is operating properly,
produces reliable data, and contains internal controls which are adequately administered.
• Pension Benefit Guaranty Corporation
(PBGC): Financial Systems.—PBGCs financial systems are in disarray and its
financial statements cannot be audited.
OMB will review the current condition of
all major PBGC systems to determine ongoing problems. The intended result of the
study is to ensure appropriate technical
resources are directed toward defining systems requirements and formulating systems solutions.

Part 0ne-334

THE BUDGET FOR FISCAL YEAR 1993

PROGRESS REPORT
CORRECTION OF HIGH RISK AREAS
There follows a progress report on agency
efforts to correct high risk areas. OMB's
assessment of agency progress is presented
in column 3, "Status." The status codes
are: (1) Significant progress; (2) Active efforts
underway to improve progress; (3) Reservations about adequacy of progress and/or
plans; (A) Added to High Risk List; and
(D) Deleted from High Risk List.

Management investments to correct high
risk areas, which are displayed in columns
4 and 5, are the critical, marginal amounts
of funding needed to ensure that the corresponding program funding is spent efficiently and effectively.

DEPARTMENT OF AGRICULTURE

High Risk Area

Progress to Date

Investment to
Correct High Risk
(In thousands of
Status
dollars)
1992
1993
Estimate Proposed

Farmers Home (FmHA) Loan
Programs: High total
delinquencies ($12.3B) and
high delinquency rates
(21.8%) in 1991.

Comprehensive training program for loan officers begun in
1991; Phase 1 of three-phase Information Systems Plan
(ISP) completed July 1991; State plans being developed
to improve underwriting and appraising functions.
Centralized servicing function is under consideration.

There are $56B in outstanding
FmHA loans. At risk: up to
$14B in delinquent loans.

Next steps: credit training for 800 loan officers to be held in
1992; Phase 2 of ISP to be completed in January 1992,
Phase 3 to begin in 1992; State plans to be reviewed and
implemented.

Food and Nutrition Service
(FNS): Food Stamp coupon
and bank deposit data not
reconcilable.

FNS redesigned the coupon redemption system to enable (i)
reconciliation of "coupons redeemed" with bank
statements and (ii) tracing payments for redeemed
coupons to vendors. During 1991, an evaluation of the
redesigned system validated that FNS actions had
corrected the weakness. DELETED FROM HIGH RISK
LIST.

FNS: Food Stamp Coupon
illegal trafficking for cash,
drugs and weapons.

Joint OMB-USDA review team in 1991 made
recommendations for corrective actions. Improvements in
1991 include enhancement of investigative techniques to
uncover trafficking, and activation of additional EBT
projects.

Budget includes $23B for Food
Stamp Program. At risk: est.
$100M in benefits diverted
annually.
Federal Crop Insurance:
Overpayment of claims.
Federal Crop Insurance has a
$1B annual operating level.
At risk: $100M in losses paid
to reinsurance companies.

11,385

8,764

6,250

5,750

883

Next steps: pilot new investigative approaches; initiate
update of all authorized retailer information; and
authorize implementation of States' EBT projects.
In 1991, FCIC established field compliance offices to
perform systematic, operational reviews of companies
reinsured by FCIC; and expanded computer edits in the
data acceptance and reinsurance accounting systems.
Next steps: improve computer edits and rigorously monitor
reinsured companies' performance to ensure adherence to
the terms of the Standard Reinsurance Agreement; open
one additional compliance office; and add 19 FTE
compliance positions.

Part One-335

15. STRENGTHENING MANAGEMENT AND ACCOUNTABILITY

DEPARTMENT OF COMMERCE

High Risk Area

Progress to Date

Investment to
Correct High Risk
(In thousands of
dollars)
Status
1992
1993
Estimate Proposed

Departmental computer site
security weak.
Budget requests $1.2B for
ADP. At risk: assurance that
this investment and DOC
data are protected from loss.
Departmental financial
systems inadequate.
Department lacks a core
financial system.
DOC financial systems process
$2.9B. At risk: assurance
that these funds are being
accounted for in an accurate
and timely fashion.
National Weather Service
(NWS): Major systems
acquisition problems.
Budget requests $130M for
procurement of NWS
systems. At risk: $50-60M in
potential cost overruns if
procurement schedule slips.

The Department's ADP and telecommunications security
program now complies with OMB Circular A-130 and the
Computer Security Act of 1987.

Financial management systems strategic plan completed.
Improvement project has been defined, an internal team
assembled and an initial support contract awarded.

5,200

1,200

Next steps: during 1992 DOC's contractor will submit final
report on risk reduction plan, functional requirements
and cost-benefit analysis. DOC will select best
implementation alternative and issue RFP for technical
support contract. 1993 funding provides for systems
development and implementation planning.
Systems, procurement and management problems continue
to impair the ability of the Department and NOAA to
acquire major systems, particularly for the Weather
Service's modernization. A Systems Program Office has
been created to strengthen program management by
assigning responsibility for the design, procurement and
acceptance of new systems to a single NOAA
management office.
Next step: achieve full operational capacity in newly
created Systems Program Office.
IG review in 1991 showed positive management action to
reduce debt portfolio and achieve better control over the
network of minority business development centers.
DELETED FROM HIGH RISK LIST.

Patent and Trademark Office
(PTO): Problems in
automating systems.

The development, implementation and full deployment of
electronic searching of trademark text and images have
effectively eliminated gross file integrity problems for
trademark examiners. DELETED FROM HIGH RISK
LIST.

Geostationary Operational
Environmental Satellite
(GOES) Technical
Development Problems.

Single remaining satellite (currently in geosynchronous
orbit) will exceed its 5-year design life in February 1992.
Replacement satellite has run into cost overruns,
schedule slippage and potential reduced satellite
capability that jeopardize fourth quarter 1992 launch
date. Emergency task force is examining alternatives and
the cost implications. ADDED TO HIGH RISK LIST.

1,500

Next steps: meet requirements of OMB Bulletin 90-08 for
Sensitive System Security plans and develop
methodology for plan preparation and automated
milestone tracking system.

Minority Business Development
Agency (MBDA): Inadequate
grants management.

The budget requests $129M for
GOES. At risk: the loss of
weather estimating
capability.

1,200

Part 0ne-336

THE BUDGET FOR FISCAL YEAR 1993

DEPARTMENT OF DEFENSE

High Risk Area

Progress to Date

Investnlent to
Correct B[igh Risk
(In thou*jands of
Status
doll;irs)
1992
1993
Estimate Proposed

Departmental and Service
supply operations
inadequate, weakening
effective management of
inventories.
DOD supply transactions
involve $10IB annually. At
risk: $100M in potential loss
or theft.
Departmental and Service
information technology
development and ADP
security deficient.
Budget requests $9B for
general purpose ADP. At
risk: assurance that these
funds are being spent
effectively.

Defense Management Report (DMR) actions have produced
major improvements: supply depots consolidated;
inventory points centralized from Services to Defense
Logistics Agency (DLA); inactive inventories reduced $5
billion; policy and procedure revisions completed to
address private contractor access weakness.

64,200

39,100

544,000

594,400

N/A

Next steps: inventory reduction plan will identify assets
and redundant inventory to be reduced.
Under the Corporate Information Management (CIM)
initiative, DOD is improving information technology (IT)
life cycle management policies and procedures (including
IT acquisitions and inventory control); eliminating
unnecessary redundancy in automated management
information systems; developing standardized data
dictionaries; and improving the processes that foster
management information systems.
Next steps: over 100 information resources management
reviews are planned for 1992; 1993 funding includes
additional costs associated with the consolidation of ADP
operations and design centers and the implementation of
electronic data interchange.

Foreign Military Sales (FMS)
Program: $613 million in
unreconciled balances.

Balances totaling $513 million have been reconciled. No
new unreconciled balances following major revisions in
accounting procedures. DELETED FROM HIGH RISK
LIST.

Departmental and Service
contract administration
controls over DOD property
in private contractor
possession inadequate.

Progress made to date includes improved oversight by
Contract Administration Offices; better documentation
for contract awards; improved monitoring of
subcontractors by prime contractors; and better controls
over entry of material into DOD inventory. DLA and
Service component implementation plans are on
schedule. DMR initiative will streamline and provide
improved ADP systems for management purposes.

$160B in property and
facilities in possession of
DOD contractors. At risk:
$80M in potential loss or
theft.

Next steps: CIM plans in 1992 to develop functional
requirements needed to gain auditable control of
Government material held by contractors.

15. STRENGTHENING MANAGEMENT AND ACCOUNTABILITY

Part One-337

DEPARTMENT OF DEFENSE—Continued

High Risk Area

Progress to Date

Investment to
Correct High Risk
(In thousands of
dollars)
Status
1992
1993
Estimate Proposed

Departmental and Service
controls over contracted
advisory and assistance
services (CAAS) inadequate
or non-existent.
CAAS contracts estimated at
$1.5B annually. At risk:
$15M in potential fraud or
waste.

Policy changes made to improve control over CAAS
expenditures. In 1991-1992, joint OMB-DOD review
team undertook efforts to improve controls over contracts
for advisory and assistance services. OMB's Office of
Federal Procurement Policy has developed new policy
guidelines and issued a proposed Policy Letter, entitled
"Management Oversight of Service Contracts," in the
Federal Register in December 1991 for comment. This
policy letter focuses on specific types of service
contracting problems and provides guidance on what
constitutes good management practice in the use of such
contracts.

N/A

Next steps: public comments on proposed policy letter are
due in February 1992; after issuance of final policy letter,
DOD will issue internal directive that incorporates
results of joint DOD-OMB review team efforts.
Departmental and Service
financial accountability for
real and personal property is
inadequate.
DOD inventory estimated at
$706B. At risk: $800M in
potential loss or stolen
property.

311-000 0 - 9 2 - 1 5

(PT.l)

Real and personal property systems are not integrated with
financial accounting systems, resulting in a lack of
financial control over line item transactions. DOD
conducted a survey of the military services to identify the
accounting systems used to track real and personal
property, and to determine each Service's method of
valuing reported property. Survey was completed in
November 1991.
Next steps:financialaccountability for property will be
brought to minimally acceptable standards by February
1992; from the survey results, DOD will determine
candidates for an interim DOD-wide system and select
the interim system by December 1992. For the longerterm, DOD will implement systems developed by the
CIM process to provide General Ledger control over
property by 1996. Joint OMB-DOD review team to
monitor DOD progress.

20,000

28,000

Part 0ne-338

THE BUDGET FOR FISCAL YEAR 1993

DEPARTMENT OF EDUCATION

High Risk Area

Progress to Date

Investnlent to
Correct H
[igh Risk
(In thoussands of
doll*irs)
Status
1992
1993
Estimate Proposed

Student Financial Aid (SFA)
Program Management:
Guaranteed Student Loan
(GSL) and other SFA
program abuses and fraud.
Budget includes $13.7B for
student aid programs. At
risk: up to $3.4B in loan
defaults in 1992.

Education-OMB SWAT team completed review. Higher
Education Act (HEA) reauthorization proposal
transmitted; school certification process improved; closed
school task force established; improved communications
and coordination with accrediting and State licensing
agencies; schools with default rates of 35% or higher
notified that they will lose their eligibility to participate.

6,800

38,800

7,100

8,100

3,300

3,600

Next steps: ED will reorganize the Office of Postsecondary
Education; improve monitoring of guaranty agencies and
lenders; implement new legislative authority to garnish
wages; issue final regulations implementing 1986 HEA
Amendments; improve information systems; and seek
legislation to reduce defaults and increase risk-sharing.

Departmental inability to
generate reliable accounting
data.

Progress in 1991 included some improvement in data
entering the Primary Accounting System, and correction
of prior year errors.

Budget requests $100M for
financial management
personnel and systems
support. At risk: assurance
that accurate and useful
accounting information will
be available.

Next steps: work will continue on cleaning up the data
base; reconciliation of the Payment Management System
to the Primary Accounting System is scheduled for
completion in 1993.

Departmental contract and
grant closeout processes are
vulnerable to unauthorized
drawdowns.

Backlog of grant and contract closeouts eliminated. ED now
processing closeouts as contracts and grants expire. New
closeout component developed for automated grants
system which supports manual effort. To maintain
progress, ED is creating a five person unit to specialize
in contract and grant closeouts. DELETED FROM HIGH
RISK LIST.

Departmental audit follow-up
improvements needed;
internal control process not
identifying material
weaknesses.

Audit Follow-up: Since November 1990, ED reviewed and
closed 67 internal audits, management improvement
reports, and GAO reports (after determining that
corrective action had been taken to address the
recommendations). Internal Control: Committee chaired
by the Deputy Secretary is involved in all phases of the
FMFIA process; comprehensive FMFIA training of senior
and mid-level managers completed in June 1991.

The Department receives audit
reports with monetary
findings of $500M annually.
At risk: up to 20% if audit
follow-up is not done
aggressively.

Next steps: for audit follow-up, ED will take steps to verify
that corrective actions are taken to address audit
findings; for internal control, ED will develop a
Management Control Handbook.

Part One-339

15. STRENGTHENING MANAGEMENT AND ACCOUNTABILITY

DEPARTMENT OF EDUCATION—Continued

High Risk Area

Progress to Date

Investment to
Correct High Risk
(In thousands of
dollars)
Status
1992
1993
Estimate Proposed

Departmental program
compliance monitoring and
accountability inadequate.
Budget requests over $3IB for
ED programs. At risk:
assurance that these funds
are being spent effectively.
Departmental security of
computer systems
inadequately reviewed.
Budget requests $89M for ADP
systems. At risk: integrity
and confidentiality of some
data maintained in ED
computer systems.

Cross-Cutting Monitoring Team (CCMT) established in
October 1991. Each Principal Office is preparing a
Monitoring Improvement Plan which will be reviewed by
the CCMT.

10,500

14,200

300

400

Next steps: monitoring standards will be developed and
issued by the CCMT by March 1992; additional funds are
provided in the budget for on-site monitoring and staff
resources.
Security review of the Pell Grant disbursement system
completed in 1991. Task orders or interagency
agreements have been initiated for additional security
reviews.
Next steps: three more security reviews will be completed
by March 1992; background investigation requirements
will be established for ADP-sensitive positions; and ADP
security policies and guidance will be reviewed and
updated in 1992.

DEPARTMENT OF ENERGY

High Risk Area

Progress to Date

Investment to
Correct High Risk
(In thousands of
dollars)
Status
1992
1993
Estimate Proposed

Reduction in defense nuclear
production capabilities;
weapons complex
reconfiguration needed.
Budget requests $6.5B for this
program. At risk: national
defense capabilities.

Environmental compliance
problems.
The budget requests $5.5B for
clean-up. At risk: continued
progress on environmental
clean-up, concerns for health
and safety.

Established a Weapons Complex Reconfiguration office and
released Nuclear Weapons Complex Reconfiguration
study. Restarted Savannah River Plant "K" reactor for
testing December 1991. Completed operational readiness
review at Rocky Flats.

223,400

286,000

24,700

28,800

Next steps: accelerate Environmental Impact Statement for
the reconfiguration of the nuclear weapons complex;
complete DOE-wide study of excess nuclear materials;
complete environmental assessment of consolidation of
non-nuclear weapons facilities; and authorize resumption
of operations at Rocky Flats.
Completed 26 independent tiger team reviews. Modified
criteria for determining DOE contract fees to emphasize
compliance with environmental regulation. Technical
safety appraisals and tiger team reports now being
considered in award fee determinations and contractor
performance evaluations. Interagency environmental
clean-up task force analyzed nationwide program budget
commitments for 1993. Implemented a central system for
tracking corrective actions.
Next steps: complete tiger team reviews; implement a riskbased priority system to support funding decisions;
reduce the risk of accidental radioactive release from
Hanford facility; continue agencywide environmental
training; and continue implementing the Environmental
Restoration and Waste Management Five-Year Plan.

Part 0ne-340

THE BUDGET FOR FISCAL YEAR 1993

DEPARTMENT OF ENERGY—Continued

High Risk Area

Progress to Date

Investnlent to
Correct H
[igh Risk
(In thou*sands of
dolhirs)
Status
1992
1993
Estimate Proposed

Nuclear plant health and
safety problems.

13,100

15,500

17,600

18,300

Issued comprehensive policies for strengthening
Departmental oversight of
administrative control over reimbursable work. Initiated
commercial functions and
departmentwide review of reimbursable work and
reimbursable program
financial controls inadequate. established a reimbursable work steering committee to
address findings of internal and external control reviews.
Budget provides $3.2B in
Next steps: joint DOE-OMB definition of additional work to
apportionment authority for
be done in oversight of commercial functions, including
this function. At risk:
Power Marketing Administrations.
assurance that funds owed
are collected.

211

191

Modified management and operating contract provisions to
require that contractors bear increased accountability for
avoidable costs and increased risk for unacceptable
performance. Contracts provide greater incentive for
improved performance.

3,500

Budget requests $1.495B to
address this high risk area
(including nuclear and nonnuclear health and safety).
At risk: the health and
safety of DOE workers and
the public.

Nuclear waste storage disposal
inadequate.
Budget requests $577.6M for
this area. At risk: the health
and safety of DOE workers
and the public.

Conducted tiger team reviews of all nuclear production
facilities. Modified criteria for determining contractor
fees to increase emphasis on safety and health. Office of
Nuclear Safety established on-site residence program to
evaluate nuclear safety performance and contractor
management. Published revised nuclear safety rules and
enforcement procedures.
Next steps: develop a comprehensive strategic plan to
address departmentwide nuclear safety problems;
implement a tracking system for corrective actions;
improve accounting controls by establishing a budget
coding system for nuclear safety activities across all
program areas; compile comprehensive epidemiological
data to define better the magnitude of health and safety
problems, estimate costs of corrective action, and
establish a new baseline for nuclear safety; and
implement long-term corrective action plans resulting
from tiger team reviews, technical safety appraisals, and
external oversight recommendations.
Preliminary requirements for Waste Isolation Pilot Plant
(WIPP) completed and facility transitioned to preoperational phase. Two of three State of Nevada permits
to gain sustained access to Yucca Mountain have been
obtained. Limited site testing begun. Six counties and
Indian tribes have applied for funds to study feasibility of
siting the Monitored Retrieval Storage (MRS).
Next steps: resolve remaining permits with State of
Nevada; test WIPP to demonstrate compliance with
disposal requirements for radioactive transuranic waste;
and identify a volunteer candidate site for MRS. Contract
management aspects of the nuclear waste storage
disposal issue are included in a separate high risk area.

Departmental contraci/project
management inadequate.
The budget requests $13.7B for
DOE contracting. At risk:
assurance that contract
funds are being spent
efficiently and effectively.

Next steps: better define cost allowability and performance
measurement criteria; improve project management
control to instill Fiscal accountability for implementing
programs and projects on time and within budget. This
high risk area had been a part of the nuclear waste
storage issue; due to increased emphasis in the DOE
1991 FMFIA report, it is now presented as a separate
area.

Part One-341

15. STRENGTHENING MANAGEMENT AND ACCOUNTABILITY

DEPARTMENT OF HEALTH AND HUMAN SERVICES

High Risk Area

Progress to Date

Investment to
Correct High Risk
(In thousands of
dollars)
Status
1992
1993
Estimate Proposed

Food and Drug Administration
(FDA): Application review
process for generic drug
approval faulty.

All major planned corrective actions have been completed.
FDA created the Office of Generic Drugs; increased
quality control checks; created a training branch;
improved physical security; increased staff; issued 29
policies and procedures designed to standardize generic
drug evaluations and processing; conducted special audits
at generic drug companies; began to perform regular,
good manufacturing practices reviews; and inspected
bioequivalence testing laboratories. DELETED FROM
HIGH RISK LIST.

HCFA: Medicare program data
systems inadequate to track
Medicare costs and usage.

HCFA has implemented the Common Working File (CWF),
which contains all beneficiary entitlement, utilization,
and claims history data. OMB and HHS worked together
to identify monthly financial and management data
needs; and HCFA proposed a report to meet those needs.
HHS is working with the Treasury Department to
automate the letter of credit process used to pay
Medicare claims; this process could then be a source of
more detailed and current outlay data on the Medicare
program. CWF investment largely completed in 1992.

1,084

2,800

1993 projected cost of Medicare
program is $ 14013. At risk:
ability to estimate Medicare
costs accurately; misestimate may be as high as
15% of outlays.

Next steps: HCFA and OMB to determine thefinalformat
for the financial and management report. HCFA then to
report monthly.
HCFA: Medicaid management
system inadequate to predict
Medicaid costs.
1993 projected cost of Medicaid
program is $85B. At risk:
ability to estimate Medicaid
costs accurately; misestimate may be as high as
10%.

A joint OMB-HHS SWAT Team analyzed the State and
Federal Medicaid estimating systems and recommended:
State-level information be collected, maintained, and
disseminated by the Medicaid Bureau; a Medicaid budget
forecasting system be developed that provides State-level
estimates for key States; reporting requirements for the
Medicaid Bureau be instituted; revision of key State
Medicaid reporting forms be revised; and ongoing and
systematic feedback on the accuracy of State projections
be undertaken.
Next steps: HCFA to implement the SWAT Team's
recommendations. This high risk area was formerly a
part of the Medicare program data high risk area, but
was split to identify separately similar problems, but
different solutions relating to the Medicare and Medicaid
programs.

HCFA: Medicare contractors
have not provided adequate
safeguards to prevent
inappropriate payments.

Payment safeguards (i.e., medical and utilization reviews,
audits and Medicare Secondary Payer activities) are
administered by Medicare intermediaries and carriers
under HCFA guidelines and oversight. Adequate funding
for payment safeguards ensures that the Medicare
contractors can hire, train, and retain well-qualified staff.
The budget proposes increased payment safeguard
funding. DELETED FROM HIGH RISK LIST.

Part 0ne-342

THE BUDGET FOR FISCAL YEAR 1993

DEPARTMENT OF HEALTH AND HUMAN SERVICES—Continued

High Risk Area

Progress to Date

Investment to
Correct High Risk
(In thousands of
Status
dollars)
1992
1993
Estimate Proposed

HCFA: Medicare making
payments which should be
made by others.
1993 projected cost of Medicare
program is $140B. At risk:
$600M-1B, reflecting costs
paid by Medicare that should
have been paid by another
insurer.

Indian Health Service:
Insufficient financial controls
and attention to
management.
Budget requests $1.9B for IHS.
At particular risk: $380M in
funding for contract health
services.

HCFA has completed a data match with IRS and SSA and
issued necessary recovery notices for claims with
statutory notification limits. HCFA has also obtained
information from employers to verify spousal employee
health insurance coverage. A revised common claim form
that identifies other insurance was implemented in July.
The information will be required in January 1992.
Claims will be denied for absence of information
beginning in April 1992.

70,000

82,000

6,405

9,011

Next steps: HCFA will annotate the Common Working File
to identify spousal insurance coverage, and the common
claim form will be further revised to add specific spousal
information. OMB and HHS will undertake an intensive
effort in 1992 to identify additional methods for ensuring
appropriate payments by other insurers.
Quality assurance activities have been coordinated into a
comprehensive oversight system. Work is underway to
expand and improve IHS' cost center concept. IHS
outlined a management improvement strategy for
contract health services. 98% of the scholarship default
backlog has been computerized, and appropriate cases
have been referred for collection. IHS has begun to
implement a Model Business Office plan for billing and
managing third party collections. IHS achieved 100%
accreditation of its health care facilities by the Joint
Commission on the Accreditation of Health Care
Organizations.
Next steps: establish a business office in each IHS health
care facility; develop IHS-wide performance indicators
and standards; and produce financial statements for
audit in 1992.

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

High Risk Area

Progress to Date

Investment to
Correct High Risk
(In thousands of
Status
dollars)
1992
1993
Estimate Proposed

Section 8: Program fails to
verify tenant information in
Section 8 subsidy programs.
Budget requests over $12B for
the Section 8 program. At
risk: $100M-$1B in
ineligible subsidies per year.

HUD is developing a newfinancialmanagement system to
control tenant certification and payment processing, as
well as program budgeting and funds control. HUD-OMB
SWAT Team recommended new financial management
system, CFS/TRACS. Next step: completefirstphase of
CFS/TRACS by March 1993.

4,448

4,250

Part One-343

15. STRENGTHENING MANAGEMENT AND ACCOUNTABILITY

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT—Continued

High Risk Area

Progress to Date

Investnnent to
Correct E
ligh Risk
(In thouisands of
dollsars)
Status
1992
1993
Estimate Proposed

Department: Financial
management systems suffer
from inefficiencies,
incompatibilities, and
internal control problems.

In November 1991, HUD adopted a financial management
systems integration plan that recommended replacing 77
existing financial systems with 9 integrated financial
systems. None of HUD's 77 financial systems is in
conformance with OMB Circular A-127.

HUD financial systems process
$24B annually. At risk:
whether these funds are
being accounted for in an
accurate and timely fashion.

Next steps: joint HUD-OMB effort will define an
implementation strategy for financial systems
integration. HUD will complete requirements and design
of subsidies system (already in process); and finalize core
accounting functional requirements, software evaluation,
and acquisition.

Federal Housing
Administration (FHA):
Multifamily Coinsurance
program experiencing high
defaults.

6,656

21,049

Program terminated. Department established Coinsurance
Management Division and developed plan to minimize
continuing losses of outstanding coinsurance. This high
risk area is being merged with the new high risk area
described below, "Multifamily Property Disposition."
MERGED WITH NEW HIGH RISK AREA.

$8B in insurance outstanding.
At risk: $3B reserve fund.
FHA: Mutual Mortgage
Insurance (MMI) fund lacks
proper controls and has
backlog of distributive shares
and premium refunds.
The suspension of distributive
shares will save the MMI
fund approximately $1.1B in
present value terms
FHA: Single Family Property
Disposition controls and
oversight of area
management brokers (AMBs)
are inadequate.
1991 property disposition sales
proceeds were $2.8B. At risk:
$5-10M estimated losses
incurred in 1990 prior to
implementation of SAMS.

National Affordable Housing Act of 1990 suspended the
establishment of new distributive share claims until the
Mutual Mortgage Insurance Fund is actuarially sound.
In 1991, HUD implemented a new disbursement system
which contains automated audit trails and addresses
internal control concerns. DELETED FROM HIGH RISK
LIST.

Department installed new property management and
accounting systems (SAMS) during 1991; implemented
standard contract and bonding requirements for area
management brokers (AMBs), reorganized and
centralized the contracting process; and increased
training and monitoring requirements for field staff.

Next step: conduct verification review and increase field
resources to monitor activities of AMBs.

FHA: Retirement Service
Center program experienced
excessive default claims.
(Insurance in force is $500
million.)

Department terminated program in 1991. Verification
review will be conducted in 1992 to determine if
sufficient loss reserve has been established to cover
anticipated losses. This high risk area is being merged
with the new high risk area described below,
"Multifamily Property Disposition." MERGED WITH
NEW HIGH RISK AREA.

Section 8: Moderate
Rehabilitation program
overpays developers, lenders,
and Public Housing
Authorities.

Department has terminated program and is collecting
overpayments. Due to inadequate controls and oversight,
Public Housing Authorities (PHAs), developers, and
lenders obtained excessive subsidy payments.

Program terminated. At risk:
$413M in overpayments.

Next steps: during 1992, HUD will conduct verification
review of collection process.

Part 0ne-344

THE BUDGET FOR FISCAL YEAR 1993

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT—Continued

High Risk Area

Progress to Date

Investment to
Correct High Risk
(In thousands of
dollars)
Status
1992
1993
Estimate Proposed

FHA: Single Family Mutual
Mortgage Insurance (MMI)
fund equity may not be
sufficient to cover losses
resulting from adverse
economic conditions.
$300B in insurance in force. At
risk: Required capital ratio
of 1.25% (estimate of
$3.75B).
FHA: Title I Manufactured
Housing and Home
Improvement loans have
excessive claims.
Manufactured home loan
guarantees outstanding $3B
and Improvement loan
guarantees outstanding $2B.
At risk: estimated 1.5% of
outstanding guaranteed
loans.
Public and Indian Housing
(PIH): Public Housing
Modernization project grants
inadequately administered
by Public Housing
Authorities.
$2B in grant funding each
year. At risk: $5B backlog of
unspent grant funding.
FHA: Multifamily Property
Disposition program
experiencing mushrooming
growth in acquired and
assigned properties.
$7.5B in inventory as of 1991.
At risk: $3.75B reserve for
losses.

National Affordable Housing Act implemented risk-related
premium structure and reduced financing of closing costs.
FHA's independent auditors are completing annual
actuarial study of MMI fund (updated for current
economic conditions and actual claim experience).

100

350

Next steps: analyze and assess actuarial study for
application to program and monitor new business to
determine if capital reserve ratio of 1.25% can be met by
October 1992.
In 1990 FHA published afinalrule that made major
changes to the program (including increasing the
insurance premium and accelerating the collection of
premiums). In 1991, FHA published final regulations
establishing higher qualification standards for dealers
and lenders; requiring greater lender oversight of
dealers; strengthening the loan collateral position;
increasing down payments; requiring site inspections;
and encouraging more efficient foreclosures procedures.

Next steps: review options for enhanced monitoring and
enforcement procedures. Commence verification review of
regulation implementation.
Modernization program has been replaced by
Comprehensive Improvement Assistance Program
(CIAP). CIAP handbook was revised and training was
completed.

Next steps: Department is revising monitoring procedures.
During 1992 and 1993, HUD will install PHMAP, a new
management information system, to improve monitoring
ofPHAs.
Since 1987, the number of units in the multifamily
property inventory has more than doubled, from 160,000
to 327,000 in 1991. HUD has proposed initiatives to
reduce the property inventory growth. HUD and OMB
will evaluate proposed initiatives during 1992. ADDED
TO HIGH RISK LIST BY OMB.

Part One-345

15. STRENGTHENING MANAGEMENT AND ACCOUNTABILITY

DEPARTMENT OF THE INTERIOR

High Risk Area

Progress to Date

Investnaent to
Correct E
[igh Risk
(In thou;3ands of
dollsars)
Status
1992
1993
Estimate Proposed

Bureau of Land Management
(BLM): Inadequate gas and
oil inspection to verify onshore production and usage.

BLM reassessed its nationwide inspection and enforcement
(I&E) strategy and implemented changes in inspection
procedures, annual inspection objectives, and staffing^
resources to assure production accountability.

$500M in revenues is received
annually. At risk: $50-75M
in losses due to improper
production verification.

Next steps: evaluate inspection results quarterly; conduct
more detailed production inspections with emphasis on
measurement and accountability and Indian leases; and
increase I&E staff.

Office of Territorial and
International Affairs: Lack of
financial management
controls and grant oversight,
weak technical assistance,
program for insular areas.

Interior-OMB SWAT team began exploratory work on
necessary improvements in financial and grant
administration; OTIA recruited staff for financial
management oversight positions at Headquarters and a
field office.

OTIA budget request $300M.
At risk: $30M due to
improper use of grant funds.
Bureau of Indian Affairs (BIA):
Seriously deficient financial
systems and controls, $95M
bookkeeping error in
November 1990.
Budget requests $1.9B for BIA.
At risk: $100-150M in
bookkeeping errors.

3,500

1,800

1,500

1,000

6,500

9,800

36,800

24,200

Next steps: during 1992, SWAT team to review financial
management, grant administration and technical
assistance provided by OTIA and other Federal agencies,
as well as financial management practices in the
territories, and recommend improvements.
During 1991, an Interior-OMB SWAT team implemented
the Financial Management Improvement Project which
resulted in BIA's successful conversion to the
Department's accounting system; the conversion of prior
year data to the new system; and the reconciliation of
1991 year-end reports.
Next steps: on-going software enhancements; finalize
transaction audit; and implement improvements in the
Irrigation and Power Revenue System and the Loan
Accounting System. Reconciliation of prior year cash
transactions to be completed by year-end 1992.
Note: BIA high risks, previously shown as a single area,
have now been defined as three separate high risks
(financial systems, trust funds, and school/dam safety).

BIA: Inability to account for
and reconcile Indian Trust
Funds.
$2B in Indian Trust Funds. At
risk: $25-30M in potential
losses due to
mismanagement.

BIA: Longstanding deficiencies
in the management of BIA
School Facilities and BIA
Dam Safety.
Budget requests $126M for
these programs. At risk: the
health and safety of the
affected Indian communities.

During 1991, an Interior-OMB SWAT team initiated a
review of the Office of Trust Funds Management;
established a working relationship with the Inter-tribal
Monitoring Association for Trust Funds; began work on
the reconciliation project to reconstruct $2B in trust
funds accounts; and recommended the reorganization of
the Trust Funds office.
Next steps: approval of Trust Funds reorganization;
continuation of the reconciliation project; and systems
analysis and design for new Trust Funds systems.
During 1991, the Interior IG issued an audit highlighting
health and safety deficiencies in BIA schools. Dam safety
also continues to be an unaddressed problem.
Next steps: in 1992, BIA will institute a management
improvement plan and target more funding to correct
health and safety problems in Indian schools. For dam
safety, DOI is proposing to transfer technical
responsibility to the Bureau of Reclamation in 1993.

Part 0ne-346

THE BUDGET FOR FISCAL YEAR 1993

DEPARTMENT OF JUSTICE

High Risk Area

Progress to Date

Investnlent to
Correct H
iigh Risk
(In thous
sands of
dolhirs)
Status
1992
1993
Estimate Proposed

Departmental debt collection
system inadequate to
support collection of $6.0B
inventory.
There are $6.0B in outstanding
receivables referred to DOJ
by other agencies. At risk:
non-collection of up to 5%,
representing potential
additional collections from
improved management
information.

Departmental asset forfeiture
fund controls inadequate.
Seized asset forfeiture
inventory totals $1.4B. At
risk: $3M representing
potential loss of deposits to
the fund (through
inadequate inventory
controls).

Associate Deputy AG for Debt Collection hired in December
1990 to centralize planning and oversight. First
Departmentwide Financial Litigation Plan approved by
the Deputy Attorney General in July 1991. Joint OMBDOJ Litigation Information Action Team (also including
9 referring agencies) established to reconcile agency data
on debts referred to Justice with data at Justice and to
facilitate DOJ report on status offinanciallitigation
cases at Justice.

3,185

5,307

26,903

28,970

57,221

70,916

431,075

319,618

Next steps: Action Team will make recommendations in
February 1992 on improving information systems for
financial litigation and debt collection at agencies and
Justice. Justice and agencies will work to implement
steps in Financial Litigation Plan and recommendations
of Action Team.
The Executive Office for Asset Forfeiture and program
agencies have undertaken the design of a new,
nationwide automated information system, Consolidated
Asset Tracking System (CATS) which will be fully
operational in 1993; the completion of the first nationwide physical inventory of all seized assets in the custody
of the investigative agencies and the U.S. Marshals
Service; identification of policy issues, procedural
conflicts and other problems through the Asset Forfeiture
Working Group; revision of policy and procedures; and
the development of standard forms program-wide.
Next steps: in 1992, detailed system design,
telecommunications network analysis, and software
development will be completed for CATS; system testing
and equipment acquisition will also begin.

Executive Office of the US
Trustees: Inadequate
oversight of private trustees
by US Trustees.
Estimated amount in
bankruptcy accounts is $26B.
No risk to Federal funds, but
private funds are subject to
potential loss or fraud.
Bureau of Prisons (BOP)
overcrowding creates unsafe
conditions.
Budget requests $ 2.24B for
BOP. At risk: the safety and
security of prison staff,
inmates, and surrounding
communities.

Staff training in financial management is improving
oversight. Case trustees are gradually adopting more
professional methods of conducting business.
Next steps: additional staff in 1992 (60 FTE) and an
additional 45 FTE proposed in budget.

Plan developed to increase rated capacity to 81,260 beds
and reduce overcrowding to 30% by 1996; funding
available through 1991 has reduced overcrowding to 45%
by providing 43,035 beds. 1992 construction funds will
provide 3,600 beds in 1995-96, and funds for equipment
will allow BOP to activate 5,783 beds in 1992. In
addition, in 1991, 4,000 additional positions were
provided to BOP to address overcrowding; these positions
are fully funded in 1992.
Next steps: 1993-96 funding to reduce overcrowding to 30%
of prison population, a manageable capacity for safety
and security.

Part One-347

15. STRENGTHENING MANAGEMENT AND ACCOUNTABILITY

DEPARTMENT OF JUSTICE—Continued

High Risk Area

Progress to Date

Investrnent to
Correct E
ligh Risk
(In thou;sands of
doll;ars)
Status
1992
1993
Estimate Proposed

BOP: Not all prisons comply
with fire anchor hazardous
waste disposal codes.
Budget requests $67.3M for
corrective actions needed. At
risk: possible environmental
damage, personal injury,
fines, or court action if
compliance is not achieved.
BOP: Inadequate staff to
operate and manage prisons.
Budget requests $105 million
for BOP. At risk: the safety
and security of prison staff,
inmates, and surrounding
communities.

All immediate life and health risks due to hazardous waste
have been corrected. Sixty percent of the 120firecode
compliance projects have been completed. Previous GAO
audit recommendations have been resolved.

21,015

19,544

15,222

3,653

4,222

500

3,380

Next step: complete fire code compliance projects and
tracking system.

Special salary rates established for physicians, guards, and
support staff; recommendations of the National Advisory
Commission on Law Enforcement Pay Reform were
enacted and will help recruitment and retention efforts;
Federal Employees Pay Comparability Act will achieve
pay comparability between BOP employees and nonFederal counterparts. Employee turnover rate has been
reduced from 33.6% in 1983 to 23.6% in 1989, and new
legislation should reduce turnover rate even further.
Next steps: continue aggressive recruitment plans.

Immigration and
Naturalization Service (INS):
Poor management controls
and inadequate financial
management system.
Accounting system processes
$1.3B annually. At risk:
$15M, representing bonds
posted by apprehended
aliens.
Marshal's Service (USMS):
Inadequate financial
management systems; poor
budget monitoring..
Accounting system processes
$520M annually. At risk:
assurance that funds are
used in an effective and
efficient manner.

In 1991, INS modified the Department's Distributed
Budget Module (DBM) and used it to develop 1992
budget execution plans for INS headquarters.
Next steps: in 1992, the DBM will be implemented in
regional and district offices; also, INS will implement an
integrated debt management system by early 1993. The
budget proposes funding to implement detailed corrective
action plans to upgrade the financial management
system and resolve security, assets forfeiture and other
program management deficiencies by 1994.
USMS plans to convert to the integrated District Office
System have slipped a year to 1994. Conversion to the
Department's Financial Management Information System
(FMIS) is also scheduled for 1994. New financial
management staff formed to coordinate FMIS
implementation and operation. Preliminary design of the
USMS version of the Distributed Budget Module (DBM)
completed.
Next steps: implementation of DBM in 1992; continued
development of General Ledger, receivables, travel and
payment components of FMIS. This high risk area was
split into two separate areas: financial management
systems, and detention (below).

Part 0ne-348

THE BUDGET FOR FISCAL YEAR 1993

DEPARTMENT OF JUSTICE—Continued

High Risk Area

Progress to Date

Investment to
Correct High Risk
(In thousands of
dollars)
Status
1992
1993
Estimate Proposed

USMS: Shortage of detention
facilities.
Budget requests $268.5M for
prison support services. At
risk: increased costs of
moving prisoners long
distances from outlying jails
to courts and exposure
during moving.
Departmental: Inadequate
security over Departmental
ADP sites and systems.
Total ADP expenditure by
General Administration is
$6M. At risk: sensitive
litigation material subject to
unauthorized access.

USMS has cooperated with INS and BOP in establishing a
five-year plan to increase the number of detention spaces
available. In 1991, an additional 1,274 bed spaces were
acquired. 1993 resouces for the Cooperative Agreement
Program will provide an additional 250 beds, along with
1,542 beds in new Federal facilities.

15,049

7,417

Next steps: USMS will continue to implement the five-year
plan. This high risk area was split from the USMS
financial management systems area.
GAO reports have been critical of DOJ's security over
computer systems used to support litigation efforts. In
response to OMB Bulletin 90—08, DQJ will prepare a
methodology for security plan preparation and
verification. Training programs are underway to inform
employees of their responsibilities to safeguard systems
and applications. ADDED TO HIGH RISK LIST..

DEPARTMENT OF LABOR

High Risk Area

Progress to Date

Investment to
Correct High Risk
(In thousands of
dollars)
Status
1992
1993
Estimate Proposed

Employment and Training
Administration (ETA):
Federal equity in real
property held by State
Employment Security
Agencies (SESAs) at risk.

DOL provided additional grantee guidance which outlines
real property requirements; revised the SESA financial
management review guide to include compliance with the
property provisions of OMB Circular A-102; implemented
a grantee real property tracking system; and issued final
determinations on outstanding debts to four States.

Fair market value (FMV) is
$1B. At risk: up to 10% of
FMV.

Next steps: issue real property policies and requirements to
grantees; develop inventory tracking requirements for
and provide appropriate training to ETA staff; reconcile
the initial real property database with SESA records; and
ensure that all States formally certify DOL's equity in
SESA real property.

Departmental financial
systems inadequate.

Core accounting system installed in 1990; accounts payable
installed in 1991.

DOL systems process $73B
annually. At risk: assurance
that these funds are being
accounted for in an accurate
and timely fashion.

Next steps: complete testing of procurement, accounts
receivable, and imprest fund subsystems; complete
development of budget and financial management
reporting subsystems; finalize grants management
prototype testing and functional requirements; and
develop inventory modules and interfaces for new
property management system.

413

700

1,200

Part One-349

15. STRENGTHENING MANAGEMENT AND ACCOUNTABILITY

DEPARTMENT OF LABOR—Continued

High Risk Area

Progress to Date

Investncient to
[igh Risk
Correct ¥
sands of
(In thoui
Status
doll;ars)
1992
1993
Estimate Proposed

Job Training Partnership Act
(JTPA): Single Audit Act not
effective in safeguarding
JTPA Federal funds.

DOL IG review recommends government-wide approach to
Single Audit Act issues.

JTPA: Service Delivery Area
grantees have inadequate
procurement practices.

During 1991, joint DOL-OMB review team worked on
needed legislative reforms. In 1991, DOL delivered
procurement training atfiveregional locations, conducted
special oversight reviews which determined that 90% of
the problems previously identified have been resolved,
and introduced JTPA amendments that will address
needed procurement reforms.

Budget requests $1.4B for
JTPA grantee procurement
activities. At risk: 10% of
grantee procurement awards.

Pension and Welfare Benefits
Administration (PWBA):
Oversight of pension plans
inadequate.
PWBA oversees private
pension funds valued at $2
trillion. At risk: billions of
dollars in pensions
guaranteed by the Federal
Government.

N/A

Next steps: during 1992, GAO and the President's Council
on Integrity and Efficiency (PCIE) will be reviewing
governmentwide issues concerning the Single Audit Act.
Unilateral action by DOL in this area is not feasible.
This item will be re-evaluated on a governmentwide basis
after GAO and PCIE findings are available.
1

1,169

7,493

10,935

Next steps: DOL will conduct further reviews of SDA
procurement practices and provide on-site technical
assistance for areas with severe problems.
DOL has worked with the American Institute of Certified
Public Accountants to revise and issue an audit guide
covering employee benefit plans.
Next steps: DOL will submit legislative proposals to
eliminate limited scope audits of pension plans; institute
peer review requirements for independent public
accountants; and require expanded audit reporting.

DEPARTMENT OF STATE

High Risk Area

Progress to Date

Investnaent to
Correct £ligh Risk
(In thoui
sands of
doll;ars)
Status
1992
1993
Estimate Proposed

Foreign Buildings Office
(FBO): Rehabilitation and
maintenance of real property
overseas inadequate.
Budget requests $600M for
FBO. At risk: the health,
safety, and security of
employees and visitors at
overseas posts due to
building deterioration.

Both maintenance assistance centers nearly fully staffed;
work done at 49 posts in 1991. Foreign Service skill
group established to offer career ladder for facilities
maintenance experts. Concerns remain over inadequate
strategy for managing data collected on post conditions.
Next steps: continue to implement program's six initiatives
in accordance with Department's 5-year plan for
rehabilitation and maintenance.

145,546

158,000

Part 0ne-350

THE BUDGET FOR FISCAL YEAR 1993

DEPARTMENT OF STATE—Continued

High Risk Area

Progress to Date

Investnlent to
[igh Risk
Correct H
sands of
(In thou*
Status
doll;irs)
1992
1993
Estimate Proposed

Consular Affairs: Visa
processing controls
inadequate.

Machine Readable Visa (MRV) now installed at 15 posts;
conversion to more sophisticated name check system
completed and volume capacity improved.

Worldwide cost of issuing visas
is $86.7M annually. At risk:
potential for visa fraud.

Next steps: implement antifraud unit at new immigrant
visa central facility; install MRV at up to 40 additional
posts in 1992.

Departmental management of
overseas security program,
including ADP security, is
inadequate.

Program now recognizes four categories of threats to U.S.
personnel, information, and property. Thirty-six of 37
interagency security standards approved; progress being
made to implement post-specific security plans. However,
serious ADP security vulnerabilities at unclassified
mainframes (Washington and overseas) have not been
resolved.

Budget requests $313M for
security. At risk: assurance
that this investment is
adequately protecting U.S.
personnel, information, and
property overseas.
Departmental ADP operational
deficiencies.
Budget requests $381M for
information resources
management. At risk:
assurance that this
investment provides efficient
and continuous ADP
operations.
Departmental accounting and
financial systems do not
meet core requirements.
In 1992, State Department
financial systems processed
financial transactions
totalling approximately $4B.
At risk: assurance that funds
are being accounted for in an
accurate, useful, and timely
fashion.
Departmental controls over
worldwide disbursing and
cashiering are inadequate.
Over $7B is disbursed
annually by State
Department disbursing
officers worldwide. At risk:
$50M, representing funds
unreconciled with Treasury.

6,800

12,125

12,768

5,371

3,871

6,640

10,640

Next steps: fully implement residential security standards
at highest threat posts by 9/92; on ADP security,
complete study of vulnerabilities and commit to
corrective action plan.
Contingency plans completed for main data processing
center and overseas Regional Administrative Centers
(RAMCs). Environmental deficiencies corrected at main
center; continuous power supply installed at RAMC
Bangkok. Reservations remain about adequacy of backup
capabilities for RAMCs, lack of strategy to test
contingency plans.
Next steps: issue policy on information systems by 2/92; put
backup mainframe computer center into full operation by
6/92.
Current transactions for all domestic bureaus now on-line
with new primary accounting system, but conversion of
last two bureaus created serious system capacity
problems.
Next steps: reduce from 6 to 3 accounting systems by
December 1992; convert remaining funds and all prioryear data and implement Standard General Ledger
(SGL) for all budgetary accounts by December 1992.
Concerns remain over implementation of SGL, including
overseas financial management system.
1991 State FMFIA report upgrades this material weakness
to high risk status. Started centralization of disbursing
function at 3 overseas regional administrative centers;
substantially reduced domestic imprest funds.
Next steps: complete disbursing centralization and monitor
disbursing officer accountability in 1992; improve
training by September 1992. ADDED TO HIGH RISK
LIST

Part One-351

15. STRENGTHENING MANAGEMENT AND ACCOUNTABILITY

DEPARTMENT OF TRANSPORTATION

High Risk Area

Progress to Date

Investment to
Correct High Risk
(In thousands of
dollars)
Status
1992
1993
Estimate Proposed

Departmental financial
management and
administrative systems nonstandard, fragmented.
Budget requests $43.6M for
operating core financial
management systems. At
risk: $10M, representing the
potential cost of using
unreliable information.

Implementation of core accounting system, DAFIS, is on
schedule for implementation in all bureaus by 1993.

6,323

6,213

2,000

3,609

1,108

848

Next steps: 1993 funds will be used to complete a
procurement subsidiary system and upgrades of the
payroll and personnel system that will become the
Integrated Personnel/Payroll System (IPPS).

Federal Transit Administration Backlog of inactive grants eliminated; disbursement
practices improved. Additional staff approved for 1992
(FTA): Inadequate grants
and proposed in budget. Contract awarded to train
management oversight.
grantees in third party contracting.
FTA has $30B in active grants.
At risk: $50M-$250M due to Next steps: new staff will be recruited and assigned to
grant processing and oversight activities; engineers will
improper use of grant funds.
be recruited to perform professional engineering services
in connection with capital projects.
Federal Highway
Administration (FHWA):
Poor practices in grantees'
use of consultants.

Problem resulted from unclear FHWA guidance; States
were interpreting the requirements differently. Issued
final rule April 30, 1991 to ensure consistent and uniform
interpretation of the requirements by the States.
DELETED FROM HIGH RISK LIST.

Departmental major systems
acquisition procedures
inadequate.

Coast Guard: Project officers did not have capability to
manage the size and complexity of CG procurements. In
1991, CG developed a competency model for assessing
requirements for project managers, and instituted
training programs.

Coast Guard Budget for
procurement totals $1.5B
over 5 years. FAA budget for
procurement totals $1.74B
annually. At risk:
overpricing because of poor
contract management.

Next steps: in 1992, CG plans to review compliance with
major systems acquisition guidance.
FAA: Lacked policy and procedures to manage acquisition
of major systems. In 1991, acquisition planning guidance
issued to all components.
Next steps: in 1992, FAA will institute new methodolgy to
determine system requirements, to ensure user input to
process, to better define contract specifications, and to
emphasize use of pre-production testing.

Maritime Administration
(MarAd): Inadequate
controls over disbursement
of Federal funds.

Based on recent assessments by DOT, OIG and GAO, no
material weakness currently exists in the funds
disbursement process. DELETED FROM HIGH RISK
LIST.

Part 0ne-352

THE BUDGET FOR FISCAL YEAR 1993

DEPARTMENT OF THE TREASURY

High Risk Area

Progress to Date

Investment to
Correct High Risk
(In thousands of
Status
dollars)
1992
1993
Estimate Proposed

Internal Revenue Service (IRS):
Accounts Receivable (AR)
collection strategy
inadequate.
IRS accounts receivable is
$70B. At risk: $67B is
delinquent.

In 1991, joint Treasury-OMB review team studied accounts
receivable (AR) collections strategy. IRS appointed an AR
Executive Officer and developed an AR action plan to
centralize and improve management focus; performance
targets were set for collections and receivables;
management steps were taken to improve maintenance of
accounts and remove erroneous debt; better management
information developed on receivables and collections;
accelerated notice pilot launched to assess the impact on
collections of making earlier personal contact with the
delinquent taxpayer. Congress did not approve $34M in
funding requested by the President to reduce AR risks.

16,217

Next steps: fund 397 FTE in 1993, annualized to 800
positions in 1994; track quarterly performance; and
conduct private collection agency pilot.
Customs Service: Inadequate
collecting/accounting systems
for revenues on imports.
Collections total $19B
annually. At risk: $3B in
cash collections.

New procedures for timely reconciliation of deposits and
collections have improved controls over collections. The
procedures have been strengthened by implementation of
a "Cash Link" system, which allows daily reconciliation
of deposits and collections. Also, a funds control module
has abated previously identified funds control problems.
During 1991, all deposit and cash differences were
reconciled and resolved. A new general ledger software
module was purchased as a core element for development
of a new primary accounting system (AIMS), with
implementation effective October 1, 1992.

16,244

19,529

166

170

Next steps: By April 1992, complete inventory, collection,
and destruction of old, unused forms used in the
collections process; continue work on AIMS.
Public Debt: Account
reconciliation issues
regarding Public Debt need
to be resolved.

All account reconciliations for current business are being
completed on a timely basis and all previously
unreconciled balances have been resolved. DELETED
FROM HIGH RISK LIST.

Departmental: financial
systems coordination
inadequate.

Arrangements have been completed with Agriculture to
provide payroll/personnel processing for all Treasury
bureaus. Also, a number of bureaus are currently
installing Federal Financial System software. The need
for Departmental review and approval of major financial
system replacement or enhancement projects is being reemphasized, partly through the issuance of Departmental
policies pursuant to the CFOs Act.

Treasury has invested $78M in
financial systems
development. At risk: $15M,
representing potential
expenditures for unnecessary
systems.

Next steps: a study team is exploring the feasibility of
linking commonfinancialsystems or designing a single
integrated system.

Part One-353

15. STRENGTHENING MANAGEMENT AND ACCOUNTABILITY

DEPARTMENT OF VETERANS AFFAIRS

High Risk Area

Progress to Date

Investraent to
ligh Risk
Correct Isands of
(In thoui
dollars)
Status
1992
1993
Estimate Proposed

Veterans Benefits
Administration (VBA):
Compensation and pension
benefit overpayments.
Budget requests $16.5B for
compensation and pension
benefits. At risk: $185M in
overpayments to
beneficiaries annually.

Legislation enacted that enables matching of income
records to identify beneficiaries who have received benefit
overpayments. Memorandum of understanding signed
with IRS and SSA on exchange of income data; system
tested and overpayment cases being validated.

16,386

8,357

350

461

6,614

6,962

245

290

Next step: first matches will be completed in 1992. The
budget proposes to remove the sunset date in current law
that would terminate the match on September 30, 1992.

Departmental audit followup
systems inadequate.

Centralized, automated system developed and
implemented..

The Department receives audit
reports with monetary
findings of $350M annually.
At risk: up to 15% if audit
followup is not done
aggressively.

Next steps: conduct on-site peer review to validate
corrective actions and complete any peer review
recommended actions by June 1992.

Veterans Health
Administration (VHA): Drug
inventory controls
inadequate.

84% of VA hospitals converted from ward stock to unit dose
distribution system.

Drugs and medical supply
inventories in VA hospitals
replenished at rate of $450M
a year. At risk: $77M in
potential loss of drugs in
inventory due to waste,
theft, or loss.
Office of Facilities: Health care
facilities construction
planning process lacks
design standards.
Budget requests $382M for
facility construction. At risk:
$40M for additional,
unnecessary costs, cost
overruns, or facilities
exceeding actual needs.

Next steps: complete budgets and plans for conversion of all
facilities by 1995; initiate actions to address broader drug
accountability issues under this high risk area.

VA organizing a task force to develop design standards for
constructing medical facilities.
Next steps: develop acceptable standards to be incorporated
into construction planning process by October 1992.

Departmental internal controls
program weak.

Specifications for automated management control system
developed.

At risk: assurance that VA
funds and operations are
adequately protected against
fraud, waste, and abuse.

Next steps: fully implement tracking system; validate
corrective actions by June 1992.

Part 0ne-354

THE BUDGET FOR FISCAL YEAR 1993

DEPARTMENT OF VETERANS AFFAIRS—Continued

High Risk Area

Progress to Date

Investment to
Correct High Risk
(In thousands of
Status
dollars)
1992
1993
Estimate Proposed

Loan Guaranty Program: Lack
of system for assessing credit
risk exposure ($158B in
guaranteed loans
outstanding).

VA has adopted a default model that enables the
Department to develop budget requirements under credit
reform, and to predict future portfolio performance. A
lender review monitoring unit has been established to
review underwriting and servicing activities carried out
by private sector lenders; 141 reviews of originating
lenders have been completed. DELETED FROM HIGH
RISK LIST.

VHA: Physician employment
screening inadequate.

Template folder developed to secure and file standard
credentialing and privileging information; internal policy
and operations manuals updated.

Budget requests $14.6B for
Veterans Health Services. At
risk: inadequate assurance
that VA patients are treated
by qualified physicians.

Next step: validate implementation of corrective action by
September 1992.

ENVIRONMENTAL PROTECTION AGENCY

High Risk Area

Progress to Date

Investment to
Correct High Risk
(In thousands of
Status
dollars)
1992
1993
Estimate Proposed

Agency enforcement oversight
inadequate.
At risk: polluters paid $61M in
civil penalties in 1990.
Agency financial system
produces unreliable data.
Financial system processes
$7B annually. At risk:
assurance that these funds
are being accounted for in an
accurate and timely fashion.
Superfund: Program lacks
goals and management
controls.
Budget requests $1.75B for
Superfund. At risk:
environmental safety and
assurance that contract
funds are being spent
efficiently and effectively.

Integrated data base on compliance and enforcement
activities developed, allowing EPA to target violators
better. Staff training completed. System in use.
DELETED FROM HIGH RISK LIST.

Converted to new core financial accounting system;
implemented new management accounting reporting
system; and continued improvements to accounts
receivable and general ledger controls.

600

2,296

Next steps: implement upgraded version of accounting
software; improving accounts receivable module; and
implement general ledger data reconciliation.
Continued strengthening of enforcement activities requiring
responsible parties to undertake site cleanups; funds for
enforcement activities increased from $178M in 1989 to
$225M in 1993. Conducted two studies, one on
accelerating and improving cleanup of Superfund sites,
and the other on contract management.
Next steps: implement studyfindingson accelerating
cleanups and assessing and managing risks at sites; and
improve management and contain costs of Superfund
contracts. Senior EPA management team will review
contract management personnel and practices in all EPA
headquarters andfieldoffices in 1992, with the goal of
emphasizing preventative measures.

Part One-355

15. STRENGTHENING MANAGEMENT AND ACCOUNTABILITY

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

High Risk Area

Progress to Date

Investment to
Correct High Risk
(In thousands of
dollars)
Status
1992
1993
Estimate Proposed

Administration financial
systems integration needed.
NASA systems process $15B
annually. At risk: assurance
that these funds are being
accounted for in an accurate
and timely fashion.

Administration oversight of
contractors and
subcontractors inadequate.
Budget requests $12B for
NASA contracting effort. At
risk: $200M-$500M,
representing potential
overpayments to contractors
through erroneous contract
charges.

Integrated personnel/payroll system (PPS) to replace 13
existing systems installed at all sites. NASA Accounting
and Financial Information System (NAFIS), an
integrated accounting system, functional requirements
phase completed; software/systems specifications under
development; funds control function baselined.

9,089

13,679

4,072

8,171

Next steps: consolidated Agencywide Personnel/Payroll
System (CAPPS), which will tie all sites into
Headquarters personnel information system, to be
completed by September 1992. NAFIS design will be
completed by October 1992.
Continued expansion of training program to key
procurement personnel and program managers;
additional staff assigned to procurement function; all
administrative reforms taken; OMB review team
continued oversight.
Next steps: complete cycle of procurement management
surveys to validate corrective actions by September 1992.

AGENCY FOR INTERNATIONAL DEVELOPMENT

High Risk Area

Progress to Date

Investment to
Correct High Risk
(In thousands of
dollars)
Status
1992
1993
Estimate Proposed

Agency financial management
systems and operations
inadequate.

Information engineering methodology being used to develop
new primary accounting system. Strategic Information
Systems Plan completed.

AID/HQ financial system
processes $4. IB annually. At
risk: $56M, representing
unresolved cash differences
with Treasury, potential
duplicative payments, loss if
new system fails.

Next step: use cosl/benefit analysis to determine whether to
use off-the-shelf or custom system and select contractor
by May 1992.

Agency audit coverage of
contractors and grantees
inadequate.

IG staffing increased from 193 in 1989 to 251 in 1991.
Circular A-133 audit requirements for foreign
nongovernmental grantees were incorporated into AID
policy manual.

Budget requests $4.3B for
assistance programs for
which audit coverage is
inadequate. At risk: up to
$445M, representing
potential misuse of funds by
contractors and grantees.

Next step: in early 1992, issue guidance on implementing
audit management program, which defines missioiV
central office responsibilities for monitoring audit
coverage. Program to include audit requirements for
funds to foreign governments.

3,780

750

3,830

500

Part 0ne-356

THE BUDGET FOR FISCAL YEAR 1993

AGENCY FOR INTERNATIONAL DEVELOPMENT—Continued

High Risk Area

Progress to Date

Investment to
Correct High Risk
(In thousands of
dollars)
Status
1992
1993
Estimate Proposed

Agency ADP security
vulnerabilities.
Budget requests $17M for IRM
activities. At risk: assurance
that this investment and
AID data are adequately
protected from loss due to
disasters.
Agency program monitoring
and oversight inadequate.
Total AID 1993 operating
budget request is $7.5B. At
risk: assurance that these
funds are being spent
efficiently and effectively.

Interim disaster recovery service tested for three most
critical systems; and contracts awarded for interim tape
backup storage facility and long-term disaster recovery
services.

370

889

4,900

7,000

Next steps: issue contract for long-term off-site tape
storage; and expand disaster recovery program to include
all centralized facilities in 1992.
Headquarters reorganized to streamline operations;
internal budget process revised to integrate review of
program, workforce, and operating expense resources;
standard field staffing model developed and tested.
Next steps: refinefieldstaffing model based on completed
evaluation of overseas staffing approaches; increase focus
and concentration offieldprograms. AID-OMB SWAT
Team to review personnel, contracting, audit and
evaluation system and make recommendations for
improvement.

FARM CREDIT ADMINISTRATION

High Risk Area

Progress to Date

Investment to
Correct High Risk
(In thousands of
dollars)
Status
1992
1993
Estimate Proposed

Inadequate accounting systems
Budget requests $40M in
budget authority for
offsetting collections. At risk:
$403,000 in waste if staff
must correct accounting
system errors related to
these collections.

Continued enhancements to new accounting system,
including definition of additional accounting functional
requirements; and design of internal and external
reports. Training and user support services have also
been provided.
Next steps: develop accounts receivable and cost
accumulation components; and install property
management system.

311

269

15.

Part One-357

STRENGTHENING MANAGEMENT AND ACCOUNTABILITY

FEDERAL EMERGENCY MANAGEMENT AGENCY

High Risk Area

Progress to Date

Investnaent to
Correct Eligh Risk
(In thouisands of
doll;ars)
Status
1992
1993
Estimate Proposed

As of August 1991, FEMA had completed only one internal
control review in 1991 except for work done by the
Inspector General. IG is auditing 1990 FEMA internal
control review program, issuing draft report in November
1991.

Internal control program
inadequately implemented.
Budget requests $1.594B for
FEMA, including flood and
crime programs. At risk:
assurance that these funds
are adequately protected
against fraud, waste and
abuse.

335

350

630

900

Next steps: management is currently preparing response to
draft IG report. OMB will actively engage FEMA CFO
and management to respond to IG recommendations.
Created a division to focus on systems design and acquired
general ledger software from Education; reconciled
unexpended cash balances for 1984 and prior.

Financial management
systems inadequate.
At risk: assurance that $2.18M
investment in financial
systems results in accurate
and useful financial
information.

Next steps: during 1992 FEMA plans to finalize its 5 year
systems plan and test software which links seven
subsystems to primary accounting system.

GENERAL SERVICES ADMINISTRATION

High Risk Area

Progress to Date

Investnlent to
Correct h[igh Risk
(In thoui3ands of
Status
dolliars)
1992
1993
Estimate Proposed

Major internal control
weaknesses not being
reported.

Management Control Oversight Council established;
staffing increased for internal controls and for full time
desk officers; independent public accountant audit of
1990 financial statements disclosed no material
weaknesses. DELETED FROM THE HIGH RISK LIST.

Major systems development
project failed due to
inadequate oversight by
Public Building Service
(PBS).

GSA has developed and instituted new procedures to
ensure successful implementation of IRM modernization
projects. PBS/IS modernization is the current project that
reflects how that strategy is applied. For PBS/IS, activity
is well underway—new processing site (HHS, Parklawn)
selected; interagency agreement signed with HHS.
Software conversion contract solicitation issued.

Total PBS/IS multi-year
program cost is $69.6M . At
risk: $9.6M in development
funds if system fails.

Next steps: award contract for information system upgrade
in 1992; system to be operational in 1994.

1,900

2,100

Part 0ne-358

THE BUDGET FOR FISCAL YEAR 1993

NATIONAL CREDIT UNION ADMINISTRATION

High Risk Area

Progress to Date

Investment to
Correct High Risk
(In thousands of
Status
dollars)
1992
1993
Estimate Proposed

Centralized asset liquidation
center needs effective
internal controls (assets
valued at $527M in central
facility).

Asset disposition and liquidation activities combined into a
single unit in Austin, Texas to improve management
controls. Annual audit by independent CPA firm;
collection activity monitored monthly; recent IG audit
indicates that internal controls are adequate to minimize
risk to the Center. DELETED FROM HIGH RISK LIST.

Deficiencies in internal control
process.

Managers must now provide mission statements that
encompass quality and cost factors and assess inherent
risks. Control techniques are documented and in place.
DELETED FROM HIGH RISK LIST.

NATIONAL LABOR RELATIONS BOARD

High Risk Area

Progress to Date

Investment to
Correct High Risk
(In thousands of
Status
dollars)
1992
1993
Estimate Proposed

Poor accounting system.
Accounting system processes
$162M annually. At risk:
assurance that funds are
being accounted for in an
accurate and timely fashion.

Conversion to a new accounting system in 1990 failed due
to poor testing procedures and inappropriate controls
over data conversion. Another system (FMIAS) was
imported from another agency and implemented in
August 1991.

Next step: OMB and the OIG will review the adequacy of
the system during fiscal year 1992.

Inventory system not
reconcilable.

Prepared inventory of capitalized property and reconciled
with accounting systems records.

Capitalized property valued at
$618,000. At risk: assurance
that these assets are
adequately protected against
loss and theft.

Next step: in 1992, NLRB IG will validate corrective
actions.

Part One-359

15. STRENGTHENING MANAGEMENT AND ACCOUNTABILITY

OFFICE OF PERSONNEL MANAGEMENT

High Risk Area

Progress to Date

Investment to
Correct High Risk
(In thousands of
dollars)
Status
1992
1993
Estimate Proposed

Federal Employees Health
Benefits Program (FEHB):
inadequate standards and
oversight of insurance
carriers.

In its 1991 FMFIA report, OPM identified a new material
weakness: FEHB insurance contract administration.
Lack of effective internal control standards and
monitoring of FEHB carrier performance creates
increased potential for waste, fraud, and abuse.

$16B in obligations in 1993. At
risk: excess payments to
carriers and providers.

Next steps: OPM studying carrier financial and claims
processing controls; plans to issue internal control
standards for carriers in 1993, and conduct carrier
reviews and audits more frequently. ADDED TO HIGH
RISK LIST.

PEACE CORPS

High Risk Area

Progress to Date

Investment to
Correct High Risk
(In thousands of
dollars)
Status
1992
1993
Estimate Proposed

System for reviewing internal
controls at overseas posts
not implemented.
Budget requests $92M for
overseas posts. At risk:
assurance that these
expenditures are adequately
protected against fraud,
waste, and abuse.

Financial management
systems antiquated.
Accounting system processes
$218M annually. At risk:
assurance that funds are
being accounted for in an
accurate and timely fashion.

Good progress made in implementing comprehensive
training course for overseas administrative (AO) officers
and new management control survey program. Two 3week training courses were held in calendar 1990 and
four courses were held in calendar 1991. Since July 1990,
60 AOs have received training. Property Management
Inventory System imported from State Department for
use by PC posts.

100

125

350

300

Next steps: administrative improvements will focus on
property management in 1992; IG audit of property
management system is now underway; findings will be
indicator of new inventory control system's effectiveness.
Defined requirements; selected vendor to develop new
primary accounting system; and completed acceptance
testing of software.
Next steps: pilot test March 1992; implement core
accounting October 1992.

Part 0ne-360

THE BUDGET FOR FISCAL YEAR 1993

PENSION BENEFIT GUARANTY CORPORATION

High Risk Area

Progress to Date

Investment to
Correct High Risk
(In thousands of
Status
dollars)
1992
1993
Estimate Proposed

Poor coordination of
Effective coordination and exchange of information on
information on pension plans.
financial integrity of insurance plans now exists among
PBGC, Pension and Welfare Benefits Administration and
the Internal Revenue Service. Exposure study completed,
listing 50 plans with the largest underfunding.
DELETED FROM HIGH RISK LIST.
Weaknesses in financial
management systems.
PBGC oversight of $1,004B in
retirement funds. At risk:
assurance that amount owed
is accurate and can be
identified for collection.

PBGC cited weaknesses in financial systems following
internal assessments and a failed GAO attempt to audit
financial statements.

Next steps: continue joint PBGC-OMB efforts to make
premium accounting system compliant with OMB, GAO
and IG requirements, as well as responsive to ERISA by
1993; auditable balance sheets for 1992 will be available
for audit in 1993. ADDED TO HIGH RISK LIST.

RAILROAD RETIREMENT BOARD

High Risk Area

Progress to Date

Investment to
Correct High Risk
(In thousands of
dollars)
Status
1992
1993
Estimate Proposed

Inadequate management
controls and inability to
certify the adequacy of
controls for the Board's
biggest benefit program.
$7.3B in benefits, 950,000
beneficiaries in 1990. At
risk: 80,000 backlogged cases
of inaccurate benefit
payments; 52,000 inaccurate
tax statements; unrecovered
debt owed RRB.

In April 1990, OMB led a management review of RRB
resulting in 42 findings and 104 recommendations for
corrective actions. RRB and OMB negotiated a $13.9
million 5-year "contract" to correct past problems. The
plan linked specific reductions in backlogs and other
problems with specific resource commitments. Significant
progress in reducing backlogs and reaching other
objectives has been made in 1991.
Next steps: continue OMB and RRB implementation of the
5-year contract.

3,264

3,758

Part One-361

15. STRENGTHENING MANAGEMENT AND ACCOUNTABILITY

SECURITIES AND EXCHANGE COMMISSION

High Risk Area

Progress to Date

Investment to
Correct High Risk
(In thousands of
dollars)
Status
1992
1993
Estimate Proposed

Management of ADP systems
development projects needs
improvement.
Budget requests $34M for SEC
computer systems
development projects. At
risk: assurance that this
expenditure will result in
systems that produce
accurate, timely, and useful
information.
Agency lacks a long term
disaster recovery plan for
computer operations.
At risk: assurance that SEC
data are adequately
protected, and agency can
perform its mission in the
event of a disaster.

Restructured and consolidated management of information
resources and created position of Chief Information
Officer. Restructuring should improve the overall
management of information resources by creating
economies of scale in ADP planning.

200

6,700

3,750

Next steps: recruit Chief Information Officer; and issue
internal guidelines on administration of systems
development projects.

A risk assessment of the Commission's automation
resources environment was completed; and an SEC
contractor issued a report presenting risk reduction
contingency planning alternatives.
Next steps: based on the results of a capacity study, the
SEC will develop a detailed contingency plan.

SMALL BUSINESS ADMINISTRATION

High Risk Area

Progress to Date

Investment to
Correct High Risk
(In thousands of
Status
dollars)
1992
1993
Estimate Proposed

Small Business Investment
Company (SBIC)
management/liquidation
activities inadequately
supervised.
The current outstanding
portfolio is $1.5B for SBICs.
At risk: $426.5M,
representing the size of the
current liquidation portfolio.

Management changes and restructuring have taken place:
SBIC operations and liquidation functions are now under
a single Management Board official who has been
recently appointed; 27 additional positions have been
allocated to the SBIC Program, of which 18 have been
filled; and a broad-based Advisory Council has been
established to provide advice and counsel on the
Program. License applications are screened and only
suitable applications are accepted for processing. SBICs
with regulatory or credit problems are being monitored
more closely.
Next steps: financial advisor to review program. Program
management, resources, and overview will continue to be
upgraded.

400

750

Part 0ne-362

THE BUDGET FOR FISCAL YEAR 1993

SMALL BUSINESS ADMINISTRATION—Continued

High Risk Area

Progress to Date

Investment to
Correct High Risk
(In thousands of
dollars)
Status
1992
1993
Estimate Proposed

Small Business Development
Centers (SBDCs) lack control
over program income.
Budget requests no funds for
SBDCs; 1992 appropriation
is $60M. At risk: assurance
that appropriated monies are
protected from fraud, waste
and misuse by grantees.
Surety Bond has weaknesses in
its system of management
control.
Total surety bond guarantees
outstanding in 1991 $896M.
At risk: $15M in potential
claims.

SBA has, within its administrative discretion, corrected 4
out of 5 related material weaknesses in the SBDC
program. However, Congressional impediments prohibit
regulatory changes . The budget proposes zero funding
for this program as a result of the Administration's
concern over the legislative impediments which restrict
the ability of the agency to manage the program
effectively.

Next step: seek Congressional action to eliminate funding
for the program.
SBA has identified as "high risk," weaknesses in the Surety
Bond Program's operating procedures, management
information systems, and audit followup process. SBA
plans to address these problems in 1992 and 1993 by
redesigning the Claims Tracking System, conducting onsite reviews, reviewing and evaluating SOPs and
regulations, reviewing workload, and conducting training.
ADDED TO HIGH RISK LIST.

U.S. INFORMATION AGENCY

High Risk Area

Progress to Date

Investment to
Correct High Risk
(In thousands of
Status
dollars)
1992
1993
Estimate Proposed

Financial management
systems and operations
inadequate.
Systems process $1B. At risk:
assurance that funds are
being accounted for in an
accurate and timely fashion.

Five year plan completed; evaluation of alternative systems
underway.
Next steps: implement priority improvements to existing
system; in 1993, establish architecture and planning
framework for next generation of integrated financial
systems.

820

1,500

15.

Part One-363

STRENGTHENING MANAGEMENT AND ACCOUNTABILITY

UNITED STATES SOLDIERS AND AIRMEN'S HOME

High Risk Area

Progress to Date

Investment to
Correct High Risk
(In thousands of
dollars)
Status
1992
1993
Estimate Proposed

Financial management controls
weak (particularly
accounting and contract
functions).
$190M in funds managed. At
risk: assurance that financial
transactions are accounted
for in an accurate and timely
fashion.

Memorandum of Understanding signed with Treasury
(FMS) for accounting cross-servicing. Phase I for
accounting and payroll interface operational.
Next steps: Phase II for trust fund, billings and collections
installed by October 1992; supply and inventory to follow.
CPA firm to audit 1992 financial statements to validate
Phase I.

500

639

Managing for Integrity
and Efficiency:
16. Increasing Returns on
Investment

Part One-365

16. INCREASING RETURNS ON INVESTMENT
The budget reflects a set of choices on
relative program priorities and funding needs.
These choices are based, in part, on analytic
and evaluative information concerning likely
consequences and results of programs and
policies. Budget caps under the Budget Enforcement Act of 1990 make it more critical
than ever to plan for and conduct rigorous
evaluations of programs to help assure the
highest possible Federal returns on investment.

This section describes:
• Selected formal evaluations used in formulating the budget and an evaluation agenda for use in future budget formulation,
• Congressionally imposed barriers to sound
management, and
• Significant discretionary program terminations, decreases, and increases (based in
part on the results of these studies)—and
in part on the countless less formal evaluations and analyses used in preparing
the budget (but not highlighted here).

EVALUATION
Program evaluation is a formal assessment,
through objective measurement and systematic
analysis, of the manner and extent to which
Federal programs achieve intended objectives.
Program evaluation efforts in the Federal
Government remain uneven. Few agencies
perform results-oriented, outcome evaluations—answering "What does the program
accomplish?" "How do program results compare with program goals?" "What works and
why?" Process evaluations and related management analyses, such as compliance audits,
are more usual. While necessary and often
useful, such studies do not usually provide
sufficient information by themselves to support
major policy and budget allocation decisions.
The Administration continues to support
strongly the production of sound, timely and
relevant information on program results to
make informed major policy decisions and
to improve program management.
PROGRAM EVALUATIONS USED IN
THE BUDGET
The following examples illustrate how evaluations have supported decisions to continue,
increase, or reduce proposed program funding
during budget formulation.

Department of Agriculture
Federal Crop Insurance Program.—The
Federal Crop Insurance Corporation provides
crop insurance to farmers for protection
against losses from adverse climate or weather
conditions, fire, plant disease, insect and animal damage. (Over $10 billion in protection
is currently outstanding.) In recent years, indemnity payments have significantly exceeded
premium income by several hundred million
dollars annually. A Department of Agriculture
evaluation this year reviewed the potential for
crop losses to all the farms in an area (as
opposed to only a single farm) as a condition
of making individual farms eligible for insurance payments. The current program pays
claims even if only one farm, in an otherwise
undamaged area, is damaged. The findings of
the study were taken into account in preparing
the budget. The findings were also sufficiently
favorable to support further examination of
this idea in two 1992 pilot projects covering
soybeans and wheat. If successful, this revised
approach could add an additional level of insurance that would complement the existing
multiple peril insurance policy and provide individual farmers with greater flexibility to tailor insurance to their own needs. It should
bring claims payments more in line with premiums.
Part One-367

Part 0ne-368

THE BUDGET FOR FISCAL YEAR 1993

Department of Commerce

Department of Defense

Minority Business Development Centers.—The Minority Business Development
Agency (MBDA) ($40.5 million appropriated in
1992; $44 million proposed for 1993) funds minority business development centers which
provide management and technical assistance
for minority business owners. A recent report
on the MBDA by KPMG Peat Marwick concluded that service delivery would be improved
if each center could provide specialized services tailored to the community in which it operates. The budget includes $2 million to allow
four centers to upgrade their technical skills
in specific, community-appropriate areas (e.g.,
tourism, capital development, construction,
and franchising).

Force Mobility.—DOD reviewed the effectiveness of defense mobility programs during
Operations Desert Shield and Desert Storm.
The resulting report presented a comprehensive evaluation of airlift and sealift mobilization requirements for the next decade
and identified a need for additional sealift capabilities. As a result, the budget includes $1.2
billion, in addition to prior year appropriations, for acquisition of ships to augment the
Department's sealift capability.

Census.—GAO evaluations of the 1990 Decennial Census stressed the need for the Census Bureau ($290.3 million appropriated for
1992; $338.4 million proposed for 1993) to fundamentally, rather than incrementally, reform
conducting the next decennial census. The
budget provides a $9.0 million increase to the
Bureau to allow new concepts to be tested in
time for incorporation in the 2000 Decennial
Census. Concepts to be tested include a drastically simplified questionnaire; increased use
of sampling, modeling and administrative
records; and design of techniques for special
areas and subpopulations.
Geostationary Weather Satellite.—The
Geostationary Weather Satellite (GOES) Study
Panel, a committee of Government and private
aerospace experts, reviewed the troubled
GOES program ($237 million in 1992, including a one-time $110 million contingency fund
appropriation). The GOES program is more
than 100 percent over budget and over three
years behind schedule. The panel recommended a planned one-year launch delay,
coupled with an enhanced test program, to ensure a reliable system. The budget proposes
implementation of the panel's recommendations and provides several "insurance" measures, including use of a European GOES-like
weather satellite over the U.S., as back-up
against loss of geostationary weather satellite
coverage. The budget includes $129 million for
the program.

Department of Energy
Fossil Energy R&D.—A DOE evaluation of
the funding sources for fossil energy R&D from
1981 to 1991 revealed highly variable industry
cost-sharing in the various fossil research programs. As a product of this study, the Department's oil research programs (e.g., advanced
oil recovery) will explicitly require industry
cost-sharing.
Department of the Interior
Outer Continental Shelf (OCS) Receipts.—An evaluation of cost recovery alternatives for OCS receipt collection led to the
decision in the budget for the Minerals Management Service (MMS) to finance the costs
of the new MMS computer system through additional receipts. The new system is expected
to increase collections by at least $5 million
annually.
Department of Labor
Pension Benefit Guaranty Corporation
(PBGC).—The PBGC (a government-owned
corporation chaired by the Secretary of Labor)
guarantees pension payments under covered
private defined benefit pension plans. PBGC
is financed primarily by insurance premiums
paid by these plans. The budget proposes legislation and increased resources to address a
Treasury Department report assessing the
causes of PBGC contingent liabilities and
PBGC analysis of its potential exposure to additional liability from termination of large pension plans. In addition, increased staff and
other resources are provided to address weaknesses identified in a GAO audit of the PBGC's
operations and its premium accounting system.

Part One-369

16. INCREASING RETURNS ON INVESTMENT

Intervention for Serious Work-Related
Injuries.—Under the Federal Employees'
Compensation Act (FECA), a Federal employee's income is replaced if a job injury results
in time away from work. In 1991, $1.6 billion
in compensation was paid under FECA. Based
on the results of an Employment Standards
Administration research and demonstration
project, the budget includes staff and resources
for a multi-year effort to return those on longterm disability to work, using some of the
intervention techniques shown to be effective
by the evaluation. The effort is expected to
save up to $15 million between 1994 and 1997.
Department of Transportation
Preventing and Responding to Pollution
of Ports.—The Oil Pollution Act of 1990 required the Coast Guard to undertake an evaluation of all major U.S. ports to determine
whether vessel traffic systems are needed to
provide proper protection from oil pollution incidents and other marine accidents ($65.7 million appropriated to the Coast Guard in 1992
for oil pollution activities). The results of this
study were used to prioritize and justify funding requests for vessel traffic systems in major
U.S. ports in this ($26.8 million requested) and
future year budgets.
Environmental Protection Agency
Superfund Program.—Superfund was created by the Comprehensive Environmental Response, Compensation, and Liability Act of
1980 to provide funding to clean up the nation's most dangerous hazardous waste sites.
An EPA Task Force (set up to review criticism
of EPA's control and oversight of its Superfund
contractors) recommended several reforms to
improve Superfund cleanup and contracting
procedures. The budget reflects these reforms,
including reduced resources for contractor administrative costs, and increased resources
($1.5 million) for oversight of Superfund contracts and improved internal controls by EPA's
Inspector General.
FUTURE EVALUATIONS
The Administration supports a systematic
and sustained investment in high-quality,
policy-relevant evaluations. The purpose is
to aid both the Executive Branch and the

311-000 0 - 9 2 - 1 6

(PT.l)

Congress in planning, monitoring, and assessing program implementation and results, and
in determining future program needs. Future
evaluations include a variety of short-term
and long-term efforts, including comprehensive
longitudinal outcome studies and assessments
of pilots.
The budget requests over $53 million for
priority evaluations discussed below (for which
cost estimates are available); total multiyear costs are expected to exceed $165 million.
Department of Agriculture
Electronic Benefit Transfer (EBT).—EBT
demonstration projects are testing delivery of
a variety of Federal benefits in several States
through use of plastic cards, automated teller
machines, and point-of-sale terminals. Between January and December 1992, Maryland
will expand its EBT demonstration to the entire State for the Food Stamps, Aid to Families
with Dependent Children, and Child Support
Enforcement programs. The Food and Nutrition Service will evaluate the cost effectiveness
and quality of service provided by EBT in
Maryland. Baseline data and some preliminary
analysis will be available in the Fall of 1992.
This $2.5 million effort will be completed in
January 1994.
Quality of Grain Exports.—In recent
years, there have been increasing concerns
over the quality of grains exported from the
United States (in comparison to the quality
of competitors' grain). In August 1990, USDA
began a three-year study to determine the
costs and benefits associated with selling
cleaner grain, with special reference to the effects on U.S. competitiveness in international
trade. The wheat portion of the study will be
completed in March 1992, and the conVsoybeans portion should be completed by October
1992. The results of these studies will provide
information on the competitiveness of U.S.
grain exports. (Total estimated cost: $900,000.)
Soil Conservation.—The Department is
conducting the third of a series of appraisals
to fulfill the requirements of the Soil and
Water Resources Conservation Act of 1977.
These periodic appraisals are designed to aid
in developing conservation policy for managing
soil, water and related resources and to provide a better understanding of the environ-

Part 0ne-370
mental relationships of alternative agricultural
production choices. The appraisal is expected
to take five years from the design of the plan
of work to completion of the first draft report
in December 1996. The final report is scheduled for December 1997. The draft report will
be used to formulate the strategic plan for natural resources for the decade beginning in
1998. (Total estimated cost: $12 million.)
Department of Commerce
Impact of Standards Development Surcharge.—A National Institute of Standards
and Technology (NIST) study will analyze
whether standards development surcharge
(SDS) fees or the sluggish economy are discouraging equipment calibration by private industry. Less equipment calibration could result
in reduced product quality. This study should
be completed by June 1992; it will be used
to set the SDS fee schedule for 1993 and beyond. (Cost: $150,000.)
Department of Education
National Evaluation of Adult Education.—The Department of Education (ED)
spent $212 million in 1991 to improve basic
literacy skills of over 3 million adults. ED
began an evaluation of the program in August
1990, relating participation in adult education
programs to employment outcomes. The study
will be completed in the spring of 1994. No
new funds are requested for 1993. (Total cost:
$2.8 million.)
Compensatory Education (Chapter 1).—
The Chapter 1 program is a formula grant
program to local education agencies to assist
educationally disadvantaged students. The program spent $5.6 billion in 1991. A longitudinal
study of the impact on students and schools
is mandated by law. The evaluation was begun
in 1989; an interim report is due in 1993 and
the final report is due in 1997. The budget
requests $6 million for this study in 1993.
(Total cost: $35 million.)
School Dropout Prevention Demonstration Program.—ED has commissioned evaluations of the effectiveness of projects funded
in 1991 ($20 million) to test ways to prevent
dropouts. These evaluations, primarily of demonstration projects, will be completed in 1995.

THE BUDGET FOR FISCAL YEAR 1993

The budget requests $2 million for this effort
in 1993. (Total cost: $6 million.)
Special Eduxxition.—This program makes
grants to States to help them identify, protect,
and educate children with disabilities. ED
spent $2.4 billion in this area in 1991. A twostage longitudinal study is underway to examine educational outcomes resulting from the
program. The first stage (not an evaluation)
is a survey of the characteristics of disabled
youth; this stage is complete. The second stage
(an evaluation of post-education outcomes and
variables affecting outcomes) is to be completed in 1992. (Total cost: $6.4 million.)
Vocational Rehabilitation Basic State
Grant Program.—This program provides assistance to States to help persons with a vocational disability prepare for and engage in
gainful emplojmaent. ED spent $1.6 billion on
this program in 1991. In 1992, ED will design
and begin implementation of a comprehensive
multi-year longitudinal evaluation of the program. Using a nationally representative sample of program applicants, the study will assess the effects of program services on client
outcomes, both economic (wage-related) and
non-economic (quality of living). The budget requests $2 million for this ongoing effort. (Total
cost: $6 million.)
Special Programs for the Disadvantaged.—Eight programs ($334 million in 1991)
provide special services to disadvantaged students to encourage them to enroll in and complete postsecondary education. A two-part evaluation is examining available data to describe
characteristics of post-secondary students
using a variety of supplemental services and
to assess the effects of services on high school
performance, college enrollment, college performance and graduation. The results of the
first part of this study should be available in
1992. The budget requests $2 million for this
effort. (Total cost: $7.6 million.)
Department of Energy
Fossil Energy R&D.—The DOE Fossil Energy R&D program supports research in cleaning sulfur from coal and its combustion flue
gases, advanced combustion technologies, coal
derived gases, and synthetic fuels and fuel
cells. The second phase of an evaluation
(begun in 1991) will (1) address the program's

16. INCREASING RETURNS ON INVESTMENT

success in identifying and developing technologies ultimately adopted by industry and
(2) assess the program's future cost-effectiveness. (Total estimated cost: $250,000.)
Environmental Cleanup.—DOE has taken
initial steps toward implementing a progress
tracking system. A fully operational tracking
system should be in place in the near future.
(Total estimated cost: $250,000.)
Department of Health and Human
Services
JOBS (Job Opportunity and Basic
Skills) Program.—Along with stronger child
support enforcement, JOBS was the centerpiece of the Family Support Act of 1988's welfare reform legislation. For 1993, $1 billion is
authorized for grants to States for (1) JOBSrelated education, training, and employment
and (2) support services to adults in families
receiving Aid to Families with Dependent Children. The Family Support Act mandates a
multi-year evaluation in up to ten sites to
measure the impact of JOBS on earning and
welfare dependency, especially with respect to
potentially long-term recipients. Preliminary
data will begin to become available in 1995.
Final impact data and cost-effectiveness analysis will follow. Multi-year costs will be about
$15 million for the Departments of Health and
Human Services and Education for this effort.
Department of Housing and Urban
Development
The budget requests $35 million for research
within HUD, a 40 percent increase over
1992. The following evaluations will be funded
within this amount:
HOPE (Homeownership and Opportunity
for People Everywhere) Grants.—HUD's
1990 HOPE initiative (over $1 billion requested for 1993) is designed to enhance homeownership opportunities for very low-income
households. Grants are provided to tenant organizations, local public housing authorities,
and nonprofit organizations to convert to
homeownership public housing, low-income
distressed FHA multi-family properties, and
governmentally-held, single family properties.
HOPE also assists nonprofits with programs
to sell Government-held single family properties to low-income families. A HUD study

Part O n e - 3 7 1

will help address questions concerning the
short-term and long-term benefits and costs of
homeownership programs for very low-income
families. Results should be available by the
end of 1995. (Total estimated cost: $1.2 million.)
Homeownership Vouchers.—A new initiative in the budget allows housing vouchers,
currently only a rental subsidy, to be used also
as a homeownership subsidy. The budget includes $2.7 billion in budget authority for
vouchers. A HUD study (to be completed by
the end of 1995) will assess how well this initiative is working. The study will examine who
is participating, how many participants receive
FHA insurance, what the default rate is for
participants, and how many families need
voucher subsidies beyond five years. (Total estimated cost: $1 million.)
Opportunity Counseling Demonstration.—The budget proposes an initiative to
provide low-income families counseling and
other assistance in moving to mixed-income
neighborhoods. An evaluation of this initiative,
called the "Moving to Opportunity Counseling
Demonstration," will assess the effectiveness
of counseling services for these families. The
evaluation will focus on the program's impact
on recipients' income and education levels,
source neighborhoods, and target neighborhoods. The evaluation should be completed by
the end of 1995. (Total estimated cost: $1 million.)
Programs for the Homeless.—HUD will
assess how efficiently and effectively its current programs identify and meet the needs of
homeless persons. It also will evaluate specific
initiatives, including the new Safe Havens initiative (a program for the mentally ill homeless) and Shelter Plus Care (a program that
links housing with other supportive services
for the mentally/physically disabled). The evaluations will examine how successful HUD is
in moving persons from homelessness to permanent housing, the extent to which HUD programs clearly identify and address the predominant/recurring problems of the homeless,
and whether the distribution of funding within
HUD's homeless programs matches the relative needs among the homeless population.
The evaluations should be completed by the

Part 0ne-372
end of 1993. (Total estimated cost: $1.2 million.)
HOME (Housing Block Grant) Program.—HUD will evaluate HOME, a new
housing block grant to States and local governments ($700 million requested for 1993) to assist low-income families and individuals. Eligible activities include tenant-based rental assistance as well as acquisition, rehabilitation,
and new construction of affordable housing.
HUD will examine what kinds of activities are
being funded through HOME, including whether this block grant is primarily a supply (building) subsidy or demand (tenant) subsidy. HUD
will also examine how well State and local
governments coordinate their spending decisions with local housing needs. The studies
will be completed by the end of 1995. (Total
estimated cost: $400,000.)
Community Development Block Grant
(CDBG).—Evaluations of both the State and
entitlement portions of the CDBG program
($2.9 billion requested for 1993) are needed,
especially in light of recent Congressional
hearings on programmatic abuses by State and
local entities. HUD will evaluate the effectiveness of States' CDBG-sponsored economic development projects and the impact of projects
funded by the CDBG entitlement program on
low and moderate income persons. The studies
will be completed by the end of 1993. (Total
estimated cost: $750,000.)
Lead-Based Paint Abatement.—HUD will
evaluate the effectiveness of Federal grants to
States and units of general local government
begun in 1992 to abate lead-based paint and/
or lead dust. Children residing in selected
homes will be tested by local health authorities
before and after abatement procedures. HUD
will also gather information from State and
local authorities to determine the extent to
which blood lead levels are reduced as a result
of the abatement. The study should be completed by the end of 1995. (Total estimated
cost: $1.5 million.)
Department of the Interior
Bureau of Mines (BOM) Research.—The
Department of the Interior (DOI) and the Bureau of Mines will conduct two studies to analyze duplication of research activities at the
BOM research field offices and the ways in

THE BUDGET FOR FISCAL YEAR 1993

which cost-recovery of research activities can
take place. BOM has nine field offices that
conduct research in the areas of health, safety,
and mining technology; minerals and materials
science; and environmental technology. Much
of the research performed by BOM directly
benefits the private sector. The first study proposed is to determine whether research at the
field offices is duplicative and, if so, how consolidation of research centers can occur. In addition, DOI and BOM will develop a plan for
greater cost-recovery of BOM research output.
The reviews are scheduled for completion by
August 1992. (Total estimated cost: $100,000.)
Department of Labor
Job Corps.—The Job Corps is a national
network of residential centers designed to assist disadvantaged youth (ages 14-21) in acquiring job and social skills. In 1991, $867.5
million was provided to serve about 68,000
young people. Operating costs per participant
($11,795 in 1991) are high—far exceeding
those in other education and training programs. The program has not been evaluated
since 1977. The Department of Labor plans
to initiate a five-year, incrementally funded,
comprehensive process/impact evaluation beginning in 1992. The first phase (evaluation
design) is to be completed by mid-1993. The
budget requests $500,000 for this effort. (Total
cost: Unknown until design is completed.)
Assisted Reemployment of Injured Workers.—The Department will initiate a four-year
Assisted Reemployment demonstration project
in 1992. Employers who rehire injured Federal
workers will receive time-limited, declining
wage subsidies for these workers. The evaluation will test whether, and to what extent, this
initiative increases the number of injured
workers who return to productive employment
and reduces the cost of long-term disability
compensation and medical bills. Initial results
should be available in 1993. No additional
funds are requested for this effort.
Department of the Treasury
Internal Revenue Service Accelerated
Notice Stage Pilot.—The IRS typically collects delinquent tax accounts in a three stage
process that may involve as many as five computer generated notices or letters to the taxpayer; attempted contacts through an auto-

16.

Part One-373

INCREASING RETURNS ON INVESTMENT

mated telephone calling system; and, if warranted, visits by IRS officers. About two-thirds
of collections are resolved at the notice stage.
In 1991, the IRS began testing the effect of
eliminating one of the five notices currently
sent to taxpayers with delinquent accounts,
seeing whether earlier personal contact with
the taxpayer would increase collections. Analysis of the six month field test, involving three
test districts and three control districts, is
scheduled for completion by July 1992. No additional funds Eire requested for the pilot, since
it reduces costs by eliminating one of the notices mailed.
General Services Administration
FTS (Federal Telecommunications System) 2000.—FTS 2000 is a $15-20 billion, tenyear project to provide Federal agencies with
voice, data and teleconferencing services commercially. Conversion of voice services from
the old FTS to FTS 2000 was completed in
June 1990, 18 months ahead of schedule and
considerably below estimated costs. Recent
Congressional testimony by GAO and agencies,
however, have raised questions about whether
the program could be managed in a more costeffective manner and whether the Government
is receiving the lowest possible price from its
commercial providers. GSA will evaluate the
program's efficiency and effectiveness in comparison to that of similar operations in the
public and private sectors. The study should
be completed by June 1992; it will be used
by GSA to make management improvements
and by OMB in its 1994 budget review. (Total
cost: $750,000.)
Small Business Administration
Section 7(a) General Business Guaranteed Loans.—At the end of 1991, the SBA
recorded over 91,000 loans outstanding, with
total exposure reaching $11.5 billion. An SBA
study will enable the agency to assess the impact of the program, including its costs and
benefits, to identify areas for program improvement, and to conduct budgetary and regulatory review of the program. Results of the
study will be used in developing the 1994
budget. (Cost: $437,000 in 1992.)

Multi-Agency
Federal Motor Vehicle Fleet Management.—Federal agencies spend almost $1.3
billion annually to support a fleet of over
359,000 vehicles. In the fall of 1991, the President's Council on Management Improvement
launched a two-phase project to identify ways
to achieve the most cost-effective and efficient
Federal motor vehicle fleet possible. Phase 1,
which should be completed by early 1992, will
identify alternatives that can be implemented
in the near-term to reduce fleet costs. Phase
2 will focus on longer-term reforms. Results
in early 1993 should assist Federal agencies
in determining the "best practices" of motor
vehicle fleet acquisition, operation, maintenance, and disposal and provide the foundation
for a government-wide Federal motor vehicle
fleet policy. (Total cost: To be determined.)
Drug-Abuse
Prevention and Treatment.—Federal funds to reduce the demand
for drugs ($4.1 billion in 1993) are split between preventing and treating drug abuse.
These efforts involve 17 Federal agencies. Examples of some of the most significant upcoming evaluations include:
• The Department of Education's long-term
strategy to evaluate the effectiveness of
drug abuse prevention programs, including
a five year evaluation of school-based programs that began in 1991. Preliminary
findings on school-based programs are expected in 1993, and a final report will be
available in 1995. The budget requests $5
million for ongoing and new evaluation efforts in these areas.
• The Alcohol, Drug Abuse, Mental Health
Administration's
(ADAMHA) National
Treatment Improvement Evaluation Study
(NTIES). NTIES will evaluate ADAMHA's
treatment improvement grants, including
Treatment Campuses (which house the
full range of treatment and ancillary services), the Target Cities Program (which focuses on improving city-wide treatment
systems), treatment enhancement for critical populations (e.g., pregnant women),
and the criminal justice system. Results
of these studies should be available in
1994 and 1995. (Total cost: $17 million.)

Part 0ne-374
• ADAMHA's Drug Abuse Treatment Outcomes Study (DATOS), the third in a series of national studies to determine "what
works" in drug abuse treatment. DATOS
will focus on what services are being provided; how those services are delivered;
and how the services relate to the drugs
abused, level of impairment, and outcome

THE BUDGET FOR FISCAL YEAR 1993

measures. Initial results from DATOS are
expected in 1995. (Total cost: $6.4 million.)
• Scientifically designed and controlled evaluation of new and promising treatment
methods. This evaluation is sponsored by
the Department of Veterans Affairs and
will be completed in 1995 or 1996. The
budget requests $1 million for these efforts. (Total cost: $5 million.)

LEGISLATIVE IMPEDIMENTS TO SOUND MANAGEMENT
Congressional barriers to sound management affect nearly every department and
agency in the Federal Government. These
legislative impediments include excessive program earmarking, onerous program restrictions, and mandates to continue wasteful
administrative practices. Removal of these
impediments is essential if Congress and
the Executive Branch are to reach their
shared objective of an effective and efficient
Government.
PROGRAM EARMARKING
"Bringing something back to the home
district" is a long-standing Congressional tradition. Earmarking often provides substantial
benefits to a local community. Considered
individually, many of these projects are worthwhile; but in the aggregate, they wastefully
divert scarce Federal tax dollars. The tight
budget caps under the Omnibus Budget and
Reconciliation Act of 1990 mean that for
every dollar that goes into funding local
projects, there is one less dollar to invest
in areas of pressing national concern.
Some illustrative examples of Congressional
earmarking include:
• $2.5 million to establish a Geriatric Research, Education, and Clinical Center at
the Baltimore Veterans Medical Center,
after it failed to receive the award competitively.
• $9.8 million in Environmental Protection
Agency funds earmarked without the benefit of competitive review, for the renovation and purchase of equipment for a

specific neural science laboratory in New
York City.
• $993 million for 566 R&D facilities and
research projects for particular institutions
and researchers in 1992 appropriations
acts, according to an analysis by the Office
of Science and Technology Policy.
• $6.4 million to Kellogg, Idaho, for Bavarian-style gondola cars over the Coeur
d'Alene National Forest.
• $2.0 million of Park Service funds to restore the Chicago Public Library as if authorized by the Historic Sites Act (although it is not a national historic site
under the terms of that Act).
• $20 million of Environmental Protection
Agency funds are earmarked for site acquisition and design of a dock facility in
Bay City, Michigan.
• A $500,000 cut in funds available to help
farmers through the planting season in
order to rehabilitate the home of Lawrence
Welk in Strasburg, North Dakota. (This
earmark was so egregious that the USDA
refused to make the funds available.)
• $537 million appropriated in 1992 for new
fixed guideway rail and bus systems and
extensions to existing systems, commonly
known as "new starts." These "new starts"
included (1) $103 million for projects without full funding grant agreements
(FFGAs) and that did not meet Federal
Transit Administration criteria of cost-effectiveness and local financial commitment, and (2) $208 million for projects for
which sufficient information is not avail-

16.

Part One-375

INCREASING RETURNS ON INVESTMENT

able to determine cost-effectiveness and
local financial commitment.
ONEROUS PROGRAM RESTRICTIONS
Congress continues to become ever more
deeply involved in the day-to-day operations
of Federal agencies. There is a tension between
legitimate oversight and micro-management.
Although the dividing line is not always
clear, onerous Congressional program restrictions not only cause practical problems, they
can also overstep the Constitutional authority
of the Executive Branch to execute the law.
Examples of onerous Congressional restrictions include:
• Directions to the Department of Defense
to "give away" properties freed up from
base closures (estimated market value of
about $500 million) to States, other Federal agencies, and local interests. Such directions seriously undermine the objectives
and savings to be derived from closing
military bases.
• A prohibition on the Interior Department
transferring technical responsibility for its
dam safety program from the Bureau of
Indian Affairs to the Bureau of Reclamation. The BIA has far less expertise
in this area than the Bureau of Reclamation. As a result, lives and property
are put needlessly at risk, so that one appropriations committee will not lose jurisdiction to another.
• A prohibition on the Office of Personnel
Management
reducing
non-foreign
COLA's. OPM cost surveys show that
sharp reductions in cost-of-living allowances for Federal workers in Alaska, Hawaii, Guam, Puerto Rico and the Virgin
Islands are warranted. Non-foreign area
COLA's were originally established when
particularly high living expenses in these
locales justified special pay rates. This restriction will cost taxpayers more than
$100 million a year.
• Cancellation of the indebtedness of seven
cities (New London, CT; Newburyport and
Maiden, MA; Jefferson, MS; Calhoun
Falls, SC; Suddy Daisy, TN; and Davenport, IA) with respect to amounts owed

the Federal Government under HUD
grants and contractual agreements. A select number of cities benefit, while taxpayers lose $5.2 million.
WASTEFUL ADMINISTRATIVE
PRACTICES
Congressionally mandated administrative
practices (such as procurement rules, personnel restrictions, and limitations on office
consolidations or closings) force expenditures
for particular favored activities, regardless
of their merit or costliness.
For example, Congress:
• Opposes revamping USDA's 50-year old,
bloated field structure. The current 11,000
office, 63,000 employee system costs $2.4
billion a year. Today 1 in 50 Americans
live on farms, compared to 1 in 4 in 1935
when the Department's field structure was
initiated. In addition, vast improvements
in transportation and communication networks have made farmers' access to information and assistance much easier.
• Provides 11 separate appropriations for
the Secretary of Agriculture and senior
staff offices. This adversely affects the
ability of senior officials to manage the
Department effectively.
• Unduly restricts the deployment of staff
in HUD's headquarters offices. Restrictions include setting staff ceilings by office
(some as small as 13 staff years) and prohibiting any HUD organization from detailing persons to Department management.
• Prohibits the U.S. Customs Service closing, relocating, or consolidating any Customs office. This restriction forces managers to deploy resources inefficiently.
• Prohibits the General Services Administration from contracting for certain services provided by GSA employees (e.g.,
guards, elevator operators, and messengers). This restriction denies GSA flexibility to deliver services in the most costeffective manner.
• Prohibits the Department of Labor contracting out operations of Job Corps' Civil-

Part 0ne-376

THE BUDGET FOR FISCAL YEAR 1993

ian Conservation centers with non-governmental entities. This prohibition builds in
cost inefficiencies.

ously impair the Government's efforts to
simplify some 20 million purchase actions
each year and reduce costs.

• Sets personnel floors in many agencies, including several USDA bureaus, the U.S.
Customs Service, the Office of Foreign Assets Control, and the Bureau of Alcohol,
Tobacco, and Firearms. This prevents productivity improvements and automation.

• Places multiple reporting requirements on
the Defense Department requiring significant time and resources that could be better utilized managing programs.

• Continues to apply socioeconomic statutes,
such as the Davis-Bacon and Service Contract Acts, at thresholds below $2,000 and
$2,500, respectively. These provisions seri-

• Imposes overlapping and inconsistent statutes dealing with procurement integrity
that unnecessarily complicate the procurement process and impair the Government's
ability to recruit and retain qualified employees.

SUMMARY OF TERMINATIONS, REDUCTIONS, AND
INCREASES
The Budget Enforcement Act of 1990 (BEA)
set separate 1993 spending limits for defense,
international, and domestic discretionary programs. As one measure to bring the growth
of the Federal budget under control, the
budget proposes a freeze on 1993 budget
authority for domestic discretionary programs
at the aggregate 1992 level of $203.1 billion.
Outlays resulting from this freeze are estimated to be $224.7 billion for 1993, $0.6
billion below the BEA limits.

to as "pork" or "pork-barrel" projects. Standards most commonly violated are:

The budget proposes that 330 programs
be terminated or reduced. These reductions
were made on the merits, to terminate or
decrease funding for programs no longer
necessary or of low priority. The reductions
also helped to make possible funding increases,
within the discretionary caps, for programs
with a much higher priority. This part of
this chapter discusses the proposals for terminations and reductions and summarizes the
increases, most of which are described in
detail in other chapters.

• Requirements that design work for construction projects be significantly underway (35-50 percent completed) to ensure
that funded projects can be executed on
time and within authorized funding levels
are disregarded.

TERMINATION OF SUBSTANDARD
PROJECTS
Many projects funded by the Congress
do not meet programmatic standards established by Congress in authorizing statutes
or by published agency regulations. These
substandard projects are commonly referred

• Requirements to use competitive procedures in making grants and awarding contracts are waived in order to fund legislatively designated projects.
• Requirements to fund only projects of national or regional importance are disregarded in order to fund projects of purely local interest.

This section identifies examples of such
substandard projects, for which $433 million
in budget authority was provided in 1992.
The budget proposes to eliminate new funding
for such projects in 1993. The types of
substandard projects that are included in
this discussion are summarized in Table
16-1.

Department of Agriculture
Earmarked non-competitive buildings
and facilities•—In the 1992 Budget, the Administration proposed a $25 million competitive grant program to finance facility construction at the land-grant universities. This pro-

Part One-377

16. INCREASING RETURNS ON INVESTMENT

Table 16-1. TERMINATIONS OF SUBSTANDARD PROJECTS
(In millions of dollars)
1992 Enacted
Number
Ui
of
Programs

Agriculture:
Earmarked Buildings and Facilities
Extension Service Special Grants

Number
ui
of
Projects

1993 Proposed

JDuugeu
Budget
Authority

Outlays

1
1

51
25

74
13

46
13

Energy: Earmarked Research Projects

Housing and Urban Development: Special
Project Grants

Transportation:
Federal Highway Administration
Conrail Commuter Transition Assistance .
Amtrak Corridor Improvement Loans

Outlays

ity

Subtotal, Transportation
Small Business Administration: Miscellaneous Grants
of Substandard

—

-74
-13

-4
-13

—

-87

-17

—

-85

-4

133

150

—

-150

1
1

28
WA
N/A

73
14
4

5
3

—

12
19

-73
-14
-4

7
16

Subtotal, Agriculture

Total, Terminations
Projects

Budget
DuugeL
Authority

Change: 1992 to
1993
Budget
Author- Outlays

—

-91

—

-20

264

433

200

—

182

-433

-18

—

* $500,000 or less.

gram was rejected by Congress, which instead
earmarked $74 million for special facility
grants directly to universities. These grants
were not awarded competitively. Because of
the lack of support from Congress for a competitively awarded grants program for facilities, the Administration does not request support for buildings and facility construction in
the budget.
Department of Energy
Earmarked
non-competitive
energy
projects.—The Department of Energy scientific research programs fund projects
through an objective merit review process in
which requests for proposals are published and
distributed to the scientific community. Proposed projects compete and are selected on the
basis of scientific merit and applicability to
program goals. However, $85 million of appropriated 1992 funds were earmarked for specific
projects and activities that have not been subject to competition and have not been evaluated and selected on the basis of their scientific and technical merit or their relevance
to the agency mission.

Department of Housing and Urban
Development (HUD)
Special Project Grants.—In 1992, Congress provided $150 million for specifically-directed grants which violate the principles of
open and fair distribution of HUD program
resources that were adopted by the Congress
in the 1989 HUD Reform Act to restore the
public's faith in HUD programs. These grants
were awarded directly in annual appropriations action without authorization, without any
published selection criteria, and without application procedure. The budget requests no funding for such projects.
Department of Transportation
Federal Highway Administration.—Federal highway funding is apportioned to the
States. It is the State's responsibility to select
which projects will receive funding. To be eligible for Federal funding, the project must be
on the Federal-aid highway system. In 1992,
Congress appropriated $73 million for 28
projects which were not on the Federal-aid
highway
system.
These
"demonstration
projects" should be the sole responsibility of

Part 0ne-378

THE BUDGET FOR FISCAL YEAR 1993

the States and are not eligible for regular Federal funding.
Conrail commuter transition assistance.—This program was originally designed
to help defray the one-time start-up costs of
commuter service and other transition expenses connected with the transfer of rail commuter services from Conrail to other operators
(Public Law 97-35 and Public Law 97-468).
Between 1986 and 1992, $33 million outside
of the original statutory mandate have been
appropriated through this program to be available to the Southeastern Pennsylvania Transportation Authority (SEPTA) for continuing
rail and bridge improvements. These are local
projects that should be financed through
SEPTAs own funds.
Amtrak corridor improvement loans.—In
1991 and 1992, $7 million was provided to a
private rail carrier for infrastructure improvements in Illinois. These loans have been targeted for a local rehabilitation project on a
private railroad under the pretext of preserving Amtrak service over an existing route. This
project is unnecessary to preserve Amtrak
service (alternative routes are available), and
the Federal Government should not be financing capital improvements on a private rail carrier. The budget requests no new loans.

Small Business Administration
Miscellaneous Grants.—For 1992, the
Congress provided $20 million to SBA to fund
a number of projects at various colleges and
universities and at local economic development
centers. These projects were provided, without
authorization, in annual appropriations action.
Because these projects are inconsistent with
the objectives of the Small Business Act, the
budget requests no funding for them for 1993.
OTHER PROGRAM TERMINATIONS
In addition to the terminations of substandard projects, the budget requests termination of 222 other programs. Programs are
proposed for termination for a variety of
reasons. Some should not be Federal responsibilities since they can be more effectively
managed by either State and local governments or the private sector. Others have
fulfilled their original missions and are no
longer needed. Still others duplicate other
more effective Federal programs or cannot
be afforded within available Federal resources.
A discussion of the major domestic discretionary terminations proposed in the budget
follows. Terminations are listed by agency.

Table 16-2. TERMINATIONS OF DOMESTIC DISCRETIONARY PROGRAMS
(In millions of dollars)
1992 Enacted
Number
of
Programs

Commerce:
Economic Development Administration ....
National Oceanic and Atmospheric Administration:
Oceanic and Atmospheric Research
Fisheries Assistance and Research
Weather Service Local Assistance
National Ocean Service Local Assistance
Facilities Construction
Program Support—Facilities
Public
Telecommunications
Facilities
Grants
International Trade Administration
Childrens Television Endowment Fund ....
Tourism Disaster Grants
Subtotal, Commerce

Number
of
Projects

1993 Proposed

Budget
Authoriy
t

Outlays

Budget
Authoriy
t

842

229

197

14
30
14

107
42
30

36
21
11

29
17
10

8
3
3

12
3
3

6
4
2

5
3
1

1
3
1
1

140
3
4
15

22
14
2
2

20
14
—

—

1,201

349

299

—

Outlays

Change: 1992 to
199S
Budeet
Author- Outlays
ity

186

-229

-11

11
7
4

-36
-21
-11

-18
-10
-6

-6
-4
-2

-3
-2

—

2
1
1

—

1
1

-22
-14
-2
-2

6
14
1
-2

240

-349

-59

—

—
—
—

—
—

—

Part One-379

16. INCREASING RETURNS ON INVESTMENT

Table 16-2. TERMINATIONS OF DOMESTIC DISCRETIONARY PROGRAMS—
Continued
(In millions of dollars)
1992 Enacted

1993 Proposed

Number
of
Programs

Number
of
Projects

Budget
Author-

Outlays

2
2
30

WA
WA
WA

228
139
196

221
142
171

Subtotal, Education
Health and Human Services:
Community Services Block Grant
Untargeted Health Professions Assistance
Grants
Mental Health Protection and Advocacy ...
State Formula Planning Grants for Dependent Care
Mental Health Clinical Training
Community Youth Activity Formula
Grants
Trauma Care Demonstration Grants
Demonstration Emergency Medical Services
Other

563

533

187

437

453

27
1

1,488
56

188
20

165
16

1
1

56
123

13
11

13
12

1
1

74
10

10
5

14
2

1
3

14
49

5
30

5
22

Subtotal, Health and Human Services
Housing and Urban Development:
Public Housing New Construction
Indian Housing New Construction
Flexible Subsidy Fund
Section 8 Moderate Rehabilitation Single
Room Occupancy
Supplemental Assistance for Facilities
Congregate Services

2,057

719

702

1
1
1

WA
WA
WA

574
227
50

520
178
36

1
1
1

WA
WA
N/A

105
11
1

19
9
5

—

968

767

Education:
Student Financial Assistance
Impact Aid
Other

Subtotal, Housing and Urban Development
Interior:
Rural Abandoned Mine Program
Bureau of Indian Affairs Business Development Grants
Bureau of Mines Mineral Institutes
National Park Service Urban Park Grants
Navajo Rehabilitation Trust Fund
Bureau of Indian Affairs Direct Loans
Subtotal, Interior
Justice:
Mariel Cuban Grant Program
Labor:
Job Training Partnership Act (JTPA)
Setasides
Bureau of Labor Statistics Mass Layoff ....
Mine Safety and Health Administration
State Grants
National Occupational Information Coordinating Committee (NOICC)
Bureau of Labor Management Relations
Cooperative Program
National Veterans Training Institute

1
1
1
1
1

N/A
WA
WA
WA
WA

7
6
5
4
3

5
10
18
4
3

2
1

Budget
Author-

Change: 1992 to
1993

Outlays

Budcet
Author-

Outlays

178
29
145

-228
-139
-196

-42
-112
-26

353

-563

-180

149

-432

-303

46
14

-188
-20

-119
-2

10
2

-13
-11

-3
-10

18
2

-10
-5

—

1
11

-5
-30

-4
-11

253

-714

-448

746
176
-17

-574
-227
-138

226
-2
-53

23
11
5

-105
-11
-1

4
2

944

-1,056

177

—

-12

-1

—

-7
-6
-5
-4
-3

-5
-4
-9
-4
-3

-37

-26

-5

—
—
—
—

5
—
—

—
—

5
—
—

-88
—
—
—

-88

6
9

—
—
—

—

WA
49

8
6

1
1

—

-8
-6

-6

—

-6

—

-5

—

4
2

3
2

—

-4
-2

-2
-2

—

—
—

—

Part 0ne-380

THE BUDGET FOR FISCAL YEAR 1993

Table 16-2. TERMINATIONS OF DOMESTIC DISCRETIONARY PROGRAMS—
Continued
(In millions of dollars)
1992 Enacted
Number
of
Programs

Number
of
Projects

Subtotal, Labor
Transportation:
Federal Highway Adminstration
Northeast Corridor Improvement
Local Rail Freight Assistance Grants
Subtotal, Transportation
Army Corps of Engineers:
Water Projects and Studies
Environmental Protection Agency:
Construction Grants Project on the Rouge
River
Asbestos Abatement Loans and Grants ....
Miscellaneous Low-Priority Projects
Unnecessary Buildings and Facilities
Non-Competitively Selected Water Projects
Low Priority Superfund Projects

Subtotal, National Aeronautics and Space
Administration
Small Business Administration:
Small Business Development Centers
Tree Planting
Subtotal, Small Business Administration .
Other Independent Agencies:
Interstate Commerce Commission
District of Columbia Special Projects
State Justice Institute
Commission on Bicentennial of the US
Constitution
Subtotal, Other Independent Agencies
Total, Other Domestic Discretionary
Terminations
Substandard Projects Terminations
Total, Domestic
nations

Discretionary

Change: 1992 to
1993

Budget
Authority

Outlays

—

-1

—

-32

-17

1
1

103
IVA
40

528
205
12

35
132
10

—

-528
-205
-12

56
47

—

91
179
10

143

745

177

—

280

-745

103

—

168

147

—

-168

-147

1
2
15
3

1
2
31
3

46
37
37
32

1
50
23
3

—

6
28
19
9

-46
-37
-37
-32

5
-22
-3
6

1
1

21
6

16
8

10
2

7
2

-16
-8

-3

—

176

—

-176

-18

1
1
1

315
211
27

311
5
21

100
—
—

-315
-211
-27

-211
-5
-17

553

337

—

104

-553

-233

1
1

56
N/A

61
16

44
16

13
—

—

-61
-16

-31
-16

—

-77

-47

1
5
1

1
5
185

41
17
14

41
17
15

—

-25
-17
-14

-26
-17
-1

—

-2

192

-58

-46

222
24

3,928
264

4,466
433

3,271
200

-67
—

2,325
182

-4,533
-433

-946
-18

246

4,192

4,899

3,471

-67

2,507

-4,966

-964

Bureau of Labor Statistics Foreign Direct
Investment

Subtotal, Environmental Protection Agency
National Aeronautics and Space Administration:
Advanced Solid Rocket Motor
Comet Rendezvou^Asteroid Flyby
Space Test of Relativity Experiment

1993 Proposed
Budget
Authority

—
—

Outlays

—

Budget
Authority

Outlays

—

Termi-

16.

INCREASING RETURNS ON INVESTMENT

Department of Commerce
Economic Development Administration
(EDA).—The Administration proposes to terminate the EDA ($229 million in 1992 for direct assistance), funding only closeout costs in
1993. Although originally designed to aid distressed areas, EDA assistance is now available
to more than 80 percent of the country. In
addition, decisions on local economic investment options that yield only local benefits are
best made and paid for at the local level. The
goals of the EDA programs can best be promoted at the Federal level through the Administration's other economic development and job
creation programs.
National Oceanic and Atmospheric Administration (NOAA) projects.—The budget
does not request funding for 72 NOAA programs totaling $80 million that are direct industry subsidies, compete with private industry, are low priority State-specific projects, or
are made unnecessary due to management improvements.
Department of Education
Obsolete forms of student financial assistance.—The budget proposes no funding for
two discretionary student financial assistance
programs—State Student Incentive Grants and
Federal Capital Contribution for Perkins loans.
The former has long since achieved its goal
of stimulating States to establish need-based
student financial aid programs of their own.
The latter provides for costly loan subsidies,
which are not needed in light of the general
availability of Stafford and other guaranteed
student loans.
Impact aid.—No funds are proposed in the
impact aid programs for "b" payments for federally connected children or for payments for
decreases in Federal activity. No significant
burden is placed on most school districts associated with either the presence of "b" children
or the closing of military facilities.
Other.—The Administration proposes to terminate 30 small, narrow-purpose categorical
education programs that have achieved their
purpose, are low priority, or whose objectives
can be achieved through broader program authorities.

Part One-381
Department of Health and Human
Services
Community Services Block Grant.—Now
that community action agencies are mature,
they should not need the special administrative funding provided by this program; they
should compete with other services providers
on an even basis. In addition, the HHS Inspector General has found many problems in the
use of discretionary grant funds.
Untargeted Health Professions Curriculum Assistance Grants.—The budget does
not request funding for untargeted health professions curriculum assistance grants, but supports targeted health professions assistance for
disadvantaged students. After two decades of
Federal support, the aggregate shortage of
health professionals perceived in the 1960s,
when these subsidies were initiated, has
abated. Apart from the targeted curriculum assistance grants, funding to help students finance their training in the health professions
is available through other sources, including
Medicare medical education payments, health
professions loans for disadvantaged students,
and guaranteed loans and other student assistance through the Department of Education.
Department of Housing and Urban
Development
Public housing new construction.—The
budget proposes to terminate new public housing construction, but continues to provide
funding for vouchers and a limited new construction program for the elderly and disabled.
Public housing new construction costs at least
twice as much as rental assistance, whether
it is in the form of rental certificates or housing vouchers. Housing vouchers expand opportunity for low income households by increasing
their ability to choose where to live. In addition to this critical social benefit, vouchers also
meet national housing policy objectives at substantially lower cost.
Indian housing new construction.—The
Administration proposes to fund Indian housing new construction as a setaside through
HOME investment partnership grants, rather
than as a separate categorical program. The
HOME grants provide Indian tribes greater
flexibility in the use of resources (rental assistance, rehabilitation, or new construction) than

Part 0ne-382
the current new construction program. This
set-aside would fund about 1,475 units of new
Indian housing should tribes decide to use all
of the HOME funds for new construction; a
higher number would be served if funds are
used for rehabilitation and rental assistance,
as opposed to exclusive reliance on new construction.
Flexible subsidy.—No funds are requested
for this program. Instead, the budget requests
funds for a new initiative, called Restore,
which replaces this program.
Section 8 moderate rehabilitation single
room occupancy (SRO).—The budget does
not request funding for this program. Instead,
the Administration requests $266 million for
Shelter Plus Care, a program that combines
SROs and other housing resources with medical/mental health/drug addiction treatment
services. The Administration supports Shelter
Plus Care's innovative approach to the multifaceted needs of many of the homeless.
Supplemental assistance for facilities.—
The Administration proposes to merge this
program into the transitional housing for the
homeless program. This consolidated program
would make delivery of assistance to homeless
families and individuals more efficient by reducing the number of separate, national funding competitions conducted by the Department
of Housing and Urban Development.
Congregate services.—The Administration
proposes to replace congregate services with
a new program. The new program would provide frail elderly with special housing vouchers
subsidizing both housing and service costs.
This new program emphasizes choice of independent living arrangements and is better targeted to the frail elderly than the current congregate services program. Funding is also provided for service coordinators who help residents in elderly public housing projects find
needed support services.
Department of Interior
Rural
Abandoned
Mine
Program
(RAMP).—RAMP, which operates small-scale
rural mine land reclamation projects, is administered through the Department of Agriculture.
This duplicates existing State reclamation activities administered through Interior's Aban-

THE BUDGET FOR FISCAL YEAR 1993

doned Mine Land (AML) grant program. The
Administration proposes no additional funding
for RAMP in order to eliminate duplication
and to ensure that such activities are State
reclamation priorities.
Bureau of Indian Affairs (BIA) business
development grants.—The budget requests
no funding for BIA development grants to Indian businesses. These grants have little or
no documented record of success and would
continue unnecessary reliance on the BIA for
assistance to Indian businesses. The Administration places much greater emphasis on promoting commercial lending to tribes and individual entrepreneurs through BIA's 90-percent
loan guarantees. This will enable individuals
to shift from reliance on the Federal Government to reliance on the private sector, which
provides the only viable long-term source of
funds and expertise for all of the Nation's new
businesses.
Bureau of Mines mineral institutes.—The
mineral institutes program was initiated in the
1970s to provide seed money to encourage the
development of mineral-related university research and graduate education programs. The
States have responded and such programs are
now in place. Therefore, the program's goal
has been accomplished, and there is no further
need for direct Federal financial assistance to
these institutes.
National Park Service urban park
grants.—The Administration proposes no
funding for urban park grants in 1993. No
funds were requested or appropriated from the
mid-1980s through 1990 for these grants to
local governments for city park maintenance
and rehabilitation. Local park maintenance
and rehabilitation must remain the responsibility of the local governments that established these parks. Making maintenance and
rehabilitation of local parks a Federal responsibility could add hundreds of millions of dollars annually to the Federal deficit.
Navajo Rehabilitation Trust Fund.—This
program funds infrastructure improvements on
Navajo tribal land in Arizona and New Mexico,
to be repaid when subsurface coal acquired by
the Navajo Tribe (the Paragon Ranch) is mined
and sold. The budget suspends infrastructure
funding until coal mining plans are definite
and a repayment plan is implemented.

Part One-383

16. INCREASING RETURNS ON INVESTMENT

Bureau of Indian Affairs (BIA) direct
loan program.—The budget requests no funding for BIA direct loans to Indian businesses.
These loans have higher subsidies than BIA
guaranteed loans and are not needed in light
of the general availability of the guaranteed
loans. Direct loans also have a delinquency
rate of more than 50 percent. In addition, with
BIA's 90-percent loan guarantees, more emphasis can be given to promoting commercial
lending to tribes and individual entrepreneurs
through direct face-to-face contact with private
sector banking expertise. Continued reliance
on direct BIA lending would be ineffective and
inappropriate.
Department of Transportation
Federal Highway Administration.—The
budget proposes to terminate funding for current categories of earmarked State-specific
highway project funding. The Administration
has consistently opposed Congressional earmarking of funds for specific projects. This reduces the States' ability to determine which
projects to fund and generally results in the
construction of projects that are a lower priority.

from internally generated funds. There is no
longer a need for a Federal role in preserving
light density lines.
Corps of Engineers
Water projects and studies.—The budget
provides no funding for 74 studies, and construction and maintenance activities for
projects that were added to the 1992 Budget
by the Congress at a cost of $168 million in
1992, with much larger outyear funding requirements. The majority of these activities do
not meet long-standing Administration criteria
in that they are not Federal responsibilities,
not economic, not cost-shared as prescribed by
law, or were legislatively exempted from cost
sharing.
Environmental Protection Agency

Northeast corridor improvement program.—Since 1982, the Federal government
has provided almost $700 million specifically
for improvements on the Northeast corridor.
In the future, new projects on the corridor to
improve Amtrak service should be financed
through Amtrak's regular capital program, not
as a separate appropriation.

Rouge River storm water.—The budget
terminates a one-time Congressional project
for the Rouge River in Michigan. The $46 million project was not authorized, and would not
normally be funded by EPA's construction
grants program. Municipalities across the
country are assuming responsibility for storm
water control, paid for by local water utility
fees. In that context, this Congressional project
sets a bad precedent. In contrast, the budget
targets limited resources to high priority
wastewater treatment projects that are well
within the traditional eligibilities of the construction grants program, address nationally
prominent pollution problems, and will have
significant environmental benefits.

Local rail freight assistance grants.—
The conditions prevalent in the rail industry
that inspired this program no longer exist—
namely, the abandonment of light density rail
lines during the industry's financial crisis in
the 1970s. Since the partial deregulation
achieved by the Staggers Rail Act in 1980,
shortline and regional railroads have become
a growth industry. Furthermore, 20 States
have their own local rail assistance programs.
Finally, a report issued by the Department of
Transportation, Deferred Maintenance and Delayed Capital Improvements on Class II and
Class III Railroads, found that 85 percent of
the carloads reported by small railroads were
accounted for by carriers with no rehabilitation
needs or no needs beyond what they can cover

Asbestos loans and grants.—The budget
requests no funding for the asbestos-in-schools
loans and grants program. The program has
already greatly reduced the asbestos problem.
Additional funding would largely go either to
State and local agencies that are capable financially of addressing the remaining problem
themselves or to low priority projects that do
not represent a significant environmental
threat. By the end of 1992, over $340 million
in Federal funds will have been provided to
over 1,000 local educational agencies showing
the greatest financial and environmental
needs. The financial responsibility for asbestos
abatement now rests with States and localities. At least 35 States have enacted more
than 60 asbestos-related laws and nearly half

Part 0ne-384

THE BUDGET FOR FISCAL YEAR 1993

of the States have financing provisions in the
laws.

and several other science instruments. In addition, the Cassini mission also includes an asteroid flyby.

National Aeronautic and Space
Administration

Other Agencies

Advanced Solid Rocket Motor (ASRM).—
ASRM is a project designed to replace the
Space Shuttle's existing solid rocket motors by
developing an improved version. Termination
of new motor development is proposed because
of significant program cost growth and schedule delays, diminution of benefits since time
of approval, and viability and cost savings of
continuing to use the current solid rocket
motor.

Interstate
Commerce
Commission
(ICC).—Consistent with previous Administration proposals, the budget proposes to sunset
the ICC following enactment of proposed legislation to eliminate all remaining economic regulation of the trucking industry by the Federal
Government. Residual functions would be
transferred to the Departments of Transportation and Justice, and the Federal Trade
Commission.

CRAF/Cassini —The CRAF/Cassini project
is a roughly $2 billion planetary exploration
mission. CRAF is a comet rendezvous and asteroid flyby mission and Cassini is a mission
to Saturn. They were being developed together
because they utilize many of the same technologies. However, the budget proposes to terminate CRAF because the scientific benefits
of this mission no longer justify the investment. The scope of the CRAF project was recently reduced by deleting its comet penetrator

OTHER PROGRAM REDUCTIONS
The budget requests that numerous programs be funded below the level enacted
for 1992. These programs are either (1)
of lower priority and need to be restrained
in order to fund higher priority programs,
or (2) can be reformed at a significant
cost savings to the Federal Government while
still fulfilling their purpose.

Table 16-3. MAJOR REDUCTIONS IN DOMESTIC DISCRETIONARY
PROGRAMS
(In millions of dollars)
1992 Enacted
Number Number
of
of
Budget OutPrograms Projects
Aulays
thority
Agriculture:
WatershecVRiver Basin Programs
Cooperative State Research Service Special Research
Grants
Subtotal, Agriculture
Commerce:
National Oceanic and Atmospheric Administration .
.
Decennial Census
Subtotal, Commerce
Education:
Work Study and Opportunity Grants
Impact Aid
Other
Subtotal, Education
Energy:
Fossil Research and Development
Conservation Grants
Subtotal, Energy
Health and Human Services:
Low-income Home Energy Assistance
Refugee and Entrant Assistance

1993 Proposed
Budget
Authority

Outlays

Change: 1992
to 1993
Budget
Authority

Outlays

228

270

169

184

135

-46

141

303

294

198

245

-105

-49

77
1

133
73

98
117

66
59

81
61

-67
-14

-17
-56

206

215

125

142

-81

-73

IS/A
M/A
N/A

1,192
589
230

975
596
215

812
506
160

1,152
538
199

-380
-83
-70

177
-58
-16

N/A

2,011

1,786

1,478

1,889

-533

103

1
1

444
240

442
208

311
155

393
186

-133
-85

-49
-22

684

650

466

579

-218

-71

1
5

1,500
411

1,143
371

1,065
227

674
283

-435
-184

-470
-88

-59

-86

Part One-385

16. INCREASING RETURNS ON INVESTMENT

Table 16-3. MAJOR REDUCTIONS IN DOMESTIC DISCRETIONARY
PROGRAMS—Continued
(In millions of dollars)
1992 Enacted
Number Number
of
of
Budget OutPrograms Projects
Aulays
thority
Subtotal, Health and Human Services
Housing and Urban Development:
Housing for the Elderly and Disabled
Home Grants
Public Housing Modernization
Community Development Block Grants
Public Housing Operating Subsidies
Subsidized Housing Amendments
Renewal of Expiring Section 8 Contracts

2
1
1
1
1
1
1
1

N/A
N/A
N/A
N/A
N/A
n/a
N/A

Subtotal, Housing and Urban Development
Interior:
National Park Service and Fish Wildlife Service Construction
Bureau of Reclamation Construction
Miscellaneous Payments to Indians
Bureau of Indian Affairs Construction

Budget
Authority

Out-

Change: 1992
to 1993
Budget
Authority

Outlays

1,911

1,514

1,292

957

-619

-558

1,193
1,500
2,801
3,400
2,450
2,300
7,355

1,868
30

2,025
269
3,339
2,271
305
2,260

-872
-800
-509
-500
-168
-121
-93

157
239

3,125
2,271
329
1,508

321
700
2,292
2,900
2,282
2,179
7,262

-24
752

N/A 20,999

9,131

17,936

10,469

-3,063

1,338

2
1
1
1

N/A
N/A
N/A
N/A

386
564
123
203

471
729
80
149

186
461
32
130

316
477
73
161

-200
-103
-91
-73

-155
-252
-7
12

Subtotal, Interior
Justice:
Prison Construction
Juvenile Justice Grants
Cooperative Agreement Program
Regional Information Sharing System

n/a

1,276

1,429

809

1,027

-467

-402

1
1
1
1

5
56
12
7

452
72
15
15

275
65
9
14

339
8
7
10

456
45
4
5

-113
-64
-8
-5

181
-20
-5
-19

Subtotal, Justice
Labor:
Older Americans Employment
Various Job Training Partnership Act Programs

554

363

364

500

-190

137

1
6

tyA
n/a

395
160

385
172

343
132

385
165

-52
-28

-7

Subtotal, Labor
Transportation:
Federal Transit Administration—Operating Subsidies
Amtrak
Federal Transit Administration—New Starts1
Federal Transit Administration—Interstate Transfer
Grants

N/A

555

557

475

550

-80

-7

1
1
1

n/a
N/A
N/A

802
651
537

802
609
395

217
343
400

451
333
415

-585
-308
-137

-351
-276
20

n/a

160

197

143

-78

-54

Subtotal, Transportation
Treasury:
Custom Service: Operations and Maintenance Air and
Marine Program
Veterans Affairs: Major Projects Construction
Environmental Protection Agency:
Non-Point Source Grants
Miscellaneous Reductions

N/A

1,613

2,003

642

1,342

-971

-661

1
1

2
13

176
414

164
456

139
382

160
472

-37
-32

-4
16

1
6

1
10

53
132

52
115

27
101

38
113

-26
-31

-14
2

185

167

128

151

-57

-16

525

448

319

491

-206

1
5
6

N/A
N/A
N/A

122
246
27

61
159
19

24
155
1

61
174
7

-98
-91
-26

-15
-12

N/A

395

239

180

242

-215

-3

N/A
1
1
13
N/A
N/A

983
134
470
190
135
319

660
134
470
117
131
319

292
100
122
100
79
303

735
100
122
133
87
303

-691
-34
-348
-90
-56
-16

75
-34
-348
16
-44
-16

Subtotal, Environmental Protection Agency
National Aeronautics and Space Administration: Construction of Facilities
Small Business Administration:
Disaster Loan Subsidies
Guaranteed Business Loan Subsidies
Direct Business Loan Subsidies
Subtotal, Small Business Administration
Other Independent Agencies:
Federal Emergency Management:
Disaster Relief
Emergency Food
Postal Revenue Forgone
Appalachian Regional Commission
Tennessee Valley Authority
Railroad Windfall Subsidy

1993 Proposed

—

214
—

Part 0ne-386

THE BUDGET FOR FISCAL YEAR 1993

1993 Proposed
Budget
Authority

Outlays

Change: 1992
to 1993
Budget
Authority

Outlays

15
84

2,231

1,831

996

1,480

-1,235

-351

359

34,038

21,247

25,929

20,696

-8,109

-552

budget authority shown for this program is not counted under the discretionary cap and is not include in the totals for this table.

Department of Agriculture
Watershed and river basin programs.—
In 1992, the Congress added almost $57 million for these programs, an increase of almost
one-third above the Administration's request.
The 1993 request continues funding for these
programs at about the level in the 1992 Budget, and places emphasis on ongoing high priority projects and studies.
Cooperative State Research Service special research grants.—In 1992, Congress
added $47 million for 135 special research
grants earmarked directly to universities to
address local needs and problems. The Administration does not request funds in 1993 to
continue these grants. A grant program that
focuses on national or regional needs and
makes awards competitively is a more appropriate means of spending Federal research and
development dollars.
Department of Commerce
National Oceanic and Atmospheric Administration (NOAA).—The 1993 request for
the Coastal Zone Mangement and National
Sea Grant programs is at a level below 1992.
Because the benefits of these programs are
largely State or regionally based, it would be
appropriate for non-Federal entities to assume
a larger portion of program costs. For modernization of the NOAA fleet, Congress provided $33 million in 1992. For 1993, the $2
million requested will allow for critical maintenance of the existing fleet and for continued
fleet modernization planning. Funding will
continue for development of the advanced
weather interactive processing system, but at
a reduced level in recognition of adequate carryover funds.

Census Bureau decennial census.—The
1990 Decennial Census is winding down. Activities to be performed in 1993 include completing the release of data products and evaluating Census coverage, content, and procedures used in the 1990 census.
Department of Education
Student financial assistance.—The budget proposes to reduce two discretionary campus-based student aid programs, Work Study
and Supplemental Educational Opportunity
Grants, by $380 million. Total aid provided
to students would not be reduced because
schools would be required to provide a higher
matching share. The budget appropriately
refocuses discretionary student aid funding on
the largest and most effective program, Pell
grants, which would be increased by $1.2 billion, or 22 percent, over 1992. Pell grants provide the best and most effective delivery mechanism to reach low and middle income students.
Impact aid.—The budget proposes reduced
funding for impact aid "a" payments. This general aid is not focused on educational improvements for students in need of assistance.
Department of Energy
Fossil
Research
and
Development
(R&D).—The budget requests a reduction in
funding for the non-petroleum R&D areas in
the fossil R&D budget. Because of the lack
of private sector participation and cost sharing
in these applied R&D areas and their history
of limited success, R&D funds are reallocated
to higher priority areas. For example, in coal,
emphasis has been placed on more efficient
combustion technologies. Additional funding is
1 1 " n^iiyrii ioc where siennifioant inalp

16.

INCREASING RETURNS ON INVESTMENT

dustry interest and cost sharing can be expected.
Conservation grants.—The weatherization
assistance program (WAP) provides Federal
assistance to State and local organizations to
increase the energy efficiency of residences.
Currently available data indicate that the
WAP program is not cost effective because the
average annual energy savings is not sufficient
to pay back the Federal investment within the
average useful life of the housing stock. The
budget recommends a restructured conservation grant program with a reduced low
income weatherization program but an increased cooperative, cost-shared demonstration
program with States, which should prove more
beneficial.
Department of Health and Human
Services
Low-income home energy assistance
(LIHEAP).—LIHEAP was enacted as a temporary program to deal with short-term energy
price increases. The price of natural gas, the
heating fuel most households use, is at a longterm low and expected to remain low through
1993. The Administration proposes to reduce
funding to $1.1 billion in 1993. As enacted for
1992, a significant portion of this amount
would become available on September 30th.
Refugee and entrant assistance.—The
budget continues to phase down the special
welfare portion of this program, which supplies
benefits unavailable to citizens. Refugees
would continue to be eligible for regular welfare benefits on the same basis as citizens.
Department of Housing and Urban
Development
Housing for the elderly and disabled.—
The budget proposes to reduce this program
by $0.9 billion in 1993 because other more effective and less costly programs are available
to meet the housing needs of low-income elderly and disabled individuals. These include: (1)
the HOME grants program, which includes a
set-aside for non-profit organizations, and (2)
less costly housing vouchers. In addition, HUD
evaluations indicate that HUD subsidized
housing programs disproportionately meet elderly needs relative to those of younger families with children.

Part One-387
HOME grants.—In appropriations language, Congress shifted the focus of the Federal HOME program to housing construction
by waiving the non-Federal match requirement
for 1992. The sliding-scale match favored tenant-based assistance by making new construction more expensive from the State and local
governments' perspectives. The 1993 request
level reflects the Administration's disapproval
of the waiver and the resulting distortion of
the program's purpose.
Public housing modernization.—Modernization of public housing to assure safe and
decent housing remains an Administration priority. The 1993 proposed level of $2.3 billion
represents a 7.5 percent increase over the average modernization funding level for 1988
through 1992. The unsustainable 1992 level
of $2.8 billion has only increased the already
substantial, multi-billion dollar backlog of
available but unspent modernization funds.
Community development block grants
(CDBG).—The 1993 request level ($2.9 billion)
is consistent with the Administration's 1992
request. The HOME program also provides
Federal block grants to State/local governments for use in assisting low-income individuals. The CDBG request plus the HOME request totals $3.6 billion in grant funds going
to State and local governments.
Public housing operating subsidies.—
The 1992 appropriation of $2.45 billion provided by Congress for this program exceeds
the expected 1992 subsidy needs (estimated by
the Performance Funding System formula) by
about $250 million. The Administration opposes funding this account at a level that exceeds expected subsidy needs. The Administration remains committed to full funding of the
Performance Funding System requirements in
1993, and proposes a funding level of $2,282
billion that fully covers estimated subsidy
needs.
Subsidized housing amendments.—The
request for subsidized housing contract amendments in the budget decreases slightly because
HUD's estimated amendment needs drop. Over
time, the amendment needs are likely to decline as increasing numbers of subsidies are
renewed only for five years. Amendment needs
arise primarily because it is difficult to estimate up front the total amount of budget re-

Part 0ne-388
sources needed to cover the term of longerterm contracts.
Renewal of expiring Section 8 subsidy
contracts.—The Administration is requesting
full funding for all expiring Section 8 housing
contracts (e.g., housing vouchers and housing
certificates) in 1993. The number of expiring
contracts is expected to decline in 1993 and,
as a result, the amount of money needed to
renew these expiring contracts will also decline.
Department of the Interior
National Park Service (NPS) and Fish
and Wildlife Service (FWS) construction.—
The budget proposes to increase funding for
environmental infrastructure upgrading and
facility rehabilitation construction in both bureaus as part of the Administration's America
the Beautiful initiative. At the same time, the
Administration is not requesting follow-on
funding for new or continued projects that
were added to the 1992 budget request by individual members of Congress. Such projects
generally do not contribute to the basic missions of the National Park Service and Fish
and Wildlife Service. As a result, total proposed funding for NPS and FWS construction
is $200 million below the 1992 level.
Bureau of Reclamation (BuRec) construction.—The Administration is requesting
$461 million for the BuRec construction program in 1993, a reduction of $103 million from
1992. The reduction results from reduced funding requirements for projects nearing completion and from continuation of the Administrations policy of placing greater emphasis on
less capital-intensive, non-structural activities
and more efficient operation of existing
projects. The request maintains significant
funding levels for high-priority activities, including safety of dams, for which the Administration is requesting $95 million.
Miscellaneous payments to Indians.—The
budget requests funding for all currently enacted Indian settlements that require payments beyond 1992. The reduction from 1992
is a technical adjustment, reflecting lower
funding requirements in 1993.
Bureau of Indian Affairs (BIA) construction.—The budget request supports increased

THE BUDGET FOR FISCAL YEAR 1993

funding over 1992 to repair and maintain unsafe and unsanitary schools and other BIA facilities. However, the budget does not request
follow-on funding for construction projects that
were added to the 1992 budget request. Many,
such as BIA irrigation projects serving specific
Indian tribes, are not cost-effective to continue
building and are generally lower priority than
the health and safety projects funded in the
budget.
The budget also reflects a technical decrease
that has no programmatic effect. Road sealing
on Indian lands ($13 million annually and
formerly funded from BIA construction) will
now be financed from the Highway Trust
Fund pursuant to the 1991 Intermodal Surface
Transportation Efficiency Act.
Department of Justice
Prison Construction.—From 1990 through
1992, over $2 billion has been appropriated
for new construction, providing an estimated
increase of 40,000 bed spaces. As a result of
this increase, available bedspaces will almost
double within the decade of the 1990s. The
budget proposes an additional $339 million for
new construction and repair of prisons. While
a reduction of $113 million from 1992, this
level, in combination with prior year appropriations, will allow for growth in the prisoner
population with reduced prison overcrowding.
For example, the overcrowding of Federal prisons is projected to decrease from 68 percent
in 1990 to the mid-30 percent range in 1997.
Juvenile justice grants.—These grants
provide funds to State and local units of government, public and private agencies, organizations, and institutions to aid in the prevention, reduction, and treatment of juvenile
crime and delinquency. The budget proposes
to terminate the formula grant program portion of the program and retain funding for discretionary grants specifically targeted to highrisk youth including $2 million for the "weed
and seed" initiative. The goals of the formula
grant program have for the most part been
achieved and States have appropriate Statefunded delinquency prevention programs in
place.

Part One-389

16. INCREASING RETURNS ON INVESTMENT

Department of Labor
Older Americans Employment.—This program finances part-time minimum-wage jobs
for the low-income elderly. The budget request
would result in a reduction in subsidized job
slots. Nearly all of this reduction can be
achieved through seniors leaving program enrollment.
Department of Transportation
Federal Transit Administration (FTA)
operating subsidies.—The Administration
proposes to eliminate FTA operating subsidies
to cities over 500 thousand in population,
thereby reducing operating assistance from
$802 million in 1992 to $217 million in 1993.
Increased total operating subsidies tend to inflate labor costs by reducing management's incentive to negotiate with labor for lower operating costs. Federal dollars are more appropriately and efficiently targeted to investment
in the capital infrastructure of transit. This
proposal continues funding to urbanized areas
with populations of 500 thousand or less,
which are the most dependent on Federal operating assistance.
Amtrak.—The budget proposes the continuation of a multi-year subsidy program. The
proposal includes the implementation of reform measures identified by Amtrak management and the Administration and a capital investment program that will reduce operating
costs and generate additional revenues, accelerating Amtrak's movement toward operating
self-sufficiency.
Federal Transit Administration (FTA)
"new start" capital projects.—Since the
mid-1970s, a well-documented system for developing and evaluating the merits of new
fixed guideway rail and bus systems and extensions to existing systems has been in place.
These projects are commonly known as "new
starts." Since 1984, the process has included
a rating system to help set Federal priorities
among those projects that warrant funding
consideration. The basic rating criteria are
cost-effectiveness and local financial commitment, although others Eire also considered.
Notwithstanding the existing criteria, the Congress earmarked the entire $537 million appropriated for new starts in 1992, including $208
million for projects for which sufficient infor-

mation is not available to determine cost-effectiveness and local financial commitment and
$103 million for projects that do not meet the
criteria. The budget proposes to reduce funding
for new starts to $400 million in 1993. The
proposed level funds those projects with existing full funding grant agreements and those
projects that meet FTA criteria.
Federal Transit Administration (FTA)
interstate transfer grants.—This program
funds those projects for which States and localities withdrew previously approved segments
of the Interstate Highway System and substituted them with transit capital projects. The
budget proposes to complete funding for these
projects in 1993 and 1994 rather than in 1993,
thereby achieving a saving of $78 million in
1993.
Department of Treasury
Customs Service operation and maintenance air and marine program.—The 1992
enacted level for Customs' Air program included $46 million in one-time purchases for
new air and marine interdiction assets. These
non-recurring costs appear as a net reduction
of $37 million in the budget. The budget fully
supports increased operational costs associated
with these new assets and includes an additional $6 million for Marine interdiction that
will allow Customs to complete the upgrade
of its entire marine fleet.
Department of Veterans Affairs
Major construction projects.—The budget
continues the Administration's shift in emphasis toward minor construction to better maintain and renovate VA's physical plant nationwide. A larger share of construction funding
will be devoted to minor projects that correct
patient environment deficiencies and upgrade
clinical areas for advances in medical technology.
National Aeronautic and Space
Administration
Construction of facilities.—The budget requests funding only for continuing construction
projects and highest priority new starts.
Projects to be completed include the Space Station Freedom facility, wind tunnel reconstruc-

Part 0ne-390
tion, and the last year of a 5-year wind tunnel
revitalization program.
Small Business Administration
Disaster loans.—The Administration proposes to target eligibility for disaster loans to
those borrowers unable to obtain credit elsewhere. In addition, the budget proposes to increase the interest rate on disaster loans to
the Treasury's cost of borrowing. Together,
these proposals will substantially reduce credit
subsidies in 1993.
Guaranteed business loans.—The Administration proposes to reduce the unacceptably
high default rates for SBA guaranteed business loans by increasing the share of the default risk borne by private lenders. This will
improve loan underwriting and risk assessment for each loan.
Other Agencies
Federal Emergency Management Agency
disaster relief.—The budget request provides
enough funds for a normal year of disasters.
If this level is exceeded, an additional $143
million is available to the President for emergency needs. The reduction in resources between 1992 and 1993 is due to an unusually
high amount of funding for this program in
1992. Most of this 1992 funding was to make
up for insufficient funding in previous disasters, which should not occur in the future.
Federal Emergency Management Agency
emergency food and shelter.—The budget
request, although reduced relative to the 1992
level, is an integral part of the Administration's effort to re-focus and increase resources
for comprehensive, longer term solutions to
help end the tragedy of homelessness. Funding
for most programs for the homeless increases
in 1993 but, a few, such as this one, are decreased. Overall, the Administration proposes
over $1 billion for targeted homeless programs
in 1993, an increase of $57 million over the
1992 enacted level.
Postal Service revenue foregone.—The
budget requests $122 million for reduced rate
mail, a $348 million reduction from the 1992

THE BUDGET FOR FISCAL YEAR 1993

level. The budget proposes to eliminate abuses
of these postal subsidies, which were identified
in the 1989 update to the Postal Rate Commission's 1986 study. The budget also proposes
an across-the-board reduction in the remaining
subsidies, comparable to the one enacted by
the Congress in 1986.
Appalachian
Regional
Commission
(ARC).—The budget requests $100 million for
the ARC, compared to $190 million appropriated by the Congress in 1992. The Commission was established in 1965 to help alleviate
economic and social distress in the Appalachian region through a combination of social programs and highway development that would
end the region's relative isolation. Since the
inception of the ARC, more than 2,000 miles
of highways, two-thirds of the entire Appalachian Highway Development System, have been
completed and economic disparities between
the region and the rest of the country have
narrowed considerably.
Tennessee Valley Authority (TVA).—The
budget proposes $79 million for the non-power
activities of the TVA, a reduction of $56 million from the 1992 level. TVA's economic development program would be terminated along
with alcohol fuels research and development
activities. Economic development is more appropriately a State and local responsibility
with Federal assistance provided through
other, existing Federal programs. Large increases for alcohol and alternative fuels research in other Federal agencies allow this
TVA research program to be ended. The budget also assumes a higher level of industry cost
sharing in TVA's fertilizer program in order
to reduce Federal costs.
INCREASES
The terminations and reductions discussed
above have provided room under the statutory
discretionary funding caps for increases in
deserving programs. Table 16-4 shows the
major domestic discretionary increases for
executive branch agencies. These increases
are discussed in greater detail in other chapters of the budget.

Part One-391

16. INCREASING RETURNS ON INVESTMENT

Table 16-4. INCREASES IN DOMESTIC DISCRETIONARY PROGRAMS
(In millions of dollars)
Number
P ™ ™
Agriculture:
Special Supplemental Food Program for
Women, Infants and Children (WIC)
America the Beautiful
Subtotal, Agriculture
Commerce:
National Oceanic and Atmospheric Administration:
Weather Satellites (Without GOES Contingency Fund)
Weather Service and Construction
National Institute of Standards and Technology
Subtotal, Commerce
Education:
Pell Grants
Choice Grants for America's Children Act
Other Educational Excellence
Research, Statistics, Improvement
Compensatory Education Grants
Education for the Disabled
Salaries and Expenses
Postsecondary Institutional Quality
Subtotal, Education
Energy:
Superconducting Supercollider
Energy Supply Research and DevelopmentOffice of Energy Research
Nuclear Waste Disposal Fund
Energy Supply Research and DevelopmentCleanup
Clean Coal Technology
Conservation Research and Development
Power Marketing Administrations
Subtotal, Energy
Health and Human Services:
Head Start
National Institutes of Health
Social Security Administration: Limitation
on Administrative Expenses
Drug Abuse Treatment
Community/Migrant Health Centers
Healthy Start
Substance Abuse/Mental Health Research ....
Center for Disease Control:
Immunization Grants
Breast and Cervical Cancer Screening
Grants
Tuberculosis Grants
Lead Screening Grants
Smoking Cessation Activities
Indian Health Service:
Prevention
Alcholisn\/Substance Abuse

1992 Enacted
Authority

1993 Proposed

Outlays

t y

Change: 1992 to
1993

Outlays

^udget^

0utlays

1
1

2,600
231

2,616
223

2,840
348

2,825
335

240
117

209
112

2,831

2,839

3,188

3,160

357

321

5
5

338
469

341
464

437
548

439
503

99
79

98
39

247

235

311

269

1,054

1,040

1,296

1,211

242

171

1
1
1
1
1
1
1
1

5,460

5,259

6,638
500
268
415
6,235
2,943
484
50

5,768
60
100
287
5,895
2,850
465
10

1,178
500
168
152
100
89
68
50

508
60
88
121
362
297
62
10

—

100
264
6,135
2,855
416
—

—

12
166
5,532
2,553
403
—

15,230

13,925

17,533

15,435

2,303

1,510

484

252

650

453

166

201

10
1

1,536
275

1,386
264

1,696
392

1,592
330

160
117

206
66

1
1
5
5

602
415
296
468

490
162
255
106

707
500
366
524

625
184
310
521

105
85
70
56

135
22
55
415

4,076

2,915

4,835

4,015

759

1,100

4
20

2,202
8,936

1,970
8,513

2,802
9,377

2,454
9,065

600
442

484
552

1
8
3
1
3

4,550
651
594
64
1,059

4,571
504
516
45
898

4,749
791
684
143
1,121

4,708
559
601
104
1,027

199
140
90
79
62

137
55
85
59
129

297

233

349

305

1
1
1
2

50
15
21
10

35
11
13
7

70
35
40
13

55
23
28
10

20
20
19
3

21
12
15
3

6
1

103
80

43
34

148
98

62
41

45
18

19
8

Part

0ne-392

THE BUDGET FOR FISCAL YEAR 1993

Table 16-4. INCREASES IN DOMESTIC DISCRETIONARY PROGRAMS—
Continued
(In millions of dollars)
1992 Enacted

Number
P ™ ™

Authority

11
735
236
553
95
49

° u t l <^

Outlay,

12
790
284
615
111
59
2
147
845
2
7
11
13

2
31
27
24
20
12
6
5
5
3
3
1
1

1
55
48
62
16
10
2
12
27
1
2

1
1
11
1
1
1
1

—

150
846
1
6
11
13

135
818
1
5
11
12

Subtotal, Health and Human Services
Housing and Urban Development:
Subsidized Housing: Voucher^Incrementals .
HOPE Grants
Subsidized Housing: Preservation/Prepayment
RESTORE
Consolidated Shelter Plus Care
FHA-GI Fund Program Accounts
Transitional and Supportive Housing

21,532

20,053

23,460

21,941

1,928

1,888

1
1

1,693
361

17
7

2,691
1,010

27
121

998
649

10
114

1
1
1
1
1

618

150

1,159
312
266
130
204

3
25
43
78
75

541
312
155
130
54

-16
25
34
78
2

Subtotal, Housing and Urban Development..
Interior:
America the Beautiful
Wetlands
Automated Land and Mineral Records System
Tribal Horizons (BIA)
Presidio (CA) Park Transition
State Historic Preservation Grants

2,933

125

5,772

372

2,839

247

1
1

1,349
223

1,214
178

1,504
291

1,354
233

155
68

140
55

1
1
1
1

23
850
3
36

20
650
2
34

39
865
18
41

34
697
12
38

16
15
15
5

14
47
10
4

2,261

1,920

2,467

2,135

206

215

1
1
1
1
1

1,599
1,926
946
721
717

1,626
1,819
888
724
697

1,896
2,062
1,067
814
788

1,795
1,853
978
801
714

297
136
121
93
71

169
34
90
77
17

Subtotal, Justice
Labor:
Youth Opportunities Unlimited (YOU) Demonstration
McKinney Act Homeless Job Training Demonstration

5,909

5,754

6,627

6,141

718

387

Subtotal, Labor
Transportation:
Federal-aid Highways 2
Federal Aviation Administration3
Coast Guard Operating Expenses
Washington Metro

1
5
1
1

16,986
8,872
2,254
124

15,803
7,944
2,471
196

19,198
9,436
2,394
182

16,909
8,601
2,256
145

2,212
564
140
58

1,106
657
-215
-51

9,350

26,414

10,112

27,911

762

1,497

Subtotal, Interior1
Justice:
Prisons Operations
Federal Bureau of Investigation
Immigration and Naturalization Service
United States Attorneys
Drug Enforcement Administration

Subtotal, Transportation

1
1

27
760
280
650
100
56

0utlays

Change: 1992 to
1993

29
791
307
674
120
68
6
155
851
5
9
12
14

Mental Health
Food and Drug Administration
Ryan White HIV Treatment Grants
Maternal and Child Health Block Grant
National Health Service Corps
Health Care for the Homeless Grants
"Ready to Learn" Grants
Family Planning Grants
Administration on Aging
Minority Male Grants
Public Housing Health Service Grants
Crisis Nurseries
Abandoned Infants

1
1

1993 Proposed

—

Ill
—

9
—

—

Part One-393

16. INCREASING RETURNS ON INVESTMENT

Table 16-4. INCREASES IN DOMESTIC DISCRETIONARY PROGRAMSContinued
(In millions of dollars)
1992 Enacted

1993 Proposed

Change: 1992 to
1993

Number
of
Programs

Budget
Authority

1
1

13,610
191

13,234
102

14,565
220

14,285
131

955
29

1,051
29

Subtotal, Veterans
Environmental Protection Agency:
Operating Program
Construction Grants
Superfund

13,801

13,336

14,785

14,416

984

1,080

1
1
1

2,457
2,354
1,608

2,220
2,201
1,483

2,698
2,500
1,750

2,535
2,165
1,524

241
146
142

315
-36
41

Subtotal, Enviromental Protection Agency ....
National Aeronautics and Space Administration:
Space Station
Earth Observing System
Aeronautics Research and Technology
New Launch System
Research and Program Management
Spacecraft Operations
Materials Experiments
National Aerospace Plane

6,419

5,904

6,948

6,224

529

320

1
1
1
1
1
3
1
1

2,029
271
775
38
1,578
539
107
20

1,902
194
703
28
1,554
400
76
57

2,250
391
890
125
1,660
611
167
80

2,075
280
787
73
1,646
456
118
50

221
120
115
87
82
72
60
60

173
86
84
45
92
56
42
-7

5,357

4,914

6,174

5,485

817

571

7
1

2,574
210

2,315
208

3,027
243

2,716
237

453
33

401
29

2,784

2,523

3,270

2,953

486

430

177

93,554

101,678

106,509

111,418

12,955

9,740

Veterans Affairs:
Medical Care
Minor Projects Construction

Subtotal, National Aeronautics and Space
Administration
Other Independent Agencies:
National Science Foundation
Equal Employment Opportunity Commission
Subtotal, Other Independent Agencies
Total, Domestic Discretionary Increases ....

Outlays

Budget
Authority

Outlays

Budget
Authority

Outlays

1
Total adjusted to eliminate double count between Department of Interior America the Beautiful and Department of Interior Wetlands.
2
Budget authority shown for this program is not counted under the discretionary cap and i not included in the totals for this table.
s
3

Part of the budget authority shown for this program, $1,900 million, i not counted under the discretionary cap and i not included in
s
s
the totals for this table.

Managing for Integrity
and Efficiency:
17. Reforming Regulation
and
Managing Risk Reduction

Part One-395

17. REFORMING REGULATION AND
MANAGING RISK REDUCTION
This chapter of the budget discusses:
—The Overall Benefits and Costs of Federal
Regulation.

—A Concept for Moving Toward a Regulatory Budget"

—The Major Federal Rulemakings Expected
in 1992.

THE OVERALL BENEFITS AND COSTS OF FEDERAL
REGULATION
The benefits and costs of Federal regulation
are large and growing.
Federal regulations are designed to result
in public benefits—increased health and safety, reduced pollution, and reduced market
imperfections. While an aggregate estimate
of regulatory benefits is not available, they
can be assumed to be substantial.
The critical analysis in developing new
or reforming existing regulations is, however,
based on a comparison of the incremental
benefits and costs of individual regulatory
provisions, not on aggregate benefits and
costs of all regulations. However, just as
forecasting budget outlays is key to the
development of macroeconomic policy, knowledge of the mandated costs of regulation
is important for the conduct of micro- and
macro-economic policy.

Table 17-1 is based on a new study
that aggregates the various individual cost
estimates of regulations that have been published.1 It presents estimates of the aggregate
costs of regulation for 1990, as well as
projections to the year 2000 based on current
trends and recently enacted laws. The costs
are broken out into major categories and
show that the predicted increase in the
costs of social regulation, (mainly regulations
reducing risks to health, safety and the
environment) is the primary explanation for
the expected increase in the overall costs
of regulation for the year 2000.
1
See Thomas D. Hopkins, "Cost of Regulation", Rochester Institute of Technology Public Policy Working Paper, December 1991
(an abridged version i forthcoming in the Journal of Regulation
s
and Social Costs). For a discussion of several earlier studies upon
which the Hopkins study builds, see Regulatory Program of the

United States Government, April 1, 1991-March 31, 1992 (U.S.

G.P.O., 1991), page 5. That discussion also contains an estimate of
the total cost of regulation ($434-$508 billion) close to the Hopkins
estimate ($430-$562 b l i n .
ilo)

Table 17--1. COSTS OF FEDERAL REGULATIONS
(In billions of 1990 dollars)
1990

Environmental Regulation
Other Social Regulation
Economic Regulation
Process Regulation
Total Costs

2000

109
32
155-261
134-160

184
52
155-261
151-191

430-562

542-688

Source: Thomas D. Hopkins, "Cost of Regulation", Rochester Institute of Technology Public Policy Working
Paper, December 1991.

Part One-397

Part 0ne-398
The costs of "economic regulation" (i.e.,
the regulation of the prices or quantities
of goods or services, usually in specific industries) are expected to stay constant in the
1990's after declining in the 1980's. "Process
regulation" (or the rules by which the Federal
government collects, manages, and allocates
its funds and property, including the burden
of filling out Federal Government paperwork)
is expected to grow, but at the rate of
growth of the economy.
Table 17-2 lists by year the annualized
private sector compliance costs of the major
proposed and final social regulations issued
since 1987, the first year for which systematic
data were collected. The table is derived
mainly from cost estimates found in the
Regulatory Impact Analyses (RIA's) required
by Executive Order No. 12291 for "major
regulations". Major regulations are defined
as those that are likely to have an annual
effect on the economy of $100 million or

THE BUDGET FOR FISCAL YEAR 1993

more, a major increase in costs or prices,
or significant adverse effects on competition.2
Table 17-2 also indicates that the private
sector can expect over the next several years
to bear substantial new regulatory costs.
About $13.5 billion per year on average
is ascribed to proposed rules submitted over
the last two years.
To deal with the increased burden of higher
costs for consumers and businesses and slower
economic growth for the economy that regulation imposes, the President has requested
that Federal agencies renew their efforts
to eliminate unnecessary and growth-retarding
regulations. He has also asked agencies to
refrain from issuing proposed or final rules
during a 90-day period, excepting only regulations subject to judicial or statutory deadlines
or those that promote economic growth. In
addition, the President has requested that
agencies, during the review period, specifically
identify existing regulations that impose a
substantial cost on the economy.

MOVING TOWARD A REGULATORY BUDGET
Improving regulatory accountability and control through a regulatory budgeting approach
has been discussed on and off since the
late 1970's. The concept of a regulatory
budget emerges from the suggestion by economists and others that any measure of government impact on the economy and use of
resources should include regulatory cost estimates (as well as tax expenditure and market
intervention estimates) along with the budget
and deficit calculations. The regulatory budget
concept was discussed by the Council of
Economic Advisors and at OMB during several
previous Administrations, and has enjoyed
a degree of bipartisan Congressional support.
In 1981, President Reagan issued Executive
Order No. 12291 which formally established
Presidential oversight and review of the costs
and benefits of individual regulations. The
2
Although regulatory impact analyses should include costs borne
by the Federal Government as well as private sector costs, the estimates in Table 17-2 do not include the costs that regulations impose on the Federal Government i s l , because those cost estitef
mates are included in the fiscal budget. For that reason, these
sorts of costs should not be included in a regulatory budget.

Executive Order also requires OMB to "...
Develop procedures for estimating the annual
benefits and costs of agency regulations, on
an aggregate and economic or industrial sector
basis, for purposes of compiling a regulatory
budget." Development of a regulatory budget
is a logical extension and supplement to
the case-by-case cost-benefit approach currently implemented through Executive Order
No. 12291.
A regulatory budget is conceptually and
functionally analogous to a fiscal budget.
Both its micro- and macro-economic effects
are similar, as is its purpose: limiting the
use of private resources for governmental
purposes to levels agreed to by the President
and Congress. The need for such a mechanism
is as important for regulatory expenditures
as it is for fiscal expenditures, because the
effects of the two sets of policy tools are
very similar.
The microeconomic effects of regulatory expenditures on the allocation of economic resources are similar to the effects of budget

Part One-399

17. REFORMING REGULATION AND MANAGING RISK REDUCTION

Table 17-2. INCREMENTAL REGULATORY COST OF MAJOR RULES,1
1987-1991
(In millions of dollars)
1987
Environmental Protection Agency:
Final
Proposed
Department of Transportation:
Final
Proposed
Department of Labor:
Final
Proposed
Other Agencies:2
Final
Proposed
Total:
Final
Proposed

1988

1990

1989

1991

Total

8,400
2,100

970
1,500

1,748
6,918

4,340
9,267

17,458
26,985

50
85

550
400

920
849

1,042
878

2,562
2,212

270
280

30
1,200

1,270
1,080

80
1,320

821
131

2,471
4,011

104

147

—

— •

—

41
6,092

1,300
1,695

1,670
7,787

2,789
15,179

7,503
11,971

24,161
40,995

2,000
7,200
—
—

2,374
7,480

8,558
3,385

2,937
2,980

1Cost estimates are based upon Regulatory Impact Analyses prepared by the agencies. The total costs of
regulation are understated because not all major rules have quantified cost estimates and the costs of non-major
rules are not included
2 Other agencies with major rules include HHS, HUD, DOJ, and Agriculture.

outlays. Both 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. For example,
firms can be required by regulation to treat
their effluent before dumping. Alternatively,
public waste water treatment facilities can
be constructed by direct expenditures of government. The basic allocative effects are similar, although the efficiency of the methods
and the implications for the distribution of
income may differ.
The macroeconomic effects of expenditures
required by regulation are also similar to
those of budget outlays: i.e., both affect
output, employment, prices, and growth. The
Federal Government finances outlays by diverting resources from the private sector
through taxation and borrowing. Similarly,
business firms finance expenditures required
by regulation (e.g., for worker safety) by
borrowing, increasing prices, reducing other
expenditures, and reducing dividends. These
are the same ways firms finance taxes and

thus have the same broad effects on the
economy as do many taxes. Regulatory costs
have an economic impact closer to that of
excise taxes or user fees than to income
taxes, but a major effect nonetheless.
Problems in Estimating Costs
There are practical accounting problems
with implementing a regulatory budget. But
these problems are not insurmountable and
differ in degree, not in kind, from problems
encountered in estimating the fiscal budget.
One problem involves the incentive for
regulatory agencies to underestimate the costs
of their regulations. Unlike underestimates
of Federal spending, which lead to constraints
in discretionary programs or show up later
in mandatory programs as reestimates in
the Federal deficit, underestimates of regulatory costs are less visible and less easily
verified. This problem can be mitigated
through a representative sample of ex post
regulatory evaluations. The fact that actual
fiscal deficits may differ significantly from
projected deficits is not a reason to abandon
the budget process. It is a reason to improve

Part 0ne-400

THE BUDGET FOR FISCAL YEAR 1993

forecasting and estimation techniques. Likewise the fact that one will never know
ex post the true private sector cost of regulation does not mean that ex ante best estimates
of regulatory costs should not be used for
planning purposes.

Further, evaluating small representative samples of regulations should be sufficient to
learn how to improve cost estimation techniques.

A second problem involves differentiating
expenditures made because of a regulatory
requirement from those that would have
been made in the absence of regulation.
For example, some level of worker safety
would be provided to employees even if
there were no safety regulations. But, since
the amount is unknown, the additional cost
of regulation is difficult to estimate. On
the other hand, this measurement problem
diminishes if an incremental budget approach
is used. For example, in the absence of
new regulations, the amount of safety that
a firm would provide to its workers is
not likely to change much from one year
to the next.

The first step toward a regulatory budget
is the first step in any regulatory oversight
program: estimating the costs and benefits
of proposed regulations. Executive Order No.
12291 requires agencies generally to provide
Regulatory Impact Assessments (RIA's) that
include cost and benefit estimates of proposed
and final major regulations before promulgation. Table 17-2 is a compilation of the
costs of major regulations derived from the
required RIA's.

A third problem involves the difficulty
of estimating the indirect costs of regulation
(e.g., increased production costs and product
prices reducing sales or making products
unprofitable to produce). Indirect costs are
usually excluded from budget measures of
the effects of spending and taxes. Because
the indirect costs of regulation are not directly
measurable, and can only be estimated by
complicated statistical models, some argue
they should likewise be excluded. On the
other hand, measuring only the direct costs
of regulation would create a bias toward
banning substances and products (rather than
controlling them). Because projected cost estimates do not have to be perfectly accurate
to be effective, but only unbiased and defensible, estimating problems should not be
the reason to reject the regulatory budgeting
approach or to confine a regulatory budget
to direct costs.
A fourth problem involves the increased
paperwork burden on affected industries to
document actual costs. The extent of these
costs would depend on the need for audits
or evaluations designed to improve the ex
ante estimates of regulatory costs used for
planning purposes. Auditing is not needed
in the same way as it is to determine
whether public funds are spent properly.

Improving Cost and Benefit Estimates

For the Regulatory Program published in
1991, OMB asked agencies to provide cost
and benefit data, not just for "major" regulations, but for all significant regulations. This
request increased the number of rules covered
from about 80 to 500 per year. However
the agencies were not able to provide cost
and/or benefit estimates for all significant
rules. Table 17-3 is a summary of regulations
with cost and benefit estimates that are
likely to be published in final form in 1992.
Although Table 17-3 indicates that agencies
have been more successful in providing cost
information than benefit estimates, even cost
estimates Eire not available for a number
of important rules. While, in general, agencies
have improved their cost and benefit estimates
over the last several years, they need to
continue to improve these capacities before
regulatory budgeting can begin.
Regulatory Budget Models
The regulatory budgeting concept has as
many variations as the fiscal budget. It
can be viewed as a continuum from simply
making public the projected costs of new
regulations and regulatory statutes to a statutory requirement that the costs of regulations
promulgated pursuant to each specific statute
cannot exceed a limit set by that statute.
The level of coverage could also vary from
a given program area to all Federal regulatory
activity. The concept could apply to legislation
with large regulatory cost impacts, just the
implementing regulations, or both. Some mod-

17. REFORMING REGULATION AND MANAGING RISK REDUCTION

els would require legislation; others could
be put in place administratively.
Legislation.—One variant, explicitly introducing compliance cost considerations into legislative deliberations, was tried with modest
success during the Administration's negotiations with Congress over the 1990 Clean Air
Act Amendments (CAAA). During those negotiations, the Administration estimated the
costs of its proposal and indicated that it
would not approve provisions that significantly
exceeded that amount. The Administration estimated that the bill ultimately signed by the
President would impose costs of over $25 billion per year. It is difficult, however, to estimate what costs would have been if costs had
not been an explicit consideration (as the bill
was being developed and shaped in Congress).
As the regulations under the CAAA are implemented, the costs are being carefully tracked
to ensure that implementation of the law carries out the statutory requirements at minimum cost.
If these procedures work, they could be
extended to future legislation with significant
regulatory cost impacts. The target ceilings
could also be given legal standing by the
authorizing legislation; eventually, government-wide or program specific cost caps could
be established. Such statutory spending limits
would offset the reluctance of lawmakers
to use language requiring, or even permitting,
agencies to write rules that maximize net
benefits. Ceilings could also be combined
with statutory language stipulating that the
ceiling amounts should be spent in the most
cost-effective way.
Fiscal and regulatory budgets might also
eventually
be
integrated
into
one
"superbudget" that allocated and controlled
both direct government spending and federally
mandated private-sector spending on an equal
footing. The similarities between the effects
of the two types of spending suggest that
treating them the same, and thus facilitating
tradeoffs between them in one superbudget,
should produce both a more efficient and
a more equitable public use of private resources. This alternative should, however,
follow greater experience with other legislative
and administrative models for regulatory budgeting.

311-000 0 - 9 2 - 1 7

(PT.l)

Part One-401

The Administration will use regulatory
budget techniques in 1992 in negotiating
legislation with significant regulatory costs,
and seek program specific cost caps in appropriate regulatory areas.
Administrative Action.—For several industrial sectors covered by the CAAA, a pilot regulatory budget is being tested by the Administration. The Environmental Protection Agency
(EPA), the Council of Economic Advisors
(CEA), and OMB are working cooperatively to
establish regulatory budget procedures and a
budget cap for a set of technology-based standards for certain industrial categories required
by the CAAA. In implementing these regulations, EPA will try to keep the projected costs
of the selected options below the budget cap,
while implementing the law. OMB, CEA, and
EPA will work together to resolve some of the
estimating and accounting problems that are
likely to arise in carrying out this regulatory
budget project.
The Administration will test the regulatory
budget technique in selected additional areas
in 1992. The purpose will be to examine
estimating and accounting procedures in areas
other than Clear Air and assure that regulations produce net benefits.
The Executive branch could also give agencies allowances that would set ceilings on
increased regulatory compliance costs they
would be allowed to impose each year on
the private sector for regulatory requirements
that go beyond requirements in law; "mandatory" regulatory spending would not be covered. Agencies could also be given "credits,"
which they could add to their allowances,
for cutting regulatory spending by relaxing
existing regulations.
Another approach, patterned after the fiscal
budget process, would be to pass back agencywide cost reduction goals (based on analysis)
for final regulations. Such an approach would
provide a framework within which the agency
would decide regulatory tradeoffs. The
passback could be expressed in percentage
or dollar terms relative to a baseline consisting
of the costs of the regulations at the proposal
stage. Only cost reductions resulting from
regulatory changes, not cost estimation
changes, would count toward the cost reduction goal, and the regulatory changes would

Part 0ne-402

THE BUDGET FOR FISCAL YEAR 1993

have to be within the discretion allowed
by the rulemaking record and in accord
with the Administrative Procedures Act. Gaming of the system could be a problem
if agencies anticipate the required cut at

the final rule stage by building in a cushion
at the proposal stage. This, of course, is
a problem found in most budgeting systems—
to which analysts and decision-makers must
be sensitive.

MAJOR FEDERAL RULEMAKINGS EXPECTED IN 1992
Table 17-3 presents a summary of those
Federal regulations expected to be promulgated during 1992 that will require major
increases in private sector compliance costs.
These final rules are estimated to increase
the compliance burden on the private sector
by at least $15 billion per year. Most (but
not all) of these regulatory actions have
been published in the Federal Register for
notice and public comment, as required under
the Administrative Procedure Act.

Data on costs and benefits reported in
the summary should be viewed as preliminary
and are not strictly comparable in that the
agencies used different methodological assumptions. For example, costs are always
monetized, discounted, and placed in expected
value terms, while benefits usually are not
monetized or discounted and usually assume
the highest estimate of likely benefits. The
low quality of some of the estimates, particularly some of the benefit estimates, may
be due to the constraints imposed by tight
statutory deadlines.

Table 17-3. COSTS AND BENEFITS OF SIGNIFICANT REGULATIONS
EXPECTED TO BECOME FINAL IN 1992
(With deadline types and dates)

Regulation

Description

Proposal Date

Annual
Statutory
Costs
or Judicial (millions
Deadline
of
dollars)

Benefits

USDA
Harmonizes USDA rules with FDA's.

13/27/91 (56
FR 60302)

None

Nutrition Labeling.

Implements the Nutrition Labeling
and Education Act of 1990 with 20
regulations to regulate implicit and
explicit health messages on food
labels.

11/27/91 (56
FR 60556)

Statutory
1V8/92

Medical Devices.

Requires reporting and tracking by
medical device users and
distributors.

11/20^1(56
FR 60024)

Statutory
11/28/91

Clinical Laboratory
Improvement
Amendments.

Revises and extends regulations to all
labs that examine human specimens
for diagnosis, treatment, or
prevention of human disease.

5/21/90 (55 FR
20696)

Statutory
1/1/90

Upgrades existing energy conservation
and ventilation requirements in
connection with manufactured
housing that benefits from Federal
loans, guarantees, and mortgage
insurance.

Early 1992

None

Extension of Nutrition
Labeling to Meat and
Poultry Products.

65 Improved knowledge of
nutrition and health.

HHS
197 81,000 life-years gained over
twenty years.

68 May improve ability to recall
products.
1,600 More accurate test results.

HUD
Manufactured Home
Construction and
Safety Standard.

200 Energy savings.

Part One-403

17. REFORMING REGULATION AND MANAGING RISK REDUCTION

Table 17-3. COSTS AND BENEFITS OF SIGNIFICANT REGULATIONS
EXPECTED TO BECOME FINAL IN 1992—Continued
(With deadline types and dates)

Regulation

Description

Proposal Date

Annual
Costs
Statutory
or Judicial (millions
Deadline
of
dollars)

Benefits

DOI

N.A.
Critical Habitat for the Responds to a court order that
requires designation of a c i i a
rtcl
Northern Spotted Owl.
habitat for the spotted owl in areas
that are currently harvested for
timber.
Defines VER in areas where mining i 7/91
s
Valid Existing Rights
otherwise prohibited.
(VER).

Judicial

Unknown Protection of the spotted owl

1/8/92

None

97 Unknown.

1/27/88 (53 FR
2382)
1QAV89 (54 FR
40950)
Q/29/89 (54 FR
35760)

None

19 Reduction of 6 Fatalitiei^Yr.
2 Injurie^Yr.
20 Reduction of 1 Fatality/Yr.
20 Injuries/Yr.
38 Reduction of 3 Fatalitie^Yr.
200 Illnesse^Yr.

2/05/90 (55 F R

Judicial

DOL

Underground Coal Mine
Ventilation.
Diesel-Powered Coal
Mine Equipment.
Air Quality and
Chemicals.
Asbestos Remand.
1,3-Butadiene.
Confined Spaces.

Clarifies and updates ventilation
requirements.
Establishes approval and use rules for
diesel-powered equipment.
Sets permissible exposure limits
(PELs) and compliance rules for
mines.
Lowers PEL by half; requires OSHA
notification prior to construction or
renovation.
Lowers PEL for 1,3-butadiene to 2
ppm from 1000 ppm.
Regulates entry into confined spaces
(e.g. tanks).

Personal Protective
Updates and clarifies standards for
Equipment (Part 1910). protective clothing, footwear, etc.
4,4-Methylene- daniline Lowers PEL for M D A to 10 parts per
billion.
(MDA).
Requires employers to ensure seatbelt
Vehicle Safety.
usage by employees.
Hazardous Materials.
Revises standards for handling,
storage, and use of chemicals.
Walking and Working
Revises standards for scaffolding,
Surfaces.
stairways, etc.
Shipyard Employment.
Consolidates and updates standards
regarding shipyard safety.
Logging Operations.
Sets industry-specific standards for
logging operations.
Formaldehyde.
Lowers formaldehyde PEL to 0.75 ppm
Electric Power
Generation.
Cadmium.

Regulates to prevent accidents
occurring with electric power
generators and transmission lines.
Lowers cadmium PEL to 1 microgram
per cubic meter of air.

3724)

yi<V90 (55 FR
32736)
Q W 8 9 (54 FR
24080)

None
None

2/21/90

None
None

4/10/90 (55 F R

None

5/12/S9 (54 F R

None

13423)

20672)
7/1^/90 (55 FR
28728)
7/17/90 (55 FR
29150)
4/10/90 (55 F R

None
None
None

13360)
11/29/88 (53
FR 48130)

None

S/02/%9 (54 F R

None

18798)
7/15/91 (56 FR
32302)
1/31/89 (54 FR
4974)
2W90(55FR
4052)

None
None
None

246 Possible reduction of
fatalities.
3 Reduction of .5 Fatalitie^Yr.
100 Illnesse^Yr.
105 Reduction of 52 Fatalities/Yr.
3522 Lost Workday
Injuries (LWDI).
100 Reduction of 27 Fatalitie^Yr.
5 Million LWDI.
2 Reduction of 2.3 Cancer
Death ^Yr.
221 Reduction of 673 Fatal itie^
Yr. 28,661 LWDI.
711 Reduction of 212 Fatalities^
Yr. 315 LWDVYr.
462 Reduction of 86 Fatalitie^Yr.
30,000 LWDl/Yr.
9 Reduction of 2 Fatalities^Yr.
310 LWDJ/Yr.
4 Reduction of 17 Fatalitie^Yr.
2028 LWD^Yr.
36 Reduction of 150 Illnesses/
Yr.
24 Reduction of 75 Fatalities/Yr.
21,175 LWDVYr.
182 Reduction of 14 Fatalitie^Yr.
100 Illnessefi/Yr.

DOT

Alcohol Testing for
Transportation
Workers.
Standards for DoubleHulled Oil Vessels.

11/2/89 (54 F R
Establishes standards regarding
46326)
alcohol testing of 6 million
transportation workers.
Implements Oil Pollution Control Act 12/^90 (55 FR
of 1990, which requires double-hulls 50192)
in a l oil-carrying vessels.
l

Statutory

Unknown Fewer accidents.

l\/3/92

None

349 $23 MillioryTr. in avoided
cleanup and third party
costs.

Part 0ne-404

THE BUDGET FOR FISCAL YEAR 1993

Table 17-3. COSTS AND BENEFITS OF SIGNIFICANT REGULATIONS
EXPECTED TO BECOME FINAL IN 1992—Continued
(With deadline types and dates)

Regulation

Description

Proposal Date

Annual
Statutory
Costs
or Judicial (millions
Deadline
of
dollars)

Benefits

EPA
Water Quality Standards Establishes water quality criteria for 11/19/91 (56
for Toxic Pollutants.
toxic pollutants in States that have FR 58420)
not adopted Clean Water Act
standards.
Effluent Guidelines and Defines acceptable technologies for
3/13/91 (56 F R
Standards for Offshore
offshore o l and gas extraction point 10664)
i
Extraction
sources.
(Subcategory of the Oil
and Gas Extraction
Category).
National Pollution
Changes stormwater discharge permit ^16/91 (56 FR
Discharge Effluent
monitoring and reporting
40948)
Standards (NPDES)
requirements and notices (in States
Regulations:
where EPA, not the State, has
Stormwater
responsibility for issuing permits).
Implementation Rule
(Revision).
W
(54 FR
Sewage Sludge Use and Establishes standards for use and
disposal of sewage sludge, including 5746)
Disposal Regulation.
landfilling and incineration.
7/2^90 (55 FR
Sets maximum contaminant limit
National Primary
30370)
goals, standards, and monitoring
Drinking Water
requirements for 24 chemicals
Regulation: Inorganic
specified in the Safe Drinking Water
and Organic
Act.
Compounds (Phase
V/24 Contaminants).
Oil Pollution Prevention Revises containment requirements for KV2S/91 (56
FR 54612)
Regulation Phase I (40 certain non-transportation-related
onshore o l f c l t e .
i aiiis
CFR Part 112).
Sets recordkeeping, storage, and other 9/23/91 (56 FR
Used Oil Management
management standards for a l used
l
48000)
Standards.
o l from gasoline-powered engines.
i
9/3C/91 (56 FR
Protection of
Accelerated phase-out of ozoneStratospheric Ozone:
depleting compounds by year 2000.
49547)
Phase-out.
Hazardous Organic
Sets technology standards for synthetic N.A.
National Emissions
organic chemical manufacturers.
Standards for
Hazardous Air
Pollutants (NESHAP).
N.A.
Implements Clean Air Act (CAA)
NESHAP: Coke Oven
Emissions from Coke
requirement to regulate coke oven
Oven Charging, Door
emissions using maximum available
Leaks, and Topside
control technology.
Leaks on Coal Charged
Batteries.
N.A.
Tank Vessel Standards. Implements CAA requirement to set
national emissions standards for
volatile organic compounds that may
be emitted during loading and o f
floading of waterborne tank vessels.
Reformulated Gasoline. Implements CAA requirement to adopt 7/9/91 (56 FR
31176)
new gasoline formulas for fuel sold
in nine worst ozone nonattainment
areas.

Statutory

Unknown Unknown.

2/IG/92

Judicial
6/92

Statutory

67 and 280 tons non-conventional
1,200 pollutants removed.
short 180 ton-equivalents removed.
tons air
emission
increases.
160 Unknown.

2/\/92

Judicial
8/92

Judicial

140 9 Statistical cancer cases
avoided.
5,000 health effects avoided.
81 $27 Million/Yr.

2/28/92

None

72 $163 Million/Yr.

Judicial
5/1/92

610 Unknown.

Statutory

100 0.

W15/91

Statutory
11/92

210 450,00 Mg. Volatile Organic
Compounds (VOCs)
removed.

Statutory Unknown Unknown.
11/15/92

Statutory
11/92

Statutory
11/15/91

Unknown Unknown.

1,000 8,000 tons benzene removed.
120,000 tons VOCs removed.

Part One-405

17. REFORMING REGULATION AND MANAGING RISK REDUCTION

Table 17-3. COSTS AND BENEFITS OF SIGNIFICANT REGULATIONS
EXPECTED TO BECOME FINAL IN 1992—Continued
(With deadline types and dates)

Regulation

Oxygenated Fuels.

On-Board Diagnostics.

Description

Implements CAA amendments
7/9/91 (56 FR
requiring areas that f i carbon
al
31148)
monoxide (CO) standards to require
wintertime fuel reformulation to at
least 2.7% oxygen.
Requires on-board pollution monitoring 9/24/91 (56 FR
devices for a l light-duty trucks and 48272)
l
vehicles after 1994.

Standards for Municipal Establishes regulations for airborne
emissions from new and modified
Solid Waste Landfills.
municipal solid waste landfills.
Standards for Hazardous Regulates emissions of volatile organic
Waste Treatment,
compounds and particulates from
hazardous waste tanks and
Storage, and Disposal
impoundments.
Facilities (TSDF).
Requires enhanced monitoring and
Applicability of Title I
compliance certification for major
New Source
stationary sources.
Requirements to
Electric Utilities
(Stationary Source
Enhanced Monitoring
and Compliance
Certification
Requirements,
(WEPCO).
Acid Rain Excess
Reduces emission of sulfur and
nitrogen oxides from major electric
Emissions
Requirements
u i i i s including provisions for
tlte,
permitting, monitoring, and
Regulation 1995/2005.
emissions trading.
General Preamble for
Establishes provisions for attainment
Title I
.
and maintenance of National
Ambient Air Quality Standards
(NAAQS).
General Permits for Title Sets provisions for permitting of
V Permitting Program.
sources subject to regulation under
the Clean Air Act in order to ensure
compliance with substantive
requirements of the Act.
Basic and Enhanced
Establishes new standards for
Inspection and
inspection and maintenance of motor
Maintenance.
vehicles to ensure compliance with
applicable mobile source standards.
Worker Protection
Revises required procedures for
Standards for
pesticide applicators and workers
Agricultural Pesticides. who may contact crops sprayed with
pesticides.
Establishes new standards for CO
Cold Temperature
Carbon Monoxide (CO)
during warm-up period in winter
Standards for Light
months.
Duty Cars and Trucks.
Endangered Species
Establishes a new pesticide labeling
Protection Program.
requirement to indicate possible
effects on Federally listed
endangered species.

Proposal Date

Annual
Statutory
Costs
or Judicial (millions
Deadline
of
dollars)
Statutory

Statutory
5/15/92

None

1/22/91 (56 F R

Statutory

None

12/3/91 (56 F R

Statutory
^1^92

N.A.

None

5/10/91 (56 F R

Statutory

63002)

21712)

N.A.

1,600 $250 Million/Yr.
325,000 tons hydrocarbons
removed.
1,875,000 tons CO removed.
176,000 tons Nitrogen Oxides
removed.
320 Reduction of 12 million M g
Non-methane Organic
Compounds.
360 Unknown.

5/81

0/14/91 (56 F R

27630)

430 1 million tons CO removed.

11/15/91

5/3(^91 (56 FR
24468)
33490)

Benefits

Unknown Unknown.

3,000 10 million tons S02 reduced
from 1980 levels.

Unknown Unknown.

650 Unknown.

11/15/91

Statutory

Unknown Unknown.

11/15/91

7/8/88 (53 F R

None

140 16,000-24,000 health effects
avoided.

9/17/90 (55 FR
38250)

Statutory

280 Unknown.

1/3/89 (54 F R

None

25970)

27984)

11/15/91

Unknown Unknown.

Part 0ne-406

THE BUDGET FOR FISCAL YEAR 1993

Table 17-3. COSTS AND BENEFITS OF SIGNIFICANT REGULATIONS
EXPECTED TO BECOME FINAL IN 1992—Continued
(With deadline types and dates)

Statutory
or Judicial
Deadline

Annual
Costs
(millions
of
dollars)
Unknown Unknown.

Regulation

Description

Proposal Date

Coastal Non-Point
Source Water Pollution
Program.

Specifies measures States must
implement to control non-point
source pollution of coastal waters,
from farms, forests, and urban areas.
Regulates volatile organic compound
emissions from vehicles during their
operation.
Relieves banks and other secured
creditors from unreasonable
hazardous liabilities.
Sets mandatory treatment technologies
to convert debris to non-hazardous
waste.
Responds to court decision. Allows
EPA option to redefine "mixture"
and "derived from" in RCRA rules to
exempt large volume, low risk
wastes.
Establishes standards for vehicles to
control VOC emissions during
vehicle refueling.
Establishes acid gas, particulate
matter, NOx, and toxics emissions
standards for MWCs larger than 35
Mg/day.
Establishes NOx emissions limits for
electric utility boilers in order to
reduce NOx by 2 million tons per
year from 1960 levels.

6/14/91 (56 FR
27618)

Statutory

1/19/90 (55 FR
1914)

Statutory
5/15/91

6/24/91 (56 FR
28798)

None

N.A.

Statutory

Vehicle Evaporative
Emission.
Lender Liability.

Contaminated Debris.

Resource Conservation
and Recovery Act
(RCRA) Definition of
"Mixture" and
"Derived From".
Onboard Control for
Refueling Emissions.
Municipal Waste
Combustors (MWCs).

Nitrogen Oxide (NOJC)
Limits for Electric
Utilities.

Benefits

5/92

100 Unknown.

Unknown Potential savings of $1
billion.
100 Unknown.

5/92

N.A.

Judicial
1/26/92

Unknowr Potential savings of at least
$2 billion in disposal costs.

NA.

None

100 Unknown.

N.A

Judicial

390 Unknown.

11/15/91

N.A

Statutory
5/15/92
(Group I
Boilers)

200-400 1-2 million tons NOx per
year reduced from 1980
levels.

Managing for Integrity
and Efficiency:
18. Improving the Budget Process

Part 0ne-407

18. IMPROVING THE BUDGET PROCESS
The 1992 budget was the first to be
proposed by the President and acted upon
by Congress within the rules and procedures
of the Budget Enforcement Act of 1990 (BEA).
The BEA significantly improved the budget
process. Discretionary spending appropriations
were held within the spending limits imposed
by the BEA. The "pay-as-you-go" rules ensured
that any legislated increases in mandatory
spending or decreases in receipts were offset.
In fact, the estimated net effect of such
legislation is a reduction in the 1992 deficit.
Federal credit reform measures required, for
the first time, that direct loan and loan
guarantee programs be budgeted and controlled on a basis that permitted meaningful
comparisons with the cost of other programs.
Building on the accomplishments of the
BEA, the Executive and the Congress can
further improve accountability and control.
The proposals made below address some
aspects of the budget that clearly need improvement. In addition, certain more fundamental changes in the budget process are
still needed, including a balanced budget
constitutional amendment. These proposed
changes are summarized below:

seas private investments, and veterans' lives.
For most Federal spending, cash-based budget
authority and outlays are a good measure of
the costs that the Government incurs when
it undertakes an activity or makes a commitment. For insurance programs, however, cashbased measures do not provide a clear, timely
measure of ultimate costs to the Government.
The Administration proposes to shift the accounting for insurance programs from a cash
basis to an accrual basis in an accounting
framework similar to that used for credit programs. The improved budget accounting would
better disclose the costs of continuing existing
programs unchanged and the additional cost
or savings of policy changes that are proposed.
The proposed conversion would be implemented in phases. Deposit insurance and pension guarantees would be converted in 1992
and all other insurance programs in 1993. This
proposal is discussed in more detail in Chapter
13, "Identifying Long-Term Obligations and
Reducing Underwriting Risks."1

The growth of mandatory spending programs should be subject to regular review
as part of the budget process.—The BEA
requires that new entitlements and other mandatory spending programs, or legislated
changes to existing programs, be paid for by
reducing other mandatory spending or increasing receipts. However, there is no mechanism
to control the automatic growth in spending
for these programs. A mechanism that limits
the growth in aggregate mandatory spending
needs to be developed to supplement the payas-you-go rule of the BEA. (See the discussion
of an enforceable mandatory program cap in
Chapter 2, Director's Introduction.)

Instituting a regulatory budget.—The
private expenditures required by regulation
have many of the same economic effects as
Federal budget outlays. Most fundamentally,
both regulation and budget outlays divert private resources to public purposes. In many
cases, expenditures required by regulation may
be an alternative means of achieving the same
public policy objectives as budget outlays. For
example, firms can be required by regulation
to treat their effluent before dumping or, alternatively, public waste water treatment facilities can be constructed by direct expenditures
of the Government. A fully-developed regulatory budget process would involve the President and Congress in setting overall goals,
ceilings, and allocations for the costs of regulation to the private sector, just as the present
fiscal budget now allocates direct Government
spending. OMB has worked closely with agen-

Budgeting for deposit, pension, and
other insurance.—The Government operates
many insurance programs, the largest being
deposit insurance and pension guarantees.
Some other major programs insure crops, over-

1 Alternatives for deposit insurance also are discussed in two reports required by the BEA: "Budgetary Treatment of Deposit Insurance: A Framework for Reform" published by the Congressional
Budget Office, May 1991; and "Budgeting for Federal Deposit Insurance," published by the Office of Management and Budget, June
1991.

Part One-409

Part 0ne-410

THE BUDGET FOR FISCAL YEAR 1993

cies to improve regulatory cost estimates, and
some variants of regulatory budgets have had
small-scale applications or pilot tests. As more
experience is gained, they may be applied more
broadly and evolve toward one integrated
budget that includes regulatory cost estimates
in the expenditure and deficit calculations.
This topic is discussed in more detail in Part
One, Chapter 17, "Reforming Regulation and
Managing Risk Reduction Sensibly."
Technical improvements in the Budget
Enforcement Act.—Although the BEA made
important improvements in the budget process,
many other changes are needed to further
strengthen the process and close loopholes.
Some examples are:
• Extend the deficit reduction requirements
and enforcement procedures until the
budget is balanced:
—continue the existing discretionary
spending categories with limits;

other veto, a veto by the President of an item
in a spending or revenue bill would be subject
to override by a two-thirds vote in each house
of Congress. This essential tool is available to
most State Governors, who have used it successfully without unduly shifting the balance
of power between the executive and the legislature.
Enhanced rescission authority.—The rescission mechanism in current law is ineffective. If the President determines that all or
some of the amount provided in an appropriations item should not be spent, he must ask
Congress to "rescind" it, in accordance with
the rules of the Impoundment Control Act of
1974. Proposed rescissions do not become effective unless approved by both Houses of Congress within 45 days. If the rescission is not
approved, the funds must be spent. This
means that the Congress can defeat the President's rescission proposals by simply ignoring
them.

• Make the definition of budget authority
consistent from program to program.

In practice, the Congress has used these
procedures to virtually eliminate the President's ability to reduce unnecessary spending
through rescissions. The great majority of
rescissions proposed since the Act was passed
have been defeated by congressional inaction.
In recent years, Congress has approved very
little of the savings proposed by the President.
In the last 5 years, for example, 120 rescissions were submitted, totaling $11.4 billion.
Of those, just 3 were approved, totaling
$38.1 million, or 0.3 percent of the amount
the President proposed.

Balanced budget amendment.—Stemming
the steady build-up of the national debt is important for generations to come. It appears
that the current budget system is close to incapable of eliminating deficits, much less producing a surplus. That is because there is a
fundamental weakness in the existing process:
It does not adequately reflect the interests of
the voters of the future (most of whom are
not yet here).

A line-item veto amendment to the Constitution is needed for the reasons discussed
above, and it would be the most effective
solution to the inadequacy of the current
rescission procedures. However, absent such
an amendment, the President has supported
legislation to enhance the existing rescission
procedures by requiring an up-or-down vote
in Congress on Presidential rescission proposals.

Line-item veto.—The current system of authorizing spending promotes special interest
spending and affords the President little opportunity to control it. The President, as representative of the general interest, should have
the power to strike from legislation provisions
that reflect only narrow interests. As with any

Joint budget resolution.—Under current
law, the annual congressional resolution on the
budget is a concurrent resolution, which does
not require the President's signature. The
budget resolution sets the limits for all subsequent legislation related to the budget—appropriations bills, revenue measures, and re-

—continue
ments;

the

pay-as-you-go

require-

—continue maximum deficit amounts.
• Enact limits on total Federal direct loans,
loan guarantees, and on the cumulative
total of related subsidies.
• Eliminate or limit most exemptions from
sequestrations (while preserving the exemption for Social Security).

18. IMPROVING THE BUDGET PROCESS

forms of mandatory programs in reconciliation
bills. Formal Presidential involvement in negotiations on the budget resolution should reduce
the potential for conflict between the Adminis-

Part One-411
tration and the Congress on the subsequent
bills that typically pass in the later stages of
each session of Congress.

Advancing States as Laboratories

Part One-413

Advancing States as Laboratories:
19. Encouraging Experimentation

Part One—415

19. ENCOURAGING EXPERIMENTATION
BLOCK GRANT
the 1992 budget. The resulting 24 program
candidates ($14.7 billion in 1993) are set
out in Table 19-1.

To achieve general agreement on a single
consolidated block grant with representatives
of State and local government, the Administration modified its block grant proposal in

Table 19- 1. BLOCK GRANT PROGRAM CANDIDATES
(In millions of dollars)
Proposed

1992 Enacted
Department/Programs

D A

BA
Education:
Chapter 2
College assistance migrant program
High school equivalency
Drug Free Schools and Community Act
Vocational education
Education for homeless youth ...
Follow-through program
Adult Education Act (State
Grants)
Foreign language assistance
Student literacy corps
Workplace literacy partnerships
Literacy training for the homeless
Environment:
Construction grants
Health and Human Services:
Maternal and child health block
grant
Social services block grant
State welfare administrative expenses:
Medicaid
AFDC
Food stamps
Justice:
Drug control
Juvenile justice
Other Programs:
Job training for the homeless ....
ASCS cost share
Community service employment
for older Americans
National and Community Services Act
Total

1994

1993

1996

1995
BA

1997
BA

450

517

450

478

450

453

450

2
8

2
7

2
8

624
1,135
25
9

654
859
10
7

654
1,138
25

648
961
22
7

654
1,138
25

649
1,131
25
2

654
1,138
25

653
1,145
25

654
1,138
25

—

236
10
5
19

175
5
4
16

261

262

261

—

254
2
1
19

261

202
8
4
16

2,011

2,196

2,030

2,110

1,500

2,044

700

1,889

200

1,609

650
2,800

553
2,800

674
2,800

2,649
1,369
1,410

2,649
1,403
1,457

2,868
1,483
1,470

2,802
1,466
1,456

2,868
1,587
1,511

3,164
1,567
1,507

3,521
1,598
1,564

3,521
1,600
1,560

3,922
1,650
1,620

3,922
1,643
1,615

4,374
1,685
1,677

4,374
1,681
1,672

498
72

341
68

496
8

502
58

496
9

496
28

496
8

496
9

496
8

9
194

11
204

17
125

11
171

17
125

15
164

17
125

17
139

17
125

17
135

17
125

17
127

—

—
—

—

—
—

—

1,162

14,355 14,068 14,686 14,622 14,598 15,162 14,218 15,427 14,227 15,634 14,571 15,726

Part One-417

Part 0ne-418
This revised list replaces the illustrative
list of programs the President proposed last
year. The President's goal is to move power
and decision-making authority closer to the
people and allow State and local governments
greater flexibility to manage programs more
efficiently and effectively.
In order to move the proposal forward,
the Administration asked the Governors, State
legislators and local officials to review the
Administration's proposed block grant principles and identify other program candidates
that they would consider suitable for turnover
to the States. Governors and State legislators
endorsed the block grant concept. Representatives of local government were more
cautious, even negative; but representatives
of the National Association of Counties and
the National League of Cities contributed
substantially to the discussions.
Additions to, and deletions from, the Administration's illustrative list were made as a
result of this process. Specifically, the Gov-

THE BUDGET FOR FISCAL YEAR 1993

ernors recommended including additional education programs, while local governments recommended dropping housing programs. In
the end, the participants generally agreed
to the list of programs for turnover to
the States (set out in Table 19-1).
It is recognized that some type of transition
period will be necessary to ensure that sufficient fund controls and service delivery mechanisms are in place. The goal of the Administration's block grant proposal is to provide
State and local governments with the maximum flexibility possible, phased in over a
five-year period. The funding formula proposed
would approximate current funding distribution levels to the individual States—
seeking to ensure that no State would be
harmed as these programs are incorporated
into the new block grant.
A legislative package, containing the Administration's proposal, will be proposed to Congress after further consultation with representatives of State and local governments.

CREATIVE USE OF WAIVERS IN WELFARE PROGRAMS
Efforts to improve major assistance programs for low-income families must grapple
with the fact that practically any change
to one program will have consequences for
other programs serving the same population.
This interaction of program designs makes
it necessary for States to seek permission
separately from several Federal agencies when
they want to demonstrate innovative ways
to move families from welfare dependency
to self-sufficiency.

To encourage States to design and test
potential improvements to current programs,
the Administration will institute an interagency review process to coordinate and expedite State requests for waivers of assistance
program rules which are necessary to demonstrate the alternatives. The process will
allow States seeking waivers involving several
programs to have a single Federal contact
responsible for managing the Federal process
of obtaining the waivers.

For example, to encourage family-heads
receiving Aid to Families with Dependent
Children (AFDC) to seek employment, a State
may wish to allow a family to earn an
extra $100 a month without any reduction
in their AFDC benefit. However, without
a complementary change in the way the
Food Stamp Program operates in the demonstration, the family's food stamps will be
reduced by about $30 to reflect the additional
$100 in cash income. Thus, the extra income
to the family would be only $70 instead
of the $100 intended.

A similar process was created in 1987
in response to initiatives by a variety of
States to test welfare reform proposals. Over
the following year, an interagency board
(made up of representatives from agencies
administering programs of assistance to lowincome people) arranged for Federal approval
of demonstration proposals from more than
a dozen States. Within the next year or
two, results from most of these previous
multi-year demonstrations will add significantly to our knowledge of how to address
welfare dependency.

19. ENCOURAGING EXPERIMENTATION

For example, under the waiver process—
• Wisconsin and Ohio are testing alternative
approaches to increasing high school attendance by children in families receiving
AFDC. Wisconsin's "Learnfare" program
reduces a family's AFDC payment if a
child fails to meet school attendance requirements. In Ohio, grants are higher for
attendance and lower for failure to stay
in school.
• New York is experimenting with a child
support assurance program recommended
in recent reports on the condition of children and proposed in several bills pending
before Congress. When a custodial parent
has an order for support from an absent
parent, the State moves aggressively to
enforce the order. However, if the support
actually received falls below a minimum
level, the State provides the custodial parent with the difference. Unlike current
welfare programs, this payment is not reduced to offset any earnings of the custodial parent. Advocates of the program
hope it will encourage custodial parents
to obtain support orders, increase their
employment, and provide assistance without the stigma usually associated with
welfare.
• Alabama is testing a program that simplifies and rationalizes welfare programs.
Based on the adoption of common rules
and policies across several programs, families with children receive aid in the form
of a single cash payment. Vigorous education and training and a school attendance requirement for dependent children
are part of the demonstration.

Part One-419
oratories of change, gives policy-makers at
the national level a firmer foundation for
their decisions.
To open Federal research and demonstration
activities up to such a wide range of proposals,
two conditions are needed:
First, the demonstration must be cost-neutral to the Federal Government across programs. If State assumptions of savings
from the new approach are correct, States
should be able to draw on the Federal
share of funds they saved and pay for
demonstration activities for which Federal
funds are otherwise not available. Conversely, if the innovations turn out to be
more expensive than the programs they
were intended to replace, Federal funding
will be limited to the amount of spending
that would have occurred in the absence
of the demonstration.
Applying the cost-neutrality requirement
across all Federal programs involved in
the demonstration provides significant additional flexibility for the States. For example, some States have encouraged
AFDC families to leave the rolls by providing Medicaid coverage for a transitional
period in excess of that allowed in current
law. While the demonstrations involved an
increase in Medicaid costs, at least in the
short run, the States hope these costs will
be offset by lower AFDC costs.
Second, participating States must agree to
a rigorous evaluation of their demonstrations (usually based on experimental
evaluation design). While well-designed
evaluations may require more resources
and effort, States should be willing to undertake them, so that the impact of the
demonstration will have wide credibility.

• Washington is experimenting with a program that provides a single cash grant including both AFDC and the cash value of
food stamps, along with rules that provide
higher benefits to families in training programs and more favorable treatment of income from earnings.

These principles of cost-neutrality and rigorous evaluation will be applied by the interagency review process to expedite approval
of future State proposals for multi-program
low-income assistance demonstrations.

These demonstrations embody a wide range
of policies to improve the welfare system.
Implementation of national program changes,
without testing, could make things worse,
both in human and budgetary terms. Encouraging States to test their ideas, to be lab-

The Administration will also explore with
the States ways to expedite the review and
approval of other waivers that are not for
research and demonstration purposes. With
some programs, the law authorizes waivers
to provide States with added flexibility, if

Part 0ne-420
the State's alternative practice can be shown
to be cost-effective. The cost-neutrality principles discussed above, that will be applied

THE BUDGET FOR FISCAL YEAR 1993

to multi-program demonstration waivers, may
also be applicable to other cost-effectiveness
waivers.

EXAMPLES OF FEDERALLY PROMPTED STATE
INNOVATIONS AND DEMONSTRATIONS
ALTERNATIVE METHODS OF MEAL
COUNTING IN CHILD NUTRITION
PROGRAMS
The Food and Nutrition Service's (FNS)
school lunch and breakfast programs offer
meal subsidies to schools. The level of these
subsidies varies with student family income.
Under current practice, to claim subsidies,
schools must maintain a head count of meals
served to students in each subsidy category.
In 1990, FNS approved nine pilot projects
(including California, Maine, Oregon, Pennsylvania and Ohio) to test samplings (versus
head counts) as a means of counting and
claiming reimbursements for school lunches.
In Philadelphia schools, where more than
70 percent of the students are eligible for
free or reduced price lunches, they have
introduced universal free lunches. In Atlantic
City, some schools now receive subsidies
based on statistical sampling techniques; if
the sample indicates that 30 percent of
the students in the school would be eligible
for free lunches, the school receives free
lunch reimbursement for 30 percent of the
meals served.
DRUG ABUSE TREATMENT
The Department of Health and Human
Services is providing Federal matching funds
at a rate of 80 percent for two drug abuse
campus treatment demonstrations. During
1991, the campuses were awarded threeyear cooperative agreements at approximately
$9 million each per year. The campuses,
located in New Jersey and Texas, will provide
675 beds in a range of treatment programs.
The campuses will emphasize treatment of
one or more of the following populations:
racial and ethnic minorities, pregnant women,
female addicts and their children, and adolescents. Knowledge gained through evaluations

of these treatment programs will improve
the residential community treatment model
and increase the efficacy of the national
drug abuse treatment system.
SELF-EMPLOYMENT DEMONSTRATION
PROJECTS
The Department of Labor (DOL) is carrying
out a series of demonstration projects designed
to get unemployed workers back into jobs,
particularly dislocated workers who are likely
to remain unemployed for some time. Two
of these projects focus on self-employment.
In Massachusetts and Washington, State employment security agencies and economic development agencies are examining the effectiveness of providing self-employment allowances and support services (e.g., business
training and counseling) to help interested
unemployment insurance (UI) claimants start
their own small businesses. Massachusetts
provides financial assistance in the form
of weekly or biweekly allowances set at
the level of the participant's UI benefits;
Washington provides a lump-sum grant of
business start-up capital (based on the remaining portion of the participant's UI benefits).
DOL will evaluate the Massachusetts and
Washington demonstrations with respect to
various outcomes (e.g., participant earnings
and assets, employment stability, business
survival) and cost effectiveness.
AIRPORT BLOCK GRANT PROGRAM
Over the past 3 years, under a Federal
Aviation Administration experimental program, Illinois, North Carolina and Missouri
have taken responsibility for distributing Airport Improvement Program (AIP) grants to
small airports. Due to the success of this
pilot program, the Administration will propose
legislation to expand the State block grant

19. ENCOURAGING EXPERIMENTATION

program to allow voluntary participation by
all States.
PASSENGER FACILITY CHARGES
The Aviation Safety and Capacity Expansion
Act of 1990 authorizes airports to impose
"Passenger Facility Charges" (PFCs) of $1
to $3 on departing passengers in order to
fund increased capacity. PFCs increase local
airport authority flexibility to raise revenues
to meet their own needs. The Department
of Transportation has received 16 applications
from airports to collect a total of $1.9 billion
over several years in PFCs. These funds
will support airport improvement projects—
including runway extensions, terminal development and the construction of new gates.
At least 40 airports are planning to apply
for authorization to collect PFCs next year.
TOLL ROADS
The Intermodal Surface Transportation Efficiency Act of 1991, for the first time in
the history of the Federal highway program,
permits States wide discretion in the use
of Federal funding for the construction and
reconstruction of toll highways. States will
be able to mix Federal funds and tolls
to upgrade existing free, non-Interstate highways.
This could lead to the acceleration of projects
since State and local governments would
not have to rely exclusively on limited user
fee or general revenue resources. The new
law permits the continuation of tolls after
the debt for the highway is retired, as
long as the revenue is used for transportation
purposes. The new law also allows joint
public and private investment to construct

Part One-421
or improve toll roads and authorizes private
entities to own Federally funded toll facilities
(as long as certain conditions are met).
The Department of Transportation is, in
addition, initiating a pilot program of variable
tolls to reduce congestion at peak travel
times on Federally financed highways. The
program will consist of five projects, three
of which may be on the Interstate Highway
System. In order to prevent traffic delays
at toll booths, new state-of-the-art technologies
to assess and collect tolls (and eliminate
the need for motorists to stop at toll booths)
will be introduced.
MATCHING FLEXIBILITY IN MASS
TRANSIT
The Federal Transit Administration's "overmatch initiative" is designed to spread Federal
mass transit capital dollars further and
achieve more construction. The initiative generally requires State and local governments
to match at least 50 percent of the cost
of a project (instead of the statutory minimum
of 20 percent) in return for expeditious review
of their planning studies and priority consideration for funding.
An example involves Honolulu's rapid rail
system. Honolulu and the State of Hawaii
collaborated on innovative financing and procurement methods to build the new system
with only 30 percent Federal funds. The
city will use higher local excise taxes to
help finance its share. Honolulu also avoided
the problem of cost overruns by using the
turnkey method of contracting, under which
a vendor received a contract to design, build
and operate the system for a fixed price.

Advancing States as Laboratories:
20. Reporting on Variation
and Innovation

Part One-423

20. REPORTING ON VARIATION AND
INNOVATION
Most experimentation and innovation at
State and local government levels come spontaneously with no Federal prompting. Sometimes, as in health care experiments, what
is learned from State efforts may ultimately
have a profound influence on national policy.
In other cases, the lessons learned are pri-

marily valuable for possible imitation in other
States and localities. This chapter reports
on a sampling of innovations at the State
and local levels, many of which—depending
on how the experiments work out—could
help develop solutions to national problems.

COPING WITH RISING WELFARE CASELOADS
In 1989, the number of families and individuals receiving benefits from the major Federally funded low-income assistance programs
began to rise sharply. This trend accelerated
in 1990. By October 1991, the number of
families receiving cash aid from the Aid
to Families with Dependent Children (AFDC)
program had reached 4.6 million, 21 percent
higher than two years earlier. Over the
same period, an additional 4.6 million people
had joined the Food Stamp Program rolls,
a 24 percent increase.

The State of Michigan and the University
of Michigan are planning to study the effects
of State reduction of eligibility for general
assistance payments to able-bodied single
adults. Among the questions are whether
employment of this population will increase,
whether spending in the corrections system
for the same population will offset welfare
savings, whether homelessness will increase,
or whether a combination of all of these
may occur.

The surge in the number of participants
came just as the States were implementing
the Family Support Act of 1988. The Act
aimed to change the focus of AFDC from
income maintenance to education and employment. The Act provides States with broad
flexibility to design programs that meet the
needs and circumstances of their recipient
families.

Other State initiatives experiment with
conditioning benefits upon a behavioral standard. One of the strongest links in the chain
of poverty is low educational achievement.
As mentioned in Chapter 19, Wisconsin and
Ohio are already testing alternative schemes
of monetary rewards and penalties for school
attendance by children in AFDC families.
Maryland and California are also considering
variations of this approach.

The national assessment of the effects of
the Act will be built upon rigorous evaluations
of a variety of innovative State programs
in ten sites. Variations on different service
philosophies will be tested, including a model
that stresses investment in education and
training and one that stresses attachment
to the work force.

States have, in addition, begun to explore
ways to influence decisions about bearing
and raising children out of wedlock. AFDC
increasingly has become a program for mothers who have never been married. Mothers
and children end up on welfare because
families do not form, rather than because
they break up.

In addition, States are testing or considering
a wide range of policies, beyond those in
the Family Support Act, to move recipients
from the welfare rolls to the employment
rolls and otherwise influence behavior.

To counter this trend, the Governor of
Wisconsin has proposed a financial incentive
for teenage welfare mothers to marry. To
complement the proposal, the State would
provide for AFDC eligibility for young couples

Part One—425

Part 0ne-426

THE BUDGET FOR FISCAL YEAR 1993

with children even when the father has
not established the attachment to the work
force required in the regular AFDC Unemployed Parent program.
To encourage AFDC mothers to postpone
additional child-bearing, several States (including Maryland, New Jersey, and California)
are considering limits on benefits for larger
families.

Other behavioral experiments include (1)
the Governor of Maryland's proposal to require
AFDC recipient parents to immunize their
children and keep their rent paid or face
a reduction in benefits, and (2) the Governor
of California's proposals to reduce benefits
after a family has remained on the rolls
for six months and require teenage parents
to remain in their parents' homes.

STATE INNOVATIONS IN HEALTH CARE
Innovation at the State level can address
some of the problems of rising medical expenditures and access to quality health care.
The Administration recognizes the value of
State experimentation and strongly encourages
State and local innovations in health care.
The National Governors' Association,
its 1991 Annual Conference, stated:

"The Governors believe a way to achieve national
consensus is to develop comprehensive, statewide
health care reforms... that maximize preventive
public health programs and experiment with medical care payment programs to reduce overall
medical costs."

The rapid growth in health spending is
a significant fiscal threat to the States as
well as to the Federal government. In 1970,
Medicaid spending accounted for four percent
of all State spending; by 1991, Medicaid
consumed 14 percent of State spending. Health
expenditures, including Medicaid, went from
18 percent of State spending in 1990 to
23 percent in 1991. As a result, States,
by necessity, have become innovators, developing different approaches to controlling costs
and expanding access.
Various State-level initiatives provide valuable insight to strategies that could be effective on a national level. Described below
are several examples of the kinds of innovations States are testing.
CONTAINING THE COSTS OF HEALTH
CARE
The
critical
erning
health

escalating cost of health care is of
concern to States. The magazine Govreports that economists estimate that
care inflation accounts for 60 percent

of recent Medicaid cost increases. To counter
this trend, States are testing a variety of
approaches to reform their health care systems
that have potential for broader application.
Selective Contracting and Cost Containment: California's Prudent Purchaser
Agreement.—In 1982, California reformed its
Medicaid program by implementing selective
contracting as a means of introducing market
forces to bring down program costs. In exchange for providing discounts to the State,
hospitals receive a greater share of Medicaid
business. Only those hospitals with such
agreements are permitted to provide elective,
non-emergency treatment to Medicaid recipients.
A 1986 evaluation funded by the Health
Care Financing Administration (HCFA) concluded that this program reduced daily hospital inpatient costs by 16 percent. HCFA
now estimates that the program saves California $299 million annually. In turn, California
reports that the cost of administering the
selective contracting program is only $1-2
million per year and that the program was
in place within one year from the time
the legislation was passed.
Using Public Resources to Cover Those
in Need: Oregon's Priority Care Program.—Oregon lawmakers began wrestling
with health care reform on a bipartisan basis
in 1987. The reform proposal that has emerged
is perhaps the most dramatic and controversial
plan currently being considered among the
States. Oregon has established a prioritized
list of medical services that eventually will be
offered to nearly all residents below the poverty level—significantly broadening its current

Part One-427

20. REPORTING ON VARIATION AND INNOVATION

Medicaid population. The list of services offered is prioritized to ensure access to more
people within existing resources.
Under its proposed plan, Oregon would
limit the number and type of services covered
by Medicaid and reallocate the savings to
expand eligibility. Almost all persons below
the Federal poverty level will be eligible
for the new program, as will pregnant women
and young children with family incomes up
to 133 percent of the poverty level.
The Oregon plan is controversial and awaits
a decision on a Medicaid waiver by the
Health Care Financing Administration. Regardless of the plan's substantive merits,
the State's efforts to develop creative reforms
on a bipartisan basis are noteworthy.
COORDINATED CARE AND STATE
MEDICAID PROGRAMS
Coordinated care programs pay a fixed
sum to a group of hospitals and doctors
for the care provided to a program's customers.
Each patient has higher own physician. Coordinated care improves health care quality
through better supervision of care and communication among caregivers. It also improves
the efficiency of health care service delivery
by introducing market forces. Not surprisingly,
an increasing number of States are turning
to coordinated care programs for their Medicaid programs, to control costs while at the
same time covering essential services and
assuring quality care.
Although only ten percent of the nationwide
Medicaid population is currently enrolled in
coordinated care, roughly 30 States have
at least experimented with coordinated care
elements in their Medicaid programs in the
last few years.
Coordinated care is becoming an increasingly popular service delivery option for Medicaid programs. According to the most recent
statistics, 2.3 million Medicaid beneficiaries
nationwide receive care through coordinated
care arrangements.
State-Wide Coordinated Care for Medicaid Recipients
in Arizona.—Arizona's
Health Care Cost Containment System
(AHCCS) has been operating since 1982, when

Arizona first opted to participate in the Medicaid program. Arizona was the last State to
join the Medicaid program—and as a result
may be the most progressive. Rather than running a Medicaid program similar to other
States, Arizona has run the program since its
inception as a coordinated care operation.
All care received by Medicaid-eligible recipients is through coordinated care arrangements, with no fee-for-service option. The
State uses six different cost containment
features:
• Primary care "first step" physicians who
refer patients to specialized care, as appropriate;
• Prepaid capitated contract providers;
• Competitive bidding for contract providers;
• Use of nominal copayments;
• Limited restrictions on plan providers; and
• Capitated Federal payments for Medicaid
on a per patient basis.
The Arizona program has resulted in an
estimated annual savings of 5.1 percent over
other comparable States' costs. Further, the
cost of medical service in the State grew
by only nine percent between 1987 and
1989—as opposed to an average 17 percent
in other States with similar demographic
profiles. Through competitive contracting, Arizona has introduced market forces and management efficiencies into the program, yet
has maintained access to high quality services.
New York's Phased-In Coordinated Care
Initiative.—In 1991, New York State mandated that its Medicaid program undertake a
five-year program that requires all of the
State's 58 local social service districts to begin
enrolling Medicaid recipients in coordinated
care programs. By 2000, nearly one million recipients could be enrolled in coordinated care
programs. By exempting coordinated care from
restrictions on physician and clinic visits, New
York is trying to encourage hospitals to provide services to Medicaid recipients. All fourteen hospitals in Buffalo have responded by
asking to join the physician case management
program.
Indiana's Health Insurance Organization.—In Indiana, roughly 40 percent of the

Part 0ne-428
1.3 million Medicaid beneficiaries are covered
under coordinated care plans through Health
Insuring Organizations (HIOs). Since 1986,
Blue Cross and Blue Shield of Indiana has
provided comprehensive health services to that
State's Medicaid recipients. The HIO shares
in all actual savings or losses, relative to projected costs. The clear cost containment incentives inherent in such a plan have led several
other States to develop HIO arrangements.
INCREASED ACCESS TO HEALTH
INSURANCE
Three-quarters of uninsured Americans are
workers or their dependents, and two-thirds
of uninsured workers are employed by small
businesses. For much of this population, insurers are reluctant to provide small businesses
with health insurance for two reasons: the
high cost of marketing and administering
such policies and the very small risk pools
that small businesses represent. To overcome
these barriers, States are attempting to make
such policies more attractive to insurers and
more affordable to small businesses. States
are also making efforts to extend health
insurance to the unemployed. Eligibility for
such programs is based on income
Minnesota's Children's Health Plan.—
Facing a rising number of uninsured children,
Minnesota enacted the Children's Health Plan
(CHP) in 1988 in an effort to provide health
insurance to children in poor and near-poor
families. Targeting families ineligible for Medicaid, and with incomes below 185 percent of
the poverty level, the Plan had enrolled over
21,000 children as of October 1991.
Initially funded through a penny-per-pack
cigarette tax, the Plan now receives an annual
$10 million appropriation and charges a $25
enrollment fee for each child. Local service
agencies aid families in meeting the fee
if the families cannot afford it. Results have
been encouraging: CHP clients have demonstrated a moderate increase in well-child
care utilization between 1989 and 1990.
Washington State's Basic Health Plan.—
In 1987, Washington State enacted the Basic
Health Plan as a five-year demonstration
project. A legislative "sunset review" for the
Plan is scheduled for July 1992, but it is ex-

THE BUDGET FOR FISCAL YEAR 1993

pected to be reauthorized. The program has
proven to be popular. Nearly as many residents are on a waiting list as are enrolled
in the program.
The State contracts with coordinated care
plans to provide basic services to residents
under 65 with incomes below 200 percent
of the poverty level. Medicaid eligibles, who
have already applied for Medicaid, are also
eligible to apply for the Plan. Participants
pay a monthly premium based on their
incomes. The State funds the remainder.
To restrain the growth in costs, non-essential
services (e.g., vision care, dental care, and
mental health and substance abuse treatment)
are not covered. Enrollment has been limited—
to 22,000 in 1991—but is expected to expand
under reauthorization.
The Robert Wood Johnson Foundation's
Project to Aid Small Businesses in Acquiring Health Insurance.—Private sector initiatives have also proven effective. The Robert
Wood Johnson Project is demonstrating that
insuring small businesses is a viable option
for insurance companies, if the risk can be
spread and if initial administrative costs can
be controlled. Insurance companies shy away
from providing small businesses with health
insurance, for fear of adverse selection as well
as the high marketing and administrative
costs required for such customers. The Robert
Wood Johnson Foundation (RWJ) funds demonstration projects that subsidize the insurer's
marketing costs and assist insurers in dealing
with administrative burdens, allowing these
companies to get a toehold in the small business market and to spread their risk pools effectively.
By providing start-up funds to insurance
companies, the Foundation helps insurers
overcome their initial reluctance about entering an untested market and demonstrate
that the market is viable. The success of
the demonstration projects shows the potential
for private firms to gain entry and fill
the gap in an underserved market.
RWJ found that 75 percent of the working
uninsured are employed by firms with fewer
than 10 employees. At a cost of $6.2 million,
the ten demonstration projects helped to
insure 2,062 small firms and 20,616 workers
and dependents. Private foundations alone

20. REPORTING ON VARIATION AND INNOVATION

cannot be expected to solve the problem
of the working uninsured. The RWJ Project,
however, demonstrates the effectiveness of
encouraging small businesses and insurers
to join forces to broaden risk pools and
reduce administrative costs.
No-frills Coverage and Expanded Access.—No-frills or "essential services" health
insurance provides a basic health insurance
package to consumers, free of State-mandated
features that price many potential customers
(e.g., small businesses) out of the health insurance market. States have sought to increase
access to health insurance by exempting certain insurance policies from costly mandates,
such as substance abuse treatment and chiropractic services. This lowers the price to an
affordable level for many potential purchasers.
In 1990, the West Virginia legislature
passed a law allowing the State Insurance
Commissioner to develop a basic-benefits insurance plan for all residents. The Commissioner, in turn, has solicited the input of
small businesses from around the State on
the scope of the package's coverage.
In September 1990, Rhode Island implemented a 30-month demonstration project
to aid small businesses in purchasing health
insurance for their employees. Under the
program, businesses with fewer than 25 em-

Part One-429
ployees, that had not offered health insurance
in the two previous years, will be allowed
to offer an "essential services" health insurance package that makes available the most
necessary services, but excludes costly State
mandates that small businesses claim price
them out of the market.
Underwriting reforms in the States have
focused on several common features. First,
these reforms guarantee renewability of coverage, protecting groups and individuals within groups from having renewed insurance
denied due to deteriorating health of the
group or one of its members. Second, the
reforms have restricted variation among premiums charged by a single carrier to various
groups and individuals, and have limited
the rates of annual increase that a carrier
can impose on premiums.
Summary:—Ensuring the availability of
health insurance coverage, promoting high
quality care, and living on a limited budget
are serious challenges to the States. As illustrated, many States have addressed these
problems in imaginative ways. The Administration will continue to encourage States to
test new and creative ideas and provide incentives to experiment with new initiatives, by
allowing States flexibility that is not available
under current law.

OTHER EXAMPLES OF STATE AND LOCAL INNOVATION
CRIME AND CORRECTIONS

$150 million in five years as a result of
this system.

Reducing Crowding in Prisons

Using Civil Penalties Against Criminals

Georgia has dealt with the problem of
overcrowded prisons, including Federal court
orders requiring less crowding, with an innovative system of sentencing options for misdemeanors and felonies. Public and judicial
opinion in the State continues to favor full
punishment for crime, and prison sentences
remain the norm for violent criminals. But
for other sentenced criminals, a continuum
of punishments is now available. These include
basic probation, supervised community service,
intensive probation supervision, "diversion"
centers, and short-term so-called "shock incarceration." Georgia has saved an estimated

A number of States are seeking to increase
prosecutions of drug dealers by imposing
taxes of various kinds and then prosecuting
dealers for failure to pay the taxes. While
the program is somewhat controversial, it
is being used in one form or another by
more than half the States. Some require
a drug-stamp; others have enacted special
excise taxes on the sale of illegal narcotics;
another group imposes sales taxes on drug
sales. In all cases, dealers who do not
pay are subject to prosecution, with civil
judgments often easier to obtain than criminal
convictions.

Part 0ne-430

THE BUDGET FOR FISCAL YEAR 1993

ENVIRONMENT
Variable Pricing for Garbage Collection
The city of Seattle has reduced the flow
of solid waste through the imposition of
variable pricing for garbage collection; the
charge rises as the volume of garbage increases. Recycled materials incur no charge.
Specifically, the city charges $13.75 a month
to pick up 32-gallon trash containers, but
the charge rises to $22.75 a month for
60-gallon containers. Households can reduce
their charge, for example, by crushing boxes,
cans and bottles to fit them in the smaller
container, reducing the volume of material
deposited in the City's landfills.
Purification of Septage Waste
A Massachusetts State agency, the Massachusetts Center of Excellence, has sponsored
a demonstration in the town of Harwich
on Cape Cod using a new technology, solar
aquatics, to purify septage waste. Septage
waste is the sludge-like material removed
periodically from septic tanks. Early results
are reported to be promising; high quality
effluent is being produced at less than the
cost of conventional treatment.
Negotiating New Landfills
A major problem for many States, particularly those with a relatively high population
density, is obtaining community consent for
the location of new landfills for solid waste,
as old ones fill up. Wisconsin has developed
an unusual system of mandatory local municipal and county government negotiating committees to deal with cases where landowners
seek to create landfills. Failure to reach
agreement leads potentially to outside arbitration by a State agency. Although the ultimate
powers of local officials are reduced by this
arrangement, so is their vulnerability to local
voter hostility to new landfills. In nearly
all cases, the negotiating committees have
reached agreement on landfills without State
intervention.
EDUCATION
Educational experiments are blossoming in
virtually all of the States. The following
are a few of many examples of innovation.

Providing Choices Among Schools
Milwaukee's Parental Choice Program for
low-income children began operation in September 1990. This program permits up to
1,000 low-income families to send their children to private schools at State expense
($7,500 per student maximum). The program
received high marks from families, but is
being challenged in the courts on constitutional grounds. A recent random survey
of 449 Milwaukeans found that 75 percent
supported the program and over half believed
that the program should be expanded to
include private sectarian schools.
Minnesota provides an array of school choice
programs. The postsecondary option program
allows 11th and 12th graders in public schools
to attend colleges, universities, and vocational
schools. The high school graduation incentives
and area learning centers' programs permit
students between the ages of 12 and 21,
who are not succeeding in school, to transfer
to public schools in other districts. Under
the open enrollment program, elementary and
secondary students can transfer to public
schools in other districts. Participants in
all these programs express a high degree
of satisfaction. To compete with the postsecondary option program, the first of these
programs to be instituted, more high schools
now offer advanced placement classes.
In Pennsylvania, the State Senate passed
a landmark school choice proposal which
would provide Pennsylvania families with
a scholarship worth up to $900 if they
were to select a private school or a public
school located outside their assigned district.
The measure is expected to be considered
again this year. Grants through the Choice
Grants for America's Children Act, as proposed
by the President, would provide matching
funds to Pennsylvania and other States, substantially increasing the likelihood that States
could afford to undertake such important
steps to reform education.
Indiana made progress toward school choice
through the help of a business-backed coalition, COMMIT. The bill developed by the
coalition would convert most State and local
aid to scholarships for every school-age child.
Families could choose among public and private (including sectarian) schools within the

20. REPORTING ON VARIATION AND INNOVATION

school district. The plan would be linked
to new academic standards, school readiness
strategies, and proposals for self-regulated
schools.
In December, a California citizen's coalition
called "EXCEL" received approval from the
State Attorney General to gather signatures
in favor of a 1992 ballot initiative to provide
vouchers to all families in California. Families
could choose public, private, or sectarian
schools in any district.
"America 2000"—States as Laboratories
By the end of 1991, "STATE 2000" organizations had been launched in 30 States, one
territory, and the District of Columbia. The
education reform initiatives these States are
undertaking vary, yet each has adopted the
four common elements that make them an
"America 2000" State. Specifically, these
States have: (1) adopted the six national
goals; (2) established a State-wide strategy
for achieving the goals; (3) developed a report
card for measuring the community's progress;
and (4) demonstrated the State's readiness
to create and support New American Schools.
Accountability and Assessment.—Since
1989, California has required an annual School
Accountability Report Card for each school in
the State, reporting on at least 13 different
indicators of school operation and performance.
The system will require performance-based
tests scored by teachers rather than computers. The tests will be administered throughout
the school year and will be closely tied to the
State Board-adopted curriculum frameworks
and standards.
School Performance Assessment Program.—The State of Maryland has developed
the School for Success Program. Central to this
program is a new performance system, the
Maryland School Performance Assessment Program, which is designed to hold schools accountable for outcome results. The State-wide
program is an authentic performance-based assessment in reading, writing, language usage,
and mathematics in grades 3, 5, 8, and 11;
it is part of a comprehensive outcome-based
reform package. The objective of the assessment is to measure high quality education, not
minimum competency, with State standards of

Part One—431
excellence and satisfactory performance for
each test to be reported in 1992.
School to Work Transition.—The Oregon
legislature passed a major education reform
bill in July 1991 that mandates a variety of
changes in Oregon schools. One part of the
initiative requires completion of a vigorous
academic program in order to receive a certificate of advanced mastery in a field. The
fields will include a variety of courses preparing students for college, technical degree programs, and employment after high school. The
program chosen by the students within the
field will include at least basic academic preparation to permit college entry, apprenticeships
or internships, and experimental learning. The
certificate of advanced mastery may take between two and five years and may include
work at a community or technical college.
When a student has graduated with a certificate, he or she will be prepared for entry
into an occupational field.
School Performance.—Through the Pennsylvania School Performance Incentive Program, cash grants are awarded to schools that
demonstrate significant improvement in math
and reading achievement, dropout reduction,
and college preparation. Decisions regarding
grant-supported expenditures for educational
improvement are made by teachers. Other
State-supported efforts for teachers include Regional Lead Teacher Centers, which promote
staff decisionmaking and collaboration.
Flexibility/Waiver Authority.—Increased
flexibility through waivers is a major component of Target 2000, enacted in 1989 to promote school reform in South Carolina's schools.
The mandated reform offers schools, which
have met required standards, waivers from
regulations and statutory provisions governing
the States' Defined Minimum Program, Basic
Skills Assessment Program, and Remedial/
Compensatory Program. Schools that are eligible for waivers include those that have: (1)
received school incentive awards twice since
1987, (2) met annual achievement standards
for compensatory programs in reading and
math, (3) exhibited no accreditation deficiencies, and (4) shown a school gain index
value that is at or above the State average.

Part 0ne-432
MENTAL HEALTH
Providing Housing Choices for the
Mentally 111
Toledo, Ohio has had some success in
finding housing for mentally ill persons by
giving them a voice in choosing individualized
support services, rather than being "placed"
in facilities reserved for the mentally ill.
The program has found housing for more
than 500 people, about one-fifth of those
with mental illnesses in the area, and most
of those placed have lived in their new
homes for more than a year.
Helping the Mentally 111
The Colorado Consumer Case Management
Aide program involves having mentally ill
people provide services to other patients in
the mental health system. Although a limited
experiment involving about 100 persons during
the five years of its existence, the program
is breaking new ground. The trainees receive
basic instruction in reading and writing so
that they can maintain client records and
learn counseling and communications skills.
Successful participants earn college credits,
and graduates receive certificates from a
community college.
TRANSPORTATION
Improving Parking Enforcement
Chicago has begun to use advanced technology to solve the nearly universal urban
problem of enforcing street parking restrictions. The system was so poor that a backlog

THE BUDGET FOR FISCAL YEAR 1993

of 17 million unpaid tickets accumulated
in the period 1980-1990. This backlog had
a face value of $420 million in fines. In
addition, rampant illegal parking resulted
in clogged traffic on local streets. The Chicago
system provides a simpler means for motorists
to contest their tickets by mail or in person
and repeals the previous requirement that
a complaint could be dismissed unless a
police officer appeared at the hearing. The
new system produced a 44 percent increase
in parking meter revenues in the first six
months, and increased the number of parking
tickets paid in the year of issuance from
10 percent to 40 percent.
Improving Traffic Management
Anaheim, California has developed an innovative traffic management system aimed at
reducing the congestion that occurs from
sudden increases in traffic volume. The Traffic
Management Center in Anaheim receives information from a variety of sources (e.g.,
the Anaheim Convention Center, the Police
Department, and the State-operated Freeway
Surveillance System), and uses the data to
adjust traffic signal timing at 180 traffic
lights. The Traffic Management Center also
uses the data to make radio announcements
and to flash information on overhead message
signs. The result is less congestion, faster
travel, less fuel consumption and reduced
auto emissions.

Advancing States as Laboratories:
21. Providing Federal Aid to
State and Local Governments

Part One-433

21. PROVIDING FEDERAL AID TO STATE
AND LOCAL GOVERNMENTS1
State and local governments have a vital
constitutional role in providing government
services. They have the major role in providing
domestic public services, such as public education, law enforcement, public roads, water
supply, and sewage treatment. The Federal
Government contributes directly toward that
role both by promoting a healthy economy
and by providing grants, loans, and tax
subsidies to State and local governments.
Federal grants help State and local governments finance programs covering most areas
of domestic public spending, including income
support, capital spending, and other assist1 Federal aid to State and local governments is defined as the
provision of resources by the Federal Government to support a
State or local program of governmental service to the public. The
three primary forms of aid are grants, loans, and tax expenditures.

ance. Federal grant outlays were $152.0 billion
in 1991. They are estimated to be $182.2
billion in 1992 and $199.1 billion in 1993.
The accompanying chart shows trends in
outlays in major grant categories from 1980
to 1993. Grant outlays for payments for
individuals are estimated to be 65 percent
of total grants in 1993; for physical capital,
15 percent; and for all other grants, largely
for education, training, and social services,
21 percent.
States and localities use loans and guarantees for a variety of purposes, including
rural development and transportation. As a
result of credit reform concepts enacted in
the Federal Credit Reform Act of 1990,
the subsidies for direct and guaranteed loans

FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS
$ BILLIONS

1980

1981

(OUTLAYS)

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

Part One-435

Part 0ne-436

THE BUDGET FOR FISCAL YEAR 1993

obligated in 1992 and later are recorded
in the budget as budget authority and outlays.
Therefore, the subsidies for loans to State
and local governments are recorded as grants
to these governments and included in this
analysis in the grant totals. Direct and
guaranteed loan subsidies to State and local
governments are estimated to be $25 million
in 1992 and $54 million in 1993.
Information on new credit reform concepts
and other Federal credit activities appears
in Part One, Chapter 13, "Identifying LongTerm Obligations and Reducing Underwriting
Risks," and Appendix One, Chapter 3, "Federal
Credit Programs."

tures is estimated to be $58.2 billion in
1992 and $61.6 billion in 1993 on an outlay
equivalent basis.
A detailed discussion of the measurement
and definition of tax expenditures and a
complete list of the amount of specific tax
expenditures are in Part Two, Chapter 24,
"Tax Expenditures." State and local tax expenditures are displayed separately at the
end of Table 24-1 in that chapter.
FEDERAL GRANTS BY FUNCTION AND
AGENCY

Federal aid to State and local governments
is also provided through tax expenditures.
Tax expenditures are one of the means by
which the Federal Government carries out
public policy objectives; they can be considered
alternatives to direct spending programs.

Table 21-1 shows a functional distribution
of Federal grant outlays as proposed in
this Budget. The functions with the largest
amount of grants are health and income
security, with combined estimated grant outlays of $132.6 billion or 67 percent of total
grant outlays in 1993.

The two major tax expenditures benefiting
State and local governments are the deductibility of most State and local taxes, except
sales and excise taxes, and the exclusion
of interest on State and local securities
from Federal taxation. Federal aid to State
and local governments through tax expendi-

Table 21-2 shows the distribution of grants
by agency. Grant outlays for the Department
of Health and Human Services are estimated
to be $116.2 billion in 1993, 58 percent
of total grants, much more than any other
agency.

Table 21-1. FEDERAL GRANT OUTLAYS BY FUNCTION
(In billions of dollars)
1 IU 1 I
X U1 L U1

National defense
Energy
Natural resources and environment
Agriculture
Transportation
Community and regional development
Education, training, employment
and social services
Health
Income security
Veterans benefits and services
Administration of justice
General government
Total outlays

Actual
1991

Estimate
1992

1993

1994

1995

1996

1997

0.2
0.5
4.0
1.2
19.9

0.2
0.4
4.0
1.3
21.3

0.1
0.4
4.0
1.3
22.3

0.1
0.4
4.1
1.3
23.4

0.1
0.4
4.0
1.3
22.5

0.1
0.4
3.6
1.3
22.6

0.1
0.4
3.2
1.2
22.5

4.3

4.7

4.9

4.5

4.0

3.8

3.7

26.0
55.8
36.9
0.1
0.9
2.2

28.7
76.2
42.0
0.2
1.0
2.3

29.9
88.5
44.1
0.2
1.1
2.3

31.5
102.5
47.4
0.2
1.2
3.6

31.8
118.0
50.0
0.2
1.0
2.3

32.2
135.4
51.5
0.2
1.1
3.1

32.6
155.1
52.7
0.2
1.1
2.3

152.0

182.2

199.1

220.1

235.5

255.1

275.2

Part One-437

21. PROVIDING FEDERAL AID TO STATE AND LOCAL GOVERNMENTS

Table 21-2. FEDERAL GRANT OUTLAYS BY AGENCY
(In billions of dollars)
Agency

Department of Agriculture
Department of Commerce
Department of Education
Department of Energy
Department of Health and Human Services
Department of Housing and Urban Development
Department of the Interior
Department of Justice
Department of Labor
Department of Transportation
Department of the Treasury
Environmental Protection Agency
Federal Emergency Management Agency
Other agencies
Total

HISTORICAL PERSPECTIVES
In recent decades, Federal aid to State
and local governments has become a major
factor in the financing of certain government
functions. The rudiments of the present system
date back to the Civil War. The Morrill
Act, passed in 1862, established the land
grant colleges and instituted certain federally
required standards, as is characteristic of
the present grant system. Federal aid was
later initiated for agriculture, highways, vocational education and rehabilitation, forestry,
and public health. In the depression years,
Federal aid was extended to meet income
security and other social welfare needs. However, Federal grants did not become a significant factor in Federal Government expenditures until after World War II.
Table 21-3 displays trends in Federal grants
to State and local governments. Section A
shows the percentage distribution of Federal
grants by function. Functions with a substantial amount of grants are shown separately.
Grants in the functions for national defense,
energy, veterans benefits and services, and
the administration of justice are relatively
small and are combined in the "other functions" line in the table.

1991
Actual

Estimate
1992

1993

12.8
0.3
12.4
0.2
80.8
11.2
1.5
0.8
6.2
19.8
0.5
3.1
0.7
1.8

14.2
0.3
14.3
0.2
103.6
12.9
1.5
0.8
7.0
21.2
0.5
3.0
0.8
1.8

14.6
0.3
15.1
0.2
116.2
14.8
1.5
0.9
6.8
22.3
0.5
3.0
0.9
1.9

152.0

182.2

199.1

Federal grants for transportation increased
to 43 percent of all Federal grants in 1960
with initiation of aid to States to build
the Interstate Highway System in the late
1950s.
By 1970 there had been significant increases
in the relative share for education, training,
employment, social services, and health (largely Medicaid).
In the early and mid-1970s, major new
grants were created for natural resources
and environment (construction of sewage treatment plants), community and regional development (community development block grants),
and general government (general revenue
sharing).
In the 1980s changes in the relative shares
among functions reflect steady growth of
grants for health (Medicaid) and income security and restraint in most other areas.
Section B of Table 21-3 shows the composition of grants divided into three major
categories: payments for individuals, physical
capital, and other grants. Grant outlays for
payments for individuals, mainly in mandatory, or entitlement programs where the Federal government and the States share the

Part 0ne-438

THE BUDGET FOR FISCAL YEAR 1993

Table 21-3. TRENDS IN FEDERAL GRANTS TO STATE AND LOCAL
GOVERNMENTS
(Outlays; dollar amounts in billions)
Estimate

Actual

1960 1965 1970 1975 1980 1985 1990 1991 1992 1993 1994 1995 1996 1997
A. Percentage distribution of grants by
function:
Natural resources and environment
Agriculture
Transportation
Community and regional development ..
.
Education, training, employment, and
social services
Health
Income security
General government
Other functions

2%
3
43
2

2%
5
38
6

2%
3
19
7

5%
1
12
6

6%
1
14
7

4%
2
16
5

3%
1
14
4

3% 2% 2% 2% 2% 1% 1%
1
1
1
1
1
13
12
11
11
10
9
8
3
3
2
2
2
1
1

7
3
38
2

10
6
32
2
1

27
16
24
2
1

24
18
19
14
2

24
17
20
9
1

17
23
26
6
1

17
32
26
2
1

17
37
24
1
1

16
15
14
13
13 12
42
44
47
50
53 56
23
22
22
21
20
19
1
1
2
1
1
1
1
1
1
1
1
1

Total
B. Composition:
Current dollars:
Payments for individuals1
Physical capital2
Other grants

100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Total
Percentage of total grants: 1
Payments for individuals
Physical capital2
Other grants

7.0 10.9 24.1 49.8 91.5 105.9 135.4 152.0 182.2 199.1 220.1 235.5 255.1 275.2

Total
Constant (FY 1987) dollars:
Payments for individuals1
Physical capital2
Other grants
Total
C. Total grants as a percent of:
Federal outlays:
Total
Domestic programs3
State and local expenditures
Gross domestic product
D. As a share of total State and local capi a spending:
tl
Federal capital grants
State and local own-source financing
Total

2.5
3.3
1.2

3.7
5.0
2.2

8.7 16.8 32.7 49.4 77.1 89.9 114.6 128.8 145.5 163.5 182.4 203.4
7.0 10.9 22.5 24.8 25.7 26.5 28.1 29.4 28.6 29.1 29.1 30.5
8.3 22.2 36.3 31.7 32.5 35.6 39.5 40.9 45.9 42.9 43.6 41.2

35% 34% 36% 34% 36% 47% 57% 59% 63% 65% 66% 69% 71% 74%
22
47
46
29
25
23
19
17
15
15
13
12
11 11
34
17
20
45
40
30
24
23
22
21
21
18
17 15
100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
9.0 12.5 24.7 35.1 46.3 53.0 67.4 75.0 93.0 101.3 110.9 120.7 130.5 141.0
13.8 19.5 21.9 20.6 27.6 25.8 23.6 23.8 24.5 24.8 23.3 22.9 22.1 22.4
6.4 9.8 26.7 49.6 53.7 34.2 28.7 30.1 32.4 32.4 35.2 31.7 31.1 28.3
29.1 41.8 73.6 105.4 127.6 113.0 119.7 129.0 149.9 158.4 169.3 175.3 183.7 191.7
8% 9% 12% 15% 15% 11% 11% 11% 13% 13% 15% 15% 16% 16%
18% 18% 23% 22% 22% 18% 17% 17% 19% 20% 22% 22% 23% 23%
15% 16% 20% 24% 28% 23% 20% H A N/A ItyA N/A N/A N/A N/A
1% 2% 2% 3% 3% 3% 2% 3% 3% 3% 3% 3% 3% 3%
25% 25% 25% 27% 37% 31% 21% N/A N/A N/A N/A N/A N/A JtyA
69
79 N/A N/A N/A N/A N/A N/A N/A
75
75
75
73 63
100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

N/A: Not available.
1 For an identification of accounts in this category, see table 21-4, including its footnote.
2 Excludes capital grants that are included as payments for individuals.
8 Excludes national defense, international affairs, net interest, and undistributed offsetting receipts.

costs, have grown significantly as a percent
of total grants. In 1980, they were 36 percent
of the total, and by 1991 they had grown
to 59 percent of the total. These grants
are distributed through State or local governments to provide cash or in-kind benefits
that constitute income transfers to individuals
or families. The major grant in this category
is Medicaid, which had outlays of $52.5
billion in 1991, increasing to an estimated
$84.4 billion in 1993. Family support payments
to States (AFDC), child nutrition programs,

and housing assistance are also large grants
in this category. All programs in this category
are identified by footnote in the detailed
Table 21-4, Federal Grants to State and
Local Governments—Budget Authority and
Outlays, at the end of this section.
Grants for physical capital assist States
and localities with construction and other
physical capital activities. The major capital
grants are for highways, but there are also
grants for airports, mass transit, sewage
treatment plant construction, community de-

21.

PROVIDING FEDERAL AID TO STATE AND LOCAL GOVERNMENTS

velopment, and other facilities. Grants for
physical capital were almost half of total
grants in 1960, shortly after grants began
for construction of the Interstate Highway
System. The relative share of these outlays
has declined, as payments for individuals
and other social programs have grown since
the mid-1960s. In 1991, grants for physical
capital were 17 percent of total grants.
The other grants are primarily for education,
training, employment, and social services.
These grants increased to 34 percent of
total grants by 1970, but declined to 23
percent of total grants in 1991.
Section B of Table 21-3 also shows these
three categories 'in constant dollars. In constant FY 1987 dollars, total grants increased
from $127.6 billion in 1980 to $129.0 billion
in 1991, an average annual increase of 0.1
percent. From 1980 to 1991, payments for
individuals grew from $46.3 billion to $75.0
billion, an average annual increase of 4.5
percent; grants for physical capital decreased
from $27.6 billion to $23.8 billion, an average
annual decrease of 1.3 percent, and other
grants decreased from $53.7 billion to $30.1
billion, an average annual decrease of 5.1
percent.
Section C of Table 21-3 shows grants
as a percent of Federal outlays, State and
local expenditures, and gross domestic product.
Grants have declined as a percent of total
Federal outlays from 15 percent in 1980
to 11 percent in 1991 and, as a percent
of Federal domestic programs, from 22 percent
in 1980 to 17 percent in 1991.
As a percent of total State and local
expenditures, grants have declined from 28
percent in 1980 to 20 percent in 1990.
Section D of Table 21-3 shows the relative
contribution of physical capital grants in
assisting States and localities with capital
spending. Federal capital grants declined as
a percent of State and local capital spending
from 37 percent in 1980 to 21 percent
in 1990, reflecting restraint in Federal spending and increased capital spending by States
and localities financed from their own sources,
such as taxes or borrowing.

Part One-439

OTHER INFORMATION ON FEDERAL
AID TO STATE AND LOCAL GOVERNMENTS
Additional information regarding aid to
State and local governments can be found
in other parts of this budget.
• Discussions of major policy proposals,
many of which affect aid to State and local
governments, can be found throughout
Part One.
• Major public physical capital investment
programs providing Federal grants to
State and local governments are described
in Part Three, Chapter 29, "Physical and
Other Capital Presentation."
• Data for summary and detailed grants to
State and local governments can be found
in many sections of the Historical Tables,
to be published subsequently. Section 12
is devoted exclusively to grants to State
and local governments. Additional information on grants can be found in Section
6 (Composition of Federal Government
Outlays); Section 9 (Federal Government
Outlays for Major Physical Capital Investment); Section 10 (Composition of Outlays
for the Conduct of Research and Development and for the Conduct of Education
and Training); Section 11 (Federal Government Payments for Individuals); and Section 15 (Total (Federal and State and
Local) Government Finances).
In addition to the data in this budget,
a number of other sources of information
are available that use slightly different concepts of grants, provide State-by-State information, or provide information on how to
apply for Federal aid.
• Governmental Finances, published annually by the Bureau of the Census in the
Department of Commerce, provides data
on public finances, including Federal aid
to State and local governments.
• The Survey of Current Business, published
monthly by the Bureau of Economic Analysis in the Department of Commerce, provides data on the national income and
product accounts (NIPA), a broader statistical concept encompassing the entire
economy. These accounts include data on

Part 0ne-440

THE BUDGET FOR FISCAL YEAR 1993

Federal grants to State and local governments. Data using the NIPA concepts appear in this budget in Part Three, Chapter
27, "National Income and Product Account
Presentation."

accepting applications for specific programs. These notices also provide information on eligibility criteria and application
procedures.

• Budget Information for the States (BIS)
provides estimates of State funding allocations for the largest formula grant programs for the past, present, and budget
year. These programs comprise approximately 80 percent of total Federal aid to
State and local governments. The document is prepared by the Office of Management and Budget soon after the Budget
is released.

THE STATE AND LOCAL GOVERNMENT SECTOR OF THE NATIONAL
INCOME AND PRODUCT ACCOUNTS

• Federal Expenditures by State is a report
prepared by the Bureau of the Census that
shows Federal spending by State for
grants and other spending for the most
recently completed fiscal year.
• The Consolidated Federal Funds Report
(CFFR) is an annual document that shows
the distribution of Federal spending by
State county areas and by local governmental jurisdictions. It is released by the
Bureau of the Census in the Spring.
• The Federal Assistance Awards Data System (FAADS) provides computerized information about current grant funding. Data
on all direct assistance awards are provided quarterly by the Bureau of the Census to the States and to the Congress.
• The Catalog of Federal Domestic Assistance is a primary reference source for communities wishing to apply for grants and
other domestic assistance. The Catalog is
prepared by the General Services Administration with data collected by the Office
of Management and Budget and is available from the Government Printing Office.
The basic edition of the Catalog is usually
published in June and an update is generally published in December. It contains
a detailed listing of grant and other assistance programs; discussions of eligibility
criteria, application procedures, and estimated obligations; and related information.
• The Federal Register is published daily by
the Government Printing Office and has
current information on agencies that are

The national income and product accounts
(NIPA) provide a comprehensive statistical
description of the U.S. economy that includes
State and local government receipts and expenditures. These data measure the transactions between the State and local government sector of the economy and other sectors.
There are three major differences between
NIPA data and a government's own budgetary
accounting for receipts and expenditures. First,
purely financial transactions are excluded
from NIPA data but are generally included
in budgetary data. Second, a large number
of transactions in the NIPA accounts are
recorded on an accrual basis, while many
governments show transactions on a cash
basis. Third, NIPA consolidate total State
and local transactions, whereas many governments separate their general fund from special
funds. As a result of these differences, NIPA
totals are not the same as a simple aggregate
of these governments' budgets. However, the
NIPA data do provide timely estimates of
total State and local fiscal transactions not
otherwise available and, if used with care,
can provide helpful financial indicators.
NIPA State and Local Sector.—The following chart shows State and local operating
account surpluses and deficits as a percent of
GDP (gross domestic product), excluding the
social insurance funds (primarily government
employee pensions). The social insurance funds
have been excluded because their surpluses
are for future pension obligations and are not
available for carrying out the general responsibilities of these governments. It is reasonable
for the operating account to be in deficit because it includes capital expenditures, often financed through borrowing. The peaks and
troughs in the operating account are largely
the result of:
• changes in economic activity, which affect
primarily receipts;

21.

PROVIDING FEDERAL AID TO STATE AND LOCAL GOVERNMENTS

Part One-441

STATE AND LOCAL SURPLUSES AND DEFICITS

NOTE: Excludes state and local social insurance funds.

• decisions regarding debt-financed capital
spending; and
• changes in Federal aid.
The operating account was in deficit every
year from 1955 to 1971. During the 1970s
and 1980s it was frequently in surplus.
In part, this change reflected the growth
of Federal grants (rather than State and
local borrowing) to finance new infrastructure.
• The surpluses in the early 1970s were
largely the result of the initiation of general revenue sharing and strong economic
growth.
• The low point in 1975 was largely the result of a recession.
• The surpluses in the latter 1970s were
largely the result of the economic recovery,
increases in anti-recession Federal grants,
reductions in debt-financed capital spending, and general restraints in government
spending exemplified by the passage of
Proposition 13 in California in 1978.

The recession brought the account into
deficit in 1980 and 1982, albeit quite small
deficits relative to the 1955-71 period. As
a result of the recession, States and localities
reduced expenditures and increased taxes.
These actions along with economic growth
helped return the account to surplus for
1983-1986. The decline into deficit beginning
in 1987 is due to increases by States and
localities in capital spending financed by
borrowing and to other factors, including
the recession.
DETAILED FEDERAL AID TABLES
The following two tables present detailed
Federal aid data for 1991, 1992, and 1993.
Table 21-4, "Federal Grants to State and
Local Governments—Budget Authority and
Outlays," provides detailed budget authority
and outlay data for grants. Table 21-5,
"Credit Assistance to State and Local Governments," provides information on direct and
guaranteed loans to State and local governments.

Part 0ne-442

THE BUDGET FOR FISCAL YEAR 1993

Table 21-4. FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS—BUDGET AUTHORITY AND
OUTLAYS
(In millions of dollars)
BUDGET AUTHORITY
Function, agency and program

NATIONAL DEFENSE:
Department of Defense—Military:
Military construction, Army National Guard
Federal Emergency Management Agency:
Emergency management planning and assistance ....
Total, national defense
ENERGY:
Department of Energy:
Energy conservation
Department of Housing and Urban Development:
Assistance for solar and conservation improvements
Tennessee Valley Authority:
Tennessee Valley Authority fund
Total, energy
NATURAL RESOURCES AND ENVIRONMENT:
Department of Agriculture:
Resource conservation and development
Watershed and flood prevention operations
Forest research
State and private forestry
Department of Commerce:
Operations, research, and facilities
Department of the Interior:
Regulation and technology
Abandoned mine reclamation fund
Bureau of Reclamation loans program account
Resource management
Construction
Cooperative endangered species conservation fund ...
U.S. Fish and Wildlife Service miscellaneous permanent appropriations
Sport fish restoration
Urban park and recreation fund
Land acquisition and State assistance
Historic preservation fund
National Park Service miscellaneous permanent appropriations
Department of Transportation:
National recreational trails trust fund
Environmental Protection Agency:
Construction grants
Abatement, control, and compliance
Abatement, control, and compliance loan program
account
Hazardous substance superfund
Leaking underground storage tank trust fund
Total, natural resources and environment
AGRICULTURE:
Department of Agriculture:
Cooperative State Research Service
Buildings and facilities
Extension Service
Payments to States and possessions
State mediation grants
Agricultural resource conservation demonstration
guaranteed loan program account
Commodity Credit Corporation fund
Emergency food assistance program

1991
actual

1992
estimate

OUTLAYS

1993
estimate

1991
actual

1992
estimate

1993
estimate

104

103

105

102

207

185

111

185

182

114

247

240

155

214

208

186

—

243

240

253

247

240

155

457

448

439

6
113

7
128

25
166
1
71

24
90
1
78

—

22
133
1
72

172

212

138

126

130

48
149

48
135
2

52
130
1

32
164

51
145
1

—

33
123
1
1
2
5
160
203
5
45
34

166
220
9
48
38

—

7
2
—

173
194
20
34
34

2,100
480

—

183
229
5
20
35

149
242

—

9
3
—

145
200
*

—

56
41

—

27
34

—

2,389
357

2
280
61

8
288
62

4,358

4,040

4,022

3,962

416

380
16
367
1

404
25
414
1
3

392
42
418
1
3

4
299
168

4
227
165

—

318
71

3,946

4,412

391
63
398
1

434
75
419
1
4

417
1
2

4
299
165

4
227
165

—

262
63

17
291
62

—

291
53

288
170

2,159
459

2,500
498

—

1
6

2,199
474

2,400
559

—

288
168

Part One-443

21. PROVIDING FEDERAL AID TO STATE AND LOCAL GOVERNMENTS

Table 21-4. FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS—BUDGET AUTHORITY AND
OUTLAYS—Continued
(In millions of dollars)
BUDGET AUTHORITY
Function, agency and program

Total, agriculture
TRANSPORTATION:
Department of Transportation:
Railroad-highway crossings demonstration projects ..
Trust fund share of other highway programs
Baltimore-Washington Parkway
Highway-related safety grants
Motor carrier safety grants
Federal-aid highways
Miscellaneous appropriations
Miscellaneous highway trust funds
Miscellaneous safety programs
Highway traffic safety grants
Office of the Administrator
Local rail freight assistance
Mandatory passenger rail service payments
Conrail commuter transition assistance
Transit planning and research
Research, training, and human resources
Interstate transfer grants — transit
Washington metro
Formula grants
Discretionary grants
Miscellaneous expired accounts
Grants-in-aid for airports (Airport and airway trust
fund
Research, development, test, and evaluation
Boat safety
Pipeline safety
Emergency preparedness grants
Washington Metropolitan Area Transit Authority:
Interest payments
Total, transportation
COMMUNITY AND REGIONAL DEVELOPMENT:
Department of Agriculture:
Emergency community water assistance grants
Rural development grants
Rural water and waste disposal grants
Rural communityfireprotection grants
Rural development insurance fund program account
Rural development loan fund liquidating account
Distance learning and medical link programs
Department of Commerce:
Economic development assistance programs
Miscellaneous appropriations
Regional development programs
Regional development commissions
Department of Housing and Urban Development:
Other assisted housing programs
Community development grants
Urban development action grants
Rental rehabilitation grants
Supplemental assistance for facilities to assist the
homeless
Revolving fund (liquidating programs)
New community assistance grants
Department of the Interior:
Operation of Indian programs
Indian direct loan program account
Indian guaranteed loan program account
Appalachian Regional Commission:
Appalachian regional development programs

1991
actual

1992
estimate

OUTLAYS
1991
actual

1993
estimate

1992
estimate

1993
estimate

1,312

1,401

1,232

1,220

1,317

1,251

17
10
8
10
60
13,797
404
40

20
8
20
17
65
17,083
536
33

4
8
10
12
62
14,124
44
20
134

6
11
15
7
63
15,505
135
32
1
129

8
14
16
11
70
16,575
222
48
1
139

—

—
—

20
76
20,135
—
—

—

126

171

—

10
150
5

12
145
14

—

126

2
149
64
1,605
1,401
—

1,600

6
160
124
1,520
1,900
—

—
—

—

29
—

82
182
1,604
1,725
—

1,900

•

5
2
264
231
2,209
1,054
57

5
197
196
2,002
1,245
50

19
7
3
143
145
1,519
1,490
36

1,541

1,556

1,759

—

35
5

35
7

35
5

35
6

—

35
7
13

—

35
6
7

19,550

23,783

26,046

19,878

21,263

22,337

1
15
125
3

9
18
160
4
6
2

6
19
208
2
32
2

—

300
4

300

—

350
4
97

—

209

227

—

153

194

186

—

2
3,213
7
70

—

3,400

—

2,900
—

88
2,976
128
80

78
3,125
150

4
2

9
121

—

53
3
8

—

184

—

164

—
*

—

157

—

3,339
103
—

11
79
—

53
3
8

111

127

—

Part 0ne-444

THE BUDGET FOR FISCAL YEAR 1993

Table 21-4. FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS—BUDGET AUTHORITY AND
OUTLAYS—Continued
(In millions of dollars)
BUDGET AUTHORITY
Function, agency and program

Federal Emergency Management Agency:
Emergency management planning and assistance ....
Disaster relief
Neighborhood Reinvestment Corporation:
Payment to the Neighborhood Reinvestment Corporation
Total, community and regional development .
EDUCATION, TRAINING, EMPLOYMENT, AND
SOCIAL SERVICES:
Department of Commerce:
Endowment for children's educational television
Public telecommunications facilities, planning, and
construction
Department of Education:
Indian education
Impact aid
Chicago litigation settlement
Compensatory education for the disadvantaged
School improvement programs
Educational excellence
Bilingual and immigrant education
Special education
Rehabilitation services and disability research
American printing house for the blind
Vocational and adult education
Student financial assistance1
Higher education
College housing and academic facilities program account
Libraries
Education research, statistics, and improvement
Department of Health and Human Services, except Social Security:
Selected community services block grant act programs
Interim assistance to States for legalization
Social services block grant
ACF service programs
Payments to States for foster care and adoption assistance
Department of Labor:
Training and employment services
Community service employment for older Americans
State unemployment insurance and employment
service operations
Unemployment trust fund
Federal unemployment benefits and allowances
Corporation for Public Broadcasting:
Public broadcasting fund
Institute of Museum Services:
Institute of Museum Services
National Endowment for the Arts:
National Endowment for the Arts

1991
actual

1992
estimate

OUTLAYS

1993
estimate

1991
actual

1992
estimate

1993
estimate

21
939

15
248

15
482

17
589

12
691

4,057

5,343

3,746

4,273

4,685

4,917

18
—

—

69
771

70
760

59
747
10
5,193
1,243

66
794
12
6,146
1,570
12
172
2,349
1,884
6
1,024
85
21

70
614
12
6,578
1,529
160
180
2,624
1,941
6
1,156
43
56

—

6,197
1,421
—

157
2,271
1,740
6
1,192
64
24

6,676
1,469
100
185
2,621
1,908
6
1,363
72
25

—

132

130
36

437

—

73
532
6,803
1,522
768
193
2,710
1,968
6
l-,409
50
294
—

—

148
2,006
1,751
8
1,038
60
19

—

35
35

132

162
4

103
29

420
825
2,822
2,920

453
451
2,785
3,389

149
375
2,800
3,775

—

436
271
2,800
1,602

2,800
1,763

5
300
2,800
2,031

2,584

2,614

2,989

2,120

2,500

2,835

3,201
86

3,066
87

3,225
75

2,985
79

3,145
84

3,191
85

25
1,059
71

24
1,099
72

27
1,066

-25
1,045
51

24
1,086
66

24
1,081
49

299

327

319

299

327

319

Total, education, training, employment, and
social services

26,552

27,785

29,291

26,020

28,691

29,861

HEALTH:
Department of Agriculture:
Food Safety and Inspection Service salaries and expenses

—

Part One-445

21. PROVIDING FEDERAL AID TO STATE AND LOCAL GOVERNMENTS

Table 21-4. FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS—BUDGET AUTHORITY AND
OUTLAYS—Continued
(In millions of dollars)
BUDGET AUTHORITY
Function, agency and program

Department of Health and Human Services, except Social Security:
Health resources and services1
Disease control, research and training
Alcohol, drug abuse, and mental health1
Grants to States for Medicaid1
Department of Labor:
Occupational Safety and Health Administration salaries and expenses
Mine Safety and Health Administration salaries and
expenses
Total, health
INCOME SECURITY:
Department of Agriculture:
Funds for strengthening markets, income, and supply (section 32)1
Supervisory and technical assistance grants
Rural housing preservation grants1
Special milk program1
Food donations programs for selected groups1
Food stamp program1
Special supplemental food program for women, infants, and children1
Commodities supplemental food program1
State child nutrition payments1
Nutrition assistance for Puerto Rico1
Department of Health and Human Services, except Social Security:
Family support payments to States1
Low income home energy assistance1
Refugee and entrant assistance1
Payments to States for AFDC work programs
Payments to States for day care assistance1
Payments to States from receipts for child support ...
Department of Housing and Urban Development:
Subsidized housing programs 1
Congregate services program1
Assistance for renewal of expiring Section 8 subsidy1
Section 8 moderate rehabilitation, single room occupancy
Homeownership and opportunity for people everywhere grants 1
Payments for operation of low-income housing1
Drug elimination grants for low-income housing1
Low-rent public housing—loans and other expenses1
Emergency shelter grants program1
Transitional housing for the homeless program1 ,,
Shelter plus care1
Home investment partnerships program
Safe havens
Department of Labor:
Unemployment trust fund
Federal Emergency Management Agency:
Emergency food and shelter program1
Total, income security
VETERANS BENEFITS AND SERVICES:
Department of Veterans Affairs:
Medical care1
Grants for the construction of State extended care
facilities1

1991
actual

1992
estimate

OUTLAYS

1993
estimate

1991
actual

1992
estimate

1993
estimate

1,352
346
1,810
53,393

1,532
465
1,923
72,503

1,751
496
2,044
84,396

1,112
281
1,744
52,533

1,355
375
1,815
72,503

1,577
457
1,963
84,396

57,018

76,540

88,796

55,783

76,163

88,500

363

565

439

—

23
19
228
1,415

406
2
23
22
265
1,538

10
15
256
1,589

10
19
243
1,406

484
1
9
21
258
1,611

450
1
10
21
255
1,584

2,345
82
5,438
963

2,595
90
5,916
1,002

2,833
90
6,322
1,051

2,275
74
5,399
965

2,607
95
5,958
1,002

2,818
90
6,290
1,051

13,794
1,610
366
1,000
732

15,201
1,500
366
1,000
825

15,273
1,065
182
1,000
850

13,520
1,742
228
546

15,114
1,143
331
832
574

15,303
674
227
885
787

—

4,241
10

2,609
1

3,413

4,906

6,483

6,326

105

—

2,175
150
150
73
150
—
—
—

361
2,450
165
100
73
150
111
1,500
—

—
*

—

5,226
4

5,523
8

5,916
8

240

1,114

2,116

7
2,196
99
226
77
73
9
30

118
2,271
182
173
67
75
43
269
20

—

1,010
2,282
165
50
17
204
266
700
50

—

2,004
*

313
60
56
—
—
—

2,134

2,476

2,381

1,954

2,476

2,316

134

100

133

134

100

42,607

47,471

48,065

36,856

42,013

44,133

123

149

123

149

Part 0ne-446

THE BUDGET FOR FISCAL YEAR 1993

Table 21-4. FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS—BUDGET AUTHORITY AND
OUTLAYS—Continued
(In millions of dollars)
BUDGET AUTHORITY
Function, agency and program

Grants for the construction of State veterans
cemetaries
Total, veterans benefits and services
ADMINISTRATION OF JUSTICE:
Department of Housing and Urban Development:
Fair housing activities
Department of Justice:
Assets forfeiture fund
National Institute of Corrections
Justice assistance
Crime victims fund
Department of the Treasury:
Customs forfeiture fund
Equal Employment Opportunity Commission:
Salaries and expenses
State Justice Institute:
Salaries and expenses
Total, administration of justice
GENERAL GOVERNMENT:
Department of Agriculture:
Forest Service permanent appropriations
Department of Defense—Civil:
Corps of Engineers permanent appropriations
Department of Energy:
Payments to States under the Federal Power Act
Department of the Interior:
Payments in lieu of taxes
Bureau of Land Management miscellaneous permanent appropriations
Mineral leasing and associated payments
National wildlife refuge fund
Administration of Territories
Trust Territory of the Pacific Islands
Payments to the United States Territories, fiscal assistance
Department of the Treasury:
Internal revenue collections for Puerto Rico
Miscellaneous permanent appropriations
Commission on National and Community Service:
Salaries and expenses
District of Columbia:
Federal payment to the District of Columbia
Total, general government
Total, grants

1991
actual

1992
estimate

OUTLAYS

1993
estimate

1992
estimate

1993
estimate

173

213

197

141

178

217

267
3
620
125

247
3
624
128

257
3
524
144

267
3
397
105

247
3
432
119

257
3
550
137

—

119

120

1,063

1,051

965

940

971

1,118

334

325

323

330

328

324

104

105

100

104

105

114
480
18
101
48

100
420
19
87
24

103
412
21
57
16

77
480
18
69
22

133
420
19
56
27

272
106

272
141

272
142

272
111

272
141

272
142

672

700

688

671

690

698

2,376

2,352

2,302

2,224

2,313

2,279

159,106

190,777

205,264

152,017

182,246

199,128

—

* $500 thousand or less.
1
Programs included in the "grants for payments to individuals" category shown in Table 21-3.

1991
actual

—

103
412
21
38
17

Part One-447

21. PROVIDING FEDERAL AID TO STATE AND LOCAL GOVERNMENTS
Table 21-5. CREDIT ASSISTANCE TO STATE AND LOCAL GOVERNMENTS
(in millions of dollars)
Function, agency and program

1991
Actual

1992
Estimate

Direct Loans
Natural resources and environment:
Department of the Interior:
Bureau of Reclamation loans, liquidating:
Loan disbursements
Change in outstandings
Outstandings
Emergency fund, liquidating:
Change in outstandings
Outstandings
Environmental Protection Agency:
Abatement, control, and compliance, liquidating:
Loan disbursements
Change in outstandings
Outstandings

19
12
111

26
16
127

Total, natural resources and environment:
Loan disbursements
Change in outstandings
Outstandings

23
15
218

31
17
235

Commerce and housing credit:
Department of Agriculture:
Rural housing insurance fund (FmHA), liquidating:
Loan disbursements
Change in outstandings
Outstandings

30
19
453

26
14
467

4
3
98
-2

4
2
100

-1
8

Transportation:
Department of Transportation:
Right of way revolving fund, liquidating:
Loan disbursements
Change in outstandings
Outstandings
Miscellaneous expired accounts (WMATA), liquidating:
Change in outstandings
Outstandings

55
17
110

110

177

Total, transportation:
Loan disbursements
Change in outstandings
Outstandings

55
17
287

42
287

385
262
3,911

410
254
4,166

Community and regional development:
Department of Agriculture:
Rural development insurance fund (FmHA), liquidating:
Loan disbursements
Change in outstandings
Outstandings
Department of Interior:
BIA revolving fund, liquidating:
Loan disbursements
Change in outstandings
Outstandings
BIA-Indian loan guaranty and insurance fund, liquidating:
Loan disbursements
Change in outstandings
Outstandings
Total, community and regional development:
Loan disbursements
Change in outstandings
Outstandings

1
-2

390
263
3,977

411
252
4,228

Part 0ne-448

THE BUDGET FOR FISCAL YEAR 1993

Table 21-5. CREDIT ASSISTANCE TO STATE AND LOCAL GOVERNMENTS—Continued
(in millions of dollars)
Function, agency and program

Education:
Department of Education:
Guaranteed student loans, liquidating:
Change in outstandings
Outstandings
College housing loans, liquidating:
Loan disbursements
Change in outstandings
Outstandings
College housing and academic facilities, liquidating:
Loan disbursements
Change in outstandings
Outstandings

1991
Actual

1992
Estimate

1993
Estimate

General purpose fiscal assistance:
Other independent agencies:
Loans to the District of Columbia, liquidating:
Change in outstandings
Outstandings
Grand total, direct loans:
Loan disbursements
Change in outstandings
Outstandings

9
-10
284

9
-6
278

-8
270

10
10
33

13
13
46

11
10
56

-3
360

19
2
363

-1
13

-35
584

-37
547

-39
508

517
274
5,895

Health:
Department of Health and Human Services:
Medical facility guarantee and loan fund, liquidating:
Change in outstandings
Outstandings

-10
37

19
-4
363

Total, education:
Loan disbursements
Change in outstandings
Outstandings

"4
46

533
243
6,138

349
155
6,294

-22
273

-25
248

-33
215

1
-10
56

34
29
85

-5
80

1
-32
329

34
4
333

-38
295

-209
5,253

-300
4,953

-325
4,628

1
-241
5,582

34
-296
5,287

-363
4,924

Guaranteed Loans
Community and regional development:
Department of Agriculture:
Rural development insurance fund (FmHA), liquidating:
Change in outstandings
Outstandings
Department of the Interior:
BIA, Indian loans, liquidating:
Loan disbursements
Change in outstandings
Outstandings
Total, community and regional development:
Loan disbursements
Change in outstandings
Outstandings
Income security:
Department of Housing and Urban Development:
Low-rent public housing, liquidating:

Grand total, guaranteed loans:
Loan disbursements
Change in outstandings
Outstandings

—

* $500 thousand or less.
1
Only direct loans are included in budget outlays. Guaranteed loans are non-Federal loans guaranteed by the Federal Government^ For
a discussion of credit in the budget, see Part One, Chapter 13, "Identifying Long-Term Obligations and Reducing Underwriting Risks."

Full text of Budget of the United States Government : Fiscal Year 1993 : Part One. Agenda for Growth and Priorities for the Future

FRASER