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' i S i
BUDGET OF
THE UNITED STA ES
GOVERNMEN
FISCAL YEAR
1981
THE BUDGET DOCUMENTS
Data and analyses relating to the budget for 1981 are published
in four documents:
The Budget of the United States Government, 1981 contains the
Budget Message of the President and presents an overview of the
President's budget proposals. It includes explanations of spending
programs in terms of national needs, agency missions, and basic
programs, and an analysis of estimated receipts including a discussion of the President's tax program. This document also contains a
description of the budget system and various summary tables on
the budget as a whole.
The United States Budget in Brief, 1981 is designed for use by the
general public. It provides a more concise, less technical overview
of the 1981 budget than the above volume. Summary and historical
tables on the Federal budget and debt are also provided, together
with graphic displays.
The Budget of the United States Government, 1981—Appendix
contains detailed information on the various appropriations and
funds that comprise the budget. The Appendix contains more detailed information than any of the other budget documents. It
includes for each agency: the proposed text of appropriation language, budget schedules for each account, new legislative proposals,
explanations of the work to be performed and the funds needed,
proposed general provisions applicable to the appropriations of
entire agencies or groups of agencies, and schedules of permanent
positions. Supplementals and rescission proposals for the current
year are presented separately. Information is also provided on
certain activities whose outlays are not part of the budget totals.
Special Analyses, Budget of the United States Government, 1981
contains analyses that are designed to highlight specified program
areas or provide other significant presentations of Federal budget
data. This document includes information about: alternative views
of the budget, i.e., current services and national income accounts;
economic and financial analyses of the budget covering Government finances and operations as a whole, and Government-wide
program and financial information for Federal civil rights and
research and development programs; and major accomplishments.
Instructions for purchasing copies of any of these documents are
on the last two pages of this volume.
GENERAL NOTES
1. All years referred to are fiscal years, unless otherwise noted.
2. Detail in the tables, text, and charts of this volume may not add to the
totals because of rounding.
TABLE OF CONTENTS
I. ANALYSES OF THE BUDGET
PART 1. ALTERNATIVE VIEWS OF THE BUDGET
A. Current services estimates
B. Federal transactions in the national income accounts
5
7
47
PART 2. ANALYSES OF THE BUDGET TOTALS
C. Funds in the budget
D. Investment, operating, and other budget outlays
E. Borrowing, debt, and investment
F. Federal credit programs
G. Tax expenditures
H. Federal aid to State and local governments
I. Civilian employment in the executive branch
73
77
91
109
141
207
239
277
PART 3. SELECTED FEDERAL PROGRAMS
J. Civil rights activities
K. Research and development
289
291
303
II. MAJOR ACCOMPLISHMENTS
1. Improving the efficiency of the Federal Government
2. Conserving the Nation's natural resources and protecting the environment
3. Solving our Nation's energy problem
4. Investing in the Nation's scientific and technological
future
5. Improving the Nation's health
6. Maintaining national security
339
365
383
405
415
445
3
Section I
ANALYSES OF THE BUDGET
Part 1
ALTERNATIVE VIEWS OF THE BUDGET
5
INTRODUCTION
Part 1 includes two alternative views of the budget—current
services estimates and national income accounts. These special
analyses are designated A and B.
Special Analysis A (Current Services Estimates) presents the
estimates required by the Congressional Budget Act of 1974 (31
U.S.C. 11a). These estimates reflect the anticipated costs of continuing ongoing Federal programs and activities at present levels without policy changes (that is, ignoring all new initiatives, Presidential or congressional, that are not yet law).
Special Analysis B (Federal Transactions in the National Income
Accounts) presents the Federal budget estimates in terms of the
national income accounts. It also explains the relationships of the
unified budget of the Federal Government to the national income
and product accounts, which constitute the most widely used measure of aggregate economic activity in the United States.
6
SPECIAL ANALYSIS A
CURRENT SERVICES ESTIMATES
The Congressional Budget Act of 1974 requires that the President submit to the Congress estimates of the outlays and budget
authority needed to maintain current Government services and
activity levels. The Act defines the current services levels as
. . . the estimated outlays and proposed budget authority which would be included in the Budget to be submitted
pursuant to section 201 of the Budget and Accounting Act,
1921, for the ensuing fiscal year if all programs and activities were carried on during such ensuing fiscal year at the
same level as the fiscal year in progress and without policy
changes in such programs and activities.
The Act further requires the President to submit the economic and
programmatic assumptions underlying the estimates and calls for
the Joint Economic Committee of the Congress to review and
evaluate the estimates.
Since current services estimates show what outlays, receipts, and
budget authority would be if no policy changes were made, they
provide a base with which the administration's budget proposals, or
other proposals, may be compared. Such comparisons are made in
various parts of the budget and serve to highlight the effects of
recommended policy changes.1
The current services estimates are based on the same economic
assumptions as the President's budget proposals. Changes in economic conditions significantly affect budget estimates because of
their effects on tax receipts, unemployment benefits and other
programs under which spending varies with the unemployment
rate, and cost-of-living adjustments. As a result, if different economic assumptions were used, it would be very difficult to separate
the effects of policy differences from the effects of differences in
the economic assumptions.
The economic assumptions presume that all the President's
budget proposals will be adopted. Continuation of all programs and
tax laws unchanged at current services levels would probably
result in somewhat different economic conditions than would occur
under the budget proposals. For the 1981 budget, however, the
differences are small compared to the uncertainties inherent in the
1 Summary comparisons are in the Budget of the United States Government, Fiscal Year 1981, Part 2,
"Budget Summary."
7
8
THE BUDGET FOR FISCAL YEAR 1981
economic forecast; thus, it is not unreasonable to use the same
economic assumptions for the budget and for current services estimates.
The economic assumptions common to the budget and to the
current services estimates are summarized in table A-l. For further details and discussion of these economic assumptions, see Part
3, "Economic Assumptions and the Long-Range Budget Outlook/'
in the 1981 Budget
Table A - l . SUMMARY OF ECONOMIC ASSUMPTIONS
(Calendar years)
1979
Gross national product (in billions of current dol
lars)
Change in constant dollar GNP (percent change,
fourth quarter over fourth quarter)
Unemployment rate (percent, fourth quarter)
Consumer Price Index (percent change, December
over December)
1980
1981
2,369
2,567
2,842
0.8
5.9
-1.0
7.5
2.8
7.3
13.2
10.4
8.6
T H E C U R R E N T SERVICES
CONCEPT
The current services estimates are neither recommended
amounts nor forecasts as to what the figures for 1980 and 1981 will
actually be. Rather, they provide a base against which budgetary
alternatives may be assessed. This base embodies the cumulative
effects of all past congressional and presidential budgetary choices.
Since the estimates indicate the near-term budgetary implications
of the current directions of Federal programs, they in effect answer
the question: "How would the budget come out if we simply left the
Federal Government on automatic pilot through next year?"
A guiding principle in establishing a conceptual basis for the
current services estimates was to make the results useful to the
Congress and the public. The current services concept used in this
analysis, and that used in previous current services estimates submitted by the executive branch, are not the only concepts possible.
Different concepts may be useful for different purposes. Under the
concept used this year, the current services estimates for 1981
reflect the expected costs of continuing ongoing Federal programs
at 1980 levels in real terms, without policy change; that is, they
omit all proposed and pending new initiatives, presidential or congressional, that are not now enacted. In general, the 1980 level on
which the current services estimates are based is that which is
authorized or implied by enacted 1980 appropriations or continuing
resolutions. The estimates allow for the future implications of current law, and for anticipated changes of a relatively uncontrollable
SPECIAL ANALYSIS A
9
nature (as distinct from policy changes)—such as increases in the
number of social security retirees.
The question of whether or not to adjust estimates for discretionary programs for anticipated inflation has proved to be a difficult
one. In the past, this Special Analysis excluded inflation adjustments for discretionary programs on the grounds that there was no
reason to assume such increases except where program benefits
were tied by law to the cost of living or where there was a clear
intent to cover full costs of future inflation. It provided subsidiary
data indicating what the impact on the current services estimates
would have been if all programs were adjusted for inflation. The
Congressional Budget Office, on the other hand, using a similar
"current policy" concept, has included in its estimates inflation
adjustments for all programs. Congress has urged the administration to adopt this approach, to permit more meaningful comparison
with Congressional Budget Office "current policy'' estimates. For
the 1981 budget, the presentation in this Special Analysis and in
the rest of the budget has been changed to reflect the effects of
inflation on virtually all accounts in the budget, including discretionary programs. The new current services estimates provide a
"constant real program" base against which to measure the President's budget. The differences between the President's budget and
the new current services totals adjusted for inflation represent a
more meaningful measure of program restraint or expansion, and
the real scope of initiatives in the President's 1981 budget, than the
old concept.
Specific guidelines for this year's detailed programmatic estimates are:
—For entitlement programs (such as social security), the current
services estimates take into account inflation adjustments that
are mandatory under current law, changes in the benefit base
(usually determined by past earnings), and changes in the anticipated numbers of beneficiaries.
—Individual grants to State and local governments in 1981 are
assumed to be funded at the same real (constant-dollar)
amounts as in 1980 unless the grants are: (a) set by law at
specified amounts; (b) tied by legislation to cost-of-living increases or the unemployment rate; (c) affected by changes in
beneficiary populations or other factors that affect benefit payments under entitlement programs; or (d) affected by spending
from prior-year commitments (for example, highway grants).
—Entitlement programs that are not linked by law to the cost-ofliving (such as veterans compensation) are assumed to remain
level in real (constant-dollar) amounts except for changes in
the benefit base and in the number of people eligible.
10
THE BUDGET FOR FISCAL YEAR 1981
—Procurement and construction activities are assumed to proceed in an orderly fashion, consistent with current law and
past appropriation levels. Outlays for these programs are
largely determined by prior-year contracts and obligations.
Some appropriations provide for anticipated inflation in the
cost of multiyear projects. In other cases, however, current
services estimates may reflect constraints on spending levels
imposed by available funding.
—Outlays for Federal pay are assumed to increase, in accordance
with current law, with the projected results of the annual pay
comparability survey. The October 1980 pay raise is projected
to be 10.9% on this basis. This figure includes a 3 percentage
point "catch up" from the below-comparability increases for
October 1978 and October 1979.
—Interest on the public debt is estimated on the basis of the
current services deficit and the same interest rate assumptions
as are used in computing the budget estimates for interest.
—Offsetting receipts are estimated on the basis of judgment as to
their most likely level, assuming no change in current law.
—Budget authority for certain major trust funds consists of trust
fund receipts. These are estimated using standard revenue estimating techniques.
—Proposed rescissions of budget authority are not reflected.
—It is assumed that deferral actions continue in effect for the
period specified in the special message transmitted to the Congress under the Impoundment Control Act of 1974 (unless they
have been overturned by the Congress).
Many Federal programs are authorized for a limited number of
years, but are routinely renewed. If authority for such a program is
scheduled to expire before or during 1981, it is assumed for purposes of current services estimates that it will be renewed. Programs that are clearly temporary in nature, such as temporary
study commissions, are assumed to expire.
The estimates of receipts on a current services basis assume that
temporary provisions of existing law will be extended and that
future tax changes will occur as scheduled under current law.
The difference between the current services totals and the administration's budget proposals is not a completely comprehensive
measure of restraint and initiatives. Current services estimates, for
example, do not include amounts proposed for initiatives requiring
new legislation. In a tight budget, the administration may choose
to drop or defer some legislative proposals previously made or
actively under consideration. Such changes will not appear in the
differences between current services amounts and administration
recommendations.
11
SPECIAL ANALYSIS A
CURRENT SERVICES BUDGET
TOTALS
Current services outlays are estimated to be $612.0 billion in
1981, 9.2% higher than in 1980, and budget authority is estimated
to be $677.6 billion, an increase of 7.5% over 1980. Receipts for
1981 are estimated to increase 11.9% on a current services basis,
from $517.4 billion in 1980 to $579.0 billion in 1981. The resulting
1981 deficit would be $33.1 billion, $10.2 billion lower than that for
1980. The administration's proposals would result in a 1981 deficit
less than half this size.
Table A - 2 . CURRENT SERVICES BUDGET TOTALS
(In billions of dollars)
1979
actual
Receipts
Outlays
Deficit ( - )
Budget authority
1980
estimate
1981
estimate
465.9
493.7
517.4
560.6
579.0
612.0
-27.7
-43.2
-33.1
556.7
630.6
677.6
Receipts.—The 1980 and 1981 current services receipts estimates
assume extension of the airport and airway trust fund taxes scheduled to expire June 30, 1980. The estimates also take into account
scheduled increases in social security payroll taxes that have already been enacted.
For purposes of comparison, table A-3 shows receipts by major
source on a current services basis for 1980 and 1981. As the table
shows, current services receipts are projected to increase by $61.6
billion from 1980 to 1981. This is largely due to assumed increases
in incomes, reflecting both real economic growth and inflation.
12
THE BUDGET FOR FISCAL YEAR 1981
Table A - 3 . CURRENT SERVICES RECEIPTS BY SOURCE
(In billions of dollars)
1979
actual
Individual income taxes
Corporation income taxes
Social insurance taxes and contributions
Excise taxes
Other
Total
Current services
1980
estimate
1981
estimate
1981
administration
proposals
217.8
65.7
141.6
18.7
22.1
239.1
73.3
162.2
18.5
24.3
273.3
74.7
186.0
18.7
26.3
274.4
71.6
187.4
40.2
26.4
465.9
517.4
579.0
600.0
Individual income taxes are estimated to increase by $34.2 billion
from 1980 to 1981 on a current services basis. This increase of
14.3% reflects rising personal income. Corporation income taxes
are estimated to increase by $1.5 billion, or 2.0%, from 1980 to 1981
on a current services basis, largely as a result of the assumed
increase in corporate profits.
Social insurance taxes are estimated to increase by $23.8 billion
on a current services basis. The estimate reflects assumed increases
in total wages and salaries paid, scheduled increases in the social
security taxable earnings base from $25,900 in calendar year 1980
to $29,700 in 1981, a scheduled increase in the combined employeremployee social security tax rate from 12.26% to 13.3% on January
1, 1981, and an administrative action announced a year ago to
accelerate State and local deposits of social security taxes, effective
July 1, 1980.
Other receipts (excise taxes, estate and gift taxes, customs duties,
and miscellaneous receipts) are projected to increase by $2.1 billion
from 1980 to 1981 on a current services basis largely as the result
of increased economic activity. These estimates reflect continued
phaseout of the telephone excise tax by 1 percentage point each
January.
Outlays.—The level of outlays necessary to continue ongoing Federal programs and activities at 1980 levels without policy changes
is estimated at $612.0 billion in 1981. The increase in current
services outlays from 1980 to 1981 is $51.4 billion.
13
SPECIAL ANALYSIS A
Table A - 4 . CURRENT SERVICES OUTLAYS BY FUNCTION
(In billions of dollars)
1979
actual
National defense
International affairs
General science, space, and technology
Energy
Natural resources and environment
Agriculture
Commerce and housing credit
Transportation
Community and regional development
Education, training, employment, and social services
Health
Income security
Veterans benefits and services
Administration of justice
General government
General purpose fiscal assistance
Interest
Allowances:
Civilian agency pay raises
Contingencies
Undistributed offsetting receipts:
Employer share, employee retirement
Interest received by trust funds
Rents and royalties on the Outer Continental Shelf
Total outlays
117.7
6.1
5.0
6.9
12.1
6.2
2.6
17.5
9.5
29.7
49.6
160.2
19.9
4.2
4.2
8.4
52.6
Current services
1980
estimate
129.6
10.1
5.7
7.3
12.5
4.6
5.5
19.5
8.4
30.2
56.5
190.8
20.8
4.5
4.8
8.4
63.5
1981
estimate
1981
administration
proposals
142.4
9.6
6.3
7.1
12.8
3.2
.8
20.1
8.5
32.5
63.4
219.9
21.7
4.7
4.9
8.5
68.4
146.2
9.6
6.4
8.1
12.8
2.8
.7
20.2
8.8
32.0
62.4
220.0
21.7
4.7
4.9
9.6
67.2
2.4
1.1
1.5
-5.3
-9.9
-3.3
-5.9
-11.5
-4.8
-6.2
-12.9
-6.0
-6.2
-13.0
-6.0
493.7
560.6
612.0
615.8
Table A - 4 shows current services outlays by function. Estimates
by agency are presented in table A-5. The greatest dollar increases
from 1980 to 1981 occur in the income security, national defense,
and health functions, largely due to increases in the number of
beneficiaries, cost-of-living adjustments, and increases in the prices
of goods and services purchased or financed.
14
THE BUDGET FOR FISCAL YEAR 1981
Table A - 5 . CURRENT SERVICES OUTLAYS BY AGENCY
(In billions of dollars)
1979
actual
Legislative branch
The Judiciary
Executive Office of the President
Funds appropriated to the President
Department of Agriculture
Department of Commerce
Department of Defense—Military
Department of Defense—Civil
Department of Education
Department of Energy
Department of Health and Human Services
Department of Housing and Urban Development
Department of the Interior
Department of Justice
Department of Labor
Department of State
Department of Transportation
Department of the Treasury
Environmental Protection Agency
National Aeronautics and Space Administration
Veterans Administration
Other independent agencies
Allowances
Undistributed offsetting receipts
Total outlays
Current services
1980
estimate
1981
estimate
1981
administration
proposals
-22.3
1.4
.7
.1
5.7
20.9
3.0
139.0
3.1
14.7
8.0
220.1
11.9
4.3
2.7
31.7
2.1
18.1
80.5
5.0
5.3
21.7
34.8
2.4
-25.1
1.3
.6
.1
9.3
20.1
3.4
142.7
3.1
13.5
8.7
219.3
11.8
4.2
2.7
31.8
2.2
17.9
80.3
5.2
5.4
21.7
33.0
2.6
-25.1
560.6
612.0
615.8
1.1
.5
.1
2.6
20.6
4.1
115.0
2.9
10.9
7.9
170.3
9.2
4.1
2.5
22.6
1.5
15.5
65.0
4.8
4.2
19.9
26.8
1.3
.6
.1
7.5
23.4
3.5
126.5
3.1
12.9
7.3
193.3
11.6
4.2
2.5
27.5
2.0
17.3
75.8
5.0
4.8
20.7
32.0
-18.5
493.7
Table A-6 shows the major components of the changes in current
services outlays between 1980 and 1981. Outlays for income security programs are estimated to rise from $190.8 billion in 1980 to
$219.9 billion in 1981. This $29.1 billion increase in outlays for this
function is due to automatic cost-of-living increases in many benefit
programs, increases in the number of beneficiaries, and higher
earnings records for new retirees. In the case of social security, for
example, about two-thirds of the 1980 to 1981 outlay increase is due
to cost-of-living adjustments; higher earnings records and net in-
15
SPECIAL ANALYSIS A
creases in beneficiaries account for the remaining one-third. Table
A-7 shows caseload projections for major benefit programs and
other selected programmatic assumptions.
Table A-6. CHANGE IN CURRENT SERVICES BUDGET AUTHORITY AND OUTLAYS, 1980 TO 1981
(In billions of dollars)
Budget
authority
1980 current services estimate
1980-81 changes:
Income security:
Social security
Federal employee retirement
Unemployment compensation
Housing assistance
Other income security programs
National defense:
Department of Defense—Military.Procurement
Operation and maintenance
Military and civilian pay raise allowance
Military retired pay
Other defense military
Other national defense
Medicare and medicaid
Other health progams
Net interest
Allowances for civilian agency pay raises
TVA borrowing authority
Synthetic fuels promotion
Strategic petroleum reserves
Naval petroleum reserves
Rents and royalties, offshore oillands
Veterans programs
Farm income stabilization
Mortgage credit and thrift insurance
Community and regional development
Mass transit
Education
Employment and training
International financial programs
Foreign aid
All other programs, net
1981 current services estimate
*$50 million or less.
Outlays
630.6
560.6
15.5
2.2
2.5
3.0
3.0
19.1
2.5
3.2
1.3
3.0
2.8
2.2
4.9
1.7
1.4
.3
10.7
.8
3.5
2.5
-15.0
-2.2
.1
-1.2
-1.2
1.3
.3
-3.9
1.2
1.8
1.0
2.0
4.8
-1.3
3.0
2.4
2.0
4.8
1.7
1.6
.3
6.2
.6
3.5
2.4
677.6
-.1
.6
-1.4
-1.2
.9
—1.6
-4.6
.1
.2
1.3
.8
-1.0
.5
2.4
612.0
16
THE BUDGET FOR FISCAL YEAR 1981
Current services outlays for the military functions of the Department of Defense are estimated to increase by $12.5 billion between
1980 and 1981. Pay raises for military and civilian personnel, including retired military personnel, account for $6.5 billion of this
increase. The October 1980 Federal pay increase for white-collar
employees is estimated to average 10.9% under the current system
for determining comparability. Current services outlays for defense
purchases (excluding pay) are estimated to increase by $6.0 billion,
due to estimated price increases of 8.9% and the spendout of funds
previously appropriated.
Table A - 7 . CASELOADS AND PROGRAMMATIC ASSUMPTIONS
Fiscal years
1980
Social security (0ASDI)
Railroad retirement1
Federal civilian retirees
Military retirement
Veterans compensation and pensions
Gl bill
Disabled coal miners-black lung
Supplemental security income
Maintenance Assistance (AFDC)
Food stamps
Housing subsidy recipients
Medicaid
Medicare:
Hospital insurance
Supplementary medical insurance
Automatic benefit adjustments (percent):
Social security and veterans pensions (June)
Federal employee retirement:
March
September
Food stamps: 2
January
July
Interest rate (91-day bills, percent, calendar years) 3
Budget deficit (current services, in billions of dollars)
Unemployment rate (percent, annual average, calendar years):
Total
Insured 4
1
1981
35,300
1,006
1,712
1,308
4,864
1,173
603
4,188
10,579
20,200
3,253
22,881
35,900
985
1,769
1,349
4,855
952
595
4,170
10,837
20,400
3,477
22,899
27,273
27,200
27,826
27,861
13.0
9.9
5.9
5.8
4.3
4.7
2.5
3.8
10.5
-43.2
5.1
4.4
9.0
-33.1
7.0
3.9
7.4
4.0
End of year.
1980 adjustments assume legislation to raise the food stamp authorization ceiling. Without the legislation food stamp benefits would be decreased.
Average rate on new issues within period. These estimates assume, by convention, that interest rates decline with the rate of inflation. They do not
represent a forecast of interest rates.
4
This measures unemployment under State regular unemployment insurance as a percentage of covered employment under that program. It does not
include recipients of extended benefits under that program.
2
3
SPECIAL ANALYSIS A
17
Current services outlays for the medicare and medicaid programs
are estimated to increase by $6.2 billion between 1980 and 1981,
largely as a result of increases in medical care prices.
Other major changes in current services outlays between 1980
and 1981 include an increase in net interest of $3.5 billion; a $2.4
billion increase for civilian agency pay raises; and a decrease of
$4.6 billion for mortgage credit and thrift insurance.
Budget authority.—Current services budget authority is estimated to total $677.6 billion in 1981, $47.0 billion more than in 1980.
Increases in budget authority between 1980 and 1981 generally
reflect the higher funding levels that would be necessary to maintain 1980 services levels in real terms in 1981. In the case of most
trust funds, however, the funds' receipts automatically become
budget authority; thus increases in budget authority for these
funds simply reflect year-to-year growth in expected receipts.
Budget authority for some programs display erratic year-to-year
changes due to sporadic funding patterns or advance funding. For
example, the Tennessee Valley Authority (TVA) receives a large
increment of budget authority (borrowing authority) every few
years to facilitate the TVA electric power construction program.
For 1980, the limitation on borrowing authority under the TVA
Act was increased by $15.0 billion.
Tables A-8 and A-9 show the estimates of current services
budget authority by function and by agency, respectively. The
major components of the changes in current services budget authority between 1980 and 1981 are shown in table A-6.
Increases in budget authority of $11.5 billion for health and $23.1
billion for income security (excluding housing assistance) are primarily due to higher social security and medicare trust fund receipts and higher medicaid costs.
A decrease in budget authority for energy programs of $18.5
billion is largely due to the $15.0 billion 1980 increase in TVA
borrowing authority and other one-time 1980 factors, such as the
310-700 0
-
80
18
THE BUDGET FOR FISCAL YEAR 1981
Table A - 8 . CURRENT SERVICES BUDGET AUTHORITY BY FUNCTION
(In billions of dollars)
1979
actual
National defense
International affairs
General science, space, and technology
Energy
Natural resources and environment
Agriculture
Commerce and housing credit
Transportation
Community and regional development
Education, training, employment and social services...
Health
Income security
Veterans benefits and services
Administration of justice
General government
General purpose fiscal assistance
Interest
Allowances:
Civilian agency pay raises
Contingencies
Undistributed offsetting receipts:
Employer share, employee retirement
Interest received by trust funds
Rents and royalties on the Outer Continental Shelf
Total budget authority
127.8
8.7
5.4
7.4
13.2
9.3
5.9
19.2
10.0
32.6
53.9
191.9
20.5
4.2
4.4
8.3
52.6
Current services
1980
estimate
140.9
12.7
5.9
22.6
12.4
5.0
10.1
19.7
8.3
30.7
60.0
222.0
21.2
4.4
4.9
8.4
63.5
1981
estimate
1981
administration
proposals
154.2
16.3
6.7
4.1
13.2
5.4
6.1
22.4
9.5
33.9
71.5
248.0
22.5
4.6
5.0
8.5
68.4
161.8
16.9
6.9
7.4
13.3
5.5
5.9
23.6
9.8
34.8
71.5
251.5
22.7
4.7
4.9
9.6
67.2
2.5
1.1
2.0
-5.3
-9.9
-3.3
-5.9
-11.5
-4.8
-6.2
-12.9
-6.0
-6.2
-13.0
-6.0
556.7
630.6
677.6
696.1
initial $2.2 billion appropriation for synthetic fuels promotion.
Buildup of the strategic petroleum reserves will continue in 1981;
however, the 1979 appropriation of $3.0 billion will cover most of
the program's costs in both 1980 and 1981.
A $13.3 billion increase in budget authority for the Department
of Defense—Military largely reflects pay increases for military and
civilian personnel and increases in the costs of an equivalent level
of defense purchases. The Export-Import Bank requires a $6.9 billion increase in its borrowing authority in 1981, compared to only
$1.3 billion in 1980.
Other major changes in current services budget authority include an increase in net interest of $3.5 billion; a $2.5 billion
increase in allowances for civilian agency pay raises; a $2.0 billion
19
SPECIAL ANALYSIS A
increase for employment and training programs; a $1.8 billion increase in mass transit funding; and a $3.9 decrease for mortgage
credit and thrift insurance.
Table A - 9 . CURRENT SERVICES BUDGET AUTHORITY BY AGENCY
(In billions of dollars)
1979
actual
Legislative branch
The Judiciary
Executive Office of the President
Funds appropriated to the President
Department of Agriculture
Department of Commerce
Department of Defense—Military
Department of Defense—Civil
Department of Education
Department of Energy
Department of Health and Human Services
Department of Housing and Urban Development.
Department of the Interior
Department of Justice
Department of Labor
Department of State
Department of Transportation
Department of the Treasury
Environmental Protection Agency
National Aeronautics and Space Administration...
Veterans Administration
Other independent agencies
Allowances
Undistributed offsetting receipts
Total budget authority
Current services
1980
estimate
1.1
.5
.1
5.9
24.5
2.6
125.0
2.8
12.6
10.3
172.8
31.1
4.7
2.5
28.6
1.7
17.2
64.7
5.4
4.5
20.5
35.8
1.3
.6
.1
9.7
24.5
3.0
137.8
2.9
13.9
9.7
194.9
35.6
4.6
2.4
28.0
2.1
17.7
76.2
4.7
5.0
21.2
57.0
-18.5
556.7
-22.3
1.3
.7
.1
6.3
25.1
2.7
150.8
3.1
15.5
7.1
222.5
37.9
5.0
2.6
32.6
2.3
20.6
81.1
5.0
5.6
22.5
50.1
2.5
-25.1
1.3
.7
.1
11.4
24.6
3.4
158.2
3.0
15.5
10.2
222.9
40.4
4.7
2.7
33.0
2.3
20.5
80.9
5.3
5.7
22.7
48.6
3.1
-25.1
630.6
677.6
696.1
DIFFERENCES B E T W E E N CURRENT SERVICES ESTIMATES
BUDGET
1981
administration
proposals
1981
estimate
AND
PROPOSALS
For 1980, the administration's estimates of outlays and budget
authority are above the current services levels by $3.0 billion and
$23.4 billion, respectively. The major increases in budget authority
above the current services level include a proposed $17.8 billion
increase in funds for synthetic fuels promotion; $1.3 billion for the
transportation energy conservation program; $1.0 billion for other
energy programs; and supplemental appropriations for the Department of Defense—Military of $0.9 billion. The major increases in
outlays above the current services level due to the supplemental
appropriations are a $0.9 billion increase for the Department of
Defense—Military, $0.5 billion for social services, and $0.4 billion
for energy programs. The administration's estimate of receipts for
20
THE BUDGET FOR FISCAL YEAR 1981
1980 is $6.4 billion higher than the current services level of $517.4
billion due primarily to the windfall profit tax proposal.
For 1981, the administration's estimate of outlays is $3.7 billion
above the current services level, and budget authority is $18.4
billion above the current services level. The current services receipts level is $21.0 billion below the administration's estimate of
$600.0 billion.
Receipts.—As shown in table A-10, the administration's tax proposals result in increases in 1981 receipts of $21.0 billion above the
current services level. Most of this difference is due to the proposed
windfall profit tax and other energy tax proposals ($14.4 billion)
and the cash management initiative ($4.5 billion). A proposed ban
on the use of State and local government tax-exempt borrowing to
finance private mortgages accounts for a further $0.8 billion of the
difference. An administration proposal to withhold 10% from compensation for services paid to certain independent contractors
would increase receipts by $0.6 billion above the 1981 current
services level. Proposed legislation to increase railroad retirement
payroll taxes (primarily by eliminating the taxable earnings maximum on the industry portion of the tax) would increase social
insurance taxes and contributions above the current services level
by $0.3 billion. Proposed fees to finance the oil and hazardous
substance liability fund would result in an increase in miscellaneous receipts of $0.2 billion above the current services level.1
Table A - 1 0 . EFFECTS OF ADMINISTRATION PROPOSALS ON RECEIPTS
(In billions of dollars)
1980
Current services receipts estimates
Energy tax proposals:
Windfall profit tax (net)
Other (net)
Subtotal, energy tax proposals
Cash management initiative
Increase in railroad retirement payroll tax
Taxable mortgage bonds proposal
Independent contractors
Oil and hazardous substances fees
Other proposals
Total proposed changes
Proposed receipts, President's budget
1981
517.4
579.0
5.5
.7
13.9
.5
6.2
14.4
.1
4.5
.3
.8
.6
.2
.3
6.4
21.0
523.8
600.0
.1
1 A more detailed discussion of the administration's tax proposals is presented in the Budget of the United
States Government, Fiscal Year 1981, Part 4, "Budget Receipts."
SPECIAL ANALYSIS A
21
Outlays.—Table A-11 shows the major differences between the
administration's 1981 budget and the current services outlay level.
Proposed reductions result in a decrease in outlays of $9.7 billion,
below the current services level, which is more than offset by
proposed increases of $13.5 billion.
The largest proposed reductions from current services outlay
levels include the administration's hospital cost containment proposals, and other changes to the medicare and medicaid programs,
which will reduce outlays by $1.3 billion; and a pay reform proposal, which is expected to result in October 1980 pay raises of 6.2%
for Federal civilian employees and 7.4% for military personnel, and
would reduce outlays by $2.7 billion below the current services
level. Other major reductions include reductions in education programs of $1.1 billion, and proposed reductions in the public assistance and school lunch and other nutrition programs of $0.7 billion,
which reflects improved administration and the targeting of resources on those most in need.
The largest outlay increases above the current services level
reflect the proposed energy security (oil import reduction) program
and increases in defense programs. These proposals increase outlays by $2.0 billion and $5.4 billion, respectively, above the current
services level. Other major increases above current service include
increases for social services of $0.5 billion, primarily for grants to
States for social and child welfare services; proposed resumption (in
modified form) of a countercyclical fiscal assistance program ($1.0
billion); the proposed child health assurance program ($0.4 billion)
under medicaid; and increases in allowances for contingencies and
welfare reform of $1.5 billion.
Budget authority.—The administration's pay reform proposals
result in decreases in budget authority below the current services
level of $1.0 billion for civilian agency pay raises and $1.7 billion
for the Department of Defense. Interest is $1.2 billion below current services and reductions in impact aid, higher education, and
school lunch and related programs reduce budget authority by a
further $1.3 billion.
Increases in budget authority for the military functions of the
Department of Defense of $9.1 billion above the current services
level reflect higher purchases to carry out the administration's
policy to maintain the deterrent capability of our conventional and
strategic forces as the Soviet Union and its allies increase their
military capabilities. Other major increases in budget authority
22
THE BUDGET FOR FISCAL YEAR 1981
above the current services level include $1.5 billion for the transportation energy conservation program; $0.8 billion for heating bill
assistance for low-income families and individuals; $2.3 billion
funding for the strategic petroleum reserve; $1.0 billion for other
energy programs; $1.0 billion for resuming a countercyclical fiscal
assistance program; $1.2 billion for the youth education, employment, and training initiative; and $2.0 billion for allowances for
contingencies and welfare reform.
23
SPECIAL ANALYSIS A
Table A - l l . DIFFERENCES BETWEEN ADMINISTRATION 1981 BUDGET REQUEST AND CURRENT
SERVICES LEVELS
(In billions of dollars)
Budget
authority
Current services estimates for 1981
Decreases:
Defense—Military, pay raise
Civilian agencies, pay raise
Medicare and medicaid—hospital cost containment
Other medicare and medicaid reforms
Net interest
Higher education programs
School lunch and other child nutrition programs
Federal impact aid to education
Agricultural export credit sales
Public assistance program reform
Rail subsidies
Highway construction
Social security and railroad retirement
Other
Subtotal, decreases
Increases:
Defense—Military, program increases
Allowance for contingencies and welfare reform
Countercyclical fiscal assistance
Strategic petroleum reserve
Other energy programs
Heating bill assistance for low-income families
Transportation energy conservation program
Social services
Economic development initiative
Atomic energy defense activities
Environmental programs
Housing assistance
International programs
Science and space programs
Crop insurance and food security reserve
Child health assurance program (medicaid)
Youth initiative:
Education
Employment and training
Other
Subtotal, increases
President's request for 1981
*$50 million or less.
Outlays
677.6
612.0
-1.7
-1.1
-.1
-.1
-1.2
-.5
-.5
-.4
-.2
-.2
- *
.5
-1.6
-1.7
-1.0
-.8
-.6
-1.2
-.8
—.5
-.3
-.8
-.2
-.3
-.2
-.2
-1.1
-7.2
-9.7
9.1
2.0
1.0
2.3
1.0
.8
1.5
.5
.7
.2
.3
2.9
.7
.1
.1
.4
5.4
1.5
1.0
- *
1.0
.8
.6
.5
.3
.2
.1
.1
*
.1
.5
.4
.9
.3
.9
*
.1
.7
25.7
13.5
696.1
615.8
24
THE BUDGET FOR FISCAL YEAR 1981
Table A - 1 2 . CURRENT SERVICES BUDGET AUTHORITY BY FUNCTION AND PROGRAM
(In millions of dollars)
Current services
1979
actual
050 NATIONAL DEFENSE
051 Department of Defense—Military:
1980
estimate
1981
estimate
1981
administration
proposals
Military personnel
Retired military personnel
Proposed legislation
Operation and maintenance
Procurement
Research, development, test and evaluation
Military construction
Family housing
Revolving funds and other
Allowances for civilian and military pay raises
Other legislation
28,703
10,283
30,694
11,981
30,989
13,700
38,023
31,428
12,437
2,319
1,563
249
42,659
35,686
13,517
2,170
1,625
-574
44,855
38,457
14,499
2,318
1,608
-553
4,877
Subtotal, Department of Defense—Military
125,004
137,757
150,751
158,155
2,668
2,962
3,204
3,443
135
-64
131
-42
160
-37
69
72
82
160
132
-203
85
140
161
205
175
-3
127,809
-3
140,877
-4
154,157
-4
161,770
1,821
2,515
806
99
2,321
227
-310
1,989
3,234
743
106
1,972
496
-306
1,968
1,666
1,026
114
1,961
530
-358
2,225
1,666
1,129
119
2,106
567
-356
7,479
8,235
6,907
7,456
Grant military assistance
Foreign military training
Foreign military sales credit
Relocation of facilities (Israel)
Offsetting receipts and other
209
34
1,024
800
-274
110
28
659
236
-273
106
32
714
105
32
714
-258
-258
Subtotal, Military assistance
1,793
760
594
594
Administration of foreign affairs
International organizations and conferences
Other
813
479
25
812
515
35
956
519
40
995
519
41
Subtotal, Conduct of foreign affairs
1,318
1,362
1,514
1,554
506
519
562
565
053 Atomic energy defense activities
054
Defense-related activities:
Emergency planning, preparedness, and mobilization....
GSA stockpile sales and related
Proposed legislation
Other
Subtotal, Defense-related activities
Deductions for offsetting receipts
Total budget authority
JO INTERNATIONAL AFFAIRS
151 Foreign economic and financial assistance:
International Development Cooperation Agency
Multilateral development banks
Public Law 480—Food aid
Peace Corps
Economic support fund/Peacekeeping operations
Refugee assistance
Offsetting receipts and other
Subtotal, Foreign economic and financial assistance
152
153
154
Military assistance:
Conduct of foreign affairs:
Foreign information and exchange activities:
Existing law
32,037
13,700
37
48,563
40,524
16,486
3,251
1,972
-490
1,847
229
SPECIAL ANALYSIS A
25
Table A - 1 2 . CURRENT SERVICES BUDGET AUTHORITY BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
1979
actual
Subtotal, Foreign information and exchange activities
155
International financial programs:
Export-Import Bank
Foreign military sales trust fund (net)
International commodity agreements
Other
Subtotal, International financial programs
Deductions for offsetting receipts
Total budget authority
250 GENERAL SCIENCE, SPACE, AND TECHNOLOGY
251 General science and basic research:
National Science Foundation programs
Department of Energy general science programs
Smithsonian scientific information exchange activitiesSubtotal, General science and basic research
253
Space flight:
Existing law
Subtotal, Space flight
254
Space science, applications, and technology:
Existing law
Subtotal, Space science, applications, and technology
255
Supporting space activities:
Existing law
Subtotal, Supporting space activities
Deductions for offsetting receipts
Total budget authority
1981
estimate
1981
administration
proposals
506
519
562
565
105
-2,327
1,338
700
6,858
6,850
-76
-77
-79
88
-79
-2,298
1,961
6,779
6,859
-110
-90
-89
-89
8,688
12,748
16,267
16,939
914
431
2
996
472
*
1,153
515*
1,153
523*
1,347
1,468
1,669
1,676
2,433
2,547
3,093
3,183
2,433
2,547
3,093
3,183
1,224
1,415
1,496
1,547
1,224
1,415
1,496
1,547
383
437
467
463
383
437
467
463
-10
-3
-3
-3
5,377
5,864
6,721
6,866
270 ENERGY
271 Energy supply:
Synthetic fuels promotion
Energy security program (proposed)
Uranium enrichment
Petroleum reserves and other
Power marketing (net)
Other
Current services
1980
estimate
2,208
106
-314
-116
3,370
865
-591
14,892
3,627
67
-1,781
-107
4,042
241
210
-1,866
-99
4,033
3,046
21,001
2,221
2,519
Energy conservation (DOE)
Energy security program (proposed)
611
738
766
917
415
Subtotal, Energy conservation
611
738
766
1,332
104
2,404
Subtotal, Energy supply
272
274
Energy conservation:
Emergency energy preparedness:
Strategic petroleum reserve
*$500 thousand or less.
3,008
26
THE BUDGET FOR FISCAL YEAR 1981
Table A - 1 2 . CURRENT SERVICES BUDGET AUTHORITY BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
Current services
1979
actual
1980
estimate
1981
estimate
Regional petroleum reserve (proposed)
Subtotal, Emergency energy preparedness
276
Energy information policy, and regulation:
Energy Information Administration
Federal Energy Regulatory Commission
Economic Regulatory Administration
Nuclear Regulatory Commission
Department of Energy—administration and other
Alaska Gas Inspection
Subtotal, Energy information, policy, and regulation.
Deductions for offsetting receipts
Total budget authority
300 NATURAL RESOURCES AND ENVIRONMENT
301 Water resources:
Soil Conservation Service
Corps of Engineers
Department of the Interior
Proposed legislation
Other
Offsetting receipts
Subtotal, Water resources
302
1981
administration
proposals
15
3,008
104
2,419
66
54
99
327
231
88
70
155
368
271
11
94
72
165
495
277
26
116
76
162
468
362
26
777
963
1,129
1,211
-59
-72
-74
-74
7,382
22,630
4,146
7,408
199
2,817
622
196
2,877
652
213
3,127
845
38
-55
66
-54
63
-55
197
3,074
846
5
74
-55
3,621
3,736
4,193
4,141
1,811
429
115
522
-610
1,816
407
181
543
-532
1,879
422
194
557
-677
1,801
458
188
554
-677
2,267
2,415
2,375
2,324
*
Conservation and land management:
Management of national forests, cooperative forestry,
and forestry research
Management of public lands
Mining reclamation and enforcement
Conservation of agricultural lands
Other, including offsetting receipts
Subtotal, Conservation and land management
303
Recreational resources:
Land and water conservation fund
Proposed legislation
Urban recreation grants
Operation of recreation resources
767
539
584
20
1,046
125
1,030
137
1,106
610
-30
125
1,027
Subtotal, Recreational resources
1,833
1,694
1,827
1,732
4,200
15
3,400
23
3,700
38
3,700
1,091
1,229
1,227
250
1,317
5,306
4,653
4,965
5,267
1,364
1,394
1,454
1,442
21
1,364
1,394
1,454
1,463
304
Pollution control and abatement:
Sewage treatment plan construction grants
Oil pollution fund
Oil and hazardous substance liability fund (proposed)
Regulatory and research programs
Subtotal, Pollution control and abatement
306
Other natural resources:
Existing law
Proposed legislation
Subtotal, Other natural resources
*$500 thousand or less.
SPECIAL ANALYSIS A
27
Table A - 1 2 CURRENT SERVICES BUDGET AUTHORITY BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
1980
estimate
1981
estimate
1981
administration
proposals
-1,183
-1,445
-1,605
-1,622
13,207
12,447
13,209
13,306
6,491
12
3,056
12
3,300
12
1,132
36
228
273
43
193
297
40
198
3,300
12
111
297
37
198
7,899
3,576
3,847
3,955
598
572
600
275
73
239
137
56
75
-55
286
77
255
149
62
90
-66
311
79
266
159
63
99
-65
602
5
298
79
261
163
63
101
-65
1,400
1,424
1,511
1,507
48
-3
-3
-3
9,346
4,998
5,356
5,460
509
391
786
793
1,829
286
803
2,310
1,200
668
384
855
620
698
263
780
621
2,479
6,428
2,527
2,363
1,785
1,677
1,593
1,593
Current services
19/9
actual
Deductions for offsetting receipts
Total budget authority
10 AGRICULTURE
351 Farm income stabilization:
Price-support and related programs
Federal Crop Insurance Corporation
Proposed legislation
Agricultural credit insurance fund
Other programs
Administrative expenses
Subtotal, Farm income stabilization
352
Agricultural research and services:
Research programs
Proposed legislation
Extension programs
Marketing programs
Animal and plant health programs
Economic intelligence..
Other programs
Administrative expenses
Offsetting receipts
Subtotal, Agricultural research and services
Deductions for offsetting receipts
Total budget authority
0 COMMERCE AND HOUSING CREDIT
371 Mortgage credit and thrift insurance:
Mortgage purchase activities (GNMA)
Mortgage credit (FHA)
Housing for the elderly or handicapped
Department of Agriculture—rural housing programs....
National Credit Union Administration
Subtotal, Mortgage credit and thrift insurance
372
Postal Service:
Existing law
Subtotal, Postal Service
374
376
1,785
Federal Financing Bank
Other advancement and regulation of commerce:
Small business assistance
National Consumer Cooperative Bank
Technology utilization
Economic and demographic statistics
Other
Proposed legislation
Subtotal, Other advancement and regulation of
commerce
759
4
220
276
398
1,657
1,677
1,593
1,593
-253
-188
-188
776
74
243
723
472
986
175
247
238
510
941
175
278
241
526
-16
2,289
2,155
2,145
28
THE BUDGET FOR FISCAL YEAR 1981
Table A - 1 2 . CURRENT SERVICES BUDGET AUTHORITY BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
Current services
1979
actual
Deductions for offsetting receipts
Total budget authority
1980
estimate
1981
estimate
_*
_*
_*
5,921
10,141
6,087
5,912
8,533
2,427
2,319
9,096
2,235
2,198
9,561
4,078
2,281
*
00 TRANSPORTATION
401 Ground transportation:
Transportation energy conservation (proposed)
Highways
Mass transit
Aids to railroads
Proposed legislation
Regulation
1981
administration
proposals
73
80
82
1,500
9,515
3,887
1,798
250
85
13,351
13,609
16,001
17,035
3,145
519
73
28
3,244
570
96
30
3,438
528
86
29
3,473
543
86
29
3,765
3,940
4,081
4,131
Marine safety and transportation
Ocean shipping
Regulation
1,532
522
11
1,638
488
12
1,744
551
12
1,826
555
12
Subtotal, Water transportation
2,065
2,137
2,307
2,393
91
97
104
113
91
97
104
113
-67
-70
-55
-55
19,204
19,713
22,439
23,618
Community development block grants
Urban development action grants
Rehabilitation loans
Neighborhood self-help
Neighborhood Reinvestment Corporation
Pennsylvania Avenue Development
Other programs
3,750
400
232
5
65
318
3,900
675
135
10
12
39
332
4,154
738
178
11
13
38
336
3,950
675
188
15
13
38
350
Subtotal, Community development
4,770
5,103
5,469
5,230
1,034
538
11
20
1,013
704
550
862
552
723
1,241
50
1,037
50
1,038
492
155
475
155
506
167
150
1,005
5
496
146
Subtotal, Ground transportation
402 Air transportation:
Airways and airports
Aeronautical research and technology
Air carrier subsidies
Regulation
Subtotal, Air transportation
403
407
Water transportation:
Other transportation:
Existing law
Subtotal, Other transportation
Deductions for offsetting receipts
Total budget authority
50 COMMUNITY AND REGIONAL DEVELOPMENT
451 Community development:
452 Area and regional development:
Rural development and business assistance
Economic development
Local public works
Inland energy impact
Indian programs
Proposed legislation
Regional commissions
Other programs
*$500 thousand or less.
29
SPECIAL ANALYSIS A
Table A - 1 2 . CURRENT SERVICES BUDGET AUTHORITY BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
1979
actual
Current services
1980
estimate
1981
estimate
1981
administration
proposals
-305
-406
-413
-413
2,957
2,565
2,763
3,353
SBA disaster loans
Federal emergency management activities
Drought assistance and other
1,235
1,020
10
44
628
15
181
1,092
15
181
1,092
10
Subtotal, Disaster relief and insurance
2,266
687
1,288
1,283
-23
-25
-25
-25
9,969
8,330
9,495
9,840
3,671
3,742
4,059
334
816
977
782
345
731
348
805
1,051
896
486
790
356
879
1,143
967
556
863
4,094
900
366
519
1,102
933
574
879
7,655
8,118
8,821
9,367
Student assistance
Proposed legislation
Higher and continuing education
Proposed legislation
Special institutions
4,736
5,222
5,405
449
432
451
175
188
205
4,428
545
410
20
204
Subtotal, Higher education
5,360
5,841
6,061
5,607
492
127
572
143
411
163
661
149
414
247
692
156
397
246
695
156
1,334
1,384
1,509
1,492
2,484
5,880
2,024
2,998
3,112
2,101
2,994
4,598
2,489
221
385
745
267
365
764
267
385
841
3,008
4,598
1,664
1,125
'267
385
841
11,739
9,606
11,574
11,888
Offsetting receipts
Subtotal, Area and regional development
453
Disaster relief and insurance:
Deductions for offsetting receipts
Total budget authority
500
EDUCATION, TRAINING, EMPLOYMENT, AND
SOCIAL SERVICES
501 Elementary, secondary, and vocational education:
Elementary and secondary education
Proposed legislation
Indian education
Impact aid
Education for the handicapped
Vocational and adult education
Other aid to education agencies
Child development
Subtotal, Elementary, secondary, and vocational
education
502
503
Higher education:
Research and general education aids:
Educational research and improvement
Administrative expenses
Cultural activities
Other
Subtotal, Research and general education aids
504 Training and employment:
General training and employment programs
Public service employment
Youth programs
Proposed legislation
Older workers
Work incentive program
Federal-State employment service
Subtotal, Training and employment
30
THE BUDGET FOR FISCAL YEAR 1981
Table A - 1 2 . CURRENT SERVICES BUDGET AUTHORITY BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
1979
actual
505
Other labor services:
Existing law
Subtotal Other labor services
506
Social services:
Grants to States for social and child welfare services..
Proposed legislation
Retroactive claims
Services for the developmental^ disabled, elderly, and
other special groups
Proposed legislation
Community service programs
Domestic volunteer programs
Other social services
Subtotal, Social services
Deductions for offsetting receipts
Total budget authority
>0 HEALTH
551 Health care services:
Medicare
Proposed legislation
Medicaid
Proposed legislation
Other health services
Subtotal, Health care services
552
Health research:
National Institutes of Health research
Alcohol, Drug Abuse, and Mental Health Administration research
Other research programs
Subtotal, Health research
553
Education and training of health care work
force:
Health Resources Adminsitration training
National Institutes of Health training
Alcohol, Drug Abuse, and Mental Health Administration training
Subtotal, Education and training of health care
workforce
554
Consumer
safety:
and
occupational
health
Subtotal, Consumer and occupational health and
safety
Total budget authority
1981
estimate
1981
administration
proposals
522
576
607
617
522
576
607
617
3,088
2,744
2,708
2,710
523
1,646
1,763
1,921
554
119
11
551
142
11
580
146
12
1,864
10
550
178
12
5,962
5,211
5,365
5,847
-8
-7
-5
-5
32,565
30,729
33,929
34,815
31,762
35,922
45,007
13,217
14,578
16,186
3,793
4,030
4,413
45,007
-17
16,194
298
4,485
48,772
54,531
65,607
65,968
3,006
3,218
3,469
3,371
214
164
235
195
266
199
266
202
3,383
3,648
3,934
3,838
518
184
512
224
553
241
339
211
115
114
112
112
817
850
906
662
635
311
663
340
682
357
708
377
946
1,002
1,039
1,086
543
and
Consumer safety
Occupational safety and health
Deductions for offsetting receipts
Current services
1980
estimate
-10
-8
-8
-8
53,908
60,024
71,479
71,546
31
SPECIAL ANALYSIS A
Table A - 1 2 . CURRENT SERVICES BUDGET AUTHORITY BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
Current services
1979
actual
600 INCOME SECURITY
601 General retirement and disability insurance:
Social security (OASDI)
Proposed legislation
Railroad retirement
Proposed legislation
Special benefits for disabled coal miners
Other
Subtotal, General retirement and disability insurance
602
Federal employee retirement and disability:
Retirement and disability programs
Federal employee compensation
Subtotal, Federal employee retirement and disability
603
Unemployment compensation:
Federal unemployment benefits and allowances
Unemployment trust fund
Advances
Interfund transactions
Subtotal, Unemployment compensation
604
Public assistance and other income supplements:
Supplemental security income
Proposed legislation
AFDC and other
Proposed legislation
Earned income tax credit
Food stamps
WIC—food supplements
Proposed legislation
School lunch and other nutrition programs
Proposed legislation
Housing assistance
Refugee assistance
Proposed legislation
Heating bill assistance for low-income families
Proposed legislation
Other
Proposed legislation
Subtotal, Public assistance and other income
supplements
Deductions for offsetting receipts
Total budget authority
700 VETERANS BENEFITS AND SERVICES
701 Income security for veterans:
Service-connected compensation
Proposed legislation
*$500 thousand or less.
1981
administration
proposals
1980
estimate
1981
estimate
100,612
115,465
130,923
4,201
4,440
4,769
1,820
13
1,925
12
2,004
106,646
121,842
137,696
138,133
20,472
228
24,007
279
26,100
381
26,101
381
20,700
24,286
26,481
26,481
950
15,166
200
950
16,659
1,260
18,484
1,268
18,484
-400
162
*
130,923
196
4,769
274
1,961
11
-800
j-900
-400
15,516
16,871
19,344
19,351
5,505
6,371
6,903
""£688
7,395
7,798
773
6,670
570
1,696
8,735
758
1,570
9,730
908
3*326
4,103
4,519
24J80
235
27,672
417
30,625
653
189
1,597
1,597
6,903
17
7,798
-249
1,570
9,730
925
46
4,483
-458
33,488
87
511
284
232
208
49,020
58,997
64,511
67,487
-2
-2
-2
-2
191,880
221,973
248,029
251,451
6,909
7,337
8,431
7,508
923
2,400
216
18
32
THE BUDGET FOR FISCAL YEAR 1981
Table A - 1 2 . CURRENT SERVICES BUDGET AUTHORITY BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
Current services
1979
actual
1980
estimate
1981
estimate
1981
administration
proposals
Non-service-connected pensions
Other veterans income security
National service life insurance trust fund
U.S. Government life insurance trust fund
All other insurance programs
Insurance program receipts
3,555
179
983
38
6
-458
3,734
186
1,029
36
5
-458
4,074
191
1,060
34
1
-445
4,074
191
1,060
34
1
-445
Subtotal, Income security for veterans
11,212
11,869
13,346
13,346
2,510
2,279
1,822
1,822
193
2,510
2,279
1,822
2,015
5,374
5,855
6,117
462
275
398
177
401
181
6,155
-353
675
192
6,112
6,430
6,700
6,669
638
625
629
28
33
35
666
658
663
702 Veterans education, training, and rehabilitation:
Existing law
Proposed legislation
Subtotal, Veterans education, training, and rehabilitation
703
Hospital and medical care for veterans:
Medical care and hospital services
Proposed legislation
Construction
Medical administration, research and other
Subtotal, Hospital and medical care for veterans
705
Other veterans benefits and services:
VA administrative expenses and other
Proposed legislation
Non-VA support programs
Subtotal, Other veterans benefits and services
657
-1
32
688
-4
-3
-3
-3
20,495
21,233
22,529
22,716
General investigation (FBI)
Narcotics violation investigation
Alcohol, tobacco, and firearms investigation
Border enforcement activities (Customs and INS)
Protection activities (Secret Service)
Other enforcement
584
194
137
753
145
252
614
202
144
794
172
280
622
208
146
817
166
306
637
209
147
822
167
310
Subtotal, Federal law enforcement activities
2,065
2,205
2,266
2,292
397
442
479
523
270
627
300
657
321
497
-3
657
321
1,190
1,369
1,457
1,473
339
327
354
355
339
327
354
355
Deductions for offsetting receipts
Total budget authority
50 ADMINISTRATION OF JUSTICE
751 Federal law enforcement activities:
752
Federal litigative and judicial activities:
Civil and criminal prosecution and representation
Proposed legislation
Federal judicial activities
Representation of indigents in civil cases
Subtotal, Federal litigative and judicial activities
753
Federal correctional activities:
Existing law
Subtotal, Federal correctional activities
33
SPECIAL ANALYSIS A
Table A - 1 2 . CURRENT SERVICES BUDGET AUTHORITY BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
Current services
1979
actual
754
Criminal justice assistance:
Existing law
Subtotal, Criminal justice assistance
Deductions for offsetting receipts
Total budget authority
800 GENERAL GOVERNMENT
801 Legislative functions:
Existing law
Subtotal, Legislative functions
802
Executive direction and management:
Existing law
Subtotal, Executive direction and management
803
Central fiscal operations:
Collection of taxes
Other fiscal operations
Subtotal, Central fiscal operations
804
General property and records management:
Real property
Personal property
Records management
Other
Subtotal, General property and records management
805
Central personnel management:
Existing law
Subtotal, Central personnel management
806
Other general government:
Territories
Proposed legislation
Indian affairs
Treasury claims
Other
Subtotal, Other general government
Deductions for offsetting receipts
Total budget authority
850 GENERAL PURPOSE FISCAL ASSISTANCE
851 General revenue sharing:
General revenue sharing payments
Administration
Subtotal, General revenue sharing
310-700
0 - 8 0 - 3
1980
estimate
656
1981
estimate
496
543
1981
administration
proposals
582
656
496
543
582
-17
-12
-12
-12
4,234
4,386
4,609
4,689
925
1,072
1,114
1,065
925
1,072
1,114
1,065
84
102
108
112
84
102
108
112
2,145
286
2,298
347
2,365
370
2,385
387
2,431
2,645
2,735
2,772
21
163
78
125
157
87
168
158
87
175
158
87
175
386
411
420
420
133
149
153
156
133
149
153
156
183
204
222
132
198
43
197
294
-54
202
152
-6
161
22
203
152
15
556
641
571
553
-120
-133
-132
-132
4,395
4,888
4,970
4,946
6,855
7
6,855
6
6,855
7
6,855
7
6,862
6,861
6,862
6,862
*
34
THE BUDGET FOR FISCAL YEAR 1981
Table A - 1 2 . CURRENT SERVICES BUDGET AUTHORITY BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
1979
actual
1981
estimate
341
1
279
348
1
320
501
1
320
412
471
5
477
394
5
555
362
5
555
362
5
Subtotal, Other general purpose fiscal assistance
1,422
1,497
1,591
2,745
Total budget authority
8,285
8,358
8,453
9,606
59,837
73,300
80,600
79,400
59,837
73,300
80,600
79,400
358
-4,015
-3,626
698
-6,085
-4,584
708
-8,041
-4,870
708
-8,041
-4,870
Subtotal, Other interest
-7,283
-9,971
-12,203
-12,203
Total budget authority
52,554
63,529
68,397
67,197
2,452
-1,115
900 INTEREST
901 Interest on the public debt:
Existing law
Subtotal, Interest on the public debt
Other interest:
Interest on refunds of tax collections
Interest on loans to the Federal Financing Bank
Other
920 ALLOWANCES
921 Civilian agency pay raises
2,000
928 Allowance for contingencies
Total budget authority
950 UNDISTRIBUTED OFFSETTING RECEIPTS
951 Employer share, employee retirement
952
1981
administration
proposals
293
1
241
Payments and loans to the District of Columbia
New York City loan guarantee program
Payments to States from Forest Service receipts
Payments to States and counties from Federal land
management activities
Payments to territories and Puerto Rico
Other
902
Current services
1980
estimate
Interest received by trust funds:
Existing law
Proposed legislation
Subtotal, Interest received by trust funds
953 Rents and royalties on the Outer Continental
Shelf
Total budget authority
Total budget authority
2,452
3,115
-5,271
-5,919
-6,161
-6,161
-9,950
-11,539
-12,922
-12,427
-531
-9,950
-11,539
-12,922
-12,958
-3,267
-4,800
-6,000
-6,000
-18,488
-22,258
-25,083
-25,119
556,732
630,608
677,640
696,080
SPECIAL ANALYSIS A
35
Table A - 1 3 . CURRENT SERVICES OUTLAYS BY FUNCTION AND PROGRAM
(In millions of dollars)
Current services
1979
actual
50 NATIONAL DEFENSE
051 Department of Defense—Military:
1980
estimate
1981
estimate
1981
administration
proposals
Military personnel
Retired military personnel
Proposed legislation
Operation and maintenance
Procurement
Research, development, test and evaluation
Military construction
Family housing
Revolving funds and other
Allowances for civilian and military pay raises
Other legislation
28,407
10,279
30,442
11,941
30,719
13,677
36,424
25,404
11,152
2,080
1,468
-201
40,106
27,648
12,933
2,147
1,571
-266
42,127
30,031
13,905
2,318
1,685
-237
4,794
Subtotal, Department of Defense—Military
115,013
126,522
139,019
142,700
2,541
2,944
3,183
3,386
131
-67
130
-43
146
-38
65
72
82
145
132
-203
85
129
160
191
159
053 Atomic energy defense activities
054
Defense-related activities:
Emergency planning, preparedness, and mobilization....
GSA stockpile sales and related
Proposed legislation
Other
Subtotal, Defense-related activities
31,705
13,677
37
46,376
30,497
14,843
2,053
1,686
-222
1,819
229
-3
-3
-4
-4
117,681
129,622
142,389
146,241
1,374
683
976
94
1,755
166
-304
1,575
926
1,072
104
1,890
468
-308
1,701
966
1,076
112
2,183
506
-350
1,737
966
1,153
116
2,056
534
-349
4,743
5,727
6,193
6,212
Grant military assistance
Foreign military training
Foreign military sales credit
Relocation of facilities (Israel)
Offsetting receipts and other
140
28
640
31
-276
195
26
540
411
-275
150
28
515
318
-260
150
28
515
318
-260
Subtotal, Military assistance
563
897
751
751
Administration of foreign affairs
International organizations and conferences
Other
785
495
30
860
487
35
910
535
38
927
535
39
Subtotal, Conduct of foreign affairs
1,310
1,382
1,483
1,501
Deductions for offsetting receipts
- Total outlays
50 INTERNATIONAL AFFAIRS
151 Foreign economic and financial assistance:
International Development Cooperation Agency
Multilateral development banks
Public Law 480—Food aid
Peace Corps
Economic support fund/peacekeeping operations
Refugee assistance
Offsetting receipts and other
Subtotal, Foreign economic and financial assistance
152
Military assistance:
153 Conduct of foreign affairs:
36
THE BUDGET FOR FISCAL YEAR 1981
Table A - 1 3 . CURRENT SERVICES OUTLAYS BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
1979
actual
154
Foreign information and exchange activities:
Existing law
Subtotal, Foreign information and exchange activities
155
International financial programs:
Export-Import Bank
Foreign military sales trust fund (net)
International commodity agreements
Other
Subtotal, International financial programs
Deductions for offsetting receipts
Total outlays
250 GENERAL SCIENCE, SPACE, AND TECHNOLOGY
251 General science and basic research:
National Science Foundation programs
Department of Energy general science programs
Smithsonian scientific information exchange activitiesSubtotal, General science and basic research
253
Space flight:
Existing law
Subtotal, Space flight
254
Space science, applications, and technology:
Existing law
Subtotal, Space science, applications, and technology
255
Supporting space activities:
Existing law
Subtotal, Supporting space activities
Deductions for offsetting receipts
Total outlays
272
Energy conservation:
Energy conservation (DOE)
*$500 thousand or less.
1981
administration
proposals
1981
estimate
465
538
566
569
465
538
566
569
200
-1,434
1,054
1,230
1,230
354
-568
-566
5
-566
1,200
-879
1,687
664
669
-110
-90
-89
-89
6,091
10,140
9,568
9,612
870
425
2
947
462
1,052
500
*
1,052
508
*
*
1,298
1,410
1,552
1,560
2,217
2,545
2,920
3,013
2,217
2,545
2,920
3,013
1,153
1,322
1,399
1,434
1,153
1,322
1,399
1,434
383
416
441
439
383
416
441
439
-10
-3
-3
-3
5,041
5,689
6,309
6,442
155
53
121
-329
1,643
3,465
59
-378
1,564
3,745
23
-1,771
1,818
3,937
53
16
221
200
237
-1,772
1,825
3,713
4,900
5,145
4,060
4,493
252
579
745
793
270 ENERGY
271 Energy supply:
Synthetic fuels promotion
Proposed legislation
Energy security program (proposed)
Spent fuel storage fund (proposed)
Uranium enrichment
Petroleum reserves and other
Power marketing (net)
Other
Subtotal, Energy supply
Current services
1980
estimate
37
SPECIAL ANALYSIS A
Table A - 1 3 . CURRENT SERVICES OUTLAYS BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
Current services
1979
actual
1980
estimate
1981
estimate
379
Energy security program (proposed)
Subtotal, Energy conservation
274
Emergency energy preparedness:
Strategic petroleum reserve
Regional petroleum reserve (proposed)
Subtotal, Emergency energy preparedness
276
Energy information, policy, and regulation:
Energy Information Administration
Federal Energy Regulatory Commission
Economic Regulatory Administration
Nuclear Regulatory Commission
Department of Energy—administration and other
Alaska Gas Inspection
Subtotal, Energy information, policy, and regulation.
Deductions for offsetting receipts
Total outlays
00 NATURAL RESOURCES AND ENVIRONMENT
301 Water resources:
Soil Conservation Service
Corps of Engineers
Department of the Interior
Proposed legislation
Other
Offsetting receipts
Subtotal, Water resources
302
252
579
745
1,172
1,021
767
1,325
1,294
11
1,021
767
1,325
1,306
61
50
82
309
239
86
67
149
301
276
9
92
70
157
433
283
25
116
76
176
476
342
25
742
890
1,059
1,211
-59
-72
-74
-74
6,856
7,309
7,115
8,107
256
2,933
727
228
3,093
780
245
3,172
800
36
-55
71
-54
70
-55
218
3,081
801
3
73
-55
3,897
4,117
4,232
4,121
1,536
395
48
559
-654
1,573
399
114
572
-544
1,847
412
158
556
-679
1,755
444
158
562
-673
1,884
2,115
2,293
2,245
600
490
81
956
489
74
936
*
Conservation and land management:
Management of national forests, cooperative forestry,
and forestry research
Management of public lands
Mining reclamation and enforcement
Conservation of agricultural lands
Other, including offsetting receipts
Subtotal, Conservation and land management
303
1981
administration
proposals
Recreational resources:
Land and Water Conservation fund
Urban recreation grants
Operation of recreation resources
913
451
74
934
Subtotal, Recreational resources
1,513
1,458
1,527
1,499
3,756
13
3,900
26
3,950
28
938
979
981
3,950
6
45
1,106
4,706
4,905
4,958
5,107
304
Pollution control and abatement:
Sewage treatment plant construction grants
Oil pollution fund
Oil and hazardous substance liability fund (proposed)
Regulatory and research programs
Subtotal, Pollution control and abatement
*$500 thousand or less.
*
38
THE BUDGET FOR FISCAL YEAR 1981
Table A - 1 3 . CURRENT SERVICES OUTLAYS BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
Current services
1979
actual
306
Other natural resources:
Existing law
Proposed legislation
Subtotal, Other natural resources
Deductions for offsetting receipts
Total outlays
350 AGRICULTURE
351 Farm income stabilization:
Price-support and related programs
Proposed legislation
Federal Crop Insurance Corporation
Proposed legislation
Agricultural credit insurance fund
Other programs
Administrative expenses
Subtotal, Farm income stabilization
352 Agricultural research and services:
Research programs
Proposed legislation
Extension programs
Marketing programs
Animal and plant health programs
Economic intelligence
Other programs
Administrative expenses
Offsetting receipts
Subtotal, Agricultural research and services
1980
estimate
1981
administration
proposals
1981
estimate
1,273
1,361
1,415
1,449
19
1,273
1,361
1,415
1,468
-1,183
-1,445
-1,605
-1,622
12,091
12,513
12,820
12,819
3,572
2,792
2,487
-8
27
27
1,017
43
226
238
40
188
-1,020
44
193
1,697
359
27
93
-1,020
41
193
4,850
3,286
1,730
1,389
524
524
559
273
64
230
133
56
115
-55
262
81
254
149
59
90
-66
285
81
265
158
60
96
-65
538
1
276
81
261
163
61
99
-65
1,340
1,353
1,439
1,416
48
-3
-3
-3
6,238
4,636
3,167
2,802
Mortgage purchase activities (GNMA)
Mortgage credit (FHA)
Housing for the elderly or handicapped
Department of Agriculture—rural housing programs....
Federal Deposit Insurance Corporation
Federal Home Loan Bank Board
National Credit Union Administration
225
193
459
184
-1,218
-488
-30
1,036
148
700
1,806
-1,450
-479
173
-351
68
700
-958
-1,500
-602
-32
-351
-70
700
-958
-1,500
-602
-32
Subtotal, Mortgage credit and thrift insurance ...
-677
1,935
-2,674
-2,813
1,787
1,677
1,593
1,593
1,787
1,677
1,593
1,593
-253
-188
-188
719
898
869
Deductions for offsetting receipts
Total outlays
370 COMMERCE AND HOUSING CREDIT
371 Mortgage credit and thrift insurance:
372
Postal Service:
Existing law
Subtotal, Postal Service
374
376
Federal Financing Bank
Other advancement and regulation of commerce:
Small business assistance
674
39
SPECIAL ANALYSIS A
Table A - 1 3 . CURRENT SERVICES OUTLAYS BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
Current services
1979
actual
1980
estimate
1981
administration
proposals
1981
estimate
212
214
354
36
242
648
458
163
250
315
491
161
268
317
517
-12
1,454
2,103
2,116
2,121
_*
_*
*
2,565
5,461
846
712
7,492
2,542
1,962
8,359
2,712
2,317
8,707
2,927
2,094
67
79
82
617
8,510
2,801
1,756
40
84
12,064
13,467
13,809
13,808
2,850
443
72
27
3,123
532
94
30
3,310
548
87
29
3,297
554
87
29
3,392
3,778
3,974
3,967
Marine safety and transportation
Ocean shipping
Regulation
1,424
543
10
1,557
668
12
1,648
584
12
1,728
590
12
Subtotal, Water transportation
1,977
2,236
2,245
2,330
93
100
103
109
93
100
103
109
-67
National Consumer Cooperative Bank
Technology utilization
Economic and demographic statistics
Other
Proposed legislation
Subtotal, Other advancement and regulation of
commerce
Deductions for offsetting receipts
Total outlays
*
00 TRANSPORTATION
401 Ground transportation:
Transportation energy conservation (proposed)
Highways
Mass transit
Aids to railroads
Proposed legislation
Regulation
Subtotal, Ground transportation
402 Air transportation:
Airways and airports
Aeronautical research and technology
Air carrier subsidies
Regulation
Subtotal, Air transportation
403 Water transportation:
407
Other transportation:
Existing law
Subtotal, Other transportation
-70
-55
-55
17,459
19,511
20,075
20,159
Community development block grants
Urban development action grants
Rehabilitation loans
Neighborhood self-help
Neighborhood Reinvestment Corporation
Pennsylvania Avenue Development
Other programs
3,161
73
100
29
631
3,500
180
170
9
12
44
604
3,837
366
185
8
13
40
525
3,805
365
190
10
13
40
539
Subtotal, Community development
3,995
4,519
4,974
4,963
Deductions for offsetting receipts
Total outlays
50 COMMUNITY AND REGIONAL DEVELOPMENT
451 Community development:
*$500 thousand or less.
40
THE BUDGET FOR FISCAL YEAR 1981
Table A - 1 3 . CURRENT SERVICES OUTLAYS BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
Current services
1979
actual
452 Area and regional development:
1980
estimate
1981
estimate
1981
administration
proposals
669
431
656
487
804
509
1,741
11
805
358
34
11
846
200
53
32
871
418
130
-305
422
186
-406
450
176
-413
784
802
43
200
53
62
856
5
458
170
-413
3,899
2,594
2,683
3,020
SBA Disaster loans
Federal emergency management activities
Drought assistance and other
957
617
36
626
627
26
200
646
20
200
646
17
Subtotal, Disaster relief and insurance
1,611
1,278
865
863
-23
-25
-25
-25
9,482
8,366
8,496
8,820
3,133
3,409
3,600
292
912
589
772
321
668
302
821
789
855
394
760
317
876
1,004
941
496
829
3,631
50
315
554
968
908
512
822
6,688
7,330
8,062
7,761
Student assistance
Proposed legislation
Higher and continuing education
Special institutions
3,769
4,882
5,423
588
170
410
182
400
202
4,530
91
388
196
Subtotal, Higher education
4,528
5,474
6,024
5,205
432
131
543
127
422
161
629
182
349
226
689
157
362
202
688
157
1,233
1,394
1,419
1,408
2,450
2,720
2,826
2,835
Rural development and business assistance
Economic development
Proposed legislation
Local public works
Coastal energy impact
Inland energy impact
Indian programs
Proposed legislation
Regional commissions
Other programs
Offsetting receipts...
Subtotal, Area and regional development
453
Disaster relief and insurance:
Deductions for offsetting receipts
Total outlays
EDUCATION, TRAINING, EMPLOYMENT, AND
SOCIAL SERVICES
501 Elementary, secondary, and vocational education:
*
500
Elementary and secondary education
Proposed legislation
Indian education
Impact aid
Education for the handicapped
Vocational and adult education
Other aid to education agencies
Child development
Subtotal, Elementary, secondary, and vocational
education
502
503
Higher education:
Research and general education aids:
Education research and improvement
Administrative expenses
Cultural activities
Other
Subtotal, Research and general education aids
504
Training and employment:
General training and employment programs
*$500 thousand or less.
41
SPECIAL ANALYSIS A
Table A - 1 3 . CURRENT SERVICES OUTLAYS BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
1979
actual
Public service employment
Youth programs
Proposed legislation
Older workers
Work incentive program
Federal-State employment service
Subtotal, Training and employment.
505
Other labor services:
Existing law
Subtotal, Other labor services.
506
Social services:
Grants to States for social and child welfare services..
Proposed legislation
Retroactive claims
Services for the developmental^ disabled, elderly, and
other special groups
Proposed legislation
Community service programs
Domestic volunteer programs
Other social services
Subtotal, Social services
Deductions for offsetting receipts
Total outlays
550 HEALTH
551 Health care services:
Medicare
Proposed legislation
Medicaid
Proposed legislation
Other health services
Subtotal, Health care services..
552
Health research:
National Institutes of Health research
Alcohol, Drug Abuse, and Mental Health Administration research
Other research programs
Subtotal, Health research..
553
Education and training of health care work
force:
National Institutes of Health training
Health Resources Administration training
Alcohol, Drug Abuse, and Mental Health Administration training
Subtotal, Education and training of health care
work force
Current services
1980
estimate
1981
administration
proposals
1981
estimate
5,041
2,048
3,977
2,330
4,415
2,461
208
385
701
238
365
773
263
385
841
4,415
1,844
717
263
385
841
10,833
10,402
11,190
11,299
488
556
591
602
488
556
591
602
3,091
2,670
2,624
2,627
523
1,573
1,655
1,804
594
117
5
569
131
21
580
163
13
1,822
2
555
175
14
5,923
5,046
5,185
5,717
-8
-7
-5
-5
29,685
30,193
32,467
31,989
29,147
33,540
38,425
12,491
14,220
15,567
3,483
3,774
4,010
38,425
-1,076
15,575
298
4,095
45,121
51,535
58,002
57,317
2,698
2,971
3,253
3,137
190
135
200
170
239
164
239
179
3,023
3,340
3,656
3,555
171
307
191
360
221
391
198
265
105
114
96
96
583
666
708
559
543
42
THE BUDGET FOR FISCAL YEAR 1981
Table A - 1 3 . CURRENT SERVICES OUTLAYS BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
1979
actual
554
Consumer
safety:
and occupational
Subtotal, Consumer and occupational health and
safety
Deductions for offsetting receipts
Total outlays
600 INCOME SECURITY
601 General retirement and disability insurance:
Social security (OASDI)
Proposed legislation
Railroad retirement
Proposed legislation
Special benefits for disabled coal miners
Other
Subtotal, General retirement and disability insurance
Federal employee retirement and disability:
Retirement and disability programs
Proposed legislation
Federal employee compensation
Subtotal, Federal employee retirement and disability
603
Unemployment compensation:
Federal unemployment benefits and allowances
Unemployment trust fund
Advances
Interfund transactions
Subtotal, Unemployment compensation
604
Public assistance and other income supplements:
Supplemental security income
Proposed legislation
AFDC and other
Proposed legislation
Earned income tax credit
Food stamps
WIC—food supplements
Proposed legislation
School lunch and other nutrition programs
Proposed legislation
Housing assistance
Refugee assistance
Proposed legislation
Heating bill assistance for low-income families
Proposed legislation
Other
Proposed legislation
1981
estimate
1981
administration
proposals
health and
Consumer safety
Occupational safety and health
602
Current services
1980
estimate
603
293
645
337
653
350
658
369
1,027
896
982
1,003
-10
-8
-8
-8
49,614
56,515
63,361
62,449
102,595
117,927
137,020
4,279
4,748
5,227
1,610
8
1,968
12
2,036
1
137,020
-99
5,227
-70
1,994
12
108,492
124,655
144,284
144,084
12,192
14,305
16,686
187
252
381
16,686
22
381
12,379
14,556
17,067
17,089
825
10,537
180
-800
1,030
15,249
162
-900
1,260
17,884
1,268
17,884
-400
-400
10,742
15,541
18,744
18,752
5,471
6,374
6,908
1,121
7*681
773
6,822
542
1,696
8,678
735
1,570
9,656
3,423
3,955
4,261
4,367
141
5,247
367
6,543
579
186
1,660
1,597
6,908
17
7,681
-249
1,570
9,656
860
43
4,240
-432
6,606
228
296
"252
259
207
"mi
2,400
214
22
43
SPECIAL ANALYSIS A
Table A - 1 3 . CURRENT SERVICES OUTLAYS BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
Current services
1979
actual
Subtotal, Public assistance and other income supplements
Deductions for offsetting receipts
Total outlays
700 VETERANS BENEFITS AND SERVICES
701 Income security for veterans:
1980
estimate
28,586
- 2
36,099
-2
1981
estimate
39,850
- 2
1981
administration
proposals
40,060
- 2
160,198
190,850
219,943
219,982
Service-connected compensation
Proposed legislation
Non-service-connected pensions
Other veterans income security
National service life insurance trust fund
U.S. Government life insurance trust fund
All other insurance programs
Insurance program receipts
6,743
7,411
8,317
3,522
177
785
71
-60
-458
3,712
185
803
69
-62
-458
4,032
190
931
64
-54
-445
7,471
846
4,032
190
931
64
-54
-445
Subtotal, Income security for veterans..
10,780
11,660
13,034
13,034
2,760
2,226
1,750
1,750
193
2,760
2,226
1,750
1,943
5,159
5,926
6,058
201
251
273
226
273
230
6,101
-353
381
242
5,611
6,425
6,562
6,370
Loan guaranty revolving fund
Direct loan revolving fund
Other (HUD PC sales fund)
207
-65
12
-32
-175
22
-195
-107
2
-195
-107
2
Subtotal, Veterans housing
154
-184
-300
-300
598
641
626
29
32
34
702
Veterans education, training, and rehabilitation:
Existing law
Proposed legislation
Subtotal, Veterans education, training, and rehabilitation
703
Hospital and medical care for veterans:
Medical care and hospital services
Proposed legislation
Construction
Medical administration, research and other
Subtotal, Hospital and medical care for veterans..
704
705
Veterans housing:
Other veterans benefits and services:
VA administrative expenses and other
Proposed legislation
Non-VA support programs
Subtotal, Other veterans benefits and services
Deductions for offsetting receipts
Total outlays
750 ADMINISTRATION OF JUSTICE
751 Federal law enforcement activities:
General investigation (FBI)
Narcotics violation investigation
Alcohol, tobacco, and firearms investigation
Border enforcement activities (Customs and INS)....
Protection activities (Secret Service)
655
-1
32
627
673
660
686
-4
-3
-3
-3
19,928
20,797
21,704
21,731
586
185
131
730
139
615
200
144
796
174
625
208
145
811
163
635
206
146
814
165
44
THE BUDGET FOR FISCAL YEAR 1981
Table A - 1 3 . CURRENT SERVICES OUTLAYS BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
Current services
1979
actual
Other enforcement
Subtotal, Federal law enforcement activities
752
Federal litigative and judicial activities:
Civil and criminal prosecution and representation
Proposed legislation
Federal judicial activities
Representation of indigents in civil cases
Subtotal, Federal litigative and judicial activities
753
Federal correctional activities:
Existing law
Subtotal, Federal correctional activities
754
Criminal justice assistance:
Existing law
Subtotal, Criminal justice assistance
Deductions for offsetting receipts
Total outlays
00 GENERAL GOVERNMENT
801 Legislative functions:
Existing law
Subtotal, Legislative functions
802
Executive direction and management:
Existing law
Subtotal, Executive direction and management
803
Central fiscal operations:
Collection of taxes
Other fiscal operations
Subtotal, Central fiscal operations
804
General property and records management:
Real property
Personal property
Records management
Other
Subtotal, General property and records management
805
Central personnel management:
Existing law
Subtotal, Central personnel management
806
Other general government:
Territories
Proposed legislation
Indian affairs
Treasury claims
1980
estimate
1981
estimate
1981
administration
proposals
221
281
299
301
1,992
2,209
2,251
2,266
388
445
469
488
254
632
300
661
329
485
-3
659
329
1,130
1,377
1,459
1,471
337
348
362
357
337
348
362
357
710
580
617
618
710
580
617
618
-17
-12
-12
-12
4,153
4,503
4,677
4,699
914
1,079
1,156
1,081
914
1,079
1,156
1,081
81
102
107
109
81
102
107
109
2,079
252
2,296
358
2,359
377
2,378
392
2,330
2,654
2,735
2,770
-70
129
75
101
-149
163
87
166
-16
163
87
174
-10
163
87
174
235
267
408
414
127
155
156
158
127
155
156
158
200
180
204
135
240
208
321
210
152
178
22
210
152
45
SPECIAL ANALYSIS A
Table A - 1 3 . CURRENT SERVICES OUTLAYS BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
Current services
1979
actual
Other
Subtotal, Other general government
Deductions for offsetting receipts
Total outlays
850 GENERAL PURPOSE FISCAL ASSISTANCE
851 General revenue sharing:
General revenue sharing payments
Administration
Subtotal, General revenue sharing
852
1980
estimate
1981
estimate
1981
administration
proposals
12
2
-51
-30
586
711
515
531
-120
-133
-132
-132
4,153
4,835
4,944
4,931
6,848
7
6,863
6
6,857
8
6,857
8
6,854
6,869
6,864
6,864
Other general purpose fiscal assistance:
Countercyclical fiscal assistance (proposed)
Payments and loans to the District of Columbia
New York City loan guarantee program
Payments to States from Forest Service receipts
Payments to states and counties from Federal land
management activities
Payments to territories and Puerto Rico
Other
393
1
241
381
1
279
356
1
320
1,000
510
1
320
413
464
7
478
402
7
555
362
5
555
362
5
Subtotal, Other general purpose fiscal assistance
1,518
1,548
1,599
2,753
Total outlays
8,372
8,416
8,464
9,617
59,837
73,300
80,600
79,400
59,837
73,300
80,600
79,400
358
-4,015
-3,624
698
-6,085
-4,583
708
-8,041
-4,870
708
-8,041
-4,870
-7,281
-9,970
-12,203
-12,203
52,556
63,530
68,397
67,197
2,354
1,070
1,500
2,354
2,570
900 INTEREST
901 Interest on the public debt:
Existing law
Subtotal, Interest on the public debt
902
Other interest:
Interest on refunds of tax collections
Interest on loans to the Federal Financing Bank
Other
Subtotal, Other interest
Total outlays
920 ALLOWANCES
921 Civilian agency pay raises
928 Allowance for contingencies
Total outlays
950 UNDISTRIBUTED OFFSETTING RECEIPTS
951 Employer share, employee retirement
952 Interest received by trust funds:
-5,271
-5,919
-6,161
-6,161
-9,950
-11,539
-12,922
-12,427
-531
Subtotal, Interest received by trust funds
-9,950
-11,539
-12,922
-12,958
953 Rents and royalties on the Outer Continental
Shelf
-3,267
-4,800
-6,000
-6,000
-18,488
-22,258
-25,083
-25,119
493,673
560,628
612,014
615,761
Existing law
Proposed legislation
Total outlays
Total outlays
*$500 thousand or less.
SPECIAL ANALYSIS B
FEDERAL TRANSACTIONS IN THE NATIONAL INCOME
ACCOUNTS
The budget is designed to serve several purposes:
—It is an economic document that reflects the taxing and spending policies of the Government for promoting economic growth,
high employment, relative price stability, and a strong balance-of-payments position.
—It proposes an allocation of resources between the private and
public sectors and within the public sector. Through its impact
on consumption and investment decisions and the distribution
of income it also affects allocation decisions within the private
sector.
—It sets forth the President's request to the Congress for appropriation action on existing or new programs and for changes in
tax legislation.
—It is a report to the Congress and the people on how the Government has spent the funds entrusted to it in past years.
No single budget concept can satisfy all these purposes fully. The
budget document and related Treasury reports provide complete,
detailed information on the finances of the Federal Government
and on the tax and spending programs proposed by the President.
For study of aggregate economic activity, however, the national
income and product accounts (NIA) of the United States provide
the most useful measures. This special analysis shows Federal finances as measured in the NIA. The analysis is divided into three
major sections. The first shows the size, composition, and trends in
Federal sector receipts and expenditures. Additional details will be
published in the February 1980 issue of the Department of Commerce publication, Survey of Current Business. The second section
of this analysis shows quarterly estimates of Federal sector receipts
and expenditures seasonally adjusted at annual rates and also
discusses estimating errors inherent in preparing this translation;
the final section explains the major differences between the budget
and the NIA concepts. A brief discussion of fiscal policy can be
found in Part 2 of the Budget of the United States, and a more
detailed analysis in the Economic Report of the President
47
48
THE BUDGET FOR FISCAL YEAR 1981
FEDERAL SECTOR RECEIPTS A N D
EXPENDITURES
Table B - l shows Federal sector NIA receipts, expenditures, and
deficits for 1979-81.
Table B - l . FEDERAL RECEIPTS AND EXPENDITURES IN THE NIA
(In billions of dollars)
Description
1980
estimate
1979
actual
1981
estimate
RECEIPTS
Personal tax and nontax receipts
Corporate profits tax accruals
Indirect business tax and nontax accruals
Contributions for social insurance
Total receipts
223.5
78.4
29.4
152.4
245.1
76.5
38.5
170.5
279.7
77.1
53.0
197.9
483.7
530.6
607.7
162.4
(105.9)
(56.5)
201.7
(197.7)
(4.0)
79.3
40.4
185.6
(118.7)
(66.9)
235.1
(230.9)
(4.2)
84.3
49.2
202.9
(132.1)
(70.8)
267.6
(263.2)
(4.4)
90.7
52.2
9.8
10.0
12.9
EXPENDITURES
Purchases of goods and services
Defense
Nondefense
Transfer payments
Domestic ("to persons")
Foreign
Grants-in-aid to State and local governments
Net interest paid
Subsidies less current surplus of Government enterprises
Wage disbursements less accruals
*
Total expenditures
493.6
564.2
626.3
Deficit ( - )
-9.9
-33.6
-18.6
*$50 million or less.
Trends in Federal sector receipts.—Table B - l divides receipts into
four major categories, which are also illustrated in the chart on the
distribution of Federal sector receipts by category. Table B - 2
shows, at 10-year intervals, 3-year averages of Federal sector receipts by category as a percent of the gross national product (GNP).
Three-year averages are used in order to eliminate the impact of
annual fluctuations and permit a greater focus on basic trends.
Table B - 2 . FEDERAL SECTOR RECEIPTS AS A PERCENT OF GNP
Description
Personal tax and nontax receipts
Corporate profits tax accruals
Indirect business tax and nontax accruals
Contributions for social insurance
Total receipts
1949-51
average
actual
1959-61
average
actual
1969-71
average
actual
1979-81
average
estimate
6.6
5.2
3.1
2.0
8.4
4.3
2.6
3.3
9.4
3.6
2.0
5.1
9.8
3.1
1.6
6.8
16.9
18.6
20.1
21.3
49
SPECIAL ANALYSIS A
Distribution of Federal Sector Receipts by Category
5-Year Averages
Contributions for
Social Insurance
Indirect Business Tax
and Nontax Accruals
Corporate Profits
Tax Accruals
Personal tax and nontax receipts.—The largest receipt category—
personal tax and nontax receipts—is composed primarily of individual income taxes but also includes estate and gift taxes and some
miscellaneous receipts. Increases in income, because of both real
growth and inflation, automatically increase these receipts. Since
personal income taxes are progressive, these receipts normally
grow at a faster rate than personal income. However, tax reductions enacted periodically over the past three decades have offset
part of the increase in effective tax rates resulting from the progressive tax structure.
Corporate profits tax accruals.—Corporate profits tax accruals
vary significantly from year to year because corporate profits are
highly volatile. The NIA corporate profits taxes differ from the
corresponding budget category primarily because: (1) The NIA includes the deposit of earnings by the Federal Reserve System as
corporate profits taxes, whereas the budget treats these collections
as miscellaneous receipts; and (2) the NIA records corporate profits
310-700
0 - 8 0 - 4
50
THE BUDGET FOR FISCAL YEAR 1981
taxes when the profits are earned (that is, accrued), while the
unified budget records the cash receipts.
Estimates of corporate profits tax accruals are normally subject
to greater error than any other category of receipts. The NIA
estimate is derived from estimates of corporate profits, estimated
tax rates, and adjustments for tax law changes. Even for past
periods these estimates are subject to significant revisions based on
later data. As is shown in table B-9, the estimated corporate
profits tax accruals for 1978 are now $0.5 billion higher than was
estimated a year ago, even though both estimates were for a period
that had ended. There is about a 3-year lag between initial and
final estimates of corporate tax liability data; in the interim,
successive estimates are made using the better data that gradually
become available.
The gradual decline in corporate profits tax receipts relative to
GNP and (as shown in the chart above) to total receipts results
mainly from three factors: (1) a long-term decline in corporate
profits relative to GNP; (2) a narrowing of the corporate profits tax
base resulting from changes in the definition of corporate profits
for tax purposes (largely increases in permissible depreciation
allowances); and (3) reductions in effective tax rates on corporate
profits resulting from statutory rate reductions and tax credits.
Indirect business tax and nontax accruals.—These receipts are
composed of excise taxes, customs duties, and various miscellaneous receipts such as rents and royalties on the Outer Continental
Shelf lands, import fees on crude oil and petroleum products, and
coal-mining reclamation fees. Over time, indirect business tax and
nontax accruals have become a much less important part of total
Federal sector receipts, partly because they normally do not rise in
proportion to the growth in the economy and partly because some
of them, such as the automobile and telephone excise taxes, have
been reduced or repealed. This decline has been reversed in the
1980 and 1981 estimates largely due to the proposed new windfall
profit tax on oil.
Contributions for social insurance.—This is the second largest
category of Federal sector receipts. The increase since World War
II has been caused by the growth in the labor force and in wage
rates, the expanded coverage of existing social insurance programs,
the enactment of new ones, and increases in the taxable wage base
and tax rates needed to finance liberalization of benefits. As a
result of the rapid rise in social insurance taxes (mainly social
security) and the passage of legislation reducing or eliminating
individual income taxes for many low- and moderate-income individuals and families, millions of Americans now pay significantly
higher social insurance taxes than income taxes.
SPECIAL ANALYSIS A
51
Major tax changes.—Federal sector receipts in the budget reflect
both the impact of tax changes scheduled under current law and
proposed tax legislation. The major enacted changes reflected in
the Federal sector estimates presented in this analysis are:
—Scheduled increases in social security taxes. The taxable earnings basis increased from $22,900 in calendar year 1979 to
$25,900 in 1980 and is scheduled to increase to $29,700 in 1981.
The social security tax rate is scheduled to increase from
12.25% in calendar year 1980 to 13.3% in 1981.
—Continued phase-out of telephone excise tax by one percentage
point per year.
The receipts proposals in the 1981 budget, which are described in
Part 4 of the budget, increase Federal sector receipts by $6.1 billion
in 1980 and $16.7 billion in 1981. The major tax proposal affecting
Federal sector receipts is the administration's windfall profit tax
proposal, which is designed to capture a part of the windfall profits
that result from the decontrol of domestic oil prices. This proposal
increases excise tax receipts by $8.4 billion in 1980 and $20.8 billion
in 1981. Since this excise tax is deductible for income tax purposes,
it reduces individual and corporate income taxes, by $3.4 billion in
1980 and $8.6 billion in 1981.
Part 4 of the Budget discusses tax changes and proposed legislation in greater detail.
Trends in Federal sector expenditures.—Federal sector expenditures are also divided into several major NIA categories. The principal distinction is between purchases of goods and services (which
are divided between defense and nondefense purchases) and all
other transactions. Purchases are that portion of the Nation's
output that is bought directly by the Federal Government and,
therefore, included in the GNP. The other expenditure categories
consist primarily of payments to individuals and grants to State
and local governments. These individuals and governments, in
turn, can use the income to finance their own consumption or
purchases of goods and services, to save, and—in the case of States
and localities—to hold down taxes or to make transfer payments.
52
THE BUDGET FOR FISCAL YEAR 1981
Distribution of Federal Sector Expenditures by Catesory
Percent
Year Averages
Interest and Other
Grants-in-Aid
Domestic
Transfer Payments
1952-56
1957-61
1962-66
1967-71
1972*76
1977-01
Fiscal Year*
The chart on composition of Federal sector expenditures shows
the trends in spending by year from 1966 to 1981 and the chart on
distribution of Federal sector expenditures illustrates the trends
over an even longer period. As can be seen, major shifts in the
composition of Federal sector expenditures occur over time. For
example, for most years since the Korean war, defense purchases of
goods and services have been a declining share of Federal spending.
This pattern was temporarily reversed for 3 years during the Vietnam war, but by 1970 the defense share was well below the preVietnam percentages. The President's enunciated policy of increasing real defense spending over the next few years should result in
a moderate increase of defense purchases relative to the GNP.
Defense purchases are expected to total 21.0% of Federal sector
expenditures in 1980 and 21.1% in 1981; they were 21.5% in 1979,
and 21.7% in 1978.
Table B-3 shows, at 10-year intervals, 3-year averages of Federal
sector expenditures by category as a percent of GNP.
53
SPECIAL ANALYSIS A
Table B - 3 . FEDERAL SECTOR EXPENDITURES AS A PERCENT OF GNP
Description
Defense purchases
Nondefense purchases
Domestic transfer payments
Foreign transfer payments
Grants-in-aid to State and local governments
Net interest paid
Subsidies less current surplus of Government enterprises
Total expenditures
1949-51
average
actual
1959-61
average
actual
1969-71
average
actual
1979-81
average
estimate
5.5
2.2
3.3
1.5
.8
1.5
.3
9.3
1.8
4.3
.4
1.4
1.3
.6
7.8
2.3
5.9
.2
2.4
1.4
.6
4.7
2.6
9.1
.2
3.4
1.9
.4
15.2
19.0
20.6
22.1
Defense purchases and foreign transfer payments are, of course,
largely devoted to the conduct of our national defense and foreign
affairs.1 In 1949-51 defense purchases were 5.5% of GNP. In 1949
and 1950 these were greatly affected by receipts from large-scale
sales of World War II materials while 1951 was the first year of the
Korean War. Foreign transfer payments in 1949-51 averaged 1.5%
of GNP. The total of these—7.0%—reflects roughly the cost of the
conduct of external affairs. The years 1959-61, while a post-Korean
War peacetime period, reflected a higher level of defense expenditures than was prevalent prior to the Korean War. In that period,
defense purchases and foreign transfers combined were equal to
9.7% of GNP. Even though the 1969-71 period included some of the
peak spending for the Vietnam War, defense purchases and foreign
transfers were down to 8.0% of GNP. In the 1979-81 peacetime
period they are expected to be equal to 4.9% of GNP.
In contrast, spending on most other expenditure categories—
especially nondefense purchases, domestic transfer payments, and
grants-in-aid—has risen dramatically relative to GNP over this
period. In 1949-51, spending for everything except defense purchases and foreign transfer payments was equal to 8.2% of GNP; in
1979-81 such spending is estimated to equal 17.3% of GNP. Total
Federal sector expenditures are estimated to continue to rise relative to GNP from 21.3% in 1979 to 22.7% in 1981.
Table B-4 displays purchases of goods and services (defense and
nondefense) with a split by character of expenditures between compensation of employees and all other purchases, and with some
additional distribution of the nondefense purchases other than
compensation.
1 However, in recent years a significant portion of foreign transfers has arisen from payments under general
domestic social programs—for example, payments to social security retirees living abroad.
54
THE BUDGET FOR FISCAL YEAR 1981
Table B - 4 . PURCHASES OF GOODS AND SERVICES BY CHARACTER OF EXPENDITURE
(In billions of dollars)
1976
actual
Defense purchases:
Compensation of employees
Other
Total defense purchases
Nondefense purchases:
Compensation of employees
Other
(Commodity Credit Corporation: mainly purchase and
sale of agricultural commodities)
(Strategic petroleum reserves)
(All other)
Total nondefense
1977
actual
1978
actual
1979
actual
1980
estimate
1981
estimate
40.4
44.9
42.2
49.7
45.4
52.4
48.3
57.6
52.0
66.7
56.0
76.1
85.3
91.9
97.8
105.9
118.7
132.1
20.3
20.1
23.0
25.4
25.2
27.7
27.3
29.2
29.4
37.5
31.6
39.2
(.2)
(2.6)
(19.9)
(22.8)
(.9)
(.6)
(26.2)
(-1.1)
(.8)
(29.5)
(1.7)
(.5)
(35.3)
( - D
(1.0)
(38.3)
40.4
48.4
52.9
56.5
66.9
70.8
(*)
* $50 million or less.
Defense purchases of goods and services.—Defense purchases consist of all purchases of goods and services under programs included
in the national defense function in the budget document. In addition, defense purchases include purchases of goods and services by
the military assistance programs that in earlier years had been
classified in the national defense function but are now classified in
the international affairs function in the budget. Normally about
95% of defense purchases are made by the Department of Defense,
Military. The bulk of the remainder is for military assistance,
defense stockpile, civil defense, and nuclear weapons programs carried out by other agencies.
The budget calls for an increase in defense purchases of $13.4
billion in 1981 over 1980. This increase more than offsets the
impact of inflation, thus continuing the reversal of the pattern of a
steady decline in real terms from 1968 through 1976. While NIA
defense purchases are not estimated in constant prices, the budget
includes constant price estimates of outlays in the national defense
function. This category and defense purchases in the NIA are
sufficiently similar so that these figures give a rough approximation of the same transactions. Table B-5 shows the budget estimates of outlays in constant prices for the national defense function.
55
SPECIAL ANALYSIS A
Table B - 5 . DEFENSE FUNCTION OUTLAYS IN CONSTANT (FISCAL YEAR 1972) PRICES
(In billions of dollars)
A t 5-year intervals:
1945 1
252.0
For selected years:
1948 2
20.3
29.4
1953
1955
75.8
19565
1960
73.8
1968
7
101.4
19656
69.3
1976
8
65.6
1970
90.3
1979
9
69.3
1975
67.2
1981 estimate
73.2
1980 estimate
70.7
1983 estimate
80.0
1950
3
4
96.3
72.9
1
World War II peak year.
Post-World War II low; includes large offsets from sale of assets acquired during the war.
Last year prior to Korean war.
4
Korean war peak year.
5
Post-Korean war low in the 1950's.
• Post-Korean war low in the 1960's.
7
Peak of spending during Vietnam war.
8
Lowest point in post-Vietnam era.
9
Last year for which "actual" data are available.
2
3
Nondefense purchases of goods and services.—This category
covers the goods and services purchased by Federal nondefense
agencies. These include such programs as operation of national
forest, park, and recreation areas; space exploration; promotion of
commerce; acquisition and disposal of agricultural commodities;
construction of flood control and navigation projects; operation of
the Federal airway system; a wide variety of medical, energy,
space, and other scientific research; the capital outlays of Government enterprises; Federal law enforcement; and operation of veterans hospitals.
56
THE BUDGET FOR FISCAL YEAR 1981
Composition of Federal Sector Expenditures
$Mtitm*
Fiscal Y#crv
S Billion,
EiHntqh)
Nondefense purchases consist mainly of the cost of operating the
various nondefense agencies. In the case of Government enterprises
(including the CCC and the Postal Service), however, the purchases
figures reflect net capital formation.
The Department of Health and Human Services accounts for
more nondefense purchases than any other agency—$8.1 billion in
1981. Of this, $5.6 billion is for health programs—both the administration of health care and for medical research—and $2.2 billion is
for the Social Security Administration. The next largest agency in
terms of nondefense purchases is the Veterans Administration,
with a total of $7.3 billion in 1981. The bulk of these purchases are
for hospital and medical care for veterans. Both the National Aeronautics and Space Administration with $5.3 billion in 1981 nondefense purchases and the Department of Energy with $4.6 billion in
1981 nondefense purchases conduct major research and development programs, though the Energy Department also makes purchases
for a wide range of other activities. The Transportation Department's $5.1 billion of 1981 nondefense purchases are mainly for the
SPECIAL ANALYSIS A
57
operation of the Federal Aviation Agency and the Coast Guard.
The Corps of Engineers makes an estimated $3.1 billion in 1981 nondefense purchases which, along with the Tennessee Valley Authority's $2.3 billion, are primarily for public works for natural resources
and power activities.
Domestic transfer payments.—This is now the largest category of
Federal sector expenditures. Spending for domestic transfers has
expanded rapidly in recent years, mainly because of more beneficiaries and higher benefit payments under social insurance programs. As table B-6 shows, spending on human resources programs—especially income security programs—dominates domestic
transfer payments. This spending is expected to continue to rise in
1981, largely due to demographic and economic conditions—increases in the covered population and adjustments to compensate
for inflation. Social security accounts for 50% of total domestic
transfer payments in 1981, while Medicare accounts for another
14%, unemployment assistance for 6V2% and Federal employee's
retirement, disability, and compensation for 15% of the total. Program trends (on a unified budget basis) are discussed extensively in
Part 5 of the Budget and elsewhere in the budget documents.
Table B - 6 . FUNCTIONAL COMPOSITION OF DOMESTIC TRANSFER PAYMENTS
(In billions of dollars)
Actual
Description
1970
1972
1971
1974
1973
Estimate
1975
1977
1976
1978
1979
1980
1981
HUMAN RESOURCES PROGRAMS
Income security:
Social security (OASDI)
Railroad Retirement
Civil service retirement
Unemployment benefits
Benefits for coal miners
Supplemental security income
Food and nutrition
Special payments, Treasury 1
Workmen's compensation
Other
Subtotal, Income security
Health:
Medicare
Other
Subtotal, Health
Education, training, employment, and social
services:
Education
Training, employment, and social services
Subtotal, education, training, employment, and social services....
.3
.1
61.5
3.0
6.9
12.4
.9
4.2
4.2
1.7
.4
.1
70.3
3.4
8.2
18.0
1.0
4.6
4.7
.9
.5
.2
81.1
3.7
9.4
13.9
.9
4.7
4.4
.9
.6
.2
89.3
3.9
10.8
10.6
1.0
5.0
4.5
.9
.6
.3
99.4
4.2
12.3
9.6
1.6
5.2
5.7
.8
.7
.4
114.4
4.7
14.4
14.1
1.9
5.7
7.3
1.7
.8
.8
132.8
5.1
16.7
17.2
1.8
6.2
8.1
1.6
1.0
1.0
61.7
72.8
95.3
111.7
120.0
126.9
139.9
165.7
191.5
8.3
.4
9.0
.4
10.9
.4
14.1
.5
16.9
.6
20.7
.6
24.2
.6
28.1
.6
32.4
.6
36.1
.7
7.9
8.8
9.4
11.4
14.6
17.4
21.3
24.8
28.6
33.0
36.7
.5
.7
.9
1.0
1.0
1.2
1.8
2.4
2.8
3.5
4.0
4.1
.7
.9
.9
.7
.7
.4
.3
.4
.6
.7
.8
.8
1.3
1.5
1.7
1.7
1.7
1.7
2.2
2.8
3.4
4.2
4.8
28.6
1.6
2.7
3.0
34.0
1.9
3.2
5.6
.3
38.0
2.1
3.7
6.5
.4
46.6
2.4
4.5
4.8
.9
.6
1.5
1.8
2.2
53.2
2.6
5.6
5.5
1.0
1.9
2.7
.1
.1
.2
.1
.2
.1
.2
.1
36.7
46.7
52.8
6.7
.4
7.5
.4
7.2
*
5.0
Veterans benefits and services
Total, human resources programs
6.9
8.0
8.8
9.7
10.4
12.8
14.3
13.3
13.5
14.0
14.4
15.4
157.5
168.6
186.7
217.9
248.5
9.0
10.1
.9
11.8
1.2
13.5
1.1
52.0
64.2
72.1
82.6
96.3
124.4
145.5
2.8
.2
3.3
.2
3.8
.2
4.3
.2
5.1
.4
6.2
.6
7.2
Total functions not included in
human resources grouping. ..
3.0
3.5
4.0
4.5
5.4
6.8
8.0
9.0
9.8
11.0
13.0
14.7
Total domestic transfer payments
55.0
67.7
76.1
87.1
101.7
131.2
153.5
166.4
178.5
197.7
230.9
263.2
ALL OTHER FUNCTIONS
National defense (military retired pay)
Other functions
* $50 million or less.
1
Includes both $50 tax rebates and earned income tax credits in excess of tax liabilities.
Note.—Excludes the transition quarter.
Cn
ZD
60
THE BUDGET FOR FISCAL YEAR 1981
Grants-in-aid.—These expenditures help State and local governments to provide general governmental services and to finance
programs for the needy. Table B-7 shows detail on grants-in-aid by
budget function and major activity. Grant expenditures are discussed in greater detail in Special Analysis H of this document.
While the definition of Federal aid used in that analysis differs
somewhat from that used in the NIA, the two sets of data largely
overlap. Special Analysis H explains the relationship between the
series.
There is a substantial degree of substitutability between grantsin-aid and domestic transfer payments and—to a lesser degree—
nondefense purchases. For example, low-income veterans could be
eligible for free medical care under medicaid (grants), in a veterans
hospital (nondefense purchases), or, perhaps medicare (transfer
payments). The supplemental security income transfer payments
have substituted for the previous program of grants to States for
public assistance for the elderly and handicapped. (The State and
local spending of Federal grant money for public assistance programs is classified as State and local government transfer payments.) Most grants in the income security function plus Medicaid
are grants to assist States provide income support, most other
grants finance State and local services to the public. Grants-in-aid
for income security are estimated to rise by 35% from 1979 to 1981,
almost the same rate as domestic transfers in that function. Medicaid grants are projected to rise by 27%, also close to the rise in
Medicare transfer payments. The remainder of grants is projected
to rise by 7.3% from 1979 to 1981, while the remainder of domestic
transfer payments is up by 20%.
Table B - 7 FUNCTIONAL COMPOSITION OF FEDERAL GRANTS-IN-AID
(In billion of dollars)
Actual
Description
1970
1971
1972
1973
1974
Estimate
1975
1976
1977
1978
1979
1980
1981
HUMAN RESOURCES PROGRAMS
Income security:
Public assistance cash
Child nutrition and other food programs..
Other
4.1
.4
.3
5.5
.6
.4
6.6
.9
.4
5.9
1.1
.5
5.4
1.2
.5
5.1
1.7
.9
5.8
2.1
1.2
6.3
2.7
1.4
6.6
2.8
1.3
6.6
3.3
1.4
7.0
3.9
3.0
7.4
3.9
4.0
Subtotal, income security
4.8
6.5
7.8
7.5
7.1
7.7
9.2
10.4
10.8
11.3
13.9
15.3
Health:
Medicaid
Other (includes research, construction,
services, and medical training)
2.7
3.4
4.6
4.6
5.8
6.8
8.6
9.8
10.6
12.4
14.1
15.7
1.2
1.2
1.5
1.7
2.0
2.4
2.8
2.7
2.8
2.8
2.9
3.0
4.0
4.6
6.1
6.3
7.8
9.2
11.4
12.6
13.4
15.1
17.0
18.7
Education, training, employment, and social
services.Education
Training and employment
Social services
3.4
.8
1.4
3.7
1.1
1.6
4.0
1.7
2.9
4.0
2.2
2.6
3.9
1.9
2.5
5.0
3.4
3.3
4.9
5.6
3.4
5.4
6.0
4.0
6.0
9.5
4.4
7.3
9.3
5.3
7.7
8.8
4.8
8.0
9.5
5.0
Subtotal, education, training, employment, and social services....
5.6
6.4
8.6
8.7
8.4
11.6
13.8
15.4
19.9
21.9
21.3
22.5
*
*
*
*
*
*
.1
.1
,1
.1
.1
.1
Subtotal, health
Veterans benefits and services
Table B - 7 . FUNCTIONAL COMPOSITION OF FEDERAL GRANTS-IN-AID—Continued
(In billion of dollars)
Actual
Description
Total, human resources programs
Natural resources and environment
Community and regional development:
Local public works
Block grants
Other
Subtotal, community and regional
development
Transportation
General purpose fiscal assistance:
General revenue sharing
Anti-recession fiscal assistance
Other
Subtotal, general purpose fiscal
assistance
All other functions
Total other functions
Total grants-in-aid
*50 million or less.
Note—Excludes the transition quarter.
1971
1970
1972
1974
1973
Estimate
1975
1977
1976
1979
1978
1980
1981
14.4
17.5
22.6
22.5
23.3
28.6
34.5
38.5
44.2
48.4
52.3
56.6
.4
.8
.8
1.1
2.0
2.5
3.0
4.1
3.8
4.6
4.8
4.9
*
.6
2.0
2.1
2.9
2.4
1.5
1.7
3.1
1.7
.3
3.4
1.9
.2
3.7
2.2
1.8
2.0
2.2
2.6
2.7
2.8
1.0
2.4
1.8
2.0
2.2
2.6
2.7
2.8
3.4
4.6
6.8
6.4
5.6
6.2
4.6
4.9
5.1
5.3
5.3
5.8
7.5
7.7
8.1
9.6
10.5
11.1
6.6
6.1
6.1
6.2
6.8
1.3
.9
6.8
.9
6.9
.2
.8
6.9
1.0
.6
.3
.3
.3
.4
.4
.5
.5
6.8
1.7
.6
.3
.3
.3
7.0
6.5
6.7
6.7
9.0
9.1
7.8
7.9
8.4
1.1
1.3
1.7
1.9
1.9
2.0
2.5
2.3
2.6
2.6
3.2
3.5
8.1
9.2
10.0
17.9
18.4
19.8
23.0
27.8
30.4
30.9
32.0
34.1
22.6
26.8
32.6
40.4
41.6
48.4
57.5
66.3
74.7
79.3
84.3
90.7
SPECIAL ANALYSIS D
63
Foreign transfer payments.—There are three major types of foreign transfer payments: expenditure of dollars to assist foreign
economic development, grants of surplus agricultural products, and
payments under social security and similar programs to individuals
living abroad. Although payments to individuals are gradually
rising (roughly in proportion with the rise in GNP), total foreign
transfer payments have declined to less than 0.2% of GNP; in 1949
they were equal to 1.9% of GNP.
Net interest paid.—Net interest depends on the size of Federal
debt, loans outstanding, and the interest rates on borrowing and
lending. In the early post-war years (1947-48), net interest paid
amounted to over 13% of total Federal sector NIA expenditures,
but it accounted for around 6-7% of the total each year from 1952
to 1977. Net interest paid rose from 6.9% of Federal sector expenditures in 1977 to 7.4% in 1978 and 8.2% in 1979; it is estimated to
rise to 8.7% in 1980 and drop back to 8.3% in 1981.
In recent years foreign holdings of Federal debt have increased
significantly. This expansion, combined with higher interest rates,
pushed up the amount of interest paid abroad to over $10.8 billion
in 1979. The increase in foreign holdings of Federal debt and in
interest payments on that debt is discussed further in Special
Analysis E.
Subsidies less current surplus of Government enterprises.—Subsidies less current surplus of Government enterprises consist of two
elements: (1) Subsidy payments to resident business (including
farms); and (2) the "current surplus" or "deficit" of Government
enterprises. In this context, a subsidy is a monetary grant to a unit
engaged in commercial activities. Examples are housing subsidies,
subsidies for railroads, and the construction and operating differential subsidies paid to operators of U.S.-flag merchant ships. As
table B-8 shows, roughly half of the subsidies are for housing
programs. These subsidies are designed mainly to reduce the cost of
housing to moderate- and low-income families.
"Government enterprise" is the term used in the NIA to designate certain business-type operations of the Government, which
usually appear in the budget as public enterprise revolving funds.
The operating costs of Government enterprises are, to a great
extent, covered by the sale of goods and services to the public, as
distinguished from tax receipts. The difference between the sales
and the current operating expenses of a Government enterprise
constitutes its surplus or deficit. As noted above, the capital formation of Government enterprises is classified as nondefense purchases. The largest Government enterprises are the Commodity
Credit Corporation, the Postal Service (which is not now included
in the budget), and the Tennessee Valley Authority.
Table B-8 shows the composition of this aggregation by major
category.
a*
Table B - 8 . SUBSIDIES LESS CURRENT SURPLUS OF GOVERNMENT ENTERPRISES
(In billions of dollars)
Actual
Description
ubsidies:
Commodity Credit Corporation
Other Department of Agriculture
Maritime
Housing (HUD)
Railroad and mass transit
Other (mainly airline subsidies) 1
1971
1970
1977
1976
1975
1979
1978
1980
1981
4.0
.4
.4
1.7
.1
.7
2.4
.2
.4
1.9
.1
.1
0.6
.4
.5
2.2
.5
.1
0.3
.6
.5
2.3
1.1
.1
0.6
.7
.5
2.9
1.4
.3
2.3
.8
.5
3.5
1.5
.2
2.0
.8
.5
4.1
1.7
.4
0.5
.8
.6
4.9
2.0
.3
1.8
.9
.5
6.0
1.9
.6
*
.1
4.4
5.2
5.2
7.3
5.2
4.2
5.0
6.4
8.8
9.5
9.1
11.7
.6
1.3
-.2
-.2
-.1
.6
2.0
-.2
-.3
-.1
.6
1.4
-.2
-.3
-.2
1.3
1.3
-.2
-.3
-.1
1.5
2.0
-.3
-1
-.1
.3
2.2
-.3
-2
-.2
.2
2.3
-.4
-.2
-.2
.2
1.6
-.6
-.2
-.2
.8
1.4
-.6
-.2
-.3
1.4
.8
-.8
-.1
-.4
.9
1.8
-.8
-.2
-.3
.7
2.6
-1.1
-.2
-.4
-.1
-.2
-.1
-.3
-.1
_*
-.1
-.1
-.2
-.1
-.2
-.2
-.2
-.3
-.2
-.1
-.3
-.1
-.3
-.3
-.3
-.2
-.4
-.2
Subtotal
1.1
1.6
1.2
1.8
2.7
1.5
1.2
.5
.8
.4
.9
1.2
Total subsidies less current
surplus
5.4
6.8
6.4
9.1
8.0
5.7
6.2
6.9
9.6
9.8
10.0
12.9
nterprise surpluses ( - ) or deficits.Commodity Credit Corporation
Postal Service
Tennessee Valley Authority
Federal Housing Administration
Federal Deposit Insurance Corporation
Federal Savings and Loan Insurance Corporation
All other2
*50 million or less.
1
Includes subsidies by the disaster loan fund of $0.7 billion in 1973.
Includes wage disbursements less accruals.
2
Note—Excludes the transition quarter.
3.6
.3
.4
.8
1974
1973
3.0
.3
.4
1.3
.1
.1
Subtotal
3.1
.4
.3
.5
1972
Estimate
*
65
SPECIAL ANALYSIS D
Wage disbursements less accruals.—This is an adjustment item
occasionally made in the NIA when it is necessary to take account
of the fact that wages and salaries are not always received at the
same time as they are earned. The national income component of
wages and salaries is counted in the GNP on an accrual basis; that
is, when the income is earned rather than when it is received.
Personal income, however, including wage and salary disbursements, is estimated on the basis of when the cash is received.
Ordinarily, wage and salary payments disbursed in one period
but earned in the preceding period are approximately offset by
payments disbursed in the next period but earned in the current
period. The adjustment between national income and personal
income is then small or zero. A small adjustment for wage accruals
by the Government is shown for 1979.
QUARTERLY ESTIMATES A N D E S T I M A T I N G
ERRORS
Estimating errors.—Estimates of NIA receipts and expenditures
are necessarily imprecise. The budget itself is a mixture of a forecast of what receipts and outlays are expected to be for some items
under current law and a Presidential request for congressional
approval of proposed amounts for others. In compiling this special
analysis, each budget receipt and outlay is analyzed and translated
into NIA categories. The budget process does not generate all of
the data needed to make precise NIA estimates, so approximations
are required in the translation. Even the translation from past
year accounting data to NIA "actuals" are subject to adjustment
when more complete information becomes available.
Table B-9 provides some indication of the magnitudes of the
estimating errors associated with the past-year data. When the
1980 budget was published a year ago, 1978 had been over for 3V2
months, and the 1978 estimates were labeled "actual"; yet as table
B-9 shows, the figures for 1978 are now significantly different. One
can anticipate revisions similar to those shown in table B-9 for the
"actuals" each year. The margin of error for the estimated years
(1980 and 1981 in this budget) is even greater, since they involve
estimating errors and differences between proposals and what is
realized in the basic unified budget, as well as errors in translating
unified budget transactions into NIA terms.
310-700
0 - 8 0 - 5
66
THE BUDGET FOR FISCAL YEAR 1981
Table B - 9 . FEDERAL RECEIPTS AND EXPENDITURES IN THE NIA: COMPARISON OF JANUARY
1979 AND JANUARY 1980 ESTIMATES FOR 1978
(In billions of dollars)
Description
"Actuals"
for 1978
shown
in 1980
budget
Currently
reported
"actuals"
for 1978
Change
RECEIPTS
Personal tax and nontas receipts
Corporate profits tax accruals
Indirect business tax and nontax accruals
Contributions for social insurance
Total, receipts
186.3
67.2
27.2
133.1
413.8
.4
186.3
67.7
27.2
133.5
.9
414.7
*
0.5
*
EXPENDITURES
Purchases of goods and services
Defense
Nondefense
Transfer payments
Domestic ("to persons")
Foreign
Grant-in-aid to State and local governments
Net interest paid
Subsidies less current surplus of Government enterprises
Total, expenditures
Deficit ( - )
(98.1)
(53.0)
181.8
(178.4)
(3.4)
74.6
33.7
-.4
(-3)
(-•1)
.2
(•1)
(•1)
.1
-.6
150.7
(97.8)
(52.9)
182.0
(178.5)
(3.5)
74.7
33.1
9.4
.2
9.6
450.6
-.5
450.1
-36.8
1.4
-35.4
151.1
*$50 million or less.
Quarterly estimates.—Table B-10 presents quarterly NIA receipts
and expenditures (at seasonally adjusted annual rates) for 1979 to
1981.
As noted above, the translation of the budget into the NIA
categories is inexact. When the annual NIA estimates are converted into quarterly distributions that are seasonally adjusted at
annual rates, greater imprecision must be expected. The data presented in table B-10 are the best available estimates of the quarterly NIA receipts and expenditures consistent with the 1981
budget, but should be used with clear recognition of their limitations.
Table B - 1 0 . FEDERAL RECEIPTS AND EXPENDITURES IN THE NIA, QUARTERLY, 1979-81
(In billions of dollars; seasonally adjusted at annual rates)
Actual
Description
Oct.Dec.
1978
Estimated
JanMar.
1979
AprJune
1979
JulySept.
1979
OctDec.
1979*
JanMar.
1980
AprJune
1980
JulySept.
1980
Oct.Dec.
1980
JanMar.
1981
Apr.June
1981
JulySept.
1981
. 211.1
81.2
29.3
142.0
213.0
77.2
29.4
155.5
223.4
74.9
29.9
157.5
235.2
79.4
30.0
160.2
248.1
83.1
30.7
164.2
242.2
76.5
38.2
170.7
247.3
73.4
41.0
173.9
254.2
73.0
44.1
177.1
264.2
74.1
48.3
180.9
274.3
75.8
51.4
202.6
285.7
78.1
54.8
205.5
294.5
80.5
57.7
208.6
463.5
475.0
485.8
504.8
526.1
527.6
535.6
548.4
567.5
604.1
624.1
641.3
163.6
(103.4)
(60.2)
196.8
(192.7)
(4.0)
77.8
40.0
8.3
.2
161.7
(106.0)
(55.7)
201.9
(198.0)
(3.9)
77.7
42.6
9.0
162.9
(109.0)
(53.9)
217.6
(213.9)
(3.7)
81.8
43.5
10.2
177.0
(114.6)
(62.4)
221.9
(217.9)
(4.0)
83.0
46.0
8.4
185.5
(117.3)
(68.2)
228.7
(224.5)
(4.2)
82.0
49.1
9.8
188.2
(120.0)
(68.2)
234.8
(230.5)
(4.3)
84.2
50.5
10.2
191.4
(122.8)
(68.6)
254.5
(250.2)
(4.3)
87.7
51.2
11.3
197.1
(128.0)
(69.1)
259.6
(255.2)
(4.4)
88.2
51.7
12.1
201.0
(130.7)
(70.3)
262.4
(258.0)
(4.4)
90.1
52.0
12.6
204.7
(133.4)
(71.3)
266.3
(261.9)
(4.4)
91.7
52.4
13.2
208.5
(136.1)
(72.4)
282.3
(277.9)
(4.4)
92.4
52.8
13.5
479.7
486.8
492.9
516.1
536.4
555.1
567.9
596.1
608.7
618.1
628.3
649.5
-16.3
-11.7
-7.0
-11.3
-10.3
-27.5
-32.3
-47.7
-41.2
-14.0
-4.2
-8.2
RECEIPTS
Personal tax and notax receipts
Corporate profits tax accruals
Indirect business tax and nontax accruals
Contributions for social insurance
Total, receipts
EXPENDITURES
Purchases of goods and services
Defense
Nondefense
Transfer payments
Domestic (to "persons")
Foreign
Grants-in-aid to State and local governments
Net interest paid
Subsidies less current surplus of Government enterprises
Wage disbursements less accurals
Total, expenditures
Deficit ( - )
159.0
(101.2)
• (57.8)
192.1
(187.9)
(4.2)
80.7
37.1
10.9
* Preliminary.
Note—Because of the methods normally used seasonally adjusting NIA data, the average of seasonally adjusted data for the 4 quarters of a fiscal year may not be equal to the unadjusted fiscal year total.
68
THE BUDGET FOR FISCAL YEAR 1981
RELATIONSHIP OF THE BUDGET TO THE FEDERAL SECTOR
NIA
Table B - l l shows the major differences between the budget and
the Federal sector of the NIA. These differences are explained
below.
Table B - l l . RELATIONSHIP OF THE BUDGET TO THE FEDERAL SECTOR, NIA
(In billions of dollars)
Description
RECEIPTS
Total, budget receipts
Government contributions for employee retirement (grossing)
Other netting and grossing
Adjustment to accruals
Other
Federal sector, NIA receipts
1979
actual
1980
estimate
1981
estimate
465.9
523.8
600.0
7.9
3.6
7.3
-.9
8.8
3.8
-4.8
-1.0
9.4
4.3
-4.9
-1.2
483.7
530.6
607.7
493.7
563.6
615.8
-7.2
-7.3
-.4
7.9
3.6
-1.3
1.9
-4.9
8.8
3.8
-2.7
3.0
-4.9
9.4
4.3
-2.2
3.9
-4.4
493.6
564.2
626.3
EXPENDITURES
Total, budget outlays
Lending and financial transactions
Government contribution for employee retirement
(grossing)
Other netting and grossing
Defense timing adjustment
Bonuses on Outer Continential Shelf land leasesOther
Federal sector, NIA expenditures
Lending and financial transactions.—Conceptually, the national
income and product accounts measure the Nation's current income
and production, and therefore do not include transactions, such as
loans, that are an exchange of existing assets and liabilities rather
than current income or production. Loan transactions have a significant economic impact, affecting income and output, but they
are analyzed more appropriately within a financial market framework, such as provided by the flow-of-funds data of the Federal
Reserve Board. Special Analysis E (Borrowing, Debt, and Investment) and Special Analysis F (Federal Credit Programs) both contain information on the financial market implications of the
budget.
Most of the lending and financial transactions displayed in table
B - l l are shown in Special Analysis F. However, this total differs
from the total for direct loans shown in Special Analysis F because:
(a) the NIA records nonrecourse agricultural commodity loans as
purchases rather than loans; (b) capital contributions to international financial institutions, while not technically loans, are treat-
SPECIAL ANALYSIS D
69
ed as financial transactions and, therefore, excluded from the NIA;
and (c) Special Analysis F also shows lending by off-budget Federal
entities, which do not require reconciliation with the NIA because
they are not included in the budget.
Government contribution for employee retirement.—The contributions of Government agencies to the retirement trust funds of their
employees are not included in the budget totals. While the outlays
are recorded in each agency's budget, they are offset by an intragovernmental deduction. However, the NIA counts Government
payments for employee retirement as part of the compensation
paid to Government employees and, therefore, as Government expenditures; this treatment maintains comparability with the treatment of employee retirement contributions in the rest of the economy. Contributions for employee retirement by Government enterprises such as the Postal Service are recorded as an increase in the
current deficit of enterprises. Contributions by other accounts are
recorded as purchases of goods and services. The receipt of these
retirement contributions is treated in the NIA as contributions for
social insurance. Since receipts and expenditures are increased by
identical amounts, this treatment has no effect on the surplus or
deficit. Around 80% of these payments go to the civil service retirement fund, while most of the remainder is for social security.
Other netting and grossing.—The budget normally counts as receipts only income from taxation or similar sources that arises
from the exercise of governmental power to compel payment.
Money received in the course of business-type transactions, therefore, is normally shown as offsets against outlays. For instance,
receipts from social insurance programs operated by the Veterans
Administration (such as the National Service Life Insurance and
U.S. Government Life Insurance) are netted against outlays in the
budget since these programs are voluntary, commercial-type activities. However, in the NIA these insurance premiums are treated as
social insurance receipts just as are receipts from compulsory Government programs.
One major element of netting and grossing in recent years has
been due to budgetary collections arising from the Outer Continental Shelf leases. All such collections are recorded in the budget as
negative outlays. The rents and royalties component—but not the
bonuses—are recorded in the NIA as indirect business nontaxes;
this converts the money from an offset to outlays in the budget to a
receipt in the NIA.
Other netting and grossing includes some imputed contributions
for social insurance for Federal employees for unemployment compensation (which adds an equal amount to nondefense purchases)
70
THE BUDGET FOR FISCAL YEAR 1981
and workmen's compensation (which adds an equal amount to domestic transfer payments).
The proposed windfall profit tax includes taxes on windfall profits to
oil-producing State and local governments as well as on private
producers. The budget treats these collections as receipts but the NIA
treats the taxes on State and local government profits ($0.7 billion in
1981) as offsets to grants-in-aid. The budget also includes proposed
charges to insurance carriers for the cost of medical care given by the
Veterans Administration to certain veterans. In the budget these
charges are offsetting receipts, while the NIA treats them as personal
nontaxes.
Timing adjustments.—The budget records receipts at the time
the cash is collected regardless of when the income is earned, and
outlays (except interest paid to the public) are generally recorded
at the time the checks are issued. The NIA attempt to record most
receipts from the business sector in the time period in which the
income is earned rather than when taxes are actually paid, while
personal income taxes and social insurance contributions are recorded at the time of payment by the individual taxpayer rather
than when the liability is accrued or the cash is received by
Treasury.
The principal timing adjustment to expenditures is for defense
purchases. The major defense timing adjustment normally involves
procurement items (such as missiles and airplanes) purchased
under most fixed-price contracts. These items are recorded in the
Federal sector NIA as defense purchases at the time of delivery to
the Federal Government, rather than when the payment is made
(as the budget does) or when they are fabricated. Work in progress
is counted as part of private business inventories until the goods
are completed and delivered to the Government. An additional
defense timing adjustment is made to convert foreign military
sales, which are recorded on a cash basis in the unified budget, to a
basis consistent with net exports in the NIA. In addition, some
accounting adjustments are included with the defense timing adjustment in this translation.
Since both the budget and the NIA record public debt interest to
the public when it accrues, no timing adjustment is needed for
most interest transactions.
Bonuses on Outer Continental Shelf land leases.—In recent years
bonuses paid on the Outer Continental Shelf oil leases have become
a significant reconciliation item between the unified budget and
the NIA. As already noted, the budget records these bonuses as
proprietary receipts and, therefore, deducts them from budget outlays. The NIA excludes these transactions as being a transfer of
SPECIAL ANALYSIS D
71
assets, because the payments are not included in calculating book
profits under current corporate accounting practice.
Other.—This category includes some miscellaneous adjustments,
largely for certain specialized aspects of the national income accounts, such as the purchase and sale of land and geographical
exclusions. Geographic exclusions arise because Puerto Rico, the
Virgin Islands, and other U.S. territories are not included in the
United States for purposes of computing the GNP and related data
series (such as social insurance taxes, domestic transfer payments,
and grants-in-aid) but also are not treated as foreign for purposes
of producing data on exports, imports, and foreign transfer payments. Geographical exclusions will reduce NIA receipts relative to
budget receipts by about $1.3 billion and NIA expenditures by
about $4.6 billion in 1981. Certain nondefense timing adjustments—for example, the difference between State withdrawals of
unemployment benefits and actual payments to individuals—are
included in this adjustment line because of the difficulty in separating them from other adjustments in this line. This line also
includes a $0.4 billion shift of cash payments from 1978 to 1979 in
the supplemental security income transfer payments. Under legislation enacted in 1977, when these payments fall due on a weekend
or holiday the payments are to be made early. The budget recorded
13 such monthly payments for 1978 and 11 for 1979; the NIA
records 12 for each year. This category includes adjustment for
certain foreign currency transactions that are not included in the
budget, and transactions of Federal entities that are excluded from
the budget but included in the Federal sector NIA.
Table B-12. FEDERAL TRANSACTIONS IN THE NATIONAL INCOME ACCOUNTS, 1 9 6 9 - 8 0
K)
(In billions of dollars)
Actual
Description
Estimate
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
RECEIPTS, NATIONAL INCOME BASIS
Personal taxes and nontax receipts
Corporate profits tax accruals
Indirect business tax and and nontax accruals
Contributions of social insurance
93.6
33.0
87.5
32.0
100.3
34.2
107.3
41.0
122.6
43.7
127.1
42.1
137.0
51.7
166.0
59.1
186.3
67.7
223.5
78.4
245.1
76.5
279.7
77.1
19.2
49.2
20.0
52.9
19.9
59.1
20.7
71.5
21.4
84.2
22.2
92.1
24.3
100.9
24.5
116.4
27.2
133.5
29.4
152.4
38.5
170.5
53.0
197.9
Total receipts, national income
basis
194.9
192.5
213.5
240.5
271.8
283.5
313.9
366.0
414.7
483.7
530.6
607.7
97.0
(75.3)
(21.7)
57.0
(55.0)
(2.0)
94.8
(72.1)
(22.7)
70.1
(67.7)
(2.3)
100.9
(72.5)
(28.4)
78.9
(76.1)
(2.8)
101.7
(73.3)
(28.4)
89.7
(87.1)
(2.7)
104.6
(74.1)
(30.5)
104.7
(101.7)
(3.0)
118.0
(80.3)
(37.6)
134.3
(131.2)
(3.1)
125.7
(85.3)
(40.4)
156.5
(153.5)
(3.0)
140.3
(91.9)
(48.4)
169.6
(166.4)
(3.2)
150.7
(97.8)
(52.9)
182.0
(178.5)
(3.5)
162.4
(105.9)
(56.5)
201.7
(197.7)
(4.0)
185.6
(118.7)
(66.9)
235.1
(230.9)
(4.2)
202.9
(132.1)
(70.8)
267.6
(263.2)
(4.4)
22.6
13.6
26.8
14.2
32.6
14.1
40.4
15.9
41.6
19.8
48.4
21.9
57.6
25.2
66.3
28.4
74.7
33.1
79.3
40.4
84.3
49.2
90.7
52.2
5.4
-.1
6.8
.1
6.4
9.1
-.5
8.0
.2
5.7
.4
6.2
6.9
9.6*
9.8*
10.0
12.9
195.6
212.7
232.9
256.2
278.8
328.7
371.1
411.4
450.1
493.6
564.2
626.3
-.6
-20.2
-19.5
-15.7
-7.0
-45.3
-9.9
-33.6
-18.6
EXPENDITURES, NATIONAL INCOME
BASIS
Purchases of goods and services
Defense
Nondefense
Transfer payments
Domestic ("to persons")
Foreign
Grants-in-aid to State and local governments
Net interest paid
Subsidies less current surplus of Government enterprises
Wage disbursements less accruals
Total expenditures,
income basis
national
Excess of receipts ( + ) or expenditures
(—), national income basis
* $50 million or less.
Note—Excludes the transition quarter.
Part 2
ANALYSES OF THE BUDGET TOTALS
73
INTRODUCTION
Part 2 provides analyses and tabulations of the budget totals that
cover Government finances and operations as a whole, and reflect
the ways in which Government finances affect the economy. These
special analyses are designated C through I.
Special Analysis C (Funds in the Budget) classifies budget information by the groups of funds (Federal and trust) that comprise
the budget.
Special Analysis D (Investment, Operating, and Other Budget
Outlays) classifies budget outlays in terms of the duration and
nature of the benefits derived, distinguishing those of an investment or developmental type from those that primarily yield current benefits. Apart from this analysis, the U.S. budget includes
outlays that are for "capital" or investment-type activities in the
same accounts in which "current" activities and costs are shown.
Special Analysis E (Borrowing, Debt, and Investment) describes
current developments and past trends in Federal borrowing and
debt. It also considers interest on the Federal debt, investment by
Government accounts in Federal securities, the statutory debt
limit, and the total of Federal and federally assisted borrowing
from the public.
Special Analysis F (Federal Credit Programs) covers direct loans,
guarantees of private loans, and loans of Government-sponsored
enterprises. It includes aggregate measures of total credit supplied
to the public, and raised from the public, under Federal auspices. It
also reviews the credit control system designed to apply budgettype controls to Federal lending activity.
Special Analysis G (Tax Expenditures) provides a discussion of
revenue losses due to provisions of the Federal income tax laws
that allow a special exclusion, exemption, or deduction from gross
income or that provide a special credit, preferential rate of tax, or
deferral of tax liability.
Special Analysis H (Federal Aid to State and Local Governments)
contains information on Federal grants to State and local governments and assistance provided through loans and tax expenditures.
It shows Federal aid for past years and relates it to the finances of
both the Federal Government and State and local governments.
This analysis provides a profile of Federal grants by region, a
description of the State and local government sector of the national
income accounts, and an identification of other grant information
sources.
74
Special Analysis I (Civilian Employment in the Executive
Branch) deals with the levels of civilian employment in the executive branch. It also contains figures on total Federal personnel
costs (including military personnel).
75
SPECIAL ANALYSIS C
FUNDS IN THE BUDGET
This analysis provides information on the two major fund groups,
Federal and trust, that together after deducting interfund transactions, as shown in Table C-l, comprise the budget totals.
Table C - l . BUDGET RECEIPTS AND OUTLAYS, BY FUND GROUP
(In millions of dollars)
Description
1979
actual
1980
estimate
1981
estimate
RECEIPTS
Federal funds:
Total in fund accounts
Intrafund transactions
Proprietary receipts from the public
Receipts from off-budget Federal entities
Receipts, Federal funds
Trust funds:
Total in fund accounts
Intrafund transactions
Proprietary receipts from the public
Receipts from off-budget Federal entities
Receipts, trust funds
Interfund transactions
Total budget receipts
331,726
-2,385
-8,948
-4,042
369,248
-3,309
-11,752
-6,374
409,554
-3,481
-14,646
-8,277
316,351
347,813
383,151
202,244
-1,490
-9,718
-1,395
234,818
-1,479
-9,569
-1,574
279,025
-1,553
-10,786
-1,578
189,641
222,196
265,107
-40,052
-46,179
-48,270
465,940
523,829
599,988
377,795
-2,385
-8,948
-4,042
427,088
-3,309
-11,752
-6,374
456,103
-3,481
-14,646
-8,277
362,420
405,653
429,700
183,909
-1,490
-9,718
-1,395
216,731
-1,479
-9,569
-1,574
248,249
-1,553
-10,786
-1,578
171,305
204,110
234,331
-40,052
-46,179
-48,270
493,673
563,583
615,761
-27,733
-39,754
-15,773
OUTLAYS
Federal funds:
Total in fund accounts
Intrafund transactions
Proprietary receipts from the public
Receipts from off-budget Federal entities
Outlays, Federal funds
Trust funds:
Total in fund accounts
Intrafund transactions
Proprietary receipts from the public
Receipts from off-budget Federal entities
Outlays, trust funds
Interfund transactions
Total budget outlays
Budget deficit
77
78
THE BUDGET FOR FISCAL YEAR 1981
The Federal funds are derived mainly from taxes and borrowing
and are used for the general purposes of the Government. The trust
funds collect certain taxes and other receipts for specified purposes, such as payment of social security benefits.
Amounts collected by the funds are classified either as budget
receipts, also called governmental receipts, or as offsets to budget
outlays, known as offsetting collections, depending on the following
criteria.
When the amounts are collected by the Federal Government
from the public and arise from the exercise of governmental or
sovereign powers, the amounts are treated as budget receipts. Premiums from voluntary participation in certain Federal social insurance programs (such as supplemental medical insurance) and gifts
and contributions are also included in this category.
When the amounts are collected from other Government accounts or from transactions with the public that are of a businesstype or market-oriented nature, such as the sale of services or
goods, they are treated as deductions from spending in arriving at
budget outlays.1
FEDERAL
FUNDS
The Federal fund group is comprised of the general fund, special
funds, public enterprise (revolving) funds, and intragovernmental
funds. Intragovernmental funds include intragovernmental revolving funds, management funds, and consolidated working funds.
Federal fund budget receipts and outlays. In 1981, the Federal
fund budget receipts are estimated at $ 3 8 3 . 2 billion and outlays are
estimated at $ 4 2 9 . 7 billion. The following table, C - 2 , presents the
distribution of budget receipts by source and outlays by agency for
the Federal fund group.
The Federal fund budget receipts shown in the table are derived
mainly from taxes and borrowing. They are comprised of the
amounts collected by the general and special funds that are governmental in nature. Proprietary receipts from the public of the
general and special funds arise from market-oriented transactions
and thus are offsetting collections rather than budget receipts.
The Federal fund outlays shown are net of all collections credited to the public enterprise and intragovernmental funds and the
proprietary receipts of the general and special funds. These are
offset because the amounts collected are associated with businesstype or market-oriented activities or payments from other Government accounts.
1 Additional information on budget receipts and offsetting collections is provided in Part 7 of the Budget of the
United States Government, Fiscal Year 1981.
79
SPECIAL ANALYSIS D
Table C - 2 . FEDERAL FUND RECEIPTS AND OUTLAYS
(In millions of dollars)
Description
1979
actual
1980
estimate
1981
estimate
RECEIPTS BY SOURCE
Individual income taxes
Corporation income taxes
Excise taxes
Estate and gift taxes
Customs duties
Miscellaneous receipts
Total receipts, Federal funds
217,841
65,677
9,808
5,411
7,439
10,176
238,717
72,303
9,824
5,777
7,600
13,591
274,367
71,574
10,135
5,938
8,403
12,734
316,351
347,813
383,151
1,074
478
80
1,329
621
100
1,317
647
105
3,799
259
20,708
4,070
115,010
2,897
10,879
7,895
47,081
9,213
4,207
2,521
12,047
1,585
7,228
65,237
4,800
4,187
19,578
20,855
4,759
1,689
23,627
3,559
127,371
3,215
12,864
7,681
50,954
11,636
4,315
2,563
12,144
2,007
8,061
76,036
4,984
5,010
20,423
25,408
100
4,738
872
20,082
3,415
142,689
3,005
13,479
8,689
55,258
11,776
4,287
2,672
13,258
2,176
7,369
80,628
5,197
5,437
21,279
24,756
2,570
-3,267
-4,800
-6,000
OUTLAYS BY AGENCY
Legislative branch
The Judiciary
Executive Office of the President
Funds appropriated to the President:
Foreign assistance
Other
Agriculture
Commerce
Defense—Military1
Defense—Civil
Education2
Energy
Health and Human Services 3
Housing and Urban Development
Interior
Justice
Labor
State
Transportation
Treasury
Environmental Protection Agency
National Aeronautics and Space Administration
Veterans Administration
Other independent agencies
Allowances4
Undistributed offsetting receipts: Rents and royalties
on the Outer Continental Shelf
Total outlays, Federal funds
Excess of outlays (—)
1
362,420
405,653
429,700
-46,069
-57,840
-46,549
Includes allowances for civilian and military pay raises for Department of Defense.
The - Department of Education assumes the education activities previously performed by The Department of Health, Education, and Welfare.
The Department of Health and Human Services, formerly the Department of Health, Education, and Welfare (HEW), retains the health and welfare
activities of HEW.
4
Offsetting receipts and outlays for net gains and losses, proceeds!and reductions from transactions of the Exchange Stabilization Fund are included in
the Department of the Treasury.
5
Includes allowances for civilian agency pay raises and contingencies.
2
3
80
THE BUDGET FOR FISCAL YEAR 1981
Obligations.—The obligations (net) for Federal funds are estimated at $489.9 billion for 1981, as set forth in table C-3. These
transactions largely flow from budget authority for Federal funds
of $494.2 billion for the year, although in part the obligations were
authorized by prior years' budget authority.
Table C - 3 . OBLIGATIONS INCURRED, NET, IN FEDERAL FUNDS
(In millions of dollars)
Department or other unit
Legislative branch
The Judiciary
Executive Office of the President
Funds appropriated to the President:
International security assistance
International development assistance
Other
Agriculture
Commerce
Defense—Military1
Defense—Civil
Education2
Energy
Health and Human Services 3
Housing and Urban Development
Interior
Justice
Labor
State
Transportation
Treasury
Environmental Protection Agency
National Aeronautics and Space Administration
Veterans Administration
Other independent agencies:
Export-Import Bank
Federal Home Loan Bank Board
General Services Administration
Office of Personnel Management
U.S. Postal Service
Railroad Retirement Board
All other independent agencies
Allowances:
Civilian agency pay raises
Contingencies for other requirements
Undistributed offsetting receipts: Rents and royalties
on the Outer Continental Shelf
Total
1979
actual
1980
estimate
1981
estimate
1,164
492
80
1,340
626
101
1,308
648
107
3,693
2,749
394
21,027
2,886
123,711
2,837
11,262
8,198
48,549
38,080
4,689
2,448
12,848
1,689
8,213
65,259
5,112
4,477
20,018
3,088
2,965
1,817
25,260
3,878
136,875
3,040
15,382
10,568
53,085
38,060
5,264
2,556
11,771
2,096
9,557
76,031
5,821
5,697
20,641
2,735
3,148
982
20,326
3,518
158,653
3,129
15,549
8,717
57,124
39,396
4,776
2,671
13,832
2,238
8,834
50,669
5,823
5,758
21,775
1,366
-512
228
9,514
1,785
386
9,920
3,239
-498
105
11,453
1,677
341
11,159
4,663
-595
366
12,492
1,593
350
9,208
150
1,115
2,000
-3,267
-4,800
-6,000
409,294
458,346
489,906
1
Includes allowances for civilian and military pay raises for Department of Defense.
The Department of Education assumes the education activities previously performed by the Department of Health, Education and Welfare.
The Department of Health and Human Services, formerly the Department of Health, Education and Welfare (HEW), retains the health and welfare
activities of HEW.
2
3
Balances of Federal fund budget authority.—Table C - 4 shows the
balances of budget authority carried forward in Federal funds at
the end of each fiscal year. To the extent that valid Government
obligations have been incurred and remain unpaid, amounts sufficient to pay them (obligated balances) may be carried over into the
81
SPECIAL ANALYSIS D
next year. Unobligated balances may be carried forward in accordance with specific provisions of law, usually in order to permit
completion of major procurement or major construction programs
that are fully funded, to provide funding for activities of a continuing nature (such as research and development), for financing loan
programs, for standby emergency purposes (such as backup financing for insurance of the Federal Deposit Insurance Corporation), or
for reserves for losses and debt redemption.
Public enterprise funds.—The public enterprise funds conduct
cycles of business-type operations, primarily with the public, on
behalf of the Government. These funds are usually supplied with
capital from the general fund, and in a few cases they may borrow
from the public or from the Federal Financing Bank (FFB). These
funds also obtain capital by selling financial assets to the FFB.
Data on public enterprise funds are included on a net outlay basis
in tables C-2 through C-4. Additional information on the gross
outlays and applicable collections are shown in table C-5.
Collections of public enterprise funds are estimated at $48.5 billion in 1981, and gross outlays are planned to total $52.8 billion,
resulting in net outlays of $4.3 billion.
TRUST
FUNDS
There are two types of trust funds—nonrevolving and revolving.
Trust revolving funds are similar to intragovernmental revolving
funds and public enterprise funds in that they conduct cycles of
business-type operations and are normally stated net of collections.
Cash operations.—Trust fund receipts are estimated at $265.1
billion in 1981, with outlays planned at $234.3 billion, as shown in
table C-6. The transactions of the Federal old-age and survivors
insurance and disability insurance funds are far larger than any
other trust fund.
In fiscal years 1979-81, trust funds have excesses of receipts of
the following amounts (in millions of dollars):
1979
actual
Total receipts, trust funds
Total outlays, trust funds.
Excess of receipts or outlays ( — ) , trust
funds
310-700 0 - 80 - 6
1980
1981
estimate
189,641
171,305
222,196
204,110
265,107
234,331
18,335
18,086
30,776
82
THE BUDGET FOR FISCAL YEAR 1981
Table C - 4 . FEDERAL FUND BALANCES OF BUDGET AUTHORITY
(In millions of dollars)
Department or other unit
Start 1979
Obligated
167
Legislative branch
The Judiciary
43
Executive Office of the
14
President
Funds appropriated to
the President:
International security
3,880
assistance
International develop5,167
ment assistance
1,341
Other
10,197
Agriculture
Commerce
4,231
Defense—Military1
52,288
Defense—Civil
978
9,192
Education2
7,256
Energy
Health and Human Serv3
10,595
ices
Housing and Urban Development
194,876
Interior
2,199
1,037
Justice
Labor
3,099
291
State
Transportation
7,227
Treasury
429
Environmental Protection
12,374
Agency
National Aeronautics and
718
Space Administration..
2,002
Veterans AdministrationOther independent agenripe.
UCo.
Export-Import Bank ,.
2,849
Federal Deposit Insurance Corporation....
Federal Home Loan
Bank Board
2
General Services Administration
477
Office of Personnel
Management
16
Railroad Retirement
Board
All other independent
agencies
4,996
Allowances4
Total
337,941
End 1979
Unobligated
Obligated
210
13
End 1980
Unobligated
Obligated
End 1981
Unobligated
Obligated
Unobligated
218
53
138
15
229
59
13
*
14
5
5,382
322
5,515
102
5,353
2
11,262
1,862
1,653
903
21,150
421
2,433
2,479
6,441
1,423
10,477
3,091
60,825
917
9,430
7,559
12,240
1,887
4,942
608
22,889
314
3,217
4,346
7,579
1,509
12,124
3,411
70,329
742
12,265
10,447
13,827
1,832
4,180
296
24,350
145
1,743
3,152
8,775
1,576
12,368
3,514
86,293
866
14,334
10,475
13,820
1,832
6,497
204
23,681
15
1,670
2,152
365
11,985
646
13,775
224
15,642
129
6,873 277,785
279
4,112
100
948
6
4,110
27
531
3,574 11,160
27,577
477
6,669
175
83
6
46
3,409
28,081
*
33,856 223,741
2,647
1,039
196
956
237
3,908
152
380
6,253
8,198
5,162
440
10,413 250,165
3,624
968
228
949
522
3,536
112
469
5,534
9,695
9,253
436
89
5
219
60
83
2
17
3,800
12,684
4,088
13,521
2,953
14,147
2,471
452
2,927
1,006
2,426
523
2,661
1,694
2,644
93
2,461
2,015
3,140
68
2,633
3,232
4,014
1,936
6,199
3,000
3,000
9,631
3,000
3,000
9,821
-22
10,333
-41
10,831
-35
11,426
311
568
304
625
348
684
295
5
27
48
18
16
17
4
18
1
27
8,922
5,580
7,185
122,137 384,372
*
*
5,429
50
108,701 437,009
20,689
5,252
595
18,879
128,772 494,063
127,333
*$500 thousand or less.
Inc'-ides balances of allowances for civilian and military pay raises for Department of Defense.
The Department of Education assumes the education activities previously performed by the Department of Health, Education, and Welfare.
3
The Department of Health and Human Services, formerly the Department of Health, Education, and Welfare (HEW), retains the health and welfare
activities of HEW.
4
Includes balances of allowances for civilian agency pay raises and contingencies.
1
2
83
SPECIAL ANALYSIS D
Table C - 5 . PUBLIC ENTERPRISE FUND TRANSACTIONS
(In millions of dollars)
Applicable collections
Description
1979
actual
Legislative Branch
Funds appropriated to the President:
Foreign assistance
Other
Agriculture:
Commodity Credit Corporation
Farmers Home Administration
Federal Grain Inspection Service...
Federal Crop Insurance Corporation
Rural Electrification Administration
Commerce
Defense:
Military
Civil (Panama Canal Company)....
Department of Education1
Department of Energy
Health and Human Services 2
Housing and Urban Development:
Government National Mortgage
Association
Urban renewal programs
Low-rent public housing
Federal Housing Administration
Fund
Other
Interior.Water and Power Resources Service
Other
Department of Justice
Transportation
Treasury
Environmental Protection Agency
Veterans Administration
Other independent agencies:
Community Services Administration
Export-Import Bank
Farm Credit Administration
Federal Emergency Management
Agency
Federal Home Loan Bank Board:
Federal Savings and Loan Insurance Corporation
Revolving fund
General Services Administration
National Consumer Cooperative
Bank
National Credit Union Administration
1981
estimate
1980
estimate
*
Gross outlays
1979
actual
*
*
159
92
97
7,830
15,275
28
8,493
16,525
30
94
106
129
6
358
168
452
53
1980
estimate
*
*
126
1
85
1
76
1
8,525
19,352
35
11,612
16,628
25
11,651
18,656
32
10,645
17,572
37
121
74
121
117
84
1
299
80
4
74
17
318
6
6
187
904
206
7
71
180
612
196
6
172
835
162
3
358
165
503
104
204
1,023
247
2,051
188
278
1,724
73
313
3,239
21
308
2,277
469
275
2,775
314
331
2,884
191
358
1,186
160
1,399
213
1,476
286
1,379
814
1,547
1,126
1,405
1,210
210
18
239
20
350
10
216
20
243
30
337
22
38
222
1
684
41
492
1
1,241
43
489
1
1,383
123
652
1
803
145
1
1
1,019
174
1
1
1,073
2
2,167
10
2
2,403
12
4
2,593
13
2,367
10
23
3,458
12
9
3,823
13
156
171
191
407
337
310
695
94
753
22
807
58
206
94
275
21
205
58
3
3
3
2
2
2
42
130
42
128
1,712
2,341
1,885
2,309
*
*
*
*
65
*
*
*
1981
estimate
*
*
35
*
*
84
THE BUDGET FOR FISCAL YEAR 1981
Table C - 5 . PUBLIC ENTERPRISE FUND TRANSACTIONS—Continued
(In millions of dollars)
Applicable collections
1979
actual
Pennsylvania Avenue Development
Corporation
Small Business Administration
Tennessee Valley Authority
Total
Offsetting collections from the public
Offsetting collections from other accounts
1980
estimate
5
908
2,756
7
1,034
3,747
Gross outlays
1981
estimate
5
1,106
3,871
36,451
42,172
48,459
(33,380)
(38,682)
(44,161)
(3,071)
(3,490)
4,298)
1979
actual
22
2,356
4,640
46,847
1980
estimate
1981
estimate
25
26
2,170 1,951
5,725
6,035
53,199
52,790
*$500 thousand or less.
'The Department of Education assumes the education activities previously performed by the Department of Health, Education, and Welfare.
The Department of Health and Human Services, formerly the Department of Health, Education, and Welfare (HEW), retains the health and welfare
activities of HEW.
2
Table C - 6 . OUTLAYS AND RECEIPTS OF TRUST FUNDS
(In millions of dollars)
Outlays
Description
1979
actual
Federal old-age, survivors, and disability insurance trust funds
Railroad retirement account
Black lung disability trust fund . .
Veterans life insurance trust funds....
Federal employees retirement funds...
Unemployment trust fund
Health insurance trust funds
Highway trust funds
Airport and airway trust fund
State and local government fiscal
assistance trust fund
Foreign military sales trust fund ..
Energy security trust fund
Other trust funds (nonrevolving)
Trust revolving funds
Subtotal
Intrafund transactions
Proprietary receipts from the public..
Receipts from off-budget Federal entities
Total
Receipts
1980
estimate
1981
estimate
104,073
4,279
622
856
12,533
11,173
29,148
7,154
1,114
119,380
4,748
926
872
14,696
16,000
33,542
8,057
1,236
138,463
5,157
933
995
17,094
18,700
37,349
8,218
2,302
6,848
7,111
679
-1,681
6,863
9,500
1,858
913
-1,859
183,909
-1,490
-9,718
1979
actual
1980
estimate
1981
estimate
102,089
4,158
623
1,021
20,506
15,890
31,749
8,046
1,809
116,932
4,440
925
1,065
24,040
17,400
35,922
8,134
2,110
132,661
5,042
969
1,094
26,134
19,300
44,990
8,165
2,579
6,857
9,500
3,653
969
-1,938
6,855
8,545
955
6,855
8,300
7,591
1,103
6,855
9,500
20,615
1,120
216,731
-1,479
-9,569
248,249
-1,553
-10,786
202,244
-1,490
-9,718
234,818
-1,479
-9,569
279,025
-1,553
-10,786
-1,395
-1,574
-1,578
-1,395
-1,574
-1,578
171,305
204,110
234,331
189,641
222,196
265,107
Budget receipts by trust fund.—Table C-7 presents information
classifying the trust fund receipts by major fund, and by source for
each such fund.
85
SPECIAL ANALYSIS D
Budget outlays by trust fund.—Corresponding information on
trust fund outlays, classifying the data for the larger funds, is
found in table C-8.
Balances of the trust funds.—Total balances of the trust funds
continue to increase, as shown in the following end-of-year figures
(in millions of dollars):
Open book balances
Investments in U.S. securities.Public debt
Agency debt
1978
actual
1979
actual
1980
estimate
155,061
1,015
170,635
1,015
184,387
1,015
198,159
1,015
165,217
183,553
201,642
232,456
9,141
Total
11,903
1981
estimate
16,241
33,282
A summary of the balances by fund is presented in table C-9.
The amounts include both amounts on deposit with the Treasury
(open-book balances) and investments in U.S. securities. These balances include both obligated and unobligated balances. The balances on a budget authority basis exceed the cash balances because, for a few accounts, contract authority (a form of budget
authority) has been provided to a trust fund in advance of receiving moneys (e.g., the airport and airway trust fund). The note to
Table C-9 lists these accounts and reconciles the balances on a
budget authority basis with the cash balances.
For 1981 the largest net investments are expected to be those of
the Federal employees retirement fund.
Trust revolving funds.—The activities of the trust revolving fund
subgroup are shown in table C-10. The largest of these funds are
those used by the Office of Personnel Management to buy insurance for Government employees.
Table C - 7 . TRUST FUND RECEIPTS (in millions of dollars)
[Amounts under proposed legislation are shown separately]
Description
Federal old-age, survivors, and disability insurance
trust funds:
Social insurance taxes and contributions
Interest on Federal securities
Federal payment as employer for employee retirement
Other (mainly receipts of special Federal payments)
Proposed legislation
Subtotal, Federal old-age, survivors, and
disability insurance trust funds
Railroad retirement account:
Social insurance taxes and contributions
Interest on Federal securities
Receipts from other trust funds
1979
actual
1980
estimate
97,994
2,222
1981
estimate
112,933
2,114
128,507
1,924
1,114
1,207
1,358
759
678
676
196
102,089
2,190
192
1,477
116,932
2,395
283
1,467
132,661
2,676
223
1,542
86
THE BUDGET FOR FISCAL YEAR 1981
Table C - 7 . TRUST FUND RECEIPTS (in millions of dollars)—Continued
[Amounts under proposed legislation are shown separately]
Description
Other (mainly receipts of special Federal payments)
Proposed legislation
Subtotal, railroad retirement account
Black lung disability trust fund:
Excise taxes
Advances from general fund
Other
Subtotal, black lung disability trust fund
Veterans life insurance trust funds:
Interest on Federal securities
Other receipts
Subtotal, veterans life insurance trust
funds
1979
actual
1981
estimate
1980
estimate
298
295
328
274
4,158
4,440
5,042
222
401
249
676
263
706
623
925
969
563
458
607
458
649
445
1,021
1,065
1,094
*
Federal employees retirement funds:
Social insurance taxes and contributions
Interest on Federal securities
Federal payment as employer for employee retirement (including payment on prior year liabilities):
Entities included in budget
Entities excluded from budget
Other receipts
3,488
4,088
3,802
4,903
3,824
6,032
11,526
1,395
9
13,369
1,574
10
382
14,689
1,578
10
Subtotal Federal employees retirement
funds
SuDnlemental now reauested
20,506
24,040
26,134
Unemployment trust fund:
Social insurance taxes and contributions
Interest on Federal securities
15,387
503
16,847
553
18,645
655
Subtotal, unemployment trust fund
15,890
17,400
19,300
22,527
1,231
26,197
1,490
33,230
1,848
228
249
318
7,764
7,986
9,611
-17
31,749
35,922
44,990
7,189
853
4
6,934
1,200
7,082
1,083
8,046
8,134
8,165
1,526
282
1,290
376
Health insurance trust funds:
Social insurance taxes and contributions
Interest on Federal securities
Federal payment as employer for employee retirement
Other (mainly receipts of special Federal payments)
Proposed legislation
Subtotal, health insurance trust funds
Highway trust funds:
Excise taxes
Interest on Federal securities
Other receipts
Subtotal, highway trust funds
Airport and airway trust fund:
Excise taxes
Interest on Federal securities
87
SPECIAL ANALYSIS D
Table C - 7 . TRUST FUND RECEIPTS (in millions of dollars)—Continued
[Amounts under proposed legislation are shown separately]
Description
1980
estimate
1979
actual
1981
estimate
Proposed legislation
445
2,579
1,809
2,110
2,579
State and local government fiscal assistance trust
fund: Deposits for general revenue sharing
6,855
6,855
6,855
Foreign military sales trust fund
8,545
8,300
9,500
Subtotal, airport and airway trust fund
Energy security trust fund:
Proposed legislation: Windfall profits tax
7,591
20,615
955
1,103
1,120
202,244
-1,490
-9,718
-1,395
234,818
-1,479
-9,569
-1,574
279,025
-1,553
-10,786
-1,578
189,641
222,196
265,107
Other trust funds (nonrevolving)
Subtotal
Intrafund transactions
Proprietary receipts from the public
Receipts from off-budget Federal entities
Total receipts
*$500 thousand or less.
Table C - 8 . TRUST FUND OUTLAYS (in millions of dollars)
[Amounts under proposed legislation are shown separately]
Description
Federal old-age, survivors, and disability insurance
trust funds:
Benefit payments
Payments to other trust funds
Administrative expenses and other
Proposed legislation
Subtotal, Federal old-age, survivors, and
disability insurance trust funds
Railroad retirement accountBenefit payments and claims
Administrative expenses and other
Proposed legislation
Subtotal, railroad retirement account
Black lung disability trust fund:
Benefit payments
Federal administrative expenses
Subtotal, black lung disability trust fund
Veterans life insurance trust funds
Federal employees retirement:
Benefit payments and claims
Refunds to former employees
Administrative expenses and other
Subtotal, Federal employees retirement
1979
actual
1980
estimate
1981
estimate
101,020
1,477
1,575
116,194
1,467
1,733
-14
135,177
1,542
1,843
-99
104,073
119,380
138,463
4,245
34
4,709
39
5,190
37
-70
4,279
4,748
5,157
582
40
829
97
772
161
622
926
933
856
872
995
12,142
360
31
14,366
304
27
16,733
332
28
12,533
14,696
17,094
88
THE BUDGET FOR FISCAL YEAR 1981
Table C-8. TRUST FUND OUTLAYS (in millions of dollars)—Continued
[Amounts under proposed legislation are shown separately]
Description
Unemployment trust fund:
Withdrawals for benefit payments
Repayment of advances from general fund
Administrative expenses and other
1979
actual
1980
estimate
1981
estimate
8,727
800
1,646
13,094
900
2,006
16,085
400
2,215
11,173
16,000
18,700
28,158
990
32,426
1,115
1
37,247
1,178
-1,076
29,148
33,542
37,349
Highway trust funds (mainly grants to States)
7,154
8,057
8,218
Airport and airway trust fund
1,114
1,236
2,302
State and local government fiscal assistance trust
fund: Payments for general revenue sharing
6,848
6,863
6,857
Foreign military sales trust fund
7,111
9,500
9,500
1,858
3,653
Subtotal, unemployment trust fund
Health insurance trust funds.Benefit payments
Administrative expenses and other
Proposed legislation
Subtotal, health insurance trust funds
Energy security trust fund:
Proposed legislation
Other trust funds (nonrevolving)
Trust revolving funds
679
-1,681
913
-1,859
969
-1,938
Subtotal
Intrafund transactions
Proprietary receipts from the public
Receipts from off-budget Federal entities
183,909
-1,490
-9,718
-1,395
216,731
-1,479
-9,569
-1,574
248,249
-1,553
-10,786
-1,578
171,305
204,110
234,331
Total outlays
89
SPECIAL ANALYSIS D
Table C - 9 . TRUST FUND BALANCES
(In millions of dollars)
As of Sept. 30
Description
1978
actual
Federal old-age, survivors, and disability insurance trust
funds
Railroad retirement account
Black lung disability trust fund
Veterans life insurance funds
Federal employees retirement funds
Unemployment trust fund
Health insurance trust funds
Highway trust funds
Airport and airway trust fund
State and local government fiscal assistance trust fund
Foreign military sales trust fund
Energy security trust fund
Other trust funds (nonrevolving)
Trust revolving funds
Total
1979
actual
35,363
3,147
1,277
14,133
8,625
74,020
16,531
20,753
12,642
5,267
1,788
5,141
5,733
1,471
15,992
183,553
201,642
232,456
1980
209,537
1981
225,368
—991
—19,285
-8,791
-1,026
-20,492
-8,791
-35
38
4,449
94
4,552
12,103
20,468
94
4,731
12,058
6
6
201,642
232,456
8,267
56,704
10,446
15,771
11,673
3,698
1,789
4,907
1,001
12,452
165,217
*$500 thousand or less.
Note—The following table reconciles balances on a budget authority basis with the cash balances shown above.
1978
1979
Balance available on an authorization basis
179,316
195,149
Unfinanced contract authority:
Airport and airway trust fund
-903
-961
Highway trust funds
-16,850
-17,878
Foreign military sales trust fund
-10,418
-8,091
Other
- 1
- 1
Unappropriated receipts:
Available as needed, on an indefinite basis
44
3
Available for appropriation by Congress:
Energy security trust fund
Soldiers' Home permanent fund
92
94
Airport and airway trust fund
3,187
3,755
Highway trust funds
10,740
11,475
Other
2
1
Retained as permanent endowment
6
6
Balance available on a cash basis
165,217
1981
estimate
25,129
2,634
36
8,725
83,060
17,131
28,395
12,588
5,544
1,786
5,141
22,695
1,660
17,930
33,379
3,056
1
8,432
64,677
15,131
18,373
12,564
4,392
1,796
6,341
*
1980
estimate
183,553
30,931
2,748
1
1
Table C - 1 0 . TRUST REVOLVING FUND TRANSACTIONS
(In millions of dollars)
Offsetting collections
Description
1979
actual
Office of Personnel Management
(employees' life insurance and
health benefits)
Federal Deposit Insurance Corporation
All other trust revolving funds
Total trust
funds 1
4,109
4,672
5,365
1,432
453
1,520
478
1979
actual
1980
estimate
1981
estimate
3,691
4,285
4,968
1,552
504
214
407
70
456
52
462
4,312
4,811
5,482
5,994
6,670
7,421
(3,353)
(2,641)
(3,638)
(3,032)
(3,899)
(3,521)
Excludes right-of-way revolving fund which is a part of the highway trust funds.
1981
estimate
revolving
Receipts from the public
Receipts from other accounts
1
1980
estimate
Gross outlays
SPECIAL ANALYSIS D
INVESTMENT, OPERATING, AND OTHER BUDGET
OUTLAYS
This analysis divides outlays between those of an "investment"
or capital nature, and those devoted to "current" or operating
purposes. Investment-type programs are those that yield benefits in
future years through the acquisition of physical or financial assets,
or through expenditures for less tangible long-term benefits such as
education. They include: the construction, rehabilitation, or acquisition of physical assets; education, training, and vocational rehabilitation; research and development; international development;
and financial investments such as loans. Current programs provide
benefits primarily in the year they are made. They include: payments for retirement, disability, and other income maintenance;
social services; subsidies or other payments—to agriculture, businesses and transportation systems, and other institutions—that are
not directly used to purchase physical assets; payments for the
repair, maintenance, and operation of existing physical assets; and
regulatory, law enforcement, and other operating costs of the Federal Government. Some budgetary transactions, notably the allowance for contingencies, cannot be classified as either investment or
current in nature.
The Federal Government has never had a capital budget in the
sense of financing capital or investment-type programs separately
from current expenditures. One major reason is that a capital
budget could be misleading as a measure of the Government's
effect on the demand for economic resources. Another is that such
a budget might favor programs with intensive expenditures for
physical assets, such as construction, relative to other programs for
which future benefits cannot be accurately capitalized, such as
education or research. Likewise, physical assets might be favored
relative to current operations in any given program, because deficit
financing for capital would be easier to justify. A capital budget
also would pose formidable accounting problems involving the
measurement of depreciation on Government property, especially
weapons systems.
There are inevitable classification difficulties in preparing the
kind of analysis presented here. This analysis classifies programs
in the category where most of the outlays are expected to occur.
However, some programs—such as general revenue sharing or payments for individuals—can be utilized for both investment-type or
91
92
THE BUDGET FOR FISCAL YEAR 1981
current purposes, and their classification into one category necessarily results in understating the other. A possible confusion of
interpretation is that special assistance to a particular sector does
not include investment-type outlays that also aid that sector. For
example, the category "aids to agriculture, commerce, and transportation'? reflects current benefits such as payments for subsidies
and operating expenses to water and air transportation and railroad programs. It does not include related subsidies for the construction of private merchant ships, which are investment-type
outlays included under "acquisition of major equipment". The Federal Government also assists many sectors through off-budget Federal outlays, loan guarantees, tax expenditures, and other ways
that are not reflected in this analysis.
Even after the basic classification between investment-type or
current programs has been made, several alternative subclassifications are possible. For example, grants for construction of education facilities could not only finance the acquisition of physical
assets but are an important element in the conduct of education
and training. In cases such as this, the preferred classification is
that which is most "capital-like" and therefore appears first in the
special analysis structure (i.e., construction and rehabilitation, then
acquisition of major equipment, then conduct of research and development, etc.).
INVESTMENT, OPERATING, AND OTHER BUDGET OUTLAYS
(In billions of dollars)
1980
estimate
1979
actual
Investment-type programs
Current programs
Unclassified
Total
1981
estimate
120.2
373.5
129.4
434.1
.1
132.2
481.9
1.7
493.7
563.6
615.8
Investment-type outlays account for over one-fifth of total estimated outlays in 1981. Of these, nearly two-fifths are for national
defense programs, with procurement of major equipment and conduct of research and development predominant. (In this analysis,
defense refers to the national defense function as defined in the
budget.) The remaining three-fifths are for nondefense purposes,
with "construction and rehabilitation of physical assets"—such as
highways and mass transit, pollution control facilities, and energyrelated facilities—being the predominant programs. Outlays for
"conduct of education and training"—including student assistance,
elementary and secondary education, and veterans readjustment
benefits—are the second largest investment-type nondefense category.
SPECIAL ANALYSIS D
93
Current outlays make up almost four-fifths of total estimated
outlays in 1981. National defense programs account for about onefifth of total current outlays, with half of that amount required for
"repair, maintenance, and operation of physical assets". The remainder includes salaries for active military employees and retired
pay for military personnel as well as general overhead costs. In the
nondefense area, "provision of benefits"—including retirement, disability, health and welfare benefits—accounts for over three-quarters of nondefense current outlays and almost one-half of total
budget outlays. Over 14% of nondefense current outlays—9% of
total budget outlays—is for net interest.
A small portion of outlays are not classified as either investment
type or current outlays. These include allowances for contingencies.
Four tables are presented in this analysis. Table D - l summarizes
budget outlays, divided between national defense and civil programs. Table D-2 contains detailed backup to the entries of table
D-l. An alternative perspective on investment-type and current
budget outlays is presented in table D-3, which separates outlays
by grants-in-aid, loans, and direct Federal programs. This table
makes no distinction between national defense and civil programs.
Table D-4 provides detailed backup to table D-3.
94
THE BUDGET FOR FISCAL YEAR 1981
Table D - l . SUMMARY OF INVESTMENT, OPERATING, AND OTHER BUDGET OUTLAYS
(In millions of dollars)
1979
actual
1980
estimate
1981
estimate
National defense:
Investment-type programs:
Construction and rehabilitation of physical
assets
Acquisition of major equipment
Conduct of research and development
Other investment-type programs
Subtotal, investment-type programs
Current programs:
Provision of benefits
Repair, maintenance, and operation of physical
assets
Other current programs
Subtotal, current programs
2,256
26,786
12,136
397
2,350
29,332
13,919
320
2,270
32,576
15,887
433
41,575
45,921
51,166
10,323
11,993
13,732
37,733
28,050
42,324
30,130
47,950
33,164
76,106
84,447
94,846
Unclassified
Total national defense
229
117,681
130,368
146,241
6,697
7,104
613
26,169
732
14,183
25,442
5,417
26,971
717
15,661
26,268
6,709
28,585
709
16,588
26,812
7,679
78,640
83,431
80,984
219,768
8,380
259,022
7,981
295,160
8,376
12,104
14,173
14,213
-220
8,620
5,672
42,606
420
-553
8,953
6,623
51,791
1,694
-2,225
10,040
7,024
54,239
208
297,352
349,684
387,035
100
1,500
ivil:
Investment-type programs:
Loans and financial investments
Construction and rehabilitation of physical
assets
Acquisition of major equipment
Conduct of research and development
Conduct of education and training
Other investment-type programs
Subtotal, investment-type programs
Current programs:
Provision of benefits
Social services and related programs
Aids to agriculture, commerce, and transportation
Repair, maintenance, and operation of physical
assets
General purpose fiscal assistance
Regulation, control, and law enforcement
Net interest
Other current programs
Subtotal, current programs
Unclassified
Total civil
375,993
433,215
469,520
Grand total
493,673
563,583
615,761
Loans and financial investments.—A loan creates a financial
asset equal to the outlay. For domestic loans, the Government's
asset is matched by the liability of the private sector. Most Federal
domestic loans—to both State and local governments and private
SPECIAL ANALYSIS D
95
borrowers—finance the acquisition or improvement of either physical assets or human capital. This is especially true for loans in the
community and regional development, education, and transportation functions. Loans to foreign borrowers represent an increase in
financial assets held by the United States. Most foreign loans are
for economic development programs or the promotion of U.S. exports, including military equipment and farm commodities.
Net loan outlays are expected to total —$0.5 billion in 1981. This
is due in large part to asset sales by the Farmers Home Administration (FmHA) that result in negative outlays and a decline in
loan outlays by the Commodity Credit Corporation (CCC) as a
result of the decision to eliminate direct lending for export credit.
A significant and growing Federal involvement in loan programs
occurs through guarantees of private lending, where the Federal
Government promises to pay a part or all of the principal or
interest of a loan that is made by the private sector. Loan guarantees may achieve ends similar to those for direct loans, but budget
outlays occur only in cases of default. Additional analysis of loan
programs is contained in Special Analysis F, "Federal Credit Programs."
Financial investments in international organizations such as the
World Bank are designed to enhance economic and social development in many parts of the world. This is expected, in turn, to be
beneficial to U.S. interests in both the present and future. Outlays
for financial investments are estimated to be $1.1 billion in 1981.
Physical assets.—Construction and rehabilitation of physical
assets, acquisition of major equipment, and establishment of commodity inventories are of a long term nature. Budget outlays designed specifically to purchase such assets are treated as investment-type outlays regardless of whether the asset is owned by the
Federal Government, or by State, local, or private entities. Total
outlays for physical assets are estimated at $68.0 billion in 1981; of
this amount $35.1 billion is in the national defense function. Most
national defense outlays for physical assets are for the procurement of military equipment. A large portion of Federal outlays for
nondefense physical assets is in the form of grants-in-aid to State
and local governments, especially for construction programs. Highway and mass transit programs and pollution control construction
grants are the largest items in nondefense outlays for physical
assets, accounting for $10.2 billion and $4.0 billion respectively, or
over two-fifths of estimated nondefense outlays for physical assets
in 1981.
Conduct of research and development.—Outlays for research and
development are designed to increase our base of knowledge and to
apply that knowledge for its future benefit to the Nation. Total
96
THE BUDGET FOR FISCAL YEAR 1981
outlays for the conduct of research and development are estimated
at $32.5 billion in 1981. Defense programs account for nearly onehalf of research and development outlays in 1981. Outlays for
health, energy, and space account for more than half of nondefense
research and development outlays in 1981. Additional information
about Federal research and development programs is contained in
Special Analysis K, "Research and Development."
Conduct of education and training.—Outlays classified in this
category are designed to add to the stock of human capital by
developing a more skilled and productive labor force. These outlays
are direct payments to individuals, scholarships and grants to institutions, and other means of financing education and training. As
with physical assets, the benefits accrue over a considerable period
of time. Outlays are estimated at $26.8 billion in 1981, with education (including veterans education benefits) programs accounting
for over one-half of the total.
Collection of information.—This category includes outlays for collection of information, censuses, topographic or other natural resource surveys and programs that benefit both the present and
future by establishing a base of knowledge. Outlays of $1.7 billion
are estimated for 1981.
International development—Foreign assistance for general international economic development is included in this category. These
outlays are expected to prove beneficial to U.S. interests by enhancing the economic development of friendly foreign nations.
These outlays are estimated to be $2.5 billion in 1981.
Current programs.—Programs that provide benefits in the current year are divided into several major categories. Outlays classified as current may be used for investment-type purposes; however,
the principal effect of these outlays is to provide short-term benefits—such as unemployment compensation, and retirement and disability payments—rather than providing the means for future
benefits. Total current outlays are estimated at $481.9 billion in
1981.
Outlays for "provision of benefits"—including retirement, disability, and other income support payments, health care and nutrition,
and housing subsidies—are estimated to be $308.9 billion in 1981;
this is more than three-fifths of current outlays and one-half of
total budget outlays.
Current outlays for "social services and related programs" are
estimated at $8.4 billion in 1981, and "aids to agriculture, commerce, and transportation" are estimated to total $14.2 billion.
Other current outlays are largely for operation of the Federal
Government, including: the repair, maintenance, and operation of
97
SPECIAL ANALYSIS D
physical assets; regulatory and law enforcement activities, and
other administrative or operating expenses of the Government.
Because proprietary receipts from the public—such as receipts
from the sale of power and other utilities, the sale of publications
and reproductions, and the sale of minerals and mineral products—
are offsets to the outlays to which they most nearly apply, net
current outlays for the operation of the Federal Government are
negative in some cases. Net interest payments are estimated at
$54.2 billion in 1981.
Unclassified.—These outlays have not been placed in either the
investment or the current category. The allowance for contingencies is not classified because it is for unforeseen circumstances and,
therefore, how it will be used is not known.
Table D - 2 . INVESTMENT, OPERATING, AND OTHER BUDGET OUTLAYS
(In millions of dollars)
1979
actual
1980
estimate
1981
estimate
National defense investment-type programs
Construction and rehabilitation of physical assets:
Military construction
Family housing
Atomic energy defense activities
Other
1,808
121
323
4
1,828
64
458
2,256
2,350
2,270
25,404
1,382
27,648
1,684
30,497
2,079
26,786
29,332
32,576
12,136
13,919
15,887
Other investment-type programs:
Atomic energy defense activities—other physical
assets
Other
397
30
290
5
428
Subtotal, other investment-type programs....
397
320
433
41,575
45,921
51,166
10,279
44
11,941
52
13,677
55
10,323
11,993
13,732
Subtotal, construction and rehabilitation of
physical assets
Acquisition of major equipment:
Procurement
Atomic energy defense activities
Subtotal, acquisition of major equipment
Conduct of research and development
Subtotal, investment-type programs
1,734
101
435
*
National defense current programs
Provision of benefits:
Retired military personnel
Other
Subtotal, provision of benefits
Footnote at end of table.
310-700 0 - 80 - 7
98
THE BUDGET FOR FISCAL YEAR 1981
Table D - 2 . INVESTMENT, OPERATING, AND OTHER BUDGET OUTLAYS—Continued
(In millions of dollars)
1979
actual
Repair, maintenance, and operation of physical
assets-.
Department of Defense, Military
Other
Subtotal, repair, maintenance, and operation of physical assets
Other current programs:
Military personnel
Allowance for civilian and military pay raises
Other national defense
1980
estimate
1981
estimate
37,655
79
42,212
113
47,801
149
37,733
42,324
47,950
27,972
30,071
78
59
31,181
1,819
164
Subtotal, other current programs
28,050
30,130
33,164
Subtotal, current programs
76,106
84,447
94,846
Unclassified
229
117,681
130,368
146,241
-18
65
-104
92
-37
140
47
-12
103
Loans to other borrowers:
International affairs
Community and regional development
Agriculture
Transportation
Education
Other
1,745
1,060
1,300
798
522
542
2,543
597
-1,130
751
477
2,889
2,402
390
-2,541
369
572
-1,815
Subtotal, loans to other borrowers
5,967
6,126
-622
683
990
1,133
Subtotal, loans and financial investments....
6,697
7,104
613
Construction and rehabilitation of physical assets:
Highways and mass transit
Air transportation
Other transportation
Community development block grants
Local public works
Other community and regional development
Pollution control and abatement
Water resources
Other natural resources and environment
Energy
Other
8,797
783
98
3,161
1,741
1,523
3,759
2,391
833
2,093
990
9,614
915
162
3,500
358
1,635
3,902
2,467
933
2,383
1,101
10,242
986
164
3,805
200
1,778
3,952
2,318
824
3,098
1,217
Subtotal, construction and rehabilitation of
physical assets
26,169
26,971
28,585
Total national defense
Civil investment-type programs
Loans and financial investments:
Loans to State and local governments:
Community and regional development
Other
Subtotal, loans to State and local governments
Other financial investments
SPECIAL ANALYSIS D
99
Table D - 2 . INVESTMENT, OPERATING, AND OTHER BUDGET OUTLAYS—Continued
(In millions of dollars)
Acquisition of major equipment:
Energy
Transportation
Other
1981
estimate
1980
estimate
1979
actual
201
374
157
132
433
152
89
442
178
732
717
709
14,183
15,661
16,588
2,798
2,996
216
3,206
2,488
268
3,238
2,225
270
6,011
5,963
5,734
Other education and training programs:
Elementary, secondary, and vocational education
Other education
Training and employment
Health
Other
6,507
2,201
9,492
427
805
7,134
2,890
8,977
465
838
7,545
2,535
9,763
390
844
Subtotal, other education and training programs
19,432
20,305
21,078
Subtotal, conduct of education and training
25,442
26,268
26,812
1,132
133
848
-39
1,468
-105
1,265
810
1,363
1,588
1,285
1,279
2,125
1,818
1,957
2,247
2,389
1,675
5
5,417
6,709
7,679
78,640
83,431
80,984
Provision of benefits:
Retirement and survivor benefits:
Social Security and Railroad Retirement benefits
Civil Service retirement and survivors benefits.
Other retirement and survivor benefits
90,393
10,597
1,078
104,609
12,411
1,158
121,971
14,433
1,333
Subtotal, retirement and survivor benefits...
102,068
118,178
137,737
Disability benefits.Social Security and Railroad Retirement disability benefits
Civil Service disability benefits
13,428
2,319
14,852
2,743
16,722
3,193
Subtotal, acquisition of major equipment
Conduct of research and development
Conduct of education and training:
Income support programs:
General education
Veterans benefits
Other
Subtotal, income support programs
Other investment-type programs:
Commodity inventories:
Energy
Agriculture
Subtotal, commodity inventories
Other physical assets
International development
Collection of information
Other
Subtotal, other investment-type programs....
Subtotal, investment-type programs
Civil current programs
100
THE BUDGET FOR FISCAL YEAR 1981
Table D - 2 . INVESTMENT, OPERATING, AND OTHER BUDGET OUTLAYS—Continued
(In millions of dollars)
1979
actual
Veterans disability benefits
Other disability benefits
1980
estimate
1981
estimate
10,481
1,222
11,344
1,872
12,571
2,041
27,451
30,812
34,527
28,158
12,407
4,804
9,937
9,734
5,638
4,192
3,312
32,427
14,160
5,663
12,362
14,355
5,974
5,127
6,251
36,171
15,768
6,151
13,160
17,354
6,260
6,290
7,044
78,182
96,319
108,198
Direct provision of services:
Hospital and medical care for veterans
Other veterans benefits
Housing payments and subsidies
Other
4,848
614
24
118
5,543
671
6
16
5,389
669
133
196
Subtotal, direct provision of services
5,603
6,237
6,387
Subtotal, other provision of benefits
83,785
102,555
114,585
3,060
576
1,047
988
794
3,329
703
1,295
1,102
1,048
3,600
835
1,442
1,159
1,274
6,464
7,477
8,311
219,768
259,022
295,160
1,519
1,322
3,001
2,539
1,163
1,400
3,019
2,399
856
1,511
3,034
2,974
Subtotal, social services and related programs
8,380
7,981
8,376
Aids to agriculture, commerce, and transportation:
Agriculture
Postal Service
Small business assistance
General aids to commerce
Ground transportation
Air transportation
Water transportation
Other
3,748
1,787
581
670
1,984
1,936
894
505
4,823
1,677
795
633
2,427
2,109
930
778
4,137
1,593
646
958
2,469
2,185
1,024
1,201
Subtotal, aids to agriculture, commerce,
and transportation
12,104
14,173
14,213
Subtotal, disability benefits
Other provision of benefits:
Cash payments:
Medicare
Medicaid
Supplemental security income
Nutrition programs
Unemployment compensation
Assistance payments program
Subsidized housing programs
Other
Subtotal, cash payments
Administrative expenses:
Social Security Administration
Nutrition programs
Unemployment compensation
Medicare
Other
Subtotal, administrative expenses
Subtotal, provision of benefits
Social services and related programs:
Human development services
Employment programs
Social services and child welfare services
Other
SPECIAL ANALYSIS D
101
Table D - 2 . INVESTMENT, OPERATING, AND OTHER BUDGET OUTLAYS—Continued
(In millions of dollars)
1979
actual
1980
estimate
1981
estimate
Repair, maintenance, and operation of physical
assets.Conservation and land management
Water resources
Recreational resources
Energy
Other
409
594
435
-1,002
-656
551
703
469
-1,272
-1,004
437
726
511
-2,925
-973
Subtotal, repair, maintenance and operation
of physical assets
-220
-553
-2,225
6,848
671
1,101
6,863
940
1,151
6,857
1,945
1,238
8,620
8,953
10,040
697
633
585
441
260
-1,559
732
869
804
657
559
292
-1,723
828
992
770
700
752
303
-1,853
884
1,790
2,286
2,547
1,964
1,120
294
505
2,193
1,377
323
444
2,249
1,459
335
434
Subtotal, law enforcement activities
3,883
4,337
4,477
Subtotal, regulation, control, and law enforcement
5,672
6,623
7,024
59,837
-7,281
-9,950
73,300
-9,970
-11,539
79,400
-12,203
-12,958
42,606
51,791
54,239
-3
2,160
963
2,708
-136
-5,271
3,287
1,416
1,148
3,304
-1,542
-5,919
2,131
1,561
1,138
3,127
-2,658
-6,161
1,070
420
1,694
208
297,352
349,684
387,035
General purpose fiscal assistance:
General revenue sharing
Other general purpose grants-in-aid
Shared revenues
Subtotal, general purpose fiscal assistance..
Regulation, control, and law enforcement:
Regulatory and inspection activities:
Natural resources and environment
Transportation
Health
Energy
Agriculture
Commerce
Other
Subtotal, regulatory and inspection activities
Law enforcement activities:
Federal law enforcement
Federal litigative and judicial
Federal correctional activities
Other law enforcement assistance
Net interest:
Interest on the public debt
Other interest
Interest received by trust funds ( - )
Subtotal, net interest
Other current programs:
International security assistance
International affairs
Legislative branch
Other general government
Other
Employer share, employee retirement ( - ) ,,.
Allowances for civilian agency pay raises
Subtotal, other current programs
Subtotal, current programs
102
THE BUDGET FOR FISCAL YEAR 1981
Table D - 2 . INVESTMENT, OPERATING, AND OTHER BUDGET OUTLAYS—Continued
(In millions of dollars)
1979
actual
1980
estimate
Unclassified
1981
estimate
100
1,500
Total civil
375,993
433,215
469,520
Grand total
493,673
563,583
615,761
*$500 thousand or less.
An additional view of Federal outlays is presented in tables D-3
and D-4, in which outlays are separated by grants-in-aid, loans,
and direct Federal programs.
Grants-in-aid are resources provided by the Federal Government
in support of State and local programs of governmental service to
the public. Special Analysis H, "Federal Aid to State and Local
Governments/' discusses grants-in-aid in greater detail. Loans are
made by the Federal Government to various borrowers to fulfill
express program purposes; loans to State and local governments
are identified separately from all other loans. Direct Federal programs are all other programs in the budget.
Table D - 3 . SUMMARY OF BUDGET OUTLAYS FOR GRANTS-IN-AID, LOANS, AND DIRECT FEDERAL
PROGRAMS
(In millions of dollars)
1979
actual
1980
estimate
1981
estimate
Grants-in-aid:
Investment-type programs:
Construction and rehabilitation of physical
assets
Conduct of education and training
Other investment-type programs
19,846
16,014
626
19,970
16,064
794
20,977
17,085
1,002
36,486
36,828
39,064
28,098
7,323
33,519
6,935
37,045
7,254
1,005
8,654
758
534
1,139
8,988
737
799
1,244
10,075
795
834
Subtotal, current programs
46,372
52,117
57,247
Total grants-in-aid
82,858
88,945
96,312
To State and local governments
To other borrowers
47
5,967
-12
6,125
103
-622
6,014
6,113
-520
Subtotal, investment-type programs
Current programs-.
Provision of benefits
Social services and related programs
Aids to agriculture, commerce, and transportation
General purpose fiscal assistance
Regulation, control, and law enforcement
Other current programs
Loans:
Total loans
103
SPECIAL ANALYSIS D
Table D - 3 . SUMMARY OF BUDGET OUTLAYS FOR GRANTS-IN-AID, LOANS, AND DIRECT FEDERAL
PROGRAMS—Continued
(In millions of dollars)
1979
actual
1980
estimate
1981
estimate
Direct Federal programs:
Investment-type programs:
Construction and rehabilitation of physical
assets
Acquisiton of major equipment
Conduct of research and development
Conduct of education and training
Other investment-type programs
8,579
27,501
26,063
9,428
6,144
9,351
30,015
29,270
10,204
7,571
9,877
33,237
32,160
9,726
8,605
77,715
86,411
93,606
201,993
1,058
237,496
1,046
271,847
1,122
11,099
13,034
12,969
37,195
4,915
42,606
28,220
41,321
5,886
51,791
31,441
45,256
6,229
54,239
32,972
Subtotal, current programs
327,086
382,014
424,634
Total direct Federal programs
404,801
468,425
518,240
100
1,729
563,583
615,761
Subtotal, investment-type programs
Current programs:
Provision of benefits
Social services and related programs
Aids to agriculture, commerce, and transportation
Repair, maintenance, and operation of physical
assets
Regulation, control, and law enforcement
Net interest
Other current programs
Unclassified
Grand total
493,673
Grants-in-aid to State and local governments are estimated to be
$96.3 billion in 1981. Of this amount, over two-fifths is for investment-type programs. Outlays for grants-in-aid for the construction
and rehabilitation of physical assets and education and training
programs are predominant.
Grants-in-aid providing current benefits account for the remaining three-fifths of estimated outlays for grants-in-aid in 1981. These
funds are largely for health care or health services, nutrition, and
housing assistance. General revenue sharing and shared revenues
provide aid to State and local governments with few limitations on
the use of the funds.
Outlays for Federal loans to State and local governments are
estimated at $0.1 billion in 1981; outlays for all other loans are
estimated at —$0.6 billion. Most Federal loans in 1981 are made
for international programs. Other major direct loan programs in
1981 provide assistance to education, community and regional development, and transportation.
More than four-fifths of estimated 1981 outlays are for direct
Federal programs. These programs are where the Federal Govern-
104
THE BUDGET FOR FISCAL YEAR 1981
ment directly provides benefits, services, and other assistance. The
largest share of these programs is for provision of benefits, including retirement and disability payments under social security and
civil service, and military and foreign service retirement. Veterans'
compensation and pensions and unemployment compensation also
are included in this category.
Investment-type programs account for less than one-fifth of estimated 1981 outlays for direct Federal programs. These programs
include military procurement and research and development; construction and rehabilitation of physical assets for natural resources
and environment, including water resources and conservation, and
land management projects; and research and development programs focused primarily on general science, space, and technological programs, energy, and health.
The remaining direct Federal programs include general administrative costs of the Federal Government, net interest, and other
defense and nondefense programs.
Table D - 4 . BUDGET OUTLAYS FOR GRANTS-IN-AID, LOANS, AND DIRECT FEDERAL PROGRAMS
(In millions of dollars)
1979
actual
1980
estimate
1981
estimate
Grants-in-aid
Investment-type programs:
Construction and rehabilitation of physical assets:
Highways and mass transit
Other transportation
Pollution control and abatement
Other natural resources and environment
Community development block grants
Local public works
Other community and regional development ,,,
Other
8,796
579
3,756
289
3,161
1,741
1,252
271
9,613
665
3,900
270
3,500
358
1,410
254
10,241
682
3,950
280
3,805
200
1,581
238
Subtotal, construction and rehabilitation of
physical assets
19,846
19,970
20,977
8,682
3,115
3,609
608
8,089
3,387
3,935
654
8,797
3,658
3,997
633
16,014
16,064
17,085
Conduct of education and training:
Employment and training assistance
Elementary and secondary education
Other education
Other
Subtotal, conduct of education and training
Other investment-type programs
Subtotal, investment-type programs
jrrent programs:
Provision of benefits:
Medicaid
Nutrition programs
Assistance payments
Housing payments and subsidies
Other
626
794
1,002
36,486
36,828
39,064
12,407
3,344
5,638
2,753
1,612
14,160
3,949
5,974
3,633
2,920
15,768
3,869
6,260
4,387
3,534
SPECIAL ANALYSIS D
105
Table D - 4 . BUDGET OUTLAYS FOR GRANTS-IN-AID, LOANS, AND DIRECT FEDERAL PROGRAMS—
Continued
(In millions of dollars)
1979
actual
Administrative expenses:
Social Security Administration
Nutrition programs
Unemployment compensation
Other
1980
estimate
1981
estimate
943
447
952
1
1,028
542
1,194
120
1,122
610
1,335
160
2,343
2,883
3,227
28,098
33,519
37,045
1,082
1,447
3,001
1,793
1,155
1,089
3,019
1,672
1,250
781
3,034
2,188
Subtotal, social services and related programs
7,323
6,935
7,254
Aids to agriculture, commerce, and transportation:
Transportation
Other
952
54
1,101
39
1,185
59
Subtotal, aids to agriculture, commerce,
and transportation
1,005
1,139
1,244
6,848
1,807
6,863
2,126
6,857
3,218
8,654
8,988
10,075
442
316
404
333
417
378
Subtotal, administrative expenses
Subtotal, provision of benefits
Social services and related programs:
Employment programs
Human development services
Social services and child welfare services
Other
General purpose fiscal assistance:
General revenue sharing
Other
Subtotal, general purpose fiscal assistance..
Regulation, control, and law enforcement:
Law enforcement
Other
Subtotal, regulation, control, and law enforcement
758
737
795
534
799
834
Subtotal, current programs
46,372
52,117
57,247
Total grants-in-aid
82,858
88,945
96,312
-18
65
-104
92
-37
140
47
-12
103
Other current programs
Loans
To State and local governments:
Community and regional development
Other
Subtotal, to State and local governments....
To other borrowers:
International affairs
Community and regional development
Agriculture
Transportation
Education
1,745
1,060
1,300
798
522
2,543
597
-1,130
751
477
2,402
390
-2,541
369
572
106
THE BUDGET FOR FISCAL YEAR 1981
Table D - 4 . BUDGET OUTLAYS FOR GRANTS-IN-AID, LOANS, AND DIRECT FEDERAL PROGRAMS—
Continued
(In millions of dollars)
1979
actual
Other
1980
estimate
1981
estimate
542
2,888
-1,815
Subtotal, to other borrowers
5,967
6,125
-622
Total loans
6,014
6,113
-520
ivestment-type programs:
Construction and rehabilitation of physical assets:
National defense
Water resource projects
Other natural resources and environment
Energy
Transportation
Veterans hospitals
Health
Other
2,202
2,269
669
2,093
302
236
177
630
2,312
2,410
722
2,383
413
264
171
675
2,250
2,262
602
3,098
469
371
161
665
Subtotal, construction and rehabilitation of
physical assets
8,579
9,351
9,877
26,782
201
374
143
29,330
132
421
131
32,576
89
406
166
27,501
30,015
33,237
Conduct of research and development
26,063
29,270
32,160
Conduct of education and training:
Assistance to veterans
Higher education
Elementary and secondary education
Employment and training assistance
Health
Other
3,011
3,838
416
744
437
983
2,511
4,824
472
815
480
1,103
2,264
4,493
494
901
433
1,142
9,428
10,204
9,726
683
1,488
1,328
1,444
1,202
990
896
1,858
2,001
1,827
1,133
1,648
1,873
2,514
1,437
6,144
7,571
8,605
77,715
86,411
93,606
112,391
27,451
28,158
775
130,171
30,812
32,427
941
151,469
34,527
36,171
955
Direct Federal Programs
Acquisition of major equipment:
National defense
Energy
Transportation
Other
Subtotal, acquisition of major equipment
Subtotal, conduct of education and training
Other investment-type programs:
Financial investments
Commodity inventories
Other physical assets
International development
Collection of information
Subtotal, other investment-type programs....
Subtotal, investment-type programs
Current programs:
Provision of benefits:
Retirement and survivor benefits
Disability benefits
Medicare
Other health
107
SPECIAL ANALYSIS D
Table D - 4 . BUDGET OUTLAYS FOR GRANTS-IN-AID, LOANS, AND DIRECT FEDERAL PROGRAMS—
Continued
(In millions of dollars)
1979
actual
Unemployment compensation
Nutrition programs
Housing payments and subsidies
Medical care for veterans
Supplemental security income
Earned income tax credit
Other
Administrative expenses:
Social Security Administration
Nutrition programs
Unemployment compensation
Medicare
Other
1980
estimate
1981
estimate
9,734
6,592
1,464
4,848
4,762
773
925
14,355
8,412
1,500
5,589
5,618
1,696
1,380
17,354
9,291
2,046
5,710
6,106
1,570
1,564
2,117
129
94
988
793
2,301
161
102
1,102
928
2,478
226
107
1,159
1,114
4,122
4,594
5,084
201,993
237,496
271,847
554
504
507
539
475
647
Subtotal, social services and related programs
1,058
1,046
1,122
Aids to agriculture, commerce, and transportation:
Agriculture
Postal Service
Small business assistance
Commerce
Ground transportation
Air transportation
Water transportation
Other
3,748
1,787
581
658
1,035
1,936
894
461
4,823
1,677
795
627
1,329
2,109
930
743
4,137
1,593
646
954
1,287
2,185
1,024
1,143
Subtotal, aids to agriculture, commerce,
and transportation
11,099
13,034
12,969
Repair, maintenance, and operation of physical
assets:
National defense
Water resources
Conservation and land management
Other natural resources and environment
Energy
Other
37,731
594
409
-409
-1,034
-97
42,322
703
551
-594
-1,446
-215
47,948
726
437
-620
-3,124
-110
Subtotal, repair, maintenance, and operation of physical assets
37,195
41,321
45,256
Subtotal, administrative expenses
Subtotal, provision of benefits
Social services and related programs:
Community and regional development
Other
Regulation, control, and law enforcement
4,915
5,886
6,229
Net interest
42,606
51,791
54,239
Other current programs:
Military personnel
Other national defense
27,972
44
30,071
24
31,181
129
108
THE BUDGET FOR FISCAL YEAR 1981
Table D - 4 . BUDGET OUTLAYS FOR GRANTS-IN-AID, LOANS, AND DIRECT FEDERAL PROGRAMS—
Continued
(In millions of dollars)
1979
actual
Other nondefense
Allowance for Department of Defense pay
raises
Allowance for civilian agency pay raises
Subtotal, other current programs
1980
estimate
205
1981
estimate
1,346
-1,227
1,819
1,070
28,220
31,441
32,972
Subtotal, current programs
327,086
382,014
424,634
Total direct Federal programs
404,801
468,425
518,240
100
1,729
563,583
615,761
Unclassified
Grand total
493,673
SPECIAL ANALYSIS E
BORROWING, DEBT, AND INVESTMENT
The major fiscal operations of the Federal Government include
not only taxation and expenditure but also:
• the borrowing of cash to meet current outlays not covered by
receipts and to refinance maturing debt;
• the investment of balances that trust funds and other Government accounts do not currently need for outlays; and
• the provision of assistance, including guarantees, for certain
private borrowing.
This analysis summarizes current developments in Federal borrowing. It also discusses the size and growth of the Federal debt
and the interest on the Federal debt, the amount of U.S. Government debt held abroad, agency borrowing, agency investment in
Federal securities, the statutory debt limit, Government-guaranteed borrowing, and borrowing by Government-sponsored enterprises. The analysis concludes with a brief discussion of the trend
in Federal and federally assisted borrowing and the relationship of
this trend to the total funds raised by the nonfinancial sector of
the economy. Excluded from this analysis are other types of Federal liabilities, which include accounts payable, obligations for undelivered orders, long-term contracts, insurance commitments, and
the obligation for such future payments as social security and
employee retirement.1
Special Analysis F examines the related subject of Federal credit
programs, which include direct loans, loan guarantees, and loans
by Government-sponsored enterprises. The factors discussed in both
Special Analyses E and F are significant in appraising the impact
on financial markets of the programs contained in the 1981 Federal
budget.
BORROWING A N D REPAYING
DEBT
The Federal Government sells debt for two principal reasons.
First, it sells debt to the public, largely in order to finance the
Federal deficit. Second, it sells debt to the Government agencies
that accumulate surpluses in separate funds, primarily trust funds,
that are required by law to be invested in Federal securities. Most
Federal debt has been issued by the Treasury and is called "public
1 Information on many of these liabilities is contained in "Statement of Liabilities and Other Financial
Commitments of the United States Government," an annual report prepared by the Bureau of Government
Financial Operations of the Department of the Treasury.
109
110
THE BUDGET FOR FISCAL YEAR 1981
debt," but a small portion has been issued by other Government
agencies and is called "agency debt." 2
Borrowing from the public—whether by the Treasury or by an
agency—has a significant impact on financial markets and the rest
of the economy, and is consequently an important concern of Federal fiscal policy. Borrowing from the public includes borrowing
from the Federal Reserve System as well as borrowing from commercial banks, foreign central banks, other financial institutions
and businesses, and individuals. "Borrowing from the Federal Reserve System" does not ordinarily mean that the Treasury sells
debt securities directly to the Federal Reserve. This occurs only in
exceptional circumstances and then in amounts limited by statute.
The Federal Reserve System normally buys debt securities in the
open market.
For most purposes borrowing from the Federal Reserve System
should be distinguished from borrowing from the rest of the public.
Federal Reserve purchases of debt are undertaken to carry out
monetary policy, not to earn income, and affect the economy by
expanding bank reserves and the money stock. They thus have a
markedly different motivation and effect on financial markets than
do purchases by other sectors of the public. The debt held outside
the Federal Reserve System enters into investment portfolios of
businesses and individuals and by this means affects interest rates,
other financial conditions, and the size and composition of private
assets. Almost all interest received by the Federal Reserve System
is returned to the Treasury as receipts, called deposits of earnings,
so the Federal Reserve holdings of debt have only a small effect on
the budget surplus or deficit. The estimates in this analysis for the
current and future years do not divide the debt held by the public
between the Federal Reserve System and the rest of the public,
despite the significance of this distinction, because the Federal
Reserve's open market operations depend on future economic developments and on policy decisions not yet made.
Table E - l summarizes Federal borrowing from 1979 through
1983. In 1979 the total Federal borrowing (net of the refunding of
securities)—i.e., the rise in gross Federal debt—was $53.3 billion.
The sale of debt to Government agencies was $19.7 billion, and the
sale of debt to the public was $33.6 billion. Of the increase in debt
held by the public, $0.1 billion was purchased by the Federal Reserve System and $33.5 billion by the rest of the public.
2 The term "agency debt" is defined more narrowly in the budget than in the securities market, where it may
include not only the debt of the Government agencies listed in table E-6 but also the debt of the Governmentsponsored enterprises listed in table E-10 and certain Government-guaranteed securities.
111
SPECIAL ANALYSIS D
Table E - l . FEDERAL BORROWING
(In millions of dollars)
1979
actual
Gross Federal debt:
Treasury debt
Agency debt
54,975
-1,649
1980
estimate
1981
estimate
59,596
-535
47,111
-566
Gross Federal debt
53,326
59,061
46,545
Less debt held by Gov. agencies:
Treasury debt
Agency debt
19,710
-25
14,750
11
13,447
- 3
14,761
13,445
44,300
33,100
Debt held by Gov.
agencies 1
19,685
Total, debt held by
public
Composed of:
Debt held by the Federal
Reserve System
Debt held by others
Debt outstanding,
end of year
Borrowing or repayment ( - ) of debt
Description
33,641
113
33,528
NA
NA
NA
NA
1982
estimate
NA
NA
33,231
NA
NA
23,965
1983
estimate
1981
estimate
NA 933,226
NA
6,131
16,230
939,357
NA 215,880
NA
1,487
1983
estimate
NA
NA
988,818
NA
NA
28,965
217,368
270,298
9,266 - 1 2 , 7 3 5
721,989
718,520
NA
NA
NA
NA
NA
NA
NA
NA
N A = N o t available.
1
Estimates for agency investment in 1982 and 1983 are equal to the total trust fund surplus less the surplus of the energy security trust fund.
Borrowing from the public has fluctuated sharply. It rose from
$3.0 billion in 1974 to $82.9 billion in 1976 primarily because the
1974-75 recession and its aftermath automatically reduced tax receipts and raised unemployment benefits and certain other spending, and because tax reductions and some expenditure programs
were enacted to stimulate the economy. The decline in borrowing
from 1976 to 1979 was mainly due to the economic recovery.
Borrowing from the public is estimated to rise to $44.3 billion in
1980 due to the automatic effects on the deficit of the recession
that is forecast for the first half of calendar year 1980. Borrowing
in 1981 is then estimated to decrease to $33.1 billion, just under the
1979 level, as the economy gradually recovers. By the end of 1981
gross Federal debt is estimated to be $939.4 billion, with $722.0
billion or 77% held by the public (including the Federal Reserve
System) and the remainder by the agencies. Almost all of the gross
Federal debt will have been issued by the Treasury.
Borrowing from the public for years beyond the budget year is
estimated as part of the Government's multiyear budget planning.
As explained in Part 3 of the Budget and amplified in the Economic Report of the President, the economic assumptions underlying
the receipts and outlay estimates for 1982 and 1983 are not forecasts of the probable economic conditions in these years, unlike the
112
THE BUDGET FOR FISCAL YEAR 1981
economic forecast underlying the 1980 and 1981 estimates. Instead,
these assumptions are projections that assume progress in moving
toward the administration's goals of a more fully employed economy and greater price level stability. Specifically, it is assumed that
the economy will move progressively toward a 4% unemployment
rate in 1985 and a 3% inflation rate in 1988. The receipts and
outlay estimates also assume the continuation of current tax laws
as modified by proposals in the budget and the continuation of
existing and currently proposed programs at the levels tentatively
planned for 1982 and 1983.
Under these assumptions, the total Government deficit declines
considerably in 1982 and turns into a surplus in 1983. Borrowing
from the public decreases to $9.3 billion in 1982, and $12.7 billion
of debt held by the public is repaid in 1983. Despite the projected
surplus, gross Federal debt continues to rise in 1983 because, as
explained on page 133 of this analysis, the surplus is more than
fully accounted for by the trust funds part of the budget. The
projected surplus in 1983 may not, of course, actually occur. It
simply indicates the resources that will be available to accommodate discretionary budget decisions—tax cuts, new or expanded
programs, or reductions in the debt held by the public. Fiscal policy
adjustments will probably be required in the future to achieve the
goals of sustained economic growth and reduced unemployment.
BORROWING AND G O V E R N M E N T
DEFICITS
Table E-2 shows the way in which borrowing from the public is
related to the Federal deficit. Until a few years ago the budget
deficit comprised practically the entire deficit of the Federal Government, but the deficit of the off-budget Federal entities is now
significant. These entities, such as the Federal Financing Bank and
the Postal Service, are parts of the Federal Government but have
been excluded from the budget under provisions of law.
The Government deficit is financed either by borrowing from the
public or by several other means. These other means of financing
the deficit may be either positive, in which case they finance part
of the deficit; or negative, in which case they, like the deficit, must
themselves be financed by borrowing from the public. In 1979 the
total Government deficit was $40.2 billion. The greater part of this
amount, $33.6 billion, was borrowed from the public, and the remaining $6.5 billion was financed by other means.
113
SPECIAL ANALYSIS D
Table E - 2 . MEANS OF FINANCING THE FEDERAL DEFICIT1L
(In millions of dollars)
Description
1979
actual
1980
estimate
1981
estimate
1982
estimate
1983
estimate
Budget surplus or deficit ( - )
Deficit ( - ) of off-budget Federal entities2....
-27,733
-12,428
-39,754
-16,766
-15,773
-18,090
4,818
-15,078
24,509
-12,852
Total, surplus or deficit ( - )
-40,162
-56,519
-33,862
-10,259
11,657
2,131
10,103
735
2,662
992
265
898
953
-269
584
447
993
1,079
Total, means of financing other than
borrowing from the public
6,521
12,219
762
993
1,079
Total, requirements for borrowing
from the public
-33,641
-44,300
-33,100
-9,266
12,735
33,641
44,300
33,100
9,266
-12,735
Means of financing other than borrowing from
the public:
Decrease or increase ( - ) in cash and
monetary assets
Increase or decrease ( - )3 in liabilities for:
Checks outstanding, etc.
Deposit fund balances
Seigniorage on coins
Change in debt held by the public
'Several amounts have been assumed to be zero in 1981 and 1982 because they are usually small and would be very difficult to estimate accurately.
2
The off-budget Federal entities consist of the Rural Electrification and Telephone revolving fund, Rural Telephone Bank, Pension Benefit Guaranty
Corporation, Federal Financing Bank, Postal Service fund, one program of the U.S. Railway Association, and the Energy Security Corporation.
3
Besides checks outstanding, includes military payment certificates, accrued interest (less unamortized discount) payable on Treasury debt, and, as
an offsetting change in assets, certain collections in transit.
The means of financing a deficit other than borrowing from the
public are:
• A decrease in cash or monetary assets.
• An increase in monetary liabilities for checks outstanding,
accrued interest payable to the public, etc.
• An increase in deposit fund balances, which include amounts
held by the Government as an agent for others (such as State
income taxes withheld from Federal employees' salaries and
not yet paid to the State) or amounts held in suspense temporarily before being refunded or paid into some other fund.
• Seigniorage, which is the face value of minted coins less the
cost of their production.
These other means of financing are normally small relative to
borrowing from the public. This is because they are limited by
their own nature. Decreases in cash, for example, are necessarily
limited by past accumulations, which themselves required financing when they were built up. Thus, the extent to which means
other than borrowing can finance a deficit are limited in any year
and tend to be still more limited over a longer period of time.
When the total Government deficit is sizable, it is necessarily the
principal determinant of borrowing from the public.
Nevertheless, these other means of financing are at times significant, and in 1980 are estimated to finance $12.2 billion of the
310-700
0 - 8 0 - 8
114
THE BUDGET FOR FISCAL YEAR 1981
deficit. This amount is accounted for primarily by an extraordinarily large decrease of $10.1 billion in cash and monetary assets. At
the end of 1979 Treasury's cash balances were more than is ordinarily needed for operations, so Treasury plans to reduce them. As
a result, the rise in borrowing in 1980 and the decline in 1981 are a
good deal less than the rise and fall in the deficit for these years.
Table E-2 illustrates that, because of the off-budget Federal entities, balancing the budget is not enough to prevent an increase in
the Federal debt held by the public. In 1982 the budget has a
projected surplus, but the off-budget deficit is larger and the Government has to borrow from the public. Only in 1983, when the
budget surplus is projected to be larger than the off-budget deficit,
is the Government able to repay debt held by the public. The
budget and the off-budget entities combined must be in balance in
order for the Government not to have to borrow from the public
(aside from the effects of the other means of financing).
The sale of debt to Federal agencies largely depends on the
surpluses of the trust funds, which own 92% of the Federal debt
held by Government agencies. Agency investment in Federal securities and the total trust fund surplus during 1978-81 are compared
in the table below (in billions of dollars):
Agency investment in Federal debt
Total trust fund surplus
Total trust fund surplus, excluding Energy security trust
fund
1978
actual
1979
actual
12.2
12.7
19.7
18.3
12.7
18.3
1980
estimate
14.8
18.1
12.4
1981
estimate
13.4
30.8
13.8
As the table shows, the agency investment in Federal securities
is similar in size to the total trust fund surplus in 1978 and 1979.
This relationship has historically been close, with the small differences accounted for by two factors. Certain agencies other than
trust funds buy or sell Federal debt, as shown in table E-7, and the
trust funds may increase or decrease their open book balances.3
Beginning in 1980, however, the total trust fund surplus starts to
become much larger than the agency investment in Federal debt.
This is due to the proposed energy security trust fund. The fund
has a large surplus in its early years because the windfall profit
tax yields much more revenue than is spent, but it does not have
the authority to invest its balances in debt. The total trust fund
surplus excluding the energy security trust fund maintains the
normal close relationship to agency investment in Federal debt
during 1980 and 1981.
3 Open book balances are cash assets not currently invested. As shown in Special Analysis C, they are small
relative to trust fund holdings of Federal debt.
115
SPECIAL ANALYSIS D
SIZE A N D G R O W T H OF FEDERAL
DEBT
Gross Federal debt has risen substantially over the past half
century, from $17 billion in 1929 to $833.8 billion at the end of
1979. Table E - 3 presents the detail of Federal debt since 1954 and
shows that a sizable part of the increase is held in Federal Government accounts (primarily trust funds) rather than being owed to
Table E - 3 . COMPARISON OF TRENDS IN FEDERAL DEBT AND GROSS NATIONAL PRODUCT
(Dollar amounts in billions)
Debt outstanding, end of year
Held by
Fiscal year
Gross
Federal
debt
Federal
Government
accounts
GNP
The public
Total
Federal
Reserve
System
Other
Debt held
by public
as percent
of GNP
1954
1955
1956
1957
1958
1959
270.8
274.4
272.8
272.4
279.7
287.8
46.3
47.8
50.5
52.9
53.3
52.8
224.5
226.6
222.2
219.4
226.4
235.0
25.0
23.6
23.8
23.0
25.4
26.0
199.5
203.0
198.5
196.4
200.9
209.0
363.6
380.0
411.0
432.7
442.1
473.3
61.7
59.6
54.1
50.7
51.2
49.7
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969 1
290.9
292.9
303.3
310.8
316.8
323.2
329.5
341.3
369.8
367.1
53.7
54.3
54.9
56.3
59.2
61.5
64.8
73.8
79.1
87.7
237.2
238.6
248.4
254.5
257.6
261.6
264.7
267.5
290.6
279.5
26.5
27.3
29.7
32.0
34.8
39.1
42.2
46.7
52.2
54.1
210.7
211.4
218.7
222.4
222.8
222.5
222.5
220.8
238.4
225.4
497.3
508.3
546.9
576.3
616.2
657.1
721.1
774.4
829.9
903.7
47.7
46.9
45.4
44.2
41.8
39.8
36.7
34.5
35.0
30.9
1970 2
1971
1972 3
1973
1974
1975
1976 4
TQ
1977
1978
1979
382.6
409.5
437.3
468.4
486.2
544.1
631.9
646.4
709.1
780.4
833.8
97.7
105.1
113.6
125.4
140.2
147.2
151.6
148.1
157.3
169.5
189.2
284.9
304.3
323.8
343.0
346.1
396.9
480.3
498.3
551.8
610.9
644.6
57.7
227.2
959.0
65.5
238.8 1,019.3
71.4
252.3 1,110.5
75.2
267.9 1,237.5
80.6
265.4 1,359.2
85.0 • 311.9 1,457.3
94.7
385.6 1,621.0
96.7
401.6 1,715.8
105.0
446.8 1,843.3
115.5
495.5 2,060.4
115.6
529.0 2,313.4
29.7
29.9
29.2
27.7
25.5
27.2
29.6
29.0
29.9
29.7
27.9
1980
1981
1982
1983
892.8
939.4
972.6
988.8
203.9
217.4
241.3
270.3
688.9
722.0
731.3
718.5
estimate
estimate
estimate
estimate
NA
NA
NA
NA
NA
NA
NA
NA
2,518.0
2,764.4
3,107.6
3,513.0
27.4
26.1
23.5
20.5
NA=Not available.
1
During 1969,3 Government-sponsored enterprises became completely privately owned, and their debt was removed from the totals for the Federal
Government. At the dates of their conversion, gross Federal debt was reduced $10.7 billion, debt held by Government accounts was reduced $0.6 billion,
and debt held by the public was reduced $10.1 billion.
2
Gross Federal debt and debt held by the public increased $1.6 billion due to a reclassification of the Commodity Credit Corporation certificates of
interest from loan assets to debt.
3
A procedural change in the recording of trust fund holdings of Treasury debt at the end of the month increased gross Federal debt and debt held in
Government accounts by about $4.5 billion.
4
Gross Federal debt and debt held by the public increased $0.5 billion due to a retroactive reclassification of the Export-Import Bank certificates of
beneficial interest from loan assets to debt.
116
THE BUDGET FOR FISCAL YEAR 1981
Percent Distribution of Indebtedness 1
Percent
Percent
the public. From the end of 1954 to the end of 1979, gross Federal
debt rose by 208% while debt held by the public rose by 187%.
Federal debt held by the public apart from the Federal Reserve
System rose still less, by 165%—an average annual rate of growth
of 4.0% over the 25 years—because during this period the Federal
Reserve System bought a large quantity of Federal debt in the
market, thereby expanding the reserves of the banking system and
increasing the Nation's money stock.
During the depression of the 1930's and during World War II,
Federal debt held by the public increased greatly, not only in
absolute amount but also, as shown in the preceding chart, as a
proportion of the total credit market debt owed by nonfinancial
sectors of the economy: Federal, State and local, and private.4
Whereas Federal debt held by the public was only 13% of total
debt at the end of calendar year 1929, it had risen to 70% by the
end of calendar year 1945. Federal borrowing was large during
these years, particularly to finance World War II, and borrowing
by other sectors was restricted by low incomes and poor creditworthiness during the depression and by controls and scarcities
during the war.
4 The estimates for 1946 to the present are from the Federal Reserve Board flow-of-funds accounts; the
estimates for earlier years are from the Bureau of Economic Analysis of the Department of Commerce and are
linked to the flow-of-funds estimates on the basis of their respective 1946 levels. The data are for calendar years
during 1929-51 and for fiscal years thereafter. The private sector debt includes debt of foreigners.
SPECIAL ANALYSIS D
117
From 1945 to 1974, however, private debt increased as a proportion of total debt in every year but one, and likewise in every year
but one the Federal debt held by the public decreased as a proportion of the total. This uninterrupted trend ended in 1975 because of
the large Federal deficit caused by the recession. Another large
Federal deficit in 1976 caused Federal debt held by the public to
rise as a percentage of total debt again in that year, but in 1977
the Federal percentage of total debt resumed its downward trend.
Over the last 20 years, from 1959 to 1979, the average annual
compound rate of growth was 5.2% for Federal debt held by the
public, 8.0% for State and local debt, and 10.2% for private debt.
By the end of 1979, Federal debt held by the public had decreased
to 17% of total debt. As a result of these trends, Federal debt and
borrowing, though still important, have become relatively much
smaller influences in the financial market.
During the same period Federal debt has decreased relative to
gross national product (GNP). As shown in table E-3, debt held by
the public equaled 62% of GNP at the end of 1954 but declined
steadily to 25% by the end of 1974. In 1975, however, due to the
recession, debt held by the public rose as a percentage of GNP, at
the same time as it rose as a percentage of total debt; and it rose
again in the following 2 years. The percentage declined in 1978 and
1979, especially in 1979, and is estimated to decline considerably
more through 1981.
The interest cost of the debt may be more significant than the
amount of the debt for some types of comparison designed to measure the importance of Federal indebtedness. Interest on the debt
held by the public has risen much faster than the debt itself, due to
a strong upward trend since World War II in the interest rates
that must be paid on new borrowings and on refunded debt. The
interest rates on 91-day Treasury bills, for example, averaged
10.0% in calendar year 1979 compared to 5.9% in 1970-78, 4.0% in
the 1960's, and 2.0% in the 1950's. Consequently, whereas the
Federal debt held by the public almost tripled between 1954 and
1979, table E-4 shows that the interest paid on this debt increased
by nine times.
Interest payments to the public have tended to grow faster than
GNP over this entire period. In the first 5 years interest was equal
to 1.39% of GNP, whereas by the last 5 years the proportion had
risen to 1.84%. The percentage was clearly higher in 1979 than in
any preceding year and is estimated to be higher still in 1980 and
1981. These estimates assume that market interest rates will decline with the estimated decrease in the rate of inflation. Interest
as a percentage of budget outlays, on the other hand, does not show
a sustained trend over the period as a whole. However, this per-
118
THE BUDGET FOR FISCAL YEAR 1981
centage has recently been rising steadily and in 1979 was clearly
the highest in the last quarter century. In 1980 and 1981 this
percentage is estimated to be higher still. Thus, by either measure
the importance of interest on the debt is now relatively high and
rising.
Table E - 4 . COMPARISON OF TRENDS IN INTEREST ON FEDERAL DEBT
(Dollar amounts in billions)
Interest on the gross Federal debt
Paid to
Fiscal year
Total
1
Federal
Government
accounts
Interest on debt
held by the public
as a percent of
The public
Total
Federal
Reserve
System 2
Other
GNP
Budget
outlays 3
1954
1955
1956
1957
1958
1959
6.4
6.4
6.8
7.3
7.8
7.8
1.3
1.2
1.3
1.4
1.4
1.4
5.2
5.2
5.6
5.9
6.3
6.4
0.5
.4
.5
.7
.7
.8
4.7
4.8
5.1
5.3
5.6
5.6
1.42
1.36
1.35
1.37
1.43
1.35
7.29
7.56
7.90
7.73
7.68
6.96
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
9.5
9.3
9.5
10.3
11.0
11.8
12.6
14.2
15.6
17.6
1.5
1.5
1.6
1.6
1.8
2.0
2.1
2.6
3.0
3.5
8.1
7.8
7.9
8.7
9.2
9.8
10.4
11.6
12.6
14.1
1.0
1.0
1.0
1.1
1.2
1.4
1.7
2.0
2.4
2.9
7.1
6.8
6.9
7.6
8.0
8.4
8.7
9.6
10.2
11.2
1.62
1.53
1.45
1.50
1.50
1.49
1.45
1.50
1.52
1.56
8.73
7.96
7.40
7.78
7.80
8.29
7.75
7.36
7.07
7.66
1970
1971
1972
1973
1974
1975
1976
TQ
1977
1978
1979
20.0
21.6
22.5
24.8
30.0
33.5
37.7
8.3
42.6
49.3
60.3
4.4
5.3
5.8
6.3
7.7
8.8
9.0
.6
9.6
10.2
12.1
15.6
16.3
16.6
18.5
22.4
24.7
28.7
7.6
33.0
39.2
48.3
3.5
3.7
3.7
4.3
5.5
6.1
6.3
NA
6.8
8.0
9.5
12.2
12.6
12.9
14.2
16.9
18.6
22.5
NA
26.2
31.2
38.8
1.63
1.60
1.50
1.50
1.64
1.69
1.77
1.78
1.79
1.90
2.09
7.95
7.73
7.16
7.49
8.29
7.56
7.84
8.07
8.20
8.68
9.78
1980 estimate
1981 estimate
73.7
79.8
14.1
15.8
59.6
64.0
NA
NA
NA
NA
2.37
2.31
10.57
10.39
N A = N o t available.
1
Total interest significantly exceeds the outlays for the interest function in the budget, because the interest function includes collections of interest as
an offset to outlays.
2
These figures are approximate. For most years they are estimated as the average of calendar year amounts. The 1979 estimate is tentative.
3
Budget outlays for all years are published in the Budget, Part 9, table 23.
Since the end of World War II the composition of the Federal
debt has changed. Until recently an increasingly large proportion
of marketable securities had a short maturity. One contributing
SPECIAL ANALYSIS D
119
factor was the statutory ceiling of 4XA% that has been maintained
since 1918 on the interest rate for Treasury bonds. Because longterm market rates exceeded 4 Vi% after 1965, the ceiling eventually
prevented the Treasury from selling long-term obligations.
This restriction on Treasury borrowing has been relaxed in two
ways. One method has been to increase the maximum maturity of
notes, which are not subject to the interest rate ceiling. The maximum maturity was raised by law from 5 to 7 years in 1967 and to
10 years in 1976. As of December 31, 1979, the amount of notes
outstanding with a maturity over 5 years was $118.2 billion, of
which $40.3 billion had a maturity over 7 years. The other method
of relaxing the restriction has been to allow limited amounts of
bonds to be sold at interest rates above the ceiling. In 1971 Treasury was allowed by law to issue up to $10 billion of bonds at
interest rates above 4V4%. In 1973 those bonds held by Government
accounts and the Federal Reserve System were exempted from the
interest rate limit, and since 1976 the amount of the exception has
been raised in six steps to $50 billion. As of December 31, 1979,
$59.4 billion of bonds outstanding had been sold since the change of
law in 1971, of which $40.3 billion were held by the public exclusive
of the Federal Reserve System. The effective interest rates have
ranged from 6.1 to 10.4%.
Notwithstanding the initial relaxations of the interest rate ceiling, the average maturity of marketable Treasury debt decreased
steadily from 4 years at the end of 1967 to about 2Vz years at the
end of 1976. Since then, however, as the restriction has been relaxed further, the average maturity has gradually lengthened to
about SV2 years.
DEBT HELD ABROAD
The Federal debt was historically held almost entirely by individuals and institutions within the United States. In 1946, just after
World War II, the debt held in foreign official balances and international accounts was about $2 billion, less than 1% of the total
debt held by the public. In the following years the debt held abroad
tended to grow gradually, and, as shown in table E-5, rose to just
over $10.0 billion by the late 1960's. This was still less than 5% of
the total Federal debt held by the public. Interest paid to foreign
residents was a correspondingly small proportion of the total interest paid on debt freld by the public.
120
THE BUDGET FOR FISCAL YEAR 1981
Table E - 5 . FOREIGN HOLDINGS OF FEDERAL DEBT
(In billions of dollars)
Debt held by
the public
Fiscal year
Total
Borrowing from
the public
Foireign 1
Total 2
Interest on debt
Foreign
Total
Foreign 3
1965
1966
1967
1968
1969
261.6
264.7
267.5
290.6
279.5
12.3
11.6
11.4
10.7
10.3
4.1
3.1
2.8
23.1
-1.0
0.3
-.7
-.2
-.7
-.4
9.8
10.4
11.6
12.6
14.1
0.5
.5
.6
.7
.7
1970
1971
1972
1973
1974
284.9
304.3
323.8
343.0
346.1
14.0
31.8
49.2
59.4
56.8
3.8
19.4
19.4
19.3
3.0
3.8
17.8
17.3
10.3
-2.6
15.6
16.3
16.6
18.5
22.4
.8
1.3
2.4
3.2
4.1
1975
1976
TQ
1977
1978
1979
396.9
480.3
498.3
551.8
610.9
644.6
66.0
69.8
74.6
95.5
120.9
125.2
50.9
82.9
18.0
53.5
59.1
33.6
9.2
3.8
4.9
20.9
25.4
4.3
24.7
28.7
7.6
33.0
39.2
48.3
4.5
4.4
1.2
5.0
7.9
10.8
1
Estimated by Treasury Department. These estimates exclude agency debt, the holdings of which are believed to be small.
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. Reclassifications are identified in the footnotes to table E - 3 .
3
Estimated by Bureau of Economic Analysis, Department of Commerce. These estimates include small amounts of interest on the debt of Governmentsponsored enterprises, which are not part of the Federal Government.
2
Foreign holdings began to grow much faster in 1970. This change
arose in part out of the role of the dollar as an international
currency. Large amounts of the official reserves and other financial
assets of foreign nations are held in dollar denominated form, and
U.S. Government securities are the safest and one of the most
liquid forms of holding dollar assets. Consequently, as foreign countries acquired more dollar denominated official reserves, they purchased a large amount of U.S. Government securities. The second
principal reason for the growth of foreign holdings has been the
massive current account surpluses of some countries, particularly
the OPEC nations, since 1974. The counterpart to these surpluses
has been the acquisition of financial assets, and the financial assets
acquired in the United States have largely taken the form of U.S.
Government securities.
The increase in foreign holdings of U.S. Government securities
during the past decade has therefore been primarily the product of
foreign decisions. By the end of 1979 foreign holdings of Treasury
debt had reached $125.2 billion, which was 19% of the total debt
held by the public. Interest paid to foreign residents as a proportion of the total interest paid to the public grew over this period in
roughly the same way as did the foreign holdings of debt.
SPECIAL ANALYSIS D
121
In the years before 1970, when debt held abroad was so small,
borrowing from the public was approximately the same as borrowing from the domestic public. Since 1970, though, borrowing from
the domestic public has generally been quite different from total
borrowing. The relative importance of borrowing from abroad has
varied, as table E-5 shows, but for the period as a whole borrowing
from abroad was 32% of borrowing from the public. For the last 3
years borrowing from abroad was 35%. Borrowing from abroad is,
of course, an even larger proportion of total borrowing from the
public exclusive of the debt sold to the Federal Reserve System.
Nearly all the Federal debt held abroad is owned by foreign
central banks or other official institutions and is denominated in
dollars. On November 1, 1978, however, the administration announced that as part of its plan to strengthen the dollar the
Treasury would sell in private markets abroad up to $10 billion of
securities denominated in certain foreign currencies. Beginning in
December 1978, the Treasury has sold the equivalent of $5.3 billion
of securities denominated in Deutsche marks and Swiss francs to
residents of Germany and Switzerland, respectively. By selling
these securities, the Treasury acquires foreign currencies for use in
intervention operations that are designed to deal with disturbances
in the foreign exchange market.
BORROWING BY FEDERAL AGENCIES
A few Government agencies are authorized to sell their own debt
instruments to the public and to other Government agencies and
funds. This agency borrowing is part of the gross Federal debt. The
authorization to borrow is budget authority, and the disbursement
of borrowed money is an outlay. Agency debt includes the borrowings of the off-budget Federal entities.
Agency borrowing was shown in total in table E - l and is shown
by agency in table E-6. In all years shown more debt is repaid than
is newly borrowed, and over the period as a whole total agency
debt decreases by $2.7 billion or by one-third. The agency debt
outstanding at the end of 1981 is less than 1% of gross Federal
debt.
122
THE BUDGET FOR FISCAL YEAR 1981
Table E - 6 . AGENCY BORROWING 1
(In millions of dollars)
Borrowing or repayment ( - ) of debt
Description
1979
actual
1980
estimate
Debt
end 1981
estimate
1981
estimate
Borrowing from the public:
Agriculture: Farmers Home Administration2
Defense
Education:
College housing loans2
Health education facilities2
Health and Human Services 2
Housing and Urban Development:
Federal Housing Administration
Housing for elderly or handicapped2
Government National Mortgage Assoc. 2
Revolving fund (liquidating programs) 2
Transportation: Coast Guard
Veterans Administration2
Export-Import Bank
Postal Service
Small Business Administration2
Tennessee Valley Authority
Total, borrowing from the public
-108
-122
-110
249
91
5
-54
-64
-47
-65
-58
-30
- *
-90
-1,207
- *
-99
-204
- *
-97
-279
-546
-564
-100
-1,624
Borrowing from other funds:
Agriculture: Farmers Home Administration2
Defense
Education:
College housing loans2
Health education facilities2
Health and Human Services 2
Housing and Urban Development:
Federal Housing Administration
Housing for elderly or handicapped2
Government National Mortgage Assoc.2
Revolving fund (liquidating programs) 2
Veterans Administration2
Small Business Administration2
Total, borrowing from other funds
Total, agency borrowing included in gross Federal debt
172
452
-22
-10
-16
289
52
356
68
1
308
450
250
174
1,725
4,644
146
57
215
75
5
4
27
13
191
45
292
56
269
137
- 3
- 2
- 5
- 3
—25
11
—3
1,487
-1,649
-535
-566
6,131
1,385
1,567
-527
1,905
89
1,289
300
-67
1,900
68
-232
2,200
68
10,809
300
1,288
11,225
581
2,852
3,490
3,603
24,203
MEMORANDUM
Borrowing from Federal Financing Bank:
Export-Import Bank
National Credit Union Central Liquidity Facility
Postal Service
Tennessee Valley Authority
United States Railway Association
Total, agency borrowing from Federal Financing Bank
* $500 thousand or less.
1
Excludes agency borrowing from Treasury.
Certificates of participation in loans issued by the Government National Mortgage Association on behalf of several agencies.
2
SPECIAL ANALYSIS D
123
As shown in the memorandum section of table E-6, the amount
of agency borrowing has been profoundly affected by the Federal
Financing Bank (FFB).5 The FFB was created in December 1973
under the Treasury Department as an off-budget Federal entity
and began financial operations in May 1974. Its purposes were to
assist and coordinate agency borrowing and guaranteed borrowing
and to reduce the cost to the Government of some of its borrowing
operations. It was given the authority to purchase agency debt and
guaranteed obligations and, in turn, to finance these transactions
by borrowing from the Treasury. With the approval of the Secretary of the Treasury, the FFB is authorized to borrow from the
Treasury without a statutory limit on the amount.6 Since the FFB
can borrow from the Treasury at lower interest rates than other
agencies would have to pay in the market, this practice reduces the
cost of agency borrowing. The FFB thus serves as a conduit for
agency borrowing, and Treasury securities replace the securities of
other agencies in the market. Agency borrowing from the FFB is
not included in gross Federal debt. It would be triple counting to
add together the agency borrowing from the FFB, the FFB borrowing from Treasury, and the Treasury borrowing from the public
that was necessary to provide the FFB with funds to lend to the
agencies.
As a result of the FFB, several agencies that would otherwise
borrow mostly in the market borrowed $2.9 billion from the FFB in
1979 and are estimated to borrow $3.5 billion in 1980 and $3.6
billion in 1981. Because these agencies now borrow almost entirely
from the FFB instead of the public, almost no new agency borrowing in the market took place in the last 5 years or is scheduled to
take place in the future. The change in agency debt outstanding is
therefore determined almost solely by the repayment of maturing
debt and consequently is negative each year. If the FFB had not
been created, the agency component of gross Federal debt would be
substantially greater than it is now, though not by the exact
amount that agencies have borrowed from the FFB. The Treasury
component would be correspondingly less.
By the end of 1981, $2.4 billion of agency debt, or two-fifths of
the total, will be obligations of three of the five agencies listed in
table E-6 that borrow almost exclusively from the FFB: the ExportImport Bank, Postal Service, and Tennessee Valley Authority. The
other two agencies borrowing from the FFB were established more
recently than the FFB and have never had to borrow from the
public. A total of $2.7 billion, or another two-fifths of all agency
FFB purchases of guaranteed obligations are shown in table E - l l .
The FFB also is authorized to have outstanding up to $15 billion of publicly issued debt. Treasury classifies
this as public debt rather than agency debt. The FFB borrowed $1.5 billion in 8-month bills from the public in
July 1974. All of its other borrowing has been from Treasury, because Treasury can borrow from the public at
slightly lower interest rates than FFB would have to pay. No further FFB borrowing from the public is planned.
5
6
124
THE BUDGET FOR FISCAL YEAR 1981
debt, will consist of certificates of participation in pools of loans
issued by the Government National Mortgage Association as trustee on behalf of several agencies, which are identified in table E-6.
These certificates have not been issued since 1968. A further $0.5
billion of agency debt will be family housing mortgages assumed by
the Department of Defense (and Coast Guard) under a program
terminated more than a decade ago. The remaining agency debt—
$480 million, or 8% of the total—will have been issued by the
Federal Housing Administration, which conducts the only program
that normally continues to borrow from the public. This agency
issues debentures as payment for insurance claims on defaulted
loans, and the nature of this transaction precludes these securities
from being sold to the FFB.
The Treasury supplies capital to business-type Government enterprises in return for both capital stock and debt. The debt is
shown as "borrowing from Treasury" on the statements of financial condition for enterprises in the Budget Appendix. However, the
equity and the debt instruments are the same in substance; and it
would be double counting to add together the agency borrowing
from the Treasury and the Treasury borrowing from the public
that was necessary to provide the agencies with this capital. Therefore, agency borrowing from Treasury is excluded from figures on
agency borrowing and debt in all other parts of the budget documents.
A G E N C Y INVESTMENT IN FEDERAL SECURITIES
Trust funds and some public enterprise funds accumulate cash in
excess of current requirements in order to meet future claims and
demands. Such cash surpluses are invested mostly in Treasury debt
and, to a very small extent, in agency debt. Purchases of these
securities are not counted as budget outlays, and redemptions are
not counted as budget receipts.
Net investment by trust funds and other Federal agencies rose
steadily from the relatively low level of $4.3 billion in the recession
year of 1976 to $19.7 billion in 1979. This was caused primarily by
the improvement in the economy, the growing payment from the
general fund to the civil service retirement and disability trust
fund, and the tax increase enacted by the Social Security Amendments of 1977. In 1980, however, as shown in table E-7, agency
investment is estimated to decline to $14.8 billion, and in 1981 it is
estimated to fall a little further to $13.4 billion.
The most important reason for this reversal is the recession
forecast for the first half of calendar year 1980, with the unemployment rate estimated to average 7.0% in calendar year 1980 and
7.4% in calendar year 1981. The growth of tax receipts will be
125
SPECIAL ANALYSIS D
Table E - 7 . AGENCY INVESTMENT IN FEDERAL SECURITIES
(In millions of dollars)
Increase or decrease ( - ) in holdings
Description
Holdings
end of
1981
estimate
1979
actual
1980
estimate
1981
estimate
—3,638
1,230
1,406
953
-4,480
2,070
2,476
115
-9,150
3,348
7,139
502
13,143
11,001
22,728
5,591
147
108
54
4,276
160
74
45
1,395
250
53
76
600
2,330
1,506
315
15,788
891
691
77
880
-53
277
12,493
5,534
2,503
109
474
-149
464
-76
5,204
1
207
5
28
1,220
497
229
12
6
1,450
483
264
16
7
1,500
602
8,318
1,115
451
12,202
6,568
7,849
371
518
-23
133
136
38
9,299
414
-329
-311
193
126
41
8,941
397
-1,860
-114
112
104
48
81,975
4,720
50
2,629
1,062
922
235
19,710
14,750
13,447
215,880
Investment in Treasury debt:
Health and Human Services:
Federal old-age and survivors insurance trust fund
Federal disability insurance trust fund
Federal hospital insurance trust fund
Federal supplementary medical insurance trust fund....
Housing and Urban Development:
Federal Housing Administration
Government National Mortgage Association
Other
Labor: Unemployment trust fund
Transportation:
Highway trust fund
Airport and airway trust fund
Treasury:
Exchange stabilization fund 1
Federal Financing Bank 2
Veterans Administration:
National service life insurance trust fund
Other trust funds
Veterans reopened insurance fund
Federal Deposit Insurance Corp.: Trust fund
Federal Home Loan Bank Board: FSLIC
Office of Personnel Management:
Civil Service retirement and disability trust fund
Other trust funds
Postal Service 2
Railroad Retirement account: Trust fund
Other Federal funds
Other trust funds
Other off-budget Federal entities
Total, investment in Treasury debt
Investment in agency debt:
-6
Agriculture: Commodity Credit Corp
Health and Human Services:
Federal old-age and survivors insurance trust fund
Federal hospital insurance trust fund
Housing and Urban Development:
Federal Housing Administration
Government National Mortgage Association
Veterans Administration.- National service life insurance
trust fund
Federal Home Loan Bank Board: FSLIC
Office of Personnel Management: Civil Service retirement
and disability trust fund
-6
-6
5
555
50
-4
-8
23
-8
-5
3
188
206
135
73
275
Total, investment in agency debt
-25
11
-3
1,487
Total, investment in Federal debt
19,685
14,761
13,445
217,368
3,446
15,574
665
1,446
13,752
-437
1,561
13,772
-1,888
17,908
199,174
286
MEMORANDUM
Investment by Federal funds
Investment by trust funds
Investment by off-budget Federal entities
* $500 thousand or less.
1
The change in holdings in 1980 and 1981 is estimated as equal to interest collections.
2
Off-budget Federal entity.
126
THE BUDGET FOR FISCAL YEAR 1981
reduced, particularly for the social security trust funds, and unemployment benefits will rise. These benefits are estimated to increase by $4.4 billion in 1980 and a further $3.0 billion in 1981—or
$7.4 billion in total—although this increase cannot be attributed
solely to the higher unemployment rate. If the economy were growing strongly enough to keep the unemployment rate at its current
level, estimated agency investment would be higher in 1981 than in
1979.
The trust funds financed by the social security tax—old age and
survivors insurance, disability insurance, and hospital insurance—
increase their annual rate of investment in Federal debt by only
$2.3 billion from 1979 to 1981. This is in spite of the fact that the
Social Security Amendments of 1977 increase the funds' tax receipts by $5.4 billion in 1980 (compared to 1979) and by an additional $7.2 billion in 1981—$12.6 billion in total. During this period,
from 1979 to 1981, the pattern of agency investment or disinvestment differs markedly among the three funds. The old age and
survivors insurance trust fund disinvests substantially, while the
other funds, particularly the hospital insurance fund, continue to
accumulate. These tendencies will extend beyond 1981 in the absence of legislation, and by 1983 the old age and survivors insurance fund would use up its balances. Consequently, legislation will
be proposed to permit these funds to borrow among themselves.
Total agency holdings of Federal securities will reach an estimated $217.4 billion by the end of 1981. This will comprise 23% of the
gross Federal debt. One major trust fund—the civil service retirement and disability trust fund—will account for 38% of total
agency holdings, and all the trust funds together will account for
92%. Almost all of the holdings will be Treasury debt, and the
holdings of agency debt will continue to decline by a small amount.
LIMITATIONS ON FEDERAL DEBT
Statutory limitations have customarily been placed on Federal
debt. Until World War I, the Congress ordinarily authorized a
specific amount for each debt issue. Beginning with the Second
Liberty Bond Act of 1917, however, the nature of the limitation
was modified in several steps until it developed into a ceiling on
the total amount of most Federal debt outstanding. The latter type
of limitation has been in effect since 1942. The limit currently
applies to the total of:
• almost all public debt issued by the Treasury since September
1917, whether held by the public or by the Government;
• agency debt in the form of participation certificates issued
during 1968 under the Participation Sales Act of 1966; and
127
SPECIAL ANALYSIS D
• other debt issued by Federal agencies (and the District of
Columbia Armory Board) that, according to explicit statute, is
fully guaranteed as to principal and interest by the United
States.
The debt subject to statutory limit 7 includes virtually all Treasury debt. The small amount of Treasury debt not subject to limit is
shown in table E-8. It consists almost entirely of currencies no
longer being issued, such as silver certificates and national bank
notes, which were generally reclassified as Federal debt some time
after being discontinued.
The major part of agency debt is not subject to the general
statutory limit. The only categories now included are the debentures issued by the Federal Housing Administration and the parTable E - 8 . DEBT SUBJECT TO STATUTORY LIMIT
[In millions of dollars]
End of year
Descriptions
Federal debt held by the public
Federal debt held by Government agencies
Total, gross Federal debt
1979
actual
1980
estimate
1981
estimate
644,589
189,162
688,889
203,923
721,989
217,368
833,751
892,812
939,357
Deduct:
Treasury debt not subject to limit
Agency debt not subject to the general limit:
Department of Defense
Export-Import Bank
Postal Service
Tennessee Valley Authority
Participation certificates1
Coast Guard
609
609
609
767
933
250
1,725
1,869
1
635
730
250
1,725
1,707
1
509
450
250
1,725
1,580
1
Total, Federal debt not subject to limit.
6,154
5,656
5,124
827,597
20
-2
887,156
934,233
-2
-2
827,614
887,154
Federal debt subject to statutory limit
District of Columbia Armory Board bonds
Other debt subject to limit and adjustments
Total, debt subject to statutory limit
934,231
* $500 thousand or less.
Certificates of participation in loans issued by the Government National Mortgage Association on behalf of several agencies (excluding certificates
issued during 1968, which are subject to the debt limit).
1
ticipation certificates sold in 1968. These securities comprise about
one-quarter of all agency debt. However, most other agency debt is
subject to special statutory limits. For example, the Tennessee
Valley Authority was first authorized to issue revenue bonds to
finance power facilities in 1959. The limit was $750 million. Subse7 The statutory debt limit is sometimes called the public debt limit. However, as explained in the text, the
limit does not apply to all public debt and does apply to some debt other than public debt.
128
THE BUDGET FOR FISCAL YEAR 1981
quently, to enable TVA to finance additional facilities, Congress
raised the limit several times. In October 1979, Congress raised the
limit from $15 billion to $30 billion, with more than half of the
increase for TVA's current construction program. The Postal Service is limited to $10 billion of bonds outstanding and $2 billion of
annual borrowing, but proposed legislation would limit the borrowing in 1981 to $1 billion.
The only other appreciable component of debt subject to limit at
the end of 1979 was the small issue of stadium bonds sold by the
District of Columbia Armory Board in 1960. These bonds matured
on December 1, 1979. Unlike the rest of the debt subject to limit
discussed above, the stadium bonds were not part of the Federal
debt. The gross Federal debt further excludes a very small amount,
less than half a million dollars, of matured principal and interest
that is included in debt subject to limit. To derive the debt subject
to limit from the gross Federal debt also requires a very small
accounting adjustment.
The statutory limit on the Federal debt was $798 billion from
August 3, 1978, to March 31, 1979. This limit consisted of a permanent limit of $400 billion, which has been in effect since 1971, and
a temporary increment of $398 billion. This temporary increment
expired on March 31, 1979, without having been extended, so for a
few days the Federal debt exceeded the statutory limit. This had
also happened once in 1977 and again in 1978. The validity of debt
issued prior to the expiration of the temporary ceiling was not
affected, but the Treasury Department had to suspend all sales of
savings bonds and other debt securities. This created uncertainty
in the Government securities market. In order to raise as much
cash as possible to pay the Federal Government's expenses, the
Treasury called in all of its deposits in tax and loan accounts at
commercial banks so as to increase its operating balance at the
Federal Reserve Banks; it redeemed the entire $2.7 billion of debt
held by the Exchange Stabilization Fund so that it could borrow an
almost equal amount from the Federal Reserve; and on April 2 it
stopped investing the cash inflows of trust funds in new Federal
securities. These measures incurred administrative costs and reduced the earnings of the Exchange Stabilization Fund and the
trust funds.
On April 2, 1979, the Congress enacted legislation that temporarily raised the debt limit to $830 billion. This increase was scheduled to expire on September 30, 1979, but new legislation on September 29 temporarily raised the debt limit to $879 billion. The
latest increase expires on May 31, 1980, at which time a further
increase will be required to permit the Federal Government to
SPECIAL ANALYSIS D
129
meet its obligations. Although on this last occasion the debt did not
exceed the debt limit at any time, the uncertainty about when
legislation would pass led Treasury to postpone its auctions for new
securities.
The outstanding debt subject to limit is shown in table E-8 and
compared with the gross Federal debt and the Federal debt held by
the public. The debt subject to limit was $827.6 billion at the end of
1979 and is estimated to rise to $934.2 billion by the end of 1981.
These amounts are a great deal more than the permanent limit of
$400 billion. As shown in table E-8, the debt subject to limit is
much larger than the debt held by the public and is almost as large
as the gross Federal debt. The debt subject to limit is so much
larger than the debt held by the public because it includes Federal
debt held by Government agencies. The small difference between
debt subject to limit and gross Federal debt is mostly accounted for
by agency debt not subject to the general limitation.
The same legislation that temporarily raised the debt limit on
September 29, 1979, also changed the method of enacting statutory
debt limits in the future (Public Law 96-78). The purpose was to
establish the debt limit as a part of the congressional budget process. The first and second concurrent resolutions on the budget (to
be adopted by May 15 and September 15, respectively, for the
forthcoming fiscal year) establish targets or ceilings for budget
outlays and receipts and for the budget deficit and also recommend
an appropriate level for the debt subject to limit. The recommendation as to the appropriate level of debt has not heretofore had the
effect of law, nor has it been part of the direct process whereby the
debt limit was established.
However, beginning with the resolutions to be adopted in 1980
for 1981, the concurrent resolution that is adopted by the Congress
will have a direct effect. The vote in the House of Representatives
will be deemed to have been a vote in favor of a joint resolution
setting the statutory limit for the forthcoming fiscal year. The joint
resolution will thus be deemed to have passed the House and will
be transmitted to the Senate for further legislative action. Upon
final passage, it will be sent to the President for his signature. This
procedure is expected to relate the decision on the debt limit to the
congressional decision on the Federal deficit and the other factors,
explained in the following section, that determine the change in
the debt subject to limit. It is also expected to insure that a new
increase to the debt limit will be enacted well before the previous
increase is scheduled to expire, thereby reducing the uncertainty
about extension of the debt limit and eliminating the costs that
occur when the level of debt exceeds or is about to exceed the debt
limit. The debt limit may still be changed by a separate bill as in
the past.
310-700
0 - 8 0 - 9
130
THE BUDGET FOR FISCAL YEAR 1981
FEDERAL FUNDS F I N A N C I N G A N D THE C H A N G E IN DEBT SUBJECT
TO STATUTORY
LIMIT
The year-to-year change in debt subject to limit, unlike the
change in debt held by the public, is not determined principally by
the total Government deficit, that is, by the sum of the budget
deficit and the deficit of the off-budget Federal entities. The trust
fund surplus or deficit, which makes up part of the budget surplus
or deficit, for the most part has no essential effect. This is explained below in a discussion that is more technical than the rest
of this special analysis. To simplify the exposition, the initial part
of this section excludes the effect of the proposed energy security
trust fund, which is to begin operation in 1980, and thus is
completely correct only for 1979 and earlier years. The modification for the energy security trust fund is explained at the end of
the section.
The budget consists of two major groups of funds: Federal funds
and trust funds.8 The trust funds collect certain taxes and other
receipts for specified purposes, such as paying social security and
unemployment insurance benefits. The Federal funds comprise the
rest of the budget. Their resources are derived mainly from taxes
and borrowing and are used for the general purposes of the Government. The off-budget Federal entities make up a third group of
fiscal operations, analagous to the Federal funds and trust funds
groups. If the off-budget entities were included in the budget,
almost all of them would be classified as Federal funds.
When the Federal funds have a deficit, that deficit must generally be financed by borrowing. Borrowing is necessary regardless of
whether the trust funds have a surplus. This is because trust fund
surpluses are mostly invested in Federal debt securities, and a
trust fund investment in Federal debt securities issued by Federal
funds is treated as Federal funds borrowing. Federal funds borrowing is done almost exclusively by the Treasury selling debt securities that are subject to the statutory limit. The deficits of the offbudget Federal entities are generally financed in the same way as
the Federal funds deficit. Thus, the Federal funds deficit and the
deficit of the off-budget Federal entities generally have to be financed by selling debt securities that are subject to the statutory
limit; and these securities are sold to either the public, the trust
funds, or certain Federal revolving funds.
Table E-9 shows in detail the relationship of the change in debt
subject to limit to the Federal funds deficit and the deficit of the
off-budget Federal entities. The sum of these deficits is an amount
that has to be financed. Some relatively small portion may be
8
Data for Federal funds and trust funds are presented in Special Analysis C, "Funds in the Budget."
131
SPECIAL ANALYSIS D
financed by means other than borrowing, such as seigniorage and a
decrease in those cash assets held by Federal funds and off-budget
Federal entities (if the sum of these other means of financing is
negative, then these other means must themselves be financed).9 A
small portion may be financed by the Federal funds or off-budget
entities selling their investments in Federal debt. Another small
portion may be financed by their issuing debt that is not subject to
the statutory limit. The remainder of the amount to be financed,
ordinarily comprising most of the total, can only be financed by
selling debt subject to the statutory limit. Thus, the deficits of the
Federal funds and the off-budget Federal entities are together the
principal determinant of the change in debt subject to statutory
limit.
Table E - 9 . FEDERAL FUNDS FINANCING AND CHANGE IN DEBT SUBJECT TO STATUTORY LIMIT 1
(In millions of dollars)
Description
Total, amount to be financed
Means of financing other than borrowing:
Decrease or increase ( - ) in cash and
monetary assets
Increase or decrease ( - ) in liabilities for:
Checks outstanding, etc
Deposit fund balances
Seigniorage on coins
Uninvested surplus of trust funds 2
Total, means of financing other
than borrowing
1979
actual
1980
estimate
1981
estimate
1982
estimate
1983
estimate
-46,069
-12,428
-57,840
-16,766
-46,549
-18,090
-41,859
-15,078
-28,124
-12,852
-58,497
-74,606
-64,638
-56,937
-40,975
2,131
10,103
3,496
2,662
992
-1,134
898
953
5,733
-227
584
447
16,962
993
22,712
1,079
23,667
9,281
16,553
17,766
23,706
24,746
Decrease or increase ( - ) in Federal funds
and off-budget entity investments in Federal debt
Increase or decrease ( - ) in Federal funds
and off-budget entity debt not subject to
limit
-4,111
-1,009
327
-1,599
-498
-532
Total, requirements for borrowing
subject to debt limit
-54,924
-59,560
-47,077
-33,231
-16,230
Change in debt subject to limit but not part
of Federal debt 3
Change in debt subject to limit
*
54,924
-20
59,540
47,077
33,231
16,230
* $500 thousand or less.
Several amounts have been assumed to be zero in 1982 and 1983 because they are usually small and cannot be estimated accurately.
Energy security trust fund only.
3
Almost entirely District of Columbia Armory Board stadium bonds in 1980.
1
2
9 The means of financing other than borrowing that are shown in table E-9 exclude amounts attributable to
trust funds. It is not known how the trust fund open book balances are divided between cash and monetary
assets and liabilities for checks outstanding, etc. In this table they are all assumed to be in liabilities for checks
outstanding, etc.
132
THE BUDGET FOR FISCAL YEAR 1981
In 1979, for example, the total Federal funds and off-budget
deficit to be financed was $58.5 billion, and $9.3 billion of this
amount was financed by means other than borrowing. The Federal
funds and off-budget entities increased their holdings of Federal
debt by $4.1 billion, which had to be financed by still further
borrowing in the same way as their deficits had to be financed; and
they decreased their debt outstanding that was not subject to limit
by $1.6 billion, which had to be replaced by an equal amount of
debt that was subject to limit. Therefore, a total of $54.9 billion had
to be borrowed subject to the debt limit.
The trust fund surplus does not have an explicit effect in the
1979 column of table E-9. However, to the extent that trust fund
surpluses are used to increase the trust fund holdings of open book
balances instead of Federal debt securities, the debt subject to limit
is reduced. The increase in open book balances is recorded as an
increase in Federal funds liabilities for checks outstanding, etc., in
table E-9. This increases the Federal funds means of financing
other than borrowing, which in turn reduces the requirement for
borrowing subject to the statutory limit. The trust fund open book
balances do change from year to year, but they do not usually
change a great deal. By law the trust fund surpluses must generally be invested in Federal debt, and during 1970-79 the increase in
trust fund holdings of Federal debt equalled 92% of the cumulative
trust fund surplus. Consequently, the effect of the trust fund surplus on debt subject to limit is minor.10
Since the trust fund holdings of Federal debt are included almost
entirely in debt subject to limit, but not in debt held by the public,
the amount of debt held by the public is substantially less than the
amount of debt subject to limit. Since the trust funds as a group
almost always have a surplus, the change in debt held by the
public from one year to the next is almost always less than the
change in debt subject to limit. As can be calculated from table
E-8, during 1980 and 1981 the debt subject to limit is estimated to
increase by $106.6 billion, whereas the debt held by the public is
estimated to increase by $77.4 billion.
The determination of the change in debt subject to limit is modified in 1980 by the proposed energy security trust fund. This trust
fund has a large surplus in its early years because the windfall
profit tax yields much more revenue than is spent, but it does not
have the authority to invest its balances in debt. Therefore the
surplus of the energy security trust fund will be available to
finance the Federal funds and off-budget deficits without an increase in debt subject to limit (or in gross Federal debt). This
10 As explained in the preceding section, the debt subject to limit exceeded the statutory limit during April 12, 1979. Under these exceptional circumstances, Treasury used the net cash inflow of the trust funds to increase
the trust funds' open book balances in order to finance Federal funds outlays that could not legally be financed
by increasing the amount of debt subject to limit.
SPECIAL ANALYSIS D
133
surplus is shown in table E-9 as one of the means of financing
other than borrowing. In 1981, for example, this surplus finances
$17.0 billion of the Federal funds and off-budget deficit. The Federal funds and off-budget deficit plus the energy security trust fund
surplus amount to $46.9 billion, which is approximately equal to
the $47.1 billion increase in debt subject to limit. Thus, the change
in debt subject to limit is principally determined by the Federal
funds and off-budget deficit offset by the energy security trust fund
surplus.
The present analysis helps to show the difficulties in preventing
the Federal debt from continuing to rise. Table E-2 showed that
the Government would have to borrow from the public even if the
budget were exactly balanced, because it would have to finance the
deficit of the off-budget Federal entities. Table E-9 shows that the
debt subject to statutory limit would almost surely continue to rise
even if the debt held by the public remained constant, that is, even
if the budget had a large enough surplus so that the budget and
the off-budget entities were together just in balance.
This is illustrated by the 1983 figures. The Government (including the off-budget entities) has a projected surplus of $11.7 billion,
and debt held by the public decreases by $12.8 billion. The Federal
funds and off-budget entities alone have a combined deficit of $41.0
billion, however, of which $17.3 billion is the amount not financed
by the energy security trust fund. Debt subject to limit rises by
nearly the same amount, $16.2 billion. In order for debt subject to
limit not to rise, the Federal funds portion of the budget must (as
an approximation) have a large enough surplus so that the Federal
funds and the off-budget entities are together in balance (or, when
the energy security trust fund is in operation, so that the combined
Federal funds and off-budget deficit is no larger than the energy
security trust fund surplus). The same condition must be met in
order not to have a rise in gross Federal debt, which is approximately equal to debt subject to limit.
FEDERALLY ASSISTED
BORROWING
The effect of the Government on borrowing includes not only its
own borrowing to finance Federal operations but also its assistance
to certain borrowing by the public. Federally assisted borrowing is
of two principal types: Government-guaranteed borrowing, and borrowing by Government-sponsored enterprises.
Government-guaranteed borrowing consists of loans for which
the Federal Government guarantees the payment of the principal
and/or interest in whole or in part. Guaranteed (or insured) loans
have diverse characteristics. The loans may be made to individuals,
businesses, State and local governments, or foreign governments.
The guaranteed obligation may be a loan made by a bank or other
134
THE BUDGET FOR FISCAL YEAR 1981
institutional lender, it may be a security sold in the capital market,
or it may be a security sold to the Federal Financing Bank (FFB).
Guaranteed borrowing is the same as guaranteed lending.
Guaranteed loans include most loan assets sold by Federal agencies. Loan asset sales occur when an agency makes a direct loan
and then sells it. A guarantee by the selling agency is usually
attached. Loan asset sales are offsets to the outlays of the agency
that sells them. Therefore, if the selling agency is in the budget,
the increase in budget outlays caused by the direct loans is offset
by the sale of the loan assets.
In some cases the agency sells the direct loans themselves, and in
other cases the agency sells securities (sometimes called participation certificates or certificates of beneficial ownership) that are
backed by loans that the agency continues to hold and service. The
certificates of beneficial ownership sold by the Farmers Home Administration (a budget agency) and the Rural Electrification and
Telephone revolving fund (an off-budget Federal entity) would be
classified as Federal debt according to the recommendations of the
President's Commission on Budget Concepts.11 However, according
to statute these certificates are required to be treated as loan
assets instead of Federal debt. Since the certificates are guaranteed, they are classified as guaranteed loans. These certificates of
beneficial ownership are currently sold almost entirely to the FFB,
but some certificates sold by Farmers Home before FFB was established are outstanding and continue to mature. The net amount of
sales less repayments (i.e., the increase in certificates outstanding)
is shown below for 1979-81 (in millions of dollars):
Farmers Home Administration
Rural Electrification and Telephone revolving fund
1979
actual
8,445
586
1980
estimate
5,653
760
1981
estimate
7,890
845
Loan guarantees are designed to allocate economic resources
toward particular uses by providing credit at more favorable terms
than would otherwise be available in the private market. The
major use of guaranteed loans is to support housing, but in recent
years guarantees have increasingly been used for other purposes.
As shown subsequently in Table E - l l , guaranteed borrowing net of
repayments (but before purchases by Federal agencies) was $39.3
billion in 1979 and is estimated to be $50.3 billion in 1980 and $56.6
billion in 1981. Special Analysis F presents detailed data on guaranteed loans and loan asset sales.
The other type of federally assisted borrowing is by Governmentsponsored enterprises. They were established and chartered by the
11 Report of the President's Commission on Budget Concepts (Washington: U.S. Government Printing Office,
1967), pp. 8, 47-48, and 54-55.
SPECIAL ANALYSIS D
135
Federal Government to perform specific credit functions but are
now entirely privately owned. The rule governing the budget treatment of these enterprises was established in 1967 in accordance
with a recommendation by the President's Commission on Budget
Concepts. The Commission, whose report led to the adoption of the
unified budget, recommended that the budget exclude those Government-sponsored enterprises that are entirely privately owned.12
Therefore the transactions of these enterprises are not included
within the Federal budget, and their debt is not part of gross
Federal debt.
The seven Government-sponsored credit enterprises are essentially financial intermediaries, borrowing in the securities market and
lending their borrowed funds for specifically authorized purposes
either directly or by purchasing loans originated by the private
groups that they were established to assist. The borrowing programs of these enterprises are subject to Federal supervision. In
addition, they all consult the Treasury Department, either by law
or by custom, in planning their market offerings. The Federal
National Mortgage Association and the Federal Home Loan Banks
are required to obtain Treasury approval of the terms and timing
of specific offerings; the Student Loan Marketing Association borrows exclusively from the Federal Financing Bank.13 Besides their
Federal sponsorship, all of these enterprises have a history of
successful financial performance. Hence, despite the absence of
Federal guarantees, the obligations of these enterprises are sold at
interest rates only moderately higher than the rates on comparable
Treasury issues.
The form of borrowing has recently been changed by the three
enterprises regulated by the Farm Credit Administration—the
Banks for Cooperatives, Federal Intermediate Credit Banks, and
Federal Land Banks. Until September 1977 they borrowed separately on the market under their own names. At that time, however, the Farm Credit banks began to issue consolidated bonds to
replace some of their separate offerings, and since January 1979
they have borrowed solely on a consolidated basis. This change was
made in order to improve efficiency.
The Student Loan Marketing Association has not borrowed in
the private market since the Federal Financing Bank was established. Under proposed legislation, moreover, its activities will be
assumed in 1982 by the Government Student Loan Association, a
division within the Department of Education, and these activities
will be included within the budget totals.
Ibid., pp. 29-30.
The Student Loan Marketing Association is the only Government-sponsored enterprise whose new securities
are currently guaranteed by the Federal Government and can therefore be bought by the FFB.
12
13
136
THE BUDGET FOR FISCAL YEAR 1981
Borrowing by the Government-sponsored enterprises increased
dramatically from $7.0 billion in 1977 to $24.1 billion in 1978 and,
as shown in table E-10, increased a little further to $25.7 billion in
1979. The borrowing in the last 2 years exceeded the previous
highest level of $14.9 billion in 1974. Borrowing is estimated to
decline substantially in 1980 to a level that is nonetheless relatively high by past standards, $16.2 billion, and then to remain about
the same at $16.7 billion in 1981. In order to show the borrowing by
this sector as a whole from the rest of the market, these figures are
calculated net of the borrowing by one Government-sponsored enterprise from another. Most of this adjustment is accounted for by
the Federal Home Loan Mortgage Corporation (FHLMC) borrowing
from the Federal Home Loan Banks or repaying its debt to them.
Table E-10. BORROWING BY GOVERNMENT-SPONSORED ENTERPRISES
(In millions of dollars)
Description
Education: Student Loan Marketing Association
Housing and Urban Development: Federal National Mortgage Association
Farm Credit Administration:1
Banks for cooperatives
Federal intermediate credit banks
Federal land banks
Federal Home Loan Bank Board:
Federal home loan banks
Federal Home Loan Mortgage Corporation...
Total
Borrowing or repayment ( - )
1978
actual
1979
actual
1980
estimate
1981
estimate
Debt outstanding
end 1981
estimate
235
530
670
-215
1,730
6,802
7,705
3,296
6,698
55,993
775
444
2,725
1,089
2,725
4,921
523
2,310
4,022
2,603
4,648
111
8,143
20,738
35,852
7,792
5,188
5,194
4,547
2,197
3,400
-1,401
4,130
30,942
25,885
23,961
26,712
16,418
17,240
179,283
Less increase in holdings of debt issued by
Government-sponsored enterprises
-98
962
244
578
4,355
Total, borrowing by Governmentsponsored enterprises
24,060
25,750
16,174
16,662
174,928
1
The debt represented by consolidated bonds is attributed to the respective Farm Credit banks.
Sharp shifts in borrowing, such as occurred in 1978 and are
estimated to occur in 1980, are typical of this sector as a whole.
They arise from the operations of the three Government-sponsored
enterprises that assist the housing mortgage market. The degree of
tightness in the mortgage market sometimes alters a good deal,
and during periods of high and rising interest rates these enterprises usually increase their lending substantially.
SPECIAL ANALYSIS D
137
The operations of the Government-sponsored enterprises are not
subject to the Federal budget review process; and the economic
assumptions on which their borrowing estimates are based for
1980-81 are not necessarily the same as the administration's economic forecast, which is used for the budget. The total extent of
mortgage market support that these enterprises currently estimate
for 1980 and 1981 is less than in 1979.
The year-to-year changes in Government-sponsored borrowing
are primarily determined by the changes in Government-sponsored
lending, and the enterprises estimate that in 1980 they will lend
substantially less to support the mortgage market than in 1979.
The Federal National Mortgage Association (FMNA) and the
FHLMC both estimate that they will reduce their net mortgage
purchases, with a total decrease of $4.1 billion. The Federal Home
Loan Banks estimate a $5.9 billion reduction in their net advances
(new advances less repayments) to their member savings institutions, primarily savings and loan associations, which lend most of
their funds for new mortgages. This is due to fewer new advances.
For 1981 the estimated changes in lending are relatively small and
offsetting. The Federal Home Loan Banks estimate a continued
decline in net advances, the decrease being $3.9 billion and due
almost entirely to a greater repayment of advances from their
members. At the same time, FNMA estimates a $3.8 billion increase in its net mortgage purchases. Thus, total Governmentsponsored borrowing is about the same as in 1980. Special Analysis
F discusses further the lending by Government-sponsored enterprises.
TOTAL FEDERAL AND FEDERALLY ASSISTED BORROWING
Table E - l l summarizes net Federal and federally assisted borrowing. Federal borrowing from the public is presented in total.
Guaranteed borrowing and borrowing by Government-sponsored
enterprises are presented both in total and as net amounts, the
latter having been adjusted in order to remove double counting in
the aggregation of total Federal and federally assisted borrowing.
Double counting would otherwise occur when a Federal agency or a
Government-sponsored enterprise bought or sold a Federal or federally assisted debt security.
138
THE BUDGET FOR FISCAL YEAR 1981
Table E - l l . NET BORROWING BY GOVERNMENT, GOVERNMENT GUARANTEED BORROWERS, AND
GOVERNMENT-SPONSORED ENTERPRISES
(In billions of dollars]
Borrowing or repayment ( -- )
Description
1979
actual
1980
estimate
Debt outstanding
end 1981
estimate
1981
estimate
Federal borrowing from the public1
33.6
44.3
33.1
722.0
2
Government-guaranteed borrowing
Less increase in guaranteed loans held by:
Federal agencies:
Federal Financing Bank
Government National Mortgage Corporation
Net Government-guaranteed borrowing
39.3
50.3
56.6
421.8
13.3
-.1
26.1
16.2
.6
33.4
16.2
-1.0
41.4
79.6
2.7
339.5
Borrowing by Government-sponsored enterprises3
Less increase in holdings of Federal debt
Less increase in Government-sponsored debt held by
Federal agencies:
Federal Financing Bank
Less increase in holdings of guaranteed loans:
Student Loan Marketing Association
Federal National Mortgage Association
Federal Home Loan Banks
Federal Home Loan Mortgage Corporation
25.7
.4
16.2
-.1
16.7
2.6
174.9
3.4
.5
.7
-.2
1.7
.5
3.1
.7
.8
-.2
2.7
-.2
-.2
-.1
1.7
37.5
.2
.9
21.4
14.2
11.9
129.5
81.2
91.9
86.4
1,191.0
Net Government-sponsored borrowing
Total, Federal and federally assisted borrowing
*
*
*
* $50 million or less.
1
See table E - l .
This line is the same as "guaranteed loans (net)" in table F - 5 of Special Analysis F. To avoid double counting, it is calculated net of guarantees of
loans previously guaranteed. "Net Government-guaranteed borrowing" in this table is the same as "primary guaranteed loans" in table F - 5 .
2
3
See table E-10.
About one-quarter of Federal and federally assisted borrowing
during 1979-81 is made up of Federal borrowing to finance the
budget deficit. Federal borrowing also finances the off-budget deficit, most of which is accounted for by the Federal Financing Bank's
purchases of guaranteed obligations. As shown in table E - l l , the
FFB is estimated to buy about a third of the total increase in
guaranteed obligations outstanding. Since the FFB finances these
purchases by borrowing from the Treasury, which in turn borrows
from the public, these transactions substitute Federal borrowing in
the market for guaranteed borrowing.
The following chart depicts the trends in Federal and federally
assisted borrowing between 1966 and 1981. The series are volatile,
and the fluctuations are dominated by the Federal deficit. Total
Federal and federally assisted borrowing fell to $24.2 billion in
1974 because of a sharp drop in the Federal deficit and then rose
dramatically to $98.0 billion in 1976 due to the large deficit in that
year. The total fell to $79.6 billion in 1977 but rose back up to $95.3
billion in 1978 in large part because of the support given to the
mortgage market by the Government-sponsored enterprises. The
SPECIAL ANALYSIS D
139
large decrease in the Federal deficit in 1979 more than offset the
rise in guaranteed borrowing, so total Federal and federally assisted borrowing fell to $81.2 billion. From 1979 to 1981, Federal borrowing from the public is estimated to be essentially unchanged,
but the rise in guaranteed borrowing is more than the fall in
Government-sponsored borrowing. Consequently, Federal and federally assisted borrowing is moderately higher in 1981 than in 1979.
Federal and Federally Assisted Borrowins
$ Billions
SBiiliom
As the chart shows, Federal and federally assisted borrowing is
now a great deal higher than a decade ago. Much of the increase
parallels the growth in the economy and in the total funds raised
by the non-financial sector through the sale of debt securities and
other forms of borrowing and through the sale of corporate equities. However, although the existence of trends is difficult to discern because of the volatility of the series, to some extent the total
Federal and federally assisted borrowing seems to have increased
as a proportion of the total funds raised. This proportion increased
from 18% during 1960-69 to 25% during 1970-79 and was clearly
higher in the last half of the 1970's than in the first half. Thus, on
the average, Government programs recently seem to have influenced the allocation of funds raised in financial markets more than
they did in the immediately preceding years, even though Federal
debt has decreased relative to total debt.
140
THE BUDGET FOR FISCAL YEAR 1981
Some of this increase, however, may not be maintained. By 1979,
as Federal and federally assisted borrowing declined and the economy continued to expand, such borrowing as a percentage of total
funds raised was down to 20%, just under the average for the last 20
years and the second lowest percentage since 1970. In 1980 and 1981
Federal and federally assisted borrowing is estimated to be moderately higher, and the economy (measured in current dollars) is
expected to become larger. As a result, the proportion of total funds
raised by Federal and federally assisted borrowing may continue to
be near the average of the last 20 years.
SPECIAL ANALYSIS F
FEDERAL CREDIT PROGRAMS
Federal and federally assisted credit programs play a significant
role in the functioning of the economy. These programs are primarily in three forms: direct loans from the Federal Government,
Federal guarantees of private lending, and lending by privately
owned Government-sponsored enterprises. Credit programs, much
like Federal expenditures on goods and services, tax expenditures,
or transfer payments, can be used to change the allocation of
resources and the distribution of income. In this regard, they can
be used to overcome market imperfections, to provide additional
liquidity for investors, and to furnish funds to maintain stability in
a particular sector of the economy during business cycle fluctuations. Credit programs have been designed to fill perceived needs
in private capital markets by providing credit to certain classes of
borrowers, or on special terms or conditions, or for special activities. An element of subsidy is involved in any Federal credit program since assistance is given on terms or conditions more favorable than would have occurred in private capital markets.1
A subsidy is provided, in general, because the Federal Government is willing to accept risks that lenders in private capital
markets are unwilling to bear or would bear only at higher interest
rates than the Federal Government would charge. Interest subsidies are equivalent to cash grants to the borrower. In a wide
variety of instances, similar programmatic objectives of the Federal
Government can be achieved either with cash payments, credit
assistance, or tax incentives. The interest subsidy is explicit when
the Federal credit assistance provides an interest rate lower than
could be provided in private capital markets, as in the case of
direct loans. The interest subsidy is less explicit, if the Federal
credit assistance provides for longer maturities, higher loan-tovalue ratios, or greater liquidity than would have been available in
private capital markets. For example, Government guarantees of
some residential mortgages, combined with special borrowing privileges of Government-sponsored enterprises such as the Federal National Mortgage Association (FNMA) have helped create well organized speci-al markets for mortgage credit. The subsidy is implicit
in the case of guaranteed loans in which the Government assumes
most or all of the risk of default. Another kind of implicit interest
1 While in theory Federal credit could be provided without an explicit or implicit subsidy, there would be no
point in doing so, since it would offer no advantage over private credit.
141
142
THE BUDGET FOR FISCAL YEAR 1981
rate subsidy given to State and local governments is the result of
the tax exemption of interest received on State and local government securities.
Direct loans are payments of cash, secured by a promise to repay
the Government. The promise to repay may be in the form of a
mortgage, a bond, a debenture, or a promissory note. Loan guarantees occur when a Government agency enters into a firm commitment to use Government funds as necessary to repay a lender upon
default by the borrower.2 The amount of the guarantee may be less
than the full principal of the loan and may include the guarantee
of interest. Loan insurance is a type of guarantee in which a
Government agency operates a program of pooled risks, pledging
the use of insurance premiums to secure a lender against default
on the part of a borrower.3
This special analysis compiles basic information on Government
credit programs and plans over the budget period. It is not an
evaluation of such programs and plans. It summarizes major trends
in the credit activity of the Federal Government and Governmentsponsored enterprises and presents the estimates of direct loans
and loan guarantees by major program groupings, agencies, and
enterprises from 1979 to 1981.
Reporting on Federal credit activities in the budget has expanded considerably. Part 2 of the Budget contains aggregated data on
those Federal credit activities that are part of the administration's
new system to control Federal credit. The introduction to Part 5 of
the Budget explains the system in greater detail, while the remaining sections of Part 5 integrates information about major credit
programs in the context of meeting national needs. Part 5 also
shows for the first time the lending activities of the Federal Financing Bank attributed according to function. Part 6 of the
Budget examines the debt transactions of the Federal Government
and the role of Government-sponsored enterprises. The Appendix
volume of the Budget shows details and descriptions of the lending
activities of individual budgetary accounts.
TRENDS AND DIRECTIONS
Table F - l summarizes data on Federal participation in domestic
credit markets during the last decade. This table uses two measures of Federal participation—lending (funds advanced) and borrowing (funds raised). The total amount of funds advanced under
Federal auspices has risen three-fold in the last decade, reaching
$73.3 billion in 1979. However, because of the equally rapid rate of
2 A loan guarantee can be thought of as the action of attaching a Federal guarantee to a loan. A guaranteed
loan refers to the loan, usually contracted in the private sector, with a Federal guarantee attached. In some
cases, however, one Federal agency guarantees a loan, and another Federal agency makes the loan.
3 For the remainder of this analysis, the term loan guarantees will include insurance. The Federal Government is, in essence, the co-signer of a federally-guaranteed loan.
SPECIAL ANALYSIS D
143
increase in private lending over this same period, funds advanced
under Federal auspices have been a fairly constant share of the
amounts of funds advanced in domestic credit markets. This share
has generally ranged between 13 and 16%.
The Federal participation rate generally moves countercyclically.
For example, the participation rate reached relative peaks in 1970
and 1979. In 1970, private sector credit demands decreased and
Federal mortgage credit programs increased significantly. In 1979,
a year of high and rising interest rates and weakening economic
activity, lending by the Federal home loan banks and FNMA and
loans guaranteed by agencies in HUD to support mortgage credit
markets increased dramatically. Lending by the Federal home
loan banks and FNMA is estimated to return to more normal
levels in 1980 and 1981.
The other measure of Federal participation is funds raised (borrowed) under Federal auspices, which includes funds raised for
Federal and Government-sponsored credit programs as well as
funds raised to finance the Federal deficit. This Federal participation rate is much more volatile, ranging from 19% to 39% of total
borrowing over the past decade. The volatility is due primarily to
swings in the budget deficit. The participation rate peaked in 1976
and has fallen sharply since, as the Federal budget deficit declined
in response to improving economic conditions. The deficit is expected to fall in 1980 and 1981 from 1978 levels, thereby reducing
overall Federal credit demands further.
Certain credit programs are particularly volatile in responding to
changes in economic conditions. The Federal home loan banks (a
set of Government-sponsored enterprises), for example, make numerous loans to savings institutions during periods of tight monetary conditions in order to avert undue hardship in the mortgage
market and the associated construction and housing industries. As
monetary conditions ease, they make fewer loans and experience
high repayment flows. Similar patterns occur in other programs
related to housing finance, such as those of the FNMA. Such
fluctuations have proved difficult to anticipate.
Table F - l . FEDERAL PARTICIPATION IN DOMESTIC CREDIT MARKETS (dollars in billions)
Actual
Total funds advanced in U.S. credit markets1
(includes equities)
Advanced under Federal auspices
Direct loans:
On-budget
Off-Budget
Guaranteed loans
Government-sponsored enterprise loans
Federal participation rate including Government-sponsored enterprises (percent)
Total funds raised in U.S. credit markets1
Raised under Federal auspices
Federal borrowing from public
Borrowing for guaranteed loans
Government-sponsored enterprise borrowing....
Federal participation rate (percent)
1
2
Nonfinancial sectors. Source: Federal Reserve Board Flow of Funds Accounts.
Not estimated.
Estimates
1971
1972
1973
1974
1975
1976
TQ
1977
1978
1979
93.6
16.1
125.7
16.5
163.5
22.9
207.7
27.2
193.4
25.5
181.3
27.0
251.8
26.8
66.1
6.7
314.4
37.2
385.3
58.7
410.7
73.3
71.3
71.2
3.0
2.0
8.0
5.2
16.1
-1.7
2.7
0.2
19.8
0.1
0.3
0.7
17.7
8.5
1.9
2.2
10.5
11.0
4.3
8.5
8.7
5.5
3.3
7.6
11.2
4.7
0.9
2.9
-0.1
3.1
2.5
9.0
14.0
11.6
8.4
11.4
13.9
25.0
6.0
13.6
26.1
27.5
6.1
16.6
33.4
15.1
-0.6
16.6
41.4
13.8
17.2
13.1
14.0
13.1
13.2
14.9
10.6
10.1
11.8
15.2
17.8
93.6
17.9
5.4
8.0
4.5
125.7
32.5
19.4
16.1
-3.1
163.5
39.5
207.7
45.5
193.4
24.2
181.3
64.8
251.8
98.2
83.4
11.2
3.6
66.1
19.3
18.0
-0.1
1.4
314.4
79.5
385.3
94.2
410.7
81.2
91.9
86.4
19.1
25.9
24.2
21.9
12.5
35.7
39.0
29.2
25.3
24.4
19.8
1970
19.4
19.8
0.2
19.3
17.7
8.5
3.0
10.5
10.8
50.9
8.7
5.3
53.5
14.0
11.9
59.1
13.9
21.2
33.6
26.1
21.4
1980
(2)
44.3
33.4
14.2
1981
(2)
33.1
41.4
11.9
SPECIAL ANALYSIS D
145
The net funds advanced in a given year are simply the difference
between the amount of loans outstanding at the beginning and at
the end of that year. The accompanying chart shows the growth of
Federal and federally-assisted credit outstanding in the last decade.
Since 1970, the total amount of loans outstanding has risen by
$326.6 billion, to $528.1 billion in 1979, an increase of 162%.
Most direct Federal outlays are covered within the budget totals
and have been subject to periodic review in both the executive and
congressional budget processes. Several direct lending programs
are excluded from the budget outlay totals, as are all loan guarantees, except for payments of claims on defaults, certain repurchases, interest subsidies, or other installment payments. As a
result, the budget understates the extent of Government involvement in credit markets. In the interest of developing of a more
rational credit policy, the administration is establishing a new
system to review and control Federal credit programs. A brief
discussion is found in a separate section of this analysis and in
Parts 2, 5, and 7 of the Budget.
DIRECT
LOANS
The major Federal agencies and programs that make direct loans
are identified in table F-2, which shows estimates of direct loans
for 1979-81.
310-700 0 - 80 - 10
Oi
Tabie F-2. DIRECT LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT (in millions of dollars)
Obligations
Agency or program
ON-BUDGET AGENCIES
Funds Appropriated to the President:
Energy Security Trust Fund
International security assistance
1979
actual
1980
estimate
Loans
1981
estimate
1979
actual
1981
estimate
estimate
H
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W
New transactions..
Net change
Outstandings
New transactions..
Net outteys
Outstandings
50
50
50
50
50
50
100
1,643
903
4,426
1,615
894
5,320
1,415
699
6,019
392
63
11,724
291
-53
11,671
284
-85
11,586
13,913
475
3,138
15,030
745
3,883
13,395
-3,274
609
50
1,308
1,615
1,401
1,790
1,789
1,775
3
15
522
1,001
708
930
New transactions..
Net outlays
Outstandings
14,448
14,880
13,016
3,896
3,917
3,734
Commodity Credit Corporation
New transactions..
Net outlays
Outstandings
6,104
5,044
4,336
6,104
594
7,835
5,044
-843
6,992
4,336
-1,063
5,929
Public Law 480 long-term export credits
New transactions..
Net outlays
Outstandings
778
850
781
778
610
6.483
850
690
7,173
781
601
International development assistance
Agriculture:
Farmers Home Administration
New transactions..
Net outlays
Outstandings
7,m
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Other
Commerce:
Economic Development Administration
National Oceanic and Atmospheric Administration
Maritime Administration
Education:
Student Assistance
Other education programs
Health and Human Services:
Health programs
Housing and Urban Development:
Housing programs
10
34
9
27
73
191
191
63
162
258
27
61
53
80
115
119
New transactions..
Net outlays
Outstandings
29
10
250
New transactions..
Net outlays
Outstandings
310
286
466
450
175
349
385
1,331
468
503
954
New transactions..
Net outlays
Outstandings
63
128
156
18
10
3
New transactions..
Net outlays
Outstandings
1,196
1,419
1,357
841
939
1,082
New transactions..
Net change
Outstandings
New transactions..
Net outlays
Outstandings
New transactions..
Net outlays
Outstandings
New transactions..
Net outlays
Outstandings
4
4
4
16
16
20
91
58
779
92
63
843
96
61
904
8
8
9
26
25
34
50
49
83
35
5
132
10
6
138
250
9
147
164
160
3,811
301
298
4,109
275
274
25
536
390
4,416
350
190
4,735
881
298
9,390
75
49
674
136
18
691
163
19
711
881
322
4,872
1,336
483
5,355
1,229
385
5,740
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34
Table F-2. DIRECT LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT (in millions of dollars)—Continued
Obligations
Agency or program
Government National Mortgage Association
Community planning and development
New Communities Administration
Interior
Transportation:
Railroad programs
Other
Treasury
1979
actual
New transactions
Net outlays
Outstandings
New transactions
Net outlays
Outstandings
1980
estimate
New transactions
Net outlays
Outstandings
New transactions
Net outlays
Outstandings
New transactions
1981
estimate
1980
estimate
1979
actual
2,053
2,065
1,826
5,529
5,439
5,302
333
265
265
118
121
129
New transactions
Net outlays
Outstandings
New transactions
Net outlays
Outstandings
Loans
10
1981
estimate
1,492
-170
3,308
1,931
604
3,912
318
102
527
262
159
686
-29
120
10
10
130
130
31
28
398
61
48
445
40
24
470
105
105
304
177
177
481
208
47
46
59
37
21
40
73
213
253
264
376
456
86
86
198
158
158
-101
208
208
8
8
12
158
*
1,760
-1,070
2,843
257
196
882
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Veterans Administration:
Housing loans and default claims
Insurance policy and other loans
To: District of Columbia
Export-Import Bank
Federal Home Loan Bank Board
National Consumer Cooperative Bank
National Credit Union Administration
Small Business Administration:
Business and investment loans
Footnotes at end of table.
Net outlays
Outstandings
34
New transactions
Net outlays
Outstandings
394
9
10
11
New transactions,
Net outlays
Outstandings
181
*
177
*
176
*
New transactions.
Net outlays
Outstandings
141
185
174
New transactions.
Net outlays
Outstandings
3,367
5,318
6,826
4,204
6,400
9,855
32
71
29
New transactions.
Net outlays
Outstandings
New transactions.
Net outlays
Outstandings
New transactions.
Net outlays
Outstandings
17
New transactions.
541
-116
-120
713
253
1,726
-201
3,816
569
612
54
182
25
51
1,812
2,211
641
783
3,697
-99
3,597
1,526
1,042
-322
1,203
181
48
1,274
177
56
1,329
176
65
1,394
141
118
1,434
185
81
1,515
174
148
1,663
1,629
309
11,859
2,634
1,173
13,032
2,836
1332
14,364
32
15
75
71
58
133
29
12
144
29
26
26
156
151
176
1,812
301
324
2,211
17
11
23
567
986
324
752
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Table F-2. DIRECT LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT (in millions of dollars)—Continued
Loans
Obligations
Agency or program
1980
estimate
1979
actual
Net outlays
Outstandings
1981
estimate
247
2,247
370
2,617
1,250
862
4,570
775
329
4,899
540
79
4,978
229
21
21
31
90
82
112
229
207
320
641
185
708
708
2,474
641
641
3,115
185
185
3,300
28
50
22
2
3
3
49
-17
633
53
-47
457
26
-54
403
33,924
37,901
37,886
31,863
35,576
33,810
98
102
New transactions
Net outlays
Outstandings
1,288
750
575
446
381
381
Tennessee Valley Authority Fund
New transactions
Net outlays
Outstandings
21
90
United States Railway Association 1
New transactions
Net outlays
Outstandings
708
Other agencies and programs
New transactions
Net outlays
Outstandings
New transactions
Subtotal, on-budget agencies
Net outlays
Outstandings
1981
estimate
210
2,000
94
Disaster loans
1980
estimate
1979
actual
5,972
19,489
21,632
25,545
82,972
6,121
89,093
-560
88,534
OFF-BUDGET FEDERAL ENTITIES
Rural electrification and telephone revolving fund
Rural Telephone Bank
New transactions.
Net outlays
Outstandings
New transactions.
Net outlays
Outstandings
1,250
1,100
1,100
2,124
1,899
1,595
131
185
185
449
449
449
Pension Benefit Guaranty Corporation
New Transactions
Net outlays
Outstandings
Federal Financing Bank
New Transactions
Net outlays
Outstandings
16,045
22,004
23,941
United States Railway Association
New Transactions
Net outlays
Outstandings
53
22
22
New transactions.
17,479
Subtotal, off-budget Federal entities
Grand total
New transactions.
23,311
25,253
2,573
2,348
2,044
51,402
61,212
63,139
Net outlays
Outstandings
Footnotes at end of table.
1,325
212
9,530
1,404
194
9,723
131
125
739
185
178
917
185
176
1,093
5
5
5
5
Net outlays
Outstandings
1,105
206
9,317
22,062
23,980
27,589
16,045
13,282
47,100
22,004
16,249
63,349
22
23,941
16,244
79,593
53
30
387
387
22
-3
384
17,334
23,536
25,557
13,643
16,639
16,615
57,544
74,184
90,799
49,197
59,112
59,367
19,615
22,760
16,056
140,516
163,277
179,333
Table F-2. DIRECT LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT (in millions of dollars)—Continued
Obligations
Agency or program
1979
actual
1980
estimate
Loans
1981
estimate
1979
actual
1980
estimate
1981
estimate
ADDENDUM
Foreign currency loans 2
* Less than $50 Million.
1
Includes both debentures and repayable preferred stock of Conrail.
Foreign currency transactions are excluded from the budget totals.
2
New transactions..
Net outlays
-104
-77
— 78
Outstandings
1,546
1,469
1,391
SPECIAL ANALYSIS D
153
Direct loans are made by both on-budget agencies and off-budget
Federal entities and are financed from a variety of sources such as
taxation, borrowing, and loan repayments.4 (For a discussion of offbudget Federal entities, see Part 6 of the Budget) The table shows
loan activity by the headings "obligations" and "loans". Obligations
are firm written agreements by the Government to extend direct
loans. Estimated obligations can be a good indicator of future financial flows. However, obligations in a given year need not always
eventually result in an equal volume of new direct loans transactions since the conversion of obligations to loans can take time and
plans change. Moreover, some prospective borrowers to whom obligations are made do not convert the obligations into borrowing.
Loans, in turn, are the loans actually made in the specified time
period.
New transactions are the amount of new loans in a given year.
New direct loans transactions are the amount of gross loan disbursements, which in turn are the sum of disbursements to make
new loans, disbursements to pay guarantee claims,5 and purchases
of existing loans. Net outlays of direct loans are equal to new
transactions less repayments6 of loans, liquidation of collateral,
loan writeoffs, and sales of loan assets. Net outlays of direct loans
are also equal to the difference between the volume of loans outstanding at the end of the year and the volume outstanding at the
beginning of the year.7
Net outlays of direct loans by on-budget Federal agencies are
counted as budget outlays and are reflected in the budget deficit.
Because net outlays are sometimes much less than the level of new
transactions,8 the latter may be a better indicator of new Federal
direct lending activity.
In the case of obligations, new transactions are the new obligations entered into during a given year. Outstanding obligations are
the total amount of obligations still outstanding at the end of a
particular year.
Net outlays of direct loans on budget are expected to fall from
$6.1 billion in 1979 to -$0.6 billion in 1981. The decline is due
to decreases in lending in some programs, and increases in the
sales of loan assets and repayments of existing loans. There were
sharp decreases in lending by the Farmers Home Administration
4 Taxation and borrowing are in many cases indistinguishable sources of funds for a specific program.
However, the treatment of loan repayments can differ from program to program.
5 Upon default of a loan guarantee, the guarantee is made good by the Government assumption of the
guaranteed loan. The lender is reimbursed for the amount of the guarantee, while the borrower owes the
Federal Government directly rather than the original lender. Claims paid under insurance or guarantee
programs are considered as direct loans until the acquired loans or collateral are paid off or liquidated. Proceeds
of liquidation are considered repayments and realized losses are writeoffs.
6 Loan repayments and receipts from the sale of loans are netted from gross loan disbursements in determining net loan outlays, rather than being counted by budget receipts.
7 The volume of loans outstanding is thus a stock concept referring to the total of loans that have ever been
made, less principal repaid to date, loans written off and receipts from the sale of loans. Net loan outlays is a
flow concept, the difference in loans outstanding at the beginning and at the end of a particular year.
8 The difference between new transactions and net outlays depends on the amount of loan repayments, asset
sales, and write-offs relative to new loan disbursements.
154
THE BUDGET FOR FISCAL YEAR 1981
(FmHA), the Commodity Credit Corporation (CCC), the Small Business Administration (SBA) and the United States Railway Association (USRA). The decline in FmHA loan outlays is due to increased
asset sales. The decline in CCC loan outlays is due to the elimination
of direct lending for export credit. Disaster lending by SBA declines
due to a shifting of their activities to FmHA. The decline in USRA
lending follows a decrease in purchases of Conrail preferred stock.
Net outlays of direct loans off-budget are expected to rise from $13.6
billion in 1979 to $16.6 billion in 1981.
L O A N ASSET SALES
Loan asset sales are sales of direct loans. A guarantee by the
selling agency is usually attached. Under budgetary practices, loan
asset sales are treated as if they were the same as loan repayments
and are considered offsets to agency outlays rather than borrowing
to finance outlays. Loan asset sales reduce the agency's outlay
totals, and if the agency is on-budget, reduce total budget outlays.
After the sale, the loan is held privately or by a Federal account
(usually an off-budget Federal entity), but the Federal Government
continues to bear the risk of default of the borrower.
Loan asset sales generally occur in three instances. First, FmHA
and Rural Electrification Administration (REA) carry out direct
loan programs and issue certificates of beneficial ownership (CBOs).
The President's Commission on Budget Concepts recommended
that the sale of such securities be treated as borrowing, but in
certain cases legislation requires that it be treated instead as the
sale of loan assets. As the Commission argued, however, as a means
of financing outlays there is no difference in substance between an
agency selling securities labeled "certificates of beneficial ownership," the same agency selling securities labeled "debt" and the
Treasury selling securities labeled "debt." Moreover, when CBOs
are sold, the ownership of the specific loans is retained by the
Government, interest payments on the loans continue to be made
to the Government, and the Government continues to incur the
servicing costs of the loans and to assume fully the risk of default
on the loans.
Second, where some direct loans have been made or loans may
have been acquired through payments on guarantee claims upon
default, or through sale of collateral using purchase money mortgages,9 these direct loans may subsequently be sold off, usually
with guarantees attached. Third, under its "tandem" program, the
Government National Mortgage Association (GNMA) purchases
designated types of mortgages at below-market prices. These mortgages are then resold to the private market at prices that are
sufficiently low to afford a normal return to investors. The outlay
9 A purchase money mortgage is a sale of property for a financial asset, usually a mortgage, instead of for
cash.
SPECIAL ANALYSIS D
155
occurs—and is recorded—when GNMA purchases the loans. The
sale to the private market at below-market interest rates results in
collections that offset the outlays, except for the subsidy (losses).
This purchase and resale mechanism both insures the availability
of credit for the designated type of mortgage and provides an
explicit interest subsidy. Loan asset sales by FmHA and under the
GNMA "tandem" plan represent over 90% of all loan asset sales.
Traditionally, loan asset sales meant selling of title to the loans
to the public. However, since the creation of the Federal Financing
Bank (FFB) off-budget, most of such assets are sold by on-budget
accounts to the FFB, converting them from direct loans on-budget
to loans off-budget.
oi
Oi
Table F-3. LOAN ASSETS SALES, LOAN REPAYMENTS, AND OTHER LOAN OFFSETS (in millions of dollars)
Loan assets sales
Agency or program
Transactions with
1979
actual
Repayments and adjustments
1980
estimate
1981
estimate
1979
actual
1980
estimate
1981
estimate
ON-BUDGET AGENCIES
Agriculture:
Commodity Credit Corporation..
the Public..
FFB
Other housing programs..
6,029
19
5,565
15
Repayments, etc.4
1,844
11
2,613
11
3,065
12
1,152
4
1,244
5
1,361
6
4,221
3,512
the Public
the FFB
70
3,930
50
4,627
40
6,889
the Public
the FFB
*
980
10
1,442
9 Repayments, etc.4.
1,700
,700 Non-cash adjustments.
50
62
74
Repayments, etc.4
Non-cash adjustments.
148
2
164
584
1
-1
2
-2
FFB
the Pnhlin
thpFFR
Housing and Urban Development:
5,655
23
5,395
the
Health and Human Services:
Repayments, etc.4
Non-cash adjustments.
..
the Public
the FFB
1 ..
21
the Public
the FFB
35
the Public-
.
115
140
37
42
Repayments, etc.4,
*
*
*
*
Non-cash adjustments.
216
15
472
17
452
20
Repayments, etc.4
506
428
388
Veterans Administration:
Direct loan revolving fund
Loan guarantee revolving fund
the FFB
the Public
the FFB
112
the Public
the FFB
394
Non-cash adjustments
32
3
3
Repayments, etc.4
Non-cash adjustments
66
75
4
70
2
Repayments, etc.4
Non-cash adjustments
410
-15
556
46
580
56
*
Export-Import Bank
the Public
the FFB
Repayments, etc.4
Non-cash adjustments
1,321
1,461
1,504
Small Business Administration
the Public
the FFB
Repayments, etc.4
Non-cash adjustments
581
165
657
150
693
150
Other agencies and programs
the Public
Repayments, etc.4
Non-cash adjustments
1,109
536
2,591
541
3,463
511
13,057
16,351
17,802
12,240 Non-cash adjustments
773
795
772
146
-3
152
158
13,203
16,503
17,960
770
795
772
the FFB
Subtotal, excluding tandem plans 1
the Public
the FFB
Housing and Urban Development (GNMA):
Tandem plan sales—FHA/VA mortgages
Subtotal, with tandem plan
603
10,405
747
Repayments, etc.4
the Public
the FFB
1,150
2,650
Repayments, etc.4
Non-cash adjustments
the Public
1,753
3,397
Repayments, etc.4
the FFB
10,405
12,240 Non-cash adjustments
CQ
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Footnotes at end of table.
Cn
Table F - 3 . LOAN ASSETS SALES, LOAN REPAYMENTS, AND OTHER LOAN OFFSETS (in millions of dollars)—Continued
Repayments and adjustments
Loan assets sales
Transactions with
Agency or program
1979
actual
1980
estimate
1979
actual
1981
estimate
1980
estimate
1981
estimate
OFF-BUDGET FEDERAL ENTITIES
Repayments, etc.4
845 Non-cash adjustments.
314
the Public.,
the FFB
Repayments, etc.4
Non-cash adjustments.
2,791
5,784
the Public.,
Repayments, etc.4
3,105
6,137
16,308
22,639
770
795
Rural electrification and telephone revolving fund., the Public..
the FFB
Other..
Subtotal, off-budget Federal entities.
the FFB
Total.
the Public 2
3
the FFB ...
586
760
353
845 Non-cash adjustments .
586
760
1,592
1,753
3,397
10,911
11,164
13,086
Repayments, etc.4
Non-cash adjustments
365
7,732
Purchases or repurchases
1979
actual
1980
estimate
Net sales
1981
estimate
1979
actual
1980
estimate
1981
estimate
ADDENDUM
Repurchases and tandem plan purchases:5
Farmers Home Administration
Tandem plan purchases of:
FHA/VA guaranteed loans
Other on-budget agencies and programs
Off-budget Federal entities
Total
1,941
4,806
4,550
8,435
5,543
7,599
39
25
27
1,486
18
586
1,150
634
760
2,650
811
845
1,979
4,831
4,577
10,524
8,086
11,905
1
All loans sold, except conventional tandem plan sales, are guaranteed upon sale, and reflected in the guaranteed loan totals in Table F - 5 .
"Public" includes Government-sponsored enterprises such as FMHA and FHLMC which are among the principal purchasers of HUD and VA mortgages.
See Table F - 4 for detail of FFB purchases.
4
Includes prepayments and other capital recoveries.
5
FmHA repurchases mainly reflect replacements of amortized mortgages underlying previously issued block notes.
2
3
Oi
CO
160
THE BUDGET FOR FISCAL YEAR 1981
Table F-3 shows all loan offsets—all repayments, asset sales, or
other credits that reduce the recorded totals of direct loan transactions. Two of the loan entries in table F-2 are "new (direct loan)
transactions" and "net (direct loan) outlays"; table F-3 provides a
four-way distribution of those loan offsets that are the difference
between these two measures of direct lending. The four way split is
as follows:
Loan asset sales to the public result in a flow of cash from the
public to the agency in exchange for title to direct loans. In most
cases this form of transaction converts the loan into a privately
held note guaranteed by the Government.
Loan asset sales to the FFB shift title to the loan (or CBO or
participation certificate) from the agency to the FFB. For an onbudget agency, this reduces the recorded budget outlays by the
amount of the sale but raises the off-budget outlays of the FFB by
an equal amount. For an off-budget entity, sales to the FFB reduce
the recorded off-budget outlays of the selling entity and raises the
off-budget outlays of the FFB by an equal amount. Though not
required by law, under current FFB policy all loans purchased by
the FFB are fully guaranteed by some other Federal agency.
Repayments, prepayments, and other capital recoveries are cash
paid to the Government, thereby reducing indebtedness. They are
counted as a reduction in new transactions of direct loans.
Non-cash adjustments are non-cash accounting entries to take
cognizance of losses, write-offs, or other adjustments in cases in
which the recorded value of the loans is greater than the amount
of money collected or collectable on the loans.
As a result, new direct loan transactions (shown in table F-2)
less new direct loan offsets (shown in table F-3) equal net outlays
of direct loans (shown in table F-2).
As the addendum to table F-3 shows, loan asset sales are not
always final. In fiscal year 1979, for example, while $12,504 million
of loan assets were reported in table F-3 as being sold, agencies
repurchased $1,979 million to give net sales of $10,524 million. The
repurchases are included in table F-2 as part of new direct loan
transactions.
T H E FEDERAL F I N A N C I N G
BANK
The Federal Financing Bank (FFB) began operations in May 1974
and has been a significant factor in financing Federal credit activities. The bank is staffed under the supervision of the Treasury
Department and all its personnel are Treasury employees. Its transactions are excluded by law from the budget totals. Hence, its
lending transactions are not counted as budget outlays.
The FFB was designed to serve as a financial intermediary for
the efficient financing of obligations issued, sold, or guaranteed by
161
SPECIAL ANALYSIS D
Federal agencies. The FFB performs three functions. First, with
some exceptions, the Treasury may require agencies authorized to
borrow from the public to borrow from the FFB instead. Second,
the Treasury can direct most agencies to sell loan assets to the
FFB rather than the public.10 Third the FFB is authorized to
purchase guaranteed loans. Generally, the FFB makes loans directly to borrowers whose obligations are guaranteed by a Federal
agency. These guaranteed loans are in effect converted into direct
loans outside the budget. The FFB assures the efficient financing of
these guaranteed loans and reduces borrowing costs.11
Table F-4. FFB ACQUISITIONS (in millions of dollars)
Agency or program
Purchase of loan assets from:
Overseas Private Investment Corporation:
New acquisitions
Net outlays
Outstandings
1979
actual
1980
estimate
-4
36
1981
estimate
-7
29
-7
21
10,305
8,805
31,080
10,290
5,790
36,870
12,100
8,450
45,320
586
586
1,223
760
760
1,983
845
845
2,828
-4
160
-4
156
-4
152
21
20
77
115
114
192
140
138
330
Small business development company loans:
New acquisitions
Net outlays
Outstandings
-18
94
-19
76
-18
58
Subtotal, purchase of loan assets
New acquisitions
10,911
11,164
13,086
Farmers Home Administration—CBOs:
New acquisitions
Net outlays
Outstandings
Rural Electrification Administration—CBOs:
New acquisitions
Net outlays
Outstandings
Medical facilities guarantees (HHS):
New acquisitions
Net outlays
Outstandings
Health Maintenance Organizations (HHS):
New acquisitions
Net outlays
Outstandings
Net outlays
Outstandings
9,385
32,671
6,634
39,304
9,404
48,709
10 When the FFB buys loan assets, it effectively converts direct loans that have already been made by another
agency into off-budget direct loans of the FFB.
11 There is a modest (1/8 percentage point) surcharge to cover administrative expenses.
310-700 0 - 8 0 - 1 1
162
THE BUDGET FOR FISCAL YEAR 1981
Table F-4. FFB ACQUISITIONS (in millions of dollars)—Continued
Agency or program
Direct loans (purchases of loans guaranteed by
agencies):
International security loans (FAP):
New acquisitions
Net outlays
Outstandings
1979
actual
1980
estimate
1981
estimate
1,615
1,293
5,271
2,900
2,420
7,691
2,600
1,990
9,681
Rural Electrification Administration (USDA):
New acquisitions
Net outlays
Outstandings
1,735
1,735
5,926
3,400
3,400
9,326
3,900
3,900
13,226
Guarantees of SLIVIA obligations (DEd):
New acquisitions
Net outlays
Outstandings
530
530
1,275
670
670
1,945
-215
1,730
1,575
1,557
1,557
-50
1,507
290
264
431
Low-rent public housing (HUD):
New acquisitions
Net outlays
Outstandings
Community development grants (HUD):
New acquisitions
Net outlays
Outstandings
5
5
5
165
162
168
New Communities Administration (HUD):
New acquisitions
Net outlays
Outstandings
38
-5
34
34
Loans to territories (Interior):
New acquisitions
Net outlays
Outstandings
*
58
10
9
67
-38
29
885
-25
562
332
305
868
322
241
1,108
Washington METRO bonds (DOT):
New acquisitions
Net outlays
Outstandings
177
177
177
Public building CBI's 1 (GSA):
New acquisitions
Net outlays
Outstandings
92
90
360
45
43
403
100
98
501
Satellite leases (NASA):
New acquisitions
Net outlays
Outstandings
184
184
420
132
132
552
101
101
653
Railroad programs (DOT):
New acquisitions
Net outlays
Outstandings
Footnotes at end of table.
SPECIAL ANALYSIS
D
163
Table F-4. FFB ACQUISITIONS (in millions of dollars)—Continued
Agency or program
Small business investment companies (SBA):
New acquisitions
Net outlays
Outstandings
Export-Import Bank:
New transactions
Net outlays
Outstandings
1980
estimate
1979
actual
87
86
336
TVA's Seven States Energy Corporation-.
New transactions
f
Net outlays
Outstandings
Subtotal, direct loans (purchase of
loans guaranteed by agencies)
New acquisitions
Net outlays
Outstandings
Subtotal, all direct loans and purchases of
agency loan assets:
New acquisitions
5,134
3,897
14,430
1981
estimate
190
188
524
187
184
708
50
50
50
350
350
400
1,371
684
684
3,006
16
700
10,839
9,615
10,856
6,840
24,045
30,885
16,045
22,004
23,942
13,282
16,249
16,245
1,385
7,953
1,289
9,242
1,567
10,809
1,905
7,125
1,900
9,025
2,200
11,225
300
300
300
89
446
68
513
68
581
-527
1,587
-67
1,520
-232
1,288
Agency borrowing:
Net change
2,852
3,490
3,603
Outstandings
17,111
20,600
24,203
Net outlays
AGENCY BORROWING
ADDENDUM:
By: on-budget agencies:
Export-Import Bank:
Net change
Outstandings
Tennessee Valley Authority:
Net change
Outstandings
National Credit Union Association:
Net change
Outstandings
f: off-budget Federal entities:
U.S. Railway Association:
Net change
Outstandings
Postal Service:
Net change
Outstandings
* $500 thousand or less.
1
Certificates of beneficial interest.
164
THE BUDGET FOR FISCAL YEAR 1981
In certain cases, agencies are given authority to borrow from the
public as well as to borrow from the Treasury. Since Treasury
borrowing is less expensive than agency borrowing, the use of this
authority could be expensive. This additional expense would be
avoided if the agency borrows directly from the Treasury or from
the FFB which, in turn, borrows from the Treasury. Borrowing by
agencies from the FFB is not included in FFB outlays; the use of
the proceeds from the borrowing is counted as outlays of the borrowing agency. However, the agency must pay interest to the FFB
on these borrowings and in turn the FFB pays interest to Treasury
on its borrowing.
Table F-4 lists the activities of the FFB for 1979-81 by agency
and account. The first set of entries lists FFB purchases of agency
loan assets. The second set of entries lists the FFB purchases of
other loans guaranteed by Federal agencies which are in effect
direct loans by the FFB to the public. The addendum lists borrowing (debt issues) by both on-budget agencies and off-budget entities
from the FFB.
The FFB's net outlays in the purchase of loan assets are expected to fall considerably from $9.4 billion in 1979 to $6.6 billion in
1980. This is due to the reduction in purchases of CBO's issued by
the FmHA. However, purchases of loan asset rises to $9.4 billion in
1981 due to a large rise in purchases of CBO's issued by FmHA. On
the other hand, FFB net outlays for direct loans (purchases of loans
guaranteed by agencies) are expected to increase sharply from $3.9
billion in 1979 to $9.6 billion in 1980. This increase is due to a
sharp increase in guaranteed loans originating from REA and the
advent of the FFB financing loans guaranteed under low rent
public housing. Purchases of agency guaranteed loans fall in 1981
to $6.5 billion. Total FFB lending outlays rise from $13.3 in 1979 to
$16.2 billion in 1981.
LOAN
GUARANTEES
Loan guarantees are agreements in which a Government agency
enters into a firm commitment to use Government funds as necessary to secure a lender against default on the part of the borrower.
The loan guarantee is the Federal Government's contingent liability, which may be less than the full face value of the loan. A
guaranteed loan is the resulting loan, with guarantee attached.
SPECIAL ANALYSIS D
165
Loan insurance is a type of guarantee in which a Government
agency operates a program of pooled risks, pledging the use of
accumulated insurance premiums to secure a lender against default on the part of a borrower.
The major use of loan guarantees has been to support housing,
but in recent years guarantees have increasingly been used for
other purposes. The effects of loan guarantees on the economy are
difficult to assess. Some portion of the private loans that are guaranteed would have been made without the guarantee, and those
private loans that would not have been made otherwise tend to
divert credit away from other economic activities.
The nature of the loan guarantee differs widely among programs.
The loan may be made to individuals, businesses, State and local
governments, or foreign governments. The guaranteed obligation
may be a loan made by a bank or other institutional lender, it may
be a security sold in the capital market, or it may be a security
sold to the FFB. In the case of fully guaranteed loans, the Government guarantees the repayment of all principal and interest. In the
case of partially guaranteed loans, the Government guarantees
only partial repayment of principal and interest. Guaranteed loans
also include loans on which the Government promises to pay a
share of the interest, but none of the principal. Credit may be
indirectly guaranteed without being explicitly labelled as a loan
guarantee program under various contractual agreements, including guarantees of private leases, contracts to make subsidy payments over extended periods and debt service grants. Guaranteed
loans include most loan assets sold by Federal agencies.
Loan guarantees are not reflected in the budget outlays when
credit is extended. Guaranteed loans generally result in budget
outlays only when there is a default, requiring the Government to
pay the lender's claims for losses. Losses from more traditional loan
guarantee programs have been small, partly because most of the
loans were protected with liens on marketable property. Some of the
newer loan guarantee programs, such as student loans, have suffered
greater losses.
Data for loans guaranteed by agency and program for 1979-81
are presented in table F-5. The table included the full amount of the
principal of guaranteed loans, even though in some cases the Government guarantees are for less that the total amount. The structure
of table F-5 is comparable to that for direct loans in table F-2.
Table F-5. GUARANTEED LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT (in millions of dollars)
Commitments
1979
actual
Agency or program
Funds Appropriated to the President:
Energy security trust fund
New Transactions
Net change
Outstandings
1980
estimate
Loans guaranteed
1981
estimate
1,622
1,207
5,670
2,900
2,260
7,930
2,600
1,835
9,765
96
49
852
230
189
1,041
188
146
1,187
1,604
883
883
11,545
1,135
1,135
12,680
1,604
1,604
14,284
12,401
13,570
1,186
1,706
1,233
11,528
8,857
37,078
11,879
6,282
43,360
14,043
8,700
52,060
New transactions
Net change
Outstandings
136
938
2,000
136
136
136
938
907
1,043
2,000
1,656
2,699
New transactions
6,015
5,928
5,990
4,268
4,854
5,165
1,690
2,140
4,693
3,483
3,023
198
245
350
444
459
621
New transactions
Net change
Outstandings
883
1,135
New transactions
Net change
Outstandings
11,810
Commodity Credit Corporation
Rural Electrification Administration .
Callable capital contributions1
Agriculture:
Farmers Home Administration
1981
estimate
333
333
666
333
International development assistance
1980
estimate
333
333
333
333
International security assistance
1979
actual
New transactions
Net change
Outstandings
New transactions
Net change
Outstandings
2,650
Commerce:
Economic development assistance
Net change
Outstandings
9,630
11,293
2,650
7,535
4,268
11,803
4,854
16,657
1,800
714
636
883
1,000
897
1,780
1,800
1,659
3,439
12,429
New transactions,
Net change
Outstandings
714
1,000
National Oceanic and Atmospheric Administration
New transactions.
Net change
Outstandings
63
87
100
63
58
106
87
75
180
100
70
250
Maritime Administration
New transactions,
Net change
Outstandings
978
970
1,500
497
266
5,703
763
515
6,218
1,500
1,209
7,427
530
530
1,275
670
670
1,945
-215
1,730
2,760
1,477
8,302
3,960
2,557
10,859
2,160
483
11,342
-21
1,305
-22
1,283
-22
1,261
1
1
14
330
319
333
206
206
539
8
21
Education:
Guarantees of SLMA debt issues
938
New transactions.
Net change
Outstandings
530
Student loan insurance fund
New transactions,
Net change
Outstandings
2,760
Other education programs
New transactions,
Net change
Outstandings
Energy:
Geothermal resources development fund
Energy Conservation
Footnotes at end of table.
New transactions,
Net change
Outstandings
New transactions,
1
1,145
1,145
670
3,960
2,160
300
206
ZZZZZ.
30
16
30
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>
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00
Table F-5. GUARANTEED LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT (in millions of dollars)—Continued
Commitments
Agency or program
1979
actual
1980
estimate
1981
estimate
Net change
Outstandings
Energy production, demonstration, and distribution
Energy Security Reserve
Energy Security Corporation
Health and Human Services:
Medical facilities guarantees
Health programs
Housing and Urban Development:
Subsidized low-rent public housing
1979
actual
18
New Transactions.,
Net change
Outstandings
49
25
New transactions...
Net change
Outstandings
1,500
New transactions...
Net change
Outstandings
800
New transactions...
Net change
Outstandings
Loans guaranteed
2,000
1980
estimate
1981
estimate
7
7
18
26
25
25
25
25
24
48
1,500
1,500
1,500
1,500
800
800
800
2,000
2,000
2,800
15
-26
1,321
12
-22
1,299
10
-25
1,274
22
10
New transactions...
Net change
Outstandings
33
205
258
33
32
167
205
203
369
258
254
623
New transactions...
Net change
Outstandings
13,081
11,366
14,647
15^48
16,264
19336
9,451
483
15,050
10,000
200
15,250
10,825
2,000
17,250
Federal Housing Administration
Community development grants,
Urban renewal
New Communities Administration
GNMA: Mortgage-backed securities
Interior:
Indian programs
Transportation:
Rail programs,
Washington, D.C. METRO bonds
New transactions..
Net change
Outstandings
New transactions..
Net change
Outstandings
33,976
31,514
34,155
24,663
25,112
26,346
31
200
300
17
52
21,081
11,922
110,051
21,695
10,916
120,966
62
12
12
12
165
162
174
290
264
437
30
-227
239
145
-49
190
131
New transactions..
Net change
Outstandings
739
462
121
43
-325
466
New transactions..
Net change
Outstandings
33
11
11
-2
141
-10
131
New transactions..
Net change
Outstandings
41,750
47,200
53,000
12,224
13,749
13,399
22,176
17,594
70,558
20,500
14,917
85,476
New transactions.
Net change
Outstandings
38
New transactions.
Net change
Outstandings
24,288
11,554
132,520
CZ3
25,000
18,900
104,376
2
2
2
2
—3
49
36
36
26
76
2
2
-7
69
213
40
1,102
332
308
1,410
322
305
1,715
36
159
594
410
175
438
526
3o
>
^
>
>
GO
®
New transactions.
Net change
Footnotes at end of table.
a*
o
Table F-5. GUARANTEED LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT (in millions of dollars)—Continued
Commitments
Agency or program
1979
actual
Treasury:
Guarantee of New York City notes
Chrysler Corporation loan guarantee program
NASA: Long term satellite leases
Veterans Administration (housing)
Export-Import Bank
1981
estimate
1979
actual
estimate
1981
estimate
997
997
997
997
997
997
New transactions..
Net change
Outstandings
11
444
444
9
-19
190
446
430
620
444
400
1,021
New transactions..
Net change
Outstandings
500
250
300
500
500
500
250
226
726
-47
679
940
940
940
312
312
1,252
186
186
423
132
132
555
101
656
16,159
8,364
89,158
18,718
11,701
100,859
20,432
13,544
114,403
5,401
1,179
6,586
1,479
8,065
6,161
7,302
2,119
10,184
Outstandings..
Aircraft loans..
1980
estimate
Loans guaranteed
2
300
New transactions..
Net change
Outstandings
New transactions..
Net change
Outstandings
1,500
560
248
152
233
ioi
~ZZ
New transactions..
Net change
Outstandings
17,682
20,837
22,653
3,547
4,890
6,232
New transactions..
Net change
Outstandings
5,902
9,194
10,462
6,475
7,546
M86
101
General Services Administration
NCUA: Credit Union share insurance fund
Small Business Administration:
Business loan guarantees
Lease and surety bond guarantees
Lease guarantees
New transactions.
Net change
Outstandings
35
30
1,242
45
36
1,278
100
90
1,368
16
5
17
18
6
23
280
235
135
New Transactions
Net change
Outstandings
14
16
18
14
4
12
New transactions.
Net change
Outstandings
3,320
3,848
4,226
1,592
1876
2,087
2,646
720
7,621
3,111
1,113
8,734
3,520
1,146
9,880
New transactions.
Net change
Outstandings
1,391
1,700
1,700
1,391
93
596
1,700
104
700
1,700
-32
228
-34
194
-34
161
1
7
2
-1
7
-2
4
40
40
55
50
50
105
50
50
155
New transactions.
Net change
Outstandings
700
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>
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Disaster Loan fund
New transactions.
Net change
Outstandings
Pollution control bond guarantees
New transactions.
Net change
Outstandings
TVA: Seven States Energy Corp
New Transactions
Net change
Outstandings
Footnotes at end of table.
-2
40
50
1,371
50
3,006
1,371
684
684
3,006
16
700
K>
Table F-5. GUARANTEED LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT (in millions of dollars)—Continued
Loans guaranteed
Commitments
1979
actual
Agency or program
Other agencies and programs.
Subtotal, guaranteed loans (gross)..
1980
estimate
New transactions..
Net change
Outstandings
10
New transactions..
147,336
1981
estimate
1979
actual
30
37
162,341
179,452
Outstandings
83,118
90,422
97,256
New transactions..
Net change
Outstandings
41,750
47,200
53,000
12,224
13,749
13,399
DEd guarantees of SLMA debt issues
New transactions..
Net change
Outstandings
530
670
DOT guarantees of USRA debt
New transactions
Net change
Outstandings
80
159
133
13
8
New transactions
104,976
114,312
1981
estimate
-49
238
-7
230
37
-32
198
100,888
116,783
131,597
57,469
Net change
1980
estimate
387,172
66,050
453,222
75,424
528,646
2
Less secondary guaranteed loans:
GNMA guarantees of FHA/VA pools
Subtotal, guaranteed loans (net)
Net change..
22,176
17,594
70,558
20,500
14,917
85,476
25,000
18,900
104,376
530
530
1,275
670
670
1,945
-215
1,730
8
110
85
537
164
142
679
133
111
790
126,319
78,072
95,449
106,464
39,260
50,321
56,628
70,881
76,665
83,849
314,801
365,122
421,750
2,053
2,064
1,826
5,529
5,439
5,302
1,492
-137
3,105
1,931
631
3,736
1,760
-1,046
2,689
New transactions.
Net change
Outstandings
16,045
22,004
23,941
16,045
13,282
47,100
22,004
16,249
63,349
23,941
16,244
79,593
New transactions.
86,878
90,245
100,551
60,535
71,515
80,763
26,115
33,441
41,430
Outstandings
Less guaranteed loans held as direct loans:
By budget agency (GNMA)
3
By off-budget Federal Financing Bank
Subtotal, primary guaranteed loans
New transactions,
Net change
Outstandings
Net change
65,352
71,226
New transactions,
Net change
Outstandings
627
821
New transactions,
Net change
Outstandings
5,962
4,768
6,805
3,062
2,290
2,016
21
35
40
Outstandings
ADDENDUM
Less guaranteed loans held as direct loans:
By Government sponsored enterprises:
Student Loan Marketing Association
Federal National Mortgage Association
Federal home loan banks
Footnotes at end of table.
New transactions,
Net change
Outstandings
78,547
264,596
298,037
339,467
627
529
1,239
821
670
1,909
-203
1,707
5,384
3,069
33,971
3,054
842
34,813
5,252
2,720
37,533
21
15
91
35
28
119
40
34
153
h-1
oo
Table F-5. GUARANTEED LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT (in millions of dollars)—Continued
Loans guaranteed
Commitments
1979
actual
Agency or program
Federal Home Loan Mortgage Corporation
Total Enterprise holdings
1980
estimate
1981
estimate
New transactions
Net change
Outstandings
New transactions
6,610
5,623
6,845
Net change
Outstandings
1
2
3
3,062
2,290
2,016
In previous years, callable capital contributions had been included as a memorandum entry.
Secondary guarantees by the Export-Import Bank of the debt of the Private Export Finance Corporation have not been estimated and are excluded from the table.
When loan guarantees are acquired by a budget account, they are direct loans. However, in this instance, GNMA is acquiring a guaranteed loan not only from different accounts, but different agencies.
1979
actual
1980
estimate
1981
estimate
-155
1,189
-150
1,039
-125
914
6,032
3,909
5,292
3,458
1,390
2,426
36,490
37,880
40,306
H
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SPECIAL ANALYSIS D
175
Detailed information on the amount of the Federal contingent
liability under these guarantees may be found in the Budget Apendix
and Part 5 of the Budget
Commitments for new guaranteed loans are agreements by the
Government to guarantee loans upon the prospective borrowers'
and lenders' fulfillment of specific conditions. Commitments for
new transactions are considered to be a good indicator of future
guarantees. The amount of loans guaranteed in a given year is
measured by the amount of new guaranteed loans in that year.
Commitments in a given year do not always result in new guaranteed loans in that year, since conversion of a commitment to a
guaranteed loan can take time and some plans may change. Moreover, some prospective borrowers to whom commitments are made
do not ever convert the commitments into borrowing. The net
change in loans guaranteed is equal to the amount of new guaranteed loans less repayments and other adjustments. The net change
is also equal to the difference in guaranteed loans outstanding at
the end and at the beginning of the year.
The aggregation of loan guarantees for each program to derive a
gross total involves some double counting. Elimination of this
double counting requires two adjustments. The first deducts loans
previously guaranteed, or secondary guaranteed loans. They occur,
for example, in the case of the GNMA mortgage-backed securities
program which guarantees securities that are backed by pools of
federally guaranteed or insured loans held by the seller. The total
after deducting secondary guarantees gives net guaranteed loans.
The second adjustment deducts guarantees of loans that are also
direct loans by the Government—by either on- or off-budget accounts. The total after these two deductions gives primary guaranteed loans. An addendum includes guaranteed loans purchased by
a Government-sponsored enterprise. These guaranteed loans held
by Government-sponsored enterprises have in past years been deducted from total primary guaranteed loans. Beginning this year,
they are deducted from direct loans made by Government-sponsored enterprises found in table F-6.
The net change in primary guaranteed loans increases sharply from
$26.1 billion in 1979 to $41.4 billion in 1981. The increase is primarily
the result of increased guarantees by EDA for economic development,
guarantees for the energy initiative, and guarantees for FHA housing. The increases in primary guaranteed loans must be examined
in terms of past trends. In 1978, the net change in primary guaran-
176
THE BUDGET FOR FISCAL YEAR 1981
teed loans was $13.9 billion, so that the estimate for 1981 is three
times larger.
GOVERNMENT-SPONSORED
ENTERPRISES
Government-sponsored enterprises have been established and
chartered by the Federal Government to perform specialized credit
functions. They are financial intermediaries, designed to facilitate
the financing of selected kinds of economic activity, by serving as
reserve facilities, or performing secondary marketing functions.
They are all privately owned and most are independent of Federal
control to a substantial degree. Since they are private, their activities are not included in the budget totals. They are all subject,
however, to some form of Federal supervision and by law or by
custom consult with the Treasury Department in planning the
marketing of their debt. The enterprises included in this category
are the Student Loan Marketing Association (SLMA), the Federal
National Mortgage Association (FNMA), three components of the
Farm Credit System, and the Federal Home Loan Bank system
(FHLBS) which includes the Federal Home Loan Mortgage Corporation (FHLMC). Part 6 of the Budget discusses Government-sponsored enterprises.
Government sponsorship has provided these enterprises with
characteristics that differentiate them in credit markets from completely private institutions. They have been given special preferences, and certain tax exemptions and their securities may be
offered as investments of federally regulated institutions. These
advantages give their security obligations a preferred position in
the securities markets, enabling them to borrow at rates only
slightly higher than those of the Treasury.
Funds lent by Government-sponsored enterprises are generally
obtained from private bond markets. However, SLMA borrows exclusively from the FFB. Sale of capital stock and retained earnings
provide only a very small portion of the resources used for lending
by these enterprises. The pattern of borrowing and lending varies
widely over time. For example, some enterprises, such as FNMA,
were created to establish secondary markets, thereby increasing
liquidity in mortgage markets; others, such as the Federal home
loan banks, are facilities advancing reserves to member institutions, in this case, savings and loan associations.12 Enterprises in
the latter grouping have a basic function of providing liquidity to
primary lenders in times of tight monetary conditions, by either purchasing loans from the primary lenders or making advances to the
12 The program of GNMA (a budget entity in HUD) to guarantee mortgage-backed securities achieves a similar
purpose of financial intermediation. GNMA guarantees securities issued against privately held pools of Federally guaranteed or insured mortgages. The Federal Reserve Board flow-of-funds data includes this GNMA program within the definition of Government-sponsored enterprises. GNMA data for this activity appear as entries
in Table F-5, Guaranteed Loans.
SPECIAL ANALYSIS D
177
primary lenders. These loans and advances are then paid back as
monetary and financial conditions improve. In recent years, this
latter group of enterprises has expanded its role by seeking to draw
new funds into mortgage markets even in periods of prosperity. By
borrowing additional funds themselves, they can provide more
funds to the basic mortgage lending institutions.
310-700
0 - 8 0 - 1 2
Table F-6. CREDIT ADVANCED AND RAISED BY GOVERNMENT-SPONSORED ENTERPRISES (in millions of dollars)—Continued
Loans made
Obligations
Agency or program
LENDING (FUNDS ADVANCED)
Student Loan Marketing Association
Federal National Mortgage Association
Farm Credit Administration:
Banks for cooperatives
Federal intermediate credit banks
Federal land banks
Federal home loan bank system:
Federal home loan banks
1979
actual
1980
estimate
1981
estimate
New transactions
Net change
Outstandings
627
821
New transactions
Net change
Outstandings
11,476
9,218
14,880
6,532
3,793
3,500
New transactions
Net change
Outstandings
17,027
19,933
New transactions
Net change
Outstandings
11,976
Net change
Outstandings
New transactions
Net change
Outstandings
1979
actual
1980
estimate
1981
estimate
627
529
1,239
821
670
1,909
-203
1,707
11,129
7,983
49,174
6,904
3,605
52,779
11,252
7,174
59,953
22,486
17,027
1,101
7,222
19,933
570
7,791
22,486
839
8,630
13,999
16,387
11,976
2,370
16,407
13,999
2,461
18,869
16,387
2,813
21,682
7,558
7,549
8,336
7,558
5,057
29,871
7,549
4,395
34,266
8,336
5,077
39,343
28,426
19,798
20,876
28,426
9,853
41,486
19,798
2,083
43,569
20,876
-3,464
40,105
Federal Home Loan Mortgage Corporation:
Corporation accounts
New transactions,
Net change
Outstandings
6,453
6,000
7,200
6,453
1,305
2,528
6,000
158
2,687
7,200
490
3,177
Participation certificate pools 1
New transactions
Net change
Outstandings
4,903
5,522
6,370
4,903
3,731
15,648
5,522
3,276
18,924
6,370
3,611
22,535
Subtotal, lending (gross)
New transactions.
88,447
82,840
96,536
88,100
80,526
92,908
6,352
3,793
3,500
163,575
180,794
197,132
662
156
836
662
400
2,799
156
47
2,846
836
376
3,222
530
530
1,275
670
670
1,945
-215
1,730
627
529
1,239
821
670
1,909
-203
1,707
5,384
3,069
33,971
3,054
842
34,813
5,252
2,720
37,533
21
15
35
28
40
34
31,930
Net change
Outstandings
Less loans between sponsored enterprises:
Federal home loan banks to FHLMC
Less secondary funds advanced from Federal sources.-2
SLMA from FFB
Less guaranteed loans held as direct loans by:
Student Loan Marketing Association
Federal National Mortgage Association
Federal home loan banks
New transactions.
Net change
Outstandings
New transactions.
Net change
Outstandings
New transactions.
Net change
Outstandings
627
821
New transactions.
Net change
Outstandings
5,962
4,768
6,805
3,062
2,290
2,016
21
35
40
New transactions.
Net change
17,219
16,338
hrl
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Footnotes at end of table.
<X>
Table F-6. CREDIT ADVANCED AND RAISED BY GOVERNMENT-SPONSORED ENTERPRISES (in millions of dollars)—Continued
Obligations
Agency or program
1979
actual
1980
estimate
Loans made
1981
estimate
Outstandings..
Federal Home Loan Mortgage Corporation
Total
New transactions..
Net change
Outstandings
New transactions..
81,175
77,061
88,855
Net change
Outstandings
3,290
1980
estimate
1981
estimate
91
119
153
-155
1,189
-150
1,039
-125
914
80,876
75,791
86,780
27,542
15,111
13,750
123,012
138,123
151,874
Net change
Outstandings..
530
1,275
670
1,945
-215
1,730
Net change
Outstandings..
7,705
45,999
3,296
49,295
6,698
55,993
Net change
Outstandings..
1,089
6,843
523
7,366
777
8,143
Net change.
2,725
2,310
2,603
1,503
1,484
1979
actual
Footnotes at end of table.
BORROWING (FUNDS RAISED)
Student Loan Marketing Association
Federal National Mortgage Association 3
Farm Credit Administration:
Banks for cooperatives
Federal intermediate credit banks
Federal land banks
Federal home loan bank system-.
Federal home loan banks
Federal Home Loan Mortgage Corporation
Subtotal, borrowing (gross)
Less borrowing from other sponsored enterprises:
FHLMC from FHL banks
15,825
18,135
20,738
Net change
Outstandings.
4,921
27,182
4,022
31,203
4,648
35,852
Net change
Outstandings.
5,194
30,146
2,197
32,343
Net change
Outstandings.
4,547
18,355
3,400
21,755
4,130
25,885
Net change
26,712
16,418
17,240
-1,401
30,942
Outstandings.
145,624
162,042
179,283
Net change
Outstandings.
400
2,699
47
2,746
376
3,122
Net change
Outstandings.
562
834
196
1,030
202
1,233
Net change
Outstandings.
530
1,275
670
1,945
-215
1,730
Net change
Outstandings.
25,220
140,817
15,504
156,321
16,877
173,198
Net change
Outstandings.
352
862
-62
800
2,552
3,352
4
Other
Less borrowing from Federal sources.SLMA from FFB
Total borrowing from the public and Government
Less investments in Federal securities:
Investments in Federal securities
Outstandings.
>
Footnotes at end of table.
00
Table F-6. CREDIT ADVANCED AND RAISED BY GOVERNMENT-SPONSORED ENTERPRISES (in millions of dollars)—Continued
oo
Loans made
Agency or program
Less borrowings for guaranteed loans held as direct loans by:
Student Loan Marketing Association
1979
actual
1980
estimate
1981
estimate
1980
estimate
1979
actual
1981
estimate
Net change
Outstandings
529
1,239
670
1,909
-203
1,707
Federal National Mortgage Association
Net change
Outstandings
3,069
33,971
842
34,813
2,720
37,533
Federal home loan banks
Net change
Outstandings
15
91
28
119
34
153
Federal Home Loan Mortgage Corporation
Net change
Outstandings
-155
1,189
-150
1,039
-125
914
Netchange
21,409
14,176
Total
Outstandings
1
103,465
117,642
11,898
129,540
All new transactions are loans purchased from FHLMC corporation accounts.
Since all SLMA borrowing comes from the FFB, when credit is extended by Government-sponsored enterprises and added to Federal lending (as in Table F - 7 ) , the inclusion of both FFB lending to SLMA and SLMA lending to the public in the totals is
double-counting. Hence, lending from the FFB to SLMA must be excluded from the gross total of lending by Government-sponsored enterprises to give the total adjusted for double-counting.
3
Loans purchased at discount are recorded at their acquisition cost.
4
These deductions include those borrowings involved in double-counting to give the adjusted total that is carried over to Table F - 7 .
2
SPECIAL ANALYSIS D
183
Table F-6 shows the lending and borrowing of Government-sponsored enterprises for 1979-81.13 The format of this table closely
resembles that used in table F-2 for direct loans. See the section on
direct loans for an explanation of terms. Total gross lending and
borrowing is further adjusted to avoid the double counting that
arises from loans between enterprises and between enterprises and
the Federal Government. In addition, where the borrowing or lending of enterprises is added to Federal credit activities (as in table
F-7), additional deductions must be made for double counting since
SLMA lending is financed by its borrowing from the FFB; also
some enterprise cash balances are invested in Federal securities.
(In effect, this is enterprise lending to the Federal Government.)
The deductions in the table identify the amounts necessary to
remove this double counting.
Lending by Government-sponsored enterprises is particularly
volatile in the period 1977-81. Sharp increases and decreases in the
lending of Federal Home Loan Banks and FNMA to support mortgage credit markets together with sharp continuing increases in
lending by FHLMC are the main sources of the overall movements
in lending. In this period, total lending rises to $27.5 billion in
1979, an increase of $16.5 billion from 1977 levels. Lending is then
expected to fall to $15.1 billion in 1980 and fall to $13.8 billion in
1981. The 1981 estimate, while about half of the 1979 actual is still
high by historical standards. The economic assumptions on which
the estimate rest are not necessarily the same as the administration's economic forecast, which is used for the budget. In order to
finance this lending, Government-sponsored enterprises are expected to follow the same general pattern of borrowing in the 1978-80
period. Special Analysis E discusses the borrowing to Governmentsponsored enterprises in detail.
SUMMARY
A summary of credit advanced and raised under Federal auspices
is given in table F-7. Total credit advanced by the Federal Government reached $45.7 billion in 1979, led by the sharp increases in
guaranteed loans. Total credit advanced by the Federal Government increases sharply to $57.5 billion in 1981 as guaranteed loans
continue to grow sharply. Total credit advanced reached $73.3 billion in 1979, led the sharp increase in lending by Governmentsponsored enterprises. Credit advanced is expected to fall somewhat in 1980 and 1981, reaching $71.2 billion in 1981. This fall
occurs as two Government-sponsored enterprises—Federal Home
Loan Banks and FNMA curtail lending in support of mortgage
markets.
18 The Federal Reserve Banks are unique and not projected for budget periods and are hence not included in
the table or other tabulations of the Government's operations in the Budget.
184
THE BUDGET FOR FISCAL YEAR 1981
Outstanding direct loans and guaranteed loans of the Federal
Government are estimated at $518.8 billion in 1981, an increase of
$113.7 billion over 1979. Outstanding direct loans and guaranteed
loans made under Federal auspices are estimated at $670.7 billion
in 1981, an increase of $142.6 billion over 1979.
Table F - 7 . SUMMARY OF CREDIT ADVANCED AND CREDIT RAISED UNDER FEDERAL AUSPICES
(In billions of dollars)
Net Change
1979
actual
1980
estimate
Outstanding
1981
estimate
1979
actual
1980
estimate
1981
estimate
LENDING (Credit advanced)
Direct loans (from table F-2):
On-budget agencies
Off-budget entities
Guaranteed loans (primary, from
table F-5)
6.0
13.6
6.1
16.6
-0.6
16.6
26.1
33.4
41.4
264.6
298.0
339.5
45.7
56.2
57.5
405.1
461.3
518.8
27.5
15.1
13.8
123.0
138.1
Total, credit advanced to
the public under Federal auspices1
73.3
71.3
71.2
528.1
599.4
670.7
Outside the budget
67.3
65.2
71.8
445.2
510.3
582.1
33.6
44.3
33.1
644.6
688.9
722.0
26.1
33.4
41.4
264.6
298.0
339.5
59.7
77.7
74.5
909.2
986.9
1061.5
21.4
14.2
11.9
103.5
117.6 129.5
Total Federal Government
credit advanced
Loans by Government-sponsored enterprises (from table F-6)
83.0
57.5
89.1
74.2
88.5
90.8
151.9
BORROWING (Credit raised)
Federal borrowing from the public
(from table E-l)
Guaranteed borrowing (same as
guaranteed loans, above)
Total Federal Government
credit raised
Borrowing by Government-sponsored
enterprises (net, from table F-6).
Total, credit raised from
the public under Federal auspices1
Net credit advanced
1
81.2
91.9
86.4
- 7.9
- 20.6
-15.2
1,012.7
1,104.6
1,191.0
Excludes Federal Reserve credit.
FEDERAL RESERVE S Y S T E M
LENDING
The Federal Reserve System, created by Congress in 1913, is the
central bank for the United States. Its principal purpose is to
conduct the Nation's monetary policy, influencing the cost and
availability of money and credit in order to improve the stability
and growth of the economy. Most of the System's transactions are
a form of lending, but they are conducted for the purpose of mone-
SPECIAL ANALYSIS D
185
tary control, not for profit or to allocate credit. The Federal Reserve System also has many regulatory and supervisory functions,
handles the official reserve transactions with foreign central banks,
and engages in foreign exchange transactions. The system has an
independent status and is not included in the budget totals.
The Federal Reserve System conducts monetary policy predominantly through open market purchases and sales of Treasury debt
securities. By purchasing securities it creates bank reserves and
money. The Federal Reserve also makes loans to member banks,
which are used to help meet member bank reserve requirements,
and buys small amounts of banker's acceptances. By the end of 1979
the Federal Reserve had accumulated $115.5 billion of Federal debt
securities. The interest on these securities and other investments,
after covering the expenses of the System, is paid almost entirely
to Treasury. These receipts are estimated to be $10.9 billion in
1981.
Before 1972, the Federal Reserve's only significant lending transactions, apart from its open market operations in Treasury securities, were its loans to member banks and its purchases of banker's
acceptances.
Since September 1971 the System has invested a portion of its open
market portfolio in securities other than Treasury issues.14 These
securities consist of (a) direct debt obligations of Federal agencies
other than Treasury, such as the Export-Import Bank; (b) federally
guaranteed loans in the form of marketable securities, such as those
representing loans guaranteed by the Farmers Home Administration; and (c) debt obligations of FNMA and the other Governmentsponsored enterprises.15
These acquisitions by the Federal Reserve System occur in the
ordinary performance of its monetary function. The first type, the
purchase of Federal agency debt, is not essentially different from the
purchase of Treasury securities, from the perspective of the Federal
Government. The other two types of acquisition, however, support
identifiable borrowers, outside the Federal Government, selectively
enhancing the marketability of their securities.
14
15
Since December 1966 the System had bought some such securities under repurchase agreements.
In Federal Reserve publications, these enterprises are called "Federally Sponsored Credit Agencies."
LENDING 1
Table F-8. FEDERAL RESERVE
00
01
(In millions of dollars)
1971
AMOUNTS OUTSTANDING:
"Agency issues" held outright:
Government-sponsored enterprises:
Banks for Cooperatives (BCs)
Federal Intermediate Credit Banks (FICBs)
Federal Land Banks (FLBs)
Farm Credit System 2
Federal Home Loan Banks (FHLBs)
Federal National Mortgage Association (FNMA)
Subtotal, sponsored enterprise issues
Federally guaranteed loans:
Farmers Home Administration
DOT—WMATA bonds
GSA—Public building certificates
Subtotal, guaranteed loans
Federal agency debt:
Export-Import Bank
GNMA—participation certificates
U.S. Postal Service
Subtotal, agency debt
Total, "agency issues" held outright
"Agency issues" held under repurchase agreements2
Total, all "agency issues" held
Loans and acceptances
508
1972
1973
1974
1975
1976
TQ
1977
16
103
73
68
168
13
63
363
47
251
655
78
407
910
78
407
910
106
418
1,124
134
648
194
783
525
1,451
1,216
2,321
1,810
2,908
1,783
2,886
974
1,213
2,415
4,490
6,113
17
60
16
173
67
4
263
82
9
17
76
244
64
25
6
98
38
24
95
1978
1979
1,871
3,202
86
480
1,380
68
2,210
3,199
35
146
1,175
889
2,271
3,245
6,064
6,720
7,423
7,761
294
117
14
294
117
14
248
117
14
196
117
14
196
117
14
354
425
425
379
327
327
117
59
25
130
86
25
142
89
37
142
89
37
106
87
37
81
83
37
16
83
37
160
201
241
268
268
230
201
136
1,106 1,449
2,858
270
5,085
61
6,806
277
6,757
323
7,329
310
7,950
647
8,224
1,099
1,106 1,449
203 1,836
3,128
3,514
5,146
1,243
7,083
1,343
7,080
1,160
7,639
1,551
8,597
2,078
9,323
2,210
Combined total
NET INCREASES:
"Agency issue" holdings
Loans and acceptances
Combined total
508
1,309
3,285
6,642
6,389
8,426
8,240
9,190
10,675
11,533
56
1,106
-305
363
1,633
1,679
1,678
2,018
-2,271
1,937
100
-3
-183
559
391
958
527
726
132
1,996
3,357
2,037
-186
950
1,485
858
56
801
-253
Source: Federal Reserve Board (Fiscal year detail by issuing agency is unpublished; calendar data available in FRB annual report).
1 Data exclude certain special classes of loans not separately published. See text.
2 Consolidated obligations of the three members of the Farm Credit System.
3 Detail by issuing agency is unavailable.
CO
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00
188
THE BUDGET FOR FISCAL YEAR 1981
In addition to its security transactions, The Federal Reserve
makes loans to commercial banks. The great bulk of these loans
normally are made when banks, experiencing an unexpected reserve
drain, turn to the Federal Reserve discount window to obtain funds
for a short period until they can make other adjustments in their
balance sheet positions. The Federal Reserve also makes loans to
assist member banks that lack access to national money markets and
need funds to meet seasonal loan and deposit pressures. Loans are
occasionally made for more extended periods to member banks
encountering exceptional circumstances. This is best illustrated by
the $1.7 billion loan to the Franklin National Bank in 1975. Following this bank's subsequent failure, the loan was assumed by the
Federal Deposit Insurance Corporation and was repaid over a 3-year
period.
Table F-8 shows fiscal year historical data for the Federal Reserve System's investments in securities other than Treasury issues
and for its loans and acceptances. The first outright purchase of
securities other than Treasury debt was made in 1972. The peak year
for the purchase of such securities plus loans and acceptances was
1974, when $3.4 billion was acquired. In 1979, the $0.9 billion
advanced was well below the $1.4 billion average during 1972-79.
Most of the securities other than Treasury debt are debt issues of
the Government-sponsored enterprises. The $9.3 billion increase in
Government-sponsored debt since the beginning of 1972, while considerable, is much smaller than the $49.9 billion increase in Treasury debt securities.
Federal Reserve lending and other transactions are excluded
from the aggregates of Federal credit shown in tables F - l and F-7.
This is partly because current and budget year estimates cannot
usefully be made, since they would depend upon future economic
developments and Federal Reserve policy decisions. If Federal Reserve lending were included in Federal credit, much of the addition
to the totals would require offsetting adjustments to avoid double
counting.
SPECIAL ANALYSIS F
CREDIT-RELATED T A X
189
EXPENDITURES
Tax expenditures, which are the subject of Special Analysis G,
"Tax Expenditures," are defined by the Congressional Budget Act
as "revenue losses attributable to provisions of the Federal tax
laws which allow a special exclusion, exemption, or deduction from
gross income or which provides a special credit, a preferential rate
of tax, or a deferral of the tax liability." They are often the
practical equivalent of explicit direct subsidies, and when applied to
credit, can have the effect of lowering interest rates and increasing
credit demands.
Tax expenditures have important and direct effects on the credit
markets in at least four ways. These effects arise from (1) the
exemption of interest on State and local debt from being subject to
Federal income taxation, (2) investment tax credits, (3) personal
deductions for mortgage interest and property taxes, and (4) various
depreciation methods. This section considers the interest exemption
because of its size and because it exerts the most direct influence on
capital markets and credit availability.
As the following chart shows, State and local government debt
has grown at a more rapid rate than Federal debt. Since 1945,
Federal debt has increased at a 2.5% average annual rate. In
contrast, State and local debt has grown at a rate of 10%. Taxexempt financing has steadily expanded in scope, to include financing of a broad array of purposes and borrower beneficiaries. State
and local governments not only use tax-exempt borrowing to finance
their own capital projects, but have been increasing their use of
mechanisms that in effect lend the eligibility for tax-exempt borrowing to private borrowers. Tax-exempt debt includes general obligations for which taxing powers are pledged, and revenue bonds for
which repayment is limited to specified non-tax resources—usually
enterprise-type income. Pollution control bonds, industrial development bonds, and a variety of housing bonds16 are generally included
in the revenue bond category. Revenue bonds may finance not only a
publicly owned enterprise, but also facilities for use by private
establishments.
As table F-9 shows, the tax loss17 to the Treasury from taxexempt financing has grown substantially as the volume of outstanding issues has risen. The value of this tax loss can be estimated by calculating the amount of additional income that would have
been subject to Federal taxation if State and local governments had
16
Part 4 of the Budget discusses a proposal, supported by the administration, to restrict the use of tax-exempt
bonds for mortgage financing.
17
Whereas tax expenditures measure tax losses in a given year—from all outstanding tax exempt bonds issued
in that year and previously—this analysis evaluates the future stream of tax losses that will arise from newly
issued tax-exempt securities in a single year. The method is similar to that used in evaluating interest subsidies in
table F - l l ; and the result is the capital equivalent (or "grant equivalent") of the subsidy stream.
190
THE BUDGET FOR FISCAL YEAR 1981
Comparative D e b t O u t s t a n d i n g
SPECIAL ANALYSIS F
191
issued the same volume of taxable rather than tax-exempt debt.
Comparisons using the Aaa corporate bond yield and the lower Aaa
tax-exempt rate can help illustrate these relationships. Using Aaa
rates is conservative because average State and local bonds are of
lower quality, and therefore, if taxable, would have higher yields.
For example, in 1979, if $42.7 billion in debt had been issued at
the taxable rate of 9.63%, $4.1 billion of interest would have been
subject to taxation. Using an average marginal tax rate of 42%,
this would have resulted in $1.7 billion annually in higher Federal
tax receipts due to borrowing just in that year.
To place the tax loss into perspective, it should be calculated in
terms of the present value of the annual loss. This requires an
appropriate interest rate to discount the future tax losses. The
calculations in the table were made using the Aaa corporate bond
yield. This rate is sensitive to market conditions and includes some
premium for risk. The tax loss is calculated over 18 years, which is
consistent with the average maturity of 15-18 years of securities in
this market.
The annual tax loss discounted at the Aaa corporate rate over 18
years produces a "present value" tax loss over the life of the
securities issued in 1979 of $14.5 billion. This figure is the estimated
tax savings to investors as well as the present value of the tax loss.
The present value of the benefit to State and local governments is
less than the loss to the Treasury. The net saving to State and local
governments is estimated as the difference between the taxable
interest rate and the lower tax-exempt rate. Again using 1979 as an
example, since the Aaa corporate rate was 9.63% and the State and
local Aaa bond yield was 5.92%, the interest rate saving was 3.71%.
This results in an estimated annual saving for new issues in 1979 of
$1.6 billion. Using the Aaa corporate rate to discount this amount
through 18 years produces a present value benefit to the issuing
State and local governments of $13.3 billion. This is 92% of the loss
to the Treasury in 1979. In all other years in this table, the benefit to
the State and local governments is a smaller proportion of the loss to
the Treasury.
The subject discussed above is usually taken solely as an issue of
tax policy. However, subsidies of this magnitude create a strong
incentive to allocate credit to the assisted borrowers, just as do
Federal direct loan and loan guarantee programs.
Table F - 9 . TAX EXEMPT FINANCING, PRESENT VALUE OF TAX SUBSIDIES TO NEW ISSUES (In billions of dollars)
Calendar years1
1958
New long-term tax-exempt issues
Moodys Aaa State and local bond yields
Moodys Aaa corporate bond yields
Subsidy estimates2.Annual tax loss, new issues
Present value, tax loss3
Present value, benefit to borrowers
Memos:
Net increase, all long-term issues
Net increase, all tax-exempt issues
Outstanding, all tax-exempt issues
1959
1968
1969
1971
1972
1973
1974
1975
1976
1977
1978
1979
7.4
2.92
3.79
7.5
3.35
4.38
16.3
4.20
6.18
11.7
5.45
7.03
18.1
6.12
8.04
24.9
5.22
7.39
23.6
5.04
7.21
23.9
4.99
7.44
24.2
5.86
8.57
30.5
6.42
8.83
35.2
5.66
8.43
46.7
5.20
8.02
48.5
5.52
8.73
42.7
5.92
9.63
0.1
1.5
0.1
1.7
0.4
4.5
0.3
3.5
0.6
5.7
0.8
7.6
0.7
7.1
0.7
7.3
0.9
7.8
1.1
10.0
1.2
11.3
1.6
14.7
1.8
15.9
1.7
14.5
0.8
0.9
3.4
1.9
3.2
5.3
5.1
5.7
5.9
6.5
8.9
12.3
13.9
13.3
5.1
5.5
59.2
5.9
6.3
65.5
9.4
9.5
123.2
7.2
9.9
133.1
8.9
11.2
144.4
15.0
17.4
161.8
14.6
14.7
176.5
14.4
14.7
191.2
13.7
16.5
207.7
16.4
15.6
223.2
19.7
19.0
242.2
26.3
29.2
271.3
27.7
30.3
299.6
23.9
30.0
324.1
Sources: Federal Reserve Board, Pulic Securities Association; subsidy estimates by Office o Management and Budget.
1 1979 values estimated from preliminary data.
a Assumed: Average marginal tax rate = .46; Average maturity = 18 years.
3 Equals present value of tax savings to investors.
1970
193
SPECIAL ANALYSIS F
FUNCTIONAL A R E A S SUPPORTED BY FEDERAL CREDIT ASSISTANCE
The functional distributions of direct and guaranteed loans by
major function are given in table F-10. The functions in which the
largest Federal credit activity occurs are commerce and housing
credit, international affairs, and veterans benefits. These three
functions are expected to comprise 71.9% of total new transactions
in 1981. In addition, Part 5 of the Budget discusses Federal credit
activities in functions in which credit is significant.
Table F - 1 0 . DIRECT LOANS AND GUARANTEED LOANS BY FUNCTION
(In millions of dollars)
New direct loans
Function
1980
estimate
1979
actual
National defense
Total
New guaranteed loans
1981
estimate
1979
actual
1980
estimate
1981
estimate
1
30
30
1
30
30
International affairs:
Security Assistance
Export-Import Bank
Other
1,643
1,629
1,179
1,615
2,634
1,151
1,415
2,836
1,066
1,622
5,401
979
2,900
6,161
1,365
2,600
7,303
1,792
Total
4,451
5,400
5,317
8,002
10,426
11,695
23
1,126
40
1,487
18
1,695
2,651
8,626
10,436
1,149
1,527
1,713
2,651
8,626
10,436
6,104
7,956
5,044
6,557
4,336
5,110
136
5,594
938
4,342
2,000
3,901
14,060
11,601
9,446
5,730
5,280
5,901
7,016
16,661
10,049
24,524
9,271
27,089
47,263
4,154
47,202
5,904
56,618
5,706
23,677
34,573
36,360
51,417
53,106
62,324
847
768
384
35
10
250
213
9
497
332
446
763
322
444
1,500
882
778
634
719
1,541
2,266
2,841
2,785
2,873
2,700
3,772
5,059
2,841
2,785
2,873
2,700
3,772
5,059
Natural resources, environment, and
energy:
National resources and environment
Energy
Total
Agriculture:
Farm income stabilization
Other
Total
Commerce and housing creditMortgage credit and thrift insurance
Advancement of commerce
Total
Transportation:
Ground transportation
Air transportation
Water transportation
Total
Community and regional development
Total
310-700
0-80-13
194
THE BUDGET FOR FISCAL YEAR 1981
Table F-10. DIRECT LOANS AND GUARANTEED LOANS BY FUNCTION—Continued
(In millions of dollars)
New direct loans
Function
1979
actual
1980
estimate
New guaranteed loans
1981
estimate
1979
actual
1980
estimate
1981
estimate
Education, training, employment, and
social services: Education
700
651
1,156
3,290
75
136
163
48
217
268
775
787
1,319
3,338
4,847
2,428
Income security
278
302
307
9,451
10,000
10,825
Veterans benefits and services
Veterans housing
713
986
1,042
16,159
18,718
20,432
181
178
176
1,172
1,466
1,525
25,610
28,718
31,257
141
185
174
500
250
47
9
5
221
187
49,197
59,112
59,367
Health
Total
Other
Total
General purpose fiscal assistance
Other programs
Subtotal before deductions...
Less secondary guaranteed loans
Less guaranteed loans held by:
GNMA
FFB Grand total 1
1
49,197
59,112
59,367
4,630
2,160
201
100,888
116,783
131,597
22,816
21,334
25,133
1,492
16,045
60,535
1,931
22,004
71,515
1,760
23,941
80,763
Off-budget accounts are included.
INTEREST SUBSIDIES
To reallocate resources to specific areas of the economy, Federal
credit programs provide credit to selected groups on more favorable
terms than would be available in private capital markets. In most
cases, the favorable terms take the form of an interest rate that is
lower than the rate that would be charged by private lenders. The
interest rate on guaranteed loans is lower because Federal participation removes any default risk. Direct loans contain an additional
interest subsidy since they are financed more cheaply than guaranteed loans financed in the private sector. In some cases, the interest
rate is even lower than Treasury borrowing rates. Those interest
rate subsidies are estimated in this section. Federal credit terms may
involve other factors but those other factors are not estimated in this
section. In particular, the loan-to-value ratio and risk of the loan
may also be higher or the maturity longer than is available in
private capital markets. Other types of credit subsidies, also not
treated in this section, may result from fees or premiums inadequate
to cover costs of administration and losses on loan guarantee programs, waivers of such fees or premiums, or forgiveness of part or all
of the loan principal. This section also does not consider the direct
grants or other kinds of subsidies that may accompany Federal
credit assistance.
SPECIAL ANALYSIS F
195
The estimated interest subsidy is defined as the difference between the present value of the interest payments that the borrower
makes under Government assistance and the present value of the
interest payments that would have resulted from a comparable
private loan.
Calculation of the interest subsidies requires estimating the interest rate that borrowers would have paid in private capital markets. For some loans, particularly in housing, private credit market
interest rates are readily ascertainable and could be used in estimation, although the Federal loan may be made to higher risk
groups than would be serviced in the private market. For many
other programs, no comparable loans are made in private markets.
The difficulty in determining the level of private, unassisted interest rates on a program by program basis has led to the arbitrary
selection of a 13% interest rate. In some cases, the relevant market
rates may well exceed 13%, and, in others, private markets may not
exist in the absence of Government assistance. The table indicates
the approximate value of the subsidy because the true measure
cannot be calculated exactly.
Interest subsidies occur throughout the life of the loan. The
measurement of interest subsidies therefore requires the conversion of interest payments into a single discounted present-value.
This conversion, which capitalizes the interest payments, is computed by discounting future subsidies by the selected interest rate
(constant over the life of the loan) before adding them into a single
present value.
THE BUDGET FOR FISCAL YEAR 1981
196
Table F - l l . INTEREST SUBSIDIES OF DIRECT LOAN OBLIGATIONS AND GUARANTEED LOAN
COMMITMENTS
13.0 discount
Average loan
terms
Annual
Obligation (millions)
Present value
subsidy
subsidy
per
$100
Agency and program
Percent
Years
1979
1980
1981
million
1979
1980
1981
10.4
3.5
2.5
8.8
15.0
4.0
30.0
7.0
595
713
0
3,367
540
1,075
0
5,318
515
886
507
6,826
2.0
5.4
8.5
2.7
80
119
0
412
72
179
0
651
69
148
326
836
2.3
11.0
33.0
10.0
778
3
850
15
781
15
8.9
1.4
523
0
571
1
525
1
4.4
5.6
6.6
12.0
35.0
13.9
10.0
10.0
1,250
21
36
0
1,100
90
27
50
1,100
229
38
50
7.5
5.2
4.2
0.7
715
7
8
0
630
30
6
2
630
77
9
2
10.5
8.9
0.6
10.1
6,104
8,086
5,029
6,437
5,184
5,041
3.3
2.8
112
1,248
93
993
95
778
4.5
9.0
36.3
20.0
4,925
102
7,007
277
6,353
244
7.5
3.3
2,819
24
4,011
64
3,637
57
7.5
8.5
8.3
40.0
40.0
8.5
2,053
815
541
2,064
839
641
1,826
830
783
5.2
4.3
3.1
813
267
86
817
274
102
723
272
124
10.5
8.0
30.0
12.0
0
32
53
71
182
29
2.3
3.5
0
7
9
15
32
6
7.5
8.2
31.0
18.2
708
155
641
245
185
525
4.9
3.8
263
41
238
64
69
137
5.0
8.0
8.4
8.5
10.5
5.8
10.0
10.0
3.0
40.0
35.0
35.0
20.0
32.5
10.0
1.0
0.8
20.0
1,434
131
0
27
73
1,288
0
0
225
1,434
185
35
61
191
750
1,800
34
230
1,617
185
34
53
191
575
2,200
10
255
7.3
4.6
4.3
3.6
2.3
4.7
1.7
1.7
7.4
799
46
0
7
13
339
0
0
118
799
65
11
16
34
197
28
0
121
901
65
11
14
34
151
35
0
134
3.0
7.0
12.0
7.0
3.0
11.8
10.0
10.0
20.0
15.0
40.0
0.3
310
259
36
23
90
277
286
296
113
14
89
300
0
1,221
155
0
110
300
6.3
4.0
0.8
4.4
8.8
0.8
109
58
2
7
60
1
101
66
7
4
60
1
0
271
9
0
74
1
DIRECT LOANS
International assistance programs.Foreign military credit sales
Economic support fund
Functional development assistance
Export-Import Bank
Farm export credits—Public Law
480
Other programs
Energy and natural resource programs:
Rural Electrification Administration
Tennessee Valley Authority
Interior: Water resources
Energy security trust fund
Agricultural assistance programs:
Price support and related programs
Agricultural credit insurance
Commerce and housing credit:
Rural housing insurance fund
Federal Housing Administration
Government National Mortgage
Association
Housing for elderly/handicapped...
Small business loans
National Consumer Cooperative
Bank
Other aids to business
Transportation:
Purchase of Conrail securities....
Other transportation
Community and regional development:
Rural development insurance fund
Rural Telephone Bank
Rural communication
Coastal energy impact fund
Economic development assistance.
Disaster loan fund—SBA
NCUA: Central liquidity fund
Urban renewal
Housing rehabilitation
Education, health and income support:
Student financial assistance
Student loan insurance fund
Health maintenance organizations.
Health resources
Health education loans
Low rent public housing
197
SPECIAL ANALYSIS F
Table F - l l . INTEREST SUBSIDIES OF DIRECT LOAN OBLIGATIONS AND GUARANTEED LOAN
COMMITMENTS—Continued
13.0 discount
terms
Obligation (millions)
Present value
subsidy
subsidy7
per
$100
Agency and program
Veterans benefits and services:
Veterans housing programs
Veterans insurance policy loans....
Education loan fund
General purpose fiscal assistance:
DC loans
Percent
Years
1979
1980
1981
million
1979
1980
1981
11.5
5.0
7.0
29.2
30.0
10.0
394
159
8
569
156
9
611
154
8
1.4
6.8
4.0
41
82
2
59
80
2
64
79
2
9.4
27.0
140
185
174
3.2
34
44
42
Total—Major subsidized
direct loans
9,261
10,520 10,437
LOAN GUARANTEES
International affairs:
Export-Import Bank
Foreign military credit sales
Overseas Private Investment Corp.
Housing and other credit guarantee programsi
Energy and natural resource programs:
Rural Electrification Administration
CCC: Pilot fuel projects
Geothermal development
Energy supply, R&D
Energy security trust fund
Energy conservation
Energy production
Energy security reserve
Energy Security Corporation
TVA: Seven States Energy Corp
Agricultural assistance programs:
Agricultural credit insurance
Commerce and housing credit:
Government National Mortgage
Association
Federal Housing Administration
Rural housing insurance fund
Pollution equipment
contract
(SBA)
Business and investment loans
(SBA)
Surety bond guarantees (SBA)
NCUA: Credit union share insurance
Chrysler Corporation program
Transportation:
Maritime Administration
NOAA: Federal ship financing
Assistance to railroads
Aircraft loan guarantees
Community and regional development:
Rural development insurance fund
Rural communication
8.3
10.1
8.8
3.5 5,902 9,194 10,462
10.0 5,165 1,690 2,140
10.0
53
70
150
2.7
2.0
2.9
449
574
9
700
188
11
797
238
24
10.5
30.0
2.3
25
30
35
9.4
12.5
11.3
7.1
12.0
14.5
10.0
12.0
10.5
12.9
35.0 6,015 5,905 5,990
3.4 1,565 1,536 1,558
20.0
43
0
0
0.4
1
0
0
12.0
1
300
206
1.2
0
23
15
10.0
0
20
10
3.9
0
4
2
10.0
0
50
50
0.7
0
2
2
9.3
0
16
30 - 1 . 1
0
0
0
10.0
1
49
0
2.1
0
6
0
10.3
0 1,500
0
0.7
0
60
0
10.0
0
800 2,000
1.7
0
77
193
2.0
0 1,371 3,006
0
0
1
1
12.5
9.5
12.1
11.0
6.0
11.0
0.0
145
7.0 5,596
4,589
200
3,628
0.3
83
68
54
12.0 41,750 42,200 53,000
23.0 33,796 31,514 34,155
33.0 4,012 5,177 7,204
2.5 6,325 6,393 8,030
0.8 1,928 1,798 1,949
1.9
572
738 1,027
20.0
50
5.5
16
19
19
8.5 3,320 3,848 4,226
0.8 1,390 1,700 1,700
1.3
7.3
227
79
264
97
289
97
11
0
5.1
1.7
6
0
4
144
4
0
970 1,500
87
100
594
410
444
444
2.7
3.5
3.0
3.2
189
15
32
2
187
21
118
93
290
25
81
93
0.8
2.3
132
0
159
4
165
0
40
6.5
10.5
20.0
10.0
17
0
9.7
8.8
9.0
8.8
20.0
20.0
15.0
15.0
978
63
159
11
12.0
10.6
175
20.0 2,202
35.0
0
50
12
1,500
2,637
24
2,737
0
198
THE BUDGET FOR FISCAL YEAR 1981
Table F - l l . INTEREST SUBSIDIES OF DIRECT LOAN OBLIGATIONS AND GUARANTEED LOAN
COMMITMENTS—Continued
13.0 discount
Average loan
terms
Annual
Obligation (millions)
Present value
subsidy
per
$100
Agency and program
Percent
Years
Community development grants....
Economic development assistance.
Indian loan guarantee and insurance fund
Health, education and income support:
Student loan insurance fund
Guarantees of SLMA
Health professions graduate stu-
8.5
12.0
5.5
32.5
31
200
85 1,000
7.3
12.0
38
Health maintenance organizations.
Low rent public housing
Veterans benefits and services:
General purpose fiscal assistance:
1
1979
1980
1981
million
subsidy
1979
1980
1981
300
1,800
3.1
0.9
4
6
23
72
34
129
3
4.0
9
0
1
7.0
7.5
10.0 2,760 3,960 2,160
0.0
530
670
0
4.0
20.1
614
1
880
1
480
0
12.0
12.0
7.0
10.0
9
40
48
24
20.0
165
210
0.5 13,081 11,366 14,647
0.7
0.8
3.6
0
1
224
2
10
195
2
13
251
11.5
30.0
1.4 1,853
2,183
2,373
10.5
9.5
10.0
11.0
24
0
29
0
0
17,682 20,837 22,653
550
152
250
0
300
0
1.7
2.4
48
22
Total—Major subsidized
guaranteed
15,013 16,137 18,300
Grand total
24,274 26,657 28,738
In cases where a program charges an interest greater than 13%, no subsidy value is reported.
Using this technique, table F - l l presents the estimated values of
Federal subsidies for new direct loan obligations and guaranteed
loan commitments by agency and program for 1979-81. The first
two columns of the table give the average interest rate and maturity of the loan. The next three columns give the obligations or
commitments for 1979-81. The next column gives the annual subsidy per $100 million, which is the difference between the chosen
interest rate, in this case 13%, and the interest rate given on the
loan itself, found in this first column. The present value of the
subsidy is shown for each year for 1979-81 using the 13% interest
rate as the discount factor. Using the 13.0% discount rate, the
present value of the interest subsidy reaches $28.7 billion in 1981.
CONTROLLING FEDERAL CREDIT
Plans for direct and guaranteed lending under individual Federal
credit programs have been given some review during the annual
budget process. There has been, however, no established mechanism for regulating and closely reviewing total Federal credit activity. But starting in this Budget, both direct and guaranteed loans
SPECIAL ANALYSIS F
199
have been brought under greater scrutiny and control. There are
three goals of the administration's credit control system.
First, at the program level, the system should insure that
credit programs meet the purposes for which they are intended,
that they do so efficiently, and that the level of resources is
justified. This is a matter of good budgeting.
Second, the system should result in a more systematic
examination and rationalization of the distribution of Federal
Credit among sectors of the economy. The control system will
be the framework for analyzing the relative distribution of
Federal Credit resources among economic sectors, e.g., education, housing, industrial development and export promotion.
Third, on the aggregate level, the system will be a framework for analyzing the impact of total credit activity on the
economy as a whole—on public versus private needs, and on
economic growth, inflation and employment.
The Federal credit control system integrates Federal credit programs more completely into the budget process. The budget is the
chief instrument for allocating fiscal resources between public and
private sectors and among different functions or needs; it also sets
fiscal policy.
The proposed credit control system will result in two different
forms of control. First, most programs are controlled by both authorizing legislation and appropriations limitations. Second, the
remaining programs are controlled by authorizations and not appropriations. The activity in all these programs is estimated and
reviewed in the budget. The limits apply to gross annual direct loan
obligations and gross annual loan guarantee commitments. In the
case of loan guarantees, limits on commitments are being set for the
first time in most cases. Individual limits are proposed within
appropriation bill language for each credit program and are shown
in the Budget Appendix. The Budget Appendix also includes estimates of the lending activity by program.
In its initial phases, the credit control system has been deliberately limited to cover only part of Federal credit activities. Hence,
the credit control coverage differs from the coverage in previous
budgets and in this Special Analysis. The differences in coverage
arise from three primary causes.
(1) The credit activities of the privately owned Government-sponsored enterprises are excluded from the credit control system because of their private ownership.
200
THE BUDGET FOR FISCAL YEAR 1981
(2) In a number of programs, Federal loan guarantees cover less
than the full principal of the loan. The credit control system includes only the amount of the loan guarantee, since that is the
amount of the Government's contingent liability.
(3) A number of credit related activities have significant noncredit program characteristics. For example, Federal price or
rental guarantees have significant non-credit characteristics as
well as credit attributes. Transactions of these sorts are currently
excluded from the credit control system, although they are frequently controlled through some other aspect of the budget, so that
the control system can focus on clearly defined credit activities.
Specifically, the following kinds of direct loan and loan guarantee
transactions were excluded from the credit control system:
—sale of Federal assets on credit terms for more than 90 days
duration;
—investments in obligations or preferred stock of any privately
owned enterprises;
—deferred or delinquent interest that is capitalized;
—long term Government contracts for the purchase or lease of
goods or services or of real property where beneficial interests of
such contracts are pledged or assigned to lenders or investors;
—loans supported by contracts to pay any portion of the debt
service;
—callable capital contributions to multilateral development
banks;
—contingency-type direct loan commitments;
—price guarantees;
—guarantees to purchase unsold output; and
—project completion guarantees.
Table F-12 reconciles the Federal credit activity reported in this
Special Analysis to the activity of the credit control system shown
in Part 2 of the Budget There are five kinds of programs included
in the credit control system that are excluded from appropriation
limitations. For these programs, control is exercised only through
authorizing legislation rather than through both authorizations
and appropriations. The first kind is programs that represent a
clear and unambiguous entitlement to the qualified applicant, such
as veterans mortgage guarantees. The second kind is programs that
provide insurance against unforeseen circumstances, such as insurance of bank deposits.
These two exemptions preclude the appearance of control where
none can exist without changing the basic nature of the programs.
If they were included in the credit control system limits, the need
for mandatory supplemental appropriations actions would arise
whenever the limitations authorized for these programs proved
SPECIAL A N A L Y S I S F
201
insufficient. These two exemptions are similar in nature to those
budgetary activities considered relatively uncontrollable, many of
which are also not acted on annual appropriations.
The third exempts guarantees of certificates of beneficial ownership (CBO's) issued by the FmHA and the REA. The President's
Commission on Budget Concepts recommended the sale of CBO's be
treated as borrowing but current legislation requires REA and
FmHA to treat them as the sale of loan assets. While in a technical sense they are guaranteed, they are primarily financing. Since
the credit activity they finance, is covered in the control system,
they need not be.
Fourth, the basic insuring activities of the FHA and the GNMA
guarantees of mortgage backed securities are important instruments of Federal support of the housing market. Given the current
uncertainty in the housing market, these two activities have been
exempted from the requirement for limitations in appropriations.
This exemption applies only to the 1981 budget and will be reviewed again during the 1982 budget preparation process.
Fifth, the energy conservation loans by TVA 18 and the export
promotion loans by CCC are also exempt. Under present circumstances, the administration did not wish to unduly restrict these
activities.
As table F-12 indicates, the two significant differences between
total Federal credit activity and total activity in the control system
is the deduction of loans by Government-sponsored enterprises and
the difference between the full principal of guaranteed loans and
the Government's contingent liability. Due to exemptions, total
transactions of programs under appropriations control is about onethird of total credit transactions in the control system.
Both experience and further effort are needed before the credit
control system can be fully successful. As the administration seeks to
establish effective controls, more will be learned about how to improve
the control system. The establishment of the credit control system
will strengthen the development of economic policy. Bringing credit
programs more fully into the budget review process will thus help
coordinate credit policy and help synchronize the allocative aspects
of Federal credit activity with budget activity.
18
The energy conservation loans by T V A are not reported in the credit control system.
THE BUDGET FOR FISCAL YEAR 1981
202
Table F - 1 2 . RECONCILIATION: TOTAL FEDERAL CREDIT ACTIVITY TO FEDERAL CREDIT ACTIVITY
IN THE CREDIT CONTROL SYSTEM
(In billions of dollars)
1981
New transactions
Lending:
Total, credit advanced to the public under Federal auspices (from table F - 7 )
Less loans by Government sponsored enterprises
(from table F - 6 )
Less the difference between the full principal of
guaranteed loans and the Government's
contingent liability:
Veterans Administration
Federal Housing Administration
Export-Import Bank
Other
Less guaranteed loan transactions excluded from
the control system:
IFI: Callable Capital Subscriptions
General Services Administration
TVA
Less direct loan transactions excluded from the
control system:
Veterans Administration
USRA: Purchases of preferred stock of preferred stock of Conrail
TVA
Other
Total, credit advanced to the public in the
control system (from Part 2 of the
Budget)
Less transactions in programs exempt from
appropriations control:
Entitlements:
VA mortgages
Public housing
Insurance.CCC
Other
Purchases of CBO's by FmHA and REA..
Guarantees of FmHA and REA CBO's
FHA
Urban renewal
Public Law 480 export sales
GMNA: Mortgage backed securities
FFB
Energy Security Corporation
Other
Plus:
Secondary loans in programs exempt
from appropriations control
Direct loans held as guaranteed loans
Total transactions in programs under appropriations control
*Less than $50 million.
Net change
Outstanding
227.1
71.2
670.7
87.0
13.8
151.9
10.8
7.1
59.6
2.6
1.0
6.0
1.1
0.6
0.3
0.4
2.2
2.1
1.6
0.1
3.0
1.6
0.1
*
14.3
1.4
0.7
0.4
-0.3
0.8
0.2
0.2
0.2
0.2
0.2
- *
2.3
0.3
0.3
119.2
46.9
428.8
10.4
11.1
6.5
2.0
56.6
17.3
6.3
0.6
4.6
13.0
21.9
0.6
*
-1.1
9.3
10.3
8.6
4.9
0.2
48.2
129.1
0.2
-0.1
0.2
0.8
25.0
23.9
2.0
0.9
0.6
18.9
16.2
2.0
0.5
7.8
104.4
79.6
2.8
3.2
25.1
25.7
19.0
15.2
104.9
82.3
49.3
15.2.
153.2
SPECIAL ANALYSIS F
203
PROPOSED LEGISLATION
This budget makes a number of proposals that include significant
credit assistance. As part of the energy initiative, the proposed
Energy Security Corporation, financed by the proposed windfall
profit tax, will assist private industry to finance the development
of oil substitutes from coal, oil shale, biomass, and unconventional
gas. Assistance would be in the form of direct loans, loan gurantees, price guarantees, and purchase agreements.
The energy initiative also authorizes a Solar Energy Bank to
make payments to lenders who initiate below-market interest rate
loans for the purpose of financing and installing solar energy devices. These payments would compensate the lenders between the
interest rate charged and the comparable market rate.
A related energy proposal includes a $3 billion program of direct
loans and loan guarantees to encourage construction of small and
medium scale plants on farms and rural areas to convert grain into
inputs for gasohol.
Another proposal is to finance the low-rent public housing programs from the FFB. Previously, the programs were financed by
rolling over short-term tax-exempt notes issued by local public
housing authorities and guaranteed by the Federal Government.
The Small Business Administration is proposing a major restructuring of its direct and guaranteed business lending programs. The
changes orient the lending more to minority and women-owned
firms and emphasize guarantees over direct lending. The agency
will seek legislation to consolidate its business loan program into
one program, raise its loan limits on its guarantee from $500,000 to
$750,000 and delegate administrative functions to selected lending
institutions.
Another proposal is a major new direct loan program for postsecondary education. The new program provides loans on the basis of
need but includes a supplemental loan program.
RECENTLY ENACTED LEGISLATION
This section lists and briefly describes legislation enacted during
1979 that authorizes new Federal credit programs or revises existing programs in major respects. It excludes simple extensions of
expiring laws or changes in funds for continuing programs.
Interior Appropriations, Public Law 96-126.—This legislation authorizes funds appropriated to the Energy Security Reserve established in this law to support preliminary commercial development
alternative fuel commercialization through direct loans, cooperative agreements, and loan guarantees.
Amendments to the Bankruptcy Act, Public Law 96-56.—This
legislation amends the Bankruptcy Act to prohibit the writing off
of any federally insured or guaranteed student loan prior to five
years from the beginning of the repayment period.
204
THE BUDGET FOR FISCAL YEAR 1981
Taiwan Relations Act, Public Law 96-8.—This legislation allows
the Overseas Private Investment Corporation to provide direct
loans and guarantees for projects in Taiwan.
Agriculture Appropriations, Public Law 96-108.—This legislation
limits loan guarantees by the Commodity Credit Corporation for
the production and marketing of industrial hydrocarbons and alcohols from agricultural commodities and forest products.
Temporary Business and Industrial Loans Act, Public Law 9610^.—This legislation repeals provisions of law that permitted specified financial institutions to charge interest on business and agricultural loans over $25,000 at a rate of 5% above the Federal
borrowing rate and which precluded such institutions from raising
the defense of usury under such laws.
Health Planning Act Amendments of 1979\ Public Law 96-79.—
This legislation reduces by 25% per year for each year in which an
agreement is not in effect for designation of a State agency for
health planning the amount of any loan, loan guarantee, or grant
which has been committed to the state under the Public Health
Service Act, the Community Mental Health Act, the Comprehensive Alcohol Abuse, and Alcoholism Prevention, Treatment, and
Rehabilitation Act of 1970, and the Drug Abuse Office and Prevention Act of 1972. This legislation further authorizes guarantees
through 1982 for the payment of principal to non-Federal lenders
or the FFB for their loans to the public and non-profit entities for
medical facilities projects. It authorizes loans through 1982 for the
discontinuance of unneeded hospitals or services, the conversion of
existing facilities to needed health services and facilities, the modernization of medical facilities, the construction of new outpatient
facilities, and the construction of new inpatient facilities in areas
experiencing rapid population growth. It also provides the payment
to the holder of a loan an amount sufficient to reduce by no more
than one-half the net effective interest rate, if the loan holder is in
a poverty area.
Nurse Training Amendments of 1979, Public Law 76-76.—This
legislation authorizes an increase in the annual ceiling on federally
insured loans to medical, osteopathic, and dental students from
$10,000 to $15,000 upon the determination that the educational
costs require such an increase. It also raises the principal amount
from $50,000 to $60,000 for some student categories.
International Investment Cooperation Act of 1979, Public Law 9653.—This legislation directs agencies that administer loan repayments in all international programs to conduct an annual review of
bilateral concessional loan balances and to determine and identify
those countries whose financial reserves make possible accelerated
loan repayments.
SPECIAL ANALYSIS F
205
Amtrak Reorganization Act of 1979, Public Law 96-73.—This
legislation stipulates that the United States Railway Association
shall have a direct claim on the amount of loans, plus interest
which are forgiven pursuant to the Regional Rail Reorganization
Act of 1973, as a current expenditure of the administration of a
railroad in reorganization.
Milwaukee Railroad Restructuring Act, Public Law 96-101.—
This legislation removes the requirement that Federal guarantees
of railroads in reorganization be treated as expenditures of administration and receive the highest priority in bankruptcy, if the
railroad is actively engaged in restructing under an employee stock
ownership plan or employee-shipper stock ownership plan. It increases the aggregate amount of loan principal that may be guaranteed by $75 million and specifically requires DOT to guarantee
the certificates of the Milwaukee Railroad for continued interim
operation and subordinates the loan repayments to the creditors of
the Milwaukee Railroad. It also guarantees obligations of the Milwaukee Railroad in order to provide employee protection and sets a
$75 million ceiling on the U.S. Government liability.
Veterans and Survivors Benefits Adjustment Acts, Public Law 96128.—This legislation exempts VA guaranteed and insured home
loans from state anti-usury laws and constructs provisions to conform to the treatment of mortgages under the National Housing
Act.
Chrysler Corporation Loan Guarantee Act of 1979, Public Law
96-185.—This legislation extends a $1.5 billion loan guarantee to
assist the Chrysler Corporation in its short term difficulties.
Administrative expenses of the Chrysler loan guarantee program,
Public Law 96-183.—This legislation sets the administrative expenses of the Chrysler loan guarantee program at $1,578 million.
Rural Housing Amendments of 1979, Public Law 96-153.—This
legislation makes a number of technical amendments. Among these
is the exemption of FHA mortgages from state usury ceilings.
A bill to amend the Federal Reserve Act, Public Law 96-161.—
This legislation permits federally insured commercial banks to
offer automatic funds transfer from checking to savings accounts; it
permits Federal credit unions to offer share draft accounts; and it
preempts State usury laws on certain mortgages and other financial instruments.
While not newly enacted legislation, the Federal Home Bank
Board (FHLBB) in January allowed member savings and loan associations to issue short term commercial paper. Also, the Federal
Reserve announced several amendments to Regulation Q designed
to help the small saver. Among these is the ability of federallyinsured depository institutions to offer
year savings certificates
with their interest rate tied to the rate of comparable maturity
treasury certificates.
SPECIAL ANALYSIS G
TAX EXPENDITURES
The Congressional Budget Act of 1974 (P.L. 93-344) requires a
listing of tax expenditures in the budget. The act defines tax expenditures as "revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability/' Tax expenditures
are one means by which the Federal Government pursues public
policy objectives and, in most cases, can be viewed as alternatives
to budget outlays, credit assistance or other policy instruments.
Tax expenditures have varied objectives. Nearly all tax expenditures are meant either to encourage certain economic activities or
to reduce income tax liabilities for taxpayers in special circumstances. Among the economic activities encouraged by tax expenditures are investment, housing, petroleum exploration and development, borrowing by State and local governments and support of
charitable institutions. The deductibility of medical expenses and
casualty losses and personal exemptions for the aged and blind are
examples of adjustments of tax liabilities for taxpayers in special
circumstances.
The benefits of tax expenditures designed to encourage particular types of economic activity may not rest fully or even mainly
with the corporations or individuals whose taxes are initially affected. Benefits often accrue to others in the form of lower prices
for particular goods or services, or in other ways become widely
diffused. For example, to the extent that the investment tax credit
stimulates capital formation, productivity may increase and real
wages may rise, benefiting recipients of labor income as well as
capital income.
This special analysis contains quantitative estimates of tax expenditures but does not attempt to evaluate their effectiveness. It
should be emphasized that the listing of specific tax expenditure
items does not imply either approval or disapproval of specific
provisions of the tax system.
DEFINING T A X
EXPENDITURES
Income tax provisions resulting in tax expenditures are further
defined in the legislative history of the Congressional Budget Act
as exceptions to the "normal structure" of the individual and cor-
207
208
THE BUDGET FOR FISCAL YEAR 1981
porate income taxes. They reduce tax liabilities for particular
groups of taxpayers. No estimates are made in this analysis for
negative tax expenditures or tax penalties—that is, exceptions to
the normal structure of income taxes that result in increased tax
liabilities for certain groups of taxpayers. At present there are only
a few such exceptions. One example is the nondeductibility of
gambling losses in excess of gambling gains where gambling is
engaged in for profit. Also, under the Tax Reform Act of 1976
deductions for the costs associated with the demolition of certain
historic buildings were disallowed and crediting of foreign taxes
paid was denied taxpayers who cooperate with or participate in an
international boycott.
The Internal Revenue Code contains individual income, corporate income, estate and gift, excise and employment taxes. This
analysis deals only with deviations from the "normal structure" in
the taxation of individual and corporate income.
The "normal structure" is not defined in the tax code. The
concept has evolved from various Congressional and public reviews
of the U.S. tax system focusing on the definition of the income tax
base and the rates applied to that base. Tax expenditures might in
principle be defined as departures from a theoretical income tax
base. "Economic income," defined as receipts available to support
consumption or additions to net wealth, the imputed value of inkind consumption, and imputed changes in net wealth, might be
used for this purpose. Such theoretically pure treatment, however,
is not possible in practice.
The concept of the normal structure recognizes that it is impractical for individual taxpayers to make the necessary imputations
as, for instance, the imputed income derived from owner-occupied
homes. Furthermore, for historical and administrative reasons the
normal structure allows separate taxation of individual and corporate incomes even though it would be possible to define a normal
income tax structure that would integrate these two taxes within
the framework of a theoretically pure income tax structure.
Although a theoretically pure as well as normal structure for an
income tax base can be specified with reference to generally accepted rules of income measurement, there is no similar point of reference for regarding as theoretically pure or normal any particular
structure of income tax rates. However, for purposes of identifying
tax expenditures, the progressive rate structure and the provisions
that eliminate the tax liability of low-income persons are considered to be part of the normal tax structure. When the rate structure and threshold levels for tax liability are changed, for whatever
reason, the new rates and threshold levels become part of the
normal structure used in the analysis of tax expenditures. Reductions in the tax rates for individuals and the increase in the
SPECIAL ANALYSIS F
209
personal exemption and the standard deduction (now called the
zero bracket amount) in the Revenue Act of 1978 tend to reduce
the estimated revenue losses associated with some tax expenditure
items. This has occurred because fewer taxpayers have itemized
their deductions and because tax preferences have less value at
lower marginal rates.
Neither tax rates nor outlays can be presumed to be independent
of current tax expenditures. If major tax expenditure items were
repealed, tax rates could be set at lower levels or budget outlays
could be increased to maintain an appropriate fiscal policy.
Some of the more technical issues involved in distinguishing
between the normal structure of the income tax system and tax
expenditure provisions are discussed in the following paragraphs.
• Threshold levels for tax liability. The normal structure includes those tax code provisions that determine threshold
levels of income below which no tax liability is imposed for
the different types and sizes of taxpaying units. Personal
exemptions and the standard deduction have determined
these thresholds in recent years. Legislation enacted during
1975, 1976 and 1977 temporarily added the general tax credit
to these threshold provisions. The Tax Reduction and Simplification Act of 1977 made a permanent change in the provisions that establish threshold levels for tax liability by repealing the low-income allowance and the percentage standard
deduction and substituting flat standard deductions (now
called zero bracket amounts) for different types of filing units.
The Revenue Act of 1978 again changed the threshold levels
by not renewing the general tax credit for tax years after
December 31, 1978, by increasing the standard deduction and
by raising the personal exemption. The additional personal
exemptions for taxpayers 65 and over and the blind result in
tax expenditures because they are special provisions directed
at groups in special circumstances.
• The progressive rate schedules for the individual income tax.
A progressive rate schedule for the individual income tax is
considered to be part of the normal tax structure, as would a
proportional or even a regressive rate schedule, because the
concept of tax expenditures is not characterized by any specific rate schedule. Therefore, tax expenditures do not result
because some income is taxed at lower rates than other
income. The income averaging provision of the code is also
considered to be part of the normal structure. The maximum
tax of 50% on personal service income is treated as a tax
expenditure item because it is a "preferential rate of tax" as
defined in the Congressional Budget Act.
310-700
0 - 8 0 - 1 4
210
THE BUDGET FOR FISCAL YEAR 1981
• The limited progressive rate schedule for corporations. The
Revenue Act of 1978 changed the treatment of the first
$100,000 of corporate income by taxing it at progressive rates
ranging from 17 to 40%; all amounts over $100,000 are
taxed at 46%. Consistent with the treatment of the corporate
surtax exemption in prior years, corporate tax rates below the
46% top rate are viewed as giving rise to a tax expenditure.
• Separate rate schedules for single and married taxpayers, married taxpayers filing separately and heads of households. Existing provisions regarding the definition of taxpaying units
and separate rate schedules for different types of taxpayers
are considered part of the normal tax structure. The concept
of tax expenditures is not characterized by any specific set of
rate schedules applicable to the particular tax filing units.
• Imputed income from owner-occupied housing and other
sources. A theoretically pure income concept would include
imputations for income received in kind from the occupancy
of a home owned by the taxpayer and for in-kind income from
the ownership of other durable assets. Because such imputations are difficult to make, they are not considered in the
computation of tax expenditures, even though the exclusion of
imputed income from income subject to tax affects the allocation of the economy's resources, particularly by stimulating
owner-occupied housing. If income from owner-occupied housing were imputed, deductions for mortgage interest and property taxes would be an appropriate part of the normal structure in order to measure the amount of net income that
should be included in the tax base. In the absence of an
income imputation, those two deductions result in tax expenditures.
• The value of government benefits received in kind. The exclusion from income subject to tax of most direct cash payments
to individuals by the government, such as social security payments, results in tax expenditures. Other government programs such as medicare and public education that extend
benefits in kind to individuals are not included in income, but
this exclusion does not result in tax expenditures. The dividing line is not clear cut between nontaxable government benefits that result in tax expenditures and those that do not.
Food stamps, for example, are so nearly the equivalent of
cash that their exclusion from income subject to tax might be
considered to result in a tax expenditure, but in this analysis
they are not so considered.
• Capital gains and losses. Although the base of a theoretically
pure income tax would include net capital gains as they
accrue, practical problems generally prevent the identifica-
SPECIAL ANALYSIS F
211
tion and taxation of unrealized capital gains. Hence, the
normal structure taxes such gains only when "realized." However, the exclusion from taxable income of 60% of capital
gains (increased under the Revenue Act of 1978 from 50% in
prior law) results in a tax expenditure.
An individual's assets held at death may have appreciated in
value. Since these gains are not deemed to have been realized
in the year of death under current law, they are completely
excluded from the decedent's income subject to tax. The failure to include unrealized capital gains in the year of death in
income is considered for purposes of this analysis to result in
tax expenditure.
Prior to the enactment of the Tax Reform Act of 1976, the
basis of the decedent's assets in the hands of the estate, heir
or other beneficiary was their market value at the date of
death. Thus, gains that accrued before death were never subject to tax. Under the 1976 act, the estate or beneficiaries
must "carry over" the decedent's basis, adjusted to account
for death taxes attributable to unrealized gains, and thus be
subject to tax on gains that accrued during the lifetime of the
decedent as well as gains that accrued subsequent to inheritance.
As a means of phasing in this provision, an asset's basis to
the estate, heir or beneficiary is generally its value on December 31, 1976, or, if acquired later, the acquisition cost. The tax
on such gains will partially offset the tax expenditure resulting from the failure to include capital gains in income subject
to tax in the year of death. However, the Revenue Act of 1978
postponed the operation of the carryover of basis provisions,
which will only be applicable to property passing from decedents dying after December 31, 1979. Hence, under current
law, offsetting revenue gains will not begin until 1981.
• Gifts and bequests. The tax system subjects gifts and bequests
to taxes separate from the income tax. Therefore their exclusion from the recipient's taxable income under the individual
income tax does not result in a tax expenditure. While another set of tax expenditures could be defined for departures
from a "normal structure" of gift and estate taxes, this would
be beyond the scope of this analysis.
• Forms of business organization. The tax law recognizes different forms of business organization including corporations,
partnerships, subchapter S corporations treated in a manner
somewhat similar to partnerships, cooperatives, mutual insurance companies and individual proprietorships. The provisions of the tax law that accommodate different forms of
business organization do not generally result in tax expenditures so long as income is subject to tax at either the corporate or the individual level.
212
THE BUDGET FOR FISCAL YEAR 1981
• Treatment of individuals and corporations as separate taxpaying entities. It is possible to define a tax structure in which
individual and corporate taxes are completely integrated in
the sense that all corporate income would be allocated and
taxed to shareholders. However, for purposes of this analysis,
separate taxation of regular corporate entities is considered to
be part of the normal tax structure.
• Deduction of depreciation expenses. The tax code allows a
reasonable allowance for depreciation. Depreciation is defined
as "the exhaustion, wear and tear (including a reasonable
allowance for obsolescence) on property used in a trade or
business or for the production of income." To measure actual
depreciation the changes in market values of assets are required. This information is generally not available, so that
estimates of an asset's useful life and its probable rate of
depreciation are used instead. Depreciation over the useful
life of an asset may be taken at a uniform rate, known as
straight line depreciation, or at a rate that is faster in the
earlier years of an asset's life, known as accelerated depreciation. For depreciation purposes a distinction is made between the treatment of machinery and equipment and that of
buildings. The use of accelerated depreciation for machinery
and equipment is considered to be part of the normal tax
structure because they tend to lose more of their actual value
in the first few years of useful life. However, under the asset
depreciation range (ADR) system, a taxpayer may select a life
for an asset of up to 20% shorter the guideline life published by the Internal Revenue Service without having to
justify the choice. If an asset life within the 20% range but
shorter than the guideline life is chosen, a tax expenditure is
assumed to result. In the case of buildings, no comparable
guideline lives are published. Thus, to the extent that lives
claimed by taxpayers are justified on the basis of "facts and
circumstances," tax expenditures do not result. For certain
types of buildings, such as rehabilitated low income housing,
the use of shorter lives is permitted by the tax code, thereby
giving rise to tax expenditures. Furthermore, for all buildings,
the straight-line method of depreciation is considered to be
part of the normal tax structure, and the additional deductions resulting from the use of accelerated depreciation are
regarded as tax expenditures.
• Deduction of other business expenses. The deduction of business expenses is necessary to determine taxable income. Tax
expenditures do not ordinarily result when deductions for
"ordinary and necessary" business expenses are taken. No
attempt was made in this analysis to determine whether cer-
SPECIAL ANALYSIS F
213
tain expenses such as those for entertainment and meals
should not only reduce the taxable income of employers, but
should also be excluded from the taxable income of the employees receiving these in-kind benefits. Tax expenditures do
occur when the tax code permits business or investment expenditures that are capital outlays in economic terms to be
treated as current expenses.
• Foreign tax credits. The normal structure of the income tax
includes tax credits for foreign income taxes paid; this prevents the double taxation of income earned abroad. While
there are some limitations on the credit, it generally conforms
to the principle that total taxes paid by a U.S. resident should
be independent of the source of his income.
• Income of controlled foreign corporations. The income of foreign corporations controlled by U.S. corporations or citizens is
generally not subject to U.S. tax until that income is repatriated. There are certain exceptions in order to avoid abuse in
tax-haven countries. The deferral of income of controlled foreign corporations is included as a tax expenditure in this
analysis, because it is an exception to the basic precept of our
tax system that U.S. corporations and citizens are subject to
tax on their worldwide income when earned.
This discussion does not exhaust the definitional issues inherent
in the tax expenditure concept nor does this analysis consider all
special tax provisions. Also, some items are omitted because the
revenue loss is relatively small ($2.5 million or less).
Making distinctions between the normal tax structure and exceptions leading to tax expenditures does not imply that the features
of the normal tax system should be exempt from periodic analysis
and review. Many features of what is now defined as the normal
tax structure, such as rate structure and exemption levels, have
major effects upon the level and composition of economic activity
and the distribution of income. Budget outlays, or other policy
instruments, are alternative means to achieve the objectives of
certain features of the normal tax structure just as they are often a
potential substitute for tax expenditures.
MEASURING T A X
EXPENDITURES
The tax expenditure estimates reported in table G - l have been
prepared by the Treasury Department and are based upon tax law
enacted as of December 31, 1979. The estimates show the loss of
budget receipts by fiscal year resulting from each of these particular features of the tax system. For those tax expenditures resulting
from the exclusion from taxable income of Federal Government
payments to individuals, the estimates of such payments upon
which the tax expenditure estimates are based are those shown
214
THE BUDGET FOR FISCAL YEAR 1981
elsewhere in the budget; hence they reflect any proposed changes
in these programs.
Each estimate assumes that the tax provision in question had
never been a part of the tax system but that all other features of
the tax system, including the structure of rates, would remain
unchanged. In most cases, the assumed deletion of the special tax
provision would increase taxable income for certain corporations or
individuals; existing marginal tax rates are then applied to the
estimated change in taxable income to compute the tax expenditure. For each itemized nonbusiness deduction for individuals, this
same procedure is followed. However, in some cases taxpayers will
no longer have remaining deductions sufficient to itemize and will
elect the standard deduction. Tax expenditures resulting from credits are simply equal to the estimated credits claimed by all taxpayers. Aggregate output and incomes are assumed to be unaffected by
the deletion of the special features of the tax laws giving rise to tax
expenditures. No "second order" effects are included in the estimates because it is assumed that some offsetting fiscal or other
action would be taken to keep the economic aggregates at the
levels that underlie the 1981 budget estimates.
Taxpayer behavior is also assumed to be unaffected by the assumed deletion of a tax expenditure provision even though, to the
extent that tax expenditures intended to encourage certain economic activities have been successful, their elimination would presumably change taxpayer behavior. Such changes would alter the
mix of economic activity. However, given the assumed unchanged
economic aggregates, no effects on receipts of a different mix of
activity are reflected in the estimates.
Some tax expenditures result from the timing of deductions or
the receipt of taxable income. Examples are depreciation in excess
of straight line for buildings and rental housing and the deferral of
income by domestic international sales corporations (DISC's). These
provisions create a permanent tax expenditure even though for a
particular taxpayer, transaction or asset the special provision
defers a tax rather then eliminates it. For a stable or growing
business, the deferral of taxes continues indefinitely under most of
these provisions.
As is the case with estimates of proposed changes in tax law, tax
expenditure estimates are computed on a budget receipts or "cashflow" basis. However, for purposes of the present analysis, the
estimates show the difference between budget receipts under current law and budget receipts under the assumption that a law
without the particular tax expenditure provision had always been
in effect. These figures, therefore, generally show more revenue
than could be obtained in the first years of transition from one tax
law to another.
SPECIAL ANALYSIS F
215
An alternative method of measuring tax expenditures that involve deferral would be to compute for each year the present value
of the tax savings associated with the preference items. This
method would make it easier to compare the values of subsidies
that result from tax preferences that postpone tax liability with
the values of those that reduce it permanently. Such a present
value calculation would avoid the anomalous negative estimates
that result when tax revenues calculated on a cash flow basis are
higher than they would have been without the tax expenditure.
This occurs in situations where taxpayers whose tax liabilities were
reduced in earlier years have larger tax payments in later years
than they otherwise would have.
Sample data from tax returns have been used to estimate tax
expenditures whenever possible. These data, however, are not yet
available for the years presented in this analysis. Consequently,
the estimates have been made by extrapolating forward sample tax
return data from past years by means of other, more current
information, including the economic forecast used in estimating
budget receipts and outlays. In addition, many tax expenditures
result from excluded income not reported on tax returns. In these
cases data for the estimates must be derived from other sources.
The estimates take into account any changes scheduled under existing law, such as the phasing in or out of specific provisions.
The estimates are reduced by any minimum tax liabilities associated with particular items. The minimum tax on tax preferences
was introduced in 1969 to assure that individuals and corporations
receiving tax preferences do not escape bearing a share of the tax
burden. Several tax expenditure items are included in the base of
the minimum tax.
The Revenue Act of 1978 modified the minimum tax for individuals by excluding capital gains and excess itemized deductions as
preference items subject to the minimum tax. However, a new
alternative minimum tax may be applicable, levied on the sum of
taxable income, certain deductions in excess of specified income
limits and the capital gains deduction. The new alternative minimum tax is paid if tax liabilities under this tax exceed the sum of
tax liabilities under the ordinary income tax and the minimum tax
as revised. Any revenue gain under the alternative tax is assumed
to offset the tax expenditures that would otherwise result from the
capital gains preference. As a result of the Energy Tax Act of 1978
intangible drilling costs for oil and gas and geothermal wells are no
longer minimum tax preference items to the extent that net
income from the production of these wells offsets intangible drilling costs deductions. This change makes permanent the temporary
rule which was enacted by the Tax Reduction and Simplification
Act of 1977.
216
THE BUDGET FOR FISCAL YEAR 1981
The Tax Reform Act of 1976 also introduced two "at-risk" rules
that limit deductions attributable to a taxpayer's investment to the
amount of cash investment plus the debts for which the taxpayer is
personally liable. One rule applied to all taxpayers (other than
regular business corporations) engaged in farming, motion picture
films, equipment leasing and the exploring for and the exploitation
of oil and gas. The other rule applied only to partners (including
corporate partners) of a partnership engaged in any activity other
than real estate. These at-risk rules succeeded in reducing tax
expenditures. The Revenue Act of 1978 consolidated the at-risk
rules into one rule, applicable to all taxpayers other than widely
held corporations and to all activities other than equipment leasing
by closely held corporations and real estate.
Tax expenditure estimates cannot be simply added together to
obtain totals for functional areas or a grand total. However, where
tax expenditures for both individuals and corporations result from
the same tax code provision, such as the investment tax credit, the
two estimates may be added together.
Simply adding tax expenditures produces inaccurate totals because tax expenditures affect the value of other tax expenditures.
This interaction effect may be demonstrated by comparing the
result of deleting two tax expenditures simultaneously to that of
deleting them separately. In some cases, the revenue gained from
the deletion of two tax expenditure items simultaneously would be
greater than the sum of the gains from the deletion of the two
items separately. For example, if interest income from State and
local government securities were made taxable and capital gains
were taxed at ordinary rates, many more individuals would be
pushed into higher tax brackets than if just one of these sources of
income became fully taxable; the combined effect on revenue would
be greater than the sum of the two separate effects. In other cases,
the revenue gain from the deletion of two items together would be
smaller than the sum of the gains considered separately. For example, if the deductibility of mortgage interest payments and homeowner property taxes were both repealed and the standard deduction were left unchanged, many individuals who now itemize their
deductions would opt for the standard deduction, thus limiting the
revenue gain.
In general, elimination of several itemized deductions would increase revenue by less than the sum of the revenue gains measured
by eliminating each item separately because more taxpayers would
use the standard deduction. Conversely, elimination of multiple
items that are exclusions from adjusted gross income would increase revenue by more than the sum of the individual gains
because taxpayers would be pushed into higher tax brackets.
SPECIAL ANALYSIS F
217
As a measure of this aggregation problem, the revenue loss resulting from all itemized deductions that result in tax expenditures
would be $44.5 billion in 1981, whereas the sum of these tax expenditures, taking each item separately, is $58.9 billion. The aggregations of related tax expenditure items that are presented and
discussed in the text have been specially estimated to take account
of interaction effects.
T A X EXPENDITURES BY FUNCTION
Estimates of tax expenditures for 1979-81 are grouped together
by functional category and presented in Table G-l. The estimates
are shown separately for individuals and corporations. Each tax
expenditure has been classified in the functional categories used
for budget outlays into which they most closely fit. A brief description follows of each of the special tax provisions for which a tax
expenditure estimate is shown in Table G-l.
National defense.—The housing and meals provided military personnel, either in cash or in kind, are excluded from income subject
to tax. Most of the disability-related military pension income received by current retirees is also excluded.
International affairs.—Prior to January 1, 1978, a U.S. citizen
was able to exclude foreign earnings of up to $20,000 a year (in
some cases $25,000) if the taxpayer was a resident of a foreign
country or remained outside the United States for 17 months in an
18-month period. The Foreign Earned Income Act of 1978 replaced
the exclusion for taxpayers with deductions for certain foreign
living costs and extended these deductions to U.S. resident aliens.
(For a taxable year beginning in the 12-month period from January
1, 1978 to December 31, 1978, taxpayers could elect either the new
law or the $15,000 lump sum exclusion of the Tax Reform Act of
1976. For tax years beginning after December 31, 1978, only the
new law applies.)
Under the new law, eligible taxpayers may deduct expenses for
annual home leave travel, the cost of schooling from kindergarten
through grade 12 equivalent to that prevalent in the United States,
the excess of foreign living costs other than housing and education
over those in the highest U.S. mainland city and the excess of
reasonable housing costs over one-sixth of earned income less the
special deductions. Taxpayers living in hardship areas will be allowed an additional deduction of $5,000. Taxpayers living in hardship areas in camps set up by their employers may elect to exclude
$20,000 plus the value of meals and lodging furnished by the employer in lieu of taking the special deductions. The new law makes
no change in the tax-exempt status of certain allowances received
by Federal employees working abroad. These exemptions also
result in tax expenditures.
218
THE BUDGET FOR FISCAL YEAR 1981
The profits of a domestic international sales corporation (DISC)
are not taxed to the DISC but instead are taxed to the shareholders
when distributed or deemed distributed to them. For DISC's with
more than $150,000 in otherwise taxable income, the deemed distribution equals all income attributable to base-period exports plus
50% of income attributable to exports in excess of the base-period
exports. Base period exports equal 67% of average annual exports
during an earlier 4-year base period. For DISC's with less than
$150,000 in otherwise taxable income, the deemed distribution
equals 50% of total income.
Except for certain tax-haven provisions, the income of foreign
corporations controlled by U.S. shareholders is exempt from U.S.
taxation until that income is distributed to the shareholders. The
tax expenditure estimate assumes that if deferral were terminated
the earnings of a controlled foreign corporation would be taxed to
the parent corporation.
In 1980 the phase-out of the preferential treatment of Western
Hemisphere trade corporations, begun by the Tax Reform Act of
1976, was completed.
General science, space, and technology.—Research and development expenditures are intended to result in new products or processes, cost reductions, or other effects whose benefits will in nearly
all cases continue into the future. Businesses may deduct all research and development expenditures in the year when they are
incurred rather than amortize them over several years.
Energy.—Certain capital costs necessary to discover and develop
mineral properties may be deducted as current expenses rather
than being spread over the useful life of the property. Included in
this category are the intangible drilling costs of oil wells, such as
the wages of drilling crews, and the cost of developing other mineral deposits, such as expenditures for mine shafts, tunnels and
stripping. The Tax Reform Act of 1976 made intangible drilling
costs for oil and gas wells a preference item for purposes of the
minimum tax to the extent that such costs exceeded either cost
depletion or 10-year amortization. The rule was liberalized for 1977
by allowing individuals to exclude intangible drilling costs from
their minimum tax base to the extent that the deductions did not
exceed oil and gas income. This temporary rule was made permanent by the Revenue Act of 1978. In addition, the Energy Tax Act
of 1978 adopted the same rules for intangible drilling costs of
geothermal wells.
Extractive industries generally use percentage depletion rather
than cost depletion. Under cost depletion, actual outlays, to the
extent not immediately recovered through expensing of exploration
and discovery and development costs, may be deducted over the
productive life of the property, much as businesses may take deduc-
SPECIAL ANALYSIS F
219
tions for the depreciation of other capital goods. Percentage depletion is not likewise limited to the cost of the investment. Under
percentage depletion, taxpayers may deduct a percentage of gross
income from mineral production at rates ranging from 22% for oil
and gas and certain other minerals to 5%; however, the deduction
is limited to 50% of net income from the property or 65% of
taxable income in the case of oil and gas. The Tax Reduction Act of
1975 restricted the availability of percentage depletion to limited
quantities of output by independent oil and gas producers and
royalty owners. In addition, the act phased down the percentage
depletion rate for oil and gas from 22% through 1980 to 15% in
1984 and thereafter. The Energy Tax Act of 1978 made production
after September 30, 1978 from geothermal deposits eligible for percentage depletion at the same rate as for oil and gas, but with no
limit on output and no limitation with respect to qualified producers. In lieu of percentage depletion, royalties from coal deposits are
treated as capital gains rather than ordinary income.
The Energy Tax Act of 1978 created a variety of tax incentives to
stimulate energy conservation and to encourage conversions to
energy sources other than oil or natural gas. The act provides a
15% income tax credit to individuals for home insulation and other
energy-conserving components up to a maximum credit of $300. A
credit of 30% on the first $2,000 of expenditures and 20% on the
next $8,000 is allowed for solar and other renewable energy source
property. These credits are retroactive to purchases made after
April 19, 1977.
For business, the act provides an additional 10% credit for investments in specified energy property. Such property includes
alternative energy property (i.e., property using fuel other than oil
or natural gas); solar or wind energy property; specially defined
energy property (i.e., property used in an existing industrial, agricultural or commercial facility to reduce the amount of energy
consumed or heat wasted); recycling equipment; shale oil equipment; and equipment for producing natural gas from geopressurized brine.
Natural resources and environment—Interest on State and local
government debt issued to finance the pollution control facilities of
private firms is excluded from income subject to tax.
Certain payments made by customers to water and sewage disposal utilities for the purpose of aiding the construction of new
facilities are treated by utilities as contributions to capital rather
than as gross income from the sale of a constructed asset. Payments of this kind to public gas and electric utilities were given the
same treatment retroactive to February 1, 1976 by the Revenue Act
of 1978.
220
THE BUDGET FOR FISCAL YEAR 1981
Pollution control facilities installed in existing buildings may be
amortized over 5 years instead of over their longer useful lives.
This results in a deferral of taxable income. The revenue effect of
this deferral reflects both the revenue loss attributable to the
excess of amortization over normal depreciation and the revenue
gain resulting from the disallowance of depreciation deductions
after the end of the amortization period. In a growing economy in
which taxpayers consistently elect rapid amortization, the annual
revenue loss from the amortization of current investments exceeds
the gain from the lower depreciation deductions for past investments. In the case of pollution control facilities, taxpayers generally elected amortization for investments placed in service between
1969, when the provision was first effective, and 1971. In 1971 the
investment credit, which had been repealed in 1969, was reinstated,
but was not extended to facilities amortized over 5 years. Because
5-year amortization with no investment credit is less favorable
than normal depreciation with the investment credit, taxpayers
ceased electing amortization. The Government is now recapturing
some of the benefits of deferral for investments made between 1969
and 1971, so that the effect of this provision for 1979 and 1980 is a
revenue gain, producing a negative value of the tax expenditure.
The law was changed by the Tax Reform Act of 1976, which
allowed taxpayers to elect amortization and one-half of the investment credit for facilities placed in service after December 31, 1976,
and by the Revenue Act of 1978, which allows taxpayers the full
investment credit for facilities placed in service after December 31,
1978 to the extent that such facilities are not financed with taxexempt bonds. Thus, the election of the amortization provision is
again favorable to the taxpayer. In 1981 the loss from amortization will exceed the gain from the recapture of past benefits, so
that the tax expenditure will be positive.
Expenditures to preserve and restore certain historic structures
are eligible for special accelerated depreciation. This provision does
not apply to owner-occupied housing. Amendments by the Revenue
Act of 1978 make the procedures for designating State and local
historical districts similar to those for designating Federal districts.
The gains on the cutting of timber and royalties from iron ore
deposits are taxed at rates applicable to long-term capital gains
rather than ordinary income.
Agriculture.—Farmers, other than certain corporations and partnerships engaged in agriculture, are allowed to deduct certain costs
as current expenses even though these expenditures are for inventories held at the end of the year or for capital improvements
under normal accrual accounting. Capital gains treatment generally applies to the sale of livestock, orchards, vineyards, and other
agricultural products.
SPECIAL ANALYSIS F
221
Rural electric and telephone cooperatives are exempt from the
corporate income tax. Payments of noncash patronage dividends to
their patrons generally need not be considered income by the
patron until received in cash. Other cooperatives are subject to
corporate income tax but may deduct cash and noncash patronage
dividends based on business done with patrons provided 20% of
total dividends are paid in cash and the patron has agreed to
include the entire dividend in income. Cooperatives marketing
products for patrons also may deduct amounts retained by the
cooperative on a per-unit basis ("per unit retains") if the patron
has agreed to take the stated amount of the retain in income.
Farmers' marketing and purchasing cooperatives meeting certain
requirements are permitted to deduct dividends on capital stock
and payments to patrons from nonpatronage income. The tax expenditures result from the deductibility of noncash patronage dividends, retains, dividends on capital stock and payments to patrons
out of nonpatronage income. If noncash patronage dividends and
retains were not deductible by cooperatives, they would no longer
be taken into current income by patrons and hence individual
income taxes would be lower.
The Revenue Act of 1978 allows certain payments made after
September 30, 1979, under various Federal and State cost sharing
conservation programs to be excluded from gross income. Payments
may be excluded to the extent they serve specified conservation
purposes and do not substantially increase the annual income derived from the property.
Commerce and housing credit.—This category includes a number
of tax expenditure provisions that also affect economic activity in
other functional categories. In general, provisions related to investment, such as some depreciation rules and the investment tax
credit, might alternatively have been classified under the natural
resources and environment, energy, agriculture, or transportation
categories.
The first $100 ($100 per spouse on a joint return) of dividend
income may be excluded from income subject to tax.
The interest on industrial development bonds issued by State and
local governments is excluded from income subject to tax.
Credit unions are exempt from Federal income taxes. Commercial banks, mutual savings banks, and savings and loan associations are permitted to deduct additions to bad debt reserves in
excess of actual loss experience and reasonable expectations as to
future losses. Mutual savings banks and savings and loan associations may deduct 40% of income in calendar year 1979 and thereafter, provided they maintain stipulated fractions of their assets in
"qualifying assets," primarily residential mortgages.
222
THE BUDGET FOR FISCAL YEAR 1981
Owner-occupants of homes may deduct mortgage interest and
property taxes (but not maintenance outlays or depreciation) as
itemized nonbusiness deductions. The 1981 tax expenditure from
these two items combined is $22.3 billion. This is less than the
$23.7 billion sum of the two separately because if both were deleted
fewer taxpayers would itemize deductions.
Interest paid on consumer credit is allowed as an itemized deduction for individuals.
Prior to the Tax Reform Act of 1976 taxpayers deducted interest
and property tax payments made while a building was under construction rather than including them with other costs of construction to be depreciated over the building's useful life. The 1976 act
reduced this tax expenditure by requiring that construction period
interest and taxes be capitalized and amortized over a 10-year
period for noncorporate taxpayers. The provision is being phased in
over a 7-year period with more generous transition rules available
for Government-subsidized housing projects.
To the extent that allowable depreciation for tax purposes exceeds the rate at which assets actually depreciate, business tax
liabilities are deferred. Businesses may employ a variety of depreciation schedules for tax purposes, some of which cause a much
larger part of asset values to be written off in early years of the
asset's useful life than do others. An extra first-year depreciation
deduction of 20% may be claimed for $10,000 of tangible personal
property ($20,000 on a joint return) having a useful life of at least 6
years. The revenue costs of allowing buildings and rental housing
to be depreciated for tax purposes by methods that reduce asset
value more rapidly than straight-line depreciation (the method
typically used in financial statements) are shown as tax expenditures. The asset depreciation range (ADR) system permits the
guideline lives of depreciable equipment to be reduced by 20%. The
ADR system does not apply to property used abroad.
The Revenue Act of 1978 raised to 60% the share of net longterm gains from the sale of capital assets that may be excluded
from income and eliminated the alternative capital gains tax for
individuals. The excluded 60% of net long-term capital gains is no
longer included as a preference item in computing the minimum
tax. However, the capital gains exclusion is treated as a preference
item in the new "alternative minimum tax." This new tax is applicable only if the sum of a taxpayer's regular income and minimum
tax is less than his alternative minimum tax. Half of net capital
losses may be offset against ordinary income up to a maximum of
$3,000 per year with an unlimited carry-forward.
As a result of the Revenue Act of 1978, corporations may elect a
28% alternative tax rate on capital gains instead of the 30% rate
specified under prior law. The tax expenditure is estimated on the
SPECIAL ANALYSIS F
223
assumption that these gains would otherwise be taxed at ordinary
rates.
Capital gains on the sale of a home are recognized only to the
extent that the "adjusted sales price" exceeds the cost of a new
home purchased and occupied within 18 months before or after the
sale. If a new house is constructed, it must be occupied within 2
years after the sale. The "adjusted sales price" is the amount
realized (gross proceeds less selling expenses) minus qualified
"fixing up" expenses. To the extent that the gain on the sale of a
home is not recognized, the basis of the home purchased is reduced,
thereby resulting in a deferral of the gain. A loss on the sale of a
home is not deductible.
Capital gains on assets held at the owner's death are not subject
to income tax. The estimate assumes that such gains would be
taxed as ordinary income in the year of death, but is adjusted for
any taxes paid by heirs on such gains under the carryover basis
provisions of the Tax Reform Act of 1976. Under these provisions,
accretions to the value of assets of a decedent's estate subsequent
to December 31, 1976, after adjustment for death taxes attributable
to such accretions, would have been taxable. However, the Revenue
Act of 1978 suspended the carryover basis rule until after December 31, 1979.
The Revenue Act of 1978 changed the corporate income tax
structure for the first $100,000 of taxable corporate income. Beginning January 1, 1979, the first $100,000 of taxable income is taxed
progressively at rates from 17 to 40%. Income over $100,000 is
taxed at 46%. Estimates are separately shown for revenue losses
resulting from the surtax exemption of prior law for taxable
income up to $50,000.
The investment tax credit was made permanent at 10% by the
Revenue Act of 1978. The percentage is applied to the cost of
qualifying property (generally, tangible personal property used in
a trade or business) having a useful life of 7 years or more.
Assets with shorter lives are entitled to a reduced credit. As a
general rule, the credit cannot be claimed for investments in land
or buildings or for property used abroad. The 1978 act modified this
rule by allowing credits for the rehabilitation of buildings that are
at least 20 years old and used for business or productive activities
(other than for residential purposes).
Under the 1978 act, the investment tax credit is available for
investments in single purpose livestock and horticultural structures or enclosures made in taxable years ending after August 15,
1971. Certain vans used to transport employees to and from work
are also entitled to the investment credit. The investment tax
credit may be claimed as progress payments are made on property
that takes 2 or more years to construct. Under prior law, the
224
THE BUDGET FOR FISCAL YEAR 1981
maximum credit allowed against income tax liability in a
taxable.year was generally limited to $25,000 plus 50% of tax liability in excess of $25,000. The 1978 Act raised the excess liability
percentage to 60% for 1979 and increases it through annual increments of 10 percentage points to 90% by 1982. Excess credits may
generally be carried back 3 taxable years and forward 7 taxable
years, after which unused credits expire.
Transportation.—The Revenue Act of 1978 eliminated deductions
by individuals for State and local taxes on gasoline, diesel and
other motor fuels consumed for personal use beginning in calendar
1979. Thus, table G - l shows no tax expenditure from this source
in 1980 and 1981.
Specified classes of railroad rolling stock were eligible for amortization over a 5-year period rather than their longer expected useful
life, whether owned by railroad companies or by lessors. If 5-year
amortization was elected, the investment tax credit could not be
claimed. These provisions applied only to rolling stock placed in
service before January 1, 1976. Greater amounts of tax are currently paid than if this provision had not been enacted because in most
cases the 5-year amortization period has expired. Hence, negative
figures appear in table G-l.
Certain companies that operate U.S.-flag vessels on foreign trade
routes receive an indefinite deferral of income taxes on that portion of their net income which is used for shipping purposes, primarily construction, modernization and major repairs of ships. An
investment credit of one-half the regular credit may be claimed on
the tax-deferred amounts withdrawn from capital construction
funds.
Community and regional development.—Under certain conditions, taxpayers may elect to amortize rehabilitation expenditures
for low- and moderate-income rental housing over a 5-year period.
Rehabilitation expenditures may not exceed $20,000 per dwelling
unit and must exceed $3,000 to qualify. This provision expires on
December 31, 1981.
Education, training, employment, and social service.—Scholarships and fellowships are excluded from a recipient's taxable
income subject to certain limitations. The exclusion of educational
benefits under the GI bill is included in the veterans benefits and
services function.
Taxpayers may claim personal exemptions for dependent children 19 or over who receive income of $1,000 or more per year if
the children are full-time students. The student may also claim an
exemption on his own return, thus providing a double exemption.
The extra exemption for parents results in a tax expenditure.
Many employers provide employee benefits that are excluded
from employee income. The employer's costs for these benefits are
SPECIAL ANALYSIS F
225
deductible business expenses. The exclusion from an employee's
income of the value of meals and lodgings provided by an employer
for his own convenience is a tax expenditure, as is the exclusion of
housing allowances and the rental value of parsonages from the
taxable income of ministers. The Revenue Act of 1978 allows an
employer to set up an educational assistance program to provide
educational benefits to his employees from January 1, 1979,
through December 31, 1983. The program can pay for tuition, fees,
books and supplies. Amounts received under the program are excluded from an employee's gross income. Employer contributions to
prepaid legal services plans and the value of legal services received
under the plans are also excluded from employee income.
A corporation may claim an additional 1% investment tax credit
if an equivalent amount of its common stock is set aside in an
employee stock ownership plan (ESOP). A further one-half of 1%
investment tax credit may be claimed to the extent that additional
employer contributions to an ESOP are matched by employee contributions. Employees are generally prohibited from withdrawing
their share of an ESOP for 7 years.
Contributions to charitable, religious and certain other nonprofit
organizations are allowed as an itemized deduction for individuals,
generally up to 50% of adjusted gross income. Taxpayers whose
contributions to charitable or educational organizations are in the
form of capital assets, usually securities that have appreciated in
value above their cost, obtain a deduction for the contribution at
the appreciated value of the asset without taxation on the appreciation in value. Corporations may deduct charitable contributions
up to 5% of their income. Tax expenditures resulting from the
deductibility of contributions are shown separately here for contributions to educational and other institutions. Contributions to
health institutions are reported under the health function.
The 50% maximum tax rate on personal service income applies
to earned income and certain pensions, annuities and deferred
compensation. The amount to which the maximum tax applies is
reduced by preference items included in the base of the minimum
tax. Capital gains from transactions after October 31, 1978 are no
longer includable in the minimum tax base, and so do not reduce
income eligible for the maximum tax rate. The Revenue Act of
1978 also removed the 30% limit on income subject to preferential
maximum tax treatment where the income is from a trade or
business in which capital as well as personal service generates
income. The maximum tax will now apply to reasonable compensation for personal services rendered.
A 20% tax credit may be claimed by married couples for child
and dependent care expenses incurred when both spouses work full
time or when one spouse works part time or is a student. The
310-700
0-80-15
226
THE BUDGET FOR FISCAL YEAR 1981
credit may also be claimed by divorced or separated parents who
have custody of children and by single parents. Expenditures up to
a maximum of $2,000 for one dependent and $4,000 for two or more
dependents are eligible for the 20% credit. The Revenue Act of
1978 allows the credit to be taken for payments to relatives of the
taxpayer even if their services are not qualified for coverage under
the Social Security laws.
The AFDC-WIN job credit allows an employer to take tax credits
on wages paid to individuals employed under the WIN (work incentive) program and other recipients of AFDC (aid for families with
dependent children). Under the Revenue Act of 1978, this credit
was liberalized. An income tax credit of 50% of first-year and 25%
of second-year wages, up to 100% of the tax liability, can be
claimed as a credit by the employer if the wages are paid for work
performed in a trade or business. A credit can be claimed for wages
paid for work performed outside a trade or business equal to 35%
of an employee's first year wages up to $6,000 with no more than
$12,000 of total wages paid by an employer eligible for the credit.
The employer must reduce his deduction for wages by the amount
of the tax credit.
The Revenue Act of 1978 has replaced the jobs credit of the 1977
Tax Reduction and Simplification Act which was available for
wages earned in calendar years 1977 and 1978. The "targeted jobs
credit" of the 1978 act allows tax credits for qualified wages paid
to individuals certified as members of any of seven target groups,
principally disadvantaged youths under 25. A credit of 50% of firstyear wages and 25% of second-year wages up to $6,000 of each
employee's wages (the wage base for unemployment taxes) can be
taken by the employer to offset up to 90% of his tax liability,
provided that the credit may not be taken for first-year wages in
excess of 30% of the employer's total unemployment tax wage base.
For a given employee, either this credit or the AFDC-WIN credit
can be taken, but not both. The employer's deduction for wages is
reduced by the amount of the credit.
Health.—Payments by employers for health insurance premiums
and other medical expenses are deducted as business expenses by
employers and excluded from employee income. The exclusion from
employee income gives rise to a tax expenditure.
Medical expenses in excess of 3% of adjusted gross income, including payments for prescribed drugs and medicines in excess of
1% of adjusted gross income, may be deducted by individuals as
itemized nonbusiness deductions. Individuals may also deduct half
of the premiums they pay for medical care insurance up to a
maximum deduction of $150 per year without regard to the 3%
limit.
SPECIAL ANALYSIS F
227
Expenditures up to $25,000 per year for removing architectural
and transportation barriers to the handicapped and the elderly in
any facility or public transportation vehicle used in a trade or
business that otherwise would have been treated as a capital outlay
could be treated as a current expense prior to January 1, 1980.
Contributions to nonprofit health institutions are allowed as a
deduction for individuals and corporations. Contributions to other
charitable institutions are discussed under the education, training,
employment, and social services function.
Income security.—Most government transfer payments to individuals, such as social security and welfare benefits, are excluded
from taxable income. If the taxpayer had no other source of
income, these payments, even if taxable, would not generally be
large enough to result in tax liability, given present levels of
personal exemptions and the zero bracket amount. However, because some recipients have property income, receive earnings (in
some instances for only part of a year), or file jointly with working
spouses, tax expenditures result from these exclusions.
The exclusion of unemployment benefits from taxation has been
modified by the Revenue Act of 1978. If the sum of a taxpayer's
adjusted gross income, unemployment compensation and excludable disability income is over $20,000 ($25,000 for a joint return),
the lesser of his unemployment benefits or one-half of the amount
over the $20,000 (or $25,000) limit is taxable.
Certain payments up to $100 per week financed by an employer
in lieu of wages during periods of employee injury or sickness are
excluded from the taxable income of persons under the age of 65
who are permanently and totally disabled. For these individuals
the exclusion is r^Huced dollar for dollar by adjusted gross income
plus disability income in excess of $15,000.
Certain contributions to pension plans by employers and
amounts set aside by the self-employed and those not covered by an
employer's plan are excluded from the individual's adjusted gross
income in the year of contribution. Self-employed persons can
make deductible contributions to their own retirement plans equal
to 15% of their income up to a maximum of $7,500 per year.
Employees not covered by an employer's plan may deduct annual
contributions of 15% of compensation up to a maximum of $1,500,
or $1,750 if the retirement account is owned jointly by a husband
and wife. The investment income earned by pension funds is not
taxable when earned. Tax expenditures result from the lower effective tax rates after retirement, resulting from the lower incomes
and special tax provisions received by the aged, and from the
excess of aggregate current contributions and investment earnings
over amounts paid out in benefits.
228
THE BUDGET FOR FISCAL YEAR 1981
The exclusion from employee income of certain other employer
payments, including payments for premiums of group life insurance and accident and disability insurance, are listed here because
of their relationship to income security. The exclusion of certain
other fringe benefits is listed under the education, training, employment, and social services function.
Life insurance policies other than term policies generally contain
a savings element. Savings in the form of policyholder reserves are
accumulated from premium payments and interest is earned on the
reserves. Such interest income is taxable neither as it accrues nor
when received by beneficiaries.
A taxpayer who is 55 years of age or older at the time of the sale
of his principal residence may elect to exclude up to $100,000 of
gain from the sale for sales after July 26, 1978. This is a once in a
lifetime election that replaces the prior exclusion of gain allocated
to the first $35,000 of adjusted sales price for taxpayers 65 years of
age or older.
Additional personal exemptions of $1,000 may be taken by taxpayers who are 65 years of age or older or blind. These additional
exemptions may not be claimed for a taxpayer's dependents.
The retirement credit for the elderly allows individuals who are
65 years of age or older to take a tax credit equal to 15% of earned
and retirement income up to $2,500 for single individuals and
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. The $2,500/$3,750 base is
reduced by tax exempt retirement income, e.g., social security payments, and by one-half of the taxpayer's adjusted gross income over
$7,500 for single individuals and $10,000 for married couples filing
a joint return.
The aggregate effect of excluding social security and railroad
retirement benefits for retirees, the additional exemption for persons 65 years of age or older, and the credit for the elderly results
in a 1981 tax expenditure of $12.4 billion. This effect is greater
than the $11.3 billion sum of the individual estimates because more
elderly persons would be pushed across the threshold of tax liability or into higher tax brackets if all of these items were simultaneously deleted from the tax code.
Taxpayers generally may take as an itemized nonbusiness deduction each loss due to fire, theft or other casualty in excess of $100
to the extent not compensated by insurance or other payments.
The earned income credit, first established by the Tax Reduction
Act of 1975, was modified and made permanent by the Revenue
Act of 1978. The credit, which low-income workers with minor
dependents may claim, was increased to 10% of earned income up
to $5,000, with a phaseout at the rate of 12.5% for amounts earned
SPECIAL ANALYSIS F
229
over $6,000. The maximum credit, which was $400 for calendar
year 1978, became $500 for tax years beginning January 1, 1979,
and later.
Earned income tax credits in excess of tax liabilities are paid to
individuals. This portion of the credit is included in outlays while
the amount which offsets tax liabilities is included as a tax expenditure. Only the latter appears in table G-l. In 1981 the tax expenditure will be $360 million; the outlay will be $1,570 million. For
1979 and 1980 the estimated tax expenditures are $300 million and
$415 million and the estimated outlays are $773 million and $1,696
million, respectively.
Mortgage assistance is provided through State and local housing
authorities for low income, and recently higher income, families.
Interest on State and local debt issued to finance housing is excluded from income subject to tax.
Veterans benefits and services.—All compensation due to death or
disability and pensions paid by the Veterans Administration are
excluded from taxable income. GI bill benefits are also excluded.
General Government.—The Revenue Act of 1978 doubled the
maximum political contribution on which a 50% credit may be
claimed to $100 ($200 for joint returns). The act eliminates the $100
deduction ($200 on joint returns) permitted under prior law.
General purpose fiscal assistance.—Interest on State and local
government debt is excluded from Federal taxation. Both corporations, mainly commercial banks, and individuals receive this taxexempt income. As a result, these governments can sell debt obligations at a lower interest cost than would be possible if such interest
were subject to tax. The exclusion of interest on State and local
government securities issued to finance pollution control facilities,
other industrial development bonds and housing bonds is classified
elsewhere. Only the effect of excluding interest on general purpose
obligations and revenue bonds for public purposes such as toll
roads is included in this function. The estimated revenue loss from
all tax-exempt bonds is $9.4 billion for 1981.
The deductibility of nonbusiness State and local taxes gives indirect assistance to these governments. The estimates shown here are
primarily for the deductibility of State and local income and sales
taxes. The deductibility of property taxes on owner-occupied homes
is classified under commerce and housing credit and excise taxes
on gasoline under transportation.
Under certain conditions, U.S. corporations receiving income
from sources in a U.S. possession can claim a special tax credit
equal to the U.S. tax, but only on income from such sources.
Interest.—The interest on U.S. savings bonds is not taxable until
the bonds are redeemed, thereby deferring tax liability.
230
THE BUDGET FOR FISCAL YEAR 1981
Table G - l . TAX EXPENDITURE ESTIMATES BY FUNCTION
(In millions of dollars)
Fiscal years
Description
Corporations
1979
National defense:
Exclusion
of benefits and
allowances to Armed Forces
personnel
Exclusion of military disability
pensions
International affairs:
Exclusion of income earned
abroad by United States citizens
Deferral of income of domestic
international sales corporations
(DISC)
Deferral of income of controlled
foreign corporations
Special rate for Western Hemisphere trade corporations
General science, space, and technology:
Expensing of research and development expenditures
Energy:
Expensing of exploration and development costs
Excess of percentage over cost
depletion
Capital gains treatment of royalties on coal
Residential energy credits
Alternative, conservation and new
technology credits
Natural resources and environment:
Exclusion of interest on state and
local government pollution control bonds
Exclusion of payments in aid of
construction of water, sewage,
gas and electric utilities
Five-year amortization on pollution
control facilities
Tax incentives for preservation of
historic structures
Capital gains treatment of certain
timber income
Capital gains treatment of iron
ore
Agriculture:
Expensing of certain capital outlays
Capital gains treatment of certain
income
See footnotes at end of table.
1980
Individuals
1981
1979
1,210
1,400
1,470
530
445
480
15
5
1980
1981
1,360
1,470
1,585
115
125
135
530
555
600
1,490
1,760
1,930
35
35
40
1,275
1,580
1,815
470
610
750
1,010
1,160
1,350
820
1,150
1,670
10
10
10
65
645
75
460
90
460
220
390
495
*
*
200
220
245
215
240
265
10
60
110
-25
-10
15
5
10
20
10
25
45
385
420
470
110
120
135
10
10
10
10
10
10
75
75
80
445
430
475
15
20
20
365
385
405
*
231
SPECIAL ANALYSIS G
Table G - l . TAX EXPENDITURE ESTIMATES BY FUNCTION—Continued
(In millions of dollars)
Fiscal years
Description
Corporations
1979
Deductibility of noncash patronage dividends and certain
other items of cooperatives
Exclusion of certain cost-sharing
payments
Commerce and housing credit:
Dividend exclusion
Exclusion of interest on State and
local industrial development
bonds
Exemption of credit union income.
Excess bad debt reserves of financial institutions
Deductibility of mortgage interest
on owner-occupied homes
Deductibility of property tax on
owner-occupied homes
Deductibility of interest on consumer credit
Expensing of construction period
interest and taxes
Excess first-year depreciation
Depreciation on rental housing in
excess of straightline
Depreciation on buildings (other
than rental housing) in excess
of straight line
Asset depreciation range
Capital gains (other than agriculture, timber, iron ore and
coal)
Deferral of capital gains on home
sales
Capital gains at death
Surtax
exemption
(through
1978)
Reduced rates on the first
$100,000 of corporate income.
Investment credit, other than
ESOP's and rehabilitation of
structures
Investment credit for rehabilitation of structures
Transportation:
Deductibility of nonbusiness State
gasoline taxes
Five-year amortization on railroad
rolling stock
Deferral of tax on shipping companies
See footnotes at end of table.
1980
505
Individuals
1981
540
590
240
90
280
100
335
115
780
855
965
1979
1980
1981
-170
-175
-190
*
30
75
460
490
515
255
305
360
10,745
12,505
14,760
6,760
7,740
8,975
3,085
3,595
4,240
525
50
555
50
585
50
90
135
140
135
160
145
70
65
65
290
285
290
135
2,460
135
2,880
140
3,400
120
130
120
150
125
180
655
715
810
3,110
13,855
14,885
1,125
4,440
1,010
4,750
1,111
5,085
2,590
2,910
3,115
10
60
65
115
3,285
7,555
13,910
15,705
55
10,190
120
7,510
16,860
140
350
-40
-40
-40
75
70
70
232
THE BUDGET FOR FISCAL YEAR 1981
Table G - l . TAX EXPENDITURE ESTIMATES BY FUNCTION—Continued
(In millions of dollars)
Fiscal years
Description
Corporations
1979
Community and regional development:
Five-year amortization for housing
rehabilitation
Education, training, employment,
and social services:
Exclusion of scholarship and fellowship income
Parental personal exemption for
students age 19 or over
Exclusion of employee meals and
lodging (other than military)
Employer educational assistance
Exclusion of contributions to prepaid legal services plans
Investment credit for ESOP's
Deductibility of charitable contributions (education)
Deductibility of charitable contributions, other than education
and health
Maximum tax on personal service
income
Credit for child and dependent
care expenses
Credit for employment of AFDC
recipients and public assistance recipients under work incentive programs
General jobs credit
Targeted jobs credit
Health:
Exclusion of employer contributions for medical insurance
premiums and medical care
Deductibility of medical expenses
Expensing of removal of architectural and transportation barriers to the handicapped
Deductibility of charitable contributions (health)
Income security:
Exclusion of social security benefits:
Disability insurance benefits
OASI benefits for retired workers
Benefits for dependents and
survivors
Exclusion of railroad retirement
system benefits
Exclusion of workmen's compensation benefits
See footnotes at end of table.
1980
5
Individuals
1981
5
1979
10
1980
1981
10
10
15
310
375
400
935
1,030
1,045
325
20
350
30
380
35
15
20
35
650
700
740
325
345
360
680
765
885
405
430
450
5,110
5,725
6,645
1,215
1,265
1,580
715
820
900
45
1,120
15
45
190
115
50
85
275
10
*
*
200
210
220
5
685
*
5
10
10
40
11,080
3,215
12,965
3,585
15,215
4,050
*
*
*
1,020
1,145
1,330
590
685
820
5,465
6,880
8,695
845
990
1,205
285
330
380
980
1,165
1,385
233
SPECIAL ANALYSIS G
Table G - l . TAX EXPENDITURE ESTIMATES BY FUNCTION—Continued
(In millions of dollars)
Fiscal years
Description
Corporations
1979
Exclusion of special benefits for
disabled coal miners
Exclusion of untaxed unemployment insurance benefits
Exclusion of public assistance
benefits
Exclusion of disability pay
Net exclusion of pension contributions and earnings:
Employer plans
Plans for self-employed and
others
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
Exclusion of interest on life insurance savings
Exclusion of capital gains on
home sales for persons age 65
and over
Exclusion of capital gains on
home sales for persons age 55
and over
Additional exemption for the blind
Additional exemption for elderly....
Tax credit for the elderly
Deductibility of casualty losses
Earned income credit 1
Exclusion of interest on State and
local housing bonds
Veterans benefits and services:
Exclusion of veterans disability
compensation
Exclusion of veterans pensions
Exclusion of GI bill benefits
General government:
Credits and deductions for political contributions
General purpose fiscal assistance:
Exclusion of interest on general
purpose state and local debt....
Deductibility of nonbusiness state
and local taxes (other than on
owner-occupied homes and
gasoline)
See footnotes at end of table.
1980
Individuals
1981
1979
1980
1981
50
50
50
1,885
2,495
3,110
345
185
395
185
450
190
11,335
12,925
14,740
1,765
2,125
2,520
1,350
1,485
1,635
85
90
100
10
10
10
2,910
3,365
3,895
225
35
1,745
145
530
300
535
40
1,970
135
590
415
590
40
2,070
135
665
360
80
180
615
915
45
190
1,050
50
160
1,115
55
130
80
100
80
2,120
2,365
2,625
12,595
14,665
17,305
75
410
3,245
630
3,515
1,020
3,900
234
THE BUDGET FOR FISCAL YEAR 1981
Table G - l . TAX EXPENDITURE ESTIMATES BY FUNCTION—Continued
(In millions of dollars)
Fiscal years
Description
Corporations
1979
Tax credit for corporations receiving income from doing business in United States possessions
Interest:
Deferral of interest on savings
bonds
740
1980
780
Individuals
1981
1979
1980
1981
860
500
290
250
Memorandum
Combined effect of provisions
disaggregated above:
Capital gains
Exclusion of interest on state and
local debt
Deductibility of state and local
nonbusiness taxes
Deductibility of charitable contributions
Itemized deductions
Deductibility of mortgage interest
and property tax on owner-occupied homes
Benefits for the elderly:
Exclusion of social security and
railroad retirement plus the
additional exemption and
tax credit for the elderly
1,075
1,175
1,320
16,605
20,740
22,310
4,095
4,645
5,500
2,670
3,090
3,865
18,895
21,190
24,795
6,810
32,960
7,635
38,040
8,860
44,505
16,545
19,095
22,340
8,405
10,245
12,410
930
985
1,030
* $2.5 million or less. All tax expenditure estimates have been rounded to the nearest $5 million.
1 The figures in the table indicate the effect of the earned income tax credit on receipts. The effect on outlays is: 1979, $773 million; 1980, $1,696
million; 1981, $1,570 million.
235
SPECIAL ANALYSIS F
PROPOSED CHANGES IN T A X EXPENDITURES
The administration has made several proposals as part of the
1981 budget that would create new tax expenditures and extend or
change the value of currently existing tax expenditures. The estimates for these proposed changes are shown in table G-2.
On April 5, 1979, the President proposed a windfall profit tax to
reduce U.S. oil producers unearned profits resulting from the
phased decontrol of domestic oil prices and OPEC price increases.
Both houses of Congress have passed versions of a windfall profit
tax. It is anticipated that a tax will be enacted early in calendar
1980 after differences have been resolved by the conference committee.
The administration's windfall profit tax proposal includes several
tax credits designed to encourage energy conservation and expand
domestic supplies. In addition, a current energy tax expenditure
would be reduced by the proposal to restrict the application of
depletion allowances to nonwindfall profits. The administration
also is proposing several other actions related to tax incentives for
historic structures and housing. Each of the proposed tax expenditures, starting with the energy tax preferences, is described briefly
below:
Table G - 2 . ESTIMATES OF PROPOSED CHANGES IN TAX EXPENDITURES
(In millions of dollars)
Fiscal Years
Description
Corporations
1980
Individuals
1981
Residential energy credits:
Passive solar
Wood burning stoves
Total residential energy credits
Alternative conservation and new technology credits:
Commercial passive solar credit
Agricultural and industrial process heat equipment
Tax credit for gasohol
Oil shale credit
Unconventional gas credit
Total alternative conservation and new technology
credits
Excess of percentage over cost depletion
Tax incentives for preservation of historic structures
Exclusion of interest on state and local housing bonds
Exclusion of interest on general purpose state and local
debt
25
5
5
5
55
5
55
5
55
65
40
10
5
i
35
140
65
-45
190
— 415
-140
5
-140
*
-105
-660
-25
*$2.5 million or less. All tax expenditure estimates have been rounded to the nearest $5 million.
Note: Details may not add to totals due to rounding.
1 Projected oil prices exceed the phaseout limit for the credit so that this proposal will have no revenue effect.
1981
1980
*
-25
-165
- 1 0
236
THE BUDGET FOR FISCAL YEAR 1981
Residential passive solar construction.—A tax credit of up to
$2,000 per unit would be provided to builders who use passive solar
technology in the construction of new residential units. The
amount of the credit would be based on the amount of energy
conserved as a result of the passive solar design.
Woodburning stoves.—A 15% tax credit of up to $300 would be
allowed on the cost of a qualified woodburning stove.
Commercial passive solar construction.—A tax credit of up to
$10,000 per building would be provided to builders who employ
passive solar technology in the construction of new commercial
buildings. The amount of the credit would equal $20 per million
Btu that are saved because of the passive solar design employed.
Btu saving would be measured in excess of a specified level above a
baseline given by the Department of Energy's building energy performance standard.
Agricultural and industrial process heat.—Solar thermal energy
equipment used to produce process heat in agricultural and industrial applications would be eligible for an investment tax credit in
addition to the current 10% credit. The additional credit would
equal 15% of the cost of the equipment.
Gasohol.—The proposal would extend until January 1, 2000, the
4 cents per gallon Federal excise tax exemption on gasoline and
diesel fuels that are at least 10% alcohol and currently exempt. A
tax credit of 40 cents per gallon would be provided in all other
cases where alcohol is used as a fuel for internal combustion engines and is ineligible for the excise tax exemption. The excise tax
exemption is not a tax expenditure, because the tax expenditure
concept applies only to income taxes; the tax credit would be a tax
expenditure.
Oil shale.—A $3 per barrel tax credit would be provided to
domestic producers of oil from shale. This proposal has no projected revenue effect because currently projected oil prices exceed the
credit's phase-out range of $22.00 to $27.56 per barrel adjusted for
inflation.
Unconventional natural gas.—A tax credit of $0.50 per thousand
cubic feet is proposed for unconventional natural gas derived from
tight sands, Devonian shale, coal seams and geopressured brine.
Except for tight sands gas the credit would phase out in the same
manner as the oil shale credit. The credit for gas derived from
tight sands would be phased out as the average price of high cost
natural gas, adjusted for inflation, rises from $4.17 to $5.17 per
thousand cubic feet.
Percentage depletion.—The gross income base for determining the
percentage depletion deduction from taxable income would have to
be reduced by the windfall profit. This windfall profit would be
equal to the amount a producer receives for domestically produced
SPECIAL ANALYSIS F
237
crude oil in excess of a base price. This proposal would increase
receipts by reducing the value of the percentage depletion tax
expenditure.
Preservation of historic structures.—Under the Tax Reform Act of
1976, expenditures to rehabilitate structures certified by the Department of the Interior to be historic became eligible for special
accelerated methods of depreciation and the demolition of such
structures became subject to special tax disincentives. These provisions, applicable only to income producing property, are scheduled
to expire on June 30, 1981 and December 31, 1980, respectively.
Because of delays between enactment of these provisions and the
time when tax returns were filed on projects using these tax incentives, information has not been available for assessing the impact,
usefulness, and efficiency of these provisions. With data now becoming available, the administration will undertake the needed
evaluation of the operation of these provisions during the coming
year. The administration is, therefore, proposing a 1-year delay
in the expiration of these provisions.
Restrictions on tax-exempt housing bonds.—State and local governments use the proceeds of tax-exempt borrowing to provide
mortgage funds for private housing. The tax exemption of interest
on State and local securities makes it possible to provide such
funds at interest rates well below the rates for private mortgages.
Tax-exempt housing bonds initially were used mainly to assist lowincome, multifamily housing; recently, there has been a dramatic
increase in the use of such bonds for owner-occupied housing, including housing purchased by middle and upper income families.
To halt this misuse of the tax-exempt borrowing provision and to
prevent a large loss in tax revenues, the administration supports
legislation to ban the use of tax-exempt bonds for owner-occupied
housing. The ban would apply to such bonds issued after April 25,
1979, with exceptions allowed for bonds in process as of that date.
The administration is also proposing to restrict the use of taxexempt bonds for multifamily housing to projects in which at least
20% of the residents qualify as low-income under present HUD
definitions.
Tax-exempt public housing bonds.—Local housing authorities finance the construction of public housing projects by issuing taxexempt financial instruments to the public. Current law allows
lenders to exclude from income subject to Federal tax any interest
earned on such debt. The administration is proposing to phase out
the use of this particular financing method and eventually end this
tax expenditure. Beginning in 1980, a portion of the short term taxexempt notes now sold by local housing authorities would be converted into long-term bonds and purchased by the Federal Financing
Bank, an entity of the Treasury Department. To pay for these
238
THE BUDGET FOR FISCAL YEAR 1981
purchases, taxable Treasury debt instruments would be issued. The
interest differential between the taxable rate and the tax-exempt
rate would be paid by the Department of Housing and Urban
Development.
SPECIAL ANALYSIS
G
FEDERAL AID TO STATE AND LOCAL GOVERNMENTS
1
State and local governments play a vital role in meeting the
Nation's needs. The Federal Government contributes directly to
that role by providing grants-in-aid and loans to State and local
governments, and it contributes indirectly through policies designed to improve economic conditions.
Federal grant-in-aid outlays to State and local governments are
estimated to be $96.3 billion in 1981, $7.4 billion above the estimated 1980 total of $88.9 billion, and $13.5 billion higher than the 1979
total of $82.9 billion. During the 20 years from 1958 to 1978, grants
grew at an average annual rate of 14.6%. The slower growth in
grants planned from 1978 to 1981 of 7.3% per year is a direct result
of two major factors:
—a phasedown of outlays associated with economic stimulus
grants enacted in response to the last recession; and
—the need for overall budget restraint as part of a major effort
to hold down inflation.
Accompanying this restraint has been a continual effort to improve the administration of grant programs. Grant consolidations
or increased flexibility in the use of grant funds has already been
achieved for forestry programs, elderly assistance, and for vocational rehabilitation. Similar proposals for airport development, economic development, energy conservation, and environmental programs are currently before the Congress. Further efforts are proposed for health services, vocational rehabilitation, youth training
and employment, and fish and wildlife grants.
Other improvements in grant administration, such as a comprehensive system of financial guidance and a major simplification of
audit requirements, have also taken place.
In addition to grants-in-aid, Federal lending to State and local
governments and loan guarantees are also significant. In 1981 the
Federal Government is expected to disburse $1.4 billion for new
loans to State and local governments. Loan outlays net of repayments and sales are expected to be $94 million. New guaranteed
loans are estimated to be $12.6 billion in 1981.
1
Federal aid to State and local governments is defined as the provision of resources by the Federal Government to support a State or local program of governmental service to the public. The three primary forms of aid
are grants-in-aid (including shared revenues), loans, and tax expenditures. Unless specifically indicated to the
contrary, reference to "Federal aid" or "grants" in this analysis is confined only to grants-in-aid (including
shared revenues).
239
240
THE BUDGET FOR FISCAL YEAR 1981
The chart shows trends in major grant categories since 1971.
Grants for highways remained fairly level through 1975, but will
increase substantially from 1975 to 1981. Grants for human resources, which include those under education, training, employment, and social services; health; income security and veterans
programs, account for 62% of the increase from 1971-1981. General
revenue sharing has accounted for more than $6 billion in grants
per year since 1972.
While the phasedown of economic stimulus grants that were
initiated in 1977 results in a substantial slowdown in overall
growth between 1978 and 1980, the increase in grants other than
for economic stimulus programs continues to be strong over this
period and through 1983.
Federal G r a n t s to S t a t e a n d L o c a l Governments
S Billions
$ Bdliow
HIGHLIGHTS OF THE FEDERAL A I D P R O G R A M
Summary of changes.—When this administration took office economic stimulus was needed to reduce unemployment and promote
economic recovery. The economic stimulus programs proposed at
that time were primarily grant programs, and total grant outlays
increased 14% in just 1 year, from 1977 to 1978. These stimulus
programs were designed to be temporary, and their phasedown
through 1980 reflects the substantially different economic condi-
241
SPECIAL ANALYSIS F
tions today from those prevailing when they were initiated. Table
H - l shows that, excluding stimulus programs, grant outlays increase from $63.8 billion in 1977 to an estimated $93.1 billion in
1981, an average annual rate of growth of 9.9%. The increase in
stimulus grants in 1981 is related largely to increased funds for
antirecession fiscal assistance. This assistance would channel funds
to localities with high levels of unemployment and low economic
growth.
Table H - l . FEDERAL GRANTS, EXCLUDING STIMULUS
(Outlays in billions of dollars)
Actual
1977
Estimate
1978
1!m
1979
1981
68.4
77.9
82.9
88.9
96.3
Less stimulus grants:
Local public works
Temporary employment assistance
Antirecession fiscal assistance
0.6
2.3
1.7
3.1
4.8
1.3
1.7
3.3
0.4
1.9
0.3
0.2
2.0
1.0
Subtotal, stimulus grants
4.6
9.2
5.0
2.5
3.2
63.8
68.7
77.8
86.4
93.1
Total grants
Total, excluding stimulus
*
* $50 million or less.
Today's economic problems are different from those of 1977. In
part because of the economic stimulus programs, employment increased by 9.5 million between December 1976 and December 1979.
On the other hand, the rate of inflation has increased and the
burden that it imposes on the poor must be lightened, the continuing energy crisis must be dealt with, the persistence of high unemployment among disadvantaged youth and their lack of basic skills
have become issues of major concern, and the special needs of
States and localities that are hit hardest by limited economic
growth deserve attention. These are the areas that have priority in
the Federal aid programs budget for 1981.
Table H-2 shows outlay changes from 1978-81 divided into two
categories: those that finance major State or local payments for
individuals, and all other grants.
Grants that are subsequently paid as income support for individuals—mainly the public assistance, medicaid, housing assistance,
and child nutrition programs and assistance to help low income
persons pay high fuel bills—are estimated to increase $5.4 billion
from 1979 to 1980 and $3.6 billion from 1980 to 1981. This increase
covers changes caused primarily by inflation (especially for the cost
of fuel) and increases in the beneficiary populations, and includes
high priority medicaid expansions for low income women and children. Consistent with the President's emphasis on providing assist310-700
0-80-16
242
THE BUDGET FOR FISCAL YEAR 1981
ance to the neediest, it does not reflect any major effort to impose
budget stringency through benefit reductions. These grants, which
will amount to $38 billion in 1981, take a substantial financial
burden off State and local governments and provide large supplements to the economies of the area in which the beneficiaries live.
All other grants, those that are made to, rather than through,
State and local governments, are expected to increase by $0.7 billion from 1979 to 1980 and $3.8 billion from 1980 to 1981. Some of
these larger increases are for employment and training assistance,
highways, mass transit and antirecession fiscal assistance.
Table H - 2 . FEDERAL GRANT-IN-AID CHANGES, 1979-81
(In billions of dollars)
Outlays
Total grants, 1979 actual
Changes
Payments for individuals-.
Medicaid
Housing programs
Low income energy assistance
Other
Subtotal payments for individuals
Other programs
Economic stimulus grants:
Local public works
Temporary employment assistance
Antirecession fiscal assistance
Subtotal, economic stimulus
Highways
Social services—retroactive claims
Employment and training assistance
Other
82.9
1.8
.9
1.1
1.7
5.4
-1.4
—1.4
0.2
-2.5
.7
—.5
.8
2.2
Subtotal, other programs
.7
Total grants, 1980 estimate
Changes
Payments for individuals:
Medicaid
Housing programs
Low income energy assistance
Other
88.9
Subtotal, payments for individuals
Other programs:
Mass transit (oil import reduction program)
Employment and training assistance
Anti-recession fiscal assistance
Other
Subtotal, other programs
Total grants, 1981 estimate
1.6
.8
.5
.7
3.6
.5
.7
.8
1.9
3.8
96.3
SPECIAL ANALYSIS F
243
Major proposals.—The major new grant proposals in this budget:
—help low-income, unemployed youth acquire the basic education and training needed to find and hold a job;
—meet continuing needs relating to energy problems, especially
to increase aid for mass transit and to assist low income persons with higher fuel costs;
—expand aid to low income persons through such programs as
special supplemental food to needy women, infants and children; and
—provide general purpose aid to States and localities through
general revenue sharing and antirecession fiscal assistance.
Youth employment.—As part of a major effort to counter the ill
effects of youth unemployment, a new grant program is being
proposed to help local school districts provide intermediate and
secondary school students with the basic mathematics and language competence required by employers. Schools with the greatest
number of students needing such assistance will compete for the
$900 million proposed for this new program in 1981.
As the other part of this effort, the Congress is being asked to
consolidate into a single grant program three of the experimental
youth authorities enacted as part of the stimulus program in 1977.
Requested budget authority in the Department of Labor for the
new program for 1981 is $1.1 billion, an increase of $300 million
over the amount that would otherwise be needed for current programs. States and localities will be able to mount a concentrated
effort to provide those youth who have the hardest time finding
and keeping a job with the basic work skills required by employers.
Since the primary requisite is basic competence in language and
mathematics, the new program will be operated in close conjunction with the proposed new education grant program for basic
skills described above.
Energy.—The budget proposes grants that would provide additional aid for mass transportation and assistance to low-income
persons to pay fuel bills and meet energy-related emergencies. The
aid to low income persons would be distributed by the States primarily through the use of existing public assistance programs.
Grant outlays are expected to be $1.7 billion in 1981, $0.5 billion
higher than in 1980, when funds for this program were appropriated to the Community Services Administration.
The new mass transportation grants would provide $13 billion
over the next 10 years. All of these funds would go to State or local
governments to improve and expand existing mass transit systems.
Outlays are estimated to be $0.6 billion in 1981.
244
THE BUDGET FOR FISCAL YEAR 1981
The budget provides weatherization assistance to low-income individuals and to public and nonprofit schools and hospitals. Budget
authority of $200 million would be continued in 1981 for weatherization assistance to low-income people, and budget authority for
assistance to schools and hospitals would be increased to $202
million.
The budget also includes funding of the Energy Management
Partnership Act, now pending in the Congress, which will consolidate three existing State energy conservation planning and "outreach" programs for public education, and extend the assistance to
include State emergency preparedness and supply planning activities. This proposal will give States more flexibility to use these
funds to meet their needs. The legislative proposal will also be
amended to include grants to support local government energy
activities. Budget authority of $152 million is included in 1981 for
these initiatives, including $50 million for the local grants.
As part of the administration's energy supply strategy, legislation is proposed that would broaden the scope of energy impact
assistance to areas experiencing significantly higher employment
as a result of energy supply development. Budget authority for
grants would be increased from $50 million in 1980 to $150 million
a year starting in 1981.
Aid to the disadvantaged.—The 1981 budget provides increases
in a number of programs that aid the disadvantaged.
Budget authority for the special supplemental food program for
women, infants, and children (WIC) is proposed to increase $213
million to $968 million in 1981. This represents a $401 million
increase in budget authority since 1979. Recent studies suggest the
program leads to significant reductions in infant mortality and in
the incidence of low birth-weight babies, both of which afflict poor
families disproportionately, who are the program's beneficiaries.
Funding for training and employment has grown steadily over
the years, with large temporary increases in 1977 and 1978 as part
of the President's economic stimulus effort. As total employment
increased from 88.4 million at the end of calendar year 1976 to 97.9
million at the end of calendar year 1979 the countercyclical public
service employment program was reduced. In 1980, the relative
funding of training and employment programs was changed to
direct available resources to the economically disadvantaged and
the long-term unemployed. In addition, greater emphasis will be
placed on improvements in management and the increased control
of fraud and abuse.
SPECIAL ANALYSIS F
245
Outlays for employment and training assistance grant programs,
including the initiatives for youth described above, which are primarily to meet the needs of the most disadvantaged, are estimated
to be $6.8 billion in 1981, $0.7 billion higher than the 1980 estimate. Outlays for the temporary employment assistance program,
are estimated to be $2.0 billion in 1981, about the same as the 1980
estimate.
Not shown in these totals are substantial grants for additional
work and training opportunities for welfare recipients under the
administration's welfare reform program. Resources for these activities are covered in the allowance for contingencies, pending enactment of legislation.
The 1981 budget proposes further consolidation of vocational rehabilitation programs. In addition to the consolidation enacted in
1979, three more programs are proposed to be combined into one.
These programs provide services to enable the handicapped to prepare and engage in gainful employment.
Grants for social services are designed to assist the disadvantaged
and disabled to be self-sufficient. Outlays for 1981 are estimated to
be $3.2 billion, about the same as the 1980 estimate.
Revenue sharing and targeted fiscal assistance.—General revenue
sharing has provided States and localities since 1972 with more
than $6 billion per year in grants with practically no Federal
restrictions on their use. Under current law this program is scheduled to expire at the end of fiscal year 1980. As a major initiative,
the administration proposes to reauthorize this program for 5 years
at the current level of $6.9 billion per year. States and localities will
be asked to assess improvements that can be made to the intergovernmental fiscal structure that will improve the capacity of governments to provide necessary public services to their constituents.
Funds to States would be contingent upon their cooperation in this
effort. In addition, revisions to the local allocation formula would
direct additional funds to localities most in need.
The administration is working with the Congress to develop an
acceptable countercyclical fiscal assistance program. The budget
proposal would provide general purpose fiscal assistance to needy
State and local governments when the national unemployment rate
reaches 6V2%.
In addition to countercyclical assistance, the administration continues to support legislation authorizing highly targeted fiscal assistance for 1980. This 1-year program would provide general pur-
246
THE BUDGET FOR FISCAL YEAR 1981
pose fiscal assistance to localities with high levels of unemployment and low economic growth. Payments to localities under this
program would be offset by any payments they might receive
under the countercyclical fiscal assistance program if unemployment rises to 6 o r more.
Outlays under targeted and countercyclical fiscal assistance are
estimated to be $250 million in 1980 and $1.0 billion in 1981.
Other highlights.—Outlays for the Environmental Protection
Agency's program for construction of sewage treatment plants are
expected to be $3.95 billion in 1981, slightly higher than in 1980.
The budget requests budget authority of $3.7 billion for the program in 1981, which, together with funds available from prior
years, is estimated to make more than $6.6 billion available to the
States for obligation in 1981. This program provides grants to both
State and local governments for 75% of the cost of planning, designing, and constructing sewage treatment plants. Under the Federal Water Pollution Control Act, as amended, more than $31
billion has been provided to continue this program. With more
than 11,000 projects currently underway, the administration is encouraging the States to assume responsibility for program management and implementation.
Grants to support the control of hazardous wastes, such as industrial chemicals, and to control air and drinking water pollution are
proposed to increase substantially in 1981. Budget authority for
these three programs is estimated to be $156 million in 1981, an
increase of $20 million more than the 1980 estimate.
Grants assist States to manage their fish and wildlife resources.
The administration proposes to consolidate administratively five of
these programs into one in order to give the States more flexibility
over the use of these funds. Outlays are estimated to be $136
million in 1981.
Legislation proposed by the administration and enacted by Congress resulted in several important changes in existing ground
transportation grants. States and localities now have substantially
more flexibility in the types of highway and transit projects that
can be supported with Federal aid. In addition, in order to encourage completion of the Interstate System, States are now required to
complete all environmental impact statements by no later than
1983 and to begin construction by 1986.
Outlays for highways are estimated to be $8.2 billion in 1981,
slightly more than in 1980. Most of these funds go directly to State
governments, and approximately half are used to continue construction of the interstate highway system.
SPECIAL ANALYSIS F
247
Grant outlays for urban mass transportation including the new
proposals noted above, are estimated to be $3.2 billion in 1981, $0.6
billion higher than the 1980 estimate. More than 75% of the grant
funds go to the 25 metropolitan areas with a population of one
million or more, a number of which have or are building rapid
transit systems. The remaining outlays are primarily for bus transit systems in other communities.
The community development block grant funds will continue to
provide assistance directly to local governments. Recipients have
considerable freedom in selecting projects for this program, so long
as they are within the general guidelines of community development. The enacted legislation provides that entitlements may be
calculated using the original formula (population, poverty, and
overcrowded housing) or an alternative formula (poverty, loss of
population, age of housing). Outlays for the program for 1981 are
estimated to be $3.8 billion, an increase of $0.3 billion over 1980.
The recently enacted urban development action grant program
provides one-time grants to severely distressed cities and urban
counties to supplement local government and private sector financing for major revitalization projects. Budget authority proposed for
1981 for this program is $675 billion, the same as for 1980.
Legislation proposed by the administration would significantly
expand resources for economic development assistance program
grants beginning in 1980. The planning, public works, adjustment
and technical assistance grants offered under the program assist
State and local governments in their efforts to foster private investment, job creation, and job preservation in distressed areas.
Outlays proposed for the program would increase from $345 million
in 1979 to $437 million in 1980 and $677 million in 1981.
Outlays for elementary, secondary, and vocational education are
estimated to be $7.2 billion in 1981, $0.4 billion more than in 1980.
The largest part of that amount will go to State and local education agencies for supplementary education services to low-income,
low-achieving students.
The budget also includes a substantial reduction in the impact
aid program, which is intended to compensate school districts for
the burdens imposed by federally related activities. Much of the aid
now goes to school districts where the Federal activity does not
place a special burden on the local community. The budget provides for limiting impact aid to those districts where the aid is a
significant part of their financing needs.
The budget proposes administrative consolidations for health
planning requirements and health services grant programs. The
Department of Health and Human Services would enter into comprehensive performance contract agreements with State and local
governments for primary health care grants. In addition, actions
248
THE BUDGET FOR FISCAL YEAR 1981
will be taken to unify current requirements that States submit
eleven separate health care plans.
The medicaid program continues to be a large grant-in-aid with
estimated outlays of $15.8 billion in 1981. This program supports
State efforts to provide health services to low-income residents. The
budget proposes an expanded child health assurance program
(CHAP) to provide early and periodic screening, diagnosis, and
treatment to an additional two million low-income children and
youth under the age of 18 currently not eligible for medicaid.
Eligibility will also be expanded for low-income pregnant women
and migrants.
Proposed hospital cost containment legislation and increased efforts to limit waste, fraud and abuse will provide Federal, State
and local savings in the medicaid program. Federal savings are
estimated at approximately $300 million in medicaid in 1981. Medicaid savings for State and local governments in 1981 are estimated to
be $75 million as a result of hospital cost-containment and $137
million as a result of other savings initiatives.
Other health grant initiatives in the 1981 budget include $10
million for a formula grant for disease prevention, and $46 million
for cooperative agreements with States for the development of
comprehensive mental health programs.
Outlays for assistance payments (aid to families with dependent
children) are expected to be $7.4 billion in 1981, $0.4 billion above
the 1980 estimate.
Outlays for the public housing and the State agency low-income
housing assistance components of the Department of Housing and
Urban Devlopment's assisted housing programs are estimated to
increase 25%, from $2.9 billion in 1980 to $3.6 billion in 1981.
These increases reflect the additional number of low-income families receiving housing services from public housing and State
agency housing projects and the increased costs of providing those
services.
The administration proposes to continue law enforcement assistance to States, counties, and cities and to encourage government
and non-profit organizations to carry out programs that have
proved to be effective in improving the criminal justice system.
Outlays for this program are estimated to be $452 million in 1981,
about the same as the 1980 estimate.
Additional information on many of these grant programs is in
Part 5 of the Budget, which describes all major Federal programs
and many minor ones.
SPECIAL ANALYSIS F
249
Loans.—Another form of Federal aid to State and local governments is assistance in obtaining credit, either directly or through
loan guarantees. Direct loan disbursements (excluding repayments)
are expected to be $1.4 billion in 1981 and $12.6 billion of new
guaranteed loans are expected in 1981.
One of the large guarantee loan programs was proposed by the
administration and enacted by Congress to assist New York City.
The legislation allows for the guarantee of principal and interest
for $1.65 billion through 1982 for loans not to exceed a period of 15
years.
Tax Expenditures.—Federal aid is also provided through tax expenditures. (More information on tax expenditures is provided in
Special Analysis G and, on the assistance from tax-exempt financing, in Special Analysis F.) The two major tax expenditures are the
deductibility of many State and local taxes and the exclusion of
interest on State and local securities from Federal taxation.
Individuals can claim certain State and local sales, income and
personal property tax payments as itemized deductions on their
Federal tax returns. This permits States and localities to raise a
dollar of revenue with less than a dollar of net cost to their
citizens. The 1981 tax expenditure for property taxes on owneroccupied homes is estimated to be $9.0 billion and the tax expenditure for other nonbusiness State and local taxes—primarily income
and sales taxes—is estimated to be $17.3 billion. The Revenue Act
of 1978 eliminated the individual income tax deduction for gasoline. In 1979, the last year for this provision, the tax expenditure
was $350 million.
Interest on virtually all State and local government securities is
tax exempt. This permits State and local jurisdictions to borrow at
reduced interest rates. The tax expenditure for the exclusion of
interest on State and local general purpose debt is estimated to be
$6.5 billion in 1981.
Interest on State and local industrial revenue bonds is also tax
exempt. These bonds finance industrial and transportation projects,
pollution control facilities and public and, more recently, selected
private housing. Tax expenditures in 1981 are estimated to be $695
million for industrial facilities, $510 million for pollution control
facilities, and $1.6 billion for State and local housing bonds.
State and local governments have been using the proceeds of taxexempt borrowing to provide mortgage funds for private housing.
The tax exemption of interest on State and local securities makes
250
THE BUDGET FOR FISCAL YEAR 1981
it possible to provide such funds at interest rates well below the
rates for private mortgages. At first, tax-exempt housing bonds
were used mainly to assist low-income, multifamily housing; recently, there has been a dramatic increase in the use of such bonds
for owner-occupied housing, including housing purchased by middle
and upper income families.
To halt this abuse of the tax-exempt borrowing privilege and to
stem a huge potential loss in tax revenues, the administration
proposes to ban the use of tax-exempt bonds for owner-occupied
housing. The ban would apply to such bonds issued after April 25,
1979, with exceptions allowed for bonds in process as of that date.
The administration is also supporting legislation to restrict the use
of tax-exempt bonds for multifamily housing to projects in which at
least 20 percent of the residents qualify as low income under
present definitions of the Department of Housing and Urban Development. Public housing has also been financed in the past through
the sale of tax-exempt bonds. Beginning in 1980, the administration
plans to begin eliminating this tax expenditure by having the
Federal Financing Bank (FFB) of the Treasury Department purchase these bonds. The Department of Housing and Urban Development would reimburse the FFB for the extra cost of borrowing in
the taxable market and purchasing tax-exempt housing bonds.
FEDERAL GRANTS-IN-AID BY FUNCTION, A G E N C Y , AND
REGION
Under the Congressional Budget Act of 1974, the Congress reviews the budget and sets targets by function. Consequently, the
functional classification of the budget has become important not
only for analysis but also for control. Part 5 of the budget discusses
the entire Federal budget by function, and the associated national
needs met by these programs.
Last year, the President initiated a 3-year budget planning
system, so as to provide an improved means of understanding the
longer term effects of current programs and proposals. As a result,
the discussions and data in many parts of the budget include the
1981-83 planning period. Consistent with that approach, this Special Analysis shows estimates through 1983 in many of the tables
and the chart on a previous page.
Table H-3 shows a functional distribution of Federal grant-in-aid
outlays. Major trends in 1981 are discussed above. The total shows
strong continued growth throughout the planning period. The increases beyond 1981 are primarily for income security, education,
training, employment and social services, and health.
251
SPECIAL ANALYSIS F
Table H - 3 . FEDERAL GRANT-IN-AID OUTLAYS BY FUNCTION
(In millions of dollars)
Function
National defense
Energy
Natural resources and environment
Agriculture
Commerce and housing credit
Transportation
Community and regional development
Education, training, employment, and social
services
Health
Income security
Veterans benefits and services
Administration of justice
General government
General purpose fiscal assistance
Total outlays
1979
1980
1981
94
183
4,630
456
12
10,438
6,641
77
472
4,821
509
7
11,513
5,786
57
660
4,957
512
4
12,260
6,318
59
887
5,275
562
4
13,349
6,632
59
957
5,423
613
4
14,400
6,760
22,249
14,377
14,740
86
517
202
8,233
21,865
16,209
18,364
86
473
194
8,569
23,195
17,817
20,298
82
491
214
9,446
25,620
20,501
21,962
67
612
226
9,546
27,510
23,207
23,340
69
588
240
9,182
82,858
88,945
96,312
105,303
112,351
1982
1
1983
1
1 Data for 1982 and 1983 are included here to be consistent with the multi-year planning system. They have not received as much review as the
estimates for 1980 and 1981.
The functional composition of the grant programs has changed
significantly over the years, as shown in table H-4. The most
dramatic growth has occurred in the health function, which has
increased from 3% of Federal aid in 1959 to an estimated 18% in
1981 and in the education, training, employment and social services function, which increased from 7% in 1959 to an estimated
24% in 1981. Other changes are the addition of general revenue
sharing, increases in outlays for environmental protection, and the
relative decline in grants for highways and income security. The
latter is primarily due to the assumption by the Federal Government of the food stamp program and the public assistance programs for the aged, blind, and disabled. The trends are similar
through 1983.
252
THE BUDGET FOR FISCAL YEAR 1981
Table H - 4 . PERCENTAGE DISTRIBUTION OF FEDERAL GRANT-IN-AID OUTLAYS BY FUNCTION
Actual
1959
Energy
Natural resources and environment...
Agriculture
Transportation
Community and regional development
Education, training, employment, and
social services
Health
Income security
General purpose fiscal assistance.. ,
Other
Total
1964
Estimate
1974
1969
1979
1980
1981
1982
1983
1
1
*
*
*
*
*
1
5
41
1
2
6
37
5
2
4
22
5
5
1
12
6
6
1
13
8
1
5
1
13
7
1
5
1
13
7
1
5
1
13
6
1
5
1
13
6
7
3
39
2
8
5
34
2
1
25
16
24
2
1
22
17
20
16
2
27
17
18
10
1
25
18
21
10
1
24
18
21
10
1
24
19
21
9
1
24
21
21
8
1
100
100
100
100
100
100
100
100
100
*
*0.5% or less.
1 Data for 1982 and 1983 are included here to be consistent with the new multi-year planning system. They have not received as much review as
the estimates for 1980 and 1981.
Table H-5 shows grant outlays by agency. The new Department
of Health and Human Services will provide 32% of total estimated
grant-in-aid outlays in 1981, far more than any other agency.
Table H - 5 . FEDERAL GRANT-IN-AID OUTLAYS BY AGENCY
(In millions of dollars)
Estimate
Agency
Funds appropriated to the President
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
Community Services Administration
Other
Total outlays
Actual
1979
1980
1981
521
5,313
2,255
5,994
83
26,666
6,405
1,029
505
10,390
10,353
7,818
3,963
739
825
601
6,072
1,021
6,919
367
28,909
7,701
1,234
457
10,131
11,301
7,413
4,108
1,779
931
2,902
6,183
1,095
7,691
549
30,788
8,837
1,321
466
11,058
11,572
8,166
4,187
511
986
82,858
88,945
96,312
253
SPECIAL ANALYSIS F
Distribution of grants by region.—Table H-6 shows that Federal
aid on a per capita basis varies widely among regions. The thinly
populated Western States traditionally rank high because of highway construction grants and shared revenues from Federal land
holdings. For example, the Rocky Mountain States have the lowest
regional population density, extensive Federal land holdings and,
until recently, the highest per capita aid.
This effect has diminished in recent years, however, as human
resource programs have grown relative to physical resource programs. Further, the addition of general revenue sharing has tended
to equalize per capita figures among the regions. Region VIII,
which had per capita grants 38% above the national average in
1969, now has grants only 9% over the average, while Region V
has risen from 23% below the average to only 11% below. Grants
to Region II have grown the most during the period, averaging
15.6% per year.
Table H - 6 . DISTRIBUTION OF GRANTS BY REGION, SELECTED FISCAL YEARS
Federal Region1
1: Maine, Vermont, New Hampshire, Massachusetts, Connecticut, Rhode Island
II: New York, New Jersey, Puerto Rico, Virgin Islands
III: Virginia, Pennsylvania, Delaware, Maryland, West Virginia, District of Columbia
IV: Kentucky, Tennessee, North Carolina, South Carolina,
Georgia, Alabama, Mississippi, Florida
V: Illinois, Indiana, Michigan, Ohio, Wisconsin, Minnesota.
VI: Arkansas, Louisiana, Oklahoma, New Mexico, Texas
VII: Iowa, Kansas, Missouri, Nebraska
VIII: Colorado, Montana, North Dakota, South Dakota,
Utah, Wyoming
IX: Arizona, California, Nevada, Hawaii, other territories....
X: Idaho, Oregon, Washington, Alaska
United States
1979 2
Total
grants
Dollars per capita
1969
1979
$5.3
13.0
$101
104
$430
459
9.6
96
398
14.9
12.7
15.1
7.5
3.6
102
77
112
88
350
333
320
309
12.8
15.4
10.8
13.0
2.7
10.1
3.2
138
118
120
405
377
420
11.1
12.0
13.0
$82.9
$100
$373
1 These are not the same regions as those used for national income account computations.
2 Preliminary estimate, in billions of dollars.
See "Federal Aid to States," Department of the Treasury, for additional information concerning State distribution of Federal grants.
Average
annual
percent
increase,
1969-79
15.2%
15.6
13.7%
254
THE BUDGET FOR FISCAL YEAR 1981
HISTORICAL
PERSPECTIVES
Although grants from the National Government predate the Constitution, they were very small until the end of the 19th century
and did not become a significant factor in Government expenditure
until after World War II. In 1950, Federal grants to State and local
governments were $2 billion, and by 1965 they had risen to $11
billion. In 1978, partially because of the economic stimulus grants,
they were $77.9 billion, an average annual increase of 16% since
1965. In 1981 Federal grants are expected to be 15.6% of total
Federal outlays and 20.9% of domestic Federal outlays. Table H-7
shows historical data for grant outlays since 1950.
Table H - 7 . HISTORICAL TREND OF FEDERAL GRANT-IN-AID OUTLAYS
(Fiscal years; dollar amounts in millions)
Composition of Grants-in-Aid
Federal grants as a percent of
Budget outlays
Total
grantsin-aid
Five-year intervals:
1950
1955
1960
1965
1970
Annually:
1975
1976
1977
1978
1979
1980 estimate
1981 estimate
1982 estimate 4
1983 estimate 4
Grants for
payments to
individuals1
Other
Total
Domestic:2
$2,253
3,207
7,020
10,904
24,014
$1,257
1,623
2,479
3,931
9,023
$996
1,584
4,541
6,972
14,991
5.3%
4.7
7.6
9.2
12.2
8.8 ( /o
12.1
15.9
16.5
21.1
49,834
59,093
68,414
77,889
82,858
88,945
96,312
105,303
112,351
17,441
21,023
23,860
25,981
28,765
34,202
37,764
42,037
46,061
32,392
38,070
44,555
51,908
54,093
54,744
58,548
63,266
66,290
15.3
16.1
17.0
17.3
16.8
15.8
15.6
15.3
14.5
21.3
21.7
22.7
22.9
22.4
21.0
20.9
20.6
19.5
State
and local
expenditures 3
10.4%
10.1
14.7
15.3
19.4
23.1
24.4
25.8
26.4
25.6
25.3
25.3
NA
NA
For an identification of accounts in this category, see Table H—11 and footnotes.
Excludes outlays for the national defense and international affairs functions.
As defined in the national income and product accounts.
4 Data for 1982 and 1983 are included to be consistent with the multi-year planning system. They have not received as much review as the
estimates for 1980 and 1981.
NA=Not available.
1
2
3
SPECIAL ANALYSIS F
255
Approximately two-fifths of estimated 1981 grants are to States
and localities for payments to individuals.2 Most such grants are
accompanied by State or local matching payments. Among the
larger of these programs are medicaid, assistance payments, housing payments, and nutrition programs for children and the elderly.
The public assistance program for the blind, disabled, and aged—
now known as supplemental security income—became a direct Federal program in January 1974, as the food stamps program did in
1971. Almost all of the outlays for these programs are therefore
included as grants through the year prior to their assumption by
the Federal Government, but not since then.
Table H-7 also shows grants-in-aid as a percent of State and
local expenditures. This percent increased from 15% in 1965 to
26% in 1978, and is estimated to continue to finance almost onefourth of total State and local expenditures through 1981.
Government Expenditures as a Percent of G N P
The charts show the growth of total governmental expenditures
since 1950, and these expenditures as a percent of gross national
product. Federal expenditures including grants have increased as a
percent of GNP from 16% in 1950 to 22% in 1979, while State and
local expenditures including grants have increased from 8% in
1950 to 13% in 1979.
2
The payments for individuals category has been revised and now includes some grant programs formerly
excluded. The revision increased the recorded 1978 payments for individuals that are grants by approximately
5%. The grant totals were not affected. Additional information about the definition and data changes are
available upon request from the Office of Management and Budget, Washington, D.C., 20503.
256
THE BUDGET FOR FISCAL YEAR 1981
Government Expenditures
1950
Fiscal Years
*955
I960
1965
1 970
1975
1979
GRANTS ADMINISTRATION
The rapid growth of the grant system in the late 1960's and early
1970's was accompanied by increasingly complex administrative
requirements. In earlier years, many grants were designated for
specific categories by Federal legislation or regulation, and came to
be known as categorical grants. They frequently required matching
funds from the recipient governments, and gave little discretion in
their use to State and local officials. In the 1960's and early 1970's,
these grants expanded and many persons involved with grant administration at all levels of government looked for better alternatives. As a result, many new programs give considerably more
discretion to State and local officials.
Table H-8 shows the increasing importance of general-purpose
and broad-based grants since 1972. General-purpose grants give
State and local governments almost complete discretion in determining their use; broad-based grants give State and local governments considerable discretion within a broadly defined program
area, such as health or community development. In 1972 there
were virtually no general-purpose or broad-based grants. In 1979
these grants were approximately one-fourth of total grants-in-aid.
257
SPECIAL ANALYSIS F
Table H - 8 . OUTLAYS FOR GENERAL-PURPOSE, BROAD-BASED, AND OTHER GRANTS
(Dollar amounts in millions)
Actual
1972
Estimate
1976
1977
1978
1979
1980
1981
0
$6,243
$6,758
$6,823
$6,848
$6,863
$6,857
516
907
2,748
2,780
1,485
1,820
2,724
516
7,150
9,506
9,603
8,333
8,683
9,580
1,930
233
602
983
128
1,698
2,251
674
558
2,089
65
1,756
2,534
519
719
577
2,464
88
1,992
2,809
417
706
3,057
3,161
73
1,845
3,634
368
858
1,741
3,500
3,805
59
54
1,948 2,011
3,108 3,150
337
324
737
453
358
200
2,855
6,292
8,259
11,533
11,680
10,047
9,997
Other grants
31,001
45,651
50,649
56,753
62,845
70,215
76,735
Total
34,372
59,093
68,414
77,889
82,858
88,945
96,312
General-purpose grants:
General revenue sharing
Other general purpose fiscal assistance
and TVA 1
Subtotal,
general-purpose
grants
Broad-based grants:
Community development block grants
Comprehensive health grants
Employment and training 2
Social services 3
Criminal justice assistance
School aid in federally affected areas...
Local public works
Subtotal, broad-based grants..
90
ADDENDUM: PERCENT OF TOTAL
General-purpose grants
Broad-based grants
Other grants
1.5% 12.1% 13.9% 12.3% 10.1% 9.8% 9.9%
8.3% 10.6% 12.1% 14.8% 14.1% 11.3% 10.4%
90.2% 77.3% 74.0% 7 2 . 9 % 75.8% 78.9% 79.7%
Total
100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
1 For detail, see grants in the general purpose fiscal assistance function, Table, H—11. Amounts in Table H-8 above include shared revenues from the
Tennessee Valley Authority, shown in the energy function.
2 Comprehensive Employment and Training Act (CETA), Title II A, B, and C. An additional $6.8 billion of CETA grant-in-aid outlays are estimated for
1981, but they are limited to particular types of service (e.g. public service employment) or clientele (e.g. youth) and therefore they are included in
other grants, not broad-based grants.
3 Includes $543 million in 1979 only for retroactive social services claims, appearing in the Department of the Treasury.
Most general-purpose and broad-based grants reduce significantly
or eliminate entirely the requirement that recipients match Federal funds with their own. Despite the increase in these grants,
matching requirements for all grants as a whole have not changed
significantly. In 1972, State and local governments were estimated
to provide approximately $1 of matching funds for $3 of Federal
aid, and this ratio is virtually unchanged for 1979. The decrease in
matching requirements for general-purpose and broad-based aid
has been offset by the significant growth in programs such as
medicaid that require more than average matching aid.
The chart shows that 81% of the aid is in only 25 programs.
Nevertheless, there continue to be hundreds of categorical grants
with different matching requirements, timing difficulties, application procedures, duplication of programs, and other administrative
problems.
310-700
0 - 8 0 - 1 7
258
THE BUDGET FOR FISCAL YEAR 1981
Most Grants are Concentrated in a Few Programs
Percent of 1 9 8 0 Estimated Obligation*
Numerous efforts undertaken recently or in the last few years to
correct some of these problems include:
—A major revision of audit requirements. Nearly 100 audit
guides have been replaced with a single guide, and a 6-month
time limit has been set on audit resolution, with procedures for
prompt settlement of differences. These new procedures will
result in a major improvement in grants administration.
—Standard financial requirements. Hundreds of inconsistent and
duplicative financial requirements of individual grant programs have been replaced by standard application forms, uniform cost principles, and streamlined reporting rules. Taken
together, these new requirements form a comprehensive
system of financial guidance for assistance programs. They
lighten substantially the burden these programs place on State
and local financial systems.
—Expanded use of letters of credit. Almost all grants now use
letters of credit, which have the effect of practically eliminating a delay in the receipt of approved funds to grantees.
—Establishment by statute of Inspectors General in 15 departments and agencies to uncover and eliminate fraud, abuse, and
waste in Federal programs. As this concept becomes fully operational, other agencies will follow. The President has directed
all departments and agencies to step up their audit and investigation efforts and the Inspectors General have a major role
in this effort.
259
SPECIAL ANALYSIS F
—Improvements in the Catalog of Federal Domestic Assistance,
the reference document used by communities and individuals
applying for Federal assistance. Improvements include publishing the Catalog three times a year (one basic edition and two
updates), assistance on how to write a proposal, and expanded
functional and applicant eligibility indices.
—Improvements in the Federal Assistance Program Retrieval
System (FAPRS). With FAPRS, one can (using a computer
terminal) match the characteristics of a community with the
requirements of Federal programs, and automatically identify
those programs from the Catalog for which a community might
apply. Changes include more categories of programs and applicants, additional eligibility criteria and procedures to display
management circulars that apply to the programs.
—Revised procurement standards. OMB Circular A-102, "Uniform administrative requirements for grants to State and local
governments", now includes streamlined procurement standards that place greater reliance on State and local purchasing
systems. The new standards permit governments with good
systems to have them certified in advance, keeping Federal
involvement in procurement under grants to a minimum.
—Efforts to share the benefits of applicable Federal research and
development programs with States and localities through the
Intergovernmental Science, Engineering and Technology Advisory Panel (ISETAP).
—A study of the Federal assistance system under the Federal
Grant and Cooperative Agreement Act. A report will be submitted to the Congress by February 1980 that will address the
feasibility of developing a comprehensive system of guidance
for assistance activities and outline an agenda for further improvements in Federal assistance management.
—A test of the feasibility of providing on computer tape quarterly information on Federal assistance awards to State governments. Thirteen States and all major grantmaking agencies
are participating in the test.
—Strengthened joint funding, which allows grants from several
agencies to be combined for the applicant into one coordinated
grant. Revised instructions have been issued to Federal agencies regarding this program.
OTHER SOURCES OF FEDERAL A I D
INFORMATION
The grant-in-aid series in the budget provides a comprehensive
picture of Federal grants-in-aid, which are programs financed but
not directly administered by the Federal Government. The Census
series (published in Governmental Finances) and the national
income and product accounts (NIA) series (published in Special
Analysis B of this document and in the Survey of Current Business)
260
THE BUDGET FOR FISCAL YEAR 1981
are parts of a broader statistical concept encompassing the entire
economy, and as a consequence grants-in-aid are defined somewhat
differently than in the budget series. They both omit the following
items that the budget series includes:
—Federal aid to the Governments of Puerto Rico and U.S. territories;
—payments in-kind, primarily commodities purchased by the Department of Agriculture and donated to the school lunch and
other nutrition programs; and
—payments to private, nonprofit entities (such as nonprofit hospitals) that operate under State auspices or within a State
plan.
One major group of payments excluded in the budget definition
of grants but included in the Census and NIA series is payments
for research conducted by public universities. The budget series
excludes these payments because they are considered to be a purchase of services for the Federal Government rather than aid for
State or local programs. Since both Census and the NIA series
focus on total cash payments to State and local governments, they
count these as grants. A major item included only in the Census
definition is unemployment compensation for Federal employees,
ex-servicemen, and temporary extended benefits. These items were
either new or became large in 1976, when they were first included
in the Census data. One major kind of outlay included in the
budget and Census definitions but excluded from the NIA series is
grants to subsidize the operation of public enterprises, mainly
housing and transportation facilities. These are counted as subsidies by the Federal Government in the NIA rather than as grants.
Table H-9 shows these and other minor differences among the
Table H - 9 . THREE MEASURES OF FEDERAL GRANTS-IN-AID TO STATE AND LOCAL
GOVERNMENTS, 1974-78
(In billions of dollars)
1974
Budget (Special Analysis H)
Less principal exclusions.Agricultural commodities
Geographical exclusions
Plus payments for research
Federal unemployment benefits and related.
All other (net)
1976
1977
1978
43.3
49.7
59.0
68.4
77.9
-0.6
-0.7
1.3
-0.5
-0.9
1.5
-0.4
-0.2
-0.5
-1.0
1.8
10.6
-0.8
-0.6
-1.2
1.8
5.2
-0.6
-0.6
-1.6
2.2
1.2
0.9
42.9
-1.1
49.6
-1.3
69.1
-1.6
-10.6
0.6
73.0
-1.8
-5.2
0.2
80.0
-2.3
-1.2
-1.8
48.3
57.5
66.2
74.7
Federal payments (Census)
Less low-rent public housing
Federal unemployment benefits and related.
All other (net)
-0.2
Grants-in-aid (national income and product accounts)
41.6
1975
.
SPECIAL A N A L Y S I S
261
F
three series, but the differences are largely offsetting and, thus,
these three series exhibit similar patterns.
In addition to these data sources, Federal Aid to States, published by the Department of the Treasury, lists grant outlays for
the most recently completed year by State for more than 90 programs, using the budget definition of grants. The Catalog of Federal Domestic Assistance, prepared by the Office of Management and
Budget and available from the Government Printing Office, contains a detailed listing of grant-in-aid and other assistance programs, and information on eligibility criteria, application procedures, estimated obligations, and related information. This is a
primary reference source for communities wishing to apply for
grants-in-aid. The Federal Register is published daily by the Government Printing Office and has current information on agencies
that are accepting applications for specific programs. This source
also provides information on eligibility criteria and application
procedures.
Geographic Distribution of Federal Funds (formerly entitled Federal Outlays), compiled by the Community Services Administration
and available from the Government Printing Office, uses various
proration techniques and financial concepts, primarily obligations,
to estimate total Federal expenditures as well as grant payments
at the State, county, and large-city level. Their grant estimates
therefore differ from those in the budget. These estimates are
cross-referenced where possible with the program identification
number in the Catalog of Federal Domestic Assistance.
T H E STATE A N D LOCAL G O V E R N M E N T SECTOR OF THE
I N C O M E A N D PRODUCT A C C O U N T S
NATIONAL
3
The national income and product accounts (NIA) provide a comprehensive statistical description of the U.S. economy that includes
State and local government receipts and expenditures. These data
measure the relationship between the State and local governments
as a sector of the economy and other sectors. The State and local
data are presented here to provide a context in which to compare
the grants-in-aid.
There are three major differences between NIA data and a government's own budgetary accounting for receipts and expenditures.
First, financial transactions and the purchase and sale of land and
other existing assets are excluded from NIA data but are generally
included in budgetary data. Second, a large number of transactions
in the NIA accounts are recorded on an accrual basis, while many
governments show transactions on a cash basis. Third, NIA data
aggregate total State and local transactions, whereas many govern3
Special Analysis B of this volume provides general information on the Federal sector of the national income
and product accounts.
262
THE BUDGET FOR FISCAL YEAR 1981
ments separate their general fund from special funds. As a result
of these differences, NIA totals are not the same as an aggregate of
these governments' financial budgets. However, the NIA data do
provide timely estimates of total State and local fiscal transactions
not otherwise available and, with care, can be used as financial
indicators.
NIA State and local sector.—Table H-10 is a historical tabulation
of State and local data with the surplus or deficit divided between
Table H - 1 0 . NATIONAL INCOME AND PRODUCT ACCOUNTS, STATE AND LOCAL SECTOR
(Calendar years; in billions of dollars)
Surplus or deficit ( - )
Receipts
Five-year intervals:
1950
1955
1960
1965
Annually:
1970
1971
1972
1973
1974
1975
1976
1977
1978
Expenditures
Total
sector
21.3
31.7
49.9
75.1
22.5
32.9
49.8
75.1
-1.2
-1.3
0.1
134.9
152.6
177.4
193.5
210.4
236.9
268.0
298.8
331.0
132.2
148.9
163.7
180.5
202.8
230.6
250.1
271.9
303.6
Social
insurance
funds
Operating
account
0.7
1.3
2.3
3.4
-1.9
-2.6
-2.2
-3.4
2.8
3.7
13.7
13.0
7.6
6.2
17.9
26.8
27.4
6.8
7.5
8.1
8.9
10.5
12.5
15.7
19.6
23.2
-4.0
-3.8
5.6
4.1
-2.9
-6.2
2.3
7.3
4.2
_ *
SEASONALLY ADJUSTED, ANNUAL RATES
1977:
1
II
Ill
IV
1978:
1
II
Ill
IV
1979:
1
II
Ill1
* $50 million or less.
v
Preliminary.
285.4
293.7
305.2
310.7
261.3
269.5
275.1
281.9
24.2
24.2
30.1
28.8
17.9
18.9
20.1
21.3
6.3
5.4
10.0
7.4
319.0
330.5
331.8
342.6
288.8
301.0
309.1
315.5
30.2
29.6
22.7
27.1
22.4
23.1
23.6
23.8
7.9
6.5
-0.9
3.3
343.9
345.9
360.0
316.3
326.1
334.3
27.6
19.7
25.7
25.0
26.0
27.1
2.6
-6.3
-1.5
SPECIAL A N A L Y S I S
F
263
two components, social insurance funds and the operating account.4
The social insurance funds, primarily retirement programs, have
been in surplus since before 1950. The funds accumulate assets to
pay for their future liabilities. However, despite their cash surpluses the accrued liability of many of these social insurance funds
exceeds their assets, posing a serious potential threat to future
State and local finances. Because these social insurance fund surpluses are not generally available to pay for deficits in operating
accounts, the operating account is generally thought to be a better
measure of State and local fiscal condition than the surplus or
deficit for the sector as a whole.
It is reasonable for the operating account to be in deficit since it
includes capital expenditures, often financed through borrowing,
and the account was in deficit in the 1950's and 1960's.
In the 1970's however, the account was in surplus several years.
Surpluses in 1972 and 1973 resulted from the first general revenue
sharing distributions and higher tax receipts generated by rate
increases and the rapidly expanding economy. In 1974, the operating account returned to a deficit. In part, this reflected a return to
previous patterns, as State and local expenditure increases absorbed the increased revenues. It also reflected the recession, with
State and local governments choosing to draw down balances accumulated during 1972-73 rather than enact new tax increases. Their
fiscal position improved substantially in 1976 compared to 1975,
and surpluses continued into 1978. The operating account had a
surplus of $7.3 billion in 1977, and $4.2 billion in 1978. However, as
Table H-10 indicates, by late 1979 the account had declined into a
deficit.
DETAILED FEDERAL A I D
TABLES
The following two tables present detailed Federal aid data for
the three budget years. Table H—11, "Federal Grants to State and
Local Governments—Outlays and Budget Authority/' provides detailed budget authority and outlay data for grants and shared
revenues. Table H-12, "Credit Assistance to State and Local Governments," provides information on direct and guaranteed loans to
State and local governments.
4
The operating account contains all transactions except those of social insurance funds, including expenditures for capital investment.
Table H - l l . FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS—OUTLAYS AND BUDGET AUTHORITY—Continued
(In millions of dollars)
1979
actual
1980
estimate
Function, agency and program
1981
estimate
OUTLAYS
49
44
38
39
20
37
94
77
57
76
7
100
2
351
6
114
39
484
3
134
183
472
660
123
2
16
50
18
57
55
12
39
16
21
30
16
27
43
62
50
58
59
National defense:
Department of Defense—Military:
Energy:
Natural resources and environment:
Department of Agriculture:
Department of Commerce:
Functional
code 1
1979
actual
1980
estimate
1981
estimate
BUDGET AUTHORITY
051
054
49
41
19
39
20
39
050
90
58
59
272
272
276
271
378
11
10
465
3
110
569
3
270
389
478
682
301
302
302
302
302
49
2
11
50
18
48
47
15
39
16
19
31
16
302
306
60
43
64
50
45
59
239
96
37
12
70
222
97
39
33
70
235
98
33
71
198
8
3,756
3
198
10
3,900
16
222
15
3,950
23
4,630
4,821
4,957
*
*
*
99
273
84
1
111
262
133
3
456
509
512
4
2
12
3
2
12
7
4
..
119
276
117
Department of the Interior:
Urban park and recreation grants
Land and water conservation fund
Fish and Wildlife grants
Historic preservation
Office of Surface Mining, Reclamation, and Enforcement
Bureau of Mines
Environmental Protection Agency:
Abatement and control
Enforcement
Sewage treatment plant construction
Water Resources Council
Total, natural resources and environment
Agriculture:
Department of Agriculture:
Cooperative research
Extension activities
Commodity Credit Corporation—Donations
Agricultural Marketing Service—Cooperative Projects in Marketing
Total, agriculture
Commerce and housing credit:
Department of Agriculture: Rural housing supervisory assistance
Department of Commerce:
Minority business development
Total, commerce and housing credit
303
303
303
303
302
306
19
370
121
59
47
121
312
137
53
67
121
320
137
43
101
304
304
304
301
335
9
4,200
3
289
299
3,400
21
3,700
30
300
5,396
4,633
4,969
352
352
351
352
103
275
84
2
112
286
133
2
116
298
117
350
464
532
531
371
2
2
2
376
2
2
2
370
5
4
4
...
>
to
o*
cn
Table H - l l . FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS—OUTLAYS AND BUDGET AUTHORITY—Continued
(In millions of dollars)
1979
actual
1980
estimate
OUTLAYS
100
1
1
4
556
22
193
27
6,825
23
71
169
53
2,408
2
84
2
620
24
133
21
7,568
22
112
172
86
2,538
3
111
10,438
11,513
Transportation:
Funds appropriated to the President:
Oil import reduction program (mass transit).
605
Department of Commerce:
Maritime Administration
1
Department of Transportation:
State boating safety assistance
Airport and airway trust fund
665
21
Highway beautification
128
Off-systems road programs
Highways crossing Federal projects
16
Federal aid highways (trust fund)
7,675
24
Highway related safety grants
131
193
72
2,644
Research and special programs.
3
83
12,260
297
224
296
203
326
197
11
12
12
Function, agency and program
1981
estimate
Community and regional development:
Funds appropriated to the President:
Department of Agriculture:
Functional
code 1
1980
estimate
1979
actual
1981
estimate
BUDGET AUTHORITY
401
1,276
1,472
403
1
1
1
403
402
401
401
401
401
401
401
401
401
401
407
401
5
644
12
25
16
7,821
24
179
178
69
2,300
3
61
650
8
54
14
8,435
24
72
198
84
2,098
3
66
700
6
8,872
24
35
262
87
3,739
3
66
400
11,338
12,982
15,267
452
453
373
350
348
260
360
176
452
10
10
10
287
4
3
301
7
4
303
7
2
345
1,741
10
3
64
437
358
2
9
68
677
200
2
3
69
10
62
3,500
260
39
180
56
2
9
18
5
12
3,805
175
21
365
45
2
10
19
3
13
5,786
6,318
3,161
298
38
73
62
*
*
18
3
6,641
2
9
12
21
23
3,115
57
858
3,387
66
737
3,658
79
453
Rural water and waste disposal
Rural development planning
Rural community fire protection grants
Department of Commerce:
Economic development assistance
Local public works
Drought assistance program
NOAA—Coastal energy impact fund
Regional Development Program
Department of Energy:
Energy conservation
Department of Housing and Urban Development:
Community development block grants
Urban renewal
Other categorical programs replaced by block grants
Urban development action grants
Comprehensive planning grants
New Communities Development Corporation
Neighborhood self-help program
Department of the Interior: Bureau of Indian Affairs
Federal Emergency Management Agency
Neighborhood Reinvestment Corporation
Total, community and regional development
Education, training, employment, and social services:
Department of Commerce:
Job opportunities program
Public communications facilities, planning and construction
Department of Education:
Elementary and secondary education
Indian education
School assistance in federally affected areas
452
452
452
282
5
4
300
7
4
284
5
452
452
453
452
452
409
11
951
924
64
.....
72
71
452
20
50
150
451
451
3,750
3,900
3,950
451
451
451
451
452
453
451
400
53
-8
5
18
3
675
42
10
18
5
12
675
40
-1
15
19
3
13
450
5,748
6,663
6,694
504
503
18
24
24
501
501
501
3,649
68
740
3,719
72
722
4,968
97
402
451
Table H - l l . FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS—OUTLAYS AND BUDGET AUTHORITY—Continued
(In millions of dollars)
1979
actual
1980
estimate
1981
estimate
4
OUTLAYS
296
273
641
450
850
77
21
34
84
4
625
372
3,091
1,520
7
716
352
3,108
1,143
7
779
371
3,150
802
8
5,397
35
3,285
65
610
543
553
120
22
6,163
53
1,926
22
728
6,819
61
1,978
24
793
523
152
20
511
162
22
22,249
21,865
23,195
315
255
456
769
62
24
80
317
249
819
957
900
77
13
164
5
Function, agency and program
Equal educational opportunities..
Rehabilitation services and handicapped research..
Higher and continuing education.
American Printing House for the Blind
Department of Health and Human Services.-
Department of Labor:
Employment and training assistanceGrants for employment services
Unemployment trust fund: employment service
Department of the Treasury.- Social services—retroactive claims.
Community Services Administration
Corporation for Public Broadcasting
National Foundation on the Arts and Humanities
Functional
code 1
501
503
501
506
501
502
502
503
501
501
1979
actual
1980
estimate
1981
estimate
BUDGET AUTHORITY
338
320
265
250
822
900
396
779
891
77
77
24
43
95
26
146
4
4
349
258
947
964
914
77
4
186
5
501
504
506
506
501
688
372
3,088
1,583
7
747
352
3,182
1,304
7
837
371
3,233
842
8
504
504
504
504
504
506
506
503
503
6,200
38
3,404
22
698
543
511
120
24
5,716
65
1,627
22
719
7,318
62
2,044
24
793
503
152
23
504
162
24
500
24,176
22,009
25,418
*
1
30
30
32
913
89
5
594
216
78
12,407
940
101
9
613
192
117
14,160
914
106
17
653
189
92
15,768
39
6
40
6
41
6
14,377
16,209
17,817
1,735
186
1,256
6
5
270
8
5
298
20
8
365
324
130
2,732
542
64
350
145
3,161
732
104
389
102
2,961
900
126
41
45
45
Health:
Special Action Office for Drug Abuse Preven
Department of Agriculture: Food Safety and
Department of Health and Human Services:
Department of Labor:
and Health Administration
Income security:
Community Services Administration: Low income energy assistance 2
Department of Agriculture:
Rural housing for domestic labor 2
Mutual and self-help housing2
Food Safety and Quality Service—Funds for strengthening markets, income and supplydonations (child nutrition) 2
Food stamps—administration 2
Special milk program 2
Child nutrition program 2
Special supplemental food program (WIC) 2
Food donations 2
Department of Health and Human Services:
554
554
30
30
32
551
551
552
551
551
553
551
985
101
9
654
183
120
13,125
1,080
99
12
698
159
82
14,514
1,071
162
13
736
171
70
16,382
554
554
554
42
42
6
42
42
6
44
44
6
550
15,256
16,722
18,688
604
604
604
189
189
1,193
1,193
604
604
604
604
33
33
14
14
25
25
5
1,735
25
25
604
604
604
604
604
604
219
316
138
2,668
567
70
306
370
149
3,289
755
106
385
409
107
3,139
968
129
604
41
45
45
XJl
3
HH
£
>
^
r
$
55
to
Oi
to
o
Table H - l l . FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS—OUTLAYS AND BUDGET AUTHORITY—Continued
(In millions of dollars)
1979
actual
Function, agency and program
1981
estimate
1980
estimate
OUTLAYS
7,005
408
7,385
517
952
2,878
773
4
1,194
3,591
811
6
1,335
14,740
18,364
20,298
6,584
132
2,119
654
37
1
10
37
2
45
86
82
1
6
12
8
446
2
15
8
452
6
19
517
473
491
35
1
14
37
86
8
497
*
10
21
5
Public assistance—maintenance2
Refugee assistance2
Department of Housing and Urban Development:
Subsidized housing programs2
Operation of housing projects2
Congregate services program 2
Department of Labor: Unemployment trust fund: administration of payments2
Total, income security
Veterans benefits and services:
Veterans Administration:
Medical care 2
Medical administrative expenses
Grants for construction of State nursing homes5
Health training
Veterans cemetery construction
Total, veterans benefits and services..
Administration of justice:
Department of Housing and Urban Development: Fair housing assistance.
Department of Justice:
National Institute of Corrections
Criminal justice assistance
Research and statistics
Equal Employment Opportunity Commission
Total, administration of justice..
Functional
code 1
604
604
1979
actual
1980
estimate
1981
estimate
BUDGET AUTHORITY
6,656
7,502
7,270
225
592
512
604
604
604
603
13,834
727
10
996
17,381
794
10
1,055
20,019
862
600
26,701
33,266
37,252
1,335
H
ffi
M
W
C
O
O
n
^
0
w
703
703
703
703
705
35
1
10
37
37
1
8
45
5
5
700
82
50
65
4
6
8
456
6
20
496
751
754
754
754
751
8
515
15
8
384
6
15
750
539
416
15
1
H<
M
>
W
77
105
19
65
111
18
100
94
20
202
194
214
241
6
279
5
320
5
105
300
4
108
362
8
83
10
111
428
13
42
78
220
6,863
250
2
301
84
225
6,857
1,000
27
214
213
6,848
*
275
361
8,233
8,569
9,446
82,858
88,945
96,312
General government:
Department of the Interior:
Administration of Territories
Trust Territory of the Pacific Islands
Office of Personnel Management (intergovernmental personnel assistance)
Total, general government
General purpose fiscal assistance:
Department of Agriculture: Forest Service (shared revenue)
Department of Defense: Flood Control Act (shared revenue)
Department of the Interior:
Payments in lieu of taxes
Miscellaneous (shared revenues)
Fish and Wildlife Service
Payments to U S territories
Internal revenue collections for the Virgin Islands (shared revenues)
Department of the Treasury:
Customs receipts for Puerto Rico and the Virgin Islands (shared revenue)
Internal revenue collections for Puerto Rico (shared revenues)
General revenue sharing
Targeted and antirecession fiscal assistance
Antirecession financial assistance fund
Federal payment to the District of Columbia
Total, general purpose fiscal assistance
Total, grants-in-aid
*$500 thousand or less.
For a description of these codes, see Table 13 in the Budget of the United States Government, 1981.
Programs included in the "Grants for payments to individuals" category shown in Table H-7.
1
2
806
806
806
51
113
20
86
120
20
99
79
20
800
185
226
199
852
852
241
5
279
5
320
5
852
852
852
852
852
105
300
5
108
362
8
83
2
111
428
13
42
214
214
6,855
78
220
6,855
375
84
225
6,855
1,000
275
301
361
852
852
851
852
852
852
850
.
,
.
27
8,240
8,676
9,444
98,607
106,715
119,768
Table H-12. CREDIT ASSISTANCE TO STATE AND LOCAL GOVERNMENTS ^Continued
(In millions of dollars)
Guaranteed loans
Direct loans
1979
Natural resources and environment:
Department of the Interior: Drought emergency loan fund..
Agriculture:
Department of Agriculture:
Agriculture credit insurance fund-
Commerce and housing credit:
Department of Agriculture:
Rural housing insurance fund-
Transportation:
Federal aid highways (trust fund)
Right-of-way revolving fund
Urban mass transportation fund
1980
New loans
Net loans
Outstandings
1981
estimate
actual
Function, agency and program
1
8
30
*
30
New loans
Net loans
Outstandings
- 1
29
*
2
1
1
7
9
8
12
2
10
13
-7
3
7
4
32
161
161
- 1
New loans
Net loans
Outstandings
-100
New loans
Net loans
Outstandings
New loans
8
3
11
- 1
*
161
1981
estimate
estimate
actual
*
New loans
Net loans
Outstandings
1980
1979
estimate
9
3
14
8
2
34
10
3
17
17
10
44
£
?
°
°
Net loans
Outstandings
Other programs
1
S
'
£
Total, transportation
Community and regional development:
Department of Agriculture:
Rural development insurance fund
Department of Commerce:
Coastal energy impact fund
Department of Housing and Urban Development:
Urban renewal programs
Revolving fund (liquidating programs)
47
47
47
997
997
997
New loans
New loans
Outstandings
New loans
Net loans
Outstandings
8
8
8
101
216
216
216
997
997
997
New loans
Net loans
Outstandings
574
4
244
691
-97
147
790
-64
83
772
544
3,132
1,136
755
3,887
1,333
813
4,700
49
49
57
49
49
107
52
-18
5
3
-15
484
15
-5
43
-325
466
30
-227
239
145
-215
23
New loans
Net loans
Outstandings
New loans
Net loans
Outstandings
New loans
Net loans
Outstandings
168
-17
23
3
-14
499
4
-16
468
Table H-12. CREDIT ASSISTANCE TO STATE AND LOCAL GOVERNMENTS
^Continued
(In millions of dollars)
Direct loans
1979
actual
Function, agency and program
Community development loans..
Other programs.,
Total, community and regional development..
Education, training, employment and social services:
Department of Health, Education, and Welfare:
Student loan insurance fund
Student financial assistance
Higher and continuing education
Higher education facilities loan fund
Total education, training, employment and social services.
1980
estimate
Guaranteed loans
1981
estimate
1979
actual
New loans
Net loans
Outstandings.
Net loans
Outstandings
9
116
-2
114
-4
no
New loans
Net loans
Outstandings
759
-11
890
798
-82
808
858
-39
768
32
32
56
15
15
71
5
5
76
New loans
Net loans
Outstandings
New loans
Net loans
Outstandings
New loans
Net loans
Outstandings.
New loans
Net loans
Outstandings.
New loans
Net loans
Outstandings..
*
1980
estimate
1981
estimate
12
12
12
165
162
174
290
264
437
826
1,331
690
4,300
1,768
861
5,161
—15
979
- 1 6
-17
945
-15
979
-16
-17
945
231
3,610
*
20
4
- 1 0
431
37
23
507
20
20
3
- 1 1
420
18
4
511
3
962
- 1 1
409
- 6
505
962
Table H-12. CREDIT ASSISTANCE TO STATE AND LOCAL GOVERNMENTS ^Continued
(In millions of dollars)
Direct loans
1979
actual
Function, agency and program
Health:
Department of Health, Education, and Welfare:
Medical facilities guarantee and loan fund
Income security:
Department of Housing and Urban Development:
Low-rent public housing
General Government:
Department of the Interior:
Administration of territories
General purpose fiscal assistance:
Department of the Treasury:
New York City loan guarantees
Loans to the District of Columbia
Grand total
New loans
Net loans
Outstandings..
New loans
Net loans
Outstandings..
New loans
Net loans
Outstandings..
Guaranteed loans
1981
estimate
1980
estimate
1979
actual
-4
168
-4
164
-4
160
9,451
483
15,050
10,000
200
15,250
10,825
2,000
17,250
58
10
9
67
-38
29
500
500
500
250
226
726
-47
679
10,793
1,201
21,404
11,608
1,110
22,514
12,620
2,768
25,282
*
*
22
22
21
211
300
300
56
56
2
1
37
*
*
36
9
56
- 1
35
1
New loans
Net loans
Outstandings.
New loans
Net loans
Outstandings..
141
118
1,434
185
81
1,515
174
148
1,663
New loans
Net loans
Outstandings..
1,222
54
3,200
1,316
5
3,205
1,354
94
3,299
1981
estimate
1980
estimate
t as outlays. Guaranteed loans are non-Federal loans guaranteed by the Federal government. For a discussion
of credit in the budget, see Special Analysis, F, "Federal Credit Programs" in the Special Analyses volume of the 1981 Budget.
SPECIAL ANALYSIS I
CIVILIAN EMPLOYMENT IN THE EXECUTIVE BRANCH
Total Federal employment in the executive branch (including the
Postal Service) is estimated to be 2,768,300 at the end of 1981. Of
this number, full-time permanent employment accounts for about
88%. The remainder is made up of part-time employees, intermittent employees (those employed on an irregular basis), and fulltime temporary employees (generally, in positions occupied for less
than 1 year). Unless noted otherwise, the 1981 estimates in this
analysis—for total executive branch employment—reflect the fractional counting of part-time permanent positions (based on the
average number of hours per regularly scheduled workweek)—as
required by the Federal Employees Part-Time Career Employment
Act of 1978 (Public Law 95-437).
Full-time permanent employment in the executive branch at the
end of 1981 is estimated to be 1,909,000, excluding 532,100 Postal
Service employees, who are not under the President's jurisdiction.
(This group is discussed in greater detail under "Full-Time Permanent Civilian Employment.")
EMPLOYMENT
LIMITATION
As a part of the Civil Service Reform Act of 1978 (section 311),
the Congress placed an employment limitation on the executive
branch. The limitation requires that "The total number of civilian
employees in the executive branch on September 30, 1979, on September 30, 1980, and on September 30, 1981, shall not exceed the
number of such employees on September 30, 1977." It includes all
civilian employees within the executive branch of the Government
(other than the United States Postal Service and the Postal Rate
Commission), whether employed on a full-time, part-time, or intermittent basis. It also includes those employed on an indirect hire
basis under master labor contracts with foreign governments. (The
latter applies to the Defense Department.) The limitation excludes
employment programs established for students and disadvantaged
youth.
The statutory limitation also provides that the President may
authorize employment in excess of the limitation if he deems that
such action is necessary in the public interest. The upper limit of
this additional flexibility is restricted to the percentage increase of
the U.S. population since September 30, 1978, as estimated by the
277
278
THE BUDGET FOR FISCAL YEAR 1981
Bureau of the Census. Using this criterion, the September 30, 1979,
employment level could exceed that for September 30, 1977, by
about 16,000 positions (0.7%). Another 16,000 positions could be
added by September 30, 1980 and an additional 21,000 positions
(0.9%) could be added by September 30, 1981—while remaining
within the statutory limit.
Finally, the law provides that the number of part-time employees
in excess of the number of such employees on September 30, 1977,
may be counted on a full-time equivalent basis. Since this calculation will yield a smaller number than an actual count of such
employees on a specific date, this provision would permit additional
part-time employees to be added to the allowable executive branch
totals.
The basis for determining the actual statutory limitation is the
Monthly Report of Civilian Employment published by the Office of
Personnel Management. A derivation of the statutory limitation on
total employment follows:
Executive branch total employment, as of September 30, 1977
Less.U.S. Postal Service
Postal Rate Commission
Special employment programs—primarily disadvantaged youth
Plus.Indirect hires (Department of Defense)
Statutory limitation on total employment:
Unadjusted for population growth
2,789,057
-657,832
-81
- 23,406
83,383
2,191,121
As indicated in the table below, on September 30, 1979, executive
branch employment subject to the limitation was below the statutory limit, adjusted for growth in the U.S. population. The President determined this to be in the public interest.
September 30
1980
estimate
1979
actual
Statutory limitation on total employment, adjusted for population growth
Actual and planned employment
Difference
1
2
1
2,207,121
2,203,901
3,220
2
2,223,121
2,210,700
12,421
1981
estimate
2
2,244,121
2,197,500
46,621
Includes an allowable adjustment for part-time employees, added since September 30,1977, on a full-time equivalent basis.
End of year estimated count. Does not reflect adjustments for fractional counting of other than permanent positions.
The estimate for executive branch employment for 1980 is also
within the permissible upper limit that results when population
growth is taken into account. The 1981 estimate (unadjusted for
fractional counting of part-time permanent positions), is slightly
above the September 30, 1977, level. The President, in approving
the employment estimates for 1980 and 1981, has determined that
279
SPECIAL ANALYSIS F
use of a portion of the increase in employment permitted under the
statutory provisions is necessary in the public interest.
TOTAL FEDERAL
EMPLOYMENT
Table 1-1, "Total Federal Employment," shows Government-wide
Federal civilian employment exclusive of the indirect hire component of the statutory limitation, since indirect hire employees are
not Federal employees. Estimates for indirect hire employment are,
however, reflected in a footnote. Information on Postal Service
employment (including that of the Postal Rate Commission) is also
shown, together with data for the legislative and judicial branches
and for active duty military personnel.
Table 1-1. TOTAL FEDERAL EMPLOYMENT
September 30
Description
1979
actual
1980
estimate
1981
estimate
Civilian employment in the executive branch:
Full-time permanent (including lapse)
Other than full-time permanent
1,893,391
240,797
1,910,300
221,900
1,909,000
199,300
Subtotal (including lapse)
2,134,188
2,132,200
2,108,300
532,627
129,246
531,800
125,300
532,100
103,900
661,873
657,100
636,000
26,591
25,000
24,000
2,822,652
2,814,300
2,768,300
2,024,444
38,565
2,045,200
39,500
2,059,100
39,500
2,063,009
2,084,700
2,098,600
4,885,661
4,899,000
4,866,900
Postal Service:
Full-time permanent
Other than full-time
Subtotal
Exempt from ceilings 1
Subtotal, executive branch civilian employment 2 3
duty: 4
Military personnel on active
Department of Defense
Department of Transportation (Coast Guard)
Subtotal, military personnel
Total, executive branch employment
Legislative and judicial personnel:5
Full-time permanent
Other than full-time permanent
Subtotal, legislative and judicial branches....
Grand total
31,834
21,386
53,220
4,938,881
1 Developmental positions under the Worker-Trainee Opportunity Program; disadvantaged summer and part-time workers under such Office of
Personnel Management programs as Summer Aids, Stay in School, and Junior Fellowship; and certain statutory exemptions.
2 Excludes foreign nationals working under master labor contracts overseas. Actual employment for 1979 was 75,317; such employment is estimated
to be 78,500 for 1980 and 79,300 for 1981.
3 For 1981, reflects fractional counting of part-time permanent positions, pursuant to the provisions of Public Law 95-437.
4 Excludes reserve components.
5 1980 and 1981 estimates are not available for the legislative and judicial branches.
Note that within the sub-total for executive branch civilian employment, the "other than full-time permanent" entries for 1981
280
THE BUDGET FOR FISCAL YEAR 1981
include adjustments to account for part-time permanent positions
on a fractional basis, as required by the Federal Employees PartTime Career Employment Act of 1978 (Public Law 95-437).
F U L L - T I M E EQUIVALENT
EMPLOYMENT
In September of 1977, the President directed executive branch
agencies to establish programs that would provide more opportunities for persons unable to work full-time by expanding employment
opportunities for part-time permanent workers. In addition, the
Office of Management and Budget and the Office of Personnel
Management were directed to conduct an experiment with fulltime equivalent (FTE) controls in a few agencies.
The selected agencies were given new 1979 employment ceilings
stated in terms of full-time equivalents (FTE's), i.e., workyear ceilings. Commencing with the beginning of 1979, (October 1, 1978)
these agencies began to measure and report on their employment
in terms of the number of hours worked.
The experiment was designed to accomplish two objectives: (1) To
break down artificial barriers that may have inhibited the employment of permanent part-time workers; and (2) to determine whether FTE controls can improve personnel management, overcome
some of the other difficulties under the existing end-of-year control
system, and, at the same time, not add significantly to the size of
the Federal work force.
Preliminary findings indicate that, within the five test agencies,
progress is being made toward achievement of both of the experiment's goals. The results have been sufficiently encouraging to
expand the group to include five cabinet level agencies during 1981.
Beginning with 1982, the entire executive branch will be shifted to
a system of FTE controls.
In the meantime, with the objective of increasing the number of
part-time career employees in the Federal Government, the Federal Employees Part-Time Career Employment Act of 1978 requires
that employment for part-time career employees be controlled on a
fractional basis, commencing on October 1, 1980. As indicated in
the discussion of table 1-1, the 1981 employment estimates reflect
the requirements of that act.
FULL-TIME P E R M A N E N T CIVILIAN
EMPLOYMENT
This part of the analysis of Federal civilian employment identifies full-time permanent employment separately from total employment (which includes part-time employees, intermittent employees,
and full-time temporary employees, as well as full-time permanent
employees). Excluding Postal Service employment, which by law is
not subject to Presidential control, and excluding other employment exempted from ceilings, full-time permanent employment in
the executive branch on September 30, 1979, was 1,893,391, a de-
281
SPECIAL ANALYSIS F
crease from the preceding year of about 28,300. As of September 30,
1980, such employment is estimated to be 1,910,300. For September
30, 1981, the corresponding estimate is 1,909,000.
Table 1-2 shows actual 1979 full-time permanent employment
and estimated 1980 and 1981 employment for the major departments and agencies of the executive branch. The table also contains an estimate of the anticipated lapse to take account of the
fact that, on a Government-wide basis, end-of-year employment has
ranged, over the past 10 years, from 0.3% to 2.3% below the budget
estimates. The estimates for 1980 and 1981 anticipate lapses of
slightly under 0.7% for full-time permanent employment.
Table 1-2. SUMMARY OF FULL-TIME PERMANENT CIVILIAN EMPLOYMENT IN THE EXECUTIVE
BRANCH 1
(Excluding the Postal Service)
As of September 30
Agency
Agriculture
Commerce
Defense—military functions
Defense—civil functions
Education
Energy
Health, Education, and Welfare
Health and Human Services
Housing and Urban Development
Interior
Justice
Labor
State
Transportation
Treasury
Environmental Protection Agency
National Aeronautics and Space Administration
Veterans Administration
Other:
Agency for International Development
General Services Administration
International Communication Agency
International Development Cooperation Agency.
Nuclear Regulatory Commission
Office of Personnel Management
Panama Canal Commission
Small Business Administration
Tennessee Valley Authority
Miscellaneous
1979 2
actual
1980
estimate
1981
estimate
Change
1980-81
83,899
29,127
885,990
28,592
85,200
30,800
886,000
28,400
6,100
20,300
85,100
31,200
885,000
28,400
6,000
20,300
-100
400
-1,000
140,900
16,000
55,100
55,700
23,000
21,900
71,700
111,400
11,000
22,600
201,900
138,800
16,000
55,300
55,400
22,700
22,000
72,200
112,000
11,200
22,700
200,800
-2,100
34,700
8,400
5,900
3,100
6,600
8,300
4,700
17,700
45,300
34,900
8,400
5,800
3,400
6,600
8,300
4,700
17,700
45,100
-200
-2,600
1,300
19,005
141,945
16,101
54,343
52,743
22,148
22,130
70,166
109,382
10,153
22,633
193,641
5,753
32,787
8,020
2,839
6,276
11,666
4,372
17,065
42,615
Subtotal
Contingencies3
1,893,391
1,922,600
700
1,920,000
2,000
Subtotal
Expected lapse
1,893,391
1,923,300
-13,000
1,922,000
-13,000
1,893,391
1,910,300
1,909,000
Total
-100
200
-300
-300
100
500
600
200
100
-1,100
200
-100
300
.
-1,300
-1,300
Excludes developmental positions under the worker-trainee opportunity program (WT0P) as well as certain statutory exemptions.
2 The 1979 column reflects the organizational structure as of September 30, 1979. Beginning with the 1980 column, the table reflects the changes
from the Department of Health, Education, and Welfare to the Departments of Education and Health and Human Services. The table also reflects the
change from the Agency for International Development to the International Development Cooperation Agency.
3 Subject to later distribution.
1
282
THE BUDGET FOR FISCAL YEAR 1981
In keeping with the President's goal to hold 1980 and 1981 fulltime permanent employment below the level of January 31, 1977
(1,911,900) and under the provisions of the statutory limitation
prescribed by the Civil Service Reform Act, some agencies shown
are experiencing declines in planned employment—in some cases
to a level at or below that of 1979.
Reductions in full-time permanent employment between the end
of 1980 and 1981 are planned in the following major agencies:
• The Department of Defense (military functions).—A decrease
of 1,000 reflects the Department's estimate of the activities
that will be converted to contract when lower costs result.
Workload increases in such areas as naval shipyards and the
Defense agencies will offset some of the reductions
anticipated.
• The Department of Education.—Section 403 of the Department of Education Organization Act requires that the number
of full-time equivalent positions in the Department be reduced
by 500 by the end of 1981. One hundred of that reduction will
be taken in full-time permanent positions, the remaining 400
from temporary, part time, and intermittent positions.
• The Department of Health and Human Services.—Employment will decrease in 1981 by 2,100. The decrease results from
the proposed creation of a public corporation to manage St.
Elizabeth's Hospital. Partly offset by increases provided for
the Public Health Service (primarily the National Health
Service Corps), to strengthen civil rights enforcement, and for
administration of the medicare/medicaid programs.
• The Department of Justice.—A net decrease of 300 positions is
planned. The Federal Bureau of Investigation will be reduced
by about 300 clerical employees who were temporarily authorized for a special 3-year project that is now complete. Also,
the FBI is planning to make more extensive use of part-time
clerical personnel. A legislative initiative to transfer the service of process to the private sector will enable the U.S. Marshals Service to reduce 200 positions, and a declining number
of prison inmates will reduce the need for prison staff by
about 60 positions. More than 100 border patrol agents will be
added to the Immigration and Naturalization Service, and
litigative staff will grow by 70 positions.
• The Department of Labor.—Employment will decline by about
300, of which 200 reflect the departure of term employees as
excessive backlogs are reduced in the administration of workers' compensation for Federal employees. The remainder re-
SPECIAL ANALYSIS F
283
fleets miscellaneous workload reductions or operating
efficiencies.
• The Veterans Administration.—A net decrease of 1,100 end-ofyear positions will result from a continuing decline in requests for services under the GI bill, increased office automation, and reductions of seasonal hiring peaks for medical care
personnel that occur near the end of the fiscal year. Full-time
equivalent staffing of VA medical facilities will continue to
increase in 1981.
Over the same time period, increases are planned for:
• The Department of Commerce.—The Department will increase
by about 400 positions to support the expanded program activities of the Economic Development Administration, export
promotion efforts, implementation of the President's industrial innovation initiatives, and improvements in the operations
and services of the Patent and Trademark Office. The acquisition of the Smithsonian Science Information Exchange is also
reflected.
• The Department of the Interior.—An increase of about 200
positions is planned, chiefly to support preparations for oil
and gas leasing in the National Petroleum Reserve in Alaska,
implementation of the Surface Mining Act, resumption of coal
leasing and improved supervision of oil and gas leasing on
Federal and Indian lands, and operation of new national
parks and refuges in Alaska. A portion of these increases is
offset by decreases elsewhere in the Department.
• The Department of Transportation.—An increase of approximately 500 positions is primarily for the Federal Aviation
Administration for more air traffic controllers to meet increasing aviation activity and for more aircraft and aviation
safety inspectors. An increase of 60 positions for the Urban
Mass Transportation Administration is associated with the
recent and proposed rapid growth in the size, complexity, and
number of Federal grants for public transportation projects.
• The Department of the Treasury.—A net increase of 600 positions is planned. The increase is composed of 700 additional
positions in the Internal Revenue Service, partially offset by a
reduction of 100 positions in other bureaus within the Department. The additional IRS positions will strengthen the effort
to collect taxes that are due but unpaid, and to follow up on
information concerning persons who have failed to file tax
returns.
• The Environmental Protection Agency.—An increase of 200
positions is distributed throughout the agency, but chiefly for
research and development, implementation of regulations, and
the enforcement of the hazardous waste regulatory program.
284
THE BUDGET FOR FISCAL YEAR 1981
• The General Services Administration.—An increase of 200 positions is for additions to the Office of the Inspector General,
the transfer of the Federal Procurement Data Center from
the Department of Defense, strengthening of the contracting
and deregulation efforts in the area of personal property management, enhancement of regional management capabilities,
for the conversion of historic archival film from nitrate-based
to safety film, and for the expansion of business service centers and Federal information centers to additional locations.
• The Nuclear Regulatory Commission.—An increase of about
300 positions is planned, chiefly as a result of expanded activity in the inspection and enforcement functions as well as in
research and technical support. Much of this increase results
from the investigation of the accident at Three Mile Island.
One hundred and fifty of these positions reflect the conversion of temporary support personnel to full-time status.
PERSONNEL COMPENSATION A N D BENEFITS
Direct compensation of the Federal work force includes base pay,
merit pay, cash incentive and performance awards, meritorious and
distinguished executive awards, premium pay for overtime, Sunday
and holiday pay, differentials for night work and overseas duty,
and flight and other hazardous duty pay. Related compensation in
the form of personnel benefits consists primarily of the Government's share (as employer) of health insurance, term life insurance,
and Federal retirement and old-age survivors' disability insurance.
Additional benefits include uniform allowances (when paid in
cash), cost-of-living and overseas quarters allowances, and, in the
case of uniformed military personnel, reenlistment bonuses.
Obligations for civilian personnel compensation and benefits in
1981 are projected to reach $54.9 billion, excluding the Postal Service. The estimated costs for civilian and military pay raises for
1981 are covered by lump sum allowances in the 1981 budget.
Under the proposed Federal Employees Compensation Reform
Act, compensation for Federal employees under the "General
Schedule" and most other statutory pay systems will be adjusted
periodically so as to relate to compensation paid for the same work
levels in the non-Federal sector. The bases for these adjustments
will be annual surveys conducted by the Bureau of Labor Statistics.
The 1981 budget assumes 1981 pay raises for civilian employees
of 6.2% and 7.4% for military personnel, reflecting the provisions
of the Administration's proposed comprehensive legislation to
reform and improve Federal pay-setting systems and procedures.
This is reflected in the estimates in the 1981 budget and in
table 1-3.
285
SPECIAL ANALYSIS F
Table 1-3. PERSONNEL COMPENSATION AND BENEFITS
[In millions of dollars]
1979
actual
Description
Civilian personnel costs:
Executive branch: 1
Direct compensation
Personnel benefits 2 3
Subtotal
Legislative and
Direct compensation
Personnel benefits 3
1980
estimate
1981
estimate
39,959
6,878
43,990
7,676
44,361
7,767
46,837
51,666
52,128
715
68
855
83
893
87
783
938
980
47,620
52,604
54,895
24,940
1,944
26,547
2,284
27,204
2,483
26,884
28,831
29,687
judiciary: 4
Subtotal
Allowance for civilian pay
1,787
raise 7
Total, civilian personnel costs,
Military personnel costs:5
Direct compensation
Personnel benefits 6
Subtotal
,
Allowance for military pay raise 7
Total, military pay costs
Grand total, personnel costs
1,174
26,884
28,831
30,861
74,504
81,435
85,756
1 Excludes the Postal Service, reflecting conversion to independent status, consistent with the Postal Service Reorganization Act of 1970.
2 In addition to the employing agency's contributions for the costs of life and health insurance, and retirement, 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 for employees (nonpostal) in the executive branch. The transfers amounted to $2,441 million in 1979 and are estimated to be $2,411 million in
1980 and $2,785 million in 1981.
3 Excludes transfers for interest on unfunded liability for executive, legislative, and judiciary branches, which amounted to $6,378 million in 1979 and are
estimated to be $7,868 million in 1980 and $8,795 million in 1981.
4 Excludes members and officers of the Congress.
5 Excludes reserve components.
6 Excludes payments to current military retirees, which amounted to $10,283 million in 1979 and are estimated to be $11,452 million in 1980 and
$13,700 million in 1981.
7 These allowances assume absorbtion. Actual combined costs of the 1981 civilian and military pay raises are estimated to be $4,525 million.
286
THE BUDGET FOR FISCAL YEAR 1981
GOVERNMENT EMPLOYMENT AND LABOR FORCE COMPARISONS
As shown on the following chart, Government employment—
Federal, State, and local—will comprise about 15.9% of the total
employed civilian labor force in 1981.
Within this segment, Federal civilian employment in the executive branch accounts for 2.8% of the total employed civilian labor
force in 1981, down from a high of 3.8% in 1968.
The percentage of the total employed civilian labor force attributable to State and local government has grown from 8.8% in 1958
to 13.1% in 1981.
Government Civilian Employment
o$ a Percent of Total Civilian Employment
TOTAL
^SJt
287
SPECIAL ANALYSIS F
GOVERNMENT EMPLOYMENT AND POPULATION COMPARISONS
As illustrated in the following chart and in table 1-4, the Federal
share of total governmental employment has declined significantly
over the last three decades, from 38.4% in 1952 to an estimated
17.6% in 1981. Employment for all government has been rising
steadily due to increases in State and local government employment.
The ratio of Federal civilian employment to the total U.S. population is expected to be 12.3 per thousand in 1981—which is lower
than all of the 31 years displayed in table 1-4.
Government Civilian Employment
Millions
18
18
IS-
-15
TOTAL
h-IS
tt-
State and Local
Postal Service
1951
1956
E*dof F W Y w r
288
THE BUDGET FOR FISCAL YEAR 1981
Table 1-4. GOVERNMENT EMPLOYMENT AND POPULATION, 1951-81
Government employment
Fiscal year
19512
1952
1953
1954
1955
1956
1957
1958
1959
I960 2
19612
1962
1963 3
1964 3
1965
1966
1967
1968
1969 4
1970 2
19712
1972
1973
1974
1975
1976
1977 5
1978
1979
1980 ( e s t . ) 2
1981 ( e s t . ) 2 7
Federal
executive
branch 1
(thousands)
State and
local governments
(thousands)
All governmental
units
(thousands)
2,456
2,574
2,532
2,382
2,371
2,372
2,391
2,355
2,355
2,371
2,407
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
2,814
2,768
4,031
4,134
4,282
4,552
4,728
5,064
5,380
5,630
5,806
6,073
6,295
6,533
6,834
7,236
7,683
8,259
8,730
9,141
9,496
9,869
10,372
10,896
11,286
11,713
12,114
12,282
12,617
12,810
13,002
6,487
6,708
6,814
6,934
7,099
7,436
7,771
7,985
8,161
8,444
8,702
9,018
9,324
9,705
10,179
10,923
11,607
12,092
12,476
12,813
13,255
13,719
14,061
14,560
14,962
15,114
15,406
15,630
15,825
Population
Federal as
percent of
all governmental
units
37.9
38.4
37.2
34.4
33.4
31.9
30.8
29.5
28.8
28.1
27.7
27.6
26.7
25.4
24.5
24.4
24.8
24.4
23.9
23.0
21.8
20.6
19.7
19.6
19.0
18.7
18.1
18.0
17.8
617.8
617.6
Total
United
States
(thousands)
154,878
157,553
160,184
163,026
165,931
168,903
171,984
174,882
177,830
180,671
183,691
186,538
189,242
191,889
194,303
196,560
198,712
200,706
202,677
204,878
207,053
208,846
210,410
211,901
213,559
215,152
217,422
219,247
221,180
222,672
224,744
Federal
employment per
1,000
population
15.9
16.3
15.8
14.6
14.3
14.0
13.9
13.5
13.2
13.1
13.1
13.3
13.2
12.9
12.8
13.6
14.5
14.7
14.7
14.4
13.9
13.5
13.2
13.4
13.3
13.2
12.8
12.9
12.8
12.5
12.3
1 Covers total end-of-year employment of full-time permanent, temporary, part-time, and intermittent employees in the executive branch, including the
Postal Service, and, beginning in 1970, includes various disadvantaged youth and worker-trainee programs.
2 Includes temporary employees for the decennial census.
3 Excludes 7,411 project employees in 1963 and 406 project employees in 1964 for the public works acceleration program.
4 On Jan.l, 1969, 42,000 civilian 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.
5 Data for 1951 through 1976 are as of June 30; for 1977 through 1981, as of Sept. 30.
6 The percentages shown for these years are consistent with reasonable estimates based on recent trends in State and local government.
7 Reflects fractional counting of part-time permanent positions, pursuant to the provisions of Public Law 95-437.
Part 3
SELECTED FEDERAL PROGRAMS
289
3 1 0 - 7 0 0 0 - 80 - 19
INTRODUCTION
Part 3 furnishes Government-wide program and financial information in selected program areas—civil rights and research and
development, designated J and K.
Special Analysis J (Civil Rights Activities) summarizes Federal
spending for civil rights activities, concentrating on compliance,
investigation, and enforcement efforts.
Special Analysis K (Research and Development) identifies Federal programs for the conduct of research and development, and for
the support of facilities related to such activities.
290
SPECIAL ANALYSIS I
CIVIL
RIGHTS
ACTIVITIES
COVERAGE A N D SCOPE OF THE
ANALYSIS
This analysis of Federal civil rights activities summarizes the
accomplishments of and plans for programs designed to protect
individual rights in such areas as voting, public accommodations,
fair housing, and equal employment opportunity in the public and
private sectors. Also included are Federal programs concerning
civil rights research, information dissemination, and the conciliation and prevention of racial disputes. Outlays for these civil rights
activities are projected to increase by 25%, from $469.1 million in
1979 to $585.0 million in 1981.1
Outlays for Civil Rights Enforcement
$ Millions
700
S Millions
- 700
585
600
-600
540
500
500
427
400
400
375
300-
300
200 -
100-
-100
1976
1977
1978
1979
1980
1981
Fiscal Yeats
1
Civil rights activities of the Postal Service, which by law is off-budget, are shown in the table as memorandum entries.
291
292
THE BUDGET FOR FISCAL YEAR 1981
Table J-l. CIVIL RIGHTS OUTLAYS BY PROGRAM CATEGORY
(In millions of dollars)
Program category
Civil rights enforcement:1
Federal service equal employment opportunities....
Military services equal opportunities2
Private sector equal employment opportunities
Equal educational opportunity
Fair housing3
Enforcement and investigation4
Civil rights conciliation and prevention of disputes
Research and information dissemination
Total
1979
actual
1980
estimate
1981
estimate
170.4
39.7
135.5
14.8
15.2
76.7
183.7
41.7
167.5
29.9
17.3
82.5
194.9
42.9
189.9
40.7
17.5
80.7
5.3
11.5
5.3
12.5
5.5
12.9
469.1
540.4
585.0
Civil rights enforcement programs guarantee and protect the basic civil rights as defined by law.
Excludes outlays for contract compliance, fair housing and title VI activities reported elsewhere, includes Coast Guard.
Excludes funds for contract compliance and departmental personnel who directly administer housing and urban development programs but concern
themselves with the objectives of fair housing laws.
4 Includes all title VI efforts except those included in the Department of Health and Human Services (HHS) and the Department of Education (DE).
1
2
3
Monitoring and oversight responsibility.—On October 1, 1979, the
Director of the Office of Management and Budget established an
office for civil rights within his office. This component assists the
Director of OMB in meeting his responsibility to oversee and coordinate the development of executive branch programs and budget
policies and to assure efficient and economical conduct of Government activities. In fulfilling its responsibility, the civil
rights office assists other components of OMB in the review of
agency programs and budget submissions that affect civil rights
activities. The creation of this office will help promote more unified
and cohesive civil rights policies within the executive branch, directed at more effective enforcement of the rights of protected
classes and the elimination of unnecessary burdens on those subject to regulations.
Federal service equal employment opportunities.—The head of
each Federal department and agency is required by Executive
Order 11478, section 717 of Title VII of the Civil Rights Act of 1964,
Section 501 of the Rehabilitation Act of 1973, and the Civil Service
Reform Act of 1978 to refrain from discrimination and to take
affirmative action to assure equal employment opportunity for minorities, women and the handicapped. All Government personnel
actions must be free from discrimination based on race, color,
religion, sex, national origin, age, or handicap. Special procedures
are available to Federal employees and other applicants who believe they have received discriminatory treatment in any aspect of
the Federal workforce. These procedures include informal counseling through which over 400,000 persons contacted equal employment counselors in 1979. Formal complaints filed with Federal
SPECIAL ANALYSIS F
293
agencies totaled 10,000 in 1979 and 8,000 were resolved. In 1980,
the Equal Employment Opportunity Commission will initiate a
pilot program in which it will conduct investigations of employment discrimination filed with selected Federal agencies. The purpose is to develop more effective techniques of investigation and
conciliation for the Federal sector and to assist agencies in investigating and resolving complaints. During 1981, EEOC plans to direct
increased resources toward consolidating, within the Commission,
the investigation of all Federal sector employment discrimination
complaints. This process is scheduled for completion in 1982.
Affirmative action by Executive departments and agencies to
assure equal employment opportunities for minorities, women and
handicapped are documented in written plans which include both
goals and timetables for combating patterns and practices of discrimination, and for increasing participation of minorities, qualified handicapped persons and women in the Federal workforce.
Careful consideration is to be given to assure that recruitment
efforts reach all sources of job candidates, that present employee
skills are fully utilized, that upward mobility opportunities are
provided, and that supervisors are trained to assume their equal
employment opportunity responsibilities.
Outlays for Federal service equal opportunity (including Upward
Mobility) are expected to reach $194.9 million in 1981, and workyears are projected at 9,226.
Under the Intergovernmental Personnel Act of 1970 (IPA), the
Office of Personnel Management (OPM) provides technical and
financial assistance in personnel management and employee development to State, local, and Indian tribal governments to promote
and support equal employment opportunity efforts. During 1979,
OPM:
—Awarded $3.0 million in IPA grant funds to support projects
that are designed to improve various aspects of State and local
equal employment opportunity efforts;
—Provided technical assistance and advice related to equal employment opportunity to State and local governments;
—Developed and issued a variety of publications for State and
local use, aimed wholly or partially at improving equal employment opportunity.
In 1980 and 1981, OPM will continue to provide financial and
technical assistance to State and local governments in equal employment opportunity.
OPM also provides services to Federal, State, local, and Indian
tribal governments in the following areas:
• Intergovernmental personnel program services in affirmative
employment totaled 25 workyears and $725,000 for 1979. This
294
THE BUDGET FOR FISCAL YEAR 1981
is expected to increase to 26 workyears and $750,000 in 1980
and 1981.
• Training in affirmative employment for 1979 totaled 24.1 workyears and $1.7 million. This is expected to increase to 27.9
workyears and $1.9 million for 1980 and to 31.2 workyears
and $2.1 million for 1981.
• Investigations of discrimination complaints totaled 6.0 workyears and $123,000 for 1979. This activity is estimated at 6.0
workyears and $112,800 for 1980 and 6.0 workyears and
$122,000 for 1981.
Military services equal employment opportunities.—Each of the
military services, including the Coast Guard, has placed equal opportunity officers at various levels within individual command
structures. They guide, monitor, and evaluate all matters related to
equal opportunity and treatment of military personnel and their
dependents, and participate in race relations councils, seminars,
and training programs. In 1981, outlays are estimated at $42.9
million to provide for more than 3,135 workyears for insuring
equal opportunities for members of the Armed Forces.
Continued growth in the number of minorities and women is
evidence of equal opportunity emphasis in this area. The number
of women in the military increased by over 16,500, to nearly
150,000 in 1979, toward a goal of 254,000 women on active duty by
1985. Within the overall gains, there was a rise in the number of
women at the Service academies, women participating in ROTC
programs, and women receiving ROTC scholarship assistance.
Gains in minority participation in the active forces continue. The
percentage of minority enlisted personnel has increased steadily
from 20.3% in 1972 to 29.6% in 1979. Participation by minorities in
ROTC programs has reached over 20,000 and minority enrollment
at Service Academies over 16,000, or 12.4% of total enrollment.
Efforts continue to ensure equitable promotions and job assignments for all military personnel. Thirty-nine minorities and seven
women currently hold flag or general officer rank.
The Defense Race Relations Institute was recently renamed the
Defense Equal Opportunity Management Institute, to more accurately reflect the Institute's objective to develop graduates trained
to deal with such problems as racism and sexism, and to promote
cultural awareness, and to develop staff advisors and organizational
consultants on equal opportunity matters. The Institute has provided more than 5,000 graduates to the Military Services in its 8
years of operation.
Private sector equal employment opportunities.—Title VII of the
Civil Rights Act of 1964, as amended, prohibits discrimination on
the basis of race, color, religion, sex, or national origin by employ-
295
SPECIAL ANALYSIS F
ers, unions, or employment agencies. The Age Discrimination in
Employment Act Amendments of 1978 make it unlawful to require
or permit the involuntary retirement of any individual because of
age. The 1978 amendments to the Age Discrimination in Employment Act expanded coverage by raising the upper age limitation
for protection under the Act from 65 to 70 years of age in the
private sector and State and local governments, and removed the
upper age limit altogether for the Federal sector. Under the Equal
Pay Act of 1963, employees are protected from discrimination because of sex with regard to the payment of wages by employers.
Executive Order 11246, as amended, requires Federal and federally
assisted Government contractors or subcontractors to take affirmative action to avoid and overcome the effects of discrimination.
Outlays for administering the programs are expected to reach
$189.9 million in 1981.
Equal Employment Opportunity Commission Activities
fiKal Y w n
Estimate
Outlays to administer the programs of the Equal Employment
Opportunity Commission (EEOC) in 1981 are estimated at $135.2
million. This amount will provide resources to fund the agency's
ongoing program as well as functions transferred in 1979 from the
Office of Personnel Management and the Labor Department.
In 1979, EEOC completed a total reorganization of its structure
and individual charge processing system. The Commission's plans
for 1981 also include (1) reducing the existing backlog of old
296
THE BUDGET FOR FISCAL YEAR 1981
charges by 77% and (2) resolving a total 55,000 charges of
discrimination. Another 40,000 charges are expected to be resolved
by State and local Fair Employment Practices Agencies that have
worksharing and funding agreements with the Commission. EEOC
will be allocating increased resources in 1981 to enforcement efforts to combat systemic employment discrimination and bring
about reform of identified discriminatory practices.
The Office of Federal Contract Compliance Programs (OFCCP) in
the Department of Labor is responsible under Executive Orders
11246 and 11375, the Rehabilitation Act of 1973, and the Vietnam
Era Veterans Readjustment Assistance Act of 1974 for programs
requiring equal employment opportunity and affirmative action by
Federal contractors and subcontractors. The basic enforcement tool
is the review of contractor facilities to ascertain compliance. This
comprehensive review encompasses all aspects of a contractor's
hiring and promotion policies for handicapped workers, veterans,
minorities, and women. Outlays for the Federal contract compliance
program are estimated to reach $51,790 million in 1980 and $53,662
million in 1981. During 1980, OFCCP expects to carry out 7,000
compliance actions, and 8,000 in 1981.
Other highlights include:
• The Federal Communications Commission will continue to
investigate complaints of employment discrimination by
broadcasters, cable television systems, and common carriers;
review licensees' annual reports of employment patterns; and
foster representation of minorities in the ownership of broadcast facilities. In 1978, the Commission entered into a memorandum of understanding with EEOC to pursue a common
goal—the elimination of employment discrimination in the
broadcast industry—and to avoid duplication through coordination and cooperation. To date, 35 complaints have been
referred to EEOC for processing. In 1979, the Commission
revised its classification form to identify those areas where
substantive changes are necessary or appropriate and to
obtain a more accurate picture of minorities and women in
the broadcast field.
• During the first three quarters of 1979, as a result of illegal
pay practices, the Employment Standards Administration, in
the Department of Labor, found 14,070 workers employed in
violation of the Equal Pay Act who were owed $10.2 million,
of which $6.4 million was remitted by employers to 11,595
employees. The Equal Pay Program was transferred to EEOC
on July 1, 1979. During the last quarter of 1979, the Commission received 2,100 complaints under the Pay Act. One thousand were resolved and the remainer carried over into 1980
for further action.
SPECIAL ANALYSIS F
297
Equal educational opportunity.—The new Department of Education, established under the Department of Education Organization
Act of September 21, 1979, and the Department of Justice have the
primary responsibility for assuring nondiscrimination in education
programs and activities receiving Federal financial assistance. The
main objectives are to eliminate inequality in educational opportunities for all students, and to develop a nondiscriminatory employment
policy relating to faculty, administrators, and employees in public
schools, colleges and universities. The Federal Government continues to help local schools provide equal educational opportunity for
Spanish-speaking and other non-English speaking students through
special education and bilingual education program grants. Additionally, Federal funds will be used to provide educational opportunities
for Indian children and adults, ranging from remedial reading to
studies dealing with Indian culture and heritage. In 1981, outlays of
$40.7 millions are proposed to support these activities.
Title IX of the Higher Education Amendments of 1972 prohibits
discrimination based on sex in education programs and activities
receiving Federal funds. The Department of Education is charged
with the administration of this program and plans to spend $12.5
million to enforce title IX in 1981. In 1979, the Department of
Health, Education, and Welfare, which administered title IX, in that
year received approximately 8,000 complaints of which 7,400 were
resolved. Approximately 20,000 primary recipients of Federal funds
are covered by title IX. The Women's Educational Equity Act is
intended to develop programs and activities which seek to eliminate
sex discrimination, bias, and sterotyping at all levels of education.
The Women's Educational Equity program, transferred from the
Department of Health, Education, and Welfare to the Department of
Education in 1979, is directly responsible for implementation of this
Act. In 1981, the program will focus, for the first time, on projects of
local significance linked to compliance with title IX.
With the creation of the new Department of Education, resources
of the Office for Civil Rights in the former Department of Health,
Education, and Welfare, will be divided between the Department of
Health and Human Services and the Department of Education on
the basis of current workload. Responsibility for assuring compliance with sections 502 and 504 of the Rehabilitation Act of 1973
for education programs has been assigned to the Department of
Education. Section 504 prohibits discrimination against persons on
298
THE BUDGET FOR FISCAL YEAR 1981
the basis of physical or mental handicap in all federally assisted
programs. In 1981, $13.2 million will be spent by the Department of
Education toward implementation of this activity through technical assistance to both recipients and beneficiaries.
Under section 502, the Architectural and Transportation Barriers Compliance Board is authorized to investigate and insure
compliance with standards for public architectural, transportation,
and communication barriers, including public conveyances, confronting handicapped individuals. In 1981, $2.1 million is requested
which represents a major increase over the amount currently available for 1980.
In April 1979, the Justice Department consolidated its equal
education opportunities and housing functions in order to address
more effectively the interrelated problems of residential segregation and segregation of public schools. The new combined function
has targeted $3.4 million in 1981 to enforce desegregation of public
elementary and secondary schools and to insure nondiscriminatory
treatment by all schools including colleges. During 1979, the Department placed a high priority on the desegregation of school
districts in nonsouthern metropolitan areas, reinforcing the requirements for full desegregation of northern and western school
districts which had previously practiced unlawful segregation. This
increased activity in northern and western jurisdictions, however,
did not detract from efforts by Justice to enforce court-ordered
desegregation in Southern States. Justice participated in lawsuits
involving more than 500 southern school districts in 1979. Other
areas of equal educational opportunity receiving a high priority in
1979 included sex discrimination in education, and racial discrimination resulting from implementation of State competency laws
and regulations.
Table J-2. CIVIL RIGHTS OUTLAYS BY TYPE OF ACTIVITY
(In millions of dollars)
Type of activity
Complaint conciliation
Complaint investigation
Compliance review and monitoring...
Legal enforcement
Program direction and research
Technical assistance
Upward mobility
Military services equal opportunities.
Total
1979
actual
1980
estimate
1981
estimate
26.5
98.3
113.1
25.2
144.6
23.9
37.5
28.6
121.8
143.2
28.3
155.7
24.4
38.4
30.5
134.0
151.8
30.4
172.1
24.6
41.6
469.1
540.4
585.0
Fair housing.—Title VIII of the Civil Rights Act of 1968 prohibits discrimination in the sale, rental, or financing of housing, or provision of brokerage services on the basis of race, color, religion, sex,
SPECIAL ANALYSIS F
299
or national origin. The act also prohibits "blockbusting", the pressuring of homeowners to sell or landlords to rent at below-market
prices because households of different races, colors, religions or
national origins are moving into a neighborhood. The Departments
of Housing and Urban Development (HUD) and Justice are charged
with administration and enforcement of the act. All executive departments and agencies are directed (1) to administer their programs and activities relating to housing and urban development in
an affirmative manner to promote fair housing and (2) to cooperate
with HUD in furthering that purpose.
During 1979, HUD closed 2,912 complaints out of a total of 3,339
complaints including cases carried over from the past year. In
addition 348 out of 643 attempts to resolve complaints through
conciliation were completed. Conciliation generally results in specific relief for the complainant and actions to eliminate any discriminatory practices found as a result of the complaint.
During 1980, HUD proposes to broaden and strengthen its ability
to address discrimination in housing by significantly restructuring
its complaint processing program to address more rapidly individual complaints and to establish special units to investigate complaints of systemic discrimination. Also in 198(t, it plans to provide
financial and technical assistance to State and local fair housing
agencies as an incentive for these agencies to assume a greater
share of the responsibilities for administering fair housing laws.
Projections for 1981 include the completion of substantive Title
VIII regulations which will authoritatively inform the public of
those activities prohibited by law and to assure consistent application of the fair housing program by Federal, State, and local jurisdictions.
The Justice Department enforces both Title VIII of the Civil
Rights Act of 1968, and the Equal Credit Opportunity Act of 1974,
which forbids discrimination in all aspects of credit transactions,
including those for commercial and other nonhousing purposes. In
1979, Justice filed 26 suits and two motions for contempt under the
Fair Housing Act. These actions were taken in cases in 18 different
States, potentially affecting 15,000 units of housing. They involve
alleged discriminatory rental and sales practices based on race,
sex, national origin and religion. Efforts were underway in 1979 to
document possible housing discrimination against Hispanics for
possible litigation actions. Five cases in violation of the Equal
Credit Opportunity Act were brought by the Department during
1979. These involved complaints based on alleged discriminatory
conduct relating to age, sex, or marital status, or alleged failure to
provide credit applicants with adequate reasons for adverse action.
Expenditures proposed for the administration of fair housing
programs total $17.5 million in 1981. Defense plans to spend $8.5
300
THE BUDGET FOR FISCAL YEAR 1981
million to protect the rights of all military and civilian personnel,
including Defense personnel in off-base housing, and the General
Services Administration estimates $0.2 million will be spent to study
proposed locations for federally constructed or leased space to assure
an adequate supply of low and moderate income housing on a
nondiscriminatory basis.
Enforcement and investigations.—Primary responsibility for the
enforcement of civil rights laws and constitutional guarantees rests
with the Justice Department. This includes the development, negotiation, conciliation, and litigation of complaints and cases. Justice,
along with other Federal agencies with enforcement responsibilities, expects to spend $80.7 million in 1981. The Department will
continue to coordinate Federal agencies' enforcement of Title VI of
the Civil Rights Act of 1964, which prohibits racial and ethnic
discrimination in all federally funded programs. In 1979, the Department negotiated and signed a memorandum of understanding
with the Department of Housing and Urban Development to set
out steps HUD should take to improve Title VI enforcement. Additionally, the Department completed a survey of Title VI enforcement efforts by the Small Business Administration, developed a
Title VI training program for the Office of Personnel Management,
and assisted the Department of Labor in resolving several outstanding complaints of discrimination in the Comprehensive Employment and Training Program. Justice also participated in a
wide variety of litigative actions intended to remedy conditions in
correctional institutions, mental hospitals, and juvenile homes.
The 1968 Civil Rights Act prohibits the use of force or threats of
force to injure or intimidate any person involved in the exercise of
certain Federal rights and activities. In 1979, Justice reviewed
approximately 11,000 complaints alleging criminal interference
with the civil rights of citizens. Over 3,100 of these were investigated by the FBI. The Department will continue to investigate and
litigate the civil rights of citizens who have suffered violence or
threats of violence, including special protection for migrant workers, prison inmates, and with the Department of the Interior,
American Indians.
The Voting Rights Act of 1965 insures that all qualified citizens
have the opportunity to register and vote without discrimination
on account of race, color, membership in a language minority
group, or age. Section 5 of the Voting Rights Act of 1965, as
amended, requires that covered jurisdictions submit all changes in
voting practices or procedures to either the U.S. District Court for
the District of Columbia for judicial review or to the Attorney
General for administrative review. In fiscal year 1979, 1,914 submissions involving a total of 3,420 voting-related changes were
SPECIAL ANALYSIS F
301
submitted to the Attorney General under section 5. Provisions of the
Voting Act authorize the Attorney General to assign observers to
monitor elections to insure that the right to vote and to have the vote
properly counted is not denied during the election process. Last year,
972 observers were assigned to cover nine elections in five States,
including elections in three counties. Assistance was provided to the
Department of Defense's Federal Voter Assistance Program to gather
and prepare information for dissemination as required under the
Overseas Citizens Voting Rights Act and the Federal Voters Assistance Act.
Civil rights conciliation and prevention of disputes.—The mission
of the Community Relations Service (CRS) in the Department of
Justice is to provide assistance to communities in resolving disputes, disagreements, or difficulties relating to discriminatory practices based on race, color, or national origin. CRS also aids communities in achieving the kinds of progress which will enable them to
avoid racial upheavals.
In 1981, CRS estimates outlays of $5.5 million for dispute resolution. Initiated in 1979 and continuing in 1980 is a cooperative
agreement with a Federal judicial circuit to increase court referrals of appropriate disputes to CRS as an alternative to certain
forms of litigation. CRS's conciliation and mediation efforts will
continue to be directed toward fostering improved relations and
understanding between law enforcement officials and minority
groups.
Civil rights research and information dissemination.—Outlays in
this area are estimated at $12.9 million in 1981.
• The budget proposes $11.9 million of outlays for the Commission on Civil Rights to carry out its factfinding function relating to denials of equal protection under the law.
• The Women's Bureau, within the Department of Labor, promotes the welfare and improved economic status of working
women. The Bureau publishes and disseminates information
to assist women directly and through employer and union
organizations and government agencies. In addition, the
Bureau provides services to both the National Advisory Committee for Women and the Interdepartmental Task Force on
Women, established by President Carter by Executive Order
12050.
302
THE BUDGET FOR FISCAL YEAR 1981
Table J-3. CIVIL RIGHTS OUTLAYS BY DEPARTMENT AND AGENCY
(In millions of dollars)
1979
actual
Department of Agriculture
Department of Commerce
Department of Defense
Department of Education1
Department of Health, Education, and Welfare 1 ...
Department of Health and Human Services
Department of Housing and Urban Development...
Department of Justice
Department of Labor
Department of Transportation
Office of Personnel Management
Department of State
Commission on Civil Rights
Equal Employment Opportunity Commission2.
Postal Service 3
Small Business Administration
All other
Total
1981
estimate
1980
estimate
6.5
.1
47.0
7.7
2.1
50.9
41.8
5.2
32.2
47.0
2.0
9.0
7.4
1.8
49.4
18.5
32.1
13.6
5.8
36.8
56.8
2.2
8.2
10.2
255.0
(17.4)
1.1
3.4
11.4
290.5
(19.3)
1.2
4.7
11.9
322.1
(21.5)
1.8
4.5
469.1
540.4
585.0
50.4
*
*
..
26.8
6.3
39.1
59.3
2.7
8.0
*
* Less than $100 thousand.
1 Assumes transfer from HEW to the Department of Education.
Include outlays for all Federal service equal employment opportunity, including Upward Mobility.
3 Postal Service outlays appear in the Annexed Budget and are included here for memorandum purposes only.
2
• The Fair Housing and Equal Opportunity program in the
Department of Housing and Urban Development conducts research and demonstration projects on methods for broadening
housing opportunities for minorities, including Native Americans, and women.
• The Women's Action Program in the Department of Health
and Human Services, together with the Secretary's Advisory
Committee on the Rights and Responsibilities of Women, has
a 1981 budget of $.02 million to analyze the effects of the
Department's programs and policies on women and to recommend changes identified by this analysis.
SPECIAL ANALYSIS K
RESEARCH AND DEVELOPMENT
This analysis summarizes the funding of research and development (R. & D.) in the budgets of 31 separate departments and
agencies. It consists of two parts. The first highlights the R. & D.
programs and trends in the 1981 budget. The second describes in
more detail the R. & D. programs of the 14 agencies whose 1981
obligations for R. & D. are each expected to surpass $100 million.
R. & D. is not a separately budgeted activity of the Federal
Government. Decisions on R. & D. funding, as reflected in the
budget, are made primarily in the light of the potential contributions of science and technology to meeting particular national
needs and specific agency mission requirements. However, the level
and composition of total R. & D. funding is reviewed and adjusted
in the preparation of the budget, particularly in the case of basic
research, to reflect the overall Federal responsibility for the advancement of science in the national interest.
Federal R. & D. covers a wide range of activities. In varying
degrees, agency R. & D. programs include:
• Basic research (discovering fundamental knowledge);
• Applied research (using that knowledge to meet identified
needs);
• Development (designing, engineering, and demonstrating new
devices, systems, or methods).
The R. & D. activities of the Federal Government may be categorized as meeting:
• Direct Federal needs—where the sole or primary user of the
R. & D. is the Government itself; for example, national defense,
space technology, air traffic control, and environmental regulation.
• General economic and social needs—where the Federal Government assumes major responsibility because there are insufficient incentives for the private sector to invest enough in
the national interest; for example, Federal support of basic
research and many areas of medical, agricultural, and educational research.
• Specific national needs—where the Government seeks to augment, but not supplant, the R. & D. efforts of the private
sector because of an overriding national interest and the need
to accelerate the development, or increase the range, of technological options available to the Nation; for example, support
for the development of new energy technologies.
303
304
THE BUDGET FOR FISCAL YEAR 1981
PART I. HIGHLIGHTS A N D TRENDS
A significant feature of the 1981 budget is the continued Government-wide growth in the funding of basic research. Obligations for
the conduct of basic research are estimated to be $5.1 billion in
1981. This represents an increase of $543 million, 12% over the
1980 dollar level, or nearly 3% growth above projected inflation.
Proposed Federal obligations for the conduct of all research and
development, including basic research, are expected to total $36.1
billion in 1981, an increase of $4.2 billion or 13% over 1980, as
displayed in table K - l . Obligations for R. & D. facilities are estimated to be $2.0 billion in 1980 and 1981.
Table K - l . TOTAL FEDERAL FUNDING FOR CONDUCT OF R. & D. AND RELATED FACILITIES
(In billions of dollars)
Obligations
1979
actual
Conduct of R. & D
R. & D. facilities
Total
1980
estimate
Outlays
1981
estimate
1979
actual
1980
estimate
1981
estimate
28.9
1.4
32.0
2.0
36.1
2.0
26.6
1.3
30.5
1.7
33.7
1.9
30.3
34.0
38.1
27.8
32.2
35.6
CONDUCT OF RESEARCH A N D
DEVELOPMENT
Consistent with the view of the administration that R. & D.
represents an important investment in the Nation's future, R. & D.
has received close attention in the preparation of the 1981 budget.
The funding of individual agency R. & D. programs reflects both a
realistic assessment of how R. & D. can effectively contribute to
national needs and a critical examination of the appropriate Federal role in R. & D. in meeting these needs.
Table K-2 below identifies the major R. & D. programs by agency
and summarizes the total Federal obligations for R. & D.:
Table K - 2 . CONDUCT OF R. & D.
(In billions of dollars)
Obligations
Department or agency
1979
actual
1980
estimate
Outlays
1981
estimate
1979
actual
1980
estimate
1981
estimate
Defense
National Aeronautics and Space Administration
Energy
Health and Human Services
National Science Foundation
All other
12.5
13.8
16.6
11.5
13.3
15.2
4.4
4.6
3.5
0.8
3.1
5.1
4.9
3.8
0.9
3.5
5.6
5.1
4.0
1.1
3.7
4.1
4.4
3.1
0.8
2.7
4.9
4.9
3.4
0.9
3.1
5.3
5.1
3.7
1.0
3.4
Conduct of R. & D., total.
28.9
32.0
36.1
26.6
30.5
33.7
SPECIAL ANALYSIS F
305
Highlights of each of these agency programs are presented below:
Department of Defense.—At $16.6 billion, the obligations for total
conduct of R. & D. in the Department of Defense are larger than
those of any other Federal agency and account for approximately
45% of total Federal support for R. & D. Obligations are estimated
to increase by $2.8 billion, or 20%, over 1980. Development of
major strategic and tactical weapons will continue, and increased
funding will be provided for research and technology related to
longer-range military needs. In 1981 the Department plans to:
• Increase its support for basic research by 21%, from $431
million to $523 million, over 1980;
• Begin development of a new cargo transport aircraft, the C-X,
to increase rapid deployment capabilities of U.S. forces; and
• Continue full-scale development of the M-X intercontinental
ballistic missile.
Department of Energy.—Obligations for the conduct of R. & D. in
the Department of Energy are estimated to total $5.1 billion in
1981. In 1981, the Department plans to:
• Increase its support for basic research by 13% over 1980, from
$523 million to $593 million; and
• Increase overall support for longer term solar, fossil, and fusion
R.& D.
At the same time the Department will:
• Decrease support in nuclear fission R. & D. related to the
breeder reactor; and
• Maintain strong support for conservation technology efforts,
recognizing the increased emphasis that incentives such as tax
credits have on accelerating energy conservation.
National Aeronautics and Space Administration.—Obligations for
conduct of R. & D. in NASA are estimated to total $5.6 billion in
1981, $503 million or 10% over 1980. The 1981 budget reflects the
administration's commitment to the Space Shuttle leading to a
late 1980 launch and to a balanced and vigorous space program. In
1981, NASA proposes to:
• Complete the development of the Space Shuttle to meet national needs in areas such as space science, communications,
remote-sensing of the Earth's environment and natural resources, and defense;
• Initiate the development of a gamma ray observatory that
will be launched into space, using the Space Shuttle, to obtain
fundamental knowledge of the nature and origin of our universe;
• Initiate the development of advanced space communications
technology to increase the useful range of radio frequencies
for communications; and
310-700
0 - 8 0 - 2 0
306
THE BUDGET FOR FISCAL YEAR 1981
• Undertake new projects in aeronautics R. & D. for research
on advanced propeller designs and turbine engine combustors
to improve the performance of future aircraft.
Department of Health and Human Services.—Obligations for the
conduct of R. & D. in the Department of Health and Human
Services (HHS) are estimated to total $4.0 billion in 1981, a 6%
increase over 1980. The most significant component of the HHS
budget for R. & D. is the National Institutes of Health (NIH). The
1981 budget proposal for NIH programs maintains a strong national effort in biomedical research, increasing from $3.2 billion in 1980
to $3.4 billion in 1981. In 1981 NIH plans to support a wide spectrum of biomedical and behavioral research designed to promote
health and prevent and control disease. Special emphasis will be
given to basic and applied research in such areas as nutrition,
genetic research, diabetes, radiation and other environmental hazards, aging and senile dementia.
National Science Foundation.—The National Science Foundation is of particular importance among Federal agencies in its
support for basic research across all scientific disciplines.
Obligations for the conduct of R. & D. of the National Science
Foundation are estimated to total $1,056 million in 1981, including
$952 million for the support of basic research. This represents an
increase of $138 million or 17% over 1980 and further reflects the
administration's strong commitment to basic research. In 1981 the
Foundation will:
• Assist in maintaining Government-wide balance in support of
basic research across all fields of science and engineering in
the national interest, with particular emphasis on the physical sciences and engineering;
• Expand several activities that encourage cooperation among
scientists in industry and universities, as part of the administration's policy to foster industrial innovation;
• Embark on a 10-year, $700 million program, funded jointly by
industry, of scientific drilling on the ocean margins using the
Government-owned ship, Glomar Explorer; and
• Initiate a cost-shared program of facility upgrading at the
Nation's most productive research universities.
Interagency R. & D. programs.—Among the R. & D. programs
proposed in the 1981 budget are seven of particular note that
involve more than one department or agency. These are illustrative
of many areas in which agencies cooperate in research and development to insure effective overall use of Federal funds.
SPECIAL ANALYSIS F
307
• Industrial innovation initiatives.—The 1981 budget provides
new and strengthened programs in the Department of Commerce and the National Science Foundation to facilitate innovation throughout American industry. These initiatives are
part of a comprehensive effort to encourage industrial innovation and productivity. The chief thrust of the administration's
industrial innovation program is in initiatives that do not have
a budgetary impact, as in the improvement of the patent
system or of the regulatory procedures. However, the budget
does provide funds to implement some new initiatives. Obligations in the two agencies are expected to total approximately
$50 million in 1981.
Also contributing to industrial innovation and productivity over
the long term are the following three interagency programs:
• Cooperative automotive research.—A new joint government/
industry program in basic automotive research is proposed for
Federal funding from the energy windfall profits tax. This
research, supported by the Department of Transportation and
involving other agencies including the NSF, will contribute to
the automotive technologies of the future. The Government
share of the costs of the program are estimated to be up to
$800 million over 10 years, with matching funds from industry of up to $500 million.
• Experimental computer science.—Special efforts will be undertaken in 1981 by the Department of Defense and the NSF to
increase the strength of experimental computer science in
academic institutions. The two agencies are expected to obligate at least $6 million in 1981. Computation and communication form a large and growing component of the economic,
intellectual, and military strength of the Nation, and the
results of this research will help to maintain U.S. supremacy
in these areas in the future.
• Microelectronics and submicron science and technology.—Complementary efforts of the Department of Defense, the National Science Foundation and the National Bureau of Standards
in the field of microelectronics and submicron science and
technology will be strengthened in 1981. These efforts, begun
in 1980, address a technology that is important for the industrial strength and defense of the Nation. This technology is
the next step in the development of faster and less expensive
electronic devices, as well as applications of other small-scale
devices and structures, such as in biomedical and chemical
research. Obligations across the three agencies are estimated
to total about $51 million in 1981.
308
THE BUDGET FOR FISCAL YEAR 1981
Other significant interagency efforts that are supported in 1981
include:
• Agriculture and resources inventory surveys through aerospace
remote sensing (AgRISTARS).—Five agencies plan expanded
efforts to assess the value of space remote sensing data in two
areas: obtaining early warnings and timely quantitative estimates of crop conditions; and improving worldwide agricultural production forecasting capabilities. The Departments of Agriculture, Commerce, Interior, and NASA and AID are the
participating agencies. Total funding is estimated to increase
from $31 million in 1980 to $51 million in 1981. The 6-year
program features the development of improved yield models
using satellite obtained weather, soil moisture and crop spectral data.
• National oceanic satellite system.—In 1981 the administration
is proposing a national oceanic satellite system (NOSS) to be
developed jointly by the National Aeronautics and Space Administration and the Departments of Defense and Commerce.
This operational demonstration system would provide global
ocean data for use in marine weather forecasting and climate
studies, marine transportation, and defense applications. Obligations for this program are estimated to be $24 million in
1981.
• Minority research apprenticeships program.—A joint effort
among the National Science Foundation, the National Institutes of Health, the Environmental Protection Agency, the
Departments of Energy, Agriculture, and Defense, and NASA,
this program is intended to stimulate broader interest in minority communities in careers in science and engineering, and
to establish individual working relationships between students and active researchers. Individual researchers who wish
to participate in the program will submit a request to supplement existing or pending research grants, contracts, or intramural project statements. The participating agencies are expected to obligate $5 million in 1981 to establish 2000 apprenticeships.
CONDUCT OF BASIC RESEARCH
The Federal Government supports about two-thirds of the Nation's basic research effort, that is, the search for new knowledge
and understanding of fundamental natural phenomena and processes. Research in such fields as chemistry, physics, biology, astronomy, materials, oceanography, and Earth sciences precedes and
underlies the advancement of applied science and long-term technology development. Universities and colleges, other nonprofit organizations, and a number of industrial firms also support basic
research. But from a national point of view, as a whole they tend
SPECIAL ANALYSIS F
309
to underinvest in such research either because their resources are
limited (as in the case of universities or nonprofit organizations); or
because the results do not lead in the near-term to the development of patentable and marketable new processes and products (as
in the case of private industry).
Obligations for the conduct of basic research (included in funds
for the conduct of R. & D.) are estimated to increase from $4.5
billion to $5.1 billion in 1981, an increase of 12%. Taking into
account anticipated cost increases in 1981, this will provide a realdollar growth of nearly 3%.
The allocation of funds provided in the 1981 budget for basic
research recognizes the need not only to maintain a vigorous national research effort in all areas of scientific inquiry, but also to
strengthen basic research in specific areas of national concern and
Government responsibility. These two aspects of Federal support
for basic research—to expand the knowledge base and to address
critical problems—have resulted in several relatively large increases in agencies where both purposes are served—e.g., DOE,
DOD, and USDA—in addition to increases in the NSF. Special
emphasis is also being given in these agencies to strengthening basic
research in the physical sciences and engineering, which have not
shared fully in funds appropriated for basic research.
While the administration recognizes the special role of the Federal Government in supporting basic research in the national interest, private investment in basic research is critical to the overall
national effort. Industry, as well as the Federal Government, should
seek to strengthen its support.
Table K-3 summarizes Federal support for the conduct of basic
research by agency.
310
THE BUDGET FOR FISCAL YEAR 1981
Table K - 3 . CONDUCT OF BASIC RESEARCH BY MAJOR DEPARTMENTS AND AGENCIES
(In millions of dollars) 1
Obligations
Department or agency
Health and Human Services
(National Institutes of Health).,
National Science Foundation
Energy
National Aeronautics and Space Administration
Defense—military functions
Agriculture
Interior
Smithsonian Institution
Commerce
Education
Environmental Protection Agency
All other 2
Total
1979
actual
Outlays
1980
estimate
1981
estimate
1,576
(1,461)
730
464
1,728
(1,604)
814
523
1,840
(1,704)
952
593
513
362
257
77
36
25
20
10
30
535
431
289
76
39
28
20
14
32
4,101
4,531
1979
actual
1980
estimate
1981
estimate
1,390
(1,295)
704
456
1,561
(1,445)
774
524
1,694
(1,578)
869
584
581
523
324
78
44
36
25
19
58
465
320
232
74
36
24
15
3
31
502
383
244
72
39
28
19
8
30
542
471
262
79
43
37
22
18
58
5,074
3,748
4,184
4,679
Amounts reported in this table are included in totals for conduct of R. & D.
Includes the Departments of Justice and Labor; the Veterans Administration, the Federal Emergency Management Agency, the Tennessee Valley
Authority, the Corps of Engineers, the Federal Trade Commission, the Library of Congress and Funds Appropriated to the President.
1
2
SUPPORT OF R. & D. AT COLLEGES A N D
UNIVERSITIES
Within the $36.1 billion proposed for R. & D. in 1981, $4.6 billion
will be obligated by the Federal agencies for the conduct of research and development in colleges and universities (including
medical schools). More than two-thirds of the direct support of
R. & D. in these institutions is provided by the Federal Government. This does not include funds that flow indirectly to colleges
and universities through the support of national laboratories or
other intermediaries.
Researchers at colleges and universities continue to be the primary performers of basic research not only for the Federal Government, but also for the Nation as a whole. Academic researchers
will benefit significantly from the continued growth in basic research provided in the 1981 budget. This growth is intended not
only to encourage academic scientists to undertake innovative research, but also to assist in ameliorating some of the problems
currently associated with the performance of research in colleges
and universities, including the growing obsolescence of equipment
and the lack of opportunities for young investigators.
Approximately half of the Federal R. & D. funds that colleges
and universities receive is for the conduct of basic research; approximately one-third for applied research (primarily medical), and
the remainder for development activities. HHS and the National
Science Foundation are the major sponsors of R. & D. conducted at
colleges and universities.
311
SPECIAL ANALYSIS F
Table K-4 summarizes Federal R. & D. support at universities
and colleges by agency.
Table K-4. SUPPORT OF RESEARCH AND DEVELOPMENT AT UNIVERSITIES AND COLLEGES
(In millions of dollars) 1
Obligations
Department or agency
Health and Human Services
(National Institutes of Health)
National Science Foundation
Defense—military functions
Energy
Agriculture
National Aeronautics and Space Administration
Agency for International Development
Environmental Protection Agency
Education
Interior
Commerce
Transportation
Institute for Scientific and Technological Cooperation
Labor
All other 2
Total
1979
actual
1,932
(1J70)
602
364
292
206
Outlays
1980
estimate
1981
estimate
2,097
(1,929)
670
401
323
223
2,244
(2,057)
794
443
364
236
1979
actual
1,691
(1,564)
580
341
281
169
1980
estimate
1981
estimate
1,896
(1,749)
637
376
320
194
2,075
(1,921)
725
416
361
215
144
163
174
127
147
157
67
50
47
40
29
19
53
53
49
45
37
20
58
53
53
49
37
21
49
34
38
38
28
18
40
42
34
42
36
19
49
42
47
44
36
19
13
27
18
11
30
13
12
39
13
25
6
11
27
10
12
37
3,833
4,192
4,590
3,430
3,828
4,246
Amounts reported in the table are included in totals for Conduct of R. & D.
Includes Departments of Justice, State, Treasury, and Housing and Urban Development; the Nuclear Regulatory Commission, the Smithsonian
Institution, the Corps of Engineers, the Federal Emergency Management Agency, the U.S. Office of Personnel Management, the Veterans Administration,
the Arms Control and Disarmament Agency, the Tennessee Valley Authority, the Consumer Product Safety Commission and Funds Appropriated to the
President.
1
2
R. & D . FACILITIES
Amounts for scientific and engineering facilities are considered
separately from funding for the conduct of R. & D. Obligations for
the construction or renovation of facilities, including research libraries; the acquisition of major items of equipment and
demonstration plants used for conducting R. & D. or for testing and
evaluation will remain nearly constant, at about $2.0 billion in
1981.
The majority of the funds for R. & D. facilities are for applied
research and development projects and demonstrations. Included in
the 1981 budget, for example, are funds for:
• Solvent-refined coal and high-Btu gas demonstration plants in
the Department of Energy budget;
• Facility construction for the Solar Energy Research Institute in
Golden, Colo.;
• Matching funds to upgrade facilities at the Black land-grant
colleges of 1890, part of the agricultural research system; and
312
THE BUDGET FOR FISCAL YEAR 1981
• Facility construction by NASA at Moffett Field, Calif., to
investigate factors that cause human error in aircraft accidents.
The 1981 budget also proposes funds for several basic research
facilities that will upgrade the Nation's capability and capacity to
seek new knowledge at the frontiers of science, for example:
• Continued funding by the Department of Energy of the intersecting storage accelerator (ISABELLE), at Brookhaven National Laboratory, which will be the most powerful physics
research facility of its type in the world;
• Funding for the highest priority construction project in nuclear physics, the Argonne Tandem Linac Accelerator at Argonne National Laboratory; and
• Funding for the construction of a coastal research vessel by
the National Science Foundation to continue a long-term program of modernizing the academic oceanographic research
fleet.
Table K-5 summarizes Federal support for R. & D. facilities by
major departments and agencies.
Table K-5. RESEARCH AND DEVELOPMENT FACILITIES BY MAJOR DEPARTMENTS AND AGENCIES
(In millions of dollars) 1
Obligations
Department or agency
1979
actual
Energy
Defense—military functions
National Aeronautics and Space Administration
Health and Human Services
(National Institutes of Health)
Agriculture
All other 1
Total
822
270
148
51
(49)
23
99
1,412
198Q
estimate
1,309
369
156
46
(42)
38
113
2,029
Outlays
iggl
estimate
1,257
445
120
47
(32)
37
93
2,000
ig7g
actual
690
236
133
74
(73)
22
100
1,254
198Q
estimate
1,032
306
155
66
(64)
36
134
1,729
1981
estimate
1,179
383
163
42
(36)
42
98
1,907
1 Includes the Departments of Transportation, Interior, and Commerce; the Tennessee Valley Authority, the National Science Foundation, the Veterans
Administration, the Environmental Protection Agency, the Consumer Product Safety Commission, and the Smithsonian Institution.
PART II: AGENCY R. & D. PROGRAMS
Funding of R. & D. by the 31 agencies reporting obligations and
outlays for this purpose is shown in table K-6.
Summaries follow of the R. & D. activities of the 14 agencies that
support more than 98% of federally funded R. & D.
313
SPECIAL ANALYSIS F
Table K-6. CONDUCT OF RESEARCH AND DEVELOPMENT BY MAJOR DEPARTMENTS AND
AGENCIES
(In millions of dollars)
Obligations
Department or agency
Outlays
1979
actual
1980
estimate
1981
estimate
1979
actual
1980
estimate
1981
estimate
Defense—military functions
National Aeronautics and Space Administration
Energy
Health and Human Services
(National Institutes of Health)
National Science Foundation
Agriculture
Environmental Protection Agency
Interior
Labor
Transportation
Commerce
Nuclear Regulatory Commission
Education
Veterans Administration
All other 1
12,463
13,781
16,565
11,454
13,253
15,169
4,411
4,588
3,485
(2,952)
805
670
410
405
137
357
334
157
164
130
368
5,114
4,919
3,784
(3,191)
897
743
415
419
279
353
371
204
146
134
397
5,617
5,106
4,011
(3,355)
1,056
786
445
415
385
379
379
228
156
142
465
4,064
4,413
3,068
(2,637)
775
611
337
393
102
340
305
141
128
117
331
4,858
4,871
3,428
(2,895)
853
652
384
396
277
332
347
182
151
126
368
5,277
5,088
3,661
(3,100)
964
670
413
413
374
348
394
204
154
135
456
Total, conduct of R. & D.
28,883
31,956
36,136
26,578
30,477
33,717
1 Includes the Departments of Housing and Urban Development, Justice, Treasury and State; the Tennessee Valley Authority, the Agency for
International Development, the Institute for Scientific and Technological Cooperation, the Smithsonian Institution, the Corps of Engineers, the Federal
Emergency Management Agency, the Arms Control and Disarmament Agency, the Consumer Product Safety Commission, the Federal Communications
Commission, the Advisory Commission on Intergovernmental Relations, the Federal Trade Commission, the Library of Congress, the U.S. Office of Personnel
Management, and Funds appropriated to the President.
DEPARTMENT OF DEFENSE
At $17.0 billion, obligations for DOD research and development
budget, including R. & D. facilities, comprise about 45% of total
Federal funding for research and development in 1981. DOD will
received 69% of the overall increase for Federal R. & D. DOD
research and development ranges from support of basic research,
primarily in the physical sciences, to full scale development of
hardware and its test and evaluation. The primary purpose of DOD
R. & D. is to provide new strategic and tactical weapons and
supporting systems to improve the Nation's defense.
In 1981, DOD obligations for the conduct of R. & D. will increase
by $2.8 billion to $16.6 billion, or by 20%. DOD funding of basic
research will increase 21%, from $431 million in 1980 to $523
million in 1981. Funding for R. & D. facilities will increase by $76
million in 1981 to a total of $445 million. By mission category,
major R. & D. efforts for 1981 include:
Technology base and advanced technology development.—There
will be real growth in this category above the 1980 level to provide
choices for future systems development and to avoid technological
surprise. Examples of areas being emphasized include materials
research, electronics, environmental research, and behavioral re-
314
THE BUDGET FOR FISCAL YEAR 1981
search relevant to combat situations. Also, efforts on high energy
lasers and particle beams will continue for potential weapons applications. Work on very high speed integrated circuits will proceed to
provide improvements in electronic processing, volume, weight
power consumption, and reliability to meet future military system
needs. Collaborative efforts with other agencies will be pursued in
several areas.
Strategic programs.—Full-scale development of the M-X intercontinental ballistic missile and of the air-launched cruise missiles will
continue. Options for a new cruise missile carrying aircraft will be
explored. Efforts will continue on ballistic missile defense and on
anti-satellite system development.
Tactical programs.—These R. & D. programs support the development of systems to increase the capability of U.S. general purpose
and theater nuclear forces to enhance the defense of NATO and to
develop the capability to project force rapidly anywhere in the
world. Major Army programs include development of the Pershing
II theater nuclear missile system and a series of antitank missiles,
integration of a larger gun with the XM-1 tank,and development
of an attack helicopter. The Air Force is developing airfield and
armor attack munitions, night all-weather capabilities for its aircraft, the ground-launched cruise missile and the CX long-range
transport aircraft. The Navy is developing a lower cost attack
submarine, a new destroyer, the sea-launched cruise missile and
the LAMPS III antisubmarine helicopter. Subsystems to enable
more effective use of existing weapons systems will be emphasized
over the next several years as several major systems make the
transition from development to production. These subsystems include avionics, command and control systems, and munitions.
Intelligence and Communication, Program Management and Support.—R. & D. supported by these programs is directed toward
improvements in defense intelligence systems, command control
and communications programs, and test and evaluation capabilities. Major increases in strategic communications and selected tactical radios are planned in 1981. Work will also continue in such
areas as the use of technology to reduce manufacturing costs and
to extend the life and capability of existing defense systems.
NATO cooperation.—A framework will be developed for improved
cooperation with U.S. allies. Efforts are underway to to utilize for
common advantages the capabilities of NATO's defense industry
and to encourage dual production of new weapon systems, as, for
example, production in the United States of the French/Germandeveloped ROLAND air defense system. An approach to obtain
greater efficiency within NATO development programs is a proposal for the United States to develop an advanced medium-range airto-air missile, while the NATO countries develop the next generation short-range missile.
315
SPECIAL ANALYSIS F
Table K-7. DEPARTMENT OF DEFENSE—MILITARY RESEARCH AND DEVELOPMENT
(In millions of dollars)
1979
actual
Type of activity
1980
estimate
1981
estimate
OBLIGATIONS
Conduct of R. & D.:
Research, development, test, and evaluation:
Technology base
Advanced technology development
Strategic programs
Tactical programs
Intelligence and communications
Programwide management and support
Other appropriations
Total conduct of R. & D
Total conduct of basic research, included
above
R. & D. facilities
Total, obligations
1,976
542
2,078
4,984
748
1,693
441
2,150
619
2,231
5,371
1,114
1,788
508
2,656
612
3,267
5,715
1,530
2,254
532
12,463
13,781
16,565
(362)
270
(431)
369
(523)
445
12,733
14,149
17,011
11,454
236_
13,253
306_
15,169
383
11,690
13,559
15,552
OUTLAYS
Conduct of R. & D
R. & D. facilities
Total, outlays
DEPARTMENT OF ENERGY
The Department of Energy, established in 1977, is the major
Federal agency for the planning, coordination, and conduct of
energy R. & D. programs. DOE also funds a substantial program of
R. & D. related to the development and testing of nuclear weapons.
Obligations for the conduct of R. & D. by DOE will total $5.1
billion in 1981. Of this total, obligations for the conduct of nonmilitary R. & D. are estimated to be $3.8 billion in 1981. Obligations for
the conduct of R. & D. for military purposes will increase from $1.2
billion in 1980 to $1.3 billion in 1981. Obligations for the conduct of
basic research in DOE will grow from $523 million in 1980 to $593
million in 1981, 13% above the 1980 level. Obligations for construction and equipment will total $1.3 billion in 1981, a decrease of $52
million below the 1980 level.
Energy.—Continuing increases in the price of energy have provided greater incentives for both conservation and expanded
energy exploration and development.
In energy R. & D., more intensive efforts will be made in solar,
fossil, and fusion technologies, and a strong R. & D. base in nuclear
fission will be maintained. The emphasis on solar reflects the administration's belief that solar can, in time, make a significant
contribution as an environmentally attractive, renewable energy
316
THE BUDGET FOR FISCAL YEAR 1981
supply. The overall increase of 20% in solar applications funding
will expand activities necessary to establish cost and performance
goals in the market place and to facilitate market development.
Emphasis in solar technology will include systems developments
for strengthening the technological base, specific developments in
photovoltaics and solar thermal electric, and support for international agreements to exchange information and to cooperate in
solar projects.
R. & D. on other nonnuclear technologies will be increased in
1981. R. & D. on coal conversion processes places emphasis on
improving efficiency, and on the economics of products from new processes. Improvements in coal liquefaction science are expected from
fundamental studies of coal structure, chemistry, mechanisms of
hydrogen transfer, catalysts, and improved instrumentation and
reaction diagnostics. Exploratory research in indirect liquefaction
to produce hydrocarbons similar to gasoline from synthesis gas will
be expanded. Attempts will be made to integrate the gasification step
with new synthesis gas conversion systems. Continuing advanced
research will be directed to upgrading of coal derived liquid products
for engine fuels.
R. & D. on nuclear technologies will focus on safety, waste management, and breeder research. The gas cooled breeder reactor
program will be brought to an orderly conclusion in 1981 and the
gas cooled thermal reactor program will be phased out. Additional
developments in thermal reactor technology will include technical
investigations of the disabled reactor at Three Mile Island in order
better to understand the recent accident and to help prevent such
accidents in the future.
In 1981, DOE will increase both inertial confinement and magnetic fusion funding. In inertial confinement this will mean broadening and deepening the program's technology base in order to
guarantee understanding of the dominant physics issues of inertial
confinement. In magnetic confinement there will be increased support of concepts beyond present-day tokamaks, which have intrinsic
disadvantages as reactors. This focus on a number of critical technical issues will permit upcoming major decisions to be made with
greater confidence.
In the conservation program, new studies and analyses of diverse
building types will be conducted to provide information on energy
savings from conservation measures. This information will also
contribute to the development of effective energy audit criteria and
motivate consumers to adopt energy cost saving strategies in their
purchase decisions. In the industrial energy conservation program,
R. & D. on waste heat reduction, industrial cogeneration, and
process efficiency improvements should contribute to further
energy savings. In the transportation energy conservation program,
SPECIAL ANALYSIS F
317
developmental activities will continue on electric and hybrid vehicles and advanced automobile engines.
Basic energy science initiatives to strengthen and support
the spectrum of DOE energy technologies are being continued.
These include broadened use of new facilities for research on combustion, nuclear, electromagnetic and diagnostic phenomena. Materials sciences research includes emphasis on waste isolation and
high temperature materials. Chemical sciences initiatives include
solar photoconversion, catalysis and combustion research. Several
new exploratory energy concepts, not yet mature enough for funding in the energy technology program, are being evaluated in an
advanced energy concepts program.
General science.—The general science programs of the Department of Energy—high energy and nuclear physics, and life sciences
research and nuclear medicine applications—support long-range,
basic research that provides fundamental scientific knowledge. In
1981, DOE will continue its emphasis on providing new facilities
for the advancement of knowledge in high energy and nuclear
physics. The research effort will be maintained at slightly above
the current level.
National defense.—The nuclear weapons programs will support
the continued development and production of new nuclear weapons
for the Nation's nuclear arsenal. These programs also support the
development of improved technologies for monitoring nuclear
weapons treaties, and the development of improved technologies
and methods for safeguarding nuclear materials. Efforts have been
increased to develop improved technologies and methods for the
safe storage and disposal of radioactive wastes produced by the
national defense programs. Efforts will be continued to develop improved propulsion reactors for naval vessels.
Facilities.—The energy R. & D. budget includes construction
funds for two solvent-refined coal demonstration plants and for a
high Btu gas demonstration plant. Funds are also provided for
facility construction at the Solar Energy Research Institute in
Golden, Colo.
The high energy physics program includes funds for continuation
of the Isabelle accelerator at the Brookhaven National Laboratory
and the energy saver project at the Fermi National Laboratory. In
addition in 1981 funds would be used to start the Tevatron, phase I
project at Fermilab and the Argonne Tandem Linac Accelerator
System (ATLAS) project at Argonne National Laboratory.
318
THE BUDGET FOR FISCAL YEAR 1981
Table K-8. DEPARTMENT OF ENERGY—RESEARCH AND DEVELOPMENT
(In millions of dollars)
Type of activity
1979
actual
1980
estimate
1981
estimate
OBLIGATIONS
Conduct of R. & D.:
Energy
General sciences
National defense
3,418
342
1,159
3,404
377
1,325
4,919
5,106
(523)
1,309
(593)
1,257
5,410
6,227
6,363
4,413
690
4,871
1,032
5,088
1,179
5,103
5,904
6,266
Total conduct of R. & D
Total conduct of basic research, included
above
R. & D. facilities
Total obligations
OUTLAYS
Conduct of R. & D
R. & D. facilities
Total outlays
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
The entire NASA budget is classified as research and development. In 1981, the agency will continue flight missions launched in
prior years (e.g. Voyagers to the outer planets) and development of
major projects including the Space Shuttle. The budget plan for the
conduct of R. & D. will increase by $503 million in 1981 to a total
of $5.6 billion, and the plan for construction of facilities will decrease by $36 million to a total of $120 million as a result of the
completion of Space Shuttle facilities and major wind tunnels.
These R. & D. changes are related to the development, procurement, and operational planning of the Space Shuttle, the development of major space science and space applications flight projects
mentioned below, advanced space and aeronautical technology development, and basic supporting activities.
Shuttle development, testing and procurement of a fleet of four
orbiters will continue in the space transportation systems program
area. The Shuttle will provide the capability for a wide variety of
uses, with greater flexibility and cost savings than is possible with
expendable launch vehicles. It will make possible the retrieval of
spacecraft from orbit for reuse; service and repair of spacecraft in
orbit; and the operation of space laboratories, such as the European-built Spacelab, for scientific and technology application purposes. Shuttle approach and landing tests were first performed in
1977, and the first manned orbital flight is planned for late in 1980.
NASA plans to achieve an operational capability not earlier than
the end of 1981 to launch and land shuttle orbiters from the
SPECIAL ANALYSIS F
319
Kennedy Space Center in Florida and, in 1984, to do the same from
the Vandenberg Air Force Base in California.
Major space science projects are continuing flight missions and
others are being developed. Inflight projects are conducting deep
space astronomy from Earth orbit and others are exploring the
solar system. During 1979, the High Energy Astronomy Observatory-C (HEAO) joined other spacecraft in Earth orbit; most of these
spacecraft will continue their flight missions well beyond 1981.
Planetary flight projects will continue their exploration of the
planets: Pioneer 10 and 11 explored Jupiter in 1973-74, Pioneer 11
encountered Saturn in 1979, and both spacecraft will escape the
solar system; two Voyager spacecraft, launched in 1977, have successfully encountered Jupiter and are now enroute to Saturn, and
Voyager 2 is planned to go on to Uranus; and Pioneer-Venus will
continue sending back data from orbit around Venus through 1981.
Development work is planned to continue through 1981 on projects approved in prior years. The most powerful astronomical instrument ever built, the space telescope, is expected to be launched
by the Shuttle in 1983. The telescope will be capable of viewing
objects as far away as 60 billion light-years from an Earth orbit
well above the obscuring effects of the Earth's atmosphere. In
addition, development work will continue on astronomy experiments to be flown inside the European-built Spacelab in the Shuttle. The International Solar Polar Mission is being developed for an
expected launch in 1983 to study the Sun's polar regions for the
first time. Finally, the Galileo mission to Jupiter is planned to
continue in the development phase for planned dual Shuttle
launches in 1984.
The 1981 budget provides for the initiation of a new project in
high energy astrophysics, the gamma ray observatory (GRO). The
GRO will be launched in 1985 and will provide the highest sensitivity study of space in the gamma ray spectral region. The project is
expected to increase significantly basic knowledge about the universe by studying objects such as quasars and black holes in the
relatively unexplored gamma ray region.
In space and terrestrial applications, the 1981 budget continues
to emphasize the development and demonstration of the practical
applications of space technology to explore the potential use of
such technology in meeting national needs (e.g., land use management and conservation of natural resources).
The NASA activities involving civilian land remote sensed data
from space will be managed under an integrated plan involving
several Federal agencies. The President has recently designated
the National Oceanic and Atmospheric Administration in the Department of Commerce to manage an operational Earth resources
remote sensing system. NASA will continue to carry out the neces-
320
THE BUDGET FOR FISCAL YEAR 1981
sary research and development. The NASA Landsat-3 is continuing
operations in space, and Landsat-D, scheduled for launch in late
1981, or early in 1982, is expected to enhance the experimental use
of space based platforms in a variety of applications, such as forecasting crop production for the agriculture initiative. The LandsatD is expected to insure the continuity of Landsat data for foreign
and domestic users into the mid-1980's.
The 1981 budget provides for a continued agriculture research
initiative in cooperation with the Department of Agriculture and
other Federal agencies, to investigate further the value of space
remote sensing data for global, repetitive monitoring of agricultural crop conditions. This initiative will place emphasis on the evaluation of remote sensing data to improve our ability to forecast
worldwide production of crops such as corn, wheat, soybeans,
barley, and rice. Data from spacecraft have the potential for determining conditions early in the growing season, monitoring progress
of the crop and assessing the extent of crop damage caused by
adverse weather conditions or blight. Early assessment of the likely
status of foreign crops is important in agricultural planning in the
United States.
As part of the administration's program in climate research, the
1981 budget proposes funds for continued development of Earth
radiation budget instruments that will be included on NOAA satellites to be launched in 1982 and 1983 by the Shuttle. NASA plans to
launch a satellite in 1983 with similar instruments. The Earth's
radiation budget is the amount of solar energy absorbed by the Earth
in a given region minus the energy emitted back to space by the
region.
In the area of ocean monitoring, the 1981 budget includes a
national oceanic satellite system to provide, in cooperation with
the National Ocean and Atmospheric Administration and the Department of Defense, an operational capability to obtain oceanic
data by remote sensing from space.
Space remote-sensing techniques have the potential to improve
our ability to manage critical Earth resources. Studies to define the
most effective and economic combination of instruments and platforms will be conducted to determine the best ways for providing
such remote sensing data through the 1980s. Additional studies for
better integration of current remote sensing capabilities are also
planned. In addition, NASA is developing ways to use the Spacelab
(to be flown in the Shuttle) for materials processing, technology
development, and other applications.
Aeronautical research and technology programs will continue to
develop technology for greater fuel efficiency, safety and reduced
noise in future civil aircraft and to maintain the U.S. technological
lead in the field of aeronautics. New initiatives are being proposed
321
SPECIAL ANALYSIS F
for advanced turboprop technology that have the potential of increasing the fuel efficiency of future aircraft by more than 20%
over current designs, and for the study of the "hot section" (i.e.
combustor parts) of turbine engines to improve their durability and
performance. Emphasis is also being placed on helicopter research
to improve the performance and noise characteristics of helicopters
and on variable cycle engine technology for improved high speed
aircraft engines.
Table K-9. NATIONAL AERONAUTICS AND SPACE ADMINISTRATION—RESEARCH AND
DEVELOPMENT
(In millions of dollars)
Program and type of activity
1980
estimate
1979
actual
1981
estimate
BUDGET PLAN
Conduct of R. & D.:
Space transportation systems
Space science
Space and terrestrial applications
Space research and technology
Aeronautical research and technology
Energy technology
Supporting activities
Research and program management
Total conduct of R. & D
Total conduct of basic research, included
above
R. & D. facilities
Total, budget plan
2,012
505
284
107
264
5
300
934
1
4,411
(513)
148
2,404
601
344
116
308
3
332
1,006
2,738
668
395
115
291
4
359
1,047
5,114
5,617
(538)
156
(581)
120
4,559
5,270
5,737
4,064
133
4,858
155
5,277
163
OUTLAYS
Conduct of R. & D
R. & D. facilities
Total outlays
1
Includes proposed supplemental for Space Shuttle:
Budget authority
Outlays
4,197
1
5,013
1980
300
200
1
5,440
1981
90
DEPARTMENT OF HEALTH AND H U M A N SERVICES
With the establishment of a separate Department of Education
in 1979, the former Department of Health, Education, and Welfare
became the Department of Health and Human Services. Department of Health and Human Services (HHS) obligations in 1981 for
the conduct of R. & D. will increase by $227 million over the 1980
level, to $4.0 billion. Within this total, basic research will increase
6.5% to $1.8 billion. Obligations for R. & D. facilities will be $47
million.
310-700 0 - 80 - 21
322
THE BUDGET FOR FISCAL YEAR 1981
Over 80% of the Department's R. & D. funds are devoted to the
National Institutes of Health. The primary mission of the National
Institutes of Health is to advance the Nation's capabilities for the
prevention, diagnosis, and treatment of disease through biomedical
research. The level of R. & D. obligations in 1981 is estimated to be
$3.4 billion, an increase of $165 million above the 1980 level of $3.2
billion. This increase will insure stability and continuity in the
vast biomedical research enterprise permitting approximately 5,000
new and competing awards to individual researchers or research
teams. The following efforts are among the most significant activities to be supported:
• Studies of the cause and prevention of diseases associated
with such environmental agents as chemicals and radiation;
• Studies to provide a better understanding of the role of nutrition in cancer, cardiovascular disease, childhood development,
and aging;
• Research in the neurosciences and genetics, including areas
related to neurologic disorders such as Huntington's disease;
• Increased research on reversible causes of mental deterioration in the elderly;
• Emphasis on research into the causes, treatments, and prevention of diabetes; and
• New initiatives in international health to expand research on
tropical diseases.
Additional R. & D. funds are devoted to health related research
supported by several agencies: the Alcohol, Drug Abuse and Mental
Health Administration (ADAMHA), The Food and Drug Administration (FDA), the Center for Disease Control (CDC), the Health
Services Administration (HSA), the Health Care Financing Administration (HCFA), and the Office of the Assistant Secretary for
Health (OASH). At ADAMHA, increases for 1981 will permit an
emphasis in mental health research on such areas as the neurosciences and opiate receptors in the brain, mental illness in children and the elderly, health services and treatment assessment
research for special population groups; and in alcohol and drug
abuse research, on the health effects of marijuana, genetic markers
for alcoholism, and the special alcohol and drug abuse problems of
women, youth, and other population groups. Increases are provided
for FDA's research in support of its regulatory responsibilities,
including funds for construction of a modern research facility;
CDC's research undertaken by the National Institute for Occupational Safety and Health (NIOSH) to develop criteria on toxic
materials and other workplace hazards; and for research undertaken by the OASH on health services and health statistics, as well as
health care technology assessments. The research programs of the
HSA in community health, involving primarily Public Health Serv-
323
SPECIAL ANALYSIS F
ice hospitals and maternal and child health, will decrease slightly.
HCFA will undertake new initiatives to measure the impact of
health care financing programs and to determine the most effective
means of delivering these programs.
The total obligations for the conduct of R. & D. in human services programs will increase by $11 million to $104 million. The
Office of Human Development Services will continue to fund
R. & D. activities that support its role in providing services to the
aged, native Americans, and children. The Social Security Administration will support applied research on income security, the effects
of social insurance benefits, and the economic situation of lowincome persons not attached to the labor force.
Obligations of $28 million are also included under Departmental
Management for policy research to support basic and applied economic, social, and statistical research. The activities include experiments in income maintenance and national health insurance, and
a Survey of Income and Program Participation.
Table K-10. DEPARTMENT OF HEALTH AND HUMAN SERVICES—RESEARCH AND DEVELOPMENT
(In millions of dollars)
Program areas and organizational units
1979
actual
1981
estimate
1980
estimate
OBLIGATIONS
Conduct of R. & D.:
Health:
National Institutes of Health
Alcohol, Drug Abuse and Mental Health Administration
Center for Disease Control
Food and Drug Administration
Health Care Financing Administration
Office of Assistant Secretary for Health
Health Services Administration
Health Rpsnnrnps Administration
Subtotal, Health
Human Services:
Office of Human Development Services
Departmental Management
Social Security Administration
Subtotal, Human Services
Total conduct of R. & D
Total conduct of basic research, included
above
R. & D. facilities
Total, obligations
2,952
3,191
3,355
216
74
61
31
40
18
5
237
92
64
47
42
18
262
95
67
58
52
17
3,397
3,691
3,907
49
29
11
51
28
14
54
28
23
89
93
104
3,485
3,784
4,011
(1,576)
51
(1,728)
46
(1,840)
47
3,536
3,830
4,058
3,068
74
3,428
66
3,661
42
3,142
3,494
3,703
OUTLAYS
Conduct of R. & D
R. & D. facilities
Total, outlays
324
THE BUDGET FOR FISCAL YEAR 1981
NATIONAL SCIENCE FOUNDATION
NSF supports long-term fundamental research in all fields of
science and engineering, applied research on selected problems,
and efforts to improve the teaching and learning of science. The
Foundation has a broad mandate to support the advancement of
basic science and engineering in the United States and to balance
Federal support across all scientific disciplines. Most NSF funds
are awarded on a competitive basis to researchers in colleges and
universities, the primary source of much of this Nation's new
knowledge in science.
NSF obligations for the conduct of R. & D. will increase from
$897 million in 1980 to $1,056 million in 1981, an increase of $159
million or 18% above 1980. In addition, $20 million will be obligated for research facilities in 1981. Funding for basic research programs will increase from $814 million to $952 million, or about
17%, with particular emphasis on the physical sciences and engineering.
In 1981, the Foundation expects to emphasize basic work in a
number of areas, among which are computer research, engineering,
physics, chemistry, materials research, astronomy, earth sciences
and ocean sciences. Special emphasis will also be placed on research to underpin technological innovation and to promote cooperation among industry, universities, and government. Funding will
also be maintained for problem-focused research in such areas as
earthquake hazards mitigation.
Highlights of the Foundation's 1981 budget include:
• Strengthening fundamental experimental work in computer
science, microstructures, and other physical science and engineering research that underlie improvements in the Nation's
technological capability;
• Initiation of a 10-year program of scientific deep ocean drilling on the continental margins (a jointly funded program
with the petroleum industry);
• Expansion of support for high-quality research projects proposed jointly by industry-university teams in all fields of science and engineering;
• Full operation of the Very Large Array radio astronomy facility at Socorro, N. Mex., and initial design of another advanced astronomical instrument, a 25-meter, millimeter-wave
telescope; and
• Expansion of international science and technology activities,
including increased scientific cooperation with the People's
Republic of China.
SPECIAL ANALYSIS F
325
DEPARTMENT OF AGRICULTURE
Obligations of the Department of Agriculture for the conduct of
research and development, excluding the construction of facilities,
will increase from $743 million in 1980 to $786 million in 1981. Of
USDA's increase of $43 million, 80% will be for basic research
including the expansion of the agriculture and resources inventory surveys through aerospace remote sensing (AgRISTARS).
AgRISTARS is an effort to develop the capability of applying space
technology to the forecasting of crop yields.
Almost all of the R. & D. conducted by the Department of Agriculture falls within three units: the Science and Education Administration; the Forest Service; and the Economics, Statistics, and
Cooperatives Service. The Science and Education Administration
obligates over 75% of the Department's R. & D. funds through its
intramural programs (Agricultural Research) and the state cooperative experiment stations (Cooperative Research). Agricultural Research will obligate $407 million in 1981 to conduct R. & D. on the
production of plants and animals and their protection from pests
and diseases; on the use and improvement of soil, water, and air
resources; on human nutrition; on the processing, marketing,
safety and nonfood uses of agricultural products and by-products;
and on consumer services. Research emphases in 1981 include integrated pest management, human nutrition and health, aerospace
technology, and basic research related to food production.
Cooperative Research administers funds to State agricultural experiment stations and other institutions for comparable research.
In 1981, its obligations will increase from $191 million to $199
million. Cooperative Research also administers a competitive extramural grant program, initiated in 1978. In 1981, $25 million is
requested for this program for critical basic research questions in
such areas as the ability of plants to fix nitrogen and the ability of
humans to utilize vitamins and minerals.
In 1981, the Economics, Statistics, and Cooperatives Service will
obligate $45 million for economic research. Emphasis will be placed
on research on world demand for U.S. agricultural commodities,
food demand research and policy analysis, and analysis of policy
issues involving cooperatives.
Forest Service R. & D. provides land managers with scientific
knowledge to manage, protect and utilize forest and rangeland
resources. Forest Service's 1981 research effort includes research
on reforestation practices, new systems for producing high quality
products from small trees and residues, biomass for energy, as well
as research on mine-land areas, specifically oil shale and arid
lands. The Forest Service will obligate $126 million for R. &. D. in
1981.
326
THE BUDGET FOR FISCAL YEAR 1981
ENVIRONMENTAL PROTECTION AGENCY
EPA supports research and development to determine the
sources and effects of pollution. Total obligations will increase for
the conduct of R. & D. from $415 million in 1980 to $445 million in
1981. This continues the efforts of the administration to strengthen
and to improve the scientific bases for environmental standards and
control strategies, and to evaluate and identify the most critical longrange environmental problems.
The single largest effort is the environmentally related energy
research and development program designed to improve the basis
for standard setting in the energy area as well as to evaluate
improved emission standard technology. This program will increase
from $101 million to $108 million in 1981. This effort will be directed
primarily at improving the standard setting data for anticipated
synthetic fuel installations.
The next two largest program efforts are air and water quality
research and development, comprising $70 million and $60 million,
respectively, for 1981. The increases provided in the air program
will supplement those resources in the energy area to improve
standard setting for new energy sources.
The research and development effort in the safe drinking water
program will be increased by over $4 million in 1981 to a level of
$27 million, primarily to fund an initiative to improve the ability of
small communities in meeting national drinking water standards.
The initiative will provide information to small communities on
the applicability and feasibility of existing systems designed for
small drinking water systems.
The most significant increases in research and development will
be in the hazardous waste program within the solid waste programs. Research in this area will increase by 86% in 1981, to a
level of $26 million. The effort is designed to increase the scientific
information to improve EPA's ability to evaluate permit requests.
In addition, the funds will be utilized to assess and improve existing control technology for containing hazardous wastes.
The toxic substances research program will also receive a substantial increase in 1981 of 32% to a level of $37 million. The
thrust is to improve the scientific basis of the regulatory effort by
expanding the development of test standards and environmental
hazard evaluations of toxic substances.
The basic research effort in EPA's interdisciplinary program was
established in 1978 to identify and characterize emerging environmental problems before crises arise, provide a commitment of support to important long-term studies, and support the development
of new knowledge about fundamental environmental principles and
concepts. Obligations for basic research will increase $5 million to
SPECIAL ANALYSIS F
327
$19 million in 1981. Program emphasis will be placed on carcinogens, environmental benefits, biological monitoring, integrated assessments of emerging or latent environmental problems. In addition, EPA will be contributing to a multiagency effort on acid rain.
In addition to these areas of significant increase in 1981, EPA
supports research in pesticides and radiation amounting to $12
million in 1981 devoted to improving the regulatory efforts in these
program areas.
DEPARTMENT OF THE INTERIOR
Obligations for the conduct of research and development for the
Department of the Interior for 1981 are estimated at $415 million.
This is a decrease of approximately $4 million below the level of
the 1980 program. This total includes increases for the research
and development programs of the Water and Power Resources
Service, the Office of Water Research and Technology, the Fish and
Wildlife Service, and the National Park Service. The Bureau of
Mines will show a decrease because of the termination of the
mined land demonstration program.
The Department's R. & D. activities derive from a broad range of
responsibilities for encouraging wise development of the Nation's
energy and nonenergy mineral, water, land, and recreation resources, and for managing those resources on the public lands in
the public interest.
In 1981, $154 million of the Department's R. & D. funds will be
obligated in support of U.S. Geological Survey programs. These
include research programs directed toward providing an accurate
appraisal of the Nation's mineral resources, including new or improved methods, techniques, and instruments for mineral exploration on land and on the submerged continental shelf. Basic data
will be developed on geologic principles and processes, on terrain
and foundation conditions, and on causes of earthquakes. A better
understanding is sought of basic principles of hydrology necessary
for the appraisal and evaluation of the Nation's water resources,
including the effects of underground waste storage. Research is
also conducted on methods of applying Earth science resource data
in urban decisionmaking processes and to the application of aircraft and satellite acquired remote-sensed data in the Earth science
field.
The Bureau of Mines will obligate $110 million in 1981 for a
program to investigate new technologies for surface and underground coal, as well as nonfuel mining and mineral processing.
This research is designed to lead to improvements in environmental control technology and in mine health and safety; research in
nonfuel mining technology emphasizes productivity improvement
328
THE BUDGET FOR FISCAL YEAR 1981
as well. Research on extraction, processing, and use of nonenergy
minerals will help to assure an adequate supply of raw materials to
meet expanding national needs.
The Fish and Wildlife Service conducts basic and applied research to increase knowledge about fish and wildlife, e.g., their
nutrition, habitat needs, diseases, and migration patterns. The relationship of fish and wildlife to their environments, particularly the
adverse impacts of toxic chemicals and other changes on the habitat of species also is studied. Obligations for this R. & D. will total
$85 million in 1981.
The Office of Water Research and Technology will support research on water conservation, water reuse, land/water problems of
urbanization, floods and droughts, and desalting research. The
Water and Power Resources Service supports research on the efficient allocation and conservation of scarce water and water-related
resources. Its programs include precipitation management with
weather modification techniques, the development of water technologies for use in the solution of water and water-related problems, energy research and development of hydropower, and a new
dam safety R. & D. program. Obligations for these programs will
total $47 million in 1981.
Other units within the Department with small R. & D. programs
under $10 million include the Bureau of Land Management, the
National Park Service, the Office of Surface Mining, and the Office
of the Secretary.
DEPARTMENT OF LABOR
Obligations for the conduct of research and development in the
Department of Labor are estimated to be $385 million in 1981, an
increase of $106 million over the 1980 level. The Employment and
Training Administration undertakes almost all of the Department's R. & D. to develop and improve employment and training
policies. Major R. & D. projects include:
• development of program models to improve service for welfare recipients and youth;
• better effectiveness measures for the Job Service;
• the net effects of CETA on participants' future earnings;
• the most effective preventive and compliance strategy for
OSHA;
• the adequacy of private pensions;
• the incentives for a safe and healthful workplace and the role
of workers' compensation; and
• the impact of the Targeted Employment Tax Credit.
Almost all of the Department's increase in R. & D. funds will go
to the Employment and Training Administration to develop and
test models for the jobs portion of the administration's welfare
SPECIAL ANALYSIS F
329
reform proposals. The increase will support the full operating level
of these projects, involving 22,000 participants in 15 cities and
counties. This program will provide job search assistance and federally assisted work and training opportunities to persons eligible for
welfare. Under this activity, $281 million will be obligated in 1981.
An additional $66 million will be obligated by the Employment
and Training Administration to explore the relative effectiveness
of different approaches in assisting economically disadvantaged
and other youth to complete high school, enter the world of work
and achieve job stability and advancement; to continue R. & D. in
such areas as job sharing and flexible hours, wage systems and sex
discrimination, and artificial barriers to employment; to focus on
the effect of current and alternative unemployment insurance program provisions; and to develop additional information on appropriate strategies for serving welfare recipients in employment and
training progams.
Other offices and agencies which conduct small R. & D. programs are the Labor Management Services Administration, the
Employment Standards Administration, the Occupational Safety
and Health Administration, the Bureau of Labor Statistics, the
Bureau of International Labor Affairs, and the Office of the Assistant Secretary for Policy, Evaluation and Research.
DEPARTMENT OF TRANSPORTATION
Obligations for the conduct of research and development for the
Department of Transportation are estimated at $353 million for
1980 and $379 million in 1981. The Department's R. & D. program
is oriented toward providing the information and new technology
needed for its own operational (e.g., air traffic control) and regulatory (e.g., automotive safety standards) programs, with a smaller
effort designed to support new or improved transportation options
for the Nation (e.g., automated guideway transit).
The Federal Aviation Administration, which accounts for approximately one-third of the Department's R. & D. funds ($115
million in 1981), will support programs to continue the engineering
development for the present air traffic control system and to maintain the technological momentum generated by the various development activities such as discrete address radar beacons, automated traffic advisory and resolution service, and airborne separation
assurance systems. These types of technological advances are expected to reduce delays, to enhance safety, and to increase the
capacity of the Nation's airports.
The Federal Highway Administration will conduct programs in
highway planning and safety, and in motor carrier safety, at a
level of $48 million in 1981. Major attention is focused on increas-
330
THE BUDGET FOR FISCAL YEAR 1981
ing highway, vehicle, driver, and pedestrian safety. Other areas
include reduction of highway construction and maintenance costs,
pollution control, and the development of advanced traffic management systems to increase the capacity and energy efficiency on the
Nation's highway system.
The National Highway Traffic Safety Administration will obligate $63 million primarily to continue programs in driver and
vehicle safety factors, to continue assessment and analysis efforts
on automotive fuel economy, and to expand the National Accident
Sampling System.
The Federal Railroad Administration will obligate $46 million in
1981 with major emphasis on safety research. Programs associated
with improvements in freight and passenger systems will also be
emphasized.
The Urban Mass Transportation Administration will obligate $60
million to assist in the development and introduction of improved
public transportation equipment and systems.
The U.S. Coast Guard program will support activities at a level
of $24 million to maintain and expand the technology base and to
develop equipment crucial to the successful execution of Coast
Guard operational and regulatory missions such as search and
rescue, aids to navigation, commercial vessel safety, and marine
environmental protection.
The Research and Special Programs Administration will obligate
$12 million to provide support to stimulate innovation in advanced
transportation technology and to provide a focal point for coordination and development of technologies that can be used by more
than one transportation mode.
DEPARTMENT OF COMMERCE
Department of Commerce obligations for the conduct of research
and development will increase from $371 million in 1980 to $379
million in 1981. The National Bureau of Standards (NBS) will
receive an $8 million increase primarily to expand its basic research
activities. Little change in funding in 1981 is expected for R. & D.
programs of the National Oceanic and Atmospheric Administration
(NOAA), the Maritime Administration (MARAD), and the Economic Development Administration (EDA). The principal objectives of
the research and development programs in the Department of
Commerce are to continue to improve the Nation's environmental
prediction and warning capabilities, develop technology to improve
the competitive position of U.S. industry, including the maritime
industry, and encourage technological advancement through improved performance and measurement standards.
SPECIAL ANALYSIS F
331
In 1981, NOAA will obligate $218 million for research and development to improve the detection and tracking of weather systems
and violent storms, extend environmental forecasting and data
gathering programs, and modify severe storms and hurricanes.
NOAA will continue to strengthen its research and development in
the area of mapping, charting, fisheries management, and marine
description. Some specific new activities included in the 1981
budget are: the development of advanced weather radar equipment
to improve severe weather warnings, rehabilitation and upgrading
of the research vessel fleet, initiation of an ocean heat storage field
experiment for climate research, and multispecies (fisheries) management research. NOAA will also be participating in the new
national ocean satellite system (NOSS).
In 1981, the technology development and utilization programs of
NBS will be increased by work on new measurement techniques
needed in the development and commercialization of very large
scale integrated (VLSI) circuits. (See also the discussion of microelectronics in the section on "Interagency R. & D. Programs").
Funding will also increase in 1981 to continue building of the basic
research competence of NBS and for acquisition of additional computing services. A $5 million initiative will include work in basic
metallurgy and materials science as well as a number of other
basic research projects. In 1981, NBS programs will total $84
million.
Social science research and development activities conducted by
EDA explore the causes and consequences of economic distress and
methods of alleviating such conditions. This research attempts to
determine appropriate, specific actions to support instructional and
demonstration projects of direct benefit to local and regional economic development groups. In 1981, $46 million will be obligated
for these activities.
Major MARAD research and development efforts will be directed
to improve the productivity of building ships in U.S. shipyards,
development of new, improved ship machinery and automation
aboard ships. Increased funding is also being provided in 1981 for
the development of programs in support of the Port and Tanker
Safety Act. The National Marine Research Center at Kings Point,
N.Y., supports program efforts by providing technology assistance.
In 1981, the computer aids operations research facility (CAORF)
capabilities will be expanded to provide an "interactive" bridge
function necessary in conducting human factors and training requirements. R. & D. obligations for these activities will total $21
million in 1981.
332
THE BUDGET FOR FISCAL YEAR 1981
In 1981, the Department of Commerce will also undertake the
establishment of three non-profit technology centers, to be jointly
financed with private industry. The centers will focus on the development and transfer of generic technologies to private industry.
This program is part of the larger effort described under industrial
innovation initiatives in the section, 'Interagency R. & D. Programs."
Other organizations within the Department of Commerce which
maintain small research and development programs are the
Bureau of the Census, the Patent and Trademark Office, and the
National Telecommunications and Information Administration, for
a total of $10 million.
THE NUCLEAR REGULATORY COMMISSION
Obligations of the Nuclear Regulatory Commission for the conduct of R. & D. will increase from $204 million in 1980 to $228
million in 1981. These additional research funds will be directly
employed to improve light water reactor safety.
The Commission's R. & D. base program is directed toward the
improvement of data needed to verify the safety of nuclear power
plants in order to assure an independent technical basis for licensing these facilities; the health effects associated with the nuclear
power fuel cycle; the environmental impact of nuclear power; waste
management and disposal; and the transportation of radioactive
materials. Priority emphasis will be given to human factors analysis, man-machine interaction under crisis, and accident risk assessment. Increased emphasis will also be given to waste management
research to support development of design and performance criteria, evaluation methodology, and the necessary regulations and
guides for licensing of waste repositories. Work on long-term projects, such as experiments at the loss-of-fluid test facility (LOFT),
international three-dimensional flow distribution experimental program (3-D), and boiling water reactor-counter current flow (BWRCCFL), will continue.
DEPARTMENT OF EDUCATION
The Department of Education will obligate $156 million for the
conduct of R. & D. in 1981. This represents an increase of $11
million, or 7%, over the 1980 level. Much of the Department's
increase in basic research ($5 million) to $25 million in 1981 is
associated with improving educational equity and practices by the
National Institute for Education. The National Institute for Education and the National Institute for Handicapped Research will
account for more than 80% of the R. & D. obligations of the newly
formed Department of Education in 1981.
SPECIAL ANALYSIS F
333
The primary mission of the National Institute for Education
(NIE) is to further educational equity and to improve the practice
of education. NIE will support research in several areas: improved
teaching and learning practices; more effective standardized testing
and evaluation of competencies especially for bilingual and minority students; continued study of the educational and occupational
barriers facing women and minorities; understanding literacy and
individual achievement; and studies of learning and development
processes used to master basic skills especially as influenced by
social and cultural differences among students. NIE's obligations
for R. & D. will increase to $88 million in 1981.
The R. & D. obligations of the National Institute for Handicapped Research (NIHR) will increase $6 million to $37 million in
1981, and will be conducted within the Department's Office of
Special Education and Rehabilitative Services. These activities will
complement ongoing R. & D. in the area of Education for the
Handicapped and Vocational Rehabilitation. Research initiated at
NIHR will focus on improving the rehabilitation of the severely
handicapped individual through improved equipment, devices and
systems suitable for resolving problems encountered in the rehabilitation process.
An additional $13 million will be obligated by the Office of
Special Education and Rehabilitative Services for innovation and
development in education for the handicapped. The objectives of
this program include the development and testing of educational
and instructional materials and evaluation of the appropriateness
of standardized tests for the handicapped. These programs constitute a response to the presidential and congressional mandates to
encourage equal educational opportunities for the handicapped.
The Department of Education also supports R. & D. in such areas
as language training, Indian education, and vocational education.
Obligations for such programs will total $18 million in 1981.
VETERANS ADMINISTRATION
Obligations for the Veterans Administration for the conduct of
R. & D. will be $142 million in 1981, an increase of 6% above 1980.
Research and development activities in the Veterans Administration consist of medical research, rehabilitative research, and health
services research programs. The medical research program is a
broad intramural biomedical research program comprised of fundamental and applied medical and scientific investigations designed
to benefit patients by increasing the quality and effectiveness of
health care delivery. The program includes special research emphasis on alcoholism and geriatrics.
334
THE BUDGET FOR FISCAL YEAR 1981
Rehabilitative research activities are directed toward developing
and testing prosthetic, orthopedic and adaptive equipment to improve the care and rehabilitation of disabled eligible veterans, including amputees, paraplegics, and the blind. The health services
research program provides support for projects at VA health care
facilities to improve the delivery and accessibility of health services
to veterans.
Increases for 1981 will provide for expanded biomedical research
and additional support for rehabilitative engineering.
OTHER AGENCY PROGRAMS
An additional 17 agencies reporting R. & D. funds account for
approximately 1% of federally funded R. & D., or $465 million.
Like the programs of the 14 agencies providing the majority of
R. & D. support, the R. & D. programs of these agencies are closely
related to the accomplishment of their missions. Taken collectively,
they represent an estimated increase of approximately $68 million,
with the largest increase of $21 million going to the Tennessee
Valley Authority (TVA). Other agencies scheduling increased obligations for R. & D. are the Department of Housing and Urban
Development (HUD), the Smithsonian Institution, the Corps of Engineers, and the Federal Emergency Management Agency. Obligations for R. & D. by the Department of Justice will decline. Two
agencies which account for a significant portion of these R. & D.
funds are the Agency for International Development (AID) and
funds transferred from AID to the proposed Institute for Scientific
and Technical Cooperation (ISTC), which show a combined estimate
of $125 million for R. & D. in 1981. AID will participate with other
agencies in the agriculture remote sensing effort by working with
potential foreign users.
This category also includes $20 million in Funds Appropriated to
the President (Energy Security Trust Fund) which will be used to
initiate a new cooperative automotive research program, jointly
funded by industry and government. Federal funds will be distributed among the Department of Transportation and other agencies,
including the National Science Foundation.
A portion of the R. & D. budget of many agencies reporting such
funds goes to economic and policy studies concerning agency activities. In some cases, such policy studies constitute the agencies'
entire R. & D. effort.
SUPPLEMENTARY INFORMATION
The following table provides additional information on the longterm trends in Federal R. & D. funding.
335
SPECIAL ANALYSIS F
Table K—11. TRENDS IN CONDUCT OF R. & D. BY MAJOR PROGRAM AREA
(Obligations in billions of dollars)
Year
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980 (estimate)
1981 (estimate)
Defense
2.8
2.5
2.2
2.5
3.3
3.8
5.6
6.1
7.0
7.2
7.8
7.8
7.3
7.5
8.6
8.3
8.4
8.0
8.1
8.9
9.0
9.0
9.7
10.4
11.9
12.6
13.6
14.9
17.9
Civilian
(other than
space)
0.3
.3
.4
.5
.6
.7
.9
1.1
1.3
1.6
1.9
2.1
2.3
2.7
3.3
3.5
3.6
3.8
4.5
4.9
5.2
5.9
6.8
7.5
9.0
10.7
11.7
12.9
13.7
Space
0.1
.3
.4
.8
1.4
2.9
4.3
5.0
5.1
4.6
4.2
3.7
3.5
2.9
2.7
2.6
2.5
2.5
2.9
3.1
3.1
3.6
4.1
4.6
Total
3.1
2.9
2.5
3.0
3.9
4.6
6.7
7.6
9.1
10.3
12.5
14.2
14.6
15.3
16.5
15.9
15.6
15.3
15.5
16.5
16.8
17.4
19.0
20.8
24.0
26.4
28.9
32.0
36.1
Section II
MAJOR ACCOMPLISHMENTS
337
310-700 0 - 8 0 - 2 2
INTRODUCTION
Section II provides a detailed look at some of the areas that have
been the focus of efforts to make Government work better. It covers
the key issues addressed, the actions taken, and the improvements
achieved in the six areas, described below:
1. Improving the Efficiency of the Federal Government describes a
wide range of initiatives that have been undertaken to address
problems encountered in conducting governmental operations and
thereby to increase the efficiency of the Federal Government.
2. Conserving the Nation's Natural Resources and Protecting the
Environment enumerates the steps that have been taken to protect
and preserve the environment and natural resources of the United
States.
3. Solving Our Nation's Energy Problem describes the comprehensive national energy policy, including reducing U.S. oil imports and
shifting a significant part of the Nation's energy production to
renewable resources.
4. Investing in the Nation's Scientific and Technological Future
explains the increased emphasis that is being placed on basic research to increase scientific knowledge and understanding, and
describes actions taken to increase the Nation's pace of technological
innovation.
5. Improving the Nation's Health provides a comprehensive description of the efforts to improve the health services available to the
American people.
6. Maintaining National Security specifies the actions taken to
retain an equivalent strategic effort, revitalize NATO defenses,
increase capability to deploy forces to troubled areas, maintain a
high quality All Volunteer Force, and improve efficiency in defense
programs.
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1. IMPROVING THE EFFICIENCY OF THE FEDERAL
GOVERNMENT
In the last two decades, there has been a dramatic expansion of
the role of Government in American life. Between 1955 and 1978
the Federal Government workforce grew from 2.4 million to 2.8
million workers, an increase of 17%. At the same time the size of
the State and local government workforce grew from 4.7 million to
12.8 million, an increase of 172%. With this expansion has
come increased public concern about the cost and efficiency of
Government operations. Much of this concern can be ascribed to
disagreements over the appropriate role of the Federal Government in any given sphere of activity. A program that is considered
essential to the public welfare by some is considered a waste of the
taxpayers' money by others. Furthermore, the importance of efficiency as a goal may be subordinated to other goals in some programs. For example, requirements for public participation in a
program can result in delayed decisions and can be criticized as
causing inefficiency. But from a different point of view, such participation may be essential for the success of the program.
While the charge of inefficiency is sometimes inappropriately
made and often subsumes much that is beyond the power of the
executive branch to change, there are areas where the charge is
legitimate and leveled at practices or conditions within Government that are clearly objectionable and subject to remedy. It is this
set of practices and conditions toward which the Administration
has directed significant attention. This presentation discusses in
detail some of the steps that the Administration has undertaken to
improve the efficiency of the Federal Government. Discussions of
achievements in this area are also found throughout the budget
documents, particularly in Parts 2 and 5 of the main budget
volume.
The following problems are most often cited as the principal
causes of governmental inefficiency (and sources of the public's
complaint):
• inadequate motivation and management of the Federal work
force;
• excessive and burdensome Government regulation;
• organizational confusion and duplication;
• administrative complexity involving paperwork, redtape, and
delay;
• inefficiency in Federal grant programs; and
339
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THE BUDGET FOR FISCAL YEAR 1981
• fraud, abuse and mismanagement.
In each of the above problem areas, the Administration has
initiated specific programs to attack the source of the problem.
Through these efforts, organizational, procedural, and legislative
changes have been developed to simplify and streamline governmental operations. The following represents a brief analysis of
some of the problems addressed, and a description of the programs
initiated and the results achieved.
MOTIVATING AND MANAGING THE FEDERAL WORK FORCE
Because the provision of Government service is labor intensive,
the efficiency of the Federal Government depends greatly on the
productivity of the Federal work force. Although available data
indicate that the productivity of the Federal work force has grown
at a relatively constant rate over the past 10 years, the lack of
managerial flexibility allowed by the civil service system and the
inadequate incentives for employees under that system had come
under increasing attack when the Administration took office. Managers complained that the process of hiring employees was unduly
complex and tedious, and that firing employees who performed
unsatisfactorily required at best a protracted process that often
involved litigation, and was usually unsuccessful. Increases in pay
for almost all employees had become virtually automatic and senior
managers had few tangible incentives to encourage better efforts.
To solve these problems, the President directed the Office of
Management and Budget and the Civil Service Commission to develop recommendations for reforming the civil service system.
After a year of study and consultation with industry, union, governmental, and Congressional representatives, the President proposed, and Congress approved, the most significant overhaul of the
civil service system in the past 100 years—the Civil Service Reform
Act of 1978 (P.L. 95-454). Under this act and the accompanying
Reorganization Plan No. 2 of 1978, Federal managers have been
given greatly increased authority, flexibility, and incentives to
manage the Federal work force. Among the most important provisions are those that call for:
—the creation of a new Office of Personnel Management to
provide leadership in managing the Federal work force and
establishing personnel policies governing that work force.
—the creation of a Senior Executive Service (SES) for the very
senior Government managers. Members of the service will be
eligible for substantial bonuses based upon their performance.
They can be more easily transferred within their agency as
needed, and promoted or removed from the service as their
performance warrants.
MAJOR ACCOMPLISHMENTS No. 1
341
—a new system of performance appraisal for employees. The new
system will be used as the basis for decisions to train, assign,
retain, promote, reward, demote, or remove employees. The
new system will be developed by each agency and must incorporate performance standards that will permit accurate evaluation of job performance on the basis of objective job-related
criteria.
—a new system of merit pay for managers and supervisors. The
new merit pay system for managers in grades GS-13 through
GS-15 will allow differential merit pay increases based upon
performance rather than length of service.
—the creation of a Merit Systems Protection Board (MSPB) to
safeguard both the merit system and individual employees
against abuses and unfair personnel actions. An independent
Special Counsel to the Board was also established to investigate charges of prohibited personnel practices and to bring
disciplinary charges before the MSPB against those who violate merit system law.
—the creation of a Federal Labor Relations Authority to oversee
and improve labor-management relations within the Federal
Government.
The overall civil service reform will substantially increase the
incentives for efficiency within the Federal work force. It represents potentially the most significant and far reaching management achievement of any Administration in recent years.
In addition, the President has proposed a comprehensive reform
of the systems used to determine compensation of Federal civilian
workers. The reforms would compensate employees more fairly,
improve management of the Federal work force, and save the
taxpayers money. The proposals—which affect approximately 1.4
million white-collar and 0.5 million blue-collar employees—will
yield annual savings of at least $3 billion in future payroll costs
upon full implementation. The legislation's centerpiece is the introduction of the concept of "total compensation" (benefits as well as
pay) in determining comparability between Federal workers and
private sector employees.
REDUCING THE REGULATORY BURDEN
Perhaps nowhere has the expansion of the roles and functions of
the Federal Government been more apparent than in the regulatory area. The public has demanded increased safety and protection in their lives. This demand has coincided with a much greater
public awareness of, and apprehension about, the consequences of
complex industrial processes, chemical usage, environmental degradation, and health threats in the workplace.
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THE BUDGET FOR FISCAL YEAR 1981
In response to these demands the Government has acted to regulate those activities that potentially threaten the public's welfare.
To protect the public interest, regulations covering such matters as
air and water pollutants, food additives, workplace and product
safety standards, health safety standards, and auto emissions have
been issued by over 90 regulatory agencies at the rate of thousands
of rules each year.
With this increased regulatory activity, both the public and the
Government have come to understand more fully some of the negative consequences of regulatory efforts. The business community
has noted the rising costs of compliance, citing increased paperwork, the cost of modifications required to comply with air and
water pollution requirements and workplace safety standards, the
costs arising from delays, and the loss of productive capacity.
Economists cite the indirect effects of regulation in increasing inflation, lowering national productivity and restricting the U.S.
competitive position in world markets. Some of the older regulatory programs have been allowed to go unreviewed for years with
little attention to changed conditions.
To address these very real problems, the Administration has
acted forcefully to bring the governmental regulatory system under
systematic review. The President initiated a comprehensive regulatory reform program designed to revise the way regulations are
developed, issued, reviewed, and implemented. Under this general
program, the President has initiated several actions including:
• issuance of Executive Order No. 12044 that requires agencies
to analyze the economic consequences of all major new regulations; to insure that compliance costs, paperwork, and other
burdens on the public are minimized; to expand opportunities
for public participation; to write rules in clear and simple
English; and to eliminate unnecessary rules and update
needed regulations.
• establishment of a Regulatory Analysis Review Group to prepare reports on alternative methods considered in developing
particularly important proposed rules; and
• creation of a Regulatory Council that consists of executive
branch regulatory agencies, to deal with areas of conflicting
or overlapping regulations and to prepare a regulatory calendar that identifies all proposed major rules well in advance.
In addition, as part of the Administration's regulatory reform
effort:
• The Department of Health and Human Services (HHS, formerly HEW) has eliminated 700 pages of rules, the Occupational Safety and Health Administration (OSHA) has voided
nearly 1,000 unnecessary rules, and the Federal Trade Commission has cancelled 145 regulations.
MAJOR ACCOMPLISHMENTS No. 1
343
• The Federal Communications Commission (FCC) rewrote its
rules on citizens band broadcasting in plain English, and
• The Environmental Protection Agency (EPA) significantly
streamlined its permit procedures.
Finally, in legislation proposed in 1979, the Administration's regulatory reform program would be made permanent and extended to
the independent regulatory commissions.
It is clear that the protection of the public is the fundamental
objective of the Government's regulatory activities. In the past 3
years, much has been done to insure that the Government's regulatory role is carried out in the most effective and least burdensome
manner.
IMPROVING THE ORGANIZATION OF GOVERNMENT
As the responsibilities of the Federal Government have grown,
efficiency has often taken a back seat to politics in the assignment
of new functions and programs to agencies and departments. The
executive branch agencies, Congressional committees, and special
interest groups often have competing views about which organization should have responsibility for particular functions. The result
is frequently either a diffusion of responsibility for a particular
issue among different agencies, or overlapping responsibilities
shared by several agencies. This confusion of responsibility often
makes Government ineffective in carrying out its functions and
unaccountable for its failures. Agency conflicts, duplication of
effort, policy disputes, bureaucratic competition, and uncoordinated
actions become the norm.
To improve the organization and management of the Federal
Government, the Administration initiated the President's Reorganization Project (PRP), led by the Office of Management and
Budget (OMB). The project utilized interagency teams and outside
resources to identify needed organizational reforms. Since 1977 the
President has proposed 13 reorganization initiatives to Congress
and all were approved (9 organizational initiatives have been proposed in the form of reorganization plans, 4 in the form of legislation). Additional reforms have been made through Executive orders
and administrative action, including reducing the number of Federal advisory committees by almost 30 percent.
These initiatives, described below, have strengthened the Federal
Government's capacity to deal effectively with such critical issues
as energy, education, national security and crisis management, and
international trade and development.
ENERGY
In 1977, President Carter proposed, and the Congress approved,
creation of a Department of Energy to consolidate and give unified
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THE BUDGET FOR FISCAL YEAR 1981
direction to three major energy organizations that were addressing
related energy issues with little or no coordination. In 1979 it
became evident that new and innovative energy organizational
reforms were needed to help reduce our dependence on foreign oil
importation. The President has, therefore, proposed the creation of
two new energy organizations: an Energy Mobilization Board to
expedite Federal, State, and local decisions on proposed energy
facilities critical to meeting our goals for reducing our dependence
on foreign energy sources, and an Energy Security Corporation to
spur development of a domestic fuels industry through a program
of financial risk-sharing with the private sector. Reorganization
authority has already been used to consolidate enforcement functions related to the proposed Alaska Natural Gas Transportation
System under a single Federal inspector. This reorganization creates a unique institution to manage the Federal role in a critical
energy project, insuring timely completion of the natural gas pipeline at the lowest possible cost consistent with Federal regulatory
policies.
In another energy-related initiative, the President will soon
submit to Congress a reorganization plan to strengthen the internal management and effectiveness of the Nuclear Regulatory Commission (NRC). This reform is aimed at increasing the ability of the
NRC chairman to integrate and lead the agency in activities which
require prompt and disciplined action, such as inspection, enforcement, and emergency response. This is an important step in the
President's effort to insure that nuclear power is a safe and acceptable domestic energy source.
EDUCATION
One of the most significant accomplishments of the reorganization effort is the creation of the Department of Education. For the
first time, one agency and Cabinet official is responsible for Federal aid-to-education programs. It gives education the Cabinet voice
and national leadership this important function deserves. Through
consolidation of 152 programs from six agencies (the Departments
of Health and Human Services (formerly HEW), Housing and
Urban Development, Justice, Labor, and Defense, and the National
Science Foundation) and the reduction of redtape, the Federal Government will be able to manage its education role more efficiently.
INTERNATIONAL TRADE, DEVELOPMENT, AND COMMUNICATIONS
Congress recently approved a major reorganization to strengthen
the Federal Government's international trade functions. By centralizing authority and focusing accountability for overall trade
policy in the Office of the U.S. Trade Representative, and by
strengthening the Commerce Department's ability to implement
MAJOR ACCOMPLISHMENTS No. 1
345
this trade policy, this reorganization will help the Federal Government insure that trade opportunities for American business under
the Multilateral Trade Negotiations (MTN) agreements are fully
realized. In conjunction with MTN, this reorganization of trade
functions is a major step in increasing the Government's capacity
to strengthen the export performance and import competitiveness
of U.S. industry.
Changes have also been made in the organization of U.S. international development activities. In 1979, a reorganization plan combined several U.S. international development assistance programs
into a new International Development Cooperation Agency. This
reorganization will strengthen coordination of U.S. economic policies affecting the developing countries, providing a more coherent
development strategy and insuring that U.S. bilateral programs,
and the multilateral programs to which we contribute, better complement each other. This plan carries out reforms in the organization of foreign aid programs first proposed by the late Senator
Hubert Humphrey.
Another successful reorganization in the field of international
relations was the creation of the International Communication
Agency to coordinate U.S. international cultural affairs and information programs. This reorganization provided a more efficient
and objective setting for the conduct of U.S. public diplomacy by
unifying in Washington the management of activities which were
already administered together in the field. Creation of the International Communication Agency provided a new framework to foster
and encourage the interchange of information and experiences between the United States and other nations.
NATIONAL SECURITY AND CRISIS MANAGEMENT
Reorganization initiatives have been proposed to strengthen the
Government's ability to better manage and coordinate its national
security apparatus and to respond quickly and effectively to both
international and domestic crises. In the area of national security
policy, the Administration conducted a review of executive branch
coordination processes with the goal of making national security
actions more consistent with each other and with national priorities. The project examined the Government's capacity to identify
early those issues requiring interagency or Presidential decisions
and to oversee implementation of decisions. The project has resulted
in more effective coordination among agencies involved in national
security planning and decision-making, particularly in preparing
staff work for the President, developing defense policy, programs and
budgets, and preparing for potential crises.
To improve crisis management in civilian emergencies, the Administration proposed, and Congress approved, the consolidation of
346
THE BUDGET FOR FISCAL YEAR 1981
five organizational units responsible for handling emergency preparedness and response functions for the Government into the
Federal Emergency Management Agency. State and local government officials were strong supporters of the consolidated agency,
having previously criticized the Federal Government's uncoordinated preparation for, and response to, emergencies. The Federal Government's swift response to communities damaged by Hurricane
Frederick in 1979 demonstrates the improved effectiveness in service delivery resulting from this reorganization.
PERSONNEL MANAGEMENT
Reorganization authority was also used to make needed organizational improvements in the civil service system as part of the
overall civil service reform effort discussed above. This reorganization, dividing the civil service system into an Office of Personnel
Management (OPM) and an independent Merit Systems Protection
Board (MSPB), clearly established responsibility for personnel performance in OPM, and protection of employee merit system rights
in the MSPB. The reorganization plan also created a Federal Labor
Relations Authority to improve labor/management relationships
within the Federal workforce.
REORGANIZATION OF REGULATORY ACTIVITIES
Complementary to the comprehensive regulatory reform efforts
discussed above, organizational reforms have been implemented in
several areas to reduce the burden of compliance with Federal
regulations. For example in the area of pension regulation, a reorganization plan was used to clarify the responsibilities of the Departments of Labor and Treasury for implementing the Employee
Retirement Income Security Act (ERISA), to reduce the paperwork
burden involved in the administration of this program, and to
require more timely responses to applications.
The Administration has also used reorganization authority to
streamline civil rights enforcement, reducing jurisdictional overlap
and duplication. In 1978, the Administration began movement
toward a consolidation of the Government's equal employment opportunity enforcement activities. Formerly, employers had to deal
with 18 different agencies to insure compliance with Federal regulations. With the passage of Reorganization Plan No. 1 of 1978, the
Equal Employment Opportunity Commission (EEOC) was given
principal responsibility for fair employment enforcement. A related
executive order also gave the Department of Labor the responsibility, formerly spread among 11 agencies, for insuring that Federal
contractors comply with equal employment standards. A civil
rights unit has recently been established in the Office of Manage-
MAJOR ACCOMPLISHMENTS No. 1
347
ment and Budget to strengthen monitoring of the Government's
overall civil rights enforcement effort.
USING ZERO-BASE BUDGETING IN THE FEDERAL GOVERNMENT
Over the years, as the Federal Government's programs, functions
and responsibilities continue to expand and compete for limited
resources, the efficient and effective use of the taxpayers' dollars
has become a major concern of the public. Recognizing the importance of budgeting techniques in determining not only the level
and type of services provided but also how well they are provided,
the President was prompt to carry out his commitment to institute
zero-base budgeting (ZBB) in the Federal Government.
Beginning with the 1979 Budget, the Federal Government began
to use ZBB, a systematic process in which management undertakes
a careful examination of the basis for allocating resources in conjunction with the formulation of budget requests and program
planning. The results of the 3-year experience with ZBB have been
highly satisfactory.
One of the major goals in establishing ZBB was to increase
managerial involvement in the budget process. Because of ZBB,
there is now increased participation at all levels of management in
the budget process, and consequently a better understanding
throughout the Federal establishment of the relationship among
policy initiatives, program planning, resource allocation and effective program execution. ZBB also provides for increased emphasis on
setting objectives and priorities and greater emphasis on alternative
methods of accomplishing these objectives.
Even more important, ZBB requires managers to analyze systematically the effects of various funding levels on the agency's ability
to carry out its mission. It requires ranking of activities and resources in priority order. These rankings indicate how program
objectives can best be achieved at a given funding level. As a
result, the ZBB process provides an explicit statement of priorities,
facilitates comparisons between programs, and stimulates consideration of trade-offs within and between programs. It has proved
helpful in identifying areas where savings could be realized with
the least sacrifice of program performance and service to the
public.
In addition to these benefits, the zero-base budgeting system has
also permitted significant innovations in OMB's central review
techniques. In the last 2 years, several interagency reviews have
resulted in more integrated, systematic examination of programs
with similar or related objectives.
Similarly, zero-base packages ranked by each agency at the margin of its budget total were reranked on a Government-wide basis.
348
THE BUDGET FOR FISCAL YEAR 1981
This provided a more systematic basis for balanced even-handed
decisions.
In sum, ZBB has proved useful in efforts to improve Federal
programs by making it possible for decisionmakers at every step of
the process to examine budgets and programs with greater understanding and facility. It provides the basis for more rational and
orderly decisionmaking in the Federal Government. It has also
proved helpful to the President in his evaluation of budget requests
and has provided him with the analytical tools to facilitate—but
not substitute for—the trade-offs that are a legitimate part of
decisionmaking.
The current inflation continues to require restraint in the growth
of Federal spending. ZBB is ideally suited to the task. ZZB has made
it possible to compare programs more easily, to make more informed
judgments, and it has facilitated the decisionmaking process necessary to assure that the best Government services possible will be
provided for the taxpayer's dollars.
REDUCING PAPERWORK AND ADMINISTRATIVE COMPLEXITY
With the expansion of Government responsibilities, there has
been a corresponding increase in the complexity and paperwork
associated with these activities. While the economic costs of this
paperwork burden are difficult to estimate, it is generally agreed
that the costs could be billions of dollars each year.
Some paperwork is both important and necessary. It enables the
Government to accurately determine citizens' eligibility for benefits such as social security, unemployment compensation, and disability payments; to collect tax revenues; to account for Government expenditures; and to prevent fraud and misuse of public
funds. However, the great number and variety of Government programs create paperwork burdens that are at times excessive, duplicative, or wholly unnecessary. To combat the problem of growing
administrative complexity and paperwork, the Administration has
initiated a number of efforts to simplify procedures and reduce the
burden of paperwork on the public. Two of these efforts are described below.
PAPERWORK REDUCTION PROGRAM
Implementing the recommendations of the Commission on Federal Paperwork, the Administration revised its method of measuring
the annual paperwork burden imposed on the public by Government agencies and programs and worked with agencies to consolidate, streamline, and simplify forms and reporting requirements.
The result has been a decrease since January, 1977, of almost 15%
in the number of hours the public spends filling out Government
forms. This represents a reversal of the trend toward increased
Government paperwork experienced in the 1960's and early 1970's
and has resulted in greater governmental efficiency in collecting
MAJOR ACCOMPLISHMENTS NO. 1
349
necessary information. To insure continued progress in this area,
in 1979 the President issued Executive Order No. 12174 that established a mandatory paperwork budget for all executive branch
agencies and required a "sunset" review of all existing forms.
In addition, the Administration has submitted legislation to the
Congress to eliminate or modify 224 recurring reports that executive branch agencies are required to submit to the Congress. These
reports appear to be redundant and unnecessary. Passage of this
legislation, combined with the elimination or modification of 56
other reports by administrative action, will result in estimated
annual savings of $5.5 million to the Federal Government and
much more to the public.
SIMPLIFICATION OF ELIGIBILITY REQUIREMENTS
One of the most difficult tasks that Government agencies have in
operating public assistance programs is to determine with precision
who is eligible for these programs. The numerous assistance programs with varying eligibility criteria have generated confusion in
the minds of clients and inconsistency in program operation. To
remedy this, in the fall of 1979 a Task Force created by the President and chaired by the Office of Management and Budget and the
Department of Health and Human Services (HHS, formerly HEW)
recommended a series of steps to standardize Federal requirements, to simplify the eligibility process for the clients, and to
assure consistent Government-wide implementation of policies regarding eligibility in seven major assistance programs. These recommendations could serve as an important first step in simplifying
the eligibility process and as a model for further efforts.
STREAMLINING THE FEDERAL AID SYSTEM
The expansion of the Federal Government's role and responsibilities has been matched by an increase in the number and complexity of different Federal grant programs, each having somewhat
different requirements and guidelines, and administered by different agencies. In addition, major national policy objectives, such as
eliminating discrimination, protection of the environment, payment of prevailing wages, and provision for the handicapped have
been imposed as general assistance program requirements. Procedural duplication, administrative delays and inconsistencies, and
further increases in paperwork and personnel have been the result.
OMB is completing a 2-year study of ways to improve Federal
assistance management. A report will be submitted to Congress in
February documenting assistance problems, describing what the
Administration is doing to solve them, and recommending congressional actions, where appropriate. This study, the first of its type, has
involved hundreds of Federal employees, aid recipients, and informed observers of assistance programs across the Nation. Its
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THE BUDGET FOR FISCAL YEAR 1981
recommendations are built upon the proposals of State and local
governments, universities, and other recipients, as well as the Federal agencies. The report will present a multi-year agenda for improving the management of Federal assistance.
SIMPLIFICATION OF PLANNING REQUIREMENTS
One of the major sources of complaints from grant recipients is
the duplicative and burdensome planning requirements associated
with Federal programs. Intended to insure coordinated and comprehensive planning prior to using Federal funding, these requirements sometimes call for the generation of extensive information
in annual plans to satisfy Federal officials that adequate planning
is being done for each Federal program. OMB is presently leading
an effort to simplify grant planning requirements, make them
more uniform across programs, and reduce the burden they impose.
Agencies are also being encouraged to revise, consolidate, and simplify their grant requirements. In 1980, for example, the Department of Health and Human Services will begin integration of the
eleven separate State plans now required for health programs.
STANDARDIZATION OF FINANCIAL REQUIREMENTS
The financial requirements established by Federal agencies for
the recipients of Federal assistance have been standardized and
simplified. Prior to standardization, each Federal agency developed
and issued its own requirements. There was no consistency among
the requirements of the various agencies. This created a major
administrative problem for recipients who were awarded grants
from different sources.
To remedy this problem, a comprehensive system of financial
guidance for all Federal assistance programs has been established.
Under the new rules for State and local governments:
• one application form replaces hundreds that were previously
in use;
• standard financial reports fill the needs of all programs;
• bonding and insurance provisions are the same; and
• grant records are required to be kept no more than 3 years,
regardless of the source of Federal aid.
In addition, during the past year, principles for determining costs
under grants to educational institutions have been revised and
clarified, standard audit rules have been issued, and, for the first
time, uniform principles for the determination of costs under
grants to nonprofit institutions have been developed. Some of these
improvements are discussed in more detail later in this section.
MAJOR ACCOMPLISHMENTS No. 1
351
GRANT CONSOLIDATION
Part of the complexity in the Federal grant system arises from
the large number of different grant-in-aid programs. The number
of such separate grant programs has risen from approximately 160
to over 470 since 1962, despite the fact that most of the aid (81%) is
found in only 25 programs. To reverse this trend toward an increasing number of small grants, the Administration has proposed
to consolidate within the budget process several grant programs
having similar objectives and serving similar client groups. This
would allow more efficient grant administration without sacrificing
program objectives or quality.
Grant consolidations, or actions to give States and localities more
flexibility in the use of grant funds, were approved or have been
achieved or proposed in 10 program areas:
• Consolidations have been achieved in three areas. Grant consolidations in the cooperative forestry program were authorized by the Cooperative Forestry Act of 1978. Some programs
for the elderly were consolidated in the 1978 Amendments to
the Older Americans Act, and some consolidations were requested by the Administration and approved by the Congress
in 1979 for vocational rehabilitation.
• Legislation that would permit some consolidation actions in
four areas (airport development, economic development,
energy conservation, and environmental programs) is currently before the Congress.
• Three additional consolidation proposals are in the 1981
budget: health programs, youth training and employment programs, and fish and wildlife grants. A new consolidation is
proposed for vocational rehabilitation programs in addition to
those already achieved.
Another major program coordination effort, known as the Employment Initiatives, has made procedural changes linking the Federal economic development programs in various agencies with the
Department of Labor's employment and training programs. These
changes are intended to provide direct access for persons in Federal job training programs to new permanent, private sector jobs
created through Federal development projects.
URBAN AND COMMUNITY IMPACT ANALYSIS
As part of the President's urban policy, announced in March
1978, a new procedure was established to identify the potential
urban and other community impacts of major Federal Government
initiatives in advance of decisions. This reflected the Administration's recognition of the need for more effective analysis of Federal
policy initiatives to anticipate their potential for adverse impacts
352
THE BUDGET FOR FISCAL YEAR 1981
on the cities and regions of the country. This new policy requires
urban and community impact analyses of all major budgetary,
legislative, and regulatory initiatives proposed by Federal agencies.
An interagency system for preparing these analyses, under the
supervision of OMB, has now been in operation for nearly 2 years.
It represents a major innovation in the Administration's effort to
more effectively coordinate the effects of Government policies.
IMPROVING MANAGEMENT IN THE FEDERAL GOVERNMENT
The size of the Federal budget and the large number of diverse
programs supported by this budget make strong program management and financial accountability essential to promote economy
and prevent fraud and abuse. In addition to the implementation of
zero-base budgeting described earlier, the Administration has taken
a number of other specific steps to increase Government financial
controls and management capacity.
PRESIDENT'S MANAGEMENT IMPROVEMENT COUNCIL
In the spring of 1979, the President created a Management Improvement Council to address particular management problems
which the Government faces. Chaired by the Directors of the Office
of Management and Budget and the Office of Personnel Management, its members are drawn from industry, labor unions, universities, Federal agencies and State and local governments. The Council's purpose is to advise the President about specific management
improvements that the Federal Government could undertake to
improve its operations and to assist in implementing those reforms.
One of the first tasks of the Council is to provide advice and
assistance to the debt collection project of the Financial Priorities
Program. The Council has also initiated efforts to assist both the
Health Care Financing Administration in improving the administration of its experimental programs and the General Services
Administration in the provision of Federal Government supplies
and services. The Council represents an example of the Administration's commitment and efforts to bring in outside expertise to assist
with Government programs.
PREVENTION OF FRAUD AND WASTE
To uncover, investigate, and prevent fraudulent and wasteful
practices in the Government, in 1978 Congress approved Administration-backed legislation establishing an Office of Inspector General in 12 Departments and agencies, bringing the total number of
statutory Inspectors General (IG's) to 15. The IG's are given a
substantial measure of independence and control over audit and
investigation responsibilities in their agencies. The legislation rep-
MAJOR ACCOMPLISHMENTS No. 1
353
resents an important step in insuring honesty and integrity in
Government operations and the President has directed that the
significant features of the act be extended throughout the Government. In doing so, the President emphasized to the heads of departments and agencies that "eliminating waste, fraud, and error
should be as important to you as your program objectives."
To coordinate the functions of the Inspectors General, the President has established an Executive Group to Combat Fraud and
Waste in Government. This Group, consisting of the Inspectors
General, and representatives from the Federal Bureau of Investigation, Office of Management and Budget, Internal Revenue Service,
Postal Inspection Service, and Office of Personnel Management,
and chaired by the Attorney General, will focus its attention on
ways in which the Administration can prevent fraudulent practices
in Government.
In addition, through the Inspector General Offices, the agencies
and departments are initiating their own efforts to fight fraud and
waste in their programs and exercise tighter control over program
resources. For example, the Department of Health and Human
Services program to reduce fraud and abuse has generated reductions in costs totaling approximately $900 million in 1979 and
projects cost reductions of $1.3 billion in 1980, principally through
better financial management, more effective audit follow-up, and
better eligibility determination procedures. This effort focused on
reducing costs in two major program areas, health care financing
and income maintenance.
F I N A N C I A L
M A N A G E M E N T
I M P R O V E M E N T
The Administration has developed two programs to increase the
efficiency with which the Government manages its funds.
The first program, the President's Cash Management Project,
was designed to improve the way cash is handled by the major
agencies and departments in an effort to more efficiently manage
the cash flow of the Federal Government. This program developed
more effective ways of paying the Government's bills on time, thus
avoiding the interest costs associated with the early payment of bills
and penalties for late payments. It also involved investing idle cashon-hand to generate greater interest payments. This program, alone,
is expected to generate savings of over $400 million in 1980, and in
1981 and 1982 annual savings totaling almost $1 billion are expected.
A second program launched by the Administration, the Financial
Priorities Program, is designed to direct top management attention
to needed improvements in agency financial systems. The priorities
were worked out by OMB in consultation with the Congress, the
310-700 0 - 8 0 - 2 3
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THE BUDGET FOR FISCAL YEAR 1981
Comptroller General, and the agencies. The priorities that were
approved by this group focus on:
• Accounting systems: The goal of this effort is to obtain General Accounting Office approval of all accounting systems.
• Internal control: The program will upgrade control systems to
reduce the risk of fraud, abuse, waste, and inefficiency.
• Cash management: The program will build upon the work of
the President's Cash Management Project.
• Audit follow-up: The purpose of work in this area will be to
resolve auditfindingspromptly and properly.
• Outlay estimating: The program will seek to improve accuracy
and timeliness in estimating outlays.
• Debt collection: The program will encourage proper accounting, and prompt aggressive debt collection.
• Overtime: Accurate accounting, and tighter control of overtime are the objectives in this area.
• Grant financing: The program will try to increase the use of
letters-of-credit and electronic funds transfer, and recover unspent funds.
• Grant accountability: The program will seek the full implementation of cost principles and standard administrative requirements.
When this program began, agency financial systems had many
weaknesses. There were reports of major breakdowns in fund control, with millions of dollars being overobligated. Audit reports
citing billions of dollars in questioned costs were going unresolved,
sometimes for years. Hundreds of millions in unspent grant funds
were being retained by recipients. Cash management practices and
debt collection practices were extremely sloppy.
The Financial Priorities Program is showing gratifying results.
The backlog of unresolved audit findings has been substantially
reduced. One agency alone has collected unspent grant funds of $75
million. Letters-of-credit are now used for over $100 billion in
Federal aid, and the President's debt collection project is expected
to make substantial progress in reducing the amount of the Federal Government's bad debts. This program represents an ongoing
Government-wide effort to be continued over several years and will
significantly increase the Government's ability to manage its resources wisely.
AUDIT REFORM
As suggested earlier, major changes are also taking place in the
way Federal programs are audited. Audits are now in the hands of
Inspectors General (IG's), as a result of the Inspector General Act
of 1978.
MAJOR ACCOMPLISHMENTS No. 1
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Audit coordination has always been a problem in Federal aid
programs. Since many grant recipients receive funds from more
than one program, State and local governments have had to undergo repeated audits of the same set of books by several Federal
auditors—each representing a different funding source. Many
grant recipients were audited by State and local auditors as well.
The President, in his first year in office, called upon the heads of
departments and agencies to improve their audit systems, particularly as they relate to grant programs. He urged them to upgrade
audit planning, and to "use their audit plans as a basis for making
greater efforts to improve interagency cooperation on audits, to
increase Federal coordination with State and local auditors, and to
increase reliance on audits made by others."
To improve the effectiveness of audits, steps have been taken in
the following areas:
• Audit followup.—In order to correct the long delays that have
been experienced regarding administrative action on audit
findings and recommendations, regulations have been issued
that set a 6-month time limit on the resolution of audit findings and recommendations, establish procedures for resolving
major disagreements between audit and program officials, call
for semiannual reports to agency heads, and require periodic
evaluations of audit followup systems.
• Single audit guide.—Regulations have been issued setting
forth standard audit rules for the audit of grants to State and
local governments. The regulations call for a single, coordinated audit on a Government-wide basis; incorporate a standard audit guide to replace more than 100 that are now in use;
and call for a system of audit cognizance that would allow one
Federal agency to act for all agencies in dealing with a single
grantee.
• Reliance on State and local audits.—Negotiations are continuing with State and local officials to upgrade audit capability
and eliminate duplication of audit work by Federal auditors
when State and local government audits satisfy Federal requirements and needs.
• University audits.—Regulations have been revised with
regard to the auditing of grants to universities. The revision
continues the policy of relying on a single agency to act for all
agencies in auditing universities and in negotiating their indirect cost rates. It adds to those duties the responsibility to
follow-up on audits by assuring correction of system deficiencies and by negotiating appropriate monetary recoveries.
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THE BUDGET FOR FISCAL YEAR 1981
IMPROVED QUALITY CONTROL IN FEDERAL BENEFIT PROGRAMS
Federal programs provide essential income and in-kind benefits
to millions of eligible individuals each year. These programs are
complex; some are not under Federal control but are administered
by State agencies; and each one involves millions of individual
calculations and items of information collected from the public.
In order to monitor the accuracy of benefits received by persons
participating in these programs, insure that eligible individuals
receive all benefits to which they are entitled, and reduce payments in error, the Administration has undertaken a broad initiative to implement and improve quality control systems for these
programs. Under the Administration initiative, new quality control
systems have been established, existing systems have been improved,
quality control techniques have been pilot-tested in selected programs, and quality control requirements for the State-administered
aid to families with dependent children, medicaid, and food stamp
programs have been integrated.
PROGRAM REFORMS
In its efforts to manage the Government better, the Administration has instituted the Government-wide reforms described above.
It has also taken a number of specific actions designed to improve
the operations of individual programs and resolve unique problems.
These actions often receive little or no attention outside of the
agencies affected and may not be recognized by the public as making
a large contribution to improving Government. Taken together,
however, they can have a significant impact on the Government's
ability to deliver services efficiently and effectively. While it is
impossible to describe all of the reforms undertaken by Government
agencies, some examples of the kinds of projects that have been
initiated to improve specific Federal programs are outlined below.
IMPROVEMENTS IN PROGRAM STRUCTURE
Several agencies have found that a more decentralized program
structure would enable them to reach their goals more effectively.
For example, in 1979 the Economic Development Administration
(EDA) found it worthwhile to delegate expanded authority to Regional Directors. As a result, fewer than 25% of all EDA projects
now need to be approved in Washington. In addition, plans are
continuing that would further expand this decentralization to 10
regions to conform to the standard Federal regional structure. This
should improve the coordination of these programs with other Federal agencies and provide better service to EDA's clients.
MAJOR ACCOMPLISHMENTS No. 1
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In a similar way, the Administration's restructuring of Federal
criminal justice assistance and research will substantially improve
the operation of programs in this area. The Administration proposed and the Congress enacted legislation authorizing the reorganization of the Law Enforcement Assistance Administration. An
Office of Justice Assistance, Research, and Statistics (OJARS) has
been created to provide support and coordination for (1) a National
Institute of Justice to undertake civil and criminal research, (2) a
Bureau of Justice Statistics to gather and disseminate statistics on
criminal and civil matters and to provide assistance to State and
local governments in their development of statistics, and (3) a Law
Enforcement Assistance Administration to administer grant programs. These changes will reduce redtape and paperwork, and give
cities and counties 'more direct control over the Federal funds they
receive for criminal justice assistance. Also, by creating a National
Institute of Justice separate from the financial assistance programs, the Administration hopes to assure the objectivity and independence of research and development.
SIMPLIFICATION OF PROGRAM REQUIREMENTS
As discussed earlier, the Government-wide efforts to simplify
planning and eligibility requirements in Federal programs are producing promising results. Yet, just as significant have been the
initiatives undertaken by individual agencies to simplify their requirements, rules, and guidelines.
For example, as the result of a policy decision to focus Food
Stamp resources on those most in need of services, the administration of the food stamp program has been greatly simplified by
ending the cumbersome requirement to purchase food stamps.
In three other areas, similar results have been achieved:
• The Administration's youth initiative legislation will combine
and enhance programs now making grants to States and local
governments for youth training and employment. In addition,
it will integrate into the revised program the planning and
administration of the summer youth employment program.
As a result, local recordkeeping, applications and reports, and
program administration will be greatly simplified.
• As a result of the Social Security Financing Amendments of
1977, employers now report employee wages annually rather
than quarterly, a change that has significantly reduced administrative costs and paperwork for both the private sector
and the Federal Government.
• The Occupational Safety and Health Administration (OSHA)
has undertaken a major overhaul of safety standards to make
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THE BUDGET FOR FISCAL YEAR 1981
them simpler, more sensible, and more effective in preventing
job-related injuries and deaths:
—Construction industry standards were consolidated into a
single, readily usable package.
—Fire-protection standards are being streamlined. OSHA has
proposed that 2,400 old "consensus" standards be replaced
with simpler rules. If the proposal is promulgated as proposed, 400 pages of regulations will be condensed to 32.
—Electrical safety standards are being simplified and refined. In 1979, OSHA proposed to shorten existing electrical standards for general industry from 250,000 words to
15,000, while retaining all provisions necessary for
worker protection. The proposed changes will make requirements both performance-oriented and easier to understand.
—An OSHA policy has been proposed which will identify
and classify potential occupational cancer hazards and
establish models for future specific standards for these
carcinogens.
—OSHA paperwork requirements have been reduced, particularly for small businesses. The Federal Commission on
Paperwork has estimated that OSHA has saved businesses
more than $100 million a year through paperwork reforms.
Almost all small businesses with 10 or fewer workers have
been exempted by the Department of Labor from health
and safety recordkeeping requirements. The number of
entries required of businesses on the standard reporting
form, "Log and Summary of Occupational Injuries" has
been reduced by 75% (from 80 entries to 19). This steamlined form replaces three old forms.
TERMINATION OF PROGRAMS
Large budget savings are usually achieved more by cutting back
or redirecting large programs, rather than by terminating them.
Programs that are terminated tend to be small and, individually,
the savings are not large compared to the budget totals. Such
terminations, however, are essential if Government is to be efficient. A few of the programs already terminated or proposed for
termination in this budget are:
• health professions training programs that are no longer
needed to increase the supply of health professionals.
MAJOR ACCOMPLISHMENTS No. 1
359
• grants for the development of private, nonprofit home health
agencies. Where needed, funds are provided through medicare
and medicaid reimbursements, and thus, a separate grant
program is no longer needed.
• highway programs. These include aid for roads that are not
part of the Federal aid highway system, the Alaska highway,
access highways to some public recreation areas, and demonstration projects for railroad crossings.
• Twelve consulates abroad that the President has decided are no
longer needed for essential services. Annual savings of about
$3 million and 80 employees will result from the closing of
these consulates.
PREVENTION OF FRAUD AND ABUSE
In response to the President's call for vigorous efforts to prevent
fraud and waste in Government programs, the departments and
agencies have taken a number of specific actions to achieve this
end. Some examples of these actions are:
• In the food stamp program, pending legislation would permit a
system under which administrative funds could be withheld
from States with excessive errors. It is expected that the
possibility of withholding funds would be sufficient incentive
for States to improve their administration of the food stamp
program. These and other changes could save as much as $1
billion over the 1981-85 period.
• Several initiatives would reduce the incidence of fraud and
abuse in the school nutrition programs. The administration
has proposed the assessment, improvement, and monitoring
system program (AIMS) to assure that reimbursements are
made within the provisions of current law and that school
authorities meet clear standards of performance for meal
service. This program is expected to take effect in 1981 and
produce $65 million in savings in the first year.
• For the summer feeding program, legislation is being proposed to restrict the participation of private sponsors who use
private vendors to provide meals. This action is expected to
save approximately $266 million over the 1981-85 period.
• The Inspectors General in the Departments of Agriculture
and Health and Human Services have instituted a computer
matching system to compare names of welfare recipients with
the names of persons receiving State unemployment benefits
and the names of wage earners on Federal, State or local
government payrolls. This fairly simple technique has frequently identified aid recipients whose income makes them
ineligible. And it has been highly effective in the detection of
fraud.
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THE BUDGET FOR FISCAL YEAR 1981
• In 1979 the Department of Health, Education, and Welfare
began a major initiative to collect defaulted higher education
loans guaranteed by the Federal Government. This effort will
continue in 1980 in the new Department of Education and be
expanded to include defaulted direct student loans. An estimated $73 million in defaulted loans will be placed in repayment status. Additional savings of over $100 million will be
achieved through more rigorous review of basic educational
opportunity grant awards to higher education students. The
Department of Education will also continue the intensive reviews of grants to States for compensatory elementary and
secondary education for disadvantaged children begun in
1979. It is estimated this effort will identify nearly $30 million
in misspent funds.
IMPROVEMENT THROUGH TECHNOLOGY
The Administration has also sought to apply modern information
technology—computers and telecommunications—to agency programs in order to expand the capability and productivity of the
Federal work force without increasing its size. Examples of specific
programs that have benefited from the use of this technology
follow:
• The use of electronic funds transfer by the Department of the
Treasury has resulted in significant interest savings by permitting faster deposits of receipts from the sale of gold, foreign military sales, and similar transactions. These savings
totaled $18 million in 1977, $26 million in 1978, and $60
million in 1979. The savings are expected to reach at least
$350 million between 1980 and 1984. The Department of the
Treasury has also significantly increased the use of electronic
funds transfer as an improved Government payment system.
These transfers now account for approximately 25% of all
Government payments, and by 1985 this could increase to
55%. This has not only saved resources but also decreased the
chances of both theft and forgery of Government checks.
• The Federal Bureau of Investigation is developing the automated identification division system (AIDS) to perform fingerprint identification by computer and replace the current
methods of identification. The new system will be implemented in 1982 and will save $9.4 million by 1986.
• Social security applicants can now frequently complete their
application with a single visit to the local office because of
computer access to social security employment records. Formerly, a second visit was necessary with delays of weeks
while records were processed manually and mailed to the
local offices.
MAJOR ACCOMPLISHMENTS No. 1
361
• In 1981, the Patent and Trademark Office will begin automation of its trademark search files. It is expected that this will
increase the productivity of trademark examiners by as much
as 10% and result in cost savings of over $750,000 annually.
• The Internal Revenue Service installed an automated data
system to check the accuracy and currency of taxpayer identification data, enabling the Service to reduce its staff by 200
individuals.
SAVINGS THROUGH PROGRAM EFFICIENCIES
Reducing the costs of Government operations and services is an
ongoing objective of the Administration. Again, although the actions of the departments and agencies in generating savings are too
numerous to list, the following are illustrative:
• The Corps of Engineers has saved $1.2 million by tightening
eligibility requirements for the rehabilitation of nonfederally
owned flood control projects. The Corps has also generated
energy savings by modifying the operation of hydropower generators to increase output during peak hours of demand and
thus help public cooperatives and private utilities achieve
savings. During the last year, approximately 216,000 barrels
of oil were estimated to be saved and continuation and improvements in this program should result in an annual saving
of over one-half million barrels of oil.
• The Federal Railroad Administration recently initiated a
comprehensive review of its safety rules that could eventually
result in annual savings of as much as $500 million to the
financially troubled railroad industry without adversely affecting safety.
• In the Federal Aviation Administration, employment savings
were realized through: (1) major reorganizatioinal changes
which reduced headquarters staffing, (2) the updating of staffing standards to insure that operational personnel were properly assigned to efficiently meet the demand for services, and
(3) the initiation of a maintenance program requiring less
frequent maintenance visits. These actions allowed the agency
to assign over 1,100 more personnel to high priority activities
such as air traffic control and flight safety inspections.
• The Federal Aviation Administration is also reviewing air
routes to provide for more efficient flight paths. Flight paths
between the West Coast and Hawaii have already been
changed and, without sacrificing safety, the changes could
save up to 25 million gallons of aviation fuel annually.
• Last May, the President directed that the State Department
and the Office of Management and Budget review staffing
levels of American employees of all agencies assigned to diplo-
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THE BUDGET FOR FISCAL YEAR 1981
•
•
•
•
•
matic missions abroad. These efforts have resulted in a reduction of 626 positions proposed by agencies for 1981.
In April 1979, as part of his energy message, the President
announced plans to phase in parking fees for Federal employee parking lots in urban areas. The fees are intended to
encourage carpooling and transit use. This plan, implemented
on November 1, 1979, affects about 13,000 parking spaces
nationwide, and will recover about $20 million in 1980. By
1982, the Government expects to save about $40 million
annually.
The Federal Government is committed to phasing out its own
use of gas-guzzling automobiles by requiring new automobiles
to be more fuel efficient. For model year 1980, for example,
the national average is 20 miles per gallon (mpg), while Federal automobiles purchased must average at least 24 mpg.
Because about one-sixth of the Federal fleet is replaced each
year, major progress has already been made since the fuelefficient requirements began in 1978.
Since January 1977, the Department of Defense has eliminated approximately 24,000 military and civilian positions as a
result of base realignments, consolidations, and closures. The
estimated annual savings that will ultimately result from
these actions are over $375 million. In addition, final decisions
are pending on actions that would increase the annual savings to over $500 million a year.
Reductions are proposed in this budget that would eliminate
duplication in energy-related programs in environmental control and mining research, with savings of about $29 million.
In an effort to reduce the cost of Government operations
through the appropriate use of private sector versus Government personnel, the Office of Management and Budget conducted a two year study and, in 1979, issued revised guidance
on contracting out, Circular No. A-76. The guidance to Government agencies stresses a balanced approach and an emphasis on comparative cost considerations in determining
whether to rely on the private sector or the Government to
carry out particular functions. Over the next 3 years, all
Government activities providing a product or service that
could be obtained by contract, and contracts for services that
could be performed by the Government directly, are to be
studied under this new circular to determine the most costeffective method of performance. For example, the first two
studies completed under the new guidance indicate that
agency implementation will result in substantial savings to
the taxpayer. In a Department of the Treasury study of gold
refining at the New York Assay Office, the Government oper-
MAJOR ACCOMPLISHMENTS No. 1
363
ation was streamlined to save approximately $400,000 per
year which made it more economical than commercial refining and justified continuation of the activity. On the other
hand, the Department of Interior's Bureau of Mines reviewed
the operation of a Government plant at Bruceton, Pa., and
determined that contract operation of the plant would result
in savings of $2.7 million.
In this presentation, some of the more important improvements
in the efficiency and operations of the Federal Government have
been discussed. Although problems still remain, the progress to
date has been impressive. As a result of the initiatives and reforms
discussed above, the Federal Government and the public today
benefit from the steps taken both to motivate and manage the
Federal work force and to eliminate excessive regulation, organizational duplication, administrative complexity, and fraud, abuse, and
mismanagement. The Federal Government is today both more responsive and more accountable to the American public than it has
been in the past.
The improvements made reflect the Administration's commitment to the goal of a Federal Government that imposes as little
burden and cost on the public as possible while guaranteeing the
responsive and efficient provision of necessary Government
services.
2. CONSERVING THE NATION S NATURAL RESOURCES
AND PROTECTING THE ENVIRONMENT
The United States has an abundance of land, water, and other
natural resources. Until recent years the importance of protecting
and using these resources in a prudent manner has often been
neglected either because of inadequate information on adverse effects of certain practices or because of lack of concern. This Administration has identified serious threats to the health and well-being
of the populace and to the Nation's land, wilderness, and water
resources. Since 1977, President Carter has taken over 100 actions
in terms of making new policies, transmitting legislative proposals
and issuing executive orders and Presidential directives. These
steps were taken to insure that:
• The environment is protected consistent with economic
growth and development, and
• Natural resources are developed and used in a careful and
prudent manner with adequate protection to insure future
availability.
Specifically, the Administration has:
• Lent strong support to the enactment of important strengthening amendments to the Clean Air and Clean Water Acts,
providing stricter standards to insure that the Nation's air
and water resources are cleaner and safer;
• Established a comprehensive National Water Policy based on
water conservation, emphasis on Federal/State cooperation
and increased attention to environmental values in planning
and constructing Federal water projects;
• Begun to implement regulations protecting the public health
and environment from commercial production of toxic substances;
• Increased levels of investment in the protection and management of the resources on the public lands—both to increase
the productivity of energy, (food and fiber) and timber resources and to protect and preserve natural, recreational, historical, and cultural resources;
• Secured enactment of the 1977 Surface Mining Reclamation
Act, amendments to the Outer Continental Shelf Lands Act,
and administratively established a new coal leasing program
for insuring continued development of domestic energy resources within strict standards for environmental protection;
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THE BUDGET FOR FISCAL YEAR 1981
• Proposed the Oil, Hazardous Substances and Hazardous
Waste Liability and Compensation Act, to provide legal sanctions against releases of hazardous substances into the environment and to provide a strong Government response to
hazardous substance releases that threaten public health;
• Helped enact the Soil and Water Conservation Act of 1977
which included provision for examining current soil and
water conservation programs and practices;
• Supported enactment of the National Parks and Recreation
Act of 1978 and the Redwood National Park Act that has;
preserved unique wilderness areas, added 1.3 million acres to
the National Park System, added 8 rivers totaling 695 miles
to the National Wild and Scenic Rivers System, added 12,000
miles of trail to the National Trail System, and added 1.85
million acres to the National Wilderness Preservation
System;
• Designated 17 areas in Alaska as National Monuments covering 56 million acres and administratively protected another
59 million acres of Alaskan lands, pending permanent legislation;
• Issued new regulations to improve the administration of the
National Environmental Policy Act, establishing uniform procedures for all Federal agencies.
The table below shows that the 1981 total estimated Federal
spending in support of a clean environment and prudent use of
resources is estimated to be $12.8 billion, an increase of 28% since
1977.
Table 2-1. Budget Outlays for Natural Resources and the Environment
(In millions of dollars)
Type of activities
1977
(actual)
Pollution control and abatement
Water resources
Conservation and land management
Recreational resources
Other natural resources
Deduction for offsetting receipts
Total outlays
1981
(estimate)
4,279
3,241
1,279
1,014
973
-786
5,107
4,121
2,245
1,499
1,468
-1,622
10,000
12,819
PROTECTING OUR ENVIRONMENT
The Administration has asserted strong leadership in developing,
implementing and enforcing environmental laws and regulations.
In 1981, Federal spending to implement environmental statutory
responsibilities, chiefly under the amended Clean Air Act, the
amended Clean Water Act, the Safe Drinking Water Act, the Toxic
MAJOR ACCOMPLISHMENTS No. 1
367
Substances Control Act, and the Resource Conservation and Recovery Act, will increase 78% above the 1977 level.
ACHIEVING CLEAN AIR AND WATER
Clean air.—The Clean Air Act Amendments of 1977 marked an
historic step towards achieving clean air and reducing air pollution
throughout the Nation. Key provisions include:
• Enforcing penalties to eliminate noncompliance;
• Achieving strict emission limitations for automobiles consistent with fuel economy standards;
• Using "best available control" technologies in all new facilities;
• Controlling coal-burning utility plants to insure that air quality standards are met;
• Preventing the deterioration of air quality in areas having
clean air;
• Protecting visibility in National Parks and Wilderness Areas;
• Continuing the "offset" program, which is designed to allow
industrial growth in polluted areas if air pollution for existing
sources is reduced enough to offset any pollution from new
industry; and
• Implementing State inspection and maintenance programs in
seriously polluted areas to insure that automobiles continue
to meet emission control requirements while in use.
For clean air programs, the 1981 funding level is expected to
increase 68% above the 1977 levels.
Clean water.—The Clean Water Act Amendments of 1977 included recommendations by the Administration as follows:
• Assigned highest priority to developing "best available technology" standards for controlling the discharge of toxic pollutants;
• Continued funding for construction of municipal wastewater
treatment facilities, with emphasis on water conservation, on
alternatives to conventional treatment plants, and on insuring proper operation of facilities once built;
• Increased attention to pollution caused by nonpoint source
runoff from agriculture, mining, forestry, and city streets,
including additional funding for State and local agencies to
implement such programs; and
• Emphasized a strong Federal wetlands protection program.
The Federal program to achieve clean water is well underway.
By the end of 1981, over 3,500 treatment related projects will have
been completed since 1977. This represents a 280% increase in the
number of completed projects prior to 1978. In addition, the Envi-
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ronmental Protection Agency (EPA) has approved 152 projects totaling $380 million utilizing innovative and alternative technologies since 1977. In 1981, overall funding for nonconstruction
grants regulatory and research efforts have increased by 53% since
1977. Moreover, the Department of Agriculture rural clean water
program, is treating the most critical nonpoint pollution sources
across the Nation.
Safe Drinking Water.—EPA, working closely with the States to
assure the safety of the Nation's drinking water supplies, has:
• Set maximum national limits for hazardous contaminants
commonly found in drinking water;
• Proposed standards for limiting life-altering and cancer-causing toxic chemicals found in drinking water;
• Identified key groundwater supply areas and initiated programs to protect them;
• Helped 51 of the 57 States and territories assume primary
responsibility for safe drinking water by the end of 1981; and
• Developed standards designed to limit organic material in
drinking water.
The 1981 budget request devoted to safe drinking water is expected to increase 94% from the 1977 level.
CONTROLLING HAZARDOUS WASTE AND TOXIC SUBSTANCES
Hazardous waste.—The United States generates approximately
51 million tons of hazardous waste annually and the volume is
anticipated to grow at about 3% per year. For most of this waste,
perhaps as much as 90%, disposal methods are unsafe.
These toxic wastes materials can create health hazards for those
living nearby and threaten groundwater resources tapped by surrounding communities. A major program to control the disposal of
these substances is underway. The 1981 funding request is estimated to increase by more than 800% and personnel by over 300%
since 1977. EPA has also improved its enforcement activities. In
1980 more stringent regulations designed to impose strict new
standards on hazardous waste disposal will be issued.
In August 1978, the President declared Love Canal in Niagara
Falls, N.Y., a national disaster area, thus authorizing the use of
Federal disaster relief aid. To deal with future disasters, like the
one at Love Canal, the Oil, Hazardous Substances and Hazardous
Waste Response, Liability and Compensation Act was transmitted
to Congress in June, 1979. This proposal would provide the first
comprehensive program to address releases of oil and hazardous
substances from spills and from inactive and abandoned sites into
navigable waters, groundwater, land and air. The legislation will
enable the Federal Government, in cooperation with State and
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local
Love
•
•
•
governments and industry, to take steps to prevent future
Canal like incidents. In particular, this legislation seeks to:
Identify abandoned hazardous dumpsites across the Nation;
Establish a uniform system of reporting spills and releases;
Provide for vigorous investigation of releases of oil, hazardous
substances or hazardous waste from spills or abandoned and
inactive sites;
• Provide an emergency Government response, to contain, clean
up and mitigate pollution without delay, if those responsible
do not respond adequately or cannot be quickly identified;
• Provide stronger authority to compel the responsible parties
to clean up dangerous sites wherever possible;
• Provide limited economic compensation for damages to property resulting from spills; and
• Provide financing for these actions through State cost-sharing
and a "superfund"—a national fund consisting of Federal appropriations and a fee on the oil and chemical industries.
Radioactive wastes.—With the 1981 budget request, about $12
million will have been added to the Environmental Protection
Agency's (EPA) radiation programs since 1977, including funds for
accelerating development of criteria for radioactive waste disposal,
the assessment of radiation levels in the environment, and a program to prepare regulations for disposing of radioactive waste.
Oil pollution of the oceans.—Responding to the President's initiative, maritime nations of the world agreed in 1978 to tighten inspection requirements and significantly raised world standards for
tanker construction and equipment. The Department of Transportation is completing new rules based on an international agreement to require improved features on both U.S. ships and foreign
tankers entering our ports. In addition, for the past
years, the
Coast Guard has boarded and examined every foreign-flag tanker
entering our ports at least once a year and has recorded any
deficiencies, and required repairs as appropriate. A provision of the
Outer Continental Shelf Lands Act created a fund for managing oil
pollution, and will become part of the superfund.
Toxic Chemicals.—The rate of cancer incidence and mortality
continues to increase even after adjusting for the age profile of the
population. Recent studies concluded that exposure to certain
chemicals can result in some forms of cancer. To reduce this risk
the Toxic Substances Control Act of 1976 included broad new authority to gather information on chemical damage to human health
and the environment and prevent toxic chemicals posing unreasonable risks from entering the marketplace.
At President Carter's direction, an interagency Toxic Substances
Strategy Committee was formed to eliminate overlaps and fill gaps
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in the collection of data on toxic chemicals, and to coordinate
Federal research and regulatory activities. In addition, the Interagency Regulatory Liaison Group has been developing coordinated
policies and approaches to legislation. In 1981, $106 million is
requested for EPA's toxic substances control program, compared to
an approximate $7 million budget for 1977. These additional resources have enabled the Federal Government to begin implementing and enforcing the toxic substances control program as follows:
• Premanufacture notification.—Since the program began on
July 1, 1979, EPA has received more than 50 notices to date;
• Risk assessment.—Over 80 existing chemicals are in various
stages of assessment, with high priority given to certain carcinogins, teratogens, and mutagens. An in-depth evaluation of
asbestos is also underway;
• Control action.—Three toxic substances are currently being
regulated to some degree—polychlorinated biphenyls (PCBs),
aerosol use of chlorofluorocarbons, and asbestos contained in
school buildings material; and
• Testing standards.—EPA has proposed the first standards on
oncogenicity and other chronic effects, as well as a standard
for good laboratory practices concerning health effects testing.
Occupational Health.—The Occupational Safety and Health Administration (OSHA) has reformed its regulations, focusing on serious workplace hazards. Since 1977, OSHA has: (1) completed seven
environmental health standards (compared to a total of four in its
first 6 years), (2) issued two emergency temporary standards, (3)
proposed a generic standard to identify, classify, and regulate
workplace carcinogens, (4) removed over 90% of the nonessential
standards, and (5) reorganized inspections to devote 95% of resources to the most serious workplace hazards. In addition, the
1977 Federal Mine Safety and Health Act established the Mine
Safety and Health Administration in the Department of Labor to
promulgate and enforce health and safety standards in all mines.
CONSERVING AND MANAGING CRITICAL NATURAL RESOURCES
Conserving and protecting our natural resources is a major goal
of the Administration. In 1981, total Federal outlays for these
purposes will be 43% higher than the 1977 level. The additional
funding enabled the National Park System, the National Trails
System, the National Wilderness Preservation System, the National Wild and Scenic Rivers System, and the National Wildlife and
Refuge System to expand significantly. In addition, 115 million
acres of land have been protected from development in Alaska, our
last remaining frontier.
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Besides enlarging and improving Federal lands, programs were
initiated to restore land previously damaged by underground and
surface coal mining; regulations and procedures have been
strengthened for the use of the Outer Continental Shelf areas and
for maintaining coastal zone areas, the President announced a new
comprehensive water policy, with water conservation as its cornerstone, directed agencies to assess the adequacy of farm lands and
timber resources, and increased funding for enforcing the laws
protecting plant and animal life.
MANAGING FEDERAL LANDS
The Federal Government manages 762 million acres of land and
the U.S. Outer Continental Shelf lands. These lands are of immense economic, ecological, and aesthetic importance, containing
at least:
• 80% of the Nation's known oil and gas reserves;
• 50% of the Nation's coal reserves;
• 80% of the Nation's oil shale;
• a large percentage of the Nation's non-energy mineral
deposits;
• 1.25 trillion board feet of timber;
• 19 million acres of wilderness;
• grazing areas for about 4% of the Nation's beef cattle and
28% of the Nation's sheep;
• habitat for one out of every five big game animals in the U.S.
and habitat for most endangered species; and
• most Federal lands are available for recreation.
This Administration has moved vigorously to improve the management and protection of public lands. Funding requested in 1981
for these activities is estimated to increase 20% over the 1977 level.
This Administration has led successful efforts in protecting 115
million acres in Alaska from development, adding 42 million acres
for parks, adding 12,000 miles of trails, withdrawing 4 million acres
for wilderness, expanding wildlife refuges by 11.8 million acres,
increasing productivity of public rangelands, and establishing a
new coal leasing and development program.
Alaskan lands.—Alaska encompasses 375 million acres containing America's highest mountains and some of our largest lakes,
breeding grounds for millions of waterfowl from six different continents, free roaming caribou, and grizzly bear, and the last unpolluted river basins in the United States. Enactment of strong Alaskan lands legislation protecting these natural resources remains
the Administration's highest environmental priority. The Administration's goals are to: (1) protect selected areas by watershed or
ecosystems; (2) provide sufficient acreage for wildlife survival
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needs; (3) respect and support traditional native subsistence life
styles; and (4) permit economic development wherever possible.
Legislation was submitted in 1977 to protect approximately 100
million acres as National Parks and Reserves, National Wildlife
Refuges, Wild and Scenic Rivers, and Wilderness areas. Under the
Administration proposal:
• 95% of the area in Alaska classed as proven, favorable or
high for oil and gas potential would remain open;
• 96 million acres of Alaska's 148 million acres of potential
metalic mineral lands would remain open for exploration; and
• more than 90% of Alaskan lands would remain open for sport
hunting.
In December 1978, because of congressional inaction, approximately 115 million acres of Alaskan lands were administratively
protected from development or other adverse use. This included
designation of 17 National Monuments, providing permanent protection for 56 million acres. The remaining lands were temporarily
withdrawn from mineral entry and selection by the State under
the authority of the Federal Land Policy and Management Act.
Both of these actions were taken pending legislation to assure that
the national treasures of our last frontier are preserved while
economic growth in Alaska and energy development proceed in
appropriate areas.
Public land management—The public lands are being called
upon today to meet our growing energy, food and fiber, timber,
water, recreational and other demands. The Administration made
a firm commitment to prudent and efficient management of the
public lands.
Foremost, the Administration established a broad new planning
process for all resources on the Bureau of Land Management lands
based on four principles: (1) be a good steward of the land; (2) be a
good neighbor, showing special concern for the people and institutions of the Western States; (3) make cost-effective investments in
protecting and enhancing these lands; and (4) make—not avoid—
tough decisions on resource allocations. This planning process
stresses cooperation and consistency with State and local government plans. The Secretary of Interior also established a new process for setting long range goals for the balanced protection and use
of the public lands. In addition:
• With the help of the western Governors, a new coal leasing
and development program was established to provide for
steady, environmentally sound, and economically profitable
coal development to help meet the Nation's energy needs in
the next several decades;
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• Working with industry and State and local governments, Interior is streamlining procedures for reviewing and approving
proposals for major new energy facility projects, and has created a new Office of Special Projects in the Bureau of Land
Management to resolve some of the most difficult siting problems within existing laws and procedures;
• The Administration pushed for passage of the Public Rangelands Improvement Act to provide an unprecedented commitment to increasing the productivity of the 170 million acres of
public rangelands; Moreover, the Administration has forged
new ties of cooperation with the livestock industry, the States,
and the other interests with a stake in better rangelands
management;
• The Administration has increased funding for the management of public land resources over 20% since 1977; and
• The President issued an Executive order providing for greater
control over use of off-road vehicles on the public lands to
prevent damage to fragile soils, wildlife, and unique archaeological sites.
Parks and recreation.—Most of the 762 million acres of land the
Federal Government manages is open for recreation purposes. The
National Park System, the National Wild and Scenic Rivers
System and the National Trail System are specifically oriented to
accommodate recreation. The National Park System consists of 323
park areas encompassing 72 million acres and the National Trail
System contains 382 trails covering over 20,000 miles. To meet the
growing demand for recreation, the Federal budget proposes $1.5
billion for recreation activities in 1981 an increase of 26% over the
1977 level. As a result 42 million acres of park lands and 12,000
miles of trails will have been added. There has been new emphasis
on developing parks in or near urban areas.
The National Parks and Recreation Act of 1978 increased the
size of the National Park System by adding 15 new parks totaling
1.3 million acres and by increasing existing park acreage by 59,000
acres. The act also authorized $450 million for new land acquisition
and increased by $275 million the authorized level for developing
and improving park facilities in 34 areas.
To meet a significant risk of damage to lands and trees in the
Redwood National Park, legislation was enacted in 1978 which
expanded the park by 48,000 acres.
The National Parks and Recreation Act of 1978 also expanded
the National Trail System which is designed to provide outdoor
recreation opportunities in or near urban areas, within scenic
areas, and along historic routes of the Nation. The act established
the Continental Divide Scenic Trail, spanning a distance of 3,100
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THE BUDGET FOR FISCAL YEAR 1981
miles along the Rocky Mountains from the Canadian to the Mexican borders (increasing the Scenic Trail System by 67%), and designated for further study the establishment of the Overmountain
Victory Trail Route in Tennessee, and North and South Carolina.
The 1978 act also established National Historic Trails. These
trails follow as closely as possible the original routes of travel of
national historic significance. Four such trails were designated,
adding 9,000 miles.
The National Trails System also includes National Recreation
Trails that provide for a variety of outdoor uses in or around urban
areas. At present there are 375 National Recreation Trails covering
a total of nearly 4,000 miles. In January 1980, the Forest Service
will establish 145 new National Recreation Trails and by December
1980, 75 more trails will be established by other Federal agencies.
Since January 1977, the number of National Recreation Trails has
almost quadrupled from 102 to 375.
In 1979, the Administration proposed a 5-year program of grants
for urban parks and recreation that would provide $726 million to
assist municipalities in rehabilitating urban park facilities. The
funding is estimated to provide 70% of the cost of preserving park
facilities in urban areas. The 1981 budget allocates $125 million for
this purpose.
Strong steps have been taken to preserve our cultural resources.
In 1978 the Heritage Conservation and Recreation Service in the
Department of the Interior was established to: (1) expand and
maintain the National Register of Historic Places, (2) set up and
maintain a new National Register of Natural Areas which have
important ecological and geological value, and (3) develop a standard method of classifying natural heritage resources to help States
make systematic resource inventories.
National Forest System.—The Federal Government owns and
manages the National Forest System encompassing 187 million
acres of land which contain 1.25 trillion board feet of timber. The
forests are managed to insure a perpetual supply of timber and to
further such other values as wilderness, minerals, recreation and
wildlife. The 1981 budget request for the National Forests is more
than 30% higher than the 1977 appropriation level. The enhanced
level of funding has substantially improved all aspects of forest
management. Moreover, the research and cooperative forest activities budget in 1981 is estimated to be almost double the 1977 level.
The Administration also conducted a comprehensive assessment of
forest resources and will shortly announce multiyear program
guidelines for forest management under the Forest and Rangeland
Renewable Resources Planning Act.
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Wilderness preservation and species protection.—The National
Wilderness Preservation System was created to insure that key
areas of our country remain unharmed by human activity as a
legacy for future generations. Since 1977 the System has been
expanded by 25% and now encompasses about 20 million acres of
land from being opened to other uses and thereby losing its wilderness stature forever. Other initiatives are in process to determine
whether additional lands should be protected. Besides increasing
wilderness, the Administration upgraded enforcement efforts to
protect certain plant and wildlife species.
Roadless area review evaluation II.—After the Department of
Agriculture completed a comprehensive review of 62 million acres
of national forest roadless areas, 15.4 million acres of National
Forest land was recommended and approved by Congress for addition to the National Wilderness System and 10.6 million acres to be
further studied for wilderness potential, while the remaining 36.0
million acres were open for multiple use management.
Bureau of Land Management review.—A similar review by BLM
is being undertaken of 174 million acres it manages. After preliminary screening, 113 million acres were removed from further study
and the remaining 61 million acres will be studied more intensively. Recommendations will be submitted to the President no
later than 1991, though many will be forwarded before then.
Protection of wild areas.—The National Wilderness Preservation
System was expanded by 1.3 million acres with the enactment of
the Endangered American Wilderness Act of 1978.
Wildlife refuges.—National Wildlife Refuges support wildlife resources which are held in trust for all Americans now and in the
future. The 1981 budget request for refuges is 63% higher than the
1977 budget, and refuges have been expanded by 12.7 million acres.
Protection of marine mammals.—Commercial whaling in the U.S.
200-mile fisheries zone was banned in March 1977. The amended
Fishery Conservation and Management Act provided sanctions to
support international efforts to protect whales. Specific efforts have
been made to reduce the killing of porpoises incidental to tuna
fishing.
Wildlife law enforcement program.—A concerted Federal effort
has been undertaken to improve and enforce the laws governing
illegal trade in wildlife and plants and reduce risks caused by
introduction of exotic plants and animals. Legislation was submitted to revise and strengthen the Lacey and Black Bass Acts.
Endangered Species Act.—The Endangered Species Act was
reauthorized in 1978 and 1979. The 1981 implementation resources
for Interior are expected to increase 165% above the 1977 funding
level.
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Wild and Scenic Rivers.—Since 1977, eight rivers have been added
to the National Wild and Scenic Rivers System adding 695 miles to
the System and eight more rivers have been proposed for addition.
CONSERVING LAND RESOURCES
The Federal Government is taking a more active role to conserve
farm land and reclaim coal mining lands. Sufficient prime farm
land must be conserved to meet our future food demands. Coal land
must be reclaimed to prevent acid run-off and soil erosion.
Farm lands.—The amount of land available for farming is declining, and some of the soils with the best potential for crop production are being converted to other purposes at a high rate. The
Administration is conducting several major studies to determine
whether lands for agricultural purposes are being converted at a
rate too high to maintain an adequate food production capacity.
For example, the Secretary of Agriculture and the Chairman of the
Council of Environmental Quality, are co-chairing the National
Agricultural Lands Study which will be presented to the President
in 1981. It will study the scope, causes and effects of farmland
conversion and evaluate the effectiveness, including economic,
social and environmental benefits and costs of measures intended
to limit farmland conversion. It will provide findings and recommendations in January 1981.
In addition, in response to the Soil and Water Resources Conservation Act (RCA) of 1977, the President will transmit in 1980 to the
Congress an appraisal of the soil, water and related resources of
the Nation together with a national soil and water conservation
program developed by the Secretary of Agriculture with public
participation. The program will provide direction for future soil
and water conservation efforts of the Department of Agriculture
and will be accompanied by a detailed statement of policy regarding those soil and water conservation activities. The information
provided by the RCA appraisal will also be used for completing a
conservation incentive study to reduce soil erosion.
Land reclamation.—Millions of acres of land have been altered
by surface mining of minerals and have not been reclaimed, causing millions of dollars of damages from acid runoff, reduced natural water storage, increased soil erosion, and unattractive land
scars.
The Surface Mining Control and Reclamation Act of 1977 established Federal standards for reducing the environmental degradation of land, air, water, fish, and wildlife resources resulting from
the strip mining of coal. The Department of the Interior has issued
regulations implementing both the statutory interim and permanent program. The Act also established an abandoned mine recla-
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mation fund to reclaim previously mined land. The 1981 budget
request for reclaiming abandoned mine sites is estimated to increase by $87 million and the budget request for enforcement programs is estimated to increase by $100 million since 1977. The 1981
budget includes a $7.2 million increase for the Office of Surface
Mining Reclamation and Enforcement, the bulk of which is earmarked for State and Federal regulatory programs.
PROTECTING COASTAL AND OCEAN RESOURCES
The Administration aims to protect our coastal zone and wetlands and develop the energy resources located on the Outer Continental Shelf in an environmentally sound manner and endorsed
1980 as the "year of the coast." The Administration will seek
reauthorization through 1988 for grant assistance to assist eligible
States and territories in implementing programs which promote
rational use and conservation of our coastal areas. The Federal
Government is moving to limit the draining or filling of wetlands
which provide flood control and breeding grounds for fisheries. The
Outer Continental Shelf Lands Act Amendments of 1978, the first
major reforms in 25 years, enabled the development of an accelerated 5-year leasing schedule and provided stronger provisions to
deal with offshore air pollution and oil spills.
Coastal zone management—In 1980, legislation will be submitted
to Congress to reauthorize Federal assistance for State coastal zone
management programs under the Coastal Zone Management Act
(CZMA). The legislative proposal will guarantee each eligible State
and territory a total of 5 years of Federal assistance at current
funding levels. After the fifth year, Federal support will gradually
be phased down as States and local efforts become established. By
the end of 1981, it is anticipated that 27 of the 35 eligible States
and territories will have implemented their programs which will
bring over 85% of the Nation's coastline under a management
program.
In addition, new amendments to CZMA will be proposed to establish a national coastal protection objectives—to be achieved
through the State programs—consisting of the following:
• Protection of wetlands, estuaries, beaches, dunes, barrier islands, coral reefs, fish and wildlife;
• Management of coastal development to minimize loss of life
and property from floods, erosion, saltwater intrusion, and
subsidence;
• Predictable siting processes for major defense, energy, recreation, and transportation facilities;
• Enhanced coordinated and simplified Government decisionmaking; and
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• Preservation, restoration and access to historic, cultural, recreational and esthetic coastal resources.
Wetlands.—The Nation is losing wetlands at the rate of some
300,000 acres per year with adverse economic and environmental
consequences extending far beyond the areas directly affected. The
Administration has taken a number of actions to stem this loss.
Federal construction.—By Executive order Federal agencies are
now prohibited from constructing facilities in wetlands unless a
finding is made that practical alternative sites do not exist. In
cases where agencies cannot find alternative sites they are required to minimize adverse impacts.
Floodplains.—The Nation suffers over $3 billion in flood damages
and the loss of human life each year. In 1978 Federal agencies were
directed to avoid providing assistance for development in floodplain
areas in order to limit losses from floods and to protect the natural
ecosystem of floodplains.
Cross Florida Barge Canal.—In July 1978 and again in April
1979, legislation was submitted to eliminate existing authority for
construction of the costly, undesirable Cross Florida Barge Canal,
and to restore the Oklawaha River to a free flowing river and
natural wetland environment.
Outer Continental Shelf lands (OCS).—With the strong support of
the Administration, the Congress enacted the Outer Continental
Shelf Lands Act Amendments in 1978. These amendments were the
first significant revisions to the procedures used for leasing offshore oil and gas since the original OCS Lands Act was adopted
over 25 years ago. Included in the reforms are measures to insure
that leasing of offshore resources proceeds on a predetermined 5
year schedule which is paced with the development of resource and
environmental information needed for safe and responsible development of the Nation's offshore resources. A number of provisions
in the new procedures are noteworthy:
• Coastal States and local communities are given a role in
reviewing and commenting on proposed decisions for the leasing of Federal OCS lands.
• Technical, environmental and economic information is made
available to State and local governments and the public in
advance of leasing and development.
• New bidding procedures provide the Secretary of the Interior
with increased flexibility to obtain fair market value for leasing of resources of the OCS lands.
• Responsibilities are placed on the Secretary of the Interior to
protect the fisheries, marine biota and coastal resources in a
balance with the development of offshore oil and gas.
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• Authority is provided to the Department of the Interior to
insure that lessees comply with provisions of their leases that
are designed to protect the environment and human health
and safety, including provisions that permit cancellation of
the lease where continued activity would probably cause serious unmitigated environmental harm.
• Liability for oilspills is established and compensation for damages is required.
• A fisherman's contingency fund is established to pay for damages to commerical fishing vessels and gear due to OCS oil
and gas activities.
• Plans for exploration and development must be submitted and
approved before a lessee can exercise its rights under a lease.
• An environmental studies program is aimed at developing
environmental and socioeconomic information to be used for
leasing and development decisions.
MANAGING WATER RESOURCES
The Federal Government has played a vital role in developing
the water resources of the United States. It is essential that Federal water programs be responsive to meeting the Nation's waterrelated needs—food, fiber, energy production, environmental protection, and assuring adequate supplies for municipal purposes.
The President established a new comprehensive water policy with
conservation as the cornerstone.
Comprehensive water resources policy.—Following a year-long
policy review, a comprehensive water resources policy was announced in June 1978. This policy is designed to achieve four basic
objectives: (1) improved management of Federal water resources
programs to insure that cost-effective, safe, and environmentally
sound water projects move forward expeditiously, (2) a new national emphasis on water conservation, (3) improved Federal/State cooperation in water policy and planning, and (4) increased attention
to environmental quality. These goals will be achieved without the
imposition of a new Federal regulatory program for water resources management. The Water Resources Council (WRC) is updating uniform principles, standards, and procedures for Federal
agencies to use in planning water projects and programs. Further,
the WRC program of matching grants to States for water resources
planning and water conservation has been expanded and the 1981
budget includes $30 million for this program, an increase of $27
million from the 1977 level.
Water resource projects.—In 1977, a review of all ongoing Federal
water resource development projects was completed using economic
efficiency, environmental quality, and safety as criteria for evaluation. The review resulted in deleting funds for nine objectionable
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projects and several others were modified or subjected to further
review. Besides reducing the number of unsound projects, formal
criteria for acceptability were developed including standards for
economic merit, environmental quality, degree of local support,
emphasis on water conservation, use of nonstructural measures,
safety, and adequacy of planning. The President recommended 42
new water project starts in 1979 and 1980 that meet his selection
criteria. New starts for 1981 await congressional approval of an
independent project review authority for the Water Resources
Council as required by Executive order.
GLOBAL ENVIRONMENTAL ACTIONS
Environmental effects abroad.—Federal agencies have been directed to consider the environmental effects of major Federal actions abroad if they involve the global commons (oceans, Antarctica) or if they involve any of the following: (1) a facility which would
be strictly regulated or prohibited in the United States because of
radioactive hazards, (2) a product or facility which would be strictly
regulated because of a toxic substance hazard, (3) an action which
would affect an "innocent bystander" nation not directly involved
in the project or (4) an action which would affect a resource of
global importance.
Acid rain.—A 10-year comprehensive program has been established to assess the threats posed by acid rain precipitation and the
opportunities to prevent it. An Acid Rain Coordinating Committee,
comprised of representatives from nine Federal agencies, is preparing a Federal Acid Rain Assessment Plan that will coordinate the
research currently underway at these agencies on this potentially
serious global problem. More than $10 million will be spent by
these agencies on the acid rain research program in 1980, its first
year. The Committee will report to the President on September 15
of each year, and will seek cooperative efforts with industry and
with other national governments.
Other global environmental problems.—In addition to the actions
already mentioned which affect the global environment, including
wildlife protection and oil pollution, strong steps have been taken
to recognize and address worldwide environmental concerns. These
actions include: (1) establishment of a comprehensive carbon dioxide and long-term climate research program; (2) a directive to the
Agency for International Development (AID) and other Federal
agencies to insure full consideration of the environmental soundness of development projects supported by the United States, that
has resulted in a new pesticide policy by AID, assistance to several
countries for renewable resources management projects, and improved environmental assessment of U.S. programs abroad; (3) a
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concerted effort by the Departments of State and Agriculture and
other agencies to give priority attention to world forest issues and
to support international efforts to halt global deforestation; and (4)
preparation of a major study—Global 2000—by the Council on
Environmental Quality and the Department of State on global
environmental problems and remedial actions.
3. SOLVING OUR NATION S ENERGY PROBLEM
As the United States built the world's most industrialized economy during its second century, our energy base shifted from
abundant renewable resources to an almost total reliance on
depletable fuels: oil, coal and natural gas. Since World War II, our
Nation has become dependent on one depletable fuel in particular:
oil. By 1968, the United States was already consuming 27% more
oil than it produced, but the foreign-produced oil was so cheap at
that time that we maintained tariffs and quotas to protect domestic
production from being undercut by a glut of low-cost oil from
abroad. The Nation was becoming addicted to cheap foreign oil, a
habit we would later find hard to break as the oil suddenly leaped
in price. Now, 12 years later:
—The United States is importing in 1980 half its oil from foreign
producers and pays an estimated $90 billion for it.
—Rising import prices have fueled domestic inflation and the
consequent trade deficit has exerted downward pressure on the
dollar's value. The value of the American dollar has declined
by over 13% in relation to the currencies of other industrialized nations since 1973.
—The U.S. economy is increasingly vulnerable to even relatively
small oil supply interruptions and associated price increases.
In January 1977, America did not have an effective, comprehensive national energy policy, and the Federal Government did not
have programs sufficient to deal with the Nation's energy problem.
Since that time, the United States has made substantial progress.
The Administration and the Congress have put in place a comprehensive program designed to: (1) reduce projected 1990 U.S. oil
imports from over 13 million barrels per day (MMB/D) to 4-5
MMB/D through conservation and increased domestic production
of oil, gas, coal and synthetic fuels; (2) shift a significant part of the
Nation's energy production to renewable resources as oil and natural gas production decline; and (3) protect America against the
social and economic dislocation that could arise from sudden
supply disruptions.
The major elements of this new energy policy include:
—The National Energy Act of 1978, that established new domestic natural gas pricing policies, new fuel use policies for utilities and larger industrial boilers, new tax incentives for conservation, solar and domestic fuels production, new public utility
policies, and new conservation grant programs.
383
384
THE BUDGET FOR FISCAL YEAR 1981
—Creation of the Department of Energy, centralizing many Federal energy programs in one place for the first time.
—The gradual phase-out of Federal price controls on domestic
crude production, to encourage increased domestic production
and energy conservation.
—A windfall profit tax to prevent unreasonable profits from
accruing to domestic producers as a result of decontrol and
rapidly increasing OPEC prices.
—A low-income energy assistance program to help offset higher
energy costs for low-income families.
—An independent Energy Security Corporation, that will provide
incentives to the private sector for the accelerated production
of synthetic fuels.
—A Solar Energy and Energy Conservation Bank to provide
additional subsidies for conservation and renewable resource
use in new residential and commercial buildings.
—An Energy Mobilization Board to expedite Federal, State, and
local regulatory decisions on critical energy facilities.
—Reductions in oil use by utilities.
—The development of the Alaskan gas pipeline and the importation of natural gas from Mexico.
—Increased Federal financial assistance for energy-efficient
public transit and more fuel-efficient automobiles.
—An expanded strategic petroleum reserve, standby gasoline rationing and State energy conservation plans to deal with potential supply disruptions.
—The commitment of substantial Federal resources to develop
new technologies to encourage conservation and to stimulate
new domestic energy resources.
—International agreements with other oil consuming nations to
set country-by-country ceilings on oil imports, to reduce total
oil imports between now and 1985, and to cooperate in the
development of alternative energy sources.
—Expanded access to federally owned energy resources through
accelerated Offshore Continental Shelf leasing, resumption of
coal leasing on Federal and Indian lands, and opening the
National Petroleum Reserve in Alaska to private oil and gas
exploration and development.
The national energy policy, through programs proposed and put
in place since 1977, will result in the following reduction in 1990 oil
imports from otherwise anticipated levels:
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MAJOR ACCOMPLISHMENTS No. 1
Table 3-1. Estimated Impact (million barrels per day) on 1990 Oil Imports
Estimated import savings from 1978 National Energy Act, including:
—Natural Gas Policy Act
—Fuel Use Act
—Energy Tax Act
—Public Utilities Regulatory Policy Act
—National Energy Conservation Policy Act
Estimated import savings from phased decontrol of domestic crude oil and accelerated
solar energy program
Estimated import savings from 1979 proposals, including:*
—Energy Security Corporation
—Residential/Commercial conservation
—Utility oil reduction
—Transportation efficiency
—Energy tax credits
Total estimated savings from programs proposed since 1977
2.5
1.5
4.5
8.5
*Some portion of these projected savings in all likelihood would have occurred independent of these initiatives as a result of higher future oil prices.
In order to reduce U.S. reliance on imported oil, direct Federal
spending, tax expenditures, and Federal credit programs have been
substantially increased since 1977.
Table 3-2. Federal Budget—Energy Budget Authority
(In millions of dollars)
1977
actual
Energy Conservation
Energy Supply
Emergency Energy Preparedness
Energy Information, Policy and Regulation
Total
1981
estimate
242
3,603
445
711
1,332
2,519
2,419
1,211
4,978
7,481
Table 3-3. Tax Expenditures—Energy Initiatives Since January 1977
(In millions of dollars)
1980
estimate
Energy Conservation
Energy Supply
Total
1981
estimate
702
376
739
619
1,078
1,358
A more detailed description of the new national energy policy
follows:
REPLACEMENT COST
PRICING
In 1977, the price of domestic natural gas and crude oil
controlled at levels well below prevailing world oil prices.
controls promoted consumption, discouraged the use of other
by artificially holding down prices for oil and gas, and held
needed technical change and exploration and development.
310-700
0 - 8 0 - 2 5
were
Price
fuels
back
386
THE BUDGET FOR FISCAL YEAR 1981
To remedy this situation, the Administration initiated the
gradual phase-out of price controls on crude oil and newly discovered natural gas thereby establishing the conditions necessary for
efficient use and production of energy.
Natural gas prices.—The Natural Gas Policy Act of 1978 provides
for the gradual release of new domestic natural gas from wellhead
price regulation. The statutory decontrol schedule spans the 19771987 decade with newly discovered gas to be deregulated on January 1, 1985. This schedule is designed to avoid economic shocks that
could result from the elimination of a 23 year old price control
system, while providing unambiguous planning information to natural gas consumers and producers: natural gas prices will rise to
reflect replacement costs, and energy conservation and production
will rise with them. Over the next 10 years, natural gas prices
should slowly approach oil prices at the point of use, reflecting its
replacement cost and its true value to consumers.
Crude oil prices.—Phased decontrol of domestic crude oil wellhead prices was announced on April 5, 1979, under the authority of
the Energy Policy and Conservation Act of 1979. That statute
provided for the termination of domestic crude oil price controls in
October 1981, and gives the President discretion on price control
levels from June 1979 forward.
A gradual schedule of decontrol is being implemented over a 28
month period to ease the transition from controls.
The windfall profit tax.—A windfall profit tax is the other,
necessary half of decontrol. Domestic oil producers realize substantially higher prices under decontrol. Without a windfall profit tax,
these prices would result in substantial unearned profit on oil,
particularly "old oil" that had been discovered in previous years.
The revenues from higher prices exceed the amount that the domestic oil industry requires for increasing domestic production.
There are alternative energy investments, including incentives for
energy conservation and the development of synthetic fuels and
renewable resources, which promise greater import savings for the
dollars invested.
The windfall profit tax provides an equitable way to share the
revenues resulting from decontrol and OPEC price increases. The
tax is a severance tax on domestic oil production. In concert with
the Federal income tax, it would effectively collect more than half
of the net increase in oil revenues due to decontrol and higher
world oil prices for the American people. The President proposed
that these revenues be used for three purposes: assistance to low
income households to help offset higher energy prices; additional
Federal assistance for mass transit and auto efficiency; and investments in synthetic fuels, conservation and other energy measures
to reduce imports.
MAJOR ACCOMPLISHMENTS No. 1
LOW-INCOME ENERGY
387
ASSISTANCE
The Administration proposed two energy-related income assistance programs to help offset the impact of rising fuel costs on lowincome families, beginning in 1980. The special energy allowances
program provides cash assistance to recipients of social security
insurance and grants to States for aid designed by the Governor to
best fit each State's circumstances. In 1980, $1.2 billion is provided,
and $2.0 billion is requested in 1981. The energy crisis assistance
program provides grants to States for assistance to low-income
families experiencing energy-related financial problems, such as
overdue home heating bills. Funding of $0.4 billion in 1980 has
been provided, and the same amount is planned for 1981. Both
these programs are financed through the windfall profit tax.
ENERGY CONSERVATION
The National Energy Plan, proposed by President Carter in April
of 1977, established energy conservation as the cornerstone of the
Administration's national energy policy. Previously, little emphasis
had been given to conservation at the Federal level.
The Administration has established a comprehensive series of
measures dealing with fuel pricing, tax incentives, information and
grant programs, regulatory measures, and research and development to increase efficiency in the use of energy in all consuming
sectors. The strategy is to discourage inefficient uses of scarce fuels
and to encourage investments which increase energy efficiency.
Substantial progress has already been made in improving the
efficiency of energy use. Over the 1963-73 decade, energy use grew
slightly faster than constant dollar gross national product (4.4%
compared with 4.0% annually). From 1973 to 1978 real GNP grew
at an average of 2.3% annually, while the growth of energy use
averaged only 0.9% annually. The Administration strategy is designed to continually reduce the amount of energy consumed in
producing goods and services in the U.S. economy.
The residential/commercial sector.—In 1978, the residential/commercial sectors of the U.S. economy consumed the equivalent of
13.5 million barrels of oil per day—38% of national energy consumption. The bulk of this energy provided space heating in homes,
offices and businesses.
Energy conservation in buildings is an attractive economic proposition. Energy savings of up to 50% of present use are available at
costs of about $10 per barrel.
Extensive measures to encourage conservation in buildings have
been implemented since 1977. They include the residential conservation tax credit, the mandatory utility conservation service, a
strengthened low income weatherization program, accelerated
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THE BUDGET FOR FISCAL YEAR 1981
Federal grants to weatherize schools and hospitals, and an accelerated program to weatherize Federal Government buildings.
Residential conservation tax credit.—The residential tax credit
proposed by the Administration and enacted in November 1978,
provides a credit for investments in insulation and other energy
conservation in residential dwellings. In calendar year 1978, over
5.7 million taxpayers reported $4.2 billion in conservation investments and tax reductions totaling $555 million. The reported 1978
investment generated estimated energy savings on the order of
60,000 barrels per day of oil, and the Administration expects even
greater investment response in future years.
Conservation loan subsidies.—In 1979, the Administration proposed that a portion of the proceeds of the windfall profit tax be
committed to providing subsidies for energy conservation in existing residential buildings through the Solar Energy and Conservation Bank. The Bank would be authorized to provide $5.8 billion in
direct subsidies for conservation loans to the owners of residential
buildings over the 1980-90 period.
The Bank accomplishes two objectives for the moderate income
homeowner or tenant. The subsidy effectively reduces the cost of
conservation and assures the availability of long-term loans. This
feature can reduce the monthly payments on conservation loans to
the point where the borrower actually saves more on energy in the
first year than he spends on loan payments. Commitments under
the Conservation Bank program are scheduled to begin in 1980 at
$100 million, and rise to $700 million annually by 1983. This funding is estimated to support conservation investments yielding
roughly 280,000 barrels per day of energy savings by 1990.
Low income weatherization program.—There is a significant population for which rising prices for energy and other necessities are
so burdensome that they are unable to afford the initial investment in energy conservation, even though it will be repaid in the
form of lower fuel bills within a few years. In recognition of this
situation and of the substantial human and national energy benefits that are available from the weatherization of low income housing, the Administration increased the funding level for the Department of Energy Weatherization Assistance Program from $27 million in 1977 to about $200 million in 1980 and 1981.
The Department of Energy (DOE) estimates that under this program more than 800 thousand homes will have been weatherized
with funding provided through 1980, at a cost of $489 million. An
additional 319 thousand homes will be weatherized with new 1981
funding. An action plan has been developed by DOE and the Department of Labor to accelerate the weatherization program under
the higher funding levels. In addition to the benefits to the owners
and tenants of weatherized homes, DOE estimates that the 1981
MAJOR ACCOMPLISHMENTS No. 1
389
program will provide training and employment for more than
12,000 individuals.
Utility residential conservation service.—Electric and gas utilities
are in a unique position to offer their customers technical and
financing assistance for energy conservation. Utilities are now required under the residential conservation service program to offer
"energy audits" of residential dwellings so that homeowners will
know what conservation measures are available, their cost, and the
estimated energy and money savings such investments can produce. Utilities are further required to offer to obtain for residential
homeowners financing which will make possible installation of the
recommended conservation measures. As a result, owners and renters (in buildings with up to 4 residential units) now are guaranteed
access to reliable, technically competent evaluations of their energy
conservation alternatives, and assistance from electric and gas utilities in acquiring financing for energy conservation investments.
The Administration has proposed extension of these services to all
residential dwellings.
Auditor training.—The residential conservation service program
requires the utilities to create a cadre of trained auditors who can
efficiently review a structure and accurately assess the energy
savings potential for the owner. In order to assist utilities and the
States in accomplishing this objective, the Administration proposed
the provision of $50 million over 1980-82 to support State programs
of auditor training.
Sophisticated audits.—In addition to the straightforward information and analysis function, research indicates that an energy
audit which includes the use of sophisticated devices to detect leaks
and the installation of very low cost conservation measures can
produce efficiency improvements of as much as 20% on the average, at a cost of less than $225 per house. The Administration has
proposed $150 million over the 1980-82 period to support a demonstration program for sophisticated audits.
Conservation investments in Federal buildings.—High priority
has been placed on funding cost-effective conservation investments
in Federal buildings. In 1981, $308 million will be provided for
making such investments in eight departments or agencies that
consume 91% of the energy used in Federal buildings. Additional
conservation spending will occur in other agencies. The Postal
Service, for example, may make additional investments from postal
revenues. Through 1981, over $1.25 billion will be provided toward
meeting the President's goal of a 20% reduction in energy use in
existing Federal buildings.
Grants for schools and hospitals.—A new program administered
by the Department of Energy provides grant assistance to public or
nonprofit schools and hospitals, since these organizations do not
390
THE BUDGET FOR FISCAL YEAR 1981
benefit from the conservation tax credits and they might not make
energy-saving investments without assistance.
The grants provide 50% of the cost of energy audits, technical
assistance, and conservation and solar retrofit projects. The first
energy audit grants were made in 1979, and DOE plans to make
the first technical assistance and retrofit grants in 1980. Funding
will increase from $144 million in 1980 to $202 million in 1981.
Appliance efficiency.—In the residential/commercial sector substantial amounts of energy are used for ranges, water heaters,
refrigerators, air conditioners, and other major appliances.
Since enactment of the National Energy Act in November 1978,
the Department of Energy has begun development of minimum
efficiency standards. Many of these minimum standards can be
achieved without increased costs, while others impose modest costs
which are quickly recovered in reduced electric and gas bills.
Energy Conservation in Transportation. —The transportation
sector is both the largest consumer of petroleum in the economy
(more than 52%) and the most promising source of savings. Gasoline consumption in the United States in 1978—largely for the
private automobile—was 7.4 million barrels per day, equal to more
than 90% of total petroleum imports. A significant reduction in
consumption has already been achieved as a result of higher gasoline prices, more efficient automobiles, and public efforts to conserve.
Auto efficiency standards.—The major Government transportation conservation policy for autos is the mandatory auto fuel efficiency standards. Under these standards, the average mileage for
new cars, on a manufacturer-specific basis, must rise from the 1980
(model year) level of 20 miles per gallon to 27.5 miles per gallon by
1985—a 38% improvement. The Department of Energy estimates
that these standards will reduce gasoline consumption by 570 thousand barrels per day in 1985.
Gas guzzler tax.—The gas guzzler tax on fuel inefficient automobiles, proposed by the Administration was enacted by the Congress in the 1978 National Energy Act and takes effect with the
1980 model year. The purpose of this tax is to reduce the production and sale of highly inefficient cars. In 1980, the tax is $200 or
more on sales of new vehicles with mileage below 15 mpg. In 1985,
the tax will be $500 or more on cars below 21 mpg. The tax rises
rapidly to $1,000 on 17 mpg cars and $2,650 on 12 mpg cars in 1985.
Mass transit and auto efficiency.—The Administration has proposed spending $16.5 billion of the proceeds from the windfall
profit tax for additional Federal assistance for public transportation improvements and auto efficiency. The combined effect of this
commitment is an estimated import reduction of at least 250,000
B/D by 1990. With the implementation of this program, the United
MAJOR ACCOMPLISHMENTS No. 1
391
States will have in place a comprehensive set of policies and programs to promote energy conservation by the largest single petroleum consumer in the nation—the domestic transportation system.
The largest portion of the funds, $13 billion, is for additional
investment in Mass Transit. This will raise the total Federal investment in mass transit over the period to 1985 by $7.8 billion.
Including State matching requirements, mass transit spending will
triple over the decade of the eighties. Bus purchases and bus
system improvements will receive substantial portions of the $13
billion. DOT has estimated that an additional 3,000 buses per year
could be purchased under this additional funding, or a total of
30,000 additional buses in the 1980-90 period. This would allow a
total ridership increase of up to 13.6 million passengers daily.
Additional funding for rail modernization and extension would
allow the purchase of as many as 200 new railcars annually, and
support significant improvements to existing rail systems to attract
increased ridership. DOT estimates that the result could be as
much as 17,000 B/D oil savings by 1990. It will also accelerate the
opening of rail systems that are already funded and finance transit
projects substituted for withdrawn interstate segments at the fastest possible pace.
An additional $2.5 billion over the 1980-90 period is requested
for Department of Transportation auto use management programs.
These programs include Federal support for the upgrading of existing vehicle inspection stations, improved enforcement of the 55
mph speed limit, and increased Federal support for ride-sharing
and pedestrian and bicycle projects.
The fuel economy standards improvement program will assess
the technological state of the art which currently limits improvements motor vehicle fuel economy. In the 1980's, $200 million will
be spent to obtain reliable information for making informed regulatory decisions on post-1985 fuel economy standards.
The fuel economy standards program will be complemented by a
cooperative basic automotive research program designed to improve the state of the art in various areas of automotive technology. In the 1980's, the Federal Government will spend $800 million
for this purpose. The automobile industry has pledged to match
Federal spending up to $50 million annually in a cooperative
program.
Federal automobile fleet efficiency.—The Federal Government is
committed to phasing out its own use of gas-guzzling automobiles
by requiring new automobiles to be more fuel efficient. Beginning
with model year 1978, the new passenger vehicle fleet purchased or
leased by Federal agencies must exceed the national average fleet
fuel economy standards required by the Energy Policy and Conservation Act. For model year 1980, for example, the national average
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THE BUDGET FOR FISCAL YEAR 1981
is 20 mpg, while Federal purchases must average at least 24 mpg.
Because about one-sixth of the Federal fleet is replaced each year,
major progress has already been made since the fuel efficient requirements began in 1978.
Energy Conservation in the Industrial Sector.—The industrial
sector of the economy has been more responsive to high energy
prices than the rest of the economy, and hence requires the least
Government assistance. From 1973 to 1978, industrial energy consumption actually declined by 6% while residential/commercial
consumption rose 14% and transportation consumption rose 9%.
However, industrial energy consumption has increasingly shifted
from coal and natural gas to oil and electricity. From 1973 to 1978
direct industrial oil consumption rose 18% to 3.8 million barrels
daily. During the same period industrial coal consumption fell from
161 million tons to 130 million tons annually. The growth in industrial electricity consumption over the same period would require
roughly 51 million tons of annual coal consumption by utilities if
the added electricity were provided wholly by coal plants. Since
electric utility plant construction lead times are in excess of 5
years, the increased industrial shift to electricity has also driven
utility petroleum demand upward, at least until new coal and
nuclear generators become available.
Federal policy is therefore directed primarily toward shifting
industrial energy demand to domestic fuels in addition to the priceinduced conservation. The programs are described below in the
discussion of energy supply policies.
State and local planning and outreach.—Under the proposed
Energy Management Partnership Act the Administration will consolidate Federal support for State energy conservation planning
and "outreach" programs for public education. Funds will also be
available for State emergency preparedness and supply planning
activities. The new program will be managed by the Department of
Energy in consultation with the Department of Housing and Urban
Development. In 1981, $152 million will be available for these
programs, including $50 million for local governments to support
conservation activities.
DOMESTIC ENERGY SUPPLY DEVELOPMENT
Conventional fuels.—Petroleum import reductions can be
achieved through the development of conventional domestic energy
resources: coal, oil, gas, and nuclear power. At present, domestic
production of these resources provides about 74% of domestic
energy consumption—the equivalent of more than 27 million barrels of oil daily. The table below displays the breakdown of domestic energy production by fuel.
393
MAJOR ACCOMPLISHMENTS No. 1
Table 3-4. Domestic Energy Production, and Consumption 1978
(Million barrels per day (Crude Oil Equivalent))
Production
Coal
Oil (incl. NGL's)
Natural Gas
Nuclear Power
Hydro, Geothermal, Wood, Waste, etc.
Total
Consumption
7.1
9.8
9.1
1.4
1.4
6.7
17.9
9.4
1.4
1.5
28.8
36.9
Replacement cost pricing.—The phase-out of price controls on
domestically produced oil and gas will positively influence domestic
energy production. The price control systems discouraged the production of domestic resources by holding prices down. For oil and
natural gas, the discouragement was direct. For renewable resources, cheap domestic oil and gas placed an indirect "cap" on
the value of renewables to producers and thereby discouraged
development.
The Natural Gas Policy Act of 1978 also eliminates the distortions caused by the existence of two separate markets for gas—the
price controlled interstate market and the uncontrolled intrastate
market. The result has been an immediate increase in gas available through the interstate system, which provided a critical part of
the Nation's response to the Iranian production shutdown of early
1979.
The Energy Security Corporation.—The Energy Security Corporation (ESC) proposed by the Administration will accelerate the process of developing a synthetic fuel industry. The Energy Security
Corporation will be an independent entity chartered by Government that will share the risks of synthetic fuels development with
the private sector. It is largely independent of normal Government
controls and is designed to accomplish a single purpose—the acceleration of synthetic fuels commercialization, particularly coal
based synthetics, oil shale, and biomass. The Corporation will use
four primary instruments to share the risks of synthetic fuel development: price guarantees, purchase agreements, loan guarantees,
and direct loans.
The ESC's target is the production of 1.75 million barrels per day
of synthetic fuels. Although the ESC Board of Directors will select
projects, a very large portion of this capacity—probably more than
1 million barrels of daily capacity—is likely to be coal-based. This
will require coal production of over 200 million tons annually. The
actual costs to the Government of this program will depend on the
future of oil prices.
Energy Mobilization Board.—Regulatory decisions on priority
energy facilities involve the balancing of a wide array of economic,
394
THE BUDGET FOR FISCAL YEAR 1981
environmental, health and safety, and social costs and benefits.
These judgments are based on statutory standards and criteria.
The process can be very time consuming, particularly in the case
of a first-of-a-kind facility which raises novel issues at the administrative and judicial levels. The Energy Mobilization Board (EMB)
proposed by the Administration is designed to expedite permitting
decisions on proposed energy facilities that have the potential for a
significant reduction of oil imports. The EMB will have authority
to impose deadlines for decisionmaking on Federal, State, and local
agencies.
Power Plant Petroleum Conservation Act and the Power Plant
and Industrial Fuel Use Act—In order to accelerate the reduction
of oil and gas usage in utility boilers the Administration proposes
that a portion of the Windfall Profits Tax be made available to
utilities in the form of financial assistance for investment in new
generating capacity.
In addition, the Power Plant and Industrial Fuel Use Act provides DOE with the authority to effectively prohibit new oil and
gas use by utilities and major industrial consumers, and to order
conversion of existing facilities to coal.
The combined result of these regulatory and financial assistance
programs is projected to be very substantial. Total coal use is
expected to reach 1.4 billion tons in that year of which roughly 0.9
billion tons will be electric utility consumption.
Resumption of coal leasing.—In June 1979, the Secretary of Interior announced the resumption of a Federal coal leasing program
after an 8-year moratorium. The 1980 and 1981 budgets provide the
resources necessary to develop a new competitive leasing program
and accelerate processing of existing leases in recognition of Presidential energy initiatives to increase coal use and reduce dependence on imported oil.
Domestic oil and gas production.—The prospects for substantially
increased oil and gas production are limited, due to the declining
domestic resource base. Given adequate incentives, current production levels can be maintained, or perhaps slightly increased, over
the coming decade. Unconventional natural gas sources may hold
significant potential for increasing supplies.
Phased decontrol of domestic crude oil by October 1981 will
provide considerable new incentives for additional oil production.
The decontrol schedule is carefully designed to place early incentives where they will do the most good—newly discovered oil, enhanced recovery projects, and heavy oil production (up to a specific
gravity of 20 degrees, API). These categories all receive the world
price by January 1980. Eighty percent of production from marginal
properties was released from lower to upper tier on June 1, 1979.
Additional oil is released to the "upper tier" price to finance en-
MAJOR ACCOMPLISHMENTS No. 1
395
hanced recovery projects. Heavy oil is decontrolled and, below a
specific gravity of 16 degrees API, is exempt from the windfall
profit tax. The projected effect of decontrol, compared with continued controls is an increase of 0.8 to 1.2 million barrels per day in
1985 domestic crude oil production, and 1.0 to 1.8 million barrels
per day in 1990.
One of the most promising areas for oil and gas exploration is
the federally owned Offshore Continental Shelf (OCS). About 25%
of new U.S. oil and gas production is expected to be from the OCS.
The Administration, working with the Congress, secured enactment of the first major reform in 25 years of the OCS management
process: the OCS Lands Act Amendments of 1978. Under the terms
of the Act, the Secretary of Interior has submitted a proposed
accelerated OCS leasing program to the Congress. During the 5
years covered by the program, 30 lease sales are scheduled, including frontier areas in Alaska such as the Navarin, St. Georges, and
Norton Basins, the Chuckchi Sea, and the Kodiak. Sales are also
included in the plan for the Atlantic Gulf of Mexico and the Pacific
OCS. In 1979 the Department of the Interior revised OCS regulations to meet the environmental, economic and other requirements
of the new statute and held six lease sales, resulting in total 1979
sales of about 1.6 million acres.
The President is recommending that Congress quickly enact legislation he is proposing to open the 23.7 million acre National
Petroleum Reserve in Alaska (NPR-A) for oil and gas leasing by
industry under provisions to ensure adequate protection of surface
values. Based on current data, the Department of the Interior has
made preliminary estimates that there are 7.6 billion barrels of oil
and 14.5 trillion cubic feet of gas in place (average values) with a
5% chance there may be as much as 20.3 billion barrels and 31.7
trillion cubic feet respectively in this Reserve. The fastest way to
determine whether there are commercial quantity oil or gas resources in the Reserve is to open it to diverse exploration strategies
by several companies under leasing. Under the draft bill, the first
lease sale in NPR-A would be held within 20 months after
enactment.
For natural gas, the higher prices allowed under the Natural Gas
Policy Act of 1978 and the integrated market which that legislation
allows are the primary driving forces behind increased production.
In addition, certain forms of high cost unconventional natural gas
will benefit from further incentives.
Recognizing the extremely large potential gas resources in the
United States that exist in unconventional formations, such as
tight sands, devonian shale, geopressurized zones and coal seams,
the Administration has proposed the following initiatives which
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THE BUDGET FOR FISCAL YEAR 1981
will significantly accelerate large-scale production of these
reserves:
—A special incentive price comparable to the deregulated oil
price for natural gas from tight sands.
—A $0.50 per thousand cubic feet tax credit for all unconventional gas production. The tax credit will phase out when gas
prices reach the equivalent of $29.50 per barrel of oil (1979
dollars).
Production resulting from these incentives is estimated at 1 to 2
trillion cubic feet, or .5 to 1 million barrels per day of oil equivalent by 1990.
Nuclear energy.—Nuclear energy was responsible for generating
13% of the Nation's electricity in 1978 and the nuclear share of the
market is expected to increase to about 20% by the end of the
century. In order for this growth to occur, it is necessary that there
be public confidence that nuclear reactors are safe and that the
problem of waste disposal can be solved. It is also necessary to
ensure to the extent possible that nuclear power does not become
an avenue to the proliferation of nuclear weapons.
The question of nuclear safety has been of increasing concern
since March 28, 1979, the date of the accident at Three Mile Island.
In response to that accident, the President established a Commission headed by Dr. John G. Kemeny, President of Dartmouth College. The Commission studied the causes of the accident and the
way in which the crisis was handled both by the Government and
the utility. The Commission recommended ways in which the Government could better perform its role in nuclear regulation in
order to ensure the future safety of nuclear plants and rebuild
confidence in nuclear power. The President has already implemented many of the recommendations of the Kemeny Commission and
other action, by the Congress, the Nuclear Regulatory Commission,
and the utility industry itself will soon follow.
In the area of nuclear waste management, the Administration
has substantially increased its efforts in nuclear waste research
and development and in the safe management of the existing inventory of military wastes. In addition, the Administration has
been significantly increasing the scope of its programs to find
suitable sites for nuclear waste disposal and to insure that wastes
can be safely stored at those sites.
The Administration has been concerned that the worldwide
spread of sensitive nuclear technologies and facilities, such as uranium enrichment and spent nuclear fuel reprocessing plants, could
make weapons-grade nuclear materials easily accessible. This could
lead to the proliferation of nuclear weapons in many more countries. Also, new nuclear fuel cycles which use weapons-grade materials as fuel could lead to commerce in those materials.
MAJOR ACCOMPLISHMENTS No. 1
397
In countries that do not have nuclear weapons, such commerce
might seem to offer an easy route to develop a nuclear weapon. To
reduce that possibility, the Administration continues to develop
proliferation resistant technologies. The United States also continues to negotiate with other nations to reach a concensus on ways to
reduce the risk of proliferation while making the benefits of
nuclear power widely available.
Renewable resources.—The Administration has established a national goal of meeting 20% of U.S. energy consumption in the year
2000 from renewable resources. This is a substantial increase over
the 1978 level of 6%, derived from hydropower and biomass. The
goal of 20% will require energy production from renewable sources
by the year 2000 of over 8 million barrels daily (oil equivalent).
Energy Tax Act of 1978.—The Administration proposed and the
Congress enacted a tax credit of 30% of the first $2,000 and 20% of
the next $8,000 for investments by residential users and a 10%
investment tax credit for business investments in solar energy
equipment to heat or cool buildings. Although the credit was available only a short time in 1978, $33 million of tax expenditures were
claimed by residential consumers on solar energy equipment in
that year.
The Solar Energy and Energy Conservation Bank.—In order to
provide deeper subsidies than the tax credit alone for solar investments, the Solar Energy and Energy Conservation Bank will provide interest subsidies on loans for solar energy equipment installed in residential buildings. Subsidies of up to 40%, including the
effect of the tax credits, will be provided for solar investments. In
total, $1.5 billion from the proceeds of the windfall profit tax will be
provided for solar assistance through the Bank, a funding level of
$35 million in 1980 and $150 million annually thereafter.
Residential passive solar tax credit.—In addition to the active
solar systems subsidized by the 1978 tax credit, buildings can be
designed to take advantage of solar heat and to store solar energy
without special pumps or fans to circulate the energy. This passive
solar technology offers significant prospects for reducing energy
consumption in buildings. The Administration has proposed a tax
credit for the builders of new homes utilizing passive technologies,
of up to $2,000 per residential building and up to $10,000 per
commercial building.
Agricultural and industrial process heat.—Solar energy can also
provide energy for industrial and agricultural processes, such as
food drying or process steam. In order to accelerate the commercialization of these technologies, a 15% investment tax credit (over
the base 10% credit in current law) would be provided for such
installations.
398
THE BUDGET FOR FISCAL YEAR 1981
Biomass fuels.—The Administration proposed in 1977 that gasoline containing 10% or more alcohol be exempt from the $0.04/
gallon Federal excise tax. The result is a subsidy of $0.04 for every
gallon of gasohol, or $0.40 for every gallon of alcohol mixed with
gasoline. The exemption was enacted in 1978 with eligibility extending to 1982. In April 1979, the Administration proposed that
the exemption be made permanent. The Energy Security Corporation also would be authorized to assist significant alcohol fuels
plant development. In addition, the Administration supports a 10year $3 billion credit assistance program for small to medium scale
alcohol and other biomass plants.
Research, development, demonstration and commercialization.—
Budget outlays for these activities have grown substantially since
1977. Total outlays in 1981 will reach $1.1 billion—more than four
times the 1977 level. This growth reflects the important role renewable resources will play in meeting the Nation's energy security
goals.
Many promising forms of renewable resource utilization are not
commercial at present, even with the support of the tax credits
mentioned above. For example, photovoltaic cells, which produce
electricity directly from sunlight, have declined in cost by more
than three orders of magnitude over the past decade, due almost
entirely to Government investment. They remain uncompetitive
except for a few specialized applications. Government spending on
photovoltaics is now focussed on reducing the costs of installed
photovoltaic systems to the point of commercial viability. In total,
Government spending on long term photovoltaics research will
reach $118 million in 1981.
EMERGENCY PREPAREDNESS
In addition to reducing our dependence on foreign sources of
petroleum in this decade, the Nation must be prepared to deal with
disruptions in supplies that could occur at any time. Twice since
1973 there have been disruptions in foreign petroleum supplies
that demonstrated the threat posed by continued import
dependence.
Strategic Petroleum Reserve.—As one of the first steps to protect
against these disruptions the Administration in its first year raised
the goal of the Strategic Petroleum Reserve from 500 million to 1
billion barrels of oil. Development of the reserve has been pursued
vigorously. Despite the interruption in Iranian supplies and the
tightness of the petroleum market, 92 million barrels have been
stored.
A second step to strengthen our preparedness was taken in April
1979, when the President announced his commitment to develop
localized storage of petroleum stocks for certain regions such as the
MAJOR ACCOMPLISHMENTS NO. 1
399
Northeast and Hawaii that are especially vulnerable to petroleum
interruptions under certain circumstances. This storage is meant to
supplement the protection provided by the centrally stored reserve.
Contingency plans.—In addition to developing strategic petroleum stocks, we must have well conceived and tested contingency
plans to insure that basic human needs are met and essential
economic and national defense activities are maintained during a
crisis. Progress has been made in this area, especially with regard
to developing plans for gasoline rationing and demand restraint
measures. In February 1979, the Administration sent to the Congress a standby gasoline rationing plan and three standby measures to restrain nonessential energy use during an emergency.
Only the emergency temperature restrictions plan for nonresidential buildings was approved by the Congress. Steps were taken
immediately to carry out this plan and it was successfully implemented before the end of the summer cooling season.
The Emergency Energy Conservation Act enacted in October
1979, eliminated the one-House veto of standby gasoline rationing
plans and provides a mechanism for the development of emergency
energy conservation plans, with the States having a key role. In
early December the Administration published for public comment
a revised standby gasoline rationing plan which, after consideration of public comments, will be transmitted to the Congress early
this year for its approval. A Federal Energy Conservation Plan
that outlines measures that could be imposed during an emergency
to restrain nonessential energy demand and provides guidance for
the development of State conservation plans will be transmitted to
the Congress in early February, as required by the new Act. In
addition, the Administration proposed gasoline conservation targets for each State in December. These targets become mandatory
under the Act upon declaration by the President of a severe petroleum supply disruption.
The States will require both technical and financial assistance in
developing emergency contingency plans as well as other energy
programs. Recognizing this need the Administration included State
emergency planning as an integral part of the proposed energy
management partnership grants.
Significant progress has also been made in other areas of energy
emergency preparedness. For example, the Department of Energy
has revised and updated its response plan for dealing with petroleum emergencies, a reporting system for tracking petroleum
demand, supply and inventories on a weekly basis has been established, petroleum allocation regulations have been updated, and a
new, more comprehensive distribution plan for the strategic petroleum reserve has been sent to the Congress and approved. These
400
THE BUDGET FOR FISCAL Y E A R 1981
and other emergency preparedness efforts will continue to receive
high priority.
FEDERAL ENERGY
ORGANIZATION
In January 1977, the Federal Government's organization for
energy activities was fragmented across a numer of agencies resulting in duplication and overlap. The Administration proposed and
the Congress enacted legislation establishing a Department of
Energy. Most energy programs of the Executive Branch were transferred to the Department and the Federal Energy Administration,
Energy Research and Development Administration and the Federal
Power Commission were abolished. The Federal Energy Regulatory
Commission was established as a part of the Department, but with
a degree of independence which will assure the integrity of regulatory decisions. Energy functions were placed in a single cabinet
level department with a Secretary reporting to the President. The
new department has made substantial progress in developing internal processes and structures to achieve the efficiencies of the
reorganization.
INTERNATIONAL ENERGY ACTIVITIES
Demand Restraint and Oil Import Commitments.—The Administration has played a strong leadership role in developing cooperative approaches to short-run oil market pressures and to the longterm transition to an oil scarce world economy.
During 1979 the United States took the initiative in developing a
coordinated consumer country response to the interruption of oil
supplies from Iran and the subsequent turbulence in the international oil market. The key element of the U.S. approach was a
coordinated effort to restrain demand for oil through agreements
reached in the International Energy Agency (IEA) and at the
Tokyo economic summit:
—In March 1979, the 20 member nations of the IEA agreed to
reduce their collective demand for oil on world markets by 2
million barrels per day by the end of 1979, about 5% of IEA oil
consumption.
—At the Tokyo summit in June 1979, the seven summit countries (France, Germany, Italy, the United Kingdom, Japan,
Canada, and the United States) made a number of oil import
and consumption commitments, including a commitment to
restrain their oil imports to agreed levels for both 1980 and
1985.
—On December 10, the IEA nations adopted country-specific oil
import ceilings for 1980 and oil import goals for 1985. They
also agreed to a quarterly system for monitoring performance
in meeting these ceilings, for recommending corrective action
MAJOR ACCOMPLISHMENTS No. 1
401
when necessary, and for adjusting targets in light of changes
in the world oil market.
U.S. leadership in pushing for tough and credible oil import
commitments has been supported by the strong U.S. energy performance since 1977. From a peak of 8.5 million barrels daily in
1977 net oil imports by the United States have decreased to 8.0
million barrels daily in 1978 and to below 8 million barrels daily in
1979.
Energy technology.—The United States has been a leader in promoting increased international cooperation in the research, development, demonstration, and commercialization of new energy
technologies:
—The United States is an active participant in IEA joint energy
R. & D. projects;
—The United States is initiating new cooperative projects, including an arrangement under which Germany and Japan may
each contribute 25% of the cost of a solvent refined coal project in the United States.
—The United States proposed and now chairs the International
Energy Technology Group (IETG) that will examine the need
and potential for increased international collaboration in
energy technology commercialization, including financing
mechanisms.
Coal.—Recognizing the important role that coal can play in
easing the world's long term energy problems, the Carter Administration has taken action to promote increased international cooperation on coal:
—The United States has actively particiated in negotiating in
the IEA an agreement that commits nations to adopt policies
to promote increased use, trade and production of coal. The
IEA nations have also agreed to establish a Coal Industry
Advisory Board in order to enlist industry's advice and cooperation on measures to ensure the environmentally sound expansion of coal use.
—At Tokyo the summit nations pledged that they would endeavor to substitute coal for oil in the industrial and electrical
sectors.
—The United States has negotiated a technical cooperation
agreement on coal with Italy. In addition, there are numerous
IEA research and development projects on coal, as well as the
cooperation with Japan and Germany noted under energy
technology.
Relations with developing countries.—The United States has
strongly supported international efforts to help developing countries make efficient use of their energy resources. The United
States has promoted an increased World Bank program for the
310-700
0 - 8 0 - 2 6
402
THE BUDGET FOR FISCAL YEAR 1981
exploration and development of hydrocarbon resources in developing countries. Secretary of State Vance has recently proposed that
the Bank chair an ad hoc group of experts to examine the energy
activities of developing country institutions and the need and possibility of expanding these activities.
Together with other nations, the United States is reviewing its
bilateral energy activities with a view toward expanding them.
Present U.S. programs include:
—AID projects on renewable energy resources;
—Comprehensive assessments of energy needs, uses and resources;
—Technical cooperation agreements with selected developing
countries.
Relations with Canada and Mexico.—The United States has developed constructive energy relationships with both Canada and
Mexico.
Although imports of crude oil from Canada have declined, trade
in natural gas, electricity and coal are increasingly important elements in U.S. energy policy. The Administration has worked
closely with the Canadians on the development of the Alaskan
natural gas pipeline, and Canada has significantly increased its
sales of natural gas to the United States. In March 1979, the two
countries agreed to the establishment of an Energy Consultative
Group to monitor the range of bilateral interest at the senior
official level.
While starting from a lower base, our energy relationship with
Mexico is developing rapidly. On September 20, 1979, the United
States and Mexico announced that the two Governments would
authorize and support commercial transactions for the export of
Mexican natural gas to the United States. This arrangement resulted from seven negotiating sessions under the auspices of the
Mexico-United States Consultative Mechanism, which was established by President Carter and President Lopez-Portillo. The announcement provides for an initial volume of natural gas deliveries
of 300 million cubic feet per day, commencing as soon as regulatory
approvals are obtained and gas is available for delivery. The contract has already been signed, and first deliveries are likely to
begin in early 1980. The initial volume of 300 million cubic feet per
day provides an energy supply which can be readily substituted for
almost 53,000 barrels per day of imported oil. In addition, the
United States is a major customer of Mexican oil. Via the Energy
Working Group of the United States/Mexico Consultative Mechanism, additional energy links such as electricity exchanges are
being explored.
The Alaska natural gas pipeline.—Alaskan natural gas has the
capability of replacing 425,000 barrels per day of oil that the
MAJOR ACCOMPLISHMENTS No. 1
403
United States would otherwise require by 1985, and larger amounts
beyond that date. In August 1977, the President approved construction of a pipeline from the Alaska North Slope to the Midwest and
the West with the condition that it be privately financed. In September 1977, the United States and Canada reached agreement on
the project. Financial participation by the producers of that natural gas would allow early achievement of a satisfactory private
financing package. The President has directed the Secretary of
Energy to urge the heads of these companies to proceed with the
financial commitments needed to build the pipeline.
Reorganization Plan No. 1 of 1979, consolidated enforcement
functions related to the proposed Alaska Natural Gas Transportation System (ANGTS) under a single Federal Inspector. This plan
creates a unique institution to manage the Federal role in a critical
energy project, insuring timely completion of the natural gas pipeline at the lowest possible cost consistent with Federal regulatory
policies.
4. I N V E S T I N G
IN T H E
NATION'S
TECHNOLOGICAL
SCIENTIFIC
AND
FUTURE
When the Administration took office, Federal support for basic
scientific research stood lower, in real terms, than a decade earlier.
At the same time, concern was rising in many quarters about the
long-term capacity of American industry to meet the technological
challenges posed by an era of heightened international competition
and rapidly escalating resource prices.
In response, the Administration has adopted a policy of increasing Federal funding for basic research in real terms every year and
of taking significant steps to encourage technological innovation
throughout the American economy. Federal support for basic research has increased 40%—9% in real terms—since 1978. The Administration's concern for technological innovation culminated in
October of 1979 in a Presidential message to the Congress announcing new measures to foster cooperation between the Government
and the private sector in enhancing the competitive vigor of America's industry.
I. FEDERAL SUPPORT OF BASIC RESEARCH
The Federal Government, which now supports about 70% of all
basic research in this country, has accepted the primary responsibility for funding such research across a broad range of scientific
disciplines.
This is a proper and necessary Government role, for the following reasons:
• Basic research—enlarging the stock of fundamental knowledge about the character of matter, the universe, the Earth,
man, and the processes of life—is critical to maintaining and
expanding our ability to secure the health, well-being, and
prosperity of the American people over the long term.
• The general enhancement of knowledge is by its nature a
"public good." Basic scientific discoveries are available for use
by firms and individuals other than those who have produced
them, so that the normal economic incentives of the marketplace cannot be relied upon to assure that adequate investments in basic research will result from the private decisions
of commercial enterprises. Furthermore, private markets
often shy away from an enterprise, such as basic research,
whose results are highly unpredictable and whose practical
applications are often uncertain as to character and timing.
4 0 5
406
THE BUDGET FOR FISCAL YEAR 1981
• Various agencies of the Federal Government support basic
research to acquire knowledge important over the long term
to achieving their agency missions—without regard to specific, short-term, practical applications. This is, for instance, the
reason that the Department of Defense (DOD) supports solid
state physics and materials research; and the Department of
Energy (DOE) supports fundamental studies of subatomic particles.
An extremely broad range of basic research activities are funded
by the Federal Government. For example:
• Investigation of the properties of metals at extremely low
temperatures that may prove useful in advanced energy generation and transmission systems;
• Exploration of the physical and chemical processes that take
place in the cells of plants and animals that provides information vital to solving problems of disease, nutrition, and food
supply;
• Investigations of the universe using Earth- and space-based
telescopes and other instruments; and exploration of the solar
system through planetary probes and satellites;
• Studies of movements of the Earth's crust and of changes in
its magnetic, gravitational and volcanic forces that may make
it possible to find ways to predict earthquakes and to locate
new minerals of economic importance;
• Development of advanced techniques for modeling and analyzing economic activities that may result in improved information on which private and governmental decisions affecting
national economic objectives are based;
• Discovery of fundamental particles that make up the nucleus
of atoms and molecules that have led to major advances in
physics and chemistry; and
• Basic medical studies of human biology that have opened
paths to prevention and treatment of many diseases, including those due to environmental hazards.
Determining the appropriate level of Federal support of basic
research presents difficult conceptual and practical problems. It is
impossible to predict what area of basic research is most likely to
contribute to future breakthroughs in fundamental knowledge. The
Administration relies heavily upon the scientific community's own
appraisal of the general "health" of U.S. science, and upon judgments by knowledgeable scientists and adminstrators about the
most promising areas of research and about areas of national need
most likely to benefit from an increased emphasis on basic
research.
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MAJOR ACCOMPLISHMENTS No. 1
Since taking office, the Administration has promoted real growth
in Federal support of basic research. This support has flowed
through a wide range of agencies, as shown in the following table.
Table 4-1. CONDUCT OF BASIC RESEARCH
(Obligations in millions of dollars)
Agency
Health and Human Services
(National Institutes of Health)
National Science Foundation
Energy
National Aeronautics and Space Administration
Defense
Agriculture
All Other
Total
Percent
change
1978-81
1978
actual
1979
actual
1980
estimate
1981
estimate
1,274
(1,181)
678
441
480
319
243
190
1,576
(1461)
730
464
513
362
257
199
1,728
(1604)
814
523
538
431
289
208
1,840
(1,704)
952
593
581
523
324
261
44.4
(44.3)
40.4
34.5
21.0
63.9
33.3
37.4
3,625
4,101
4,531
5,074
40.0
Note—The amounts shown in the table are for the performance or "conduct" of basic research. Federal obligations for basic research facility
investments and expendable research equipment such as planetary exploration spacecraft are excluded from the table to avoid distortions that would
result from the buildup and phasing down of major engineering or construction projects. Such projects are necessary to the conduct of some basic
research but do not accurately reflect the level or continuity of ongoing basic research efforts.
II. B A S I C R E S E A R C H : F U N D I N G PRIORITIES A N D THE
MISSION
AGENCIES
Federal support for basic research extends over virtually every
scientific discipline and is provided both by the mission agencies—
Department of Defense, Department of Energy, National Institutes
of Health, National Aeronautics and Space Administration
(NASA), for example—and by the National Science Foundation
(NSF). The Administration has aimed to strike a balance among
the research disciplines and between mission agency and NSF
funding mechanisms.
Attaining this balance has required a special emphasis in two
directions: in terms of the balance among disciplines, a special
emphasis on the physical sciences disciplines; and in terms of funding mechanisms, a special emphasis on mission agency funding.
Budgetary trends up to 1977 had slighted these elements of the
basic research enterprise.
Most mission agency support for basic research declined steadily
in real terms over the decade beginning in 1967. By 1977, this was
a cause of concern in the scientific community, because basic research is of great potential value in addressing the national goals
and problems assigned to the mission agencies. Furthermore, U.S.
science has always prospered best under a pluralistic (multiagency) system of Federal research support, which encourages alternative approaches to problems and stimulates competition. A
core program of long-term basic research also lends vitality and
408
THE BUDGET FOR FISCAL YEAR 1981
breadth to the predominantly applied research programs of the
mission agencies.
The need to emphasize the physical sciences had become clear by
the late 1970's. Since the early 1960's, the largest proportion of the
Federal Government's funds for basic research has been provided
by the Department of Health and Human Services (HHS, formerly
HEW). The basic research activities of HHS focus almost exclusively on health and life sciences: approximately 92% of its basic
research obligations are accounted for by the National Institutes of
Health (NIH) and nearly 6% by the Alcohol, Drug Abuse and
Mental Health Administration (ADAMHA).
This growth in funding of life sciences research represents a 19%
increase in real terms from 1967 to 1980. This growth has resulted
in an explosive growth in scientific output of great potential value
to human health. But such advances have also depended on developments in other sciences such as physics and chemistry. The
cross-fertilization of different scientific disciplines is of great importance to the health of the entire research enterprise. For this
reason the Administration has sought to achieve a better balance
in the support of basic research across all fields of science.
Federal support for the physical sciences and mathematics fell by
14% and 17%, respectively, in real terms between 1967 and 1980.
The President's 1981 budget makes a strong effort to reverse this
disturbing trend. Most of this support is being provided through
the mission agencies in the budgets of the Departments of Defense
and Energy (DOD and DOE), and the National Aeronautics and
Space Administration (NASA), as well as through the budget of the
National Science Foundation.
In addition, an important new initiative in basic research contributing to automotive technology will also strengthen Federal
support in the physical sciences. Part of this effort will be undertaken through the Department of Transportation (DOT) which
until now has not supported basic research in a major way.
Between 1978 and 1981, obligations for basic research programs
in DOD are estimated to increase by $204 million, or 64%. During
this Administration, DOD has been committed to real growth in its
basic research programs, and an increased emphasis on university
and college performers of that research. DOD's programs include
research in such fields as physics, chemistry, mathematics and
engineering, and those aspects of the environmental, biological,
medical and social sciences that are especially relevant to DOD
missions. Specific areas of emphasis include particle beam generation and propagation, analysis of the limits of semiconductor devices, and investigation of human responses under stress, and an
examination of the physics and chemistry of the upper atmosphere.
MAJOR ACCOMPLISHMENTS NO. 1
409
Although it represents a small fraction (approximately 6%) of
the agency's total work, the basic research carried out by DOE is a
major enterprise. Obligations for basic research in DOE are estimated to increase by $152 million between 1978 and 1981, or 35%.
Basic energy sciences are firmly rooted in the traditional science
disciplines, but are directed at research opportunities that are most
significant for the country in dealing with energy problems. These
programs support research primarily in the physical sciences such
as physics, chemistry, and materials science. DOE's general science
programs complement the main body of DOE's energy responsibilities. These programs include high energy and nuclear physics, and
life sciences research and nuclear medicine applications. Begun in
1978, the construction of Isabelle—the intersecting storage accelerator at Brookhaven National Laboratory—will continue in 1981.
This will be the most powerful physics research facility of its type
in the world.
The National Aeronautics and Space Administration's obligations for basic research in 1981 are expected to increase by $101
million, or 21% over 1978. The principal areas of NASA's support
are the physical sciences, such as astronomy, astrophysics, cosmology, solar physics; the environmental sciences; life sciences; and
engineering. Some of these areas are clearly associated with aeronautics and space; others have elements that can best be investigated using aeronautical or space systems (e.g., seismology and
atmospheric and environmental monitoring satellites). NASA also
supports some basic research in psychology, mathematics, computer sciences, and social sciences. Of particular note in the NASA
space science program will be the initiation of development in 1981
of a gamma ray observatory that will obtain fundamental knowledge of the nature and origin of our universe.
The Administration's budgets have also increased basic agricultural research, as a sound investment in the future productivity of
the Nation's most important industry. Current and projected
future requirements for food, fiber and energy are placing increasing demands on American agriculture. The Department of Agriculture supports basic research in such diverse fields as the biological
sciences, chemistry, physics, engineering and economics in order to
meet these challenges. This research has direct benefits in the
areas of improved health status (through more and better nutritious food), environmental quality, and the economy (through increased availability of food and wood products, and foreign trade).
Obligations for basic research in USDA are estimated to increase
by $81 million, or 33%, between 1978 and 1981.
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THE BUDGET FOR FISCAL Y E A R 1981
III. BASIC RESEARCH: T H E N A T I O N A L SCIENCE
FOUNDATION
The National Science Foundation was established in 1950 for the
primary purpose of funding basic research in all fields of science.
In so doing, the Federal Government for the first time explicitly
assumed responsibility for supporting basic research in the broad
national interest, recognizing that the private sector does not
invest adequately, and that basic research funding by the various
Federal mission agencies in support of their own program objectives would not be sufficient to serve the overall national need. In
addition to support of basic research, NSF also funds programs in
applied and policy research and in science education.
Having brought mission agency support of basic research into an
appropriate balance, the Administration proposes a sizable increase
for the NSF in 1981, with particular emphasis on research in the
physical sciences, mathematics, and engineering.
A table that shows the funding levels for NSF from 1978 to 1981
follows:
Table 4 - 2 . BUDGET AUTHORITY FOR THE NATIONAL SCIENCE FOUNDATION
(In millions of dollars)
Research activities
Research by scientific discipline (e.g., biology,
mathematics, chemistry, astronomy)
Science education (e.g., fellowships, new
teaching materials)
Applied research (e.g., earthquake engineering)
International programs, science information,
science policy analysis, special foreign currency operations
Staffing and administrative expenses
Total NSF
1978
actual
1979
actual
1980
estimate
1981
estimate
Percent
change
1978-81
651
696
764
893
37.2
73
80
78
86
17.8
61
54
59
74
21.3
28
50
27
54
32
58
34
61
21.4
22.0
863
911
991
1,148
33.0
Note—This table summarizes the NSF budget as presented to the Congress. The amounts shown here are not directly comparable with the NSF line
in table 4-1. That table summarized basic research funding for the entire Foundation, while the categories above, which parallel the Foundation's
organizational structure, include some funds for applied research and supporting activities as well as basic research.
National Science Foundation funding for scientific disciplines
will increase by 37% from $651 million in 1978 to $893 million in
1981. This increase will be used to fund projects in all fields of
science. Decisions on the level of funding for particular fields are
made by NSF based on the scientific promise of proposed research
and the amount of related research likely to be supported by other
Federal agencies. During this Administration, special emphasis has
been placed on upgrading instrumentation and equipment at colleges and universities.
Since its founding, NSF has supported programs to improve science education. The levels of funding and types of educational
MAJOR ACCOMPLISHMENTS No. 1
411
activities supported have varied greatly over the years as national
policies and priorities have changed. The 1981 budget of $86 million is designed to achieve a number of objectives, including developing new materials for and methods of teaching science, attracting more women and minority students into scientific careers, providing equipment for school laboratories, and studying the ethical
implications of pursuing controversial types of research (e.g., genetic engineering). These activities will complement the research and
improvement activities of the Department of Education.
The Foundation supports international cooperative science activities such as an expanded program of research with the People's
Republic of China. It also supports programs to improve the dissemination of scientific information; to monitor trends in science
funding and manpower, and to analyze science policies and issues.
I V . RESEARCH SUPPORTING TECHNOLOGICAL INNOVATION
The Administration has placed a high priority on funding a
broad range of research and development activities—applied research, development and demonstration—in areas of interest to
industry. In April 1978 the President initiated a "Domestic Policy
Review" of industrial innovation to develop policies for the Federal
Government that would foster the Nation's competitive capability
and entrepreneurial spirit for the decades ahead.
The President announced a number of policy decisions in October
1979. Many of the measures seek to enhance the base of usable
scientific and technological knowledge upon which industry can
build a strong, competitive position. A key goal is to promote the
development and application of advanced technologies in the private sector as a means of increasing national productivity,
strengthening the economic competitiveness of U.S. firms, and reducing inflationary pressures in the economy. The Administration
recognizes that this goal requires a continuing commitment on the
part of both industry and Government.
The 1981 budget implements the Administration's industrial innovation initiatives through the budgets of the NSF and the Department of Commerce. These initiatives include:
• the establishment of nonprofit centers—at universities or
other private sector sites—that are jointly funded with the
private sector, to develop and transfer "generic technologies."
These are technologies common to an entire industrial sector,
or several sectors, but in which individual private firms are
reluctant to invest because the benefit from advances to any
one firm (or even one industrial sector) may be small. Examples include advanced welding and joining techniques, automated assembly, corrosion prevention and control, nondestructive testing and performance monitoring, and tribology,
412
THE BUDGET FOR FISCAL YEAR 1981
or the science of lubricants. Both Commerce and NSF will
sponsor these generic technology centers.
• the expansion of NSF's program for the support of high quality research projects that are proposed jointly by industryuniversity research teams. This program of cooperative research improves the coupling between the two communities,
and harnesses the scientific and technological strength of
American universities to the needs of U.S. industries.
• the expansion of the NSF small business innovation program
to encourage development of new processes and products for
further venture capital investments by the private sector.
• the creation of a center within the Commerce Department's
National Technical Information Service (NTIS) to improve the
flow of knowledge from Federal laboratories and research and
development centers to industries outside the purview of the
mission agencies. This will help inform industries of technological opportunities of which they might otherwise be
uninformed.
Related to the Administration's industrial innovation policy are
two major new programs of Government-industry cooperation in
innovative technological research. The first is a special effort to
promote basic automotive research, in order to increase, in the
future, the energy efficiency, environmental soundness, and safety
of the Nation's major mode of transportation. This effort is designed to complement the work of private industry and is to be
conducted through the programs of the Department of Transportation, the NSF and possibly other Federal agencies. Industry will
provide 50% of the funds, and the Government's share will be
financed through the revenues from the proposed windfall profit
tax.
The second major cooperative effort among industry, universities
and Government is a program of scientific research on the continental margins and in the deep oceans, known as the ocean margin
drilling program. Industry and Government will equally share the
costs of this 10-year, $700 million program, which will make use of
the Government-owned ship Glomar Explorer, converting it into
the world's most advanced deep ocean drilling platform.
The sponsors expect high-quality, important scientific results
from this program. The potential economic benefits are also substantial: the ocean margins are an area where large, as yet undiscovered petroleum reserves may exist. The technology required for
the program will extend the state-of-the-art in deep ocean exploration and will establish U.S. leadership and underpin industrial
developments in this area. Thus the program offers exciting
scientific and economic opportunities as well as a testing ground
for industry-university-Government cooperation.
MAJOR ACCOMPLISHMENTS No. 1
413
The Administration's policy of real growth in basic research, and
its policy of improving the climate for industrial innovation will,
over time, play key roles in improving the vitality of American
industry and the quality of life of all Americans.
5. IMPROVING THE NATION S HEALTH
Our Nation's people have never been healthier. In this century,
many life-threatening communicable and infectious diseases have
virtually been eliminated, our death rate has been cut in half,
infant mortality has decreased over 60%, and life expectancy has
increased more than 50%. These gains reflect both high quality
health care services and basic improvements in our day-to-day
lives, including widespread advances in immunization, nutrition,
sanitation, and housing.
However, new challenges must be met for our health improvements to continue, and to be shared by all. Financial barriers and
geographic location still limit health care services available to
many. The cost of health services continues to burgeon, claiming
an increasing share of our Nation's resources and imposing hardships on individuals with inadequate insurance coverage. Major
threats to health today have more numerous and complex causes
than the infectious diseases that took a heavy toll in the past.
Heart disease, cancer, accidents, diseases of early infancy, and
stroke—the Nation's five leading contributors to years of life lost—
clearly have multiple and diverse roots. It is increasingly evident
that factors outside the traditional health care system, including
our personal habits and our living, working, and recreational environments, play an important role in these and other ills.
The Administration has moved to meet these challenges through
a series of initiatives shaped by three fundamental policy goals:
• Access.—All Americans should have access to basic health
care services.
• Prevention.—Greater reliance should be placed on actions to
prevent disease, injury, and premature death.
• Efficiency and effectiveness.—Health services and preventive
actions should be reasonable in cost, safe and effective.
The National Health Plan (NHP) is the cornerstone of the Administration's health strategy. It will insure universal access to
health insurance coverage, including preventive services for all
pregnant women and infants, and provide the foundation for a
more efficient and effective health care delivery system. The NHP
and other initiatives which exemplify the Administration's progress in improving the health of current and future generations are
described in this presentation. Like the NHP, many other initiatives address more than one policy goal; however, most initiatives
are discussed only under one.
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THE BUDGET FOR FISCAL YEAR 1981
I. ACCESS TO SERVICES
Federal involvement in the financing and delivery of health
services has grown rapidly since World War II, with the enactment
of Medicare, Medicaid and dozens of other programs to improve
access to care. The Administration's health strategy calls for continuing and improving existing programs that meet important
health services objectives, and undertaking new initiatives to address both immediate and long-term critical needs.
The most important of these new initiatives is the National
Health Plan (NHP), which will insure all Americans access to
necessary protection against the high costs of medical care. Expanded coverage under the NHP will be implemented in 1983. In
the interim, several other Administration initiatives, which are
consistent with the NHP, address needed improvements in highpriority areas:
—Improving the health of infants, children and mothers.
—Increasing access to medical care for underserved and poor
Americans.
—Strengthening Federal mental health, alcohol and drug abuse
programs.
MATERNAL AND CHILD HEALTH INITIATIVES
For children to have a healthy start in life requires that they be
wanted and that they and their mothers, when pregnant and nursing, receive adequate medical care and nutrition. An estimated
one-third of the babies born each year are unplanned, with poor
women and teenagers more likely than average to bear such infants. These mothers also bear a disproportionate share of lowbirth-weight babies—babies most vulnerable to developmental
problems and death. (Two-thirds of all infants who die have low
birth weights.) The children of the poor are handicapped further by
receiving fewer and less regular health services than their counterparts in wealthier families.
Insuring a healthy start in life for children is an Administration
priority, reflected in continuation of the Maternal and Child
Health Program and important new initiatives to improve access to
health services and nutrition for women, infants and children,
particularly those most at risk.
Special Supplemental Food Program for Women, Infants and
Children (WIC').—Several studies indicate that the Department of
Agriculture's (USDA) WIC program reduces infant mortality and
the incidence of low-birth-weight babies. WIC provides low-income
women and children at "nutritional risk" with prescribed food
packages, nutrition counseling and referral to health services. The
Administration has requested major funding increases for WIC
MAJOR ACCOMPLISHMENTS No. 1
417
since 1978. Budget authority of $946 million is requested in 1981.
At this level, between 1977 and 1981 funding for the program will
more than triple and average monthly participation increase from
848,000 to an estimated 2.1 million. Conservative estimates indicate
that WIC will reduce Federal outlays some $260 million in 1980 by
lowering Federal contributions for Medicaid, Supplemental Security Income, and special education programs. Additional savings
will accrue to State and local governments.
Medicaid improvements.—An additional 2 million low-income
children under age 18 will become eligible for Medicaid and early
periodic screening, diagnosis and testing services under the Administration's proposed Child Health Assurance Program (CHAP).
CHAP also will improve continuity of care for the 13.6 million
children now eligible for Medicaid: new State performance standards will help insure children regular services from a comprehensive care provider so that testing and treatment are effectively
integrated. These standards will be reinforced by a new system of
variable funding related to State performance. In addition, 100,000
low-income women will become eligible for prenatal care by requiring States to provide Medicaid coverage during pregnancy to poor
women who are now eligible for Medicaid only after their child is
born.
Funding of $403 million is requested in 1981 for this proposal,
which is pending in the Congress. CHAP will be augmented by a
1981 proposal to correct a technical deficiency in the Medicaid law
which has resulted in some newborns not being provided needed
hospital and physician services.
Family planning.—Family planning services are targeted on lowincome women and adolescents at high risk for unwanted pregnancy. Since the Administration took office, a national network of
clinics needed to provide information and services to prospective
parents has been completed, with the number of clinics supported
growing from 4,600 in 1977 to over 5,100 by 1979. Budget authority
of $177 million is requested for this program in 1981, a 55% increase over 1977 funding of $114 million. In 1979, this program
provided services to over 3.5 million people, including over 1.4
million adolescents—an increase of 500,000 over 1977. An estimated
4.1 million people will be served in 1981.
Adolescent health.—To enhance targeting of services on high-risk
teenagers, the Administration in 1980 launched the Adolescent
Health Services and Pregnancy Prevention Program. This program
is designed to reduce the incidence of unwanted teenage pregnancies and provide comprehensive services to already pregnant teenagers. Grants support coordination, integration and linkage of community family planning, health, nutrition, education, and other
services. With funding of $17.5 million in 1980 and in 1981, the
310-700
0 - 8 0 - 2 7
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THE BUDGET FOR FISCAL YEAR 1981
program is expected to be particularly effective in reducing repeat
pregnancies among the 44% of teenagers who become pregnant for
a second time within 2 years of their first pregnancy.
Childhood immunizations.—Immunization against disease has
provided Americans with one of the most dramatic means of reducing death and disability. In 1977, immunization levels for preventable childhood diseases had fallen to 70%. During 1978 and 1979
the Administration conducted a $68 million nationwide drive to
insure that the Nation's children are immunized against measles,
polio, rubella, mumps, diphtheria, pertussis and tetanus. This
highly successful 2-year effort resulted in the immunization of at
least 90% of children under 15 and virtually all school-age children. Reported cases of measles and mumps are at their lowest
levels ever. In 1981 and the future, the Administration will actively
support continued monitoring of immunization rates and public
awareness programs, so that the fullest protection against preventable infectious diseases can be realized.
EXPANSION OF SERVICES TO THE POOR AND UNDERSERVED
While medical care is available to most Americans, there are
still people without sufficient access to primary care. Concentrated
in poor urban neighborhoods and remote rural areas, these people
often are forced to use hospital outpatient or emergency services,
or go without ambulatory care altogether.
To improve access and continuity of care for underserved groups,
the Administration has moved aggressively to reduce shortages of
health care personnel and facilities in underserved areas and to
change Federal reimbursement policies to facilitate access to organized systems of primary care.
National Health Service Corps (NHSC).—The principal goal of
the NHSC is to encourage health professionals to establish private
practices in medically underserved communities. Under the program, volunteers and persons who have received scholarships in
return for service commitments are assigned to rural and urban
areas where health professionals are in short supply. A sharp
expansion of the NHSC underscores the Administration's commitment to improving access to care in underserved areas. In 1981, the
budget request of $134 million will support 4,528 NHSC assignees,
about 4,000 more than in 1977. These assignees will provide medical services to nearly 3 million people at almost 1,500 sites located
in health professions shortage areas. In addition, with the commitment of $96 million requested for NHSC scholarships in 1981,
budget authority for the scholarship program will increase $56
million over 1977. As scholarship students complete their training
and are assigned to medically underserved areas, the size of the
MAJOR ACCOMPLISHMENTS No. 1
419
NHSC is expected to more than double over the next decade,
eventually serving 8 million persons per year.
Community health centers (CHCs).—Direct Federal support of
comprehensive primary care is provided through CHCs located in
high-priority medically underserved areas. These areas, in both
urban and rural locations, are characterized by high infant mortality rates, high proportions of low-income and aged people, and low
physician-to-population ratios.
Between 1977 and 1981 the number of CHCs will nearly double,
from 455 to 886, with new centers and major expansions in existing
centers in 1981 to provide services to an additional 250,000 people.
At the requested level of $374 million, budget authority for CHCs
in 1981 will increase 63% over 1977, supporting services to over 5.2
million patients a year.
In addition, under an agreement between the Department of
Health and Human Services (HHS) and the USDA Farmers Home
Administration, loans for construction and renovation of CHCs will
be targeted to 125 medically underserved rural areas by the end of
1980. To date, 75 loans totaling $26 million have been made.
Migrant health.—The migrant health program provides primary
health care services through 112 centers to migrants and seasonal
farmworkers who generally lack regular sources of care. The President's budget requests $45 million for migrant programs in 1981,
an increase of 77% over 1977. In addition, removal of the "intent to
reside" criteria from Medicaid eligibility regulations will result in
$16 million additional Medicaid benefits for migrants beginning in
1980.
Indian health.—Indian Health Service (IHS) programs provide
direct and contract medical services to American Indians and Alaskan Natives, and fund construction and improvements of Indian
hospitals and other health-related facilities. Major expansions in
IHS programs will result in a 67% funding increase between 1977
and 1981, with total IHS budget authority topping $679 million in
1981. Indian health has improved during the life of this program,
with remarkable reductions recorded in infant mortality rates and
the incidence of tuberculosis.
Reimbursement improvements.—To improve the quality of care
provided to the poor and underserved, the Administration strongly
supported the Rural Clinics Act of 1977. This Act extended Medicare and Medicaid reimbursement to services provided by nurse
practitioners and physician assistants in over 400 rural health
clinics, often the only source of medical care in isolated areas.
In 1981, the Administration is proposing legislation to make
coverage of clinics providing comprehensive primary care services
a mandatory benefit under Medicaid. This $52 million proposal will
improve services to the poor in both urban and rural areas, in-
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THE BUDGET FOR FISCAL YEAR 1981
creasing their access to regular, organized sources of ambulatory
care.
MENTAL HEALTH AND SUBSTANCE ABUSE
Mental illness and substance abuse exact a tragic toll from our
people and country. Mental disorders cause substantial disability
and suffering, accounting for an estimated 8% ($20 billion) of the
economic costs of ill health in 1975. Alcohol abuse in the same year
is estimated to have cost the Nation $43 billion. Both mental
illness and alcohol misuse play an important role in violent
deaths—accidents, homicides, suicides—which are the major killers
of people aged 15 to 44 and of minorities in disproportionate numbers. The consequences of drug abuse are difficult to document but
probably involve thousands of deaths and disabilities a year.
The Administration is deeply committed to reducing the human
and economic costs of mental illness and substance abuse. Less
than 1 month after taking office, the President established the
Commission on Mental Health. In 1978 the Commission reported
that many Americans do not have access to quality mental health
care at reasonable cost. It recommended priority for services to
people with chronic mental illness, a broader State role in coordinating mental health and related services, improved linkages between mental health and primary health care services, and greater
flexibility in Federal funding of community services.
Based on the Commission's recommendations, the Mental Health
Systems Act has been proposed and other important actions taken
to improve the quality and availability of the Nation's mental
health services. Substance abuse demonstration initiatives have
been undertaken to develop more effective services for special high
risk groups. A new effort is underway to meet the special mental
health needs of Vietnam-era veterans, and access to alcohol and
drug treatment programs is being improved for all veterans. In
addition, the Administration has launched new research initiatives
to improve our capacity to prevent and treat mental illness, drug
abuse and alcoholism.
Community mental health services.—The Mental Health Systems
Act will restructure Federal support to States and localities to
encourage needed improvements in mental health services identified by the President's Commission. The act will improve services
to the chronically mentally ill through performance agreements
with States to develop quality community care alternatives to commitment in State mental hospitals, and to upgrade treatment services for those remaining in State institutions. It also will facilitate
expansion of services to underserved communities by allowing
them to develop targeted mental health services programs, rather
than requiring that they initially provide more expensive, compre-
MAJOR ACCOMPLISHMENTS No. 1
421
hensive services as a condition of Federal support. The Act provides grants to States and localities for innovative programs to
prevent and detect mental disorders and promote sound mental
health. It also provides financial support to link mental health
services more closely to general health care, thereby enhancing the
general health care sector's ability to identify, treat, and refer
persons who suffer from mental disorders.
To support the new services initiatives in the Act, the Administration is requesting a $50 million supplemental for 1980. The
budget requests $380 million for 1981 to continue and expand the
new efforts expected to be launched in 1980 and provide support
for established community mental health programs. At the request
level, budget authority for State and local mental health services
will increase 55% over 1977. The number of people served each
year by programs which have received Federal support will grow
from 2 million to an estimated 3.6 million.
Other mental health improvements.—The Administration has
taken a variety of actions to improve access and quality of care for
underserved groups:
• To assist the chronically mentally ill to function effectively
outside of institutions, HHS and the Department of Housing
and Urban Development have undertaken a $65 million joint
demonstration project which provides housing and support
services for an estimated 3,500 mentally disabled persons. The
program is designed to reduce institutionalization and determine the costs and benefits of services provided outside of
large mental institutions.
• To increase the availability of services to the elderly and
disabled, the Administration has proposed that Medicare copayments for mental health care be the same as for other
outpatient services—20% rather than the current 50%—and
that the $250 annual reimbursement limit be raised to $750.
This limit would be increased to $1,000 under the NHP.
• To insure adequate care for poor children, the Administration
has proposed that States be required to provide mental health
services for Medicaid-eligible children under CHAP.
• To improve the availability of services for all underserved
groups, the Administration has proposed that mental health
professionals who receive Federal training assistance be required to work in underserved areas in return for support.
• To address the special readjustment needs of Vietnam-era
veterans, the Administration has launched "Operation Outreach/' This new Veterans Administration (VA) program
offers general mental and psychological assessments and
direct treatment or referral services to those who served
during the Vietnam conflict and experience problems return-
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THE BUDGET FOR FISCAL YEAR 1981
ing to civilian life. The program began in 1980, and 86 outreach centers in areas with large concentrations of Vietnamera veterans will be active by the end of the year. Budget
authority of $16.4 million is requested to support a total of 91
sites in 1981.
Alcohol and drug abuse services.—In the 1980 budget, the Administration requested funds for an HHS initiative to develop models
for prevention and treatment of alcohol misuse. The 1981 budget
requests a $15 million 1980 supplemental and an additional $15
million in 1981 budget authority to demonstrate innovative approaches to providing alcohol abuse prevention and treatment services to women, youth, minorities, employees, and other special
population groups. New initiatives also include the development
and evaluation of strategies to prevent alcohol abuse and the fetal
alcohol syndrome, and to assist victims of alcohol-related domestic
violence. In addition, a demonstration program will be supported to
test the economic feasibility of broad-based health insurance coverage for alcoholism.
In 1977, an estimated 26% of inpatients in VA medical centers
were either alcoholics or problem drinkers. Since the Administration took office, the VA has made a concerted effort to combat the
problems of alcoholism and drug abuse among veterans. Alcohol
and drug abuse services provided in VA facilities have been significantly expanded, with $155.8 million requested to support 154
treatment centers in 1981. At this level, the number of centers will
increase by 23 and outlays by 44% over 1977 levels.
In addition, under new authority proposed by the Administration, the VA is testing the efficacy and cost of innovative community-based contract care for veterans with alcohol and drug abuse
problems. This pilot program funds services in halfway houses,
therapeutic communities, psychiatric residential treatment centers,
and other community-based alternatives to direct VA care. Outlays
are estimated at $1.7 million in 1980, and budget authority of $6.9
million is requested for 1981, the second year of the test program.
Research initiatives.—Research funding for HHS Alcohol, Drug
Abuse, and Mental Health Administration has increased substantially under this Administration, reflecting recommendations of the
President's Commission. The 1981 budget request of $238 million
provides a 55% increase over 1977 funding. Priority areas for study
include the neurosciences and opiate receptor sites in the brain;
improvement of drugs for preventing and treating mental illness
and substance abuse; mental illness in children and the elderly;
substance abuse in women, youth and the elderly; and epidemiology, health services research, and assessment of the efficacy of
psychosocial mental health and substance abuse treatments.
MAJOR ACCOMPLISHMENTS No. 1
423
The Administration also has increased funding for VA alcoholism and mental health research. The 1981 request provides funding
for a 50% increase in the number of alcoholism research projects
over 1980. Expansion in this special emphasis area will result in
1981 outlays of $7.1 million, an increase of 82% over 1977. Additional research resources in 1981 also will be devoted to the study
of schizophrenia through the establishment of a biologic research
center. Outlays for VA research on schizophrenia will total $3.2
million in 1981 compared with less than $1 million in 1977.
NATIONAL HEALTH PLAN
Over 15 million Americans have no insurance for medical costs
at all, and the health insurance of tens of millions more does not
provide protection against the cost of a catastrophic illness. The
Administration's proposed National Health Plan is designed to
meet these needs. It will provide universal access to insurance
coverage for a package of benefits, including unlimited hospitalization, physician services and laboratory tests and selected skilled
nursing home, home health, mental health, and other benefits.
Coverage will be provided through two basic mechanisms: the Employer Guarantee and HealthCare.
Under a new Federal requirement, some 155 million full-time
workers and their families will be covered by employer-provided
insurance which limits their annual out-of-pocket expenditures for
covered services to $2,500 per family; covers employees and/or
their dependents for 90 days after termination of employment,
death of the employee, divorce or separation; and provides the
right to convert employer coverage to individual policies at reasonable rates. Employers will pay at least 75% of the premium costs
for mandated coverage. Federal subsidies will be provided to lowincome working families to offset their share of premium costs and
to employers whose payroll costs would be inordinately increased
by the Guarantee.
A new Federal program, HealthCare, will provide basic benefit
coverage to current Medicare and Medicaid recipients and over 15
million additional poor and near-poor persons. Under HealthCare,
24 million nonpoor aged for the first time will have public coverage
for an unlimited number of hospital days and a limit on out-ofpocket expenditures for covered services of $1,250 per year. For the
poor, minimum acute care benefit and income eligibility standards
will reduce the wide interstate disparities currently found under
Medicaid. As a result, 10 million people with incomes below 55% of
poverty will be newly eligible for free care, including many single
individuals and childless couples now automatically excluded from
Medicaid. Extension of "spenddown" provisions to the 21 States
that do not now have them will result in subsidized care for an
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THE BUDGET FOR FISCAL YEAR 1981
additional 5 million persons whose medical expenses reduce their
income below 55% of poverty.
HealthCare fees paid on behalf of the poor will be made comparable to those for the elderly, and physicians treating HealthCare
patients will receive payment directly from the Federal Government. This restructuring of Medicare and Medicaid reimbursement
under HealthCare is expected to result in more doctors willing to
serve the poor and aged. It will also end the current provider
practice of billing the elderly extra amounts for services covered by
Medicare.
The unemployed who are not poor, or part-time workers not
automatically covered by their employers, will be able to buy basic
benefit coverage comparable to the Employer Guarantee (i.e. with a
limit of $2,500 in annual out-of-pocket expenditures for covered
services) from HealthCare or other qualified insurers. Approximately 9 million people who otherwise might not be able to obtain
coverage or who could only obtain it at exorbitant rates would be
covered by this provision.
In addition, under NHP, all women will be entitled to pre- and
post-natal care and all infants to well-baby and curative care with
no cost-sharing. This provision of the health plan will insure that
no child born in America is denied the best start in life that
medical care can provide by the high cost of health services.
Benefit and eligibility expansions under NHP will begin in 1983.
This schedule allows time for cost control and other reform initiatives, discussed below, to slow cost increases prior to expanding
coverage; for employers to methodically plan and implement actions to meet the mandated coverage requirements; and for Federal
administrative planning. While estimating actual first-year costs
for a future program is a complex task, current estimates are that
NHP will require increased Federal expenditures of about $24.1
billion and about $9.6 billion in increased private sector premiums
in 1983.
II. PREVENTIVE ACTIONS
The Administration's health strategy places unprecedented emphasis on prevention, not just to reduce the more than $400 billion
in annual direct and indirect costs of injury, illness and premature
death, but also to alleviate the inestimable costs in human suffering. As indicated in the U.S. Surgeon General's recent report,
Healthy People, preventive actions by individuals, corporations and
government at all levels represent the most likely means by which
dramatic health status gains can be continued in the future.
Improving access to proven effective preventive health services is
an important component of the Administration's strategy, exemplified in the maternal and child health initiatives. Reflecting mount-
MAJOR ACCOMPLISHMENTS No. 1
425
ing evidence that factors in our environment and our personal
behavior can have profound health impacts, the Administration's
strategy also emphasizes prevention initiatives outside the health
care delivery system.
Since January 1977, aggressive action has been taken to improve
regulatory activities designed to protect individuals from health
hazards over which they have little or no control or against which
environmental modifications provide an acceptable and cost-effective means of prevention. These initiatives are complemented by
activities designed to inform individuals about actions they can
take to protect and enhance their own health. In both cases, Federal actions are targeted on conditions with the greatest potential
payoffs in improved health status and reflect efforts to better link
research and action. Regulatory initiatives, in addition, reflect the
Administration's commitment to replace traditional, ad hoc responses to hazards with carefully considered, comprehensive, coordinated, and cost-effective strategies for dealing with them.
ENVIRONMENTAL HAZARDS
Reducing environmental threats to human health is an Administration priority, perhaps most dramatically reflected in the projected 78% increase in budget authority requested for Environmental Protection Agency (EPA) operating programs between 1977 and
1981.
Some 20 Federal agencies exercise responsibilities related to environmental hazards. Administration initiatives are focused on improving interagency coordination; strengthening, clarifying, and
streamlining Federal actions under existing law; and filling critical
gaps in environmental laws to protect human health.
Toxic substances control.—An estimated 45,000 chemicals are in
commercial production in the United States today, and approximately 600 new chemical substances enter commercial production
each year. Most of these substances are not harmful to humans or
the environment; however, some present substantial human health
hazards.
Authority to control toxic substances is set forth in 18 pieces of
major regulatory legislation and shared by 6 Federal agencies.
More than 30 additional agencies have research or data responsibilities which are relevant to chemical hazards. The Administration
has measurably strengthened the coordination of Federal toxic substance regulatory and research activities:
• The National Toxicology Program (NTP), established in HHS
with an executive committee that includes regulatory agency
representatives, is developing new testing protocols appropriate for regulatory needs, and increasing the rate of priority
chemical testing.
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THE BUDGET FOR FISCAL YEAR 1981
• The Interagency Regulatory Liaison Group (IRLG), formed by
agreement among five major Federal regulatory agencies, has
taken coordinated regulatory action, improved the sharing of
technical information, and worked toward a system of field
inspection referrals.
• The Regulatory Council, established by the President to
streamline Federal regulatory actions, has developed a Government-wide policy for defining, testing, and regulating
cancer-causing substances. This policy, announced in September 1979, will promote regulatory actions that are consistent
and complementary; are predicated on the same scientific
basis; are targeted on hazards which present the greatest
health threats; and constitute the least disruptive, most costeffective means of minimizing or eliminating the danger of
cancer-causing substances.
• The Toxic Substances Strategy Committee (TSSC), established
in response to the President's 1977 environmental message,
has broadly reviewed Federal toxic substances activities and
will soon make recommendations to fill gaps and eliminate
overlaps in data collection and use activities (including tradesecret policy); in research to support needed regulations; and
in present regulatory coverage.
In addition, several major regulatory actions on toxic substances
have been taken since January 1977. Nonessential uses of chlorofluorocarbon propellants and the pesticide DBCP have been banned
through coordinated IRLG action. In April 1978, the EPA suspended most uses of pesticides contaminated with TCDD, after
decade-long consideration of TCDD's toxicity.
Budget authority requested for EPA toxic substance abatement,
control, enforcement, and research activities in 1981 is 12 times
greater than that requested in 1977, reflecting the priority the
Administration places on toxic substance control.
Hazardous waste control.—Uncontrolled release of hazardous
substances and wastes is one of our most pressing problems. An
estimated 30,000 to 50,000 existing disposal sites contain hazardous
wastes, and 1,200 to 2,000 of these may threaten the public health.
In 1980, EPA will issue final regulations to provide comprehensive standards for the proper treatment, storage and disposal of
hazardous wastes under provisions of the Resource Conservation
and Recovery Act (RCRA), and will initiate research activities
needed to better assess present sites. The Administration also has
requested legislation to enhance EPA's ability to enforce current
law and protect the public health. This legislation would clarify
liability for cleaning up improperly disposed wastes; authorize executive action to protect the public health and environment when a
responsible and financially able party cannot or will not act; and
MAJOR ACCOMPLISHMENTS No. 1
427
establish a $1.6 billion "super-fund" to replace four special purpose
funds to cover hazardous waste and oil response costs.
Dramatic resource increases are requested for the hazardous
waste program in 1981, the first full year of operation under new
regulations. The 1981 budget request will increase budget authority
by 47% and staffing by 97% over 1980. At these levels, budget
authority for the EPA hazardous waste program will rise over
800% and total workyears will rise more than 300% over 1977
request levels.
Improved air quality.—Clean air is essential to public health and
welfare. Available data show that since 1973 our air quality has
improved, as measured by a decline in the number of days when
air quality would adversely affect human health. However, most
major urban areas do not meet air quality standards for at least
one of the five pollutants most critical to human health.
To strengthen the framework and incentives for attaining air
quality standards, the Administration strongly supported the Clean
Air Act Amendments of 1977. This legislation establishes firm but
realistic timetables for specific State actions to reduce air pollution,
and provides EPA with needed authority to penalize noncomplying
industrial polluters and States.
At the 1981 request level of $248 million, budget authority for
EPA air quality improvement programs will increase more than
68% over 1977. A broad range of research, standard setting and
enforcement activities will be funded, including those needed to
implement the 1977 amendments.
To insure that federally funded transportation systems contribute to meeting air quality standards, EPA air quality planning
requirements were integrated with similar planning processes of
the Department of Transportation's Urban Mass Transit Administration and Federal Highway Administration in 1979.
WORKPLACE HEALTH AND SAFETY
Workplace injuries and illnesses extract an unacceptable annual
toll from our working population and economy. Work-related incidents cause at least 4,500 fatalities, 5.6 million injuries, 143,000
illnesses, and 38 million lost workdays a year—with illness and
fatality figures probably understated. With the transfer of Department of the Interior mine safety responsibilities in 1977, workplace
safety and health regulatory programs have been consolidated in
the Department of Labor (DOL). Research support for these programs is provided by the Department of Health and Human Services (HHS) National Institute for Occupational Safety and Health,
whose research budget will increase from $41 million in 1977 to a
projected $63 million in 1981.
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Occupational Safety and Health Administration (OSHA).—Since
the Administration took office, major changes have been made to
make the OSHA program more effective.
• Ninety-five percent of all discretionary safety inspections now
are targeted on larger workplaces and more hazardous industries. Comparable methods of targeting OSHA health inspections are being developed.
• The quality of OSHA workplace safety and health inspections
has been substantially improved through better use of enforcement staff, 33% more training for OSHA compliance
officers, and "crossover training" so that safety inspectors can
recognize health hazards.
• Many OSHA workplace safety and health standards have
been simplified and clarified. The General Industry Standards
Revocation Project critically assessed more than 11,000 safety
and health rules, and nearly 10% have been revoked as obsolete, overly detailed or irrelevant.
OSHA-assisted consultations to help businesses and other employers comply with safety and health requirements have substantially increased since 1977. At the 1981 request level, the number
of onsite consultations will be more than double those of 1977. In
addition, all States will have consultation programs, in contrast to
15 in 1977.
Workplace carcinogens.—By 1977, scientists had identified over
1,500 workplace chemicals as suspect carcinogens. However, after 5
years of operation, the DOL Occupational Safety and Health Administration (OSHA) had issued final standards covering only 17.
When the Administration took office, OSHA determined that most
work-related cancers can be prevented and acted to improve its
procedure for developing standards to limit workplace exposure to
carcinogens. Proposed new rules for identifying, classifying and
regulating suspected carcinogens in American workplaces were
issued early in 1978. They have been revised to reflect public
comments and will be promulgated early in 1980.
The new rules will be consistent with the Administration's Government-wide carcinogen policy. They will provide a comprehensive
framework to improve the timeliness, consistency, and effectiveness
of future OSHA carcinogen exposure standards by resolving in
advance of rulemaking processes the issues of acceptable test methods and applicable decision criteria; standardizing the type of
worker exposure limits required for comparable carcinogenic substances; and establishing more rigorous worker exposure limits.
Mine Safety and Health Administration.—The mining industry
has the highest incidence of work-related fatalities and workdays
lost due to injury and illness of any major American industry. To
improve safety and health conditions in the Nation's mines, the
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Administration has vigorously implemented the Federal Mine
Safety and Health Act of 1977 which transferred Department of
the Interior mine safety enforcement responsibilities to DOL, creating the Mine Safety and Health Administration (MSHA). Pursuant
to the Act's mandates, the number of mine inspections has increased by 50% and the number of standards violations cited by
mine inspectors has more than doubled. Previous advisory safety
and health standards for metal and nonmetal mines are being
made mandatory, and new standards covering asbestos, radiation
sampling and recordkeeping have been established.
COMMERCIAL PRODUCT SAFETY
Commercial products present substantial risks to human health.
In 1978, commercial products were involved in an estimated 33
million personal injuries, indicating that the overall toll in productrelated illness and injuries is enormous.
Primary Federal commercial product safety responsibilities are
exercised by the Consumer Product Safety Commission (CPSC), the
HHS Food and Drug Administration (FDA) and the USDA Food
Safety and Quality Service (FSQS). Since January 1977, the safety
of products offered in the American marketplace has demonstrably
improved through a series of Administration initiatives.
Child hazards.—Children are especially vulnerable to injury because they may not recognize hazards and respond to them appropriately. As a result, accidents are the primary cause of death for
children aged 1 through 14.
Under this Administration, the CPSC has made safety of products intended for use by or affecting children a priority for coordinated action. New regulations have reduced lead in household
paint and painted products more than eightfold; banned hazardous
pacifiers, baby rattles and refuse bins; and expanded use of child
resistant packaging of hazardous products. Generic safety standards for points, edges and sizes of toys intended for young children
have been established and are expected to reduce injuries by 9,000
annually. Regulations to reduce child crib injuries and poisonings
prevented an estimated 68,000 injuries and 90 deaths in 1979.
Commercial product recalls.—Manufacturers, distributors and retailers are required to report suspected hazardous products to the
CPSC. Products which are determined to be hazardous may be
recalled voluntarily, or by Commission order.
New rules were issued in August 1978 to clarify the scope of
suspected hazardous product reporting requirements. As a result,
the number of hazardous products recalled between 1977 and 1979
is 125% greater than in the preceding 4-year period.
Federal drug reform.—The Administration's proposed Drug Regulation Reform Act is the first comprehensive revision of our pre-
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scription drug regulation system since 1934. Much has changed in
40 years—Americans now spend $16 billion annually on drugs,
compared to $300 million in 1938; 90% of the prescription drugs
sold today were not on the market in 1938.
The proposed act will provide authority needed to get valuable
and safe drugs to the market rapidly by eliminating repetitious
testing of identical drugs; establish a single standard for drug
regulation; permit more rapid removal of unsafe drugs from the
market; provide patients more information about drugs prescribed
to them; and require systematic reporting of dangerous side effects
of drugs already on the market.
Medical devices.—Implementing the Medical Device Amendments of 1976, which greatly strengthened FDA regulatory authority to insure the safety and effectiveness of medical devices
intended for human use, has been a major FDA priority. Regulations have been issued covering critical requirements of the amendments; more than 5,000 establishments which produce medical devices have been registered pursuant to the law; and inspections
have been planned each year for at least 1,300 of the 3,000 manufacturers of medical devices for which general controls are insufficient. To carry out these new responsibilities, FDA budget authority will increase 149% between 1977 and 1981, with $36.4 million
requested for 1981.
Radiation exposure.—More than 85% of the manmade radiation
Americans are exposed to occurs during medical and dental diagnosis and treatment. In 1978, the Administrator of EPA and the U.S.
Surgeon General jointly issued guidelines to limit unnecessary radiation exposure and assure the use of sound X-ray techniques in
Federal hospitals and clinics. The guidelines, which include standards for diagnostic use of X-rays, equipment, facilities, operator
proficiency, and good practices, are a model for State regulatory
activities and private practice.
To coordinate Federal efforts dealing with the effects of radiation
exposure, the President established the Interagency Task Force on
the Health Effects of Ionizing Radiation. The Task Force completed
reports covering radiation exposure and health effects, exposure
claims, personal privacy and public information, and Federal organizational effectiveness. Draft reports were subjected to wide public
and professional review. Based on the Task Force's final recommendations, the President launched a series of initiatives in October 1979 to improve Federal programs which protect the American
people from unnecessary radiation exposure and to enhance public
understanding of radiation and radiation protection.
Food quality.—Early in the Administration, the FSQS was established to consolidate Department of Agriculture responsibilities for
food safety, wholesomeness and quality. This new agency has in-
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creased the Department's emphasis on prevention of food-related
illnesses and consumer information.
The FSQS has taken steps to reduce drug residues in commercial
meats through greatly improved analysis and detection methods
used at the time of slaughter. Regulatory action to reduce nitrites
in baby food and bacon also has been taken. In addition, the FSQS,
in cooperation with the FDA and Federal Trade Commission, has
developed a plan to streamline and modernize Federal food labeling policy.
Since 1977, funding for USDA food safety research to support
FSQS and other departmental programs has increased 69%, with
$14 million requested for 1981.
TRAFFIC SAFETY
Motor vehicle accidents are the single largest cause of death for
people under 44 years of age. In 1979 alone, about 50,000 persons
lost their lives in motor vehicle crashes, and nearly 2 million
more—1% of the country's population—suffered serious injuries.
The Administration is aggressively pursuing programs to reduce
motor vehicle accidents and to mitigate the consequences of accidents that do occur.
The 55-mph national speed limit, introduced in January 1974, is
one of our most effective highway safety measures. To encourage
driver compliance with the limit, the Department of Transportation (DOT) has tightened State highway agency compliance standards, and established a system of bonuses and penalties for exemplary and substandard State compliance. DOT also has initiated
nationwide information and education activities to increase driver
awareness and acceptance of the national speed limit. These actions are expected to save over 4,500 lives each year and reduce
both the number and severity of auto accidents.
In July 1977, DOT issued a safety standard which requires all
cars to be equipped with passive restraints to protect front seat
passengers—either air bags or safety belts that do not require
passengers to "buckle up". This safety standard will apply to all
large cars manufactured after September 1, 1981, to all medium
sized cars starting in 1982, and to all small cars starting in 1983.
When fully integrated into the fleet, these restraints are expected
to save over 9,000 lives each year and reduce or eliminate 65,000
serious injuries.
Recalls of defective vehicles and equipment have become a major
Administration safety program initiative. Automobile recalls each
year since 1977 have increased an average of 150% over those of
the preceding 4-year period. The largest recalls involved over 1.8
million vehicles whose fuel systems may rupture on impact, and
14.5 million steel-belted radial tires which were defective. As a
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result of the recalls, the fuel systems were redesigned to meet
safety standards, and the tires were replaced.
COMMUNITY WATER FLUORIDATION
Community water fluoridation efforts have proven to be highly
cost effective. For every $1 spent for fluoridation, an estimated $36
is saved through prevented dental disease. However, 72 million
Americans live in communities with unfluoridated public water
supplies, and an additional 2.2 million children live in communities
without central water systems and use unfluoridated school-based
water systems.
In 1980, a $7 million community water fluoridation grant program was launched by HHS to promote fluoridation efforts where
they do not exist, provide technical assistance to interested communities, and buy equipment for communities that desire but cannot
afford it. At the proposed 1981 funding level of over $10 million, an
additional 5.2 million people in smaller communities and rural
schools will be reached by fluoridation efforts.
HEALTH PROMOTION
Helping individuals to protect and enhance their own health
status is a critical element in the Administration's prevention
strategy. In addition to education efforts which are integral to
many of the services and prevention programs discussed above, the
Administration has launched a series of initiatives designed to deal
with individual behaviors (smoking, diet, exercise, drinking and
adherence to treatment for high blood pressure) that are closely
associated with the leading causes of mortality and morbidity in
this country. These initiatives are guided by the U.S. Surgeon
General's recommendations in Healthy People, and include efforts
to stimulate private sector prevention programs in our Nation's
work sites, schools, clinics, and homes.
Smoking and health.—Smoking remains the largest preventable
cause of death in America, accounting for more than 320,000 premature deaths and an estimated $12 to $18 billion in costs each
year. While per capita cigarette consumption is at its lowest level
in 20 years, smoking recently has increased among women and
young people. Increased health risks have also been documented
for smokers in certain occupations, and for smoking in combination
with the use of alcohol and artificial sweeteners.
In 1979, a major antismoking initiative was undertaken by the
HHS. First-year funding for this initiative was $2.5 million, and
the requested program level for 1981 is $13 million. Examples of
completed and planned efforts include the following:
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433
• Publication and dissemination of the second U.S. Surgeon
General's report on smoking, Smoking and Health, to be followed up with statistical and educational documents.
• Initiation of $20 million in research and demonstration projects to identify effective ways to deter smoking and alcohol
abuse in children and adolescents.
• Development of a $2 million research assessment of the
health risks associated with smoking cigarettes with varying
tars, nicotines, and other additives.
• Establishment of a $1 million research initiative to assess the
effects of smoking by workers in selected occupations.
High blood pressure.—High blood pressure (i.e. hypertension) is
the most potent risk factor associated with coronary heart disease
and stroke, with elevated blood pressure nearly twice as prevalent
among black as white adults. In the past 5 years measurable advances have been made in heightening public awareness of this
disease, and treatment levels have substantially increased. Death
rates from heart attacks associated with high blood pressure and
from stroke have decreased 15 and 20%, respectively. Nevertheless,
many people still do not know they have high blood pressure, and
significant numbers who do know they have it, do not faithfully
adhere to their necessary treatment regimen.
Federal funding for State programs to educate the public about
hypertension and identify, refer for treatment and followup hypertense individuals will quadruple between 1977 and 1981. In 1981, at
the $20 million request level, health departments in 57 jurisdictions will conduct hypertension screening, referral and education
programs; an estimated 7.8 million persons will be screened; and
an estimated 624,000 new or inadequately treated cases will be
detected, referred to treatment and followed up.
Beginning in 1980, participating States will be required to assure
a more planned and coordinated approach to reducing hypertension. Key to this approach will be the establishment of specific
objectives for State accomplishment.
In addition, $11.2 million is requested in 1981 for high blood
pressure education and demonstration programs administered by
the HHS National Heart, Lung, and Blood Institute, an increase of
72% since 1977. These program activities have been redirected
since 1977 to stress the need for long-term adherence to prescribed
treatments, and to focus on the hypertension problems of elderly
persons, residents of rural areas and ethnic minorities. Professional
and public education initiatives for 1981 also will highlight dietary
management as a method of treating hypertension.
Nutrition education.—Evidence continues to mount that certain
diet patterns can greatly increase human health risks. For example, obesity is associated with certain heart and circulatory
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problems, and consumption of sugar is clearly associated with tooth
decay and its complications.
Federal nutrition education programs are targeted primarily on
low-income families, school children and the elderly. They emphasize nutrition education in a classroom or individual setting, and
are administered by HHS, USDA, and the Community Services
Administration. Since 1977, funding for the five largest nutrition
education programs (including WIC) has increased more than 50%;
funding for USDA human nutrition research initiatives has nearly
tripled and includes new initiatives targeted on nutrition problems
of the young and the elderly; and organizational improvements
have been made to assure better coordination of HHS and USDA
nutrition activities.
Health information.—In 1979, with $2.5 million in funding, the
HHS institutionalized and funded major new health information
initiatives. Initial accomplishments include:
• Creation of the Office of Disease Prevention and Health Promotion to coordinate all Public Health Service (PHS) disease
and injury prevention, health information and health promotion activities, and to direct PHS physical fitness and sports
medicine activities.
• Publication of the U.S. Surgeon General's report, Healthy
People, which urges a new national commitment to preventing illness, injury and premature death; analyzes major
health risks by age group; and outlines health objectives for
the Nation to achieve by 1990. HHS is currently mobilizing
public and private sector efforts to accomplish the national
prevention and health promotion objectives by 1990.
• Establishment of the National Health Information Clearinghouse to provide the general public and health professionals
with accurate and up-to-date information on good health practices.
In 1981, $6.2 million is requested to enhance these efforts.
Also since 1977, HHS Center for Disease Control grants to States
for development of community health education, demonstration,
and evaluation programs have been greatly expanded. Funding for
this program will quadruple between 1977 and 1981. In 1981, $16.5
million is requested, with educational priorities to include smoking,
nutrition and alcohol abuse.
I I I . EFFICIENCY AND EFFECTIVENESS
The Administration is committed to improving the health of the
Nation's people at a cost the country can afford. Efforts to insure
the efficiency and effectiveness of Federal action are reflected
throughout the initiatives discussed above—in the improved coordination of Federal programs; new policies to insure public participa-
MAJOR ACCOMPLISHMENTS No. 1
435
tion and consideration of social and economic costs in development
of Federal regulations; and targeting of efforts on areas with the
highest potential payoff in improved health for the Nation's people.
With national expenditures for health services now exceeding
$218 billion, the Administration has placed particular emphasis on
reform of the Nation's health care delivery system. A wide range of
initiatives have been undertaken to reduce the growth of health
care costs which produce no commensurate gains in quality. The
most visible of these efforts is the Administration's proposal to
stem the spiraling costs of hospital care. Other important initiatives promote a more efficient supply of health resources and more
effective organization and use of these resources.
Because the Federal Government is the single largest purchaser
of health services in the country, improvements in the management and organization of Federal financing and grant programs
are an important component of delivery system reform efforts. In
addition, the Administration has strengthened the Federal Government's biomedical research program, a key to improving both
health care delivery and preventive actions.
HOSPITAL COST CONTAINMENT
Hospital costs are the largest single component of the Nation's
health bill, with 1979 hospital expenditures of over $80 billion
accounting for 40% of all health care costs. Between 1969 and 1978,
hospital expenditures increased more than twice as much as the
consumer price index (198% versus 80%), an indication of the
inflationary pressure hospital services create in the health care
system. Even after the introduction of the industry's voluntary
effort to slow the growth of hospital spending, expenditures continue to increase more rapidly than the market basket of goods and
services purchased by hospitals.
The Administration has proposed a nationwide hospital cost containment (HCC) program, not only because escalating costs add to
general inflation but because they cause Federal contributions for
Medicare and Medicaid to soar, diminishing the ability of the Federal Government to respond to other important health needs.
The decision to propose the HCC program is supported by evidence indicating that hospitals can achieve substantial reductions
in the growth of expenditures without compromising the quality of
care. In 1978, hospital expenditures in eight States with mandatory
cost containment programs increased an average of 9.8% with no
measured change in the quality of hospital services, compared to
an increase of 14% in all other States.
The proposed HCC program sets an annual maximum rate of
increase in hospital revenues, with allowances provided for actual
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THE BUDGET FOR FISCAL YEAR 1981
increases in the price of goods and services used by hospitals,
changes in the population and improvements in services.
In the event that the hospital industry as a whole does not meet
the national goal, hospitals in noncomplying States would be subject to controls. Limits on the increase in total inpatient revenues
per admission would apply to each hospital which exceeded the
expenditure goal (with exceptions for new, rural, and certain other
hospitals). Hospitals in States that have assumed control of hospital costs would be exempted from the national goal, reflecting the
Administration's belief that State governments are an important
partner in the effort to reduce unnecessary health care cost
increases.
If the HCC goal for 1981 is met by the hospital industry, Federal
savings for 1981 would be $780 million and could be as much as
$4.8 billion in the 1981-83 period. HCC would result in total savings of $11.9 billion between 1981 and 1983, with substantial reductions in State and local health care spending, individual out-ofpocket payments for hospital services, and health insurance
premiums.
REDIRECTING HEALTH CARE RESOURCES
Excess capacity in the health care system encourages overutilization of medical services and, therefore, is a major cause of unnecessarily high health care costs. The Administration has launched
several initiatives to reduce the number of unneeded hospital beds
in the country, and also has redirected Federal health training
programs to avoid creating a surplus in the future supply of health
care professionals. More appropriate use of health resources is
being promoted through initiatives to apply the results of new
health care technology assessments in developing Federal reimbursement policies, and to encourage expansion of more efficient
forms of health care delivery.
Hospital capacity.—Many of the Nation's communities have too
many hospital beds. The Administration has set a national standard of four hospital beds per 1,000 population to be used by local
health planning agencies in determining whether to approve additional hospital development in their areas. To support the implementation of this standard, a national limit of $3 billion for major
increases in hospital capital stock in 1980 has been proposed. The
capital expenditure limit would be allocated to States by the Secretary of HHS and would be adjusted in future years for increases in
the costs of construction. To provide a further incentive to reduce
the supply of excess beds, the Administration has proposed that
Federal reimbursements for Medicare, Medicaid, and Maternal and
Child Health Services be drastically reduced in facilities built without approval.
MAJOR ACCOMPLISHMENTS No. 1
437
A new 1981 effort will provide $10 million to test various approaches to reducing excess capacity. Financial and technical assistance will be given to hospitals wishing to eliminate excess acute
care beds or convert them to nursing care beds.
Federal support for training health professionals.—Between 1960
and 1975, partly as the result of Federal support, the supply of
health professionals in the United States rose by 50%. During the
last 5 years alone, the ratio of physicians to population, a popular
measure of the adequacy of supply, has risen 13% from 177 to 200
per 100,000. This ratio exceeds that in most other industrialized
countries. If current projections hold, the number of health profession graduates will increase another 30% in the next decade.
In spite of an adequate—and perhaps excessive—aggregate
future supply of health professionals, there still may be shortages
of health care personnel working in primary care and in isolated or
undesirable geographic locations around the country. Therefore,
the Administration has redirected Federal support away from untargeted training programs to programs specifically designed to
reduce specialty shortages and geographic maldistribution. As a
result, total HHS Health Resources Administration support for
health professions training will decrease from $557 million in 1977
to a projected $339 million in 1981. Funding for primary care
training programs will increase from $86 million in 1977 to an
estimated $130 million in 1981. These programs include residency
programs in primary care and family practice, training for physicians assistants and nurse practitioners, and area health education
centers. In addition, as noted previously, the Administration is
requesting $230 million in 1981 funding for NHSC services and
scholarships. At this level, funding for the NHSC, the Federal
Government's primary tool for alleviating geographic maldistribution, will increase 260% over 1977.
Technology assessment.—Assessments of the costs and benefits of
medical technologies are vital to controlling the costs of health
care. The recent proliferation of expensive CAT scanners, open
heart surgery units, and routine laboratory tests illustrates the
need for careful implementation of new technologies.
Created in November 1978, the National Center for Health Care
Technology (NCHCT) is responsible for conducting and coordinating a national program of health care technology assessment. Results of assessment, including guidelines for the appropriate use of
new and existing technologies, will be reflected in Medicare and
Medicaid reimbursement policies. The Administration is requesting
$7.9 million for NCHCT in 1981, more than double the first full
year funding of $3.5 million.
Organization of services.—By more carefully managing the
health care received by individuals, Health Maintenance Organiza-
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THE BUDGET FOR FISCAL YEAR 1981
tions (HMOs) provide comprehensive services while reducing hospitalization compared with fee-for-service care. Recent studies also
suggest HMOs can be a competitive force, stimulating general reductions in hospitalization and increases in benefit coverage when
concentrated in a local area. The Administration, therefore, has
vigorously supported the development of HMOs.
• The HMO program supports feasibility studies, planning, initial operating costs and expansion programs of HMOs. Funding for this program will grow from $23 million in 1977 to
over $69 million in 1981. The number of federally qualified
HMOs will increase 223% during the same period, from 43 in
1977 to 139 in 1981.
• Proposed legislation would provide an incentive for Medicare
beneficiaries to enroll in HMOs. The Federal contribution to
HMOs for enrolling Medicare recipients would be changed to
95% of the average Medicare expenditure, in return for
HMOs providing broader benefits to Medicare recipients who
choose this coverage.
IMPROVING FEDERAL PROGRAMS
The Administration is committed to improving the management
of Federal programs. In both the direct financing programs, Medicare and Medicaid, and the discretionary grant programs, a variety
of initiatives to improve the operating effectiveness have been
undertaken.
Medicare and Medicaid improvements.—Federal expenditures for
Medicare and Medicaid will total $53 billion in 1981 and now
account for nearly 9% of the Federal budget. Given the size of
these programs, organizational and management improvements are
an important element in the Administration's goal of improving
the efficiency of the Nation's health care delivery system. The
Administration created the Health Care Financing Administration
(HCFA) to eliminate duplication in Medicare and Medicaid operations and facilitate the development of consistent Federal policy
in financing health care. This reorganization, by anticipating the
consolidation of Medicare and Medicaid under the NHP, will lay
the administrative groundwork for the implementation of HealthCare.
In 1979, regulations tightening reimbursement standards for routine hospital costs and malpractice insurance were promulgated,
resulting in estimated 1981 Medicaid and Medicare savings of over
$600 million. Efforts to reduce fraud and abuse and other initiatives to generally refine Federal reimbursement standards are included in the 1981 budget, with estimated additional savings of
$802 million.
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439
Another effort to improve the effectiveness of Medicare and Medicaid can be seen in Administration efforts to improve the Professional Standards Review Organization (PSRO) program. A 1979
study of PSROs operating throughout the country found wide variations in savings attributable to their review of hospital stays of
Medicare beneficiaries, but suggested that substantial savings could
result from broader application of the procedures of effective
PSROs. The Administration has moved aggressively to strengthen
ineffective PSROs, while continuing to monitor the development of
the system as a whole. Improved management techniques have
reduced average operating costs of PSROs from $14 per case in
1977 to less than $9 per case in 1981.
Planning and grant reform.—The incremental development of
Federal health programs since the 1930's has resulted in a fragmented Federal involvement in health weighted down by burdensome and duplicative administrative requirements. At present, Federal grants for health services are provided through some 30 separate programs. The Federal Government requires an overall State
health plan (funded through a Federal planning grant), and separate State plans for Medicaid and each of nine other State-administered health services programs. As a result, planning at the State
level for related health activities is often incoherent, and coordinated delivery of services is difficult, if not impossible.
Within the provisions of existing legislation, HHS will begin to
consolidate these disparate planning requirements beginning in
1980. Consolidation efforts will include institution of a single submission date for project grant applications. Voluntary agreements
will be negotiated with several States to develop an integrated
State health plan, allowing a single Federal review of the integrated plan.
To complement the improved planning process, a new administrative procedure will allow State and local governments to package discretionary grants in order to address areawide health
delivery problems. In exchange, they would agree to set specific
performance standards for improving primary care systems and
overall health status. In 1980, 10 agreements with State and local
governments are expected, with additional agreements planned for
1981. When fully implemented, these new procedures will provide
the basic framework for integrated Federal/State/local budgeting
and management of these health services grant programs.
Regulatory review and improvement.—As part of the President's
overall regulatory improvement program, Federal health regulations have been targeted for careful scrutiny. The HHS is coordinating an assessment of the continued need, costs and benefits of
existing Federal regulations which impose substantial burdens on
institutional health care providers. Consistent with Government-
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wide regulatory policy, as new Federal health regulations are developed, alternative mechanisms will be more systematically reviewed and greater public participation will be required than in
the past.
FUTURE REFORM THROUGH NHP
The National Health Plan contains a number of elements that
build on current initiatives designed to improve the efficiency and
effectiveness of Federal programs and the health system in general. Particularly important for the future are NHP provisions designed to enhance competition in the health sector.
Provisions simplifying Federal programs for the disabled, elderly
and poor will be implemented through HealthCare. For example,
the responsibility for processing the claims of all public beneficiaries will be consolidated in HCFA. Claims will be processed by a
single intermediary under contract to the Federal Government in
each of 50 to 60 areas around the country. Not only will most of
the current duplication of intermediaries in Medicare and Medicaid
be eliminated, but, by applying common screens to all claims,
efforts to prevent fraud and abuse will be enhanced.
The NHP provides important incentives for State governments to
improve their management of health care resources. During a 2year transition period, the Federal Government will assume all the
costs of newly mandated coverage for the poor. After the transition
period, the Federal share of HealthCare expenditures in each State
will increase by the national average growth in per capita health
spending. Therefore, States can achieve significant savings in their
HealthCare costs by reducing the rate of growth in health spending
below the national average. Conversely, those States with high
rates of growth will be responsible for a somewhat larger proportion of HealthCare costs.
Because a large percentage of reimbursement in the health care
system is made by third-parties, there are few incentives for either
doctors or patients to be concerned with the costs of the services.
The resulting lack of sensitivity to the price of medical services is
one of the most difficult problems in restructuring the health care
system. The NHP contains provisions to both immediately improve
the efficiency of the reimbursement system and to increase competition in the health market over the next decade. Provisions to
reform the reimbursement system include:
• Replacing current Medicaid fee schedules and the Medicare
fee-for-service reimbursement system with an equitable negotiated fee schedule for physicians participating in HealthCare.
This reform will eliminate inflationary usual, customary, and
reasonable reimbursements in Medicare.
MAJOR ACCOMPLISHMENTS No. 1
441
• Encouraging insurance companies and other private sector
third-party payors to use the fee schedules, and publishing
directories of doctors accepting the fee schedules for private
patients. These measures should help control the rise in private sector fees through greater cost awareness.
To support basic future reforms in the health sector, the NHP
encourages a more competitive health insurance market by:
• Requiring employers to offer their employees all federally
qualified HMOs and independent practice associations in the
area. This provision will support alternatives to traditional
fee-for-service medicine that increase the range of health care
options available in both the public and private sectors.
• Requiring employers to contribute an equal dollar amount for
all health insurance plans they offer under the Employer
Guarantee. Employees selecting a plan that is less expensive
than the employer contribution will receive the difference in
salary or other fringe benefits. This requirement allows workers to choose less expensive health benefits and higher
income, a potentially attractive alternative for many.
• Prohibiting physician domination of the governing boards of
third-party insurers, so that health professionals cannot directly control reimbursement rates for any insurer. This provision mirrors a trend in State litigation and will also increase public awareness of the costs of health care.
STRENGTHENING HEALTH RESEARCH
Health research has made countless contributions to the health
of our people and remains a critical investment in the health of
current and future generations. Such research has been instrumental in recent gains against high blood pressure, heart attack,
stroke, specific kinds of cancer, birth defects, infant and childhood
disease, mental retardation and mental illness, and such common
disabling conditions as diabetes, arthritis, and neurological and
digestive diseases.
In addition to research initiatives in support of Federal healthrelated program activities, discussed above, the Administration has
placed a high priority on strengthening HHS National Institutes
of Health (NIH), the largest single Federal health research effort.
NIH's primary mission is basic biomedical research. This basic
research provides knowledge of structure, function and disease
processes that is critical to preventing and curing human disease
and disability. Recent advances in basic biomedical science which
are beginning to generate important clinical applications include:
• Identification of hormone and protein receptors in cells to
better understand and control disease processes.
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• Mapping of chemical activity in the brain to improve understanding of neurological disease and human behavior.
• Dissection of the structure and regulation of the function of
genes with recombinant DNA and other new techniques
which may have such practical applications as the synthetic
production of insulin and interferon.
• Elucidation of mechanisms of damage by environmental
agents to control human disease related to environmental
factors.
• Studies of hepatitis B virus to develop vaccines against hepatitis.
• Recognition of specific and treatable causes of dementia, perhaps the most frightening problem of elderly persons.
In 1981, $1.7 billion is requested to fund NIH basic biomedical
research, an increase of nearly 65% over 1977. Funding for NIH
programs during this same period will increase more than 40%, with
$3.6 billion requested in 1981.
Research project grants awarded to researchers on the basis of
scientific merit are the primary method used to develop new
knowledge about human health. The principal measure of NIH
health research support is the number of new and competing (research grants whose term has expired, and which must "compete"
with new proposals for funding) grants awarded each year. The
number of new and competing awards has varied significantly in
recent years. In 1981, support for 5,000 new and competing awards
will be requested, an increase of 30% over 1977. To insure that the
vast enterprise of high-quality biomedical researchers will be maintained in this country, the Administration is requesting that
awards in future years be stabilized at the 1981 level.
I V . THE FEDERAL HEALTH
INVESTMENT
The Federal investment in health will reach an estimated $92.5
billion in 1981, an increase of 54% over 1977. This total includes
$14.5 billion for Federal programs which have not traditionally
been described as health-related in Federal budget discussions.
These programs primarily fund health-related services and construction, including the Special Supplemental Food Program for Women,
Infants and Children, and grants to improve municipal wastewater
treatment and highway safety.
The largest single Federal health investment is in health services, both federally financed and directly provided. In 1981, outlays
totaling $74.0 billion are requested for health services programs, an
increase of 62% over 1977. These services include $10.0 billion in
Federal grant programs, primarily those which increase access for
the poor and underserved, and fund preventive health services;
$53.2 billion in Medicare and Medicaid payments for services to the
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aged, disabled, and poor; and $10.8 billion in medical care provided
through health care systems for military personnel, veterans, and
Indians.
Table 5-1—THE FEDERAL INVESTMENT IN HEALTH
(In millions of dollars)
Outlays
Activity
Research
Education and training
Construction
Services
Regulation and enforcement
Total
1977
actual
1978
actual
1979
actual
1980
estimate
1981
estimate
3,872
1,926
6,324
45,651
2,169
4,198
1,842
6,209
52,022
2,440
4,532
1,712
7,175
59,174
2,937
4,932
1,892
7,021
67,193
3,232
5,277
1,933
7,931
73,987
3,391
59,942
66,711
75,530
84,270
92,519
The second largest Federal health investment is in construction
of a wide range of health- and safety-related facilities. In 1981,
outlays of $7.9 billion are requested for such construction activities,
an increase of 25% over 1977. Additionally, $5.3 billion in outlays
for health-related research and $5.3 billion for regulatory and education activities are requested for 1981, reflecting increases of 36%
and 30%, respectively, over 1977.
6. MAINTAINING NATIONAL SECURITY
A strong defense has been a primary objective of this Administration. Despite overall efforts to restrain Government spending,
necessary increases for defense have been provided. From 1978 to
1981, the Administration has requested cumulative increases for
defense programs of over $100 billion in budget authority, with $30
billion in real growth originally anticipated. This growth, however,
has been eroded by higher than anticipated inflation and by congressional cuts. To take the necessary steps to strengthen our
defense capabilities in 1981-85, cumulative increases in budget authority of over $300 billion are being requested—with anticipated
real growth of $100 billion.
Major factors shaping the size and composition of the defense
budget include:
• The Soviet threat. Rising Soviet military spending for many
years has permitted steady increases in the size and capability of its forces. For much of this same period U.S. defense
spending (apart from Vietnam) declined.
• The need to retain strategic equivalence. When this Administration took office, the U.S. ability to maintain the unambiguous strength of its strategic deterrence capability was being
eroded by the massive Soviet ballistic missile buildup and its
eventual threat to our land-based missile forces.
• The need to revitalize NATO defense efforts. While Soviet
military resources and capability continued to grow, the defense spending of our NATO Allies remained stable in real
terms. By the mid-1970's it became clear that NATO members
needed to increase their defense efforts if they were to stem
the trend toward Warsaw Pact Soviet military superiority in
Europe.
• The need for increased confidence in and flexibility of U.S.
conventional forces to meet unpredictable crises in other
areas. Recent events have reinforced this concern.
• The need to acquire and retain military personnel of high
quality. Sustaining the All Volunteer Force in the face of
difficult recruiting markets presents a real challenge.
• Managerial emphasis to improve efficiency in defense. Savings from economies permit a greater level of defense capability at any given overall funding level.
445
310-700
0 - 8 0
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THE BUDGET FOR FISCAL YEAR 1981
THE SOVIET THREAT
Soviet defense spending is believed to be significantly greater
than U.S. defense spending. The Soviet Union is estimated to be
using somewhere between 11 and 14% of its gross national product
for defense purposes, compared with 5% for the United States.
For some years it was thought that where strategic nuclear
forces are concerned, the Soviet Union would be satisfied with a
well-balanced, secure, second-strike capability—that is, the capability to launch an effective attack even after absorbing an attack
from an enemy. The Soviet Union, however, has gone far beyond
that capability. It was also believed that as its strategic forces
increased, the Soviet Union would reduce deployment of regional
nuclear forces. Instead, the Soviet Union is now modernizing both
its intermediate-range missiles and battlefield tactical nuclear capabilities.
At the same time, Soviet ground and tactical air forces in Eastern Europe are too large and much too offensively oriented to serve
only as a counterweight to NATO capabilities. Similarly, Soviet
forces in the Far East are geographically positioned, exercised, and
apparently designed for offensive operations.
While some components of the increasingly modern Soviet navy
are intended for the direct defense of the U.S.S.R, others are designed for strategic antisubmarine warfare, interdiction of the
major sea lanes, and long-range projection of Soviet military power.
The Soviet Union has consistently sought air and naval facilities
overseas, and it has expanded its capability for long-range movement of forces, especially by airlift. Soviet airlift played a major
role in the recent occupation of Afghanistan.
U . S . STRATEGIC FORCES
To meet the Soviet challenge, the Administration has developed
a comprehensive strategic force modernization program that will
strengthen deterrence and maintain essential equivalence through
the next decade and beyond. While the United States has shown its
willingness to seek strategic arms limitations through negotiations
with the U.S.S.R., it has also confronted the realities of increasing
Soviet nuclear offensive capabilities. Programs are being implemented to: (1) significantly improve the survivability and military
effectiveness of U.S. land-based and sea-based missile forces, (2)
strengthen the survivability and effectiveness of U.S. airborne
forces, and (3) improve the flexibility and endurance of U.S. strategic command, control and communications systems.
Land-based ballistic missiles.—To insure the future survivability
of the land-based leg of U.S. strategic forces, the Administration,
after intensive study, has chosen to begin full-scale development of
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447
the MX missile system. The missile under development is significantly more effective than the current Minuteman missile. Its
survivability will be insured by mobile basing.
Under the mobile basing plan, each MX missile will move on a
transporter-erector-launcher among 23 hardened shelters. This type
of basing should prevent the Soviet Union from determining which
shelters are occupied at any given time. The MX system will
achieve its initial operating capability in 1986.
Sea-based ballistic missiles.—Modernization of the operational
strategic submarine force has commenced. The first Trident submarine, U.S.S. Ohio, was launched in 1979 and will be on patrol in
1981. The Trident has more missile tubes than a Poseidon submarine (24 versus 16), is quieter (making detection more difficult), and
will be able to remain on-station longer. The Trident also allows
for future force enhancement because its large missile tubes provide room for later increases in missile size.
The new Trident I ballistic missile will significantly enhance
U.S. strategic force effectiveness by improving yield, accuracy, and
range. The greater range of the new missile will increase the
effective submarine patrol area by a factor of 10, thereby making it
far more difficult for the Soviet Union to locate U.S. submarines.
The Trident I missile is now being operationally deployed in Poseidon submarines. Options for a follow-on missile with even greater
capabilities are being explored.
Cruise missiles.—A major initiative of this Administration has
been the cruise missile program. Flight testing of competing designs for the air-launched cruise missile will soon be completed and
missile production will begin this year, with an initial operating
capability on B-52 bombers in 1982. Because of their small size and
their low altitude capability, these missiles will be hard for Soviet
radars to detect and track. A large force of strategic bombers with
cruise missiles provides the flexibility to saturate defenses selectively, making the task of the Soviet air defense planner a very
difficult one.
The B-52 will be a highly capable cruise missile carrier at least
through this decade. Research and development programs are underway that will provide increased weapons delivery capability
should that be necessary.
Command, control, and communications.—The Administration's
key initiatives include acquisition of a new airborne command post;
improvement of satellite and radar sensors to provide more accurate and reliable warning of attack; and development of mobile,
more survivable ground stations that receive warning information
from satellites.
Strategic defensive systems.—Adequate numbers of fighter and
interceptor squadrons will continue to provide antibomber defense.
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THE BUDGET FOR FISCAL YEAR 1981
The Administration is also continuing antiballistic missile research
and is developing an antisatellite system, while at the same time
seeking arms control agreements that will limit the deployment of
antisatellite systems. In addition, the nuclear-attack oriented civil
defense program has been integrated with natural disaster and
emergency related programs, under the newly created Federal
Emergency Management Agency.
In summary, the U.S. strategic program is designed to maintain
strategic forces adequate for the deterrence of conflict. As the
Administration has demonstrated its determination to meet the
Soviet strategic challenge, it has also demonstrated its willingness
to cooperate with the U.S.S.R. to limit strategic forces. It is this
combination of strength and negotiation that best assures the continued security of the United States and its Allies.
NATO
DEFENSE INITIATIVES
This Administration has launched several major initiatives to
strengthen NATO's deterrent and defense capabilities, which had
been neglected during and after the Vietnam conflict. At the May
1977 NATO Summit in London, the United States called for a
stepped-up long-term defense effort, with increased allied
collaboration. At the May 1978 Summit in Washington, NATO
heads of government personally endorsed a long-term defense program, backed by pledges of 3% real annual growth in defense
spending. This step reflected common Allied recognition that only
through greater cooperation and increased resources could NATO
meet the security challenges of the 1980's.
The United States is greatly accelerating its ability to reinforce
Western Europe with massive ground and air forces in a crisis. The
United States is prepositioning additional equipment, but relying
on our European allies to provide adequate facilities and host
nation logistic support, as well as the bulk of the ground and air
forces that would engage in a conflict in Europe. This "transatlantic bargain" will markedly enhance NATO's military posture—
particularly its ability to respond to an attack given only short
warning.
Collaborative armaments programs have received emphasis and
include allied coproduction of the F-16 aircraft and U.S. purchase
of the Roland low-altitude air defense system. The United States
and other NATO members agreed in December 1978 on joint funding and operation of a NATO airborne early warning aircraft fleet.
The Administration has also proposed an innovative concept of
jointly developing "families" of new systems, with Europe taking
the lead in some, the United States in others.
The Alliance has agreed to the modernization of NATO's theater
nuclear forces, through a proposed force of longer range ballistic
MAJOR ACCOMPLISHMENTS No. 1
449
and cruise missiles to be deployed in Europe. The Soviet Union has
already undertaken a major modernization of its theater nuclear
forces. In particular, it has introduced a mobile, intermediate-range
ballistic missile equipped with multiple warheads, and an intermediate-range bomber.
With these new and more accurate weapons, the Soviet Union
might make the mistaken judgment that it could threaten our
allies without fear of retaliatory attacks on Soviet territory, especially if U.S. forces or territory were not threatened. To avoid any
such error in perception, the Administration is proceeding with the
development of two theater-based, longer range, mobile missiles:
the Pershing II and the Ground-Launched Cruise Missile. In collaboration with our Allies, they will be deployed in Great Britain
and on the European continent. By so doing, the linkage of U.S.
strategic forces to the defense of Europe will be strengthened.
U . S . CONVENTIONAL FORCES
Ground forces.—The United States currently has 16 Army and 3
Marine divisions in the active forces; 8 Army and 1 Marine division
in the Reserve Forces. U.S. ground forces have been augmented
over the past several years. For example, since 1977 there has been
a 10% increase in tank and mechanized infantry battalions. Primarily by prepositioning equipment, the capability to build up
forces in Europe quickly has increased. When this program is
completed, the U.S. will have the ability to more than double our
ground forces and to triple our air forces in Europe within 2 weeks.
The introduction of a wide range of improved equipment—XM-1
tanks, armored personnel carriers, helicopters, and better artillery
and air defense weapons—has, together with the contributions of
our Allies, strengthened the U.S. ability to meet any threat.
Readiness and combat endurance have been enhanced in Reserve
units. A number of Reserve units are now equipped with new
equipment and selected Reserve units are structured to provide the
same rapid mobilization capability as portions of our active forces.
Air forces.—The U.S. program will field an active Air Force of 26
fighter and attack wings and will modernize—and in some cases
enlarge—the active and reserve components of Air Force, Navy,
and Marine Corps tactical aviation. Over the next few years about
1,700 fighter, attack, electronic warfare, surveillance and support
aircraft will be purchased by the Air Force. This constitutes the
first full-scale modernization of U.S. tactical air forces since the
1960's.
To achieve greater overall capability, aircraft procurement programs have emphasized a mix of high and low cost aircraft—each
possessing excellent mission performance characteristics. Procurement of lower cost A-10, F-16, and F/A-18 combat aircraft will
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THE BUDGET FOR FISCAL YEAR 1981
supplement purchase of the more sophisticated and costly F-15 and
F-14 aircraft.
Rapid deployment forces.—The United States is systematically
enhancing its ability to respond rapidly to non-NATO contingencies
wherever required. These rapid deployment forces can range in size
from a few ships or air squadrons to as many as 100,000 troops,
including their support. Priority is given at present to the Middle
East and Persian Gulf contingencies, but our forces stand ready for
rapid deployment to any region where they are needed.
The Administration has already expanded the size of the U.S.
naval Middle East Task Force which operates in the vicinity of the
Persian Gulf, and the Navy has increased the number of ship-days
it is spending in the Indian Ocean. Additional actions include the
establishment of a permanent, full-time Caribbean Joint Task
Force Headquarters, the expansion of military exercises in the
Caribbean region, increased surveillance of Cuba, and other measures to assure that, in the President's words, "no Soviet unit in
Cuba can be used as a combat force to threaten the security of the
United States or any other nation in this hemisphere."
Two specific initiatives of the Administration that will facilitate
the U.S. response to future crisis situations are: (1) the development and production of a new fleet of large cargo aircraft with
intercontinental range; and (2) the procurement of maritime prepositioning ships that will carry heavy equipment and supplies for
three Marine Corps brigades into crisis areas. These aircraft and
ships will strengthen the U.S. capability to move combat forces
over vast distances quickly enough to deter conflict or, failing that,
to carry out assigned combat missions.
Naval forces.—The number of ships in the Navy will grow over the
next few years. A force of about 550 ships is programmed for 1990.
The 1981-85 plan calls for construction of 97 new ships. The
emphasis on highly capable anti-air-warfare ships, along with the
continuing production of frigates and nuclear submarines, will provide the Navy with the ships it needs to maintain U.S. maritime
superiority.
A number of new naval force capabilities have been or are about
to be introduced. The AEGIS destroyer will play a major role in
protecting our ships from enemy aircraft and missile attacks. This
ship is a key element in the Administration's plans to maintain
U.S. naval superiority during the next decades. The first two
AEGIS destroyers were included in the 1978 and 1980 budgets. An
additional 16 AEGIS ships are planned in the 1981-85 program.
New missile capabilities include the Harpoon cruise missile for
attacking enemy surface ships and a ship-based missile for destroying enemy aircraft and missiles that threaten U.S. surface ships.
MAJOR ACCOMPLISHMENTS No. 1
451
The F-18 aircraft, now undergoing testing, will be the backbone of
Navy and Marine Corps tactical air forces over the next decade.
These F-18 aircraft will be capable of performing a variety of
attack and air defense missions.
Tactical command, control and communications.—Improvements
are being made in the command and control capabilities of U.S.
conventional forces. In 1978, initial deployment of the E-3A airborne warning and control system was made. Through the 1981
budget, the U.S. will have purchased 30 E-3A's. This system, which
provides a major improvement in the ability to track and engage
hostile aircraft, is also being purchased by our NATO Allies.
More capable and secure systems for the surveillance of hostile
ground forces are being developed to allow more timely and efficient allocation of U.S. forces in battle. The capability to destroy
and disrupt enemy command and control systems is also being
improved.
Combat readiness.—Maintaining operational force units at a high
state of combat proficiency is as important to the overall U.S.
military posture as the acquisition of new equipment. Improving
the readiness of U.S. combat forces has been a major defense
initiative of this Administration. Within the Navy, this improved
readiness is most visible in the materiel condition of our ships. The
backlog of ships overdue for overhaul, which had been growing for
several years, is now at a manageable level, and funding has been
increased for other types of ship maintenance. Backlogs of aircraft,
combat vehicles, and parts needing maintenance also are being
reduced. All of the services are using new maintenance techniques
which will permit them to obtain more useful service life from
their systems. In addition to improved maintenance, inventories of
spare parts for many weapons systems have been increased to
enhance the initial combat capability and the combat sustainability
of our forces. Unit training and individual proficiency have been
enhanced by more intensive training including extensive use of
simulation techniques. Combat exercises have been expanded with
more joint service exercises to provide greater realism and to
obtain a more effective military capability.
MILITARY PERSONNEL
The Administration has made significant progress in active duty
and reserve military personnel programs, military pay reform,
military medical programs, and equal opportunity in the armed
forces.
All Volunteer Force.—A number of steps have been taken to
insure the continued success of the All Volunteer Force (AVF). In
the past 3 years, in spite of an increasingly difficult recruiting
market, recruitment of high quality volunteers has remained high,
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THE BUDGET FOR FISCAL YEAR 1981
first-term attrition has declined, and retention rates at the first
reenlistment point have increased. There is, however, concern
about a downward trend in second-term career reenlistments, particularly in the Navy. As a result, increased attention and resources are being allocated to improve career retention rates and
to sustain the experience and professionalism required in the
Armed Forces. The strength of reserve forces has improved in 1979,
reflecting the success of these initiatives.
In 1979, the services achieved a personnel level of 98.5% of
authorized active duty strength. The 1979 percentage was surpassed in only one other year since the inception of the AVF in
1973. Quality, as measured by the percentage of enlistees with high
school diplomas, remained high (73%).
Sustaining the AVF also depends on our ability to retain high
quality soldiers, sailors, airmen and marines. Reenlistments must
occur at levels which provide a force of experienced career military
personnel—the people who are critical to the operation and maintenance of an increasingly complex military force. Service members who joined the AVF in the early years are remaining beyond
their initial obligation at a satisfactory rate. First-term reenlistment rates have increased substantially from 24% in 1973 to 37%
in 1979. An even greater increase in first-term retention—particularly in critical skill areas—is the keystone of our strategy to
reduce the need for new recruits.
The Administration has developed and supported several other
initiatives which will enhance the ability of the services to maintain the AVF at desired strength. The 1981 budget includes an
increase of over $450 million for increased enlistment and reenlistment bonuses, expanded bonus authority, improvements in pay and
benefits and increased travel allowances.
Military retirement reform.—The Administration has submitted
to the Congress legislation to reform the military retirement
system by correcting inefficiencies and inequities that were highlighted in the April 1978 Report of the President's Commission on
Military Compensation.
The key feature of the proposed retirement reform, drawn from
the Commission's plan, would provide new career incentives by
giving active-duty personnel special cash payments after 10 years
of service. These payments would be charged against their future
pension rights. Members completing 20 years of service would still
be entitled to immediate pensions, although benefits would be reduced from current levels until age 60. Personnel leaving active
duty after 10 to 20 years of service would be entitled to deferred
pensions beginning at age 60. Annuities would be calculated on
"high-2-years" average basic pay, rather than final basic pay, and
MAJOR ACCOMPLISHMENTS No. 1
453
would be offset by benefits available under the social security
system.
These proposals will result in substantial cost reductions after an
extended transition period that would protect the interests of members of the current active-duty force. At the same time, they would
provide major improvements over the current system in achieving
greater fairness, cost effectiveness, and management flexibility.
Reserve forces.—Guard and Reserve forces provide trained units
and individuals that can augment the active forces rapidly. Many
of these units can be deployed to a theater of operations within
days or weeks of mobilization. Individual reservists will be used as
replacements during the initial combat phase, until a wartime
draft can provide newly trained personnel.
Reserve paid-drill strength increased by over 19,000 during 1979.
This is the first year since 1974 that total Selected Reserve
strength experienced a net gain. None of the Reserve components
declined in strength. Most of the overall strength increase was due
to improved retention; however, the Naval Reserve and the Army
Guard and Reserve experienced significant increases in the number
of new recruits. The utilization of full-time professional recruiters
assisted in this achievement, particularly for the Army Reserve,
whose recruiters are now managed by the active Army recruiting
command. These and other actions taken to improve both recruiting and retention are expected to produce an increase in Army
Reserve strength in 1980 and 1981.
Continued increases in Guard and Reserve unit strengths are
projected for 1981 and beyond. More modern equipment is being
acquired for the Reserves, including new A-10 attack aircraft and
a proposed new antisubmarine warfare frigate. Added emphasis is
being placed on better utilization of trained personnel. More intensive and effective unit training programs are proposed to permit
increased participation in major training exercises and tactical
deployments to locations overseas.
The Individual Ready Reserve strength of the Army also increased by 16% in 1979. Further increases in the size of this
important group are anticipated.
Military medical programs.—A major review of wartime medical
requirements has recently been completed. Some of the study recommendations are reflected in the 1981 budget, while others are
undergoing further review. One program included for 1981 establishes a civilian-military contingency hospital system to facilitate
greater reliance on civilian hospital facilities in caring for the
casualties of a major war. This program increases the ability to
provide essential medical care without additional construction of
peacetime medical facilities or use of nonmedical facilities.
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THE BUDGET FOR FISCAL YEAR 1981
In addition, the 1981 budget includes funds to upgrade combat
medical support in Europe. The proposed improvements are the
first increment of a multiyear program to expand wartime medical
capability significantly.
Major changes are also scheduled for the Veterinary Services.
Beginning in 1981, the Air Force Veterinary Corps and the Army
Veterinary Corps will be consolidated; the Army will act as executive agent for all Department of Defense veterinary functions. The
consolidation will be phased in over the next few years in order to
minimize personnel turbulence and provide for a smooth transition
of responsibilities. In addition, there will be a phased reduction of
the force. These changes will provide more efficient use of the
remaining veterinary personnel, at significantly reduced cost.
Finally, the Administration has developed a legislative proposal
to revise military physician pay. This legislation will provide sufficient volunteers to help alleviate the current shortage. It also
provides for review of physician bonuses in 1983 when the shortage
is expected to be over.
Equal Opportunity.—The number of minority enlisted personnel
in the Armed Forces has increased by over 70,000 personnel since
1926. This increase is a product of both the increasing accession
rates and the higher-than-average reenlistment rates among minorities. Minorities in the officer ranks increased by 25% since 1976.
They now constitute 7% of the active duty officer force.
Equally significant are minority gains in the Reserve Forces. For
example, the proportion of blacks in Reserve paid-drill positions
grew from 10.5% in 1976 to 16.1% in 1979. Beyond the increase in
numbers, the Department has increased its efforts to assure that
training, assignment, and promotion opportunities are provided
equally to minorities.
Women in the Military.—At the end of 1979, nearly 150,000
women were members of the active force, an increase of over
36,500 from the end of 1976. The current program projects continued growth toward the 1985 objective of 254,000 women on active
duty.
The Department has made major personnel policy changes to
expand the role of military women. Currently, about half the
female enlisted military personnel are serving in occupations
which were not historically held by women—such as law enforcement, aviation mechanics, and carpentry. In addition, promotion
statistics show that females are experiencing promotion rates comparable to males.
MANAGEMENT
IMPROVEMENTS
A number of significant steps have been taken to improve managerial effectiveness in defense, including:
MAJOR ACCOMPLISHMENTS No. 1
455
• Elimination, since January 1977, of approximately 31,000 civilian positions, including 5 Assistant Secretaries, a 20% reduction in the size of Departmental headquarters staffs, and
closings or substantial reductions at a number of military
installations.
• Strengthened policy and planning functions to insure that
individual, detailed decisions on force structure and weapons
will support our overall national security objectives.
Other actions include increasing emphasis on competition in the
acquisition of a wide variety of goods and services. This will improve the efficiency of the procurement process because competitive purchases are less costly than noncompetitive purchases. All
purchases are required to be made on a competitive basis to the
maximum practicable extent. Proposed purchases are widely publicized, and sealed bids are used wherever feasible to select winning
contractors. For items not suitable for price competition because of
the limited number of qualified contractors, a substantial number
of subsystems and spare parts are purchased competitively.
To encourage contractors to invest in cost-reducing assets, profit
policy has been revised to allow increased profit levels in capital
intensive contracts. Also, the Department of Defense has initiated
revisions to personnel performance evaluation procedures to include an assessment of an individual's effectiveness in obtaining
increased competition.
Several programs have been initiated to improve the efficiency of
providing supply support to the forces. Stocks of materials are
being changed to satisfy critical wartime needs and to eliminate
excessive inventories. A review of the policies on excess material
and inventory requirements is scheduled for completion by August
1980. These actions are expected to lead to revised policies and
improvements in the effectiveness of funds invested in supply support. In the area of foreign military sales, procedures are being
revised to insure recovery of full costs.
Weapons acquisition management.—Under new procedures, logistic and manpower planning requirements are being considered
when performance objectives are established. As a result, some
high-rate production decisions have been deferred until support
questions have been resolved—resulting in substantial cost savings.
This increased attention to support problems before a system is
fully operational is helping avoid readiness and manning problems
like those experienced during the 1960's.
In related actions, to assure the highest return for each dollar
spent, special emphasis is given to wage board pay reform, improved depot-level maintenance efficiency, and increased procurement of commercial products (where these are less expensive than,
and as suitable as, those built to military specifications).
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THE BUDGET FOR FISCAL YEAR 1981
Claims settlement—This Administration has placed a high priority on improving the management of Naval shipbuilding programs.
These efforts have been quite successful. Shipbuilder claims of
almost $3 billion dating back to the 1960's have been resolved.
Shipbuilding plans now reflect better cost estimates and production
schedules and will hopefully result in fewer future claims. For
example, more extensive design work for new ships is being completed prior to the award of large production contracts.
Energy conservation.—The Administration has aggressively pursued energy conservation throughout the Defense establishment
through a restructured energy management program. Since 1975,
total energy use has been reduced almost 7%. To maintain combat
readiness, we are making greater use of simulators and increasing
the fuel efficiency of our weapons systems. In addition, new procedures have been established to assure an uninterrupted supply of
fuel to our forces during any energy supply disruptions.
PLANNING FOR THE FUTURE
It is clear that this will be a watershed year for U.S. national
security programs. Stimulated by events abroad, Americans are
recognizing that our military capabilities must be strengthened if
the United States is to play a more constructive and stabilizing
role in the international arena. The 1981-85 5-year program has
been carefully developed to strengthen U.S. defenses. Generally,
the program has been designed to assure that:
• U.S. strategic nuclear forces will be essentially equivalent to
those of the Soviet Union.
• The military balance between NATO and the Warsaw Pact
will continue to deter the outbreak of war—conventional or
nuclear—in Europe.
• Our ability to come quickly to the aid of friends and allies
around the globe will be maintained.
• Our Navy will continue to be the most powerful on the seas.
Since taking office, this Administration has deliberately and
steadily achieved increases in defense resources. But 3 years is not
sufficient time to arrest and reverse the cumulative result of many
years of intense Soviet investment in military capability. The 1981
budget and 5-year defense program will provide a real and substantial growth in defense capabilities over a sustained period. This
program is necessary to maintain a strong defense for the United
States—an objective the Nation cannot afford to defer.
@FedFRASER