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BUDGET OF THE
UNITED STATES
GOVERNMENT
ANALYTICAL

PERSPECTIVES

Fiscal Year 1995

THE BUDGET DOCUMENTS
Budget o f the United States Government, Fiscal
Year 1995 contains the Budget Message of the Presi­
dent and presents the President’s budget proposals.

in the budget documents are consistent with the con­
cepts and presentation used in the 1995 Budget, so
the data series are comparable over time.

Analytical Perspectives, Budget o f the United
States Government, Fiscal Year 1995 contains analy­
ses that are designed to highlight specified program
areas or provide other significant presentations of budg­
et data that place the budget in perspective.
It includes economic and accounting analyses, such
as a balance sheet-type presentation; information on
Federal receipts and collections, including user fees and
tax expenditures; analyses of Federal spending; detailed
information on Federal borrowing and debt; the Budget
Enforcement Act preview report; current services esti­
mates; and other technical presentation, such as the
national income and product accounts.
It also includes information on management improve­
ments; the budget system and concepts; a listing of
the Federal programs by agency and account; and a
glossary of budget terms.

Budget o f the United States Government, Fiscal
Year 1995—Appendix contains detailed information
on the various appropriations and funds that constitute
the budget. The Appendix contains more detailed infor­
mation than any of the other budget documents. It
includes for each agency: the proposed text of appro­
priation language, budget schedules for each account,
new legislative proposals, explanations of the work to
be performed and the funds needed, and proposed gen­
eral provisions applicable to the appropriations of entire
agencies or group of agencies. Supplemental and rescis­
sion proposals for the current year are presented sepa­
rately. Information is also provided on certain activities
whose outlays are not part of the budget totals.

Historical Tables, Budget o f the United States
Government, Fiscal Year 1995 provides data on bud­
get receipts, outlays, surpluses or deficits, and Federal
debt covering an extended time period—in many cases
beginning in fiscal year 1940 and ending in fiscal year
1999. These are much longer time periods than those
covered by similar tables in other budget documents.
The data in this volume and all other historical data

Automated Sources o f Budget Information. Cop­
ies of the budget number data in electronic form may
be obtained from the U.S. Department of Commerce,
National Technical Information Service, Springfield, VA
22161, telephone (703) 487-4650. Refer to stock number
PB94-500030. Historical budget information is avail­
able on compact disk (CD) from the U.S. Department
of Commerce, Office of Business Analysis, HCHB Room
4885, Washington, D.C. 20230, telephone (202)
482-1986. Refer to the National Economic, Social, and
Environmental Data Bank (NESE-DB). There is a
charge for both of these items.

GENERAL NOTES
1. All years referred to are fiscal years, unless otherwise noted.
2. Detail in this document may not add to the totals due to rounding.

U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON 1994
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, D.C. 20402




ISBN 0 -1 6-04 303 3-X

TABLE OF CONTENTS
Page

Economic and Accounting Analyses
1. Economic Assumptions ....................................................................................

1

2. Stewardship: Toward a Federal Balance Sheet...............................................

9

3. Generational Accounting .................................................................................

21

Federal Receipts and Collections
4. Federal Receipts ...............................................................................................

35

5. User Fees and Other Collections .....................................................................

47

6. Tax Expenditures .............................................................................................

53

Federal Spending
7. Federal Spending by Function, Subfunction, and Major Program..................

81

Special Analyses and Presentations
8. Federal Investment Outlays and Capital Budgeting ......................................

107

9. Research and Development Expenditures.......................................................

131

10. Underwriting Federal Credit and Insurance ...................................................

133

11. Aid to State and Local Governments...............................................................

167

12. Federal Employment........................................................................................

177

Federal Borrowing and Debt
13. Federal Borrowing and Debt ............................................................................

185

Budget Enforcement Act Preview Report
14. Preview Report .................................................................................................

197

15. Review of Direct Spending and Receipts .........................................................

203

16. Deficit Reduction Fund ....................................................................................

209

Current Service Estimates




17. Current Services Estimates..............................................................................

213

i

Page

Other Technical Presentations
18. Trust Funds and Federal Funds ......................................................................

245

19. National Income and Product Accounts ..........................................................

257

20. Comparison of Actual to Estimated Totals for 1993 .......................................

261

21. Relationship of Budget Authority to Outlays ..................................................

267

22. Off-Budget Federal Entities .............................................................................

269

23. Crosscutting Categories ....................................................................................

271

High Risk Areas
24. Progress Report: Correcting High Risk Areas .................................................

275

Federal Programs by Agency and Account
25. Federal Programs by Agency and Account.......................................................

301

Budget System and Concepts and Glossary
26. Budget System and Concepts and Glossary.....................................................

421

List of Charts and Tables ...........................................................................................

435

ii



ECONOMIC AND ACCOUNTING ANALYSES







1. ECONOMIC ASSUMPTIONS
Introduction
A year ago, the two-year old recovery from the 199091 recession was still very fragile; now it is secure.
This transformation was the result of a series of correc­
tive actions taken by the private and public sectors.
Households reduced their share of disposable income
needed to service outstanding debt. Businesses im­
proved their balance sheets by relying on equity rather
than debt financing. In the construction industry, the
overhang of excess office space was reduced substan­
tially.
But most importantly, the Federal Government seri­
ously addressed its own deficit problem. Congress en­
acted the Administration's deficit reduction plan, com­
mitted itself to follow with further cuts in health care
costs and refocused spending priorities on productivityenhancing investment.
The return to fiscal responsibility contributed to a
fall of one percentage point in long-term interest rates
between the election in November 1992 and the end
of 1993. Even though they increased slightly in the
closing months of the year, long-term interest rates in
the fourth quarter were the lowest in over two decades.
Falling rates stimulated key interest-sensitive sectors,
pushed the stock market to record highs and reduced
the debt servicing costs of governments, households and
businesses.
By the second half of 1993, households and busi­
nesses were willing and able to undertake the invest­
ment spending that produces self-sustaining growth.
Business and consumer confidence improved noticeably
as sales picked up, orders increased, payrolls expanded
and incomes rose. Even though the pace of economic
activity quickened during 1993 and the unemployment
rate declined steadily, inflation remained well under
control. Thus, as 1994 begins, the essential elements
for sustained, noninflationary growth are in place.
Signs of a Secure Expansion
The favorable trends evident in product and labor
markets last year suggest that the economy in 1994—
and the five years beyond—will be healthier than it
has been during the past half dozen years.
• Real GDP growth was faster in each successive
quarter of 1993, reaching an estimated 4-1/2 per­
cent annual rate in the final quarter. The accel­
eration was achieved through faster growth of
spending on the investment components of GDP
(consumer durables, housing and business equip­
ment) rather than inventory accumulation or for­
eign trade.
• To meet growing demand, businesses both length­
ened the workweek and increased their hiring. In




the fourth quarter, the manufacturing workweek
set a record high for the post-World War II period;
factory overtime reached the highest level since
record keeping began in 1956; and factories in­
creased their payrolls by 40,000 following seven
consecutive months of reductions. In addition to
the manufacturing sector, the construction indus­
try added significantly to its payrolls in the fourth
quarter and private sector service jobs continued
to grow.
• The unemployment rate in December was 6.4 per­
cent, down from 7.3 percent a year earlier. All
major demographic groups experienced substantial
unemployment rate declines during 1993.
• The Consumer Price Index (CPI) rose just 2.7 per­
cent during 1993; the producer price index, a mere
0.2 percent. The reduction of inflation was broadly
based; even the medical component of the CPI
slowed last year. In addition, energy prices fell
near the end of 1993. Faster growth of productiv­
ity in the second half of the year helped restrain
inflation by providing an offset to rising labor com­
pensation.
There were important restraints on growth during
1993, some of which will continue during 1994, and
perhaps even beyond.
• On the domestic side, the shift from defense to
nondefense priorities in the post-Cold War world
has caused a sharp retrenchment by defense-related industries. During 1993, industries with 50 per­
cent or more of their output geared to defense
reduced their payrolls by 140,000, about the same
as in 1992. At the state and local government
level, fiscal pressures have curtailed hiring and
spending, although these pressures might ease as
a growing economy boosts tax revenues. In the
construction sector, investment in new office build­
ings and multifamily rental housing was de­
pressed in 1993 by the high vacancy rates of re­
cent years. These rates, however, came down dur­
ing 1993, suggesting a turnaround may be in the
offing.
• Abroad, recessions in Europe and Japan contrib­
uted to a widening of the U.S. trade deficit last
year, and a further deterioration is probable this
year. During 1993, industries with 20 percent or
more of their employment directly or indirectly
tied to exports lost 120,000 jobs, considerably less
than the 230,000 of 1992.
• Finally, the same competition from foreign and
domestic firms that helps hold inflation in check
will maintain pressure on U.S. companies to con­
trol costs by downsizing their workforces wherever
feasible.

3

4

ANALYTICAL PERSPECTIVES

In the view of the Administration, and most private
sector forecasters, however, the growth-promoting
trends in the economy far outweigh the restraining
ones. If the Congress delivers on its commitment to
fiscal responsibility and the Federal Reserve continues
to provide sufficient growth of the monetary aggregates
to sustain the expansion, the economic future will be
brighter than it has been in many years.

Economic Assumptions
The Administration’s economic assumptions devel­
oped in early December 1993 project a continuation
of the trends evident in 1993: real economic growth
sufficiently strong to lower unemployment gradually
without reigniting inflation. (See Table 1-1 for details.)
• Between the fourth quarter of 1993 and the fourth
quarter of 1994, real GDP is expected to increase
3.0 percent. From 1995 through 1999, the growth
rate slows progressively to 2.5 percent, close to
the estimate of potential growth.
• The unemployment rate is expected to decline 0.3
percentage point in 1994. Further decreases of
about this magnitude are projected each year
through 1998, at which time the unemployment

TABLE 1-1.

rate is projected to be close to the noninflationary
unemployment rate.1
• Inflation, as measured by the Consumer Price
Index, is projected to be 3.0 percent during 1994,
compared with 2.7 percent during 1993. As the
slack in labor and product markets is taken up,
the inflation rate is assumed to edge up slightly,
leveling off at 3.4 percent per year during
1997-1999.
• Short-term interest rates are projected to rise
moderately from their exceptionally low current
levels as the economy expands, while long-term
rates are projected to remain unchanged at their
levels at the end of 1993.
Data that became available after these assumptions
were completed suggest that real growth in the fourth
quarter of 1993 was stronger than anticipated, while
unemployment, inflation and interest rates were lower.
Economic assumptions updated for these recent devel­
opments would raise the level of both real and nominal
GDP by about 0.2 percent each year 1994-1999, but
1 Because of a major revision of the monthly labor force questionnaire beginning in January
1994, there is likely to be a noticeable break in the official unemployment rate beginning
with 1994. Table 1-1 shows an unemployment rate projection consistent with the historical
data through 1993. The unemployment rate based on the revised questionnaire might be
about one-half percentage point higher than this.

ECONOMIC ASSUMPTIONS i

(Calendar years; dollar amounts in billions)
Actual
1992

Projections
1993

1994

1995

1996

1997

1998

1999

6,038
4,986
121.1

6,371
5,126
124.3

6,736
5,284
127.5

7,118
5,433
131.0

7,522
5,579
134.8

7,950
5,725
138.9

8,400
5,873
143.0

8,870
6,021
147.3

6.7
3.9
2.8

5.0
2.3
2.6

5.8
3.0
2.7

5.6
2.7
2.8

5.7
2.7
2.9

5.7
2.6
3.0

5.7
2.6
3.0

5.6
2.5
3.0

5.5
2.6
2.9

5.5
2.8
2.6

5.7
3.1
2.6

5.7
2.8
2.8

5.7
2.7
2.9

5.7
2.6
3.0

5.7
2.6
3.0

5.6
2.5
3.0

Incomes, billions of current dollars:
Personal income.....................................................................................................................
Wages and salaries 2 ..............................................................................................................
Corporate profits before ta x ....................................................................................................

5,145
2,973
395

5,385
3,083
447

5,691
3,261
508

6,016
3,442
531

6,365
3,636
555

6,746
3,849
573

7,148
4,071
595

7,551
4,293
631

Consumer Price Index (all urban): 3
Level (1982-84*100), annual average ..................................................................................
Percent change, fourth quarter over fourth quarter................................................................
Percent change, year over year.............................................................................................

140.3
3.1
3.0

144.5
2.8
3.0

148.6
3.0
2.8

153.3
3.2
3.2

158.3
3.3
3.3

163.6
3.4
3.3

169.2
3.4
3.4

174.9
3.4
3.4

Unemployment rate, civilian, percent:4
Fourth quarter level.................................................................................................................
Annual average.......................................................................................................................
Federal pay raises, January, percent5 ..........................................................................................

7.3
7.4
4.2

6.7
6.8
3.7

6.4
6.5

6.0
6.1
1.6

5.8
5.9
2.2

5.6
5.7
2.5

5.5
5.5
2.5

5.5
5.5
2.5

Interest rates, percent:
91-day Treasury bills6 ............................................................................................................
10-year Treasury notes...........................................................................................................

3.5
7.0

3.0
5.9

3.4
5.8

3.8
5.8

4.1
5.8

4.4
5.8

4.4
5.8

4.4
5.8

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) .........................................................................................

1 Based on information available as of December 1993.
2 Pre-health care reform. Reform is assumed to increase wages and salaries by $23 biion in 1997, $35 bfllion in 1998 and $47 billion in 1999.
3 CPI for all urban consumers.
«Pre-1994 basis. The introduction of a new labor force questionnaire in January 1994 may result in higher unemployment rates than these shown in the table,
s In January 1994 there was a 2.2% pay raise for military personnel.
•Average rate (bank discount basis) on new issues within period.




5

1. ECONOMIC ASSUMPTIONS

TABLE 1-2. COMPARISON OF ECONOMIC ASSUMPTIONS IN THE 1994 AND 1995 BUDGETS
(Calendar years; dollar amounts in billions)
1993

Percent increase:
Nominal GDP:
1994 budget assumptions 1 .................
1995 budget assumptions....................
Real GDP (percent change): 2
1994 budget assumptions....................
1995 budget assumptions....................
GDP deflator (percent change): 2
1994 budget assumptions....................
1995 budget assumptions....................
Consumer Price Index (percent change):2
1994 budget assumptions....................
1995 budget assumptions....................
Civilian unemployment rate (percent):3
1994 budget assumptions....................
1995 budget assumptions....................
91-day Treasury bill rate (percent):
1994 budget assumptions....................
1995 budget assumptions....................
10-year Treasury note rate (percent):
1994 budget assumptions....................
1995 budget assumptions....................

1994

6,348
6,371

6,736

7,046
7,118

7,397
7,522

7,740
7,950

8,070
8,400

2.3

3.0
3.0

2.8
2.7

2.6
2.7

2.2
2.6

1.8
2.6

2.5
2.6

2.4
2.7

2.3
2.8

2.2
2.9

2.2
3.0

2.2
3.0

2.8
2.8

2.7
3.0

2.7
3.2

2.7
3.3

2.7
3.4

2.7
3.4

7.1
6.8

6.6
6.5

6.2
6.1

6.0

5.9

5.8
5.7

5.7
5.5

3.2
3.0

3.7
3.4

4.3
3.8

4.7
4.1

4.8
4.4

4.9
4.4

6.7
5.9

6.6
5.8

6.6
5.8

6.5
5.8

6.5
5.8

6.4
5.8

2.8

1 Adjusted for August 1993 revisions.
2 Fourth quarter to fourth quarter.

3Pre-1994 basis.

would not change the growth rates shown in Table
1-1. The update would also reduce the unemployment
rate by one or two tenths in 1994-1997 and lower the
ten-year Treasury note by one-tenth percentage point
through 1999. These revisions are included in the Ad­
ministration assumptions published in the Council of
Economic Advisors, Economic Report of the President,
1994. The changes would reduce the deficits for
1995-1999 by $5-6 billion a year compared to the defi­
cits estimated using Table 1-1 assumptions.
The economic assumptions presume enactment of the
Administration’s budget proposals. The Administra­
tion’s health care reform proposal was also taken into
account in framing them. While there are likely to be
important sectoral effects from health care reform,
these are expected to be largely offsetting at the level
of the economy as a whole. Thus, the projections of
nominal and real GDP, the GDP implicit price deflator,
the overall CPI, unemployment and interest rates
shown in Table 1-1 are assumed to be unaffected.2

Impact of Changes in Economic Assumptions
The budget for 1994 was based on economic assump­
tions identical to those used by the Congressional Budg­
et Office (CBO) at the time. In contrast, the 1995 budg­
et is based on the Administration’s own forecast and
assumptions. While the rate of real growth projected
for the next few years is similar, the 1995 budget as­
sumptions show somewhat stronger real growth in the
2The medical component of the CPI is expected to rise more slowly as a result of health
care reform. By 1999, when the reform is fully implemented, medical inflation is assumed
to be one percentage point higher than the overall CPI, compared with 2 percentage points
higher in a baseline that excludes health care reform. This difference is assumed to be
offset by differences in inflation outside the medical sector so that the overall rate of
inflation is the same for baseline and policy estimates. See Chapter 17, "Current Services
Estimates."




out-years. They also show slightly higher inflation, and
lower interest rates (the latter particularly reflecting
the experience of this past year).
The changes in economic assumptions have signifi­
cant effects on the budget outlook. Higher real growth
and inflation rates both contribute to raising estimates
of receipts. The higher inflation, however, also increases
estimates of outlays for programs such as social secu­
rity, the benefits for which rise automatically each year
due to cost-of-living adjustments. Lower interest rates
reduce estimated outlays for payment of interest on
the public debt. The changes in economic assumptions
since last year’s budget lower the 1994 deficit by $5.5
billion while the 1998 deficit is reduced by $40.6 billion
(Table 1-3).

Omnibus Trade and Competitiveness Act of 1988
As required by the Omnibus Trade and Competitive­
ness Act of 1988, Table 1-4 shows estimates for eco­
nomic variables related to saving, investment, and for­
eign trade consistent with the economic assumptions.
The merchandise trade and current account balances
deteriorated in fiscal year 1993, as growth in U.S. ex­
ports was restrained by recessions in Europe and
Japan. The continued faster rate of growth in the Unit­
ed States than abroad is likely to further widen our
external deficits.
Net private investment in the United States is pro­
jected to increase substantially as the economy expands.
The sources of finance for the increased private invest­
ment are the substantial decline in the Federal deficit
plus the larger inflow of foreign capital. Private domes­
tic saving is expected to change little through 1995.
The Act requires information on the amount of bor­
rowing by the Federal Government in private credit

6

ANALYTICAL PERSPECTIVES

TABLE 1-3.

EFFECTS ON THE BUDGET OF CHANGE IN ECONOMIC ASSUMPTIONS SINCE LAST YEAR
(In billions of dollars)
1994

1995

1996

1997

1998

Budget totals under 1994 budget economic assumptions and 1995 budget
policies:
Receipts.............................................................................................................
Outlays...............................................................................................................

1,249.5
1,489.7

1,352.0
1,529.4

1,425.4
1,609.3

1.492.1
1.701.1

1.555.1
1.786.2

Deficit (-) ..................................................................................................

-240.2

-177.4

-183.9

-209.0

-231.1

-0.4

+1.8

+1.9

+13.0

+31.8

-0.7
-0.8
-4.4

+0.7
-0.9
-9.8
-0.5

+3.8
-0.9
-14.2
-1.1

+9.0
0.0
-16.5
-2.0

+15.6
-2.1
-18.5
-3.7

Changes due to economic assumptions:
Receipts.............................................................................................................
Outlays:
Inflation, mandatory programs......................................................................
Unemployment..............................................................................................
Interest rates.................................................................................................
Interest on changes in borrowing .................................................................

_ *

Total, outlays............................................................................................

-5.9

-10.5

-12.4

-9.6

-8.7

Decrease in deficit....................................................................................

5.5

12.3

14.3

22.6

40.6

Budget totals under 1995 budget economic assumptions and policies:
Receipts.............................................................................................................
Outlays...............................................................................................................

1,249.1
1,483.8

1.353.8
1.518.9

1,427.3
1,596.9

1,505.1
1,691.4

1,586.9
1,777.4

Deficit ( - ) ..................................................................................................

-234.8

-165.1

-169.6

-186.4

-190.5

TABLE 1-4. SAVING, INVESTMENT, AND TRADE BALANCE
(Fiscal years; in billions of dollars)
1993 actual

Current account...............................................................................
Merchandise trade balance..............................................................
Net foreign investment....................................................................
Net domestic saving (excluding Federal saving)1 ...........................
Net private domestic investment......................................................

-101
-123
-89
332
203

1995 estimate

-145 to -105
-175 to -135
-140 to -100
325 to 365
280 to 320

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

stamps) are higher. As a result, the deficit is higher
than it would be at full employment. The portion of
the deficit that can be traced to such factors is called
the cyclical deficit. The remainder, the portion that
would remain at full employment (consistent with a
5.5 percent unemployment rate), is called the structural
deficit.
Changes in the structural deficit give a better picture
of the impact of budget policy on the economy than
the unadjusted deficit affords. The structural deficit
also gives a clearer picture of the deficit problem that
fiscal policy must address, since this part of the deficit
will persist even when the economy has fully recovered,
unless policy changes.

markets. This is presented in Chapter 13, "Federal Bor­
rowing and Debt.”
It is difficult to gauge with precision the effect of
Federal Government borrowing from the public on in­
terest rates and exchange rates, as required by the
Act. Both are influenced by many factors besides Gov­
ernment borrowing in a complicated process involving
supply and demand for credit and perceptions of fiscal
and monetary policy here and abroad.

Structural vs. Cyclical Deficit
When there is slack in the economy, receipts are
lower than they would be if resources were fully em­
ployed, and outlays for unemployment-sensitive pro­
grams (such as unemployment compensation and food

TABLE 1-5. ADJUSTED STRUCTURAL DEFICIT
(In billions of dollars)
1992

1993

1994

1995

1996

1997

1998

1999

Actual deficit (unadjusted)..........................................
Cyclical component................................................

290.4
61.8

254.7
52.0

234.8
42.4

165.1
30.3

169.6
21.1

186.4
15.1

190.5
7.6

181.1
4.0

Structural deficit..........................................................
Deposit insurance1 ................................................

228.6
2.4

202.6
28.0

192.4
3.3

134.9
11.1

148.5
11.3

171.3
6.1

182.9
4.9

177.1
3.3

Adjusted structural deficit...........................................

231.0

230.6

195.7

146.0

159.8

177.4

187.8

180.4

1 For

1992 includes allied contributions for Desert Storm.




1. ECONOMIC ASSUMPTIONS

In recent years, outlays for deposit insurance (mainly
for resolving insolvencies in the savings and loan indus­
try) have had substantial impacts on the actual deficit.
However, these outlays have little current impact on
economic performance, because the Federal liability for
S&L insolvencies occurred years ago. Furthermore,
these are in the nature of one-time expenditures that
will not be repeated. Indeed, future outlays for this
purpose are expected to be negative as the Government
sells the assets acquired in shutting down insolvent
S&Ls. It has therefore become customary to remove
deposit insurance outlays as well as the cyclical compo­
nent from the actual deficit to compute the adjusted
structural deficit. This is shown in Table 1-5.
The downward trend of the adjusted structural deficit
over the next several years measures real progress in
correcting the fiscal imbalance inherited by this Admin­
istration. Some period of restrictive policy was unavoid­
able if the actual deficit was to be reduced from the
unsustainably high levels of the past decade. The de­
cline in the level of the structural deficit is neither
so pronounced nor abrupt as to pose a threat to sus­
tained moderate economic growth. In particular, it is
consistent with the economic assumptions underlying
the budget, presented above.

Sensitivity of the Budget to Economic
Assumptions
Both receipts and outlays are affected by changes
in economic conditions. This sensitivity seriously com­
plicates budget planning because errors in economic as­
sumptions lead to errors in the budget projections. It
is therefore useful to examine the implications of alter­
native economic assumptions.
Many of the budgetary effects of changes in economic
assumptions are fairly predictable, and a set of rules
of thumb embodying these relationships can aid in esti­
mating how changes in the economic assumptions
would alter outlays, receipts, and the deficit. The final
table summarizes these rules of thumb.
Economic variables that affect the budget do not usu­
ally change independently of one another. Employment
and output 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 unemployment. In the
long run, however, changes in the average rate of
growth of real GDP are mainly due to changes in the
rates of growth of productivity and labor supply, and
are not associated with changes in the average rate
of unemployment. Inflation and interest rates are also
linked: a higher expected rate of inflation tends to in­
crease interest rates, while lower expected inflation re­
duces rates. Changes in real GDP growth or inflation
have a much greater cumulative effect on the budget
over time if they are sustained for several years than
if they occur for only one year.
The table shows that if real GDP growth is lower
by one percentage point in calendar year 1994 and the
unemployment rate rises by one-half percentage point,




7
the 1994 deficit would increase by $7.5 billion. Receipts
in 1994 would be lower by $6.6 billion, and outlays
would be higher by $1.0 billion, primarily for unemployment-sensitive programs. If growth resumes at its pre­
viously assumed rate in 1995, the receipts shortfall
would nonetheless grow further that year, to $14.4 bil­
lion, and outlays would be increased by $5.0 billion,
raising the 1995 deficit by $19.4 billion relative to the
base case. The budget effects would continue to grow
slightly in later years. The permanent change in the
deficit is due to the permanent reduction in the level
of real (and nominal) GDP and taxable incomes and
the permanent increase in unemployment relative to
the baseline economic path, even though the rate of
real growth in calendar year 1995 and beyond is the
same.
The budget effects grow much larger if the real
growth rate is assumed to be one percentage point less
in each year, 1994-1999, with the unemployment rate
continuing to rise by one-half percentage point, relative
to its base path, in each year. On these assumptions,
the levels of real and nominal GDP would be below
the base case by a cumulatively growing percentage.
The deficit would be $146.2 billion higher than under
the base case by 1999.
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 $121.5 billion by 1999.
Joint changes in interest rates and inflation have
a smaller effect on the deficit than equal percentage
point changes in real GDP growth because their effects
on receipts and outlays are substantially offsetting. An
example is the effect of a one percentage point higher
rate of inflation and one percentage point higher inter­
est rates during calendar year 1994 only. In subsequent
years, the price level and nominal GDP would be one
percent higher than in the base case, but interest rates
are assumed to return to their base levels. Outlays
for 1994 rise by $5.7 billion and receipts by $7.3 billion,
for a decrease of $1.6 billion in the 1994 deficit. In
1995, outlays would be above the base by $13.3 billion,
due in part to lagged cost-of-living adjustments; receipts
would rise $15.4 billion above the base, however, result­
ing in a $2.0 billion decrease in the deficit. In subse­
quent years, the amounts added to receipts would be
larger than the additions to outlays.
If the rate of inflation and the level of interest rates
are higher by one percentage point in all years, the
price level and nominal GDP would rise by a cumula­
tively growing percentage above their base levels. In
this case, the effects on receipts and outlays mount
steadily in successive years, adding $75.0 billion to out­
lays and $98.7 billion to receipts in 1999, which reduces
the 1999 deficit by $23.6 billion.
The table also shows the interest rate and the infla­
tion effects separately, and rules of thumb for the added

8

ANALYTICAL PERSPECTIVES

interest cost associated with higher or lower deficits
(increased or reduced borrowing).
The effects of changes in economic assumptions in
the opposite direction are approximately symmetric to
those shown in the table. The impact of a one percent­
age point lower rate of inflation or higher real growth
would have about the same magnitude as the effects
shown in the table, but with the opposite sign.

These rules of thumb are computed while holding
the income share composition of GDP constant; i.e.,
while assuming the same fractions of GDP go to wages
and profits in all cases. Because different income com­
ponents are subject to different taxes and tax rates,
estimates of total receipts can be affected significantly
by changing income shares. These relationships, how­
ever, have proved to be too complex to reduce to simple
rules.

TABLE 1-6. SENSITIVITY OF THE BUDGET TO ECONOMIC ASSUMPTIONS
(In billions of dollars)
Budget effect

1995

1994

1996

1997

1998

1999

Real Growth and Employment
Effects of 1 percent lower real GDP growth in calendar year 1994 only, including higher unemployment:1
Receipts............................................................................................................................................................
Outlays.............................................................................................................................................................

-6.6
1.0

-14.4
5.0

-16.8
6.5

-17.3
8.1

-18.0
9.9

-18.8
11.6

7.5

19.4

23.3

25.4

27.9

30.3

-6.6
1.0

-21.3
6.9

-39.0
14.1

-58.0
21.9

-78.5
34.0

-100.8
45.3

7.5

28.2

53.1

80.0

112.5

146.2

-6.6
0.1

-21.6
0.8

-40.1
2.4

-60.3
5.3

-82.4
9.4

-106.6
14.9

6.7

22.4

42.5

65.5

91.7

121.5

7.3
5.7

15.4
13.3

16.0
10.9

15.4
9.4

16.2
9.2

17.0
9.4

Deficit increase ( + ) .......................................................................................................................................
Effects of a sustained 1 percentage point higher rate of inflation and interest rates during 1994-1999:
Receipts............................................................................................................................................................

-1.6

-2.0

-5.2

-6.0

-7.0

-7.6

7.3
5.8

23.2
19.1

40.6
30.6

58.2
42.4

77.5
55.5

98.7
75.0

Deficit increase ( + ) .......................................................................................................................................
Effects of a sustained 1 percentage point higher interest rate during 1994-1999 (no inflation change):
Receipts............................................................................................................................................................

-1.6

-4.1

-10.0

-15.8

-22.0

-23.6

0.7
5.3

1.8
15.2

2.4
21.3

2.7
26.7

2.9
31.9

3.2
44.3

Deficit increase (+) .......................................................................................................................................
Effects of a sustained 1 percentage point higher rate of inflation during 1994-1999 (no interest rate change):
Receipts............................................................................................................................................................
Outlays.............................................................................................................................................................

4.6

13.4

18.9

24.0

29.0

41.2

6.6
0.5

21.4
3.9

38.2
9.3

55.5
15.7

74.6
23.6

95.5
30.7

Deficit increase (+) .......................................................................................................................................
Interest Cost of Higher Federal Borrowing

-6.2

-17.5

-28.9

-39.8

-50.9

-64.8

Effect of $100 billion additional borrowing during 1994 ...................................................................................

2.2

4.6

5.0

5.5

6.0

6.3

Deficit increase ( + ) .......................................................................................................................................
Effects of a sustained 1 percent lower annual real GDP growth rate during 1994-1999, including higher un­
employment: 1
Receipts............................................................................................................................................................
Deficit increase ( + ) .......................................................................................................................................
Effects of a sustained 1 percent lower annual real GDP growth rate during 1994-1999, with no change in un­
employment:
Receipts............................................................................................................................................................
Deficit increase ( + ) ......................................................................................................................................
Inflation and Interest Rates
Effects of 1 percentage point higher rate of inflation and interest rates during calendar year 1994 only:
Receipts............................................................................................................................................................

iThe unemployment rale is assumed to be 0.5 percentage point higher per 1.0 percent shortfal in the level of real GOP.




2. STEWARDSHIP: TOWARD A FEDERAL BALANCE SHEET
Introduction
This chapter presents a framework for describing the
financial condition of the Federal Government and its
performance as a steward of publicly-owned resources.
Although the data are similar in some ways, there are
basic conceptual differences that distinguish the tables
below from a business balance sheet. The Government's
sovereign powers have no counterparts in the business
world, and its resources and responsibilities extend be­
yond the types of assets and liabilities found on a con­
ventional balance sheet. For this reason, it is not pos­
sible to judge how well the Government is discharging
its stewardship obligations simply from an examination
of its own books. A review of the Government’s con­
tribution to national well-being and security is also
needed.
The differences between Government and business
accounting, together with serious limitations in the
available data, argue for caution in interpreting the
material presented below. Conclusions based on this
presentation are necessarily tentative and subject to
future revision as the estimating methods are improved
and better data become available. The presentation con­
sists of three components:
• The first, summarized in Table 2-1, shows Federal
assets and Federal liabilities resulting from past
Government operations. In this table, what the
Government owns and what it owes are defined
relatively narrowly. This table corresponds most
closely to a corporate balance sheet.
• The second component, as reflected in Chart 2-2,
consists of Federal budget projections. The projec­
tions indicate possible future paths for the balance
between Federal resources and responsibilities
and show how policy changes can affect that bal­
ance. In this section, Table 2-2 also shows the
actuarial balances for the major social insurance
programs and how they have changed in the past
year.
• The final component consists of various ways in
which Federal activities contribute to social and
economic well-being. Table 2-3 shows how Federal
investments have contributed to national wealth.
In a future development, this framework could be
expanded to include tables showing Government
performance measures including broad indicators
of social and economic well-being.
The Federal Government does not have a single bot­
tom line that would reveal its financial status in a
glance, but the tables and charts shown here can con­
tribute to a balanced view of that condition and the
Government's stewardship of its resources. The Govern­
ment's liabilities exceed its owned assets and that gap




has widened markedly over the last decade or more.
The President’s economic plan should narrow the gap
as a result of deficit reduction, national health reform,
and expanded Federal investments.

Relationship with FASAB Objectives
The framework presented here meets one of the four
objectives1 of Federal financial reporting recommended
by the Federal Accounting Standards Advisory Board
and adopted for use by the Federal Government in Sep­
tember 1993. This Stewardship Objective says:
Federal financial reporting should assist report users in
assessing the impact on the country of the Government’s
operations and investments for the period and how, as a
result, the Government’s and the Nation’s financial condi­
tions have changed and may change in the future. Federal
financial reporting should provide information that helps the
reader to determine:
3a. Whether the Government’s financial position improved
or deteriorated over the period.
3b. Whether future budgetary resources will likely be suffi­
cient to sustain public services and to meet obligations as
they come due.
3c. Whether Government operations have contributed to
the Nation’s current and future well-being.

The Board is in the process of developing guidance
as to the specific displays that would meet this Objec­
tive and the accounting standards for use in such state­
ments and schedules. This experimental presentation
explores one possible approach for meeting the Objec­
tive at the Govemmentwide level.

What Can Be Learned from a Balance Sheet
Approach
The budget is an essential tool for allocating re­
sources within the Federal Government, but the stand­
ard budget presentation with its focus on annual out­
lays, receipts, and the deficit, does not provide sufficient
information for a full analysis of the Government’s fi­
nancial and investment decisions. Additional informa­
tion about the stocks of Federal assets and liabilities
is needed as well. It is also important to examine the
effects of Government decisions on national wealth and
well-being. Measurements that correct for inflation are
also useful. The framework presented here would fill
some of these needs.
Assessing the financial condition of the Government
is more complicated than drawing up a balance sheet
for a business enterprise. The Government’s sovereign
powers to tax, regulate commerce, and set monetary
policy give it resources that no private enterprise pos­
sesses. Although these resources are not “assets” in
any conventional sense, they need to be considered in
1 Objectives of Federal Financial JReporting, Statement of Federal Financial Accounting
Concepts Number 1, Spetember 2, 1993. The other three Objectives relate to budgetary
integrity, operating performance, and systems and controls.

9

10

ANALYTICAL PERSPECTIVES

Figure 2-1 - A BALANCE SHEET PRESENTATION
FOR THE FEDERAL GOVERNMENT
ASSETS/
RESOURCES

LIABILITIES/
RESPONSIBILITIES
Federal Liabilities

Federal Assets
Financial Assets
Gold and Foreign Exchange
Other Monetary Assets
Mortgages and Other Loans
Less Expected Loan Losses
Other Financial Assets
Physical Assets
Fixed Reproducible Capital
Defense
Nondefense
Inventories
Non-reproducible Capital
Land
Mineral Rights

Federal
Government
Assets
and
Liabilities
(Table 2-1)

Net Balance

Responsibilities/Outlays

Resources/Recipts
Projected Receipts
Addendum: Real GDP Projections

Financial Liabilities
Currency and Bank Reserves
Debt Held by the Public
Miscellaneous
Guarantees and Insurance Liabilities
Deposit Insurance
Pension Benefit Guarantees
Loan Guarantees
Other Insurance
Federal Pension Liabilities

t ___ti_
_

Long-Run
Federal
Budget

Projections

(Figure 2-2)

Discretionary Outlays
Mandatory Outlays
Social Security
Health Programs
Other Programs
Net Interest
Deficit

National Assets/Resources

National Needs/Conditions

Federally Owned Physical Assets
State & Local Physical Assets
Federal Contribution
Privately Owned Physical Assets
Education Capital
Federal Contribution
R&D Capital
Federal Contribution

Indicators of economic, social,
educational, and environmental
conditions to be used as a guide to
Government investment and
management.

ref. 1GRAPH95.BUDCHAP2-A




National
Wealth
and
Well-Being
(Table 2-3)

11

2. STEWARDSHIP: TOWARD A FEDERAL BALANCE SHEET

any complete review of the Government’s financial con­
dition.
Similar differences exist on the liabilities side. Some
Government obligations have clear counterparts in the
business world. For example, Treasury notes are simi­
lar to corporate bonds and clearly belong on a Govern­
ment balance sheet. But the Government has other obli­
gations with a financial dimension for which there are
no clear analogues in business accounting. For example,
the Government’s obligation to promote the general
welfare has led in the twentieth century to the estab­
lishment of a broad array of social welfare programs.
It is reasonable to expect that these programs will con­
tinue in the future, and that they will require future
Federal funding. Does this make them a liability?
Such obligations are different from the legally bind­
ing liabilities normally found on a business balance
sheet, but they can have implications for the Treasury
that are similar to a liability. If such obligations were
ignored, a Government balance sheet would provide an
incomplete picture of the Government’s financial condi­
tion, but it is hard to know where to draw the line
between obligations that belong on and off the balance
sheet once the analogy with a business liability is aban­
doned.
Further complicating the issue, almost all of the
broader Federal resources and responsibilities are sub­
ject to change through the political process, and future
decisions by Congress and the President could alter

their value. If they were included in a balance sheet
with Government debt, it would be very difficult to
estimate the size of the Government’s liabilities.
In the presentation that follows, these issues are re­
solved by presenting a series of tables and charts no
single one of which is “the balance sheet.” The sche­
matic diagram, Chart 2-1, shows how they fit together.
The tables and charts should be viewed as an ensemble.
The main elements of each can be grouped together
in two broad categories, either as assets/resources or
as liabilities/responsibilities. When combined with ap­
propriate data, this framework permits a balanced as­
sessment of Federal stewardship.
• Reading down the left-hand side of the diagram
shows the range of Federal resources, including
assets the Government owns, tax receipts it can
expect to collect, and national wealth that pro­
vides the base for Government revenues.
• Reading down the right-hand side reveals the full
range of Federal obligations and responsibilities,
beginning with Government’s acknowledged liabil­
ities, such as the debt held by the public, and
going on to include future budget outlays. This
column potentially would include a set of indica­
tors highlighting areas where Government activity
might require adjustment either through new in­
vestment or through reductions or reallocations
of existing resources.

THE FEDERAL GOVERNMENT’S ASSETS AND LIABILITIES
Table 2-1 presents data on the value of Federal as­
sets and liabilities summarizing what the Government
owns and what it owes as a result of its past oper­
ations. The values are measured in terms of constant
1993 dollars to remove the distorting effects of inflation
on the comparisons across time.
For more than three decades, the Government’s liabil­
ities have exceeded the value of its assets. In the 1960s,
however, the disparity was small and for many years
it deteriorated only gradually. In the late 1970s a spec­
ulative run-up in the prices of oil, gold, and other real
assets boosted the value of Federal assets. Temporarily,
the balance of Federal assets and liabilities improved.2
Following 1981, however, there was an especially large
decline in the net balance which has continued.
The sharp decline in net Federal assets was due in
large part to the Federal budget deficits of the 1980s,
which led to a rapid increase in Federal debt, as well
as to the declining market value of some Federal assets.
Currently, the net balance of assets and liabilities is
about -$2,800 billion or almost -$11,000 per capita.

2 This temporary improvement highlights the importance of the other tables in this presen­
tation. What was good for the Federal Government as an asset holder was not necessarily
favorable to the economy. The decline in inflation, which reversed the speculative runup
in gold and other commodity prices, reversed the improvement in the Federal balance
sheet while improving national economic performance.




Assets
The assets in Table 2-1 reflect a complete listing
of physical and financial resources owned by the Fed­
eral Government. They correspond to the items that
would appear on a Federal balance sheet, but they do
not constitute an exhaustive catalogue of Federal re­
sources. For example, the Government’s most important
financial resource, its ability to tax, is not reflected.
Financial Assets: At the end of 1993, the Federal
Government’s holdings of financial assets amounted to
about $570 billion. Government loans (measured in con­
stant dollars) reached a peak in the mid-1980s. Since
then, Federal loans have declined. Government-owned
mortgages expanded during the savings and loan crisis,
and have declined sharply over the last two years.
The face value of mortgages and other loans over­
states their economic worth. OMB estimates that the
discounted present value of future loan losses is about
$58 billion as of 1993. These estimated losses are sub­
tracted from the face value of outstanding loans to ob­
tain a better estimate of their economic worth. These
estimated losses increased by $18 billion in real terms
between 1990 and 1993.
Over time, variations in the price of gold have ac­
counted for major swings in this category. Since 1980,
gold prices have fallen by 80 percent and the real value

12

ANALYTICAL PERSPECTIVES

TABLE 2-1. GOVERNMENT ASSETS AND LIABILITIES *
(As of the end of the fiscal year, in billions of 1993 dollars)
1960

ASSETS
Financial assets:
Gold and foreign exchange................................
Other monetary assets ......................................
Mortgages and other loans................................
Less expected loan tosses.............................
Other financial assets........................................

1965

1970

1975

1980

1985

1990

1991

1992

1993

101
38
126
-2
59

70
54
159
-6
78

59
32
202
-10
63

130
14
200
-20
63

318
37
270
—
37
81

154
23
327
-36
104

194
29
263
-40
157

176
21
266
-46
185

173
37
245
-48
213

171
37
219
-58
190

Subtotal..........................................................
Physical assets:
Fixed reproducible capital:
Defense..........................................................
Nondefense....................................................
Inventories..........................................................
Nonreproducible capital:
Land ...............................................................
Mineral rights .................................................

323

355

346

387

669

571

603

604

620

559

853
151
260

856
178
221

839
189
203

674
213
178

569
241
214

667
239
242

735
243
209

749
240
191

749
239
177

747
240
163

84
302

116
279

144
230

224
320

284
581

305
655

301
436

272
412

243
389

222
370

Subtotal......................................................

1,650

1,649

1,605

1,610

1,889

2,108

1,924

1,865

1,798

1,742

Total assets.........................................

1,973

2,005

1,951

1,996

2,558

2,679

2,527

2,469

2,418

2,301

LIABILITIES
Financial liabilities:
Currency and bank reserves..............................
Debt held by the public.....................................
Miscellaneous.....................................................

227
985
60

245
957
60

268
800
57

270
777
52

271
989
59

284
1,736
66

341
2,369
91

344
2,552
83

360
2,785
72

385
2,922
68

Subtotal..........................................................
Insurance liabilities:
Deposit insurance ..............................................
Pension benefit guarantees................................
Loan guarantees................................................
Other insurance..................................................

1,272

1,262

1,125

1,099

1,318

2,086

2,802

2,980

3,217

3,375

31

1
27

6
21

41
17
19

2
29
31
25

8
39
26
15

108
57
38
18

84
59
60
17

77
62
70
17

53
75
27
23

Subtotal..........................................................
Federal employee pension liabilities.......................

31
739

29
923

27
1,078

77
1,207

87
1,656

90
1,625

221
1,550

220
1,538

226
1,547

178
1,577

Total liabilities..........................................
Balance.....................................................
Per capita (in 1993 dollars).....................

2,042
-69
-382

2,214
-209
-1,077

2,230
-279
-1,361

2,383
-387
-1,790

3,062
-504
-2,206

3,801
-1,122
-4,692

4,572
-2,045
-8,161

4,738
-2,270
-8,957

4,990
-2,572
-10,039

5,130
-2,829
-10,925

‘ This table shows assets and liabilites for the Government as a whole, including the Federal Reserve System. Therefore, it does not break out separately the assets held in certain Government accounts, such as social secu­
rity, that are the obligation of specific Government agencies. Estimates for 1993 are extrapolated in some cases.

of U.S. gold and foreign exchange holdings has dropped
by about half.
Fixed Reproducible Capital: The Federal Government
is a major investor in physical capital. Governmentowned stocks of fixed capital amounted to over $1.0
trillion in 1993. About three-quarters of this capital
is in the form of military equipment and structures.
From 1960 to 1980, the net stock of defense capital
fell as a share of GDP, but since 1980 the ratio has
held steady at between 12 and 13 percent. The slow­
down in defense purchases that followed the end of
the Cold War has not yet had much effect on the accu­
mulated net stock of fixed defense capital.
Inventories: The effects of the slowdown in defense
purchases have been more noticeable for inventories.
Data on Federal inventories are maintained by the Bu­
reau of Economic Analysis, Department of Commerce.
Since the late 1980s, Federal inventories have declined
by about 20 percent, accounted for entirely by a drop
in military stocks.




Non-reproducible Capital: The Government owns sig­
nificant amounts of land and mineral deposits. There
are no official estimates of the market value of these
holdings. Researchers in the private sector have esti­
mated what they are worth, and these estimates are
extrapolated in Table 2-1. Since the late 1980s, land
values have fallen; oil prices have fluctuated but are
lower now than three years ago. These shifts have
pulled down the value of Federal land and mineral
deposits.
Total Assets: The total real value of Government as­
sets has declined somewhat over the last 10 years, prin­
cipally because of declines in the real prices of gold,
land, and minerals. At the end of 1993, the Govern­
ment’s holdings of all assets were worth about $2.3
trillion.

Liabilities
The liabilities shown in Table 2-1 are analogous to
a business corporation’s liabilities and include public

13

2. STEWARDSHIP: TOWARD A FEDERAL BALANCE SHEET

debt, trade credit, and pension obligations owed to Fed­
eral workers. Other Federal financial responsibilites,
however, are not reflected in this table.
Financial Liabilities: These amounted to about $3.4
trillion at the end of 1993. The largest component was
the Federal debt held by the public, amounting to $2.9
trillion. This measure of Federal debt is net of the
holdings of the Federal Reserve System, which exceeded
$300 billion in 1993. The Federal Reserve is an inde­
pendent agency, but it is part of the Federal Govern­
ment, and its assets and liabilities are included here
in the Federal totals.
In addition to debt held by the public, the Govern­
ment’s financial liabilities include $390 billion in cur­
rency and bank reserves, which are mainly obligations
of the Federal Reserve System, and about $70 billion
in miscellaneous liabilities.
Guarantees and Insurance Liabilities: The Federal
Government has contingent liabilities arising from loan
guarantees and insurance programs. When the Govern­
ment guarantees a loan or offers insurance, the initial
outlays may be small or even negative, if a fee is
charged, but the risk of future outlays can be large.
The deposit insurance programs have experienced large
losses recently following many years in which these
programs had no budgetary cost in excess of premiums.

In the past, the budget did not recognize the risk
of such future outlays, even when they were predict­
able. In the last few years, however, techniques have
been developed which permit an estimate of the budg­
etary cost incurred from current commitments that risk
future outlays. These estimates are reported in Table
2-1. They amounted to about $180 billion in 1993.
Federal Pension Liabilities: The Federal Government
owes pension benefits to its retired workers and to cur­
rent employees who will eventually retire. The amount
of these liabilities is large. As of 1992, the discounted
present value of the benefits is estimated to have been
around $1.5 trillion. The estimate for 1993 is an ex­
trapolation of the recent trend.3
The Balance o f Net Liabilities
The balance between Federal liabilities and Federal
assets has deteriorated over the past decade at a rapid
rate. In 1981, the negative balance was less than 10
percent of GDP. Currently, it is estimated to be over
40 percent. Although the Government need not main­
tain a positive balance, because the range of Govern­
ment resources extends beyond the conventional assets
shown in Table 2-1, continuation of this trend would
be worrisome.

THE BALANCE OF RESOURCES AND RESPONSIBILITIES
The data summarized in Table 2-1 are useful in
showing some of the consequences of the Government's
past policies, but the Government’s continuing commit­
ments to provide public services are not reflected in
this table, nor can the Government’s broader resources
be displayed in a table limited to assets that it owns.
A better way to examine the balance between future
Government obligations and resources is a budget pro­
jection. Examples of such projections are summarized
in Chart 2-2.
The Government’s budget deficit is highlighted in this
chart. Last year’s budget agreement brings down the
Federal deficit over the next few years. This will be
a significant improvement, but permanent success in
controlling the deficit will depend on health reform and
its effectiveness in controlling Federal medical costs in
the years after 1998. The initial estimates of the effect

3 These pension liabilities are expressed as the acturial present value of benefits accruedto-date based on past and projected salaries. In the version of this table published previously,
this liability was based only on past salaries.




of health reform suggest that significant deficit reduc­
tion is achievable by the end of the decade.
For the period beyond the year 2000, the budget out­
look is highly uncertain. Demographic trends that will
begin to assert themselves early in the next century
promise to raise the Federal cost of social security and
other benefits for the elderly. Future adjustments may
be needed to cope with these responsibilities.
Some futxire claims on budgetary resoxirces deserve
special emphasis because of their importance in individ­
ual retirement planning. These claims are highlighted
in Table 2-2. The Social Secxirity Trustees present an
annual report on the balance in the Social Secxirity
Trust Fund based on a 75-year projection of futxire
costs and benefits. Table 2-2 shows how these projec­
tions changed between 1992 and 1993. The table also
reports similar projections for the Medicare Trust Fxind.

14

ANALYTICAL PERSPECTIVES

TABLE 2-2. CHANGE IN 75-YEAR ACTUARIAL BALANCE FOR OASDI AND HI TRUST FUNDS
(ALTERNATIVE 10
(As a percent of taxable payroll)
OASI

Dl

OASDI

HI

Actuarial balance in 1992 report ............................................................................
Changes in balance due to changes in:
Valuation period......................................................................................................
Economic and demographic assumptions..............................................................
Disability assumptions............................................................................................
Revised base due to 1992 costs...........................................................................
Home health utilization...........................................................................................
Other changes........................................................................................................

-1.01

-0.46

-1.46

-4.20

-0.05
0.09

00
.0

-0.05
0.10
-0.08

-0.12
0.09

00
.0

0.03

0.03

Total changes.....................................................................................................
Actuarial balance in 1993 report ............................................................................

0.04
-0.97

-0.04
-0.49

-1.46

00
.0

0.01
-0.08

0.0
0

-0.52
-0.46
0.10
-0.91
-5.11

Chart 2-2. FEDERAL BUDGET DEFICIT
AS A PERCENT OF GDP

ret IGEAPIPS.BUPCHAW-B

NATIONAL WEALTH AND FEDERAL INVESTMENTS
Unlike a private corporation, the Federal Government
routinely invests in ways that do not add directly to
its assets. For example, Federal grants are frequently
used to fund capital projects that involve investment
at the State or local level of government. Such invest­
ments are often valuable nationally, but they are not
owned by the Federal Government.
The Federal Government also invests in education
and R&D. These outlays contribute to future productiv­
ity and are in that sense analogous to an investment
in physical capital. Indeed, economists have computed
stocks of human and knowledge capital to reflect the




accumulation of such investments. Nonetheless, these
capital stocks are not owned by the Federal Govern­
ment, nor would they appear on a Federal balance
sheet.
Table 2-3 presents a national balance sheet. It in­
cludes estimates of total national wealth classified in
three categories: physical assets, education capital, and
R&D capital. The Federal Government has made con­
tributions to each of these categories, and these con­
tributions are also shown in the table.

15

2. STEWARDSHIP: TOWARD A FEDERAL BALANCE SHEET

TABLE 2-3. NATIONAL WEALTH
(As of the end of the fiscal year, in trillions of 1993 dollars)
1960

ASSETS
Publicly owned physical assets:
Structures and equipment..................................
Federally owned or financed..........................
Federally owned........................................
Grants to state and local governments.....
Funded by state and local governments.......
Other Federal assets.........................................

1965

1970

1975

1980

1985

1990

1991

1992

1993

2.1
1.1
1.0
0.1
0.9
0.7

2.4
1.2
1.0
0.2
1.2
0.7

2.8
1.3
1.0
0.2
1.5
0.6

3.3
1.3
0.9
0.4
2.1
0.8

3.6
1.3
0.8
0.5
2.3
1.4

3.6
1.4
0.9
0.5
2.1
1.3

3.7
1.5
1.0
0.5
2.2
1.1

3.7
1.5
1.0
0.5
2.2
1.0

3.8
1.5
1.0
0.5
2.2
0.9

3.8
1.5
1.0
0.5
2.2
0.9

2.8

3.0

3.4

4.2

5.0

4.9

4.8

4.7

4.7

4.6

5.6
2.0
2.0
0.7
0.9
2.0

6.3
2.3
2.3
0.8
1.0
2.3

7.9
2.7
3.0
0.9
1.3
2.6

10.1
3.6
3.9
1.1
1.4
3.3

12.6
4.7
4.9
1.3
1.7
4.9

13.0
4.7
5.3
1.2
1.8
5.6

14.3
5.2
5.7
1.2
2.2
5.6

14.3
5.2
5.7
1.1
2.2
5.1

14.3
5.3
5.7
1.1
2.3
4.5

14.5
5.4
5.7
1.1
2.3
4.1

7.6

8.6

10.4

13.3

17.5

18.6

19.9

19.3

18.8

18.6

0.1
6.3

0.1
8.0

0.2
10.5

0.3
11.8

0.4
14.5

0.5
17.3

0.7
22.0

0.7
23.0

0.7
24.2

0.8
25.5

Subtotal .................................................
Research and development capital:
Federally financed R&D.....................................
R&D Financed from other sources.....................

6.3

8.2

10.7

12.1

14.9

17.9

22.7

23.7

24.9

26.3

0.2
0.1

0.3
0.2

0.5
0.3

0.5
0.4

0.6
0.4

0.6
0.6

0.7
0.8

0.7
0.8

0.8
0.8

0.8
0.8

Subtotal .................................................

0.3

0.5

0.7

0.9

1.0

1.2

1.5

1.5

1.6

1.6

Total assets.....................................

17.0

20.4

25.3

30.5

38.5

42.5

48.9

49.3

50.0

51.2

LIABILITIES:
Net claims of foreigners on U.S..........................
Balance ..........................................................
Per capita (thousands of 1993 dollars)..................

-0.2
17.2
95.0

-0.2
20.6
106.0

-0.2
25.6
124.8

-0.2
30.7
142.3

-0.5
38.9
170.4

-0.2
42.7
178.8

0.3
48.6
193.7

0.4
48.9
192.9

0.5
49.5
193.3

0.6
50.6
195.3

ADDENDA:
Total Federally funded capital............................
Percent of national wealth.................................

2.1
12.2

2.3
11.2

2.6
10.2

2.9
9.5

3.7
9.4

3.9
9.1

4.0
8.2

4.0
8.1

4.0
8.0

4.0
7.9

Subtotal .................................................
Privately owned physical assets:
Reproducible assets...........................................
Residential structures....................................
Nonresidential plant and equipment ..............
Inventories......................................................
Consumer durables........................................
Land....................................................................
Subtotal .................................................
Education capital:
Federally financed..............................................
Financed from other sources.............................

Data in this table are especially uncertain, because
of the assumptions needed to prepare the estimates.
Overall, the Federal contribution to the current level
of national wealth is about 8 percent. Chart 2-3 illus­
trates the relative contribution of different categories
of wealth to the national total.

Physical Assets
These include stocks of plant and equipment, office
buildings, residential structures, and government phys­
ical assets such as military hardware. Automobiles and
consumer appliances are also included in this category.
The total amount of such capital is vast, amounting
to around $23 trillion in 1993. By comparison GDP
was only $6 trillion.
The Federal Government’s contribution to this stock
of capital includes its own physical assets plus $0.6
trillion in accumulated grants to State and local govern­
ments for capital projects. The Federal Government has
financed about one-quarter of the physical capital held
by other levels of government.




Education Capital
Economists have developed the concept of human cap­
ital to reflect the notion that individuals and society
invest in people as well as in physical assets. Invest­
ment in education is a good example of how human
capital is accumulated.
For this table an estimate has been made of the
stock of capital represented by the Nation’s investment
in education. The estimate is based on the cost of re­
placing the years of schooling embodied in the U.S.
population aged 16 and over. The idea is to measure
how much it would cost to reeducate the U.S. workforce
at today’s prices.
This is a crude measure, but it can provide a rough
order of magnitude. According to this measure, the
stock of education capital amounted to $26 trillion in
1993, of which about 3 percent was financed by the
Federal Government. The total exceeded the Nation’s
stock of physical capital. The main investors in edu­
cation capital have been State and local governments,
parents, and the students themselves who often forego
earning opportunities in order to acquire education.

16
Research and Development Capital
Research and development (R&D) can also be thought
of as an investment, because R&D represents a current
expenditure for which there is a prospect of future re­
turns. After adjusting for depreciation, the flow of R&D
investment can be added up to provide an estimate
of the current R&D stock.4 That stock is estimated
to have been about $1.6 trillion in 1993. Although this
is a large amount of research, it is a relatively small
portion of the total national wealth. About half of this
stock was funded by the Federal Government.
Liabilities
When considering the debts of the Nation as a whole,
the private debts that Americans owe to one another
cancel out, and the only debts that remain are those
owed to foreigners. America’s foreign debt has been in­
creasing rapidly in recent years, as a consequence of
the U.S. trade deficit, but the size of this debt is small
compared with America’s total stock of assets.
Most of the Federal debt held by the public is owned
by Americans, so it does not appear in Table 2-3. Only
that portion of the Federal debt held by foreigners is
included in this table. Even so, it is of interest to com­
pare the imbalance between Federal assets and liabil­
ities with national wealth. The Federal imbalance as
estimated in Table 2-1 amounts to less than 5 percent
of total national wealth.
Trends in National Wealth
The net stock of wealth in the United States at the
end of 1993 was about $50 trillion. Since 1980 it has
increased in real terms at an annual rate of about
2 percent per year—about half the average annual
growth rate from 1960 to 1980. (In this section all
comparisons are in terms of constant 1993 dollars.)
Public capital formation slowed down markedly be­
tween the two periods. Aside from the reproducible cap­
ital owned by the Federal Government, consisting large­
ly of military hardware, the net stock of public capital
was lower in 1993 than in 1980. During this period,
Federal grants to State and local governments for cap­
ital projects increased at an average rate of 0.7 percent
per year compared with 7.9 percent in the 1960s and
1970s, while capital funded directly by State and local
governments shrank at an average yearly rate of 0.4
percent. Government holdings of land and mineral
rights lost value over the same period.
Private capital formation in tangible assets also grew
more slowly after 1980. The net stock of nonresidential
plant and equipment grew 1.2 percent per year from
1980 to 1993 compared with 4.6 percent in the 1960s
and 1970s, and the stock of business inventories actu­
ally declined. Overall, the stock of private tangible cap­
ital grew at an average rate of just 0.5 percent per
year between 1980 and 1993.
The accumulation of education capital, as measured
here, did not slow down in the 1980s. It maintained

ANALYTICAL PERSPECTIVES

about the same rate of increase as in the 1960s and
1970s, around 4V2 percent per year. This continuing
growth reflects both the rising cost of education and
the extra resources devoted to schooling in this period.
R&D stocks grew faster than physical capital, but at
a somewhat slower rate after 1980 than in earlier dec­
ades.

Other Federal Contributions to Wealth
Many Federal policies contributed to the slowdown
in capital formation that occurred after 1980. Federal
investment policies obviously were important, but the
Federal Government also contributes to wealth in ways
that cannot be easily captured in a formal presentation.
Monetary and fiscal policies affect the rate and direc­
tion of capital formation. Regulatory and tax policies
affect how capital is invested, as do the Federal Govern­
ment’s credit assistance policies.
One important channel of influence is the Federal
budget deficit, which determines the size of the Federal
Government’s borrowing requirement. Smaller deficits
in the 1980s would have resulted in a smaller gap
between Federal liabilities and assets than is shown
in Table 2-1. It is also likely that, had the $1.9 trillion
in added Federal debt since 1980 been avoided, a sig­
nificant share of these funds would have gone into pri­
vate investment. National wealth might have been 2
to 4 percent larger in 1993 had fiscal policy avoided
the buildup in the debt.

Government Performance Measures and
Indicators of Well-Being
Unlike private business, Government typically lacks
a direct measure of the value of its services. As a result,
the costs of Government are reported while the benefits
often are not. For this reason, it can be difficult to
evaluate how well Government agencies are performing
their functions. With passage of the Government Per­
formance and Results Act of 1993, Federal Departments
and agencies will be selecting performance measures
with which to monitor outputs and outcomes of their
activities.5
Examples of performance measures for agency out­
puts would include:
• Numbers of loans extended for Federal credit pro­
grams
• The timeliness with which social security checks
are issued.
• Number of inspections by the Animal and Plant
Health Inspection Service.
Measures of outcomes show how such outputs affect
people’s lives. Examples might include:
• The number of households lifted out of poverty
by social security.
• Lives saved or losses prevented through inspection
and control measures.

8 Performance measures for Government agencies were given a hearty endorsement in
4 R&D depreciates in the sense that the economic value of applied research tends to the report of the National Performance Review, "Creating a Government that Works Better
& Costs Less.”
decline with the passage of time and movement in the technological frontier.




17

2. STEWARDSHIP: TOWARD A FEDERAL BALANCE SHEET

Chart 2-3. NATIONAL WEALTH
RATIO TO GDP

EDUCATION CAPITAL

54 31 PRIVATELY OWNED PHYSICAL ASSETS

2

1
PUBLICLY OWNED PHYSICAL ASSETS

0
1960

1964

1968

1972

1976

n t lGKAfttWJUPCHAF3-C

As appropriate performance measures are developed,
it should be possible to integrate them with reports
on the cost of Government activities to create a system
of financial reporting that would more analogous to
private sector accounting statements.
Indicators of Well-Being
There are certain broad responsibilities that are
unique to the Federal Government as a whole. Espe­
cially important are the Government’s role in fostering
healthy economic conditions, maintaining national secu­
rity, protecting the environment, and promoting health
and social welfare. The design for the set of tables
presented here includes a place for a table of social
and economic indicators that would serve as rough
measures of how well the Federal Government was
doing in promoting general welfare and security.
The individual measures in this table would be influ­
enced by many Government policies and programs, as
well as by external factors beyond the Government’s
control. Thus, they would not be outcome indicators
in the sense defined above, because such measures indi­
cate the direct results achieved through a program.
Such a table would serve two functions. First, it
would highlight areas where the Federal Government




1980

1984

1988

1992
01/ 24/94

might need to modify its current practices or consider
fresh action in order to better serve the public. Second,
it would provide a context for evaluating the other ta­
bles. For example, Government actions that weaken its
own financial position may be appropriate when they
promote a broader social objective, as in a recession
when increased government borrowing adds to its liabil­
ities while providing an automatic stabilizer for the
private sector.

An Interactive Analytical Framework
No single framework can encompass all of the factors
that affect the financial condition of the Federal Gov­
ernment. Nor is any framework a substitute for analy­
sis. Nevertheless, the framework presented above offers
a useful way of tracing the major financial effects of
Federal policies. Increased Federal support for invest­
ment, the reduction in Federal absorption of saving
through deficit reduction, and other Administration
policies to enhance economic growth are expected to
promote national wealth and improve the future finan­
cial condition of the Federal Government. As that oc­
curs, the efforts will be clearly revealed in these tables.

18

ANALYTICAL PERSPECTIVES

TECHNICAL NOTE: SOURCES OF DATA AND METHOD OF ESTIMATION
Federally Owned Assets and Liabilities
Assets
Financial Assets: The source of data is the Federal
Reserve Board's Flow-of-Funds Accounts. Two adjust­
ments were made to this data. First, U.S. Government
holdings of financial assets were consolidated with the
holdings of the monetary authority, i.e., the Federal
Reserve System. Second, the gold stock, which is valued
in the Flow-of-Funds at a constant historical price, is
revalued using the market value for gold.
Fixed Reproducible Capital: Estimates were devel­
oped from the OMB historical data base for physical
capital outlays presented in Chapter 8. The data base
extends back to 1940 and was supplemented by data
from other selected sources for 1915-1939. The source
data are in current dollars. To estimate investment
flows in constant dollars, it is necessary to deflate the
nominal investment series. This was done using Com­
merce Department price deflators for Federal purchases
of durables and structures. These price deflators are
available going back as far as 1940. For earlier years,
deflators were based on Census Bureau historical sta­
tistics for constant price public capital formation. The
capital stock series were adjusted for depreciation on
a straight-line basis, assuming useful lives of 46 years
for water and power projects; 40 years for other direct
Federal construction; and 16 years for major nondefense
equipment and for defense procurement.
Fixed Nonreproducible Capital: Historical estimates
for 1960-1985 were based on estimates in Michael J.
Boskin, Marc S. Robinson, and Alan M. Huber, “Gov­
ernment Saving, Capital Formation and Wealth in the
United States, 1947-1985,” published in The Measure­
ment of Saving, Investment, and Wealth, edited by Rob­
ert E. Lipsey and Helen Stone Tice (The University
of Chicago Press, 1989). Estimates were updated using
changes in the value of private land from the Flowof-Funds Balance Sheets and in the Producer Price
Index for Crude Energy Materials.
Liabilities
Financial Liabilities: The principal source of data is
the Federal Reserve’s Flow-of-Funds Accounts.
Contingent Liabilities: Sources of data are the OMB
Deposit Insurance Model and the OMB Pension Guar­
antee Model. Historical data on contingent liabilities
for deposit insurance were also drawn from the Con­
gressional Budget Office’s study, The Economic Effects
of the Savings and Loan Crisis, issued January 1992.
Pension Liabilities: For 1979-1992, the estimates are
the actuarial accrued liabilites as reported in the an­
nual reports for the Civil Service Retirement System,
the Federal Employees Retirement System, and the
Military Retirement System (adjusted for inflation). Es­
timates for the years before 1979 are not actuarial;
they are extrapolations. The estimate for 1993 is a pro­
jection.




National Balance Sheet
Publicly Owned Physical Assets: Basic sources of data
for the federally owned or financed stocks of capital
are the investment flows described in Chapter 8. Fed­
eral grants for State and local government capital were
added together with adjustments for inflation and de­
preciation in the same way as described above for direct
Federal investment. Data for total State and local gov­
ernment capital come from the capital stock data pre­
pared by John Musgrave of the Bureau of Economic
Analysis, Commerce Department.
Privately Owned Physical Assets: Data are from the
flow-of-funds national balance sheet. Preliminary esti­
mates for 1993 were prepared based on net investment
from the National Income and Product Accounts.
Education Capital: The stock of education capital is
computed by valuing the cost of replacing the total
years of education embodied in the U.S. population 16
years of age and older at the current cost of providing
additional schooling. The estimated cost includes both
direct expenditures in the private and public sectors
and an estimate of students’ foregone earnings, i.e.,
it reflects the opportunity cost of education.
For this presentation, Federal investment in edu­
cation capital is a portion of the Federal outlays in­
cluded in the conduct of education and training. This
portion includes direct Federal outlays and grants for
elementary, secondary, and vocational education and
for higher education. The data exclude Federal outlays
for physical capital at educational institutions and for
research and development conducted at colleges and
universities because these outlays are classified else­
where as investment in physical capital and investment
in R&D capital. The data also exclude outlays under
the GI Bill; outlays for graduate and post-graduate edu­
cation spending in HHS, Defense and Agriculture; and
most outlays for vocational training.
Data on investment in education financed from other
sources come from educational institution reports on
the sources of their funds, published in U.S. Depart­
ment of Education, Digest of Education Statistics.
Nominal expenditures were deflated by the implicit
price deflator for GDP to convert them to constant dol­
lar values. Education capital is assumed not to depre­
ciate. An education capital stock computed using this
method with different source data can be found in Wal­
ter McMahon, “Relative Returns To Human and Phys­
ical Capital in the U.S. and Efficient Investment Strate­
gies,” Economics of Education Review, Vol. 10, No. 4,
1991. The method is described in detail in Walter
McMahon, “Investment in Higher Education,” 1974.
Research and Development Capital: The stock of R&D
capital financed by the Federal Government was devel­
oped from a data base that measures the conduct of
R&D. The data exclude Federal outlays for physical
capital used in R&D because such outlays are classified
elsewhere as investment in federally financed physical

2. STEWARDSHIP: TOWARD A FEDERAL BALANCE SHEET

capital. Nominal outlays were deflated using the GDP
deflator to convert them to constant dollar values.
Federally funded capital stock estimates were pre­
pared using the perpetual inventory method in which
annual investment flows are cumulated to arrive at
a capital stock. This stock was adjusted for depreciation
by assuming an annual rate of depreciation of 10 per­
cent for applied research and development. Basic re­
search is assumed not to depreciate. Chapter 8 contains
additional details on the estimates of the total federally
financed R&D stock, as well as its national defense
and nondefense components (see Budget of the U.S.




19
Government, Fiscal Year 1993, 1993, January 1992,
Part Three, pages 39-40).
A similar method was used to estimate the stock
of R&D capital financed from sources other than the
Federal Government. The component financed by uni­
versities, colleges and other nonprofit organizations is
based on data from the National Science Foundation,
Surveys of Science Resources. The industry-financed
R&D stock component is from that source and from
the U.S. Department of Labor, "The Impact of Research
and Development on Productivity Growth,” Bulletin
2331, September 1989.




3. GENERATIONAL ACCOUNTING
Government deficits, taxes, transfer payments, and
• The Administration’s health care reform proposal
other expenditures affect the distribution of income and
would further significantly reduce the lifetime net
wealth among different generations. Generational ac­
tax rate facing future generations. The combined
counting is a new method for considering the fiscal
effect of OBRA93 and health care reform would
treatment of different generations.1 It is still being re­
reduce the previous generational imbalance by
over one-half.
fined, and a number of the assumptions used to esti­
mate the accounts are controversial.2 Further develop­
• The fiscal policies of Italy and Norway, like that
ment of generational accounting is needed to improve
of the United States, suggest a severe imbalance
the quality of the estimates and the usefulness of the
in the treatment of future and existing genera­
tions.
method.
Generational accounts indicate, in present value
The Nature of Generational Accounts and
terms, what the members of each generation can expect
Lifetime Net Tax Rates
to pay on average, now and in the future, in net taxes
(taxes paid to the government less transfers received,
The budget normally measures receipts and outlays
such as social security benefits). This is shown for both for one year at a time, and it usually shows these
existing
generations
and
future
generations. estimates for only a few years into the future. More­
Generational accounting can also be used to calculate over, while the standard budget presentation divides
the lifetime net tax rate of each generation—the net receipts and outlays into a number of categories, it
taxes that a generation pays as a percentage of labor does not do so in a way that shows the effects of the
income, over its entire lifetime, in present value terms. budget on different generations.
Generational accounts, in contrast, look ahead many
Generational accounts were presented in chapters in
the fiscal year 1993 Budget and the January 1993 decades; and they classify taxes paid and transfers re­
Budget Baselines, Historical Data, and Alternatives for ceived—such as social security, medicare, and food
the Future. These chapters explained the concept and stamps—according to the generation that pays or re­
provided some illustrative results of how the accounts ceives the money. For an existing generation, they esti­
would be affected by policy changes. The chapter in mate its taxes and transfers year-by-year over its entire
Budget Baselines initiated the use of lifetime net tax remaining lifespan; and they summarize these amounts
rates by generation. The present chapter provides base­ for that generation in terms of one number, the present
line generational accounts for 1992, estimates the effect value of its entire annual series of average future tax
of the Omnibus Budget Reconciliation Act of 1993 payments net of transfers received. For future genera­
(OBRA93), and estimates the further effect of the Ad­ tions, generational accounts estimate the net tax pay­
ministration’s proposal for health care reform. It also ments based on the proposition that the government’s
compares U.S. generational accounts with those for bills that are not paid by people who are now alive
Italy and Norway.
will have to be paid by future generations. They cal­
The present analysis reaches the following major con­ culate how much future generations will have to pay
clusions:
on average to the government, above the amounts they
• The lifetime net tax rates paid by Americans in will receive in transfers, if the government’s total
the “baby boom” and later generations is higher spending is not reduced from the projected path and
than the lifetime net tax rates paid by Americans if the people now alive do not pay more than projected.
bom earlier.
Defined more precisely, generational accounts meas­
• The lifetime net tax rate estimated for future gen­ ure, as of a particular base year, the present value
erations is much higher than the lifetime net tax of the average future taxes that a member of each
rates estimated for existing generations.
given generation is estimated to pay to the government
• The deficit reduction in the Omnibus Budget Rec­ minus the present value of the average future transfers
onciliation Act of 1993 significantly reduced the that a member is estimated to receive. This difference
lifetime net tax rate facing futxire generations.
is called the “net tax payment” or “net tax” in the
following discussion. A generation is defined as all the
1Generational accounting was developed by Alan J. Auerbach, Jagadeesh Gokhale, and
males or females who are bom in a given year.
Laurence J. Kotlikoff. See Auerbach, Gokhale, and Kotlikoff, "Generational Accounts: A
Meaningful Alternative to Deficit Accounting,” in David Bradford, ed., Tax Policy and the
The generational accounts as such—i.e., these net tax
Economy, vol. 5 (MIT Press for the National Bureau of Economic Research, 1991), pp.
payments—are prospective, considering only the
55-110; and Kotlikoff, Generational Accounting—Knowing Who Pays, and When, for What
We Spend (New York: The Free Press, 1992).
present value of future taxes and transfers as of a
2The merits of generational accounting are debated in two companion articles that will
base year for existing generations and generations yet
be published in the Spring 1994 issue of The Journal of Economic Perspectives. One is
Auerbach, Gokhale, and Kotlikoff, "Generational Accounting—A Meaningful Way to Assess
to be bom. A prospective analysis can estimate the
the Stance of Fiscal Policy.” The other is Robert Haveman, "Should Generational Accounts
Replace Public Budgets and Deficits?”
effect of policy changes, because all the effects of a




21

22
policy change are in the future; and it can compare
the lifetime net taxes of the newly bom and future
generations, because their entire lifetime taxes and
transfers are in the future. However, it cannot compare
the lifetime net taxes paid by one existing generation
with the lifetime net taxes paid by a different existing
generation or with the lifetime net taxes paid by future
generations, because part of any living generations
taxes and transfers were in the past and therefore are
not taken into account.
A comparison of one existing generation with another,
or with future generations, must be based on their en­
tire lifetime taxes and transfers. The lifetime net tax
rate of a generation is defined as the present value
of its lifetime net taxes (taxes paid less transfers re­
ceived) divided by the present value of its lifetime labor
income. The present values are calculated as of the
generation’s year of birth, so that each generation can
be evaluated from the standpoint of when it was bom.
Since lifetime taxes, transfers, and income have tended
to rise over time and have fluctuated to some extent,
the relative net tax paid by different generations is
compared in terms of lifetime net tax rates rather than
the absolute amounts of lifetime net tax payments.
Generational accounting can be used to make two
types of comparison. First, through the use of lifetime
net tax rates, it can be used to compare the lifetime
net taxes of future generations, of the generation of
people just bom, and of different generations of people
bom in the past. The lifetime net taxes of generations
bom in the past are based on estimates of actual taxes
paid and transfer payments received in past years up
through 1992 and projections of taxes to be paid and
transfer payments to be received in the future.
Secondly, generational accounting can be used to
compare the effects of actual or proposed policy changes
on the remaining lifetime net tax payments of genera­
tions currently alive and on future generations. Such
comparisons may be made in terms of lifetime net tax
rates; or they may be made in terms of the absolute
amounts of the generational accounts, because the
changes in all lifetime taxes and transfers will be in
the future for every generation and thus will be in­
cluded in the comparison. The comparisons can be made
equally well for policies that change the totals of re­
ceipts or expenditures while also changing the deficit;
for policies that change the composition of receipts or
expenditures without affecting the deficit; and for poli­
cies that change the levels of receipts and expenditures
together without affecting the deficit.
Generational accounts have a number of limitations
as they are now constructed. These accounts, unlike
almost every other table in this budget, include the
taxes and transfers of all levels of government alike—
Federal, State, and local. While this is appropriate for
some analyses, the accounts do not show the separate
effect of the Federal budget alone or the State and
local sector alone. However, the difference in
generational accounts due to a Federal Government pol­
icy change can be analyzed alone. Thus, this consolida­




ANALYTICAL PERSPECTIVES

tion does not limit generational accounts as a method
for assessing the effects of a change in Federal policy.
Generational accounts reflect only taxes paid to the
government and transfers received. They do not impute
to particular generations the value of the government
purchases of goods and services made to provide them
with education, highways, national defense, and other
services. Therefore, they do not show the full net bene­
fit or burden that any generation receives from govern­
ment fiscal policy as a whole. Insofar as the benefits
of purchases could be imputed, they would reduce the
net tax payments. This omission may be important,
because government purchases are about half of total
government expenditures. Nevertheless, generational
accounts can show a generation’s net benefit or burden
from a particular policy change that affects only taxes
and transfers. Moreover, although they do not show
how the benefits of government purchases are spread
across generations, they do illuminate which genera­
tions will pay for this spending. In the future, the use­
fulness of generational accounting would be improved
if the value of certain types of government purchases
such as education were imputed to specific generations.
Generational accounting does not, as yet, incorporate
any feedback of policy on the economy’s growth and
interest rates. Feedback effects can be significant, but
they generally occur slowly, so their impact on the dis­
counted values used in the generational accounts are
likely to be small. Moreover, there is reason to believe
they would reinforce the conclusions derived in this
chapter. For example, policies that decrease the net
tax payment by existing generations and increase the
net tax payment by future generations are likely to
stimulate more current consumption and thereby re­
duce the saving available to finance investment. This,
in turn, will lower productivity and real wage growth
and raise real interest rates, which on balance will
harm future generations.
Generational accounting divides the people bom in
the same year into only two categories, males and fe­
males, each designated a “generation.” This is an im­
portant distinction, for males and females differ signifi­
cantly in characteristics such as lifetime earnings and
longevity. However, it does not reveal differences with
respect to other characteristics, such as income level
or race, nor does it reveal the wide diversity among
individuals within any grouping. The categories would
be expanded if more data were available.
Lifetime net tax rates introduce a number of further
conceptual issues. For example, how should lifetime in­
come be measured? Lifetime income is defined as a
present value, like lifetime taxes and transfers. The
present value calculation should include all income that
increases a generation’s resources: labor earnings, in­
herited wealth, and capital gains over and above the
normal return to saving. The normal return to saving
is not itself included in income, because that would
be double counting. Saving out of labor income and
then earning a normal rate of return on the amount
saved does not increase the present value of a house­

23

3. GENERATIONAL ACCOUNTING

hold’s resources when its income is discounted at the
same rate as the normal rate of return. Data do not
exist on the share of each generation’s income that
has come from inherited wealth or supernormal capital
gains, so labor earnings are used to represent income.3
Even within the scope of generational accounts as
now constructed, the results in this chapter should be
viewed as experimental and illustrative. They are lim­
ited by the availability and quality of data, especially
for earlier years. The lifetime net tax rates are cal­
culated from historical data on taxes, transfers, and
income up to 1992 and on projections of future data.
The historical data, however, are not available to the
same extent as the data for recent years that underlie
the projections, and in some cases they are not avail­
able at all. As work on generational accounting pro­
gresses, the estimates can be expected to change due
to improvements in the data and refinements in the
method. Some of the changes from a year ago are dis­
cussed in the technical note at the end of the chapter.
In addition, the generational accounts are necessarily
based on a number of simplifying assumptions, about
which reasonable people may disagree. They assume
that government intergenerational redistribution does
not substitute for, and is not offset by, private
intergenerational transfers. This is similar to the usual
assumption made in cross-section estimates of the dis­
tributional effect of taxes and transfers by income class
or other characteristic. The generational accounts are
also based on assumptions concerning the pattern of
future taxes and spending, the interest rate used to
discount future taxes and transfers to form present val­
ues, mortality and birth rates, and so forth. The abso­
lute amounts of the generational accounts are sensitive
to these assumptions.
The projections of government expenditures are espe­
cially sensitive to the assumptions about health care
costs. Health care expenditures have risen from 9 per­
cent of GDP in 1980 to 14 percent currently and have
been projected to reach more than 20 percent early
in the next century unless they are constrained by cost
control. The government pays for around 45 percent
of health care costs, and its costs have been rising
more rapidly than the private sector’s, so future trends
in government expenditures are strongly influenced by
future trends in health care costs. The estimates in
this chapter without health care reform reflect contin­
ued rapid growth in cost, but the probable pattern is
very uncertain.
Despite these qualifications, the generational ac­
counts can be illuminating when considered in the light
of their assumptions, as has been the case for the 75year projections made every year by the social security
trustees. Moreover, the most fundamental result holds
for a wide range of reasonable changes in the assump­
tions: the net tax payment by future generations is

relatively much larger than the net tax payment by
the generation just bom or other existing generations.
The following sections illustrate the results of
generational accounting. A technical note at the end
explains the concepts, data sources, calculations, and
other assumptions more fully.

Lifetime Net Tax Rates before Deficit Reduction
Table 3-1 estimates the lifetime net tax rates for
different generations as they stood before OBRA93 re­
duced the deficit. Lifetime net tax rates are shown for
the generations bom in 1900 and every tenth year
thereafter; for the generation bom in 1992, the “newly
bom” in this year’s analysis; and for the future genera­
tions, those bom in 1993 and later. All Federal, State,
and local taxes and transfers are included in the cal­
culations. Males and females are combined.4 The cal­
culations in this table and throughout the chapter are
as of calendar year 1992. Because of the time needed
to prepare these estimates, they are based on the re­
ceipts and outlays in the Mid-Session Review of the
1994 Budget rather than this budget. Since the budget
outlook has improved since the Mid-Session Review,
lifetime net tax rates for both existing and future gen­
erations would probably be smaller if based on the esti­
mates in the present budget.
TABLE 3-1. LIFETIME NET TAX RATES BEFORE OBRA93
(In percentages)

Generation's year of birth

1900 ................................................................................
1910 ................................................................................
1920 ................................................................................
1930 ................................................................................
1940 ................................................................................
1950 ................................................................................
1960 ................................................................................
1970 ................................................................................
1980 ................................................................................
1990 ................................................................................
1992 ................................................................................
Future generations...........................................................
Percentage difference: future generations and 1992 ......

Net tax
rate

23.6
27.2
29.0
30.5
31.6
32.8
34.4
35.7
36.0
35.5
35.4
93.7
165.1

Components of net
tax rate
Gross tax
rate

27.3
33.0
35.9
38.7
40.9
43.7
46.7
49.8
51.5
51.5
51.5

Transfer
rate

3.7
5.8
6.9
8.2
9.2
10.9
12.3
14.1
15.0
16.0
16.2

The lifetime net tax rates exhibit a strong upward
trend over the past century, rising from 24 percent
for the generations bom in 1900 to 35-36 percent for
the generations bom since 1970.5 The lifetime net tax
rate on future generations was much larger before
OBRA93 was enacted—94 percent. This was 165 per­
cent higher than the lifetime net tax rate for the gen­
eration of people newly bom in 1992.

* Males and females were combined because of the conceptual problem of how to attribute
taxes, transfers, and income within a family. The technical note explains the present method
and the change from last year. For further discussion of the conceptual problem, see the
January 1993 Budget Baselines, page 537.
6The lifetime net tax rate for the generation born in 1900 was estimated as 21.5 percent
3 The error due to this omission is relatively small in the aggregate, given that labor
in the January 1993 Budget Baselines rather than the 23.6 percent reported here. The
income has long accounted for approximately four-fifths of all income and that only part
increase is primarily due to a reduction in the estimate of lifetime labor earnings, which
of the remaining income from capital should be included. However, the errors for different
is the denominator of the lifetime net tax rate. This revision also raises the lifetime net
generations could vary depending on trends and fluctuations in asset values and bequest
tax rate of generations born after 1900, including future generations, by roughly 10 percent.
behavior.




24
Table 3-1 also breaks down the net tax rates between
gross tax rates and transfer rates. To calculate these
latter rates, the present value of a generation’s lifetime
taxes (or transfers) is divided by the present value of
its lifetime income. This breakdown reveals the ex­
panded role of government transfer payments during
the past century. The lifetime transfer rate more than
quadrupled between the generations bom in 1900 and
those bom in 1992, starting at 3.7 percent and increas­
ing each decade to a rate of 16.2 percent. The increase
was more rapid, in both relative and absolute terms,
for the generations bom before World War II than
afterwards.
The gross tax rate has risen much more than the
net tax rate. It nearly doubled between the generations
bom in 1900 and 1992, starting at 27.3 percent and
increased each decade to a rate of 51.5 percent. In
contrast, the net tax rate increased by about a half.
The larger increase in the gross tax rate is because
a generation’s lifetime gross taxes pay for the govern­
ment’s purchases of goods and services as well as trans­
fers and pay for transfers to other generations as well
as its own.
The estimates of lifetime net tax rates by generation,
such as shown in this table, are affected by the
amounts of future taxes, transfers, and other govern­
ment expenditures that are assumed year-by-year in
the underlying projections. These assumptions could
differ widely, and the actual amounts that eventuate
could differ substantially from any assumptions made.
As explained in the technical note, the projection meth­
ods generally seek to maintain current policy in some
sense. However, “current policy” can be interpreted in
different ways, especially for discretionary expenditures
such as defense; and the long-term projections for medi­
care and medicaid assume that even in the absence
of the Administration’s health care reform some policy
actions or other forces will eventually hold the spending
growth to the overall rate of economic expansion (ad­
justed for shifts in the age and sex composition of the
population), even though the projected growth rate is
still quite rapid relative to GDP for the next few dec­
ades.6
The lifetime net tax rates—and, hence, the imbalance
between future generations and existing generations—
are defined in such a way that the generations now
alive, including the newly bom, do not pay any more
taxes (or receive any less transfers) than projected
under the specified fiscal policy. This assumption is
an analytical device for determining the size of the
fiscal imbalance; it is not meant to suggest that future
generations will in fact close the gap all by themselves.
Any actual policy change—whether a policy change en­
acted in the past, or one proposed for the future—
is almost certain to bear in some degree on generations
now living as well as those to be bom in the future.
If such a policy change is made, the net tax rates paid
by the newly bom and other existing generations would
6 A pure extrapolation of recent trends, in contrast, would imply that health care costs
would eventually bankrupt the government.




ANALYTICAL PERSPECTIVES

be higher than shown in this table. Policy changes of
this kind are considered below.
The generational imbalance shown in table 3-1 de­
pends on the assumption that all future generations
of the same sex have the same lifetime net tax rate.
Alternatively, suppose that the future generations bom
during 1993-2000 pay the same lifetime net tax rate
as the generation bom in 1992. Because these future
generations would pay less than otherwise assumed,
those future generations bom after 2000 would have
to pay more. The greater the number of future genera­
tions who pay no more than the generation newly bom,
the larger is the lifetime net tax rate that will be re­
quired of those generations who are bom still later.
The size of the imbalance estimated between future
generations and the newly bom is also sensitive to the
assumptions about the interest rate used for discount­
ing and the growth rate of the economy. Table 3-2
shows the percentage differential under alternative as­
sumptions. It considers interest rates of 3, 6, and 9
percent and productivity growth rates of 0.25, 0.75, and
1.25 percent. The assumptions used for all other cal­
culations in this chapter were an interest rate of 6
percent and a growth rate of 0.75 percent. This led
to a 165 percent larger net payment by future genera­
tions than the newly bom. Under the alternatives in
table 3-2, the difference ranges from 93 percent to 350
percent. While this range is large, the basic conclusion
holds for all alternatives. Future generations are esti­
mated to make a much larger payment of taxes to
the government, net of the transfers they receive, than
the generation just bom or other existing generations.
TABLE £-2. PERCENTAGE DIFFERENCE IN LIFETIME NET TAX RATES OF
FUTURE GENERATIONS AND THE 1992 GENERATION FOR ALTERNATIVE
ASSUMPTIONS
Growth rate
Interest rate
0.25

3 .0 .........................................................................
6 .0 .........................................................................
9 .0 .........................................................................

0.75

1.25

167
205
350

127
165
297

93
131
249

Effects of OBRA93
The Omnibus Budget Reconciliation Act of 1993 re­
duced the estimated deficits from 1994 through 1998
by a cumulative total of around $500 billion. Table 3-3
compares the lifetime net tax rates of different genera­
tions with and without this Act. OBRA93 reduced the
lifetime net tax rate of future generations from 94 per­
cent to 82 percent. In order to accomplish this, it raised
the lifetime net tax rate on existing generations: on
the very young generations by roughly 1 percentage
point, on the baby boom generations by about 0.3 to
0.6 percentage points, and on older generations by 0.3
percentage point or less. The lower impact on the life­
time net tax rates of older generations is partly because
they have fewer remaining years of life to be affected
and any given dollar amount of taxes or transfers is
discounted over more years in order to calculate the
present value as of the generation’s year of birth.

25

3. GENERATIONAL ACCOUNTING
TABLE 3-3. LIFETIME NET TAX RATES UNDER ALTERNATIVE POLICIES
(In percentages)

Generation's year of birth

1900 ............................................................
1910...........................................................
1920 ............................................................
1930 ...........................................................
1940 ............................................................
1950 ............................................................
1960 ...........................................................
1970 ............................................................
1980 ...........................................................
1990 ...........................................................
1992 ............................................................
Future generations.....................................
Percentage difference: future generations
and 1992 ................................................

Before
OBRA93

After OBRA93

With health
care reform

Health care
reform but
faster cost
growth

23.6
27.2
29.0
30.5
31.6
32.8
34.4
35.7
36.0
35.5
35.4
93.7

23.6
27.2
29.0
30.6
31.9
33.2
35.0
36.5
36.9
36.5
36.3
82.0

23.6
27.2
29.1
30.9
32.4
34.0
35.9
37.6
38.2
38.3
38.3
66.5

23.6
27.2
29.1
30.9
32.2
33.5
35.2
36.6
36.7
36.2
36.0
75.2

165.1

126.0

73.9

108.8

of the basic principles of the Administration proposal
is to reduce the complexity and in general to improve
the efficiency of the health care system. To the extent
that efficiency is improved, health care reform will
allow lower government transfer payments but people
will not receive less health care or have worse health.
The measured decline in the lifetime transfers to exist­
ing generations would overstate the change in the value
of benefits they receive, and the increase in the lifetime
net tax rates from this effect would not represent an
increase in actual fiscal burden.
The effect of health care reform is shown in table
3-3 to reduce the generational imbalance by about twoEffects of Health Care Reform
fifths, from 126 percent to 74 percent. In combination,
The Administration has proposed a program of health OBRA93 and health care reform would eliminate over
care reform to provide every American with comprehen­ half of the previous imbalance of 165 percent.
sive health care benefits and to limit the rapid growth
Table 3-3 also illustrates the importance of imple­
of health care costs as a share of GDP. If enacted menting the cost-containment principle of health care
and implemented as proposed, this plan would substan­ reform. It estimates the lifetime net tax rates from
tially reduce the generational imbalance. Table 3-3 enacting the proposal but modified so that all govern­
shows the lifetime net tax rates with health care re­ ment health care transfers grow from 2000 through
form. Health care reform would reduce the lifetime net 2020 at a rate that is 2 percentage points higher than
tax rate of future generations beyond the effect of warranted by demographic change and economy-wide
OBRA93—from 82 percent to 66 percent. Because esti­ productivity growth. In this case the generational im­
mates of health care reform on taxes and spending balance is only reduced from 126 percent to 109 percent
were not available after 2000, this calculation is based instead of the 74 percent under the full Adininistration
on rough projections for subsequent years (as explained proposal.
in the technical note to this chapter). Medicare and
medicaid transfers after 2000 are assumed to grow at
Net Tax Payments by Different Generations
a similar rate as benefits under health reform, although
Tables 3-4 and 3-5 provide a complementary per­
their spending is not directly limited by the plan. The
estimates do not include the premiums paid to the spective to lifetime net tax rates by showing the net
health alliances or the benefits financed by these pre­ tax payments for different generations in absolute
amounts solely for those taxes and transfers to be paid
miums.
Health care reform would increase the lifetime net or received in the future. These are the “generational
tax rates of all existing generations by decreasing the accounts” as defined previously in this chapter and as
lifetime transfers that they would be recorded as receiv­ emphasized in most presentations of generational ac­
ing. This is because government health care spending counting. The generational accounts in the year of a
is recorded as a transfer from the government to those generation’s birth are the same as its lifetime net tax
individuals who receive the health care. However, one payments.

OBRA93 thus brought the lifetime net tax rates of
future generations and existing generations closer to
each other. The generational imbalance—defined as the
percentage difference in lifetime net tax rate between
future generations and the newly bom—was reduced
by about one-quarter, from 165 percent to 126 percent.
These calculations roughly show where the lifetime net
tax rates stand now. The generational imbalance re­
mains large despite OBRA93. To a great extent this
is because the government’s health care spending is
projected to continue to rise rapidly relative to GDP
unless government policy changes to limit it.




26

ANALYTICAL PERSPECTIVES
TABLE 3-4. GENERATIONAL ACCOUNTS FOR MALES: PRESENT VALUE OF TAXES AND TRANSFERS, WITH OBRA93
(In thousands of dollars)
Taxes paid
Generation’s age in 1992

0 .................................................................................................................................................
5 ........................................................................................
1 0 ......................................................................................
1 5 ......................................................................................
2 0 ......................................................................................
2 5 ......................................................................................
3 0 ......................................................................................
3 5 ......................................................................................
4 0 ......................................................................................
4 5 ......................................................................................
5 0 ......................................................................................
5 5 ......................................................................................
6 0 ......................................................................................
6 5 ......................................................................................
7 0 ......................................................................................
7 5 ......................................................................................
8 0 ......................................................................................
8 5 ......................................................................................
9 0 ......................................................................................
Future generations............................................................
Percentage difference in net tax payment: future generations and age zero.......................................................

Net tax payment

Labor income
taxes

Capital income
taxes

Transfers received

Payroll taxes

78.4
99.3
124.8
157.2
187.7
203.0
201.6
192.4
170.9
132.5
81.0
19.5
-43.9
-94.1
-98.6
-92.9
-79.4
-69.4
-11.6
177.1

32.2
41.3
52.6
67.1
80.8
88.2
87.8
84.5
77.2
64.9
49.6
32.7
17.5
6.2
2.5
1.2
0.6
0.3

7.9
10.1
12.9
16.6
21.0
25.2
30.2
36.1
40.8
43.5
44.0
42.2
38.9
34.3
27.1
18.2
9.2

—

—

—

—

—

Social security

Health

—

126.0

Excise taxes

34.7
44.6
56.9
72.8
88.2
96.7
96.5
' 93.2
85.4
72.0
55.2
36.6
19.6
6.9
2.9
1.3
0.7
0.3

30.2
35.6
41.3
47.4
51.4
52.2
51.4
50.4
49.4
46.7
42.8
37.8
32.2
26.9
21.5
16.4
11.5
7.9
1.7

6.8
8.6
10.3
11.9
13.3
16.4
20.1
25.2
31.7
39.8
50.4
63.7
80.4
90.6
82.7
69.0
52.0
39.4
6.9

16.2
19.1
22.7
27.3
31.0
33.0
34.7
37.9
42.3
47.5
53.6
60.2
66.7
73.4
66.1
57.8
47.2
37.5
6.4

Welfare

3.6
4.6
5.9
7.6
9.2
9.9
9.4
8.7
8.0
7.2
6.5
5.8
5.1
4.4
3.8
3.2
2.2
1.0
—

—

—

—

—

TABLE 3-5. GENERATIONAL ACCOUNTS FOR FEMALES: PRESENT VALUE OF TAXES AND TRANSFERS, WITH OBRA93
(In thousands of dolars)
Taxes paid
Generation’s age in 1992

0 ......................................................................
5 ........................................................................................
1 0 ......................................................................................
1 5 ......................................................................................
2 0 ......................................................................................
2 5 ......................................................................................
3 0 ......................................................................................
3 5 ......................................................................................
4 0 ......................................................................................
4 5 ......................................................................................
5 0 ......................................................................................
5 5 ......................................................................................
6 0 ......................................................................................
6 5 ......................................................................................
7 0 ......................................................................................
7 5 ......................................................................................
8 0 ......................................................................................
8 5 ......................................................................................
9 0 ......................................................................................
Future generations............................................................
Percentage difference in net tax payment: future genera­
tions and age zero .......................................................

Net tax payment

Labor income
taxes

Transfers received

Payroll taxes

44.1
54.8
67.3
82.5
96.9
101.5
96.9
87.8
69.1
39.7
2.4
-40.2
-86.3
-122.5
-124.6
-117.9
-100.5
-79.3
-11.3
99.6

16.6
21.3
27.1
34.4
40.7
42.1
39.5
36.3
31.5
25.1
18.1
11.6
6.0
2.2
0.9
0.4
0.2
0.1

8.4
10.8
13.8
17.7
22.3
27.3
32.2
37.3
40.5
41.4
40.2
38.1
34.9
29.5
20.7
11.4
4.3

18.0
23.0
29.4
37.5
44.6
46.2
43.5
40.0
34.9
27.8
20.2
13.0
6.8
2.4
1.0
0.5
0.2
0.1

—

—

126.0

—

—

—

Excise taxes

Social security

Health

Welfare

—

The amounts in these tables are the generational
accounts as of calendar year 1992 for every fifth genera­
tion alive in that year. The first column, “net tax pay­
ment,” is the difference between the present value of
taxes that a member of each generation will pay, on
average, over his or her remaining life and the present
value of the transfers he or she will receive. The other
columns show the average present values of different
taxes and transfers. As with the lifetime net tax rates,




Capital income
taxes

29.2
34.2
39.3
44.5
48.0
49.1
49.0
48.9
47.8
45.4
41.5
37.0
31.8
26.6
21.7
16.5
12.1
9.2
1.6

6.4
8.1
9.7
11.1
12.4
15.4
18.9
23.7
29.9
37.9
48.4
62.0
79.2
88.4
81.4
69.1
54.1
39.9
5.9

13.1
15.5
18.6
22.6
25.8
29.4
33.4
39.1
46.6
55.3
64.1
73.9
83.2
91.6
84.6
75.2
61.2
47.1
6.7

8.6
11.0
14.0
17.9
20.5
18.5
15.0
11.9
9.1
6.8
5.2
4.1
3.5
3.1
2.8
2.4
2.0
1.6
0.3

—

—

—

—

all Federal, State, and local taxes and transfers are
included in these calculations. Federal spending and
receipts include the effects of OBRA93.
Remaining net tax payments by existing genera­
tions.—The present value of the future taxes to be
paid by the young and middle aged generations is much
more than the present value of the future transfers
they will receive. For males who were age 40 in 1992,
for example, the present value of future taxes is

3. GENERATIONAL ACCOUNTING

$171,000 more than the present value of future trans­
fers. The amounts are large because these generations
are close to their peak tax paying years. For newborn
males, on the other hand, the present value of the
net tax payment is much smaller, $78,000, because they
will not pay much in taxes for a number of years.
The older generations, who are largely retired, will
receive more social security, medicare, and other future
benefits than they will pay in future taxes. That is,
they have negative net tax payments. Females have
smaller net tax payments than males, mostly because
they earn less income and therefore pay less income
and social security taxes.
Since the figures in these tables show the remaining
lifetime net tax payments of particular generations,
they do not include the taxes a generation paid in the
past or the transfer payments it received in the past.
This needs to be kept in mind in considering the net
tax payments by those now alive. The portion of a gen­
eration’s lifetime net tax payments that is remaining
depends on whether it is 10, 40, or 65 years old. The
fact that 40 year-old males can expect to pay more
in the future than they receive, in present value terms,
while the reverse is true for 65 year-old males, does
not mean that the Federal, State, and local govern­
ments are treating 40 year-old males unfairly. Males
who are now 65 paid substantial taxes when they were
younger, and these past taxes are not included in the
remaining lifetime net tax payments shown in their
generational accounts. Therefore, the remaining lifetime
net tax payment by one existing generation cannot be
directly compared with that of another. The lifetime
net tax payments of existing generations can be com­
pared, however, using the lifetime net tax rates pre­
sented previously.
Tables 3-4 and 3-5 also show the different
generational effects of various taxes and transfers. For
example, the present value of future labor income taxes
and payroll taxes is much higher for the generations
under 60 than for older generations, whereas the
present value of future capital income taxes and excise
taxes is higher for the generations under 60 but not
by so much. This is because the elderly tend to be
retired from the labor force but still own homes and
buy goods and services subject to property tax, sales
tax, and other excises. As another example, the present
value of social security and health care transfers is
much higher for the elderly than the young and middle
aged, because these kinds of transfers are made largely
to the elderly and thus are discounted in the calcula­
tions over a relatively few years. Welfare benefits, on
the other hand, provide relatively large benefits to the
young, so the present value of these benefits is higher
for these age groups than for others.
Net tax payments by future generations.—Future
generations—those bom in 1993 and later—are esti­
mated to make a 126 percent larger net tax payment
to the government, on average, than those bom in 1992.
The $177,000 average net tax payment by future males
and the $100,000 average net tax payment by future




27
females are calculated assuming that the ratio of net
tax payments by males to that of females is the same
for future generations as those bom in 1992.
The calculations also assume that all people of a par­
ticular sex bom in the future will make the same aver­
age net tax payment over their lifetimes after adjusting
for overall productivity growth in the economy. A
growth adjustment is needed to the average net tax
payment because future generations will pay more in
taxes, net of the transfers they receive, simply because
their incomes will be higher. This does not represent
a heavier fiscal burden. To properly assess the net tax
payment by future generations relative to the newly
bom, it is necessary to calculate the net payment they
would make above and beyond the amount due to eco­
nomic growth. The generational accounts assume that
all future generations pay the same net taxes apart
from the effect of growth. This net tax is the number
shown in the table for all future generations of the
same sex.
OBRA93 and health care reform.—Table 3-6 dis­
plays the generational accounts for the three policy re­
gimes previously evaluated using lifetime net tax rates:
a baseline before the enactment of OBRA93, estimates
including OBRA93 (as shown with more detail in tables
3-4 and 3-5), and estimates including both OBRA93
and health care reform.
This table is a different way of viewing the
generational effects of policy changes and complements
the effects revealed in table 3-3 on lifetime net tax
rates. OBRA93 and health care reform substantially
reduce the generational imbalance between future gen­
erations and living generations. The net tax payments
of future generations (in present value) are reduced
by both policies. The net tax payment for future genera­
tions of males is lowered by $25,000 by OBRA93 and
$32,000 by health care reform; for females, by $14,000
and $20,000, respectively. Each existing generation
pays a larger net amount in present value, but not
by as much as the reduction for future generations.
For example, 50 year-old males pay $5,000 more due
to OBRA93 and $10,000 more due to health care re­
form. As explained above, the lower transfer payments
received under health care reform do not represent less
health care to the extent they reflect a more efficient
health care system.

International Comparisons
The Italian and Norwegian governments have pre­
pared generational accounts to examine the long-term
sustainability of their fiscal policies,7 and the Japanese
government is in the process of estimating generational
accounts for Japan.
7 See Daniele Franco, Jagadeesh Gokhale, Luigi Guiso, Laurence J. Kotlikoff, and Nicola
Sartor, "Generational Accounting—The Case of Italy,” Report to the Bank of Italy (January
1991) and Boston University Department of Economics, The Ruth Pollack Working Paper
Series on Economics, no. 18 (January 1990); and Alan J. Auerbach, Jagadeesh Gokhale,
Laurence J. Kotlikoff, and Erling Steigum, Jr., “Generational Accounting in Norway: Is
Norway Overconsuming Its Petroleum Wealth?,” Report to the Norwegian Research Council
for Applied Social Science (October 1993) and Boston University Department of Economics,
The Ruth Pollack Working Paper Series on Economics, no. 24 (October 1993).

28

ANALYTICAL PERSPECTIVES
TABLE 3-6. GENERATIONAL ACCOUNTS UNDER DIFFERENT POLICIES
(In thousands of dollars)
Before OBRA93

After OBRA93

With health care reform

Health care reform but faster cost

Generation's Age in 1992
Males

0 ...............................................................
5 ........................................................................................
1 0 ......................................................................................
1 5 ......................................................................................
2 0 ......................................................................................
2 5 ......................................................................................
3 0 ......................................................................................
3 5 ......................................................................................
4 0 ......................................................................................
4 5 ......................................................................................
5 0 ......................................................................................
5 5 ......................................................................................
6 0 ......................................................................................
6 5 ......................................................................................
7 0 ......................................................................................
7 5 ......................................................................................
8 0 ......................................................................................
8 5 ......................................................................................
9 0 ......................................................................................
Future generations...........................................................
Percentage difference in net tax payments: future gen­
erations and age zero..................................................

Males

76.4
96.8
121.6
153.2
183.0
197.8
196.2
186.9
165.2
127.0
75.9
14.7
-48.4
-98.1
-101.9
-95.3
-80.9
-70.4
- 11.6
202.5

42.9
53.3
65.5
80.3
94.2
98.4
93.4
84.0
65.0
35.4
- 2.0
-44.8
-91.2
-127.1
-128.4
-120.9

165.1

165.1

-

102.6

-80.7
-11.3
113.8

Italy has changed its fiscal policies since the
generational accounts were constructed for 1990, and
therefore the estimates for Italy will not be displayed
in a table. The 1990 accounts, however, showed the
Italian generational imbalance to be two to three times
greater than the U.S. imbalance after OBRA93.
This result was primarily due to three factors. First,
Italy’s ratio of government debt to GDP was almost
twice that of the United States. Second, its transfer
payments were roughly twice as large as those in the
United States, relative to GDP, while its taxes were

Males

Females

83.2
104.8
130.8
163.8
194.7
210.2
209.3
200.9
180.3
142.6
91.1
29.3
-35.0
-87.6
-94.2
-90.3
-77.9
-68.9

177.1

44.1
54.8
67.3
82.5
96.9
101.5
96.9
87.8
69.1
39.7
2.4
-40.2
-86.3
-122.5
-124.6
-117.9
-100.5
-79.3
-11.3
99.6

144.7

45.8
56.5
68.9
84.3
100.1
106.5
103.8
96.7
80.1
52.1
15.2
-27.4
-74.4
-113.2
-118.0
-114.0
-98.2
-78.5
-11.3
79.7

79.3
100.3
126.0
158.7
189.5
204.9
203.9
195.2
174.4
137.1
87.0
27.5
-35.5
-87.0
-93.2
-89.4
-77.5
-68.9
- 11.6
165.6

42.2
52.5
64.6
79.6
95.0
101.0
97.9
90.2
73.0
45.1
9.4
-30.9
-76.3
-113.4
-116.9
-112.5
-97.4
-78.5
-11.3
88.2

126.0

126.0

73.9

73.9

108.8

108.8

78.4
99.3
124.8
157.2
187.7
203.0
201.6

192.4
170.9
132.5
81.0
19.5
-43.9
-94.1
-98.6
-92.9
-79.4
-69.4
-

11.6

-

11.6

Females

only one-quarter larger. Consequently, relative to GDP,
the current net tax payments of existing generations
were lower than in the United States. Third, Italy is
aging more rapidly. Given that annual net tax pay­
ments fall with age in both countries, an aging popu­
lation means that in future years the existing genera­
tions will make lower aggregate net tax payments. Fur­
thermore, government purchases were nearly as large
as in the United States. The combination of these fac­
tors produces a relatively large net tax to be paid by
future generations of Italians.

TABLE 3-7. U.S. AND NORWEGIAN GENERATIONAL ACCOUNTS
(In thousands of dollars)
United States

Norway

Generation’s age in 1992
Males

0 .....................................................................................
5 .................................................................................................................................
1 0 ................................................................................................................................
1 5 ................................................................................................................................
2 0 ................................................................................................................................
2 5 ................................... ............................................................................................
3 0 ................................................................................................................................
3 5 ................................................................................................................................
4 0 ................................................................................................................................
4 5 ................................................................................................................................
5 0 ................................................................................................................................
5 5 ................................................................................................................................
6 0 ................................................................................................................................
6 5 ................................................................................................................................
7 0 ................................................................................................................................
7 5 ................................................................................................................................
8 0 ................................................................................................................................
8 5 ................................................................................................................................
9 0 ................................................................................................................................
Future generations.....................................................................................................
Percentage difference in net tax payments: future generations and age zero..........




78.4
99.3
124.8
157.2
187.7
203.0
201.6
192.4
170.9
132.5
81.0
19.5
-43.9
-94.1
-98.6
-92.9
-79.4
-69.4
-11.6
177.1
126.0

Females

44.1
54.8
67.3
82.5
96.9
101.5
96.9
87.8
69.1
39.7
2.4
-40.2
-86.3
-122.5
-124.6
-117.9
-100.5
-79.3
-11.3
99.6
126.0

Males

104.7
127.6
154.6
186.1
214.5
237.9
241.0
225.6
198.8
157.5
105.4
46.6
-14.2
-57.8
-61.1
-68.3
-50.4
-36.0
-26.1
178.2
68.9

Females

47.7
52.6
57.4
63.6
66.1
67.3
62.0
59.7
54.1
35.1
6.8
-24.7
-60.3
-71.6
-71.1
-66.8
-54.0
-43.2
-34.8
81.2
68.9

29

3. GENERATIONAL ACCOUNTING

Norway's generational accounts are compared in table
3-7 with those of the United States after OBRA93.
Because of its large petroleum and hydroelectric wealth,
the Norwegian government has positive net wealth
equal to roughly 20 percent of GDP. Norway is aging
at about the same rate as the United States. Its govern­
ment purchases are almost 40 percent greater than in
the United States, relative to GDP, and its transfer
payments are about 60 percent greater. However, Nor­
wegian gross taxes are higher, and Norwegian net tax
payments relative to GDP are about 50 percent greater.

As a result, the Norwegian primary deficit—expendi­
tures, other than interest, less taxes—is smaller rel­
ative to GDP than in the United States.
The large government net wealth in Norway and the
lower primary deficit relative to GDP have led to a
smaller generational imbalance than in the United
States. Table 3-7 estimates the imbalance to be 69
percent in Norway, just over half the U.S. amount.
The absolute net tax payment by future generations
is similar in the two countries, but the higher net tax
payment by existing Norwegians produces a lower im­
balance.

TECHNICAL NOTE: CONSTRUCTION OF THE GENERATIONAL ACCOUNTS
The Present Value Constraint
Generational accounting is based on the present
value budget constraint of the government sector. In
simple terms, this constraint says that the government
must ultimately pay for its purchases of goods and serv­
ices with resources it obtains from current and future
generations or with its current assets (net of debt).
If current generations pay less in taxes (net of transfers
received) to finance government purchases, future gen­
erations will have to pay more.
This does not mean that the government ever has
to fully retire its debt at any point in time. What it
does require is that the government pay the interest
on its debt through the net taxation of existing or fu­
ture generations (or with its current assets). For exam­
ple, suppose that through borrowing the payments for
the government's bills were repeatedly shifted to future
generations by each successive current generation.
Then this debt would grow, with interest. Eventually
the interest on this debt would exceed the lifetime in­
come of futxire generations, which would result in de­
fault.
More precisely, the government's present value con­
straint says that, at any point in time, the present
value of the government's future purchases of goods
and services cannot exceed the sum of three items:
(1) the present value of future taxes to be paid (net
of transfers received) by existing generations (i.e., the
sum of their generational accounts multiplied by the
number of people in each generation), (2) the present
value of taxes to be paid (net of transfers received)
by future generations, and (3) the value of government
assets that yield income, less the government debt.
Generational accounting estimates the present value of
the government's purchases of goods and services and
the amounts (1) and (3). Amount (2), the present value
of taxes to be paid by all future generations (net of
transfers received), is calculated as the present value
of future government purchases minus amounts (1) and
(3).
The generational accounts for future generations are
derived from the aggregate amount (2). For the illustra­
tions in this chapter, different net tax payments (after
adjusting for economic growth) are not estimated for


150-003 0 -9 4 -2


(QL 3)

different futxire generations. Rather, the aggregate
present value net tax payment by future generations
is divided on an even basis among all future genera­
tions in such a way that the average net tax payment
by the members of each generation keeps pace with
the economy's growth in productivity. Thus, as shown
in tables 3-4 and 3-5, one single (growth adjusted)
average figure stands as the generational account for
all future generations of a given sex. Because the
generational account for future generations is cal­
culated indirectly from the above aggregates, it can only
be shown as a single number and cannot be divided
among specific taxes and transfers.
The lifetime net tax rate of future generations is
the ratio of the present value of total net tax payments
by future generations to the present value of total labor
income earned by future generations. This calculation
is made under the assumption that labor income in­
creases at the same rate as the economy's growth in
productivity.
The Underlying Calculations
The calculation of the generational accounts is a
three-step process. The first step entails projecting each
currently living generation's average taxes and trans­
fers to each future year in which at least some member
of the generation will be alive. The second step converts
these projected average taxes and transfers into an ac­
tuarial present value, using assumptions for the dis­
count rate and the probability that the generation's
members will be alive in each future year. The sum
of these present values, with transfers subtracted from
taxes, is the generational account or “net tax payment”
for existing generations shown in the first column of
tables 3-4 and 3-5. The third step is to estimate the
other terms of the present value constraint explained
in the previous section so as to derive the average
net tax payment by future generations. The calculations
are based on projections to 2200.
Projection o f taxes and transfers.—The projection
of average futxire taxes and transfers begins with the
national totals of all Federal, State, and local taxes
and transfers as reported by the national income and
product accoxints (NIPAs) for calendar year 1992. (All

30
years in this chapter are calendar years unless other­
wise stated.) The relationship of the NIPA data to the
Federal budget is described in Chapter 19 of this vol­
ume. Employee retirement and veterans benefits paid
by government are considered a form of employee com­
pensation and classified as the purchase of a service
rather than a transfer payment.
The base year NIPA totals are distributed to all exist­
ing generations, as defined by age and sex, based on
the corresponding distributions in cross-section survey
data. These surveys include the Survey of Income and
Program Participation by the Bureau of the Census,
the Survey of Consumer Expenditures by the Bureau
of Labor Statistics, the Survey of Consumer Expendi­
tures by the Federal Reserve, and the Current Popu­
lation Survey by the Bureau of the Census. Those taxes
not directly paid by persons and so not appearing in
these surveys, such as the corporation income tax, are
allocated. Since generational accounting attributes
taxes and transfers to individuals, household taxes and
transfers are attributed to the individuals in the house­
hold. No special imputations are made to children, but
the cross-section surveys impute some consumption to
children and the taxes on that consumption would be
attributed to the children. The attribution rules affect
the values of the baseline accounts but are not likely
to alter the generational implications of policy changes.
The distribution of average taxes and transfers by
age and sex in the future is adjusted for growth and
projected policy. In the case of Federal taxes and trans­
fers for 1993-2004, the projected aggregate amounts
are the estimates of outlays and receipts in the MidSession Review of the 1994 Budget (September 1993),
extended beyond 1998 and updated for the actual fiscal
year 1993 results. (Adjustments were made to remove
the effects of OBRA93 for the base case.) These
amounts are distributed by age and sex according to
the age-sex relative profiles for these transfers and re­
ceipts based on the cross-section surveys cited above.
In the case of State and local taxes and transfers for
1993-2004 (other than medicaid transfers), the aggre­
gate amounts are based on the GDP projections in the
Mid-Session Review and the assumption that the ratios
of State and local tax and transfer aggregates to GDP
remain constant at the 1992 levels. After 2004 the aver­
age Federal, State, and local taxes (except the social
security payroll tax) and transfer payments (except so­
cial security, medicare, and medicaid) by age and sex
are projected to increase at the assumed rate of produc­
tivity growth. Productivity (both labor and multi-factor
productivity) is assumed to increase at 0.75 percent
a year, which is close to the average annual rate of
labor productivity growth since 1970.
Social security transfer payments and payroll tax re­
ceipts after 2004 are based on special calculations made
by the Social Security Administration assuming a pro­
ductivity growth rate of 0.75 percent. These calculations
otherwise follow the social security intermediate alter­
native II assumptions. Except under the health care
reform scenario, medicaid transfers from 1993 through




ANALYTICAL PERSPECTIVES

2030 and medicare transfers from 2005 through 2030
are projected using the medicaid and medicare growth
rates in the Health Care Financing Administration mid­
dle scenario estimates published in 1991.8 After 2030,
health care transfers are assumed to stabilize as a per­
centage of GDP apart from the effect of changes in
the composition of the population by age and sex.
The effects of health care reform on taxes and trans­
fers were projected through 2000 using Administration
estimates. Since estimates were not available after
2000, rough projections were made for subsequent
years. Health care reform spending was increased by
a one-time level adjustment in 2001 to take account
of a scheduled expansion in the standard benefit pack­
age. After 2001, it was assumed to grow at the same
rate as productivity apart from changes in the composi­
tion of the population by age and sex. Medicare and
medicaid transfers after 2000 are not directly limited
by the health care reform plan but were also projected
to grow at the same rate as productivity apart from
changes in the composition of the population by age
and sex.
Assumptions for present value.—The appropriate
discount rate for calculating the present value of future
amounts depends on whether or not these amounts are
known with certainty. Future government receipts and
expenditures are risky, which suggests that they be
discounted by a rate higher than the real rate of inter­
est on government securities. On the other hand, gov­
ernment receipts and expenditures appear to be less
volatile than the real return on capital, which suggests
that they be discounted by a lower rate than that.
The calculations assume a 6 percent real discount rate,
which is intermediate between the average real return
available in recent years on short-term Treasury securi­
ties and the real return available in recent years on
capital.
The present values of future average taxes and trans­
fers are also discounted for mortality probabilities in
order to derive actuarial present values. The demo­
graphic probabilities through 2066 are those embedded
in the social security trustees’ intermediate projection
in 1992 (alternative II) of the population by age and
sex. The fertility, mortality, and immigration prob­
abilities in 2066 were used for later years. Immigration
is treated as equivalent to a change in mortality.
Other projections.—Federal purchases of goods and
services through 2004, like Federal taxes and transfers,
are from the latest Mid-Session Review extended be­
yond 1998 and updated for the actual fiscal year 1993
results. State and local purchases through 2004 are
kept at the same ratio to GDP as in 1992. Federal,
State, and local purchases after 2004 were divided be­
tween (1) those made on behalf of specific age groups—
the young, middle aged, and elderly—such as edu­
cational expenditures; and (2) those that are more near­
p ^ 3 Il?f8CenaIL0 18
in ^
Sonnefeld and 0ther8’ "Projections of National Health
Expenditures through the Year 2000,” Health Care Financing Review (vol. 13, Fall 1991).

3. GENERATIONAL ACCOUNTING

ly pure public goods, such as defense and public safety.
Purchases per person in each of the three age groups,
and purchases of public goods per capita, all increase
at the assumed rate of productivity growth.
The economic value of the government’s assets that
yield income, less the government debt, was estimated
to be the cumulative amount of the NIPA deficit since
1900 converted to constant dollars by the GDP deflator.
No account was taken of the government’s land and
mineral rights.
The average growth-adjusted net tax payment to be
made by future generations was determined using the
aggregate present value of the net tax payment (as
derived through the present value budget constraint),
the assumed productivity growth, and the projected size
of future generations. The size of future generations
was estimated using the social security alternative II
projection through 2066 and the demographic assump­
tions for 2066 applied to later years.
Historical lifetime net tax rates.—Lifetime net tax
rates for generations bom between 1900 and 1992 were
calculated by dividing the generational account of each
generation at birth by its human wealth—the present
value at birth of its future labor earnings. The calcula­
tion of a generation’s human wealth requires knowing
its average labor earnings in each future year. The
average labor earnings received by particular genera­
tions in particular years was determined by distributing
aggregate labor income by age and sex using crosssection distributions of labor income found in crosssection survey data. The lifetime generational accounts
for generations bom between 1900 and 1992 are based
on actual taxes and transfers from 1900 through 1992
and projected taxes and transfers in years after 1992.
Aggregate labor earnings, taxes, and transfers were
obtained from the national income and product accounts
for 1929 and later years. Pre-1929 aggregate labor earn­
ings were from series in Historical Statistics of the
United States, Colonial Times to 1970. Pre-1929 taxes




31
and transfers were from the 1982 Census of Govern­
ments, Historical Statistics on Government Finances
and Employment. Various cross-section surveys were
used to distribute aggregate labor earnings, taxes, and
transfers by age and sex. Cross-section surveys prior
to the early 1960s were not available for this study,
so surveys from years after 1960 were used for earlier
years. The Current Population Surveys were used to
distribute aggregate labor earnings and taxes on labor
earnings in 1964 and later years, and the 1964 survey
was used for earlier years.
Differences in projections from January 1993
Budget Baselines.—The imbalance in the lifetime net
tax rate between future generations and the genera­
tions bom in 1992 is estimated to be 165 percent in
the baseline before taking account of OBRA93 and
health care reform. This is much higher than the 111
percent imbalance estimated a year ago between future
generations and the generations bom in 1991. Half of
this difference is due to incorporating the Health Care
Financing Administration’s projection of medicaid
transfers through 2004 instead of assuming that these
transfers remained constant relative to GDP at the last
actual ratio. If last year’s method had been used this
year, the reported imbalance this year would have been
145 percent. Part of the increase from 111 percent to
145 percent is because one more generation, those bom
in 1992, does not make the higher lifetime net tax
payments required of future generations. As a result,
the generations bom after 1992 have still larger bills
to pay. This effect accounts for about 8 percentage
points of the increase. Of the remaining increase, a
little less than half reflects the use of actual 1992 ag­
gregate taxes, transfers, and purchases instead of pro­
jections; and the rest is due to improvements in the
cross-section profiles used to distribute taxes and trans­
fers by age and sex and to interactions among the var­
ious factors.




FEDERAL RECEIPTS AND COLLECTIONS







4. FEDERAL RECEIPTS
Receipts (budget and off-budget) are taxes and other
collections from the public that result from the exercise
of the Government’s sovereign or governmental powers.
The difference between receipts and outlays determines
the surplus or deficit.
Growth in receipts.—Total receipts in 1995 are esti­
mated to be $1,353.8 billion, an increase of $104.7 bil­
lion or 8.4 percent relative to 1994. This increase is
largely due to assumed increases in incomes resulting
from both real economic growth and inflation. However,
it is also attributable, in part, to enactment of the Om­

TABLE 4-1.

nibus Budget Reconciliation Act of 1993 (OBRA93),
which is estimated to increase 1995 receipts $21.0 bil­
lion relative to 1994, and the effect of the Health Care
Security Act and other Administration proposals, which
are estimated to increase 1995 receipts by a net $12.2
billion. Receipts are projected to grow at an average
annual rate of 5.4 percent between 1995 and 1999,
to $1,672.9 billion.
As a share of GDP, receipts are projected to rise
from 18.8 percent in 1994 to 19.3 percent in 1995, and
to decline slightly to 19.1 percent in 1999.

RECEIPTS BY SOURCE-SUMMARY
(In billions of dollars)

Source

Estimate

1993 actual
1994

1995

1996

1997

1998

1999

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

509.7
117.5
428.3
(116.4)
(311.9)
48.1
12.6
18.8
18.6

549.9
130.7
461.9
(125.7)
(336.2)
54.6
12.7
19.2
20.0

595.0
140.4
490.4
(135.2)
(355.2)
71.9
13.9
20.9
21.3

627.7
145.8
518.3
(143.6)
(374.7)
71.7
15.0
21.3
27.6

664.1
149.8
548.5
(151.0)
(397.5)
72.7
16.1
22.2
31.6

701.6
152.5
580.0
(158.6)
(421.4)
73.6
17.3
23.1
38.7

745.1
157.2
610.2
(165.0)
(445.1)
74.9
18.5
24.0
43.1

Total receipts.........................................................................
(On-budget).........................................................................
(Off-budget).........................................................................

1,153.5
(841.6)
(311.9)

1,249.1
(912.9)
(336.2)

1,353.8
(1 98.6)
9
(355.2)

1,427.3
(1,052.6)
(374.7)

1,505.1
(1,107.6)
(397.5)

1,586.9
(1,165.5)
(421.4)

1,672.9
(1,227.8)
(445.1)

TABLE 4-2. CHANGES IN RECEIPTS
(In billions of dollars)
Estimate
1994

1995

1996

1997

1998

1999

Receipts under tax rates and structure in effect January 1 ,19931 ..................................................
Enacted legislative changes:
Omnibus Budget Reconciliation Act of 19932 .................................................................................
North America Free Trade Agreement Implementation Act2 ..........................................................
Social security (OASDI) taxable earnings base increases:
$57,600 to $60,600 on Jan. 1,1994 .......................................................................................
$60,600 to $62,100 on Jan. 1,1995 .......................................................................................
$62,100 to $63,900 on Jan. 1,1996 .......................................................................................
$63,900 to $66,600 on Jan. 1,1997 .......................................................................................
$66,600 to $69,300 on Jan. 1,1998 .......................................................................................
$69,300 to $72,300 on Jan. 1,1999 .......................................................................................
Proposals2 ..............................................................................................................................................

1,224.0

1,292.8

1,352.4

1,405.2

1,478.7

1,555.5

24.3
-0.1

45.3
-0.1

52.5
-0.2

65.9
-0.1

58.3
1.2

57.9
-1.6

1.0

3.1
0.5

3.4
1.5
0.7

3.9
1.8
2.0
1.0

4.4
2.0
2.2
3.1
1.1

-0.1

12.2

16.9

25.5

35.9

5.0
2.2
2.5
3.4
3.1
1.2
43.7

Total, receipts under existing and proposed legislation...........................................................

1,249.1

1,353.8

1,427.3

1,505.1

1,586.9

1,672.9

1 These

estimates assume social security and medicare taxalbe earnings bases of $57,600 and $135,000, respectively, through 1999.
2 Net of income offsets.




35

36

ANALYTICAL PERSPECTIVES

ENACTED LEGISLATION
The Omnibus Budget Reconciliation A ct o f
1993.—This Act, which achieved the largest deficit re­
duction in our Nation’s history, was signed by President
Clinton on August 10, 1993. By providing substantial,
fair, and balanced deficit reduction, it represented a
vital first step toward economic renewal and growth
in jobs and higher living standards for families today
and in the future. Roughly half of the deficit reduction
provided in the Act came from tax increases; 80 percent
of these increases from households making over
$200,000—the top 1.3 percent of the population. Almost
twenty million low-income working families are receiv­
ing a tax cut, while only the 1.4 million most welloff American households are paying higher income
taxes. The major revenue provisions of the Act are de­
scribed below.
Stimulus/Investment
Provide capital gains exclusion for certain small busi­
ness stock.—A noncorporate taxpayer who holds quali­
fied small business stock for more than 5 years is al­
lowed to exclude 50 percent of any gain on the sale
or exchange of the stock. The amount of gain eligible
for the 50 percent exclusion is limited to the greater
of 10 times the taxpayer’s basis in the stock or $10
million in gain from the sale of stock in that corpora­
tion. This exclusion applies to stock issued after August
10, 1993.
Modify minimum tax depreciation rules.—A corporate
taxpayer is subject to an alternative minimum tax of
20 percent on minimum taxable income in excess of
an exemption amount. Alternative minimum taxable in­
come is the taxpayer’s taxable income increased by cer­
tain tax preferences and adjustments. Effective for
property placed in service after December 31, 1993, de­
preciation is no longer an adjustment to taxable income
in determining alternative minimum taxable income.
Increase expensing deduction for small business.—Ef­
fective for property placed in service in taxable years
beginning after December 31, 1992, the amount a tax­
payer is allowed to expense under section 179 is in­
creased from $10,000 to $17,500.
Expand and simplify earned income tax credit
(EITC).—For eligible taxpayers with one qualifying
child, the EITC is increased to 26.3 percent of the first
$7,750 of earned income in 1994, for a maximum credit
of $2,038. The credit is reduced by 15.98 percent of
earned income (or adjusted gross income, if greater)
in excess of $11,000. For 1995 and thereafter, the credit
rate increases to 34 percent; the phase-out rate remains
at 15.98 percent. For taxpayers with two or more quali­
fying children, the EITC is 30 percent of the first
$8,425 of earned income in 1994, for a maximum credit
of $2,527. The credit is reduced by 17.68 percent of
earned income (or adjusted gross income, if greater)
in excess of $11,000. The credit rate increases to 36
percent for 1995 and to 40 percent for 1996 and subse­
quent years. The phase-out rate increases to 20.22 per­




cent for 1995 and to 21.06 percent for 1996 and subse­
quent years. The EITC is extended to low-income work­
ers who do not have any qualifying children if they
are between the ages of 25 and 65 and cannot be
claimed as a dependent on another taxpayer’s return.
For these taxpayers, the EITC is 7.65 percent of the
first $4,000 of earned income in 1994, for a maximum
credit of $306. The maximum credit is reduced by 7.65
percent of earned income above $5,000. Beginning in
1995, all maximum income levels on which the EITC
may be claimed and all income thresholds for the
phaseout of the EITC are indexed for inflation. The
supplemental young child credit and the supplemental
health insurance credit of prior law are repealed.
Modify passive loss rules for certain real estate per­
sons.—Effective with respect to taxable years beginning
after December 31, 1993, the rental real estate income
and losses of a taxpayer who materially participates
in rental real estate activities is no longer subject to
the passive loss rules that limit deductions and credits
from passive trade or business activities.
Increase recovery period for depreciation of nonresidential real property.—Effective with respect to prop­
erty placed in service on or after May 13, 1993, the
period over which a taxpayer may recover the cost or
other basis of the property through depreciation is in­
creased from 31.5 to 39 years. The provision does not
apply to property placed in service before January 1,
1994 if a binding contract to purchase or construct the
property had been entered into prior to May 13th or
if construction had commenced prior to that date.
Provide tax benefits for empowerment zones and enter­
prise communities.—Certain tax benefits will be pro­
vided for nine empowerment zones and 95 enterprise
communities designated during 1994 and 1995. Six
empowerment zones and 65 enterprise communities will
be located in eligible urban areas and three empower­
ment zones and 30 enterprise communities will be lo­
cated in rural areas. The tax incentives will be avail­
able during the period that the designation remains
in effect, which generally will be 10 years.
Extend eocclusion for employer-provided educational
assistance.—The exclusion for certain amounts paid by
an employer for educational assistance provided to an
employee, which had expired with respect to amounts
paid after June 30, 1992, is extended retroactively from
July 1, 1992 through December 31, 1994.
Extend targeted jobs tax credit.—The targeted jobs
tax credit, which was available to employers who hire
individuals from several targeted groups, had expired
with respect to individuals hired after June 30, 1992.
This credit is extended retroactively from July 1, 1992
through December 31, 1994.
Extend research and experimentation (R&E) tax cred­
it.—The 20 percent tax credit provided for certain re­
search and experimentation expenditures, which had
expired with respect to expenditures made after June

4. FEDERAL RECEIPTS

30, 1992, is extended retroactively from July 1, 1992
through June 30, 1995.
Modify research and experimentation (R&E) alloca­
tion rules.—Under prior law, companies with foreign
operations were allowed to allocate 64 percent of domes­
tic R&E expenditures to their domestic operations and
64 percent of foreign R&E expenditures to their foreign
operations. The remaining expenses were to be allo­
cated on the basis of gross sales or gross income. Effec­
tive for the first taxable year beginning on or before
August 1, 1994 that follows the last taxable year to
which the prior law rules applied, the allowable per­
centages are reduced to 50 percent.
Extend tax exemption for small issue manufacturing
bonds.—Prior to July 1, 1992, interest on certain small
issues of private activity bonds was exempt from tax
if at least 95 percent of the bond proceeds was used
to finance manufacturing facilities or certain land or
property for first-time farmers. The authority to issue
these bonds is permanently extended, with special
placed-in-service rules for the period July 1, 1992
through December 31, 1993.
Extend tax credit for orphan drug clinical testing ex­
penses.—Under prior law, a 50 percent nonrefundable
tax credit was allowed for a taxpayer’s qualified clinical
testing expenses paid or incurred in the testing of cer­
tain drugs, generally referred to as orphan drugs, for
rare diseases or conditions. This credit, which expired
with respect to expenses incurred after June 30, 1992,
is extended for 30 months, from July 1, 1992 through
December 31, 1994.
Extend tax exemption for qualified mortgage bonds.—
The proceeds of qualified mortgage bonds are used to
finance the purchase, rehabilitation or improvement of
single-family, owner-occupied residences located within
the jurisdiction of the issuer of the bonds. Qualified
governmental units may elect to exchange qualified
mortgage bond authority for authority to issue mort­
gage credit certificates. These certificates entitle homebuyers to nonrefundable income tax credits for a speci­
fied percentage of interest paid on mortgage loans on
their principal residence. This exemption, which had
expired with respect to bonds issued after June 30,
1992, is permanently extended retroactive to July 1,
1992.
Extend low-income housing tax credit.—A tax credit
is allowed in annual installments over ten years for
qualifying newly constructed or substantially rehabili­
tated low-income rental housing. This credit is perma­
nently extended effective with respect to expenditures
incurred on or after July 1, 1992. Under prior law,
the credit had expired with respect to expenditures in­
curred after June 30, 1992.
Extend tax deduction for health insurance costs of
self-employed individuals.—Up to 25 percent of the
amount paid by a self-employed individual for health
insurance expenses incurred before July 1, 1992 was
deductible under prior law. This deduction is extended
for 18 months and applies to expenditures incurred on
or after July 1, 1992 through December 31, 1993.




37
Extend minimum tax exception for gifts of appreciated
tangible property.—Charitable contributions of tangible
personal property, such as art-work, are not treated
as a minimum tax preference item for purposes of com­
puting alternative minimum taxable income. This provi­
sion, which had expired with respect to gifts made after
June 30, 1992, is permanently extended retroactive to
July 1, 1992 for tangible property and to January 1,
1993 for all property.
Repeal luxury tax on yachts, aircraft, jewelry and
furs.—Effective for sales after January 1, 1993, the 10
percent excise tax on the retail price of yachts and
boats in excess of $100,000, and on the retail price
of jewelry and furs above $10,000 is repealed. In addi­
tion, effective for sales on or after the date of enact­
ment, the $30,000 threshold for the luxury excise tax
on automobiles is indexed annually for inflation.

Revenue Raisers—Individual Income Tax
Provisions
Increase top rates for high income individuals.—Effec­
tive for taxable years beginning after December 31,
1992, the top individual income tax rate for individuals
and estates and trusts is increased from 31 to 36 per­
cent. In addition, a 10 percent surtax is levied on indi­
viduals with taxable income in excess of $250,000 and
on estates and trusts with taxable income in excess
of $7,500.
Modify alternative minimum tax for individuals.—
The tax rate on alternative minimum taxable income
in excess of the exemption amount, which had been
24 percent, is replaced with a two-tiered graduated rate
schedule of 26 and 28 percent. The exemption amount
is increased to $45,000 for married individuals filing
joint returns, to $33,750 for unmarried individuals, and
to $22,500 for married individuals filing separate re­
turns and estates and trusts. These changes are effec­
tive for taxable years beginning after December 31,
1992.
Extend limitation on itemized deductions and phase­
out of personal exemptions.—The limitation on itemized
deductions and the phaseout of personal exemptions,
which were scheduled to expire after December 31,
1995 and December 31, 1996, respectively, are perma­
nently extended.
Increase taxable portion of social security benefits.—
Under prior law, a portion of a taxpayer’s social secu­
rity or railroad retirement tier 1 benefits was included
in gross income if the taxpayer’s provisional income
exceeded $25,000 for a single return and $32,000 for
a married couple filing a joint return. The amount in­
cluded in gross income was the lesser of: (1) 50 percent
of the taxpayer’s social security or railroad retirement
tier 1 benefit, or (2) 50 percent of the excess of the
taxpayer’s provisional income over the applicable
threshold amount. Effective for taxable years beginning
after December 31, 1993, the threshold amounts are
increased to $34,000 for a single return and $44,000
for a married couple filing a joint return. In addition,
the amount included in gross income is the lesser of

38
85 percent of the taxpayer's social security or railroad
retirement tier 1 benefit, or 85 percent of the excess
of the taxpayer's provisional income over the applicable
threshold amount.
Repeal medicare health insurance (HI) wage base
cap.—Effective for wages and self-employment income
earned after December 31, 1993, the dollar limit on
income subject to HI taxes is repealed.
Reinstate top estate and gift tax rates.—Effective for
decedents dying, gifts made, and generation skipping
transfers occurring after December 31, 1992, the top
marginal tax rates of 53 percent (applicable to taxable
transfers greater than $2.5 million and less than or
equal to $3.0 million) and 55 percent (applicable to
taxable transfers over $3.0 million) are reinstated.
Reduce deductible portion of business meals and en­
tertainment expenses.—The deductible portion of other­
wise allowable business meals and entertainment ex­
penses is reduced from 80 percent to 50 percent effec­
tive for taxable years beginning after December 31,
1993. The Administration will monitor and consider
ways to ease the impact of this change.
Modify deduction for moving expenses.—Deductions
from gross income for certain costs associated with mov­
ing to a new residence in connection with one's employ­
ment are no longer allowed effective for such costs in­
curred after December 31, 1993. Expenses no longer
deductible include: the costs of pre-move house hunting
trips and temporary living expenses, expenses associ­
ated with selling the old residence and purchasing the
new residence, and the cost of meals consumed while
traveling to the new location. Also, in order to claim
a moving expense deduction, the taxpayer's new prin­
cipal place of work must be at least 50 miles farther
from the taxpayer's former residence than was the tax­
payer's former principal place of work.
Reduce pension compensation cap.—The limit on com­
pensation taken into account under a tax-qualified pen­
sion plan is reduced to $150,000, effective for benefits
accruing in plan years beginning after December 31,
1993.

Revenue Raisers—Business Provisions
Increase corporate tax rate.—Effective for taxable
years beginning on or after January 1, 1993, a new
top marginal tax rate of 35 percent is levied on cor­
porate taxable income in excess of $10 million. The
35 percent rate also applies to net corporate capital
gains. A corporation with taxable income in excess of
$15 million is required to increase its tax liability by
the lesser of three percent of the excess or $100,000;
this recaptures the benefit of the 34 percent rate on
income less than or equal to $10 million.
Modify corporate estimated income tax rules.—To
avoid a penalty for underpayment of estimated tax, a
corporation must base its estimated tax payments on
100 percent of the tax shown on its return for the
current year. The 100 percent of last year's liability
safe-harbor provided to large and small corporations
under prior law remains in effect. This change is effec­




ANALYTICAL PERSPECTIVES

tive for taxable years beginning after December 31,
1993.
Cap possessions tax credit.—Under prior law, certain
domestic corporations with business operations in the
U.S. possessions were allowed to elect the use of a
tax credit that generally eliminated U.S. tax on certain
income related to their operations in the possessions.
Effective for taxable years beginning after December
31, 1993, the credit allowed to a possession corporation
against U.S. tax on its active business income (income
derived from the active conduct of a possession-based
business, or from the sale of assets used in such a
business) is determined as under prior law, but is sub­
ject to either of two alternative limitations. One alter­
native limitation is based on factors that reflect the
corporation's economic activity in the possessions (the
economic activity limitation) and the other limitation
is based on a statutorily defined percentage of the cred­
it that would be allowable under prior-law rules (the
percentage limitation).
Require securities dealers to mark to market.—This
provision conforms the accounting and tax treatment
of securities inventories by generally requiring that se­
curities be included in inventory at their market value
effective for taxable years ending on or after December
31, 1993. The income attributable to this change is
included in income ratably over 5 years.
Revise foreign tax credit for oil and gas and shipping
income.—Prior law provided more favorable foreign tax
credit treatment for income associated with foreign oil
and gas or shipping activities than for income earned
abroad by other United States industries. Effective with
respect to income earned in taxable years beginning
after December 31, 1992, certain passive income related
to oil and gas and shipping operations is placed in
the passive category for foreign tax credit limitation
purposes. In addition, passive income related to foreign
oil and gas extraction is excluded from the computation
of the foreign oil and gas extraction income foreign
tax credit limitations.
Improve transfer pricing compliance.—Under prior
law, a “substantial'' valuation misstatement (the net
transfer pricing adjustment exceeds $10 million but is
less than $20 million), could result in a penalty of 20
percent of the understatement of tax. The penalty for
a “gross” valuation misstatement (the net transfer pric­
ing adjustment is greater than or equal to $20 million)
was 40 percent. However, a net increase in taxable
income attributable to a price redetermination was dis­
regarded, if it could be shown that there was a reason­
able cause for the taxpayer's determination of the price,
and that the taxpayer acted in good faith with respect
to the price. Effective for taxable years beginning after
December 31, 1993, the threshold for a “substantial”
misstatement is lowered to the lesser of $5 million or
10 percent of gross receipts and the threshold for a
“gross” misstatement is the lesser of $20 million or
20 percent of gross receipts. In addition, penalties will
no longer be excused for reasonable cause and good
faith unless certain statutory requirements are met.

4. FEDERAL RECEIPTS

Revenue Raisers—Excise Taxes
Increase transportation fuels tax.—Effective October
1, 1993, an additional tax of 4.3 cents per gallon is
imposed on all transportation fuels. Taxable fuels in­
clude motor fuels used for highway transportation or
in motorboats, gasoline used in aviation and in offhighway non-business uses, diesel fuel used in trains,
and fuels used in inland waterways transportation. In­
creased revenues from this tax are retained in the Gen­
eral Fund of the Treasury.
Extend current 2.5 cents per gallon motor fuels tax.—
Under prior law, a temporary 2.5 cents per gallon tax
was levied on gasoline, special motor fuels, and diesel
fuels used for highway transportation, in motor boats,
and in trains. Revenues from this tax, which was sched­
uled to expire after September 30, 1995, were deposited
in the General Fund of the Treasury. This tax is ex­
tended from October 1, 1995 through September 30,
1999. Revenues are to be transferred to the Highway
Trust Fund; however, revenues from the tax on diesel
fuel used in trains, which is reduced to 1.25 cents per
gallon, are to be retained in the General Fund of the
Treasury.

Revenue Raisers—Other
Extend Federal Unemployment Act (FUTA) surtax.—
The temporary unemployment surtax of 0.2 percent im­
posed on employers, which was scheduled to expire with
respect to wages paid after December 31, 1996, is ex­
tended through December 31, 1998.




39
North America Free Trade Agreement (NAFTA)
Implementation A c t —This Act approves the agree­
ment entered into by the United States, Canada and
Mexico on December 17, 1992. It eliminates tariffs and
other restrictions on trade among the three nations over
a 15 year phase-in period. Although NAFTA will gen­
erate net economic and revenue gains through its effect
on the economy, technical requirements of the Budget
Enforcement Act require that the revenue losses from
the tariff tax reduction be offset. The provisions of the
Act that affect governmental receipts are as follows:
Reduce tariff rates.—Tariffs on trade among the Unit­
ed States, Canada and Mexico will be eliminated. About
half of the tariffs disappeared on January 1, 1994; most
of the rest will be phased-out over 10 years, though
in some sectors—notably agriculture—tariffs will be
phased-out over 15 years.
Implement a new electronic Federal tax deposit sys­
tem.—A new electronic fund transfer system will be
established for the collection of depository taxes. The
system shall be designed to ensure that taxes are cred­
ited to the Treasury on the date such taxes are depos­
ited to the Federal tax deposit system.
Disclose certain tax information to the United States
Customs Service.—The Secretary of the Treasury is pro­
vided with authority to disclose certain tax information
that will assist the Customs Service in conducting au­
dits and in recovering taxes, duties or fees determined
to be due as a result of such audits.

40

ANALYTICAL PERSPECTIVES

TABLE 4-3. EFFECT OF MAJOR LEGISLATION ENACTED IN 1993 ON RECEIPTS
(In biHions of dollars)
Estimate
1994

1995

1996

1997

1998

1999

Omnibus Budget Reconciliation Act of 1993
Individual income taxes.............................................................................................................................
Corporation income taxes.........................................................................................................................
Social insurance taxes and contributions..................................................................................................
Excise taxes..............................................................................................................................................
Estate and gift taxes.................................................................................................................................
Customs duties..........................................................................................................................................
Miscellaneous receipts..............................................................................................................................

9.8
6.8
2.0
6.0
0.5
-0.9

Total, Omnibus Budget Reconciliation Act of 19931 .......................................................................

24.3

45.3

Individual income taxes.............................................................................................................................
Corporation income taxes.........................................................................................................................
Social insurance taxes and contributions..................................................................................................
Excise taxes..............................................................................................................................................
Customs duties..........................................................................................................................................

*
0.1
*
*
-0.3

Total, North America Free Trade Agreement Implementation Act1 .................................................

24.5
7.6
6.6
6.1
0.5

26.1
8.9
7.1
9.8
0.6

32.1
14.2
8.8
10.0
0.6

26.0
11.9
9.8
9.9
0.6

0.1

0.1

52.5

65.9

58.3

57.9

0.2
0.2
0.1
0.1
-0.6

0.2
0.2
0.2
*
-0.8

0.2
0.2
0.2
0.1
-0.9

1.0
0.2
0.9
*
-1.0

-0.5
0.3
-0.5
0.2
-1.1

-0.1

-0.1

-0.2

-0.1

1.2

-1.6

Total effect on receipts by source:
Individual income taxes....................................................................................................................
Corporation income taxes................................................................................................................
Social insurance taxes and contributions.........................................................................................
Excise taxes .....................................................................................................................................
Estate and gift taxes........................................................................................................................
Customs duties.................................................................................................................................
Miscellaneous receipts.....................................................................................................................

9.9
6.9
2.1
6.0
0.5
-1.2

24.6
7.8
6.7
6.2
0.5
-0.6

26.3
9.1
7.3
9.9
0.6
-0.8

32.3
14.5
9.0
10.1
0.6
-0.9
0.1

27.0
12.2
10.7
9.9
0.6
-1.0
0.1

26.9
11.0
8.8
10.1
0.7
-1.1

Total effect on receipts 1 ..........................................................................................................

24.1

45.2

52.4

65.7

59.5

56.3

27.3
10.7
9.2
9.9
0.7

North America Free Trade Agreement Implementation Act

ADDENDUM

*$50 million or less.
1 Net of income offsets.

ADMINISTRATION PROPOSALS
Health Security Act.—The Administration’s Health
Security Act, which was transmitted to Congress on
November 20, 1993, would provide insurance to all legal
residents of the United States for expenses resulting
from a wide range of medical services. A detailed dis­
cussion of this Act is presented in Chapter 4 of the
1995 budget. The major provisions of the Act that affect
governmental receipts include the following:
Increase tax on tobacco products.—Effective October
1, 1994, the excise tax on cigarettes would be increased
by $.75 per pack to $.99 per pack. Comparable increases
in Federal excise taxes on other tobacco products are
also proposed.
Levy assessment on corporate alliance employers.—
A one-percent annual assessment would be levied on
the total payroll of firms that provide health insurance
through corporate alliances. The assessment generally
would be effective January 1, 1996.
Increase deduction for health insurance costs of selfemployed individuals.—The health insurance deduction
for self-employed individuals would be increased to 100
percent of premiums paid to a health alliance for the
comprehensive benefit package. The current 25 percent
health insurance deduction for self-employed taxpayers




would remain in effect until the taxpayer’s State of
residence establishes a regional alliance.
Limit exclusion of employer-provided health cov­
erage.—Effective January 1, 1997, contributions for
health benefits made through cafeteria plans would no
longer be excluded from an employee’s taxable income.
In addition, effective January 1, 2004, employer-paid
premiums for supplemental health coverage (coverage
for benefits in excess of the basic comprehensive benefit
package) would be taxable to the employee for income
and employment tax purposes.
Provide deduction for qualified long-term care serv­
ices.—Effective for taxable years beginning after De­
cember 31, 1995, expenses incurred by certain incapaci­
tated individuals for qualified long-term care services
would be deductible as a medical expense (subject to
the current law 7.5 percent of adjusted gross income
floor).
Modify tax treatment of qualified long-term care in­
surance premiums and benefits.—Effective for policies
issued after December 31, 1995, premiums for qualified
long-term care insurance would be deductible as a med­
ical expense (subject to the current law 7.5 percent
of adjusted gross income floor). Effective on that date,

4. FEDERAL RECEIPTS

taxpayers would also be able to exclude from taxable
income up to $150 per day in benefits paid under a
long-term care policy, provided the qualified policy did
not provide benefits in excess of $150 per day. Tax­
payers participating in plans providing more than $150
per day in benefits would not be eligible for the exclu­
sion. The $150 cap would be adjusted annually for infla­
tion. In addition, employers would be able to deduct
the cost of premiums paid for qualified long-term care
coverage, and employees would be able to exclude the
value of coverage from taxable income.
Modify tax treatment of accelerated death benefits.—
Distributions under a life insurance contract on the
life of an insured individual who is terminally ill and
expected to die within 12 months would be treated as
an amount paid by reason of death and would be ex­
cluded from taxable income with respect to such dis­
tributions made in taxable years beginning after De­
cember 31, 1993.
Provide tax credit for the cost of personal assistance
services required by employed individuals.—Impaired
taxpayers with earned income would be allowed to
claim a non-refundable tax credit for 50 percent of cer­
tain impairment-related personal assistance services ex­
penses, up to a maximum of $15,000 in expenses, effec­
tive for expenses incurred in taxable years beginning
after December 31, 1995. Specifically, the maximum
allowable annual tax credit would be the lesser of 50
percent of the taxpayer’s earned income or $7,500. The
credit would be gradually phased-out for taxpayers with
adjusted gross income between $50,000 and $70,000.
Provide tax credit for primary health services provid­
ers in health professional shortage areas.—Effective for
taxable years beginning after December 31, 1994, physi­
cians who receive the required certification and com­
mence work full-time in an area that is designated
as being short of health professionals would be eligible
to receive a non-refundable tax credit of $1,000 per
month for up to 60 months. Certified nurse midwives,
nurse practitioners, and physician assistants who work
in health professional shortage areas would receive a
non-refundable tax credit of $500 per month for up
to 60 months.
Increase expensing limit for medical equipment in
health professional shortage areas.—The expensing
limit for medical equipment used by physicians who
work full-time in a designated area and placed in serv­
ice after December 31, 1994 would be increased by

$10,000.
Modify self-employment tax treatment of certain sub­
chapter S corporation shareholders and partners.—Ef­
fective for taxable years beginning after December 31,
1995, certain limited partners and shareholders who
own 2 percent or more of the stock in a service industry
subchapter S corporation would be required to pay the
self-employment social security and medicare taxes on
their non-wage income from the Subchapter S corpora­
tion.
Modify penalty for failure to report payments to inde­
pendent contractors.—To prevent employers from avoid­




41
ing their health care premium payment responsibilities,
the Secretary of the Treasury would be given greater
authority to prevent mischaracterization of employees
as independent contractors. In addition, the penalty for
not reporting a payment made to an independent con­
tractor would be increased by $50 or 5 percent of the
payment, whichever was greater. These changes would
be effective for information returns due more than 30
days following date of enactment.
Modify tax treatment of health care organizations.—
The Administration’s reform plan would require all
health plans receiving premiums through health alli­
ances to charge community rated premiums for the
comprehensive benefit package, thus eliminating the
need for the favorable income tax treatment provided
Blue Cros^Blue Shield organizations under current
law. Specifically, such organizations would no longer
be allowed to deduct the difference between 25 percent
of their health claims and adjusted surplus; in addition,
these organizations would be required to include 20
percent of the change in their unearned premium re­
serves in taxable income. Recognizing that a nonprofit
health care provider should not qualify for tax exemp­
tion unless it provides services that are beneficial to
the community, nonprofit hospitals and other nonprofit
health providers would be required to assess the health
needs of their community and develop a plan to meet
those needs in order to retain tax-exempt status. These
changes generally would be effective for taxable years
beginning after December 31, 1996.
Relate early retiree health premium discounts to in­
come.—Effective January 1, 1998, retirees between the
ages of 55 and 64 (early retirees) would be eligible
for a discount for the employer share of their health
insurance premiums. However, single taxpayers with
combined income above $90,000 and married couples
filing joint returns with combined income above
$115,000 would be required to repay the discount.
Levy assessments on employers to pay for coverage
for early retirees.—A temporary assessment would be
levied on employers who provide health insurance bene­
fits to early retirees. The assessment would be levied
for 3 years, 1998, 1999, and 2000, and in each year
employers would pay 50 percent of the greater of: (1)
the estimated employer savings in the current year for
providing health coverage to retirees between the ages
of 55 and 64 as a result of the health care reform
legislation, and (2) the annual average of the actual
early-retiree health benefits paid by the employer dur­
ing the period 1991-93, adjusted for medical cost infla­
tion.
Modify employer contributions to post-retirement med­
ical and life insurance reserves and retiree health ac­
counts maintained by pension plans.—Employers would
no longer be able to contribute to retiree medical 401(h)
accounts in pension plans, generally effective January
1, 1995. Moreover, additions to reserves for post-retire­
ment medical or life benefits in funded welfare benefit
plans, typically Voluntary Employee’s Beneficiary Ac­

42
counts (VEBAs), would be funded no more rapidly than
over a period of at least 10 years.
Recapture medicare Part B subsidies.—Effective Jan­
uary 1, 1996, high-income taxpayers who choose to en­
roll in medicare Part B would be required to pay addi­
tional premiums. The additional premium would in­
crease the taxpayers’ total contribution from about 25
percent of program costs to about 75 percent of program
costs. The additional premiums would be phased-in for
single taxpayers with combined income above $90,000
and married couples filing joint returns with combined
income above $115,000.
Extend medicare hospital insurance coverage to all
State and local government employees.—Effective Octo­
ber 1, 1995, mandatory medicare coverage would be
extended to all employees of State and local govern­
ments not covered under present law.
Levy assessment on premiums for health coverage pur­
chased through regional alliances.—A 1.5 percent as­
sessment would be levied on premiums for comprehen­
sive health coverage purchased through regional alli­
ances.
Effect of employer mandate, cost containment, and
subsides on individual income and payroll taxes.—
Under this Act, employers would be required to contrib­
ute towards the costs of a comprehensive health insur­
ance plan for their employees. The effects of the man­
date would be mitigated by subsidies to employers and
reductions in the growth of health insurance costs. In
combination, these effects would result in a net increase
in taxable wages and receipts from individual income
taxes and payroll taxes.
Modify Federal pay raise (receipt effect).—Na­
tional and locality pay increases would sum to 1.6 per­
cent in 1995, 2.2 percent in 1996, and 2.5 percent in
each year, 1997 through 1999. These proposed pay ad­
justments affect employee contributions to the Civil
Service Retirement System (CSRS).
Levy surcharge on civil judgments.—Where the
Justice Department wins a judgment for civil debt, an
enforceable 15 percent surcharge will be added. The
surcharge would apply to all judgments rendered after
September 30, 1994.
Reform Pension Benefit Guaranty Corporation
funding (receipt effect).—The Administration is pro­
posing comprehensive, balanced reforms that will as­
sure that the hard-earned pensions of American work­
ers and retirees are secure. In addition to strengthening
the funding requirements for underfunded plans, the
proposal modifies existing tax rules regarding contribu­
tions to certain types of plans and modifies or elimi­
nates existing excise taxes levied on some pension plan
contributions.

ANALYTICAL PERSPECTIVES

of OASI and DI payroll tax rates is proposed. The pro­
posal has no net effect on receipts or the deficit.
Adjust civil monetary penalites for inflation.—
The Administration proposes to adjust civil monetary
penalties for inflation. A “catch-up” adjustment would
be effective October 1, 1994; additional adjustments
would be made every four years, if needed.
Increase and/or establish new Bureau of Alcohol
Tobacco and Firearms (BATF) fees.—Effective Octo­
ber 1, 1994, many existing fees levied by the BATF
on alcohol, tobacco and firearms would be increased
and several new fees would be established. The
amounts collected from these fees, which are listed
below, would be used to offset the costs of the Bureau
of Alcohol, Tobacco and Firearms.
Increase Federal firearms dealer license fee.—Under
current law, firearms dealers pay $90 for an original
3-year license and $200 for a 3-year renewal license.
The Administration proposes to increase the licensing
fee to $600 per year. It is believed that this increase
would drastically reduce the number of dealers.
Levy fee on firearms importers.—A sliding scale fee,
based on the number of firearms imported on a permit,
would be levied on importers of firearms.
Levy fee on applications for certification of labelling
and testing of alcoholic beverages.—To offset the cost
of operating the alcohol compliance program, a fee
would be charged for processing applications for certifi­
cation of alcoholic beverage labels and for review of
formulae, statements of process, laboratory tests and
other analyses performed under the authority of the
Federal Alcohol Administration Act.
Increase Federal license and permit fees levied on
manufacturers of and dealers in explosives.—Existing
fees levied on explosives manufacturers and dealers,
which range from $2 to $50, would be increased to
range from $25 to $500.
Levy fee on applications for permits to manufacture
alcohol and tobacco products.—A fee, to be based on
the size of the business, would be levied on original
applications for permits to manufacture alcohol and to­
bacco.
Modify collection of alcohol special occupational tax.—
In order to increase compliance, wholesalers will not
be able to sell to retailers until the retailer shows evi­
dence that the special occupational tax has been paid.

Increase and/or expand fees collected under the
securities laws.—Effective October 1, 1994, several ex­
isting securities-related fees would be increased and/
or expanded to new markets. Amounts collected from
these fees, which are listed below, would be deposited
into a special fund to be established in the Treasury
to fully-fund the Securities and Exchange Commission
(SEC). Amounts collected in excess of the SEC’s appro­
priation would be deposited in the General Fund of
Reallocate old age and survivors (OASI) and dis­ the Treasury.
Increase tender offer and merger acquisition fees.—
ability (DI) insurance tax rates.—To prevent the
projected insolvency of the DI trust fund, a reallocation The existing fees, which are Vsoth of one percent of




4. FEDERAL RECEIPTS

the cash, securities or property involved in a tender
offer or merger acquisition, would be increased to V29th
of one percent.
Increase securities sales fee.—The fee on the sale of
all U.S. exchange-listed securities would be increased
from Vbooth of one percent of the sale to V25oth of one
percent of the sale. In addition, the fee would be ex­
panded to cover the sale of all over-the-counter securi­
ties transactions effective January 1, 1995.
Increase securites registration fee.—Applicants filing
securites registration statements currently pay a fee
equal to Vsoth of one percent of the maximum aggregate
price at which the securities are proposed to be offered.
An increase in the fee to V29th of one percent is pro­
posed.
Increase investment advisor registration fee.—The ex­
isting one-time registration fee of $150 levied on invest­
ment advisors would be increased to an annual fee
based on the volume of assets under management.
Levy fees on users o f Federal fisheries.—Effective
October 1, 1994, fees would be levied on the bene­
ficiaries of Federal fisheries management programs.
Amounts collected would be used to rebuild U.S. fish­
eries and to maintain the productivity of healthy fish­
eries.
Tax simplification.—The Administration supports
revenue-neutral initiatives designed to promote sensible
and equitable administration of the internal revenue
laws. These include simplification, technical corrections,
and taxpayer compliance measures.




43
IRS initiative.—The 1990 budget agreement in­
cluded an IRS tax compliance initiative, which provided
additional funding for activities that would reasonably
be expected to increase revenue collections. The Admin­
istration is considering a similar multi-year IRS initia­
tive—beginning in 1995—to increase taxpayer compli­
ance further. This initiative would add 5,000 FTEs to
compliance efforts in 1995, most of whom would be
used to increase the number of focused examinations
of tax returns, to collect more delinquent taxes, and
to make more effective use of information-reporting doc­
uments.
The cost of this program would be $405 million per
year, or $2,025 billion over five years. The initiative
will yield far more revenue than its cost over the fiveyear period, and would continue to enhance tax revenue
after that period (assuming continued funding at the
same rate). In view of this deficit-reducing potential,
the Administration would consider budgetary treatment
similar to the 1990 budget agreement, under which the
cost of the initiative was considered outside the discre­
tionary caps. Under no circumstances would the Admin­
istration permit projected additional revenues to fund
mandatory spending increases or tax reductions. Subse­
quent to the release of the President’s budget, the Ad­
ministration will work with the congress to develop
such an initiative. Therefore, the revenue yield and
costs of this initiative are not reflected in the Presi­
dent’s 1995 budget itself.

44

ANALYTICAL PERSPECTIVES

TABLE 4-4. EFFECT OF PROPOSALS ON RECEIPTS
(In billions of dollars)
Estimate
1994

Health Security Act:
Increase tew on tobacco products1 ..................................................................................................
Levy assessment on corporate alliance employers1 .......................................................................
Increase deduction for health insurance costs of the self-employed...............................................
Limit exclusion of employer-provided health coverage....................................................................
Provide deduction for qualified long-term care services..................................................................
Modify tax treatment of long-term care insurance premiums and benefits.....................................
Modify tax treatment of accelerated death benefits.........................................................................
Provide tax credit for cost of personal assistance services.............................................................
Provide tax credit for health service providers in shortage areas ...................................................
Increase expensing limit for medical equipment in shortage areas.................................................
Modify self-employment tax treatment of certain S corporation shareholders and partners ...........
Modify penalty for failure to report payments to independent contractors......................................
Modify tax treatment of health care organizations...........................................................................
Relate early retiree health premium discounts to income...............................................................
Levy assessments on employers to pay for early retirees1 ............................................................
Modify employer contributions to post-retirement medical and life insurance reserves and retiree
health accounts............................................................................................................................
Recapture medicare Part B subsidies ..............................................................................................
Extend medicare coverage to all State and local government employee1 .....................................
Levy assessment on premiums for health coverage purchased through regional alliances1 .........
Effect of employer mandate, cost containment and subsidies on individual income and payroll
taxes .............................................................................................................................................
Subtotal, Health Security Act1 ........ ....................................................................................
Other proposals:
Modify Federal pay raise (receipt effect)..........................................................................................
Levy surcharge on civil judgements.................................................................................................
Reform PBGC funding (receipt effect)..............................................................................................
Reallocate old age survivors (OASI) and disability (Dl) tax rates...................................................
Adjust civil monetary penalties for inflation......................................................................................
Increase or establish new BATF fees1 ............................................................................................
Increase or expand fees collected under securities laws.................................................................
Levy fees on users of Federal fisheries1 ........................................................................................

1995

1996

12.0
-0.1

_*

1997

-0.5

11.3
3.8
-0.6

-*

-0.1
-0.1
_*

_*

_*
_*
0.2
0.1

*

11.1
5.1
-1.7
8.1
-0.2
-0.3
_*

11.0
5.1
-2.5
8.7
-0.2
-0.4
_*

-0.1

-0.1
_*

_*

_*
0.5
0.1
0.1
*

_*

0.5
0.1
0.2
*

0.5
0.1
0.2
0.1
4.3

*
0.2
1.6
0.5

0.9
1.6
1.6

*
0.8
1.5
4.3

0.1
0.9
1.5
5.5

0.1

0.9

4.4

9.3

-0.1

11.6

16.9

25.6

36.2

44.0

*

-0.1
*
0.1

-0.1
*
-0.4

-0.2
*
-0.4

-0.3
*
-0.5

-0.4
*
-0.4

*

*

0.1
0.4
0.1

*
*
0.4
0.1

*
*
0.4
0.1

*
*
0.4
0.1

-0.2

-0.3

-0.2

25.5

35.9

43.7

Subtotal, other proposals1 ....................................................................................................

*

0.5

Total effect of proposals1 ............................................................................................

-0.1

12.2

16.9




11.2
5.0
-0.9
5.3
-0.2
-0.2
_*
-0.1

1999

2.4

0.1

0.1
0.4
0.1
*

*$50 million or less.
1 Net of income offsets.

1998

45

4. FEDERAL RECEIPTS

TABLE 4-5.

RECEIPTS BY SOURCE

(In millions of dollars)
Source

Individual income taxes (federal funds):
Withheld......................................................
Other ...........................................................
Refunds.......................................................
Proposals....................................................
Health Security Act (proposal)....................
Total net individual income taxes ...................

1993 actual

1994 estimate

1995 estimate

Source

430,427
154,800
-75,546

455,119
174,824
-79,978
37

509,680

549,901

-101

482,654
201,816
-87,351
50
-

2,122

595,048

Federal funds:
Alcohol taxes:
Distilled spirits ........
B e e r ..........................
W ines........................
Liquor Occupations
Refunds ...................

Total Federal funds net corporation
income taxes .................................
Trust funds:
Gross collections (Hazardous substance
superfund) ..............................................
Total Trust funds net corporation in­
come taxes....................................
Total net corporation income taxes
Social insurance taxes and contributions
(trust funds):
Employment taxes and contributions:
Old-age and survivors insurance (Off-budg­
et) ...........................................................
Proposals................................................
Health Security Act (proposal) ...............
Disability insurance (Off-budget).................
Proposals................................................
Health Security Act (proposal) ...............
Hospital insurance......................................
Health Security Act (proposal) ...............
Railroad retirement:
Social Security equivalent accout ..........
Rail pension fund...................................
Total employment taxes and contribu­
tions ...............................................
On-budget......................................
Off-budget......................................

145,566
-15,529
-1

116,891
629

130,035

157,150
-16,834
-4
-6 0 4
139,708

684

729

629

684

729

117,520

130,719

140,437

281,735

303,650
-11,942

322,067
-16,114

30,199

32,529
11,942

81,224

90,115

-

1,221

34,506
16,114
-131
99,344
-3 3 8

3,797
3,329
578
112
-2 3 3

3,802
3,342
565
110
-2 2 7

3,763
3,352
555
110
-2 2 6

7,583

7,592

7,554

5,786
54
2
33
11
-1 1

5,563
54
2
33
11
-1 1

5,529
53
2
33
11
-1 1
16,041

5,875

5,652

21,658

3,422
99
45
23
134
3,320
17
126

9,460
102
47
25
136
3,493
18
129

9,775
105
50
27
139
3,675
18
132

212
101
15
854
379
1,709

223
113
16
797
402
109
84
-3 5 4

Miscellaneous excise taxes:
F u e ls ................................................................
Firearms, shells, and cartridges...............
Pistols and revolvers ..................................
Bows and a rrow s.........................................
Gas guzzlers .................................................
Telephone and teletype services .............
Wagers and related occupations..............
Employee pension plans, etc ....................
Undistributed income of private founda­
tions ............................................................
Policies issued by foreign insurers .........
Ship passengers ..........................................
Ozone depleting chemicals and products
Luxury item s ..................................................
O th er................................................................
Proposals........................................................
Refunds ..........................................................

-3 5 3

218
107
16
943
309
60
-1
-3 5 5

Total miscellaneous excise ta x e s .......

1,472
2,387

1,495
2,423
458,145
102,924
355,221

Unemployment insurance:
State taxes deposited in Treasury1 ...........
Federal unemployment tax receipts1 .........
Railroad unemployment tax receipts1 ........
Railroad debt repayment1 .........................

20,966
5,437
64

21,557
5,443
41

22,008
5,536
23

Total unemployment insurance..........

26,556

27,041

27,567

Other retirement contributions:
Federal employees’ retirement—employee
contributions ...........................................
Proposals................................................
Contributions for non-Federal employees 2

4,709

4,636

96

93

Total other retirement contributions ....

4,805

4,729

428,300
116,366
311,934

461,923
125,744
336,179

4,646
-5 5
4,681
490,393
135,172
355,221

10,103

14,707

15,311

Undistributed Federal tax deposits and
unapplied collections...................................

962

720

734

Total Federal fund excise taxes .........

1,414
2,367

430,153
93,974
336,179




1994 estim
ate 1995 estim
ate

Total tobacco ta x e s ..............

130,917
-14,027

396,939
85,005
311,934

Total social insurance taxes and
contributions................................
On-budget......................................
Off-budget......................................

actual

Tobacco taxes:
Cigarettes ....................................
Cigars ...........................................
Cigarette papers and tu b e s .....
Smokeless tobacco...................
Pipe tobacco ...............................
Refunds ........................................
Health Security Act (proposal)

Total alcohol taxes

Corporation income taxes:
Federal funds:
Gross collections........................................
Refunds.......................................................
Proposals....................................................
Health Security Act (proposal)....................

1993

Excise taxes:

24,522

28,672

45,256

12,605
1,199
305
3,582
630
-2 8 2

12,536
1,320
318
3,931
636
-4 5 2

12,636
1,387
320
4,089
656
-4 4 7

Total highway trust fund .

18,039

18,290

18,642

Airport and airway:
Transportation of persons ...
Transportation of property ..
F u e ls ........................................
International departure........
Refunds ..................................

2,776
156
123
223
-1 7

4,742
261
185
235
-1 7

5,087
283
179
252
-1 8

3,262

5,407

5,783

276
634
79
826
229

296
654
93
838

292
668
102
849

Trust funds:
Highway:
Gasoline .........................................
Trucks, buses, and trailers ........
Tire s .................................................
Diesel fuel ......................................
Highway use of heavy vehicles .
Refunds ..........................................

Total airport and airway trust fund
Aquatic resources..........................
Black lung disability.......................
Inland waterway .............................
Hazardous substance superfund
Oil spill liability................................

46

ANALYTICAL PERSPECTIVES

TABLE 4-5.

RECEIPTS BY SOURCE-Continued
(In millions of dollars)

Source

1993 actual

1994 estimate

1995 estimate

Vaccine injury compensation ......................
Leaking underground storage tank.............

38
153

148
153

141
155

Total trust fund excise taxes..............

23,535

25,878

26,632

Total excise taxes ............................

48,057

54,550

71,888

Estate and gift taxes ........................................

12,577

12,749

13,885

Customs duties and fees:
Federal funds..................................................
Trust funds......................................................
Total customs duties and fees
Miscellaneous receipts: 3
Miscellaneous taxes .......................................
United Mine Workers of America combined
benefit fund.................................................
Deposit of earnings, Federal Reserve System
Fees for permits and regulatory and judicial
services:
Immigration, passport, and consular fees ...
Patent and copyright fees...........................
Registration and filing fees.........................
Proposals................................................
Coal mining reclamation fees .....................
Miscellaneous fees for permits, licenses,
e tc ...........................................................
Proposals................................................
Miscellaneous fees for regulatory and judi­
cial sen/ices ...........................................
Proposals................................................




18,119
683

18,530
668

20,173
683

18,802

19,198

20,856

138

152

157

161
14,908

239
15,847

236
16,604

332
*
640

446
*
708

238

258

461
*
737
378
261

3

3

3
40

426

391

421
39

Source

1993 actual

1994 estimate

1995 estimate

Fees for legal and judicial services............

80

75

75

Total fees for permits and regulatory
and judicial services.......................

1,719

1,881

2,415

Fines, penalties, and forfeitures......................
Proposals....................................................
Restitutions, reparations, and recoveries
under military occupation............................
Gifts and contributions....................................
Refunds and recoveries .................................

1,686

1,791

1,764
17

11
130
-1 5 4

11
116
-6

11
110
-5

Total miscellaneous receipts..........

18,599

20,031

21,309

Total budget receipts.......................
On-budget......................................
Off-budget......................................

1,153,535
841,601
311,934

1,249,071
912,892
336,179

1,353,815
998,594
355,221

MEMORANDUM
On-budget:
Federal funds..................................................
Trust funds......................................................
Interfund transactions .....................................

704,848
763,250
838,888
314,712
313,842
321,803
-177,958 -164,200 -162,097

Total on-budget..........................................
Off-budget (trust funds)

841,601
311,934

912,892
336,179

998,594
355,221

Total...................................................

1,153,535

1,249,071

1,353,815

* $500 twusand or less.
’ Deposits by States are State payroll taxes fiat cover the benefit part of tie program. Federal unemploy­
ment tax receipts cover administafve costs at both the Federal and State level. Rairoad unemployment tax re­
ceipts cover boti fie benefits and administrative costs of the program for the railroads.
2 Represents employer and employee contributions to the dvi service retirement and disabiity fund fa cov­
ered employees of Government-sponsored, privately owned enterprises and lie Distict of Columbia municipal
government
3 Includes both Federal and lust lunds. Trust lund amounts in miscellaneous receipts are: 1993, $446 mlfion;
1994, $532 milfion; and 1995, $521 mlfion.

5. USER FEES AND OTHER COLLECTIONS
This section discusses income to the Government
from the public. The Government provides goods and
services to specific public beneficiaries under its sov­
ereign powers and in business-like transactions and
may collect fees for these goods and services. The fees
collected may be governmental receipts, offsetting re­
ceipts, or offsetting collections.
Governmental receipts are collections from the public
that result primarily from the exercise of the Govern­
ment’s sovereign or governmental powers. They consist
mostly of individual and corporate income taxes and
social insurance taxes, but also include compulsory user
charges. Offsetting receipts and offsetting collections re­
sult from business-like or market-oriented activities (for
example, proceeds from the sale of postage stamps or
electricity, fees or admittance to recreation areas, or
the proceeds from the sale Government-owned land).
Offsetting receipts are deposited in receipt accounts,
whereas offsetting collections are credited directly to
expenditure accounts. Offsetting receipts and collections
are deducted from gross budget authority and outlays,
rather than combined with governmental receipts. The
purpose of this treatment is to produce budget totals




for receipts, budget authority, and outlays that rep­
resent governmental rather than market activity.
As shown in Table 5-1 total offsetting collections
from the public, including those proposed by the Admin­
istration (but excluding the collections of the off-budget
Postal Service), are estimated to be $148.0 billion in
1995. Table 5-1 itemizes all offsetting collections from
the public credited to receipt accounts and appropria­
tion accounts. The information in Table 5-1 regarding
offsetting collections deposited in receipt accounts is
also available, in greater detail, in Table 5-3.
The budget contains a variety of user fee and other
offsetting collections proposals that would yield $1.5
billion in 1995 and $8.4 billion over the years 1995
through 1999. These proposals establish or increase fees
in order to recover more of the costs of providing Gov­
ernment services. Table 5-2 splits the proposals be­
tween discretionary and mandatory categories for the
appropriate scoring under the Budget Enforcement Act
of 1990 (BEA).
Discretionary.—The following discretionary user fee
proposals would be credited as offsets to the BEA’s
discretionary spending limits.

TABLE 5-1. OFFSETTING COLLECTIONS FROM THE PUBLIC
(In millions of dollars)
Type

Collections deposited in receipt accounts:
Medicare premiums.....................................................................
Military assistance trust fund property sales...............................
Outer Continental Shelf payments, naval petroleum reserve
lease and other undistributed offsetting receipts.....................
Sale of property and services, interest income and all other col­
lections deposited in receipt accounts....................................
Subtotal, collections from the public deposited in receipt ac­
counts .................................................................................
Collections credited to appropriation accounts:
Postal Service stamp sales and other collections......................
Deposit insurance funds .............................................................
Tennessee Valley Authority and Power Administration collec­
tions .........................................................................................
Commodity Credit Corporation loan repayments and other col­
lections ....................................................................................
Other loan repayments...............................................................
Loan guaranty and other insurance premiums, interest income,
and all other collections credited to appropriation accounts ....
Subtotal, collections from the public credited to appropriation
accounts..............................................................................
Offsetting collections from the public .................................
Offsetting collections from the public excluding off-budget
Postal Service collections...............................................

1993
actual

Estimate
1994

1995

15,306
13,239

17,581
13,370

20,054
13,740

2,785

2,708

3,903

13,589

14,978

15,208

44,919

48,637

52,905

46,502
50,866

47,842
31,356

49,110
25,315

8,367

8,940

8,817

9,229
9,686

7,903
10,606

10,487
7,543

44,941

43,757

42,933

169,591
214,510

150,405
199,041

144,206
197,110

168,008

151,199

148,000

47

48

ANALYTICAL PERSPECTIVES

Table 5-2. PROPOSED USER FEES AND OTHER COLLECTIONS
(In millions of dollars)
Estimate
1995

Outlay offsets:
Discretionary:
Agriculture:
Meal/poultry plant overtime inspection fee (FSIS)...................................
Catastrophic Crop Insurance fee for administrative activities (FSA) .......
Commodity standards and overtime inspection fees (AMS) ....................
Licensing fees (PSA)................................................................................
Standardization fee (FGIS) ......................................................................
Guaranteed loan fee (FmHA) ..................................................................
Commerce:
Fisheries management program fees 1 ....................................................
Marine sanctuary fee ...............................................................................
Aeronautical chart fe e ..............................................................................
Health and Human Services:
Food and Drug Administration.................................................................
Interior
National Park Service entrance and recreation fees...............................
Justice:
Bankruptcy reorganization petition f e e .....................................................
Pre-merger notification filing fe e ...............................................................
Transportation:
FAA certification and surveillance of foreign repair stations....................
Treasury:
Definitive marketable securities fe e ..........................................................
Treasury direct account fe e .....................................................................
Customs merchandise processing fee .....................................................
IRS installment agreements.....................................................................
IRS tax return copy fee ...........................................................................
IRS refund indicator fe e ...........................................................................
Environmental Protection Agency:
Pesticide registration fe e ..........................................................................
Federal Trade Commission:
Pre-merger notification filing fe e ..............................................................
Securities and Exchange Commission:
Fee increases i ........................................................................................
Small Business Administration:
Service fees..............................................................................................
Corps of Engineers:
Wetland permit fees.................................................................................
Subtotal, discretionary..........................................................................
Mandatory:
Interior
Hardrock royalty 2 ....................................................................................
Fee collection support, National Park System.........................................
National Park Renewal Fund...................................................................
Justice:
Surcharge on civil judgments 1 ...............................................................
Transportation:
Tonnage duty fe e s ...................................................................................
Extend rail safety .....................................................................................
Treasury:
Federal firearms dealer license fee 1 .......................................................
Alcohol labeling program fee 1 ................................................................
Explosives license and permit fees 1 .......................................................
Firearms importer permits 1 .....................................................................
Alcohol and tobacco permit applications fee 1 ........................................
Environmental Protection Agency:
Reregistration of pesticides fe e ...............................................................

1996

1997

1998

-103
-40
-6
-9
-5
-13

-103
-40
-6
-12
-5
-13

-103
-40
-6
-12
-5
-13

-103
-40
-6
-12
-5
-13

-103
-40
-6
-12
-5
-13

-82
-3
-3

-82
-3
-3

-82
-3
-3

-82
-3
-3

-82
-3
-3

-338

-350

-368

-378

-389

-27

-33

-33

-37

-33

-5
-13

-5
-13

-5
-13

-5
-13

-5
-13

-2

-2

-2

-2

-2

-1
-2
-94
-54
-5
-87

-1
-2
-94
-54
-5
-87

-1
-2
-94
-54
-5
-87

-1
-2
-94
-54
-5
-87

-1
-2
-94
-54
-5
-87

-15

-15

-15

-13

-13

-13

-13

-13

-378

-356

-366

-372

-377

-26

-27

-28

-29

-30

-6

-12

-12

-12

-12

-1,329

-1,336

-1,363

-1,371

-1,384

-5

-16
-6
-12

-112
-10
-25

-110
-12
-34

-108
-13
-42

-39

-39

-39

-39

-39

-100

-100
-39

-100
-40

-100
-42

-100
-43

-25
-5
-3
-1
-6

-25
-5
-3
-1
-6

-23
-5
-3
-1
-6

-23
-5
-3
-1
-6

-23
-5
-3
-1
-6

-5

-5

-5

-19

-19

-395

-403

-1,765

-1,787

Subtotal, mandatory.............................................................................

-189

-259

-371

Total user fees and other collections..............................................

-1,518

-1,595

-1,734

'Governmental receipts.
2 Not coded as a user fee in the database.




1999

49

5. USER FEES AND OTHER COLLECTIONS

Agriculture
• Meat/poultry plant overtime inspection fee.—
Charge fees for all overtime inspection of meat
and poultry products at all establishments in­
spected by the Food Safety and Inspection Service.
Currently, fees to reimburse the cost of overtime
inspection are required at some Food Safety In­
spection Service inspected establishments, but not
at others. The Federal government would continue
to pay the full cost for a primary, eight-hour in­
spection shift.
• Catastrophic Crop Insurance fee for administrative
activities.—Authorize the Farm Service Agency to
collect a nominal fee from agriculture producers
to help defray the administrative costs associated
with the proposed free catastrophic crop insurance
coverage.
• Commodity standards and overtime inspection
fees.—Establish fees for the Agricultural Market­
ing Service to develop agricultural commodity
standards and to recover the costs of overtime
inspections for egg products.
• Licensing fees.—Establish a licensing fee for the
costs of administering the programs of the Packers
and Stockyards Administration. The fee would be
applied to livestock market agencies, livestock
dealers, meat packers and live poultry dealers as
defined in the Packers and Stockyards Act.
• Standardization fee.—Establish a user fee for
standardization activities of the Federal Grain In­
spection Service, including maintaining uniform
standards for grain quality, determining criteria
and recommending specifications for grain inspec­
tion instrumentation and developing an agencywide quality assurance program.
• Guaranteed loan fee.—Charge a one percent fee
on Farmers Home Administration (FmHA) single­
family loan guarantees. This fee would go to de­
fraying the costs of administering the program.
A similar fee is charged on other FmHA guaran­
teed loans.
Commerce
• Fisheries Management Program Fees.—Charge
users of fisheries management programs fees
which would fund or finance rebuilding U.S. fish­
eries and maintaining the productivity of healthy
fisheries.
• Marine Sanctuary Fee.—Charge fees to support
the operation of the National Marine Sanctuaries.
• Aeronautical Chart fee.—Charge fees to support
the costs of maintaining and distributing of aero­
nautical charts.
Health and Human Services
• Food and Drug Administration.—Assess user fees
on FDA-regulated industries to capture a portion
of the private benefit those industries receive from
FDA regulation. Includes user fees authorized by




the Prescription Drug User Fee Act of 1992 and
the Mammography Quality Standards Act of 1992.

Interior
• National Park Service entrance and recreation
fees.—Implements NPR recommendation to ex­
pand authority to collect park entrance and recre­
ation user fees. Additional revenues collected in
1995 (less receipts used for collection costs) are
made available in 1996 to augment park oper­
ations and resource protection.

Justice
• Bankruptcy reorganization petition fee.—Increase
fees assessed against debtor businesses filing
bankruptcy reorganization petitions. The proceeds
would be available to the United States Trustees
as offsetting collections for increased oversight of
the process of distributing debtor assets to credi­
tors.
• Pre-merger notification filing fee.—Increase the
pre-merger notification filing fee from $25,000 to
$40,000 per filing. One-half of the fee increase
would go to the Department of Justice and onehalf would go to the Federal Trade Commission.

Transportation
• FAA certification and surveillance of foreign repair
stations.—Permit recovery of full costs associated
with the Federal Aviation Administration’s certifi­
cation and surveillance of foreign repair stations.

Treasury
• Definitive marketable securities fee.—Assess a fee
for issuing definitive marketable securities.
• Treasury direct account fee.—Charge an annual
maintenance fee to investors with large Treasury
Direct Accounts.
• Customs merchandise processing fee.—Increase the
current ad valorem charge and the maximum and
minimum fees in the merchandise processing fee.

• IRS installment agreements.—Assess a small
charge to cover the costs of administering install­
ment agreements under which taxpayers pay
taxes.
• IRS tax return copy fee.—Increase the charge for
providing photocopies of tax returns from $4.25
to approximately $12.00. This proposal enables the
IRS to recover its costs and encourages taxpayers
to request less costly abstracts of tax returns from
summary data stored on IRS computers.
• IRS refund indicator fee.—Charge institutions for
providing a direct deposit indicator after receipt
of an electronically filed tax return. The indicator
is not necessary for the IRS to process the return
however, it is useful to institutions in processing
refund anticipation loans.

50

ANALYTICAL PERSPECTIVES

Environmental Protection Agency
• Pesticide registration fee.—Impose user fees on
manufacturers of pesticides to recover the costs
of EPA’s registration program.
Federal Trade Commission
• Pre-merger notification filing fee.—Increase the
pre-merger notification filing fee from $25,000 to
$40,000 per filing. One-half the fee increase would
go to the Department of Justice and one-half the
fee increase would go to the Federal Trade Com­
mission.
Securities and Exchange Commission
• Fee increases.—Increase and/or expand several ex­
isting securities-related fees. Amounts collected
from these fees, which are listed below, would be
deposited into a special fund to be established in
the Treasury to fully-fund the Securities and Ex­
change Commission (SEC). Amounts collected in
excess of the SEC’s appropriation would be depos­
ited in the General Fund of the Treasury.
—Increase from Vsoth to V29th of one percent the
fee for a tender offer and merger acquisition
fees.
—Increase the fee on the sale of all U.S. exchangelisted securities from the current level of V3ooth
of one percent of the amount of the sale to
V25oth of one percent. In addition, the fee would
be expanded to cover the sale of all over-thecounter (OTC) securities transactions effective
January 1, 1995.
—Increase the fee applicants filing securities reg­
istration statements must pay from Vsoth to
V29th of one percent of the maximum aggregate
price at which the securities are proposed to
be offered.
—Increase the SEC’s existing one-time $150 fee
to become a registered SEC investment advisor
to an annual fee based on the volume of assets
under management.
Small Business Administration
• Service fees.—Impose a $15 per hour fee on indi­
viduals obtaining assistance from Small Business
Development Centers. Also impose fees for certain
SBA publications, administrative loan servicing
and SBA’s electronic bulletin board.

Corps of Engineers
• Wetland permit fees.—Increase the fee structure
for certain types of permits issued by the Army
Corps of Engineers pursuant to Section 404 of the
Clean Water Act. The new fee structure would
more closely approximate the costs of evaluating
such applications.
Mandatory.—The following mandatory user fee pro­
posals would be scored as “pay-as-you-go” savings under
the BEA’s scoring rules.




Interior
• Hardrock royalty.—Impose an 8% royalty on
hardrock minerals removed from public lands.
• Fee Collection Support, National Park System.—
Use up to 15 percent of increased revenues esti­
mated under new authority to collect park en­
trance and other recreation user fees to defray
additional expenses necessary to collect the pro­
posed new receipts.
• National Park Renewal Fund.—Implements NPR
recommendation to create a new, National Park
Renewal Fund, which would receive half of the
additional revenues, net of fee collection costs, and
return them to the collecting parks for direct ex­
penditure from receipts in 1996.

Transportation
• Tonnage duty fees.—Increase the existing tonnage
duty fees by 150 percent. These fees would offset
the costs of services provided to the maritime in­
dustry by the Coast Guard.
• Extend rail safety.—Extend existing fees, which
are due to expire at the end of 1995.

Treasury
• Federal firearms dealer license fee.—Increase the
federal firearms dealer license fee from its current
$90 for three year original license and $200 for
three year renewal license to a $600/yr fee for
each license.
• Alcohol labeling program fee.—Collect a fee to off­
set the cost of operating of the Alcohol Compliance
Program. This fee would be charged for processing
applications for Certification of Label Approval for
alcoholic beverages and for reviews of formulae,
statements of process, laboratory tests and analy­
ses performed under the authority of the Federal
Alcohol Administration Act and the Internal Reve­
nue Code.
• Explosives license and permit fees.—Increase the
fees for explosives licenses and permits from a
present range of $2 through $50 to proposed levels
of $25 to $500.
• Firearms importer permits.—Assess a fee against
firearms importers for the processing and clear­
ance of permits to import firearms. The fee on
importers would be on a sliding scale based on
the number of firearms imported on a particular
permit.
• Alcohol and tobacco permit applications fee.—As­
sess a charge for processing original applications
for alcohol and tobacco permits at a rate depend­
ing on the size of the business.

Justice
• Surcharge on civil judgments.—Create an enforce­
able 15 percent surcharge on judgments for civil
debt collected by the Justice Department.

51

5. USER FEES AND OTHER COLLECTIONS

Environmental Protection Agency
• Reregistration of pesticides fee.—Increase and ex­
tend fees collected from pesticide manufacturers
in support of reregistration of old pesticides.

Type

1993 actual

1994 estimate

1995 estimate

Table 5-3 itemizes all receipts on the outlay side
of the budget not credited to appropriation accounts.
The presentation includes payments from one part of
the government to another, called intragovemmental
transactions, as well as collections from the public. In
total, offsetting receipts are estimated at $288.7 billion
in 1995.

Type

1993 actual

1994 estimate

1996 estimate

INTRAGOVERNMENTAL TRANSACTIONS

Other Federal employees retirement ..

112

119

128

On-budget receipts:
Federal intrafund transactions:
Distributed by agency:
Interest from the Federal Financing Bank
Interest on Government capital in enter­
prises ..................................................
Other .......................................................

Total employer share, employee re­
tirement ..........................................

28,186

28,217

28,493

Interest received by on-budget trust
funds ..................................................

55,537

56,772

57,191

Total Federal intrafunds ....................

11,333

9,601

8,794

2,191
553

2,165
853

1,945
894

14,077

12,620

11,633

3,435
184

3,616
1

3,711
1

Total intrafund transactions................

17,697

16,237

15,345

Interfund transactions:
Distributed by agency:
Federal fund payments to trust funds:
Contributions to insurance programs:
Military retirement fund ..................
Supplementary medical insurance ..
Hospital insurance.........................
Railroad social security equivalent
fund ...........................................
Rail industry pension fund
Civilian supplementary retirement
contributions..............................
1Inpm nlovm pnt inciirpnri)

National separation liability............
Other ..............................................
Miscellaneous payments:
State and local government fiscal
assistance .................................
Other..............................................

12,273
44,227
495

11,908
38,148
2,240

12,564
34,899
4,789

2,996
2

3,109
-7

3,194

20,118
13 148
172
1,375

20,585
3 963
’ 96
471

20,768
1,210
91
526
15
574

650

15
504

Subtotal .....................................

95,456

81,033

78,630

Trust fund payments to Federal funds:
Repayment of loans or advances to
trust funds .....................................
Charges for services to trust funds ....
Other

2,914
412
617

2,921
329
622

3,056
338
646

3,944

3,873

4,039

Total interfunds distributed by agency

99,401

84,905

82,669




84,990

85,684

183,123

169,895

168,353

197,385

182,515

179,987

Off-budget receipts:
Interfund transactions:
Distributed by agency:
Federal fund payments to trust funds:
Old-age, survivors, and disability in­
surance ..........................................
Undistributed by agency:
Employer share, employee retirement
(off-budget) ....................................
Interest received by off-budget trust
funds..............................................

6,246

5,790

6,639

6,416

6,463

6,756

26,788

29,073

31,669

Total off-budget receipts ....................

39,449

41,326

45,064

Total intragovemmental trans­
actions ..........................................

240,269

227,457

228,762

370

352

300

PROPRIETARY RECEIPTS FROM THE
PUBLIC
Distributed by agency:
Interest:
Interest on loans, Foreign Assistance Act ..
Other interest on foreign loans and de­
ferred foreign collections ........................
Interest on deposits in tax and loan ac­
counts .....................................................
Other interest (domestic—civil) 4 .................

746

765

749

542
842

624
961

740
1,575

7,735
4,785

7,842
5,136

8,007
5,669

2,375
13,179

2,448
12,671

2,531
12,158

Total interest......................................

2,501

2,701

3,364

Rents:
Rent and bonuses from land leases, etc ....
Rent of land and other real property
Rent of equipment and other personal
property ..................................................

16
62

9
63

10
70

5

8

8

Total rents..........................................

Subtotal .....................................

Undistributed by agency:
Employer share, employee retirement2:
Civil service retirement and disability
insurance.......................................
CSRDI from Postal Service
Hospital insurance (contribution as
employer) 3 ....................................
Military retirement fund......................

83,723

Total interfund transactions................
Total on-budget receipts ....................

Trust intrafund transactions:
Distributed by agency:
Payments to railroad retirement1 ...........
Other.......................................................

Total interfund transactions undistrib­
uted by agency .............................

83

80

88

Royalties........................................................

1,028

1,107

1,079

Sale of products:
Sale of timber and other natural land prod­
ucts .........................................................

817

853

875

52

ANALYTICAL PERSPECTIVES

TABLE 5-3.

OFFSETTING RECEIPTS BY TYPE-Continued
(In millions of dollars)

Type

1993 actual

1994 estimate

1995 estimate

Type

1993 actual

1994 estimate

1995 estimate

Sale of minerals and mineral products ......
Sale of power and other utilities ................
Sale of other products« ..............................
Recovery of mint manufacturing expense ...

467
705
9
84

437
788
44
93

622
820
48
61

Miscellaneous receipt accounts « ................

1,534

1,371

1,410

Total proprietary receipts from the
public distributed by agency..........

42,135

45,644

48,985

Total sale of products ........................

2,082

2,216

2,427

Undistributed by agency:
Other interest: Interest received from Outer
Continental Shelf escrow account..............
Rents and royalties on the Outer Continental
Shelf:
Rents and bonuses....................................
Royalties .....................................................

176
2,608

199
2,509

588
2,460

Fees and other charges for services and
special benefits:
Medicare premiums and other charges
(trust funds)............................................
Nuclear waste disposal revenues...............
Veterans life insurance (trust funds) ..........
Others.........................................................

15,306
437
393
1,737

17,581
391
317
1,906

20,054
551
304
2,004

Total fees and other charges.............

17,872

20,195

22,913

Total proprietary receipts from the
public undistributed by agency ,

2,785

2,708

3,903

19

45

46

Total proprietary receipts from the
publics..........................................

44,919

48,367

52,905

38
2,103

2,270

2,765

500

4,300

2,770
278,594

7,065
288,731

Sale of Government property:
Sale of land and other real property4
Sale of equipment and other personal
property:
Military assistance program sales (trust
funds).................................................
Sale of scrap and salvage material .......

13,239
-5

13,370

Total sale of Government property....

13,254

13,415

OFFSETTING GOVERNMENTAL RECEIPTS
13,740
13,786

Distributed by agency:
Defense cooperation.......................................
Other ...............................................................
Undistributed by agency:
Spectrum auction proceeds.............................

Realization upon loans and investments:
Dollar repayments of loans, Agency for
International Development......................
Foreign military credit sales........................
Negative loan subsidies.............................
Downward reestimates of subsidies...........
Dollar conversion of foreign currency ......
Repayment of loans to United Kingdom
Other ...........................................................

866
469
274
276
15
100
314

687
574
451
871
15
102
167

597
628
617

Total realization upon loans and in­
vestments ......................................

2,313

2,867

2,127

Recoveries and refunds « ............................

1,469

1,707

1,807




855

15
104
167

Total offsetting governmental receipts
Total offsetting receipts ..................

2,141
287,330

* $500 tiousand or less.
11nterchange receipts between the social security and railroad retirement funds place the social security funds
in tie same position they would have been if there were no separate rairoad retirement system.
* Includes contributions Irom Postal Service off-budget accounts.
a Includes provision for covered Federal dvifian employees and miitary personnel.
4 Includes both Federal funds and tust funds,
s Consists oh
1993
1994
1995
actual
estimate
estimate
Federal funds.............................................................................
Trust funds.................................................................................
Off-budget ..................................................................................

14,632
30,281
6

15,761
32,590
16

17.462
35,427
16

6. TAX EXPENDITURES
Tax expenditures are revenue losses due to pref­
erential provisions of the Federal tax laws, such as
special exclusions, exemptions, deductions, credits, de­
ferrals, or tax rates. Tax expenditures are an alter­
native to other Government policy instruments, such
as direct expenditures and regulations. The Congres­
sional Budget Act of 1974 (Public Law 93-344) requires
that a list of tax expenditures be included in the bud­
get.
Tax expenditures relating to the individual and cor­
porate income taxes are considered first in this chapter,
followed by those relating to the unified transfer tax.
The supplement at the end of the chapter presents
major tax expenditures in the income tax ranked by
revenue loss.
The Omnibus Budget Reconciliation Act of 1993
(OBRA 93) had a number of effects on income tax ex­
penditures. The Act broadened the tax base by reducing
some tax preferences, such as the exclusion for a por­
tion of social security income and the credit available
for business income earned in U.S. possessions. Con­
versely, the Act narrowed the tax base, and increased
tax expenditures, by creating, renewing, or expanding
several other tax preferences. New provisions include
empowerment zones. Certain expired provisions, such

as mortgage revenue bonds and the low-income housing
tax credit, were extended permanently. Others, such
as the research and experimentation tax credit and the
targeted jobs tax credit, were extended but not made
permanent. Expanded tax expenditures include more
generous expensing provisions for small business in­
vestments and increases in the earned income tax cred­
it.
OBRA 93 also increased the revenue losses from tax
expenditures by raising the top individual and cor­
porate tax rates. As tax rates rise, the revenue losses
from deductions and exclusions also increase. For exam­
ple, raising the top marginal tax rate from 31 percent
to 39.6 percent would increase the revenue loss from
a $1,000 exclusion in this tax bracket from $310 to
$396.
In addition to reflecting the changes associated with
OBRA 93, this year’s tax expenditure budget includes
two new features that better indicate the long-term
effects of tax expenditures. First, revenue loss estimates
are now presented through 1999, as is done for outlay
programs. Second, a new table reports present-value
estimates of the revenue losses for tax expenditures
that involve deferrals of tax payments into the future
or have similar long-term effects.

TAX EXPENDITURES IN THE INCOME TAX
Tax Expenditure Estimates
The Treasury Department prepared all tax expendi­
ture estimates presented here based upon income tax
law enacted as of December 31, 1993. Expired or re­
pealed provisions are not listed if their revenue effects
result only from taxpayer activity in years before 1993.
The total revenue loss estimates for tax expenditures
for fiscal years 1993-99 are displayed by the budget’s
functional categories in table 6-1. Descriptions of the
specific tax expenditure provisions follow the tables of
estimates and discussion of general features of the tax
expenditure concept.
As in prior years, two baseline concepts—the normal
tax baseline and the reference tax law baseline—are
considered for the estimates. For the most part, the
two concepts coincide. However, items treated as tax
expenditures under the normal tax baseline, but not
the reference tax law baseline, are indicated by the
designation "normal tax method” in the tables. The rev­
enue losses for these items are zero using the reference




tax rules. The alternative baseline concepts are dis­
cussed in detail following the estimates.
Table 6-2 reports the respective portions of the total
revenue losses that arise under the individual and cor­
porate income taxes. Listing revenue loss estimates
under the individual and corporate headings does not
imply that these categories of filers benefit from the
special tax provisions in proportion to the respective
tax expenditure amounts shown. Rather, these break­
downs show the specific tax accounts through which
the various provisions are cleared. The ultimate bene­
ficiaries of corporate tax expenditures, for example,
could be stockholders, employees, customers, or others,
depending on the circumstances.
Table 6-6 at the end of this chapter ranks the major
tax expenditures by fiscal year 1995 revenue loss. This
table merges several individual entries provided in
table 6-1; for example, table 6-6 contains one merged
entry for charitable contributions instead of the three
separate entries found in table 6-1.

53

54

ANALYTICAL PERSPECTIVES

TABLE 6-1. TOTAL REVENUE LOSS ESTIMATES FOR TAX EXPENDITURES IN THE INCOME TAX
(In millions of dollars)
Total Revenue Loss
1993

1994

1995

1996

1997

1999

1998

National defense:.
Exclusion of benefits and allowances to armed forces personnel.........................................

2,115

2,060

2,030

2,020

2,015

2,030

2,055

International affairs:
Exclusion of income earned abroad by United States citizens.............................................
Exclusion of income of foreign sales corporations................................................................
Inventory property sales source rules exception...................................................................
Interest allocation rules exception for certain financial operations........................................
Deferral of income from controlled foreign corporations (normal tax method) ......................

510
1,200
1,100
100
1,600

860
1,300
1,200
95
1,600

895
1,400
1,300
95
1,700

945
1,500
1,400
95
1,800

1,000
1,600
1,500
95
2,000

1,055
1,700
1,600
95
2,200

1,115
1,800
1,700
95
2,400

General science, space, and technology:
Expensing of research and experimentation expenditures (normal tax method)...................
Credit for increasing research activities.................................................................................
Suspension of the allocation of research and experimentation expenditures........................

2,060
1,240
0

2,230
1,395
270

2,390
1,270
270

2,560
740
0

2,740
315
0

2,930
135
0

3,130
45
0

185
20

145
20

140
20

100
20

60
20

55
25

95
25

995
100
760
50
10
165
55
15
15
50

1,010
100
900
50
15
175
60
15
50
100

1,035
100
970
50
15
175
65
35
65
145

1,055
100
1,000
50
15
175
70
45
65
175

1,065
105
990
50
15
175
75
50
65
190

1,090
105
940
50
15
175
80
50
75
190

1,105
105
880
50
15
165
85
50
80
190

50
185
*

50
195
*
50
625
15
575
35
125

50
195
*

50
200
*

50
615
15
600
40
125

50
600
15
635
40
120

50
205
*
50
585
15
670
40
115

55
210
*

50
595
10
535
35
135

50
195
*
50
610
15
560
35
130

75
90
10
115

70
85
10
135

70
85
10
140

65
80
10
145

65
80
10
145

65
80
10
145

70
85
10
150

300
30
7,520
5
105
120
525

340
35
8,115
5
110
125
600

380
40
8,730
5
110
135
690

420
40
9,385
5
115
140
810

465
45
10,090
5
120
145
925

510
50
10,805
5
130
155
1,055

560
55
11,660
5
135
160
1,205

1,715
1,000
48,705
13,055
820
13,265
4,625
6,070
1,190

1,760
970
51,835
13,865
915
13,925
4,770
5,945
1,085

1,785
920
54,800
14,655
935
14,620
4,960
5,775
1,100

1,775
870
57,985
15,545
950
15,195
5,155
5,680
1,145

1,715
810
61,420
16,425
965
15,620
5,300
5,625
1,220

1,640
750
65,050
17,395
980
15,915
5,400
5,595
1,290

1,575
685
68,785
18,395
995
16,065
5,450
5,545
1,345

60
140
5,510

120
150
6,565

110
150
6,920

70
150
7,045

35
155
7,120

10
155
7,160

-10
160
7,225

Energy:
Expensing of exploration and development costs:
Oil and g a s ........................................................................................................................
Other fuels.........................................................................................................................
Excess of percentage over cost depletion:
Oil and g a s ........................................................................................................................
Other fuels.........................................................................................................................
Alternative fuel production credit............................................................................................
Exception from passive loss limitation for working interests in oil and gas properties.........
Capital gains treatment of royalties on coal..........................................................................
Exclusion of interest on State and local IDBs for energy facilities .......................................
New technology credit............................................................................................................
Alcohol fuel credit1 ................................................................................................................
Tax credit and deduction for dean-fuel burning vehicles and properties .............................
Exclusion from income of conservation subsidies provided by public utilities......................
Natural resources and environment:
Expensing of exploration and development costs, nonfuel minerals.....................................
Excess of percentage over cost depletion, nonfuel minerals................................................
Capital gains treatment of iron o r e ........................................................................................
Special rules for mining reclamation reserves.......................................................................
Exclusion of interest on State and local IDBs for pollution control and sewage...................
Capital gains treatment of certain timber income..................................................................
Expensing of multiperiod timber growing costs.....................................................................
Investment credit and seven-year amortization for reforestation expenditures......................
Tax incentives for preservation of historic structures.............................................................
Agriculture:
Expensing of certain capital outlays.......................................................................................
Expensing of certain multiperiod production costs................................................................
Treatment of loans forgiven solvent farmers as if insolvent..................................................
Capital gains treatment of certain income.............................................................................
Commerce and housing:
Financial institutions and insurance:
Exemption of credit union income .....................................................................................
Excess bad debt reserves of financial institutions.............................................................
Exclusion of interest on life insurance savings..................................................................
Special alternative tax on small property and casualty insurance companies..................
Tax exemption of certain insurance companies................................................................
Small life insurance company deduction...........................................................................
Exemption of RIC expenses from the 2% floor for miscellaneous itemized deductions ....
Housing:
Exclusion of interest on owner-occupied mortgage revenue bonds..................................
Exclusion of interest on State and local debt for rental housing......................................
Deductibility of mortgage interest on owner-occupied homes...........................................
Deductibility of State and local property tax on owner-occupied homes...........................
Deferral of income from post 1987 installment sales........................................................
Deferral of capital gains on home sales...........................................................................
Exclusion of capital gains on home sales for persons age 55 and over.........................
Exception from passive loss rules for $25,000 of rental loss ...........................................
Accelerated depreciation of rental housing (normal tax method)......................................
Commerce:
Cancellation of indebtedness.............................................................................................
Permanent exceptions from imputed interest rules............................................................
Capital gains (other than agriculture, timber, iron ore, and coal) (normal tax method)....




50
565
15
695
45
115

55

6. TAX EXPENDITURES

TABLE 6-1. TOTAL REVENUE LOSS ESTIMATES FOR TAX EXPENDITURES IN THE INCOME TAX-Continued
(In millions of dollars)
Total Revenue Loss
1993

1994

1995

1996

1997

1998

1999

Step-up basis of capital gains at death.............................................................................
Carryover basis of capital gains on gifts...........................................................................
Ordinary income treatment of loss from small business corp. stock sale........................
Accelerated depreciation of buildings other than rental housing (normal tax method).....
Accelerated depreciation of machinery and equipment (normal tax method)....................
Expensing of certain small investments (normal tax method)...........................................
Amortization of start-up costs (normal tax method)...........................................................
Graduated corporation income tax rate (normal tax method) ...........................................
Exclusion of interest on small-issue ID B s.........................................................................
Deferral of gains from sale of broadcasting facilities to minority owned business ...........
Treatment of Alaska Native Corporations..........................................................................

25,340
120
25
2,895
19,625
1,540
200
3,325
865
260
65

26,850
125
30
2,995
22,775
2,095
200
3,655
690
275
45

28,305
130
30
3,185
23,210
1,560
200
3,890
545
290
30

29,480
135
35
3,430
22,550
1,235
210
4,140
420
305
20

30,265
140
35
3,745
22,330
905
215
4,340
325
320
15

30,710
145
35
4,075
21,380
610
220
4,540
280
335
10

30,655
150
35
4,410
20,155
385
225
4,745
255
350
5

Transportation:
Deferral of tax on shipping companies..................................................................................
Exclusion of reimbursed employee parking expenses..........................................................
Exclusion for employer-provided transit passes ....................................................................

15
1,790
10

15
1,845
30

15
1,930
40

15
2,015
50

15
2,100
65

15
2,190
80

15
2,275
95

Community and regional development:
Credit for low-income housing investments...........................................................................
Investment credit for rehabilitation of structures (other than historic) ...................................
Exclusion of interest on IDBs for airports, docks, and sports and convention facilities........
Exemption of certain mutuals’ and cooperatives’ income......................................................
Empowerment zones .............................................................................................................

1,545
90
730
25
5

1,925
90
785
25
155

2,265
80
830
30
330

2,600
80
870
30
440

2,945
80
915
30
510

3,270
70
960
35
565

3,500
70
1,005
35
620

Education, training, employment, and social services:
Education:
Exclusion of scholarship and fellowship income (normal tax method)
Exclusion of interest on State and local student loan bonds............................................
Exclusion of interest on State and local debt for private nonprofit educational institutions
Exclusion of interest on savings bonds transferred to educational institutions.................
Parental personal exemption for students age 19 or over................................................
Deductibility of charitable contributions (education) ...........................................................
Exclusion of employer provided educational assistance....................................................
Training, employment and social services:
Targeted jobs credit...........................................................................................................
Exclusion of employer provided child care........................................................................
Exclusion of employee meals and lodging (other than military)........................................
Credit for child and dependent care expenses.................................................................
Credit for disabled access expenditures............................................................................
Expensing of costs of removing certain architectural barriers to the handicapped...........
Deductibility of charitable contributions, other than education and health........................
Exclusion of certain foster care payments ........................................................................
Exclusion of parsonage allowances...................................................................................

790
310
705
*
505
1,960
215

835
310
735
5
520
2,120
235

875
305
750
5
535
2,230
85

920
295
770
5
545
2,340
0

965
275
785
10
565
2,460
0

1,015
255
810
10
580
2,590
0

1,065
240
845
15
595
2,720
0

160
620
490
2,540
150
20
13,130
25
235

305
675
525
2,675
160
20
14,290
30
260

395
725
550
2,820
160
20
15,080
30
290

325
775
580
2,975
160
20
15,830
35
320

60
830
610
3,145
165
20
16,630
35
355

40
890
640
3,320
165
20
17,460
40
395

20
955
670
3,510
165
20
18,330
40
440

Health:
Exclusion of employer contributions for medical insurance premiums and medical c a re.....
Credit for child medical insurance premiums2 ......................................................................
Deductibility of medical expenses..........................................................................................
Exclusion of interest on State and local debt for private nonprofit health facilities...............
Deductibility of charitable contributions (health) ....................................................................
Tax credit for orphan drug research......................................................................................
Special Blue Cross/Blue Shield deduction.............................................................................

46,895
110
3,010
1,405
1,770
0
105

51,445
125
3,270
1,455
1,910
35
115

56,265
0
3,560
1,495
2,020
15
125

61,675
0
3,870
1,535
2,130
0
140

67,345
0
4,195
1,585
2,230
0
100

73,450
0
4,535
1,640
2,340
0
170

79,995
0
4,890
1,700
2,460
0
185

415
3,815
500
100
130

395
4,240
545
100
130

400
4,455
585
100
130

405
4,740
605
95
130

410
5,065
640
95
130

420
5,565
695
90
130

425
6,100
735
80
130

49,430
5,720
3,245
25

48,750
5,415
3,670
30

55,540
5,290
3,875
35

59,010
5,275
4,130
35

59,490
5,175
4,400
40

59,950
4,970
4,690
40

60,400
4,615
5,000
45

2,620
135
35
2,070
40
1,510

2,750
140
35
2,035
45
1,535

2,880
140
35
1,760
45
1,555

3,020
145
35
1,635
45
1,570

3,170
150
35
1,545
50
1,585

3,325
160
35
1,415
50
1,600

3,485
165
35
1,285
55
1,605

Income security:
Exclusion of railroad retirement system benefits...................................................................
Exclusion of workmen’s compensation benefits ....................................................................
Exclusion of public assistance benefits (normal tax method)................................................
Exclusion of special benefits for disabled coal miners ..........................................................
Exclusion of military disability pensions.................................................................................
Net exclusion of pension contributions and earnings:
Employer plans..................................................................................................................
Individual Retirement Accounts..........................................................................................
Keogh plans.......................................................................................................................
Exclusion of employer provided death benefits.....................................................................
Exclusion of other employee benefits:
Premiums on group term life insurance ............................................................................
Premiums on accident and disability insurance................................................................
Income of trusts to finance supplementary unemployment benefits.................................
Special ESOP rules (other than investment credit)...............................................................
Additional deduction for the blind...........................................................................................
Additional deduction for the elderly........................................................................................




56

ANALYTICAL PERSPECTIVES

TABLE 6-1. TOTAL REVENUE LOSS ESTIMATES FOR TAX EXPENDITURES IN THE INCOME TAX-Continued
(In m
illions of dollars)
Total Revenue Loss
1993

1994

1995

1996

1997

1998

1999

Tax credit for the elderly and disabled..................................................................................
Deductibility of casualty losses...............................................................................................
Earned income credits............................................................................................................

60
695
3,605

65
770
3,940

65
230
5,100

70
230
5,795

70
230
6,435

75
230
6,740

75
230
7,125

Social Security:
Exclusion of social security benefits:
OASI benefits for retired workers......................................................................................
Disability insurance benefits...............................................................................................
Benefits for dependents and survivors..............................................................................

18,310
1,725
3,620

16,695
1,765
3,610

16,525
1,905
3,730

17,370
2,105
3,940

18,140
2,320
4,150

18,880
2,540
4,365

19,670
2,765
4,590

Veterans benefits and services:
Exclusion of veterans disability compensation.......................................................................
Exclusion of veterans pensions..............................................................................................
Exclusion of Gl bill benefits....................................................................................................
Exclusion of interest on State and local debt for veterans housing......................................

1,755
80
45
100

1,860
80
55
90

1,920
75
65
85

1,855
70
70
80

1,885
70
75
75

1,985
75
80
75

2,025
85
80
75

General purpose fiscal assistance:
Exclusion of interest on public purpose State and local debt...............................................
Deductibility of nonbusiness State and local taxes other than on owner-occupied homes ...
Tax credit for corporations receiving income from doing business in U.S. possessions......

11,575
22,555
3,075

11,970
24,255
2,890

12,350
25,640
2,630

12,690
27,130
2,680

13,085
28,740
2,735

13,535
30,435
2,815

14,040
32,185
2,960

Interest:.
Deferral of interest on savings bonds....................................................................................

1,130

1,190

1,250

1,310

1,380

1,450

1,520

13,055
22,555

13,865
24,255

14,655
25,640

15,545
27,130

16,425
28,740

17,395
30,435

18,395
32,185

11,575
165
595
865
1,715
1,000
730
310
705
1,405
100

11,970
175
610
690
1,760
970
785
310
735
1,455
90

12,350
175
625
545
1,785
920
830
305
750
1,495
85

12,690
175
615
420
1,775
870
870
295
770
1,535
80

13,085
175
600
325
1,715
810
915
275
785
1,585
75

13,535
175
585
280
1,640
750
960
255
810
1,640
75

14,040
165
565
255
1,575
685
1,005
240
845
1,700
75

Addendum—Aid to State and local governments:
Deductibility of:
Property taxes on owner-occupied homes........................................................................
Nonbusiness State and local taxes other than on owner-occupied homes.......................
Exclusion of interest on:
Public purpose State and local d eb t.................................................................................
IDBs for certain energy facilities........................................................................................
IDBs for pollution control and sewage and waste disposal facilities................................
Small-issue IDBs ...............................................................................................................
Owner-occupied mortgage revenue bonds........................................................................
State and local debt for rental housing.............................................................................
IDBs for airports, docks, and sports and convention facilities ..........................................
State and local student loan bonds...................................................................................
State and local debt for private nonprofit educational facilities.........................................
State and local debt for private nonprofit health facilities.................................................
State and local debt for veterans housing........................................................................

Note: Provisions with estimates denoted “normal tax method” have no revenue loss under the reference tax law method.
All estimates have been rounded to the nearest $5 million. Totals in table 6-1 may differ from figures in table 6-2 because of rounding.
*$2.5 million or less.
11n addition, the partial exemption from the excise tax for alcohol fuels results in a reduction in excise tax receipts of $675 million in 1995.
2 The figures in the table indicate the effect of the child medical insurance premium credit on receipts. The effect on outlays in 1994 is $395 million.
3 The figures in the table indicate the effect of the earned income tax credit on receipts. The effect on outlays in 1995 is $15,795 million.




57

6. TAX EXPENDITURES

TABLE 6-2. CORPORATE AND INDIVIDUAL INCOME TAX REVENUE LOSS ESTIMATES FOR TAX EXPENDITURES
(In millions of dollars)
Revenue Loss
Corporations
1994

1995

1996

Individuals
1997

1998

1999

1993

1994

1995

1996

1997

1998

1999

2,115

1993

2,060

2,030

2,020

2,015

2,030

2,055

1,000
—
—
—

1,055
—
—
—

1,115
—
—
—

National defense:
Exclusion of benefits and allowances to armed forces personnel.........

International affairs:
Exclusion of income earned abroad by United States citizens..............
Exclusion of income of foreign sales corporations.................................
Inventory property sales source rules exception.....................................
Interest allocation rules exception for certain financial operations.........
Deferral of income from controlled foreign corporations (normal tax
method)................................................................................................

1200
1,100
100

1,300
1,200
95

1,400
1,300
95

1,500
1,400
95

1,600
1,500
95

1,700
1,600
95

1,800
1,700
95

510
—
—
—

860
—
—
—

895
—
—
—

945
—
—
—

1,600

1,600

1,700

1,800

2,000

2,200

2,400

—

—

—

_

_

_

2,025
1,210

2,195
1,365

2,345
1,240

2,515
730

2,685
315

2,875
135

3,075
45

35
30

35
30

45
30

45
10

55
—

55
—

55
—

0

270

270

_

_

_

__

_

—

_

_

_

_

_

140
15

110
15

105
15

75
15

45
15

40
20

70
20

45
5

35
5

35
5

25
5

15
5

15
5

25
5

745
85
640

760
85
760

775
85
820

790
85
850

800
90
840

815
90
800

830
90
750

250
15
120

250
15
140

260
15
150

265
15
150

265
15
150

275
15
140

275
15
130

—
65
55
5
15

—
70
60
5
45

—
70
65
5
55

—
70
70
5
55

—
70
75
5
55

—
70
80
5
60

—
65
85
5
60

50
10
100
*
10
0

50
15
105
*

50
15
105
#

50
15
105
*

50
15
105
*

50
15
100
*

10
5

30
10

40
10

45
10

50
15
105
*
45
15

35

45

85

110

120

120

120

15

55

60

65

70

70

70

45
160
—
45

45
165
—
45

45
165
—
45

45
165
—
45

45
170
—
45

45
175
—
45

50
180
—
45

5
25
*

5
30
*

5
30
*

5
30
*

5

5

5

5
30
*
5

5
30
*

5

5
30
*
5

240
—
390

245
—
405

250
—
415

245
—
435

240
—
460

235
—
485

225
—
505

355
10
145

365
15
155

375
15
160

370
15
165

360
15
175

350
15
185

340
15
190

20
45

20
40

20
40

20
40

20
35

20
35

25
35

15
90

15
90

15
85

20
85

20
85

20
80

20
80

10
10
—

10
10
—

10
10
—

10
10
—

10
10
—

10
10
—

10
10
—

65
80
10
115

60
75
10
135

60
75
10
140

55
70
10
145

55
70
10
145

55
70
10
145

60
75
10
150

300
30
210

340
35
225

380
40
245

420
40
265

465
45
280

510
50
305

560
55
325

—
7,310

—
7,890

—
8,485

—
9,120

5
105
120

5
110
125

5
110
135

5
115
140

5
120
145

5
130
155

5
135
160

General science, space, and technology:
Expensing of research and experimentation expenditures (normal tax
method)................................................................................................
Credit for increasing research activities ..................................................
Suspension of the allocation of research and experimentation expendi­
tures .....................................................................................................

Energy:
Expensing of exploration and development costs:
Oil and gas...........................................................................................
Other fuels............................................................................................
Excess of percentage over cost depletion:
Oil and gas..........................................................................................
Other fuels...........................................................................................
Alternative fuel production credit.............................................................
Exception from passive loss limitation for working interests in oil and
gas properties.....................................................................................
Capital gains treatment of royalties on coal ...........................................
Exclusion of interest on State and local IDBs for energy facilities........
New technology credit..............................................................................
Alcohol fuel credit1 ..................................................................................
Tax credit and deduction for dean-fuel burning vehicles and properties
Exclusion from income of conservation subsidies provided by public
utilities..................................................................................................

45
20

Natural resources and environment:
Expensing of exploration and development costs, nonfuel minerals.....
Excess of percentage over cost depletion, nonfuel minerals.................
Capital gains treatment of iron ore..........................................................
Special rules for mining reclamation reserves........................................
Exclusion of interest on State and local IDBs for pollution control and
sewage and waste disposal facilities..................................................
Capital gains treatment of certain timber income...................................
Expensing of multiperiod timber growing costs ......................................
Investment credit and seven-year amortization for reforestation ex­
penditures .............................................................................................
Tax incentives for preservation of historic structures .............................

5

Agriculture:
Expensing of certain capital outlays........................................................
Expensing of certain multiperiod production costs .................................
Treatment of loans forgiven solvent farmers as if insolvent..................
Capital gains treatment of certain income ..............................................

Commerce and housing:
Financial institutions and insurance:
Exemption of credit union income.......................................................
Excess bad debt reserves of financial institutions .............................
Exclusion of interest on life insurance savings ..................................
Special alternative tax on small property and casualty insurance
companies........................................................................................
Tax exemption of certain insurance companies.................................
Small life insurance company deduction.............................................
Exemption of RIC expenses from the 2% floor for miscellaneous
itemized deductions.........................................................................
Housing:
Exclusion of interest on owner-occupied mortgage subsidy bonds ....
Exclusion of interest on State and local debt for rental housing ......




—
—
—
9,810 10,500 11,335

705
385

715
365

705
345

680
320

650
295

625
270

-

-

-

-

-

-

—

—

—

—

—

—

—

525
690
400

-

600

690

810

925

1,055

1,205

1,025
600

1,055
585

1,070
555

1,070
525

1,035
490

990

950

455

415

58

ANALYTICAL PERSPECTIVES

TABLE 6-2. CORPORATE AND INDIVIDUAL INCOME TAX REVENUE LOSS ESTIMATES FOR TAX EXPENDITURES—Continued
(In m
illions of dollars)
Revenue Loss
Corporations
1994

1993
Deductibility of mortgage interest on owner-occupied homes ...........
Deductibility of State and local property tax on owner-occupied
homes...............................................................................................
Deferral of income from post 1987 installment sales.........................
Deferral of capital gains on home sales.............................................
Exclusion of capital gains on home sales for persons age 55 and
over.................................................................................................
Exception from passive loss rules for $25,000 of rental loss............
Accelerated depreciation on rental housing (normal tax method) .....
Commerce:
Cancellation of indebtedness...............................................................
Permanent exceptions from imputed interest rules............................
Capital gains (other than agriculture, timber, iron ore, and coal)
(normal tax method) ........................................................................
Step-up basis of capital gains at death..............................................
Carryover basis of capital gains on gifts............................................
Ordinary income treatment of loss from small business corporation
stock sale........................................................................................
Accelerated depreciation of buildings other than rental housing (nor­
mal tax method)...............................................................................
Accelerated depreciation of machinery and equipment (normal tax
method)............................................................................................
Expensing of certain small investments (normal tax method)...........
Amortization of start-up costs (normal tax method)...........................
Graduated corporation income tax rate (normal tax method)............
Exclusion of interest on small issue ID B s..........................................
Deferral of gains from sale of broadcasting facilities to minority
owned business...............................................................................
Treatment of Alaska Native Corporations...........................................

1995

1996

Individuals
1998

1997

1999

1995

1996

1997

1998

48,705 51,835 54,800 57,985 61,420 65,050 68,785
—
210

—

__

_

_

_

_

225

235

240

245

250

255

13,055 13,865 14,655 15,545 16,425 17,395 18,395
690
710
740
610
700
720
730
13,265 13,925 14,620 15,195 15,620 15,915 16,065

720

730

765

815

855

895

4,625
6,070
415

4,770
5,945
365

4,960
5,775
370

5,155
5,680
385

5,300
5,625
405

5,400
5,595
430

5,450
5,545
450

60
140

780

120
150

110
150

70
150

35
155

10
155

-10
160

5,510 6,565 6,920 7,045 7,120 7,160 7,225
25,340 26,850 28,305 29,480 30,265 30,710 30,655
120
125
135
140
145
150
130
25

30

30

35

35

35

35

3,350

705

720

765

820

895

980

1,060

15,840 18,420 18,720 18,140 17,965 17,200 16,210
595
470
345
235
145
590
785
100
100
105
105
110
110
100
3,325 3,655 3,890 4,140 4,340 4,540 4,745
100
335
265
210
160
125
110

3,785
945
100

4,355
1,310
100

4,490
965
100

4,410
765
105

4,365
560
110

4,180
380
110

3,940
240
115

530

425

335

260

200

170

155

*

*

*

*

*

*

2,190

2,275

2,415

2,605

2,845

3,100

260
65

275
45

290
30

305
20

320
15

335
10

350
5

15
—

15
—

15
—

15
—

15
—

15
—

15
—

465
30

580
30

680
25

780
25

885
25

980
20

295
25
0

315
25
45

335
30
95

350
30
130

370
30
155

125

125

120

115

285

295

300

—
600
-

—
640
-

130
—

Transportation:
Deferral of tax on shipping companies .......................
Exclusion of reimbursed employee parking expenses .
Exclusion for employer-provided transit passes..........

1994

1993

_

_

_

_

_

_

1,790
10

1,845
30

1,930
40

2,015
50

2,100
65

2,190
80

2,275
95

1,050
20

1,080
60

1,345
60

1,585
55

1,820
55

2,060
55

2,290
50

2,450
50

385
35
175

405
35
195

435
—
5

470
—
110

495
—
235

520
—
310

545
—
355

575
—
390

600
425

110

100

95

790
185

835
185

875
185

920
180

965
165

1,015
155

1,065
145

310

315

325

340

420

440

450

460

470

485

505

—
670
-

—
700

—
740
-

—
780
—

—
820
-

*
505
1,360
215

5
520
1,480
235

5
535
1,560
85

5
545
1,640
—

10
565
1,720
—

10
580
1,810
—

15
595
1,900

260
—

320
—

270
—

50
—

30
—

15
—

—
120

—
130

—
130

—
130

—
135

—
135

—
135

30
620
490
2,540
30

45
675
525
2,675
30

75
725
550
2,820
30

55
775
580
2,975
30

10
830
610
3,145
30

10
890
640
3,320
30

5
955
670
3,510
30

15

15

15

15

15

15

15

5

5

5

5

5

5

750

800

840

880

930

980

Community and regional development:
Credit for low-income housing investments.............................................
Investment credit for rehabilitation of structures (other than historic)....
Exclusion of interest on IDBs for airports, docks, and sports and con­
vention facilities....................................................................................
Exemption of certain mutuals’ and cooperatives’ income ......................
Empowerment zones................................................................................

Education, training, employment, and social services:
Education:
Exclusion of scholarship and fellowship income (normal tax method)
Exclusion of interest on State and local student loan bonds............
Exclusion of interest on State and local debt for private nonprofit
educational facilities.........................................................................
Exclusion of interest on savings bonds transferred to educational in­
stitutions ..........................................................................................
Parental personal exemption for students age 19 or over
Deductibility of charitable contributions (education)............
Exclusion of employer provided educational assistance ....
Training, employment, and social services:
Targeted jobs credit .
Exclusion of employer provided child care.................................
Exclusion of employee meals and lodging (other than military) .
Credit for child and dependent care expenses ..........................
Credit for disabled access expenditures .
Expensing of costs of removing certain architectural barriers to the
handicapped
Deductibility of charitable contributions, other than education and
health................................................................................................
Exclusion of certain foster care payments .
Exclusion of parsonage allowances..........




—

1,020 12,380 13,490 14,240 14,950 15,700 16,480
40
35
35
25
30
30
395
290
320
355
260
235

17,310
40
440

59

6. TAX EXPENDITURES

TABLE 6-2. CORPORATE AND INDIVIDUAL INCOME TAX REVENUE LOSS ESTIMATES FOR TAX EXPENDITURES—Continued
(In m
illions of dollars)
Revenue Loss
Corporations
1993
Health:
Exclusion of employer contributions for medical insurance premiums
and medical care .................................................................................
Credit for child medical insurance premiums2 ........................................
Deductibility of medical expenses............................................................
Exclusion of interest on State and local debt for private nonprofit
health facilities.....................................................................................
Deductibility of charitable contributions (health)......................................
Tax credit for orphan drug research .......................................................
Special Blue Cross/Blue Shield deduction..............................................
Income security:
Exclusion of railroad retirement system benefits....................................
Exclusion of workmen’s compensation benefits......................................
Exclusion of public assistance benefits (normal tax method) ................
Exclusion of special benefits for disabled coal miners...........................
Exclusion of military disability pensions ..................................................
Net exclusion of pension contributions and earnings:
Employer plans ...................................................................................
Individual Retirement Accounts...........................................................
Keogh plans........................................................................................
Exclusion of employer provided death benefits......................................
Exclusion of other employee benefits:
Premiums on group term life insurance..............................................
Premiums on accident and disability insurance..................................
Income of trusts to finance supplementary unemployment benefits ...
Special ESOP rules (other than investment credit)................................
Additional deduction for the blind............................................................
Additional deduction for the elderly.........................................................
Tax credit for the elderly and disabled ...................................................
Deductibility of casualty losses................................................................
Earned income credit3 .............................................................................

1994

1995

1996

Individuals
1997

1998

1999

General purpose fiscal assistance:
Exclusion of interest on public purpose State and local debt................
Deductibility of nonbusiness State and local taxes other than on
owner-occupied homes........................................................................
Tax credit for corporations receiving income from doing business in
U.S. possessions .................................................................................




1995

1996

1997

51,445 56,265 61,675 67,345 73,450 79,995
125
3,010 3,270 3,560 3,870 4,195 4,535

0

105

585
400
35
115

600
420
15
125

615
450

635
470

490

685
520

140

10
0

170

840
1,390

870
1,510

895
1,600

920
1,680

950
1,760

980
1,850

415
3,815
500

565
380

185
395
4,240
545

400
4,455
585

405
4,740
605
95
130

410
5,065
640
95
130

420
5,565
695
90
130

10
0

10
0

130

130

10
0

130

1,015
1,940

425

60
,1 0
735
80
130

49,430 48,750 55,540 59,010 59,490 59,950 60,400
5,720 5,415 5,290 5,275 5,175 4,970 4,615
3,245 3,670 3,875 4,130 4,400 4,690 5,000
25
30
35
35
40
45
40
2,620
135
35
2,035

1,760

1,635

1,545

1,415

2,750
140
35

2,880
140
35

3,020
145
35

3,170
150
35

3,325
160
35

3,485
165
35

40
1,510
60
695
3,605

2,070

45
1,535
65
770
3,940

45
1,555
65
230
5,100

45
1,570
70
230
5,795

50
1,585
70
230
6,435

50
1,600
75
230
6,740

55
1,605
75
230
7,125

16,695 16,525
1,765 1,905
3,610 3,730

17,370
2,105
3,940

18,140
2,320
4,150

2,540
4,365

19,670
2,765
4,590

80
55
55

1,920
75
65
50

1,855
70
70
50

1,885
70
75
45

1,985
75
80
45

2,025
85
80
45

7,160

7,395

7,595

7,830

8,095

8,395

1,285

18,310
1,725
3,620
1,755
80
45
40

35

35

30

30

30

30

4,810

4,955

5,095

5,255

5,440

5,645

6,915

22,555 24,255 25,640 27,130 28,740 30,435 32,185
3,075

2,890

2,630

2,680

2,735

2,815

2,960

Interest:
Deferral of interest on savings bonds.....................................................
Addendum—Aid to State and local governments:
Deductibility of:
Property taxes on owner-occupied homes..........................................
Nonbusiness State and local taxes other than on owner-occupied
homes..............................................................................................
Exclusion of interest on:
Public purpose State and local debt...................................................
IDBs for certain energy facilities .........................................................
IDBs for pollution control and sewage and waste disposal facilities ..
Small-issue IDBs..................................................................................
Owner-occupied mortgage revenue bonds.........................................
State and local debt for rental housing ..............................................
IDBs for airports, docks, and sports and convention facilities...........
State and local student loan bonds....................................................

1994

10
1

Social Security:
Exclusion of social security benefits:
OASI benefits for retired workers........................................................
Disability insurance benefits................................................................
Benefits for dependents and survivors................................................
Veterans benefits and services:
Exclusion of veterans disability compensation........................................
Exclusion of veterans pensions..............................................................
Exclusion of Gl bill benefits.....................................................................
Exclusion of interest on State and local debt for veterans housing......

1993

1,130

13,055

1,190

1,250

1,310

13,865 14,655

15,545

1,450

1,520

16,425 17,395

18,395

1,380

22,555 24,255 25,640 27,130 28,740 30,435 32,185
4,660
65
240
335
690
400
295
125

4,810
70
245
265
705
385
315
125

4,955
70
250

20
1
715
365
335

10
2

5,095
70
245
160
705
345
350
115

5,255
70
240
125
680
320
370

10
1

5,440
70
235

5,645
65
225

650
295
385

625
270
405
95

10
1

10
0

10
0

6,915

10
0

355
530
1,025
600
435
185

7,160
105
365
425
1,055
585
470
185

7,395
105
375
335
1,070
555
495
185

7,595
105
370
260
1,070
525
520
180

7,830
105
360

20
0

1,035
490
545
165

8,095
105
350
170
990
455
575
155

8,395

10
0

340
155
950
415
600
145

60

ANALYTICAL PERSPECTIVES

TABLE 6-2. CORPORATE AND INDIVIDUAL INCOME TAX REVENUE LOSS ESTIMATES FOR TAX EXPENDITURES—Continued
(In m
illions of dollars)
Revenue Loss
Corporations
1993
State and local debt for private nonprofit educational facilities.........
State and local debt for private nonprofit health facilities..................
State and local debt for veterans housing..........................................

285
565
40

1994
295
585
35

1995
300
600
35

1996

Individuals
1997

310
615
30

315
635
30

1998
325
660
30

1999
340
685
30

1993
420
840
60

1994
440
870
55

1995
450
895
50

1996
460
920
50

1997
470
950
45

1998
485
980
45

1999
505
1,015
45

Note: Provisions with estimates denoted “normal tax method” have no revenue loss under the reference tax law method.
All estimates have been rounded to the nearest $5 million.
*$2.5 million or less.
1 1n addition, the partial exemption from the excise tax for alcohol fuels results in a reduction in excise tax receipts of $675 million in 1995.
2 The figures in the table indicate the effect of the child medical insurance premium credit on receipts. The effect on outlays in 1994 is $395 million.
3 The figures in the table indicate the effect of the earned income tax credit on receipts. The effect on outlays in 1995 is $15,795 million.

Interpreting Tax Expenditure Estimates
Tax expenditure revenue loss estimates do not nec­
essarily equal the increase in Federal revenues (or the
reduction in budget deficits) that would accompany the
repeal of the special provisions, for the following rea­
sons:
• Eliminating a tax expenditure may have incentive
effects that alter economic behavior. These incen­
tives can affect the resulting magnitudes of the
formerly subsidized activity or of other tax pref­
erences or Government programs. For example,
if deductibility of mortgage interest were limited,
some taxpayers would hold smaller mortgages,
with a concomitantly smaller effect on the budget
than if no such limits were in force.
• Tax expenditures are interdependent even without
incentive effects. Repeal of a tax expenditure provi­
sion can increase or decrease the the revenue
losses associated with other provisions. For exam­
ple, even if behavior does not change, repeal of
an itemized deduction could increase the revenue
losses from other deductions because some tax­
payers would be moved into higher tax brackets.
Alternatively, repeal of an itemized deduction
could lower the revenue loss from other deductions
if taxpayers are led to claim the standard deduc­
tion instead of itemizing. Similarly, if two provi­
sions were repealed simultaneously, the increase
in tax liability could be greater or less than the
sum of the two separate tax expenditures, since
each is estimated assuming that the other remains
in force.
• The annual value of tax expenditures for tax defer­
rals is reported on a cash basis in all tables except
table 6-3. Cash-based estimates reflect the dif­
ference between taxes deferred in the current year
and incoming revenues that are received due to
deferrals of taxes from prior years. While such
estimates are useful as a measure of cash flows
into the Government, they do not always accu­
rately reflect the true economic cost of these provi­
sions. For example, for a provision where activity
levels have changed, so that incoming tax receipts
from past deferrals are greater than deferred re­
ceipts from new activity, the cash-basis tax ex­




penditure estimate can be negative, despite the
fact that in present-value terms current deferrals
do have a real cost to the Government. Alter­
natively, in the case of a newly enacted deferral
provision, a cash-based estimate can overstate the
real cost to the Government because the newly
deferred taxes will ultimately be received. Presentvalue estimates, which are a useful supplement
to the cash-basis estimates for provisions involving
deferrals, are discussed below.
• Repeal of some provisions could affect overall levels
of income and rates of economic growth. In prin­
ciple, repeal of major tax provisions may have
some impact on the budget economic assumptions.
In general, however, most changes in particular
provisions are unlikely to have significant effects
on macroeconomic conditions.

Present-Value Estimates
Discounted present-value estimates of revenue losses
are presented in table 6-3 for certain provisions that
involve tax deferrals or similar long-term revenue ef­
fects. These estimates complement the cash-based tax
expenditure estimates presented in the other tables in
this chapter.
The present-value estimates represent the revenue
losses, net of future tax payments, that follow from
activities undertaken during calendar year 1994 which
cause the deferrals or related revenue effects. For in­
stance, a pension contribution in 1994 would cause a
deferral of tax payments on wages in 1994 and on pen­
sion earnings on this contribution (e.g., interest) in
later years. In some future year, however, the 1994
pension contribution and accrued earnings will be paid
out and taxes will be due; these receipts are included
in the present-value estimate. In general, this concep­
tual approach is similar to the one used for reporting
the budgetary effects of credit programs, where direct
loans and guarantees in a given year affect future cash
flows.
The discount rate used for the present-value esti­
mates is the interest rate on comparable maturity
Treasury debt. As noted in the table, the estimates
for several of the provisions have been made based
on the normal tax baseline, as by definition there is

61

6. TAX EXPENDITURES

TABLE 6-3. PRESENT VALUE OF SELECTED TAX EXPENDITURES FOR
ACTIVITY IN CALENDAR YEAR 1994
(In millions of dollars)
Provision

Deferral of income from controlled foreign corporations (normal tax method)...........................
Expensing of research and experimentation expenditures (normal tax method) ........................
Expensing of exploration and development costs—oil and gas..................................................
Expensing of exploration and development costs—other fuels...................................................
Expensing of exploration and development costs—nonfuels......................................................
Expensing of multiperiod timber growing costs...........................................................................
Expensing of certain multiperiod production costs—agriculture..................................................
Expensing of certain capital outlays—agriculture........................................................................
Deferral of capital gains on home sales.....................................................................................
Accelerated depreciation of rental housing (normal tax method)................................................
Accelerated depreciation of buildings other than rental housing (normal tax method)...............
Accelerated depreciation of machinery and equipment (normal tax method) ............................
Expensing of certain small investments (normal tax method).....................................................
Amortization of start-up costs (normal tax method)....................................................................
Deferral of capital gains from sale of broadcasting facilities to minority-owned businesses......
Deferral of tax on shipping companies.......................................................................................
Credit for low-income housing investments.................................................................................
Exclusion of pension contributions and earnings—employer plans............................................
Exclusion of IRA contributions and earnings ..............................................................................
Exclusions of contribution and earnings for Keogh plans..........................................................
Exclusion of interest on State and local public-purpose bonds..................................................
Exclusion of interest on State and local non-public purpose bonds...........................................
Deferral of interest on U.S. savings bonds.................................................................................

Present Value
of Revenue
Loss

1,640
2,035
275
35
90
235
65
80
15,605
1,140
670
22,105
3,995
165
230
10
2,055
40,500
1,735
2,710
16,140
8,780
655

Note: Provisions with estimates denoted “normal tax method” have no revenue loss under the reference tax law method.

no tax expenditure for these provisions under the ref­
erence tax law baseline.

Government payment for service. This occurs because
an outlay program would increase the taxpayer's pre­
tax income. For some tax expenditures, however, the
Outlay Equivalents
revenue loss equals the outlay equivalent measure. This
The concept of “outlay equivalents” complements occurs when the tax expenditure is judged to function
“revenue losses” as a measure of the budget effect of like a price reduction or tax deferral that does not
tax expenditures. It is the amount of outlay that would directly enter the taxpayer's pre-tax income.1
be required to provide the taxpayer the same after­
tax income as would be received through the tax pref­
i Budget outlay figures generally reflect the pre-tax price of the resources. In some in­
erence. The outlay equivalent measure allows a com­
stances, however, Government purchases or
are exempted
parison of the cost of the tax expenditure with that tax provision. When this occurs, the outlaysubsidiesunderstates thefrom tax by a special
figure
resource cost of the
of a direct Federal outlay. Outlay equivalents are re­ program and is, therefore, not comparable with other outlay amounts. For example, the
outlays for certain military personnel allowances are not taxed. If this form of compensation
ported in table 6-4.
were treated as part of the employee’s taxable income, the Defense Department would
The measure is larger than the revenue loss estimate have to make larger cash payments to its military personnel to leave them as well off
after
as they
must be added to the
budget
when the tax expenditure is judged to function as a outlaytax make this are now.ofThe tax subsidy expenditures comparable tax-exempt outlays.
to
element national defense
with other


http://fraser.stlouisfed.org/
150-003 0 -9 4 -3
Federal Reserve Bank of St. Louis

(QL 3)

62

ANALYTICAL PERSPECTIVES

TABLE 6-4. OUTLAY EQUIVALENT ESTIMATES FOR TAX EXPENDITURES IN THE INCOME TAX
(In millions of dollars)
Outlay Equivalents

,

1993

1994

1995

1996

1997

1998

1999

National defense:
Exclusion of benefits and allowances to armed forces personnel.........................................

2,465

2,395

2,365

2,350

2,355

2,375

2,395

International affairs:
Exclusion of income earned abroad by United States citizens .............................................
Exclusion of income of foreign sales corporations................................................................
Inventory property sales source rules exception...................................................................
Interest allocation rules exception for certain financial operations........................................
Deferral of income from controlled foreign corporations (normal tax method) .....................

675
1,845
1,690
150
1,600

1,135
2,000
1,845
140
1,600

1,185
2,155
2,000
140
1,700

1,255
2,310
2,155
140
1,800

1,325
2,460
2,310
140
2,000

1,400
2,615
2,460
140
2,200

1,480
2,770
2,615
140
2,400

General science, space, and technology:
Expensing of research and experimentation expenditures (normal tax method)
Credit for increasing research activities.................................................................................
Suspension of the allocation of research and experimentation expenditures.......................

2,060
1,900
0

2,230
2,150
385

2,390
1,950
385

2,560
1,145
—

2,740
485
—

2,930
205
—

3,130
65
—

185
20

145
20

140
20

100
20

60
20

55
25

95
25

1,400
140
1,070
50
15
235
85
15
20
70

1,425
140
1,260
50
20
245
90
15
65
140

1,455
140
1,370
50
20
250
95
35
90
205

1,480
140
1,400
50
20
255
100
45
90
245

1,505
150
1,390
50
20
250
105
50
95
265

1,535
150
1,330
50
20
245
110
50
105
265

1,560
150
1,240
50
20
240
115
50
110
265

50
260
*

50
270
*

50
270
*

50
275
*

50
280
*

50
285
*

50

50

50

50

50

50

55
300
*
50

855
15
535
40
135

885
20
555
40
130

895
20
575
40
125

885
20
605
40
125

865
20
635
45
120

840
20
665
45
115

815
20
700
45
115

75
90
10
155

70
90
10
180

65
85
10
185

65
80
10
195

60
80
10
195

65
80
10
195

65
85
10
200

380
45
10,580
5
145
170
700

435
50
11,415
5
150
180
800

490
55
12,275
5
160
190
915

535
65
13,190
5
165
200
1,075

590
70
14,185
5
170
210
1,230

650
75
15,250
5
180
220
1,405

715
80
16,395
5
190
230
1,605

2,460
1,425
48,705
13,055
820
13,265
6,165
6,070
1,190

2,540
1,395
51,835
13,865
915
13,925
6,360
5,945
1,085

2,575
1,325
54,800
14,655
935
14,620
6,615
5,775
1,100

2,545
1,245
57,985
15,545
950
15,195
6,875
5,680
1,145

2,465
1,160
61,420
16,425
965
15,620
7,065
5,625
1,220

2,360
1,070
65,050
17,395
980
15,915
7,200
5,595
1,290

2,260
985
68,785
18,395
995
16,065
7,265
5,545
1,345

60
140

120
150

110
150

70
150

35
155

10
155

-10
160

Energy:
Expensing of exploration and development costs:
Oil and g a s ........................................................................................................................
Other fuels.........................................................................................................................
Excess of percentage over cost depletion:
Oil and g a s ........................................................................................................................
Other fuels.........................................................................................................................
Alternative fuel production credit............................................................................................
Exception from passive loss limitation for working interests in oil and gas properties.........
Capital gains treatment of royalties on coal..........................................................................
Exclusion of interest on State and local IDBs for energy facilities .......................................
New technology credit...........................................................................................................
Alcohol fuel credit1 ................................................................................................................
Tax credit and deduction for dean-fuel burning vehicles and properties .............................
Exclusion from income of conservation subsidies provided by public utilities......................
Natural resources and environment:
Expensing of exploration and development costs, nonfuel minerals.....................................
Excess of percentage over cost depletion, nonfuel minerals................................................
Capital gains treatment of iron o re .......................................................................................
Special rules for mining reclamation reserves.......................................................................
Exclusion of interest on State and local IDBs for pollution control and sewage and waste
disposal facilities................................................................................................................
Capital gains treatment of certain timber income..................................................................
Expensing of multiperiod timber growing costs.....................................................................
Investment credit and seven-year amortization for reforestation expenditures.....................
Tax incentives for preservation of historic structures............................................................
Agriculture:
Expensing of certain capital outlays.......................................................................................
Expensing of certain multiperiod production costs................................................................
Treatment of loans forgiven solvent farmers as if insolvent..................................................
Capital gains treatment of certain income.............................................................................
Commerce and housing:
Financial institutions and insurance:
Exemption of credit union income .....................................................................................
Excess bad debt reserves of financial institutions............................................................
Exclusion of interest on life insurance savings.................................................................
Special alternative tax on small property and casualty insurance companies..................
Tax exemption of certain insurance companies................................................................
Small life insurance company deduction...........................................................................
Exemption of RIC expenses from the 2% floor for miscellaneous itemized deductions ....
Housing:
Exclusion of interest on owner-occupied mortgage revenue bonds..................................
Exclusion of interest on State and local debt for rental housing......................................
Deductibility of mortgage interest on owner-occupied homes...........................................
Deductibility of State and local property tax on owner-occupied homes..........................
Deferral of income from post 1987 installment sales........................................................
Deferral of capital gains on home sales ...........................................................................
Exclusion of capital gains on home sales for persons age 55 and over.........................
Exception from passive loss rules for $25,000 of rental loss ...........................................
Accelerated depreciation on rental housing (normal tax method).....................................
Commerce:
Cancellation of indebtedness.............................................................................................
Permanent exceptions from imputed interest rules............................................................




63

6. TAX EXPENDITURES

TABLE 6-4. OUTLAY EQUIVALENT ESTIMATES FOR TAX EXPENDITURES IN THE INCOME TAX-Continued
(In millions of dollars)
Outlay Equivalents
1993

1994

1995

1996

1997

1998

1999

Capital gains (other than agriculture,timber, iron ore, and coal) (normal tax method) .....
Step-up basis of capital gains at death.............................................................................
Carryover basis of capital gains on gifts...........................................................................
Ordinary income treatment of loss from small business corp. stock sale........................
Accelerated depreciation of buildings other than rental housing (normal tax method).....
Accelerated depreciation of machinery and equipment (normal tax method)...................
Expensing of certain small investments (normal tax method)...........................................
Amortization of start-up costs (normal tax method)..........................................................
Graduated corporation income tax rate (normal tax method) ...........................................
Exclusion of interest on small issue industrial development bonds..................................
Deferral of gains from sale of broadcasting facilities to minority owned business ...........
Treatment of Alaska Native Corporations..........................................................................

7,345
34,060
120
35
2,895
19,625
1,540
200
4,750
1,220
260
65

8,755
36,090
125
40
2,995
22,775
2,095
200
5,220
985
275
45

9,225
38,045
130
40
3,185
23,210
1,560
200
5,555
770
290
30

9,395
39,625
135
50
3,430
22,550
1,235
210
5,910
595
305
20

9,495
40,679
140
50
3,745
22,330
905
215
6,200
465
320
15

9,545
41,280
145
50
4,075
21,380
610
220
6,485
400
335
10

9,635
41,205
150
50
4,410
20,155
385
225
6,780
370
350
5

Transportation:
Deferral of tax on shipping companies..................................................................................
Exclusion of reimbursed employee parking expenses..........................................................
Exclusion for employer-provided transit passes ....................................................................

15
2,330
15

15
2,400
35

15
2,510
50

15
2,625
65

15
2,735
80

15
2,845
100

15
2,960
115

Community and regional development:
Credit for low-income housing investments...........................................................................
Investment credit for rehabilitation of structures (other than historic) ...................................
Exclusion of interest on IDBs for airports, docks, and sports and convention facilities........
Exemption of certain mutuals’ and cooperatives’ income.....................................................
Empowerment zones .............................................................................................................

1,555
90
1,055
25
5

1,935
90
1,135
25
150

2,275
80
1,200
30
330

2,610
80
1,260
30
440

2,955
80
1,320
30
510

3,280
70
1,385
35
565

3,510
70
1,450
35
620

1,300
370
1,170
15
645
2,590
—

1,365
345
1,210
20
660
2,720
—

Education, training, employment, and social services:
Education:
Exclusion of scholarship and fellowship income (normal tax method)..............................
Exclusion of interest on State and local student loan bonds............................................
Exclusion1 interest on State and local debt for private nonprofit educational facilities ...
of
Exclusion of interest on savings bonds transferred to educational institutions ................
Parental personal exemption for students age 19 or over................................................
Deductibility of charitable contributions (education) ..........................................................
Exclusion of employer provided educational assistance....................................................
Training, employment, and social services:
Targeted jobs credit...........................................................................................................
Exclusion of employer provided child care........................................................................
Exclusion of employee meals and lodging (other than military)........................................
Credit for child and dependent care expenses.................................................................
Credit for disabled access expenditures............................................................................
Expensing of costs of removing certain architectural barriers to the handicapped...........
Deductibility of charitable contributions, other than education and health........................
Exclusion of certain foster care payments ........................................................................
Exclusion of parsonage allowances...................................................................................

1,000
445
1,015
5
560
1,960
255

1,070
445
1,055
5
575
2,120
275

1,120
440
1,080
5
595
2,230
100

1,180
420
1,105
10
605
2,340

1,235
395
1,135
10
630
2,460

—

—

160
810
600
3,200
205
20
13,130
30
290

305
880
640
3,375
220
20
14,290
40
320

395
945
670
3,555
220
20
15,080
40
355

325
1,010
705
3,755
220
20
15,830
45
395

60
1,085
740
3,965
225
20
16,630
45
440

40
1,160
780
4,190
225
20
17,460
50
485

20
1,245
815
4,425
225
20
18,330
50
540

Health:
Exclusion of employer contributions for medical insurance premiums and medical care .....
Credit for child medical insurance premiums2 ......................................................................
Deductibility of medical expenses.........................................................................................
Exclusion of interest on State and local debt for private nonprofit health facilities...............
Deductibility of charitable contributions (health) ....................................................................
Tax credit for orphan drug research......................................................................................
Special Blue Cross/Blue Shield deduction.............................................................................

58,910
130
3,010
2,015
1,770
0
150

64,670
145
3,270
2,100
1,910
50
160

70,805

77,615

100,675

—

3,560
2,155
2,020
20
175

3,870
2,215
2,130

84,750
—
4,195
2,285
2,230

92,435

—

—

—

185

415
3,815
500
100
130

395
4,240
545
100
130

400
4,455
585
100
130

67,320
7,790
4,270
30

66,960
7,510
4,965
40

3,440
180
35
2,955
50

3,610
185
35
2,910
55

Income security:
Exclusion of railroad retirement system benefits...................................................................
Exclusion of workmen’s compensation benefits ....................................................................
Exclusion of public assistance benefits (normal tax method)...............................................
Exclusion of special benefits for disabled coal miners .........................................................
Exclusion of military disability pensions.................................................................................
Net exclusion of pension contributions and earnings:
Employer plans..................................................................................................................
Individual Retirement Accounts..........................................................................................
Keogh plans.......................................................................................................................
Exclusion of employer provided death benefits.....................................................................
Exclusion of other employee benefits:
Premiums on group term life insurance ............................................................................
Premiums on accident and disability insurance................................................................
Income of trusts to finance supplementary unemployment benefits.................................
Special ESOP rules (other than investment credit)...............................................................
Additional deduction for the blind...........................................................................................




—

—

140

4,535
2,365
2,340
—
240

4,890
2,455
2,460
—
260

405
4,740
605
95
130

410
5,065
640
95
130

420
5,565
695
90
130

425
6,100
735
80
130

75,940
7,430
5,240
45

80,410
7,475
5,585
45

81,040
7,430
5,955
50

81,650
7,245
6,345
50

82,230
6,885
6,760
55

3,785
185
35
2,510
55

3,970
195
35
2,340
55

4,165
205
35
2,205
60

4,365
215
35
2,020
60

4,580
225
35
1,840
65

64

ANALYTICAL PERSPECTIVES

TABLE 6-4. OUTLAY EQUIVALENT ESTIMATES FOR TAX EXPENDITURES IN THE INCOME TAX-Continued
(In m
illions of dollars)
Outlay Equivalents
1993

Additional deduction for the elderly........................................................................................
Tax credit for the elderly and disabled..................................................................................
Deductibility of casualty losses...............................................................................................
Earned income credit3 ...........................................................................................................

1,830
75
900
4,240

Social Security:
Exclusion of social security benefits:
OASI benefits for retired workers ......................................................................................
Disability insurance benefits...............................................................................................
Benefits for dependents and survivors..............................................................................

18,310
1,725
3,620

Veterans benefits and services:
Exclusion of veterans disability compensation.......................................................................
Exclusion of veterans pensions..............................................................................................
Exclusion of Gl bill benefits...................................................................................................
Exclusion of interest on State and local debt for veterans housing......................................

1994

1995

1996

1997

1998

1999

1,855
80
1,000
4,635

1,880
80
300
5,995

1,900
85
300
6,815

1,920
90
300
7,575

1,935
90
300
7,925

1,940
95
300
8,380

16,695
1,765
3,610

16,525
1,905
3,730

17,370
2,105
3,940

18,140
2,320
4,150

18,880
2,540
4,365

19,670
2,765
4,590

1,755
80
45
140

1,860
80
55
130

1,920
75
65
120

1,855
70
70
115

1,885
70
75
110

1,985
75
80
105

2,025
85
80
105

General purpose fiscal assistance:
Exclusion of interest on public purpose State and local debt...............................................
Deductibility of nonbusiness State and local taxes other than on owner-occupied homes ...
Tax credit for corporations receiving income from doing business in U.S. possessions......

16,585
22,555
4,395

17,265
24,255
4,160

17,800
25,640
3,810

18,295
27,130
3,885

18,870
28,740
3,960

19,525
30,435
4,085

20,250
32,185
4,295

Interest:
Deferral of interest on savings bonds....................................................................................

1,130

1,190

1,250

1,310

1,380

1,450

1,520

13,055
22,555

13,865
24,255

14,655
25,640

15,545
27,130

16,425
28,740

17,395
30,435

18,395
32,185

16,585
235
855
1,220
2,460
1,425
1,055
445
1,015
2,015
140

17,265
245
885
985
2,540
1,395
1,135
445
1,055
2,100
130

17,800
250
895
770
2,575
1,325
1,200
440
1,080
2,155
120

18,295
255
885
595
2,545
1,245
1,260
420
1,105
2,215
115

18,870
250
865
465
2,465
1,160
1,320
395
1,135
2,285
110

19,525
245
840
400
2,360
1,070
1,385
370
1,170
2,365
105

20,250
240
815
370
2,260
985
1,450
345
1,210
2,455
105

Addendum—Aid to State and local governments:
Deductibility of:
Property taxes on owner-occupied homes........................................................................
Nonbusiness State and local taxes other than on owner-occupied homes......................
Exclusion of interest on:
Public purpose State and local debt .................................................................................
IDBs for certain energy facilities........................................................................................
IDBs for pollution control and sewage and waste disposal facilities................................
Small-issue IDBs ...............................................................................................................
Owner-occupied mortgage revenue bonds........................................................................
State and local debt for rental housing.............................................................................
IDBs for airports, docks, and sports and convention facilities ..........................................
State and local student loan bonds...................................................................................
State and local debt for private nonprofit educational facilities.........................................
State and local debt for private nonprofit health facilities.................................................
State and local debt for veterans housing........................................................................

'

Note: Provisions with estimates denoted “normal tax method" have outlay equivalents of zero under (he reference tax law method.
AD estimates have been rounded to the nearest $5 million.
*$2.5 million or less.
1 1n addition, the partial exemption from the excise tax for alcohol fuels results in a reduction in excise tax receipts of $675 million in 1995.
2 The figures in the table indicate the effect of the child medical insurance premium credit on receipts. The effect on outlays in 1994 is $395 million.
3 The figures in the table indicate the effect of the earned income tax credit on receipts. The effect on outlays in 1995 is $15,795 million.

Tax Expenditure Baselines
A tax expenditure is a preferential exception to the
baseline provisions of the tax structure. The 1974 Con­
gressional Budget Act does not, however, specify the
baseline provisions of the tax law. Deciding whether
provisions are preferential exceptions, therefore, is a
matter of judgement. As in prior years, this year’s tax
expenditure estimates are presented using two base­
lines: the normal tax baseline, which is used by the
Joint Committee on Taxation, and the reference tax law
baseline, which has been used by the Administration
since 1983.
The normal tax baseline is patterned on a com­
prehensive income tax, which defines income as the
sum of consumption and the change in net wealth in
a given period of time. The normal tax baseline allows
personal exemptions, a standard deduction, and deduc­
tions of the expenses incurred in earning income. It




is not limited to a particular structure of tax rates,
or by a specific definition of the taxpaying unit.
The reference tax law baseline is closer to existing
law. Reference law tax expenditures are limited to spe­
cial exceptions in the tax code that serve programmatic
functions. These functions correspond to specific budget
categories such as national defense, agriculture, or
health care. While tax expenditures under the reference
law baseline are generally tax expenditures under the
normal tax baseline, the reverse is not always true.
Both the normal and reference tax baselines allow
several major departures from a pure comprehensive
income tax. For example:
• Income is taxable when realized in exchange. Thus,
neither the deferral of tax on unrealized capital
gains nor the tax exclusion of imputed income
(such as the rental value of owner-occupied hous­
ing or farmers’ consumption of their own produce)

6. TAX EXPENDITURES

is regarded as a tax expenditure. Both accrued
and imputed income would be taxed under a com­
prehensive income tax.
• There is a separate corporation income tax. Under
a comprehensive income tax corporate income
would be taxed only once—at the shareholder
level, whether or not distributed in the form of
dividends.
• Values of assets and debt are not adjusted for in­
flation. A comprehensive income tax would adjust
the cost basis of capital assets and debt for
changes in the price level during the time the
assets or debt are held. Thus, under a comprehen­
sive income tax baseline the failure to take ac­
count of inflation in measuring depreciation, cap­
ital gains, and interest income would be regarded
as a negative tax expenditure (i.e., a tax penalty),
and failure to take account of inflation in measur­
ing interest costs would be regarded as a positive
tax expenditure (i.e., a tax subsidy).
While the reference law and normal tax baselines
are generally similar, areas of difference include:
• Tax rates. The separate schedules applying to the
various taxpaying units are included in the ref­
erence law baseline. Thus, corporate tax rates
below the maximum statutory rate do not give
rise to a tax expenditure. The normal tax baseline
is similar, except that it specifies the current max­
imum rate as the baseline for the corporate in­
come tax. The lower tax rates applied to the first
, $10 million of corporate income are thus regarded
as a tax expenditure. Similarly, under the ref­
erence law baseline, preferential tax rates for cap­
ital gains generally do not yield a tax expenditure;
only capital gains treatment of otherwise “ordi­
nary income,” such as that from coal and iron
ore royalties and the sale of timber and certain
agricultural products, is considered a tax expendi­
ture. The alternative minimum tax is treated as
part of the baseline rate structure under both the
reference and normal tax methods.
• Income subject to the tax. Income subject to tax
is defined as gross income less the costs of earning
that income. The Federal income tax defines gross
income to include: (1) consideration received in
the exchange of goods and services, including labor
services or property; and (2) the taxpayer’s share
of gross or net income earned and/or reported by
another entity (such as a partnership). Under the
reference tax rules, therefore, gross income does
not include gifts—defined as receipts of money or
property that are not consideration in an ex­
change—or most transfer payments, which can be
thought of as gifts from the Government.2 The
normal tax baseline also excludes gifts between
individuals from gross income. Under the normal
tax baseline, however, all cash transfer payments
from the Government to private individuals are

65
counted in gross income, and exemptions of such
transfers from tax are identified as tax expendi­
tures. The costs of earning income are generally
deductible in determining taxable income under
both the reference and normal tax baselines.3
• Capital recovery. Under the reference tax law
baseline no tax expenditures arise from acceler­
ated depreciation. Under the normal tax baseline,
the depreciation allowance for machinery and
equipment is determined using straight-line de­
preciation over tax lives equal to mid-values of
the asset depreciation range (a depreciation sys­
tem in effect from 1971 through 1980). The normal
tax baseline for real property is computed using
40-year straight-line depreciation.
• Treatment of foreign income. Both the normal and
reference tax baselines allow a tax credit for for­
eign income taxes paid (up to the amount of U.S.
income taxes that would otherwise be due), which
prevents double taxation of income earned abroad.
Under the normal tax method, however, controlled
foreign corporations (CFCs) are not regarded as
entities separate from their controlling U.S. share­
holders. Thus, the deferral of tax on income re­
ceived by CFCs is regarded as a tax expenditure
under this method. In contrast, except for tax
haven activities, the reference law baseline follows
current law in treating CFCs as separate taxable
entities whose income is not subject to U.S. tax
until distributed to U.S. taxpayers. Under this
baseline, deferral of tax on CFC income is not
a tax expenditure because U.S. taxpayers gen­
erally are not taxed on accrued, but unrealized,
income.
In addition to these areas of difference, the Joint
Committee on Taxation considers a somewhat broader
set of tax expenditures under its normal tax baseline
than is considered here.

Other Considerations
Additional tax expenditure analysis may be helpful
to policy makers. For example, information on the pro­
grammatic and economic effects of tax expenditures
could be useful. The outputs and efficiency of tax ex­
penditures could then be compared more systematically
with direct outlay programs.
In addition, the tax expenditure analysis could be
extended beyond the income and transfer taxes to in­
clude payroll and excise taxes. The exclusion of certain
forms of compensation from the wage base, for instance,
reduces payroll taxes, as well as income taxes. Payroll
tax exclusions are complex to analyze, however, because
they also affect social insurance benefits. Certain tar­
geted excise tax provisions might also be considered

3In the cases of individuals who hold "passive” equity interests in businesses, however,
the pro rata shares of sales and expense deductions reportable in a year are limited.
A passive business activity is defined to be one in which the holder of the interest, usually
a partnership interest, does not actively perform managerial or other participatory functions.
The taxpayer may generally report no larger deductions for a year than will reduce taxable
2 Gross income does, however, include transfer payments associated with past employment, income from such activities to zero. Deductions in excess of the limitation may be taken
in subsequent years, or when the interest is liquidated.
such as social security benefits.




66

ANALYTICAL PERSPECTIVES

tax expenditures. In this case challenges include deter­
mining an appropriate baseline.

Descriptions of Income Tax Provisions
Descriptions of the individual and corporate income
tax expenditures reported upon in this chapter follow.
N a t io n a l D e f e n s e

Benefits and allowances to armed forces person­
nel.—The housing and meals provided military person­
nel, either in cash or in kind, are excluded from income
subject to tax.
I n t e r n a t io n a l A f f a ir s

Income earned abroad.—A U.S. citizen or resident
alien who resides in a foreign country or who stays
in one or more foreign countries for a minimum of
11 out of the past 12 months may exclude $70,000
per year of foreign-eamed income. Eligible taxpayers
also may exclude or deduct reasonable housing costs
in excess of one-sixth of the salary of a civil servant
at grade GS-14, step 1. These provisions do not apply
to Federal employees working abroad; however, the tax
expenditure estimate does reflect certain allowances
that are excluded from their taxable income.
Income of Foreign Sales Corporations.—The For­
eign Sales Corporation (FSC) provisions exempt from
tax a portion of U.S. exporters' foreign trading income
to reflect the FSC’s sales functions as foreign corpora­
tions. These provisions conform to the General Agree­
ment on Tariffs and Trade.
Source rule exceptions.—The worldwide income of
U.S. persons is taxable by the United States and a
credit for foreign taxes paid is allowed. The amount
of foreign taxes that can be credited is limited to the
pre-credit U.S. tax on the foreign source income. Two
exceptions give rise to tax expenditures: sales of inven­
tory property that reduces the U.S. tax of exporters;
and, for financial institutions and certain financing op­
erations of nonfinancial enterprises, an exception from
the rules that require allocation of interest expenses
between domestic and foreign activities of a U.S. tax­
payer.
Income of U.S.-controlled foreign corporations.—
The income of foreign corporations controlled by U.S.
shareholders is not subject to U.S. taxation. The income
becomes taxable only when the controlling U.S. share­
holders receive dividends or other distributions from
their foreign stockholding. Under the normal tax meth­
od, the currently attributable foreign source pre-tax in­
come from such a controlling interest is subject to U.S.
taxation, whether or not distributed. Thus, under the
normal tax baseline the excess of controlled foreign cor­
poration income over the amount distributed to a U.S.
shareholder gives rise to a tax expenditure in the form
of a tax deferral.




G e n e r a l S c ie n c e , S p a c e , a n d T e c h n o l o g y

Expensing R&E expenditures.—Research and ex­
perimentation (R&E) projects can be viewed as invest­
ments because their benefits accrue for several years
when they are successful. It is difficult, however, to
identify whether a specific R&E project is completed
and successful and, if it is successful, what its expected
life will be. For these reasons, the statutory provision
that these expenditures may be expensed is considered
part of the reference law. Under the normal tax meth­
od, however, the expensing of R&E expenditures is
viewed as a tax expenditure. The baseline assumed for
the normal tax method is that all R&E expenditures
are successful and have an expected life of five years.
R&E credit.—Under legislation that expires on July
1, 1995, the tax credit is 20 percent of the qualified
expenditures in excess of each year’s base amount. This
threshold is determined by multiplying a “fixed-base
percentage” (limited to a maximum of .16 for existing
companies) by the average amount of the company’s
gross receipts for the four preceding years. The “fixedbase percentage” is the ratio of R&E expenses to gross
receipts for the 1984 to 1988 period. Start-up companies
that did not both incur qualified expenses and have
gross receipts in at least three of the base years are
assigned a “fixed-base percentage” of .03. A similar
credit with its own separate threshold is provided for
taxpayers' basic research grants to universities. Begin­
ning in 1989, the otherwise deductible qualified R&E
expenditures were reduced by the amount of the credit.
Allocation of R&E expenditures.—Regulations is­
sued in 1977 were designed to achieve a reasonable
allocation of R&E expenses between corporations’ do­
mestic and foreign activities, but successive legislative
and administrative actions suspended this requirement.
Under legislation that expires on July 1, 1995, 50 per­
cent of both U.S.- and foreign-based R&E expenses were
allocated to their respective income sources. The re­
maining R&E expenses then had to be allocated on
the basis of gross sales or gross income.
Energy

Exploration and development costs.—In the case
of successful investments in domestic oil and gas wells,
intangible drilling costs, such as wages, the costs of
using machinery for grading and drilling, and the cost
of unsalvageable materials used in constructing wells,
may be expensed rather than amortized over the pro­
ductive life of the property.
Integrated oil companies may currently deduct only
70 percent of such costs and amortize the remaining
30 percent over five years. The same rule applies to
the exploration and development costs of surface strip­
ping and the construction of shafts and tunnels for
other fuel minerals.

6. TAX EXPENDITURES

67

Percentage depletion.—Independent fuel mineral excise tax is not assessed. This credit, equal to a sub­
producers and royalty owners are generally allowed to sidy of 54 cents per gallon for alcohol used as a motor
take percentage depletion deductions rather than cost fuel, is intended to encourage substitution of alcohol
depletion on limited quantities of output. Under cost for petroleum-based gasoline.
depletion, outlays are deducted over the productive life
Credit and deduction for clean-fuel vehicles and
of the property based on the fraction of the resource
extracted. Under percentage depletion taxpayers deduct property.—A tax credit of 10 percent is provided for
a percentage of gross income from mineral production electric vehicles. In addition, a deduction is provided
at rates of 22 percent for uranium, 15 percent for oil, for other clean-fuel burning vehicles as well as refueling
gas and oil shale, and 10 percent for coal. The deduc­ property.
tion is limited to 50 percent of net income from the
Exclusion of utility conservation subsidies.—Sub­
property, except for oil and gas where the deduction
sidies by public utilities for customer expenditures on
can be 100 percent of net property income. Production
energy conservation measures are excluded from the
from geothermal deposits is eligible for percentage de­
gross income of the customer.
pletion at 65 percent of net income, but with no limit
on output and no limitation with respect to qualified
N a t u r a l R e s o u r c e s a n d E n v ir o n m e n t
producers. Unlike depreciation or cost depletion, per­
centage depletion deductions can exceed the cost of the
Exploration curd development costs.—As is true
investment.
for fuel minerals, certain capital outlays associated with
exploration and development of nonfuel minerals may
Alternative fuel production credit.—A nontaxable
be expensed rather than depreciated over the life of
credit of $3 per barrel (in 1979 dollars) of oil-equivalent the asset.
production is provided for several forms of alternative
fuels. It is generally available as long as the price of
Percentage depletion.—Most nonfuel mineral ex­
oil stays below $29.50 (in 1979 dollars).
tractors also make use of percentage depletion rather
than cost depletion, with percentage depletion rates
Oil and gas exception to passive loss limita­ ranging from 22 percent for sulphur down to 5 percent
tion.—Although owners of working interests in oil and for sand and gravel.
gas properties are subject to the alternative minimum
tax, they are exempted from the “passive income” limi­
Capital gains treatment of iron ore and of cer­
tations. This means that the working interest-holder, tain timber income.—Iron ore and certain timber sold
who manages on behalf of himself and all other owners under a royalty contract can be treated as capital gains.
the development of wells and incurs all the costs of
Mining reclamation reserves.—Taxpayers are al­
their operation, may aggregate negative taxable income
from such interests with his income from all other lowed to establish reserves to cover certain costs of
sources. Thus, he will be relieved of the minimum tax mine reclamation and of closing solid waste disposal
properties. Net increases in reserves may be taken as
rules limit on tax deferrals.
a deduction against taxable income.
Capital gains treatment of royalties on coal.—
Tax-exempt bonds for pollution control and
Sales of certain coal under royalty contracts can be
treated as capital gains. While the top statutory rate waste disposal.—Interest on State and local govern­
on ordinary income is 39.6 percent, the rates on capital ment debt issued to finance private pollution control
and waste disposal facilities was excludable from in­
gains are limited to 28 percent.
come subject to tax. This authorization was repealed
Tax-exempt bonds for energy facilities.—Certain for pollution control equipment and a cap placed on
energy facilities, such as municipal electric and gas util­ the amount of debt that could be issued for waste dis­
ities, may benefit from tax-exempt financing.
posal facilities by the Tax Reform Act of 1986.
New technology credits.—A credit of 10 percent is
available for investment in solar and geothermal energy
facilities. In addition, a credit of 1.5 cents is provided
per kilowatt hour of electricity produced from renewable
resources such as wind and biomass. The renewable
resources credit applies only to electricity produced by
a facility placed in service before July 1, 1999.

Expensing multiperiod timber growing costs.—
Generally, costs must be capitalized when goods are
produced for inventory used in one's own trade or busi­
ness, or under contract to another party. Timber pro­
duction, however, was specifically exempted from these
multiperiod cost capitalization rules, creating a special
benefit derived from this deferral of taxable income.

Alcohol fuel credit.—Gasohol, a motor fuel com­
posed of at least 10 percent alcohol, is exempt from
5.4 of the 18.4 cents per gallon Federal excise tax on
gasoline. There is a corresponding income tax credit
for alcohol used as a fuel in applications where the

Credit and seven-year amortization for reforest­
ation.—A special 10 percent investment tax credit is
allowed for up to $10,000 invested annually in clearing
land and planting trees for the ultimate production of
timber. The same amount of forestation investment




68

ANALYTICAL PERSPECTIVES

may also be amortized over a seven-year period. With­
out this preference, the amount would have to be cap­
italized and could be recovered (deducted) only when
the trees were sold or harvested 20 or more years later.
Moreover, the amount of forestation investment that
is amortizable is not reduced by any of the investment
credit that is allowed.
Historic preservation.—Expenditures to preserve
and restore historic structures qualify for a 20 percent
investment credit, but the depreciable basis must be
reduced by the full amount of the credit taken.
A g r ic u l t u r e

Expensing certain capital outlays.—Farmers, ex­
cept for certain agricultural corporations and partner­
ships, are allowed to deduct certain expenditures for
feed and fertilizer, as well as for soil and water con­
servation measures. Expensing is allowed, even though
these expenditures are for inventories held beyond the
end of the year, or for capital improvements that would
otherwise be capitalized.
Expensing multiperiod livestock and crop pro­
duction costs.—The production of livestock and crops
with a production period of less than two years is ex­
empted from the uniform cost capitalization rules.
Farmers establishing orchards, constructing farm facili­
ties for their own use, or producing any goods for sale
with a production period of two years or more may
elect not to capitalize costs. If they do, they must apply
straight-line depreciation to all depreciable property
they use in farming.
Loans forgiven solvent farmers.—Farmers are
granted special tax treatment by being forgiven the
tax liability on certain forgiven debt. Normally, the
amount of loan forgiveness is accounted for as a gain
(income) of the debtor and he must either report the
gain, or reduce his recoverable basis in the property
to which the loan relates. If the debtor elects to reduce
basis and the amount of forgiveness exceeds his basis
in the property, the excess forgiveness is taxable. How­
ever, in the case of insolvent (bankrupt) debtors, the
amount of loan forgiveness never results in an income
tax liability.4 Farmers with forgiven debt are considered
insolvent for tax purposes, and thus qualify for income
tax forgiveness.
Capital gains treatment of certain income.—Cer­
tain agricultural income, such as unharvested crops,
can be treated as capital gains.
C o m m e r c e a n d H o u s in g

This category includes a number of tax expenditure
provisions that also affect economic activity in other
functional categories. For example, provisions related
■♦The insolvent taxpayer’s carryover losses and unused credits are extinguished first,
and then his basis in assets reduced to no less than amounts still owed creditors. Finally,
the remainder of the forgiven debt is excluded from tax.




to investment, such as accelerated depreciation, could
also have been classified under the energy, natural re­
sources and environment, agriculture, or transportation
categories.
Credit union income.—The earnings of credit
unions not distributed to members as interest or divi­
dends are exempt from income tax.
Bad debt reserves.—Only commercial banks with
less than $500 million in assets, mutual savings banks,
and savings and loan associations are permitted to de­
duct additions to bad debt reserves in excess of actually
experienced losses. The deduction for additions to loss
reserves allowed qualifying mutual savings banks and
savings and loan associations is 8 percent of otherwise
taxable income. To qualify, the thrift institutions must
maintain a specified fraction of their assets in the form
of mortgages, primarily residential.
Interest on life insurance savings.—Savings in the
form of policyholder reserves are accumulated from pre­
mium payments and interest is earned on the reserves.
Such interest income is not taxed as it accrues nor
when received by beneficiaries upon the death of the
insured.
Small property and casualty insurance compa­
nies.— Insurance companies that have annual net pre­
mium incomes of less than $350,000 are exempted from
tax; those with $350,000 to $2,100,000 of net premium
incomes may elect to pay tax only on the income earned
by their investment portfolio.
Insurance companies owned by exempt organiza­
tions.—Generally, the income generated by life and
property and casualty insurance companies is subject
to tax, albeit by special rules. Insurance operations con­
ducted by such exempt organizations as fraternal soci­
eties and voluntary employee benefit associations, how­
ever, are exempted from tax.
Mutual funds (RIC) expenses.—Individuals may
deduct miscellaneous expenses only to the extent that
they exceed 2 percent of their adjusted gross income.
Certain costs incurred by individuals in managing their
personal securities portfolios are among the miscellane­
ous deductions allowed taxpayers who itemize deduc­
tions. Mutual funds (or regulated investment compa­
nies) perform these portfolio management functions for
their shareholders and pay out their portfolio incomes
net of these expenses. Shareholders are permitted to
report their fund income net of management expenses;
thus, they are thereby able to deduct portfolio manage­
ment expenses without regard to the miscellaneous de­
duction limitation.
Mortgage housing bonds.—Interest on all mortgage
revenue bonds issued by State and local governments
is exempt from taxation. Proceeds are used to finance
homes purchased by first-time buyers—with low to

6. TAX EXPENDITURES

69

moderate incomes—of dwellings with prices under 90
percent of the average area purchase price.
There are limits imposed on the amount of tax-exempt State and local government bonds that could be
issued to fund private activity. The volume cap for single-family mortgage revenue bonds and multifamily
rental housing bonds is combined with the cap for stu­
dent loans and industrial development bonds (IDBs).
The cap is set at $50 per capita or a minimum of
$150 million for each State.
States are authorized to issue mortgage credit certifi­
cates (MCCs) in lieu of qualified mortgage revenue
bonds because the bonds are relatively inefficient sub­
sidies to first-time home buyers. MCCs entitle home
buyers to income tax credits for a specified percentage
of interest on qualified mortgage loans. In this way,
the entire amount of the subsidy flows directly to the
home buyer without being partly diverted to financial
middlemen or bondholders. A State cannot issue an
aggregate annual amount of MCCs greater than 25 per­
cent of its annual ceiling for qualified mortgage bonds.
Because of the relationship between MCCs and quali­
fied mortgage bonds, their estimates are presented as
one line item in the tables.

to the Federal Government on deferred taxes attrib­
utable to their total installment obligations in excess
of $5 million. Only properties with sales prices exceed­
ing $150,000 are includable in the total. The payment
of a market rate of interest eliminates the benefit of
the tax deferral. The tax exemption for nondealers with
total installment obligations of less than $5 million is,
therefore, a tax expenditure.

Rental housing bonds.—State and local government
issues of IDBs are restricted to multifamily rental hous­
ing projects in which 20 percent (15 percent in targeted
areas) of the units are reserved for families whose in­
come does not exceed 50 percent of the area’s median
income; or 40 percent for families with incomes of no
more than 60 percent of the area median income. Other
tax-exempt bonds for multifamily rental projects are
generally issued with the requirement that all tenants
must be low or moderate income families. Rental hous­
ing bonds are subject to the volume cap discussed in
the mortgage housing bond section above.

Passive loss real estate exemption.—The Tax Re­
form Act of 1986 disallowed the offset of passive losses
against income from other sources. Losses up to $25,000
attributable to certain rental real estate activity, how­
ever, are exempted from this rule.

Interest and taxes on owner-occupied homes.—
Owner-ocpupants of homes may deduct mortgage inter­
est and property taxes on their primary and secondary
residences as itemized nonbusiness deductions. The
mortgage interest deduction is limited to interest on
debt no greater than the owner’s basis in the residence
and, for debt incurred after October 13, 1987, it is
limited to no more than $1 million. Interest on up to
$100,000 of other debt secured by a lien on a principal
or second residence is also deductible, irrespective of
the purpose of borrowing, provided the debt does not
exceed the fair market value of the residence. Mortgage
interest deductions on personal residences are tax ex­
penditures because the taxpayers are not required to
report the value of owner-occupied housing services as
gross income.
Real property installment sales.—Dealers in real
and personal property, i.e., sellers that regularly hold
property for sale or resale, cannot defer taxable income
from installment sales until the receipt of the loan re­
payment. Nondealers, defined as sellers of real property
used in their business, are required to pay interest




Capital gains on home sales.—When a primary
residence is sold, the homeowner can defer paying a
capital gains tax on the proceeds by purchasing or con­
structing a home of value at least equal to that of
the prior home (net of sales and qualified fix-up ex­
penses) within two years. This deferral is a tax expendi­
ture.
Capital gains on sales by owners aged 55 or
older.—A taxpayer who is 55 years of age or older
at the time of the sale of his residence may elect to
exclude from tax up to $125,000 of the gain from its
sale. This is a once-in-a-lifetime election. In effect, this
provision converts some prior deferrals of tax into for­
giveness of tax.

Accelerated depreciation of real property, ma­
chinery and equipment.—As previously noted, the tax
depreciation allowance provisions are part of the ref­
erence law rules, and thus do not cause tax expendi­
tures under the reference method. Under the normal
tax method, however, a 40-year tax life for depreciable
real property is the norm, so the statutory depreciation
period in effect from 1987 to 1993 for nonresidential
properties of 31.5 years gives rise to tax expenditures.
OBRA 93 lengthened the statutory depreciation period
for nonresidential property to 39 years for property
placed in service after February 25, 1993. The statutory
depreciation period for residential property is 27.5
years. Statutory depreciation of machinery and equip­
ment also is somewhat accelerated relative to the nor­
mal tax baseline. In addition, tax expenditures arise
from pre-1987 tax allowances for real and personal
property.
Cancellation of indebtedness.—Individuals are not
required to report the cancellation of certain indebted­
ness as current income. However, if they do not, it
would be included as an adjustment in the basis of
the underlying property.
Imputed interest rules.—Under reference law rules
commonly referred to as original issue discount (OID),
both the holder and seller of a financial contract are
generally required to report interest earned in the pe­
riod it accrues, not when the contract payments are

70

ANALYTICAL PERSPECTIVES

made. Moreover, the amount of interest accruable is
determined by the actual price paid for the contract,
not by the stated or nominal principal and interest
stipulated in the contract.5
Exceptions to the general rules for accounting for
interest expense or income include the following: (a)
permission for the mortgagor of his personal residence
to treat the discount from the nominal principal of his
mortgage loan, commonly called “points,” as prepaid
interest which is deductible in the year paid, not the
year accrued; and (b) sellers of farms and small busi­
nesses worth less than $1 million, in exchange for the
purchaser’s debt obligation, are exempted from the OID
rules. This is $750,000 more than the $250,000 exemp­
tion that the reference tax law generally allows for
such transactions.

business, certain start-up expenses, such as the costs
of investigating opportunities and legal services, are
normally incurred. The taxpayer may elect to amortize
these outlays over 60 months although they are similar
to other payments he makes for nondepreciable intangi­
ble assets that are not recoverable until the business
is sold. Under the normal tax method this gives rise
to a tax expenditure, while under the reference method
it does not.

Carryover basis of capital gains on gifts.—When
a gift is made, the transferred property carries to the
donee the donor’s basis—the cost that was incurred
when the property was first acquired. The carryover
of the donor’s basis allows a continued deferral of unre­
alized capital gains.

Small issue industrial development bonds.—The
interest on small issue industrial development bonds
(IDBs) issued by State and local governments to finance
private business property is excluded from income sub­
ject to tax. Depreciable property financed with small
issue IDBs must be depreciated, however, using the
straight-line method. The tax exemption of small issue
bonds expired in 1986, except for small issue IDBs ex­
clusively issued to finance manufacturing facilities for
which the tax exemption is permanent. The annual vol­
ume of small issue IDBs is subject to the unified vol­
ume cap discussed in the mortgage housing bond sec­
tion above.

Graduated corporation income tax rate sched­
ule.—The schedule is graduated, with rates of 15 per­
cent on the first $50,000 of taxable income, 25 percent
on the next $25,000, 34 percent on the next $9,925
million, and a rate of 35 percent on income over $10
million. As compared with a flat 35 percent tax rate,
the lower rates provide a $111,000 reduction in tax
Capital gains (other than agriculture, timber, liability for corporations with taxable incomes of $10
iron ore and coal).—While the top statutory rate on million. This benefit is recaptured in the cases of cor­
ordinary income is 39.6 percent, the rates on capital porations with taxable incomes exceeding $100,000.
gains are limited to 28 percent. This treatment is con­ This is accomplished by (1) a 5 percent additional tax
sidered a tax expenditure under the normal tax method on corporate incomes in excess of $100,000, but less
but not under the reference law method.
than $335,000 and (2) a 3 percent additional tax on
income over $15 million but less than $18.33 million.
Step-up in b€isis of capital gains at death—Cap­ At this point the $111,000 is fully recaptured. Since
ital gains on assets held at the owner’s death are not this rate schedule is part of the reference tax law, it
subject to capital gains taxes. The cost basis of the does not give rise to a tax expenditure under the ref­
appreciated assets is adjusted upward to the market erence method. A flat corporation income tax rate is
value at the owner’s date of death. The step-up in the taken as the baseline under the normal tax method;
heir’s cost basis means that, in effect, the capital gain therefore the lower rates do yield a tax expenditure
is forgiven.
under this concept.

Ordinary income treatment of losses from sale
of small business corporate stock shares.—Up to
$100,000 in losses from the sale of such stock may
be treated as ordinary losses, and therefore not be sub­
ject to the $3,000 annual capital loss write-off limit
if the corporation’s capitalization is less than $1 million.
Expensing of certain small investments.—Qualify­
ing investments in tangible property up to $17,500
($10,000 prior to 1993) can be expensed rather than
depreciated over time. To the extent that qualifying
investment during the year exceeds $200,000, the
amount eligible for expensing is decreased. The amount
expensed is completely phased out when qualifying in­
vestments exceed $217,500.

Deferral of gains from sale of broadcasting fa­
cility to minority owned business.—The voluntary
sale of assets generally requires the seller to pay tax
on the gain that has accrued over the period of owner­
ship. However, in the case of an involuntary sale, as
when an owner’s property must be sold in a condemna­
tion preceding, or to implement a change in a govern­
ment’s regulatory policy, the owner is permitted to
Business start-up costs.—When an individual or defer payment of tax, provided the proceeds are rein­
corporation acquires or otherwise enters into a new vested in similar property within a specified period.
In 1979, the Federal Communications Commission in­
5 Thus, when a borrower on December 31, 1993, issues a promise to pay $1,000 plus stituted a policy of encouraging minority group owner­
interest at 10 percent on December 31, 1994, for a total repayment of $1,100, and accepts
ship of broadcast licenses. Since that time, the tax laws
$900 from a lender in exchange for the contract, the rules require that both parties: (a)
recognize that $900 is the amount lent, so that the effective loan interest rate is not
have been interpreted to permit voluntary sellers of
the nominal 10 percent rate but is 22.2 percent; and (b) both report $200 as interest
licensed broadcasting facilities to defer payment of cap­
paid or received in 1994, as the case may be.




71

6. TAX EXPENDITURES

ital gains tax when the buyer has been certified as
a “minority business,” in effect treating the sale as
“involuntary.”
Treatrtient of Alaskan Native Corporations
losses.—Tax law restricts the ability of profitable cor­
porations to reduce their tax liabilities by merging or
buying corporations with accumulated net operating
losses (NOLs) and as yet unrefunded claims to invest­
ment credits. Alaska Native Corporations have a lim­
ited exemption (fifteen years after the NOL or credit
claim was first experienced) from these restrictions that
includes NOLs and credits claimable prior to April 26,
1988.
T r a n s p o r t a t io n

Shipping companies that are U.S. flag car­
riers.—Certain companies that operate U.S. flag ves­
sels receive a deferral of income taxes on that portion
of their income used for shipping purposes, primarily
construction, modernization and major repairs to ships,
and repayment of loans to finance these qualified in­
vestments. Once indefinite, the deferral has been lim­
ited to 25 years since January 1, 1987.
Exclusion of reimbursed employee parking ex­
penses.—Parking at or near an employer’s business
premises that is paid for by the employer is excludable
from the income of the employee as a working condition
fringe benefit. The maximum amount of the parking
exclusion is $155 month, indexed in $5 increments. The
tax expenditure estimate does not include parking at
facilities owned by the employer.

buildings that are used for business or productive ac­
tivities and that were erected before 1936 for other
than residential purposes. A full reduction by the
amount of the credit is required in the taxpayer’s recov­
erable basis.
Tax-exempt bonds for airports and similar fa­
cilities.—Government-owned airports, docks and
wharves, as well as high-speed rail facilities that need
not be government-owned, may continue to be financed
with tax-exempt bond issues. These bonds are not cov­
ered by a volume cap.
Exemption of certain mutuals9and cooperatives9
income.—The incomes of mutual and cooperative tele­
phone and electric companies are exempted from tax
if at least 85 percent of their revenues are derived
from patron service charges.
Empowerment zones—Qualifying businesses in des­
ignated economically depressed areas can receive tax
benefits such as an employer wage credit, increasing
expensing of investment in equipment, tax-exempt fi­
nancing, and accelerated depreciation. In addition, a
tax credit for contributions to certain community devel­
opment corporations can be available.
E d u c a t io n , T r a in in g , E m p l o y m e n t , a n d S o c ia l
S e r v ic e s

Scholarship and fellowship income.—Scholar­
ships and fellowships are not excluded from taxable
income to the extent they exceed tuition and courserelated expenses of the grantee. From an economic
point of view, scholarships and fellowships are either
Exclusion of employer-provided transit passes.— gifts not conditioned on the performance of services,
Transit passes, tokens, and fare cards provided by an or they are rebates of educational costs. Thus, under
employer to defray an employee’s commuting costs are the reference law method, the exclusion is not a tax
excludable from the employee’s income as a de minimis expenditure because this method does not include either
fringe benefit, if the total value of the benefit does gifts or price reductions in a taxpayer’s gross income.
not exceed $60 per month, indexed in $5 increments. Under the normal tax method, however, the exclusion
is considered a tax expenditure because under this
C o m m u n it y a n d R e g io n a l D e v e l o p m e n t
method gift-like transfers of government funds—and
many scholarships are derived directly or indirectly
Low-income housing investment.—Through 1989, from government funding—are included in gross in­
a tax credit for investment in new, substantially reha­ come.
bilitated, and certain unrehabilitated low-income hous­
ing was structured to have a present value of 70 per­
Tax-exempt bonds for educational purposes.—In­
cent of construction or rehabilitation costs incurred and terest on State and local government debt issued to
was allowed over 10 years. For Federally subsidized finance student loans or the construction of facilities
projects and those involving unrehabilitated existing used by private nonprofit educational institutions is ex­
low income housing, the credit was structured to have cluded from income subject to tax. The aggregate vol­
a present value of 30 percent. Beginning on January ume of such private activity bonds that each State may
1, 1990, the credit was extended at a present value issue during any calendar year is limited.
of 70 percent, including projects financed with other
U.S. savings bonds for education.—Interest on
Federal subsidies, but only if substantial rehabilitation
was done. Notwithstanding the capital grant character U.S. savings bonds, issued after December 31, 1989,
of this subsidy, the investor’s recoverable basis is not may be excluded from tax if the bonds, plus accrued
interest, are transferred to an educational institution
reduced by the substantial credit allowed.
as payment for educational expenses. The exclusion
Rehabilitation of structures.—A 10 percent invest­ from tax is phased out for joint returns with adjusted
ment tax credit is available for the rehabilitation of gross incomes of $61,850 to $91,850 and $41,200 to




72
$56,200 for single and head of household returns in
1994.
Dependent students age 19 or older.—Taxpayers
can claim personal exemptions for dependent children
age 19 or over who receive parental support payments
of $1,000 or more per year, are full-time students, and
do not claim a personal exemption on their own tax
returns. This preferential arrangement usually gen­
erates tax savings because the students' marginal tax
rates are more often than not lower than their parents'
marginal tax rates.
Charitable contributions.—Contributions to chari­
table, religious, and certain other nonprofit organiza­
tions are allowed as an itemized deduction for individ­
uals, generally up to 50 percent of adjusted gross in­
come. Taxpayers who donate capital assets to charitable
or educational organizations can deduct the assets' cur­
rent value without the taxation of any appreciation in
value. Corporations can also deduct charitable contribu­
tions up to 10 percent of their pre-tax income. Tax
expenditures resulting from the deductibility of con­
tributions are shown separately for educational and
other institutions. Contributions to health institutions
are reported under the health function.
Employer provided benefits.—Many employers pro­
vide employee benefits that are not counted in employee
income. The employers' costs for these benefits are de­
ductible business expenses. The exclusion from an em­
ployee's income of the value of educational assistance,
child care, meals and lodging, as well as ministers'
housing allowances and the rental value of parsonages
are tax expenditures. The exclusion for educational as­
sistance and legal services expires on December 31,
1994. Health and other insurance benefits are reported
under the health and income security functions. Certain
parking and transit benefits are reported under the
transportation function.
Targeted jobs credit.—Employers may claim a tax
credit for qualified wages paid to individuals who begin
work before January 1, 1995, and who are certified
as members of various targeted groups. The amount
of the credit that may be claimed is 40 percent of the
first $3,000 paid during the first year of employment.
The 40 percent credit also applies to the summer em­
ployment wages paid 16 and 17 year old youths who
are members of low income families. Employers must
reduce their deduction for wages paid by the amount
of the credit claimed.
Child and dependent care expenses.—A tax credit
may be claimed by married couples for child and de­
pendent care expenses incurred when one spouse works
full time and the other works at least part time or
goes to school. The credit may also be claimed by di­
vorced or separated parents who have custody of chil­
dren, and by single parents. Expenditures up to a maxi­
mum $2,400 for one dependent and $4,800 for two or




ANALYTICAL PERSPECTIVES

more dependents are eligible for the credit. The credit
is equal to 30 percent of qualified expenditures for tax­
payers with incomes of $10,000 or less. The credit is
reduced to a minimum of 20 percent by one percentage
point for each $2,000 of income between $10,000 and
$28,000.
Disabled access expenditures.— A credit is pro­
vided of 50 percent of eligible disabled access expendi­
tures in excess of $250. The credit is limited to $5,000.
Costs of removing architectural barriers to the
handicapped—The investment cost of making any
business accessible to persons suffering physical or
mental disabilities may be deducted, rather than cap­
italized as part of the taxpayer's basis in such property
and recovered by subsequent depreciation allowances,
as is generally required.
Foster care payments.—Foster parents provide a
home and care for children who are wards of the State,
under contract with the State. Compensation received
for this service is explicitly excluded from the gross
incomes of foster parents, making the expenses they
incur nondeductible. This activity is, in effect, tax-ex­
empt.
H ealth

Employer paid medical insurance and ex­
penses.—Employee compensation, in the form of pay­
ments by employers for health insurance premiums and
other medical expenses, is deducted as a business ex­
pense by employers, but it is not included in employee
gross income.
Child health insurance•
—The earned income tax
credit provided for a credit for certain child health in­
surance expenses. This credit was repealed after De­
cember 31, 1993.
Medical care expenses.—Personal expenditures for
medical care (including the costs of prescription drugs)
exceeding 7.5 percent of the taxpayer's adjusted gross
income are deductible.
Tax-exempt bonds for hospital construction.—In­
terest earned on State and local government debt is­
sued to finance hospital construction is excluded from
income subject to tax.
Charitable contributions to health institu­
tions.—Contributions to nonprofit health institutions
are allowed as a deduction for individuals and corpora­
tions. Tax expenditures resulting from the deductibility
of contributions to other charitable institutions are list­
ed under the education, training, employment, and so­
cial services function.
Orphan drugs.—To encourage the development of
drugs for the treatment of rare diseases or physical
conditions, a tax credit is granted equal to 50 percent

6. TAX EXPENDITURES

of the costs for clinical testing that has to be completed
before manufacture and distribution are approved by
the Food and Drug Administration. Because the drug
firm is not required to reduce its deduction for testing
expenses (an R&D expenditure) by the amount of this
credit, the private cost of clinically testing orphan drugs
is reduced substantially. This tax expenditure expires
December 31, 1994.
Blue Cross and Blue Shield—Although these orga­
nizations are not qualified as exempt, they are provided
exceptions from otherwise applicable insurance com­
pany income tax accounting rules that effectively elimi­
nate their tax liabilities.
I n c o m e S e c u r it y

Railroad retirement benefits.—These benefits are
not generally subject to the income tax unless the re­
cipient’s gross income reaches a certain threshold dis­
cussed more fully under the social security function.
Workmen's compensation benefits.—Workmen’s
compensation provides payments to disabled workers.
These benefits, although income to the recipients, are
a tax preference because they are not subject to the
income tax.
Public assistance benefits.—The exclusion from
taxable income of public assistance benefits received
by individuals is listed as a tax expenditure under the
normal tax method because, under this method, cash
transfers from government are included in gross in­
come. In contrast, gifts not conditioned on the perform­
ance of services, including transfers from government,
are not taxable under the reference law. Therefore,
under the reference tax method, the tax exclusion for
public assistance benefits is not shown as a tax expend­
iture.
Special benefits for disabled coal miners.—Dis­
ability payments to former coal miners out of the Black
Lung Trust Fund, although income to the recipient,
are not subject to the income tax.
Military disability pensions.—Most of the military
pension income received by current disabled retired vet­
erans is excluded from their income subject to tax.
Pension contributions and earnings.—Certain
employer contributions to pension plans, along with in­
dividual contributions to individual retirement accounts
(IRAs) and amounts set aside by the self-employed, are
excluded from adjusted gross income in the year of
contribution. The investment income earned by pension
funds and other qualifying retirement plans is not tax­
able when earned, and this deferral is, therefore, also
a tax expenditure.
Limited amounts (about $9,260 in 1994) can be ex­
cluded from an employee’s adjusted gross income under
a qualified cash or deferred arrangement with the em­
ployer (401(k) plan). An employee’s own contribution




73
of no more than $9,500 or the 401(k) limitation (which­
ever is greater) may be excluded annually from an em­
ployee’s adjusted gross income when placed in a taxsheltered annuity (403(b) plan).
Employees may deduct annual contributions to an
IRA of $2,000 (or 100 percent of compensation, if less),
or $2,250 on a joint return with only one spouse earn­
ing income, if: (a) neither the individual or spouse is
an active participant in an employer-provided retire­
ment plan; or (b) their adjusted gross income falls below
$40,000 ($25,000 for a single taxpayer). The allowable
IRA deduction is phased out between $40,000 and
$50,000 for a joint return and $25,000 and $35,000
for a single return. Beyond these income limits, non­
deductible contributions to IRAs are available to tax­
payers who are active participants in employer-provided
retirement plans. Self-employed persons can make de­
ductible contributions to their own retirement (Keogh)
plans equal to 25 percent of their income, up to a maxi­
mum of $30,000 per year.
Employer provided insurance benefits.—Many
employers cover part or all the cost of premiums or
payments for: (a) employees’ life insurance benefits; (b)
accident and disability benefits; (c) death benefits; and
(d) supplementary unemployment benefits. The
amounts are deductible by the employers and are ex­
cluded as well from employees’ gross incomes for tax
purposes.
Employer Stock Ownership Plan (ESOP) provi­
sions.—A special type of employee benefit plan, orga­
nized as a trust, is tax-exempt. Employer-paid contribu­
tions (the value of stock issued to the ESOP) are de­
ductible by the employer as part of employee compensa­
tion costs. They are not included in the employees’ gross
income for tax purposes, however, until they are paid
out as benefits. The following special income tax provi­
sions for ESOPs are intended to increase ownership
of corporations by their employees: (1) annual employer
contributions are subject to less restrictive limitations
(percentages of employees’ cash compensation); (2)
ESOPs may borrow to purchase employer stock, guar­
anteed by their agreement with the employer that the
debt will be serviced by his payment (deductible by
him) of a portion of wages (excludable by the employ­
ees) to service the loan; (3) ESOPs’ lenders may exclude
half the interest from their gross income; (4) employees
who sell appreciated company stock to the ESOP may
defer any taxes due until they withdraw benefits; and
(5) dividends paid to ESOP-held stock are deductible
by the employer.
Support of the aged and the blind.—Taxpayers
who are blind or 65 years of age or older may take
an additional $950 standard deduction if single, or $750
if married. In addition, individuals who are 65 years
of age or older, or who are permanently disabled, can
take a tax credit equal to 15 percent of the sum of
their earned and retirement income. Qualified income
is limited to no more than $2,500 for single individuals

74
or married couples filing a joint return where only one
spouse is 65 years of age or older, and up to $3,750
for joint returns where both spouses are 65 years of
age or older. These limits are reduced by one-half of
the taxpayer’s adjusted gross income over $7,500 for
single individuals and $10,000 for married couples fil­
ing a joint return.
Casualty losses.—Neither the purchase of property
nor insurance premiums to protect its value are deduct­
ible as costs of earning income; therefore, reimburse­
ment for insured loss of such property is not reportable
as a part of gross income. However, a special provision
permits relief for taxpayers suffering an uninsured loss.
They may deduct casualty and theft losses of more than
$100 each, but only to the extent that total losses dur­
ing the year exceed 10 percent of adjusted gross income.

ANALYTICAL PERSPECTIVES

income tax base, however, if the recipient’s provisional
income exceeds certain base amounts. Provisional in­
come is equal to adjusted gross income plus foreign
or U.S. possession income and tax-exempt interest, and
one half of social security and tier 1 railroad retirement
benefits. The tax expenditure is limited to the portion
of the benefits received by taxpayers who are below
the base amounts at which 85 percent of the benefits
are taxable.
Social Security benefits for the disabled, dependents and survivors.—Benefit payments from the So­
cial Security Trust Fund, for disability and for depend­
ents and survivors, are excluded from the beneficiaries’
gross incomes, and thus give rise to tax expenditures.
V e t e r a n s B e n e f it s a n d S e r v ic e s

Veterans benefits.—All compensation due to death
Earned income credit.—This credit may be claimed
or disability and pensions paid by the Veterans Admin­
by low income workers. For a family with one qualify­
ing child, the credit is 26.3 percent of the first $7,750 istration are excluded from taxable income.
of earned income in 1994. The credit is 30.0 percent
Tax-exempt mortgage bonds for veterans.—Inter­
of the first $8,425 of income for a family with two
or more qualifying children. When the taxpayer’s in­ est earned on general obligation bonds issued by State
come exceeds $11,000, the credit is phased out at the and local governments to finance housing for veterans
rate of 15.98 percent (17.68 percent if two or more is excluded from taxable income. The issuance of such
qualifying children are present). It is completely phased bonds is limited, however, to five pre-existing State pro­
out at $23,760 of adjusted gross income ($25,300 if two grams and to amounts based upon previous volume lev­
els for the period January 1, 1979 to June 22, 1984.
or more qualifying children are present).
Beginning in 1994, the credit may also be claimed Furthermore, future issues are limited to veterans who
by workers who do not have children. Qualifying work­ served on active duty before 1977.
ers must be at least age 25 and may not be claimed
General G overnm ent
as a dependent on another taxpayer’s return. The credit
is not available to workers age 65 or older. In 1994,
Public purpose State and local debt.—Interest on
the credit is 7.65 percent of the first $4,000 of earned State and local government debt, issued to finance gov­
income. When the taxpayer’s income exceeds $5,000, ernment activities, is excluded from Federal taxation.
the credit is phased out at the rate of 7.65 percent. State and local governments, therefore, can sell debt
It is completely phased out at $9,000 of adjusted gross obligations at a lower interest cost than would be pos­
income.
sible if such interest were subject to tax. Only the ex­
For workers with or without children, the income cluded interest on bonds for public purposes, such as
level at which the credit’s phase-outs begin and the schools, roads, and sewers, is included here.
maximum amounts of income on which the credit can
be taken are adjusted for inflation. Earned income tax
Nonbusiness State and local taxes excluding
credits in excess of tax liabilities are refundable to indi­ home-owner property taxes.—The deductibility of
viduals, and as such are paid by the Federal Govern­ nonbusiness State and local taxes gives indirect assist­
ment. This portion of the credit is included in outlays, ance to these governments by reducing the costs of
while the amount that offsets tax liabilities is shown the services they provide and, thus, the burden on their
as a tax expenditure.
taxpayers. Although general sales taxes may no longer
be deducted, State and local income taxes still may
S o c ia l S e c u r it y
be deducted.
Old Age and Survivors Insurance (OASI) benefits for retired workers.—Social security benefits that
exceed the beneficiary’s contributions out of taxed in­
come are deferred employee compensation and the de­
ferral of tax on that compensation is a tax expenditure.
These additional retirement benefits are paid for partly
by employers’ contributions that were not included in
employees’ taxable compensation. Portions (reaching as
much as 85 percent) of recipients’ social security and
tier 1 railroad retirement benefits are included in the




Business income earned in U.S. possessions.—
Under certain conditions, U.S. corporations receiving
income from an active trade or business, or from invest­
ments located in a U.S. possession, can claim a special
credit against U.S. tax otherwise due.
In t e r e s t

U.S. savings bonds.—The interest on U.S. savings
bonds is not taxable until the bonds are redeemed,

75

6. TAX EXPENDITURES

thereby deferring tax liability. The deferral is equiva­
lent to an interest-free loan and, therefore, it is a tax
expenditure.

TAX EXPENDITURES IN THE UNIFIED TRANSFER TAX
Exceptions to the general terms of the Federal unified
transfer tax favor particular transferees or dispositions
of transferors, similar to Federal direct expenditure or
loan programs. The transfer tax provisions identified
as tax expenditures satisfy the reference law criteria
for inclusion in the tax expenditure budget that were
described above. There is no generally accepted normal
tax baseline for transfer taxes.

Unified Transfer Tax Reference Rules
The reference tax rules for the unified transfer tax
from which departures represent tax expenditures in­
clude:
• Definition of the taxpaying unit. The payment of
the tax is the liability of the transferor whether
the transfer of cash or property was made by gift
or bequest.
• Definition of the tax base. The base for the tax
is the transferor’s cumulative, taxable lifetime
gifts made plus the net estate at death. Gifts in
the tax base are all annual transfers in excess
of $10,000 to any donee except the donor’s spouse.
Excluded are, however, payments on behalf of
family members’ educational and medical ex­
penses, as well as the cost of ceremonial gather­
ings and celebrations that are not in honor of
the donor.
• Property valuation. In general, property is valued
at its fair market value at the time it is trans­
ferred. This is not necessarily the case in the valu­
ation of property for transfer tax purposes. Execu­
tors of estates are provided the option to value
assets at the time of the testator’s death or up
to six months later.
• Tax rate schedule. A single graduated tax rate
schedule applies to all taxable transfers. This is
reflected in the name of the “unified transfer tax”
that has replaced the former separate gift and
estate taxes. The tax rates vary from 18 percent
on the first $10,000 of aggregate taxable transfers,
to 55 percent on amounts exceeding $3 million.
A $192,800 lifetime credit is provided against the
tax in determining the final amount of transfer
taxes that are due and payable. This allows each
taxpayer to make a $600,000 tax-free transfer of
assets that otherwise would be liable to the uni­
fied transfer tax.6
• Time when tax is due and payable. Donors are
required to pay the tax annually as gifts are
made. The generation-skipping transfer tax is pay­
able by the donees whenever they accede to the
6 An additional tax, at a flat rate of 55 percent, is imposed on lifetime, generationskipping transfers in excess of $1 million. It is considered a generation-skipping transfer
whenever the transferee is at least two generations younger than the transferor, as it
would be in the case of transfers to grandchildren or great-grandchildren. The liability
of this tax is on the recipients of the transfer.




gift. The net estate tax liability is due and payable
within nine months after the decedent’s death.
The Internal Revenue Service may grant an exten­
sion of up to 10 years for a reasonable cause.
Interest is charged on the unpaid tax liability at
a rate equal to the cost of Federal short-term bor­
rowing, plus three percentage points.

Tax Expenditures by Function
The 1993-99 estimates of tax expenditures in the
Federal unified transfer tax are displayed by functional
category in table 6-5. Outlay equivalent estimates are
similar to revenue loss estimates for transfer tax ex­
penditures and, therefore, are not shown separately.
A description of the provisions follows.
N a t u r a l R e s o u r c e s a n d E n v ir o n m e n t

Donations of conservation easements.—Bequests
for conservation are excluded from taxable estates. A
conservation bequest is the value of property and ease­
ments (in perpetuity) to such property the use of which
is restricted to any one or more of the following: the
public for outdoor recreation; protection of the natural
habitats of fish, wildlife, plants, etc.; scenic enjoyment
of the public; and preservation of historic land areas
and structures. Similar conservation gifts are excluded
from the gift tax base and are also deductible from
the donor’s otherwise taxable income in the year of
the gift.
A g r ic u l t u r e

Special use valuation of farms.—Farmland owned
and operated by a decedent anchor a member of the
family may be valued for estate tax purposes on the
basis of its “continued use” as a farm if: the farmland
is at least 25 percent of the decedent’s gross estate;
the entire value of all farm property is at least 50
percent of the gross estate; and family heirs to the
farm agree to continue to operate the property as a
farm for at least 10 years. Since continued use valu­
ation of farmland is frequently substantially less than
the fair market value, the resulting reduction in tax
liability serves as a subsidy to the continued operation
of family farms.
Tax deferral of closely held farms.—Decedents’ es­
tates may use a preferential, extended installment pay­
ment period of five to 15 years to discharge estate tax
liabilities if the value of the farm properties exceeds
35 percent of the net estates. The interest charged is
only 4 percent for the first five years, rather than the
standard Federal short-term borrowing rate plus three
percentage points, which applies during the last 10
years of the repayment period.

76

ANALYTICAL PERSPECTIVES
C o m m e r c e a n d H o u s in g C r e d it

Special use valuation of closely held busi­
nesses.—The two estate tax incentives to family farm­
ing are also available to the estates of owners of non­
farm family businesses. If the same three conditions
previously described are met, the real property in their
estates is eligible for continued use valuation.
Tax deferral of closely held businesses.—Nonfarm
family businesses that satisfy the net estate require­
ments qualify for preferential 15 year deferred estate
tax payment. Also, the redemption of stock, required
to pay funeral and administrative expenses and estate
and gift taxes, may be characterized as a sale of stock.
This applies in those cases where the family business
is incorporated and only the closely held corporation
stock, rather than the business assets, appear in the
decedent’s estate. This subjects to tax only the apprecia­
tion in the value of the stock whereas, under reference
tax law rules, all of the proceeds generally would be
taxed as a dividend. To be eligible for this special provi­
sion, the value of stock in closely held corporations
must exceed 35 percent of the decedent’s gross estate,
less debt and funeral expenses.

TABLE 6-5.

E d u c a t io n , T r a in in g , E m p l o y m e n t , a n d S o c ia l
S e r v ic e s

Bequests to tax-exempt organizations.—These be­
quests are deductible from decedent’s otherwise taxable
lifetime transfers.
H ealth

Bequests to health providers.—Such bequests, that
are exempt from the income tax, are deductible from
otherwise taxable lifetime transfers of decedents.
General G overnm ent

State and local death taxes.—A credit is allowed
for state death taxes against any Federal estate tax
that otherwise would be due. The amount of the state
death tax credit is determined by a rate schedule that
reaches a limit of 16 percent of the taxable estate in
excess of $60,000. This provision is intended to restrain
states from competing for wealthy individuals’ official
domicile.

REVENUE LOSS ESTIMATES FOR TAX EXPENDITURES IN THE FEDERAL UNIFIED TRANSFER TAX
(In m
illions of dollars)
Fecal Years
Description

1993

1994

1995

1996

1997

1998

1999

Natural Resources and Environment:
Deductions for donations of conservation easements ................................
Agriculture:
Special use valuation of farm real property................................................
Tax deferral of closely held farms...............................................................

*

*

*

*

*

*

*

70
55

70
55

75
60

80
65

85
70

90
75

95
80

Commerce:
Special use valuation of real property used in closely held businesses....
Tax deferral of closely held business..........................................................

20
10

20
10

20
10

20
10

25
10

25
15

25
15

Education, training, employment, and social services:
Deduction for charitable contributions (education)......................................
Deduction for charitable contributions (other than education and health) ...

500
1,480

505
1,490

550
1,620

590
1,735

630
1,850

670
1,965

715
2,095

Health:
Deduction for charitable contributions (health)............................................

455

460

500

535

570

605

645

General government:
Credit for State death taxes........................................................................

2,775

2,795

3,035

3,255

3,475

3,695

3,935

Note: All estimates have been rounded to the nearest $5 million.
*$2.5 million or less.




77

6. TAX EXPENDITURES
TABLE 6 -6.




MAJOR TAX EXPENDITURES IN THE INCOME TAX, RANKED BY TOTAL 1995 REVENUE LOSS
(In millions of dollars)
Total Revenue Loss

Exclusion of employer contributions for medical insurance premiums and medical care ....
Net exclusion of employer pension contributions and earnings..........................................
Deductibility of mortgage interest on owner-occupied homes.............................................
Step-up basis of capital gains at death ..............................................................................
Accelerated depreciation (normal tax method) ...................................................................
Deductibility of nonbusiness State and local taxes other than on owner-occupied homes .
Deductibility of charitable contributions (all types)..............................................................
Exclusion of OASI benefits for retired workers...................................................................
Deductibility of State and local property tax on owner-occupied homes............................
Deferral of capital gains on home sales.............................................................................
Exclusion of interest on public purpose State and local debt.............................................
Exclusion of interest on life insurance savings...................................................................
Exclusion of interest on State and local debt for various non-public purposes.................
Preferential treatment of capital gains (normal tax method) ..............................................
Exception from passive loss rules for $25,000 of rental loss.............................................
Net exclusion of Individual Retirement Account contributions and earnings......................
Earned income credit1 ........................................................................................................
Exclusion of capital gains on home sales for persons age 55 and over...........................
Exclusion of workmen’s compensation benefits..................................................................
Graduated corporation income tax rate (normal tax method).............................................
Net exclusion of Keogh plan contributions and earnings.....................................................
Exclusion of social security benefits for dependents and survivors ...................................
Deductibility of medical expenses.......................................................................................
Exclusion of employer premiums on group term life insurance..........................................
Credit for child and dependent care expenses...................................................................
Tax credit for corporations receiving income from doing business in U.S. possessions....
Expensing of research and development expenditures (normal tax method) ....................
Credit for low-income housing investments.........................................................................
Exclusion of benefits and allowances to armed forces personnel......................................
Exclusion of reimbursed employee parking expenses........................................................
Exclusion of veterans disability compensation....................................................................
Exclusion of social security disability insurance benefits ...................................................
Special ESOP rules (other than investment credit)............................................................
Deferral of income from controlled foreign corporations (normal tax method)...................
Expensing of certain small investments (normal tax method)............................................
Additional deduction for the elderly....................................................................................
Exclusion of income of foreign sales corporations.............................................................
Excess of percentage over cost depletion, fuel and nonfuel minerals..............................
Inventory property sales source rules exception ...............................................................
Credit for increasing research activities .............................................................................
Deferral of interest on savings bonds................................................................................
Alternative fuel production credit ........................................................................................
Deferral of income from post 1987 installment sales........................................................
Exclusion of income earned abroad by United States citizens..........................................
Exclusion of scholarship and fellowship income (normal tax method) ..............................
Exclusion of employer provided child care ........................................................................
Exemption of RIC expenses from the 2% floor for miscellaneous itemized deductions ....
Exclusion of public assistance benefits (normal tax method) ............................................
Expensing of multiperiod timber growing costs .................................................................
Exclusion of employee meals and lodging (other than military) ........................................
Parental personal exemption for students age 19 or over.................................................
Exclusion of railroad retirement system benefits...............................................................
Targeted jobs credit............................................................................................................
Exemption of credit union income......................................................................................
Empowerment zones..........................................................................................................
Deferral of gains from sale of broadcasting facilities to minority owned business............
Exclusion of parsonage allowances....................................................................................
Suspension of the allocation of research and experimentation expenditures ...................
Deductibility of casualty losses..........................................................................................
Expensing of exploration and development costs, fuel and nonfuel minerals ...................
Amortization of start-up costs (normal tax method)............................................................
Credit for disabled access expenditures............................................................................
Permanent exceptions from imputed interest rules ...........................................................
Exclusion from income of conservation subsidies provided by public utilities ..................
Capital gains treatment of certain agricultural income ......................................................
Exclusion of employer premiums on accident and disability insurance.............................
Small life insurance company deduction............................................................................
Carryover basis of capital gains on gifts............................................................................
Exclusion of military disability pensions .............................................................................

56,265
55,540
54,800
28,305
27,495
25,640
19,330
16,525
14,655
14,620
12,350
8.730
7,515
6.920
5,775
5,290
5,100
4,960
4,455
3,890
3,875
3.730
3.560
2,880
2,820
2,630
2,390
2,265
2,030
1,930
1.920
1,905
1,760
1,700
1.560
1,555
1,400
1,330
1,300
1,270
1,250
970
935
895
875
725
690
585
575
550
535
400
395
380
330
290
290
270
230

20
1
20
0
160
150
145
140
140
135
130
130

78

ANALYTICAL PERSPECTIVES

TA LE 6-6. M JO TAX E P N IT R S INT E IN O E TAX, R N E BY TO L 1995 R V N E
B
A R
XE D UE
H CM
A KD
TA
EEU
LOSS—
Continued




(In millions of dollars)
Total Revenue Loss

Special Blue Cross/Blue Shield deduction.................................................
Tax incentives for preservation of historic structures................................
Cancellation of indebtedness.....................................................................
Tax exemption of certain insurance companies ........................................
Exclusion of special benefits for disabled coal miners..............................
Interest allocation rules exception for certain financial operations.............
Expensing of certain multiperiod production costs ....................................
Exclusion of employer provided educational assistance...........................
Investment credit for rehabilitation of structures (other than historic)........
Exclusion of veterans pensions.................................................................
Expensing of certain agricultural capital outlays........................................
Exclusion of Gl bill benefits.......................................................................
New technology credit................................................................................
Tax credit for the elderly and disabled ......................................................
Tax credit and deduction for dean-fuel burning vehicles and properties ...
Exception from passive loss limitation for working interests in oil and gas
Special rules for mining reclamation reserves...........................................
Note: Provisions with estimates denoted “normal tax method” have no revenue loss under the reference tax law method.
1 The figure in the table indicates the effect of the earned income tax credit on receipts. The effect on outlays in 1995 is $15,795 million.

1995

125
125

10
1
10
1
10
0
95
85
85
80
75
70
65
65
65
65
50
50




FEDERAL SPENDING




7. FEDERAL SPENDING BY FUNCTION, SUBFUNCTION, AND MAJOR PROGRAM
TABLE 7-1. BUDGET AUTHORITY BY FUNCTION AND PROGRAM
(In m
illions of dollars)
Estimate
Major missions and programs
1997

050 National defense:
051 Department of Defense—Military .

267,194

248,967

252,153

243,441

240,234

246,723

253,024

053 Atomic energy defense activities

12,059

10,877

10,598

10,971

10,867

11,017

11,158

054 Defense-related activities............

1
,8

1,074

914

916

931

946

962

255,329

252,032

281,076

260,918

2,986
1,018
1,583
1,573
670
320

2,605
1,510
1,478
1,426
720
361

589
-1,014

512
-572
-710

-510
-618

-361
-549

-286
-516

-240
-472

-432

7,007

7,551

-1,127

-910

-802

-712

-644

3,382
2,676
90
-469
-204

3,131
2,072
96
-574
-235

-628

-726
-245

-731
-230

-632
-230

-606
-223

Subtotal, International security assistance

5,475

4,499

-913

-971

-862

-828

153 Conduct of foreign affairs:
State Department salaries and expenses ............
Foreign buildings ..................................................
Contributions to International Organizations (UN ).
Contributions to International Peacekeeping (UN)
Other programs.....................................................

2,164
560
913
460
229

21
,1 1

2,178
422
914

2,178
422
1,036

2,178
422
1,130

2,178
422
1,170

2,178
422
1,283

187

191

192

194

195

4,327

4,619

3,700

3,826

3,921

3,963

4,078

1,190
40
18

1,132
208
17

1,175
257
17

1,289

1,294

1,305

1,317

......17

......17

......17

......17

1,248

1,358

1,449

1,306

1,312

1,323

1,334

751
14,653

1,018

796

677

663

660

87
-193
-923

1,280
-266
-1,125

-1,170

-102

740
-282
-766
-104

-454
-106

-1,460
-166
-348
-108

14,275

805

484

-1,273

-1,413

-110
-1
,<

-1,397

3,173
900

3,173
800

3,260
700

3,348
600

3,413
500

Total, National defense.................
150 International affairs:
151 International development and humanitarian assistance:
Agency for International Development..........................................
Assistance for New Independent States of Former Soviet Union .
Multilateral development banks (MDB’s) ......................................
Food a id ........................................................................................
Refugee programs.....................................................
Voluntary contributions to international organizations ,
Peace Corps..............................................................
Other programs..........................................................
Credit liquidating accounts.........................................
Offsetting receipts......................................................
Subtotal, International development and humanitarian assistance
152 International security assistance:
Non-proliferation and disarmament fund ...........................................
Foreign military financing grants and loans ......................................
Economic support fund .....................................................................
Other programs..................................................................................
Foreign military financing repayment.................................................
Foreign military financing liquidating account....................................

Subtotal, Conduct of foreign affairs .
154 Foreign information and exchange activities:
U.S. Information Agency ......................................
Board for International Broadcasting ....................
Other programs.....................................................
Subtotal, Foreign information and exchange activities .
155 International financial programs:
Export-lmport Bank..........................................................
International monetary fund .............................................
IMF enhanced structural adjustment facility (proposed) ...
Foreign military sales trust fund (net)............................. .
Special defense acquisition fund ....................................
Credit liquidating account (Exim)....................................
Offsetting receipts............................................................
Subtotal, International financial programs
156 International cooperation:
Agency for International Development..........................................
Assistance for New Independent States of Former Soviet Union .




20
2

265,145

20
2
-212

1
0

-100

400
861
1,072
175

10
0
-220

-1
,1

-1,710
-106
-225

-30
-224

-112

81

82

ANALYTICAL PERSPECTIVES

TABLE 7-1. BUDGET AUTHORITY BY FUNCTION AND PROGRAM-Continued
(In m
illions of dollars)
Major missions and programs

Estimate

1993
actual

1994

1995

1996

1997

1998

1999

2,058
1,245
683
227
5,460
533
885

Multilateral development banks (MDB’s) .....
Food aid'.......................................................
Refugee programs.......................................
Peace Corps................................................
Regional peace and security......................
Contributions to international peacekeeping .
Other programs............................................

2,390
1,249
683
227
5,430
245
854

2,155
1,249
683
227
5,608
245
794

1,972
1,249
683
227
5,785
245
710

1,797
1,249
683
227
5,925
245
599

15,164

15,050

14,921

14,818

14,638

32,333

18,831

18,757

17,028

16,978

17,042

17,180

250 General science, space, and technology:
251 General science and basic research:
National Science Foundation programs................
Department of Energy general science programs

2,702
1,471

2,985
1,615

3,167
1,113

3,201
940

3,267
933

3,367
888

3,467
888

Subtotal, General science and basic research .

4,173

4,600

4,281

4,142

4,201

4,256

4,356

5,003
5,720
2,291

5,040
5,595
2,433

4,978
5,534
2,571

4,944
5,493
2,661

4,950
5,564
2,708

16

17

17

18

18

Subtotal, International cooperation
Total, International affairs .............

252 Space flight, research, and supporting activities:
Science, Aeronautics and Technology .........................
Human space flight ......................................................
Mission support.............................................................
Research and program development ...........................
Space flight control and data communications ............
Construction of facilities ...............................................
Research and development..........................................
Other .............................................................................

1,320
5,059
462
6,208
15

1,350
4,822
287
6,440
15

Subtotal, Space flight, research, and supporting activities .

13,064

12,915

13,029

13,083

13,100

13,115

13,240

Total, General science, space, and technology.................

17,236

17,515

17,310

17,225

17,301

17,371

17,595

3,457

3,774

3,839

3,960

3,997

4,006

4,234

-220

-211

-212
-200

-377
153

-392
162

-373
95

-351
319

-220

-211

-412

-224

-230

-278

-32

37
3,409

-400
1,334

-364
1,056

-65
1,841

-82
1,419

-165
1,094
-160

-207
1,033
-160

437

135

63
-74

30
-125

30

30

30

437

135

-11

-95

30

30

30

157

168

165

162

159

157

275

261

256
148

265
236

276
279

287
297

298
305

275

261

404

501

555

584

603

Credit liquidating account (REA)........................

-437
-56
250
5
247

-391
-26
105
4
-1,263

-551
-4
53
7
-955

-585
-2
65
7
-964

-591
-2
60
7
-957

-592
-2
60
7
-976

-600
-2
62
7
-985

Subtotal, Energy supply................................

7,404

3,479

3,230

4,605

4,370

3,768

4,141

272 Energy conservation....................................

561

673

961

983

1,050

1,139

1,211

274 Emergency energy preparedness ...............

60

216

144

158

159

252

252

276 Energy information, policy, and regulation:
Nuclear Regulatory Commission (NRC)............

33

9

22

22

22

22

22

270 Energy:
271 Energy supply:
Research and development.............................
Naval petroleum reserves:
Existing Law .................................................
Proposed legislation not subject to PAYGO
Subtotal, Naval petroleum reserves........
Federal power marketing ..........................
Tennessee Valley Authority .......................
Hydropower leasing (proposed—PAYGO) ..
Uranium enrichment:
Existing Law ..........................................
Proposed legislation subject to PAYGO
Subtotal, Uranium enrichment
Uranium enrichment decontamination and decommissioning fund
Nuclear waste program:
Existing Law ..............................................................................
Proposed legislation subject to PAYGO ...................................
Subtotal, Nuclear waste program ,
Nuclear waste fund receipts ...........................
Subsidies for nonconventional fuel production .
Rural electric and telephone lines..................




83

7. FEDERAL SPENDING BY FUNCTION, SUBFUNCTION, AND MAJOR PROGRAM

TABLE 7-1. BUDGET AUTHORITY BY FUNCTION AND PROGRAM-Continued
(In millions of dollars)
Major missions and programs

1993
actual

Estimate
1994

1996

1995

1997

1996

1999

Other energy programs..................................................................................

207

364

362

405

405

405

405

Subtotal, Energy information, policy, and regulation.................................

240

373

384

427

427

427

427

Total, Energy..............................................................................................

8,264

4,741

4,720

6,173

6,005

5,586

6,031

4,021
911
333

4,145
928'
700

3,550
836
131

3,952
860
130

3,736
847
144

4,077
858
165

3,790
810
165

-464

-472

-483
-6

-489
-12

-553
-12

-541
-12

-478
-12

Subtotal, Offsetting receipts ..................................................................

-464

-472

-489

-501

-565

-553

-490

Subtotal, Water resources.........................................................................

4,801

5,301

4,028

4,441

4,162

4,545

4,275

2,995

2,902

2,901

2,892

2,865

2,839

2,817

907

966

987

1,000

1,005
4

1,010
100

1,014
100

907

966

987

1,000

1,008

1,110

1,114

21
273
1,741

21
273
1,061

21
273
622

857
27

857
27

857
30

300 Natural resources and environment:
301 Water resources:
Corps of Engineers ........................................................................................
Bureau of Reclamation...................................................................................
Other ..............................................................................................................
Offsetting receipts:
Existing Law ..............................................................................................
Proposed legislation not subject to PAYGO..............................................

302 Conservation and land management:
Forest Service................................................................................................
Management of public lands (BLM):
Existing Law ..............................................................................................
Proposed legislation subject to PAYGO ....................................................
Subtotal, Management of public lands (BLM).......................................
Federal land acquisition .................................................................................
Mining reclamation and enforcement.............................................................
Conservation reserve program.......................................................................
Other conservation of agricultural lands:
Existing Law ...............................................................................................
Proposed legislation not subject to PAYGO..............................................

28
300
1,547

12
302
1,743

21
278
1,752

21
273
1,806

860

920

1,032
27

857
27

Subtotal, Other conservation of agricultural lands................................

860

920

1,059

884

884

884

887

356

371

372

373

374

374

374

-2,218

-2,379

-2,362

-2,434
-16

-2,497
-158

-2,516
-181

-2,555
-221

Subtotal, Offsetting receipts..................................................................

-2,218

-2,379

-2,362

-2,450

-2,655

-2,698

-2,776

Subtotal, Conservation and land management..........................................

4,775

4,837

5,009

4,799

4,511

3,864

3,333

257
42

247
45

234
47

234
47

234
47

234
47

234
47

2,509

2,649

2,697
-19
5

2,834
-19
20

2,863
-19
35

2,878
-19
46

2,951
-19
55

2,509

2,649

2,682

2,835

2,879

2,905

2,987

-204

-223

-261
-27
-5

-276
-33
-20

-285
-33
-35

-293
-37
-46

-301
-33
-55

Subtotal, Offsetting receipts ..................................................................

-204

-223

-293

-329

-353

-376

-389

Subtotal, Recreational resources...............................................................

2,604

2,719

2,670

2,786

2,806

2,810

2,878

2,712
1,589
165

2,600
1,497
153

2,983
1,500
169

3,002
1,513
169

3,085
1,513
169

3,168
1,513
169

3,221
1,572
169

2,550

2,477

1,950

2,150

2,250

2,250

2,350

Other ..............................................................................................................
Offsetting receipts:
Existing Law ..............................................................................................
Proposed legislation subject to PAYGO ....................................................

303 Recreational resources:
Federal land acquisition .................................................................................
Urban park and historic preservation funds...................................................
Operation of recreational resources:
Existing Law ...............................................................................................
Proposed legislation not subject to PAYGO..............................................
Proposed legislation subject to PAYGO ....................................................
Subtotal, Operation of recreational resources.......................................
Offsetting receipts:
Existing Law ..............................................................................................
Proposed legislation not subject to PAYGO..............................................
Proposed legislation subject to PAYGO ....................................................

304 Pollution control and abatement:
Regulatory, enforcement, and research programs.........................................
Hazardous substance superfund ...................................................................
Oil pollution funds (gross)..............................................................................
Water infrastructure financing:
Existing Law ...............................................................................................




84

ANALYTICAL PERSPECTIVES

TABLE 7-1. BUDGET AUTHORITY BY FUNCTION AND PROGRAM-Continued
(In millions of dollars)
Estimate

1993
1994

1995

Proposed legislation not subject to PAYGO.............................................

1996

1997

1998

1999

700

700

800

900

1,000

Subtotal, Water infrastructure financing.................................................

2,550

2,477

2,650

2,850

3,050

3,150

3,350

Leaking underground storage tank trust fund................................................
Superfund recoveries and other
Existing Law ...............................................................................................
Proposed legislation not subject to PAYGO..............................................

84

76

77

77

77

77

77

-191

-236

-248
-15

-224
-15

-200
-15

-176

-151

Subtotal, Superfund recoveries and other.............................................

-191

-236

-263

-239

-215

-176

-151

Subtotal, Pollution control and abatement.................................................

6,908

6,568

7,115

7,372

7,679

7,901

8,238

306 Other natural resources:
Program activities...........................................................................................
Offsetting receipts...........................................................................................

2,566
-19

2,758
-18

2,793
-19

2,816
-19

2,784
-19

2,765
-19

2,719
-19

Subtotal, Other natural resources..............................................................

2,547

2,740

2,774

2,797

2,765

2,747

2,700

Total, Natural resources and environment.................................................

21,636

22,163

21,596

22,196

21,924

21,867

21,425

14,570

11,455

9,423
-974

8,374
ACC
—aOO

8,914
-940

8,837
-923

8,791
-905

Subtotal, Commodity Credit Corporation...............................................

14,570

11,455

8,449

7,418

7,974

7,914

7,885

Crop insurance:
Existing Law ...............................................................................................
Proposed legislation subject to PAYGO....................................................

286

236

219
648

219
832

219
949

219
1,067

219
1,187

Subtotal, Crop insurance.......................................................................

286

236

867

1,051

1,168

1,286

1,407

Agricultural credit insurance...........................................................................
Emergency food assistance program............................................................
Other
Existing Law ...............................................................................................
Proposed legislation not subject to PAYGO..............................................

427
165

486
120

421
40

420
40

420
40

419
40

419
40

1,085

1,018

1,089
-67

1,089
-102

1,089
-115

1,089
-127

1,089
-137

Subtotal, Other.......................................................................................

1,085

1,018

1,022

987

974

962

952

Credit liquidating accounts (ACIF & FAC)......................................................

-70

50

-623

-731

-912

-863

-767

Subtotal, Farm income stabilization ...........................................................

16,464

13,366

10,176

9,184

9,664

9,758

9,936

1,139
428

1,130
436

1,160
432

1,121
432

1,129
432

1,136
432

1,136
432

191

191

192
-20

192
-23

192
-23

192
-23

192
-23

350 Agriculture:
351 Farm income stabilization:
Commodity Credit Corporation:
Existing Law ...............................................................................................
Proposed legislation subject to PAYGO ....................................................

352 Agricultural research and services:
Research programs........................................................................................
Extension programs........................................................................................
Marketing programs:
Existing Law ...............................................................................................
Proposed legislation not subject to PAYGO..............................................

191

191

172

169

169

169

169

Animal and plant health programs.................................................................
Economic intelligence.....................................................................................
Other programs and unallocated overhead....................................................
Offsetting receipts........................................................................... ...............

459
143
429
-130

469
140
471
-117

450
146
548
-114

450
146
584
-113

450
146
681
-110

450
146
662
-109

450
146
850
-109

Subtotal, Agricultural research and services..............................................

2,660

2,721

2,795

2,790

2,898

2,886

3,075

Total, Agriculture........................................................................................

19,124

16,087

12,972

11,974

12,561

12,645

13,011

370 Commerce and housing credit:
371 Mortgage credit:
Mortgage credit (FHA)..................................................... ..............................
Rural housing programs.................................................................................
Credit liquidating accounts.............................................................................

287
1,081
934

-3
1,154
1,478

108
746
904

-1
746
560

-20
746
40

-22
746
-660

-8
746
-1,015

Subtotal, Mortgage credit...........................................................................

2,302

2,630

1,758

1,305

766

65

-277

Subtotal, Marketing programs...............................................................




85

7. FEDERAL SPENDING BY FUNCTION, SUBFUNCTION, AND MAJOR PROGRAM

TABLE 7-1.

BUDGET AUTHORITY BY FUNCTION AND PROGRAM-Continued
(In m
illions of dollars)

Major missions and programs

372 Postal service:
Payments to the Postal Service fund (on-budget)
Postal service (off-budget) ...................................
Subtotal, Postal service
373 Deposit insurance:
Resolution Trust Corporation Fund ....
FSUC Resolution Fund....................
Savings Association Insurance Fund .
Discretionary.....................................

1995

161
2,239

130
4,282

130
5,349

130
2,057

129
311

129
1,579

129

2,400

4,412

5,479

2,186

440

1,708

135

1,174

452

142

1,194

452

142

709
1,119
395
260
465
466

731
1,409
345
270
482

749
1,437
545
280
502
517

767
1,452
1,545
290
524
536

6

18,315
827

2,428
34

2,462

18,745

376 Other advancement of commerce:
Small and minority business assistance...............
Science and technology.......................................
Economic and demographic statistics ..................
Payments to copyright owners.............................
Regulatory agencies.............................................
International trade and other business promotion .
Credit liquidating accounts...................................

815
413
344
213
341
367
250

611
546
284
250
230
477

8

720
986
363
250
446
416
3

Subtotal, Other advancement of commerce

2,743

2,405

3,184

3,413

3,732

4,031

5,114

Total, Commerce and housing credit..........

9,906

28,191

11,281

8,099

5,391

5,945

4,972

(7,667)
(2,239)

(23,909)
(4,282)

(5,932)
(5,349)

(6,042)
(2,057)

(5,080)
(311)

(4,366)
(1,579)

21,129
395
3,867
1,052
44

19,170
420
4,579

45

19,966
405
4,979
1,289
44

19,937
427
4,861
1,148
44
-39

-44

-50

-11

19,652
362
4,724
1,023
44
-42

-42

19,944
432
6,087
1,148
44
-40
-9

-8

19,652
362
4,724
1,023
44
-43
-7

Subtotal, Offsetting receipts ..

-42

-44

-50

-50

-50

-50

-50

Subtotal, Ground transportation .

26,446

25,281

26,633

26,366

27,604

25,755

25,755

9,112
1,245

8,114
1,551
29

8,807
1,271
26

8,756
1,317
26

8,756
1,400
26

8,756
1,485
26

8,756
1,360
39

10,396

9,694

10,103

10,098

10,182

10,267

10,155

3,202

3,531

3,665

3,658

3,671

3,723

3,761

163

184

21
2
10
,0 0

168

166

162

158

163

184

12
,2 1

168

166

162

158

6
-100

-2
-100

-1
-100

1
-100

-103

-104

-104

Subtotal, Deposit insurance

On-budget
Off-budget
400 Transportation:
401 Ground transportation:
Highways...............................................................
Highway safety......................................................
Mass transit..........................................................
Railroads...............................................................
Regulation (IC C )...................................................
Extend rail safety user fees (proposed—PAYGO) ,
Other offsetting receipts........................................

402 Air transportation:
Airports and airways (FAA).................
Aeronautical research and technology
Payments to air carriers......................
Subtotal, Air transportation
403 Water transportation:
Marine safety and transportation ...............
Ocean shipping:
Existing Law ..........................................
Proposed legislation subject to PAYGO
Subtotal, Ocean shipping

11
,1 1

32

2
0

34

(6
)

-78

-87

-99

1
-100
-102

Subtotal, Offsetting receipts

-78

-87

-199

-202

-203

-204

-204

Subtotal, Water transportation .

3,287

3,628

4,692

3,624

3,632

3,680

3,716

324

351

368

368

Panama Canal Commission............................
Increase tonnage duties (proposed—PAYGO).
Other offsetting receipts..................................

407 Other transportation:
Miscellaneous programs .




368

86

ANALYTICAL PERSPECTIVES

TABLE 7-1. BUDGET AUTHORITY BY FUNCTION AND PROGRAM-Continued
(In millions of dollars)
Estimate

1993
actual

Major missions and programs

1994

1995

1996

1997

1998

1999

Offsetting receipts...........................................................................................

-24

-36

-37

-37

-37

-37

-37

Subtotal, Other transportation.....................................................................

299

315

331

330

330

330

330

Total, Transportation..................................................................................

40,428

38,918

41,759

40,419

41,748

40,032

39,957

4,243
4,400
4,400
4,400
4,400
4,400
800
200
Project-based community development grants (proposed—Nonpaygo) 200
200
100
100
100
100
144
144
111
101
1
5
4
15
14
7
590
177
272
380
373
382

4,400
200
100

450 Community and regional development:
451 Community development:
Community development block grants............................................................
.........
Colonias assistance program (proposed—Nonpaygo)...................................
Community development financial institutions (proposed—Nonpaygo)..........
Pennsylvania Avenue Development Corporation...........................................
Other..............................................................................................................

1
406

Subtotal, Community development.............................................................

4,848

4,591

5,724

5,229

5,188

5,184

5,107

452 Area and regional development:
Rural development:
Existing Law ...............................................................................................
Proposed legislation not subject to PAYGO..............................................

732

856

962
1

957
6

957
6

957
6

958
6

Subtotal, Rural development..................................................................

732

856

963

963

963

964

964

Economic development assistance.................................................................
Indian programs..............................................................................................
Appalachian Regional Commission ........ .......................................................
Tennessee Valley Authority ...........................................................................
Credit liquidating accounts.............................................................................
Offsetting receipts...........................................................................................

333
1,467
195
135
513
-455

351
1,625
254
140
316
-412

412
1,570
192
140
75
-389

430
1,532
192
140
136
-347

430
1,514
192
140
74
-333

430
1,504
192
140
61
-322

430
1,499
192
140
106
-322

Subtotal Area and regional development..................................................

2,919

3,129

2,963

3,046

2,980

2,969

3,009

148
2,027

130
320

134
320

139
320

143
320

147
320

212

171
292
4
170

183

183

183

183

183

Subtotal, Disaster relief and insurance......................................................

2,387

637

633

637

641

646

650

Total Community and regional development............................................

10,154

8,357

9,319

8,912

8,809

8,798

8,767

453 Disaster relief and insurance:
Small business disaster loans .......................................................................
Disaster relief..................................................................................................
National flood insurance fund .....................................................................
Other...............................................................................................................

500 Education, training, employment, and social services:
501 Elementary, secondary, and vocational education:
Education reform:
Existing Law
.............................................................................
Proposed legislation not subject to PAYGO..............................................

155
900

1,250

1,250

1,215

1,160

155

Subtotal Education reform............................................ ........................

900

1,250

1,250

1,215

1,160

School improvement programs:
Existing Law ...............................................................................................
Proposed legislation not subject to PAYGO ...........................................

1,531

1,377

38
1,681

38
1,669

38
1,589

38
1,589

38
1,589

Subtotal School improvement programs...............................................

1,531

1,377

1,719

1,707

1,627

1,627

1,627

Education for the disadvantaged:
Existing Law
.......................................... ...............................................
Proposed legislation not subject to PAYGO..............................................

6,709

6,924

10
7,568

10
7,810

10
8,054

10
8,298

10
8,544

Subtotal Education for the disadvantaged........................................... .

6,709

6,924

7,579

7,821

8,064

8,309

8,554

........................................................................................

2,966

3,109

3,295

3,295

3,295

3,295

3,295

......................................................

840

798
750

575

658

668

678

Special education
Impact aid:
F y k tin n L aw

Pronosed leaislation not subiect to PAYGO ....................................................

Subtotal Impact a id ...............................................................................

840

798

750

575

658

668

678

Vocational and adult education.......................................................................
Indian education programs:
Existing L aw ...............................................................................................

1,481

1,488

1,455

1,455

1,455

1,455

1,455

535

579

513

532

552

573

577




87

7. FEDERAL SPENDING BY FUNCTION, SUBFUNCTION, AND MAJOR PROGRAM

TABLE 7-1. BUDGET AUTHORITY BY FUNCTION AND PROGRAM-Continued
(In

of dollars)
Estimate

Major missions and programs

1996

1997

1998

Proposed legislation not subject to PAYGO
Subtotal, Indian education programs......

535

579

Other:
Existing L aw ................................................
Proposed legislation not subject to PAYGO

152

247

Subtotal, Other.................................................................
Subtotal, Elementary, secondary, and vocational education
502 Higher education:
Student financial assistance.....................................................
Family education loan program ................................................
Federal direct loan program.....................................................
Higher education.......................................................................
Other ........................................................................................
Credit liquidating account (Family education loan program) ....
Subtotal, Higher education.
503 Research and general education aids:
Research and general education aids:
Existing Law ................................................
Proposed legislation not subject to PAYGO

618
7
254

638

7
247

7
247

7
247

7
247

152

247

261

253

253

253

253

14,214

14,677

16,558

16,974

17,240

17,481

17,685

7,920
2,647

7,867
1,909

303
-674

7,746
1,153
1,894
867
303
-604

7,746
1,085
2,293

299
756

7,746
1,325
1,262
870
301
-2,118

7,746
1,208
1,418

838
289
3,055

8,023
2,441
298
894
290
-443

14,759

11,503

12,414

9,385

10,869

11,360

11,674

2,119

2,158

20
,0 0

2,038
340

2,034
340

2,055
340

2,082
340

1
0

340

88
6

86
6

300
-616

2,119

2,158

2,340

2,377

2,374

2,395

2,422

2,119

2,158

2,340

2,377

2,374

2,395

2,422

4,614

5,014

5,684
150

5,896

6,340

20
0

6,413
165

6,574

Subtotal, Training and employment services .

4,614

5,014

5,834

6,096

6,540

6,578

6,684

Trade adjustment assistance ................................
Older Americans employment...............................
Payments to States for AFDC work programs......
Federal-State employment service........................
Other.....................................................................

80
396

76
410

11
0

12
0
396

92
396

103
396

80
396

Subtotal, Research and general education aids
Subtotal, Research and general education aids....
504 Training and employment:
Training and employment services:
Existing Law ................................................
Proposed legislation not subject to PAYGO

10
,0 0

10
,1 0

1,181
77

1,254
93

396
1,300
1,463
95

Subtotal, Training and employment.

7,347

7,946

505 Other labor services .....................

933

22
0

20
0

10
1

10
,0 0

10
,0 0

10
,0 0

10
,0 0

1,463
95

1,463
95

1,463
95

1,463
95

9,189

9,151

9,586

9,635

9,718

957

1,062

1,048

1,059

1,057

1,053

2,800
441
2,183
2,924
3,659
839
326
15

577
60
3,800
464
2,297
2,993
4,237
871
812
16

861
150
2,800
435
2,362
3,441
4,913
876
243
54

1,376
225
2,800
435
2,420
4,000
5,612
873

1,616
240
2,800
435
2,487
4,249
6,312
873

1,905
255
2,800
435
2,556
4,654
7,012
873

2,246
270
2,800
435
2,632
5,079
7,712
873

54

54

54

...... 54

Subtotal, Social services.......................................................

13,387

16,127

16,133

17,794

19,065

20,543

2 ,1 0
20

Total, Education, training, employment, and social services

52,760

53,368

57,696

56,730

60,193

62,471

64,652

82,596

89,077

89,238
-15

108,191
-3,547

121,488
-11,778

136,338
-30,447

152,235
-51,335

Subtotal, Medicaid grants.............

82,596

89,077

89,223

104,644

109,711

105,891

100,900

Health insurance earned income credit.

650

373

506 Social services:
National service initiative........................................................
Family support and preservation ...........................................
Social services block grant....................................................
Community services block grant............................................
Rehabilitation services............................................................
Payments to States for foster care and adoption assistance
Children and families services programs ..............................
Aging services program..........................................................
Interim assistance to States for legalization...........................
Other social services.............................................................

550 Health:
551 Health care services:
Medicaid grants:
Existing Law .........................................................................
Health Security Act (PAYGO)...............................................




88

ANALYTICAL PERSPECTIVES

TABLE 7-1. BUDGET AUTHORITY BY FUNCTION AND PROGRAM-Continued
(In m
illions of dollars)
Major missions and programs

1993
1996

Federal employees’ health benefits (FEHB).........................................
Coal miners retirees health benefits.....................................................
Indian health.........................................................................................
Substance abuse and mental health services.....................................
Other health care services...................................................................
Allowance for
Supplemental services (Health Security Act—PAYGO) ...................
Long-term care (gross benefits) (Health Security Act—PAYGO).....
Federal employee’s health benefits (Health Security Act—PAYGO)
Access to health care fund (Health Security Act—Nonpaygo) ........
Access to health care fund (Health Security Act—PAYGO)............
Premium subsidies (Health Security Act—PAYGO) .........................
Subtotal, Health care services .
552 Health research and training:
National Institutes of Health...........................................................................
DoD breast cancer and other health research ..............................................
Clinical training ...............................................................................................
Other research and training...........................................................................
Allowance for:
Access to health care fund (Health Security Act—Nonpaygo) ..................
Access to health care fund (Health Security Act—PAYGO)......................
Academic health centers and graduate medical education (Health Secu­
rity Act—Nonpaygo)...............................................................................
Academic health centers and graduate medical education (Health Secu­
rity Act-PAYGO) ..................................................................................

4,149
161

3,805
239
1,947
2,150
4,914

4,211
236
1,700
2,434
4,973

1997

5,276
230
1,735
2,439
5,353

20
0
60
,0 0

16
,8 8

2,039
4,176

4,646
233
1,716
2,412
5,132

1 ,2 0
00

60

10
,1 2

5,757
228
1,745
2,452
5,446

6,062
226
1,834
2,577
5,737

700

20
,0 0

203
847

13,900
-1,600
194

2,900
18,200
-2,514
-73

505
8,153

25,240

64,565

77,576

95,638

102,506

103,282

134,298

161,934

200,578

213,426

10,335

10,965

11,482

11,964

12,466

12,989

13,598

353
264

358
309

358
283

351
294

344
304

335
312

338
326

10
,0 0

10
,2 0

1,300

1,300

20
1

600
600

600
750

1,325

3,238

4,288

5,603

11,161

11,632

13,474

15,533

18,153

19,825

21,765

494

517

534
-103

535
-103

537
-103

541
-103

541
-103

494

517

431

432

434

438

438

830
493

915
505

685
538

702

736

605

Subtotal, Consumer and occupational health and safety .

1,817

1,937

1,654

1,729

1,801

1,809

1,843

Total, Health....................................................................

108,616

116,075

118,410

151,560

181,888

22 1
2 ,2 2

237,034

89,076

102,779

112,133

-200

123,848
-5,165

134,879
-9,835

147,534
-17,015

162,051
-23,665

102,779

111,933

118,683

125,044

130,519

138,386

49,735

58,545
-150

66,176
-1,920

73,722
6,509

81,840
13,833

90,990
10,217

101,587
8,014

49,735

58,395

64,256

80,231

95,673

101,207

109,601

Medicare premiums and collections:
Existing L aw ..............................................................
Health Security Act (PAYGO)....................................

-14,054

-10,592

-20,056

2

-19,914
-2,431

-21,348
-3,841

-23,859
-2,760

-25,372
-3,979

Subtotal, Medicare premiums and collections

-14,054

-10,592

-20,054

-22,345

-25,189

-26,619

-29,351

Total, Medicare....................................................

124,757

150,583

156,135

176,568

195,528

205,108

218,636

4,192
1,308

4,654
1,388

4,633
1,311

4,687
1,259

4,678
1,209

4,662
1,156

4,708

Subtotal, Health research and training .
554 Consumer and occupational health and safety:
Food safety and inspection:
Existing Law ..........................................................
Proposed legislation not subject to PAYGO.........
Subtotal, Food safety and inspection
Other consumer safety.............
Occupational safety and health

570 Medicare:
571 Medicare:
Hospital insurance (HI):
Existing Law ..........................
Health Security Act (PAYGO)
Subtotal, Hospital insurance (HI) ....
Supplementary medical insurance (SMI):
Existing Law .......................................
Health Security Act (PAYGO).............
Subtotal, Supplementary medical insurance (SMI)

600 Income security:
601 General retirement and disability insurance (excluding social secu­
rity):
Railroad retirement.........................................................................................
Special benefits for disabled coal miners.......................................................




10
,1 2

89

7. FEDERAL SPENDING BY FUNCTION, SUBFUNCTION, AND MAJOR PROGRAM

TABLE 7-1. BUDGET AUTHORITY BY FUNCTION AND PROGRAM-Continued
(In m
illions of dollars)
Major missions and programs

179

Other
Subtotal, General retirement and disability insurance (excluding social!
curity).................................................................................................
602 Federal employee retirement and disability:
Civilian retirement and disability programs.................................................
Military retirement.......................................................................................
Federal employees workers’ compensation (FECA):
Existing Law ...........................................................................................
Proposed legislation subject to PAYGO ................................................

22
0

205

22
1

219

225

233

5,678

6,245

6,149

6,158

6,106

6,043

6,043

35,502
25,823

36,753
26,513

38,271
27,195

39,903
28,302

42,076
29,514

44,089
30,808

46,213
32,948

278

258

-2

248
-3

279
-3

326
-3

334
-3

278

256

245

276

323

331

19

2
1

23

26

29

Subtotal, Federal employees workers’ compensation (FECA).

288

Federal employees life insurance fund............................................

1
2

Subtotal, Federal employee retirement and disability.................

61,625

63,546

65,740

68,470

71,889

75,246

79,520

603 Unemployment compensation ...................................................

38,164

29,195

25,442

25,895

26,311

26,426

27,506

15,623

14,365

22,911

24,706

27,060

28,224

10
,0 0

10
,0 0

2,342
150
50
1,232
267
175
40
271
300
513

2,721
334
115
1,275
124
265

14,561
1,250
2,546

2,426

2,160

2,157

2,163

10
,1 0

10
,1 0

10
,1 0

10
,1 0

10
,1 0

265
50

265
50

265
50

265
50

10
0

10
0

265
50

10
0

10
0

500
622

500
774

500
759

500
736

500
622

213

413

-26
733

70
763

181
858

213
811

242
779

213

413

708

833

1,039

1,024

12
,0 1

21,177

20,729

21,702

29,959

31,680

33,991

35,045

27,064
1,040
6,841
2,860

27,046
1,079
7,517
3,210

27,688
1,143
7,469
3,564

11
,2 1

11
,1 2

28,625
1,143
8,332
3,402
512

29,702
1,143
8,939
3,508
658

1,143
9,573
3,616
629

858

39,016

39,963

40,721

42,902

44,839

46,548

48,385

22,568

27,334

27,875
-18

28,793
-13

31,456
-9

34,959
-9

38,528
-9

22,568

27,334

27,857

28,780

31,447

34,950

38,519

15,695
8,781
381
1,346
893
226
-735

16,173
10,036
400
1,437
893
170
-922

16,962
15,797
414
730
1,091
171
-1,047

17,510
18,932
414
745
1,091
171
-1,147

18,232
21,456
414
730
1,091
172
-1,350

18,904
22,368
414
730
1,091
171
-1,477

19,739
23,167
414
730
1,091
171
-1,609

Subtotal, Other income security

49,154

55,521

61,974

66,496

72,192

77,150

82,221

Total, Income security...............

214,815

215,198

221,729

239,881

253,016

265,404

278,719

604 Housing assistance:
Subsidized housing including section 8 .....................
Homeless assistance grants (proposed—Nonpaygo)
Public housing ...........................................................
Supportive housing program.....................................
Emergency shelter grants.........................................
Home investment partnerships program...................
Shelter plus care ......................................................
Community partnerships against crime ....................
Youthbuild program ........................ ..........................
HOPE grants.............................................................
Revitalization of distressed public housing...............
Rural housing assistance..........................................
Other housing assistance:
Existing L aw .........................................................
Proposed legislation subject to PAYGO ..............
Subtotal, Other housing assistance
Subtotal, Housing assistance..............
605 Food and nutrition assistance:
Food stamps..................................................................................................
Nutrition assistance for Puerto Rico..............................................................
Child nutrition and special milk......................................................................
Special supplemental food program for women, infants, and children (WIC)
Special supplemental food program (Health Security Act—Nonpaygo).........
Other nutrition programs................................................................................
Subtotal, Food and nutrition assistance .
609 Other income security:
Supplemental security income (SSI):
Existing Law ..........................................
Proposed legislation subject to PAYGO
Subtotal, Supplemental security income (SSI)
Family support payments............................
Earned income tax credit (EITC).................
Refugee assistance.....................................
Low income home energy assistance.........
Payments to states for day-care assistance
Other............................................................
SSI offsetting receipts .................................




-207
778
546

10
0

10
,0 0

10
,0 0

31,705
1,143
10,254
3,728

66
6
88
8

90

ANALYTICAL PERSPECTIVES

TABLE 7-1.

BUDGET AUTHORITY BY FUNCTION AND PROGRAM-Continued
(In millions of dollars)
Estimate

1993
actual

1994

1995

271,282

283,845

296,715
-17

311,587
-13

Subtotal, Old-age and survivors insurance (OASI) ...............................

271,282

283,845

296,698

Disability insurance (Dl):
Existing Law ...............................................................................................
Proposed legislation not subject to PAYGO..............................................

35,060

38,135

Subtotal, Disability insurance (D l)..........................................................

35,060

38,135

Major missions and programs

650 Social Security:
651 Social security:
Old-age and survivors insurance (OASI):
Existing L aw ...............................................................................................
Proposed legislation not subject to PAYGO..............................................

1996

1997

1998

1999

326,733
-8

342,636
-8

359,534
-8

311,574

326,725

342,628

359,526

42,003
-25

45,887
-19

49,940
-13

54,216
-13

58,725
-13

41,978

45,868

49,927

54,203

58,712

Social security interfunds ...............................................................................

-4

-16

-16

-16

-16

-16

-16

Total, Social Security.................................................................................

306,338

321,964

338,660

357,426

376,636

396,815

418,221

On-budget ..............................................................................................
Off-budget ..............................................................................................

(6,248)
(300,090)

(5,790)
(316,174)

(6,639)
(332,021)

(7,004)
(350,422)

(7,447)
(369,189)

(7,910)
(388,905)

(8,404)
(409,817)

13,429

14,014

14,173
347

14,172
790
*

14,163
1,266
*

14,134
1,753
*

14,132
2,264
*

700 Veterans benefits and services:
701 Income security for veterans:
Compensation:
Existing L aw ...............................................................................................
Proposed legislation not subject to PAYGO..............................................
Proposed legislation subject to PAYGO ....................................................

*

Subtotal, Compensation.........................................................................

13,429

14,014

14,520

14,961

15,429

15,888

16,396

Pensions ........................................................................................................
Burial benefits and miscellaneous assistance................................................
National service life insurance trust fund.......................................................
All other insurance programs.........................................................................
Insurance program receipts ...........................................................................

3,477
99
1,480
34
-395

3,398
108
1,388
25
-319

3,344
111
1,357
33
-306

3,314
114
1,300
37
-288

3,304
118
1,280
35
-274

3,296
121
1,179
35
-261

3,768
124
1,104
34
-246

Subtotal, Income security for veterans......................................................

18,123

18,615

19,059

19,439

19,892

20,258

21,182

702 Veterans education, training, and rehabilitation:
Readjustment benefits (Gl Bill and related programs)...................................
Post-Vietnam era education......................................................................... .
All-volunteer force educational assistance trust fund.....................................
Other..............................................................................................................

779
-16
-89
1

1,051
-3
-63
1

1,287
-1
-146
1

1,445
-1
-141
1

1,525

1,607

1,664

-130
1

-137
1

-123
1

Subtotal, Veterans education, training, and rehabilitation .........................

675

985

1,140

1,305

1,397

1,471

1,542

14,962

15,953

16,413

16,913
600

17,413
1,700

17,413

17,413

684
-53
-357

565
-63
-420

1,000
308
-61
-503

300
-56
-587

443
-57
-644

368
-61
-701

368
370
-709

Subtotal, Hospital and medical care for veterans......................................

15,235

16,036

17,157

17,171

18,855

17,020

17,442

704 Veterans housing:
Loan guaranty.................................................................................................
Direct loans.....................................................................................................
Guaranty and indemnity.................................................................................
Credit liquidating accounts.............................................................................

207
6
855
112

96
3
-57

78
1
434

71
1
417

60

36

363

47
*
346

518

Subtotal, Veterans housing........................................................................

1,181

42

513

489

423

393

554

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

948
95

964
94

988
92

967
91

985
94

986
94

987
94

Subtotal, Other veterans benefits and services.........................................

1,043

1,057

1,080

1,058

1,079

1,080

1,081

36,736

38,949

39,462

41,646

40,222

41,802

703 Hospital and medical care for veterans:
Medical care and hospital services ...............................................................
Veterans health care investment fund (Health Security Act—Nonpaygo)
Veterans health care investment fund (Health Security Act—PAYGO).........
Construction...................................................................................................
Third-party medical recoveries.......................................................................
Fees and other charges for medical services................................................

Total, Veterans benefits and services........................................................




36,259

*

*

91

7. FEDERAL SPENDING BY FUNCTION, SUBFUNCTION, AND MAJOR PROGRAM

TABLE 7-1. BUDGET AUTHORITY BY FUNCTION AND PROGRAM-Continued
(In m
illions of dollars)
Major missions and programs

Estimate

1993
1995

1996

1997

750 Administration of justice:
751 Federal law enforcement activities:
Criminal investigations (DEA, FBI, FinCEN, OCDE)....................................
Alcohol, tobacco, and firearms investigations (ATF).....................................
Border enforcement activities (Customs and IN S )........................................
Customs and INS fees..................................................................................
Protection activities (Secret Service)............................................................
Other enforcement........................................................................................

3,209
372
3,187
-1,276
521
738

3,413
372
3,357
-1,423
502
651

3,462
380
3,695
-1,763
512
703

3,373
380
3,709
-1,832
524
710

3,353
380
3,733
-1,859
502
709

-1,886
502
712

3,313
380
3,779
-1,913
502
717

Subtotal, Federal law enforcement activities ...........................................

6,751

6,872

6,989

6,864

6,818

6,797

6,778

752 Federal litigative and judicial activities:
Civil and criminal prosecution and representation.......................................
Federal judicial activities..............................................................................
Representation of indigents in civil cases....................................................
Other............................................................................................................

2,501
2,614
357
14

2,695
2,820
400
7

2,695
3,188
500

2,695
3,200
500

2,695
3,211
500

2,695
3,223
500

2,695
3,237
500

Subtotal, Federal litigative and judicial activities .....................................

5,486

5,922

6,384

6,394

6,406

6,418

6,432

753 Federal correctional activities ...............................................................

1,937

22
,2 0

2,598

2,980

3,174

3,444

3,709

754 Criminal justice assistance:
Criminal justice assistance...........................................................................
Crime control fund (proposed—Nonpaygo)..................................................

1,006

565
2,423

570
4,287

575
5,000

580
5,500

585
6,500

Subtotal, Criminal justice assistance........................................................

1,006

2,988

4,857

5,575

Total, Administration of justice ................................................................

15,180

15,873

18,960

21,095

21,973

22,740

24,004

800 General government:
801 Legislative functions...............................................................................

2,109

2,114

2,323

2,473

2,559

2,648

2,695

802 Executive direction and management...................................................

254

254

299

345

351

346

346

803 Central fiscal operations:
Collection of taxes........................................................................................
Other fiscal operations.................................................................................

7,105
149

7,352
228

7,466
165

7,899
230

7,785
236

7,521
236

7,234
237

Subtotal, Central fiscal operations........................... ................................

7,254

7,580

7,631

8,129

82
,0 1

7,757

7,471

804 General property and records management:
Real property activities.................................................................................
Property and other receipts .........................................................................
Records management..................................................................................
Other ............................................................................................................

-11
168
198

-43
193
192

1,428
-52
198
187

-52
198
187

-52
198
186

-52
198
192

-52
198
192

Subtotal, General property and records management............................

763

740

1,760

332

332

338

338

805 Central personnel management.............................................................

178

177

171

172

176

180

528
305
463

678
285
531

700
279
515

104
227
207

104
230
228

104
236
235

272
539
78
104
244
241

265
565
78
104
253
249

261
570
78
104
259
256

256
585
78
104
270
264

1,919

2,158

2,170

2,176

21
,2 1

2,226

2,255

161

322

174

175

151

146

147

12
1

106

-10

80

80
-19

79
-28

79
-28

79
-28

Subtotal, Territories..............................................................................

12
1

106

70

61

51

51

51

Treasury claims ............................................................................................
Civil liberties public education fund ..............................................................
Presidential election campaign fund.............................................................

518
500
28

591

611
5
81

523
5
81

523
5
81

523
5
81

518
5
81

806 General purpose fiscal assistance:
Payments and loans to the District of Columbia.........................................
Payments to States and counties from Forest Service receipts..................
Payments to States from receipts under the Mineral Leasing Act ..............
Payments to States and counties from Federal land management activities
Payments in lieu of taxes ............................................................................
Payments to territories and Puerto Rico......................................................
Other ............................................................................................................
Subtotal, General purpose fiscal assistance............................................
808 Other general government:
Compact of free association ........................................................................
Territories:
Existing Law .............................................................................................
Proposed legislation not subject to PAYGO............................................




408

8
6

12
0

10
0
81

1

12
0

3,333
380
3,757

7,085

92

ANALYTICAL PERSPECTIVES

TABLE 7-1. BUDGET AUTHORITY BY FUNCTION AND PROGRAM-Continued
(In m
illions of dollars)
Major missions and programs

Estimate

1993
1994

1995

1998

1999

183

91

105

107

10
1

12
1

115

1,503

1,291

1,045

953

921

918

917

809 Deductions for offsetting receipts .

-739

-691

-700

-710

-710

-710

-710

Total, General government..............

13,240

13,623

14,701

13,868

13,857

13,700

13,493

900 Net interest:
901 Interest on the public d e b t...........................

292,502

298,505

310,906

324,314

339,361

356,197

372,652

-25,155
-9,831

-26,197
-10,252

-27,069
-10,692

-27,850
-11,039

-28,477
-11,511

-29,056
-11,929

-29,730
-12,345

-12,468

-12,724

-10

-12,337
-30

-11,503
-33

-11,118
-795

-10,402
-1,891

-9,251
-3,481

Subtotal, Medicare................................................

-12,468

-12,734

-12,367

-11,536

-11,913

-12,293

-12,732

Other on-budget trust fund interest..............................

-8,082

-7,590

-7,063

-7,173

-7,366

-7,880

-6,309

Subtotal, Interest received by on-budget trust funds

-55,537

-56,772

-57,191

-57,598

-59,267

-61,158

-63,116

-26,788

-29,073

-31,669

-34,922

-38,784

-43,151

-48,023

-11,333
2,127
2,328
514

-9,601
2,679
2,328
553

-8,794
2,899
2,328
798

-7,645
3,016
2,328
991

-6,708
3,151
2,328
1,169

-5,874
3,297
2,328
1,309

-5,144
3,440
2,328
1,340

-493

-707

-1,184

-1,933

-2,953

-11

-4,130
-15

-4,996
-18

-493

-707

-1,186

-1.9

-2,964

-4,145

-5,014

-542

-624

-3,957

-3,840

-740
-56
-4,462

-805
-64
-3,478

-870
-69
-3,344

-885
-60
-3,209

-885
-53
-3,122

Subtotal, Other interest.

-11,356

-9,212

-9,211

-7,595

-7,306

-7,240

-7,110

Total, Net interest.........

198,822

203,448

212,835

224,199

234,004

244,648

254,402

(225,610)

(232,521)
(-29,073)

(244,504)
(-31,669)

(259,121)
(-34,922)

(272,788)
(-38,784)

(287,799)
(-43,151)

(302,425)
(-48,023)

-712

-2,796

-2,779

-2,859

-3,106

-390

-494

-608

-685

-550
148
892

-1,650
466
1,188

-4,600
-388
901

-6,100

-300

-700

-2,000

-2,200

-6,087

-8,586

Other....................................................
Subtotal, Other general government

902 Interest received by on-budget trust funds:
Civil Service retirement and disability..................
Military retirement................................................
Medicare:
Existing Law ....................................................
Health Security Act (Nonpaygo).....................

903 Interest received by off-budget trust funds...........
908 Other interest:
Interest on loans to Federal Financing Bank..............
Interest on refunds of tax collections.........................
Payment to the Resolution Funding Corporation........
Interest paid to loan guarantee financing accounts....
Interest received from direct loan financing accounts:
Existing Law ............................................................
Proposed legislation not subject to PAYGO...........
Subtotal, Interest received from direct loan financing accounts .
Interest on deposits in tax and loan accounts .
Cash management improvement....................
Other...............................................................

On-budget
Off-budget
920 Allowances:
922 Reinventing Federal procurement.

-2

923 Reducing Federal agency rents ...................................................

-207

924 Adjustment to continue certain accounts at baseline levels....

-236

-6

929 Health security:
Health Security Act receipts (Health Security Act—Nonpaygo) .........
Agency share of FEHB premiums (Health Security Act—Nonpaygo).
Administrative/start up costs, (Health Security Act—Nonpaygo)........
Administrative/start up costs, (Health Security Act—PAYGO)............
Savings (Health Security Act—Nonpaygo).........................................

1,279
1,279

Total, Allowances




-13,179
-2,375
-4,785

-12,671
-2,448
-5,136

190

124

Subtotal, Health security

950 Undistributed offsetting receipts:
951 Employer share, employee retirement (on-budget):
Contributions to military retirement fund........................
Contributions to HI trust fund.........................................
Postal Service contributions to CSRS............................

-872
586

-2,996

-3,969

-9,554

-12,377

-12,158
-2,531
-5,669

-10,320
-3,249
-5,678

-10,210

-10,308
-2,874
-6,389

-10,389
-3,031
-6,519

-2,743
-5,925

93

7. FEDERAL SPENDING BY FUNCTION, SUBFUNCTION, AND MAJOR PROGRAM

TABLE 7-1.

BUDGET AUTHORITY BY FUNCTION AND PROGRAM-Continued
(In millions of dollars)

Major missions and programs

1993
actual

Estimate
1994

1995

1996

1997

1998

1999

Other contributions to civilian retirement fund................................................

-7,847

-7,961

-8,135

-8,341

-8,581

-8,764

-8,839

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

-28,186

-28,217

-28,493

-27,587

-27,459

-28,335

-28,778

952 Employer share, employee retirement (off-budget)...............................

-6,416

-6,463

-6,756

-7,184

-7,628

-8,279

-8,887

953 Rents and royalties on the Outer Continental Shelf.............................

-2,785

-2,708

-3,048

-2,708

-2,755

-2,805

-2,848

-500

-4,300

-4,200

-1,600

-2,000

959 Other undistributed offsetting receipts...................................................
Total, Undistributed offsetting receipts.......................................................

-37,386

-37,887

-42,597

-41,679

-39,442

-41,420

-40,513

On-budget ..............................................................................................
Off-budget .............................................................................................

(-30,970)
(-6,416)

(-31,425)
(-6,463)

(-35,841)
(-6,756)

(-34,495)
(-7,184)

(-31,814)
(-7,628)

(-33,141)
(-8,279)

(-31,626)
(-8,887)

Total ..........................................................................................................

1,473,557

1,504,701

1,536,981

1,623,468

1,718,081

1,810,316

1,892,156

On-budget ..............................................................................................
Off-budget..............................................................................................

(1,204,431)
(269,126)

(1,219,782)
(284,919)

(1,238,035)
(298,945)

(1,313,095)
(310,373)

(1,394,993)
(323,088)

(1,471,263)
(339,054)

(1,539,243)
(352,913)

* $500 thousand or less.


150-003 0 -9 4 -4


(QL 3)

94

ANALYTICAL PERSPECTIVES

TABLE 7-2. OUTLAYS BY FUNCTION AND PROGRAM
(In m
illions of dollars)
Major missions and programs

Estimate

1993
actual

1994

1995

1996

1997

1998

1999

050 National defense:
051 Department of Defense—Military.................................................

278,561

267,360

259,228

249,095

244,586

244,686

245,503

053 Atomic energy defense activities.................................................

11,017

11,184

10,497

10,847

10,893

10,963

11,070

054 Defense-related activities.............................................................

1,508

1,280

1,001

1,073

950

945

961

Total, National defense..................................................................

291,086

279,824

270,725

261,015

256,429

256,594

257,534

150 International affairs:
151 International development and humanitarian assistance:
Agency for International Development...............................................
Assistance for New Independent States of Former Soviet Union......
Multilateral development banks (MDB’s) ...........................................
Food a id .............................................................................................
Refugee programs..............................................................................
Voluntary contributions to international organizations.......................
Peace Corps......................................................................................
Other programs..................................................................................
Credit liquidating accounts................................................................
Offsetting receipts...............................................................................

2,971
48
1,165
1,481
672
382
212
477
-1,057
-939

2,679
635
1,354
2,061
686
370
226
608
-585
-710

2,028
694
1,588
619
202
107
41
155
-521
-618

1,007
784
1,202
-5
34
9
5
64
-371
-549

531
341

321

207

3

*

*

21
-297
-516

3
-251
-A ll

2
-223
-432

5,413

7,325

4,294

2,178

84

-399

-446

152 International security assistance:
Non-proliferation and disarmament fund ...........................................
Foreign military financing grants and loans ......................................
Economic support fund .....................................................................
Other programs..................................................................................
Foreign military financing repayment.................................................
Foreign military financing liquidating account....................................

4,580
3,231
83
-469
206

2
4,131
2,846
156
-574
186

3
1,154
1,203
62
-628
179

3
131
765
22
-726
-228

2
74
486
13
-731
-503

10
309
6
-632
-502

197
3
-606
-485

Subtotal, International security assistance....................................

7,631

6,747

1,973

-34

-659

-809

-890

153 Conduct of foreign affairs:
State Department salaries and expenses.........................................
Foreign buildings ...............................................................................
Contributions to International Organizations (UN).............................
Contributions to International Peacekeeping (U N )............................
Other programs..................................................................................

2,287
484
915
458
181

2,106
491
861
1,073
212

2,168
497
913
11
203

2,174
515
1,034

2,177
513
1,128

2,178
503
1,168

2,178
498
1,256

202

190

192

195

Subtotal, Conduct of foreign affairs...............................................

4,325

4,742

3,793

3,926

4,008

4,041

4,127

154 Foreign information and exchange activities:
U.S. Information Agency ...................................................................
Board for International Broadcasting .................................................
Other programs..................................................................................

1,088
246
18

1,163
225
17

1,171
216
18

1,265
39
18

1,291
3
17

1,304

1,315

17

17

Subtotal, Foreign information and exchange activities..................

1,352

1,405

1,404

1,321

1,311

1,321

1,332

636
19
6
-1,000
-70
-75
-217
-110

588
19
6
-965
-90
-19
-178
-112

Subtotal, International development and humanitarian assistance

155 International financial programs:
Export-lmport Bank............................................................................
International monetary fund ..............................................................
IMF enhanced structural adjustment facility (proposed)...................
Exchange stabilization fund ..............................................................
Foreign military sales trust fund (net)...............................................
Special defense acquisition fund......................................................
Credit liquidating account (Exim)......................................................
Offsetting receipts..............................................................................

211
336

445
13

551
19

643
19

-1,379
-78
71
-958
-100

-925
70
-75
-677
-102

-950
110
-146
-537
-104

-1,000
100
-105
-458
-106

668
19
6
-1,000
-60
-98
-347
-108

Subtotal, International financial programs.....................................

-1,896

-1,251

-1,057

-907

-920

-810

-751

882
194
138
722
500
186
3,645
527

2,068
428
785
1,262
651
222
4,929
245

2,614
689
2,186
1,248
683
227
5,178
245

2,929
744
2,296
1,249
683
227
5,456
245

3,105
644
2,203
1,249
683
227
5,700
245

156 International cooperation:
Agency for International Development..............................................
Assistance for New Independent States of Former Soviet Union.....
Multilateral development banks (MDB’s) ..........................................
Food a id ............................................................................................
Refugee programs.............................................................................
Peace Corps.....................................................................................
Regional peace and security ...........................................................
Contributions to international peacekeeping.....................................




95

7. FEDERAL SPENDING BY FUNCTION, SUBFUNCTION, AND MAJOR PROGRAM

TABLE 7-2. OUTLAYS BY FUNCTION AND PROGRAM-Continued
(In m
illions of dollars)
Estimate
Major missions and programs

1997

Other programs.................................

597

779

824

812

747

Subtotal, International cooperation

7,390

11,370

13,894

14,640

14,803

16,826

18,968

17,798

17,855

17,718

17,984

18,176

2,441
1,481
16

2,793
1,653

2,826
1,067

3,009
1,059

3,156
935

3,233

3,328

3,938

4,445

3,893

4,068

4,091

4,133

4,217

4,498
5,461
2,277

4,865
5.476
2.477

4,951
5,431
2,619

4,936
5,517
2,691

1,309
5,025
492
6,251
15

1,334
4,747
453
6,285
15

2,482
3,855
1,939
77
1,724
391
2,565
16

225
144
411
16

49
52
82
17

15
19

2
1

8

17

18

Subtotal, Space flight, research, and supporting activities .

13,092

12,833

13,048

13,053

13,025

13,076

13,183

Total, General science, space, and technology.................

17,030

17,279

16,941

17,121

17,115

17,209

17,400

3,382

3,803

3,932

4,124

4,036

4,108

4,308

-255

-199

-198
-200

-279
153

-357
162

-371
95

-345
319

Total, International affairs.............
250 General science, space, and technology:
251 General science and basic research:
National Science Foundation programs................
Department of Energy general science programs
DoD general science programs...........................
Subtotal, General science and basic research
252 Space flight, research, and supporting activities:
Science, Aeronautics and Technology.........................
Human space flight ......................................................
Mission support.............................................................
Research and program development ...........................
Space flight control and data communications ............
Construction of facilities...............................................
Research and development.........................................
Other............................................................. ..............

270 Energy:
271 Energy supply:
Research and development.............................
Naval petroleum reserves:
Existing Law .................................................
Proposed legislation not subject to PAYGO ,

2
1

6

2

1
6
7

-255

-199

-398

-126

-195

-275

-26

Federal power marketing ..........................
Tennessee Valley Authority .......................
Hydropower leasing (proposed—PAYGO) ..
Uranium enrichment:
Existing Law ..........................................
Proposed legislation subject to PAYGO

409
1,486

-356
773

500

-385
533

-354
601

-417
649
-160

-443
375
-160

-350

127

26
-106

31
-261

6
6
-248

115
-314

-350

Subtotal, Uranium enrichment...........

-350

127

-79

-230

-182

-200

-181

48

141

173

162

159

157

259
74

260
192

270
258

281
288

292
301

Subtotal, Naval petroleum reserves........

Uranium enrichment decontamination and decommissioning fund
Nuclear waste program:
Existing L aw ..............................................................................
Proposed legislation subject to PAYGO ...................................
Subtotal, Nuclear waste program .

264
264

269

333

452

528

Nuclear waste fund receipts ................................
Subsidies for nonconventional fuel production.....
Rural electric and telephone lines:
Existing Law ....................................................
Proposed legislation not subject to PAYGO....

-437
74

-391
90

-551
36

-585
35

-591

-592

-600

117

151

119
5

99

107

110

101

Subtotal, Rural electric and telephone lines .

117

151

124

98

107

110

101

Credit liquidating account (REA).........................

5
-1,409

4
-574

7
-451

7
-693

7
-824

7
-904

7
-923

Subtotal, Energy supply.................................

3,286

3,743

3,206

3,403

3,293

3,054

3,205

272 Energy conservation.....................................

521

586

743

925

1,003

1,072

1,148

274 Emergency energy preparedness ................

336

279

242

254

257

252

252

276 Energy information, policy, and regulation:
Nuclear Regulatory Commission (NRC).............

-19

2
2

2
2

2
2

2
2




-2

-2

593

-2

-2

96

ANALYTICAL PERSPECTIVES

TABLE 7-2. OUTLAYS BY FUNCTION AND PROGRAM-Continued
(In m
illions of dollars)
Estimate
Mayor missions and programs
1995

1994

Other energy programs................................................

195

381

367

399

402

402

Subtotal, Energy information, policy, and regulation

176

380

373

411

421

424

424

Total, Energy...........................................................

4,319

4,988

4,564

4,992

4,975

4,802

5,030

3,522
912
287

4,526
1,025
516

3,823
842
437

3,830
849
203

3,879
839
173

3,952
850
174

3,922
802
176

-464

-472

-483

-6

-489
-12

-553

-541

-478

-12

-12

-12

300 Natural resources and environment:
301 Water resources:
Corps of Engineers ..........................................
Bureau of Reclamation.....................................
Other ................................................................
Offsetting receipts:
Existing Law .................................................
Proposed legislation not subject to PAYGO
Subtotal, Offsetting receipts

-464

-472

-489

-501

-565

-553

-490

4,258

5,596

4,615

4,382

4,326

4,423

4,411

2,897

2,853

2,835

2,939

2,867

2,839

2,818

857

943

1,002

999

1,003

1

1,008
29

1,013
49

857

943

1,002

1,004

1,037

1,061

28
304

23
262
1,819

19
309
1,808

18
311
1,806

2
1

2
1

2
1

329
1,741

278
1,061

273
622

854

884

942
26

1,029
27

885
27

836
27

825
27

854

884

968

1,056

912

863

852

367

367

366

357

372

372

373

-2,218

-2,379

-2,362

-2,434
-16

-2,497
-158

-2,516
-181

-2,555
-221

Subtotal, Offsetting receipts ........................

-2,218

-2,379

-2,362

-2,450

-2,655

Subtotal, Conservation and land management.

4,777

4,772

4,944

5,035

4,591

3,773

3,244

305
43

265
50

256
47

246
45

242
46

237
47

236
47

2,475

2,564

2,762
-22
4

2,827
17

2,851
-13
32

2,861
-16
44

2,910
-19
53

Subtotal, Water resources ......
302 Conservation and land management:
Forest Service............................................
Management of public lands (BLM):
Existing Law ..........................................
Proposed legislation subject to PAYGO
Subtotal, Management of public lands (BLM)
Federal land acquisition ...................................
Mining reclamation and enforcement...............
Conservation reserve program........................
Other conservation of agricultural lands:
Existing Law ................................................
Proposed legislation not subject to PAYGO
Subtotal, Other conservation of agricultural lands
Other
Existing Law ..........................................
Proposed legislation subject to PAYGO

303 Recreational resources:
Federal land acquisition...................................
Urban park and historic preservation funds.....
Operation of recreational resources:
Existing L aw .................................................
Proposed legislation not subject to PAYGO .
Proposed legislation subject to PAYGO ......
Subtotal, Operation of recreational resources
Existing Law ................................................
Proposed legislation not subject to PAYGO
Proposed legislation subject to PAYGO .....
Subtotal, Offsetting receipts ....
Subtotal, Recreational resources .
304 Pollution control and abatement:
Regulatory, enforcement, and research programs:
Existing L aw ......................................................
Proposed legislation subject to PAYGO...........
Subtotal, Regulatory, enforcement, and research programs
Hazardous substance superfund ..................................................
Oil pollution funds (gross).............................................................




-21

-2,776

2,475

2,564

2,744

2,823

2,870

2,888

2,943

-204

-223

-261
-27
-5

-276
-33
-20

-285
-33
-35

-293
-37
-46

-301
-33
-55

-204

-223

-293

-329

-353

-376

-389

2,620

2,655

2,754

2,785

2,805

2,796

2,837

2,516

2,714

2,900

3,025

3,053

3,135

3,200

2,516

2,714

3,025

3,053

3,133

3,199

1,418
108

1,613
113

1,566
133

1,543
134

1,511
134

1,497
134

-1

1,586
128

-2

-1

97

7. FEDERAL SPENDING BY FUNCTION, SUBFUNCTION, AND MAJOR PROGRAM

TABLE 7-2. OUTLAYS BY FUNCTION AND PROGRAM-Continued
(In m
illions of dollars)
Estimate
Major missions and programs

1998

Water infrastructure financing:
Existing Law .................................................
Proposed legislation not subject to PAYGO .

2,130

2,385

2,375
14

2,369
119

2,414

2,342
604

2,326
744

Subtotal, Water infrastructure financing ....

2,130

2,385

2,389

2,488

2,782

2,946

3,070

Leaking underground storage tank trust fund ...
Superfund recoveries and other:
Existing Law .................................................
Proposed legislation not subject to PAYGO .

80

78

77

77

77

77

77

-191

-236

-248
-15

-224
-15

-200
-15

-176

-151

Subtotal, Superfund recoveries and other

-191

-236

-263

-239

-215

-176

-151

Subtotal, Pollution control and abatement ....

6,061

6,667

6,816

7,050

7,375

7,625

7,825

2,541
-19

2,613
-18

2,707
-19

2,904
-19

2,969
-19

2,831
-19

2,496
-19

306 Other natural resources:
Program activities...............
Offsetting receipts...............
Subtotal, Other natural resources .............

2,522

2,595

2,688

2,885

2,950

2,813

2,478

Total, Natural resources and environment.

20,239

22,285

21,817

22,137

22,047

21,430

20,794

16,047

12,118

8,997
-500

350 Agriculture:
351 Farm income stabilization:
Commodity Credit Corporation:
Existing Law ..............................................
Proposed legislation subject to PAYGO ....
Subtotal, Commodity Credit Corporation
Crop insurance:
Existing Law ...............................................
Proposed legislation subject to PAYGO ....
Subtotal, Crop insurance
Agricultural credit insurance.............................
Emergency food assistance program..............
Other:
Existing L aw .................................................
Proposed legislation not subject to PAYGO ,

9,584

9,218
-

1,000

-

1,000

9,691

9,708
-

1,000

16,047

12,118

8,497

8,218

8,584

726

556
168

408
701

440
877

440
977

1,000

8,708

145

-

440
1,159

145

726

724

1,109

1,317

1,417

372
163

485
124

418
40

421
40

420
40

419
40

419
40

1,120

941

974
-109

973
-102

-114

1,038
-127

1,035
-137

Subtotal, Other.........................................

1,120

941

871

852

911

Credit liquidating accounts (ACIF & FAC).......

-48

-231

-593

-800

-1,050

-947

-859

Subtotal, Farm income stabilization ............

17,799

14,162

9,950

9,859

10,163

10,548

10,789

1,133
404

1,157
427

1,171
434

1,146
432

1,144
432

1,154
432

1,145
432

204

176

191
-20

192
-23

191
-23

191
-23

191
-23

352 Agricultural research and services:
Research programs..........................................
Extension programs.........................................
Marketing programs:
Existing Law ................................................
Proposed legislation not subject to PAYGO

204

176

172

169

167

167

167

147
396
-130

448
139
475
-117

449
144
591
-114

444
145
598
-113

450
146
713
-110

450
146
681
-109

450
146
837
-109

Subtotal, Agricultural research and services .

2,643

2,705

2,846

2,821

2,943

2,923

3,069

Total, Agriculture..........................................

20,443

16,868

12,795

12,680

13,106

13,471

13,858

-4
319
921

-2

-1

-1

-14
1,103

95
874

-16
772

-27
750

-27
748

-12

Subtotal, Marketing programs .................
Animal and plant health programs.............
Economic intelligence.................................
Other programs and unallocated overhead
Offsetting receipts.......................................

370 Commerce and housing credit:
371 Mortgage credit:
Government National Mortgage Association (GNMA).
Mortgage credit (FHA)................................................
Rural housing programs.............................................
Federal housing enterprise oversight and other........




-1

2

743

98

ANALYTICAL PERSPECTIVES

TABLE 7-2. OUTLAYS BY FUNCTION AND PROGRAM-Continued
(In m
illions of dollars)
Estimate
Major missions and programs
1994

1995

1996

1999

Credit liquidating accounts:
Existing Law .....................................................
Proposed legislation subject to PAYGO .........

319

-957
-520

-1,438

-1,918

-3,187
-44

-3,925
-71

-4,487
-195

Subtotal, Credit liquidating accounts...........

319

-1,477

-1,444

-1,9

-3,231

-3,996

-4,681

Subtotal, Mortgage credit.................................

1,554

-388

-477

-1,184

-2,507

-3,275

-3,951

372 Postal service:
Payments to the Postal Service fund (on-budget)
Postal service (off-budget) ..................................

161
1,441

130
1,748

130
3,259

130
242

129
-534

129
-1,079

129
-1,458

Subtotal, Postal service..................................

1,602

1,879

3,389

372

-405

-950

-1,329

373 Deposit insurance:
Resolution Trust Corporation Fund......................
Bank Insurance Fund..........................................
FSLIC Resolution Fund.......................................
Savings Association Insurance Fund...................
National Credit Union Administration...................
Other mandatory..................................................
Discretionary........................................................

-19,183
-9,834
2,362
-943
-372
-18
30

3,522
-6,833
1,367
-1,065
-305
-4
33

-5,057
-5,578
988
-1,119
-356
-9
33

-6,963
-5,315
108
1,292
-378
-14
23

-3,144
-2,748
-267
424

-2,647
-1,586
-281
79
-428

-1,723
-870

Subtotal, Deposit insurance............................

-27,957

-3,285

-11,097

-11,247

-6,138

-4,874

-3,262

376 Other advancement of commerce:
Small and minority business assistance..............
Science and technology......................................
Economic and demographic statistics .................
Payments to copyright owners............................
Regulatory agencies............................................
International trade and other business promotion
Credit liquidating accounts..................................

701
267
392
16
306
335

400
325
250
248
436
-131

741
561
344
250
437
476
-104

712
827
361
260
463
451
-13

723
1,088
359
270
480
457
-35

742
1,287
505
280
501
472

760
1,387
1,330
290
523
486
-138

-6

-21

-11
6

-11

1
2

-212
-463

-6

Subtotal, Other advancement of commerce ....

2,077

2,298

2,704

3,061

3,342

3,728

4,637

Total, Commerce and housing credit..............

-22,725

504

-5,482

-8,999

-5,709

-5,372

-3,904

On-budget...................................................
Off-budget...................................................

(-24,166)
(1,441)

(-1,245)
(1,748)

(-8,741)
(3,259)

(-9,241)
(242)

(-5,175)
(-534)

(-4,293)
(-1,079)

(-2,446)
(-1,458)

400 Transportation:
401 Ground transportation:
Highways..............................................................
Highway safety ....................................................
Mass transit.........................................................
Railroads..............................................................
Regulation (IC C )..................................................
Extend rail safety user fees (proposed—PAYGO)
Other offsetting receipts......................................

16,608
316
3,510
818
41

18,180
358
3,770
1,070
45

18,923
372
3,850
1,164
45

19,610
375
4,182
1,120
44
-39

19,833
364
4,328
1,044
44
-40
-9

19,867
353
4,706
1,030
44
-42

-8

19,946
353
4,835
1,021
44
-43
-7

Subtotal, Offsetting receipts .......................

-42

-44

-50

-50

-50

-50

-50

Subtotal, Ground transportation......................

21,251

23,380

24,305

25,281

25,563

25,950

26,149

402 Air transportation:
Airports and airways (FAA).................................
Aeronautical research and technology ................
Payments to air carriers......................................

8,800
1,212
37

8,718
1,349
37

8,659
1,362
29

1,322
26

8,726
1,375
26

8,733
1,453

8,721
1,409
26

Subtotal, Air transportation .............................

10,049

10,103

10,049

10,031

10,127

10,212

10,155

3,168

3,551

3,403

3,656

3,682

3,685

3,752

356

324

414
80

353
98

309

10
1

178
104

147
104

Subtotal, Ocean shipping ...........................

356

324

494

451

419

282

251

Panama Canal Commission...............................
Increase tonnage duties (proposed—PAYGO) ....

-23

-100

-100

-100

403 Water transportation:
Marine safety and transportation........................
Ocean shipping:
Existing L aw ....................................................
Proposed legislation subject to PAYGO ........




-42

-50

-11

-7

-6

-100

-100

99

7. FEDERAL SPENDING BY FUNCTION, SUBFUNCTION, AND MAJOR PROGRAM

TABLE 7-2. OUTLAYS BY FUNCTION AND PROGRAM-Continued
(In m
illions of dollars)
Major missions and programs

actual

1995

1997

-78

-87

-99

-102

-103

-104

-104

Subtotal, Offsetting receipts

-78

-87

-199

-202

-203

-204

-204

Subtotal, Water transportation .

3,423

3,783

3,690

3,897

3,898

3,764

3,799

306
-24

351
-36

361
-37

368
-37

-37

368
-37

368
-37

Subtotal, Other transportation .

281

315

324

331

332

330

330

Total, Transportation..............

35,004

37,582

38,368

39,541

39,920

40,256

40,433

3,198

3,746

4,136
26
4

4,721
238
82
124
-4
410
-128

4,416
231
97
105
-7
380
-133

4,400
229

Other offsetting receipts..............

407 Other transportation:
Miscellaneous programs..............

450 Community and regional development:
451 Community development:
Community development block grants..................................................
Project-based community development grants (proposed—Nonpaygo)
Colonias assistance program (proposed—Nonpaygo).........................
Community development financial institutions (proposed—Nonpaygo) .
Pennsylvania Avenue Development Corporation .................................
Other ....................................................................................................
Credit liquidating accounts...................................................................

82
437
-37

185
410
-30

442
-27

4,580
189
43
144
148
437
-81

3,681

4,311

4,878

5,460

5,444

5,090

5,042

452 Area and regional development:
Rural development:
Existing Law ................................................
Proposed legislation not subject to PAYGO

390

568

717

-6

802
3

876

925

981

Subtotal, Rural development...................

390

568

711

805

882

931

987

Economic development assistance..................
Indian programs...............................................
Appalachian Regional Commission .................
Tennessee Valley Authority ............................
Coastal energy impact fund............................
Credit liquidating accounts..............................
Offsetting receipts............................................

157
1,471
150
143

293
1,504
154
139

347
1,557
185
133

501
1,537

492
1,494

133

471
1,527
203
133

133

428
1,499
198
133

588
-455

292
-412

119
-389

106
-347

72
-333

78
-322

72
-322

Subtotal, Area and regional development.

2,443

2,538

2,662

2,944

2,953

3,007

2,994

453 Disaster relief and insurance:
Small business disaster loans .....................
Disaster relief................................................
National flood insurance fund.......................
Other ............................................................
Credit liquidating accounts...........................

453
2,276
475
187
-465

391
2,024
104
232
-317

209
1,456
-13
205
-244

147
579
-26
192
-267

138
451
-35
182
-233

142
320
-45
181
-197

146
320
-57
181
-167

Subtotal, Disaster relief and insurance

2,927

2,434

1,614

625

502

Total, Community and regional development

9,051

9,282

9,154

9,030

19

104
108

29

19

212

793

1,166

1,645

1,263

297
1,344

1,628

Subtotal, Community development

500 Education, training, employment, and social services:
501 Elementary, secondary, and vocational education:
Education reform:
Existing Law .................................................................
Proposed legislation not subject to PAYGO................
Subtotal, Education reform
School improvement programs:
Existing Law .................................................
Proposed legislation not subject to PAYGO

2,017

Subtotal, School improvement programs .

2,017

1,645

Education for the disadvantaged:
Existing Law ................................................

6,615

6,900

8
6
21
1




22
0

20
1

1,391

40
-7
401
-121

6

3
1,163

401

424

8,497

1,641
6,019

20
0

100

8,460

1,239

1,215
1,215

38
1,606

38
1,591

1,643
149

1
0

1
0

100

ANALYTICAL PERSPECTIVES

TABLE 7-2. OUTLAYS BY FUNCTION AND PROGRAM-Continued
(In m
illions of dollars)
Estimate
Mayor missions and programs
1994

1995

Proposed legislation not subject to PAYGO ...
Subtotal, Education for the disadvantaged .
Special education .............................................
Impact aid:
Existing L a w .................................................
Proposed legislation not subject to PAYGO ,

1997

908

6,084

1998

7,640

8,029

8,274

6,615

6,900

6,927

7,474

7,788

8,040

8,284

2,564

3,604

3,274

3,323

3,291

3,295

3,295

432

983

249
614

129
590

15
646

676

Subtotal, Impact a id .................................

432

983

719

661

Vocational and adult education........................
Indian education programs:
Existing Law ................................................
Proposed legislation not subject to PAYGO

1,190

1,317

1,373

1,568

1,455

1,455

1,455

505

502

528
13

506

541
84

559

573

Subtotal, Indian education programs......

505

502

541

576

625

Other:
Existing Law ................................................
Proposed legislation not subject to PAYGO

157

282

233
30

63
202

243

7
247

7
247

263

265

255

254

253
17,466

Subtotal, Other.................................................................

157

282

11

676

13,481

15,252

14,918

16,360

16,935

17,235

7,678
2,228

7,439
1,906
474
852
275
882

7,740
1,422
849
882
274
-2,029

7,746
1,165
1,057
873
271
-595

7,746
1,095
1,213

1,042
322
3,203

7,421
2,370
154
881
302
-552

264
-547

7,746
1,036
1,511
866
264
-578

14,483

10,575

11,828

9,138

10,517

10,639

10,846

2,040

2,219

2,177
123

2,054
308

2,012
334

2,051
338

2,086
340

2,040

2,219

2,301

2,362

2,346

2,389

2,425

2,040

2,219

2,301

2,362

2,346

2,389

2,425

4,241

4,536

4,807

8

5,456
122

5,796
187

6,264
197

6,428

4,241

4,536

4,814

5,578

5,983

6,461

6,597

77
389
736
1,180
76

78
386
860
1,196
81

91
406
1,031
1,291
90

90
397
1,005
1,463
93

1,463
93

73
396
995
1,463
93

396
987
1,463
93

Subtotal, Training and employment.

6,700

7,136

7,724

8,626

9,480

9,603

505 Other labor services ......................

948

952

1,036

1,031

1,048

1,049

1,045

208

196
48
2,877
475
2,397
3,000
4,135
817

466
131
3,240
465
2,476
3,362
4,441
876
244

718
209
3,255

1,132
236
2.835
437
2,470
4,174
5.835
872

1,419
252
2,800
435
2.538
4,559
6.538
872

1,610
267
2,800
435
2,612
4,976
7,239
872

Subtotal, Elementary, secondary, and vocational education .
502 Higher education:
Student financial assistance......................................................
Family education loan program ................................................
Federal direct loan program......................................................
Higher education.......................................................................
Other.........................................................................................
Credit liquidating account (Family education loan program) ....
Subtotal, Higher education.
503 Research and general education aids:
Research and general education aids:
Existing L aw .................................................
Proposed legislation not subject to PAYGO
Subtotal, Research and general education aids
Subtotal, Research and general education aids....

10

868

504 Training and employment:

Training and employment services:
Existing Law .................................................
Proposed legislation not subject to PAYGO
Subtotal, Training and employment services .
Trade adjustment assistance...........................
Older Americans employment.........................
Payments to States for AFDC work programs .
Federal-State employment service...................
Other................................................................

506 Social services:
National service initiative........................................................
Family support and preservation ...........................................
Social services block grant....................................................
Community services block grant............................................
Rehabilitation services............................................................
Payments to States for foster care and adoption assistance
Children and families services programs ..............................
Aging services program..........................................................
Interim assistance to States for legalization..........................




2,785
423
1,984
2,636
3,432
567
318

AAA

2,405
3,874
5,158
875

68

101

7. FEDERAL SPENDING BY FUNCTION, SUBFUNCTION, AND MAJOR PROGRAM

TABLE 7-2. OUTLAYS BY FUNCTION AND PROGRAM-Continued
(In m
illions of dollars)
Major missions and programs

1994

1995

16

Other social services..........

16

42

50

54

54

Subtotal, Social services .

12,360

14,660

15,717

16,979

18,041

19,467

20,864

Total, Education, training, employment, and social services

50,012

50,793

53,524

54,495

57,886

60,260

62,250

75,774

87,156

96,388
-15

108,191
-3,547

121,488
-11,778

136,338
-30,447

152,235
-51,335

75,774

87,156

96,373

104,644

109,711

105,891

100,900

650
2,879
161
1,742
1,994
3,659

373
2,918
239
1,949
2,089
4,245

3,517
236
1,804
2,214
4,655

4,045
233
1,767
2,522
5,021

4,112
230
1,765
2,451
5,170

4,825
228
1,757
2,445
5,301

5,213
226
1,832
2,512
5,504

200

2,000

60
404
212
8,153

700
10,200
203
661
81
25,240

13,900
-1,600
290
27
64,565

2,900
18,200
-2,514
31

550 Health:
551 Health care services:
Medicaid grants:
Existing Law .........................................................................
Health Security Act (PAYGO)...............................................
Subtotal, Medicaid grants ,
Health insurance earned income credit................................................
Federal employees’ health benefits (FEHB)..........................................
Coal miners retirees health benefits.....................................................
Indian health.........................................................................................
Substance abuse and mental health services.....................................
Other health care services...................................................................
Allowance for:
Supplemental services (Health Security Act—PAYGO) ...................
Long-term care (gross benefits) (Health Security Act—PAYGO).....
Federal employee’s health benefits (Health Security Act—PAYGO)
Access to health care fund (Health Security Act—Nonpaygo) ........
Access to health care fund (Health Security Act—PAYGO)............
Premium subsidies (Health Security Act—PAYGO) ........................

6,000

185
98,969

335
672
244

133,260

160,524

199,629

212,379

10,261
124
353
342
256

11,018
67
362
104
290

11,690

12,378

13,080

13,603

350

372

374

373

288

296

304

314

367
150

670
150

927
81

1,175

459

549

596

340

9,543

108,983

190

Subtotal, Health care services .
552 Health research and training:
National Institutes of Health...........................................................................
DoD breast cancer and other health research ..............................................
Clinical training ...............................................................................................
Substance abuse and mental health research...............................................
Other research and training...........................................................................
Allowance for:
Access to health care fund (Health Security Act—Nonpaygo) .................
Access to health care fund (Health Security Act—PAYGO).....................
Academic health centers and graduate medical education (Health Secu­
rity Act—Nonpaygo)...............................................................................
Academic health centers and graduate medical education (Health Secu­
rity Act-PAYGO) ..................................................................................

77,576

1,594

3,339

4,328

5,603

219

10,794

11,336

12,401

14,629

17,664

19,644

21,665

506

495

533
-103

535
-103

537
-103

541
-103

541
-103

506

495

430

432

434

438

438

775
480

948
504

729
534

701

701

597

730
669

Subtotal, Consumer and occupational health and safety .

1,762

1,947

1,693

1,720

1,794

1,805

1,837

Total, Health....................................................................

99,415

112,252

123,077

149,609

179,982

221,078

235,881

91,604

102,892

112,258
-200

123,359
-5,165

135,197
-9,835

147,664
-17,015

161,540
-23,665

Subtotal, Hospital insurance (HI) ....

91,604

102,892

112,058

118,194

125,362

130,649

137,875

Supplementary medical insurance (SMI):
Existing Law .......................................

54,254

58,490

66,144

73,665

81,825

90,981

101,552

Subtotal, Health research and training .
554 Consumer and occupational health and safety:
Food safety and inspection:
Existing L aw ..........................................................
Proposed legislation not subject to PAYGO.........
Subtotal, Food safety and inspection
Other consumer safety.............
Occupational safety and health

570 Medicare:
571 Medicare:
Hospital insurance (HI):
Existing Law ..........................
Health Security Act (PAYGO).




102

ANALYTICAL PERSPECTIVES

TABLE 7-2. OUTLAYS BY FUNCTION AND PROGRAM-Continued
(In m
illions of dollars)
Estimate

Major missions and programs
1994

Health Security Act (PAYGO)............................................ ........................

1995

1999

-150

-1,920

6,509

13,833

10,217

8,014

Subtotal, Supplementary medical insurance (SMI) ...............................

54,254

58,340

64,224

80,174

95,658

101,198

109,566

Medicare premiums and collections:
Existing Law ...............................................................................................
Health Security Act (PAYGO)....................................................................

-15,306

-17,581

-20,056

2

-19,914
-2,431

-21,348
-3,841

-23,859
-2,760

-25,372
-3,979

Subtotal, Medicare premiums and collections.......................................

-15,306

-17,581

-20,054

-22,345

-25,189

-26,619

-29,351

Total, Medicare...........................................................................................

130,552

143,651

156,228

176,023

195,831

205,228

218,090

600 Income security:
601 General retirement and disability insurance (excluding social secu­
rity):
Railroad retirement.........................................................................................
Special benefits for disabled coal miners.......................................................
Pension Benefit Guaranty Corporation:
Existing L aw ...............................................................................................
Proposed legislation subject to PAYGO ....................................................

4,274
1,416

4,517
1,398

4,542
1,322

4,577
1,273

4,584
1,213

4,593
1,160

4,627
1,106

-1,508

-909
4

-745
-74

-694
-259

-629
-472

-559
-526

-1,314

-1
,1

Subtotal, Pension Benefit Guaranty Corporation...................................

-1,508

-905

-819

-953

1,101

-1,085

Other..............................................................................................................

165

194

196

203

210

215

223

Subtotal, General retirement and disability insurance (excluding social se­
curity) .....................................................................................................

4,347

5,203

5,241

5,100

4,906

4,883

4,153

35,210
25,708

36,615
26,513

38,095
27,195

39,716
28,302

41,881
29,514

43,884
30,808

46,004
32,948

205

215

212
-2

216
-3

234
-3

280
-3

292
-3

210

213

231

278

289

1,120

25

-1,096
47

-1,118
71

-1,149
96

602 Federal employee retirement and disability:
Civilian retirement and disability programs.....................................................
Military retirement...........................................................................................
Federal employees workers’ compensation (FECA):
Existing L aw ...............................................................................................
Proposed legislation subject to PAYGO ....................................................
Subtotal, Federal employees workers’ compensation (FECA)...............

205

215

Federal employees life insurance fund:
Existing Law ...............................................................................................
Proposed legislation not subject to PAYGO..............................................

-1,076

-1,086

-

1,100

8

-

-

Subtotal, Federal employees life insurance fund..................................

-1,076

-1,086

-1,092

-1,094

-1,049

-1,047

-1,053

Subtotal, Federal employee retirement and disability................................

60,047

62,257

64,408

67,136

70,577

73,922

78,188

603 Unemployment compensation .................................................................

37,802

29,210

25,453

25,824

26,174

26,291

27,370

17,015

18,078

2,604
91
71
212

2,698
107

18,966
152
2,670
159

19,617
614
2,294
159

19,736
875
2,147
159

20,267
1,058
2,146
116

,'

50
265
36
116
346

1,149
50
265
44
103
428
746

1,100
50
265
47
100
510
677

604 Housing assistance:
Subsidized housing including section 8 ..........................................................
Homeless assistance grants (proposed—Nonpaygo) ....................................
Public housing ................................................................................................
Supportive housing program..........................................................................
Emergency shelter grants ..............................................................................
Home investment partnerships program.........................................................
Shelter plus care ............................................................................................
Community partnerships against crime ..........................................................
Youthbuild program ........................................................................................
HOPE grants...................................................................................................
Revitalization of distressed public housing.......................- ............................
Rural housing assistance...............................................................................
Other housing assistance:
Existing Law ...............................................................................................
Proposed legislation subject to PAYGO ....................................................

8

1,200
50
239
16

415

68
30
518

146
527

19,285
315
2,492
159
29
1,192
50
265
25
104
277
579

987

1,107

1,095

1,079

1,053
44

1,052
71

1,059
195

Subtotal, Other housing assistance.......................................................

987

1,107

1,101

1,115

1,097

1,123

1,254

Subtotal, Housing assistance.....................................................................

21,548

23,840

25,396

25,889

26,460

26,826

27,587

605 Food and nutrition assistance:
Food stamps...................................................................................................
Nutrition assistance for Puerto Rico...............................................................
Child nutrition and special milk......................................................................

23,577
1,025
6,612

25,547
1,078
7,258

25,182
1,141
7,707

26,115
1,143
8,249

27,191
1,143
8,852

28,188
1,143
9,480

29,188
1,143
10,155




1

116
35

68

86

876
15
268

86

6

11

103

7. FEDERAL SPENDING BY FUNCTION, SUBFUNCTION, AND MAJOR PROGRAM

TABLE 7-2. OUTLAYS BY FUNCTION AND PROGRAM-Continued
(In m
illions of dollars)
Estimate
Major missions and programs

1997

1995

3,222

1999

3,423
473

3,500
647
887

3,608
631
887

3,720
663
887

38,443

40,288

42,220

43,938

45,756

26,706

28,455
-18

28,870
-13

31,456
-9

34,959
-9

38,528
-9

22,642

26,706

28,437

28,857

31,447

34,950

38,519

Family support payments...............................................................................
Earned income tax credit (EITC)...................................................................
Refugee assistance........................................................................................
Low income home energy assistance...........................................................
Payments to states for day-care assistance..................................................
Other..............................................................................................................
SSI offsetting receipts ....................................................................................

15,628
8,781
360
1,068
411
-735

16,413
10,036
378
2,076
980
266
-922

16,921
15,797
399
791
1,037
164
-1,047

17,486
18,932
408
747
1,146
167
-1,147

18,172
21,456
412
731
1,096
170
-1,350

18,857
22,368
413
730
1,091
170
-1,477

19,683
23,167
413
730
1,091
170
-1,609

Subtotal, Other income security................................................................

48,366

55,933

62,499

66,595

72,134

77,101

82,164

Total, Income security................................................................................

207,257

214,626

221,440

230,833

242,471

252,961

265,220

269,960

282,394

295,631
-17

311,429
-13

323,290
-8

339,323

356,112
-8

Subtotal, Old-age and survivors insurance (OASI) ...............................

269,960

282,394

295,614

311,416

323,282

339,315

356,104

Disability insurance (Dl):
Existing Law ...............................................................................................
Proposed legislation not subject to PAYGO..............................................

34,641

38,075

41,595
-25

45,465
-19

49,454
-13

53,790
-13

58,265
-13

Subtotal, Disability insurance (D l)..........................................................

34,641

38,075

41,570

45,446

49,441

53,777

58,252

Social security interfunds ...............................................................................

-17

-10

-16

-16

-16

-16

-16

Total, Social Security.................................................................................

304,585

320,460

337,168

356,847

372,707

393,075

414,340

On-budget ..............................................................................................
Off-budget ..............................................................................................

(6,236)
(298,349)

(5,796)
(314,663)

(6,639)
(330,529)

(7,004)
(349,843)

(7,447)
(365,260)

(7,910)
(385,165)

(8,404)
(405,936)

13,376

15,035

14,176
346

13,078
728

14,164
1,228

14,137
1,714

14,132
2,203

Subtotal, Compensation.........................................................................

13,376

15,035

14,522

13,806

15,392

15,851

16,336

Pensions ........................................................................................................
Burial benefits and miscellaneous assistance................................................
National service life insurance trust fund.......................................................
All other insurance programs................................. .......................................
Insurance program receipts ...........................................................................

3,529
99
1,127
21
-395

3,661
109
1,205
110
-319

3,344

3,062
114
1,254

3,296

-288

3,305
118
1,280
20
-274

1,326
23
-261

3,730
124
1,368
-3
-246

Subtotal, Income security for veterans.......................................................

17,758

19,801

18,959

17,960

19,840

20,357

21,310

702 Veterans education, training, and rehabilitation:
Readjustment benefits (Gl Bill and related programs)...................................
Post-Vietnam era education...........................................................................
All-volunteer force educational assistance trust fund.....................................
Other ..............................................................................................................

854
61
-89

1,198
35
-63

1,300
43
-146

1,405
20
-141

1,511
19
-130

1,603
16
-137

1

1

1

Subtotal, Veterans education, training, and rehabilitation.........................

826

1,170

1,196

1,285

1,401

1,483

1,552

703 Hospital and medical care for veterans:
Medical care and hospital services...............................................................

14,613

15,629

16,342

16,840

17,342

17,403

17,410

Special supplemental food program for women, infants, and children (WIC)
Special supplemental food program (Health Security Act—Nonpaygo).........
Other nutrition programs................................................................................

2,846
1,087

1,078

875

Subtotal, Food and nutrition assistance.....................................................

35,148

38,183

609 Other income security:
Supplemental security income (SSI):
Existing L aw ...............................................................................................
Proposed legislation subject to PAYGO ....................................................

22,642

Subtotal, Supplemental security income (SSI) ......................................

650 Social Security:
651 Social security:
Old-age and survivors insurance (OASI):
Existing Law ..............................................................................................
Proposed legislation not subject to PAYGO..............................................

700 Veterans benefits and services:
701 Income security for veterans:
Compensation:
Existing L aw ...............................................................................................
Proposed legislation not subject to PAYGO..............................................
Proposed legislation subject to PAYGO ....................................................




21
1

3,538

111

1,238
50
-306

11

121

1,1

14
-123

104

ANALYTICAL PERSPECTIVES

TABLE 7-2. OUTLAYS BY FUNCTION AND PROGRAM-Continued
(In millions of dollars)
Major missions and programs

Estimate

1993
actual

1994

Veterans health care investment fund (Health Security Act—Nonpaygo) .....
Veterans health care investment fund (Health Security Act—PAYGO).........
Construction...................................................................................................
Third-party medical recoveries.......................................................................
Fees and other charges for medical services................................................

617
-60
-357

Subtotal, Hospital and medical care for veterans......................................

1995

1996

1997

1998

1999

600

1,700

692
-60
-420

1,000
636
-62
-503

525
-56
-587

425
-58
-644

385
-61
-701

379
370
-709

14,812

15,842

17,413

17,322

18,765

17,026

17,450

704 Veterans housing:
Loan guaranty.................................................................................................
Direct loans....................................................................................................
Guaranty and indemnity.................................................................................
Credit liquidating accounts.............................................................................

207
2
855
235

96
4
-57
169

78
2
434
123

71
2
417
69

60
2
363
54

47
*
346
21

36
*
518
13

Subtotal, Veterans housing........................................................................

1,299

212

637

560

479

415

568

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

937
88

1,009
95

943
98

976
87

965
88

968
88

969
88

Subtotal, Other veterans benefits and services.........................................

1,025

1,104

1,042

1,063

1,053

1,056

1,057

Total, Veterans benefits and services........................................................

35,720

38,129

39,247

38,188

41,538

40,337

41,937

750 Administration of justice:
751 Federal law enforcement activities:
Criminal investigations (DEA, FBI, FinCEN, OCDE)......................................
Alcohol, tobacco, and firearms investigations (ATF)......................................
Border enforcement activities (Customs and IN S ).........................................
Customs and INS fees...................................................................................
Protection activities (Secret Service)..............................................................
Other enforcement..........................................................................................

3,248
376
3,199
-1,276
511
615

3,277
371
3,364
-1,423
500
755

3,290
380
3,615
-1,763
510
693

3,401
380
3,684
-1,832
493
707

3,372
380
3,741
-1,859
501
707

3,336
380
3,755
-1,886
497
711

3,315
380
3,776
-1,913
502
715

Subtotal, Federal law enforcement activities .............................................

6,674

6,843

6,725

6,833

6,842

6,793

6,776

752 Federal litigative and judicial activities:
Civil and criminal prosecution and representation.........................................
Federal judicial activities................................................................................
Representation of indigents in civil cases......................................................
Other ..............................................................................................................

2,285
2,649
389
13

2,855
2,889
393
13

2,682
3,108
483
11

2,691
3,121
500
16

2,707
3,132
500
1

2,710
3,145
500

2,711
3,158
500

Subtotal, Federal litigative and judicial activities .......................................

5,336

6,151

6,283

6,327

6,341

6,355

6,369

753 Federal correctional activities ..................................................................

2,124

2,482

2,856

3,377

3,299

3,495

3,633

754 Criminal justice assistance:
Criminal justice assistance.............................................................................
Crime control fund (proposed—Nonpaygo)....................................................

822

1,002

769
698

703
2,325

572
3,936

552
4,988

558
6,407

*

Subtotal, Criminal justice assistance..........................................................

822

1,002

1,467

3,028

4,508

5,540

6,965

Total, Administration of justice ..................................................................

14,955

16,479

17,331

19,565

20,991

22,183

23,743

800 General government:
801 Legislative functions.................................................................................

2,124

2,169

2,318

2,456

2,542

2,631

2,678

802 Executive direction and management.....................................................

197

254

271

336

350

346

347

803 Central fiscal operations:
Collection of taxes..........................................................................................
Other fiscal operations...................................................................................

6,879
96

7,316
262

7,398
160

7,724
290

7,733
230

7,548
175

7,300
234

Subtotal, Central fiscal operations.............................................................

6,976

7,578

7,558

8,014

7,963

7,723

7,534

804 General property and records management:
Real property activities...................................................................................
Property and other receipts ...........................................................................
Records management....................................................................................
Other...............................................................................................................

573
-11
269
175

830
-43
282
255

700
-52
191
199

1,494
-52
186
199

816
-52
187
197

126
-52
187
194

-383
-52
187
192

Subtotal, General property and records management..............................

1,005

1,324

1,038

1,827

1,147

456

-56




105

7. FEDERAL SPENDING BY FUNCTION, SUBFUNCTION, AND MAJOR PROGRAM

TABLE 7-2. OUTLAYS BY FUNCTION AND PROGRAM-Continued
(In millions of dollars)
Major missions and programs

Estimate

1993
actual

1994

1995

1996

1997

1998

1999

805 Central personnel management ..............................................................

182

162

167

169

172

175

179

806 General purpose fiscal assistance:
Payments and loans to the District of Columbia...........................................
Payments to States and counties from Forest Service receipts...................
Payments to States from receipts under the Mineral Leasing A c t................
Payments to States and counties from Federal land management activities .
Payments in lieu of taxes ..............................................................................
Payments to territories and Puerto R ico.......................................................
Other..............................................................................................................

539
309
463
93
103
223
206

676
285
531
102
105
230
229

700
279
515
102
104
236
236

699
272
539
77
104
244
241

698
265
565
78
104
253
249

698
261
570
78
104
259
256

698
256
585
78
104
270
264

Subtotal, General purpose fiscal assistance..............................................

1,935

2,158

2,172

2,176

2,211

2,226

2,255

160

322

174

175

151

146

147

60

85

76
-10

78
-19

77
-28

77
-28

77
-28

Subtotal, Territories................................................................................

60

85

66

59

49

49

49

Treasury claims .............................................................................................
Civil liberties public education fund...............................................................
Presidential election campaign fund..............................................................
Other ..............................................................................................................

519
500
6
84

591
100

523
5
183
111

523
5
4
113

523
5

247

611
5
24
105

116

518
5
29
118

Subtotal, Other general government.........................................................

1,329

1,346

984

1,056

845

839

866

808 Other general government:
Compact of free association..........................................................................
Territories:
Existing L aw ..............................................................................................
Proposed legislation not subject to PAYGO..............................................

*

809 Deductions for offsetting receipts..........................................................

-739

-691

-700

-710

-710

-710

-710

Total, General government........................................................................

13,009

14,299

13,807

15,325

14,519

13,685

13,093

900 Net interest:
901 Interest on the public d e b t......................................................................

292,502

298,505

310,906

324,314

339,361

356,197

372,652

-25,155
-9,831

-26,197
-10,252

-27,069
-10,692

-27,850
-11,039

-28,477
-11,511

-29,056
-11,929

-29,730
-12,345

-12,468

-12,724
-10

-12,337
-30

-11,503
-33

-11,118
-795

-10,402
-1,891

-9,251
-3,481

Subtotal, Medicare.................................................................................

-12,468

-12,734

-12,367

-11,536

-11,913

-12,293

-12,732

Other on-budget trust fund interest ...............................................................

-8,082

-7,590

-7,063

-7,173

-7,366

-7,880

-8,309

Subtotal, Interest received by on-budget trust funds ................................

-55,537

-56,772

-57,191

-57,598

-59,267

-61,158

-63,116

903 Interest received by off-budget trust funds............................................

-26,788

-29,073

-31,669

-34,922

-38,784

-43,151

-48,023

-11,333
2,127
2,328
514

-9,601
2,679
2,328
553

-8,794
2,899
2,328
798

-7,645
3,016
2,328
991

-6,708
3,151
2,328
1,169

-5,874
3,297
2,328
1,309

-5,144
3,440
2,328
1,340

-493

-707

-1,184
-2

-1,933
-6

-2,953
-11

-4,130
-15

-4,996
-18

Subtotal, Interest received from direct loan financing accounts............

-493

-707

-1,186

-1,939

-2,964

-4,145

-5,014

Interest on deposits in tax and loan accounts...............................................
Cash management improvement...................................................................
Other ..............................................................................................................

-542

-624

-3,968

-3,840

-740
-56
-4,462

-805
-64
-3,478

-870
-69
-3,344

-885
-60
-3,209

-885
-53
-3,122

Subtotal, Other interest..............................................................................

-11,367

-9,212

-9,211

-7,595

-7,306

-7,240

-7,110

Total, Net interest.......................................................................................

198,811

203,448

212,835

224,199

234,004

244,648

254,402

(225,599)
(-26,788)

(232,521)
(-29,073)

(244,504)
(-31,669)

(259,121)
(-34,922)

(272,788)
(-38,784)

(287,799)
(-43,151)

(302,425)
(-48,023)

902 Interest received by on-budget trust funds:
Civil Service retirement and disability............................................................
Military retirement...........................................................................................
Medicare:
Existing Law ...............................................................................................
Health Security Act (Nonpaygo)................................................................

908 Other interest:
Interest on loans to Federal Financing Bank.................................................
Interest on refunds of tax collections ............................................................
Payment to the Resolution Funding Corporation...........................................
Interest paid to loan guarantee financing accounts.......................................
Interest received from direct loan financing accounts:
Existing Law ..............................................................................................
Proposed legislation not subject to PAYGO..............................................

On-budget ..............................................................................................
Off-budget ..............................................................................................




106

ANALYTICAL PERSPECTIVES

TABLE 7-2. OUTLAYS BY FUNCTION AND PROGRAM-Continued
(In m
illions of dollars)
Estimate

Major missions and programs

920 Allowances:
922 Reinventing Federal procurement

-544

925 Grant recipients administrative costs .....................................

-3,016

-312

-414

-525

-599

-1,650
466
1,188

-4,600
-388
901

-300

-177

-2,878

-700

-203

924 Adjustment to continue certain accounts at baseline levels .

-2,432

-550
148

923 Reducing Federal agency renis ...............................................

-1,772

-150

929 Health security:
Health Security Act receipts (Health Security Act—Nonpaygo) .........
Agency share of FEHB premiums (Health Security Act—Nonpaygo).
Administrative/start up costs, (Health Security Act—Nonpaygo)........
Administrative/start up costs, (Health Security Act—PAYGO)............
Savings (Health Security Act—Nonpaygo).........................................

1,279

Total, Allowances...........

205

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

6,100
-872
586

1,279

Subtotal, Health security .

950 Undistributed offsetting receipts:
951 Employer share, employee retirement (on-budget):
Contributions to military retirement fund.........................
Contributions to HI trust fund..........................................
Postal Service contributions to CSRS............................
Other contributions to civilian retirement fund.................

-

-

2,000

-

-6,087

190

-1,8

2,200

-8,586

-3,542

-9,490

10,210

-2,743
-5,925
-8,581

-10,308
-2,874
-6,389
-8,764

-10,389
-3,031
-6,519
-8,839

-

12,201

-13,179
-2,375
-4,785
-7,847

-12,671
-2,448
-5,136
-7,961

-12,158
-2,531
-8,135

-10,320
-3,249
-5,678
-8,341

-28,186

-28,217

-28,493

-27,587

-27,459

-28,335

-28,778

-7,628

-8,279

-8,887
-2,848

-

952 Employer share, employee retirement (off-budget)...........

-6,416

-6,463

-6,756

-7,184

953 Rents and royalties on the Outer Continental Shelf.........

-2,785

-2,708

-3,048

-2,708

-2,755

-2,805

-500

-4,300

-4,200

-1,600

-

-37,386

-37,887

-42,597

-41,679

-39,442

-41,420

-40,513

(-30,970)
(-6,416)

(-31,425)
(-6,463)

(-35,841)
(-6,756)

(-34,495)
(-7,184)

(-31,814)
(-7,628)

(-33,141)
(-8,279)

(-31,626)
(-8,887)

1,408,205

1,483,829

1,518,945

1,596,877

1,691,443

1,777,416

1,854,023

(1,141,618)
(266,587)

(1,202,953)
(280,876)

(1,223,582)
(295,364)

(1,288,898)
(307,979)

(1,373,129)
(318,314)

(1,444,760)
(332,656)

(1,506,455)
(347,568)

959 Other undistributed offsetting receipts..............................
Total, Undistributed offsetting receipts..................................
On-budget
Off-budget
Total
On-budget
Off-budget
*$500 thousand or less.




2,000

8. FEDERAL INVESTMENT OUTLAYS AND CAPITAL BUDGETING
Investment outlays are outlays that yield long-term
benefits. They take several forms and are made for
many purposes. They can be direct Federal outlays or
grants to State and local governments. They may be
aimed at improving the efficiency of internal Federal
agency operations or at increasing the Nation’s overall
stock of capital for economic growth. They can be for
physical capital, which yields a stream of services over
a period of years, or for research, development, edu­
cation, and training, which are less tangible but also
increase income in the future or provide other long­
term benefits. They can also be for acquiring commod­
ities or other purposes.
The Administration is strongly committed to increas­
ing investment—both public and private—in order to
raise economic growth and future living standards. In
A Vision of Change For America, the President identi­
fied these as key elements of his economic plan for
the Nation—“long-term public investments to increase
the productivity of our people and businesses; and a
serious, fair, and balanced deficit-reduction plan to stop
the government from draining the private investments
that generate jobs and increase incomes.” Thus, the
President proposed to increase investment outlays
above the baseline and to reduce the deficit by about
one-half of 1 percent of GDP per year over the budget
horizon. Congress appropriated a substantial amount
of the President’s 1994 request for investment funding,
and $504.8 billion of deficit reduction was achieved by
enactment of the Omnibus Budget Reconciliation Act

of 1993 (OBRA). The 1995 budget builds on these suc­
cesses by requesting additional investment funding for
1995 while maintaining the fiscal policy constraint envi­
sioned by OBRA.
Higher investment funding carries with it the respon­
sibility to use Federal investment dollars wisely. Yet,
as recognized by the National Performance Review
(NPR), “Poor choices of capital investment and the ac­
quisition methods are currently costing the taxpayer
millions of dollars each year.” 1 Therefore, in addition
to requesting higher investment funding, the Adminis­
tration will implement the NPR recommendation to es­
tablish a capital budgeting process for the Federal Gov­
ernment that will improve the analysis and review of
its acquisition of general purpose fixed assets.
Most presentations of the Federal budget combine
investment outlays with outlays for current use. This
chapter focuses solely on Federal and federally financed
investment. It discusses the size, composition, and long­
term trend of Federal investment outlays. It presents
a capital budget for Federal investment using two defi­
nitions of investment, and it analyzes the effectiveness
of a capital budget for the Federal Government as a
capital planning tool. Information about Federal and
federally financed capital stocks and the depreciation
of these assets is also presented. The final section pro­
vides projections of Federal physical capital spending
and information regarding recent assessments of public
civilian capital needs, as required by the Federal Cap­
ital Investment Program Information Act of 1984.

Part I—DESCRIPTION OF FEDERAL INVESTMENT
For more than forty years, the budget has shown
Federal investment outlays separately from outlays for
current use, using the broad definition of investment
as those outlays which yield long-term benefits. This
presentation has been primarily for analytical purposes
rather than to direct budget decision-making. This sec­
tion of the chapter describes the composition of Federal
investment outlays and discusses recent trends in Fed­
eral investment.
The classification of spending into investment and
current outlays is a matter of judgment. The budget
has historically employed a relatively broad classifica­
tion, including both physical investment and items such
as research, development, education and training. But
presentations for particular purposes would adopt dif­
ferent definitions of investment:
• To suit the purposes of a traditional balance sheet,
investment might include only those physical as-

sets owned by the Federal Government, excluding
capital financed through grants and intangible as­
sets such as research, education, and training.
• Focusing on the role of investment in improving
national productivity and enhancing economic
growth would exclude items such as national de­
fense assets, the benefits of which are enhanced
national security rather than economic growth.
• Concern with the efficiency of Federal operations
would lead to a focus solely on investments to
reduce costs or improve the effectiveness of inter­
nal Federal agency operations, such as computer
systems.
• A “social investment” perspective might broaden
the coverage of investment beyond what is in­
cluded in this chapter to encompass programs
such as childhood immunization, maternal health,
and substance abuse treatment, which are de-

1Creating A Government That Works Better & Costs Less, Report of the National Perform­
ance Review, September 7, 1993, p. 111.




107

108

ANALYTICAL PERSPECTIVES

signed in part to prevent more costly health prob­ although some may be spent by recipient jurisdictions
lems in future years.
on physical investment.
The relatively broad definition of investment used
Second, some spending could be classified into more
in this section has the presentational virtue of consist­ than one category of investment. For example, grants
ency over time: historical figures on investment outlays for construction of research facilities finance the acqui­
back to 1940 can be found in the separate Historical sition of physical assets, but they also contribute to
Tables volume. The detailed tables at the end of this research and development. To avoid double counting,
section allow disaggregation of the data to focus on the outlays are classified in the category that is most
those investment outlays that best suit a particular commonly recognized as investment. Consequently out­
purpose.
lays for the conduct of research and development do
In addition to this basic definitional issue, there are not include outlays for research facilities, because these
two technical problems in the classification of invest­
outlays are included in the category for physical invest­
ment data, involving the treatment of grants to State
ment. Similarly, physical investment and research and
and local governments and the classification of spend­
ing that could be shown in more than one category. development related to education and training are in­
First, for some grants to State and local governments, cluded in the categories of physical assets and the con­
the recipient jurisdiction, not the Federal Government, duct of research and development.
When direct loans and loan guarantees are used to
ultimately determines whether the money is used to
finance investment or current purposes. This analysis fund investment, the subsidy value is included as in­
classifies all of the outlays in the category where the vestment. The subsidies are classified according to their
recipient jurisdictions are expected to spend most of program purpose, such as construction, education and
the money. Hence, community development block training, or non-investment outlays. For more informa­
grants are classified as physical investment, although tion about the treatment of Federal credit programs,,
some may be spent for current purposes. General pur­ refer to Chapter 10, "Underwriting Federal Credit and
pose fiscal assistance is classified as current spending, Insurance.”

Composition of Federal Investment Outlays
construction of military bases and family housing for
military personnel.
The composition of major Federal investment outlays
Outlays for direct physical investment for nondefense
is summarized in Table 8-1. They include major public
purposes are estimated at $22.9 billion in 1995. These
physical investment, the conduct of research and devel­ outlays include $15.0 billion for construction and reha­
opment, and the conduct of education and training. De­ bilitation. This amount funds water, power, and natural
fense and nondefense investment outlays totalled resources projects of the Corps of Engineers, the De­
$236.7 billion in 1993, falling to an estimated $233.6 partment of Interior, the Tennessee Valley Authority,
billion in 1994 and edging up to $234.0 billion in 1995. and the power administrations in the Department of
Major Federal investment will comprise an estimated Energy; construction and rehabilitation of veterans hos­
15.4 percent of total Federal outlays in 1995, represent­ pitals and Postal Service facilities; and facilities for
ing 3.3 percent of the Nation’s gross domestic product space and science programs. Outlays for the acquisition
(GDP). Greater detail on the composition of Federal of major equipment are estimated to be $7.1 billion.
investment is available in two tables that appear at The largest items are for the space program and the
the end of this section.
air traffic control system. Outlays for the purchase of
land and buildings are estimated to be $0.8 billion,
Physical investment.—Outlays for major public mostly for the Federal buildings fund in the General
physical capital investment (hereafter referred to as Services Administration.
physical investment outlays) will total an estimated
Grants to State and local governments for physical
$119.8 billion in 1995. Physical investment outlays are investment are estimated to total $36.5 billion in 1995.
primarily outlays for construction, rehabilitation, and About half of these outlays, or $18.3 billion, are to
major equipment. About three-quarters of these outlays assist with the Interstate Highway System and other
are for direct physical investment outlays by the Fed­ major highways. Other major grants for physical invest­
eral Government, with the remaining quarter rep­ ment fund sewage treatment plants, community devel­
resenting grants to State and local governments for opment, airports, and mass transit.
physical investment.
Direct physical investment outlays by the Federal
Conduct o f research and developm ent.—Outlays
Government are primarily for national defense. Defense for the conduct of research and development are esti­
physical outlays are an estimated $60.4 billion in 1995. mated to be $69.7 billion in 1995. These outlays are
Almost all of these outlays, or $55.4 billion, are for devoted to increasing basic scientific knowledge and
the procurement of weapons and other military equip­ promoting related research and development. They in­
ment, and the remainder, $5.0 billion, is primarily for crease the Nation’s security, improve the productivity
M ajor Federal Investm ent




109

8. FEDERAL INVESTMENT OUTLAYS AND CAPITAL BUDGETING

TABLE 8-1. COMPOSITION OF FEDERAL INVESTMENT OUTLAYS
(In billions of dollars)
1993
actual

Estimate
1994

1995

MAJOR FEDERAL INVESTMENT OUTLAYS
Major public physical capital investment:
Direct:
National defense.....................................................................
Nondefense.............................................................................

76.1
19.1

66.5
22.5

60.4
22.9

Subtotal, direct major public physical capital investment ....

95.2

89.0

83.3

Grants to State and local governments......................................

31.2

34.2

36.5

Subtotal, major public physical capital investment .............
Conduct of research and development:
National defense.........................................................................
Nondefense .................................................................................

126.4

123.3

119.8

40.4
28.0

38.9
29.2

39.4
30.3

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

68.4

68.1

69.7

21.5
20.4

24.9
17.4

25.6
19.0

Subtotal, conduct of education and training...........................

41.9

42.3

44.6

Major Federal investment outlays................................................

236.7

233.6

234.0

MEMORANDUM
Major Federal investment outlays:
National defense .........................................................................
Nondefense .................................................................................

116.6
120.1

105.5
128.2

99.8
134.2

Total, major Federal investment outlays.................................

236.7

233.6

234.0

Miscellaneous physical investment:
Commodity inventories................................................................
Other physical investment (nondefense, direct)..........................

-0.2
5.6

-0.8
5.8

-0.2
5.5

Total, miscellaneous physical investment...............................

5.4

4.9

5.3

Total, Federal investment outlays, including miscellaneous
physical investment............................................................

242.1

238.6

239.3

of capital and labor for both public and private pur­
poses, and enhance the quality of life. Slightly more
than half of these outlays, an estimated $39.4 billion
in 1995, are for national defense. Physical investment
for research and development facilities and equipment
is included in the physical investment category.
Nondefense outlays for the conduct of research and
development are estimated to be $30.3 billion in 1995.
This is almost entirely direct spending by the Federal
Government, and is largely for the space programs, the
National Science Foundation, health research, and re­
search for nuclear and non-nuclear energy facilities.
Conduct o f education and training.—Outlays for
the conduct of education and training are estimated
to be $44.6 billion in 1995. These outlays add to the
stock of human capital by developing a more skilled
and productive labor force. Grants to State and local
governments for this category are estimated to be $25.6
billion in 1995, more than half of the total. They are
primarily for the disadvantaged and the handicapped,
and for vocational and adult education. Direct education
and training outlays by the Federal Government are
estimated to be $19.0 billion in 1995. Programs in this




category are primarily aid for higher education through
student financial assistance, loan subsidies, the veter­
ans GI bill, and health training programs.
This category does not include outlays for education
and training of Federal civilian and military employees.
Outlays for education and training that are for physical
investment and for research and development are in
the categories for physical investment and the conduct
of research and development.
Miscellaneous Investment Outlays
In addition to the categories of major Federal invest­
ment, several miscellaneous categories of investment
outlays are shown in Table 8-1. These items, all for
physical investment, are generally unrelated to improv­
ing Government operations or enhancing economic ac­
tivity. Sales of commodity inventories are estimated to
exceed purchases by $0.2 billion in 1995. Outlays in
this category are for the purchase or sale of agricultural
products pursuant to farm price support programs, pur­
chases of oil for the strategic petroleum reserve, and
other purposes.
Outlays for other miscellaneous physical investment
are estimated to be $5.5 billion in 1995. This category

110

ANALYTICAL PERSPECTIVES

includes primarily conservation programs and assets ac­
quired and sold as collateral on defaulted loans. These
outlays are entirely for nondefense, direct Federal
spending.

Trends in Federal Investment Outlays
In real terms, Federal investment outlays rose from
the mid-1970s to the mid-1980s and have held roughly
steady until now. Table 8-2 shows the major categories
of Federal investment since 1970 in constant 1987 dol­
lars.
The overall trend in Federal investment conceals two
very different patterns for defense and nondefense out­
lays. Through the 1970s, annual defense investment
declined in real terms from $92.6 to $66.4 billion, an
average annual decrease of 3.3 percent. The defense
buildup of the early 1980s reversed this trend, with
defense investment growing at a rate of 9.7 percent
annually through 1987. Since then, in response to budg­
etary pressures and the end of the Cold War, defense
investment has again begun to decline. This decline
continues in the 1995 budget, with defense investment

reduced by 19.2 percent from 1993 levels. At the same
time, defense R&D, with its greater potential to spill
over into the general economy, will make up an increas­
ing share of defense investment. While declining in real
terms, defense R&D is estimated to increase to 37 per­
cent of total defense investment in 1995, up from 32
percent in 1993.
Nondefense investment rose steadily in the 1970s,
at an annual rate of 2.4 percent, and was then cut
sharply in the early 1980s. In the late 1980s, non­
defense investment began to increase again in real
terms. However, only in the last few years has non­
defense investment reached its level of the end of the
1970s. Its share of GDP is still lower than in 1970:
non-defense investment was 2.6 percent of GDP in
1970, while in 1993 it was only 1.9 percent.

TABLE 8-2. MAJOR FEDERAL INVESTMENT OUTLAYS IN CONSTANT PRICES
(In billions of constant 1987 dollars)
Physical Investment
Total
Investment

Research and Development

Direct Federal
Total

Total

National
Defense

Grants
Nondefense

Total

National
Defense

Nondefense

Education
and Training

1970
1971
1972
1973
1974

......................................................................
......................................................................
......................................................................
......................................................................
......................................................................

168.2
159.7
156.7
149.8
142.0

98.6
88.6
83.4
76.4
72.0

76.7
66.1
60.9
54.0
49.7

69.4
58.0
51.5
44.9
40.5

7.3
8.1
9.4
9.2
9.3

21.9
22.5
22.6
22.4
22.3

43.8
42.3
42.6
42.4
40.3

23.2
22.3
23.1
22.7
21.7

20.6
20.1
19.5
19.6
18.5

25.5
28.4
30.0
30.1
29.0

1975
1976
1977
1978
1979

......................................................................
......................................................................
.......................................................................
......................................................................
......................................................................

145.0
149.2
148.5
154.2
158.0

50.3
49.3
49.4
50.8
55.2

41.0
40.0
39.6
40.0
43.9

9.3
9.4
9.8
10.7
11.3

20.6
24.5
27.9
29.0
27.9

39.0
39.0
38.7
41.2
40.7

20.4
19.2
19.6
20.3
18.7

1980
1981
1982
1983
1984

.......................................................................
.......................................................................
.......................................................................
......................................................................
.......................................................................

161.6
164.7
156.2
160.6
174.4

71.0
73.9
77.3
79.7
83.1
83.4
85.2
86.0
92.8
103.7

55.7
59.8
63.5
70.2
79.2

45.7
49.6
54.3
61.7
68.9

10.0
10.2
9.2
8.5
10.3

27.7
25.4
22.5
22.6
24.5

42.8
43.9
41.5
41.3
45.1

20.7
21.8
23.7
25.6
28.4

18.5
19.8
19.1
20.9
21.9
22.1*
22.2
17.8
15.6
16.8

34.4
35.7
32.0
32.9
34.2
35.7
35.2
28.4
26.3
25.4

1985
1986
1987
1988
1989

.......................................................................
.......................................................................
.......................................................................
.......................................................................
.......................................................................

190.9
200.5
203.8
204.4
209.5

114.8
120.5
125.9
124.4
125.5

89.1
94.0
102.1
100.4
101.9

77.0
82.6
89.5
86.1
88.6

12.1
11.4
12.5
14.3
13.3

25.8
26.5
23.8
24.1
23.7

50.1
53.7
53.3
54.1
56.1

32.2
36.7
37.1
36.7
37.3

17.9
17.0
16.2
17.4
18.8

25.9
26.3
24.7
25.9
27.8

1990 .......................................................................
1991 .......................................................................
1992 .......................................................................
1993 .......................................................................
1994 e s t ................................................................
1995 est...................................................................

210.2
207.5
207.7
204.8
197.1
192.0

125.4
124.7
122.6
115.0
109.5
103.5

100.6
99.3
96.0
87.6
80.0
72.9

86.5
84.1
76.9
69.4
59.2
52.3

14.1
15.2
19.2
18.1
20.9
20.6

24.9
25.4
26.5
27.4
29.4
30.6

56.5
52.8
53.4
54.9
53.3
53.1

36.4
32.2
31.5
32.4
30.5
30.0

20.1
20.6
21.9
22.5
22.9
23.1

28.2
29.8
31.4
34.6
34.0
35.0




8. FEDERAL INVESTMENT OUTLAYS AND CAPITAL BUDGETING

TABLE 8-3.

111

FEDERAL INVESTMENT OUTLAYS: DEFENSE AND NONDEFENSE PROGRAMS
(In millions of dollars)
1993 actual

1994
estimate

1995
estimate

1993 actual

1994
estimate

1995
estimate

Subtotal, purchase or sale of land and
structures ...........................................
3,876
421
1,211

3,733
707
995

3,217
739
1,037

Subtotal, construction and rehabilitation .

5,508

5,435

4,993

Acquisition of mayor equipment:
Procurement ...............................................
Atomic energy defense activities and other

69,929
781

60,629
509

55,003
403

Subtotal, acquisition of major equipment

70,710

61,138

55,406

874

835

675

662

688

Subtotal, major public physical investment .

50,209

56,700

59,371

Conduct of research and development:
General science, space, and technology:
NASA..........................................................
National Science Foundation......................
Other general science................................

7,004
1,753
789

6,999
1,983
757

7,071
2,001
708

Subtotal, general science, space, tech­
nology ................................................

9,546

9,740

9,779

Energy.............................................................
Transportation:
Department of Transportation.....................
NASA..........................................................

2,517

2,470

2,708

420
1,084

611
1,206

700
1,227

Subtotal,transportation ...........................

1,504

1,816

1,927

9,063
1,380

9,713
1,235

10,391
1,165

Purchase or sale of land and structures........

-1 6

-9

Subtotal, major public physical investment .

76,201

66,564

60,390

Conduct of research and development
Defense military..............................................
Atomic energy and other................................

37,666
2,730

36,219
2,664

36,773
2,600

Subtotal, research and development..........

40,396

38,883

39,373

Health:
National Institutes of Health........................
All other health...........................................

Conduct of education and training (civilian) .......

39

42

39

Subtotal, health......................................

10,442

10,948

11,556

Subtotal, national defense investment............

116,637

105,489

99,803

NONDEFENSE:
Major public physical investment:
Construction and rehabilitation:
Highways ....................................................
Mass transportation....................................
Rail transportation ......................................
Air transportation........................................
Water transportation...................................
Community development block grants ......
Other community and regional development
Pollution control and abatement.................
Water resources.........................................
Other natural resources and environment ..
Housing assistance....................................
General science, space, and technology ....
Energy ........................................................
Veterans hospitals and other health ..........
Postal Service ............................................
Federal buildings fund................................
International affairs.....................................
Other programs ..........................................

Agriculture.......................................................
Natural resources and environment................
International affairs .........................................
All other research and development...............

1,129
1,762
318
764

1,142
1,825
345
895

1,172
1,958
174
1,043

16,203
3,058
141
2,022
107
3,198
763
3,242
2,166
445
3,226
1,232
2,868
1,134
677
675
351
672

17,602
2,367
389
1,958
133
3,746
1,118
3,688
2,869
556
4,558
1,459
3,450
1,386
653
1,355
367
978

18,277
3,033
338
1,798
122
4,136
1,354
3,631
2,241
450
5,679
876
3,212
2,327
688
1,278
368
973

Subtotal, research and development..........

27,982

29,181

30,316

Conduct of education and training:
Education, training, employment and social
services:
Elementary, secondary, and vocational
education................................................
Higher education........................................
Research and general education aids
Training and employment ..........................
Social services ...........................................

13,523
14,458
1,840
5,006
4,035

15,184
10,563
2,012
5,428
5,507

14,846
11,809
2,031
5,890
6,044

Subtotal, education, training, and social
services..............................................

38,861

38,693

40,620

Income security...............................................
Veterans education, training, and rehabilitation
Health..............................................................
Intenational affairs ..........................................
Other education and training ..........................

109
1,091
775
212
838

128
1,424
825
239
963

148
1,518
1,015
235
1,019

Subtotal, construction and rehabilitation .

42,180

48,630

50,780

Acquisition of mayor equipment:
Air transportation........................................
Other transportation ...................................
Space flight research, and supporting ac­
tivities .....................................................
General science and basic research..........
Veterans medical care...............................
Postal Service ............................................
General supply fund...................................
Other...........................................................

-9

1,269

Other physical assets (grants)........................

MAJOR FEDERAL INVESTMENT OUTLAYS:
NATIONAL DEFENSE:
Major public physical investment:
Construction and rehabilitation:
Military construction....................................
Family housing ...........................................
Atomic energy defense activities and other

Subtotal, conduct of education and training

41,885

42,272

44,555

Subtotal, nondefense investment....................

120,077

128,152

134,242

Total, major Federal investment outlays

236,713

233,641

234,045

2,204
336

2,050
371

2,141
484

1,371
39
594
516
371
652

1,347
94
800
649
555
667

1,301
96
670
1,033
526
817

ADDENDUM: Miscellaneous physical investment
Commodity inventories:
Agriculture ...........................................................
Strategic petroleum reserve and other ...............

-3 5 9
134

-4 1 6
-4 1 5

-7 1
-141

Subtotal, commodity inventories .....................

-2 2 5

-831

-2 1 2

Subtotal, acquisition of major equipment

6,085

6,534

7,068

Other physical assets (direct).................................

5,578

5,751

5,501

Purchase or sale of land and structures
International affairs.....................................
Domestic.....................................................

4
1,265

4
870

4
831

Subtotal, misc. physical investment...........

5,354

4,920

5,290

Total investment outlays, including misc. ..

242,067

238,561

239,335




112

ANALYTICAL PERSPECTIVES

TABLE 8-4.

FEDERAL INVESTMENT OUTLAYS: GRANT AND DIRECT FEDERAL PROGRAMS
(In millions of dollars)
1993 actual

1994
estimate

1995
estimate

MAJOR FEDERAL INVESTMENT OUTLAYS:
GRANTS:
Major public physical investment:
Construction and rehabilitation:
Highways ....................................................
Mass transportation....................................
Rail transportation ......................................
Air transportation........................................
Pollution control and abatement.................
Other natural resources and environment ..
Community development block grants .......
Other community and regional development
Housing assistance....................................
National defense ........................................
Other construction......................................

16,177
3,058
19
1,931
2,358
170
3,198
524
2,929
60
69

17,574
2,367
43
1,850
2,637
254
3,746
788
4,049
79
192

18,253
3,033
35
1,710
2,570
119
4,136
956
4,834
4
169

Subtotal, construction and rehabilitation .

30,493

33,580

35,818

Other physical assets.....................................

675

662

688

Subtotal, major public physical capital .......

31,169

34,242

36,506

Conduct of research and development...............
Conduct of education and training:
Elementary, secondary, and vocational edu­
cation ..........................................................
Higher education.............................................
Research and general education aids............
Training and employment................................
Social services................................................
National defense (civilian) ..............................
Other...............................................................

344

429

672

12,763
119
315
3,982
3,862

14,341
105
312
4,327
5,264

496

528

13,964
91
306
4,747
5,790
3
713

Subtotal, conduct of education and training

21,543

24,884

Subtotal, grants for investment.......................

53,055

59,555

DIRECT FEDERAL PROGRAMS:
Major public physical investment:
Construction and rehabilitation:
National defense ........................................
International affairs.....................................
General science, space, and technology ....
Water resources projects...........................
Other natural resources and environment ..
Energy ........................................................
Transportation.............................................
Veterans hospitals and other health facili­
ties ..........................................................
Postal Service ............................................
Federal prison system................................
Federal buildings fund................................
Other construction ......................................
Subtotal, construction and rehabilitation .
Acquisition of major equipment:
National defense ........................................
General science and basic research..........
Space flight, research, and supporting ac­
tivities .....................................................
Energy ........................................................
Postal Service ............................................
Air transportation........................................
Water transportation (Coast Guard)...........
Hospital and medical care for veterans.....




1993 actual

1994
estimate

1995
estimate

General supply fund....................................
Other...........................................................

5,448
351
1,232
2,038
1,287

526
723

76,794

67,672

62,474

Purchase or sale of land and structures:
National defense ........................................
International affairs......................................
Domestic.....................................................

-1 6
4
1,265

-9
4
870

-9
4
831

Subtotal, purchase or sale of land and
structures ...........................................

1,253

865

826

Subtotal, major public physical investment .

95,242

89,022

83,254

Conduct of research and development:
National defense.............................................
International affairs.........................................
Domestic .........................................................

40,396
318
27,321

38,883
345
28,407

39,373
174
29,470

Subtotal, conduct of research and develop­
ment .......................................................

68,034

67,635

69,017

25,614

Conduct of education and training:
Elementary, secondary, and vocational edu­
cation ..........................................................
Higher education.............................................
Research and general education aids............
Training and employment................................
Health..............................................................
Veterans education, training, and rehabilitation
National defense.............................................
International affairs .........................................
Other ...............................................................

760
14,339
1,525
1,024
775
1,091
33
212
623

843
10,457
1,699
1,101
825
1,424
36
239
805

882
11,718
1,725
1,143
845
1,518
36
235
879

62,793

Subtotal, conduct of education and training

20,382

17,429

18,981

Subtotal, direct Federal major investment out­
lays .............................................................

6

555
452

Subtotal, acquisition of mayor equipment

6

371
535

183,658

174,086

171,252

Total, major Federal investment outlays

236,713

233,641

234,045

345

5,356
367
1,459
2,675
1,548
3,450
613

4,989
368
876
2,168
1,466
3,212
536

ADDENDUM: Miscellaneous physical investment:
Commodity inventories:
Emergency energy preparedness........................
Commodity Credit Corporation............................
Other ....................................................................

137
-3 5 9
-3

76
-4 1 6
-4 9 0

9
-7 1
-1 5 0

1,079
677
385
675
810

1,314
653
527
1,355
1,169

2,268

Subtotal, commodity inventories .....................

-2 2 5

-831

-2 1 2

17,195

Other physical investment:
Department of Agriculture:
Conservation reserve program........................
Other ...............................................................

20,485

19,955

1,690
3,542

1,819
3,782

1,808
3,551

Subtotal, Department of Agriculture ...........

5,231

5,601

5,359

2,868

688

524
1,278
1,582

70,710
39

61,138
94

55,406
96

Department of the Interior ...................................
Other ....................................................................

65
282

48
102

60
83

1,371
231
516
2,204
222
594

1,347
367
649
2,050
219
800

1,301
346
1,033
2,141
232
670

Subtotal, other physical capital.......................

5,578

5,751

5,501

Subtotal, miscellaneous physical invest­
ment ...........................................................

5,354

4,920

5,290

Total Federal investment outlays, including
miscellaneous...........................................

242,067

238,561

239,335

113

8. FEDERAL INVESTMENT OUTLAYS AND CAPITAL BUDGETING

A key priority of the Administration is to accelerate
the restoration of domestic investment outlays. The
budget proposes dramatic increases in a number of
areas of investment. Full funding of the Intermodal
Surface Transportation Efficiency Act (ISTEA) of 1991
will enhance the ability of States to maintain and im­
prove interstate and other major highways, while a 40
percent increase in mass transit formula capital grants
will provide critical support in addressing urban conges­
tion and pollution. Clean water and safe drinking water
revolving funds will assist States in meeting the man­
dates of the Clean Water Act and the Safe Drinking
Water Act.
In addition to these increases in physical investment,
the budget proposes a number of increases in the areas
of research and development and education and train­
ing. These include new initiatives supporting develop­
ment of a national information infrastructure, a 21 per­
cent expansion of Head Start funding, and a strength­
ened and integrated JOBS program. These proposals

in physical and other investment, along with the pro­
grams funded in the 1994 appropriations acts, will in­
crease the share of Federal outlays devoted to non­
defense investment from 8.5 percent in 1993 to 8.8
percent in 1995.
Detailed Tables
Tables 8-3 and 8-4 present further detail on the
composition of physical and other investment outlays.
They provide two basic classifications. The first sepa­
rates national defense from nondefense investment out­
lays, and the second separates grants to State and local
governments for investment from direct Federal invest­
ment outlays.
Additional data about trends in Federal investment
outlays can be found in the separate Historical Tables
volume of the budget. Section 9 of that volume contains
data on physical investment, and Section 10 contains
data on the conduct of research and development and
the conduct of education and training.

Part II—ALTERNATIVE CAPITAL BUDGET PRESENTATIONS
A capital budget would separate Federal expenditures
into two categories: spending for investment and all
other spending. In this sense, the previous section pro­
vided a capital budget for the Federal Government, dis­
tinguishing outlays that yield long-term benefits from
all others. But alternative capital budget presentations
have been suggested, two of which are described in
this section.
The Federal budget finances investment for two quite
different types of reasons. It invests in capital—such
as office buildings, computers, and weapons systems—
that primarily contributes to its ability to provide gov­
ernmental services to the public; some of these services,
in turn, are designed to increase economic growth. And
it invests in capital—such as highways, education, and

research—that contributes more directly to the eco­
nomic growth of the Nation. Most of the capital in
the second category, unlike the first, is not owned or
controlled by the Federal Government. In the discussion
that follows, the first is called “Federal capital” and
the second is called “national capital.” Table 8-5 com­
pares total Federal investment as defined in this chap­
ter with investment in national capital and with the
part of investment in Federal capital that the National
Performance Review (NPR) singled out for special at­
tention.
Capital budgets and other changes in Federal budget­
ing have been suggested for both types of investment.
Some of these proposals are discussed below and illus­
trated by alternative capital budget presentations.

Investment in Federal Capital
The goal of investment in Federal capital is to deliver
Government services as efficiently and effectively as
possible. The Congress allocates resources to Federal
agencies to accomplish a wide variety of programmatic
goals. Because these goals are diverse and most are
not measured in dollars, they are difficult to compare
with each other. Policy judgments must be made as
to their relative importance.
Once amounts have been allocated for one of these
goals, however, analysis may be able to assist in choos­
ing the most efficient and effective means of delivering
service. This is the context in which decisions are made
on the amount of investment in Federal capital. For
example, budget proposals for the Department of Jus­
tice must consider whether to increase the number of




FBI agents, the amount of justice assistance grants
to State and local governments, or the number of pris­
ons in order to accomplish the department’s objectives.
The optimal amount of investment in Federal capital
derives from these decisions. There is no efficient target
for total investment in Federal capital as such.
The universe of Federal capital encompasses federally
owned fixed assets. It excludes Federal grants to States
for infrastructure, such as highways, and it excludes
intangible investment, such as education and research.
Investment in Federal capital in 1995 is estimated to
be $83.3 billion, or 36 percent of the total Federal in­
vestment outlays shown in table 8-1. Of the investment
in Federal capital, 73 percent is for defense and 27
percent for nondefense purposes.

114

ANALYTICAL PERSPECTIVES

TABLE 8-5. ALTERNATIVE DEFINITIONS OF INVESTMENT OUTLAYS, 1995
(In millions of dollars)
Al Federal
investment

Construction and rehabilitation:
Grants:
Transportation....................................................................................................
Natural resources and environment..................................................................
Community and regional development..............................................................
Housing assistance............................................................................................
Other grants ......................................................................................................
Direct Federal:
National defense ................................................................................................
International affairs.............................................................................................
General science, space, and technology..........................................................
Natural resources and environment ..................................................................
Energy ...............................................................................................................
Transportation....................................................................................................
Veterans and other health facilities...................................................................
Postal Service ...................................................................................................
Federal buildings fund........................................................................................
Other construction.............................................................................................

NPR Federal
capital

23,031
2,689
5,092
4,834
861

National
capital

23,031
2,659
933
98

4,989
368
876
3,634
3,212
536
2,268
688
1,278
2,106

2,268
688
1,278
202

Total construction and rehabilitation .............................................................
Acquisition of major equipment (direct):
National defense....................................................................................................
General science, space, and technology ..............................................................
Energy....................................................................................................................
Postal Service........................................................................................................
Air transportation ...................................................................................................
Water transportation ...............................................................................................
Hospital and medical care for veterans.................................................................
General supply fund ...............................................................................................
Other ......................................................................................................................

56,461

6,051

38,095

96

1,397
346
1,033
2,141
232
670

Total major equipment .......................................................................................
Purchase or sale of land and structures ...................................................................

62,474
826

2,787
564

6,102

Total physical investment.......................................................................................
Research and development:
Defense..................................................................................................................
Nondefense............................................................................................................

119,761

9,401

44,197

55,406
1,397
346
1,033
2,141
232
670
526
723

739
368
436
72

1,033
670
526
462

39,373
30,316

876
3,333
3,212
536
2,268
688
462

283

1,139
29,545

Total research and development.......................................................................
69,690
30,684
44,595
Education and training............................................................................................... 44,127
Total investment outlays............................................................................................

NPR Recommendations
The recommendation by NPR that the budget “recog­
nize the special nature and long-term benefits of invest­
ments through a separate capital budget” 2 takes this
perspective and refines it further. For the purpose of
a capital budget, NPR would limit the coverage of in­
vestment to include only a small part of the Federal
capital as defined above. It would include only common
commercial-type products used to support the delivery
of Federal services: office buildings, computers, hos­
pitals, automobiles, and the like. This excludes not only
investment in military weapons systems and bases, but
also non-defense special purpose capital such as space
stations and dams.
The NPR recommended partioning the unified budget
into a capital budget, an operating budget, and a cash
budget, to be implemented fully in the 1996 budget.
2Creating A Government That Works Better & Costs Less, Report of the National Perform­
ance Review, September 7, 1993, p. 111.




234,045

9,401

119,008

A capital budget process of this kind, utilizing the oper­
ating budget and a cash budget, could improve the Gov­
ernment’s fixed asset decisions. To construct the capital
budget—the explicit plan for cash outlays for fixed as­
sets over a period of years—agencies would have to
make systematic long-range plans for their fixed asset
acquisitions and these plans would then have to be
incorporated in the budget process. This would help
to achieve the NPR goal of “steer[ing] our scarce re­
sources toward the most economical means of acquisi­
tion of the most needed assets.” 3
For capital budgeting to be most effective, however,
it needs to be accompanied by several related improve­
ments that NPR also recommends to the planning and
budgeting process for fixed assets. OMB plans to put
them into effect for the 1996 budget.
• A long-term planning and analysis process for
fixed asset acquisitions will be established to de3 Ibid.

115

8. FEDERAL INVESTMENT OUTLAYS AND CAPITAL BUDGETING

termine agencies' current and prospective needs—
extending the present short-term focus of budget
requests over the full 5-year budget horizon. Guid­
ance will be provided to assist agencies in evaluat­
ing choices and setting priorities. The process will
include assessing the cost-effectiveness of fixed as­
sets in fulfilling agency missions, determining the
least-cost method of asset acquisition, life-cycle
planning for the acquisition and management of
fixed assets, and analysis of risk. Guidance will
also be provided to improve agencies' accountabil­
ity for and management of their fixed assets; this
will complement the planning process for new ac­
quisitions.
• The budget process will incorporate the results
of agency plans, so that agency planning can be
implemented in an orderly way within the frame­
work of setting priorities for the Federal Govern­
ment. Fixed asset acquisitions would be distin­
guished from other spending in the budget review
process so the long-term nature of the benefits
and the time pattern of the cash outlays can be
taken into account. Cross-cutting analysis of fixed
asset proposals among different agencies would
help determine which acquisitions had the highest
priority.
• More flexible funding mechanisms will be adopted,
where appropriate. Procedures will be developed
to ensure that the rules of the annual budget proc­
ess will not prevent fixed assets that have been
justified from being acquired by the most economi­
cal means. In particular, the rules will be designed
to accommodate temporary “spikes” in agency
spending when they are caused by needed acquisi­
tions of fixed assets.
Table 8-6 illustrates a capital budget for fixed assets
under the NPR coverage of investment. It is accom­
panied by an operating budget and a total budget. The
operating budget consists of all expenditures except
those included in the capital budget, plus depreciation
on the stock of assets that corresponds to those pur­
chased through the capital budget. The capital budget
consists of expenditures for fixed assets and, on the
income side of the account, depreciation. The total
budget is the present unified budget, largely cash based
and often called a “cash budget,” which records all out­
lays and receipts of the Federal Government. It consoli­
dates the operating and capital budgets by adding them
together and netting out depreciation as an
intragovemmental transaction. The figures in table 8-6
and the other tables of this section are rough estimates
and intended to be illustrative.
Budget Discipline and a Capital Budget
The total budget or cash budget, as the NPR stated,
“reflects the effect of both the capital and the operating
budget on the economy.” As NPR concluded: “Therefore,




TABLE 8-6. CAPITAL, OPERATING, AND UNIFIED (CASH)
BUDGETS: NPR DEFINITION OF CAPITAL, 19951
(In billions of dollars)

Operating Budget
Receipts.......................................................................................................
Expenses:
Depreciation............................................................................................
Other.......................................................................................................

1,354

Subtotal, expenses.............................................................................

1,514

Surplus or deficit ( - ) ............................................................................

-1 6 0

4
1,510

Capital Budget
Income: depreciation...................................................................................
Capital expenditures ...................................................................................
Surplus or deficit ( - ) ............................................................................

4
9
-5

Unified (Cash) Budget
Receipts.......................................................................................................
Outlays ........................................................................................................

1,354
1,519

Surplus or deficit ( - ) .............................................................................

-1 6 5

1Historical data to e6lmate the capital stocks and calculate depredafion are not readiy avaidbte for to
NPR definiion of capital. Depreciation estimates were based on the assumpion hat such ouflays were a con­
stant percentage of tieir larger categories over time. They are also subiect to tie limitations discussed in Part
III of this chapter.

the discipline of the cash outlay caps in the Budget
Enforcement Act must be maintained.” 4
The NPR recommendation thus differs from some
proposals for a capital budget, which would effectively
dispense with the unified budget and make expenditure
decisions on fixed asset acquisitions in terms of the
operating budget instead. The operating budget would
include only the depreciation on the proposed purchase
of a fixed asset. For example, suppose that an agency
proposed to buy a $50 million building at the beginning
of the year with an estimated life of 25 years and
with depreciation calculated according to the straightline method. Operating expense in the budget year
would increase by only $2 million, or 4 percent of the
asset cost. The same amount of depreciation would be
recorded as an increase in operating expense for each
year of the asset’s life.
Recording the annual depreciation in the operating
budget each year would provide little control over the
decision about whether to invest in the first place. Most
Federal investments are sunk costs and as a practical
matter cannot be recovered by selling or renting the
asset. At the same time, there is a significant risk
that the need for a fixed asset may change over a
period of years, because either the need was not perma­
nent, it was initially misjudged, or other needs became
more important. Since the cost is sunk, however, control
cannot be exercised later on by comparing the annual
benefit of the asset services with depreciation and inter­
est and then selling the asset if its annual services
are not worth this expense. Control can only be exer­
cised when the Government commits itself up-front to
the full sunk cost. By spreading the real cost of the
4lbicL

116
project over time, however, use of the operating budget
for expenditure decisions would make the budgetary
cost of the fixed asset appear very cheap when decisions
were being made that compared it to alternative ex­
penditures. As a result, there would be an incentive
to purchase fixed assets with little regard for need,
and also with little regard for the least-cost method
of acquisition. NPR was therefore wise to conclude that
budget control should be exercised through the unified
cash budget and the caps on its spending.
A budget is a financial plan for allocating resources—
deciding how much the Federal Government should
spend in total, program by program, and for the parts
of each program. The budgetary system provides a proc­
ess for proposing policies, making decisions, implement­
ing them, and reporting the results. The budget needs
to measure costs accurately so that decision makers
can compare the cost of a program with its benefits,
the cost of one program with another, and the cost
of alternative methods of reaching a specified goal.
These costs need to be fully included in the budget
up front, when the spending decision is made, so that
executive and congressional decision makers have the
information and the incentive to take the total costs
into account.
The unified budget does this for investment. By re­
cording investment on a cash basis, it causes the total
cost to be compared up front in a rough and ready
way with the total expected future net benefits. Since
the budget measures only cost, the benefits with which
these costs are compared, based on policy makers’ judg­
ment, must be presented in supplementary materials.
Such a comparison of total cost with benefits is consist­
ent with the formal method of cost-benefit analysis of
capital projects in government, in which the full cost
of a fixed asset as the cash is paid out is compared
with the full stream of future benefits (all in terms
of present values).5 This comparison is also consistent
with common business practice, in which capital budg­
eting decisions for the most part are made by compar­
ing cash flows. The cash outflow for the full purchase
price is compared with expected future cash inflows
either through a relatively sophisticated technique of
discounted cash flows—such as net present value or
internal rate of return—or through cruder methods
such as payback periods.6 Regardless of the specific
technique adopted, it usually requires comparing future
returns with the entire cost of the asset up front—
not spread over time through annual depreciation.7
5For example, see Edward M. Gramlich, A Guide to Benefit-Cost Analysis (2nd ed.; Engle­
wood Clifts: Prentice Hall, 1990), chap. 6; or Joseph E. Stiglitz, Economics o f the Public
Sector (New York: Norton, 1986), chap. 10. This theory is applied in formal OMB instructions
to Federal agencies in OMB Circular No. A-94, “Guidelines and Discount Rates for BenefitCost Analysis of Federal Programs” (October 29, 1992). GAO, Discount Rate Policy, GAQ/
OCE-17.1.1 (May 1991) discusses the appropriate discount rate for such analysis but not
the foundation of the analysis itself, which is implicitly assumed.
6 For a full textbook analysis of capital budgeting techniques in business, see Harold
Bierman, Jr., and Seymour Smidt, The Capital Budgeting Decision (7th ed.; New York:
Macmillan, 1988). Shorter analyses may be found, for example, in Charles T. Horngren
and George Foster, Cost Accounting (6th ed.; Englewood Cliffs: Prentice-Hall, 1987), chap.
19 and 20; and in Surendra S. Singhvi, “The Capital Budgeting Process” and “The Capital
Expenditure Evaluation Methods,” chap. 19 and 20 in Robert Rachlin and H.W. Allen
Sweeny, Handbook o f Budgeting (3rd ed.; New York: Wiley, 1993).
7A recent survey of business practice finds that such techniques are predominant. See
Glenn H. Petry and James Sprow, “The Theory and Practice of Finance in the 1990b,’*
The Quarterly Review o f Economics and Finance, vol. 33 (Winter 1993), pp. 359-82. Petry




ANALYTICAL PERSPECTIVES

Practice Outside the Federal Government
The proponents of making investment decisions on
the basis of an operating budget with depreciation have
sometimes claimed that this is the common practice
outside the Federal Government. However, while the
practice of others may differ from the Federal budget
and the terms “capital budget” and “capital budgeting”
are often used, these terms do not normally mean that
fixed asset acquisitions are decided on the basis of an­
nual depreciation cost.
Private business firms call their investment deci­
sion making process “capital budgeting,” and they
record the resulting planned expenditures in a “capital
budget.” However, decisions are normally based on up­
front comparisons of cash outflows with cash inflows,
and the capital budget records the period-by-period
amounts of cash outflows for capital projects.8 This sup­
ports the business’s goal of deciding upon and control­
ling the use of its resources.
The cash-based focus of business budgeting for capital
is in contrast to business financial statements—the in­
come statement and balance sheet—which use accrual
accounting for a different purpose, namely to record
how well the business is meeting its objectives of earn­
ing profit and accumulating wealth for its owners. For
this purpose, the income statement shows the profit
in a year from earning revenue net of the expenses
incurred. These expenses include depreciation, which
is an allocation of the cost of fixed assets over their
estimated useful life. With similar objectives in mind,
the Federal Accounting Standards Advisory Board
(FASAB) is considering the appropriate use of deprecia­
tion as a measure of expense in financial statements
and cost accounting for Federal agencies.
Business borrowing to finance investment is con­
strained in ways that Federal borrowing is not. The
amount that a business borrows is limited by its own
profit motive and the market’s assessment of its capac­
ity to repay. The greater a business’s indebtedness,
other things equal, the more risky is any additional
borrowing and the higher is the cost of funds it must
pay. Since the profit motive ensures that a business
will not want to borrow unless the expected return
is at least as high as the cost of funds, the amount
of investment that a business will want to finance is
limited; and it has an incentive to borrow only for
projects where the expected return is as high or higher
than the cost of funds. No such constraint limits the
Federal Government—either in the total amount of its
borrowing for investment, or in its choice of which as­
sets to buy—because of its sovereign power to tax. It
can tax to pay for investment; and, if it borrows, its
power to tax ensures that the credit market will judge
U.S. Treasury securities free from any risk of default
even if it borrows “excessively” or for projects that do
not seem worthwhile.
and Sprow also verify that such techniques are recommended by the most widely used
textbooks in managerial finance.
* A business capital budget is depicted in Glenn A. Welsch et ai., Budgeting: Profit Plan­
ning and Control (5th ed.; Englewood Cliffs: Prentice Hall, 1988), pp. 396-99.

117

8. FEDERAL INVESTMENT OUTLAYS AND CAPITAL BUDGETING

Most States also have a “capital budget,” but the
operating budget is not like the operating budget envis­
aged by proponents of making Federal investment deci­
sions on the basis of depreciation. State capital budgets
differ widely in many respects but generally relate some
of the State’s purchases of fixed assets to borrowing
and other earmarked means of financing. For the debtfinanced portion of investment, the interest and repay­
ment of principal are usually recorded in the operating
budget. State operating budgets are not charged for
assets purchased in the capital budget but financed
by grants or taxes. No State operating budget is
charged for depreciation.9
State borrowing to finance investment, like business
borrowing, is subject to limitations that do not apply
to Federal borrowing. Like business borrowing, it is
constrained by the credit market’s assessment of the
State’s capacity to repay. Furthermore, it is usually
designated for specified investments, and it is almost
always subject to constitutional limits or referendum
requirements.
Other developed nations tend to show a more sys­
tematic breakdown between investment and operating
expenditures within their budgets than does the United
States, even while they record capital expenditures on
a cash basis within the same budget totals. For exam­
ple, the United Kingdom shows the capital spending
within each agency total and displays the sum of cap-

ital spending for the government as a whole. However,
a survey by the Congressional Budget Office found that
all developed nations except Chile and New Zealand
budget on a cash basis;10 and New Zealand requires
the equivalent of appropriations for the full cost up
front before a department can make net additions to
its fixed assets. Some countries—including Sweden,
Denmark, and Finland—formerly had separate capital
budgets but abandoned them a number of years ago.1
1
Conclusions
It is for reasons such as these that the General Ac­
counting Office has recently issued a report that criti­
cized budgeting for capital in terms of depreciation.
Although the criticisms were in the context of what
is termed “national capital” in this chapter, they apply
equally to “Federal capital.”
“Depreciation is not a practical alternative for the Congress
and the administration to use in making decisions on the
appropriate level of spending intended to enhance the na­
tion’s long-term economic growth for several reasons. Cur­
rently, the law requires agencies to have budget authority
before they can obligate or spend funds. Unless the full
amount of budget authority is appropriated up front, the
ability to control decisions when total resources are commit­
ted to a particular use is reduced. Appropriating only annual
depreciation, which is only a fraction of the total cost of
an investment, raises this control issue.” 12

Investment in National Capital
A Target for National Investment
The Federal Government’s investment in national
capital has a much broader and more varied form than
its investment in Federal capital. The Government’s
goal is to support and accelerate sustainable economic
growth for the Nation as a whole and in some instances
for specific regions or groups of people. The Govern­
ment’s investment concerns for the Nation are two-fold:
• The effect of its own investment in national cap­
ital on the output and income that the economy
can produce. Reducing expenditure on consump­
tion and increasing expenditure on investment
that supports economic growth are a major prior­
ity for the Administration. In both the 1994 and
the 1995 budgets, it has reordered priorities by
proposing more investment and less other expendi­
ture within the budget constraints. The Congress
is generally supportive of this shift.

• The effect of Federal taxation, borrowing, and
other policies on private investment. The Adminis­
tration’s deficit reduction policy has reduced inter­
est rates and thereby brought about an expansion
of private investment.
In its recent report, Incorporating an Investment
Component in the Federal Budget, the General Account­
ing Office recommended establishing an investment
component within the unified budget—but not a sepa­
rate capital budget or the use of depreciation—for this
type of investment.13 GAO defines this investment as
“federal spending, either direct or through grants, that
is directly intended to enhance the private sector’s long­
term productivity.” 14 To increase investment—both
public and private—GAO recommends establishing tar­
gets for the level of Federal investment and for a declin­
ing path of unified budget deficits over time.15 Such
a target for investment in national capital would focus
attention on policies for growth, encourage a conscious

9The characteristics of State capital budgets were examined in a survey of Stale budget
officers for all 50 States in 1986. See Lawrence W. Hush and Kathleen PerofT, “The Variety
of State Capital Budgets: A Survey” Public Budgeting and Finance (Summer 1988), pp.
67-79. More detailed results are available in an unpublished OMB document, “State Capital
Budgets” (July 7, 1987). Two GAO reports examined some of the same issues and reached
similar conclusions on the issues in question. See Budget Issues: Capital Budgeting Practices
in the States, GAO/AFMD-86—
63FS (July 1986) and Budget Issues: State Practices for Fi­
nancing Capital Projects, GAO/AFMD-89-64 (July 1989).
10Robert W. Hartman, Statement before the Subcommittee on Economic Development,
Committee on Public Works and Transportation, U.S. House of Representatives (May 26,
1993). Hartman stated: “to our knowledge, only two developed countries, Chile and New
Zealand, recognize depreciation in their budgets.”
1 The budgets in Sweden, Great Britain, Germany, and Prance are described in GAO,
1
Budget Issues: Budgeting Practices in West Germany, France, Sweden, and Great Britain,

GAO/APMD-87-8PS (November 1986). Sweden had separate capital and operating budgets
from 1937 to 1981 and a total combined budget from 1956 onwards. The reasons for abandon­
ing the capital budget are discussed briefly in the GAO report and more extensively by
a government commission established to recommend changes in the Swedish budget system.
See Sweden, Ministry of Finance, Proposal for a Reform o f the Swedish Budget System:
A Summary of the Report o f the Budget Commission Published by the Ministry o f Finance
(Stockholm, 1974), chapter 10.
w Budget Issues: Incorporating an Investment Component in the Federal Budget, GAO/
AIMD-94-40 (November 1993), p. 11. GAO had made the same recommendation in earlier
reports but with less extensive analysis than in this report
13Ibid., pp. 1-2, 9-10, and 15.
n Ibid., pp. 1 and 5.
15Ibid, pp. 2 and 13-16.




118

ANALYTICAL PERSPECTIVES

decision about the overall level of growth-enhancing in­
vestment, and make it easier to set spending priorities
in terms of policy goals for aggregate formation of na­
tional capital.
Table 8-7 illustrates the unified budget reorganized
as GAO recommends to have a separate component for
investment in national capital. This component is
roughly estimated to be $119 billion in 1995. It includes
infrastructure outlays financed by Federal grants to
State and local governments, such as highways and
sewer projects, as well as direct Federal purchases of
infrastructure, such as electric power generation equip­
ment. It also includes intangible investment for
nondefense research and development, for basic re­
search financed through defense, and for education and
training. Much of this consists of grants and credit
assistance to other governments, nonprofit organiza­
tions, or individuals. Military investment and fixed as­
sets in the NPR capital budget are excluded, because
that investment does not primarily enhance economic
growth.
TABLE 8-7. UNIFIED (CASH) BUDGET WITH NATIONAL
INVESTMENT COMPONENT

(In billions of dollars)

Operating Budget
Receipts.......................................................................................................
Expenses:
Depreciation 2 ..........................................................................................
Other.......................................................................................................

1,329

Subtotal, expenses..............................................................................

1,468

Surplus or deficit ( —) .............................................................................

—139

68
1,400

Capital Budget
Income:
Depredation2 ..........................................................................................
Earmarked tax receipts 3 .........................................................................

68
24

Subtotal, income..................................................................................
Capital expenditures ....................................................................................

93
119

Surplus or deficit ( —) .............................................................................

-2 7

Unified (Cash) Budget
Receipts ..................................................................................................
Outlays....................................................................................................

Receipts.....................
Outlays:
National investment
Other.....................

1,354

Subtotal, outlays

1,519

Surplus or deficit ( -

-165

119
1,400

A Capital Budget for National Investment
Table 8-8 roughly illustrates what a capital budget
and operating budget would look like under this defini­
tion of investment—although it must be emphasized
that this is not GAO’s recommendation. Some pro­
ponents of a capital budget would make spending deci­
sions within the framework of such a capital budget
and operating budget. But the limitations that apply
to the use of depreciation in deciding on investment
decisions for Federal capital apply even more strongly
for assets neither owned nor controlled by the Federal
Government, which is the case for most national invest­
ments.
In addition to those basic limitations, the definition
of investment is more malleable for national capital
than Federal capital. Many programs promise long-term
intangible benefits to the Nation, and depreciation rates
are much harder to determine for intangible investment
such as research and education than they are for phys­
ical investment such as highways and office buildings.
These and other definitional questions are hard to re­
solve. The answers could significantly affect budget de­
cisions, because they would determine whether the
budget would record all or only a small part of the
cost of a decision when policy makers were comparing

1,354
1,519

Surplus or deficit ( - ) .........................................................................

(In billions of dollars)




TABLE 8-8. CAPITAL, OPERATING, AND UNIFIED (CASH)
BUDGETS: NATIONAL CAPITAL, 19951

-1 6 5

’ For the purpose of Ms ilusirative table only, education and taring outlays are arbitrary depredated over
30 years by the staight-fine metiod. This differs from tie teatment of educalon and training elsewhere in this
chapter and in Chapter 2.
2 Excludes depredation on capital financed by tax receipts allocated to the capital budget
3 Consists of tax receipts of the highway and airport and airways rust funds.

the budgetary cost of a project with their judgment
of the benefits. The process of reaching an answer with
a capital budget would open the door to misrepresenta­
tion, because there would be an incentive to make the
operating expenses and deficit look smaller by
classifying outlays as investment and using low depre­
ciation rates. This would “justify” more spending by
the program or the Government overall.16
Borrowing to Finance a Capital Budget
A further issue raised by a capital budget for national
investment is the financing of capital expenditures.
Some have argued that the Government ought to bal­
ance the operating budget and borrow to finance the
capital budget—capital expenditures less depreciation
(and less tax receipts earmarked to finance capital ex­
penditure). The rationale is that if the Government bor­
rows for net investment and the rate of return exceeds
the interest rate, the additional debt does not add a
burden onto future generations. Instead, the burden
of paying interest on the debt and repaying its principal
is spread over the generations that will benefit from
the investment. The additional debt is “justified” by
the additional assets.
This argument is at best a justification to borrow
to finance net investment, after depreciation is sub­
tracted from gross outlays, not to borrow to finance
gross investment. To the extent that capital is used
up during the year, there are no additional assets to
16These problems are also pointed out in

ib ., pp. 11-12.
id

8. FEDERAL INVESTMENT OUTLAYS AND CAPITAL BUDGETING

justify additional debt. If the Government borrows to
finance gross investment, the additional debt exceeds
the additional capital assets. The Government is thus
adding onto the amount of future debt service without
providing the additional capital that would produce the
additional income needed to service that debt. This jus­
tification, furthermore, requires that depreciation be
measured in terms of current cost, not historical cost,
because, when prices change, historical cost deprecia­
tion will not measure the extent to which the capital
stock is used up each year.
Table 8-8 shows that the operating deficit, defined
to be net of current cost depreciation, would not be
a great deal less than the unified budget deficit—$139
billion in 1995 compared to $165 billion. Depreciation
(plus the earmarked excise taxes for highways and air­
ports and airways) is high relative to gross new capital
outlays, because the stock of national capital has not
been growing very fast.
Even with depreciation calculated in current cost, the
rationale for borrowing to finance net investment is
not persuasive. The Federal Government, unlike a busi­
ness or household, is responsible not only for its own
affairs but also for the general welfare of the Nation.
To maintain and accelerate national economic growth
and development, the Government needs to sustain pri­
vate investment as well as its own national investment.
In the last decade, however, net national saving and
investment have been low, both by historical standards
and in comparison to the amounts needed to achieve
the Administration’s goals for accelerated growth. (For
the past trend in net national saving, see Chart 1-4
in Chapter 1 of the Budget.)

119

To the extent that the Government finances its na­
tional investment in a way that results in lower private
investment, the net increase of total investment in the
economy is less than the increase from the additional
Federal capital outlays alone. The net increase in total
investment is significantly less if the Federal invest­
ment is financed by borrowing than if it is financed
by taxation, because borrowing primarily draws upon
the saving available for private (and State and local)
investment whereas much of taxation comes out of pri­
vate consumption instead. Therefore, the net effect of
Federal investment on economic growth would be re­
duced if it were financed by borrowing. This would be
the result even if the rate of return on Federal invest­
ment in national capital was higher than the rate of
return on private investment. For example, if a Federal
investment that yielded a 15 percent rate of return
crowded out private investment that yielded 10 percent,
the net social return would still be positive but it would
only be 5 percent.17
The 1994 budget was a bold proposal to increase the
saving available for private investment while also in­
creasing Federal investment for national capital. Never­
theless, current deficits still exceed net Federal invest­
ment for national capital, and balancing the operating
budget in 1995 would require additional deficit reduc­
tion of $139 billion—not a great deal less than bal­
ancing the unified budget. As the NPR concluded, a
capital budget is not a justification to relax current
budget constraints.18 Any easing would undo the gains
from the $504.8 billion of deficit reduction achieved in
the Omnibus Budget Reconciliation Act of 1993.

Part III—FEDERALLY FINANCED CAPITAL STOCKS
Federal investment outlays, by definition, create a
“stock” of capital that is available in the future for
productive use. Each year, Federal investment spending
adds to the stock of capital, while wear and tear and
obsolescence reduce it. This section presents very rough
measures of three different kinds of capital stocks fi­
nanced by the Federal Government: public physical cap­
ital, research and development (R&D), and education.
Capital stocks are not estimated for training.
Federal outlays for physical assets add to the Na­
tion’s capital stock of tangible assets, such as roads,
buildings, and aircraft carriers. These assets deliver
a flow of services over their lifetime. The capital depre­
ciates as the asset is used, wears out, or becomes obso­
lete.
Federal outlays for the conduct of research, develop­
ment, and education add to an “intangible” asset, the
Nation’s stock of knowledge. Although financed by the
Federal Government, the research and development or
education can be performed by Federal or State govern­
ment laboratories, universities and other nonprofit or­
17The GAO report considered deficit financing of investment but did not recommend
it. See ibid., pp. 12-13.
18NPR, Creating a Government That Works Better & Costs Less, p. 111.




ganizations, or private industry. Research and develop­
ment covers a wide range of endeavors, from the inves­
tigation of subatomic particles to the exploration of
outer space; it can be “basic” research without particu­
lar applications in mind, or it can have a highly specific
practical use. Similarly, education includes a wide vari­
ety of programs, assisting people of all ages with basic
education through graduate studies. Like physical as­
sets, the capital stocks of R&D and education provide
services over a number of years and depreciate as they
become outdated.
For this analysis, physical and R&D capital stocks
were estimated using the perpetual inventory method.
In this method, the estimates are based on the sum
of net investment in prior years, rather than, for exam­
ple, a survey of the current market worth of the asset.
Each year’s Federal outlays are treated as gross invest­
ment, adding to the capital stock; depreciation and dis­
cards reduce the capital stock. Gross investment less
depreciation and discards is net investment.

120

ANALYTICAL PERSPECTIVES

In contrast, the estimate of the education stock is
based on the replacement cost method. Data on the
cumulative years of education in the U.S. population
are combined with data on the cost of education and
the Federal share of education spending to yield the
cost of replacing the Federal share of the Nation’s stock
of education.
Additional detail about the methods used to estimate
capital stocks appears in a methodological note at the
end of this section. It should be stressed that these
estimates are rough approximations, and provide a
basis only for making broad generalizations. Errors may
arise from incomplete data for historical outlays, impre­
cision in the deflators used to express costs in 1987
dollars, and uncertainty about the useful lives and de­
preciation rates of different types of assets.

The Stock o f Physical Capital
This section presents data on stocks of physical cap­
ital assets and estimates of the depreciation on these
assets.
Trends.—Table 8-9 shows the value of the total net
federally financed physical capital stock since 1970, in
constant fiscal year 1987 dollars. The total stock held
constant through the 1970s and began rising in the
early 1980s. The stock reached a high of $1,380 billion
in 1993 and is estimated to increase to $1,387 billion
in 1994, remaining at roughly that level in 1995. In
1993, the national defense capital stock accounted for
$682 billion, or 49 percent of the total, and nondefense
stocks for $698 billion, or 51 percent of the total.

TABLE 8-9. NET STOCK OF FEDERALLY FINANCED PHYSICAL CAPITAL
(In billions of constant 1987 dollars)
Direct Federal Capital
Total

National
Defense

Total
Nondefense

Total

Water and
Power

Capital Rnanoed by Federal Grants
Other

Total

Transpor­
tation

Community
and
Regional

Natural
Resources

Other

1970
1971
1972
1973
1974

......................................................
......................................................
......................................................
......................................................
......................................................

1,063
1,065
1,062
1,051
1,037

696
682
662
637
609

368
383
399
414
428

152
154
156
158
160

92
94
96
97
99

60
60
60
61
61

215
229
243
256
268

164
172
179
186
191

26
30
35
39
43

11
12
13
15
18

15
15
16
17
17

1975
1976
1977
1978
1979

......................................................
......................................................
......................................................
......................................................
......................................................

1,023
1,013
1,005
1,003
1,005

583
557
525
502
485

441
457
480
501
520

162
164
167
170
174

101
103
106
109
111

61
61
61
62
62

278
292
313
331
347

195
201
208
213
218

45
49
55
63
69

21
25
32
37
42

17
18
18
18
17

1980
1981
1982
1983
1984

......................................................
......................................................
......................................................
......................................................
......................................................

1,008
1,013
1,019
1,034
1,061

470
460
456
462
477

538
553
563
572
584

176
179
180
181
183

113
114
114
115
114

63
65
66
66
69

362
374
383
392
401

224
230
233
237
243

74
78
81
84
86

46
50
53
55
57

17
16
16
15
15

......................................................
......................................................
......................................................
......................................................
......................................................
1990 ......................................................
1991 ......................................................
1992 ......................................................
1993 ......................................................
1994 est..................................................
1995 est..................................................

1,100
1,143
1,189
1,230
1,270

501
531
566
595
625

599
612
623
635
645

187
189
193
199
203

114
114
114
114
114

72
76
79
84
89

412
422
430
437
443

250
257
263
268
273

89
90
91
92
92

59
61
62
64
64

14
14
13
13
14

1,306
1,339
1,365
1,380
1,387
1,386

649
670
681
682
670
652

656
668
684
698
717
735

207
212
221
228
237
245

114
114
115
115
116
116

93
98
106
113
121
129

449
456
463
471
480
489

278
283
288
294
299
305

92
92
92
92
92
92

65
66
66
66
66
66

14
15
17
19
22
26

1985
1986
1987
1988
1989

Real stocks of defense and nondefense capital show
very different trends. Nondefense stocks have grown
consistently since 1970, increasing from $368 billion
in 1970 to $698 billion in 1993. With the investments
proposed in the budget, nondefense stocks are esti­
mated to grow further to $735 billion in 1995. During
the 1970s, the nondefense capital stock grew at an av­
erage annual rate of 3.9 percent, above the rate of
growth of real GDP. In the 1980s, however, the growth
rate slowed to just over half that rate, or 2.0 percent
annually, less than GDP growth. More recently, the
rate of growth in nondefense stocks has accelerated.
Under this budget, the stock will grow at an estimated




2.6 percent annual rate from 1993 to 1995, closer to
the rate of growth in GDP.
National defense stocks began in 1970 at a relatively
high level, and declined steadily throughout the decade,
as depreciation from the Vietnam era exceeded new
investment in military construction and weapons pro­
curement. Starting in 1982, however, a large defense
buildup began to increase the stock of defense capital.
By 1992, the defense stock had nearly equalled its level
at the height of the Vietnam War. In the last few
years, reduced defense investments due to the end of
the Cold War and the recognition of other pressing
national needs have once again begun to reduce the

121

8. FEDERAL INVESTMENT OUTLAYS AND CAPITAL BUDGETING

the stock for transportation is largely grants for high­
ways, including the Interstate Highway System. The
growth in community and regional development stocks
occurred largely with the enactment of the community
development block grant in the early 1970s. The value
of this capital stock has been unchanged in the past
few years. The growth in the natural resources area
occurred primarily because of construction grants for
sewage treatment facilities. The value of this federally
financed stock has also been relatively stable since the
mid-1980s, although new investments proposed in the
budget for clean water and safe drinking water revolv­
ing funds should increase this stock in coming years.
Table 8-10 shows nondefense physical capital outlays
both gross and net of depreciation for selected years
from 1960 to 1985 and annually from 1985 to 1995.
The net capital outlays in this table are the change
in the net nondefense physical capital stock displayed
in Table 8-9.

defense stock. The stock will decline by an estimated
2.7 percent in the 1995 budget.
Another trend in the Federal physical capital stocks
is the shift from direct Federal assets to grant-financed
assets. In 1960, 56 percent of federally financed
nondefense capital was owned by the Federal Govern­
ment, and 44 percent was owned by State and local
governments but financed by Federal grants. Expansion
in Federal grants for highways and other state and
local capital, coupled with relatively slow growth in
direct Federal investments in agencies such as the Bu­
reau of Reclamation and Corps of Engineers, shifted
the composition of the stock substantially. In 1993, 33
percent of the nondefense stock was owned by the Fed­
eral Government and 67 percent by State and local
governments.
The growth in the stock of physical capital financed
by grants has come in several areas. The growth in
TABLE 8-10.

COMPOSITION OF GROSS AND NET FEDERAL AND FEDERALLY FINANCED NONDEFENSE PUBLIC PHYSICAL
INVESTMENT
(In billions of constant 1987 dollars)
Direct Federal investment

Total nondefense investnent

Investment financed by Federal grants

Composition of net investoient
Year
Gross

Five year intervals:
1960 .......................
1965 .......................
1970 .......................
1975 .......................
1980 .......................
1985 .......................
Annual data:
1990 .......................
1991 .......................
1992 .......................
1993 .......................
1994 est...................
1995 est...................
• $50 million or less.




Depreda­
tion

Net

Gross

Depreda­
tion

Net

Water
and
power

Composition of net investment
Gross

Deprecia­
tion

Net

Other

Transpor­
tation
(mainly
Nghways)

Commu­
nity and
regional
develop­
ment

Natural
resources
and envi­
ronment

Other

21.0
29.9
29.2
29.9
37.7
37.8

8.3
11.1
14.5
17.6
20.1
23.6

12.7
18.9
14.7
12.3
17.6
14.2

7.3
10.5
7.3
9.3
10.0
12.1

4.6
5.6
6.6
7.3
7.6
8.3

2.7
4.9
0.7
2.0
2.4
3.7

1.4
2.1
1.0
2.0
1.4
0.1

1.3
2.8
-0 .3
-*
1.0
3.6

13.7
19.5
21.9
20.6
27.6
25.7

3.7
5.5
7.9
10.3
12.4
15.2

10.0
14.0
14.0
10.3
15.2
10.5

10.2
12.4
8.6
3.8
6.1
6.7

-0 .3
1.4
3.8
2.9
4.8
2.3

-0 .2
-*
0.4
3.3
4.8
1.9

0.3
0.3
1.2
0.3
-0 .5
-0 .4

38.8
40.5
45.5
45.5
50.2
51.2

27.8
28.7
29.8
30.9
32.1
33.3

11.1
11.8
15.7
14.6
18.1
17.9

14.1
15.2
19.2
18.1
20.9
20.6

9.7
10.1
10.6
11.2
11.7
12.3

4.3
5.1
8.5
7.0
9.2
8.3

0.2
-0 .2
1.1
-0.1
0.9
*

4.1
5.3
7.4
7.1
8.3
8.3

24.8
25.3
26.3
27.4
29.4
30.6

18.0
18.6
19.2
19.8
20.4
21.0

6.7
6.7
7.2
7.6
9.0
9.5

5.1
5.0
5.2
5.8
5.5
5.7

*
-0 .1
-0.1
-0 .4
0.2
0.4

0.7
0.8
0.7
-0 .2
-*
-0 .3

0.8
1.0
1.3
2.4
3.3
3.8

122

ANALYTICAL PERSPECTIVES

TABLE fr-11.

NET STOCK OF FEDERALLY FINANCED RESEARCH AND DEVELOPMENT i
(In billions of constant FY 1987 dollars)
National Defense

Fiscal Year

Total

Nondefense
Applied
Research and
Development

Basic
Research

Basic
Research

Total

Total Federal
Applied
Research and
Development

Basic
Research

Total

Researchand
Development

1970
1971
1972
1973
1974

..........................................................................
..........................................................................
..........................................................................
..........................................................................
..........................................................................

207
210
213
216
217

13
13
14
15
16

195
196
199
201
201

171
179
186
193
200

54
58
63
68
73

117
121
123
126
128

378
389
399
409
417

66
72
77
83
88

311
317
322
326
329

1975
1976
1977
1978
1979

..........................................................................
..........................................................................
..........................................................................
..........................................................................
..........................................................................

217
216
216
216
216

16
17
18
18
19

201
199
198
198
197

207
214
221
228
235

77
82
87
92
97

129
132
134
136
137

424
430
437
444
450

94
99
105
110
116

330
331
332
333
334

1980
1981
1982
1983
1984

..........................................................................
..........................................................................
..........................................................................
..........................................................................
..........................................................................

20
20
21
22
23

336
337
338
339
341

135
142
150
157
166

126
122
119
117
115

458
467
474
482
492
505
522
538
555
573

123
129
136
143
151

24
25
25
26
27

242
248
251
254
257
260
265
268
274
281

138
139
137
133
129

..........................................................................
..........................................................................
..........................................................................
..........................................................................
..........................................................................

197
198
201
207
212
221
233
245
255
264

103
109
115
121
128

1985
1986
1987
1988
1989

217
219
223
229
235
244
258
270
281
291

159
167
175
184
193

346
355
363
371
380

1990 ..........................................................................
1991 ..........................................................................
1992 ..........................................................................
1993 ..........................................................................
1994 est ....................................................................
1995 est.......................................................................

300
303
307
311
314
316

28
29
30
31
32
32

272
274
277
281
282
283

290
300
311
321
332
343

174
184
194
203
212
222

116
116
117
118
120
121

590
603
617
632
646
659

202
213
223
233
244
254

387
390
394
399
402
405

1Exdudes outlays for physical capital for research and development, which are included in Table &-9.

The Stock of Research and Development Capital
This section presents data on the stock of research
and development, taking into account adjustments for
its depreciation.
Trends.—As shown in Table 8-11, the R&D capital
stock financed by Federal outlays is estimated to be
$632 billion in 1993 in constant 1987 dollars. About
one-third is the stock of basic research knowledge;
about two-thirds is the stock of applied research and
development.
The total federally financed R&D stock in 1993 was
about evenly divided between defense and nondefense.
Although investment in defense R&D has exceeded that
of nondefense R&D in every year since 1981, the two
stocks are about the same because of the different em­
phasis between basic research and applied R&D. De­
fense R&D outlays are heavily concentrated in applied
research and development, which depreciates much
more quickly than basic research. Applied research and
development is assumed to depreciate at a ten percent
geometric rate, while basic research is assumed not
to depreciate at all.
The defense R&D stock rose slowly during the 1970s,
as gross outlays for R&D trended down in constant
dollars and the stock created in the 1960s depreciated.
i®For estimates of the total education stock, see Table 2-3 in Chapter 2, “Stewardship:
Toward a Federal Balance Sheet.”




A renewed emphasis on defense R&D spending from
1980 through 1989 led to a more rapid growth of the
R&D stock. Since then, defense R&D outlays have ta­
pered off, depreciation has grown, and, as a result,
the net defense R&D stock has grown more slowly.
The growth of the nondefense R&D stock slowed from
the 1970s to the late 1980s, from an annual rate of
3.6 percent in the 1970s to a rate of 1.6 percent from
1980 to 1988. Real gross investment fell during much
of the 1980s, and about three-fourths of new outlays
went to replacing depreciated R&D. Since 1988, how­
ever, nondefense R&D outlays have been on an upward
trend while depreciation has edged down. As a result,
the net nondefense R&D capital stock has grown more
rapidly.
The Stock of Education Capital
This section presents estimates of the stock of edu­
cation capital financed by Federal government outlays.
As shown in Table 8-12, the federally financed edu­
cation stock is estimated at $653 billion in 1993 in
constant 1987 dollars, rising to $738 billion in 1995.
This stock represents about 3 percent of the Nation’s
total education stock.19 Three-quarters is for elemen­
tary and secondary education, while the remaining one
quarter is for higher education.

123

8. FEDERAL INVESTMENT OUTLAYS AND CAPITAL BUDGETING

TABLE 8-12.

NET STOCK OF FEDERALLY FINANCED EDUCATION CAPITAL
(In billions of constant 1987 dollars)
Total
Education
Stock

Fiscal Year

Elementary
and Secondary
Education

Higher
Education

1970
1971
1972
1973
1974

................................................................................................
.................................................................................................
................................................................................................
.................................................................................................
................................................................................................

193
208
226
242
249

153
167
183
197
202

39
41
43
46
47

1975
1976
1977
1978
1979

.................................................................................................
................................................................................................
................................................................................................
................................................................................................
................................................................................................

257
278
285
305
325

209
225
227
241
256

47
53
58
64
69

1980
1981
1982
1983
1984

................................................................................................
................................................................................................
................................................................................................
................................................................................................
................................................................................................

346
367
369
377
396

273
288
288
289
299

74
79
81
88
97

1985
1986
1987
1988
1989

................................................................................................
................................................................................................
................................................................................................
.................................................................................................
................................................................................................

423
448
468
496
525

318
337
351
371
391

105
111
117
125
134

1990 ................................................................................................
1991 ................................................................................................
1992 ................................................................................................
1993 ................................................................................................
1994 est............................................................................................
1995 est............................................................................................

550
577
612
653
696
738

408
429
455
485
518
551

141
149
157
168
178
188

In 1970, the federally financed stock of education was
only about half the size of the research and develop­
ment stock, but with steady growth in the intervening
decades the education stock now exceeds the stock of
R&D. Despite a slowdown in growth during the early

1980s, the stock grew at an average annual rate of
5.4 percent from 1970 to 1993. Expansion of education
stock is projected to accelerate under this budget, re­
flecting in part the emphasis on investment in edu­
cation, with stocks estimated to increase at a 6.3 per­
cent annual rate from 1993 to 1995.

M e th o d o lo g ic a l N o te
This note provides further technical detail in the esti­
mation of the capital stock series presented in Tables
8-9 through 8-12.
As stated previously, the capital stock estimates are
only rough approximations. Sources of possible error
include:

cation, data for Federal outlays from the budget were
combined with data for non-Federal spending from the
institution or jurisdiction receiving Federal funds,
which may introduce error because of differing fiscal
years and confusion about whether the Federal Govern­
ment was the original source of funding.

The historical outlay series.—The historical outlay
series for physical capital was based on budget records
since 1940 and was extended back to 1915 using data
from selected sources. There are no consistent outlay
data on physical capital for this earlier period, and
the estimates are approximations. In addition, the his­
torical outlay series in the budget for physical capital
extending back to 1940 may be incomplete. The histori­
cal outlay series for the conduct of research and devel­
opment began in the early 1950s and required selected
sources to be extended back to 1940. In addition, sepa­
rate outlay data for basic research and applied R&D
were not available for any years and had to be esti­
mated from obligations and budget authority. For edu­

Price adjustments.—The prices for the components
of the Federal stock of physical, R&D, and education
capital have increased through time, but the rates of
increase are not precisely known. Estimates of costs
in fiscal year 1987 prices were made through the appli­
cation of the National Income and Product Accounts
deflator series, but these should be considered only ap­
proximations of the costs of these assets in 1987 prices.




Depreciation.—The useful lives of physical, R&D,
and education capital, as well as the pattern by which
they depreciate, are very uncertain. This is compounded
by using depreciation rates for broad classes of assets,
which do not apply uniformly to all the components

124

ANALYTICAL PERSPECTIVES

of each group. As a result, the depreciation estimates
should also be considered approximations.
Research continues on the best methods to estimate
these capital stocks. The estimates presented in the
text could change as better information becomes avail­
able on the underlying investment data and as im­
proved methods are developed for estimating the stocks
based on those data.

Research and Development Capital Stocks

Method of estimation.—The estimates were devel­
oped from a data base for the conduct of research and
development largely consistent with the data in the
Historical Tables. Although there is not a consistent
time series on basic and applied R&D for defense and
nondefense outlays back to 1940, it was possible to
estimate the data using obligations and budget author­
ity. The data are for the conduct of R&D only and
Physical Capital Stocks
exclude outlays for physical capital for research and
For many years, current and constant-cost data on development, because they are included in the section
the value of most forms of public and private physical on physical capital. Nominal outlays were deflated by
capital—e.g., roads, factories, and housing—have been the implicit price deflator for gross domestic product
estimated annually by the Bureau of Economic Analysis (GDP) in fiscal 1987 dollars to obtain estimates of con­
(BEA) in the Department of Commerce.20 However, the stant dollar R&D spending.
The appropriate depreciation rate of intangible R&D
BEA data are not directly linked to the Federal budget,
do not include estimates for the years covered by the capital is even more uncertain than that of physical
budget, and do not classify as Federal the capital fi­ capital. Empirical evidence is inconclusive. It was as­
nanced but not owned by the Federal Government. For sumed that basic research capital does not depreciate
budgetary purposes, OMB prepared separate estimates. and that applied research and development capital has
a ten percent geometric depreciation. These are the
Method of estimation.—The estimates were devel­ same assumptions used in a study published by the
oped from the OMB historical data base for physical Bureau of Labor Statistics estimating the R&D stock
capital outlays and grants to State and local govern­ financed by private industry.21
ments for physical capital. These are the same major
Education Capital Stocks
public physical capital outlays presented in Part I. This
data base extends back to 1940 and was supplemented
Method of estimation.—The estimates of the feder­
by rough estimates for 1915—
1939.
ally financed education capital stock in Table 8-12 were
The deflators for Federal, State, and local purchases calculated by first estimating the Nation's total stock
of durables and structures were used going back to of education capital, based on the current replacement
1940. Specific deflators were not used for subdivisions cost of the total years of education of the population.
of durables and structures. There are no specific price To derive the Federal share of this total stock, the
indices for public purchases of durables and structures Federal share of total educational expenditures was ap­
for 1915 through 1939, and estimates were made on plied to the total amount. The percent in any year
the basis of Census Bureau historical statistics on con­ was estimated by averaging the prior years' share of
stant price public capital formation. Using these Federal education outlays in total education costs. For
deflators, the outlays were converted to constant fiscal more information, refer to the technical note in Chapter
year 1987 dollars.
2, “Stewardship: Toward a Federal Balance Sheet."
The resulting series was adjusted for depreciation.
The stock of capital estimated in Table 8— is based
12
The data were depreciated on a straight-line basis over only on outlays for education. Stocks created by other
the following assumed useful lives: 46 years for water human capital investment outlays included in Table
and power projects; 40 years for other direct Federal 8-1, such as training and vocational rehabilitation,
construction and capital financed by grants (primarily were not calculated because of the lack of historical
highways); and 16 years for defense procurement and data prior to 1962 and the absence of estimates of
depreciation rates.
major nondefense equipment.

Part IV—SUPPLEMENTAL PHYSICAL CAPITAL INFORMATION
The Federal Capital Investment Program Information
Act of 1984 (Title II of Public Law 98-501; hereafter
referred to as the Act) requires that the budget include
projections of Federal physical capital spending and in­
formation regarding recent assessments of public civil­

ian physical capital needs. This section is submitted
to fulfill that requirement.
This section is organized in two major parts. The
first part projects Federal outlays for public physical
capital and the second part presents information re­
garding public civilian physical capital needs.

20 See “Fixed Reproducible Tangible Wealth in the United States", Survey o f Current
Business, September 1993, pp. 61-69.

21 See U.S. Department of Labor, Bureau of Labor Statistics, The Impact o f Research
and Development on Productivity Growth, Bulletin 2331, September 1989.




125

8. FEDERAL INVESTMENT OUTLAYS AND CAPITAL BUDGETING

Projections of Federal Outlays For Public Physical Capital
Federal public physical capital spending was $126.4 1993, and current services outlays are estimated to in­
billion in 1993 and is projected to increase to $151.5 crease to $33.2 billion by 2003. Outlays for nondefense
billion by 2003 on a current services basis. The largest housing and buildings were $7.8 billion in 1993 and
components are for national defense and for roads and are estimated to increase to $11.5 billion by 2003. Phys­
bridges, which together accounted for about four-fifths ical capital outlays for other nondefense categories were
$18.5 billion in 1993 and are projected to be $27.0
of Federal public physical capital spending in 1993.
Federal public physical capital spending is defined billion by 2003. For national defense, this spending was
here to be the same as the “major public physical cap­ $76.2 billion in 1993 and is estimated to increase to
ital investment” category in Part I of this chapter. It $79.7 billion in 2003.
Table 8-14 shows current services projections ad­
covers spending for construction and rehabilitation, ac­
justed for inflation on a constant dollar basis, using
quisition of major equipment, and other physical assets.
fiscal year 1987 as the base year.
This section excludes outlays for human capital, such
Table 8-15 compares the current services and presi­
as the conduct of education, training, and research.
dential policy projections from 1993 to 1999 in current
Table 8-13 shows projected current services outlays and constant dollars.
for Federal physical capital by the major categories
For outlay details for most programs, see the items
specified in the Act. Total Federal outlays for transpor­ included in major public physical capital in tables 8-3
tation-related physical capital were $23.9 billion in and 8-4.
TABLE &-13.

BASELINE OUTLAY PROJECTIONS FOR FEDERAL PHYSICAL CAPITAL SPENDING
(In billions of dollars)
Estimate
1993 acual

Nondefense:
Transportation-related categories:
Roadways and bridges...................................
Airports and airway facilities ...........................
Mass transportation systems...........................
Railroads.........................................................

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

16.3
4.2
3.1
0.3

17.7
4.0
2.4
0.5

18.7
3.9
2.7
0.5

19.7
4.1
2.8
0.5

20.4
4.2
2.9
0.5

20.9
4.4
3.2
0.5

21.6
4.5
3.0
0.5

22.3
4.6
3.0
0.5

22.9
4.7
3.1
0.5

23.6
4.9
3.2
0.5

24.3
5.0
3.3
0.6

Subtotal, transportation ..............................
Housing and buildings categories:
Federally assisted housing.............................
Hospitals .........................................................
Public buildings ’ ............................................

23.9

24.6

25.8

27.1

28.0

29.0

29.6

30.4

31.2

32.2

33.2

3.2
1.6
3.0

4.6
2.0
3.6

5.1
2.1
3.2

5.3
2.0
3.5

5.5
2.1
3.0

5.7
2.1
2.5

5.9
2.2
2.1

6.1
2.3
2.2

6.3
2.3
2.3

6.4
2.4
2.4

6.6
2.5
2.4

Subtotal, housing and buildings..................

7.8

10.2

10.4

10.8

10.6

10.3

10.2

10.6

10.9

11.2

11.5

Other nondefense categories:
Wastewater and drinking water treatment fa­
cilities ..........................................................
Water resources projects ...............................
Space and communications facilities..............
Energy programs ............................................
Community development programs ................
Other nondefense...........................................

2.4
2.3
3.1
3.1
3.2
4.4

2.7
2.9
3.2
3.8
3.9
5.4

2.8
2.6
3.2
3.7
4.3
5.2

2.9
2.7
3.2
3.9
4.8
5.3

3.1
2.8
3.2
3.9
5.0
5.4

3.2
2.9
3.3
4.0
4.8
5.6

3.1
3.0
3.3
4.0
4.9
5.7

3.2
3.0
3.4
4.1
5.1
5.8

3.3
3.1
3.5
4.2
5.2
6.0

3.4
3.2
3.6
4.4
5.4
6.2

3.5
3.3
3.8
4.5
5.5
6.4

Subtotal, other nondefense.........................

18.5

21.9

21.8

22.8

23.4

23.8

24.0

24.6

25.5

26.2

27.0

Subtotal, nondefense .................................

50.2

56.7

58.0

60.7

62.0

63.0

63.8

65.6

67.6

69.6

71.7

National defense......................................................

76.2

66.4

65.0

66.1

67.5

69.1

70.8

73.0

75.2

77.4

79.7

Total............................................................

126.4

123.2

123.1

126.9

129.4

132.1

134.6

138.7

142.9

147.1

151.5

1 Excludes outlays for public buildings that are included in other categories in this table.


http://fraser.stlouisfed.org/
150-003 0 -9 4 -5 (QL 3)
Federal Reserve Bank of St. Louis

126

ANALYTICAL PERSPECTIVES

TABLE 8-14.

BASELINE OUTLAY PROJECTIONS FOR FEDERAL PHYSICAL CAPITAL SPENDING IN CONSTANT PRICES
(In billions of constant FY 1987 dollars)
Estimate
1993 actual

1994

1995

1996

1997

1998

1999

Nondefense:
Transportation-related categories:
Roadways and bridges .....................................................................
Airports and airway facilities.............................................................
Mass transportation systems ............................................................
Railroads...........................................................................................

14.4
3.9
2.7
0.2

15.2
3.6
2.0
0.5

15.7
3.4
2.3
0.5

16.1
3.5
2.3
0.4

16.2
3.5
2.3
0.4

16.2
3.5
2.5
0.4

16.2
3.5
2.2
0.4

Subtotal, transportation.................................................................

21.2

21.3

21.8

22.3

22.4

22.6

22.3

Housing and buildings categories:
Federally assisted housing ...............................................................
Hospitals ...........................................................................................
Public buildings1 ..............................................................................

2.9
1.5
2.8

4.0
1.9
3.3

4.3
1.8
2.9

4.3
1.8
3.1

4.4
1.8
2.5

4.4
1.8
2.0

4.5
1.8
1.7

Subtotal, housing and buildings ...................................................

7.2

9.2

9.1

9.2

8.7

8.2

8.0

Other nondefense categories:
Wastewater and drinking water treatment facilities..........................
Water resources projects..................................................................
Space and communications facilities................................................
Energy programs..............................................................................
Community development programs..................................................
Other nondefense..............................................................................

2.1
2.1
3.0
2.9
2.9
4.1

2.3
2.7
3.0
3.5
3.4
4.9

2.4
2.3
2.9
3.3
3.6
4.5

2.4
2.4
2.8
3.4
3.9
4.5

2.5
2.4
2.7
3.3
4.0
4.5

2.5
2.4
2.7
3.3
3.7
4.5

2.4
2.4
2.7
3.2
3.7
4.5

Subtotal, other nondefense ..........................................................

17.1

19.8

19.1

19.4

19.4

19.1

18.9

Subtotal, nondefense....................................................................

45.5

50.3

50.0

50.9

50.5

49.8

49.2

National defense .......................................................................................

69.5

59.1

56.2

55.6

55.1

54.8

54.5

Total..............................................................................................

115.0

109.4

106.3

106.5

105.5

104.6

103.6

1Exdudes outlays for public buidlngs that are included in other categories in this table.

TABLE 8-15.

PROJECTIONS OF FEDERAL OUTLAYS FOR PHYSICAL CAPITAL: CURRENT SERVICES AND PRESIDENTIAL POLICY
(In billions of dollars)
Estimate
1993 actual

1994

1995

1996

1997

1998

1999

50.2
76.2

56.7
66.4

58.0
65.0

60.7
66.1

62.0
67.5

63.0
69.1

63.8
70.8

Total..................................................................................................
Presidential policy:
Nondefense.......................................................................................
National defense ..............................................................................

126.4

123.2

123.1

126.9

129.4

132.1

134.6

50.2
76.2

56.7
66.6

59.4
60.4

61.3
60.5

61.9
60.4

59.5
60.4

59.0
60.5

Total..................................................................................................

126.4

123.3

119.8

121.8

122.3

119.9

119.5

In constant FY 1987 dollars:
Current services:
Nondefense.......................................................................................
National defense ..............................................................................

45.5
69.5

50.3
59.1

50.0
56.2

50.9
55.6

50.5
55.1

49.8
54.8

49.2
54.5

Total ..................................................................................................
Presidential policy:
Nondefense.......................................................................................
National defense ..............................................................................

115.0

109.4

106.3

106.5

105.5

104.6

103.6

45.5
69.5

50.3
59.2

51.2
52.3

51.4
50.9

50.3
49.4

47.0
47.9

45.4
46.5

Total..................................................................................................

115.0

109.5

103.5

102.3

99.7

94.9

91.9

In current dollars:
Current services:
Nondefense.......................................................................................
National defense ..............................................................................




127

8. FEDERAL INVESTMENT OUTLAYS AND CAPITAL BUDGETING

Public Civilian Capital Needs Assessments
The Act requires information regarding the state of
major Federal infrastructure programs, including high­
ways and bridges, airports and airway facilities, mass
transit, railroads, federally assisted housing, hospitals,
water resources projects, and space and communica­
tions investments. Funding levels, long-term projec­
tions, policy issues, needs assessments, and critiques,
are required for each category.
Capital needs assessments change little from year
to year, in part due to the long-term nature of the
facilities themselves, and in part due to the consistency
of the analytical techniques used to develop the assess­
ments and the comparatively steady but slow changes
in underlying demographics. As a result, the practice
has arisen in reports in previous years to refer to ear­
lier discussions, where the relevant information had
been carefully presented and changes had been mini­
mal.
The needs assessment material in reports of earlier
years is incorporated this year largely by reference to

earlier editions and by reference to other needs assess­
ments. The needs analyses, their major components,
and their critical evaluations have been fully covered
in past Supplements, such as the 1990 Supplement to
Special Analysis D.
It should be noted that the needs assessment data
referenced here have not been determined on the basis
of cost-benefit analysis. Rather, the data reflect the
level of investment necessary to meet a predefined
standard (such as maintenance of existing highway con­
ditions). The estimates do not address whether the ben­
efits of each investment would actually be greater than
its cost or whether there are more cost-effective alter­
natives to capital investment, such as initiatives to re­
duce demand or use existing assets more efficiently.
Before investing in physical capital, it is necessary to
compare the cost of each project with its estimated
benefits, within the overall constraints on Federal
spending.

Significant Factors Affecting Infrastructure Needs Assessments
Significant Factors

Amount
Highways

1. Projected annual growth in travel to the year 2011 ..... 2.5 percent
2. Annual cost to maintain overall 1991 conditions and
performance on highways eligible for Federal-aid......... $48.4 billion (1991 dollars)
3. Annual cost to maintain overall 1991 conditions on
bridges ............................................................................. $5.2 billion (1991 dollars)
Airports and Airway Facilities
1. Airports in the National Plan of Integrated Airport
Systems with scheduled passenger traffic .................... 554
2. Air traffic control towers ................................................ 454
3. Airport development eligible under airport improve­
ment program for period 1990-1999 ............................. $40.5 billion ($28.2 billion for capacity) (1989 dollars)
Mass Transportation Systems
1. Yearly cost to maintain condition and performance of
rail facilities over a period of 10 years .......................... $1.7 billion (1992 dollars)
2. Yearly cost to replace and maintain the urban, rural,
and special services bus fleet ......................................... $2.2 billion (1992 dollars)
Wastewater Treatment
1. Total needs of sewage treatment facilities ................... $80.5 billion (1990 dollars)
2. Total Federal expenditures under the Clean Water Act
of 1972 ............................................................................. $62 billion
3. Percent of population served by centralized treatment
facilities that benefits from at least secondary sewage
treatment systems.......................................................... 95 percent
4. States and territories served by State Revolving Funds 51




128

ANALYTICAL PERSPECTIVES

Significant Factors Affecting Infrastructure Needs Assessments—Continued
Significant Factors

Amount
Housing

1. Total unsubsidized very low income renter families
(3.6 million*):.
A. In severely substandard units ............................... 0.4 million
B. With a rent burden greater than 50 percent......... 3.4 million
* The total is less than the sum because some renter fam­
ilies have both problems..
Indian Health (IHS) Care Facilities
1.
2.
3.
4.
5.

IHS hospital occupancy rates (1992)............................. .. 44.9 percent
Average length of stay, IHS hospitals (days) (1992).......4.5
Hospital admissions (1992) ..............................................61,992
Outpatient visits (1992) ...................................................3,924,484
Population (1992)........................................................... .. 1,149,881
Department of Veterans Affairs (VA) Hospitals

1.
2.
3.
4.
5.

Hospitals......................................................................... ...173
Outpatient clinics ..............................................................360
Domiciliaries .................................................................. ...39
Outreach centers................................................................202
VA owned nursing home beds ....................................... ...15,952
Water Resources

1.
2.
3.
4.
5.
6.
7.

Navigation (deepwater ports and inland waterway)
Flood control and storm damage protection.
Irrigation.
Hydropower.
Municipal and industrial water supply.
Recreation.
Fish and wildlife mitigation, enhancement, and restoration.
8. Soil conservation.

Most recent comprehensive estimates of the need for
navigation, flood control and shoreline storm damage protection, and municipal and industrial (M&I)
water supply are found in the National Council on
Public Works Improvement, 1987. A task force is assessing the current approach to flood damage reduction and flood plain management,

Investment Needs Assessment References
General
U.S. Advisory Commission on Intergovernmental Re­
lations (ACIR). High Performance Public Works: A
New Federal Infrastructure Investment Strategy for
America, Washington, D.C., 1993.
U.S. Advisory Commission on Intergovernmental Re­
lations (ACIR). Toward a Federal Infrastructure
Strategy: Issues and Options, A-120, Washington,
D.C., 1992.
Highways and Bridges
Report of the Secretary of Transportation to the U.S.
Congress. The Status of the Nation's Highways and
Bridges: Conditions and Performance and Highway
Replacement and Rehabilitation Program 1989.
June, 1989.
Airports and Airways Facilities




Federal Aviation Administration. The National Plan
of Integrated Airport Systems Report, March 4,
1991.
Mass Transportation Systems
Federal Transit Administration. Public Transpor­
tation in the United States: Performance and Condi­
tions. June 1992.
Indian Health Care Facilities
Indian Health Service. Priority System for Health
Facility Construction (Document Number 0820B or
2046T). September 19, 1981.
Office of Audit, Office of Inspector General, U.S.
Department of Health and Human Services. Review
of Health Facilities Construction Program. Indian
Health Service Proposed Replacement Hospital at
Shiprock, New Mexico (CIN A-09-88-00008). June,
1989.

8. FEDERAL INVESTMENT OUTLAYS AND CAPITAL BUDGETING

Office of Audit, Office of Inspector General, U.S.
Department of Health and Human Services. Review
of Health Facilities Construction Program. Indian
Health Service Proposed Construction Project for the
Alaska Native Medical Center at Anchorage Alaska
(CIN A-09-89-00096). July, 1989.
Office of Technology Assessment. Indian Health
Care (OTA-H-290). April, 1986.
Wastewater Treatment
Environmental Protection Agency, Office of
Wastewater Enforcement and Compliance. Assessment of Needed Publicly Owned Wastewater Treat­
ment Facilities in the United States—Including
Federally-Recognized Indian Tribes and Alaska Na­
tive Villages (EPA 430/09-91-024). November 1991.
Water Resources
“Water Resources: Increasing Demand and Scarce
Supplies,” Chapter 2 of America's Renewable Re­




129
sources: Historical Trends and Current Challenges,
Kenneth Frederick and Roger Sedjo editors, Re­
sources for the Future, Washington, DC, 1991.
National Council on Public Works Improvement. The
Nation's Public Works, Washington, D.C., May,
1987. See “Defining the Issues—Needs Studies,”
Chapter II; Report on Water Resources, Shilling
et al., and Report on Water Supply, Miller Associ­
ates.
Frederick, Kenneth D., Balancing Water Demands
with Supplies: The Role of Demand Management
in a World of Increasing Scarcity, Report for the
International Bank of Reconstruction and Develop­
ment, Washington, D.C. 1992.
National Research Council, Water Transfers in the
West, Efficiency, Equity and the Environment,
Washington, DC, 1992.




9. RESEARCH AND DEVELOPMENT EXPENDITURES
The Administration is proposing $70 billion (exclud­
ing facilities) in research and development (R&D) in­
vestments in 1995, a $2 billion or three percent in­
crease over 1994. Civilian R&D will increase $1.4 bil­
lion or five percent to $31 billion In 1995, university-

TABLE 9-1.

based research will increase to roughly $12 billion, a
$362 million or three percent increase over 1994. Chap­
ter 3B of the Budget of the United States Government,
Fiscal Year 1995 includes a discussion of science and
technology that contains more information on research
and development activities.

FUNDING FOR RESEARCH AND DEVELOPMENT
(Outlays; dollars amounts in millions)
Percent
change:
1994 to 1995

1993
actual

1994
enacted

1995
proposed

Research and Development (R&D):
Civilian:
Basic.............................................................................
Applied and Development ............................................

11,370
15,886

11,967
17,149

12,454
18,074

+487
+925

+4%
+5%

Dollar change:
1994 to 1995

Total .............................................................................

27,255

29,116

30,527

+1,411

+5%

Defense:
Basic.............................................................................
Applied and Development ............................................

1,255
39,176

1,232
37,753

1,146
38,237

-86
+484

-7%
+1%

Total .............................................................................

40,432

38,985

39,383

+398

+1%

Total R&D (without facilities).................................................
Total R&D (with facilities)......................................................

67,687
70,320

68,101
70,828

69,910
72,495

+1,809
+1,667

+3%
+2%

37,662
9,579
8,087
5,878
1,754
1,308
3,417

36,343
10,311
8,213
6,121
1,984
1,353
3,777

36,841
10,996
8,324
6,449
2,001
1,392
3,908

+498
+685
+111
+328
+18
+39
+131

+1%
+7%
+1%
+5%
+1%
+3%
+3%

Total R&D ....................................................................

67,687

68,101

69,910

+1,810

+3%

R&D support to university researchers.................................

10,463

11,327

11,688

+362

+3%

R&D by Agency (w/o facilities):
Defense ............................................................................
Health and Human Services.............................................
NASA................................................................................
Energy ..............................................................................
National Science Foundation............................................
Agriculture.........................................................................




131




10. UNDERWRITING FEDERAL CREDIT AND INSURANCE
With over $5.9 trillion in insurance, loan guarantees
and direct loans outstanding at the end of 1993, the
Federal Government remains the largest underwriter
of financial risk in the United States. If activity at
Government sponsored enterprises (GSEs) is included,
the total is over $7.1 trillion, up slightly from 1993’s
level of $6.9 trillion. Including indirect assistance
through deposit insurance (but excluding the influence
of tax expenditures on borrowing), the Federal Govern­
ment directly or indirectly assists over 35 percent of
total private domestic borrowing in the United States:
approximately $4 trillion. While the level of Federal
assistance has fallen from a peak of 54 percent in 1972,
most of the decline was due to the contraction in the
thrift and banking industries and the rise of non-bank
financial companies. Since 1975, the proportion of pri­
vate domestic borrowing attributable to non-bank fi­
nance companies has jumped from just over 8 percent
to 18 percent.

This chapter examines the trends in Federal and fed­
erally assisted credit and insurance; analyzes the Fed­
eral Government’s exposure to loss from these pro­
grams; discusses the tools used in estimating, budget­
ing, and managing the risk from these Federal pro­
grams; and describes current efforts to rationalize the
allocation of scarce credit resources to their most effi­
cient use. The chapter is divided into four sections.
The first section provides an overview of the current
exposure of the Federal Government from existing cred­
it and insurance programs. The second section takes
a closer look at the current trends in the Federal insur­
ance sector, particularly the largest two segments: de­
posit insurance and pension insurance. Section three
discusses the trends in the largest recipient sectors of
Federal credit: business, education, and housing. The
fourth section focuses on the current tools used in man­
aging the Federal exposure from these programs, as
well as the appropriate budgeting approach for both
credit and insurance programs.

Estimated Cost of Federal Credit and Insurance Programs
Table 10-1 reports the face value and the estimated
costs of the largest Federal credit and insurance pro­
grams.1 As shown in the table, the face value of Federal
insurance remained relatively flat in 1993 ($5.0 tril­
lion), while the face value of direct loans ($151 billion)
and loan guarantees ($693 billion) fell slightly. Govern­
ment sponsored enterprises (GSEs) continued their
strong expansion during 1993, reaching just under $1.3
trillion—88 percent of which is held by Fannie Mae
and Freddie Mac.
The present value of future costs from losses embed­
ded in these programs’ outstanding portfolios of credit
and from projections of future program activity is ex­
pected to range from $180-$300 billion. This compares
with last years estimate of $123-$223 billion. Most
of the change in expected costs resulted from improved
methods of estimating the costs for Federal insurance
programs and trends in the underlying insurance port­
folios:
• Improvements in the methods used to calculate
the future costs of deposit insurance, pension in­
surance, and disaster insurance resulted in sub­
stantial increases from the prior year. Comparable
figures for the present value of future costs for
last year were as follows: $60-90 billion for de­
posit insurance, $45-75 billion for pension insur­
ance, and $11-13 billion for disaster insurance.
1 Table 10-1 does not include credit programs exempt from credit reform, such as CCC
price supports. In contrast with Tables 10-2 through 10-11, defaulted guarantees that
result in loans receivable are included with guaranteed loans.




• Trends in the financial condition of banks and
thrifts and insured pension funds also resulted
in significant changes, although in opposite direc­
tions:
— A stronger economy, high interest margins, and
improvements in bank balance sheets helped
boost bank and thrift profits during 1993. As
a result, the future costs of insuring banks and
thrifts fell by $5-10 billion and $10-12 billion,
respectively.
— The fall in interest rates over the past year,
which created an increase in the present value
of promised benefits relative to pension assets,
and inadequate funding of underfunded plans
increased the future costs of insuring pension
benefits by $15 billion. The Administration has
sponsored a reform bill that would significantly
reduce, if not eliminate, the Federal pension in­
surance program’s risk from this corporate
underfunding.
• A higher than normal volume of claims during
1993 and the Administration’s proposal to reform
the crop insurance program(which incorporates
costs formerly borne by ad hoc disaster assistance)
account for most of the increase in the future costs
of disaster insurance.
The combined costs for direct loans and loan guaran­
tees ($56-$113 billion) was relatively flat compared
with last year ($61-118 billion). However, the composi­
tion of costs between direct loans and loan guarantees

133

134

ANALYTICAL PERSPECTIVES

changed with the creation of the Federal Direct Student
Loan Program and the phase-down of the Federal Fam­
ily Education Loan Program. Mostly as a result of this
change, the future costs of direct loans increased by
$8-11 billion, while the expected costs of guaranteed

loans fell by $13-18 billion. Small increases in the cost
of Farmers Home direct lending and the Small Business
Administration loan guaranty program, and a phase­
out of the Foreign Military Financing direct loan pro­
gram resulted in the remaining changes in future credit
costs.

TABLE 10-1. FACE VALUE AND ESTIMATED COST OF FEDERAL CREDIT AND INSURANCE PROGRAMS
(In billions of dollars)
Program

Face Value
19921

1994 Estimates
Present Value of
Future Costs 12

Direct Loans:3
Farm Service Agency, Rural Development Administration....................................
Rural Electrification Admin, and Rural Telephone Bank........................................
Federal Direct Student Loan Program...................................................................
Export-lmport Bank.................................................................................................
Agency for International Development...................................................................
Public Law 480 ......................................................................................................
Foreign Military Financing......................................................................................
Small Business......................................................................................................
Other Direct ...........................................................................................................

50
38
—
9
16
12
9
6
16

16-22
2-4

Face Value 1993

Current Estimates
Present Value of
Future Costs 2

Subsidy Outlays
1994-1999

3-5
5-7
7-9
2-3
2-3
2-4

49
36
—
9
14
12
9
6
16

18-24
3-5
7-10
3-5
5-7
7-9
0-2
2-3
2-4

4-6
1-2
3-5
0-1
0-1
2-3
0-1
0-2
0-1

—

Total Direct Loans..................................................................................................

156

39-57

151

47-69

10-22

Guaranteed Loans3:
FHA Single-Family..................................................................................................
VA Mortgage..........................................................................................................
FHA Multi-Family....................................................................................................
Federal Family Education Loan Program..............................................................
Small Business......................................................................................................
Farm Service Agency.............................................................................................
Export-lmport Bank.................................................................................................
CCC Export Credits................................................................................................
Other Guaranteed...................................................................................................

308
176
79
79
17
6
8
9
22

(14)—
0
3-6
3-6
20-30
1-3
1-3
4-7
4-5
0-1

292
161
81
85
20
7
12
9
26

(18)—
0
3-6
4-6
8-11
2-4
1-4
4-5
4-5
1-3

(10)-0
1-?
0-1
7-9
1-3
0-1
1-3
2-3
0-1

Total Guaranteed Loans.........................................................................................

704

22-61

693

9-44

2-24

Federal Insurance:
Banks4 ...................................................................................................................
Thrifts4 ...................................................................................................................
Credit Unions.........................................................................................................

1,943
761
218

1-12
25-37
—

1,889
707
237

30-45
15-25
—

15-30
5-15
—

Total Deposit Insurance .........................................................................................

2,922

26-49

2,833

45-70

20-45

PBGC4 ...................................................................................................................
Disaster Insurance..................................................................................................
Other Insurance.....................................................................................................

950
721
358

25-40
7-9
4-6

950
722
511

60-90
10-16
9-10

18-20
9-13
8-9

Total Federal Insurance .........................................................................................

4,951

62-104

5,016

124-186

55-87

427
543
85

—

—

—
—
—

50

—
—
0-1

474
622
107
—
52

0-1

—
0-1

Total GSEs ............................................................................................................

1,105

0-1

1,255

0-1

0-1

T o tal..............................................................................................................

6,916

123-223

7,115

180-300

67-134

GSEs: s
Freddie M ac...........................................................................................................
Fannie M ae............................................................................................................
Federal Home Loan Banks....................................................................................
Sallie Mae e ...........................................................................................................
Farm Credit System ...............................................................................................

1 Costs

—

—

—
—
—

are as they were displayed in the 1994 Budget, uncorrected for errors; face values for 1992 have been updated.
^Direct loan future costs are program account outlays projected into the future plus the embedded loss from outstanding loans. Loan guarantee costs are program account outlays plus liquidating account out­
lays (and outlays from defaulted guarantees that result in loans receivable) projected Mo the future. Future insurance costs are the equivalent of program plus liquidating costs through 1999, plus the accrued li­
ability remaining at thhe end of 1999.
3 Exclude loans and guarantees by deposit insurance agencies and programs not included under credit reform, such as CCC farm supports. Defaulted guarantees which become loans receivable are accounted
for in guaranteed loans.
* Current estimates of deposit insurance and pension insurance costs reflect improvements in estimation methods. The corrected estimated costs for deposit insurance in 1994 was $60-$90 billion (banks:
$35-$53 billion; thrifts: $25-$37 billion), while pension insurance costs were $45-$75 billion.
s Net of borrowing from Federal sources, other GSEs, and federally guaranteed loans.
•The face value and Federal costs of Guaranteed Student loans in Sallie Mae’s portfolio are included in the Education account above.




135

10. UNDERWRITING FEDERAL CREDIT AND INSURANCE

Federal Insurance
Deposit Insurance
Through the Federal Deposit Insurance Corporation
(FDIC)(and before 1988, the Federal Savings and Loan
Insurance Corporation or FSLIC), the Federal Govern­
ment insures deposits held at U.S. commercial banks
and thrifts. Individuals placing their deposits in insured
institutions are protected against losses arising from
the failure of a bank or thrift, up to a current limit
of $100,000 per account. The system is financed by
premiums levied on participating institutions and, in
the event of a shortfall, by the U.S. Treasury.
During the 1980s, both the FSLIC and the FDIC
faced an increase in failures.
• Between 1982 and 1992, over 1,100 of the 3,731
thrifts open in 1982 had failed. The closure of
these thrifts exhausted the FSLIC’s $6 billion re­
serve, resulting in a taxpayer cleanup that is esti­
mated to have cost $135 billion.
• Over the same period, 1,419 banks with a com­
bined $232 billion in assets were closed by the
FDIC. As a result, the net worth of the FDIC’s
insurance fund (known since 1989 as the Bank
Insurance Fund or BIF) fell from $18 billion in
1985 to $11 billion at the end of 1992 (excluding
reserves for expected near-term failures).
Consequently, by the end of the decade, legislative
action was required to reinforce both agencies:
• The Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA) created the
Resolution Trust Corporation (RTC) to manage the
huge task of closing the backlog of insolvent
thrifts and disposing of their assets. In its first
four years, the RTC closed 675 thrifts with a com­
bined $219 billion in assets at an estimated cost
of $80 billion. At the end of September 1993, an­
other 68 thrifts with $30 billion in assets were
being managed under RTC conservatorship, and
$43 billion of assets were in receivership.
• The Financial Deposit Insurance Corporation Im­
provement Act (FDICIA) was enacted in 1991 to
stem the potential losses of the FDIC. FDICIA
was designed to recapitalize the BIF, while creat­
ing a more stringent regulatory regime for banks
and thrifts.
Trends and Exposure
Bank profitability rebounded strongly in 1993 as high
interest margins associated with the steepness in the
yield curve buoyed earnings and allowed banks to
strengthen their balance sheets by selling off low-quality, non-performing assets. As a result, the banking
industry posted record earnings of almost $33 billion
for the first three quarters of 1993, up sharply from
the $24 billion earned over the comparable period in
1992. These gains were distributed across banks of all
asset sizes and in all geographic regions, with some
of the largest improvements occurring at troubled
banks in the Northeast and California. Furthermore,




this increase in profits reflected a real increase in core
earnings, which have now risen for seven consecutive
quarters.
Profits at thrift institutions also remained strong, to­
taling $3.8 billion in the first nine months of 1993,
compared with $4.1 billion for the same period in 1992.
(Most of the decrease in earnings was due to a $500
million third-quarter write-down of goodwill by two
large thrifts in the Northeast.) Unlike the banking in­
dustry, however, thrift profits remained depressed in
the West and, to a lesser extent, the Northeast regions.
Reflecting this renewed profitability, the expected de­
posit insurance liability of the Federal Government im­
proved markedly during 1993. The present value of ex­
pected future costs of insuring banks and thrifts fell
over the past year from $75 billion to $58 billion.
Budget outlays for bank deposit insurance over the
1993-1998 period are now estimated to total -$32.9
billion, compared with the -$5.5 billion reported in the
1994 Budget. (That is, premium income and collections
from asset recoveries on previous failures are expected
to outstrip the costs of new failures by almost $33 bil­
lion.) Most of the increase in negative outlays reflects
a reduction in expected failed bank assets, now pro­
jected to total $91 billion over the 1993-1998 period.
The thrift industry is similar. Expected outlays from
both the Resolution Trust Corporation (RTC) and the
Savings Association Insurance Fund (SAIF) fell during
the past year with a drop in projected failed thrift
assets. Currently, failed thrift assets are expected to
total $71.7 billion over the 1993-1998 period, resulting
in net outlays of -$34.8 billion. In the 1994 Budget,
failed thrift assets and net outlays were projected at
$180.7 billion and -$21.2 billion, respectively.

Outlook
Clearly, 1993 was a banner year for banks and
thrifts. Given the pace and direction of change in the
financial services industry, however, the critical ques­
tion is whether banks’ short-term profits represent a
renewed competitiveness or just a strong cyclical up­
turn. While it is too early to give a firm answer, many
believe that the current gains in bank profits are just
a temporary respite in a continuing decline in banks’
market share brought on by increasing competition
from nonbank institutions. Further, while the turn­
around in bank fortunes and the tighter regulatory en­
vironment created by FDICIA has clearly reduced the
risk to the FDIC from near-insolvent banks, neither
development eliminated the FDIC’s exposure to bank
asset volatility risk—the risk that swings in the value
of bank earnings can force a currently healthy bank
to fail in the future.
The estimates of the Federal deposit insurance liabil­
ity reported in Table 10-1 incorporate this volatility
risk and the cyclicality of bank earnings, adjusting
earnings in line with a typical bank business cycle.
In addition, the higher end of the range was estimated
allowing for a slight secular decline in industry equity.

136
These estimates, however, do not fully incorporate sev­
eral factors that could precipitate a larger decline in
bank earnings: interest rate risk, nonbank competition,
and off-balance sheet risk.
Interest Rate Risk.—As the unusual steepness in
the term structure of interest rates continues to abate,
banks will lose the interest margin cushion that has
boosted earnings over the past 18 months. In addition,
in restructuring their balance sheets, banks have in­
creased their holdings of longer-term Government secu­
rities from 11 percent to 23 percent of bank assets.
While this investment strategy provided banks with
much needed profits, this shift into longer-term securi­
ties has augmented the duration gap (the difference
between average maturities) between bank assets and
liabilities—increasing the vulnerability of bank assets
to future increases in interest rates.
Nonbank Competition.—New technology and finan­
cial engineering have allowed nonbank institutions to
reduce many of the cost-of-funds advantages that were
once limited to federally insured banks. The recent ex­
plosion in money market and mutual fund assets and
finance company lending demonstrates this increased
competition. Initially, banks responded to this competi­
tion by seeking higher returns from riskier invest­
ments—using the blanket protection of deposit insur­
ance as security. This added balance sheet risk, how­
ever, often led to additional bank and thrift failures,
disintermediation, and a cycle of falling industry prof­
its. While FDICIA helped limit the moral hazard incen­
tives in bank risk-taking, it left open the question of
bank competitiveness vis-a-vis nonbank financial insti­
tutions.
In this respect, FDICIA has fueled the debate on
whether unequal regulation of bank and nonbank ac­
tivities has placed banks at a competitive disadvantage
or whether the special role once served by federally
insured banks has been “innovated” away by techno­
logical advances in financial markets.
• Some have argued that the increasing burden of
Federal regulations, designed to guard depositors
and potential borrowers against abuse, may now
more than offset any advantage conveyed to feder­
ally insured banks through the deposit insurance
subsidy—handicapping depository institutions rel­
ative to the largely unregulated nonbank sector.
Examples cited include regulations governing cap­
ital requirements, bank lending, and community
reinvestment decisions.
• Others, however, argue that the fast pace of tech­
nological innovation in the financial services in­
dustry, especially among nonbanks, has eroded the
long proclaimed ’specialness’ of banks—their rel­
ative advantage in assessing and monitoring cred­
it risk.

ANALYTICAL PERSPECTIVES

the FDIC. Although the use of derivatives often pro­
vides the bank with additional protection against finan­
cial risks, the difficulty of overseeing these transactions,
when coupled with the moral hazard created by deposit
insurance, presents an opportunity for abuse within the
banking industry. Since future losses from off-balance
sheet holdings directly affect bank profits, and ulti­
mately, the solvency of the bank, these activities in­
crease the exposure of the Federal Government to de­
posit insurance claims.

Future Reforms
The resurgence in bank profitability and a tighter
regulatory regime for banks and thrifts have clearly
improved the financial health of the deposit insurance
system. Nevertheless, risks still exist within the bank­
ing industry and the possibility of a longer-term decline
in bank profits cannot be ignored. Thus, further reforms
of the deposit insurance system merit exploration.
These could include:
• improving the measurement of bank assets and
liabilities in order to provide regulators with bet­
ter information concerning the financial condition
of insured banks (e.g., marking-to-market bank
balance sheets);
• continued efforts to reduce barriers to interstate
banking so as to improve the efficiency and diver­
sification of bank portfolios; and
• allowing an expansion of bank powers into insur­
ance and equity underwriting for those insured
institutions that fully collateralize their insured
deposit base.
Federal Home Loan Bank System
The Federal Home Loan Bank System has begun to
stabilize following the detrimental effects of the recent
thrift industry shrinkage. In 1989, commercial banks
and credit unions were authorized under FIRREA to
become members in the System. As a result, member­
ship has climbed to 4,392, with commercial banks rep­
resenting almost half of the total. While demand for
advances, earnings, and dividends are still lower than
they were in the 1980s, the System has not suffered
any losses, and its financial condition appears to have
stabilized. In 1992, Congress mandated that HUD,
CBO, GAO, the Federal Housing Finance Board, and
a committee made up of the System’s shareholders as­
sess a range of issues including the System’s capital
structure, mission, capacity to pay its REFCorp obliga­
tion, and related topics. The studies have raised a num­
ber of important issues, including the System’s lack
of permanent capital. Addressing this and other related
issues will help to ensure the continued financial safety
and soundness of the Bank System.

Regulatory Consolidation
The Administration is proposing to consolidate the
current regulatory structure of banks and thrifts. The
Off-Balance Sheet Risk.—The increasing employ­ current system of regulation has evolved into a balkanment of financial derivatives in off-balance sheet oper­ ized structure where separate agencies have oversight
ations at banks may have expanded the exposure of in regulating nationally chartered banks, State char­




137

10. UNDERWRITING FEDERAL CREDIT AND INSURANCE

tered banks, savings associations, and bank holding
companies. Such a fractured regulatory system may
have functioned adequately when depository and finan­
cial institutions operated largely within their own spe­
cialized markets. However, it is becoming increasingly
apparent that technological and financial innovations
and global competition have eroded these distinctions,
leaving Federal banking regulation obsolete and incapa­
ble of addressing the proliferation of issues raised by
new banking practices and sources of financial risk.
• The present system is overly complex and need­
lessly duplicative. As of 1993, 27 percent of all
bank and thrift assets were supervised and regu­
lated by 1 Federal regulator, 26 percent were su­
pervised by 2 Federal regulators, while the re­
maining 47 percent were supervised by 3 or 4
Federal regulators.
• The current system imposes unnecessary costs on
the banking and thrift industries at a time when
they are under competitive pressure to operate
more efficiently.
To institute a more sensible and rational regulatory
system, the Administration has proposed the creation
of a new banking entity, the Federal Banking Commis­
sion (FBC). The FBC would assume all of the functions
currently performed by the Office of the Comptroller
of the Currency and the Office of Thrift Supervision.
It would also perform the regulatory functions of the
Federal Deposit Insurance Corporation (FDIC), as pri­
mary Federal regulator of State nonmember banks, and
the Federal Reserve, as primary Federal regulator of
State member banks, foreign banks, and bank holding
companies.
The Administration’s plan offers a number of impor­
tant improvements beyond eliminating the obvious re­
dundancy and needless complexity of the current sys­
tem. Specifically, the Administration’s proposal would:
• establish a simplified regulatory structure with
clear lines of agency accountability for the safety
and soundness of depository institutions and the
protection of consumers;
• benefit the banking and thrift industries through
a consistent and less burdensome implementation
of regulations regardless of charter (the legal form
of the institution);
• lower the direct and indirect costs imposed upon
the regulated institutions over the long-run;
• allow the FDIC to concentrate on its primary role
as the Federal deposit insurance and asset liq­
uidation agency, with full access to FBC inspection
reports and special authority to conduct examina­
tions of marginally solvent banks; and
• maintain the Federal Reserve’s responsibility for
the payment system and monetary policy.
The Federal Reserve would also continue to bear sig­
nificant responsibility for monitoring systemic risk in
the financial system—a responsibility which increas­
ingly entails tracking developments in the financial
markets arising from the activities of all types of finan­




cial institutions, including many large non-bank entities
such as mutual funds and finance companies.

Systemic Risk and Discount Window Borrowing
The large outflows from insured depository institu­
tions to uninsured investment companies (noted above)
have increased the relative importance of mutual funds
and other non-bank intermediaries in the U.S. financial
system. To help maintain the integrity of our dynamic
financial system, and to protect the consumers it serves,
the Administration has proposed additional resources
for the Securities and Exchange Commission (SEC).
Specifically, the Administration is proposing to increase
funding for the SEC’s Investment Management Division
by approximately 47 percent. The increased spending
will help to protect the economy and investors against
fraud, self-dealing, inadequate disclosure, and other
abuses through greater inspection of investment compa­
nies for their compliance with the Investment Company
Act of 1940.
FDICIA recognized the growing role of nonbank fi­
nancial institutions in the payments system and in­
cluded a provision expanding access to the Federal
Reserve discount window to nonbank firms that need
liquidity and cannot immediately borrow elsewhere.
The risk of loss to the Federal Reserve from discount
window borrowing was minimized by strong collateral
requirements. Nevertheless, discount window lending is
a potential source of loss to the Federal Reserve banks.
The scale of this risk is difficult to estimate, but any
such loss would reduce the system’s annual payments
to the Treasury from its earnings.
Pension Insurance
While the economic environment of the past year en­
abled banks to recoup lost profits, falling interest rates
and corporate underfunding exacerbated the problems
in the Federal pension insurance program. Created by
the Employee Retirement Income Security Act of 1974
(ERISA), the Pension Benefit Guaranty Corporation
(PBGC) insures the promised benefits of participants
in most private defined benefit pension plans. Before
ERISA, when a pension plan sponsor entered bank­
ruptcy and terminated an underfunded plan, the em­
ployees in that plan were at risk of losing promised
benefits. PBGC insurance was established to insure
beneficiaries against this loss, covering the gap between
promised benefits and assets in the terminated plan.2
PBGC insurance is divided into a multi-employer pro­
gram, where the plan sponsor represents an industry
or trade group, and single-employer program covering
plans sponsored by individual companies. Together,
2 “To terminate an underfunded pension plan, a plan sponsor must meet one of four
financial distress tests: (1) it has filed for bankruptcy under Chapter 7; (2) it has filed
for reorganization under Chapter 11 and the court has determined that the company cannot
successfully reorganize and stay in business unless the plan is terminated; (3) it dem­
onstrates that it cannot meet its debts and stay in business unless the plan is terminated;
or (4) it demonstrates that pension costs are "unreasonably burdensome” because of a
declining work force. While the last of these criteria has seldom been used over the past
20 years, given the aging distribution of the defined benefit pension population, this criterion
could create a serious increase in the Federal cost of pension insurance. Moreover, a firm
with a defined benefit plan can switch to a defined contribution plan, keeping its existing
defined benefit plan for currently enrolled workers, only to terminate it at some later
date due to the large number of retirees to active participants in the plan.

138
these two programs insure around $950 billion in pen­
sion benefits for 41 million participants, with the larg­
est insurance coverage in the single-employer program
($800 billion in benefits and 32 million participants).
This section discusses both programs, but places more
emphasis on the single-employer program, where plan
underfunding reached $53 billion in 1993.

Multi-employer Program
The PBGC’s multi-employer insurance program cov­
ers industry-sponsored defined benefit plans with an
estimated $150 billion in benefits backed by $160 bil­
lion in plan assets. On the surface, the multi-employer
program appears to pose a much smaller risk to the
PBGC than the single-employer program, where a sin­
gle corporate bankruptcy could trigger a claim to the
PBGC. In contrast, multi-employer claims can only
occur in response to industry-wide financial distress.
In addition, the Multi-employer Pension Plan Amend­
ment Act (MPPAA) reforms passed in 1980 to stabilize
the multi-employer insurance system have been viewed
as a success. MPPAA increased the incentives for plan
funding by raising the coinsurance component of the
insurance—freezing the nominal value of the benefit
guarantee and establishing withdrawal liability for
firms within each industry. A more thorough evaluation
of the multi-employer system has been initiated by the
PBGC in accordance with the 5-year statutory review
scheduled for 1995.
Single-employer Program
The financial health of the PBGC's single-employer
program is more precarious. While the PBGC is not
facing a liquidity problem—it has enough cash to pay
promised benefits for many years—the agency is becom­
ing increasingly insolvent. By the end of 1992, the
PBGC had a balance sheet deficit, with pension claims
exceeding agency assets, of $2.8 billion. More worrisome
is the fact that this “booked” deficit does not include
the agency’s large liability to currently insured plans.
The Nature o f the Risk.—A large portion of PBGC’s
risk of loss is related to a growing concentration of
underfunding in financially weak industries or firms.
Between the end of 1990 and the end of 1992, pension
underfunding increased from $31 billion to $53 billion.
While falling interest rates contributed to the increase
in underfunding during the last year (raising the
present value of benefits relative to fund assets), firm
contributions have continued to fall short of increases
in promised benefits.
The problem for the PBGC is that it must insure
against future pension claims without having effective
tools for minimizing this risk. Funding rules established
under ERISA and later modified in the Pension Protec­
tion Act of 1987 have been largely ineffective in increas­
ing firm contributions. In addition, the PBGC is ex­
posed to systemic risk and pension fund volatility risk
for all plans; even overfunded plans can become under­
funded and present a claim to the PBGC at some future
date. To this extent, there is some analogy with savings




ANALYTICAL PERSPECTIVES

and loans. In the thrift industry, firms failed primarily
because of systemic risk—an economic shock, namely
accelerating inflation and rising interest rates, de­
pressed the value of thrift assets causing many thrifts
to fail. If we are, in fact, entering a prolonged period
of low interest rates, an analogous scenario is possible
with respect to pensions. Already, low interest rates
have been at least partially responsible for the increase
in underfunding during the past year. A severe shock
to the value of pension assets and firm net worth would
precipitate additional claims to the PBGC.
Premiums.—To offset losses from claims, the PBGC
collects both a flat rate premium and a variable rate
premium. The flat rate premium is currently set at
$19 per participant, while the variable rate premium
is equal to $9 per thousand of underfunding, up to
a maximum of $53 per participant. Neither premium,
however, is a truly risk-based premium that incor­
porates the volatility and financial health of the pen­
sion plan and the sponsoring firm. The variable rate
premium, while a function of current underfunding, is
independent of the solvency of the sponsoring firm and
the future funding status of the plan. Future premium
income is expected to fall well short of future claims.
In fact, Federal pension insurance appears underpriced for almost all firms. Cross-subsidization exists
not between existing plan sponsors but as a potential
liability on future premium payers (or in the worst
case, taxpayers). This liability provides a disincentive
against starting or maintaining a defined benefit plan.
As a result, the PBGC may experience a broader exodus
from the defined benefit system and a contraction in
the agency’s premium base unless the program is re­
formed. Since well-funded plans have the strongest in­
centive to exit the system, the PBGC may also face
a serious adverse selection problem in the pool of in­
sured plans—only high-risk plans would remain insured
by the PBGC. In this context, the recent trend out
of defined benefit plans and into defined contribution
plans is troubling.
Reforms.—In response to the growing liability of the
PBGC, the Administration submitted a package of re­
forms to Congress this past fall, entitled the Retirement
Protection Act of 1993. This package was designed to
stabilize the financial condition of the PBGC by:
• strengthening funding requirements to reduce ex­
isting underfunding and force employers with un­
derfunded plans to fully fund new benefits over
an approximate five-year period;
• increasing the agency’s leverage in monitoring cor­
porate transactions and compliance; and
• removing the current cap on the variable rate pre­
mium to increase contributions from plans that
pose the highest risk to the agency.
If passed, the PBGC expects the tougher funding re­
quirements to force plans to eliminate existing
underfunding over the next 15 years. As such, the re­
form bill should greatly reduce the agency’s risk from

139

10. UNDERWRITING FEDERAL CREDIT AND INSURANCE

plan underfunding—clearly the most immediate threat
to the agency’s financial viability.
In order to address any residual risk to the PBGC
from currently overfunded plans (volatility risk), the
PBGC would need the authority to:
• charge risk-based premiums based on the financial
health of the pension plan and the sponsoring
firm, and the volatility in the market value of
plan and firm assets and liabilities; or
• further constrain employer discretion in managing
their pension plans in order to improve the value
of PBGC’s collateral position and minimize future
losses. As an example, the PBGC could require
all insured plans to fully immunize or collateralize
their pension funds with safe, duration-matched
assets.

Crop Insurance
Federal crop insurance is another problem area. Since
1984 the crop insurance program has accumulated an
actuarial loss totaling roughly $8 billion. The crop in­
surance program was expanded in 1980 in order to
eliminate the need for costly ad hoc disaster insurance.
Disaster payments, however, have continued—averag­
ing roughly $1 billion per year over the last ten years.
Moreover, because farmers continue to expect ad hoc
disaster assistance, their participation in Federal crop
insurance has been undermined.
Disaster assistance costs the farmer nothing. The
qualifications for coverage are loose, and the probability
of receiving assistance in the wake of a disaster is
high—disaster assistance has been provided in each of
the last six years. Disaster assistance itself is problem­
atic—increasing farming on marginal lands and encoun­
tering administrative problems. A 1989 GAO audit of
the disaster program found significant rates of over­
payment and fraud.
The 1993 Omnibus Budget Reconciliation Act (OBRA
1993) legislated reforms to improve the actuarial sound­
ness of crop insurance, but did not address the low
farmer participation. Indeed, the higher premiums that
farmers would pay as a result of OBRA 1993 may re­
duce participation and increase demand for disaster
payments. Therefore, unless disaster assistance can be
redirected into the Federal crop insurance program,
these programs will remain subject to abuse and their
costs uncontrolled. The Administration proposes
changes in the crop insurance program to achieve this
goal:
• Free catastrophic insurance would be provided to
all farmers for crops insured by the Federal crop
insurance program. The effective level of coverage
and expected insurance indemnities would be
roughly equal to the current indemnity payments




from ad hoc disaster payments. A $50 administra­
tive fee would be charged for each crop, limited
to $100 per farmer annually.
• In order to obtain the catastrophic coverage, farm­
ers would be required to participate in the basic
Federal crop insurance program. Farmers would
still be able to purchase additional coverage from
private insurers; for such coverage, administrative
expenses would still be subsidized and reinsurance
would be provided by the Federal Crop Insurance
Corporation(FCIC).
• Participation in the Department of Agriculture
commodity income- and price-support programs
would require farmers to obtain crop insurance,
including the catastrophic coverage.
Crops not currently insured by the FCIC would be
covered by a standing disaster program similar to the
current disaster program. In combination, the 1995
budget estimates that these reforms would result in
over $500 million in savings over five years.

Flood Insurance
The Federal Government provides flood insurance
through the National Flood Insurance Program (NFIP)
administered by the Federal Emergency Management
Agency (FEMA). Eligibility is restricted to property
owners living in communities that have enacted and
enforced appropriate flood plain management measures.
The NFIP, however, is not fully administered on an
actuarially sound basis. The NFIP is required by stat­
ute to provide subsidized flood insurance premiums for
structures built before a community joined the NFIP
program. Premiums for structures built after that date
are fully actuarially rated. Rates have been established
for the subsidized insured at a level such that overall
premium revenue funds the historical average loss year
for both types of coverage.
Through 1992, premium increases on subsidized poli­
cies have allowed the Fund to maintain a self-financing
status for the historical average loss year. Last year,
however, claims were significantly higher. The Decem­
ber 1992 East Coast snowstorm, the March snowstorms,
and the Midwest flood resulted in $985 million in
claims—almost double the previous highest loss. As a
result, the flood insurance program recorded a net oper­
ating loss of $500 million. Since reserves were inad­
equate to cover this loss, the program was forced to
borrow $100 million from the U.S. Treasury. The NFIP
expects to collect sufficient premium income in 1994
and 1995 to retire these Treasury borrowings and plans
on implementing future rate adjustments to reflect the
1993 loss experience. Nonetheless, the subsidized por­
tion of the NFIP will remain at risk to future losses
from severe flooding.

140

ANALYTICAL PERSPECTIVES

Federal Credit
In addition to supporting the extension of credit
through deposit insurance, the Federal Government
takes a direct role in providing credit where there is
a perceived social goal that is being underserved by
the market or where the Federal Government is
uniquely positioned to diversify the underlying risks.
While the fast pace of innovation in private financial
markets has greatly reduced the Federal Government’s
comparative advantage in this later respect, the Gov­
ernment still takes an active role in providing credit
for certain forms of business (small business, exports,
and agriculture), in financing post-secondary education,
and in housing. The contingent exposure of these pro­
grams, which are shown in Table 10-1, is roughly $85
billion. In many of these programs, however, efforts
are being taken to redirect Federal support on the basis
of net benefits delivered.

Business
Small Business
The Federal Government has been providing credit
assistance to small business for almost sixty years.
Since 1953, most of this support has come from the
Small Business Administration (SBA). The SBA cur­
rently operates 5 direct loan programs, 3 loan guaran­
tee programs, 4 programs to provide or guarantee eq­
uity capital, and a disaster relief program. SBA pro­
grams are designed to help provide loans for small com­
panies denied credit at “reasonable” terms by private
lenders. The largest SBA program is the 7(a) loan guar­
antee program, comprising 85 percent of all SBA busi­
ness lending. The 7(a) program provides loan guaran­
tees of up to 90 percent of the loan value (for a maxi­
mum guarantee of $750,000) originated by private fi­
nancial institutions. Loans are statutorily required to
be of sound value or so secured as to reasonably assure
repayment.
Federal assistance in providing credit for small busi­
ness is designed to address a reluctance on the part
of financial institutions to provide credit to smaller
firms. Banks, recognizing the high monitoring costs of
these loans and the potential for adverse selection in
the pool of applicants, often bypass small business loans
as being too risky. This is especially true with respect
to the long-term credit needs of start-up firms. Further,
there is evidence that small business credit is the first
form of lending to be cut by banks during periods of
economic and financial contraction. This trend seemed
especially apparent during the most recent recession.
• Bank business lending fell by almost 14 percent
from the fourth quarter of 1989 to the first quar­
ter of 1993.
• Meanwhile, demand for SBA 7(a) loans sky­
rocketed, with total guarantees doubling over the
past four years to $6 billion. Guarantee levels in
1994 are projected to total $7 billion.




The prolonged sluggishness in private bank lending
and concerns over the efficacy and efficiency of SBA
programs have led to further efforts on the part of
the Federal Government to boost the availability of
credit for smaller firms. The Administration encouraged
federal regulators to adopt a series of credit crunch
initiatives last Spring and established a National Eco­
nomic Council task force to formulate longer-term policy
initiatives for improving small business access to credit.
Already this year, the Administration has endorsed
Congressional initiatives to remove impediments to pri­
vate market securitization of business loans. This legis­
lation would facilitate the development of a private sec­
ondary market in small business loans, increasing the
future liquidity and profitability of small business lend­
ing. In addition, the SBA is in the process of revitaliz­
ing its Small Business Investment Company (SBIC)
program that provides equity capital to new and emerg­
ing companies. Reforms that help target SBA assistance
only to borrowers truly unable to obtain credit in pri­
vate markets and initiatives that foster a general envi­
ronment of strong business growth will be examined
during the coming year.

Export Credits
The Federal Government also provides loan guaran­
tees and insurance to help U.S. companies export goods
overseas or manage overseas private investments. For
example, the Department of Agriculture provides over
$5 billion in loan guarantees annually to finance pur­
chases of U.S. agricultural commodities. Most export
credit, however, is extended through the Export-Import
Bank (Eximbank): the official export credit agency
(ECA) of the United States. Eximbank’s traditional mis­
sion is to use direct loans, login guarantees, and export
credit insurance to increase U.S. exports in cases where
competitive private financing is not available or where
foreign governments provide subsidized export credits.
In the past, it has been difficult to determine the
extent to which Eximbank’s programs have supported
U.S. exports that otherwise would not have taken place.
In 1995, Eximbank will attempt to refocus its resources
in areas where private financing is unavailable, thus
creating additional exports (“additionality”), and will
participate in multilateral negotiations to further re­
duce the use of subsidized financing by all governments.
Additionality:—In the vast majority of cases, com­
petitive private sector financing is available for U.S.
exports. However, in certain cases the private sector
cannot or will not provide financing for specific export
transactions. Eximbank is currently exploring ways to
ensure, to the maximum extent possible, that its credit
assistance actually goes to exporters otherwise unable
to secure private credit, and thus, create additional ex­
ports. In particular:
• Eximbank has raised fees on credits for aircraft
exports and is considering revising its fee struc­

10. UNDERWRITING FEDERAL CREDIT AND INSURANCE

ture so that fees are more commensurate with
the true cost of providing credit.
• Eximbank is reviewing its export credit insurance
and other programs to ensure that they do not
compete directly with private sector providers.
• Eximbank is requiring that applicants dem­
onstrate why competitive private sector financing
is not available before it will consider providing
official export financing.
Multilateral Negotiations.—The Arrangement on
Official Export Credits, negotiated under the auspices
of the Organization for Economic Cooperation and De­
velopment (OECD), restricts the extent to which sub­
sidies may be provided to exporters through official di­
rect export credits. However, ECAs continue to provide
implicit subsidies by underpricing credit risk. At the
urging of the U.S. and other countries, the Arrange­
ment Participants are now beginning to consider the
question of limits on risk subsidies.
Risk Management—The question of risk subsidies
is also important for managing the U.S. Government’s
exposure to sovereign risk—the risk that a foreign gov­
ernment will default on payments of debt owed to out­
side sources—and non-sovereign or project risk. In
1991, the Federal Government implemented a proce­
dure for managing sovereign risk with the creation of
the Interagency Country Risk Assessment System
(ICRAS). ICRAS applies directly to sovereign lending
where the transaction carries the “full faith and credit
guarantee” of the foreign central government.
Under this system, every country to which the U.S.
Government has lent or will lend is assigned a “risk
rating” “(A-F-)”. Risk is measured by the probability
of payment delays and the probability of subsequent
non-recovery. The risk assessment is done by applying
an interagency-agreed set of repayment factors and in­
dicators. The five (unweighted) factors are: (1) payment^/arrears history; (2) foreign debt service burden;
(3) balance of payments adjustment capacity; (4) macroeconomic environment; and (5) political/social con­
straints. The country rating is then translated into a
risk premium that represents the credit risk of lending
to a particular country. While continuing efforts are
underway to refine the Federal Government’s capacity
to assess sovereign risk, ICRAS greatly improved the
rationality of managing international credit program
costs.
Several international credit agencies also provide
credit to private sector borrowers operating abroad. Re­
cent efforts, therefore, have concentrated on the devel­
opment of a framework for accurately and uniformly
assessing non-sovereign risk. This framework will draw
on the criteria now utilized by these various agencies
in assigning risk ratings to individual projects anchor
loans. Factors to be considered include: (1) project struc­
ture/leverage; (2) management assessment (of the bor­
rower, project operator, financial intermediary); (3)
business risk/market assessment; (4) project liquidity;
(5) evaluation of financial forecasts; (6) country risk;




141
(7) sources of repayment; (8) collateral security ade­
quacy; and (9) other/offsetting factors.
Trade Promotion Coordinating Committee
(TPCC).—The TPCC was created in 1990 in order to
provide a forum for coordinating all U.S. export pro­
motion programs. (A full explanation is contained in
the Budget). The objective of the TPCC is to rationalize
and consolidate U.S. Government export promotion ef­
forts into a unified export budget—eliminating overlaps
and redirecting scarce export budget resources to pro­
grams that yield the highest benefits for U.S. exports.
The development of a unified export budget will require
the examination of each program’s objectives, justifica­
tion (market failure), target recipients, and cost-benefit
analysis. Agencies will also be required to develop mile­
stones that will be used to measure progress in meeting
programmatic goals.

Agriculture
Federal credit assistance to agricultural-related en­
terprises is provided through Federal direct and guar­
anteed loans, and through implicit backing for the
Farm Credit System (a GSE). At the end of 1993, U.S.
support for agricultural credit programs totaled $163
billion, down from $167 billion in 1992.
• The Farmers Home Administration (FmHA) pro­
vides direct loans and loan guarantees to family­
sized farmers who cannot secure credit on afford­
able terms from private sources. Although FmHA
is a “lender of last resort”, demand for direct farm
loans has decreased in recent years as low interest
rates have enabled a greater number of farmers
to qualify for private credit. The Budget proposes
slightly higher levels of guaranteed loans and in­
terest payment subsidies in an attempt to grad­
uate more borrowers to private lenders.
• The Department of Agriculture also provides cred­
it assistance to rural businesses through direct
and guaranteed loans issued under the Adminis­
tration’s Rural Development Initiative. Significant
increases in these programs were enacted during
the past year and further increases are proposed
in the Administration’s Budget.
• The Administration proposed significant reduc­
tions in interest rate subsidies for Rural Elec­
trification Administration (REA) direct loans in
1994, half of which were enacted by Congress.
Additional reductions in subsidies for REA loans
are proposed in the 1995 budget, but with only
a minor reduction in loan levels.
The Farm Credit System (FCS) is a GSE that pro­
vides credit to the farming sector through a conglomera­
tion of member-owned cooperatives. The Farm Credit
System became insolvent in the mid-1980s when inad­
equate interest-rate risk management and falling land
prices, which depressed the value of collateral behind
FCS credit, created large losses and necessitated a Fed­
eral bailout through the FCS Financial Assistance Cor­
poration (FAC). While the FCS has fully recovered from
its earlier financial difficulties, the failure of the FCS

142

ANALYTICAL PERSPECTIVES

provides another graphic example of the danger in not
fully accounting for the risks inherent in Federal pro­
grams.
FCS institutions are still paying off $1.26 billion in
federally guaranteed FAC debt. While the Federal Gov­
ernment pays roughly half of all interest on this debt,
the FCS is required to repay all Federal interest pay­
ments and redeem FAC debt as it comes due, beginning
in 2003. Recent legislation requires the FCS to make
annual payments to FAC to defease the Federal interest
obligation and certain classes of FAC debt. In 1993,
FAC received approximately $50 million from the FCS
for this purpose. However, FCS institutions have also
begun to voluntarily make advance payments to FAC
in repayment of financial assistance, thereby reducing
the Government’s contingent liability from FAC debt.
These payments will accrue interest and be used to
redeem FAC debt as it matures.

Post-secondary Education
The Federal Government has been helping to finance
post-secondary educations since the 19th century. This
past year, however, marked a watershed in the Federal
Government’s support for education. In August, the
Congress passed the Administration’s Student Loan Re­
form Act of 1993 as part of the Omnibus Budget Rec­
onciliation Act of 1993. By phasing down guaranteed
loans under the Federal Family Education Loan Pro­
gram (FFELP) and increasing the direct Federal lend­
ing under the Federal Direct Student Loan Program
(FDSLP), the Student Loan Reform Act promises to
lower the Federal costs of providing loans for post-sec­
ondary education while providing more flexible repay­
ment options for student borrowers. Specifically, the
Act is designed to:
• lower the student and Federal Government costs
of financing a post-secondary education;
• provide students with an income-contingent repay­
ment option that will permit many college grad­
uates to take lower paying community service jobs
without fear of defaulting on their loan obliga­
tions; and
• improve the Federal Government’s ability to man­
age and control the costs of supporting post-secondary education.
Under both programs, combined new loans of $20
billion will be guaranteed or made directly in 1995 to
6 million borrowers. The outstanding volume of loans
at the end of 1994 is estimated to be $74 billion.
OMB and CBO estimated five-year savings of $4.2
billion from the enactment of this reform: the cost of
providing financial assistance through the FDSLP is
less than under the FFEL Program. Savings come from
elimination of payments to private lenders and State
guarantee agencies for in-school interest and collection
activity, the stream of interest payments that the Fed­
eral Government will receive from borrowers under the
FDSLP, and a variety of fees on and lower payments
to lenders, guarantors, and secondary markets in the
FFEL Program as it phases down. Federal cost of ad­




ministration has been taken into account in these sav­
ings estimates; the Act provided $2.5 billion in manda­
tory administrative funds for the FDSLP for fiscal years
1994 through 1998. A description of each of these pro­
grams follows.

Federal Family Education Loan Program
The FFELP, formerly the Guaranteed Student Loan
Program, was authorized under the Higher Education
Act to provide Federal reinsurance for student and par­
ent loans made by private lenders for students attend­
ing eligible institutions of higher education (including
proprietary vocational schools). These loans are guaran­
teed by agencies of each State, or by non-profit organi­
zations designated by the State to guarantee student
loans. These loans are then reinsured by the Federal
Government. In 1993, 8,000 lenders and 46 guarantee
agencies participated in the program.
The statute has required the Federal Government
to reimburse lenders for all default costs, except for
a small percentage for which the State guarantee agen­
cies are responsible in years in which an agency has
a high default rate. The 1993 OBRA mandated at least
2 percent risk-sharing for both lenders and State agen­
cies on new guaranteed loans. Default costs in 1993
were $2.6 billion, and are estimated to be $2.3 billion
in 1995.
The Federal Stafford Loan program is the largest
of the FFEL programs (1993 volume was $11.5 billion,
70 percent of the total FFELP volume), and the most
highly subsidized. For borrowers with financial need
as defined by the Higher Education Act, the Federal
Government pays the interest on these loans while the
borrower is attending school and during certain
deferment periods. Under the other programs, the bor­
rower is responsible for interest at all times.
Federal Direct Student Loan Program
Loans under the new FDSLP will be originated by
either eligible institutions or alternative originators
under contract to the Department of Education, using
Federal funds. Borrower payments will be made to a
Federal contractor, pending a study by the Departments
of Education and Treasury of how to involve the Inter­
nal Revenue Service in the servicing of loans, particu­
larly those repaid on an income-contingent basis.
Borrowers will receive loans with comparable interest
rates and repayment provisions to those in the FFELP
with the notable exception that loans under the FDSL
Program may also be repaid on an income-contingent
basis (for student, not parent, borrowers), not to exceed
25 years. That is, periodic repayment amounts will vary
with income, or ability to pay, and below certain family
income levels, may be suspended entirely. The specific
formulas for income-contingent repayment will be es­
tablished by regulation. In addition, beginning in the
summer of 1994, the Department of Education is au­
thorized to consolidate into the FDSLP the loans of
FFEL borrowers who desire income-contingent repay­
ment.

10. UNDERWRITING FEDERAL CREDIT AND INSURANCE

The FDSLP will begin making loans to students and
their parents in July 1994. The statutory goal is that
loans made under the FDSLP will represent 5 percent
of total student loan volume in Academic Year (AY)
1994/95, 40 percent in AY 1995/96, 50 percent in AY
1996/91 and 1997/98, and 60 percent in AY 1998/99,
by which time the Act will have undergone its next
re-authorization and a decision on full replacement of
all guaranteed lending will have been made. Beginning
in AY 199Q/97, the Secretary of Education may exceed
these percentage goals if he or she determines that
a higher percentage is warranted by the number of
institutions that desire to participate.

Risk Management
The primary risk associated with the transition to
direct Federal lending from the guaranteed program
is the capacity of the Department of Education to make
the direct program work cost effectively while maintain­
ing access to loan capital for students and parents.
The transition to the FDSLP will provide the Depart­
ment of Education with enhanced risk management
controls over credit risk. Student loan defaults will be
reduced over time if income-contingent repayment is
selected by many borrowers who would have otherwise
defaulted because of their inability to repay. Extending
the repayment period of borrowers under income contin­
gent repayment will not increase Federal costs since
interest will continue to accrue.
Student Loan Marketing Association
The transition to the direct student loan program,
however, will reduce and eventually eliminate the need
for existing secondary markets for student loans. While
there will continue to be a substantial volume of out­
standing guaranteed loans for many years, the volume
of new guaranteed loans will steadily decline. The larg­
est student loan secondary market is the Student Loan
Marketing Association (Sallie Mae), a government-spon­
sored enterprise currently holding 35 percent of all out­
standing guaranteed loans. The Departments of Edu­
cation and Treasury are preparing a study of Sallie
Mae and will present to Congress legislative rec­
ommendations for its future.
Housing
The Federal Government underwrites credit for home
purchases through the mortgage insurance programs
of the Federal Housing Administration (FHA) in the
Department of Housing and Urban Development (HUD)
and the Department of Veterans Affairs (VA). Credit
for the development of low-income multifamily housing
is insured through various FHA programs. The Govern­
ment also provides credit for rural housing through
the Farmers Home Administration (FmHA). VA pro­
vides mortgage guarantees, including no-downpayment
loans, to veterans, active-duty service persons, and se­
lected reservists. In 1993, these Federal housing pro­
grams combined to provide over $560 billion in credit
guarantees and insurance.




143
The Government National Mortgage Association
(GNMA) packages FHA and VA mortgages as securities
and guarantees timely payment to investors. Two Gov­
ernment-sponsored enterprises—the Federal National
Mortgage Association (Fannie Mae) and the Federal
Home Loan Mortgage Corporation (Freddie Mac)—buy
conventional mortgages, as well as some FHA mort­
gages—and package them as guaranteed securities. At
the end of 1993, Fannie Mae and Freddie Mac held
over $1.3 trillion in securitized mortgages.
Housing credit supported by Government programs
is generally of lower quality than that underwritten
by the private markets, and therefore, carries a greater
risk of default. Partly this reflects Government’s role
in expanding access to mortgage credit for groups
whose credit needs have been underserved by the pri­
vate sector.
• FHA’s principal mortgage insurance program, for
instance, serves younger families who are buying
their first homes, but lack sufficient savings to
meet conventional downpayment requirements.
• VA guarantees no-downpayment loans and allows
veterans to finance the origination fee. Thus, VA
loans can have loan-to-value ratios that exceed
100 percent.
• USDA’s rural single-family housing direct loan
program provides interest rates that are based on
a borrower’s income, and can be as low as one
percent. The Administration, however, proposes to
conform the amount required to be contributed
by the borrower with other Federal housing stand­
ards—increasing the required contribution from 20
to 30 percent.
These programs represent a higher risk to the Federal
Government, because buyers with a smaller initial eq­
uity stake in their homes are more likely to default
under adverse circumstances, especially if the value of
their property falls.
Costs also vary with market conditions, however, in­
cluding trends in housing prices and interest rates. In
general, market conditions affecting mortgage defaults
have been improving over the last year. As a result,
delinquency and default rates have dropped.
These trends have resulted in markedly improved
projections for the condition of the FHA’s largest single­
family insurance program. Reforms enacted in 1990
also are contributing to a gradual improvement in the
equity position of FHA’s mutual mortgage insurance
(MMI) fund, which turned negative after massive de­
fault losses in the 1980s. The most recent projections
suggest that the MMI fund’s economic value is now
positive and that, under the most likely economic condi­
tions, it will reach the Congressionally mandated cap­
ital ratio target of 2.0 percent by 2000.
This improved forecast is tempered by the wide range
of uncertainty about future market conditions. Another
source of concern is the possible effect of recent
refinancings: both those by buyers switching to conven­
tional mortgages and those refinancing with FHA or
VA on a streamlined basis. In 1993, approximately 40

144

ANALYTICAL PERSPECTIVES

percent of VA’s guaranteed loans and 45 percent of
FHA’s guaranteed loans were refinancing loans. If FHA
and VA are left with the riskier portion of their older
mortgages while the safer part shifts to conventional
financing, this could have a net adverse effect on the
subsidies for these programs.
FHA’s multifamily insurance programs have been a
major source of support for the development of
moderate- and low-income rental housing. However, in
many instances, flawed program design, poor manage­
ment, and weak market conditions have led to the dete­
rioration of these properties and, ultimately, default.
This has left HUD with a large and growing inventory

of defaulted properties and troubled loans. In 1992, re­
serves for losses were increased to $12 billion against
$44 billion of insurance in force.
FHA is hampered in managing and disposing of this
inventory both by limited resources and by unnecessary
statutory restrictions. Last year, Congress failed to
enact reforms that would provide FHA with greater
flexibility to dispose of these assets while protecting
their tenants. Unless reforms are enacted, FHA’s inven­
tory of defaulted properties will grow and taxpayers
will bear the cost of operating and capital losses as
properties deteriorate. Tenants will suffer, and re­
sources will be diverted from other efforts to meet the
housing needs of low-income communities.

Improving Budgeting and Financial Management
Present Value Budgeting: An Update on Credit
Reform
The Federal Credit Reform Act of 19903 fundamen­
tally changed the budgetary treatment of direct loans
and loan guarantees. The Act, which became effective
in 1992, requires budgeting for the “costs” of Federal
credit programs. The Act defines these costs as “the
estimated long-term cost to the Government of a direct
loan or a loan guarantee, calculated on a net present
value basis, excluding administrative costs ...”
Prior to the Federal Credit Reform Act, direct loans
and loan guarantees were recorded on a cash basis.
The entire amount of the direct loans were shown as
a cash outlay in the year the loan was disbursed. Re­
payments, were recorded as they occurred over a period
of years. Loan guarantees (Federal guarantees of loans
disbursed by private institutions) were recorded in the
budget only when fees were received by the Govern­
ment or when the Government made payments for de­
fault claims and interest supplements to borrowers.
This system had serious shortcomings. It overstated
the cost of direct loans when they were made and un­
derstated the cost of loan guarantees.
• This encouraged the Federal Government to favor
loan guarantees over direct loans regardless of
their true cost.
• The true cost of different credit transactions could
not be compared to one another or to other budg­
etary programs, such as grants.
• Direct loans and loan guarantees affected budget
outlays in later years, after their cost was sunk
and largely uncontrollable.
• Payments for guarantee claims did not require the
discipline of normal appropriations.
• Reserves were generally not set aside for loan
guarantees to pay for probable defaults.
The Credit Reform Act was a response to these short­
comings. Under credit reform, the full cost (subsidy)
is recorded as an obligation when the Government en­
ters into a loan obligation or guarantee commitment.
3 Title V of the Congressional Budget Act of 1974, as amended by section 13201 of the
Omnibus Budget Reconciliation Act of 1990.




The full cost of the loan or guarantee is recorded as
a budget outlay when the direct loan or guaranteed
loan is disbursed to the public. The subsidy element
of a credit program is calculated as the difference be­
tween the present value of the expected cash outflows
from the Government and the present value of the ex­
pected cash inflows, each discounted by the interest
rate on marketable Treasury securities of like maturity
at the time of loan disbursement.
By placing the cost of credit programs on a budgetary
basis equivalent to other spending, it allows for a better
comparison of cost between direct loan and loan guar­
antee programs and between credit programs and other
federal assistance, such as grants. Credit reform has
proven that these comparisons are important in deci­
sion making, especially when allocating scarce Federal
resources (tax revenue). For example, the debate on
the recently enacted change to direct student loans (in­
stead of guaranteed loans) centered on which method
of delivery was the most cost-effective, not on the budg­
etary impact of direct loans versus guarantees. Under
credit reform the budgetary impact, as measured by
the subsidy cost, is directly comparable. In addition,
when legislation was proposed to allow prepayment of
outstanding REA and SBA loans, the cost of these
modifications was measured on a present value basis
and recorded as budget authority and outlays. Appro­
priations were required before the modifications could
be made. Before credit reform, prepayments would have
been recorded as an increase in receipts, with no ac­
counting for the real loss and with no action required
in the appropriations process.
The analysis performed under credit reform gives a
more accurate picture of the costs of Federal credit
programs. Evaluation of this information by program
managers has been useful in making decisions on how
to use scarce resources. In addition, credit reform re­
quires a link between accounting and budgeting that
is relatively new to Government budgeting. Agency
budget staffs rely on the accounting staff for data to
meet the credit reform requirements for reestimating
subsidies. Reestimates are done each year, over the

145

10. UNDERWRITING FEDERAL CREDIT AND INSURANCE

life of the loans, with data provided, in part, by the
agency accounting staff.

Reestimates
The Federal Credit Reform Act requires periodic
reestimates of the subsidy cost of a credit program
throughout the lifetime of the loan or guarantee.
Reestimates of the subsidy cost must be made at the
beginning of each fiscal year following the year in which
the initial disbursement was made.
Subsidy estimates are updated and adjusted for new
information as the login matures. Information from ac­
tual accounting records used in making reestimates in­
cludes: interest rates, loans disbursed, fees and interest
TABLE 10-2.

recorded, countries to which international loans were
disbursed, distribution of loans across different type^
classes of borrowers (risk categories), default claims
paid, and delinquencies and loan write-offs reported.
Reestimates are also made for changes in default expec­
tations and other technical factors affecting loan repay­
ments and recoveries.
To cover any increase in the subsidy cost resulting
from the reestimate, the Federal Credit Reform Act
provided permanent indefinite budget authority. These
funds are available without further action by the appro­
priations committees and are not subject to the discre­
tionary cap.

REESTIMATES OF CREDIT SUBSIDIES ON LOANS
DISBURSED IN 1992 AND 19931
(In millions of dollars)

DIRECT LOANS
International debt reduction....................
Agriculture credit insurance fund ............
Farms for the future...............................
Rural electrification and telephone loans
Rural telephone bank.............................
Rural development insurance fund.........
Rural housing insurance fund.................
Rural development loan program............
VA-Guaranty and indemnity....................
Export-lmport Bank direct loans..............
LOAN GUARANTEES
AID housing guaranty...........................................
Agriculture credit insurance..................................
Commodity Credit Corporation export guarantees
Rural development insurance fund......................
Rural housing insurance fund..............................
Federal family education (formerly GSL)..............
FHA-General and special risk..............................
VA-Guaranty and indemnity program ...................
VA-Loan guaranty program..................................
Export-lmport bank guarantees............................
Total

26
10
-1

1
-38
52
*
-12
-29
-2
5
-3

2
-1

114
-196
-446
-111

-11

-640

*$500 thousand or less.
1 Additional information on credit reform subsidy rates is contained in the Federal Credit and Insurance Supplement to
the budget for 1995.

Table 10-2 shows the reestimates of credit subsidies
on loans disbursed in 1992 and 1993. The large upward
reestimate for the Rural Housing Insurance Fund re­
sults from a technical change in the subsidy model
methodology. Significant downward reestimates in­
cluded the VA-Guaranty and Indemnity program, VALoan Guaranty program, FHA-General and special risk,
and the Federal family education program.
The primary reasons for VA's downward reestimate
were the improvements in the methodology used in cal­
culating the subsidy and a change in the foreclosure
rate assumed in the estimate. The foreclosure rate
changed as a result of the loans being refinanced when
interest rates fell. This lowered the mortgage payment
burden for borrowers and hence, lowered the expected
foreclosure rate. FHA’s downward reestimate resulted




from increased historical data that provided more in­
sight into the actual costs of the program.

Budgeting for Federal Insurance Programs
While the Federal Credit Reform Act of 1990 im­
proved the budgeting for Federal credit programs, Fed­
eral insurance programs were explicitly excluded from
the Act. Federal insurance programs insure bank depos­
its, pensions, overseas investments, veterans lives, and
crops. They also insure against floods and war-risk,
and provide vaccine compensation. As in credit pro­
grams before credit reform, the current cash budgetary
treatment of these programs distorts the information
and incentives decision makers need to make proper
budget resource allocation decisions.

146
• The cash budget does not measure or require
budgetary authority to cover the Government’s ex­
pected losses from these programs at the time the
insurance is extended.
• Cash budgeting provides little incentive, and in
some cases large negative incentives, to enact re­
forms that reduce expected costs.
• Since future insurance costs remain hidden under
a cash budget, the problems of adverse selection
and moral hazard remain unchecked—increasing
costs and creating the potential for a hidden
intergenerational cross-subsidization of benefits.
This distortion created by a cash budget was clearly
evident in the Federal budget’s inability to account for
the rising costs of deposit insurance. Cash budgeting
did not assess the costs until the thrifts or banks were
closed and the Federal Government could do nothing
but pay the bill. Similar problems exist today with pen­
sion guarantees, flood insurance, and other insurance
liabilities. Thus, a comparable reform is needed in the
budgetary treatment of Federal insurance programs.
Federal insurance programs can be thought of as fall­
ing into one of two broad categories:
• Term insurance.—Some insurance covers losses
due to the occurrence of an insured event up to
specified limits during a fixed period of time. De­
posit, crop, flood, war-risk, and overseas invest­
ment insurance have this character.
• Open-ended insurance.—Other insurance covers
losses up to specified limits for an indefinite pe­
riod until the insured event occurs or can no
longer occur. Pension insurance, veterans whole
life, and vaccine compensation are in this cat­
egory.
If the budgeting for Federal insurance programs were
changed to a commitment basis similar to credit reform,
the annual cost to the Government would be defined
as the cost over the term of the contract of new insur­
ance commitments extended during a given year. For
deposit insurance, this would be the expected costs from
bank failures during the year. For pensions, this would
be the expected costs associated with any increase in
benefits guaranteed during the year.
Switching the budgetary treatment of insurance to
this new basis would accurately record the costs on
new insurance commitments, but it would leave open
the question of existing liabilities at the date of conver­
sion to a commitment basis.
• For programs with a short contract term, e.g. oneyear crop insurance, this requires only a one-year
adjustment.
• For insurance programs with longer-term con­
tracts, however, the establishment of a sub-account for liquidating existing liabilities analogous
to the treatment of pre-1992 direct loans or loan
guarantees would be necessary. Claims associated
with outstanding benefits at the time of conver­
sion to the new basis would be budgeted for as
those claims were made.




ANALYTICAL PERSPECTIVES

Switching insurance programs to this new budgetary
treatment would increase the accuracy and consistency
in budgeting Federal costs and would provide better
information and incentives for decision making.

Measuring Underwriting Risk
One of the greatest contributions of credit reform has
been the emphasis it has placed on understanding the
nature of Federal underwriting risk. As demonstrated
by the Federal bailouts of the thrift industry and the
Farm Credit System, improperly accounting for under­
writing risk often leads to spending Federal tax dollars
in ways that few taxpayers would voluntarily choose.
In particular, lack of timely information often transfers
the cost of a program away from current beneficiaries
to later generations of taxpayers. Credit reform at­
tempts to limit this practice by forcing policy-makers
to recognize the costs of Federal programs at the time
commitments to underwrite the program’s risks are un­
dertaken.
Properly managing underwriting risk is predicated
on the ability to fully measure the nature of the under­
lying risks within a particular program. These risks
include credit risk, systemic (volatility) risk, and inter­
est rate risk.
• Credit risk is the risk that a particular borrower
will default, transferring the loss to the Federal
Government. Credit reform has focused attention
on improving agency estimates of defaults for co­
horts of loans, but further work is needed to im­
prove these estimates.
• Systemic risk relates to losses in Federal credit
and insurance programs caused by general trends
and volatility in the economy. The bailouts of the
thrift industry and the Farm Credit System
graphically demonstrate the danger in failing to
account for this risk.
• Interest rate risk is the risk that fluctuations in
the term structure of interest rates may lead to
adverse changes in Federal program costs. Pro­
grams with interest supplements provide a clear
indication of the need to account for the full dis­
tribution of possible futxire interest rate move­
ments.
Quantifying these risks often involves the difficult
task of valuing a group of loan guarantees or direct
loans based on historical repayment patterns of the
existing program or similar programs. Efforts along
these lines are underway at the Department of Edu­
cation and at the Export-Import Bank, where the analy­
sis of risk is being disaggregated along similar lines
as the above three categories.
This estimation approach becomes difficult, however,
when repayment histories are unavailable; often, as the
result of poor data. Fortunately, analysts have been
increasingly able to turn to standard finance theory
and contingent claims analysis for valuing these credit
programs. Contingent claims analysis allows for the
valuation of a Federal credit or insurance instrument
whose value is not directly known but can be expressed

10. UNDERWRITING FEDERAL CREDIT AND INSURANCE

as a function of the value of another security for which
data is available. As an example, the value of a loan
guarantee to a specific company can be valued as a
function of the underlying value of that company, usu­
ally expressed using the value of the company’s stock.
Over the past year, contingent claims models were
used in improving the estimates of VA mortgage de­
faults and prepayments and in estimating the deposit
insurance and pension insurance subsidies. These ef­
forts have clearly increased the Federal Government’s
understanding of the risks inherent in these programs;
and suggest a broader applicability of contingent claims
pricing in Federal credit programs. Additional work is
needed, however, across all agencies. Refining subsidy
estimates and developing the tools necessary for quan­
tifying risk will become increasingly important as the
wave of financial innovation begins to extend into the
design of Federal programs. Credit reform provides the
framework and the mandate for developing the tools
needed for managing this risk.

Financial Management
To meet the goal of designing and administering loan
programs to avoid unnecessary losses, OMB undertook
several initiatives in 1993 to improve credit manage­
ment in the areas of loan origination and servicing.
These initiatives focused on providing agencies with the
tools to decrease delinquencies and increase collections,
and included:
• Lender Agreements: OMB and Treasury have been
working with credit agencies to develop agree­
ments with private lenders participating in guar­
anteed loan programs. Standard lender agree­
ments will provide a uniform format for both the
Government’s and lenders’ responsibilities in guar­
anteed loan programs. A lender agreement for
farm programs has been adopted. A proposed
agreement has been developed for housing pro­
grams, and will be published in the Federal Reg­
ister for public comment early in 1994.
• Credit Screening: Persons who previously de­
faulted on Government loans are a high risk for
new loans. Loan origination has been improved
through expanded use of the Department of Hous­
ing and Urban Development’s computerized sys­
tem for screening loan applicants for defaults on
previous HUD loans (the CAIVRS system). The
data base now also includes information on delin­
quent and defaulted debts from the Departments
of Agriculture, Education, Veterans Affairs, and
the Small Business Administration. VA has begun
using CAIVRS for screening of its housing loan
applicants. Next year, other credit agencies will




147
begin accessing the system for the screening of
new loan applicants.
Early intervention is the key to reducing the Govern­
ment’s default losses. The Federal Government uses
several tools in its debt collection program, including:
private collection agencies, IRS income tax refund off­
set, administrative offset, federal salary offset, and liti­
gation. In 1993, a new Govemmentwide private collec­
tion agency contract was let, improving the debt collec­
tion service to Federal agencies. During 1993, the Gov­
ernment collected over $69 million through contracts
with private collection agencies administered by the De­
partment of Education and the General Services Ad­
ministration. In addition, over $836 million in delin­
quent debts were collected as the result of tax refund,
administrative, and Federal salary offsets. During the
past year, delinquent non-tax receivables decreased
from $47 billion to $44 billion—the first significant
since govemmentwide numbers became available in
1985. The decrease is attributable to improved collec­
tions and write-offs of old uncollectible receivables. New
debt collection initiatives include:
• Debt Collection Legislation: Debt collection legisla­
tion was introduced and passed in the House of
Representatives as part of the Government Reform
and Savings Act of 1993 (HR 3400). Key provisions
of this legislation would: (1) allow agencies to re­
tain a portion of collections to use for debt collec­
tion activities; (2) expand the use of private collec­
tion agencies to Customs and HHS; and (3) in­
crease Justice’s use of private law firms for legal
services to litigate and collect delinquent debts.
• Financial Litigation: Litigation is often the most
effective tool in delinquent debt collection. In
1993, agencies reported that the Department of
Justice collected $334 million for cases referred
for litigation. To improve its litigation efforts, Jus­
tice contracted for the development and implemen­
tation of a financial litigation and collection man­
agement information system. Legislation passed
in 1993 will allow Justice to pay for this system
by retaining a small percentage of collections.
To improve credit management, OMB and the major
credit agencies are developing “performance agree­
ments” for credit management and debt collection ac­
tivities. These agreements would lay out agency com­
mitments for the achievement of collection and default
goals of the next 12 to 18 months. In return for these
commitments, OMB will give agencies the flexibility
to determine the best strategy for meeting these goals,
rather than mandating the use of certain govemment­
wide credit management and debt collection tools and
techniques.

148

ANALYTICAL PERSPECTIVES

TABLE 10-3.

ESTIMATED 1995 SUBSIDY RATES, BUDGET AUTHORITY, AND LOAN LEVELS FOR
DIRECT LOANS i
(In millions of dollars)
Agency and Program

Funds Appropriated to the President:
Micro and small enterprise development...........................................................
Regional peace and security (formerly FMF) ....................................................
Overseas Private Investment Corporation..........................................................
Agriculture:
Agricultural credit insurance fund...........................................................................
Rural telecommunication partnership loans...........................................................
Rural housing and community development service .............................................
Self-help housing...................................................................................................
Rural housing insurance fund................................................................................
Rural development loans........................................................................................
Rural economic development loans.......................................................................
Rural electric and telephone..................................................................................
Rural electric and telephone refinancing (mandatory) ...........................................
Rural telephone bank.............................................................................................
Rural utilities service ..............................................................................................
Public Law 480 direct loans...................................................................................
Education:
Federal direct student loan program .....................................................................
Housing and Urban Development:
FHA-mutual mortgage insurance direct loans........................................................
FHA-general and special risk direct loans .............................................................
Interior:
Bureau of Reclamation loans.................................................................................
State Department: Repatriation loans........................................................................
Transportation:
Minority business resource center program ...........................................................
Veterans Affairs:
Transitional housing loans......................................................................................
Direct loan..............................................................................................................
Loan guarantee fund..............................................................................................
Guaranty and indemnity fund.................................................................................
Education loan fund................................................................................................
Vocational rehabilitation..........................................................................................
Other Independent Agencies:
Community development financial institutions fund ...............................................
Export-lmport Bank2 ...............................................................................................
Federal Emergency Management Agency:
Disaster assistance............................................................................................
Small Business Administration:
Business Loans..................................................................................................
Disaster loans.....................................................................................................
Total .......................................................................................................................

1995 Weighted av­
erage subsidy as a
percent of disburse­
ments

1995 Subsidy
budget authority

8.10
7.74
14.22

*
60
3

1
770
20

13.30
4.24
9.50
2.99
14.03
52.25
23.92
1.40
16.85
0.02
13.97
81.06

125
1
28
*

937
15
300
*

315
65
3
19
13
*
136
278

2,248
125
13
1,354
1,500
175
977
340

7.32

349

4,765
180
220

27.49
80.00

3
1

11
1

10.00

2

15

10.00
11.76
2.34
1.06
26.47
2.80

*
*

*
*

18
6
*
*

783
554
*
2

13.19
17.91

20
371

152
2,070

9.67

2

25

2.99
12.67

52

412

1,869

16,464

*$500 thousand or less.
1 Additional information on credit reform subsidy rates is contained in the Federal Credit and Insurance Supplement to the budget for 1995.
2 Includes FY 1993 and 1994 carryover budget authority.




1995 Estimated
loan levels

149

10. UNDERWRITING FEDERAL CREDIT AND INSURANCE

TABLE 10-4.

ESTIMATED 1995 SUBSIDY RATES, BUDGET AUTHORITY, AND LOAN LEVELS FOR
LOAN GUARANTEES i
(In millions of dollars)
1995 Weightedaverage subsidy as
a percent of
disbursements

Agency and Program

Funds Appropriated to the President:
Micro and small enterprise development..........................................................
AID housing and other credit guarantees..........................................................
Overseas Private Investment Corporation.........................................................
Agriculture:
Agricultural credit insurance fund...........................................................................
Agricultural resource conservation demonstration..................................................
Commodity Credit Corporation: Export credits......................................................
Rural housing and community development service .............................................
Rural housing insurance fund................................................................................
Rural business and cooperative development service...........................................
Commerce:
Economic development guarantees.......................................................................
Education:
Federal family education loan program.................................................................
Health and Human Services:
Health professions graduate student loan program...............................................
Housing and Urban Development:
Community development (Sec. 108)......................................................................
Federal Housing Administration general and special risk 2 ...................................
Federal Housing Administration mutual mortgage.................................................
GNMA secondary mortgage guarantees ...............................................................
Community development loan guarantees............................................................
Interior:
Indian loan guaranty and insurance fund..............................................................
Transportation:
Title XI maritime guaranteed loans........................................................................
Veterans Affairs:
Guaranty and indemnity fund.................................................................................
Loan guaranty fund ................................................................................................
Other Independent Agencies:
Export-lmport Bank3 .............................. ................................................................
Small Business Administration:
Business Loans..................................................................................................

1995 Subsidy
budget authority

1995 Estimated
loan levels

5.46
14.55
1.83

1
12
9

26
82
482

2.49
56.10
6.92
4.97
1.72
0.95

72
3
394
4
22
11

2,879
6
5,700
75
1,300
1,116

18.56

50

269

11.26

1,844

16,382

6.74

25

375

3.73
-2.78

152

18.09

10

47

9.88

50

500

1.18
13.34

357
*

30,256
2

4.34

675

15,565

2.99

318

11,419

4,009

325,255

Total...................................................................................................................

2,054
19,685
84,982
130,000
2,054

*$500 thousand or less.
1 Additional information on credit reform subsidy rates is contained in the Federal Credit and Insurance Supplement to the budget for Fiscal Year 1995.
2 Subsidy rate shown is for positive subsidy risk categories only.
3 Includes FY 1993 and 1994 carryover budget authority.

TABLE 10-5. SUMMARY OF FEDERAL DIRECT LOANS AND LOAN GUARANTEES
(In billions of dollars)
Actual
1992

Direct Loans:
Obligations.............................................................................
Disbursements.......................................................................
Loan Guarantees:
Commitments..........................................................................
Lender Disbursements...........................................................




Estimate
1993

1994

1995

1996

1997

1998

1999

16.4
26.1

22.1
27.1

19.9
27.1

25.9
31.4

31.0
40.5

33.0
46.6

35.5
51.3

38.4
56.6

130.2
105.3

169.9
144.3

199.1
166.8

195.3
162.5

175.0
159.0

161.1
155.5

159.5
154.8

158.9
155.7

150

ANALYTICAL PERSPECTIVES

TABLE 10-6. SUBSIDY BUDGET AUTHORITY FOR DIRECT LOANS AND GUARANTEED LOANS BY FUNCTION
(In m
illions of dollars)
Estimate
Direct loan subsidy budget authority

Function
1994

050
150
270
300
350
370
400
450
500
550
600
700
800

National Defense .........................................................
International affairs......................................................
Energy.........................................................................
Natural resources and environment.............................
Agriculture....................................................................
Commerce and housing credit1 ..................................
Transportation..............................................................
Community and regional development ........................
Education, training, employment, and social services
Health...........................................................................
Income security............................................................
Veterans benefits and services...................................
General government....................................................

Guaranteed loan subsidy budget authority

1995

1994

1995

50
697

508

469
492

468
423

74
1,844
26
3
357

14
1,261
19
3
322

4,009

3,018

78
13
140
723

709
32
3
125
315

520
42
3
125
315

38

349

290
707

29

24

36

467
356
250
38
2,254
26
1
462

2,038

4,547

2,008

Total......................................................................................
ADDENDUM
Secondary guaranteed loans .

1996

50
643

1 Commitments by GNMA to guarantee securities that are backed by loans previously insured or guaranteed by the Federal Housing Administration, Department of Veterans Affairs, or Farmers Home Administration (secondary
guarantees) are excluded from the totals and shown in the addendum, with its estimated subsidy of zero.

TABLE 10-7. NEW DIRECT LOAN OBLIGATIONS AND GUARANTEED LOAN COMMITMENTS BY FUNCTION
(In millions of dollars)
Direct loan obligations
Function

050
150
270
300
350
370
400
450
500
550
600
700
800

National Defense....................................................................................................
International affairs ..................................................................................................
Energy.....................................................................................................................
Natural resources and environment........................................................................
Agriculture...............................................................................................................
Commerce and housing credit1 ..............................................................................
Transportation .........................................................................................................
Community and regional development ...................................................................
Education, training, employment, and social services ............................................
Health......................................................................................................................
Income security.......................................................................................................
Veterans benefits and services...............................................................................
General government................................................................................................

Total..................................................................................................................................
ADDENDUM
Secondary guaranteed loans.............................................................................................
1 Commitments

1993
actual

1994
estimate

Guaranteed loan commitments
1995
estimate

1993 ac­
tual

1994
estimate

1995
estimate

953
16,749

500
17,963
8,584
117,959

35,434

8,186
109,140
5
2,656
19,160
375
7
41,852

169,871

199,084

195,755

107,700

130,000

130,000

15,774

3,705
2,136
70
9,813
2,228
174
2,446
30

3,128
1,537
21
8,244
2,768
50
2,225
489

3,208
1,438
11
10,098
2,750
58
2,178
4,765

7,871
90,198

1,539

1,412

1,401

22,141

19,875

25,906

838
19,415
340

3,561
16,532
375
22
30,259

by GNMA to guarantee securities that are backed by loans previously insured or guaranteed by the Federal Housing Administration, Department of Veterans Affairs, or Farmers Home Administration (secondary
guarantees) are excluded from the totals and shown in the addendum.




151

10. UNDERWRITING FEDERAL CREDIT AND INSURANCE

TABLE 10-6.

DIRECT LOAN WRITE-OFFS AND GUARANTEED LOAN TERMINATIONS FOR DEFAULTS
In millions of dollars

Agency or Program

Direct loans:
Economic assistance loans.............................................
Private sector revolving fund...........................................
Foteign miliatary loans ....................................................
Rural development insurance fund .................................
Commodity Credit Corporation........................................
Agricultural credit insurance fund....................................
Rural housing insurance fund.........................................
Rural development loan ..................................................
Public Law 480 Food A id................................................
Higher Education ............................................................
Federal direct student loan .............................................
Economic development revolving fund (EDA)................
Interior Revolving Fund ..................................................
Indian loan guaranty and insurance fund (liquidating)....
Federal ship financing fund.............................................
MARAD ship financing fund...........................................
Veteran’s housing programs ..........................................
Small Business Administration.......................................
Export-lmport Bank.........................................................
Tennessee Valley Authority............................................
Total.......................................................................
Guaranteed loans:
Housing and other credit guaranty programs.................
Private sector revolving fund..........................................
Micro and small enterprise development........................
Overseas Private Investment Corporation......................
Agricultural credit insurance fund...................................
CCC export credit guarantees .......................................
Rural development insurance fund................................
Rural housing insurance.................................................
Economic development revolving fund...........................
Federal family education loans......................................
Federal Housing Administration fund.............................
Health professions guaranteed student loan..................
Indian loan guaranty and insurance fund.......................
Federal ship financing fund............................................
MARAD ship financing fund...........................................
Veteran’s housing programs ..........................................
Small business administration........................................
Export-lmport Bank.........................................................

1993
actual

As percentage of outstanding loans 1
1995 esti-

^ e s ti­
mate

4.1
8.3

598
1

1993

1

6
259
1,095
133

6
924
125
1

9.5
0.1

11

834
124

1

2.8
7.6
14.3
0.9

1995 esti-

12.5
_

1.2
6.7
0.4
1.2

6.6
0.4

0.3
5.9
3.9
5.7

0.3

12.4
1.4
0.7

11.3
1.6
1.2
0.8

1.1

2.3
34.9
5.0

33
4

4.3
6.8

1.2
50
23
107
58
2

50
25
94
67

2

1.2

1.1

1.0

2,709

1,321

1,218

5.2

1.3

1.2

17

22

23

0.8

33
273

1

9
64

0

1
1

67

27
*

490
40
3

3
128
5,803
30
5

665
5,409
36
9

0

32
7

3.3
6.9

1.6

1.6
2.3

0

13.2

1.1

1.1

3.7

3.0
2.0

1.0
5.0
14.7
0.3

0.9

3.5
1.4
1.3
4.0
0.6
5.8
0.9
3.3

3.2
1.3

0

5.6
0.4

10.0

1,286
5,972
37
10

1

1

1

3
1,880
497

99
1,414
716
7

99
1,134
745
16

8.9
3.1
2.3
2.4
0.5
0.2
2.3
2.4

1.2

3.8
0.7
7.1
0.6
2.9
0.1

Total.......................................................................

8,467

8,974

9,431

3.5

1.5

Defaulted guaranteed loans that result in loans receivable:
Economic development revolving fund ...........................
CCC export loans...........................................................
Federal family education loans ......................................
Federal Housing Administration .....................................
Health professions guaranteed student loan..................
Veterans housing programs ...........................................
Small Business Administration.......................................

5
749
504
1,161
13
838
43

545
635
680
15
769
17

121

748
710
16
589
49

14.0
6.6
20.4
8.1
65.7
15.5

10.3
4.2
5.9
4.4
49.8
2.4

3.9
49.0
4.1

Total.......................................................................

3,313

2,661

2,233

18.7

7.9

6.5

Grand Total ............................................................

14,489

12,956

12,882

i Average of loans outstanding over year.




1.3

2.2

5.0
6.2

152




ANALYTICAL PERSPECTIVES

TABLE 10-9. APPROPRIATIONS ACTS LIMITATIONS ON CREDIT LOAN LEVELS
(In millions of dollars)
Agency or Program

Estimate

1993
actual

1994

1995

LIMITATIONS ON DIRECT LOAN OBLIGATIONS
Funds Appropriated to the President:
AID Micro and small enterprise development1 ......................................................
Overseas Private Investment Corporation1 ...........................................................
Regional peace and security (formerly FM F).........................................................
Agriculture:
Farmers Home Administration:
Agricultural credit insurance fund......................................................................
Rural housing insurance fund............................................................................
Self-help housing direct loans ...........................................................................
Rural Development Administration:
Rural development insurance fund....................................................................
Rural development loan fund.............................................................................
Foreign Assistance Programs:
Public Law 480 direct credit..............................................................................
Debt reduction (International) ............................................................................
Rural Electrification Administration:
Economic development loans............................................................................
Rural electric and telephone..............................................................................
Rural telephone bank.........................................................................................
Education:
College housing and academic facilities ...............................................................
Housing and Urban Development:
FHA-General and special risk................................................................................
FHA-Mutual mortgage insurance ...........................................................................
Interior:
Bureau of Reclamation direct loans ......................................................................
Indian direct loan...................................................................................................
State Department:
Repatriation Loans..................................................................................................
Transportation:
AMTRAK Corridor Improvement Loans.................................................................
Orange County (CA) toll road................................................................................
Minority business resource center.........................................................................
Veterans Affairs:
Direct loan..............................................................................................................
Transitional housing................................................................................................
Education direct loan..............................................................................................
Native American veteran housing..........................................................................
Vocational rehabilitation..........................................................................................
Environmental Protection Agency:
Abatement, control and compliance.......................................................................
Small Business Administration:
Export-lmport Bank1 ...................................................................................................
FEMA—Disaster assistance .......................................................................................
Community development financial institutions fund....................................................
Total, limitations on direct loan obligations ...................................................

5
30
855

16
770

1
20
770

1,090
2,103

1,010
2,558
1

937
2,248

747
34

1,059
100

1,277
125

510
68

450

340

12
2,077
177

13
1,588
200

13
1,354
175

29
220
180
8
11

21
11

11

1

1

1

4
120
8

8

15

1

1

1

58
2

2

2

1,721
40

1,873
25

2,070
25
152

9,781

9,707

9,937

70

153

10. UNDERWRITING FEDERAL CREDIT AND INSURANCE




TABLE 10-9. APPROPRIATIONS ACTS LIMITATIONS ON CREDIT LOAN LEVELS-Continued
(In millions of dollars)
Estimate

1993
actual

1994

1995

LIMITATIONS ON GUARANTEED LOAN COMMITMENTS
Funds Appropriated to the President:
Loan guarantees to Israel......................................................................................
Micro and small enterprise development...............................................................
AID housing and other credit.................................................................................
Overseas Private Investment Corporation1 ...........................................................
Agriculture:
Agricultural credit insurance fund...........................................................................
Agricultural resource conservation demo (Farms for the future)...........................
Rural development insurance fund........................................................................
Rural housing insurance fund................................................................................
Alcohol fuels credit................................................................................................
Commerce:
Fishing vessel obligations guarantee.....................................................................
Economic development guaranteed loan...............................................................
Education:
Historically blade colleges/universities ...................................................................
Health and Human Services:
Health professions graduate student.....................................................................
Housing and Urban Development:
FHA—General and special risk..............................................................................
FHA—Mututal mortgage insurance........................................................................
Community development guaranteed loans ..........................................................
Indian Housing loan guarantee..............................................................................
Interior:
Indian loan guaranty and insurance......................................................................
Transportation:
Maritime guaranteed loans (Title X I)..........................................................................
Railroad rehabilitation and improvement....................................................................
Export-lmport Bank 2 ..................................................................................................
Total, limitations on guaranteed loan commitments..........................................

2,000
76
150
375

2,000
25
110
375

2,000
26
82
482

2,229
7
390
580

2,608
7
360
750
30

2,879
6
1,191
1,300

47

46
269
357

340

375

375

11,792
100,000
2,000

15,436
84,565
2,054
7

19,685
84,982
2,054
22

69

69

47

0

500

13,315

0
5
14,782

15,565

133,370

123,961

131,465

1,077,000

130,000

130,000

ADDENDUM
Secondary guaranteed loan commitment limitations:
GNMA, mortgage-backed securities ......................................................................

1The appropriations language for this program specifies a limitation that applies to direct and guaranteed loans in total.
appropriations language for this program does not include direct loan or loan guarantee limitations.

2 The

154

ANALYTICAL PERSPECTIVES

TABLE 10-10.

DIRECT LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT i
(In millions of dollars)
Agency or Program

1994 estimate

Agency or Program

Outstandings..............................

Funds Appropriated to the President
Multilateral Assistance
International organizations and programs:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

1993

actal

1994 estim
ate 1995 estim
ate

8

8

8

-4 6
554

-5 4
500

-5 6
445

497
-2 8 4
9,037

497
-3 8 8
8,649

525
-4 7 3
8,176

855

770
456
456
456

770
484
484
940

3
3
3

3

International Debt Reduction

-2

40

-2
38

-2
36

Debt reduction, financing account:
Obligations...................................
Loan disbursements.....................
Change in outstandings...............
Outstandings..............................

Agency for International Development
Regional Peace, Security and Defense
Cooperation

Economic assistance loans—liquidating account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

37
-1,287
14,435

12

11

-381
14,054

-3 5 2
13,702

Housing and other credit guaranty programs liq­
uidating account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

85
55
368

64
34
402

64
34
435

3
-3
9

-2
7

Private sector revolving fund liquidating account:
Obligations..................................................
Loan disbursements ...................................
Change in outstandings.............................
Outstandings.............................................

2

Micro and small enterprise development direct
loan financing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

Agricultural credit insurance fund liquidating ac­
count:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................




-16
49

9
-2
47

6
-2,158
13,205

6
-1,740
11,465

3
-1,433
10,032

Agricultural credit insurance fund direct loan fi­
nancing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

723
709
341
985

1,215
1,116
768
1,754

937
932
244
1,998

9,090
9,090
886
3,411

7,030
7,030
-381
3,029

9,161
9,161
-3 9 0
2,639

Commodity Credit Corporation export guarantee
financing account (acquisition of defaulted
guarantees):
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

571
558
558

453
9
567

421
395
962

Commodity credit corporation guaranteed loans
liquidating account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

756
453
4,794

562
-9 0
4,704

124
-4 2
4,662

Commodity credit corporation price supports:
Obligations.............................................
Loan disbursements...............................
Change in outstandings.........................
Outstandings........................................

Overseas Private Investment Corporation

Overseas private investment corporation guaran­
teed loan financing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................

Military debt reduction financing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

Farm Service Agency

Housing and other credit guaranty programs
guaranteed loan financing account:
Obligations........,.........................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

Overseas Private Investment Corporation direct
loan financing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

Regional peace and security direct loan financ­
ing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

Department of Agriculture

Micro and small enterprise development guaran­
teed loan financing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

Overseas Private Investment Corporation liq­
uidating account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings.............................
Outstandings.............................................

Foreign military loan liquidating account:
Obligations............................................
Loan disbursements.............................
Change in outstandings.......................
Outstandings......................................

-8
39

26
39
36
51

155

10. UNDERWRITING FEDERAL CREDIT AND INSURANCE

TABLE 10-10.

DIRECT LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT i-Contlnued
(In millions of dollars)

Agency or Program

1993 actual

1994 estimate

1995 estimate

Rural Utilities Service

Change in outstandings........................................
Outstandings.............................................

Rural development insurance fund liquidating ac­
count:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

306
89
4,723

208
-3 4
4,689

29
-211
4,477

Rural electrification and telephone direct loan fi­
nancing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings.............................
Outstandings.............................................

2,077
877
845
1,488

1,459
916
877
2,365

1,354
1,014
970
3,335

Rural telephone bank direct loan financing ac­
count:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

175
24
24
28

200
84
84
112

175
112
112
224

Rural development insurance fund direct loan fi­
nancing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings.............................
Outstandings.............................................

747
185
183
213

1,059
545
542
755

1,277
745
736
1,491

Rural electrification and telephone revolving fund
liquidating account:2
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

571
-1,435
34,564

689
-641
33,922

504
-5 3 0
33,392

Rural telephone bank liquidating account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings.............................
Outstandings.............................................

85
-1 7
1,706

62
-2 2
1,684

46
-3 0
1,654

Rural Housing and Community Development
Service
Rural housing insurance fund liquidating ac­
count:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................
Rural communication development fund (liquidat­
ing):
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

Self-help housing land development fund liq­
uidating account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

1993 acual

1994 estimate

1,769
3,133

1996 estimate

2,391
5,524

2,379
7,903

_♦

Rural Business and Cooperative Development
Service
Rural economic development loans liquidating
account:
Obligations..................................................
Loan disbursements ...................................
Change in outstandings..............................
Outstandings.............................................

1

2

10

11

-1
9

REA—economic development loans financing
account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings............................................................

12
6
6
7

13
12
12
18

13
14
11
30

Rural development direct loan financing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

34
9
9
9

100
29
29
38

125
49
49
87

7
7
7

-3
-3
3

13
11
79

12
8
87

5
2
89

Expenses, Public Law 480, foreign assistance
programs (liquidating):
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

-5 1 7
11,115

-3 5 9
10,755

-3 2 9
10,427

P.L 480 Direct credit financing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

460
464
464
660

450
459
459
1,120

340
356
356
1,476

Alcohol fuels credit insurance guarantee financ­
ing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................
Rural development loan fund (liquidating):
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................
International Agricultural Trade Service

102
-1,696
26,642

-2
12

28
-1,520
25,122

-1
11

8
-1,457
23,666

-1
10

Self-help housing direct loan financing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

1

1

1

Rural housing insurance fund direct loan financ­
ing account:
Obligations..................................................
Loan disbursements...................................

2,056
1,795

2,538
2,427

2,248
2,462




Agency or Program

1
1

P.L. 480 Title I Food for Progress Credits, fi­
nancing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................
Debt reduction—financing account:
Obligations..................................................
Loan disbursements...................................

599

62
68

156

ANALYTICAL PERSPECTIVES

TABLE 10-10.

DIRECT LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT i-Continued
(In millions of dollars)

Agency or Program

Change in outstandings.............................
Outstandings.............................................

1993 actual

1994 estimate

1995 estimate

67

-1
66

Miscellaneous appropriations:
Obligations..................................................
Loan disbursements...................................
Change in outstandings.............................
Outstandings.............................................

3
-4 5
92

-4
60

-1 5
77

-2
58

-8
69

-2
57

National Oceanic and Atmospheric
Administration
Federal ship financing fund, fishing vessels liq­
uidating account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

3
-3
10

5
-4
5

2
-1
4

Department of Defense—Military
Revolving and Management Funds
Defense business operations fund:
Obligations..................................................
.......
Loan disbursements . . .
Change in outstandings..............................
Outstandings.............................................

1994 estimate

1993 actual

1995 estimate

-4 8
1,528

-4 9
1,480

-4 7
1,432

Department of Education

Outstandings.............................................

555

540

511

Federal family education loan program, financing
account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

67
67

Department of Commerce
Economic Development Administration
Economic development revolving fund liquidating
account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings.............................
Outstandings.............................................

Agency or Program

122
122
122

647
597
719

1,258
1,091
1,810

3
3
3

18
18
20

489
304
302
302

4,765
3,106
3,072
3,373

College housing and academic facilities direct
loan financing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

29

Federal direct stud, loan program, financing ac­
count:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................
Federal family education loan liquidating ac­
count:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

2,560
1,006
14,798

1,670
-4 1 6
14,381

1,085
-1,202
13,179

Guarantees of SLMA obligations (FFEL) liquidat­
ing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

-3 0
4,790

-2,030
2,760

-3 0
2,730

*

*

3

3

2

21
16
521

23
17
538

24
18
557

Office of Postsecondary Education

Energy Programs

Student financial assistance:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

Energy supply, R&D activities:
Obligations..................................................
Loan disbursements...................................
Change in outstandings ............................
Outstandings.............................................

Higher education:
Obligations
........................
Loan disbursements...................................
Change in outstandings.............................
Outstandings.............................................
Higher education facilities loans:
Obligations..................................................
Loan disbursements...................................
Change in outstandings.............................
Outstandings.............................................

31
319

5
324

10
334

Power Marketing Administration
Bonneville Power Administration fund:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

-1

-7
69

-6
63

-6
58

College housing and academic facilities loans
liquidating account:
Obligations
.................................
Loan disbursements...................................
Change in outstandings.............................
Outstandings.............................................

12
10
120

31
29
149

2
-5
143

College housing loans:
Obligations
..................................
Loan disbursements...................................
Change in outstandings..............................

7
-3 7

18
-1 5

4
-2 9




-*

Department of Health and Human Services
Health Resources and Services Administration
Health Resources and Services:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................
Health professions graduate student loan guar­
anteed loan financing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandinas.............................................

•

157

10. UNDERWRITING FEDERAL CREDIT AND INSURANCE

TABLE 10-10.

DIRECT LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT i-Contlnued
(In millions of dollars)

Agency or Program

Health professions graduate student loan insur­
ance fund liquidat:
Obligations..................................................
Loan disbursements...................................
Change in outstandings.............................
Outstandings.............................................
Health loan funds:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

1994 estimate

1993 actual

56
60
309

1
-3 1
82

65
70
379

2
-9
73

1995 estimate

67
73
452

2
-8
66

Department of Housing and Urban
Development

Nonprofit sponsor assistance liquidating account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings.............................
Outstandings.............................................
Flexible Subsidy Fund:
Obligations..................................................
Loan disbursements...................................
Change in outstandings.............................
Outstandings.............................................

*
•

_#
2

85
85
367

1

129
128
494

1

94
93
588

577
51
3,366

463
-1 9 6
3,170

FHA general and special risk insurance funds
liquidating account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings.............................
Outstandings.............................................

898
-4 0 4
7,792

966
231
8,023

939
-3 9 3
7,630

180
180
179
179

27
27
27

160
156
183

389
377
560

-5 2
1,801

-5 4
1,747

-5 8
1,689

624
-1 4 9
477

829
-7 3
405

792
-4 5
359

Revolving fund (liquidating programs):
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

11
-5 2
504

6
-5 0
454

5
-4 9
405

Community development guaranteed loans liq­
uidating account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

-4 3
131

-2 5
106

-2 0
86

Loan program liquidating account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

7
3
95

1
-2
93

-3
89

Bureau of Reclamation direct loan financing ac­
count:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

6
7
7
10

21
18
18
28

11
11
11
39

Emergency fund:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

-1
7

-1
7

-1
6

Guarantees of mortgage-backed securities liq­
uidating account:
Obligations..................................................
Loan disbursements ...................................
Change in outstandings..............................
Outstandings.............................................
Community Planning and Development

Department of the Interior
Bureau of Reclamation

7
7
7

163
153
159

FHA-General and special risk direct loan financ­
ing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings.............................
Outstandings.............................................


http://fraser.stlouisfed.org/ 0 -9 4 -6 (QL 3)
150-003
Federal Reserve Bank of St. Louis

FHA-mutual mortgage insurance guaranteed
loan financing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

1995 estimate

Government National Mortgage Association

906
459
3,315

Housing for the elderly or handicapped fund liq­
uidating account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings.............................
Outstandings.............................................

1994 estimate

FHA-mutual mortgage insurance direct loan fi­
nancing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

Low-rent public housing—loans and other ex­
penses:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

FHA-mutual mortgage and cooperative housing
insurance funds liquidating account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings.............................
Outstandings.............................................

FHA-General and special risk guaranteed loan
financing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings.............................
Outstandings.............................................

1993 actual

Public and Indian Housing Programs

Housing Programs
Community disposal operations fund:
Obligations..................................................
Loan disbursements...................................
Change in outstandings.............................
Outstandings.............................................

Agency or Program

312
294
454

220
220
219
219

84
25
8,497

227
167
8,664

-6 2
8,602

158

ANALYTICAL PERSPECTIVES

TABLE 10-10.

DIRECT LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT’—Continued
(In millions of dollars)

Agency or Program

1993 ackial

1994 estimate

1995 estimate

National Park Service
Construction:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

8

8

_*
7

Bureau of Indian Affairs

-1 6
80

-7
72

-7
66

Indian loan guaranty and insurance fund liquidat­
ing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

10
10
50

10
7
57

10
5
61

3
3
3
12
11
10
20

5
5
9

11
11
9
29

-2
-4
25

Territorial and International Affairs

Guam Power Liquidating Account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings.............................
Outstandings.............................................

1994 estimate

1995 estimate

Right-of-way revolving fund (trust revolving fund):
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

39
30
9
139

42
42

42
42

139

139

Amtrak corridor improvement loans liquidating
account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

7

7

7

Amtrak corridor improvement direct loan financ­
ing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

2
1
1
3

2
2
6

6

Railroad rehabilitation and improvement liquidat­
ing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

-3
82

—4
78

-4
75

6
6
6

-1
5

Federal Railroad Administration

Indian guaranteed loan financing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

Administration of territories:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

1993 acUal

Change in outstandings..............................
Outstandings.............................................

Revolving fund for loans liquidating account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

Indian direct loan financing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

Agency or Program

-1
23

-1
22

-1
21

Railroad rehabilitation and improvement direct
loan financing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................
Federal Transit Administration
Miscellaneous expired accounts:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

-8

5

Department of State

Maritime Administration

Administration of Foreign Affairs

Federal ship financing fund liquidating account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

-1 7 7
177

Repatriation loans liquidating account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

—*

—*

—*

5
-2 8
501

200
112
613

200
86
699

Minority business resource center direct loan fi­
nancing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

8
3
3
3

8
12
9
12

15
15
3
15

Minority business resource center liquidating ac­
count:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

1

1

1

Office of the Secretary
Repatriation loans financing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

1

1
1

1
1

*

♦

*

Department of Transportation
Federal Highway Administration
Orange County (CA) toll road demonstration
project direct loan financing account:
Obligations..................................................
Loan disbursements...................................




120

159

10. UNDERWRITING FEDERAL CREDIT AND INSURANCE

TABLE 10-10.

DIRECT LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT i-Continued
(In millions of dollars)

Agency or Program

1993 actual

1994 estimate

1995 estimate

Department of the Treasury

Guaranty and indemnity direct loan financing ac­
count:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

Financial Management Service
Emergency assistance to Rhode Island direct
loan financing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings.............................
Outstandings.............................................

-9 5
30

Veterans Health Administration
Transitional housing loans, financing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings.............................
Outstandings.............................................

*

-*

Veterans Benefits Administration

115
34
53

109
29
81

103
37
118

Direct loan revolving fund liquidating account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings.............................
Outstandings.............................................

-9
20

-6
14

-4
9

Loan guaranty revolving fund liquidating account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings.............................
Outstandings.............................................

490
-4 2 8
2,654

350
-5 2 4
2,130

251
-4 3 5
1,695

Vocational rehabilitation direct loan financing ac­
count:
Obligations..................................................
Loan disbursements...................................
Change in outstandings.............................
Outstandings.............................................

1993

acDai

1994 estim
ate 1995 estim
ate

211
221
2
55

336
336
89
144

554
554
146
290

Direct loan financing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

-3 0

Department of Veterans Affairs

Guaranty and indemnity fund liquidating account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings.............................
Outstandings.............................................

A
gency or Program

*
*
*

*
*
*

1

1

1

Guaranty and indemnity guaranteed loan financ­
ing account:
Obligations..................................................
Loan disbursements ...................................
Change in outstandings..............................
Outstandings.............................................

7
4
4

18
7
11

31
9
20

7
7
7
7

11
11
11
18

Native american veteran housing direct loan fi­
nancing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

*
*

Environmental Protection Agency
Environmental Protection Agency

2
2

2
2

1

1

6
-5
118

11
-1
117

2
-1 0
107

Abatement, control, and compliance direct loan
financing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

64
19
19
21

46
44
65

22
16
81

Pollution control equipment fund liquidating ac­
count:
Obligations..................................................
Loan disbursements ...................................
Change in outstandings..............................
Outstandings.............................................

2
2

Abatement, control, and compliance direct loan
liquidating account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

19
-3 3
30

10
-2
28

5
-6
22

Business direct loan financing account:
Obligations..................................................
Loan disbursements ...................................
Change in outstandings.............................
Outstandings.............................................

76
59
54
89

137
102
82
172

58
23
195

Business guaranteed loan financing account:
Obligations..................................................
Loan disbursements....................................
Change in outstandings..............................
Outstandings.............................................

80
75
90

225
198
288

476
390
678

Disaster direct loan financing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................

1,419
1,022
929

817
980
751

412
668
345

1

Small Business Administration
Education direct loan financing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings.............................
Outstandings.............................................
Education loan fund liquidating account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings.............................
Outstandings.............................................
Loan guaranty direct loan financing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings.............................
Outstandings.............................................
Loan guaranty guaranteed loan financing ac­
count:
Obligations..................................................
Loan disbursements
..............................
Change in outstandings..............................
Outstandings.............................................




Small Business Administration

-1 0
4

1,326
1,376
-5 4
291

_*

-1
3

1,008
1,046
151
442

-1
3

783
813
102
544

160

ANALYTICAL PERSPECTIVES

TABLE 10-10.

DIRECT LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT ’—Continued
(In millions of dollars)

Agency or Program

Outstandings.............................................
Disaster loan fund liquidating account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................
Business loan fund liquidating account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

1993 actual

1994 estimate

1995 estimate

2,059

2,404

27
-3 9 8
2,531

5
-3 8 9
2,141

-3 3 3
1,808

859
706
3,988

660
178
4,165

425
-3 3
4,132

District of Columbia

-1 6 0
99

-1 2
87

-1 2
75

Export-lmport Bank of the United States

470
-7 9 9
7,865

1,721
312
263
344

366
-7 9 7
7,068

135
-6 7 8
6,390

18
18
18

Debt reduction financing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................
Export-lmport Bank direct loan financing ac­
count:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

28
28
46

1,873
735
630
974

2,070
1,205
920
1,894

Farm Credit System Financial Assistance
Corporation
Financial assistance corporation assistance fund,
liquidating account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................




1995 estimate

160
159
160

-7 1
89

89

Disaster assistance direct loan liquidating ac­
count:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

-7 8
52

-2 7
25

-2 5

47
47
6
19

25
25

25
25

19

19

7
7
-9 5
7

4
1
-2
5

2
1
-1
4

89

89
89

100
100

FSLIC Resolution
FSUC resolution fund:
Obligations..................................................
Loan disbursements....................................
Change in outstandings..............................
Outstandings.............................................

National Credit Union Administration
Credit union share insurance fund:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................
Central liquidity facility:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................
Community development credit union revolving
loan fund:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

1

2

2

6

6

6

Tennessee Valley Authority
Tennessee Valley Authority fund:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

59
59
-2,197
166

77
77
24
191

83
83
31
221

Community Development Financial Institutions

1,182
1,182

-7 4
1,108

-2 4
1,084

Bank Insurance
Bank insurance fund:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

1993 actual

Federal Emergency Management Agency

Appalachian Regional Commission

Export-lmport Bank of the United States liquidat­
ing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

1994 estimate

Disaster assistance direct loan financing ac­
count:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

1,308

Other Independent Agencies

Loans to the District of Columbia for capital
projects:
Obligations..................................................
Loan disbursements...................................
Change in outstandings...... .....................
Outstandings.............................................

Agency or Program

-2 1
16

16

16

Comunnity development financial institutions
fund direct loan financing account:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................
Total, Direct loan transactions:
Obligations..................................................
Loan disbursements...................................
Change in outstandings..............................
Outstandings.............................................

152
76
72
72
22,141
27,124
-1,714
200,625

19,816
27,061
86
200,106

25,855
31,427
4,394
204,535

1Indudes defaulted guaranteed loans fiat result in loans receivable.
* Outstandings in REA rural electrification and telephone revolving fund Iquidating account indude refinanced
loans (per OBRA 1993) of $5.5 blfion in 1994 and $15 bilion in 1995.

161

10. UNDERWRITING FEDERAL CREDIT AND INSURANCE

TABLE 10-11.

GUARANTEED LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT
(In millions of dollars)

Agency or Program

1993 actual

1994 estimate

1995 estimate

Agency for International Development

Housing and other credit guaranty programs liq­
uidating account:
Commitments..............................................
New guaranteed loans...............................
Change in outstandings.............................
Outstandings.............................................

2 ,0 0 0
2 ,0 0 0
2 ,0 0 0
2 ,0 0 0

44
4
2,047

1.563
1.563
1.563
3.563

44
-4
2,043

Private sector revolving fund liquidating account:
Commitments..............................................
New guaranteed loans...............................
Change in outstandings.............................
Outstandings.............................................

5
5
19

16
16
35

Micro and small enterprise development guaran­
teed loan financing account:
Commitments..............................................
New guaranteed loans...............................
Change in outstandings.............................
Outstandings.............................................

19
13
13
13

19
28
28
40

Housing and other credit guaranty programs
guaranteed loan financing account:
Commitments..............................................
New guaranteed loans...............................
Change in outstandings..............................
Outstandings.............................................

130
33
33
33

95
170
170
203

2 ,0 0 0
2 ,0 0 0

Overseas private investment corporation guaran­
teed loan financing account:
Commitments..............................................
New guaranteed loans...............................
Change in outstandings.............................
Outstandings.............................................

44
-7
2,036

-3
32

26
20

19
60

82
28
27
230

74
423

281
197
620

-8 9
531

310
140
131
140

290
302
302
441

289
322
308
749

-2 1

Regional Peace, Security and Defense
Cooperation
Foreign military loan liquidating account:
Commitments..............................................
New guaranteed loans...............................
Change in outstandings.............................
Outstandings.............................................

-5 1 7
7,696

-5 4 7
7,148

-5 2 6
6,623

Department of Agriculture
Farm Service Agency
Agricultural credit insurance fund liquidating ac­
count:
Commitments..............................................
New guaranteed loans...............................
Change in outstandings.............................
Outstandings.............................................




1995 estimate

30
-1,139
3,044

8
-8 9 6
2,148

Agricultural resource conservation demonstration
guaranteed loan:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

7
17
17
17

7
7
7
24

6
6
6
29

Agricultural credit insurance fund guaranteed
loan financing account:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

2,164
1,495
1,302
2,574

2,479
2,309
1,795
4,368

2,879
2,810
1,922
6,290

Commodity Credit Corporation export guarantee
financing account:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

5,700
3,022
1,621
6,704

5.700
5.700
1,232
7,935

5.700
5.700
759
8,694

Commodity credit corporation guaranteed loans
liquidating account:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

-1,849
2,088

-651
1,436

-2 2 6
1,210

Rural development insurance fund liquidating ac­
count:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

46
-1 5 6
897

31
-1 9 6
702

7
-1 6 8
533

Rural development insurance guaranteed loan fi­
nancing account:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

540
75
75
204

515
140
135
339

1,191
471
467
805

Rural electrification and telephone revolving fund
liquidating account:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

181
939

-1 7
922

-1 9
904

Rural housing insurance fund liquidating ac­
count:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

1
-4
47

-4
43

-3
40

5

5

5

Rural housing insurance fund guaranteed loan fi­
nancing account:
Commitments..............................................
New guaranteed loans................................

540
476

728
651

1,300
1,119

2 ,0 0 0

5,563

Overseas Private Investment Corporation
Overseas Private Investment Corporation liq­
uidating account:
Commitments..............................................
New guaranteed loans...............................
Change in outstandings.............................
Outstandings.............................................

1994 estimate

1993 actual

Rural communication development fund:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

Funds Appropriated to the President
Loan guarantee to Israel financing account:
Commitments..............................................
New guaranteed loans...............................
Change in outstandings.............................
Outstandings.............................................

Agency or Program

-6 8 5
1,463

Rural Utilities Service

Rural Housing and Community Development
Service

162

ANALYTICAL PERSPECTIVES

TABLE 10-11. GUARANTEED LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT-Continued
(In millions of dollars)
Agency or Program

Change in outstandings..............................
Outstandings.............................................

1993 actual

472
574

1994 estimate

1995 estimate

637
1,210

1,088
2,298

Rural Business and Cooperative Development
Service
Alcohol fuels credit insurance guarantee financ­
ing account:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

19
5
5
5

7
6
11

Economic Development Administration

Economic development revolving fund liquidating
account:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

269
3
3
3

-1 1
30

-7
24

-7
17

National Oceanic and Atmospheric
Administration
Fishing vessel obligations guarantees financing
account:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................
Federal ship financing fund, fishing vessels liq­
uidating account:
Commitments..............................................
New guaranteed loans...............................
Change in outstandings.............................
Outstandings.............................................




1995 estimate

Department of Health and Human Services
Health Resources and Services Administration

-1
12

-1
11

-1
10

Health professions graduate student loan guar­
anteed loan financing account:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

340
340
340
680

375
375
375
1,055

375
375
375
1,429

Health professions graduate student loan insur­
ance fund liquidating account:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

-6 2
1,935

-7 1
1,864

-7 6
1,788

Health loan funds (liquidating):
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

-5 4
375

-5 6
320

-4 0
279

FHA mutual mortgage and cooperative housing
insurance funds liquidating account:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

-77,517
190,156

-8,014
182,142

-5,947
176,195

FHA general and spedal risk insurance funds
liquidating account:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

-8,136
63,131

-7,363
55,768

-6,512
49,256

FHA-General and special risk guaranteed loan
finandng account:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

9,284
9,769
9,679
14,755

15,436
12,355
11,734
26,488

19,685
15,637
13,853
40,341

FHA-mutual mortgage insurance guaranteed
loan finandng account:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

72,989
62,502
61,736
94,331

84,565
64,198
58,193
152,524

84,982
64,403
57,339
209,863

-261
4,690

-3 0 0
4,390

-3 2 5
4,065

Housing Programs
47
2
2
2

-1 1 5
198

46
-8,114
43,966

Historically Black College and University Capital
finandng—finandng account:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................
Federal family education loan program, financing
account:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

1994 estimate

Department of Housing and Urban
Development

46
47
45
46

-4 5
153

-4
42

-2 5
128

Department of Education
Office of Postsecondary Education
Federal family education loan liquidating ac­
count:
Commitments..............................................
New guaranteed loans...............................
Change in outstandings..............................
Outstandings.............................................

1993 actual

Health Resources and Services (liquidating):
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

Department of Commerce
Economic development guaranteed loan financ­
ing account:
Commitments..............................................
New guaranteed loans...............................
Change in outstandings..............................
Outstandings.............................................

Agency or Program

30
-7,592
36,374

20

19
-6,801
29,573

150
20
20
20

Public and Indian Housing Programs
19,415
14,703
13,132
21,575

19,140
17,325
15,669
37,244

16,382
16,062
12,722
49,966

Low-rent public housing—loans and other ex­
penses (liquidating):
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

163

10. UNDERWRITING FEDERAL CREDIT AND INSURANCE

TABLE 10-11. GUARANTEED LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT-ConUnued
(In millions of dollars)
Agency or Program

1993 actual

1994 estimate

1996 estimate

Agency or Program

1993 actual

1994 estimate

1996 estimate

Federal Transit Administration

Indian housing loan guarantee—financing ac­
count:
Commitments..............................................
New guaranteed loans...............................
Change in outstandings..............................
Outstandings.............................................

7
6
6
6

22
19
18
24

Miscellaneous expired accounts:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

Government National Mortgage Association

Federal Aviation Administration

Guarantees of mortgage-backed securities liq­
uidating account:
Commitments..............................................
New guaranteed loans...............................
Change in outstandings..............................
Outstandings.............................................

Aircraft purchase loan guarantee program:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

-8 2 0
820

Guarantees of mortgage-backed securities fi­
nancing account:
Commitments..............................................
New guaranteed loans...............................
Change in outstandings.............................
Outstandings.............................................

116,912
-7,190
415,291

104,345
42,895
458,186

95,598
28,049
486,235

Community development guaranteed loans fi­
nancing account:
Commitments..............................................
New guaranteed loans...............................
Change in outstandings..............................
Outstandings.............................................
Community development guaranteed loans liq­
uidating account:
Commitments..............................................
New guaranteed loans...............................
Change in outstandings.............................
Outstandings.............................................

107,700

130,000

130,000

-3
8

-4
4

-1
3

53
-2 0
301

2,054
100
90
184

100
50
351

-4 5
157
69
37
32
52

-1 2
145
69
56
47
98

500
500
427
1,333

2,054
100
80
264

50
351

Guaranty and indemnity fund liquidating account:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

—1,153
18,870

-1,087
17,783

-1,024
16,759

Loan guaranty revolving fund liquidating account:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

-34,447
83,216

-24,362
58,854

-17,230
41,624

-1 1
134

35.433
35.433
33,148
56,105

41.849
41.849
40,369
96,474

30.256
30.256
27,426
123,899

47
58
45
144

Pollution control equipment fund liquidating ac­
count:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

-2 3
115

-1 3
102

-8
94

Business guaranteed loan financing account:
Commitments..............................................

7,336

8,366

11,919

Guaranty and indemnity guaranteed loan financ­
ing account:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................
Small Business Administration
Small Business Administration

Federal Railroad Administration




-2 9 9
1,248

Loan guaranty guaranteed loan financing ac­
count:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

Department of Transportation
Railroad rehabilitation and improvement guaran­
teed loan financing account:
Commitments..............................................
New guaranteed loans...............................
Change in outstandings..............................
Outstandings.............................................

Maritime guaranteed loan (Title XI) financing ac­
count:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

-2 9 9
1,547

953
953
906
906

1,846

Veterans Benefits Administration
229
86
83
94

Bureau of Indian Affairs

Indian guaranteed loan financing account:
Commitments..............................................
New guaranteed loans...............................
Change in outstandings..............................
Outstandings.............................................

Federal ship financing fund liquidating account:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

Department of Veterans Affairs

Department of the Interior
Indian loan guaranty and insurance fund liquidat­
ing account:
Commitments..............................................
New guaranteed loans...............................
Change in outstandings..............................
Outstandings.............................................

10

Maritime Administration

Community Planning and Development
Revolving fund (liquidating programs):
Commitments..............................................
New guaranteed loans...............................
Change in outstandings.............................
Outstandings.............................................

-7

-9
27

5

164

ANALYTICAL PERSPECTIVES

TABLE 10-11.

GUARANTEED LOAN TRANSACTIONS OF THE FEDERAL GOVERNM
ENT—Continued
(In millions of dollars)

Agency or Program

New guaranteed loans .........................
Change in outstandings..............................
Outstandings.............................................
Disaster loan fund liquidating account:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................
Business loan fund liquidating account:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

1993 actual

1994 estimate

6,470
5,418
9,087

1995 estimate

7,493
5,371
14,458

9,745
6,548
21,005

_*

_*

1

*

•

157
-2,156
11,046

-2,178
8,868

-1,678
7,190

Export-lmport Bank of the United States

Export-lmport Bank guaranteed loan financing
account:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

708
-7 9 2
5,178

13,315
6,514
5,754
7,310

556
-3 4 9
4,829

14,782
10,096
4,264
11,574

422
-3 3 0
4,499

15,565
12,250
4,404
15,978

FSLIC Resolution
FSLIC resolution fund:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................




Outstandings....................................

1993 actual

1994 estimate

400

1996 estimate

360

National Credit Union Administration
Credit union share insurance fund:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

1
1
-7 2

-1

1

Tennessee Valley Authority

Other Independent Agencies
Export-lmport Bank of the United States liquidat­
ing account:
Commitments..............................................
New guaranteed loans................................
Change in outstandings.......................
Outstandings.............................................

Agency or Program

-9 0

-4 0

-3 6 0

Tennessee Valley Authority fund:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

1

Subtotal, Guaranteed loans (gross):
Commitments..............................................
New guaranteed loans................................
Change in outstandings........................
Outstandings.............................................

1

1

1

277,571
261,206
-9,225
1,075,225

329,084
271,141
131,160
1,206,385

325,682
258,052
115,501
1,321,886

GNMA guarantees of FmHA/VA/FHA pools:
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

107,700
116,912
—7,190
415,291

130,000
104,345
42,895
458,186

130,000
95,598
28,049
486,235

Total, primary guaranteed loans: *
Commitments..............................................
New guaranteed loans................................
Change in outstandings..............................
Outstandings.............................................

169,871
144,294
-2,035
659,934

199,084
166,796
88,265
748,199

195,682
162,454
87,452
835,651

1Loans guaranteed by FHA, VA, a FmHA are included _
these loans, so tiey are deducted here to avoid double counting.
* When guaranteed loans result in loans receivable, they are 1

i in the direct loan table.

Less, secondary guaranteed loans:1

GNMA places a secondary guarantee on

165
TABLE 10-12. LENDING AND BORROWING BY GOVERNMENT-SPONSORED ENTERPRISES (GSEs)
(In millions of dollars)

LENDING
Student Loan Marketing Association ...............................................

Federal National Mortgage Association:
Corporation Accounts..................................................................

Mortgage-backed securities .........................................................

Farm Credit System:
Banks for cooperatives ...............................................................

Farm Credit Banks......................................................................

Farm Credit System Financial Assistance Corporation1 .............

Federal Home Loan Bank system:
Federal home loan banks............................................................

Federal Home Loan Mortgage Corporation:
Corporation accounts ..................................................................

Participation certificate pools.......................................................

Subtotal, lending (gross)..........................................................

Less secondary funds advanced from Federal sources:
Student Loan Marketing Association from FFB2 ........................

Less guaranteed loans held as direct loans by:
Federal National Mortgage Association.......................................
Federal home loan banks...........................................................
Federal Home Loan Mortgage Corporation ................................
Banks for cooperatives ...............................................................
Farm Credit Banks......................................................................
Student Loan Marketing Association 2 .........................................
Total GSE lending (net)...........................................................

BORROWING
Student Loan Marketing Association2 .............................................
Federal National Mortgage Association...........................................
Farm Credit System:
Banks for cooperatives ................................................................




Estimate

1993
actual

Enterprise

1994

1995

Obligations ................................
New transactions ......................
Net change ...............................
Outstandings.............................

7,340
7,340
922
34,585

8,722
8,722
2,946
37,531

7,995
7,995
1,786
39,317

Obligations ................................
New transactions ......................
Net change ...............................
Outstandings.............................
Obligations ................................
New transactions ......................
Net change ...............................
Outstandings.............................

85,485
86,574
35,323
185,951
338,738
209,286
51,945
481,880

87,304
89,081
39,385
225,336
211,532
211,532
56,410
538,290

64,100
63,341
23,440
248,776
143,638
143,638
47,950
586,240

Obligations ................................
New transactions ......................
Net change ...............................
Outstandings.............................
Obligations ................................
New transactions ......................
Net change ...............................
Outstandings.............................
Obligations ................................
New transactions ......................
Net change ...............................
Outstandings.............................

51,225
51,240
-5 0
11,264
18,509
17,103
40
38,421

52,072
52,072
-2 1
11,243
18,818
17,421
294
38,715

53,021
53,021
-9 0
11,153
19,102
17,738
614
39,329

Obligations ................................
New transactions ......................
Net change ...............................
Outstandings.............................

393,008
393,008
18,671
99,366

375,000
375,000
-2,366
97,000

375,000
375,000

Obligations ................................
New transactions ......................
Net change ...............................
Outstandings.............................
Obligations ................................
New transactions ......................
Net change ...............................
Outstandings.............................
Obligations ................................
New transactions ......................
Net change ...............................
Outstandings .............................

22,863
22,863
15,229
46,858
199,631
199,631
38,327
430,089
1,116,799
987,045
160,407
1,328,414

34,695
34,695
21,352
68,210
170,775
170,775
30,193
460,282
958,918
959,298
148,193
1,476,607

31,032
31,032
19,470
87,680
110,957
110,957
32,928
493,210
804,845
802,722
126,098
1,602,705

Obligations ................................
New transactions ......................
Net change ...............................
Outstandings.............................

-3 0
4,790

-2,030
2,760

-3 0
2,730

Net change ...............................
Outstandings .............................
Net change ...............................
Outstandings .............................
Net change ...............................
Outstandings.............................
Net change ...............................
Outstandings.............................
Net change ...............................
Outstandings.............................
Net change ...............................
Outstandings.............................

-3,103
20,848

-2,481
18,367

-8 3 3
17,534

573
-7 6 2
2,766
63
1,106
109
396
952
29,795

573

573

2,766

2,766

1,106

1,106

396
4,976
34,771

396
1,816
36,587

Obligations ................................
New transactions ......................
Net change ...............................
Outstandings.............................

1,116,799
987,045
163,178
1,268,140

958,918
959,298
147,728
1,415,868

804,845
802,722
125,145
1,541,013

Net change ...............................
Outstandings.............................
Net change ...............................
Outstandings.............................

-6 6
43,585
92,499
677,666

2,121
45,706
93,532
771,198

847
46,553
73,202
844,400

Net change ...............................

822

-4 5 2

626

97,000

166

ANALYTICAL PERSPECTIVES

TABLE 10-12. LENDING AND BORROWING BY GOVERNMENT-SPONSORED ENTERPRISES (G SEs)Continued
(In millions of dollars)
1993
actual

Enterprise

Farm credit banks .......................................................................
Federal Housing Finance Board:
Federal home loan banks ..........................................................
The Financing Corporation ..........................................................
Resolution Funding Corporation..................................................
Federal Home Loan Mortgage Corporation.....................................
Subtotal, borrowing (gross) .....................................................
Less borrowing from other GSEs ....................................................
Less borrowing from Federal sources:
Student Loan Marketing Association from FFB2 ........................
Less investment in Federal Securities.............................................
Less borrowing for guaranteed loans held as direct loans by:
Federal National Mortgage Association.......................................
Federal home loan banks............................................................
Federal Home Loan Mortgage Corporation ................................
Banks for cooperatives

.............................................................

Farm Credit Banks.......................................................................
Student Loan Marketing Association2 .........................................
Total GSE borrowing (net) ......................................................

Estimate
1994

1995

Outstandings.............................
Net change ...............................
Outstandings.............................

13,642
-1,623
39,094

13,190
-4 8 9
38,605

13,816
-8 9
38,516

Net change ...............................
Outstandings.............................
Net change ...............................
Outstandings.............................
Net change ...............................
Outstandings.............................
Net change ...............................
Outstandings.............................
Net change ...............................
Outstandings.............................
Net change ...............................
Outstandings.............................

19,696
130,450
2
8,139
-2
30,081
54,278
482,790
165,606
1,425,447
-1,343
18,467

2,250
132,700
1
8,140
-2
30,079
57,789
540,579
154,750
1,580,197

132,700
1
8,141
-3
30,076
60,127
600,706
134,711
1,714,908

18,467

18,467

Net change ...............................
Outstandings.............................
Net change ...............................
Outstandings.............................

-3 0
4,790
-5 0 0
10,091

-2,030
2,760
340
10,431

-3 0
2,730
368
10,799

Net change ...............................
Outstandings.............................
Net change ...............................
Outstandings.............................
Net change ...............................
Outstandings.............................
Net change ...............................
Outstandings.............................
Net change ...............................
Outstandings.............................
Net change ...............................
Outstandings.............................

-3,103
20,848

-2,481
18,367

-8 3 3
17,534

573
-7 6 2
2,766
63
1,106
109
396
952
29,795

573

573

2,766

2,766

1,106

1,106

396
4,976
34,771

396
1,816
36,587

Net change ...............................
Outstandings.............................

170,220
1,336,615

153,945
1,490,560

133,390
1,623,950

1 FAC was reclassified from a GSE to a Federal agency as of October 1, 1992. Its loans and debt were accordingly reclassified as Federal loans and Federal debt This redassificafon
does not constitute repayment of GSE loans or GSE debt
* All SLMA lending financed through the FFB is counted as direct loans. Al SLMA loans shown in tie table above are guaranteed by he Federal Government and therefore the portion
not financed by the FFB is counted as guaranteed loans. To avoid double counlng, two deductions were made in this table: one for the amount flnanced tirough tie FFB, and the other
for the remainder.




11. AID TO STATE AND LOCAL GOVERNMENTS i
State and local governments have a vital constitu­
tional responsibility to provide government services.
They have the major role in providing domestic public
services, such as public education, law enforcement,
roads, water supply, and sewage treatment. The Fed­
eral Government contributes directly toward that role
both by promoting a healthy economy and by providing
grants, loans, and tax subsidies to State and local gov­
ernments.
Federal grants help State and local governments fi­
nance programs covering most areas of domestic public
spending, including income support, infrastructure, edu­
cation, and social services. Federal grant outlays are
estimated to rise from $217.3 billion in 1994 to an
estimated $230.6 billion in 1995.
Grant outlays for payments for individuals are esti­
mated to be 66 percent of total grants in 1995; for
physical capital investment, 16 percent; and for all
other purposes, largely education, training, and social
services, 19 percent.
States and localities receive Federal loans and guar­
antees mostly for the purpose of rural development.
Direct loan and loan guarantee subsidies to State and
local governments are estimated to be $0.1 billion in
1994 and in 1995.
Information on Federal credit activities appears in
Chapter 10, “Underwriting Federal Credit and Insur­
ance.”
Federal aid to State and local governments is also
provided through tax expenditures. Tax expenditures
are a preferential exception to the baseline provisions
of the tax structure.
The two major tax expenditures benefiting State and
local governments are the deductibility of most State
and local taxes, except sales and excise taxes, from
taxable income, and the exclusion of interest on State
and local securities from Federal taxation. These var­
ious provisions, on an outlay equivalent basis, are esti­

mated to be $66.3 billion in 1994 and $68.9 billion
in 1995. A detailed discussion of the measurement and
definition of tax expenditures and a complete list of
the amount of specific tax expenditures are in Chapter
6, “Tax Expenditures.” As also discussed in this chap­
ter, there are generally interactions among tax expendi­
ture provisions, so that the estimates above only ap­
proximate the aggregate effect of these provisions.
Tax expenditures that especially aid State and local
governments are displayed separately at the end of
Table 6-4 in that chapter.

Federal Grants by Agency
Table 11-1 shows the distribution of grants by agen­
cy. Grant outlays for the Department of Health and
Human Services are estimated to be $133.4 billion in
1995, 58 percent of total grants, much more than any
other agency.
TABLE 11-1. FEDERAL GRANT OUTLAYS BY AGENCY
(in billions of dollars)
Estimate

1993
actual

1994

1995

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 ......................

14.8
0.2
14.8
0.2
107.6
17.3
1.6
0.9
7.1
22.3
0.4
2.9
2.1

15.9
0.4
16.7
0.2
123.9
19.7
1.8
1.1
7.3
23.0
0.5
3.1
1.9

Other agencies ................................................................

1.6

1.9

16.6
0.4
16.4
0.3
133.4
21.4
1.8
1.3
7.6
24.1
0.4
3.1
1.3
0.7
1.8

Total...............................................................

193.7

217.3

230.6

Agency

HIGHLIGHTS OF THE FEDERAL AID PROGRAM
This section provides a brief overview of the high­
lights of the Federal aid program. Major initiatives for
grants to State and local governments in the 1995
Budget include the following:
Health Security:
• $4.5 billion in proposed spending for 1995 through
1999 for access to the health care fund grants
to assist States in planning and starting State
health care alliances;
i 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




• $17.0 billion in grants over the same period for
academic health centers and graduate medical
education related to improving health care; and
• $97.1 billion in Federal savings generated over
five years for medicaid, as a result of the proposals
for health care reform. A more complete expla­
nation is included in Chapter 4, “Reforming the
Nation’s Health Care System to Provide Health
Security for All Americans.”
to the public. The three primary forms of aid are grants, loans, and tax expenditures,

167

168

ANALYTICAL PERSPECTIVES

These proposals will help States in their effort to
the crime control fund initiative, and by expanding
ensure that the Health Security Act will guarantee all
the discretionary portion of the program.
Americans access to affordable health care that can
These proposals will put Federal resources to work
never be taken away.
supporting local law enforcement, rather than by ex­
panding Federal involvement in local crime fighting.
Infrastructure:
• $0.7 billion increase in 1995 obligations for the
Education and Job Training:
core highway programs, which are categorical
• $1.8 billion in increased 1995 budget authority
grants distributed to the States; these grants fi­
over 1994 levels for grants to State and local gov­
nance preservation of major highways, including
ernments for elementary and secondary education
the Interstate Highway System;
grants, including the education reform programs;
• $4.7 billion in rescissions for 1994 through 1997
• $1.1 billion in increased 1995 budget authority
for low priority highway demonstration projects;
over the same year for training and employment
• $0.7 billion, or a 40 percent increase in formula
services; and
capital grant funding for mass transit over 1994
• $0.2 billion in proposed outlays from 1995 through
levels;
1999 for grants to States and localities to connect
• $0.5 billion increase in 1995 budget authority for
to the newly-created web of communication net­
clean water and drinking water State revolving
works, computers, databases, and consumer elec­
funds over 1994 levels; and
tronics.
• $0.6 billion increase in proposed grants for the
These actions will allow States and localities to im­
1994-1999 period for rural water and waste water
facilities and housing and community development prove their education systems, and training and em­
ployment services for the unemployed, in addition to
service programs.
These initiatives will promote economic growth, con­ providing them with the capability to develop and tap
into communication networks for their governments,
tribute to a clean environment, and create jobs.
schools, libraries, and law enforcement agencies.
Crime Control:
Urban and Community Development:
• Up to $18.3 billion in increased spending for the
• $1.2 billion in proposed grant outlays from
1995-1999 period for the crime control fund, to
1995-1999 for project-based community develop­
aid States and localities in hiring 100,000 police
ment grants and for the Colonias assistance pro­
officers to assist them in establishing community
gram.
policing programs to combat crime, and to assist
These grant monies will fund various economic revi­
States in upgrading their criminal records
talization projects, and housing and community devel­
databases; and
• $1.4 billion in grant outlay savings achieved over opment programs in urban areas, and will help imple­
the same period by eliminating the formula por­ ment comprehensive community development strategies
tions of the Byrne Law enforcement justice assist­ in severely distressed settlements along the United
ance grants program, which will be replaced by States-Mexican border.

HISTORICAL PERSPECTIVES
In recent decades, Federal aid to State and local gov­
ernments has become a major factor in the financing
of certain government functions. The rudiments of the
present system date back to the Civil War. The Morrill
Act, passed in 1862, established the land grant colleges
and instituted certain federally required standards for
States that received the grants, as is characteristic of
the present grant programs. Federal aid was later initi­
ated for agriculture, highways, vocational education and
rehabilitation, forestry, and public health. In the de­
pression years, Federal aid was extended to meet in­
come security and other social welfare needs. However,




Federal grants did not become a significant factor in
Federal Government expenditures until after World
War II.
Table 11-2 displays trends in Federal grants to State
and local governments. Section A shows Federal grants
by function. Functions with a substantial amount of
grants are shown separately. Grants for the national
defense, energy, veterans benefits and services, and the
administration of justice functions are relatively small
and are combined in the “other functions” line in the
table.

169

11. AID TO STATE AND LOCAL GOVERNMENTS

TABLE 11-2. TRENDS IN FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS
(Outlays; dollar amounts in billions)
Actual
1960

A. Distribution of grants by function:
Natural resources and environment..................
Agriculture..........................................................
Transportation....................................................
Community and regional development..............
Education, training, employment, and social
services.........................................................
Health.................................................................
Income security.................................................
General government..........................................
Other.................................................................

1965

1970

1975

Estimate
1980

1985

1990

1993

1994

1995

1996

1997

1998

1999

0.1
0.2
3.0
0.1

0.2
0.5
4.1
0.6

0.4
0.6
4.6
1.8

2.4
0.4
5.9
2.8

5.4
0.6
13.1
6.5

4.1
2.4
17.1
5.2

3.7
1.3
19.2
5.0

3.8
1.1
22.3
5.7

4.2
1.0
23.0
6.3

4.0
0.9
24.1
6.4

4.0
0.8
25.0
6.6

4.3
0.8
25.2
6.7

4.3
0.9
25.5
6.3

4.5
0.8
25.6
6.3

0.5
0.2
2.6
0.2
0.0

1.1
0.6
3.5
0.2
0.1

6.4
3.8
5.8
0.5
0.1

12.1
8.8
9.4
7.1
0.9

21.9
15.8
18.5
8.6
1.2

17.8
24.5
27.2
6.8
0.9

23.4
43.9
35.2
2.3
1.4

30.2
79.7
47.0
2.1
1.8

34.4
91.5
52.2
2.4
2.1

35.5
101.7
53.5
2.2
2.3

38.7
112.6
55.4
2.2
3.6

40.5
120.1
57.1
2.3
5.4

42.3
117.2
58.8
2.3
6.4

43.9
113.5
61.1
2.3
7.6

Total..... l........................................................

7.0

10.9

24.1

49.8

91.5

105.9

135.4

193.7

217.3

230.6

248.9

262.3

263.9

265.6

B. Composition:
Current dollars:
Payments for individuals u ..........................
Physical capital2 ............................................
Other grants..................................................

2.5
3.3
1.2

3.7
5.0
2.2

8.7
7.1
8.3

16.8
10.9
22.2

32.6
22.5
36.3

49.3
24.9
31.7

75.7
27.2
32.5

124.3
31.2
38.2

140.8
34.2
42.2

151.1
36.5
43.1

161.5
37.9
49.5

168.1
38.6
55.6

165.8
38.6
59.5

163.2
38.7
63.7

7.0

10.9

24.1

49.8

91.5

105.9

135.4

193.7

217.3

230.6

248.9

262.3

263.9

265.6

35%
47
17

34%
46
20

36%
29
34

34%
22
45

36%
25
40

47%
23
30

56%
20
24

64%
16
20

65%
16
19

66%
16
19

65%
15
20

64%
15
21

63%
15
23

61%
15
24

Total...............................................................
Constant (1987) dollars:
Payments for individuals ..............................
Physical capital2 ...........................................
Other grants..................................................

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

9.0
13.8
6.4

12.5
19.5
9.8

24.7
21.9
26.9

35.1
20.6
49.6

46.2
27.7
53.7

52.9
25.8
34.2

66.1
24.9
28.6

97.1
27.4
30.5

107.0
29.4
32.9

111.4
30.6
32.7

115.3
30.9
36.5

116.1
30.7
40.0

110.8
29.8
41.6

105.5
29.1
43.3

Total...............................................................
Percentage of total grants:
Payments for individuals i>2...........................
Physical capital2 ...........................................
Other grants..................................................

Total...............................................................

29.1

41.8

73.6

105.4

127.6

113.0

119.6

155.0

169.3

174.6

182.7

186.3

182.2

177.8

C. Total grants as a percent of:
Federal outlays:
Total...............................................................
Domestic programs 3 .....................................
State and local expenditures.........................
Gross domestic product................................

8%
18%
15%
1%

9%
18%
16%
2%

12%
23%
20%
2%

15%
22%
24%
3%

15%
22%
28%
3%

11%
18%
23%
3%

11%
17%
20%
2%

14%
21%
22%
3%

15%
21%
N/A
3%

15%
22%
N/A
3%

16%
22%
N/A
3%

15%
21%
N/A
3%

15%
20%
N/A
3%

14%
19%
N/A
3%

D. As a share of total State and local capital
spending:
Federal capital grants .......................................
State and local source financing.......................

25%
75

25%
75

25%
75

26%
74

37%
63

31%
69

23%
77

22%
78

N/A
N/A

N/A
N/A

N/A
N/A

N/A
N/A

N/A
N/A

N/A
N/A

Total...............................................................

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 11-3—“Federal Grants to State and Local Governments—Budget Authority and Outlays,” including its footnotes.
2 Grants that are both payments for individuals and capital investment are shown under capital investment.
3 Excludes national defense, international affairs, net interest, and undistributed offsetting receipts.

Federal grants for transportation increased to $3.0
billion, or 43 percent of all Federal grants in 1960 after
initiation of aid to States to build the Interstate High­
way System in the late 1950s.
By 1970 there had been significant increases in the
relative amounts for education, training, employment,
social services, and health (largely medicaid).
In the early and mid-1970s, major new grants were
created for natural resources and environment (con­
struction of sewage treatment plants), community and
regional development (community development block
grants), and general government (general revenue shar­
ing).
In the 1980s changes in the relative amounts among
functions reflected steady growth of grants for health




(medicaid) and income security and restraint in most
other areas.
The functions with the largest amount of grants are
health and income security, with combined grant out­
lays of $155.2 billion or 67 percent of total grant outlays
in 1995. Section B of the Table shows the composition
of grants divided into three major categories: payments
for individuals, physical capital, and other grants.2
Grant outlays for payments for individuals, which are
mainly entitlement programs in which the Federal gov­
ernment and the States share the costs, have grown
significantly as a percent of total grants. In 1980, they
2 Certain grants are classified in the budget as both payments for individuals and physical
capital spending. In the text and tables in this section, these grants are included in the
category for physical capital spending.

170

ANALYTICAL PERSPECTIVES

were 36 percent of the total, and by 1993 they had
grown to 64 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 $75.8 billion in 1993, increasing to an
estimated $96.4 billion in 1995. Family support pay­
ments to States (AFDC), child nutrition programs, and
housing assistance are also large grants in this cat­
egory. All programs in this category are identified by
footnote in the detailed Table 11-3, “Federal Grants
to State and Local Governments—Budget Authority and
Outlays,” at the end of this chapter.
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 treat­
ment plant construction, community development, 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 pay­
ments for individuals have grown. In 1993, grants for
physical capital were 16 percent of total grants.
The other grants are primarily for education, train­
ing, employment, and social services. These grants in­
creased to 45 percent of total grants by 1975, but de­
clined to 20 percent of total grants in 1993.

Section B of Table 11-2 also shows these three cat­
egories in constant dollars. In constant 1987 dollars,
total grants increased from $127.6 billion in 1980 to
$155.0 billion in 1993, an average annual increase of
1.5 percent. From 1980 to 1993, payments for individ­
uals grew from $46.2 billion to $97.1 billion, an average
annual increase of 5.9 percent; grants for physical cap­
ital decreased from $27.7 billion to $27.4 billion, an
average annual decrease of 0.1 percent, and other
grants decreased from $53.7 billion to $30.5 billion, an
average annual decrease of 4.3 percent.
Section C of this table shows grants as a percent
of Federal outlays, State and local expenditures, and
gross domestic product. Grants have declined as a per­
cent of total Federal outlays from 15 percent in 1980
to 14 percent in 1993 and, as a percent of Federal
domestic programs, from 22 percent in 1980 to 21 per­
cent in 1993.
As a percent of total State and local expenditures,
grants have declined from 28 percent in 1980 to 22
percent in 1993.
Section D shows the relative contribution of physical
capital grants in assisting States and localities with
capital spending. Federal capital grants declined as a
percent of State and local capital spending from 37
percent in 1980 to 22 percent in 1993, reflecting re­
straint in Federal spending and increased capital
spending by States and localities financed from their
own sources, such as taxes or borrowing.

OTHER INFORMATION ON FEDERAL AID TO STATE AND LOCAL GOVERNMENTS
Additional information regarding aid to State and
local governments can be found elsewhere in this budg­
et and in other documents.
• Major public physical capital investment programs
providing Federal grants to State and local gov­
ernments are described in Chapter 8, “Federal In­
vestment Outlays and Capital Budgeting.”
• Data for summary and detailed grants to State
and local governments can be found in many sec­
tions of a separate document entitled, Historical
Tables. Section 12 of that document is devoted
exclusively to grants to State and local govern­
ments. Additional information on grants can be
found in Section 6 (Composition of Federal Gov­
ernment Outlays); Section 9 (Federal Government
Outlays for Major Physical Capital Investment);
Section 10 (Composition of Outlays for the Con­
duct 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 these sources, a number of other
sources of information are available that use slightly
different concepts of grants, provide State-by-State in­
formation, or provide information on how to apply for
Federal aid.




• Government Finances, published annually by the
Bureau of the Census in the Department of Com­
merce, provides data on public finances, including
Federal aid to State and local governments.
• The Survey of Current Business, published month­
ly by the Bureau of Economic Analysis in the De­
partment of Commerce, provides data on the na­
tional income and product accounts (NIPA), a
broad statistical concept encompassing the entire
economy. These accounts include data on Federal
grants to State and local governments. Data using
the NIPA concepts appear in this volume in Chap­
ter 20, “National Income and Product Accounts.”
• Budget Information for States (BIS) provides esti­
mates of State-by-State funding allocations for the
largest formula grant programs for the past,
present, and budget year. These programs com­
prise approximately 85 percent of total Federal
aid to State and local governments. The document
is prepared by the Office of Management and
Budget soon after the Budget is released.
• Federal Expenditures by State, a report prepared
by the Bureau of the Census, shows Federal
spending by State for grants and other spending
for the most recently completed fiscal year.
• Consolidated Federal Funds Report (CFFC) is an
annual document that shows the distribution of
Federal spending by State county areas and by

171

11. AID TO STATE AND LOCAL GOVERNMENTS

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 assist­
ance awards are provided quarterly by the Bureau
of the Census to the States and to the Congress.
• The Catalog for Federal Domestic Assistance is a
primary reference source for communities wishing
to apply for grants and other domestic assistance.

The Catalog is prepared by the General Services
Administration with data collected by the Office
of Management and Budget and is available from
the Government Printing Office. The basic edition
of the Catalog is usually published in June and
an update is generally published in December. It
contains a detailed listing of grant and other as­
sistance programs; discussions of eligibility cri­
teria, application procedures, and estimated obli­
gations; and related information.

DETAILED FEDERAL AID TABLE
Table 11-3, “Federal Grants to State and Local Gov­
ernments—Budget Authority and Outlays,” provides de­
tailed budget authority and outlay data for grants.
TABLE 11-3. FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS—BUDGET AUTHORITY AND OUTLAYS
(in millions of dollars)
BUDGET AUTHORITY
Function, agency and program
1993 actual

1994
estimate

NATIONAL DEFENSE:
Department of Defense—Military:
Military construction, Army National Guard....................................................................................
Federal Emergency Management Agency:
Emergency management planning and assistance........................................................................

102

1 00

Total, national defense............................................................................................................

155

174

214

236

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...................................................................................
Solid waste management grants ....................................................................................................
Forest research...............................................................................................................................
State and private forestry...............................................................................................................
Department of Commerce:
Operations, research, and facilities ................................................................................................
Construction....................................................................................................................................
Coastal zone management fund.....................................................................................................
Department of the Interior:
National forests fund, payments to States.....................................................................................
Leases of lands acquired for flood control, navigation, and allied purposes ................................
Regulation and technology.............................................................................................................
Abandoned mine reclamation fund.................................................................................................
Bureau of Reclamation loans program account.............................................................................
Resource management..................................................................................................................
Cooperative endangered species conservation fund .....................................................................
Wildlife conservation and appreciation 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....................................................
Environmental Protection Agency:
Water infrastructure financing ........................................................................................................
Abatement, control, and compliance ..............................................................................................




53

OUTLAYS
1995
estimate

1993 actual

75

1994
estimate

1995
estimate

53

75

94

99

1 00

97

94

152

175

97

308

223

221

255

*
237

243

451

479

2

5
172
3
*

187
3
*
85

252

237

243

252

560

460

464

507

8
128
3
*

7
194
3
*
83

6
74
3
*
85

50
15
8

50
9
8

2

2

3
52
163
6
*
2
180
220
6
36
41
*
2,350
485

83

3
*
85

198
25
8

173
30
8

165
16
8

48

2
1

2

2

3
52

2
1

26
42
*

3
52
136
13
*
9
2
198
208
5
25
40
*

3
*
11
2
180
226
5
30
42
*

157
231
7
24
37
*

3
59
129
7
5
7
1
178
216
10
48
40
*

2,550
500

2,477
507

2,650
506

2,109
488

2,355
475

52
134
4
25
7
172
225

121

85
12

4

27
143
2
20

4

8

172

ANALYTICAL PERSPECTIVES

TABLE 11-3.

FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS-BUDGET AUTHORITY AND OUTLAYS-Continued
(in m
illions of dollars)
BUDGET AUTHORITY
Function, agency and program

1994
estimate

Abatement, control, and compliance loan program account........................................
Hazardous substance superfund...................................................................................
Leaking underground storage tank trust fund..............................................................

30
140

Total, natural resources and environment..........................................................
AGRICULTURE:
Department of Agriculture:
Cooperative State Research Service............................................................................
Extension Service........................................................................................................
Payments to States and possessions .........................................................................
Agricultural resource conservation demonstration guaranteed loan program account.
Commodity Credit Corporation fund ............................................................................
State mediation grants................................................................................................
Outreach for socially disadvantaged farmers..............................................................
P.L 102-552 temporary assistance............................................................................
Emergency food assistance program ..........................................................................
Total, agriculture...................................................................................................

OUTLAYS
1995
estimate

1994
estimate

8

1995
estimate

120
66

10
2

187
59

17
212
66

9
148

4,483

4,336

4,298

3,796

4,192

4,016

223
428

229
436

229
432

213
404

245
427

229
434

4
281
3

4
235
3
3

3
156

9
281
3

4
235

3
156

3

5

124

40

1

1

1

1

5

1

2

1

2

165

120

"40

42
163

1,106

1,031

867

1,117

1,041

870

10

13

10

11

9
65
17,325

9
72
18,058
167
94

COMMERCE AND HOUSING CREDIT:
Department of Commerce:
U.S. Travel and Tourism Administration salaries and expenses ................................
Promote and develop fishery products and research pertaining to American fisheries
Industrial technology services......................................................................................
Total, commerce and housing credit..................................................................
TRANSPORTATION:
Department of Transportation:
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 .........................................................................................
Next generation high speed rail program....................................................................
Conrail commuter transition assistance.......................................................................
Research* training, and human resources ..................................................................
Interstate transfer grants—transit.................................................................................
Washington metro........................................................................................................
Formula grants.............................................................................................................
Transit planning and research .....................................................................................
Discretionary grants (trust fund)...................................................................................
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:
Distance learning and medical link programs............................................................
Water and wastewater and community facility loans program account......................
Emergency community water assistance grants.........................................................
Rural water and waste disposal grants......................................................................
Rural community fire protection grants.......................................................................
Rural technology and cooperative development grants..............................................
Local technical assistance and planning grants..........................................................
Rural development grants...........................................................................................




20
76
20,248
17
325

-198
-137

171

196

’“ 29

17

83
19,350

196

7

62
15,895
231
74
5
131
5
7
7

200

94
*
135
5
35

2

11

14

75
170
1,700
44
1,725

45
200
2,415
147
1,734

39
200
2,865
92
1,725

163
149
2,240
16
1,298

112

2,050

1,202

1,690

1,931
*
37
7

8

189
1,387
45
1,450
29
1,850

1

144
3
17

1

15
9
78
148
1,851
74
1,608
21
1,710

1

24,710

26,270

5
149
30
353
4

10
144
10
415
4

5
193

15

30

436
5
5
5
36

24
7

53
26,757

40
7
9
47

14

22,343

23,049

24,134

18

6

85
7
200
3

121

270
3

127
18
318

12

16

11

10

23

173

11. AID TO STATE AND LOCAL GOVERNMENTS

TABLE 11-3.

FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS-BUDGET AUTHORITY AND OUTLAYS-Continued
(in m
illions of dollars)
BUDGET AUTHORITY
Function, agency and program
1993 actual

Economic development grants (REA).........................................
Rural development loan fund......................................................
Department of Commerce:
Economic development assistance programs............................
Regional development commissions...........................................
Department of Housing and Urban Development:
Other assisted housing programs...............................................
Community development grants..................................................
Urban development action grants...............................................
Supplemental assistance for facilities to assist the homeless....
Project-based community development grants...........................
Colonias assistance program......................................................
Revolving fund (liquidating programs) ........................................
Department of the Interior:
Operation of Indian programs (area and regional development)
Indian direct loan program account............................................
Indian guaranteed loan program account...................................
Appalachian Regional Commission:
Appalachian regional development programs ............................
Community Investment Program:
Community investment 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:
Public broadcasting facilities, planning, and construction.......................................
Information infrastructure grants .............................................................................
Department of Education:
Indian education ......................................................................................................
Impact a id ...............................................................................................................
Chicago litigation settlement...................................................................................
Education reform .....................................................................................................
Education for the disadvantaged ............................................................................
School improvement programs ...............................................................................
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......................................................................................................
Libraries ..................................................................................................................
Education research, statistics, and improvement....................................................
Department of Health and Human Services, except Social Security:
Community services block grant.............................................................................
Interim assistance to States for legalization............................................................
Payments to States for AFDC work programs........................................................
Family preservation and support ............................................................................
Social services block grant.....................................................................................
Children and families services programs ................................................................
Payments to States for foster care and adoption assistance ................................
Aging services programs1 ......................................................................................
Department of the Interior:
Operation of Indian programs (elementary, secondary, and vocational education)
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.........................................................................................




1994
estimate

OUTLAYS
1995
estimate

30

10

388

324

3
4,243

4,400

1993 actual

1994
estimate

1995
estimate

_#

-15
1

10
1

328

130
*

267

308

4,400

1
3,198
51
5

1
3,746
45
7

-86

-77
81
2
10

91

800
100

4,136
35
6
26
4
-74

69

86

93

10

10

10

66
2
4

190

249

187

138

143

174

10

-225
17
1,622

17
234

30
256

17
1,821

17
1,619

23
1,165

11

14

15

11

14

15

7,107

5,751

6,911

5,666

6,300

6,428

18

22
24

9
92

12

13
*

17
6

72
836

74
794

82
748

91
468
15

6,680
1,429
187
2,725
1,978
6
1,411
78
25
129
35

139
6,896
1,260
199
2,866
2,082
6
1,411
94
34
129
35

867
7,559
1,535
217
3,053
2,144
7
1,387
35
44
103
10

72
979
18
17
6,877
1,522
209
3,344
2,169
6
1,251
79
26
147
32

75
858
8
199
6,903
1,339
206
3,021
2,246
7
1,303
58
33
132
29

2,800
3,406
2,924
839

464
810
1,100
58
3,800
3,999
2,993
871

435
243
1,300
144
2,800
4,602
3,441
876

2,785
3,191
2,636
567

475
696
860
47
2,877
3,856
3,000
817

465
243
1,031
126
3,240
4,149
3,362
876

48

59

64

43

52

60

3,548
87
24
1,078
80

3,907
90
77
1,106
76

4,582
87
277
1,113
101

3,245
84
23
1,077
77

3,467
85
34
1,090
78

3,716
89
117
1,102
91

84

92

98

84

92

98

441
324
1,000

6,582
1,903
101
2,356
1,804
8
1,133
89
30
159
29
423
317
736

174

ANALYTICAL PERSPECTIVES

TABLE 11-3. FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS-BUDGET AUTHORITY AND OUTLAYS-Continued
(in m
illions of dollars)
BUDGET AUTHORITY
Function, agency and program

National Endowment for the Arts:
Grants and administration....................................................................
Institute of Museum Services:
Institute of Museum Services: grants and administration.....................
Corporation for National and Community Service:
Domestic volunteer service programs, operating expenses.................
National and community service programs, operating expenses.........
Total, education, training, employment, and social services....
HEALTH:
Department of Agriculture:
Food Safety and Inspection Sen/ice salaries and expenses ...............
Department of Health and Human Services, except Social Security:
Health resources and services1 ...........................................................
Disease control, research and training.................................................
Substance abuse and mental health services1 ...................................
Grants to States for Medicaid1 .............................................................
Department of Labor
Occupational Safety and Health Administration salaries and expenses
Mine Safety and Health Administration salaries and expenses...........
Allowances:
Access to health care fund (health care services) ..............................
Access to health care fund (health research and training)..................
Academic health centers and graduate medical education..................
Total, health....................................................................................
INCOME SECURITY:
Department of Agriculture:
Funds for strengthening markets, income, and supply (section 32)1 ...
Rural housing for domestic farm labor1 ...............................................
Supervisory and technical assistance grants1 .....................................
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 child care assistance1 ..................................
Payments to States from receipts for child support............................
Department of Housing and UrbanDevelopment:
Housing programs annual contributions for assisted housing1 ............
Congregate services1 ..........................................................................
Assistance for renewal of expiring Section 8 subsidy contracts1 ........
Section 8 moderate rehabilitation, single room occupancy.................
Homeownership and opportunity for people everywhere grants1 ........
Payments for operation of low-income housing projects1 ...................
Community partnerships against crime1 ..............................................
Revitalization of severely distressed public housing projects1 ...........
Low-rent public housing-loans and other expenses1 ........................
Emergency shelter grants program1 ...................................................
Supportive housing program1 ..............................................................
Homeless assistance grants ...............................................................
Shelter plus care1 ...............................................................................
Home investment partnerships program..............................................
Youthbuild program .............................................................................
Innovative homeless initiatives demonstration program.......................
Department of Labor:
Unemployment trust fund....................................................................
Federal Emergency Management Agency:
Emergency food and shelter program1 ...............................................




OUTLAYS

1994

1994

1993 actual

1995

44

43

43

43

7

7

7

5

133

131
244

148
408

43

43
45

46
185

32,474

35,992

30,160

34,429

35,486

36

40

41

36

40

41

1,612
509
1.850
82,596

1,706
662
1.938
89,077

1,721
598
2,194
89,223

1,438
355
1,994
75,774

1.580
591
2.089
87.156

2,214
96,373

70

75

61

62

65

6

6

6

43

7

6

505
600
750
86,678

43

6

185
219
340

95,711

79,665

91,524

101,696

400
43

400

400
44

400
11

400
11

400
19

23
15
257
1.580
2,855
94
6,803
1.040

23

7
15
248
1,586
2,842
77
6,574
1,025

2
1

7

20

259
1,614
3.205
92
7,467
1.079

23
18
230
1,631
3.560
94
7,404
1,143

8
2
8

255
1,539
3,213
107
7,207
1,078

257
1,620
3,534
95
7,640
1,141

15.695
1,346
381
893

16,173
1.437
400
893

16,962
730
324
1,091

15.628
1,067
327
411

16,413
2,075
345
980

16,921
791
364
1,037

5.828
21
6.353
105
271
2.282
175
300
123
50
150

5,830
25
4,763
150
-207
2,621
265
778
154
115
334

6,449

8,107

7,868
16
4,451
36

267
1,232
40

124
1,275

2

2

20

2

6

4,400
100
2,496
265
500
108

5
1,999
3
35
2,453
116
213
71
91

129

130

3,615
19
68
2,533
268
30
219
68
107

86

2,563
239
146
166
86

1,100
50

212

15
876

8
8

2,464

2,536

2,469

2,396

129

130

1

100
2,504

11

159
152
50
1,200
16
18

1,250

2,606

1

175

11. AID TO STATE AND LOCAL GOVERNMENTS

TABLE 11-3.

FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS-BUDGET AUTHORITY AND OUTLAYS-Continued
(in millions of dollars)
BUDGET AUTHORITY
Function, agency and program
1993 actual

OUTLAYS
1995
estimate

1994
estimate

1993 actual

1994
estimate

1995
estimate

Total, income security.............................................................................................................

51,362

52,036

52,811

46,991

52,234

53,485

VETERANS BENEFITS AND SERVICES:
Department of Veterans Affairs:
Medical care1 .................................................................................................................................
Grants for the construction of State extended care facilities1 ......................................................
Grants for the construction of State veterans cemetaries.............................................................

129
40
5

149
41
5

178
37
5

129
56
5

149
72
5

178
59
5

Total, veterans benefits and services....................................................................................

174

195

221

189

226

242

15

25

33

9

12

22

12
193
1
746
150

12
225
1
607
139

13
220
1
287
160
2,071

12
193
1
545
125

9
225
1
714
114

13
220
1
489
146
402

102

102

51
14

133
5

102

25

26

26

25

26

26

ADMINISTRATION OF JUSTICE:
Department of Housing and Urban Development:
Fair housing activities.....................................................................................................................
Department of Justice:
Weed and seed program fund.......................................................................................................
Assets forfeiture fund .....................................................................................................................
National Institute of Corrections.....................................................................................................
Justice assistance...........................................................................................................................
Crime victims fund..........................................................................................................................
Crime control fund..........................................................................................................................
Department of the Treasury:
Department of the Treasury forfeiture fund....................................................................................
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 A c t........................................................................
Department of the Interior:
Payments in lieu of taxes ..............................................................................................................
Bureau of Land Management miscellaneous permanent payments accounts ..............................
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 .................................................................................

12

5

1

11

13

11

1,154

1,141

2,915

987

1,253

1,433

305

285

279

309

285

279

5

5

5

6

5

5

2

2

2

2

2

2

104
68
463
18
81
23
97

104
84
531
18
82
24
83

104
82
515
20
69
1
85

103
75
463
18
26
26
97

105
84
531
18
61
24
83

104
82
515
20
63
3
85

197
102

219
119

226
123

197
102

219
119

226
123

8

136

89
688

700

722

698

698

722

Total, general government......................................................................................................

2,243

2,256

2,232

2,131

2,370

2,228

Total, grants..............................................................................................................................

214,154

221,615

231,559

193,664

217,265

230,628

*$500 thousand or less.
1 Programs included in the "grants for payments to individuals" category shown in Table 11-2—'Trends in Federal Grants to State and Local Governments.”







12. FEDERAL EMPLOYMENT
This section provides data on civilian and military
employment in the Executive Branch and personnel
compensation and benefits. It also provides information
on employment in the legislative and judicial branches
and comparisons between the Federal workforce, State
and local Government workforces, and the United
States population.

Time Equivalents” shows total Federal employment on
an FTE basis.

Personnel Compensation and Benefits
The table entitled “Personnel Compensation and Ben­
efits” displays personnel compensation and benefits for
all branches of Government, as well as for military
personnel.
Total Federal Employment in the Executive
Direct compensation of the Federal work force in­
Branch
cludes base pay and premium pay, such as overtime.
Civilian employment in the Executive Branch is In addition, it includes other cash components, such
measured on the basis of full-time equivalents (FTEs). as geographic pay differentials (i.e., locality pay, in­
One FTE is equal to one work year or 2,080 hours. terim geographic adjustments, special pay adjustments
The Budget continues the implementation of a reduc­ for law enforcement officers), recruitment and reloca­
tion of Federal positions, measured on an FTE basis, tion bonuses, retention allowances, performance
pursuant to Executive Order 12839 issued February awards, and cost-of-living and overseas allowances.
In the case of military personnel, compensation in­
10, 1993. The Executive Order sets a reduction target
of 100,000 FTEs by 1995. Allocations of FTE resources cludes basic pay, special and incentive pay (including
by agency were made based upon Presidential priorities enlistment and reenlistment bonuses), and allowances
and other factors. As shown in Table 12-1, a reduction for clothing, housing, and subsistence.
Related compensation in the form of personnel bene­
of 118,300 FTEs or 5.5 percent is anticipated in 1995.
The National Performance Review (NPR) has rec­ fits for current personnel consists primarily of the Gov­
ommended that the Federal Government reduce ernment’s share (as an employer) of health insurance,
252,000 Federal positions by 1999. This recommenda­ life insurance, old age survivors’ disability and health
tion was mandated by the Presidential Memorandum, insurance, and payments to the Department of De­
“Streamlining the Bureaucracy,” dated September 11, fense’s Military Retirement Fund, the Civil Service Re­
1993. These reductions include the 100,000 FTE re­ tirement and Disability Fund, and the Federal Employ­
duced by 1995, with the additional 152,000 reductions ees Retirement System to finance future retirement
to be accomplished in 1996-1999. These reductions benefits.
would be made as agencies streamline their operations,
Government Employment and Population
trim overhead, and reduce unnecessary layers of bu­
Comparisons
reaucracy. The NPR has recommended that these re­
ductions be focused in the areas of administrative and
As illustrated in the table entitled “Government Em­
central control staffs and supervisors.
ployment and Population,” the Federal share of total
Government employment has declined significantly over
Total Federal Employment Levels
the last three decades, from 21.2 percent in 1962 to
The tables that follow show total Federal employment 14.3 percent in 1993. Employment for all Government
in all branches of Government, as well as the U.S. has risen steadily over the period mostly due to in­
Postal Service, Postal Rate Commission, and active creases in state and local Government employment.
The ratio of Federal civilian employment to the total
duty uniformed military personnel. The table entitled
“Total Federal Employment as Measured by Total Posi­ U.S. population is estimated to be 11.0 per thousand
tions Filled” displays total Federal employment as in 1994, down from a high of 14.9 in 1968 and 1969.
measured by actual positions filled, and the table enti­ A further decline, to 10.7 per thousand, is expected
tled “Total Federal Employment as Measured by Full- for 1995.




177

178

THE BUDGET FOR FISCAL YEAR 1995

TABLE 12-1.

FEDERAL EM
PLOYM
ENT IN TH EXECU
E
TIVE BRANCH

(Civilian employment as measured by Full-Time Equivalents in thousands)
Agency

Cabinet agencies:
Agriculture .............................................................................................................................................
Commerce............................................................................................................................................
Defense—military functions1 ................................................................................................................
Education..............................................................................................................................................
Enerav..................................................................................................................................................
Health and Human Services ................................................................................................................
Housing and Urban Development........................................................................................................
Interior..................................................................................................................................................
Justice ..................................................................................................................................................
Labor ....................................................................................................................................................
State.....................................................................................................................................................
Transportation ......................................................................................................................................
Treasury2 .............................................................................................................................................
Veterans Affairs ...................................................................................................................................
Other agencies (excluding Postal Service):
Agency For International Development................................................................................................
Corps of Engineers...............................................................................................................................
Environmental Protection Agency ........................................................................................................
Equal Employment Opportunity Commission........................................................................................
Federal Emergency Management Agency............................................................................................
Federal Deposit Insurance Corporation and Resolution Trust Corporation .........................................
General Services Administration..........................................................................................................
National Aeronautics and Space Administration...................................................................................
National Archives and Records Administration.....................................................................................
National Labor Relations Board ...........................................................................................................
National Science Foundation................................................................................................................
Nuclear Regulatory Commission..........................................................................................................
Office of Personnel Management.........................................................................................................
Panama Canal Commission.................................................................................................................
Peace Corps .........................................................................................................................................
Railroad Retirement Board...................................................................................................................
Securities and Exchange Commission.................................................................................................
Small Business Administration .............................................................................................................
Smithsonian Institution..........................................................................................................................
Tennessee Valley Authority..................................................................................................................
United States Information Agency........................................................................................................
All other small agencies.......................................................................................................................
Total Executive Branch civilian employment3 .........................................................................................
FTE reduction from the base ...............................................................................................................
Percentage reduction from the base....................................................................................................
Percentage reduction target/FTE reduction target................................................................................

1993
Base

1993
actual

Estimate
1994

Change: 1993 base to 1995
1995

FTE’s

Percent

114.6
36.7
931.4
5.0
20.6
130.0
13.6
77.9
99.4
19.9
26.0
71.1
166.1
232.4

113.4
36.1
931.8
4.9
20.3
129.0
13.3
76.7
95.4
19.6
25.6
69.9
161.1
234.4

110.2
35.8
886.0
5.1
20.4
127.7
13.3
76.0
97.2
19.4
25.4
68.9
161.2
235.1

108.5
35.8
854.9
5.2
20.6
127.2
13.4
74.6
101.9
19.5
25.0
67.5
157.6
229.7

-6.1
-0.9
-76.5
0.2

-5.3%
-2.6%
-8.2%
2.4%

-2.8
-0.2
-3.3
2.5
-0.4
-1.0
-3.6
-8.5
-2.7

-2.2%
-1.8%
-4.3%
2.5%
-2.3%
-4.0%
-5.0%
-5.1%
-1.1%

4.4
29.2
19.0
2.9
2.7
21.3
20.7
25.7
2.8
2.1
1.3
3.4
6.2
8.7
1.3
1.9
2.7
4.0
4.9
19.1
8.7
17.5

4.1
28.4
18.3
2.8
2.6
21.6
20.2
24.9
2.6
2.1
1.2
3.4
5.9
8.5
1.2
1.8
2.7
3.9
4.5
17.3
8.3
16.4

4.0
28.5
18.6
2.9
2.6
20.4
20.1
24.5
2.7
2.1
1.2
3.3
6.0
8.6
1.2
1.8
2.7
3.8
4.8
17.3
8.5
17.0

4.0
27.8
19.4
3.0
2.7
15.1
19.7
23.6
2.6
2.1
1.3
3.2
5.8
8.8
1.2
1.8
2.9
3.8
4.7
16.6
8.3
17.2

-0.4
-1.4
0.4
0.1

-8.6%
-4.7%
2.2%
5.6%
-1.1%
-28.8%
-4.7%
-8.2%
-4.7%
-4.2%
-4.0%
-5.5%
-7.3%
0.7%
-1.0%
-4.7%
7.2%
-4.4%
-3.6%
-13.2%
-5.0%
-1.8%

2,155.2

2,134.3

2,084.2

2,036.9

-118.3

-20.9
-1.0%
-1.0%

-71.0
-3.3%
-2.5%

-118.3
-5.5%
-4.0%

-100.0

-6.2
-1.0
-2.1
-0.2
-0.2
-0.4
0.1
-0.1
-0.1
0.2
-0.2
-0.2
-2.5
-0.4
-0.3

1 Because Defense was already reduced by almost 42,000 from 1992 to 1993, no further reduction was required in 1993.
2 The Administration is working with Congress to design a deficit reduction/tax compliance initiative for the Internal Revenue Service that would increase Treasury FTEs by approximately 5,000 above the level shown. Even with
these additional FTEs, the Administration still achieves the 100,000 reduction under E.O. 12839.
3 Excludes Postal Service and Postal Rate Commission.




179

12. EMPLOYMENT

TABLE 12-2. TOTAL FEDERAL EMPLOYMENT
(As measured by total positions filled)
Actual as of September 30
Description

1993

1992

Executive branch civilian employment:
All agencies except Postal Service and Postal Rate Commission:
Full-time permanent ..................................................................
Other than full-time permanent..................................................

Percent change:
1991 to 1993

1,937,686
261,298

1,946,705
235,984

1,1

221,004

-2.4%
-15.4%

Subtotal ...........................

2,198,984

2,182,689

2,112,690

-3.9%

Postal Service:1
Full-time permanent.................
Other than full-time permanent ,

644,271
160,125

627,074
164,975

623,092
167,248

-3.3%
4.4%

804,396

792,049

790,340

-1.7%

Special Categories2 ...............................................
Subtotal, executive branch civilian employment.

44,458
3,047,838

45,020
3,019,758

43,431
2,946,461

-2.3%
-3.3%

Military personnel on active duty:3
Department of Defense.....................................
Department of Transportation (Coast Guard)....

2,002,614

1,808,131
39,469

1,705,103
39,234

-14.9%
1.5%

2,041,283

1,847,600

1,744,337

-14.5%

5,089,121

4,867,358

4,690,798

-7.8%

Legislative branch:
Full-time permanent....................
Other than full-time permanent ...

16,783
21,719

16,740
21,769

16,460
21,798

-1.9%
0.4%

Subtotal, Legislative Branch ...

38,502

38,509

38,258

-

Judicial Branch:
Full-time permanent....................
Other than full-time permanent ...

23,306
2,499

25,488
2,499

25,900
2,220

Subtotal, Judicial Branch .......

25,805

27,987

28,120

9.0%

Grand total .....................................

5,153,428

4,933,854

4,757,176

-7.7%

974,404
1,224,580

945,356
1,237,333

885,472
1,227,218

-9.1%
0. 2%

2,198,984

2,182,689

2,112,690

-3.9%

Subtotal.

Subtotal, military personnel....
Subtotal, Executive Branch

0 . 6%

11.1%
-

11. 2 %

ADDENDUM
Executive branch civilian personnel (excluding Postal Service):
DOD-Military functions............................................................
All other executive branch......................................................
Total4 .

11ncludes Postal Rate Commission.
2 Includes Summer Aides, Stay-in-school, Junior Fellowship, Worker-Trainee Opportunity Program, formerly exempt from employment controls,
a Excludes reserve components.
4 Excludes disadvantaged youth programs.




180

THE BUDGET FOR FISCAL YEAR 1995

TABLE 12-3. TOTAL FEDERAL EMPLOYMENT
(As measured by Full-Time Equivalents)
Estimate
1994

1995

tchange:
1993 to 1995

1,202,556
931,763

1,198,271
885,958

1,182,092
854,859

-1.7%
-8.3%

2,134,319
753,799

2,084,229
770,318

2,036,951
784,515

-4.6%
4.1%

Subtotal, Executive Branch civilian personnel.

2,888,118

2,854,547

2,821,466

-2.3%

Executive branch uniformed personnel:2
Department of Defense...........................................
Department of Transportation (Coast Guard) .........

1,751,362
39,342

1,658,149
38,921

1,567,522
38,376

-10.5%
-2.5%

1,790,704

1,697,070

1,605,898

-10.3%

4,678,822
37,985

4,551,617
37,035

4,427,364
36,466

-5.4%
-4.0%

27,378

28,107

29,289

7.0%

4,744,185

4,616,759

4,493,119

-5.3%

Description

Executive branch civilian personnel:
All agencies except Postal Service and Defense .
Defense-Military functions (civilians)....................
Subtotal, excluding Postal Service
Postal Service1 ....................................

Subtotal, uniformed military personnel
Subtotal, Executive Branch
Legislative Branch^ Total F T E .........
Judicial branch: Total FTE
Grand total.......
11ncludes Postal Rate Commission.
2 Military personnel on active duty. Excludes reserve components. Data shown are average strength.
3Actual 1993 FTE data not available for legislative branch. Data shown are estimates.




181

12. EMPLOYMENT

TABLE 12-4. PERSONNEL COMPENSATION AND BENEFITS
(In millions of dollars)
Description

Estimate

1993 actual

Percent change:
1993 to 1995

1994

1995

34,353
50,631

33,724
52,760

32,946
53,757

-4.1%
6.2%

Subtotal, direct compensation...................................................................
Personnel benefits:
DOD—military functions.................................................................................
All other executive branch1 ..........................................................................

84,984

86,484

86,703

2.0%

6,940
18,996

7,078
19,590

7,054
20,083

-1.6%
5.7%

Subtotal, personnel benefits......................................................................

25,936

26,668

27,137

4.6%

Subtotal, executive branch ...................................................................

110,920

113,152

113,840

2.6%

Postal Service:
Direct compensation...........................................................................................
Personnel benefits..............................................................................................

29,231
9,108

30,184
9,536

31,343
10,380

7.2%
14.0%

Subtotal .........................................................................................................

38,339

39,720

41,723

8.8%

Legislative Branch:2
Direct compensation...........................................................................................
Personnel benefits..............................................................................................

781
154

793
159

824
165

5.5%
7.1%

Civilian personnel costs:
Executive Branch (excluding Postal Service):
Direct compensation:
DOD—military functions.................................................................................
All other executive branch.............................................................................

Subtotal.........................................................................................................
Judicial Branch:
Direct compensation...........................................................................................
Personnel benefits..............................................................................................

935

952

989

5.8%

1,194
254

1,292
296

1,389
333

16.3%
31.1%

Subtotal.........................................................................................................
Total, civilian personnel costs.......................................................................

1,448
151,642

1,588
155,412

1,722
158,274

18.9%
4.4%

Military personnel costs:
Direct compensation...............................................................................................
Personnel benefits.................................................................................................

53,453
21,048

52,157
19,633

49,490
19,322

-7.4%
-8.2%

Total, military personnel costs3 ........................................................................

74,501

71,790

68,812

-7.6%

Grand total, personnel costs......................................................................................

226,143

227,202

227,086

0.4%

ADDENDUM
Retired pay for former personnel:
Civilian personnel ..................................................................................................
Military personnel...................................................................................................

37,804
26,359

39,918
27,045

40,885
27,757

8.1%
5.3%

Total...................................................................................................................

64,163

66,963

68,642

7.0%

1 1n addition to the employing agency's contribution to the costs of life and health insurance, retirement and Medicare Hospital insurance, this amount includes transfers from general revenues to
amortize the effects of general pay increases on Federal retirement systems for employees in the Legislative and Judicial Branches as well as employees (non-Postal) in the Executive Branch and to
amortize supplemental liabilities under FERS. The transfers amounted to $7,178 million in 1993 and are estimated to be $7,391 million in 1994 and $7,806 million in 1995.
2 Excludes members and officers of Congress.
3 Excludes resen/e components.




182

THE BUDGET FOR FISCAL YEAR 1995

TABLE 12-5. GOVERNMENT EMPLOYMENT AND POPULATION, 1962-1995
Governm em ent
ent ploym
Fiscal year

1962 .......................................
19632 ....................................
19642 ....................................
1965 .......................................
1966 .......................................
1967 .......................................
1968 .......................................
19693 ....................................
19704 ....................................
19714 ....................................
1972 .......................................
1973 .......................................
1974 .......................................
1975 .......................................
1976 .......................................
19775 ....................................
1978 .......................................
1979 .......................................
19804 ....................................
19814 ....................................
1982 .......................................
1983 .......................................
1984 .......................................
1985 .......................................
1986 .......................................
1987 .......................................
1988 .......................................
1989 .......................................
19904 ....................................
19914 ....................................
1992 .......................................
1993 .......................................
1994 .......................................
1995 .......................................

Executive branch
dvians
(thousands)
2,485
2,490
2,469
2,496
2,664
2,877
2,951
2,980
2,944
2,883
2,823
2,775
2,847
2,848
2,832
2,789
2,820
2,823
2,821
2,806
2,768
2,819
2,854
2,964
2,967
3,030
3,054
3,064
3,067
3,048
3,065
2,946
2,892
2,848

Federal1
Uniform m
ed ffitary Legislative and ju­
dicial branch per­
personnel
sonnel
(thousands)
(ftousands)
2,840
2,732
2,719
2,687
3,128
3,413
3,585
3,497
3,103
2,750
2,360
2,290
2,197
2,163
2,118
2,112
2,099
2,062
2,089
2,122
2,148
2,163
2,178
2,189
2,206
2,213
2,176
2,168
2,106
2,041
1,846
1,744
1,649
1,564

30
30
31
32
33
34
35
36
38
40
42
44
46
49
50
53
55
53
55
54
55
56
56
57
55
58
59
60
61
64
66
66
65
64

Total Federal
personnel
(thousands)
5,355
5,252
5,219
5,215
5,825
6,324
6,571
6,513
6,085
5,673
5,225
5,109
5,090
5,060
5,000
4,954
4,974
4,938
4,965
4,982
4,971
5,038
5,088
5,210
5,228
5,301
5,289
5,292
5,234
5,153
4,977
4,756
4,606
4,476

Population
State and local
governm
ents
(thousands)
6,533
6,834
7,236
7,683
8,259
8,730
9,141
9,496
5,673
6,085
10,896
11,286
11,713
12,114
12,282
12,704
13,050
13,359
13,542
13,274
13,207
13,220
13,504
13,827
14,157
14,402
14,766
15,163
15,628
15,436
15,684
15,927

AR governm
ental
units (thousands)

Federal dvian as
a percent of all
governm
ental
units

Total United
States
(thousands)*

Federal dvian
em ent per
ploym
1,000 population

11,888
12,086
12,455
12,898
14,084
15,054
15,712
16,009
11,758
11,758
16,121
16,395
16,803
17,174
17,282
17,658
18,024
18,297
18,507
18,256
18,178
18,258
18,592
19,037
19,385
19,703
20,055
20,455
20,862
20,897
20,658
20,683

21.2
20.0
20.1
19.6
19.2
19.4
19.0
18.9
18.7
18.3
17.8
17.2
17.3
16.9
16.7
16.1
16.0
15.8
15.6
15.7
15.6
15.8
15.7
15.9
15.6
15.7
15.6
15.3
15.0
14.9
15.2
14.3

186,538
189,242
191,889
194,303
196,560
198,712
200,706
202,677
205,052
207,661
209,896
211,909
213,854
215,973
218,035
220,904
223,278
225,779
228,468
230,848
233,184
235,439
237,663
239,134
241,304
243,479
245,730
248,061
250,689
253,426
256,271
259,015
262,449
265,142

13.5
13.3
13.0
13.0
13.7
14.7
14.9
14.9
14.5
14.1
13.6
13.3
13.5
13.4
13.2
12.9
12.9
12.7
12.6
12.4
12.1
12.2
12.2
12.6
12.5
12.7
12.7
12.6
12.2
12.0
12.0
11.4
11.0
10.7

’ Covers total end-of-year dvian employment of full-time permanent, temporary, part-time, and intermittent employees. Executive branch includes the Postal Service, and, beginning in 1970, includes various disadvantaged youth
and worker-tralnee programs.
2 Excludes 7,411 project employees in 1963 and 406 project employees in 1964 for the public works acceleration program.
s On Jan. 1, 1969, 42,000 dvian technicians of the Army and Air Force National Guard converted by law from State to Federal employment status. They are included in the Federal employment figures in this table starting
with 1969.
4 Indudes temporary employees for the decennial census.
sData for 1961 through 1976 are as of June 30; for 1977 through 1993, as of September 30.
• Population estimates for 1994 and 1995 are U.S. Census Bureau projections.







FEDERAL BORROWING AND DEBT

183




13. FEDERAL BORROWING AND DEBT
Debt is the most explicit and legally binding obliga­
tion of the Federal Government. At the end of 1993
the Government owed $3,247.2 billion of principal to
the people who had loaned it the money to pay for
past deficits. The gross Federal debt, including the
amount held by trust funds and other Government ac­
counts, was $4,351.2 billion. This year the Government
is estimated to pay about $213 billion of interest to
the public on its debt.
The present deficit is continuing to increase the
amount of debt. However, the Omnibus Budget Rec­
onciliation Act of 1993 and the present economic expan­
sion are reducing the size of the deficit, and the Admin­
istration's proposal for health care reform is estimated
to reduce it further by the end of the decade.

Trends in Federal Debt
Federal debt held by the public has increased by four
and a half times since 1980, as shown in table 13-1.
In 1980 it was $709.3 billion; by the end of 1993 it

stood at $3,247.2 billion. The data in this table are
supplemented for earlier years by tables 7.1-7.3 in His­
torical Tables, which is published as a separate volume
of the budget.
At the end of World War II, Federal debt equalled
more than 100 percent of GDP. From then until the
1970s, Federal debt grew gradually, but, due to infla­
tion, it declined significantly in real terms. Because
of an expanding economy as well as inflation, Federal
debt as a percentage of GDP decreased almost every
year. With households borrowing heavily to buy homes
and consumer durables, and with businesses borrowing
heavily to buy plant and equipment, Federal debt also
decreased almost every year as a percentage of the
total credit market debt outstanding. The cumulative
effect of this was impressive. From 1950 to 1970, debt
held by the public declined from 82.4 percent of GDP
to 28.7 percent, and from 55.3 percent of credit market
debt to 20.8 percent. At the same time, despite rising
interest rates, interest outlays became a smaller share

TABLE 13-1. TRENDS IN FEDERAL DEBT HELD BY THE PUBLIC
(Dollar amounts in billions)
Debt held by the public
Current dollars

Constant 1987
dollars'

Debt held by the public as a
percent of:

Interest on debt held by the public
as a percent of:3

GDP

Credit market
debt2

Total outlays

GDP

1950
1955
1960
1965
1970
1975

...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................

219.0
226.6
236.8
260.8
283.2
394.7

1,094.2
1,001.4
907.7
922.1
818.2
829.5

82.4
58.9
46.9
38.9
28.7
26.1

55.3
43.4
33.8
26.9
20.8
18.4

11.4
7.6
8.5
8.1
7.9
7.5

1.8
1.3
1.5
1.4
1.6
1.7

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................

1,004.9
1,009.3
1,100.2
1,299.7
1,430.9

26.8
26.5
29.4
34.1
35.2

18.6
18.7
20.0
22.1
22.4

10.6
12.1
13.6
13.8
15.7

2.4
2.8
3.2
3.4
3.6

1,589.6
1,786.6
1,888.1
1,978.4
2,021.5

37.8
41.2
42.4
42.6
42.3

22.7
23.0
22.7
22.6
22.3

16.2
16.1
16.0
16.2
16.5

3.9
3.8
3.6
3.6
3.7

1990 ...............................................................................................................................
1991 ...............................................................................................................................
1992 ...............................................................................................................................
1993 ...............................................................................................................................
1994 estimate................................................................................................................

709.3
784.8
919.2
1,131.0
1,300.0
1,499.4
1,736.2
1,888.1
2,050.3
2,189.3
2,410.4
2,687.9
2,998.6
3,247.2
3,472.4

2,134.0
2,283.5
2,472.4
2,607.2
2,742.6

44.0
47.4
50.5
51.6
52.3

22.9
24.4
25.9
26.8

16.2
16.2
15.5
14.9
14.3

3.7
3.8
3.6
3.3
3.2

1995 estimate................................................................................................................
1996 estimate................................................................................................................
1997 estimate................................................................................................................
1998 estimate................................................................................................................
1999 estimate................................................................................................................

3,646.1
3,828.5
4,029.9
4,237.2
4,436.3

2,802.1
2,860.1
2,923.8
2,984.6
3,033.8

51.9
51.6
51.4
51.1
50.7

14.6
14.5
14.3
14.2
14.1

3.2
3.1
3.1
3.0
3.0

1 Debt in current dollars deflated by the GDP deflator with 1987 - 100.
2 Total credit market debt owed by domestic nonfinandal sectors, modified to be consistent with budget concepts for the measurement of Federal debt. Financial sectors are omitted to avoid double counting, since financial
intermediaries both borrow and lend m the credit market Source: Federal Reserve Board flow of funds accounts. Projections are not available.
3 Interest on debt held by the public is estimated as the interest on the public debt less the “interest received by trust funds" (subfunction 901 less subfunctions 902 and 903). It does not include the comparatively small
amount of interest on agency debt or the offsets for other interest on public debt received by Government accounts.




185

186

ANALYTICAL PERSPECTIVES

for additional tangible or intangible investment, the
Federal demand on credit markets 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 size and composi­
tion of assets held by the private sector and the per­
ceived wealth of the public. It also affects the amount
of taxes required to pay interest to the public on Fed­
eral debt. Borrowing from the public is therefore an
important concern of Federal fiscal policy.
Issuing debt securities to Government accounts is an
essential element in accounting for the operation of
these funds. The balances of debt represent the cumu­
lative surpluses of these funds due to the excess of
their tax receipts and other collections compared to
their spending. These balances can be used in later
years to finance future payments to the public. The
interest on this debt compensates these funds—and the
members of the public who pay earmarked taxes or
user fees into these funds—for spending some of their
income at a later time than when they receive it. Public
policy may deliberately run surpluses and accumulate
debt in trust funds and other Government accounts
in order to finance future spending (as in the case of
social security) or to measure the accruing cost of em­
ployee pension compensation (in the case of the military
and new civilian employees).
However, issuing debt to Government accounts does
not have any of the economic effects of borrowing from
the public. It is an internal transaction between two
accounts, both within the Government itself. It does
not represent either current transactions of the Govern­
ment with the public or an estimated amount of future
transactions with the public. For example, if the ac­
count conducts a retirement program, the debt that
it holds does not represent the actuarial present value
of future benefits. The future transactions of Federal
social insurance and retirement programs, which own
Debt Held by the Public and Gross Federal
about four-fifths of the debt held by Government ac­
Debt
counts, are important in their own right and need to
The Federal Government issues debt for two principal be considered separately. Debt held by the public is
purposes. First, it borrows from the public in order therefore a better concept than gross Federal debt for
to finance the Federal deficit. Second, it issues debt analyzing the effect of the budget on the economy.3
to Government accounts, primarily trust funds, that
Borrowing and Government Deficits
accumulate surpluses. By law, most trust fund sur­
Table 13-2 summarizes Federal borrowing and debt
pluses must be invested in Federal securities. The gross
Federal debt is thus defined to consist of both the debt from 1993 through 1999. In 1993 the borrowing from
held by the public and the debt held by Government the public was $247.3 billion, and Federal debt held
accounts. Nearly all the Federal debt has been issued by the public increased to $3,247.2 billion. The issuance
by the Treasury and is formally called “public debt,”
2The Federal sector of the national income and product accounts provides a better measure
but a small portion has been issued by other Govern­ of the deficit for analyzing the effect of Federal fiscal policy on national saving than does
the budget deficit or Federal borrowing from the public. The Federal sector and its dif­
ment agencies and is called “agency debt.” 1
ferences from the budget are discussed in Chapter 19.
3Debt held by the public was measured until recent years as the par value (or face
Borrowing from the public, whether by the Treasury
value) of the security, which is the principal amount due at maturity. The only exception
or some other Federal agency, has a significant impact was savings bonds. However, most Treasury securities are sold at a discount from par,
some are sold at
premium. Treasury debt held by the public is
on the economy. Borrowing from the public is normally andthe sales prices plusathe unamortized discount (or less the unamortizednow measured
as
premium). At
a good approximation to the Federal demand on credit the time of sale, the value equals the sales price. Subsequently, the value equals the
sales price plus the amount of the discount that has been amortized up to that time.
markets. Even if the proceeds are used productively In equivalent terms, the value equals par less the unamortized discount. (For a security

of the budget and were roughly stable as a percentage
of GDP.
During the 1970s, large budget deficits emerged as
the economy was disrupted by oil shocks and inflation.
The nominal amount of Federal debt more than dou­
bled, and, despite high inflation, the real value of Fed­
eral debt increased by about a fifth. The ratios of Fed­
eral debt to GDP and credit market debt stopped declin­
ing after the middle of the decade.
The growth of Federal debt held by the public acceler­
ated during the early 1980s due to very large budget
deficits. Since the deficits have continued to be large,
debt has continued to grow substantially, although the
rate of increase has been slowed. With inflation re­
duced, the large growth in nominal debt has meant
a large growth in real debt as well. The ratio of Federal
debt to GDP rose from 26.8 percent in 1980 to 51.6
percent in 1993, the highest ratio since 1956. The ratio
of Federal debt to credit market debt also rose, though
to a much lesser extent, from 18.6 percent to 26.8 per­
cent. Interest outlays on debt held by the public, cal­
culated as a percentage of both total Federal outlays
and GDP, increased by about a half.
Federal debt held by the public is estimated in table
13-1 to continue to increase in 1994 and the following
years but at a markedly slower rate. The spending re­
ductions and tax increases in the Omnibus Budget Rec­
onciliation Act of 1993 reduced the total cumulative
deficit during 1994-98 by about $500 billion, and by
the end of the decade the Administration’s proposal
for health care reform is estimated to reduce it further.
As a result of these measures and the continuing eco­
nomic expansion, debt as a percentage of GDP is esti­
mated to decline gradually after 1994. Interest outlays
have already begun to decline as a percentage of both
Federal outlays and GDP and are estimated to gradu­
ally decline further over the rest of the decade.

iThe term "agency debt” is defined more narrowly in the budget than in the securities
market, where it includes not only the debt of the Federal agencies listed in table 13-3
but also the debt of the Government-sponsored enterprises listed in a table at the end
of Chapter 10 and certain Government-guaranteed securities.




sold at a premium, the definition is symmetrical.) Agency debt, except for zero-coupon
certificates, is recorded at par. For further analysis of the concepts, see Special Analysis
E, “Borrowing and Debt,” in Special Analyses, Budget of the United States Government,
Fiscal Year 1990, pp. E-5 to E-8, although some of the practices it describes have been
changed.

187

13. FEDERAL BORROWING AND DEBT

of debt to Government accounts was $100.7 billion, and
gross Federal debt increased to $4,351.2 billion. Borrow­
ing from the public is estimated to decrease to $173.7
billion in 1995.
Borrowing from the public depends both on the Fed­
eral Government’s expenditure programs and tax laws
and on economic conditions. The sensitivity of the budg­
et to economic conditions is analyzed in Chapter 1 of
this volume.
Debt held by the public.—Table 13-2 shows the
relationship between borrowing from the public and the
Federal deficit. The total deficit of the Federal Govern­
ment includes not only the budget deficit but also the
surplus or deficit of the off-budget Federal entities,
TABLE 13-2.

which have been excluded from the budget by law.
Under present law the off-budget Federal entities are
the social security trust funds (old-age and survivors
insurance and disability insurance) and the Postal Serv­
ice fund.4 Since they had a large combined surplus
in 1993 and are estimated to have a growing surplus
during 1994-99, they reduce the requirement for Treas­
ury to borrow from the public by a substantial amount.
The total Federal deficit is financed either by borrow­
ing from the public or by the other means shown in
table 13-2, such as a decrease in Treasury’s cash bal­
ance. Many of these other means of financing are nor­
mally small relative to borrowing from the public. This
4 For further explanation of the off-budget Federal entities, see Chapter 22, “Off-Budget
Federal Entities.”

FEDERAL GOVERNMENT FINANCING AND DEBT <
(In billions of dollars)
Estimate

1993
actual

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

1994

1995

1996

1997

1998

1999

-254.7
-300.0
45.3

-234.8
-290.1
55.3

-165.1
-225.0
59.9

-169.6
-236.3
66.7

-186.4
-265.5
79.2

-190.5
-279.2
88.7

-181.1
-278.6
97.6

Means of financing other than borrowing from the public:
Change in: 2
Treasury operating cash balance..................................................................
Checks outstanding, etc. 3 .............................................................................
Deposit fund balances ...................................................................................
Seigniorage on coins..........................................................................................
Less: Net financing disbursements:
Direct loan financing accounts.......................................................................
Guaranteed loan financing accounts.............................................................

6.3
0.4
-0.4
0.4

12.5
-0.9
-0.5
0.6

—
—
—

—

—
—

—
—
—

—

-0.4
-1.7
0.6

0.6

0.6

0.6

0.6

-3.8
4.6

-6.4
4.2

-10.1
3.0

-15.9
2.5

-17.9
2.3

-18.9
1.4

-19.0
0.4

Total, means of financing other than borrowing from the public...............

7.4

9.5

-8.6

-12.8

-15.0

-16.8

-18.0

Total, requirement for borrowing from the public......................................
Reclassification of debt4 ...........................................................................

-247.3
-1.3

-225.2

-173.7

-182.4

-201.4

-207.3

-199.1

Change in debt held by the public................................................................

248.5

225.2

173.7

182.4

201.4

207.3

199.1

4,326.5
24.8

4,652.1
23.9

4,936.0
24.2

5,243.0
24.1

5,577.2
24.1

5,929.4
24.1

6,281.4
24.1

—

—

—

—

—

—

—

—

—

DEBT, END OF YEAR 1
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)............................................................................................................

4,351.2

4,676.0

4,960.1

5,267.1

5,601.3

5,953.5

6,305.4

1,104.0
3,247.2
325.7
2,921.5

1,203.6
3,472.4

1,314.0
3,646.1

1,438.5
3,828.5

1,571.3
4,029.9

1,716.3
4,237.2

1,869.1
4,436.3

DEBT SUBJECT TO STATUTORY LIMITATION, END OF YEAR
Debt issued by Treasury ........................................................................................
Less: Treasury debt not subject to limitations .......................................................
Agency debt subject to limitation ...........................................................................
Adjustment for discount and premium e .................................................................

4,326.5
-15.6
0.2
4.5

4,652.1
-15.6
0.1
4.5

4,936.0
-15.6
0.1
4.5

5,243.0
-15.6
0.1
4.5

5,577.2
-15.6
0.1
4.5

5,929.4
-15.6
0.1
4.5

6,281.4
-15.6
0.1
4.5

Total, debt subject to statutory limitation7 ...................................................

4,315.6

4,641.1

4,925.0

5,232.0

5,566.2

5,918.4

6,270.3

1 Treasury

securities held by the public and zero-coupon bonds held by Government accounts are almost entirely measured at sales price plus amortized discount or less amortized premium. Agency debt is almost entirely
measured at face value. Treasury securities in the Government account series are measured at face value less unrealized discount (if any).
2 A decrease in the Treasury operating cash balance (which is an asset) is a means of financing the deficit. It therefore has a positive sign, which is opposite to the sign of the deficit. An increase in checks outstanding or
deposit fund balances (which are liabilities) is also a means of financing the deficit and therefore also has a positive sign.
3 Besides checks outstanding, includes accrued interest payable on Treasury debt, miscellaneous liability accounts, allocations of special drawing rights, and, as an offset, cash and monetary assets other than the Treasury oper­
ating cash balance, miscellaneous asset accounts, and profit on sale of gold.
4 The Farm Credit System Financial Assistance Corporation was reclassified from a Government-sponsored enterprise to a Federal agency as of October 1, 1992, and its debt was accordingly reclassified as Federal agency
debt This reclassification does not constitute borrowing.
s Consists primarily of Federal Financing Bank debt
6 Consists of unamortized discount (less premium) on public issues of Treasury notes and bonds (other than zero-coupon bonds) and unrealized discounts on Government account series securities.
7The statutory debt limit is $4,900 billion.




188
is because they are limited by their own nature. De­
creases in cash balances, for example, are inherently
limited by past accumulations, which themselves re­
quired financing when they were built up. In 1993
these other accounts added up to a positive amount,
$7.4 billion, which reduced the need to borrow from
the public.
One of the other means of financing was created by
the Federal Credit Reform Act of 1990. Budget outlays
for direct loans and loan guarantees consist of the esti­
mated subsidy cost of the loans or guarantees at the
time when the direct loans or guaranteed loans are
disbursed. The portion of the net cash flow that does
not represent a cost to the Government is non-budgetary in nature and is recorded as a transaction of
the financing account for each credit program.5
The “net financing disbursements” of a financing ac­
count 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 thus in­
crease 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 Gov­
ernment's bills in the same way as tax receipts, borrow­
ing, or any other cash collection. The financing accounts
are therefore a means of financing the Government,
positive or negative, just like the other means listed
in table 13-2. A positive amount of net financing dis­
bursements is shown in the table by the financing ac­
count having a negative sign, like the deficit, so that
it is shown adding to the requirement for borrowing
from the public.
The financing accounts subtracted a small amount
from borrowing requirements in 1993. However, they
are expected to add to borrowing requirements begin­
ning in 1994, and their total net effect is estimated
to widen in the following years and reach $18.6 billion
by 1999. The principal reason is that the Omnibus
Budget Reconciliation Act of 1993 replaced much of the
guaranteed student lending with direct loans in order
to lower Federal cost by providing student assistance
more efficiently. It is estimated that 60 percent of the
lending in 1998-99 will be direct loans. Since direct
loans require cash disbursements equal to the full
amount of the loans when the loans are made, Federal
borrowing requirements are increased.
Debt held by Government accounts.—The amount
of Federal debt issued to Government accounts depends
largely on the surpluses of the trust funds, both onbudget and off-budget, which owned 95 percent of the
total Federal debt held by Government accounts at the
end of 1993. In 1993, for example, the total trust fund

ANALYTICAL PERSPECTIVES

surplus was $100.0 billion and Government accounts
invested $100.7 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. The
amounts held in major accounts and the annual invest­
ments are shown in table 13-4.

Agency Debt
Several Federal agencies, shown in table 13-3, sell
debt securities to the public and in one case to other
Government accounts. During 1993, agencies borrowed
$5.4 billion, and reclassifying the Farm Credit System
Financial Assistance Corporation from a Governmentsponsored enterprise to a Federal agency increased
agency debt by another $1.3 billion. Agency debt is
only one percent of Federal debt held by the public.
The reason for issuing agency debt differs consider­
ably from one agency to another. The predominant
agency borrower in 1993 was the Tennessee Valley Au­
thority, which borrowed $5.7 billion from the public.
Most of this borrowing was to buy back its nuclear
fuel inventory that had previously been leased to the
Seven States Energy Corporation and to engage in ad­
vance refunding of some of its existing debt.
The Federal Housing Administration, on the other
hand, has for many years issued both checks and de­
bentures as means of paying claims to the public that
arise from defaults on FHA-insured mortgages. Issuing
debentures to pay the Government’s bills is equivalent
to borrowing from the public and then paying the bills
by disbursing the cash borrowed, so the transaction
is recorded as being simultaneously an outlay and a
borrowing. The notes are therefore classified as agency
debt. The borrowing by FHA and other agencies that
have engaged in similar transactions is thus inherent
in the way that their programs operate.6
Some types of lease-purchase contracts are equivalent
to direct Federal construction financed by Federal bor­
rowing. The Federal Government guaranteed the debt
used to finance the construction of buildings for the
National Archives and the Architect of the Capitol and
has exercised full control over the design, construction,
and operation of the buildings. The construction ex­
penditures and interest were therefore classified as
Federal outlays, and the borrowing was classified as
Federal agency borrowing from the public. The securi­
ties used to finance the construction of the building
for the Architect of the Capitol were zero-coupon certifi­
cates, for which the sales price was about one-fourth
of par value. As an exception to the normal treatment
of agency debt, but like Treasury zero-coupon bonds,
they are recorded at the sales price plus the amortized
discount. The interest is accrued as an outlay.
The proper budgetary treatment of lease-purchases
was further examined in connection with the Budget

6 The debt securities of the Federal Deposit Insurance Corporation and Department of
5 As explained in Chapter 22, “Off-Budget Federal Entities," the financing accounts are the Interior were also issued as a means of paying specified bills. The budgetary treatment
of these securities is further discussed in Special Analysis E of the 1989 Budget, pp.
non-budgetary in concept because they do not measure cost. For further discussion of credit
E-25 to E-26; and Special Analysis E of the 1988 Budget, pp. E-27 to E-28.
reform, see Chapter 10, “Underwriting Federal Credit and Insurance.”




189

13. FEDERAL BORROWING AND DEBT

TABLE 13-3. AGENCY DEBT
(In millions of dollars)
Borrowing or repayment (-) of debt
Description

1993
actual

1994
estimate

1995
estimate

Borrowing from the public:
_*
-1
Defense ............................................................................................................
-6
Housing and Urban Development:
14
-112
Federal Housing Administration...................................................................
1
-5
Interior...............................................................................................................
Small Business Administration:
Participation certificates: SBIC and section 505 development company.....
14
7
Architect of the Capitol.....................................................................................
-1
Farm Credit System Financial Assistance Corporation1 .................................
Federal Deposit Insurance Corporation:
Bank Insurance Fund ...................................................................................
-93
-194
-943
FSLIC Resolution Fund................................................................................
National Archives .............................................................................................
—
3
-4
5,660
Tennessee Valley Authority..............................................................................
325
250
Total, borrowing from the public.........................................................

5,493

Borrowing from other funds:
Housing and Urban Development:
Federal Housing Administration ...................................................................

-830

Debt end of
1995
estimate

81
8
74
182
1,261

295
22,250

246

24,151

-102

-1

20

Total, borrowing from other funds.......................................................

-102

-1

20

Total, agency borrowing........................................................................

5,391

245

24,171

-830

*$500 thousand or less.
’ The Farm Credit System Financial Assistance Corporation was reclassified from a Government-sponsored enterprise to a Federal agency as of October 1, 1992,
and its debt of $1,261 million was accordingly reclassified as Federal agency debt This reclassification does not constitute borrowing.

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 con­
tractor 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 to the extent of these out­
lays. The agency debt will subsequently be redeemed
over the lease payment period by a portion of the an­
nual lease payments. This rule was effective starting
in 1991. However, no lease-purchase agreements in
which the Government assumes substantial risk have
yet been authorized or are estimated for 1994 or 1995.
Besides the lease-purchases financed by agency bor­
rowing from the public, the budget also reflects the
cost of lease-purchases financed by the Federal Financ­
ing Bank (FFB). The FFB, established within the
Treasury Department, can lend to agencies by purchas­
ing agency debt or in other specified ways. It finances
these transactions by borrowing from the Treasury,
which in turn borrows from the public. This reduces
the cost of financing below what the agency or guaran­
teed private borrower would have had to pay in the
credit market. In 1988, 1989, and 1990 Congress au­
thorized 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 out­
lays are recorded in the budget as payments are made
for construction and other costs, and the financing con­


150-003
http://fraser.stlouisfed.org/ 0 -9 4 -7 (QL 3)
Federal Reserve Bank of St. Louis

sists of Treasury borrowing from the public. Borrowings
from the FFB are not included in table 13-3 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 obliga­
tions. 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 ac­
counts was around $10 billion per year in the early
1980s. Primarily due to the Social Security Amend­
ments of 1983, an expanding economy, and the creation
of the military retirement trust fund, investment has
risen greatly since then. It was $100.7 billion in 1993
and, as shown in table 13-4, it is estimated to be
$110.4 billion in 1995. The holdings of Federal securi­
ties by Government accounts are estimated to rise to
$1,314.0 billion by the end of 1995. This will be 26
percent of the gross Federal debt.
The large investment by Government accounts is con­
centrated among a few trust funds. The two social secu­
rity trust funds—old-age and survivors insurance and
disability insurance—have a combined large surplus
and invest increasing amounts almost each year: a total
of $166.6 billion during 1993-95, which constitutes 54
percent of the total estimated investment by Govern­
ment accounts. The hospital insurance trust fund, also
financed by the social security payroll tax, has sur-

190

ANALYTICAL PERSPECTIVES

TABLE 13-4. DEBT HELD BY GOVERNMENT ACCOUNTS i
(In m
illions of dollars)
Investment or disinvestment (-)
Description

1994
estimate

actual

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 fund2 .................
Federal disability insurance trust fund2 .......................................
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.........................................
Abandoned Mine Reclamation .....................................................
Labor:
Unemployment trust fund ............................................................
Pension Benefit Guaranty Corporation i .....................................
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 life insurance trust fund ....................................
Other trust funds..........................................................................
Federal funds...............................................................................
Environmental Protection Agency: Hazardous substance trust fund
Office of Personnel Management:
Civil Service retirement and disability trust fund.........................
Employees life insurance fund.....................................................
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 fund2 .......................................................................
Railroad Retirement Board trust funds.............................................
Tennessee Valley Authority.............................................................
Other Federal funds.........................................................................
Other trust funds..............................................................................
Unrealized discount..........................................................................

92
-2,023
8,937

1995
estimate

Holdings end
of 1995

9,060
379

-2
-4
8,220
589

3,265
7
113,969
4,930

48,986
-2,681
5,432
4,734

49,160
8,094
3,500
-1,407

52,929
10,135
5,945
-6,581

457,599
28,466
135,523
13,280

-641
468

1,603
635

1,335
664

8,132
4,739

76

-29
77

-1,266
82

4
1,257

1,473
1,509

1,918
667
564

3,528
819
655

42,052
6,023
7,880

1,042
-2,419
2,322

-6,772
-5,407
258

-169
28
171

15,063
7,293
6,065

356
51
-44
942

184
28
-96
607

120
28
-41
741

11,970
1,681
569
6,046

27,275
1,084
801

28,003
1,098
962

28,146

367,853
15,896
8,652

-339
-517
943
367
-1,653
433
1,213
-33
1,506

6,365
-362
1,065
305
-76
-452
-39
418

5,578
-161
1,119
370
-273
106
-3,000
117
452

16,267
305
3,468
3,420
542
11,992

99,573

100,385

1,313,981

-102

-1

20

Total, investment in agency debt ........

-102

-1

20

Total, investment in Federal debt 1 .....

100,743

99,573

110,384

1,314,001

11,880

7,633
-273
41,225
63,065
-1,266

61,550
542
766,610

Total, investment in Treasury debt1
Investment in agency debt:
Housing and Urban Development:
Government National Mortgage Association

1,475

2

2,212

-

-6

100,844

1,110

3,083
7,459
-770

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 funds3 ....................
Unrealized discount...................................

3,740
-1,653
52,311
46,305
46
-6

-

2,212

32,678
57,254
-29

-770

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 beginning in 1991 and recorded at the market or redemption price; and the unrealized discount on Government account series securities, which is not dis­
tributed by account. Changes are not estimated in the unamortized discount on PBGC bonds or the unrealized discount. If recorded at face value, PBGC's holdings at
the end of 1993 would be $12,006 million higher.
2 Off-budget Federal entity.
3 Only those deposit funds classified as Government accounts.




13. FEDERAL BORROWING AND DEBT

pluses at present and accounts for 5 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 35 percent of the total investment by Government
accounts during 1993-95. Altogether, the investment
of these two retirement funds and the three funds fi­
nanced by the social security tax equals 94 percent
of the investment by all Government accounts during
this period. At the end of 1995, they will account for
84 percent of the total holdings by Government ac­
counts.
Technical note on measurement.—The Treasury secu­
rities held by Government accounts consist almost en­
tirely of the Government account series. Most was is­
sued at par value (face value), and the securities issued
at a discount or premium have traditionally been re­
corded at par in the OMB and Treasury reports on
Federal debt. However, there are now two exceptions.
First, since 1991 Treasury has issued zero-coupon
bonds to the Pension Benefit Guaranty Corporation
(PBGC). Because the purchase price is a small fraction
of par value and the amounts are large, the PBGC
holdings are recorded in table 13-4 at purchase price
plus amortized discount. The valuation method is the
estimated market or redemption price. Treasury aggre­
gates all debt held by Government accounts at par but
subtracts the unamortized discount in calculating "net
federal securities held as investments of government
accounts.”
Second, as of September 1993 Treasury has also sub­
tracted the unrealized discount on other Government
account series securities in calculating “net federal se­
curities held as investments of government accounts.”
Unlike the discount recorded for PBGC or for debt held
by the public, this discount is the amount at the time
of issue and is not amortized over the term of the
security. It is much smaller than the unamortized dis­
count on the zero-coupon bonds held by PBGC: $0.8
billion at the end of 1993 compared to $12.0 billion.
In table 13-4 it is shown as a separate item at the
end of the table and is not distributed by account. The
data for 1989-92 were revised retroactively for this
change.

Limitations on Federal Debt
Definition o f debt subject to limit.—Statutory lim­
itations have normally been placed on Federal debt.
Until World War I, the Congress ordinarily authorized
a specific amount of debt for each separate issue. Begin­
ning with the Second Liberty Bond Act of 1917, how­
ever, the nature of the limitation was modified in sev­
eral 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 is­




191
sued 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 13-2 compares total Treasury
debt with the amount of Federal debt that is subject
to the limit. Most of the Treasury debt not subject
to limit was issued by the FFB. It is authorized to
have outstanding up to $15 billion of publicly issued
debt, and this amount has been issued to the civil serv­
ice retirement and disability trust fund. The remaining
Treasury debt not subject to limit consists almost en­
tirely 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 $213 million
at the end of 1993. Some of the other agency debt,
however, is subject to its own statutory limit. For exam­
ple, the Tennessee Valley Authority is limited to $30
billion of securities outstanding (including its debt to
the FFB).
The comparison between Treasury debt and debt sub­
ject to limit also includes an adjustment for measure­
ment differences in the treatment of discounts and pre­
miums. As explained elsewhere in this chapter, debt
securities may be sold at a discount or premium, and
the measurement of debt may take this into account
rather than recording the face value of the securities.
However, the treatment is not uniform. An adjustment
is needed to derive debt subject to limit (as defined
by law) from Treasury debt, and this adjustment is
specified in footnote 6 to table 13-2. The amount is
relatively small: $4.5 billion at the end of 1993 com­
pared to the total discount (less premium) of $85.0 bil­
lion recognized on Treasury securities.
Methods o f changing the debt limit.—The statu­
tory debt limit has frequently been changed. Since
1960, Congress has passed 64 separate acts to raise
the limit or extend the duration of a temporary in­
crease.
The statutory limit can be changed by normal legisla­
tive procedures. It can also be changed as a con­
sequence 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 Representa­
tives is deemed to have been a vote in favor of a joint
resolution setting the statutory limit at the level speci­
fied 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 the decision on
the debt limit to the decisions on the Federal deficit
and other factors that determine the change in the

192

ANALYTICAL PERSPECTIVES

debt subject to limit. Both methods have been used
numerous times.
Recent changes in the debt limit.—A statutory
debt limit of $4,145 billion was established as part of
the budget negotiations between the President and the
Congress in the summer and fall of 1990. The negotia­
tions were concluded with the Omnibus Budget Rec­
onciliation Act of 1990, which the President signed on
November 5, 1990. The increase in the debt limit was
large enough to last nearly two and a half years, the
longest time without an increase since the period from
1946 to 1954.
In the spring of 1993 the debt approached the limit,
and Treasury had to postpone several auctions. On
April 6, 1993, the Congress passed a bill raising the
limit to $4,370 billion through September 30, 1993, and
the President signed the bill on that same day. A fur­
ther debt limit increase, one without an expiration date,
accompanied the deficit reduction package as part of
the Omnibus Budget Reconciliation Act of 1993. This
Act, which the President signed on August 10, 1993,
increased the limit to $4,900 billion.
Federal funds financing and the change in debt
subject to limit.—The change in debt held by the pub­
lic, as shown in table 13-2, is determined principally
by the total Government deficit. The debt subject to
TABLE 13-5.

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, Fed­
eral 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 unemploy­
ment benefits.7
A Federal funds deficit must generally be financed
by borrowing, either by selling securities to the public
or by issuing securities to Government accounts. Fed­
eral funds borrowing consists almost entirely of the
Treasury issuing securities that are subject to the stat­
utory debt limit. Trust fund surpluses are almost en­
tirely invested in these securities, and trust fund hold­
ings include most of the debt held by Government ac­
counts. The change in debt subject to limit is therefore
determined principally by the Federal funds deficit,
7 For further discussion of the trust funds and Federal funds groups, see Chapter 18,
‘Trust Funds and Federal Funds."

FEDERAL FUNDS FINANCING AND CHANGE IN DEBT SUBJECT TO STATUTORY LIMIT
(In billions of dollars)
Description

1993
actual

Estimate
1994

1995

1996

1997

1996

1999

-354.7
-353.3
-1.4

-334.4
-332.6
-1.7

-267.7
-264.4
-3.3

-288.8
-288.5
-0.2

-316.5
-317.0
0.5

-333.8
-334.9
1.1

-333.1
-334.6
1.5

6.3
1.8
-0.4
0.4

12.5
8.8
-0.5
0.6

-2.1
-1.7
0.6

0.6

0.6

0.6

0.6

-3.8
4.6

-6.4
4.2

-10.1
3.0

-15.9
2.5

-17.9
2.3

-18.9
1.4

-19.0
0.4

Total, means of financing other than borrowing ...............................................

8.8

19.2

-10.3

-12.8

-15.0

-16.8

-18.0

Decrease or increase (-) in Federal debt held by Federal funds and deposit funds4 .......
Increase or decrease (-) in Federal debt not subject to limit.............................................

-2.1
6.7

-9.6
-0.7

-6.1
0.2

-5.3
-0.1

-2.7

-1.6

-0.8

Total, requirement for Federal funds borrowing subject to debt lim it............

-341.3

-325.5

-283.9

-307.0

-334.2

-352.2

-351.9

Adjustment for change in discount or premium 5 ................................................................
Reclassification of debt.................................. ......................................................................
Increase in debt subject to limit...........................................................................................

-0.5
-1.3
343.0

325.5

283.9

307.0

334.2

352.2

351.9

ADDENDUM
Debt subject to statutory limit ® ............................................................................................

4,315.6

4,641.1

4,925.0

5,232.0

5,566.2

5,918.4

6,270.3

Federal funds, surplus or deficit ( - ) .................................................................................
(On-budget)......................................................................................................................
(Off-budget)......................................................................................................................
Means of financing other than borrowing:
Change in:1
Treasury operating cash balance................................................................................
Checks outstanding, etc.2 ...........................................................................................
Deposit fund balances3 ...............................................................................................
Seigniorage on coins........................................................................................................
Less: Net financing disbursements:
Direct loan financing accounts.....................................................................................
Guaranteed loan financing accounts...........................................................................

iimiuh or less.

_*

1 A decrease in the Treasury operating cash balance (which is an asset) Is a means of financing the d efat It therefore has a positive sign, which is opposite to the sign of the deficit. An increase in checks outstanding or
deposit fund balances (which are Kabiities) is also a means of financing the deficit and therefore also has a positive sign.
2 Besides checks outstanding, indudes accrued interest payable on Treasury debt, miscellaneous liabity accounts, alocations of special drawing rights, and, as an offset, cash and monetary assets other than the Treasury oper­
ating cash balance, miscellaneous asset accounts, and profit on sale of gold.
3 Does not indude investment in Federal debt securities by deposit funds classified as part of the pubfic.
4 Only those deposit funds d as fifi^ as Government accounts.
fi Consists of unamortized discount (less premium) on public issues of Treasury notes and bonds (other than zero-coupon bonds) and unrealized discount on Government account series securities.
•The statutory debt Umit is $4,900 bUion.




193

13. FEDERAL BORROWING AND DEBT

which is equal to the arithmetic sum of the total Gov­
ernment deficit and the trust fund surplus.
Table 13-5 derives the change in debt subject to
limit. In 1993 the Federal funds deficit was $354.7 bil­
lion; and other factors reduced the requirement to bor­
row subject to limit by $13.4 billion. The largest other
factors were the decrease in Treasury cash balances
and the increase in agency debt not subject to the gen­
eral limit. As a result, the debt subject to limit in­
creased by $343.0 billion, which was $94.5 billion more
than the increase in debt held by the public.
So long as the trust fund surplus is large, the Federal
funds deficit will be much more than the total Govern­
ment 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 re­
main large, so the debt limit will have to be increased
in the future by much more than needed to finance
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 13-6, 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 di­
rect marketing of these securities to foreign residents.
At the end of fiscal year 1993 foreign holdings of Treas­
ury debt were $592.1 billion, which was 18 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 about the same as during the late 1970s. It
has been roughly stable the past few years. At the
end of fiscal year 1993, foreign central banks and other

TABLE 13-6. FOREIGN HOLDINGS OF FEDERAL DEBT
(Dollar amounts in billions)
Debt held by the public
Fiscal year
Total

Foreign1

Borrowing from the public

Percent­
age
foreign

Total 2

Foreign1

Interest on debt held by the public

Percent­
age
foreign

Total3

Foreign4

Percent­
age
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 ......................................................
19855 ....................................................
1986 ......................................................
1987 ......................................................
1988 ......................................................
1989 ......................................................

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

1,499.4
1,736.2
1,888.1
2,050.3
2,189.3

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
139.1

47.4
42.7
14.0
66.4
49.0

n.a.
18.0
9.2
40.9
35.2

152.9
159.3
160.4
172.3
189.0

23.0
24.2
25.7
29.9
37.1

15.1
15.2
16.0
17.4
19.6

1990
1991
1992
1993

2,410.4
2,687.9
2,998.6
3,247.2

440.3
477.3
535.2
592.1

18.3
17.8
17.8
18.2

221.0
277.6
310.7
247.3

45.4
37.0
57.9
56.9

n.a.
13.3
18.6
23.0

202.4
214.8
214.5
210.2

40.1
42.0
41.0
41.6

19.8
19.5
19.1
19.8

......................................................
......................................................
......................................................
......................................................

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 re­
corded by methods that are strictly comparable with the data on debt held by the public. Projections are not available.
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 Mjency debt or the offsets for other interest on public debt 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
s Benchmark revisions reduced the estimated foreign holdings of Federal debt as of December 1978 and increased the estimated foreign holdings as of December 1984
and December 1989. As a result, the data on foreign holdings m different time periods are not strictly comparable, and the “borrowing" from foreign residents in 1979,
1985, and 1989 reflects the benchmark revision as well as the net purchases of Federal debt securities.
n.a - Not applicable due to negative numbers or benchmark revision.




194

ANALYTICAL PERSPECTIVES

official institutions owned 62 percent of the Federal
debt held by foreign residents; private investors owned
nearly all the rest. All 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.

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 assist­
ance to certain borrowing by the public. Federally as­
sisted borrowing is of two principal types: Governmentguaranteed borrowing, which is another term for guar­

anteed lending, and borrowing by Government-spon­
sored enterprises (GSEs). The Federal Government also
exempts the interest on most State and local govern­
ment debt from income tax.
Federal credit assistance is discussed in Chapter 10,
“Underwriting Federal Credit and Insurance.” Detailed
data are presented in tables at the end of that chapter.
Table 13-7 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 as­
sisted 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 has trended
strongly upward since the 1960s. Much of the recent
increase has been due to higher GSE borrowing as well
as higher Federal deficits. The Federal lending partici­
pation rate has been smaller and more stable over time
than the borrowing participation rate, because Federal
direct loans are much smaller than Federal borrowing.

TABLE 13-7. FEDERAL PARTICIPATION IN THE CREDIT MARKET
(Dollar amounts in billions)
Actual
1965

1970

Estimates

1975

1980

1985

1990

1991

1992

1993

1994

1995

Total net borrowing in credit market1 ................................................................

66.7

87.9

169.7

324.9

803.5

690.2

503.7

552.8

544.4

Federal borrowing from the public.....................................................................
Guaranteed borrowing........................................................................................
Government-sponsored enterprise borrowing2 ..................................................

3.9
5.0
1.2

3.5
7.8
4.9

51.0
8.6
5.3

69.5
31.6
21.4

199.4
21.6
57.9

221.0
40.7
115.4

277.6
22.1
124.6

310.7
19.73
150.8

247.3
-2.0
170.2

225.2
88.3
153.9

173.7
87.5
133.4

Total, Federal and federally assisted borrowing.......................................
Federal borrowing participation rate (percent).............................................

10.1
15.1

16.2
18.4

65.0
38.3

122.5
37.7

278.9
34.7

377.1
54.6

424.3
84.2

481.2
87.0

415.5
76.3

467.4

394.6

Total net lending in credit market1 ...................................................................

66.7

87.9

169.7

324.9

803.5

690.2

503.7

552.8

544.4

Direct loans ........................................................................................................
Guaranteed loans...............................................................................................
Government-sponsored enterprise loans2 .........................................................

2.0
5.0
1.4

3.0
7.8
5.2

12.7
8.6
5.5

24.2
31.6
24.1

28.0
21.6
60.7

2.8
40.7
90.0

-7.5
22.1
90.7

7.0
19.73
145.2

-1.7
-2.0
163.2

-0.2
88.3
147.7

7.5
87.5
125.1

Total, Federal and federally assisted lending ...........................................
Federal lending participation rate (percent)..................................................

8.3
12.4

15.9
18.1

26.9
15.9

79.9
24.6

110.3
13.7

133.5
19.3

105.3
20.9

171.9
31.1

159.5
29.3

235.8

220.1

1 Total net borrowing (or lending) in credit market by domestic nonfinandal sectors excluding equities. Financial sectors are omitted to avoid double counting, since financial intermediaries both borrow and lend in the credit mar­
ket Source: Federal Reserve Board flow of funds accounts. Projections are not available.
2 Most Government-sponsored enterprises (GSEs) are financial intermediaries. GSE borrowing (lending) is nevertheless compared with total credit market borrowing (lending) because GSE borrowing (lending) is a proxy for the
borrowing (lending) by nonfinandal sectors that is intermediated by GSEs. It assists the ultimate nonfinandal borrower (lender) whose loans are purchased or otherwise financed by GSEs. In order to avoid double counting, GSE
borrowing and lending are calculated net of transactions with Federal agencies, transactions between GSEs, and transactions in guaranteed loans.
AAA3Revised from the 1994 Budget







BUDGET ENFORCEMENT ACT
PREVIEW REPORT




14. PREVIEW REPORT
The Budget Enforcement Act of 1990 (BEA) contains
procedures designed to enforce the deficit reduction
agreement of the Omnibus Budget Reconciliation Act
of 1990. The BEA divides the budget into two mutually
exclusive categories; 1) discretionary programs, and 2)
direct spending and receipts. For 1991 through 1995,
the BEA limits discretionary spending and establishes
a “pay-as-you-go” requirement that legislation changing
direct spending and receipts must, in total, be at least
deficit neutral. These provisions were extended through
1998 by the Omnibus Budget Reconciliation Act of 1993
(OBRA 1993), which became law on August 10, 1993.
This Preview Report discusses the status of discre­
tionary, pay-as-you-go, and deficit sequestration based
on current law as of December 31, 1993. In addition,
it explains the differences between the OMB and CBO
estimates of the discretionary caps and the maximum
deficit amount.
The OMB estimates use the economic and technical
assumptions underlying the President's budget submis­
sion, as required by the BEA. The OMB Update Report
that will be issued in August, and the Final Report
that will be issued after the end of the Congressional
session, must also use these economic and technical
assumptions. Estimates in the Update Report and the
Final Report will only be revised to reflect laws enacted
since the Preview Report.

Discretionary Sequestration Report
Discretionary programs are, in general, those that
have their program levels established annually through
the appropriations process. The scorekeeping guidelines
accompanying the BEA identify accounts with discre­
tionary resources. The BEA, as amended, limits budget
authority and outlays available for discretionary pro­
grams each year through 1998. Appropriations that
cause either the budget authority or outlay limits to
be exceeded will trigger a sequester to eliminate any
such breach.
Adjustments to the limits.—The BEA permits certain
adjustments to the discretionary limits—also known as
caps. On December 10, 1993, the Office of Management
and Budget submitted the Final Sequestration Report
required by the BEA. This report described adjustments
permitted by the BEA as of the time the report was
issued. The caps resulting from these adjustments are
the starting points for this Preview Report. Included
in this report are cap adjustments for differences be­
tween actual and projected inflation, reestimates of sub­
sidy amounts under credit reform, and changes in con­
cepts and definitions. Table 14-1, Summary of Changes
to Discretionary Spending Limits, is a summary of all
changes to the 1991 through 1995 caps originally en­
acted in the BEA. Table 14-2, Discretionary Spending
Limits, shows the impact on the caps of adjustments
being made in this Preview Report.

TABLE 14-1. SUMMARY OF CHANGES TO DISCRETIONARY SPENDING LIMITS, 1991-1995
(In billions of dollars)
1991

TOTAL DISCRETIONARY
Statutory Caps as Set in OBRA 1990 ............................................................................................................
Adjustments for Allowances.............................................................................................................................
Adjustments for IRS Funding, IMF, and Debt Forgiveness.............................................................................
Adjustments for Changes in Inflation...............................................................................................................
Adjustments for Redefinition of Concepts (credit reform, etc.), and credit reestimates..................................
Adjustments for Emergency Requirements1 .....................................................................................................
Subtotal, Adjustments Excluding Desert Shield/Desert Storm................................................................
Adjustments for Desert Shield/Desert Storm...................................................................................................
Preview Report Discretionary Spending Limits................................................................................................

1992

BA
OL
BA
OL
BA
OL
BA
OL
BA
OL
BA
OL

491.7
514.4

1993

1994

1995

517.7
540.8

0.9
1.1

503.4
524.9
3.6
3.1
0.2
0.3
-0.5
-0.3
7.7
1.1
8.3
1.8

511.5
534.0
2.9
2.7
12.5
0.3
-5.1
-2.5
8.7
2.9
4.6
5.4

510.8
534.8
2.9
3.4
0.2
0.4
-9.5
-5.8
8.6
2.8
0.4
4.3

BA
OL
BA
OL

1.1
3.9
44.2
33.3

19.3
5.9
14.0
14.9

23.6
8.8
0.6
7.5

2.6
5.1
*
2.8

-2.5
-2.2
*

BA
OL

537.1
551.6

536.6
545.7

535.7
550.3

513.4
542.7

515.2
539.6

2.6
0.2
0.3

1.3
0.2
-11.8
-8.8
9.3
3.4
1.6

1.0

‘ Less than $50 million.
11ncludes adjustments in 1993 and 1994 for the release of contingent emergency appropriations.




197

198
The discretionary caps enacted in the BEA reflect
assumptions about inflation, as measured by the gross
national product implicit price deflator. These assump­
tions are presented in the law for 1990 through 1993.
The BEA requires an inflation adjustment if the actual
rate of inflation for a year is different from the rate
identified in the law for that year. Because the actual
rate of inflation for 1993 was 2.7 percent, or 0.6 per­
centage points less than the 3.3 percent assumed in
the BEA, a downward adjustment has been made to
the discretionary caps for 1995.
Certain changes to the caps affect specific accounts.
An adjustment previously was made to the caps for
accounting changes made by the Federal Credit Reform
Act of 1990. Table 14-2 shows reestimates of these
changes that result from better information on subsidy
levels in credit programs.
Several cap adjustments represent changes in con­
cepts and definitions resulting from legislative action
that reclassified certain programs. These actions shifted
programs between the mandatory (i.e., direct spending)
category and the discretionary category. For instance,
several 1994 appropriations bills included provisions
that modified normally mandatory programs. Since
funding controlled by appropriations action is consid­
ered discretionary, the effects of these provisions are
recorded as adjustments to the caps. In other cases,
authorizing legislation affecting spending in discre­
tionary accounts was scored with pay-as-you-go savings;
downward cap adjustments are made to these accounts
to reflect the reduced discretionary spending that will
result.
Other adjustments to the limits.—The BEA identifies
other adjustments to the discretionary caps that can
be made only after legislation has been enacted. For
example, an adjustment may be made if 1995 appro­
priations fund the Internal Revenue Service compliance
initiative above the CBO baseline levels estimated in
June 1990. The BEA specifies the amounts of these
adjustments. The BEA also provides special allowances
for budget authority and outlays. Two separate budget
authority allowances may be provided for 1994 and
1995, together with an adjustment for outlays associ­
ated with one of the allowances, calculated using
spendout rates contained in the BEA. For 1994 through
1998, the BEA also provides for an additional budget
authority allowance equal to 0.1 percent of the adjusted
limit on total discretionary budget authority for the
budget year. Another adjustment is the special outlay
allowance. The dollar amounts of the special outlay al­
lowance for 1991 through 1995 are specified in the
BEA. The annual allowances for 1994 and 1995 are
$6.5 billion. The outlay allowances through 1995 are
reduced by the outlays associated with the budget au­
thority allowances. For 1996 through 1998, the outlay
allowances are equal to 0.5 percent of the adjusted dis­
cretionary outlay limit.
The actual adjustments to the discretionary caps to
be included in the final sequester report at the end
of the current session of Congress cannot be determined




ANALYTICAL PERSPECTIVES

until appropriations have been enacted. Table 14-2
shows the end-of-session adjustments that would result
if the President’s legislative program is enacted. The
President’s request includes funding in 1995 for the
IRS compliance initiative.
Consistent with the BEA, the President’s request as­
sumes an increase in budget authority and outlays
based on the special allowance formulas. The adjust­
ment to total discretionary in 1995 would increase
budget authority by $2.9 billion and outlays by $1.4
billion. In addition, about $1.3 billion of the outlay al­
lowance has been used by the special budget authority
allowances calculated for 1992, 1993, and 1994. The
remaining outlay allowance available in 1995 would be
$3.8 billion.
Table 14-2 also shows two additional adjustments.
The first is an adjustment for proposals in the Presi­
dent’s budget that would increase certain governmental
receipts through appropriations language. Changes to
governmental receipts provided in appropriations bills
are scored as discretionary by OMB based on the scor­
ing convention that any action by the Appropriations
Committees is discretionary. Under accepted budget
concepts, however, governmental receipts do not offset
budget authority or outlays, although they offset the
deficit. This means that governmental receipt changes
cannot be included for the purpose of presenting the
President’s request for discretionary budget authority
and outlays. The adjustment shows the credit under
the discretionary caps that will be scored to appropria­
tions bills that include the proposals. The caps will
actually be adjusted in next year’s Preview Report only
to the extent enacted appropriations result in perma­
nent changes to the level of receipts.
The second adjustment reflects estimates of the Ad­
ministration’s proposal to charge agencies for the prop­
er costs of employee retirement. This proposal is dis­
cussed more fully in Chapter 3A. Enactment of the
proposal would substantially increase discretionary pay­
ments to the government’s retirement funds, particu­
larly the Civil Service Retirement and Disability Fund.
A cap adjustment would need to be made after enact­
ment to accommodate this change in accounting be­
tween government accounts.
The President’s budget proposals for discretionary
programs are below the adjusted caps, as currently esti­
mated, for 1995 through 1998. Table 14-3 displays the
President’s proposals relative to the spending limits,
including the adjustment for increased governmental
receipts. The budget estimates do not include the
spending related to the proper accounting for retire­
ment costs proposal, so the cap adjustment for that
proposal is not included in the table.
Sequester determinations.—Five days after enactment
of an appropriations act, OMB must submit a report
to Congress estimating the budget authority and out­
lays provided by the legislation for the current year
and the budget year. These estimates must be based
on the same economic and technical assumptions used
in the most recent President’s budget. In addition, the

199

14. PREVIEW REPORT

TABLE 14-2.

DISCRETIONARY SPENDING LIMITS, 1994-1998
(In m
illions of dollars)

Total discretionary spending limits, December 10,1993 Final Sequester Report................................
Adjustments:
1993 Inflation......................................................................................................................................
Reestimates of credit reform subsidies..............................................................................................
Statutory and other shifts between categories ..................................................................................
Emergency appropriations (release of contingencies).......................................................................
Reestimates of emergency flood spending........................................................................................
Subtotal, adjustments for the Preview Report...............................................................................
Preview Report discretionary limits........................................................................................................
Further adjustments authorized under the Budget Enforcement Act:
IRS funding.........................................................................................................................................
Special allowances.............................................................................................................................
Proposed emergency supplemental appropriations...........................................................................
Estimated discretionary spending limits including IRS, special allowances, and emergencies.............
Further adjustments to reflect enactment of the President’s program:
Adjustment to reflect discretionary credit for appropriations language proposals to increase certain
fees charged by the government...................................................................................................
Discretionary spending limits including adjustment for fees..................................................................
Estimated adjustment to reflect change in budget accounting for Federal retirement......................
Discretionary spending limits including adjustment for change in budget accounting for Federal retire­
ment ...................................................................................................................................................

BA
OL

513,177
542,606

517,398
540,498

528,079
547,502

530,639
547,875

-110

58
38
-569
-638

59
44
-583
-844

61
50
-608
-871

75

5

1

180

BA
OL
BA
OL
BA
OL
BA
OL
BA
OL

519,142
547,733

176

-2,023
-849
57
16
-254
186
102

1

BA
OL

186
102

2,220
-862

-511
-415

-524
-623

-547
-820

BA
OL

513,363
542,708

515,178
539,636

518,631
547,318

527,555
546,879

530,092
547,055

188
184
2,880
1,438

753

BA
OL
BA
OL
BA
OL

1,942
1,124

BA
OL

-

515,305
543,832

134

"642”

30

17

518,246
541,900

518,631
548,167

527,555
547,305

530,092
547,206

473
473

452
452

455
455

461
461

BA
OL
BA
OL
BA
OL

515,305
543,832

518,719
542,373
5,951
5,941

519,083
548,619
5,957
5,956

528,010
547,760
5,968
5,966

530,553
547,667
5,961
5,959

BA
OL

515,305
543,832

524,670
548,314

525,040
554,575

533,978
553,726

536,514
553,626

TABLE 14-3. BUDGET PROPOSALS
(in millions of dollars)
1995

President’s discretionary proposals.............................................................
Estimated discretionary limits......................................................................
President’s discretionary proposals below (-) the discretionary caps.........

report must include CBO estimates and explain the
differences between the OMB and CBO estimates. The
OMB estimates are used in all subsequent calculations
to determine whether a breach of any of the budget
authority or outlay caps has occurred, and whether a
sequester is required.
Compliance with the discretionary caps is monitored
throughout the fiscal year. The first determination of
whether a sequester is necessary for a given fiscal year
occurs when the final sequestration report is issued
after Congress adjourns to end a session—near the be­




BA
OL
BA
OL
BA
OL

1996

1997

1998

512,250
542,363
518,719
542,373
-6,469
-10

517,682
546,085
519,083
548,619
-1,401
-2,534

520,331
547,759
528,010
547,760
-7,679
-1

525,967
544,449
530,553
547,667
-4,586
-3,218

ginning of the fiscal year. The monitoring process be­
gins again after Congress reconvenes for a new session.
Appropriations for the fiscal year in progress that cause
a breach in the caps would, if enacted before July 1st,
trigger a sequester. When such a breach is estimated,
a “within-session” sequestration report and Presidential
sequestration order are issued. For a breach that re­
sults from appropriations enacted on or after July 1st,
reductions necessary to eliminate the breach are not
applied to the budgetary resources available in the cur­
rent year. Instead, the corresponding caps for the fol­

200

ANALYTICAL PERSPECTIVES

lowing fiscal year are reduced by the amount of the
breach.
A within-session sequester can only be caused by
newly enacted appropriations. Reestimates of budget
authority and outlays for already enacted funds cannot
trigger a sequester. A within-session sequester for 1994
is possible only if additional appropriations for 1994
are enacted. OMB reported in the Final Sequestration
Report to the President and the Congress that enacted
discretionary appropriations for 1994 were within the
prescribed spending limits.
Sequester calculations.—If either the discretionary
budget authority or outlay caps are exceeded, an acrossthe-board reduction of sequestrable budgetary resources
would be required to eliminate the breach. The percent­
age reduction for certain special-rule programs would
be limited to 2 percent. Once this limit is reached,
the uniform percentage reduction for all other discre­
tionary sequestrable resources would be increased to
a level sufficient to achieve the required reduction.
If both the budget authority and outlay caps are ex­
ceeded, a sequester would first be calculated to elimi­
nate the budget authority breach. If estimated outlays
still remained above the cap, even after applying the
available outlay allowance, further reductions in budg­
etary resources to eliminate the outlay breach would
then be required.
Comparison between OMB and CBO discretionary
limits.—Section 254(d)(5) of the BEA requires an expla­
nation of differences between OMB and CBO estimates
for the discretionary spending limits. Table 14-4 com­
pares OMB and CBO limits for 1994 through 1998.

Differences in 1994 are due primarily to the release
of a contingent emergency appropriation for the Small
Business Administration on January 19, 1994. This re­
lease occurred too late for inclusion in CBO’s Preview
Report.
Differences in 1995 are due primarily to CBO assum­
ing lower credit subsidy costs than does OMB. As a
result, CBO lowers the discretionary limits for
reestimates of credit subsidy costs, while OMB raises
the limits.
OMB and CBO have different interpretations of the
BEA provision that requires an adjustment for dif­
ferences between actual and estimated inflation. Since
the limits for 1996 through 1998 were enacted in OBRA
1993, OMB interprets the inflation assumptions en­
acted in the original BEA of 1990 as not applying to
those years. CBO reduces the limits in each year by
the inflation adjustment.

Pay-As-You-Go Sequestration Report
This section of the Preview Report discusses the en­
forcement procedures that apply to the remainder of
the budget—direct spending and receipts. The BEA de­
fines direct spending as budget authority provided by
law other than appropriations acts, entitlement author­
ity, and the food stamp program. Social security and
the Postal Service are not subject to pay-as-you-go en­
forcement. Legislation specifically designated as an
emergency requirement and legislation fully funding
the Government’s commitment to protect insured depos­
its are also exempt from pay-as-you-go enforcement.

TABLE 14-4. COMPARISON OF OMB AND CBO DISCRETIONARY SPENDING LIMITS
(In millions of dollars)
1994

1996

1997

1998

513,268
542,672

515,010
539,539

516,734
546,127

525,608
545,544

528,102
545,653

513,363
542,708

515,178
539,636

518,631
547,318

527,555
546,879

530,092
547,055

-95
-36

CBO Preview Report limits:
B A .....................................................................
O L .....................................................................
OMB Preview Report limits:
B A .....................................................................
O L .....................................................................
Difference:
B A .....................................................................
O L .....................................................................

1995

-168
-97

-1,897
-1,191

-1,947
-1,335

-1,990
-1,402

TABLE 14-5. PAY-AS-YOU-GO LEGISLATION ENACTED AS OF DECEMBER 31,1993
(In millions of dollars)
Change in the Baseline deficit
1994

1995

Revenue impact of enacted legislation.......................................
Outlay impact of enacted legislation...........................................

-1,265
1,270

-1,194
225

221
-671

166
-635

-629
-485

Total impact of enacted legislation.....................................

4

-969

-450

-469

-1,114

MEMORANDUM
Deficit impact of OBRA 1993:1
Revenue impact......................................................................
Outlay impact..........................................................................

-27,419
-19,333

-46,948
-35,765

-54,333
-46,221

-62,836
-66,062

-58,559
-87,287

Total impact of OBRA 1993—Public Law 103-66 ..............

-46,752

-82,713

-100,554

-128,898

-145,846

’ OBRA 1993 specified that none of its savings should be included in the totals of the pay-as-you-go scorecard.




1996

1997

1998

201

14. PREVIEW REPORT

Current law requires that direct spending and re­
ceipts legislation should not increase the deficit in any
year through 1998. If it does, and if it is not fully
offset by other legislative savings, the increase must
be offset by sequestration of direct spending programs.
Net savings enacted for one fiscal year can be used
to offset net increases in the subsequent year. The im­
pact of proposed legislation affecting direct spending
and receipts is shown in the table entitled “Mandatory
and Receipts PAYGO Proposals” in the Summary Ta­
bles section of the Budget.
Sequester determinations.—Within five days after en­
actment of direct spending or receipts legislation, OMB
is required to submit a report to Congress estimating
the change in outlays or receipts for each fiscal year
through 1998 resulting from that legislation. The esti­
mates must use the economic and technical assump­
tions underlying the most recent President’s budget.
These OMB estimates are used to determine whether
the pay-as-you-go requirements have been met.
The cumulative nature of the pay-as-you-go process
requires maintaining a “scorecard” that shows, begin­
ning with the 102nd Congress, the deficit impact of
enacted direct spending and receipts legislation and re­
quired pay-as-you-go sequesters. The pay-as-you-go Pre­
view Report is intended to show how these past actions
affect the upcoming fiscal year.
As of December 31, 1993, OMB had issued 201 re­
ports on legislation affecting direct spending and re­
ceipts. Most of these (83 percent) either had no effect
on the deficit or changed it by less than $10 million
in each year. Less than ten percent of the pay-as-yougo legislation had a deficit impact greater than $50
million in any one year.
Table 14-5 shows OMB estimates for legislation en­
acted through December 31, 1993. In total, pay-as-yougo legislation has reduced the combined 1994 and 1995
deficits by $1.0 billion. This balance of pay-as-you-go
savings can be used to offset legislation that increases
direct spending or reduces receipts in 1994 and 1995.
Legislation that increases the combined 1994 and 1995
deficits by a greater amount will cause a sequester.
The Omnibus Budget Reconciliation Act of 1993
(OBRA 1993) produced savings of $46.8 billion in 1994
and over $500 billion over 1994-98. However, the Act
specified that none of the resulting savings should be
included in the pay-as-you-go scorecard.

Deficit Sequestration Report
The BEA specifies maximum deficit amounts for 1991
through 1995 that reflect the on-budget current law




levels for direct spending and receipts, and the spend­
ing limits for discretionary programs.
These deficit amounts reflect the economic and tech­
nical assumptions as of the time the BEA was enacted.
For the 1992 and 1993 budgets, the BEA required OMB
to adjust the maximum deficit amounts to reflect upto-date economic and technical assumptions for each
year through 1995. The BEA gives the President the
option of adjusting the maximum deficit amounts to
reflect current economic conditions and technical as­
sumptions in 1994 and 1995. Since the President chose
to make this adjustment in 1994, the BEA provides
him with the same opportunity in 1995. This adjust­
ment has been made for 1995, resulting in a maximum
deficit amount of $239.2 billion, $48.0 billion below the
unadjusted maximum deficit. This reduction is largely
due to higher receipts, and lower expected outlays for
Medicare, Medicaid, and deposit insurance in FY 1995.
Table 14-6 shows for 1995 the current maximum def­
icit amount and the current estimated deficit calculated
using BEA rules. The current estimated deficit is below
the maximum deficit amount by the amount of payas-you-go savings enacted and the associated debt serv­
ice. Therefore, no sequestration is projected at this
time. The table also shows adjustments to reach the
end-of-session maximum deficit amount.
In its Preview Report, CBO estimates a maximum
deficit amount for 1995 of $244.1 billion, $5.0 billion
above the OMB estimate. Compared to previous years,
this difference is relatively minor. The major differences
between OMB and CBO are shown in Table 14-7.
TABLE 14-6. MAXIMUM DEFICIT AMOUNTS
(In billions of dollars)
1995

Maximum deficit amount before adjustments...........................................
Change in deposit insurance....................................................................
Other adjustments for up-to-date economic and technical assumptions ...

287.2
-10.4
-37.5

Current maximum deficit amount.............................................................
Current estimated deficit...........................................................................

239.2
238.2

Excess deficit............................................................................................

-1.0

MEMORANDUM
Current maximum deficit amount..............................................................
End-of-session cap adjustment1 ...........................................................
Related debt service ............................................................................

239.2
2.3
0.1

Subtotal.................................................................................................
End-of-session maximum deficit amount..................................................

2.4
241.5

1 Assumes

enactment of Presidential policy.

202




ANALYTICAL PERSPECTIVES

TABLE 14-7.

DIFFERENCES BETWEEN OMB AND CBO MAXIMUM
DEFICIT AMOUNTS
(In billions of dollars)
1995

OMB maximum deficit amount...................................................................................
Receipts (deficit impact).........................................................................................
Outlays:
Discretionary.................................... ..................................................................
Commodity Credit Corporation ..........................................................................
Deposit insurance...............................................................................................
Food stamps......................................................................................................
Medicaid ............................................................................................................
Medicare............................................................................................................
Supplemental Security Income..........................................................................
Veterans’ Benefits and Services........................................................................
Other mandatory ................................................................................................
On-budget interest..............................................................................................

239.2
7.3

Total, outlay differences ................................................................................

-2.3

-0.1
-1.9
0.1
-0.6
-0.2
2.1
-1.7
-1.4
0.2
1.1

Total, differences.......................................................................................

5.0

CBO maximum deficit amount....................................................................................

244.1

15. REVIEW OF DIRECT SPENDING AND RECEIPTS
In trodu ction

The Budget Enforcement Act of 1990 established
mechanisms to control total discretionary spending
through caps on spending and legislative changes to
mandatory programs and revenues through a pay-asyou-go requirement. It did not, however, control the
growth of mandatory spending resulting from economic
and technical factors. In August 1993, the President
established procedures to control this growth in manda­
tory spending in Executive Order 12857. The Order
provided for targets on the level of mandatory spending,
excluding deposit insurance and net interest, for 1994
through 1997. The Order also listed actions that must
be taken if the targets were exceeded. These actions
may include specific revenue or direct spending changes
or reductions in the discretionary caps. The savings
to remove the excess in the prior, current, and budget
years can be achieved over the six year period covering
the current year through four years beyond the budget
year. The President also has the option to recommend
breaching the targets because of economic conditions
or other specific reasons.
As required by the Order, OMB issued an initial re­
port to the Congress in September setting mandatory
targets for 1994 through 1997. The initial targets were
based on the economic and technical assumptions used
in preparing the congressional budget resolution for
1994. The levels are consistent with the policies in the
resolution as adjusted by final Congressional action on
the Omnibus Budget Reconciliation Act of 1993 (OBRA

1993). This chapter fulfills the Order's requirements
for an annual review of direct spending and receipts.
Adjustm ents to Targets

The Order requires adjustments to the mandatory
targets under certain circumstances; in particular, the
targets must be adjusted each year for increases in
the estimated numbers of beneficiaries of mandatory
programs, and for changes in receipts in legislation en­
acted after OBRA 1993. Table 15-1 shows the targets
as revised for these circumstances. The target for 1994
is now $752.0 billion, $5.6 billion above the initial tar­
get. Similarly, the target for 1995 is now $792.7 billion,
$7.9 billion above the initial target. The targets have
increased by $37.5 billion over the four year period
1994 through 1997.
Table 15-1 also shows the major differences in cur­
rent law estimates between August, 1993 (when the
Executive Order became effective) and now. Most of
the differences are because of decreases in Medicare
and Medicaid outlays since the initial targets were cal­
culated.
The Order requires an adjustment to the targets to
reflect increases in estimated beneficiaries. Table 15-2
shows the current estimates of beneficiaries for major
benefit payment programs as well as the estimates used
in the initial targets. For most of the major benefit
programs, the current OMB estimates are above the
estimates used in the initial targets. This is largely
the result of technical differences between resolution

TABLE 15-1. SUM ARY OF CHANGES TO M
M
ANDATORY TARGETS AND CURRENT LAW OUTLAYS
(In billions of dollars)
1994

1995

1996

1997

1994-97

Initial mandatory targets (Executive Order 12857).....................................................
Adjustments for:
Increase in beneficiaries.........................................................................................
Changes in receipts................................................................................................
Changes due to category shifts.............................................................................

746.4

784.7

823.7

887.7

5.7
-0.1
0.0

8.0
-0.1
-0.0

10.2
-0.2
-0.1

14.1
-0.1
-0.0

38.1
-0.5
-0.1

Total adjustments.......................................................................................................
Current mandatory targets..........................................................................................

5.6
752.0

7.9
792.7

10.0
833.7

14.0
901.7

37.5

Outlays under current law as of August 1993 ..........................................................
Adjustments for:.
Increase in beneficiaries.........................................................................................
Decreases in beneficiaries.....................................................................................
Cost of living adjustments......................................................................................
Other inflation ........................................................................................................
Other technicals.....................................................................................................

746.4

784.7

823.7

887.7

5.7
-7.6
-1.4
0.4
-8.9

8.0
^ .1
-1.0
1.3
-14.2

10.2
-2.1
1.1
2.4
-9.0

14.1
-2.1
4.0
4.6
-20.8

38.1
-15.9
2.7
8.7
-52.8

Total adjustments.......................................................................................................
Outlays under current law as of January 1994 .........................................................
Amount over (+) or under (-) the current target.......................................................

-11.8
734.6
-17.4

-10.0
774.7
-18.0

2.6
826.3
-7.4

-0.1
887.6
-14.1

-19.3

Changes to mandatory targets

Changes to outlays under current laws




-56.8

203

204

ANALYTICAL PERSPECTIVES

assumptions and current OMB assumptions. In each
case that beneficiaries have increased, an adjustment
to the targets are made that adjusts the initial estimate
for the program by the percentage change in the num­

ber of beneficiaries. The largest adjustments are for
the supplementary security income, food stamps and
social security (disability insurance). In total, the tar­
gets are increased by $38.1 billion for the four year
period because of changes in beneficiary estimates.

TABLE 15-2. BENEFICIARIES ESTIMATES FOR MAJOR BENEFIT PAYMENT PROGRAMS
(Annual average, in thousands)
1994
Family education loans:
Initial estimate........................................................................................................
Current estimate....................................................................................................
Direct loans:
Initial estimate........................................................................................................
Current estimate....................................................................................................
AFDC work programs:
Initial estimate........................................................................................................
Current estimate....................................................................................................
Foster care and adoption assistance:
Initial estimate........................................................................................................
Current estimate....................................................................................................
Medicaid:
Initial estimate........................................................................................................
Current estimate:
Aged/Blind/Disabled ...........................................................................................
Other..................................................................................................................
Total, current estimate............................................................................................
Medicare:
Hospital insurance:
Initial estimate ...................................................................................................
Current estimate.................................................................................................
Supplementary medical insurance:
Initial estimate ...................................................................................................
Current estimate.................................................................................................
Railroad retirement:
Initial estimate........................................................................................................
Current estimate....................................................................................................
Federal civil service retirement:
Initial estimate........................................................................................................
Current estimate.....................................................................................................
Military retirement:
Initial estimate........................................................................................................
Current estimate....................................................................................................
Unemployment insurance:
Initial estimate........................................................................................................
Current estimate....................................................................................................
Food stamps:
Initial estimate........................................................................................................
Current estimate....................................................................................................
Child nutrition:
Initial estimate........................................................................................................
Current estimate.....................................................................................................
Family support: maintenance assistance (AFDC)1:
Initial estimate........................................................................................................
Current estimate.....................................................................................................
Family support: emergency assistance:
Initial estimate........................................................................................................
Current estimate....................................................................................................
Family support: Child support:
Initial estimate.........................................................................................................
Current estimate.....................................................................................................
Supplemental security income:
Initial estimate.........................................................................................................
Current estimate:.




1995

1996

1997

6,270
5,528

5,394
4,413

3,898
3,271

3,695
3,100

161
137

1,566
1,283

3,189
2,679

3,694
3,102

664
637

708
667

721
663

727
652

339
337

362
359

384
377

404
394

35,600

36,500

37,500

38,500

9,619
24,959

10,345
25,634

11,064
26,376

11,779
27,179

34,578

35,979

37,440

38,958

35,800
36,148

36,400
36,821

37,000
37,446

37,500
38,001

34,900
35,010

35,500
35,651

36,000
36,244

36,500
36,760

817
825

796
805

774
783

751
761

2,267
2,258

2,297
2,289

2,327
2,319

2,365
2,347

1,720
1,775

1,750
1,798

1,770
1,821

1,790
1,843

10,000
8,770

9,000
8,810

9,000
8,900

9,000
8,840

25,800
27,394

25,000
27,314

24,600
27,161

24,600
27,004

35,800
36,169

36,700
37,067

37,400
37,938

38,100
38,828

5,210
5,055

5,250
5,146

5,330
5,252

5,410
5,363

NA
81

NA
82

NA
83

NA
84

NA
14,362

NA
15,151

NA
15,939

NA
16,727

5,579

5,896

6,190

6,450

205

15. REVIEW OF DIRECT SPENDING AND RECEIPTS

TABLE 15-2. B