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o h - i c l < )F
IMF PRESIDENT

i r x E c u j i v r

V• . • /

OFFICE OF MANAGEMENT
AND BUDGHT

ANALYSES

Bl JDGET OF THE
UNITED STATES
GOVERNMENT

FISCAL YEAR

1987

THE BUDGET DOCUMENTS
Budget of the United States Government, 1987 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 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.
United States Budget in Brief, 1987 is designed for use by the general public. It
provides a more concise, less technical overview of the 1987 budget than the above
volume. Summary and historical tables on the Federal budget and debt are also
provided, together with graphic displays.
Budget of the United States Government, 1987—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, and proposed general provisions applicable to the appropriations of entire agencies or groups of agencies. Supplemental
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, 1987 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; information on Federal aid to State and local governments;
and Government-wide program and financial information for Federal civil rights
and research and development programs.
Historical Tables, Budget of the United States Government, 1987 provides data on
budget receipts, outlays, surpluses or deficits, and Federal debt covering extended
time periods—in many cases from 1940-1991. These are much longer time periods
than those covered by similar tables in other budget documents. The data have been
restructured to be consistent with the concepts and presentation used in the 1987
Budget, so these data series are comparable over time.
Management of the United States Government, 1987 provides a description of
efforts to improve the management of Federal agencies. It reports on the President's
Council on Integrity and Efficiency, describes Reform '88 initiatives undertaken by
the President's Council on Management Improvement, and outlines the Administration's management proposals. Management improvement themes covered in the
report include privatization, productivity improvement, return of responsibilities to
State and local governments, administrative streamlining, program delivery improvements, cost reductions, cash and credit management, payment integrity efforts, upgraded information technology systems, and increased use of user fees and
contracting out. Special sections describe current procurement reforms, the status of
Grace Commission recommendations, and implementation of the Debt Collection
Act of 1982, the Prompt Payment Act of 1982, and the Financial Integrity Act of
1982.
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.
3. Sequestration of budgetary resources in 1986 is required by the Balanced
Budget and Emergency Deficit Control Act of 1985 (P.L. 99-177). All 1986 data
shown in this volume incorporate the effects of sequestration, unless otherwise noted.
For sale by the Superintendent of Documents, U.S. Government Printing Office
Washington, D.C. 20402

TABLE OF CONTENTS
Page

PART 1. ALTERNATIVE VIEWS OF THE BUDGET

1-1

A. Current services estimates

A-l

B. Federal transactions in the national income and
product accounts

B-l

PART 2. ANALYSES OF THE TOTALS

2-1

C. Funds in the budget

C-l

D. Federal investment and operating outlays

D-l

E. Borrowing and debt

E-l

F. Federal credit programs

F-l

G. Tax expenditures

G-l

H. Federal aid to State and local governments

H-l

I. Civilian employment in the executive branch
PART 3. SELECTED FEDERAL PROGRAMS

1-1
3-1

J. Civil rights activities

J-l

K. Research and development

K-l

iii

PART 1

ALTERNATIVE VIEWS OF
THE BUDGET

1-1

INTRODUCTION
Part 1 includes two alternative views of the budget—current
services estimates and national income accounts. The data include
both on-budget and off-budget amounts (i.e., transactions of the
Federal old-age, survivors, and disability insurance trust funds).
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. 1109(a)). These estimates reflect the anticipated costs of
continuing ongoing Federal programs and activities at present
levels without any policy changes. Estimates are provided through
1991.
Special Analysis B (Federal Transactions in the National Income
and Product Accounts) presents the Federal Government estimates
in terms of the national income and product accounts (NIPA). It
also explains the relationships of the unified budget of the Federal
Government to the NIPA, which constitute the most widely used
measure of aggregate economic activity in the United States. These
data conform to the benchmark revisions of the NIPA issued in
December 1985.
1-2

SPECIAL ANALYSIS A
CURRENT SERVICES ESTIMATES
The Congressional Budget Act of 1974, as amended, 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 budget outlays and proposed budget
authority that would be included in the budget for the
following fiscal year if programs and activities of the
United States Government were carried on during that
year at the same level as the current year without a
change in policy.
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
Since interest in the longer term budget outlook and in the longrange effects of the President's budget proposals has increased
substantially in recent years, current services estimates are being
provided for the 4 years beyond the budget year. Generally, these
long-range current services estimates are based on the same concepts as the budget year current services estimates. Current services estimates include both on- and off-budget receipts and outlays.
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, interest on
the Federal debt, and other programs under which spending varies
with the unemployment, interest, or inflation rates. 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 assume that all the President's
budget proposals will be adopted. Continuation of all programs and
tax laws unchanged at current services levels would result in dif1

Summary comparisons are in the Budget of the United States Government, Fiscal Year 1987, Part 3.

A-1

A-10

THE BUDGET FOR FISCAL YEAR 1987

ferent economic conditions than would occur under the budget
proposals. The economic assumptions common to the budget and
the current services estimates are summarized in table A - l . For
further details and discussion of these economic assumptions, see
Part 2 in the 1987 Budget
Table A - l . SUMMARY OF ECONOMIC ASSUMPTIONS
(Fiscal years)
1985

Gross national product (in billions of current dollars)
Change in constant dollar GNP (percent
change, year over year)
Inflation measures (percent change, year
over year):
GNP deflator
Consumer Price Index
Federal construction deflator
State and local purchases deflator
Unemployment rate (percent, annual average)
...
Interest rate, 91-day Treasury bills (percent)
Interest rate, 10-year Treasury notes (percent)
ADDENDUM
Federal pay raise (percent): 1
Current services:
Military
Civilian
President's Budget:
Military
Civilian 3
1
2
3

1986

1987

1988

1989

1990

1991

3,937

4,192

4,538

4,903

5,269

5,623

5,955

2.9

3.0

4.0

3.9

3.7

3.6

3.6
3.6
2.9
5.9

3.4
3.4
3.5
3.5

4.1
4.0
4.4
4.5

3.9
3.9
4.2
4.3

3.4
3.4
3.7
3.7

3.0
3.0
3.1
3.2

2.3
2.3
2.5
2.5

7.1

6.8

6.6

6.4

6.1

5.9

5.6

7.9

7.3

6.8

5.8

5.0

4.3

4.0

11.1

9.2

8.6

7.7

5.8

4.8

4.5

4.0
3.5

3.0
0.0

4.0
4.0

4.8
4.8

5.1
5.1

4.9
4.9

4.5
4.5

4.0
3.5

3.0
0.0

4.0
3.0

4.8
3.0

5.1
3.0

4.9
3.0

4.5
3.0

The 1985 raise was effective on January 1. All other raises except where noted, are effective on October 1.
The 1986 raise is retroactive to October 1.
All proposed civilian pay raises are effective on January 1.

THE CURRENT SERVICES CONCEPT

The current services estimates are neither recommended
amounts nor forecasts as to what the budget results for 1986-1991
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 budgetary implications of
the current directions of Federal programs, they in effect answer
the question: "How would the budget come out if we simply continued enacted budget policy?"
The 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 concepts used in this
analysis, and in previous current services estimates submitted by
the Executive Branch, are not the only ones possible. Different

SPECIAL ANALYSIS A

A-ll

concepts may be useful for different purposes. The current services
estimates presented in this analysis generally reflect the expected
costs of continuing ongoing Federal programs at 1986 levels in real
terms, without policy change; that is, they omit all proposed new
legislative initiatives, presidential or congressional, that are not
now enacted. (The major exceptions to this approach are described
below.) In general, the 1986 level on which the current services
estimates are based is that which is authorized or implied by
enacted 1986 appropriations or continuing resolutions as modified
by administrative actions anticipated to be in place before the end
of 1986. The estimates allow for the future implications of current
law, and for anticipated changes of a relatively uncontrollable
nature (as distinct from policy changes) such as increases in the
number of medicaid recipients. The 1986 current services base has
been reduced as a result of sequestration under the Balanced
Budget and Emergency Deficit Control Act of 1985, as estimated in
the January 15th report from the Directors of the Office of Management and Budget and the Congressional Budget Office to the
Comptroller General. As many as possible of the changes made by
the Comptroller General to the joint report are reflected in the
estimates. The reductions are scheduled to take effect on March 1.
The current services estimates reflect the effects of inflation on
virtually all budget accounts, including discretionary programs.
The current services estimates thus provide a "constant real program'' base against which to measure the President's budget proposals. To facilitate the comparison between the current services
estimates and the President's budget proposals, the current services estimates are presented in the same account structure as the
budget, even if legislation is required to effect any structural
changes that may be proposed in the budget.
Specific guidelines for this year's detailed programmatic estimates are:
—For the Legislative Branch and the Judiciary, the estimates
are the budget requests submitted by these Branches.
—For the Department of Defense—Military, the atomic-energy
defense activities of the Department of Energy, and other programs in the national defense function, the 1987 and 1988
estimates are the same as those of the 1986 Congressional
Budget Resolution. For 1989 through 1991, the estimates reflect the budget resolution policy of 3 % annual real growth in
budget authority.
—For General Revenue Sharing, the estimates assume that the
program will not be reauthorized for 1987 and subsequent
years. The 1986 Congressional Budget Resolution called for
termination of this program and the conference agreement on

A-10

THE BUDGET FOR FISCAL YEAR 1987

the Consolidated Omnibus Reconciliation Act of 1985 included
language repealing the Revenue Sharing Act.
—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 are assumed
to support the same program levels or to be funded at the
same real (constant-dollar) amounts as in 1986 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 alter 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.
—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.
—As already set by law, the 1986 Federal pay was 3 % for military personnel and 0 % for civilians. For all other years, Federal pay is assumed to increase at rates comparable to private
sector pay. The pay raise assumptions are shown in table A - l .
—Interest on the public debt is estimated on the basis of the
current services deficits 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).

A-ll

SPECIAL ANALYSIS A

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 the projection period, it is
generally assumed for purposes of current services estimates that it
will be renewed and that budget authority will be held constant in
real terms. 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
future tax changes will occur as scheduled under current law.
Provisions that are clearly temporary in nature are assumed to
expire. Airport and airway trust fund taxes and highway trust
fund taxes scheduled to expire under current law are assumed to
be extended at present rates. Hazardous substance trust fund
taxes, which expired September 30, 1985, are assumed to be reauthorized and expanded to fund the program at the current real
level.
CURRENT SERVICES TOTALS

As shown in Table A-2, current services outlays are estimated to
be $1,025.9 billion in 1987, 4.5% higher than in 1986, and budget
authority is estimated to be $1,142.4 billion, an increase of 7.1%
over 1986. Outlays are projected to grow at an average annual rate
of 4.5% from 1987 to 1991. Receipts for 1987 are estimated to
increase 8.7% on a current services basis, from $776.5 billion in
1986 to $844.1 billion in 1987. Receipts are projected to grow at an
average annual rate of 7.3% from 1987 to 1991. The resulting 1987
current services deficit is $181.8 billion, $23.8 billion lower than the
$205.6 billion deficit for 1986. The deficit is projected to decline
further each year, falling to $103.9 billion in 1991.
Table A-2. CURRENT SERVICES TOTALS
(In billions of dollars)
1985
actual

Budget authority
(On-budget)
(Off-budget)
Receipts
(On-budget)
(Off-budget)
Outlays
(On-budget)
(Off-budget)
Surplus or deficit ( - )
(On-budget)
(Off-budget)

1986

1987

1988

1989

1990

1991

1,074.1
(889.7)
(184.3)
734.1
(547.9)
(186.2)
946.3
(769.5)
(176.8)

1,066.4
(879.1)
(187.3)
776.5
(578.5)
(197.9)
982.0
(797.3)
(184.7)

1,142.4
(928.4)
(214.0)
844.1
(630.1)
(214.0)
1,025.9
(827.4)
(198.6)

1,220.7
(978.1)
(242.6)
927.3
(684.7)
(242.6)
1,077.3
(867.6)
(209.7)

1,285.4
(1,022.7)
(262.8)
989.2
(726.4)
(262.8)
1,128.1
(908.1)
(220.0)

1,351.0
(1,064.9)
(286.2)
1,053.0
(766.9)
(286.2)
1,179.3
(947.4)
(232.0)

1,423.6
(1,117.2)
(306.3)
1,120.2
(813.9)
(306.3)
1,224.1
(984.4)
(238.6)

-212.3
-205.6
-181.8
-150.0
-138.9
-126.3
-103.9
(-221.6) (-218.8) (-197.2) (-182.9) (-181.7) (-180.5) (-171.6)
(9.4)
(13.2)
(15.4)
(32.9)
(42.8)
(54.2)
(67.7)

A-10

THE BUDGET FOR FISCAL YEAR 1987

Receipts.—Table A - 3 shows receipts by major source on a current services basis. Current services receipts are projected to increase by $67.6 billion from 1986 to 1987 and by $276.1 billion from
1987 to 1991, largely due to assumed increases in incomes resulting
from both real economic growth and inflation.
Individual income taxes are estimated to increase by $31.8 billion
from 1986 to 1987 on a current services basis. This growth of 9.0%
is the effect of increased collections resulting from rising personal
incomes. Individual income taxes are projected to grow at an average annual rate of 7.7% between 1987 and 1991, to $518.1 billion.
Corporation income taxes on a current services basis are estimated to grow by $15.6 billion or 22.0% from 1986 to 1987, in large
part due to higher corporate profits. Corporation income taxes are
projected to increase at an average annual rate of 9.4% from 1987
to 1991.
Table A-3. CURRENT SERVICES RECEIPTS BY SOURCE
(In billions of dollars)
1985
actual

Individual income taxes
Corporation income taxes
Social insurance taxes and contributions
(On-budget)
(Off-budget)
Excise taxes
Other
Total
(On-budget)
(Off-budget)

1986

1987

1988

1989

1990

1991

334.5
61.3

354.0
70.9

385.8
86.5

426.2
100.2

456.3
110.0

483.6
117.8

518.1
123.5

265.2
(79.0)
(186.2)
36.0
37.0

280.4
(82.5)
(197.9)
33.6
37.5

301.4
(87.4)
(214.0)
32.0
38.4

333.4
(90.8)
(242.6)
30.1
37.4

355.9
(93.1)
(262.8)
29.3
37.7

383.0
(96.8)
(286.2)
29.8
38.9

407.8
(101.5)
(306.3)
30.3
40.6

734.1
(547.9)
(186.2)

776.5
(578.5)
(197.9)

844.1
(630.1)
(214.0)

927.3
(684.7)
(242.6)

989.2
(726.4)
(262.8)

1,053.0
(766.9)
(286.2)

1,120.2
(813.9)
(306.3)

Social insurance taxes and contributions are estimated to increase by $20.9 billion on a current services basis between 1986 and
1987, and by an additional $106.4 billion between 1987 and 1991.
The estimates reflect assumed increases in total wages and salaries
paid; scheduled increases in the combined employer-employee
social security (OASDHI) tax rate from 14.3% to 15.02% on January 1, 1988 and to 15.3% on January 1, 1990; and annual increases
in the social security taxable earnings base to $51,600 in 1990. The
social security taxable earnings base will remain at $51,600 in 1991
because under the budget economic assumptions recipients of social
security benefits would not receive a cost-of-living adjustment in
that year. This is because the consumer price index is projected to
increase by less than 3.0%.
On a current services basis, excise taxes are estimated to decrease by $1.6 billion or 4.8% from 1986 to 1987. This decrease is in
large part due to a $1.3 billion decline in windfall profit taxes from

SPECIAL ANALYSIS A

A-ll

$4.1 billion in 1986 to $2.8 billion in 1987, and to a $1.2 billion
decline in cigarette excise taxes, reflecting expiration of the temporary extension of the doubling of these taxes effective March 15,
1986. Excise taxes are projected to decline by $1.7 billion between
1987 and 1991 to an estimated $30.3 billion. This is in large part
due to the continued decline in windfall profit tax receipts to $1.0
billion by 1991 and expiration of the telephone excise tax December
31, 1987. The estimates for 1986-1991 assume that the hazardous
substance trust fund taxes, which expired September 30, 1985, will
be reauthorized and expanded to a level sufficient to fund current
services outlays. The estimates for 1988-91 assume extension of the
airport and airway trust fund taxes and the highway trust fund
taxes that are scheduled to expire December 31, 1987 and September 30, 1988, respectively.
Other receipts (estate and gift taxes, customs duties, and miscellaneous receipts) are projected to increase on a current services
basis by $3.1 billion from 1986 to 1991, largely as a result of
increased economic activity.
Outlays.—The level of outlays necessary to continue ongoing Federal programs and activities at current services levels is estimated
at $1,025.9 billion in 1987. The increase in current services outlays
from 1986 to 1987 is $43.9 billion, or 4.5%. Between 1987 and 1991
current services outlays are projected to increase at an average
annual rate of 4.5%.
Table A - 4 shows current services outlays by function. Estimates
by agency are presented in table A-5. The nondefense outlay increases from 1986 to 1987 are largely due to increases in the
number of beneficiaries, cost-of-living adjustments, increases in the
prices of goods and services purchased or financed and, in the case
of interest, increased borrowing requirements.
Table A - 6 shows the major components of the changes in current
services outlays between 1986 and 1987. Outlays for social security
(OASDI) are estimated to increase by $12.1 billion between 1986
and 1987, from $200.0 billion in 1986 to $212.2 billion in 1987.
Medicare outlays are estimated to increase by $6.2 billion, from
$68.7 billion in 1986 to $74.9 billion in 1987, largely as a result of
increases in medical care prices and utilization. Outlays for income
security programs are estimated to rise by $3.8 billion, from $119.6
billion in 1986 to $123.4 billion in 1987. Outlays for Federal employee retirement and disability programs increase by $2.2 billion between 1986 and 1987 due to automatic cost-of-living increases, increases in the number of beneficiaries, and higher earnings records
for new retirees. Outlays for the remaining income security programs are estimated to grow by $1.6 billion on net. Table A-7
shows caseload projections for these and other major benefit programs and other selected programmatic assumptions.

A-10

THE BUDGET FOR FISCAL YEAR 1987
Table A-4. CURRENT SERVICES OUTLAYS BY FUNCTION
(In billions of dollars)
1985
actual

National defense-.
Department of Defense-Military
Other
International affairs
General science, space, and technology
Energy
Natural resources and environment
Agriculture
Commerce and housing credit
Transportation
Community and regional development
Education, training, employment, and
social services
Health
Medicare
Income security
Social security

On-budget
Off-budget

Veterans benefits and services
Administration of justice
General government
General purpose fiscal assistance
Net interest

On-budget
Off-budget

Allowances:
Civilian agency pay raises
Increased employer share, employee
retirement
Undistributed offsetting receipts:
Employer
share,
employee
retirement (on-budget)
Employer
share,
employee
retirement (off-budget)
Rents and royalties on the Outer Continental Shelf
Sale
of
major
physical
assets (proposed)
Total undistributed offsetting receipts

On-budget
Off-budget
Total outlays.

On-budget....
Off-budget...,

Current services
1986
estimate

1987
estimate

245.4
7.4
16.2
8.6
5.7
13.4
25.6
4.2
25.8
7.7

258.4
7.4
17.1
8.9
4.5
12.9
25.9
4.2
27.2
8.1

276.7

29.3
33.5
65.8
128.2
188.6
(5.2)
(183.4)
26.4
6.3
5.2
6.4
129.4
(133.6)
(-4.1)

31.0
35.9
68.7
119.6
200.0
(8.0)
(192.0)
26.6
6.9
5.7

30.7
38.7
74.9
123.4
212.2
(5.7)
(206.5)
27.1
6.9
6.5
2.8
149.2
(153.9)
(-4.7)

6.2

141.5
(145.9)
(-4.4)

8.2

17.1
9.0
5.1
12.6
21.5
2.9
26.9
7.6

1.4

1987
administration
proposals

274.3
8.0
18.6

9.2
4.0
12.0
19.5
1.4
25.5
6.5
27.4
35.0
70.2
118.4
212.2
(5.7)
(206.5)
26.4
6.9
6.1
1.7
148.0
(152.7)
(-4.7)
0.4
0.3

-24.7

-26.3

-27.3

-28.5

-2.5

-2.8

-3.2

-5.5

-5.3

-5.3
-1.2

-32.8
(-30.3)
(-2.5)
946.3
(769.5)
(176.8)

-34.6
(-31.7)
(-2.8)
982.0
(797.3)
(184.7)

-35.8
(-32.6)
(-3.2)
1,025.9
(827.4)
(198.6)

-38.1
(-35.0)
(-3.2)
994.0
(795.4)
(198.6)

*$50 million or less.

The estimated 1987 current services deficit of $181.8 billion
would add a like amount to the Federal debt. Primarily because of
this increase in debt, net interest outlays would increase by $7.7
billion between 1986 and 1987 under current services assumptions.
Under the 1987 levels contained in the 1986 Congressional
Budget Resolution, outlays in 1987 for the Department of Defense—Military would be $18.3 billion higher than the post-sequestration level for 1986.

A-ll

SPECIAL ANALYSIS A
Table A-5. CURRENT SERVICES OUTLAYS BY AGENCY
(In billions of dollars)
actual
1985

Legislative Branch
The Judiciary
Executive Office of the President
Funds Appropriated to the President
Department of Agriculture
Department of Commerce
Department of Defense—Military
Department of Defense—Civil
Department of Education
Department of Energy
Department of Health and Human Services, except Social Security
Department of Health and Human Services, Social Security
Department of Housing and Urban Development
Department of the Interior
Department of Justice
Department of Labor
Department of State
Department of Transportation
Department of the Treasury
Environmental Protection Agency
General Services Administration
National Aeronautics and Space Administration
Office of Personnel Management
Small Business Administration
Veterans Administration
Other Independent Agencies
Allowances:
Civilian agency pay raises
Increased employer share, employee
retirement
Undistributed offsetting receipts:
Interest received by on-budget trust
funds
Interest received by off-budget trust
funds
Interest received by OCS escrow account
Employer
share,
employee
retirement (on-budget)
Employer
share,
employee
retirement (off-budget)
Rents and royalties on the Outer Continental Shelf
Sale
of
major
physical
assets (proposed)
Total undistributed offsetting receipts...

' On-budget
Off-budget

Total outlays.

On-budget...,
Off-budget...

* $50 million or less.

Current services
1986
estimate

1987
estimate

1987
administration
proposals

1.6
1.0
0.1
12.0
55.5
2.1
245.4
18.8
16.7
10.6

1.9
1.1
0.1
12.5
54.7
2.1
258.4
20.6
18.1
10.1

2.0
1.2
0.1
13.1
50.0
2.3
276.7
21.5
18.0
11.7

2.0
1.2
0.1
13.8
44.6
2.1
274.3
20.9
15.4
10.2

0.7
-5.4
-0.2
-2.5
-0.6
-2.5
-1.4

132.1

141.3

146.8

139.1

-7.7

183.4

192.0

206.5

28.7
4.8
3.6
23.9
2.6
25.0
165.1
4.5
-0.2

16.5
4.3
3.9
23.3
2.8
26.4
183.2
4.6

16.6
4.4
3.9
23.7
2.9
26.1
191.1
4.5
0.4

13.9
4.3
4.1
23.2
3.6
24.7
188.3
4.5

-2.7
-0.1
0.3
-0.5
0.7
-1.4
-2.8

7.3
23.7
0.7
26.3
9.8

7.4
24.1
0.9
26.5
10.9

7.5
26.5
27.0
9.7

1.1

7.5
24.7
0.1
26.4
10.1

-1.8
-1.0
-0.7
0.4

1.4

0.4

-1.0

0.3

-22.1

-26.6

-30.2

-29.6

-4.1

-4.4

-4.7

-0.3
-24.7

-26.3

-27.3

-28.5

-2.5

-2.8

-3.2

-5.5

-5.3

-58.9
(-52.3)
(-6.6)

-65.9

-70.7
(-62.8)
(-7.9)

-72.5
(-64.6)
(-7.9)

-1.2

946.3
(769.5)
(176.8)

(-58.7)

(-7.3)
982.0
(797.3)
(184.7)

1,025.9
(827.4)
(198.6)

994.0
(795.4)
(198.6)

_ *

-0.4
*

A-10

THE BUDGET FOR FISCAL YEAR 1987

Table A-6. CHANGE IN CURRENT SERVICES BUDGET AUTHORITY AND OUTLAYS, 1986 TO 1987
(In billions of dollars)
Budget
authority

1986 current services estimate
(On-budget)
(Off-budget)
Changes:
National defense:
Department of Defense—Military.
Other national defense

1,066.4
(879.1)
(187.3)
36.2
1.1

18.3
0.8

Subtotal, National defense
Social security
Medicare
Income security:
General retirement and disability (excluding social security)..
Federal employee retirement and disability
Unemployment compensation
Housing assistance
Food and nutrition assistance
Other income security programs

37.3
28.2
-2.8

19.1
12.1
6.2

-0.9
4.0
1.1
1.6
0.6
0.3

0.2
2.2
0.3
0.8
0.4
-0.1

Subtotal, income security
International affairs
General science, space, and technology
Energy programs
Natural resources and environment
Agriculture
Commerce and housing credit
Transportation programs
Community and regional development
Education
Training and Employment
Social and other labor services
Medicaid
Other health programs
Veterans programs
General purpose fiscal assistance
Net interest
Allowances for civilian agency pay raises
Undistributed offsetting receipts
All other programs, net

6.8
-0.1
0.3
0.6
2.2
-6.8
0.8
0.7
0.1
0.8
0.1
0.2
1.6
0.4
0.3
-3.9
7.7
1.5
-1.2
1.4

3.8
0.1
0.1
0.6
-0.3
-4.3
-1.2
-0.3
-0.4
0.1
-0.3
-0.1
1.3
1.5
0.5
-3.4
7.7
1.4
-1.2
0.9

76.0
(49.3)
(26.7)

43.9
(30.0)
(13.8)

1,142.4
(928.4)
(214.0)

1,025.9
(827.4)
(198.6)

Subtotal, changes
(On-budget)
(Off-budget)
1987 current services estimate..
(On-budget)
(Off-budget)

The decline of $4.3 billion for the agriculture function between
1986 and 1987 results primarily from a decrease in estimated outlays required for farm price supports and related Commodity
Credit Corporation programs. The decrease of $3.4 billion for the
general purpose fiscal assistance function is largely a result of the
assumed expiration of General Revenue Sharing.

A-ll

SPECIAL ANALYSIS A
Table A-7. PROGRAMMATIC ASSUMPTIONS
Fiscal years
1986

Beneficiaries (annual average, in thousands):
Social security (OASDI) 1
Railroad retirement 2
Federal civil service retirement
Military retirement
Veterans compensation
Veterans pensions
Gl bill
Disabled coal miners programs
Supplemental security income
Maintenance assistance (AFDC)
Food stamps
HUD Housing subsidy recipients (households)
Medicaid
Medicare:
Hospital insurance
Supplementary medical insurance
Automatic benefit increases (percent):
Social security and veterans pensions (January) 3
Federal employee retirement (January)
Food stamps (October)
Unemployment rate (percent, annual average):
Total
Insured 4
Strategic petroleum reserves annual fill rate
(millions of barrels)

1987

1988

1989

1990

1991

37,396
940
2,018
1,496
2,564
1,365
321
380
4,135
10,790
19,720

38,064
926
2,065
1,525
2,543
1,269
252
361
4,211
10,822
19,510

38,686
912
2,112
1,553
2,520
1,185
210
342
4,228
10,872
19,310

39,308
897
2,159
1,583
2,496
1,113
176
324
4,240
10,905
19,050

39,946
881
2,206
1,612
2,471
1,052
106
307
4,253
10,967
18,780

40,579
866
2,253
1,642
2,444
1,002
0
290
4,364
11,021
18,560

4,070
22,894

4,108
23,599

4,320
23,711

4,423
23,837

4,469
24,004

4,609
24,256

30,773
30,566

31,401
31,235

32,000
31,864

32,604
32,502

33,210
33,139

33,785
33,723

3.1
3.1
1.5

3.7
3.7
1.9

4.3
4.3
4.0

3.6
3.6
3.9

3.3
3.3
3.4

0.0
2.7
2.6

6.8
2.7

6.6
2.6

6.4
2.5

6.1
2.4

5.9
2.2

5.6
2.1

12.8

In current pay status as of June.
End of year.
Under current law, cost-of-living adjustments for these programs are not made unless inflation, as measured by the consumer price index, is
above 3 percent.
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.
1

Other large changes in current services outlays between 1986
and 1987 are a $1.3 billion increase in medicaid and a $1.4 billion
increase in allowance for the 1987 civilian agency pay raise.
Budget authority.—Current services budget authority is estimated to total $1,142.4 billion in 1987, $76.0 billion more than in 1986.
Increases in budget authority between 1986 and 1987 generally
reflect the higher funding levels that would be necessary to maintain 1986 nondefense program levels in real terms in 1987. 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 displays erratic year-to-year
changes due to sporadic funding patterns or advance funding.
Tables A - 8 and A - 9 show the estimates of current services
budget authority by function and by agency, respectively. The

A-10

THE BUDGET FOR FISCAL YEAR 1987
Table A-8. CURRENT SERVICES BUDGET AUTHORITY BY FUNCTION
(In billions of dollars)
1985
actual

Current services
1986
estimate

1987
estimate

1987
administration
proposals

1987
differences

National defense:
Department of Defense—Military
Other
International affairs
General science, space, and technology
Energy
Natural resources and environment
Agriculture
Commerce and housing credit
Transportation
Community and regional development
Education, training, employment, and
social services
Health
Medicare
Income security
Social security
On-budget
Off-budget
Veterans benefits and services
Administration of justice
General government
General purpose fiscal assistance
Net interest
On-budget
Off-budget
Allowances:
Civilian agency pay raises
Increased employer share, employee
retirement
Undistributed offsetting receipts:
Employer share, employee retirement
(on-budget)
Employer share, employee retirement
(off-budget)
Rents and royalties on the Outer Continental Shelf
Sale
of
major
physical
assets (proposed)

286.8
7.9
26.5
9.2
8.8
13.3
27.5
12.1
29.6
8.2

278.4
7.7
20.0
8.8
5.9
10.4
28.1
10.0
27.9
7.3

314.7
8.8
20.0
9.2
6.5
12.6
21.2
10.8
28.6
7.4

311.6
8.7
22.6
9.5
4.4
10.9
19.6
10.2
22.6
3.8

-3.1
-0.1
2.7
0.3
-2.1
-1.7
-1.6
-0.6
-6.1
-3.6

32.4
33.6
71.7
164.1
199.5
(8.5)
(191.0)
27.4
6.7
6.0
6.3
129.4
(133.6)
(-4.1)

30.2
36.4
86.6
156.3
199.4
(4.8)
(194.6)
27.4
6.8
5.8
6.0
141.5
(145.9)
(-4.4)

31.4
38.3
83.8
163.1
227.6
(5.7)
(221.9)
27.6
7.1
6.9
2.1
149.2
(153.9)
(-4.7)

27.0
35.3
82.3
153.3
227.9
(5.7)
(222.2)
26.7
7.1
6.2
1.7
148.0
(152.7)
(-4.7)

-4.4
-3.0
-1.6
-9.8
0.3
(V
(0.3)
-0.9
0.1
-0.7
-0.3
-1.2
(-1.2)
(-*)

1.5

0.4

-1.0

0.3

0.3
-1.2
*

Total undistributed offsetting receipts
On-budget
Off-budget

-32.8
(-30.3)
(-2.5)

-34.6
(-31.7)
(-2.8)

1,074.1
(889.7)
(184.3)

1,066.4
(879.1)
(187.3)

Total budget authority
On-budget
Off-budget

-24.7

-26.3

-27.3

-28.5

-2.5

-2.8

-3.2

-5.5

-5.3

-5.3
-1.2

-1.2

-35.8
(-32.6)
(-3.2)

-38.1
(-35.0)
(-3.2)

-2.4
(-2.4)
(*)

1,142.4
(928.4)
(214.0)

1,102.0
(887.7)
(214.3)

-40.4
(-40.7)
(0.3)

*$50 million or less.

m a j o r c o m p o n e n t s of t h e c h a n g e s in c u r r e n t services budget authority b e t w e e n 1986 a n d 1987 are also s h o w n in table A - 6 .
A n increase in budget a u t h o r i t y of $ 2 8 . 2 billion for social securit y is p r i m a r i l y due to h i g h e r social security trust f u n d receipts.
Budget

authority

for M e d i c a r e

declines b y $2.8 billion

between

1986 a n d 1987; this is because t h e 1986 level is u n u s u a l l y

high,

A-ll

SPECIAL ANALYSIS A
Table A-9. CURRENT SERVICES BUDGET AUTHORITY BY AGENCY
(In billions of dollars)
actual
1985

Legislative Branch
The Judiciary
Executive Office of the President
Funds Appropriated to the President
Department of Agriculture
Department of Commerce
Department of Defense—Military
Department of Defense—Civil
Department of Education
Department of Energy
Department of Health and Human Services, except Social Security
Department of Health and Human Services, Social Security
Department of Housing and Urban Development
Department of the Interior
Department of Justice
Department of Labor
Department of State
Department of Transportation
Department of the Treasury
Environmental Protection Agency
General Services Administration
National Aeronautics and Space Administration
Office of Personnel Management
Small Business Administration
Veterans Administration
Other Independent Agencies
Allowances:
Civilian agency pay raises
Increased employer share, employee
retirement
Undistributed offsetting receipts:
Interest received by on-budget trust
funds
Interest received by off-budget trust
funds
Interest received by OCS escrow account
Employer share, employee retirement
(on-budget)
Employer share, employee retirement
(off-budget)
Rents and royalties on the Outer Continental Shelf
Sale
of
major
physical
assets (proposed)
Total undistributed offsetting receipts...

On-budget
Off-budget

Total budget authority ..

On-budget
Off-budget.

* $50 million or less.

Current services
estimate

1987
estimate

1987
administration
proposals

2.0

30.4
19.1
12.6

1.8
1.0
0.1
15.3
57.6
2.0
278.4
34.0
17.8
9.9

1.2
0.1
14.2
53.1
2.3
314.7
36.5
18.5
11.6

2.0
1.2
0.1
15.6
45.8
1.8
311.6
36.6
15.2
10.3

141.1

155.2

155.7

151.0

191.0

194.6

221.9

222.2

31.4
5.0
3.8
27.7
3.6
166.3
4.3
0.3

16.3
3.9
3.9
27.6
3.4
27.2
183.2
2.8
0.2

18.2
4.3
4.0
28.9
3.4
27.8
190.8
4.8
0.7

5.5
3.9
4.3
28.5
4.9
21.7
190.3
4.2
0.2

7.6
41.6
1.3
27.3
15.5

7.3
43.5
0.9
27.0
17.0

7.6
45.0
1.2
27.3
15.9

7.7
46.6
0.1
26.6
15.7

1.5

0.4

1.7
1.1
0.1
20.5
61.9
2.3

286.8

28.8

0.3
-22.1

-26.6

-30.2

-29.6

-4.1
_*

-4.4

-4.7

-0.3
-24.7

-26.3

-27.3

-28.5

-2.5

-2.8

-3.2

-5.5

-5.3

-58.9
(-52.3)
(-6.6)

-65.9
(-58.7)

-70.7
(-62.8)
(-7.9)

-72.5
(-64.6)
(-7.9)

-1.2

1,074.1
(889.7)
(184.3)

(-7.3)

1,066.4
(879.1)
(187.3)

1,142.4
(928.4)
(214.0)

1,102.0
(887.7)
(214.3)

A-10

THE BUDGET FOR FISCAL YEAR 1987

reflecting a transfer of $10.6 billion from the social security trust
fund to payoff earlier interfund borrowing. If the 1986 level were
adjusted to exclude this repayment, increases in Medicare trust
fund receipts would raise the 1987 budget authority level above
that in 1986.
A $36.2 billion increase in budget authority for the Department
of Defense—Military reflects the increases in defense purchases
needed to reach the Congressional Budget Resolution levels for
1987. Budget authority for net interest increases by $7.7 billion
because of higher borrowing requirements. Other major changes in
current services budget authority include a $4.0 billion increase for
Federal employee retirement and disability; a $6.8 billion decrease
in agriculture programs; a $3.9 billion decrease for general purpose
fiscal assistance; and a $1.6 billion increase for Medicaid.
DIFFERENCES BETWEEN CURRENT SERVICES AND THE BUDGET

The differences between the administration's budget proposals
and the current services estimates are summarized in table A-10.
Table A-10. SUMMARY OF CURRENT SERVICES AND PROPOSED BUDGET TOTALS
(In billions of dollars)
Estimate

1985

actual

Receipts:
Current services
Effect of proposals
Administration budget
Total outlays:
Current services
Effect of proposals
Administration budget
Total surplus or deficit ( - ) :
Current services
Effect of proposals
Administration budget
Receipts excluding off-budget:
Current services
Effect of proposals
Administration budget
Outlays excluding off-budget:
Current services
Effect of proposals
Administration budget
Deficit excluding off-budget:
Current services
Effect of proposals
Administration budget

1986

1987

734.1

776.5
0.7
777.1

844.1
6.3
850.4

734.1
946.3
946,3
-212.3
-212.3
547.9
547.9
769.5
769.5
-221.6
-221.6

1989

927.3
5.9
933.2

1990

989.2 1.053.0
6.9
5.0
996.1 1.058.1

982.0 1,025.9 1,077.3 1,128.1 1,179.3
-31.9 -50.5 -64.5 -85.5
979.9 994.0 1,026.8 1,063.6 1,093.8

-2.1

-205.6 - 1 8 1 . 8 -150.0 -138.9 -126.3
71.4
38.2
56.4
90.5
2.8
-202.8 -143.6 - 9 3 . 6 - 6 7 . 5 - 3 5 . 8
578.5
0.7
579.2

630.1
6.0

636.1

684.7
5.7
690.4

797.3

827.4
-32.0
795.4

867.6
-50.4
817.1

-2.1

795.2

-218.8
2.8
-216.0

726.4
6.1

732.5

766.9
5.0
771.9

908.1 947.4
-64.4 -85.3
843.8 862.1

-197.2 -182.9 -181.7 -180.5
70.4
38.0
90.3
56.1
-159.3 -126.8 -111.3 - 9 0 . 1

A-ll

SPECIAL ANALYSIS A

The administration's proposals would reduce the current services
budget deficit by $38.2 billion in 1987 and would reduce the 1991
deficit by $105.2 billion. Between 1986 and 1991, the cumulative
deficit reductions proposed by the administration total $364.6 billion. Receipts proposals would reduce the deficit by a total of $28.7
billion between 1986 and 1991, whereas proposed outlay reductions
would reduce the deficit by $335.9 billion over the same period. As
shown in table A - l l , reductions to human resources programs
account for $166.6 billion or 46% of the cumulative reduction in
total deficits. Cumulative increases for international affairs, space
and science, and administration of justice are $8.4 billion. Reductions to civilian agency pay and selective reductions in other domestic programs account for $109.0 billion or 30% of the total
deficit reduction. Net interest savings from all of the reductions
during 1986-1991 total $32.7 billion.
Table A - l l . COMPOSITION OF ADMINISTRATION BUDGET PROPOSALS:
CHANGE FROM CURRENT SERVICES
(In billions of dollars)
1987

1988

1989

1990

1991

Total 19861991

-2.7

1986

-4.5

-6.3

-9.3

-13.1

-36.0

National defense
International affairs,
space and science, and
justice
Human resources1
Net interest
Other domestic programs...

-2.1
1.2
-1.3

+ 1.7
-17.4
-1.2
-12.3

+ 1.5
-26.0
-3.6
-17.9

+ 1.8
-33.2
-6.8
-20.0

+ 1.6
-40.5
-9.5
-27.9

+ 1.7
-47.4
-12.8
-29.7

+ 8.4
-166.6
-32.7
-109.0

Subtotal, outlaysReceipts 2

-2.1
-0.7

-31.9
-6.3

-50.5
-5.9

-64.5
-6.9

-85.5
-5.0

-101.4
-3.9

-335.9
-28.7

-2.8
(-2.8)
(-*)

-38.2
(-38.0)
(-0.2)

-56.4
(-56.1)
(-0.3)

-71.4
(-70.4)
(-1.0)

Total deficit
reduction
(On-budget)....
(Off-budget)....

-90.5
-105.2
-364.6
(-90.3) (-105.9) (-363.6)
(-0.2)
(-1.0)
(0.7)

*50 million or less.
1 Education, training, employment and social services; Health; Medicare; Income security; Social security; and Veterans functions.
2 Receipt increases are shown as a negative because they reduce the deficit.

Receipts.—As shown in table A-12, the administration's estimate
of receipts for 1986 is $0.7 billion above the current services level of
$776.5 billion, in large part due to the extension of the temporary
doubling of the cigarette excise tax, which is scheduled to expire
effective March 15, 1986.
Current services receipts for 1987 are estimated at $844.1 billion,
$6.3 billion below the administration's estimate. Legislative and

A-10

THE BUDGET FOR FISCAL YEAR 1987

Table A-12. DIFFERENCES BETWEEN CURRENT SERVICES AND ADMINISTRATION POLICY RECEIPTS
(In billions of dollars)
1986

Current services receipts estimates..
(On-budget)
(Off-budget)
Differences:
Higher education tax incentive
Tuition tax credit
Railroad unemployment insurance coverage
Black lung disability trust fund 1 .
State and local deposit of payroll
taxes
Equitable taxation of rail industry benefits
IRS revenue initiative
Nuclear Regulatory Commission
fee
Hazardous substance response
trust f u n d 1
Cigarette excise t a x 1
Repeal gasohol and bus exemptions 1
Increase in D.C. employer contribution to civil service retirement
Increase in employee contribution to civil service retirement.,
IRS automated
examination
system
IRS cost of collection charge
Railroad windfall subsidy financing
Federal pay raise proposal
Petroleum overcharge funds
Other
Total differences..
(On-budget)......
(Off-budget)
Administration policy receipts estimates
(On-budget)
(Off-budget)

1987

1988

1989

1990

844.1
(630.1)
(214.0)

927.3
(684.7)
(242.6)

989.2
(726.4)
(262.8)

1,053.0
(766.9)

-0.2
-0.6

-0.3
-0.9

-0.6

-0.4

776.5
(578.5)
(197.9)

(286.2)
-0.9

0.1
0.2

0.4

0.3

1.2

0.1

0.1
1.5

0.1

0.6

2.6

0.1
2.8

0.2

0.1
1.7

0.1

1.7

0.2

0.1

0.9

1.2

0.3
0.3

-0.1

1.2
0.8
0.4

1.2
0.4

1.3
0.4

0.1

0.1
-1.4

0.1
-1.9

0.1
-0.4
1.0
0.9

-0.8

0.6

0.4

0.7
(0.7)
(-)

6.3
(6.0)
(0.3)

5.9
(5.7)
(0.2)

6.9
(6.1)
(0.9)

5.0
(5.0)
(-*)

777.1
(579.2)
(197.9)

850.4
(636.1)
(214.3)

933.2
(690.4)
(242.8)

996.1
(732.5)
(263.7)

1,058.1
(771.9)
(286.1)

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

administrative proposals, which include the acceleration of State
and local deposit of social security payroll taxes, increases in contributions to civil service retirement (CSR), extension of the temporary doubling of the cigarette excise tax, an IRS revenue initiative,
an IRS automated examination system, a higher education tax

A-ll

SPECIAL ANALYSIS A

incentive, and a tuition tax credit, increase receipts by a net $6.7
billion above the current services level.1 The administration's Federal employee pay raise proposal reduces Federal employee retirement contributions, social security (OASDHI) receipts, and individual income taxes by $0.4 billion.
The administration's proposals, including the effect on receipts of
reduced Federal employee pay raises, are estimated to increase
receipts above the current services level by between $3.9 billion
and $6.9 billion in each year, 1988-1991.
Outlays.—Table A-13 shows the major differences between the
administration's budget request and current services for outlays by
function.
A detailed discussion of the administration's budget authority
and outlay proposals is presented in the Budget of the United
States Government, Fiscal Year 1987, Part 5, "Meeting National
Needs: The Federal Program by Function."
Table A-13. DIFFERENCES BETWEEN CURRENT SERVICES AND ADMINISTRATION POLICY OUTLAYS
(Outlays; in billions of dollars)
1987

Current services estimates
(On-budget)
(Off-budget)
Differences:
National defense.Department of Defense—Military
Other

International affairs:
International development and
humanitarian assistance
International security assistance:
Military assistance
Other
Subtotal, International
security assistance
Conduct of foreign affairs
Foreign information and exchange activities
International financial programs
Subtotal, international affairs

1,025.9
(827.4)
(198.6)

1,077.3
(867.6)
(209.7)

1,128.1
(908.1)
(220.0)

1,179.3
(947.4)
(232.0)

1,224.1
(985.4)
(238.6)

-4.3
-0.3

-6.0
-0.3

-8.5
-0.8

-12.4
-0.7

-4.5

-6.3

-9.3

-13.1

-0.1

-0.3

-0.4

0.2
0.7

0.2
0.8

0.2
0.7

0.8
0.7

0.9
0.7

1.0
1.0

0.9
1.1

0.9
0.8

0.1

0.2

-0.3

1991

0.1
*

1990

0.2
0.6

Subtotal, national defense

1989

-2.7

982.0
(797.3)
(184.7)

1988

-2.5
-0.2

1986

-0.4

1.3

1.5

1.4

1.0

0.1
*

0.1

1.5

1 A more detailed discussion of the administration's receipts proposals is presented in the Budget of the
United States Government, Fiscal Year 1987, Part 4, "Federal Receipts by Source."

A-10

THE BUDGET FOR FISCAL YEAR 1987

Table A-I3. DIFFERENCES BETWEEN CURRENT SERVICES AND ADMINISTRATION POLICY OUTLAYS—
Continued
(Outlays; in billions of dollars)
1987

1986

General science,
technology

space,

and

Energy
Natural resources and environment
Agriculture:
Farm income stabilization
Agricultural research and
services

1988

1989

1990

1991

__ *

0.2

0.3

0.8

-0.1

-1.1

-0.7

-0.9

-1.2

-1.4

-0.6

-1.1

-1.3

-1.7

-2.2

_ *

-1.7

-1.4

-1.8

-2.6

-2.5

-0.3

-0.4

-0.5

-2.0

-1.7

-2.2

-3.0

-0.4

-1.7
0.8

-2.1
0.6

-2.6
*

-2.9
0.2

-3.2
0.1

_ *

-0.6

-1.3

-1.4

-1.2

-0.4

-1.6

-2.8

-4.0

-4.2

_ *
*

-1.2
*

-0.2
*

-2.1
-0.2
-0.3
*

-3.6
-0.2
-0.3
*

-4.6
-0.3
-0.4
*

-5.8
-0.4
-0.4
*

-0.1

-1.4

-2.6

-4.1

-5.2

-6.5

Community and regional development

-0.1

-1.1

-2.2

-2.9

-2.6

-2.7

Education, training, employment,
and social services:
Education
Training and employment
Social services and other

-0.2
-0.1
-0.1

-2.4
-0.6
-0.3

-3.9
-0.7
-0.5

-4.1
-0.9
-0.7

-5.0
-1.0
-0.8

-5.7
-1.1
-0.9

Subtotal, education, training, employment, and
social services

-0.3

-3.3

-5.1

-5.7

-6.8

-7.7

-0.2

-1.3
-2.4

-2.6
-2.1

-3.5
-2.7

-4.3
-3.2

-5.3
-3.7

-0.2

-3.7

-4.8

-6.2

-7.6

-9.0
-17.0

Subtotal agriculture
Commerce and housing credit:
Mortgage credit and deposit
insurance
Postal service
Other advancement of commerce
Subtotal, commerce and
housing credit
Transportation:
Ground transportation
Air transportation
Water transportation
Other transportation
Subtotal, transportation

Health:
Medicaid
Other health
Subtotal, health
Medicare
Income security:
General retirement and disability (excluding social
security)
Federal employee retirement
and disability

-4.7

-7.7

-10.6

-13.7

-0.2

-0.3

-0.4

-1.2

-2.0

-2.7

-3.4

-4.0

A-ll

SPECIAL ANALYSIS A

Table A-13. DIFFERENCES BETWEEN CURRENT SERVICES AND ADMINISTRATION POLICY OUTLAYS—
Continued
(Outlays; in billions of dollars)
1986

1987

1988

1989

1990

1991

Unemployment compensation
Housing assistance
Food and nutrition assistanceOther income security

-1.2
-0.1
*

0.1
-2.1
-1.1
-0.4

0.1
-3.1
-1.4
-0.5

0.1
-3.6
-1.7
-0.6

0.1
-4.0
-1.8
-0.7

0.1
-4.3
-1.9
-0.8

Subtotal, income security. .

-1.5

-5.0

-7.2

-8.9

-10.3

-11.4

-0.1
(*)
(-0.1)

-0.2
(*)
(-0.2)

-0.3
(*)
(-0.3)

Social Security
(On-budget)
(Off-budget)
Veterans benefits and services:
Income security for veterans
Hospital and medical care for
veterans
Other

_ *

-0.6
-0.1

-1.0
*

-0.7

-0.1

0.2
0.1
-0.3

-0.1

0.3
0.3

-0.1
-0.4

0.6
*

-1.4
-0.2

-1.4
-0.4

-1.4
-0.5

-1.1

-1.6

-1.8

-2.0

0.2
0.2
-0.4

0.2
0.1
-0.4

0.2
0.1
-0.5

_ *

-0.1

0.6
-0.4

0.7
-0.1

0.8
-0.3

0.9
-0.7

-0.4

0.1

0.7

0.5

0.1

-1.1

-0.4

-1.2
(-1.2)
(-*)

-3.6
(-3.6)
(-*)

-6.8
(-6.8)
(-*)

-9.5
(-9.4)
(-0.1)

-12.8
(-12.8)
(-*)

Allowances:
Civilian agency pay raises
Other

-1.0
0.3

-1.3
0.4

-2.1
0.4

-3.0
0.4

-3.7
0.3

Subtotal, allowances

-0.7

-0.9

-1.7

-2.6

-3.4

-1.2
(-1.2)
(*)

-1.4
(-1.5)
(*)

-1.6
(-1.7)
(0.1)

-1.2
(-1.3)

-1.2

-4.2

-1.5

-5.8

-4.8

_ *

Subtotal, veterans benefits
and services
Administration of justice:
Federal law enforcement activities
Federal correctional activities...
Other
Subtotal, administration of
justice
General government:
Central fiscal operations
Other
Subtotal, general government
General purpose fiscal assistance..
Net interest
(On-budget)
(Off-budget)

Undistributed offsetting receipts:
Employer share, employee retirement.....
(On-budget)
(Off-budget)
Rents and royalties on the
Outer Continental Shelf
Sale of major physical assets
(proposed)

1.2
(1.2)

-1.2

_ *

(0.2)

A-10

THE BUDGET FOR FISCAL YEAR 1987

Table A-13. DIFFERENCES BETWEEN CURRENT SERVICES AND ADMINISTRATION
Continued

OUTLAYS—

(Outlays; in billions of dollars)
1986

1987

1988

1989

-1.2
(-1.2)

-2.4
(-2.4)
(*)

-5.6
(-5.7)
(*)

-3.1
(-3.2)
(0.1)

Total, differences
(On-budget)
(Off-budget)

-2.1
(-2.1)
(*)

-31.9
(-32.0)
(0.1)

-50.5
(-50.4)
(-0.1)

-64.5
(-64.4)
(-0.1)

Administration policy
estimates
(On-budget)
(Off-budget)

979.9
(795.2)
(184.7)

994.0
(795.4)
(198.6)

1,026.8
(817.1)
(209.6)

1,063.6
(843.8)
(219.9)

Subtotal, undistributed offsetting receipts
(On-budget)
(Off-budget)

1990

1991

-7.3
(-7.4)
(0.1)

-6.0
(-6.2)
(0.2)

-101.4
-85.5
(-85.3) (-101.2)
(-0.2)
(-0.2)
1,093.8
(862.1)
(231.8)

1,122.7
(884.3)
(238.5)

*$50 million or less.

The effects of the administration budget proposals on Federal
borrowing and debt held by the public are substantial. As shown in
table A-14, the budget proposals would reduce the debt held by
the public in 1991 by $365 billion, from $2,413 billion to $2,048
billion.
Table A-14. DIFFERENCES BETWEEN CURRENT SERVICES AND ADMINISTRATION BUDGET REQUEST
BORROWING REQUIREMENTS
(In billions of dollars)
1986

Requirements for borrowing from the public:
Current services
Budget proposals
Difference
End of year debt held by the public:
Current services
Budget proposals
Difference

207
204

1987

1988

1989

1990

1991

180
142

149
93

138
67

125
35

103
-2

-3

-38

-56

-71

-91

-105

1,717
1,714

1,897
1,856

2,046
1,949

2,184
2,015

2,310
2,050

2,413
2,048

-3

-41

-97

-169

-259

-365

Tables A-15 and A-16 provide a more detailed comparison (by
function, subfunction, and program) of the President's policy estimates for 1987 with the current services budget authority and
outlay estimates.

A-ll

SPECIAL ANALYSIS A
Table A-15. CURRENT SERVICES BUDGET AUTHORITY BY FUNCTION AND PROGRAM
(In millions of dollars)
1985
actual

050 NATIONAL DEFENSE
051 Department of Defense-Military
053 Atomic energy defense activities
054 Defense-related activities
Total budget authority

Current services

1987
administration
proposals

1986
estimate

1987
estimate

286,802

278,412

314,652

311,600

7,325

7,232

8,350

8,230

528

471

441

510

294,656

286,115

323,443

320,340

150 INTERNATIONAL AFFAIRS
151 International development and humanitarian
assistance:
Multilateral development banks-.
Existing law
Proposed legislation
International organizations
Agency for International Development
P.L. 480 food aid
Refugee assistance
Other
Offsetting receipts

1,548

1,143

1,193

359
2,492
1,964
363
249
-479

266
1,992
1,243
324
218
-524

271
2,069
1,311
363
226
-552

1,348
44
186
2,098
1,164
373
232
-552

Subtotal, International development and humanitarian assistance

6,496

4,662

4,880

4,893

4,940
1,683
805
6,160
214
-71

4,967
950
748
3,547
92
-68

5,176
473
779
3,613
95
-70

5,661
473
996
4,094
118
-70

13,730

10,236

10,066

11,272

153 Conduct of foreign affairs:
Administration of foreign affairs
International organizations and conferences
Other

2,272
545
-306

2,125
477
-308

2,110
447
-274

3,609
493
-272

Subtotal, Conduct of foreign affairs

2,510

2,294

2,284

3,830

940

938

999

1,129

2,862

2,000

1,300
536

1,300

-85

-87

-89

152 International security assistance:
Foreign military sales credit
Foreign military sales (FFB)
Military assistance
Economic support fund
Other
Offsetting receipts
Subtotal, International security assistance

154 Foreign information and exchange activities
155 International financial programs:
Foreign military sales trust fund (net)
Export-Import Bank
Fair export financing program
Offsetting receipts
Subtotal, International financial programs
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
Subtotal, General science and basic research

300
-89

2,776

1,913

1,747

1,511

26,453

20,043

19,976

22,636

1,505
722

1,463
656

1,521
690

1,691
773

2,227

2,119

2,211

2,464

253 Space flight

3,951

3,776

3,795

3,777

254 Space, science, applications, and technology

2,023

2,119

2,212

2,219

950

833

962

992

255 Supporting space activities

A-10

THE BUDGET FOR FISCAL YEAR 1987

Table A-15. CURRENT SERVICES BUDGET AUTHORITY BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
1985
actual

Total budget authority..
270 ENERGY
271 Energy supply:
Research and development
Uranium enrichment
Nuclear waste disposal fund
Petroleum reserves:
Existing law
Proposed legislation
Tennessee Valley Authority
Other power marketing:
Existing law
Proposed legislation
Subsidies for nonconventional fuel production..
Rural electric and telephone:
Existing law
Proposed legislation
Subtotal, Energy supply..
272 Energy conservation:
Energy conservation grants and R&D
Solar Energy and Energy Conservation Bank..
Subtotal, Energy conservation
274 Emergency energy preparedness
276 Energy information, policy, and regulation.
Total budget authority
300 NATURAL RESOURCES AND ENVIRONMENT
301 Water resources:
Corps of Engineers:
Existing law
Proposed legislation
Bureau of Reclamation:
Existing law
Proposed legislation
Other
Offsetting receipts:
Existing law
Proposed legislation
Subtotal, Water resources.
302 Conservation and land management:
Management of national forests,cooperative forestry,
and forestry research (Forest Service):
Existing law
Proposed legislation
Management of public lands (BLM):
Existing law
Proposed legislation
Mining reclamation and enforcement
Conservation of agricultural lands
Other:
Existing law...
Proposed legislation
Offsetting receipts:
Existing law
Proposed legislation

Current services
1986
estimate

1987
estimate

9,152

8,847

9,180

2,309
238
-1,467

2,061
176
118

2,336

-689

-818

-637

856

766

716

-41

-124

-126

1,464

2,840

2,475

2,566

5,511

4,677

5,202

457
15

428

396

472

428

396

346"

2,056

113

193

719

673

677

8,758

5,891

6,468

2,932

2,788

3,062

1,098

781

902

227

261

269

-169

-231

-394

4,087

3,600

3,839

1,831

1,734

1,757

562

457

466

377
624

279
595

298
607

296
-2,245

280
-2,573

287
-2,775

A-ll

SPECIAL ANALYSIS A

Table A-15. CURRENT SERVICES BUDGET AUTHORITY BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
Current services

1985
actual

Subtotal, Conservation and land management..
303 Recreational resources:
Federal land acquisition:
Existing law
Proposed legislation
Urban park and historic preservation funds
Operation of recreational resources:
Existing law
Proposed legislation
Offsetting receipts:
Existing law
Proposed legislation
Subtotal, Recreational resources..
304 Pollution control and abatement:
Regulatory, enforcement, and research programsHazardous substance response fund:
Existing law
Proposed legislation
Oil pollution funds (gross)
Sewage treatment plant construction grants:
Existing law
Proposed legislation
Offsetting receipts:
Existing law
Proposed legislation
Subtotal, Pollution control and abatement..
306 Other natural resources:
Program activities
Offsetting receipts:
Existing law
Proposed legislation
Subtotal, Other natural resources..
Total budget authority
350 AGRICULTURE
351 Farm income stabilization:
Commodity price support and related programs:
Existing (aw
Proposed legislation
Crop insurance:
Existing law
Proposed legislation
Agricultural credit:
Existing law
Proposed legislation
Agricultural credit (FFB):
Existing law
Proposed legislation
Other programs and unallocated overhead
Subtotal, Farm income stabilization
352 Agricultural research and services:
Research programs
Extension programs
Marketing programs:
Existing law
Proposed legislation

1986
estimate

1987
estimate

1,446

774

640

356

217

224

1,265

1,316

1,343

-72

-78

-81

1,574

1,478

1,511

1,296

1,374

1,412

606

860

895

2,400

574

2,480

-38

-61

4,303

2,778

4,734

1,935

1,766

1,913

-1

- 2

-1

1,934

1,764

1,912

13,344

10,394

12,636

15,249

21,694

15,703

474

344

617

2,981

2,022

2,873

6,815

2,172

166

25,569

26,232

19,359

821
344

765
328

780
342

131

129

A-10

THE BUDGET FOR FISCAL YEAR 1987

Table A-15. CURRENT SERVICES BUDGET AUTHORITY BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
Current services

1985
actual

Animal and plant health programs.Existing law
Proposed legislation
Economic intelligence
Other programs and unallocated overhead:
Existing law
Proposed legislation
Offsetting receipts
Subtotal, Agricultural research and services..
Total budget authority....
370 COMMERCE AND HOUSING CREDIT
371 Mortgage credit and deposit insurance:
Mortgage purchase activities (GNMA)
Mortgage credit (FHA and other)
Housing for the elderly or handicapped
Rural housing programs (FmHA)
Federal Savings & Loan Insurance Corp & otherSubtotal, Mortgage credit and deposit insurance..
372 Postal Service:
Existing law
Proposed legislation
Subtotal, Postal Service
376 Other advancement of commerce:
Small and minority business assistance:
Existing law
Proposed legislation
Science and technology
Economic and demographic statistics
International trade and other:
Existing law
Proposed legislation
Subtotal, Other advancement of commerce..
Total budget authority
400 TRANSPORTATION
401 Ground transportation:
Highways (including block grant proposal)
Highway safety
Mass transit (including block grant proposal)..
Railroads
Regulation:
Existing law
Proposed legislation
Subtotal, Ground transportation..
402 Air transportation:
Airports and airways (FAA)
Aeronautical research and technology..
Regulation
Air carrier subsidies
Subtotal, Air transportation
403 Water transportation:
Marine safety and transportation:
Existing law

1986
estimate

1987
estimate

310
.........

317
..........

211

206

209

-92

-90

306
191

1,911

1,830

1,873

27,480

28,062

21,232

160
504
6,218
200

123
504
3,368

130
532
4,945

7,081

3,994

5,607

2,639

3,974

2,765

2,639

3,974

2,765

1,303

929

1,228

361
197

334
217

353
286

528

506

514

2,389

1,985

2,381

12,109

9,953

10,752

14,964
315
4,178
809

14,717
259
3,616
682

15,379
237
3,738
741

20,318

19,320

20,144

5,317
648
5
41

4,726
606

4,799
648

6,011

5,358

5,476

2,534

2,231

2,288

A-ll

SPECIAL ANALYSIS A

Table A-15. CURRENT SERVICES BUDGET AUTHORITY BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
1985
actual

Current services
1986
estimate

1987
administration
proposals

1987
estimate

Proposed legislation
Proposed boat and yacht fees
Ocean shipping
Regulation

559
12

894
11

596
12

5
-238
465
12

Subtotal, Water transportation

3,105

3,137

2,895

2,630

407 Other transportation

126

119

120

126

Total budget authority

29,559

27,934

28,636

3,472
440

3,125
330
150
419

2,125

350

2,990
316
144
376

Subtotal, Community development

4,262

3,826

4,024

2,462

452 Area and regional development:
Rural development
Economic development assistance
Indian programs
Regional commissions
Tennessee Valley Authority
Offsetting receipts

2,331
259
1,122
155
125
-328

1,741
200
1,081
120
100
-300

1,692
209
1,136
125
113
-315

1,180
1,101
1
58
-313

3,664

2,943

2,960

2,027

246
13
127

-403
-483
100
5
65

450 COMMUNITY AND REGIONAL DEVELOPMENT
451 Community development:
Community development block grants
Urban development action grants
Rental rehabilitation and rental development
Other

Subtotal, Area and regional development
453 Disaster relief and insurance:
Small business disaster loans:
Existing law
Proposed legislation
Disaster relief
National flood insurance fund
Other
Subtotal, Disaster relief and insurance
Total budget authority
500 EDUCATION, TRAINING, EMPLOYMENT, AND
SOCIAL SERVICES
501 Elementary, secondary, and vocational education:
Block grant and special programs:
Existing law
Proposed legislation
Compensatory education
Education for the handicapped
Impact aid
Vocational and adult education
Other:
Existing law
Proposed legislation
Subtotal, Elementary, secondary, and vocational
education
502 Higher education:
Student financial assistance.Existing law
Proposed legislation
Guaranteed student loan program:
Existing law

100
139

346
79
123

22,565

338

239

548

385

-715

8,166

7,317

7,370

3,775

758

675

696

3,696
1,321
695
940

3,537
1,350
663
907

3,689
1,408
693
946

604
75
3,688
1,303
548
512

552

528

545

436
76

7,963

7,660

7,977

7,242

5,160

4,677

4,875

25
3,788

3,800

3,331

3,445

A-10

THE BUDGET FOR FISCAL YEAR 1987

Table A-15. CURRENT SERVICES BUDGET AUTHORITY BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
1985
actual

Proposed legislation
Other:
Existing law
Proposed legislation

Current services
1986
estimate

1987
estimate

1987
administration
proposals

-1,115
803

718

740

318
286

9,763

8,726

9,059

6,746

503 Research and general education aids

1,223

1,179

1,292

1,118

504 Training and employment:
Employment and training assistance
Older Americans employment
Work incentive program
Federal-State employment service
Other

3,775
326
267
987
68

3,337
312
211
954
65

3,447
312
220
983
65

2,910
326

5,422

4,879

5,027

4,250

716

679

686

715

2,725
372
1,234
770

2,584
354
1,310
761

2,584
370
1,362
831

2,700
4
1,225
818

2,007

1,929

2,007

150
25

145
23

148
23

1,948
30
150
20

Subtotal, Higher education

Subtotal, Training and employment
505 Other labor services
506 Social services:
Social services block grant
Community service programs
Rehabilitation services
Family social services
Services for children, the elderly, and other special
groups:
Existing law
Proposed legislation
Domestic volunteer programs.
Other social services

951
63

7,285

7,106

7,326

6,895

32,372

30,229

31,368

26,965

21,845

24,440

25,998

25,880
-1,172

1,342

1,537

1,469

1,469
-322

3,267

3,211

3,322

2,812
190

Subtotal, Health care services

26,454

29,189

30,789

28,857

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

4,883
518

4,995
538

5,095
712

4,680
680

Subtotal, Social services
Total budget authority
550 HEALTH
551 Health care services:
Medicaid grants:
Existing law
Proposed legislation
Federal employees' health benefits:
Existing law
Proposed legislation
Other health care services.Existing law
Proposed legislation

5,402

5,533

5,807

5,360

553 Education and training of health care work
force:
Research training
Clinical training
Other

269
237
43

263
217
39

274
224
41

257
3
19

Subtotal, Education and training of health care
work force

549

519

539

279

Subtotal, Health research

A-ll

SPECIAL ANALYSIS A

Table A-15. CURRENT SERVICES BUDGET AUTHORITY BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
1985
actual

554 Consumer and occupational health and safety:
Consumer safety:
Existing law
Meat and poultry inspection fees
Occupational safety and health
Subtotal, Consumer and occupational health and
safety
Total budget authority..
570 MEDICARE
571 Medicare:
Hospital insurance (HI):
Existing law
Proposed legislation
Supplementary medical insurance (SMI):
Existing law
Proposed legislation
Medicare premiums and collections:
Existing law
Proposed legislation
Interfund transactions:
Existing law
Proposed legislation
Total budget authority..
600 INCOME SECURITY
601 General retirement and disability insurance
(excluding social security):
Railroad retirement:
Existing law
Proposed legislation
Special benefits for disabled coal miners:
Existing law
Proposed legislation
Other
Subtotal, General retirement and disability insurance (excluding social security)
602 Federal employee retirement and disability:
Civilian retirement and disability programs:
Existing law
Proposed legislation
Military retirement
Federal employees workers' compensation (FECA)
Subtotal, Federal employee retirement and disability
603 Unemployment compensation:
Existing law
Proposed legislation
Subtotal, Unemployment compensation..

Current services
estimate

1987
estimate

816

785

794

380

363

372

1,196

1,148

1,166

33,601

36,389

38,301

52,739

67,335

62,598

24,576

24,934

27,887

-5,562

-5,771

-6,655

-52

150

71,701

86,648

83,830

5,131

5,597

4,880

1,373

1,708

1,556

78"

87"

6,564

7,383

6,523

40,873

42,603

44,211

27,426
207

30,955
232

33,365
264

68,506

73,790

77,840

21,001

21,079

22,181

21,001

21,079

22,181

10,759
1,402

9,394
1,159

10,522
1,204

14,566

1,238

1,632

604 Housing assistance:
Public housing operating subsidies..
Low-rent public housing loans:
Existing law
Proposed legislation
Other housing assistance

152"

158"

168"

A-10

THE BUDGET FOR FISCAL YEAR 1987

Table A-15. CURRENT SERVICES BUDGET AUTHORITY BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
Current services

1985
actual

Subtotal, Housing assistance..
605 Food and nutrition assistance:
Food stamps and aid to Puerto Rico-.
Existing law
Proposed legislation
Child nutrition and other programs:
Existing law
Proposed legislation
Subtotal, Food and nutrition assistance..
609 Other income security:
Supplemental security income (SSI):
Existing law
Proposed legislation
AFDC and child support enforcement:
Existing law
Proposed legislation
Earned income tax credit (EITC)
Refugee assistance
Low-income home energy assistance
Other
Subtotal, Other income security..
Total budget authority
650 SOCIAL SECURITY
651 Social security:
Old-age and survivors insurance (OASI)-Off-budget:
Existing law
Proposed legislation
Old-age and survivors insurance (OASI)--On-budget....
Disability insurance (Dl)-Off-budget:
Existing law
Proposed legislation
Disability insurance (Dl)-On-budget
Interfund transactions (Off-budget)
Interfund transactions (On-budget)
Total budget authority..

On-budget
Off-budget

700 VETERANS BENEFITS AND SERVICES
701 Income security for veterans:
Service-connected compensation:
Existing law
Proposed legislation
Non-service-connected pensions
Burial and other benefits-.
Existing law
Proposed legislation
National service life insurance trust fund...
All other insurance programs
Insurance program receipts
Subtotal, Income security for veterans.
702 Veterans education, training, and rehabilitation:
G.I. Bill
All-volunteer force educational assistance trust fund:
Existing law

1986
estimate

1987
estimate

26,879

11,947

13,527

12,577

12,582

12,682

6,078

6,192

6,672

18,655

18,774

19,354

9,442

9,870

10,570

9,207

9,580

9,212

1,100
444
2,100
205

1,283
409
2,010
185

1,228
370
2,100
188

22,499

23,337

23,668

164,103

156,310

163,092

177,558

181,319

208,035

-1,928

-1,007

-602

20,602

22,383

20,220

-69
-7,187
10,525

-9,117
5,897

-60

-58
-6,363
6,363

199,501

199,415

227,595

(8,527)
(5,702)
(190,973) (194,586) (221,892)

10,232
..............

10,465

10,712
..............

3,834
133

128

134

1,305
33
-423

1,361
29
-438

1,393
-438

15,089

15,378

15,647

1,131

878

741

138

A-ll

SPECIAL ANALYSIS A

Table A-15. CURRENT SERVICES BUDGET AUTHORITY BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
Current services

1985
actual

1986
estimate

1987
estimate

Proposed legislation
Subtotal, Veterans education, training, and rehabilitation
703 Hospital and medical care for veterans:
Medical care and hospital services:
Existing law
Proposed legislation
Construction
Medical administration, research, and other
Third party reimbursement (proposed)
Subtotal, Hospital and medical care for veterans
704 Veterans housing:
Loan guaranty revolving fund.....
Housing program receipts
Subtotal, Veterans housing
705 Other veterans benefits and services:
Cemeteries, administration of veterans benefits and
other.Existing law
Proposed legislation
Non-VA support programs
Subtotal, Other veterans benefits and services
Total budget authority
750 ADMINISTRATION OF JUSTICE
751 Federal law enforcement activities:
Criminal investigations (DEA, FBI and OCDE)
Alcohol, tobacco, and firearms investigation (ATF)
Border enforcement activities (Customs and INS)
Protection activities (Secret Service)
Other enforcementExisting law
Proposed legislation
Subtotal, Federal law enforcement activities
752 Federal litigative and judicial activities:
Civil and criminal prosecution and representation:
Existing law
Proposed legislation
Federal judicial activities
Representation of indigents in civil cases
Subtotal, Federal litigative and judicial activities

1987
administration
proposals

-155
1,180

1,015

820

665

8,941

9,130

9,468

803
261

637
233

692
225

9,084
2
451
232
-188

10,005

10,000

10,385

9,581

307

200

306

200

770

729

723

777
1
61

828

795

790

839

27,408

27,389

27,642

26,702

1,526
172
1,317
304

1,522
167
1,326
293

1,544
169
1,351
297

1,690
178
1,357
319

390

377

384

391
7

3,709

3,685

3,746

3,943

827

857

890

1,063
313

1,063
292

1,251
304

979
3
1,252

2,204

2,213

2,445

2,234
758

753 Federal correctional activities

599

577

560

754 Criminal justice assistance

220

301

308

184

6,733

6,776

7,058

7,119

1,358

1,474

1,616

118

110

113

117

3,584

3,486

3,939

4,098

291

241

263

307

Total budget authority
800 GENERAL GOVERNMENT
801 Legislative functions
802 Executive direction and management
803 Central fiscal operations:
Collection of taxes
Other fiscal operations:
Existing law

A-10

THE BUDGET FOR FISCAL YEAR 1987

Table A-15. CURRENT SERVICES BUDGET AUTHORITY BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
1985
actual

Current services
1986
estimate

1987
administration
proposals

1987
estimate

-20
-520
78

Proposed legislation
Proposed custom fees
Other proposed legislation
3,875

3,727

4,202

3,943

-63

-205

304

-158

16
101

14
98

15
99

15
102

353

328

341

353
2

407

235

759

314

149

136

137

142

149

136

137

142

176
1
314
74

153
9
366
59

160
2
336
42

144
85
2
336
43

565

587

540

609

-506

-510

Subtotal, Deductions for offsetting receipts

-506

-510

-555

Total budget authority

5,967

5,758

6,856

6,186

850 GENERAL PURPOSE FISCAL ASSISTANCE
851 General revenue sharing:
General revenue sharing payments
Administration

4,567
8

4,185
7

Subtotal, General revenue sharing

4,575

4,192

237

495

599

522

236

228

310

310
-225

539

574

604

551

148
103
478
8

19
100
392
7

59
105
393
7

59
105
408
7

1,747

1,814

2,076

1,737

Subtotal, Central fiscal operations
804 General property and records management:
Real property:
Existing law
Proposed legislation
Personal property
Records management
Other:
Existing law
Proposed legislation
Subtotal, General property and records management
805 Central personnel management:
Existing law
Proposed legislation
Subtotal, Central personnel management
806 Other general government:
Compact of free association
Territories
Indian affairs
Treasury claims
Other
Subtotal, Other general government
809 Deductions for offsetting receipts:
Existing law
Government-sponsored enterprises user fees (proposed)

852 Other general purpose fiscal assistance:
Payments and loans to the District of Columbia
Payments to States and counties from Forest Service
receipts:
Existing law
Proposed legislation
Payments to States from receipts under the Mineral
Leasing Act
Payments to States and counties from Federal land
management activities
Payments in lieu of taxes
Payments to territories and Puerto Rico
Other
Subtotal, Other general purpose fiscal assistance

-45

A-ll

SPECIAL ANALYSIS A

Table A-15. CURRENT SERVICES BUDGET AUTHORITY BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
1985
actual

Total budget authority
900 NET INTEREST
901 Interest on the public debt:
Existing law
Proposed legislation
Subtotal, Interest on the public debt
902 Interest received by on-budget trust funds:
Existing law
Proposed legislation
Subtotal, Interest received by on-budget trust
funds
903 Interest received by off-budget trust funds:
Existing law
Proposed legislation
Subtotal, Interest received by off-budget trust
funds
908 Other interest:
Interest on refunds of tax collections
Interest on loans to Federal Financing Bank
OCS interest
Other:
Existing law
Proposed legislation
Subtotal, Other interest
Total budget authority

On-budget
Off-budget

920 ALLOWANCES
921 Civilian agency pay raises:
Civilian agency pay raises
Coast Guard military pay raises

Current services
1986
estimate

1987
estimate

1987
administration
proposals

6,322

6,007

2,082

1,742

179,063

196,095

209,555

207,470
-616

179,063

196,095

209,555

206,855

-22,071

-26,626

-30,180

-30,251
621

-22,071

-26,626

-30,180

-29,631

-4,118

-4,418

-4,712

-4,711
-5

-4,118

-4,418

-4,712

-4,716

1,750
-17,296
-2

1,502
-16,578
-300

1,473
-17,857

1,473
-17,639

-7,888

-8,161

-9,076

-9,038
693

-23,437

-23,536

-25,459

-24,511

129,437

141,514

149,203

147,996

(133,555) (145,932) (153,915) (152,713)
(-4,118)
(-4,418)
(—4,712) (-4,716)
1,432
36
1,468

Subtotal, Civilian agency pay raises

403
36
439

926 Increased employing agency payments for
employee retirement:
Proposed legislation

331

Subtotal, Increased employing agency payments
for employee retirement

331

Total budget authority
950 UNDISTRIBUTED OFFSETTING RECEIPTS
951 Employer share, employee retirement (onbudget):
Military retired contributions
Other contributions:
Existing law
Proposed legislation

1,468

770

-16,964

-18,034

-18,737

-19,069

-7,744

-8,248

-8,557

-8,480
-921

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

-24,708

-26,283

-27,294

-28,471

952 Employer share, employee retirement (offbudget)

-2,509

-2,843

-3,197

-3,177

A-10

THE BUDGET FOR FISCAL YEAR 1987

Table A-15. CURRENT SERVICES BUDGET AUTHORITY BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
1985
actual

953 Rents and royalties on the Outer Continental
Shelf:
Existing law
Proposed legislation
Subtotal, Rents and royalties on the Outer Continental Shelf

Current services
1987
estimate

-5,542

-5,450

-5,280

-5,542

-5,450

-5,280

954 Sale of major physical assets
Total budget authority
On-budget
Off-budget.
Total budget authority
On-budget
Off-budget.
*$500 thousand or less.

1987
administration
proposals

1986
estimate

-1,200
-32,759
(-30,250)
(-2,509)
1,074,063
(889,716)
(184,347)

-34,576
(-31,733)
(-2,843)
1,066,417
(879,093)
(187,325)

-35,771
(-32,574)
(-3,197)
1,142,420
(928,437)
(213,983)

-38,128
(-34,951)
(-3,177)
1,101,985
(887,710)
(214,275)

A-ll

SPECIAL ANALYSIS A
Table A-16. CURRENT SERVICES OUTLAYS BY FUNCTION AND PROGRAM
(In millions of dollars)
1985
actual

050 NATIONAL DEFENSE
051 Department of Defense-Military
053 Atomic energy defense activities
054 Defense-related activities:
Existing law
Proposed legislation
Subtotal, Defense-related activities
Total outlays

Current services

1987
administration
proposals

1986
estimate

1987
estimate

245,371

258,425

276,718

274,265

7,098

7,152

8,000

7,708

279

250

222

515
-250

279

250

222

265

252,748

265,827

284,940

282,238

1,427

1,189

1,550

336
1,929
1,715
385

327
2,093
1,373
343

280
2,059
1,304
335

1,551
22
226
2,084
1,158
340

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

117

106

-479

-524

-552

108
40
-552

Subtotal, International development and humanitarian assistance

5,409

4,919

5,081

4,978

2,275
978
848
4,889
473
-71

3,770
187
761
4,809
234
-68

5,999
-306
774
3,631
128
-70

6,121
-306
992
4,058
144
-70

152 International security assistance:
Foreign military sales credit
Foreign military sales (FFB)
Military assistance
Economic support fund
Other
Offsetting receipts.

9,391

9,692

10,156

10,939

153 Conduct of foreign affairs:
Administration of foreign affairs
International organizations and conferences
Other

Subtotal, International security assistance

1,838
540
-324

2,059
514
-294

2,177
451
-282

2,842
487
-274

Subtotal, Conduct of foreign affairs

2,054

2,279

2,345

3,055

793

911

939

1,043

143

-300

-200

-384

-156

-950

-1,145
-85

-208
-87

-167
-89

-950
-5
16
-167
-89

-1,471

-751

-1,406

-1,395

16,176

17,051

17,116

18,619

1,313

1,490

1,498

1,631

154 Foreign information and exchange activities
155 International financial programs:
Foreign military sales trust fund (net)
Export-Import Bank:
Existing law
Proposed legislation
Fair export financing program
Other
Offsetting receipts
Subtotal, International financial programs
Total outlays
250 GENERAL SCIENCE, SPACE, AND TECHNOLOGY
251 General science and basic research:
National Science Foundation programs

A-10

THE BUDGET FOR FISCAL YEAR 1987
Table A-16. CURRENT SERVICES OUTLAYS BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
1985
actual

Current services
1986
estimate

1987
estimate

Department of Energy general science programs

707

677

Subtotal, General science and basic research

2,019

2,167

2,179

253 Space flight

3,989

3,809

3,731

254 Space, science, applications, and technology..

1,858

2,111

2,207

761

835

892

1,627

8,922

9,009

2,479
300
-1,478

2,217

2,504

-110

-687

-663

-599

870

416

278

-714

-447

-434

324

135

1,521

1,176

1,212

2,615

2,845

3,343

464
27

434
36

431
9

255 Supporting space activities
Total outlays
270 ENERGY
271 Energy supply:
Research and development
Uranium enrichment
Nuclear waste disposal fund
Petroleum reserves:
Existing law
Proposed legislation
Tennessee Valley Authority
Other power marketing:
Existing law
Proposed legislation
Subsidies for nonconventional fuel production..
Rural electric and telephone:
Existing law
Proposed legislation
Subtotal, Energy supply..
272 Energy conservation:
Energy conservation grants and R&D
Solar Energy and Energy Conservation Bank
Subtotal, Energy conservation
274 Emergency energy preparedness
276 Energy information, policy, and regulation.
Total outlays
300 NATURAL RESOURCES AND ENVIRONMENT
301 Water resources:
Corps of Engineers:
Existing law
Proposed legislation
Bureau of Reclamation:
Existing law
Proposed legislation
Other
Offsetting receipts:
Existing law
Proposed legislation
Subtotal, Water resources.
302 Conservation and land managementManagement of national forests,cooperative forestry,
and forestry research (Forest Service):
Existing law
Proposed legislation
Management of public lands (BLM):
Existing law
Proposed legislation
Mining reclamation and enforcement

121

682

317"

491

470

440

1,838

516

639

740

702

693

5,685

4,533

5,115

3,047

2,940

3,062

954

1,002

959

290

280

283

-169

-231

-394

4,122

3,992

3,910

1,964

1,803

1,774

550

470

463

272

"316"

"335"

A-ll

SPECIAL ANALYSIS A
Table A-16. CURRENT SERVICES OUTLAYS BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
Current services

1985
actual

Conservation of agricultural lands..
Other-.
Existing law
Proposed legislation
Offsetting receipts:
Existing law
1 legislation
Subtotal, Conservation and land management..
303 Recreational resources:
Federal land acquisition.Existing law
Proposed legislation
Urban park and historic preservation funds
Operation of recreational resources:
Existing law
Proposed legislation
Offsetting receipts:
Existing law
I legislation
Subtotal, Recreational resources..
304 Pollution control and abatement:
Regulatory, enforcement, and research programs..
Hazardous substance response fund:
Existing law
Proposed legislation
Oil pollution funds (gross)
Sewage treatment plant construction grants:
Existing law
Proposed legislation
Offsetting receipts:
Existing law
Proposed legislation
Subtotal, Pollution control and abatement..
306 Other natural resources:
Program activities
Offsetting receipts:
Existing law
Proposed legislation
Subtotal, Other natural resourcesTotal outlays
350 AGRICULTURE
351 Farm income stabilization:
Commodity price support and related programs:
Existing law
Proposed legislation
Crop insurance:
Existing law
Proposed legislation
Agricultural credit:
Existing law
Proposed legislation
Agricultural credit (FFB):
Existing law
Proposed legislation
Other programs and unallocated overhead
Subtotal, Farm income stabilization..

1986
estimate

1987
estimate

620

622

629

320

295

292

-2,245

-2,573

-2,775

1,481

933

718

383

312

274

1,237

1,288

1,314

-72

-78

1,621

1,561

1,538

1,208

1,326

1,391

360

471

738

2,900

2,820

2,420

-38

-61

4,465

4,588

4,497

1,669

1,798

1,913

-1

- 2

-81

-1

1,668

1,796

1,912

13,357

12,870

12,575

17,733

20,399

16,374

506

557

574

2,782

2,126

2,918

2,658

922

-219

23,751

24,017

-3
19,644

A-10

THE BUDGET FOR FISCAL YEAR 1987
Table A-16. CURRENT SERVICES OUTLAYS BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
Current services

1985
actual

352 Agricultural research and services:
Research programs
Extension programs
Marketing programs:
Existing law
Proposed legislation
Animal and plant health programs:
Existing law
Proposed legislation
Economic intelligence
Other programs and unallocated overhead:
Existing law
Proposed legislation
Offsetting receipts
Subtotal, Agricultural research and services..
Total outlays
370 COMMERCE AND HOUSING CREDIT
371 Mortgage credit and deposit insurance:
Mortgage-backed securities (GNMA)
Mortgage purchase activities (GNMA)
Mortgage credit (FHA and other)
Housing for the elderly or handicapped
Rural housing programs (FmHA)
Federal Deposit Insurance Corporation
Federal Savings & Loan Insurance Corp & other..
National Credit Union Administration
Subtotal, Mortgage credit and deposit insurance..
372 Postal Service:
Existing law
Proposed legislation
Subtotal, Postal Service..
376 Other advancement of commerce:
Small and minority business assistance:
Existing law
Proposed legislation
Science and technology
Economic and demographic statistics
International trade and other:
Existing law
Proposed legislation

1986
estimate

1987
estimate

739
338

773
331

812
340

138

135

126

305

312
..........

316
..........

207

210

180
205
-92

-90

1,813

1,854

1,901

25,565

25,871

21,545

-234
-590
-594
501
3,971
-1,942
615
-855

-268
-465
-1,434
490
3,695
-1,658
456
-259

-309
-433
-1,824
498
3,086
-1,900
-197
-293

871

556

-1,373

1,351

1,345

1,933

1,351

1,345

1,933

1,008

1,145

1,164

303
212

450
209

353
263

484

603

Subtotal, Other advancement of commerce.

2,007

2,291

2,384

Total outlays

4,229

4,192

2,944

12,832
250
3,427
1,047

13,843
279
3,564
914

13,841
270
3,420

17,606

18,650

18,480

400 TRANSPORTATION
401 Ground transportation:
Highways (including block grant proposal)
Highway safety
Mass transit (including block grant proposal)..
Railroads
Regulation:
Existing law
Proposed legislation
Subtotal, Ground transportation..

A-ll

SPECIAL ANALYSIS A
Table A-16. CURRENT SERVICES OUTLAYS BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
1985
actual

402 Air transportation:
Airports and airways (FAA)
Aeronautical research and technology..
Regulation
Air carrier subsidies
Subtotal, Air transportation.
403 Water transportation:
Marine safety and transportation:
Existing law
Proposed legislation
Proposed boat and yacht fees...
Ocean shipping
Regulation
Subtotal, Water transportation..
407 Other transportation

Current services
1986
estimate

1987
estimate

4,215
643
4
34

4,305
609
38

4,895

4,952

5,165

2,513

2,476

2,466

677
12

939
11

592
12

3,201

3,426

3,069

4,515
627

137

140

159

25,838

27,168

26,873

3,817
497
15
269

3,575
499
286
336

3,119
474
357
278

4,598

4,696

4,228

1,688
351
1,054
218
140
-5
-328

1,690
239
1,073
166
139

1,612
222
1,148
154
107

-300

-315

3,117

3,002

2,923

-273

-158

192
-119
166

322
51
149

321
24
130

Subtotal, Disaster relief and insurance-

-35

364

495

Total outlays

7,680

J0 2
,6

7,646

526

662

643

4,207
1,018
647
658

2,952
1,512
710
992

3,541
1,300
718
972

Total outlays
450 COMMUNITY AND REGIONAL DEVELOPMENT
451 Community development:
Community development block grants
Urban development action grants..
Rental rehabilitation and rental development
Other
Subtotal, Community development..
452 Area and regional development:
Rural development
Economic development assistance
Indian programs
Regional commissions
Tennessee Valley Authority
Other
Offsetting receipts
Subtotal, Area and regional development..
453 Disaster relief and insurance:
Small business disaster loans:
Existing law
Proposed legislation
Disaster relief
National flood insurance fund
Other

500 EDUCATION, TRAINING, EMPLOYMENT, AND
SOCIAL SERVICES
501 Elementary, secondary, and vocational education:
Block grant and special programs:
Existing law
Proposed legislation
Compensatory education
Education for the handicapped..
Impact aid
Vocational and adult education

- 6

A-10

THE BUDGET FOR FISCAL YEAR 1987
Table A-16. CURRENT SERVICES OUTLAYS BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
1985
actual

Other:
Existing law
Proposed legislation..
Subtotal, Elementary, secondary, and vocational
education
502 Higher education:
Student financial assistance:
Existing law
Proposed legislation
Guaranteed student loan program:
Existing law
Proposed legislation
Other:
Existing law
Proposed legislation

Current services
1986
estimate

1987
estimate

576

533

529

7,633

7,362

7,703

4,163

5,065

4,769

3,535

3,281

3,401

513

759

637

8,211

9,104

8,807

503 Research and general education aids..

1,121

1,251

1,266

504 Training and employment:
Employment and training assistance
Older Americans employment
Work incentive program
Federal-State employment service
Other

3,415
320
279
918
39

3,686
323
217
985

3,466
312
216
956
67

4,972

5,274

5,017

678

694

688

2,743
375
798
749

2,604
356
1,490
754

2,577
368
1,316
809

1,910

1,928

1,980

129
24

160

148
27

Subtotal, Higher education

Subtotal, Training and employment.
505 Other labor services
506 Social services:
Social services block grant
Community service programs
Rehabilitation services
Family social services
Services for children, the elderly, and other special
groups:
Existing law
Proposed legislation
Domestic volunteer programs
Other social services

6,728

7,320

7,224

29,342

31,006

30,706

22,655

24,686

25,998

1,221

672

1,869

3,108

3,287

3,313

Subtotal, Health care services.

26,984

28,645

31,181

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

4,437
471

4,984
546

5,114
707

Subtotal, Social services..
Total outlays
550 HEALTH
551 Health care services:
Medicaid grants:
Existing law
Proposed legislation
Federal employees' health benefits:
Existing law
Proposed legislation
Other health care services:
Existing law
Proposed legislation

A-ll

SPECIAL ANALYSIS A
Table A-16. CURRENT SERVICES OUTLAYS BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
1985
actual

Current services
1986
estimate

1987
estimate

4,908

5,530

5,821

553 Education and training of health care work
force:
Research training
Clinical training
Other

233
189
46

279
220
39

272
235
41

Subtotal, Education and training of health care
work force

468

538

548

812
.........

794

797

368

372

Subtotal, Health research.,

554 Consumer and occupational health and safety:
Consumer safety:
Existing law
Meat and poultry inspection fees
Occupational safety and health
Subtotal, Consumer and occupational health and
safety
Total outlays
570 MEDICARE
571 Medicare:
Hospital insurance (HI):
Existing law
Proposed legislation
Supplementary medical insurance (SMI):
Existing law
Proposed legislation
Medicare premiums and collections:
Existing law
Proposed legislation
Interfund transactions:
Existing law
Proposed legislation
Total outlays..
600 INCOME SECURITY
601 General retirement and disability insurance
(excluding social security):
Railroad retirement:
Existing law
Proposed legislation
Special benefits for disabled coal miners:
Existing law
Proposed legislation
Pension Benefit Guaranty Corporation:
Existing law
Proposed legislation
Other
Subtotal, General retirement and disability insurance (excluding social security)
602 Federal employee retirement and disability:
Civilian retirement and disability programs:
Existing law
Proposed legislation
Military retirement:
Existing law
Proposed legislation
Federal employees workers' compensation (FECA)

1,182

1,162

1,169

33,542

35,875

38,719

48,654

49,140

52,796

22,730

25,307

28,774

-5,562

-5,771

-6,655

65,822

68,677

74,915

3,911

3,779

3,881

1,668

1,653

1,664

5,617

5,542

5,715

23,268

24,264

25,624

15,801

17,649

18,516

-19
.......

196"

232"

264"

A-10

THE BUDGET FOR FISCAL YEAR 1987
Table A-16. CURRENT SERVICES OUTLAYS BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
1985
actual

Federal employees life insurance fund
Subtotal, Federal employee retirement and disability
603 Unemployment compensation:
Existing law
Proposed legislation
Subtotal, Unemployment compensation..

Current services
1986
estimate

1987
estimate

-674

-733

-794

38,591

41,412

43,610

17,475

16,482

16,820

17,475

16,482

16,820

9,994

10,641

11,105

1,205

1,337

13,938

1,385

604 Housing assistance:
Existing law..
Proposed legislation
Public housing operating subsidies
Low-rent public housing loans:
Existing law
Proposed legislation
Other housing assistance
Subtotal, Housing assistance
605 Food and nutrition assistance:
Food stamps and aid to Puerto Rico:
Existing law
Proposed legislation
Child nutrition and other programs:
Existing law
Proposed legislation
Subtotal, Food and nutrition assistance..
609 Other income security:
Supplemental security income (SSI):
Existing law
Proposed legislation
AFDC and child support enforcement:
Existing law
Projwsed legislation
Earned income tax credit (EITC)
Refugee assistance
Low-income home energy assistance
Other
Subtotal, Other income security..
Total outlays
650 SOCIAL SECURITY
651 Social security:
Old-age and survivors insurance (OASI)--Off-budget.
Old-age and survivors insurance (OASI)-On-budget..
Disability insurance (Dl)-Off-budget
Disability insurance (Dl)-On-budget
Interfund transactions (Off-budget)
Interfund transactions (On-budget)
Total outlays..

On-budget
Off-budget.

700 VETERANS BENEFITS AND SERVICES
701 Income security for veterans:
Service-connected compensation:
Existing law

1,736

125

214

199

25,263

13,578

14,362

12,526

12,557

12,669

6,014

6,252

6,549

18,540

18,808

19,218

9,606

10,162

10,571

9,224

9,738

9,212

1,100
442
2,141
201

1,283
414
2,019
188

1,228
368
2,110
197

22,715

23,803

23,686

128,200

119,625

123,411

171,249
-1,928
19,372
-69
-7,187
7,187

180,677
-1,007
20,416
-9,117
9,117

191,796
-602
21,033
-58
-6,363
6,363

188,623

200,026

212,169

-60

(8,050)
(5,702)
(5,189)
(183,434) (191,976) (206,467)

10,228

10,468

10,690

A-ll

SPECIAL ANALYSIS A
Table A-16. CURRENT SERVICES OUTLAYS BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
1985
actual

Proposed legislation
Non-service-connected pensions
Burial and other benefits:
Existing law
Proposed legislation
National service life insurance trust fundAll other insurance programs
Insurance program receipts
Subtotal, Income security for veterans.
702 Veterans education, training, and rehabilitation:
G.I. Bill
Post-Vietnam era education:
Existing law
Proposed legislation
All-volunteer force educational assistance trust fund:
Existing law
Proposed legislation
Veterans jobs program
Other:
Existing law
Proposed legislation
Subtotal, Veterans education, training, and rehabilitation
703 Hospital and medical care for veterans:
Medical care and hospital services:
Existing law
Proposed legislation
Construction
Medical administration, research, and other....
Third party reimbursement (proposed)
Subtotal, Hospital and medical care for veterans.
704 Veterans housing:
Loan guaranty revolving fund:
Existing law
Proposed legislation
Direct loan revolving fund
Other (HUD participation sales trust fund)
Housing program receipts
Subtotal, Veterans housing..
705 Other veterans benefits and services:
Cemeteries, administration of veterans benefits and
other:
Existing law
Proposed legislation
Non-VA support programs
Subtotal, Other veterans benefits and services..
Total outlays
750 ADMINISTRATION OF JUSTICE
751 Federal law enforcement activities:
Criminal investigations (DEA, FBI and OCDE)
Alcohol, tobacco, and firearms investigation (ATF).
Border enforcement activities (Customs and INS)...
Protection activities (Secret Service)

Current services
estimate

1987
estimate

3,842

3,835

3,825

133

128

134

956
-423

1,067
50
-438

1,170
15
-438

14,714

15,110

15,397

1,174

910

755

-108

-211

-76

-110
..........

-116

- 6

-7

1,120

633

562

8,722

9,067

9,354

542
283

575
240

728
227

9,547

9,883

10,309

278

285

149

-45

-43
-24

-22

-41
-24

-22

214

219

710
.........

725

715

"66"

758

785

781

26,352

26,629

27,131

1,479
169
1,214
300

1,568
164
1,350
295

1,498
166
1,322
293

A-10

THE BUDGET FOR FISCAL YEAR 1987
Table A-16. CURRENT SERVICES OUTLAYS BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
Current services

1985
actual

Other enforcement:
Existing law
Proposed legislation..

1986
estimate

1987
estimate

365

368

3,526

3,742

3,647

783

820

850

981
300

1,094
301

1,229
304

2,064

2,215

2,383

753 Federal correctional activities

537

636

590

754 Criminal justice assistance

150

258

304

6,277

6,851

>,923

1,355

1,522

1,633

113

112

3,562

3,487

3,885

-77

3,485

3,539

-273

-128

15
100

14
100

254

333

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

Total outlays
800 GENERAL GOVERNMENT
801 Legislative functions
802 Executive direction and managementSOS Central fiscal operations:
Collection of taxes
Other fiscal operations:
Existing law
Proposed legislation
Proposed custom fees
Other proposed legislation
Subtotal, Central fiscal operations.
804 General property and records management:
Real property:
Existing law
Proposed legislation
Personal property
Records management
Other:
Existing law
Proposed legislation
Subtotal, General property and records management
805 Central personnel management:
Existing law
Proposed legislation
Subtotal, Central personnel management..
806 Other general government:
Compact of free association
Territories
Indian affairs
Treasury claims
Other
Subtotal, Other general government...
809 Deductions for offsetting receipts:
Existing law

259
is"
98
342

319

714

164

127

135

164

127

135

186

152

314

189
9
366

336
27

521

575

517

-506

-510

A-ll

SPECIAL ANALYSIS A
Table A-16. CURRENT SERVICES OUTLAYS BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
1985
actual

Current services
1986
estimate

1987
estimate

Government-sponsored enterprises user fees (proposed)

1987
administration
proposals

-45

Subtotal, Deductions for offsetting receipts

-506

-510

-555

Total outlays

5,228

5,685

6,508

6,060

850 GENERAL PURPOSE FISCAL ASSISTANCE
851 General revenue sharing:
General revenue sharing payments
Administration

4,584
8

4,433
7

760
5

Subtotal, General revenue sharing

4,591

4,440

765

237

495

599

522

236

218

300

310
-225

539

550

604

551

146
103
494
7

30
100
394
8

58
105
393
7

57
105
406
7

Subtotal, Other general purpose fiscal assistance

1,762

1,794

2,066

1,733

Total outlays

6,353

6,235

2,831

1,739

179,063

196,095

209,555

207,470
-616

179,063

196,095

209,555

206,855

-22,071

-26,626

-30,180

-30,251
621

-22,071

-26,626

-30,180

-29,631

-4,118

-4,418

-4,712

-4,711
-5

-4,118

-4,418

-4,712

-4,716

1,750
-17,296
-2

1,502
-16,578
-300

1,473
-17,857

1,473
-17,639

-7,889

-8,161

-9,076

-9,038
693

-23,438

-23,536

-25,459

-24,511

129,436

141,514

149,203

147,996

900 NET INTEREST
901 Interest on the public debt:
Existing law
Proposed legislation
Subtotal, Interest on the public debt
902 Interest received by on-budget trust funds:
Existing law
Proposed legislation
Subtotal, Interest received by on-budget trust
funds
903 Interest received by off-budget trust funds:
Existing law
Proposed legislation
Subtotal, Interest received by off-budget trust
funds
908 Other interest:
Interest on refunds of tax collections
Interest on loans to Federal Financing Bank
OCS interest
Other:
Existing law
Proposed legislation
Subtotal, Other interest
Total outlays

On-budget
Off-budget

(133,554) (145,932) (153,915) (152,713)
(-4,118)
(-4,418)
(-4,712)
(-4,716)

A-10

THE BUDGET FOR FISCAL YEAR 1987
Table A-16. CURRENT SERVICES OUTLAYS BY FUNCTION AND PROGRAM—Continued
(In millions of dollars)
1985
actual

Current services
1986
estimate

920 ALLOWANCES
921 Civilian agency pay raises:
Civilian agency pay raises
Coast Guard military pay raises

1987
estimate

1,374
36
1,410

Subtotal, Civilian agency pay raises

387
36
423

926 Increased employing agency payments for
employee retirement:
Proposed legislation

331

Subtotal, Increased employing agency payments
for employee retirement

331
1,410

Total outlays
950 UNDISTRIBUTED OFFSETTING RECEIPTS
951 Employer share, employee retirement (onbudget):
Military retired contributions
Other contributions:
Existing law
Proposed legislation

1987
administration
proposals

754

-16,964

-18,034

-18,737

-19,069

-7,744

-8,248

-8,557

-8,480
-921

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

-24,708

-26,283

-27,294

-28,471

952 Employer share, employee retirement (offbudget)

-2,509

-2,843

-3,197

-3,177

-5,542

-5,450

-5,280

-5,542

-5,450

-5,280

-32,759

-34,576

-35,771

-38,128

(-30,250)
(-2,509)

(-31,733)
(-2,843)

(-32,574)
(-3,197)

(-34,951)
(-3,177)

982,040

1,025,919

953 Rents and royalties on the Outer Continental
Shelf:
Existing law
Proposed legislation
Subtotal, Rents and royalties on the Outer Continental Shelf
954 Sale of major physical assets
Total outlays

On-budget
Off-budget
Total outlays

On-budget
Off-budget

*$500 thousand or less.

-1,200

946,323

(769,515)
(176,807)

(797,325)
(184,715)

(827,361)
(198,558)

994,002

(795,386)
(198,617)

SPECIAL ANALYSIS B
FEDERAL

TRANSACTIONS

IN T H E N A T I O N A L

AND PRODUCT

INCOME

ACCOUNTS

The budget is designed to serve several purposes:
• It sets forth the President's request to the Congress for appropriations action on existing or new programs and for changes
in tax legislation.
• It proposes an allocation of resources between the private and
public sectors and within the public sector. Through its
impact on consumption, investment, and the distribution of
income it also affects the allocation of resources within the
private sector.
• It is an economic document that reflects the taxing and spending policies of the Government for promoting economic
growth, high employment, and a stable price level.
• 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 documents 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 (NIPA) of the United States provide
the most useful measures. This special analysis shows Federal finances as measured in the NIPA. 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 1986 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. The final section explains the major differences
between the budget and the NIPA concepts. A discussion of fiscal
policy can be found in the main budget document and in the
Economic Report of the President.
FEDERAL SECTOR RECEIPTS AND EXPENDITURES

Table B-1 shows Federal sector NIPA receipts, expenditures, and
deficits for 1985-87. These estimates reflect the conceptual and
statistical changes made in the benchmark revision of the NIPA,

B-l

A-10

THE BUDGET FOR FISCAL YEAR 1987

which was released by the Bureau of Economic Analysis in December 1985. The change that has the largest impact by far is the
imputation of an employer contribution for military retirement,
which raises both contributions for social insurance and defense
purchases. Other changes that affect Federal sector receipts and
expenditures include the imputation of a Federal contribution for
unemployment insurance for former military personnel, treating
the Civilian Health and Medical Plan of the Uniformed Services
(CHAMPUS) as an employer-paid health insurance plan, imputing
bank service charges to foreigners, and reclassifying military shipments financed by forgiven loans. A detailed discussion of these
and other changes to the Federal sector in the NIPA can be found
in the October 1985 Survey of Current Business.
Table B - l . FEDERAL SECTOR RECEIPTS AND EXPENDITURES IN THE NIPA
(In billions of dollars)
Description

1985 actual

1986 estimate

1987 estimate

RECEIPTS
Personal tax and
Corporate profits
Indirect business
Contributions for

nontax receipts
tax accruals
tax and nontax accruals.
social insurance

Total receipts..

345.2
67.6
56.4
304.0

360.1
84.8
55.8
322.5

773.1

823.2

342.2
(255.7)
(86.5)
373.0
(359.9)
(13.1)
97.8
128.7
21.4
.1

358.6
(269.9)
(88.7)
393.9
(378.4)
(15.5)
102.6
139.8
21.0

963.2

1,015.9

-190.1

-192.7

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..
Deficit ( — )

Note: The estimates for 1986 and 1987 are preliminary; revisions will be published in the February 1986 issue of the Survey of Current
Business.

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
3-year averages of Federal sector receipts by category as a percent
of the gross national product (GNP). The receipts are shown at 10year intervals to provide a perspective relative to the 1987 levels.
For the earlier periods, 3-year averages were used in order to
eliminate the impact of annual fluctuations, thereby permitting
greater focus on trends.

A-ll

SPECIAL ANALYSIS A
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

1954-56
average
actual

1964-66
average
actual

1974-76
average
actual

1984-86
average
estimate

1Q87
130/
pctimatp
COlllllfllv

8.0
4.9
2.7
2.4

7.8
4.1
2.3
4.0

8.4
3.0
1.5
6.4

8.5
1.9
1.4
7.6

8.6
2.3
1.3
7.7

17.9

18.2

19.2

19.5

19.9

1 GNP calculated as the average of seasonally adjusted data for the four quarters of the fiscal year, which may not equal the unadjusted fiscal
year total due to the methods used to seasonally adjust the NIPA. Unadjusted fiscal year GNP data are not yet available.

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, cause these receipts to increase automatically. Since personal income tax rates are progressive, in the past
these receipts normally grew at a faster rate than personal income.
Periodically over the past 3 decades, tax reductions were enacted
that partially offset the increase in effective tax rates resulting
from the progressive tax structure. However, the Economic Recovery Tax Act of 1981 (ERTA) dramatically altered these circumstances. That act provided for across-the-board tax reductions
and—starting in 1985—indexing of income tax brackets, the zero
bracket amount, and the personal exemption to inflation. As discussed in Part 4 of the Budget, subsequent legislation has limited
the reduction in personal tax and nontax receipts anticipated in
ERTA, but its central components—rate reductions and indexation—remain largely intact. As a result, personal tax and nontax
receipts now grow at rates roughly equal to the growth rates for
the general economy. Largely due to the rate reductions enacted in
1981, personal tax and nontax receipts fell from a peak of 9.9% of
GNP in 1982 to 8.8% in 1985. They are estimated to be 8.6% in
both 1986 and 1987.

A-10

THE BUDGET FOR FISCAL YEAR 1987

Distribution of Federal Sector Receipts by Category

Fiscal Years

Estimate

Corporate profits tax accruals.—Corporate profits tax accruals
vary significantly from year to year because corporate profits are
highly volatile. The NIPA corporate profits taxes differ from the
corresponding budget category primarily because: (1) the NIPA
include 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 NIPA record corporate profits
taxes when the profits are earned (that is, accrued), while the
unified budget records the cash receipts.
The gradual decline in corporate profits tax accruals relative to
GNP and to total receipts, as shown in the chart above, 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.
Provisions of the Economic Recovery Tax Act of 1981 designed to
stimulate investment further accelerated this trend, although this
was partially offset by subsequent legislation.

SPECIAL ANALYSIS A

A-ll

Indirect business tax and nontax accruals.—These receipts are
composed of excise taxes, customs duties, and various miscellaneous receipts such as 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. This is partly because they normally do not rise in proportion to the nominal growth in the economy,
since most are taxes on physical quantities rather than on the
value of a good, and partly because some of them, such as the
automobile and telephone excise taxes, have been reduced or repealed. Enactment of the Crude Oil Windfall Profit Tax Act of 1980
resulted in a substantial increase in indirect business taxes in 1980
and 1981. The 5 cent per gallon increase in the excise tax on
gasoline and diesel fuel and other provisions of the Highway Revenue Act of 1982 also caused indirect business tax accruals to rise.
Despite their long-term decline, the use of excise taxes as user
charges to finance Federal programs, such as highways and airways, makes this an important source of financing for certain
specialized programs in the budget.
Contributions for social insurance.—This is the second largest
category of Federal sector receipts, and the levels in all years are
significantly higher relative to previous estimates due to conceptual and statistical changes incorporated in the benchmark revision
issued in December 1985. The largest revision, the imputation of a
social insurance contribution for military retirement, added $15.8
billion to the 1985 level.
The increase in contributions for social insurance 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 and 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 moderateincome individuals and families, millions of Americans now pay
significantly higher social insurance taxes than income taxes. The
combined effect of the reductions in individual income tax rates
provided by the Economic Recovery Tax Act of 1981 and the increases in social security and other social insurance taxes mandated by the Social Security Amendments of 1983 and the Railroad
Retirement Act of 1983 dramatically reinforce this trend toward
increases in social insurance contributions relative to total NIPA
receipts.
Major tax changes.—In the past 5 years, major tax legislation
has been passed to reduce tax rates and increase investment incen-

A-10

THE BUDGET FOR FISCAL YEAR 1987

tives; to curb tax shelter abuse, limit unwarranted tax benefits,
and increase taxpayer compliance; to increase payroll taxes as part
of overall legislation to restore the solvency of the social security
system; and to increase gasoline taxes to fund infrastructure improvements.
In 1986, the administration will be working with Congress to
further reform the tax system to make it simpler and fairer. These
changes are intended to be revenue neutral (i.e., decreases and
increases essentially offsetting), but the distribution of receipts by
major category could be changed. However, since the administration's major tax reform proposals are excluded from the budget
estimates, their effect is also excluded from the NIPA receipt estimates. The administration is also proposing several minor modifications of the existing tax system, the effects of which are included
in both the budget and the NIPA estimates. Details about enacted
and proposed tax changes on a unified budget basis can be found in
Part 4 of the 1987 Budget; additional details on a NIPA basis will
be published in the February 1986 Survey of Current Business.
Trends in Federal sector expenditures.—Federal sector expenditures are divided into several major NIPA 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,
are included in the GNP. The other expenditure categories consist
primarily of transfer payments to individuals, net interest payments, and grants to State and local governments. These individuals and governments, in turn, can use the income to finance their
own purchases of goods and services, to save, and—in the case of
States and localities—to hold down taxes or to make transfer payments.
Major changes in composition.—As can be seen in the chart on
the distribution of Federal sector expenditures since 1959, major
shifts in the composition of Federal sector expenditures occur over
time.

SPECIAL ANALYSIS A

A-ll

Distribution of Federal Sector Expenditures by Category

Over most of this period, defense purchases of goods and services
constituted a declining share of Federal spending. This trend was
temporarily reversed for 3 years during the Vietnam period, but by
1970 the defense share was well below the pre-Vietnam percentages and continued declining until 1978. The defense share rose
slightly in 1979 and 1980, and has increased significantly under
this administration, reflecting the President's commitment to
strengthen our Nation's defense capability while reducing total
Federal spending relative to the GNP. Defense purchases are expected to account for 26.6% of Federal sector expenditures in 1986
and 27.7% in 1987; they were 26.2% in 1984 and 26.5% in 1985.
Spending for domestic transfer payments contrasts sharply with
the general decline in the defense purchases share during the
previous six administrations. After remaining relatively stable at
just below 25% of total expenditures for most of the 1960s, domestic transfer payments began growing rapidly in the latter part of
the decade, and reached a peak share of about 40% in 1976. This
growth is largely explained by higher expenditures for retirement
and other social insurance programs, due to increases in the
number of beneficiaries and the automatic increases in benefit
levels enacted over a period of years beginning in 1962, and by the

A-10

THE BUDGET FOR FISCAL YEAR 1987

creation and expansion of the medicare program. Domestic transfer
payments have declined slightly below the 1976 share in recent
years.
For the remaining categories of Federal sector expenditures, two
patterns stand out. Grants-in-aid to State and local governments
grew rapidly in earlier years, but their share began declining in
1979 and is expected to decline further in part due to the expiration of general revenue sharing in 1987. Conversely, the net interest share roughly doubled in the past decade and a half—from just
over 6 % throughout the 1960s to over 13.4% in 1985—and is expected to continue increasing to 14.0% in 1987. In earlier years this
increase was due to a combination of growth in Federal debt and
higher interest rates; the current increase is due entirely to debt
increases.
Expenditures as a share of GNP.—The preceding section discussed the various categories of Federal sector expenditures relative to total expenditures. An alternative way to compare spending
trends is to look at changes in the share of the Nation's current
output claimed by the major expenditure categories. Table B-3,
which shows 3-year averages of Federal sector expenditures by
category as a percent of GNP at 10-year intervals, presents this
alternative comparison.
Table B-3. FEDERAL SECTOR EXPENDITURES AS A PERCENT OF GNP
Description

Defense purchases
Nondefense purchases
Domestic transfer payments (to "persons")
Foreign transfer payments
Grants-in-aid to State and local governments
Net interest paid
Subsidies less current surplus of Government enterprises
Total expenditures

1954-56
average
actual

1974-76
average
actual

1964-66
average
actual

1984-86
average
estimate

1987
estimate

10.7
1.7
3.0
.5
.8
1.2

7.7
2.5
4.3
.3
1.6
1.2

5.5
2.3
8.3
.2
3.2
1.4

6.4
2.1
9.1
.3
2.5
3.2

6.4
1.8
8.7
.3
2.1
3.2

18.2

18.3

21.5

24.1

23.0

GNP calculated as the average of seasonally adjusted data for the four quarters of the fiscal year, which may not equal the unadjusted fiscal
year total due to the methods used to seasonally adjust the NIPA. Unadjusted fiscal year GNP data are not yet available.
1

Note.—Total expenditures include wage disbursements less accruals which are less than 0.1% in most years.

In 1954-56, which covers the cutback in defense spending in the
immediate post-Korean war years, defense purchases were 10.7% of
GNP. The years 1964-66 include the beginning of the large military
build-up for the Vietnam war, yet the defense expenditures share
of GNP (7.7%) was significantly lower than the post-Korean war
level. Even though the 1974-76 period included some spending for
the winding-down of the Vietnam war, defense purchases declined
to 5.5% of GNP. For 1984-86 defense purchases are estimated to
average 6.4% of the GNP, well below the 1964-66 average, but

A-ll

SPECIAL ANALYSIS A

above the 1974-76 average. In 1987 they are also expected to be
6.4% of GNP.
In contrast to the general decline over the past several decades
in the share of GNP claimed by the Federal sector for defense
purchases, spending on domestic transfer payments and net interest rose dramatically relative to GNP, while grants-in-aid spending
relative to GNP increased rapidly for several years but declined
significantly in recent years. Spending for everything except defense purchases averaged 7.5% of GNP in 1954-56. In 1984-86 such
spending is estimated to average 17.8% of GNP; in 1987 it will
decline to 16.6% of GNP.
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. Also
included are purchases of goods and services by the military assistance programs that in earlier years were 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. Most of the
remainder is for international security assistance, defense stockpiles, civil defense, and nuclear weapons programs carried out by
other agencies.
The budget calls for an increase of $19.5 billion in defense purchases in 1987 over 1986. This increase more than offsets the
impact of inflation, thus continuing the recent trend of rising
defense purchases in real terms. The pattern of real defense spending has altered significantly over the past 2 decades. From a Vietnam peak in 1968, real defense purchases declined each year until
1976. Between 1976 and 1978 such purchases remained relatively
stable, and starting in 1979 began the rise that continues in this
budget.
Table B-4. PURCHASES OF GOODS AND SERVICES BY CHARACTER OF EXPENDITURE
(In billions of dollars)
1982
actual

Defense purchases:
Compensation of employees
Other
Total defense purchases
Nondefense purchases:
Compensation of employees
Other
Total nondefense

1983
actual

1984
actual

1985
actual

1986
estimate

1987
estimate

82.5
104.9

88.6
122.7

93.5
137.3

98.6
157.1

102.2
167.7

107.9
181.5

187.3

211.3

230.8

255.7

269.9

289.4

32.7
44.4

34.7
42.2

36.7
32.0

38.9
47.6

39.7
49.0

40.7
42.6

77.1

76.9

68.7

86.5

88.7

83.3

A-10

THE BUDGET FOR FISCAL YEAR 1987

Table B-4 displays defense and nondefense purchases of goods
and services, with a split by character of expenditures between
compensation of employees and all other purchases. Defense purchases are growing much more rapidly than nondefense purchases,
with non-compensation defense purchases growing at a significantly faster rate than all other categories. Spending for non-compensation defense purchases is estimated to increase by roughly 73%
from 1982 to 1987, while spending for defense employee compensation will increase by 31%. In contrast, spending will increase by
only 24% for nondefense employee compensation, while other nondefense purchases will decline by 4%.
Nondefense purchases of goods and services.—This category
covers the goods and services purchased by Federal nondefense
agencies. Included are such programs as the 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. Table B-5 shows these purchases by agency for the
years 1978 to 1987, reflecting the agency structure in the 1987
budget.
Nondefense purchases consist mainly of the cost of operating the
various nondefense agencies. In the case of Government enterprises, including the Commodity Credit Corporation (CCC) and the
Postal Service, the data also reflect capital formation net of sales of
assets and changes in inventories. The most volatile major segment
of nondefense purchases is CCC purchases, because the CCC buys,
sells, or otherwise disposes of agricultural commodities. On occasion—as in 1979 and in 1984—CCC sales and other disposals may
exceed new purchases. The negative in 1984 is largely due to disposition of commodities through the payments-in-kind (PIK) program.
The NIPA treat the reduction in CCC inventories due to PIK as a
reduction in net Federal purchases. However, PIK transactions
have no effect on total Federal expenditures since the reduction in
Federal purchases is offset by an equal increase in Federal subsidy
payments. The value of these subsidies is reflected in the estimates
in Table B-8.
The Department of Health and Human Services and the Veterans Administration are normally the two largest agencies in terms
of nondefense purchases. Their combined purchases for health care,
including medicare and research, are estimated at $17.1 billion in
1987, over 80% of the total purchases for the two agencies. Most of
their remaining purchases are for administering social security and
income security transfer programs. Both the National Aeronautics

SPECIAL ANALYSIS A

A-ll

and Space Administration, with $7.3 billion in 1987 nondefense
purchases, and the Department of Energy, with $3.2 billion in 1987
nondefense purchases, conduct major research and development
programs. The Transportation Department's $6.6 billion of 1987
nondefense purchases are mainly for the Federal Aviation Agency
and the Coast Guard. The Corps of Engineers has an estimated $3.0
billion in 1987 nondefense purchases which, along with the Tennessee Valley Authority's $0.9 billion, is primarily used for natural
resources public works projects and for power activities.

Table B-5. NONDEFENSE PURCHASES OF GOODS AND SERVICES BY AGENCY AND ACTIVITY
(In billions of dollars)
Actual
1978

Legislative and judicial branches
Department of Agriculture
Commodity Credit Corporation
Forest Service
All other
Department of Commerce
Corps of Engineers, Civil
Department of Education
Department of Energy
Department of Health and Human Services
Health, including medicare
Social security, income security, and other
Department of Housing and Urban Development
Department of the Interior
Department of Justice
Department of Labor
Department of State
Department of Transportation
Coast Guard
Federal Aviation Administration
Other
Department of the Treasury
Internal Revenue Service
Other
Environmental Protection Agency
National Aeronautics and Space Administration
Veterans Administration
Hospital and medical care
Administration and other

1.5
4.3
(0.9)
(1.2)
(2.2)
1.1
2.6
0.5
4.2
6.3
(4.4)
(2.0)
0.6
2.9
1.8
1.3
0.8
4.0
(1.1)
(2.2)
(0.7)
3.1
(1-9)
(1.2)
0.6
3.9
5.8
(5.1)
(0.7)

1979

1.6
2.6
(-1.0)
(1.5)
(2.1)
1.2
2.9
0.5
5.1
6.6
(4.6)
(2.1)
0.7
3.3
1.9
1.7
0.9
4.3
(1.3)
(2.3)
(0.8)
3.4
(2.1)
(1.4)
0.8
4.1
6.2
(5.4)
(0.7)

1980

1.8
5.4
(1-0)
(1.7)
(2.7)
1.9
3.2
0.7
2.6
7.5
(5.3)
(2.2)
0.5
3.9
2.1
1.9
1.0
4.8
(1.4)
(2.5)
(0.9)
4.0
(2.3)
(1-7)
0.9
4.7
7.1
(6.3)
(0.8)

1981

1.8
5.6
(1.2)
(1.9)
(2.6)
1.5
3.2
0.8
7.8
8.3
(5.9)
(2.4)
0.4
4.0
2.3
1.9
1.0
5.1
(1.6)
(2.7)
(0.8)
4.2
(2.4)
(1.8)
1.0
5.3
7.6
(6.8)
(0.8)

Estimate
1982

2.1
12.9
(8.0)
(1.9)
(3.0)
1.5
3.0
0.8
5.2
8.7
(5.9)
(2.8)
0.5
3.9
2.4
1.9
1.1
5.3
(1.8)
(2.5)
(0.9)
4.2
(2.5)
(1.7)
0.9
5.9
8.1
(7.3)
(0.8)

1983

2.2
9.6
(4.3)
(1.8)
(3.5)
1.6
3.0
0.7
5.1
8.6
(5.8)
(2.7)
0.7
4.2
2.7
1.6
1.3
5.7
(2.1)
(2.8)
(0.8)
4.6
(2.9)
(1.7)
1.0
6.5
8.9
(8.1)
(0.8)

1984

2.4
-2.0
(-7.6)
(1.8)
(3.8)
1.6
3.0
0.9
4.7
9.2
(6.2)
(2.9)
1.0
4.3
3.0
1.5
1.4
6.0
(2.2)
(3.1)
(0.8)
4.7
(3.2)
(1.5)
1.1
6.9
9.6
(8.7)
(0.9)

1985

2.6
11.9
(5.9)
(2.0)
(4.1)
1.7
3.0
0.8
5.3
9.8
(7.1)
(2.8)
0.3
4.6
3.4
1.4
1.7
6.3
(2.3)
(3.5)
(0.6)
5.3
(3.6)
(1.7)
1.2
7.1
10.3
(9.5)
(10.8)

1986

3.0
12.9
(7.1)
(2.0)
(3.8)
1.7
2.8
0.8
3.4
10.4
(7.4)
(3.0)
0.2
4.6
3.6
1.6
1.9
6.4
(2.1)
(3.6)
(0.7)
5.6
(3.8)
(1.8)
1.4
7.2
10.5
(9.8)
(0.6)

1987

3.2
5.1
(0.1)
(1.7)
(3.3)
2.0
3.0
0.8
3.2
10.2
(7.3)
(2.9)
0.1
4.5
3.9
1.4
2.6
6.6
(2.3)
(3.7)
(0.6)
5.9
(4.0)
(1.9)
1.7
7.3
10.2
(9.8)
(0.4)

All other
National Science Foundation
Nuclear Regulatory Commission
OPM: Employee health benefits and imputed employee retirement contributions
Postal Service
Tennessee Valley Authority
United States Information Agency
Imputed bank service charges
Other
Total nondefense purchases

6.5
(0.3)
(0.3)

6.7
(0.4)
(0.3)

7.9
(0.4)
(0.4)

8.4
(0.4)
(0.4)

8.0
(0.5)
(0.4)

8.6
(0.5)
(0.5)

9.1
(0.5)
(0.5)

10.0
(0.6)
(0.5)

11.1
(0.6)
(0.4)

12.8
(0.7)
(0.4)

(1.5)
(0.3)
(1.5)
(0.3)
(0.6)
(1.7)

(1.6)
(0.4)
(2.0)
(0.4)
(0.4)
(1.2)

(1.9)
(0.4)
(1.7)
(0.4)
(0.3)
(2.4)

(2.3)
(0.5)
(1.5)
(0.4)
(0.4)
(2.4)

(2.5)
(0.4)
(1.0)
(0.5)
(0.4)
(2.2)

(2.7)
(0.6)
(0.9)
(0.5)
(0.4)
(2.5)

(3.0)
(0.9)
(0.2)
(0.5)
(0.5)
(3.0)

(3.3)
(1.0)
(0.9)
(0.6)
(0.5)
(2.7)

(3.0)
(1.4)
(0.9)
(0.7)
(0.5)
(3.4)

(3.2)
(1.5)
(0.9)
(0.8)
(0.5)
(4.7)

52.2

55.5

62.8

71.1

77.1

76.9

68.7

86.5

88.7

83.3

>
r

r
><
oo

W
i

A-10

THE BUDGET FOR FISCAL YEAR 1987

Domestic transfer payments.—This is the largest category of Federal sector expenditures. Spending for domestic transfers has expanded rapidly in recent years, mainly as a result of more beneficiaries and higher benefit payments under social insurance programs. As Table B-6 shows, spending on human resources programs, especially social security and medicare, dominates domestic
transfer payments. This spending is expected to continue to rise in
1987, largely due to increases in the covered population and cost-ofliving adjustments. Social security is estimated to account for 52%
of total domestic transfer payments in 1987, while medicare accounts for another 19%, unemployment assistance for 4%, Federal
civilian and military employees' retirement and disability for 11%,
and veterans benefits for 4 % 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.
Most domestic transfer payments are for income support and are
characterized by automatic eligibility of coverage and automatic
benefit increases to account for changes in the cost-of-living. For
these programs the demographic and economic conditions dominate
the growth patterns, and the rate of growth is quite substantial for
most years shown. However, due to the sharp decline in the unemployment rate, transfer payments for unemployment benefits are
estimated to decline by $14.2 billion between 1983 and 1987. This,
combined with legislative and administrative efforts to slow the
growth of Federal spending, is thereby significantly slowing the
rate of growth for transfer payments as a whole.

Table B - 6 . FUNCTIONAL COMPOSITION OF DOMESTIC TRANSFER PAYMENTS
(In billions of dollars)
Description

Actual
1976

1980

1979

1978

1977

Estimate
1981

1982

1984

1983

1987

1986

1985

HUMAN RESOURCES PROGRAMS

Social security (OASDI)

70.3

81.1

89.3

99.4

113.7

134.1

149.6

163.2

170.9

181.2

192.0

203.6

Medicare (HI&SMI)

16.9

20.7

24.2

28.1

33.8

41.1

49.0

56.1

60.8

68.3

72.3

75.3

Income security:
Railroad retirement
Civil service retirement
Military retired pay
Unemployment benefits
Benefits for coal miners
Supplemental security income
Food and nutrition
Special payments, Treasury
Workers' compensation
Other

3.4
8.2
7.2
18.3
1.0
4.6
4.7
.9
.5

3.7
9.5
8.1
14.2
1.0
4.7
4.4
.9
.6

3.9
10.8
9.0
10.9
1.0
4.9
4.5
.9
.6

4.2
12.4
10.1
9.9
1.6
5.2
5.7
.8
.7
.1

4.7
14.6
11.8
16.4
1.8
5.7
7.9
1.3
.8
.1

5.2
17.6
13.6
17.9
1.7
6.4
9.8
1.3
.9
.1

5.6
19.4
14.7
22.0
1.7
6.9
9.5
1.2
.9
.1

6.0
20.7
15.8
29.4
1.7
7.2
11.1
1.2
.9
.1

6.1
21.8
16.3
17.0
1.6
8.1
10.7
1.2
1.0
.1

6.2
23.0
15.8
16.0
1.6
8.5
10.7
1.1
1.1
.1

6.4
24.0
17.5
14.9
1.6
9.1
10.7
1.3
1.1
.2

6.5
24.7
17.9
15.2
1.6
9.6
10.4
1.2
1.2
.2

48.8

47.1

46.7

50.6

65.0

74.5

81.9

94.2

83.9

84.0

86.7

88.4

Education, training, employment, and
social services:
Education
Training, employment, and social services

1.8

2.4

2.8

3.4

4.5

5.7

5.3

5.9

6.0

5.8

6.5

5.5

1.5

1.1

1.0

Subtotal, education, training, employment, and social services

2.2

2.9

3.5

4.3

6.0

6.8

6.2

6.7

7.0

6.8

7.5

6.4

Subtotal, Income security
Health

Table B - 6 . FUNCTIONAL COMPOSITION OF DOMESTIC TRANSFER PAYMENTS—Continued
(In billions of dollars)
Description

Actual
1977

1976

1979

1978

1980

Estimate
1981

1982

1983

1984

1985

1986

1987

14.3

13.3

13.5

14.0

14.4

15.5

16.2

16.5

16.3

16.5

16.6

16.7

153.1

165.8

177.8

196.9

233.5

272.7

303.6

337.4

339.5

357.4

375.7

391.1

.5
.8

.6
.9

.7
.9

.7
1.1

.9
1.1

1.1
1.0

1.2
1.1

1.5
1.3

1.4
1.1

1.4
1.3

1.7
1.0

Total functions not included in
human resources grouping

1.3

1.5

1.8

1.9

2.1

2.3

2.8

2.5

2.7

Total domestic transfer payments

154.3

167.1

179.3

198.5

235.4

274.6

305.6

339.7

342.3

359.9

378.4

393.8

Veterans benefits and services
Total, human resources programs
ALL OTHER FUNCTIONS

National defense: CHAMPUS 1
Other

*$50 million or less.
1
Health care for dependents of active duty personnel and retired military personnel and their dependents.
Note—Excludes the transition quarter.

SPECIAL ANALYSIS B

B-17

Grants-in-aid.—These expenditures help State and local governments provide general public services and finance programs for the
needy. Table B-7 shows 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
NIPA, the two sets of data largely overlap. Special Analysis H
explains the relationship between the series.
Grants-in-aid may often substitute for domestic transfer payments and, to a lesser degree, nondefense puchases. For example,
low-income veterans could be eligible for free medical care under
medicaid (Federal grants to finance State and local transfer payments), in a veterans hospital (nondefense purchases), or perhaps
under medicare (transfer payments). The supplemental security
income transfer payments are substitutes 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.) Medicaid and most grants in the income
security function are grants to assist States to provide income
support; most other grants finance State and local services to the
public, (The income support may be aid-in-kind, as is the case for
medicaid, where much of the State and local spending is to reimburse for the cost of providing medical care for the poor.)
The growth in most Federal grants-in-aid categories has been
constrained over the last 5 years as part of the administration's
efforts to curb the growth in overall spending. However, expenditures have increased significantly for two categories—medicaid and
transportation. Despite implementation of reforms to increase program efficiency and effectiveness, medicaid grants rose by about
42% from 1982 to 1986. The administration's proposals to contain
medicaid costs will keep expenditures in 1987 at about the 1986
level. Transportation grants rose by about 46% from 1982 to 1986,
largely due to the enactment of the Surface Transportation Assistance Act of 1982. Reflecting the administration's proposals to restrain domestic discretionary spending, they are expected to decline slightly in 1987. The administration also proposes to reduce
expenditures for most other grants-in-aid categories, including general revenue sharing grants, which the administration proposes to
terminate with the expiration of the program's authorization in
1987.

td
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Table B - 7 . FUNCTIONAL COMPOSITION OF FEDERAL GRANTS-IN-AID
(In billions of dollars)
Description

Actual
1977

1976

1978

1979

Estimate
1981

1980

1982

1983

1984

1987

1986

1985

HUMAN RESOURCES PROGRAMS

Income security:
Public assistance cash
Child nutrition and other food programsOther

5.8
2.1
1.3

6.3
2.7
1.6

6.6
2.8
1.6

6.5
3.3
1.7

7.2
3.9
2.2

8.4
4.4
4.5

7.9
4.2
4.7

7.8
4.7
5.4

8.2
5.4
5.4

8.5
5.8
5.6

9.0
6.1
5.5

8.1
5.9
5.8

Subtotal, income security

9.2

10.6

11.0

11.5

13.3

17.2

16.7

17.9

19.0

19.9

20.6

19.7

8.6

9.8

10.6

12.4

13.9

16.8

17.3

18.9

20.0

22.6

24.6

2.8

2.7

3.0

3.1

2.8

3.0

3.2

3.4

3.2

11.4

12.5

13.4

15.1

16.9

19.9

20.5

21.8

23.0

25.7

28.0

27.8

Health:
Medicaid
Other (includes research, construction,
services, and medical training)
Subtotal, health
Education, training, employment, and
social services:
Education
Training and employment
Social services

4.9
5.5
4.4

5.4
8.9
5.0

6.6
8.5
5.3

7.3
7.7
6.3

7.5
6.7
5.4

7.0
3.3
5.0

6.6
3.3
5.4

6.6
2.6
6.2

7.9
2.9
5.8

7.6
3.0
6.2

7.4
2.5
6.0

Subtotal, education, training, employment, and social services ,.

13.3

14.8

19.3

20.3

21.3

19.6

15.3

15.5

16.6

16.8

15.9

Other (social security, medicare, and veterans benefits and services)

34.3

38.3

44.1

47.4

52.0

57.2

53.2

55.8

58.2

62.4

65.6

64.3

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4.5
5.1
3.8

Total human resources programs

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OTHER FUNCTIONS:

Natural resources and environment:
EPA
Other

2.5
.3

3.7
.4

3.4
.5

3.9
.6

4.6
.7

4.1
.7

4.0
.7

3.2
.6

2.9
.8

3.2
.8

3.1
.6

2.8
.4

2.8

4.1

3.8

4.5

5.2

4.8

4.7

3.9

3.7

3.9

3.7

3.2

1.0
2.4

.6
2.0
1.8

2.9
2.4
1.5

1.6
3.2
1.6

.4
4.0
1.8

.1
4.3
1.5

4.1
1.1

3.9
.9

4.1
.8

4.2
.8

3.9
.8

3.4
.7

3.3

4.4

6.8

6.4

6.2

5.9

5.2

4.8

5.0

4.9

4.8

4.1

Transportation.

7.5

7.7

8.1

9.6

11.8

12.2

10.8

12.1

14.3

16.0

17.7

17.0

General purpose fiscal assistance:
General revenue sharing
Anti-recession fiscal assistance..
Other

6.2

6.8
1.3
.9

6.8

5.1

4.6

4.4

6.8
1.7
.6

1.1

1.4

1.2

1.6

1.4

1.3

GO
GO

6.7

9.0

9.1

7.8

7.9

6.3

5.9

6.1

6.0

5.8

1.3

2.9

2.7

2.8

3.5

3.7

3.6

3.3

3.4

4.5

5.0

4.1

Total other functions..

23.3

27.9

30.6

31.7

34.7

32.9

30.3

29.9

32.5

35.4

37.0

29.6

Total grants-in-aid

57.5

66.3

74.7

79.1

86.7

90.1

83.4

85.7

90.7

97.8

102.6

93.9

Subtotal, natural resources and
environment
Community and regional development:
Local public works
Block grants
Other
Subtotal, community and regional
development

Subtotal, general purpose fiscal assistance
All other functions

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*50 million or less.
Note—Excludes the transition quarter.

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A-10

THE BUDGET FOR FISCAL YEAR 1987

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. The
peak year for foreign transfer payments was 1949; in that year
they were equal to 1.9% of GNP.
Net interest paid.—Net interest paid 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 NIPA expenditures;
from 1952 to 1977 it accounted for only 6-7% of the total each year.
In contrast, it rose from 6.8% of Federal sector expenditures in
1977 to 13% in 1985, and is expected to continue rising to 14% in
1986 and in 1987.
In recent years foreign holdings of Federal debt have increased
significantly. This expansion, combined with higher interest rates
for several years, pushed up the amount of interest paid abroad to
over $21.2 billion in 1985, almost five times greater than the $4.5
billion paid in 1975. These foreign interest payments are partially
offset by interest collections from abroad; in 1975 such collections
totaled $1.1 billion, and in 1985 they totaled $5.1 billion. 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.—This
category of expenditures consists of two elements: (1) subsidy payments to resident businesses (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, railroad subsidies, and
the construction and operating differential subsidies paid to operators of U.S.-flag merchant ships. As Table B-8 shows, normally over
half of the subsidies are for housing programs (including Department of Agriculture housing programs). These subsidies are designed mainly to reduce the cost of housing to low- and moderateincome families. The large increase in Commodity Credit Corporation subsidies in 1984 was due to $8.6 billion of payment-in-kind
subsidies that year.
"Government enterprise" is the term used in the NIPA to designate certain business-type operations of the Government that 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 rather than

SPECIAL ANALYSIS B

B-17

from tax receipts. The difference between the sales and the current
operating expense of a Government enterprise constitutes its surplus or deficit. As noted above, the capital formation of Government enterprises net of sales of assets is classified as nondefense
purchases. The largest Government enterprises are the Commodity
Credit Corporation, the Postal Service, and the Tennessee Valley
Authority. The large swing in the Postal Service from deficit to
surplus in 1982 was largely due to postal rate increases.

Table B - 8 . SUBSIDIES LESS CURRENT SURPLUS OF GOVERNMENT ENTERPRISES
(In billions of dollars)
Actual

Description

1976

Subsidies:
Commodity Credit Corporation
Rural housing insurance fund
Other Department of Agriculture
Housing (HUD)
Maritime
Railroad and mass transit
Other1

1980

1979

Estimate
1982

1981

1984

1983

1985

1986

1987

less

2.3
.4
.4
3.5
.5
1.4
.3

2.0
.6
.3
4.3
.5
1.5
.6

0.5
.6
.3
5.1
.6
2.0
.5

1.4
.8
.3
6.3
.5
2.2
.2

1.6
1.4
.2
7.6
.6
1.9
.2

4.9
1.7
.3
9.2
.4
1.7
.1

10.6
1.8
.3
9.7
.4
1.7
.1

8.0
1.9
.3
10.9
.4
1.6
.1

6.2
2.0
.6
11.0
.3
.9
.8

9.0
1.8
1.3
10.0
.3
.4
.8

6.4

8.9

9.9

9.5

11.7

13.5

18.2

24.5

23.2

21.7

23.8

.2
2.3
-.2
-.4
-.2
-.2

.2
1.6
-.2
-.6
-.2
-.2

.8
1.5
-.2
-.6
-.2
-.3

1.4
0.6
-.2
-.8
-.2
-.3

1.5
1.6
-.2
-1.1
-.4
-.2

1.8
1.1
-.3
-1.0
-.4
-.4

2.3
-.1
-.2
-1.2
-.5
-.6

5.5
.4
-.4
-1.4
-.5
-.6

2.5
.6
-.7
-1.5
-.4
-1.2

2.2
1.1
-.7
-1.9
-1.2
-1.3

5.3
.4
-.8
-2.1
-1.3
-1.4

4.6
.9
-.8
-2.2
-1.4
-1.5

-.2
-.1

-.2
.1

-.3

-.3
-.2

-.3

-.2

.3
.2

-.4
.2

-.3
-.5

-.2
-.1

1.2

Subtotal

0.6
.4
.3
2.9
.5
1.3
.3

5.0

Enterprise surpluses ( - ) or deficits:
Commodity Credit Corporation
Postal Service
Bonneville Power
Tennessee Valley Authority
Federal Housing Administration
Federal Deposit Insurance Corporation ...
Federal Savings and Loan Insurance
Corporation
All other1

6.2

6.9

9.7

-.5

3.0

-.9

-1.8

-.7

-.6

9.9

10.4

12.5

13.0

22.2

23.5

21.4

21.0

23.1

current

* $50 million or less.
1
Includes wage disbursements less accruals.
Note—Excludes the transition quarter.

1978

0.3
.3
.3
2.3
.5
.9
.4

Subtotal

Total subsidies
surplus

1977

SPECIAL ANALYSIS B

B-17

Wage disbursements less accruals.—This is an adjustment occasionally made in the NIPA to bridge between the sum of the
expenditure components and the totals. This is necessary when
wages and salaries are received in a time period that is different
from when they are earned. The budget records these payments on
a cash basis (when they are paid). The NIPA treat such payments
on an accrual basis (when they are earned) for nondefense purchases and the current surplus of Government enterprises, but on
a cash basis for total expenditures. Wage disbursements less accruals is the timing adjustment necessary to allow the individual
expenditure categories to sum to the total expenditures. The net
adjustment made is normally small since wage and salary payments disbursed in one year but earned in another are approximately offset by payments disbursed in the next year but earned in
the current one.
Quarterly Estimates
Table B-9 presents quarterly NIPA receipts and expenditures at
seasonally adjusted annual rates for 1985 to 1987. The translation
of the budget into the NIPA categories is inexact. When the annual
NIPA estimates are converted into quarterly distributions that are
seasonally adjusted at annual rates, greater imprecision must be
expected. The data presented in Table B-9 are the best available
estimates of the quarterly NIPA receipts and expenditures consistent with the 1987 budget, but should be used with clear recognition
of their limitations.

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Table B - 9 . FEDERAL RECEIPTS AND EXPENDITURES I N THE NIPA, QUARTERLY, 1 9 8 5 - 8 7
(In billions of dollars; seasonally adjusted at annual rates)
Actual
Description

Estimate

Oct.-Dec.
1984

Jan-Mar.
1985

Apr-June
1985

July—Sept.
1985

Oct.-Dec.
1985

Jan-Mar.
1986

Apr.-June
1986

July—Sept.
1986

0ct.-Dec.
1986

Jan-Mar.
1987

Apr.-June
1987

July-Sept.
1987

327.8
69.2
56.2
288.9

363.9
65.9
55.5
304.4

321.3
65.0
60.2
308.4

355.4
68.9
55.4
311.0

363.8
72.7
57.0
315.9

354.9
84.2
55.0
323.0

361.8
88.7
55.8
326.2

369.4
93.2
55.4
329.3

377.8
97.4
58.7
335.8

381.6
103.2
60.6
346.0

395.6
106.5
60.6
351.5

410.0
109.4
60.8
356.9

742.1

789.7

754.9

790.7

809.4

817.1

832.5

847.3

869.7

891.4

914.2

937.1

332.9
(247.5)
(85.4)
361.9
(346.4)
(15.5)

334.4
(249.5)
(84.9)
374.1
(362.9)
(11.2)

337.8
(256.0)
(81.7)
376.7
(364.2)
(12.5)

364.8
(269.9)
(95.0)
383.5
(368.8)
(14.7)

378.6
(272.5)
(106.1)
384.3
(369.7)
(14.7)

362.3
(270.0)
(92.3)
393.6
(378.4)
(15.2)

345.9
(267.2)
(78.7)
396.3
(380.6)
(15.7)

348.1
(270.0)
(78.1)
401.0
(384.6)
(16.4)

361.1
(279.6)
(81.5)
399.2
(384.2)
(15.0)

369.9
(286.4)
(83.5)
408.1
(393.8)
(14.3)

378.5
(294.4)
(84.1)
410.2
(396.4)
(13.8)

381.8
(297.2)
(84.6)
414.3
(401.0)
(13.3)

97.3
124.8

95.7
126.4

97.6
130.1

100.6
127.1

101.5
132.5

103.1
138.5

104.4
142.5

101.3
145.7

95.6
145.9

94.2
146.0

93.4
146.2

92.4
146.4

18.5
-.6

21.9
-.1

20.9
1.0

15.9

26.6

20.0

19.2

18.2

26.2

23.7

22.2

20.5

934.7

952.4

964.0

992.0

1,023.4

1,017.5

1,008.3

1,014.3

1,028.0

1,041.9

1,050.5

1,055.4

-192.7

-162.6

-209.1

-201.3

-214.1

-200.4

-175.8

-167.0

-158.3

-150.5

-136.3

-118.3

RECEIPTS

Personal tax and nontax 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
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
Deficit ( - )

Note—Because of the methods normally used to seasonally adjust NIPA 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.

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B-17

SPECIAL ANALYSIS B

Relationship of the Budget to the Federal Sector, NIPA
Table B-10 shows the major differences between the budget and
the Federal sector in the NIPA. The budgetary totals in the table
include the receipts and outlays of the Federal Old-Age and Survivors Insurance and the Federal Disability Insurance trust funds
(social security), which were moved off-budget by the Balanced
Budget and Emergency Deficit Control Act of 1985. Since social
security receipts and outlays are included in the NIPA transactions, it is simpler and clearer to bridge from the Federal totals
(including social security) than from the on-budget totals. The
budgetary totals in the table also include the outlays of the previously off-budget Federal entities (primarily the Federal Finacing
Bank), which were moved on-budget by the Balanced Budget and
Emergency Deficit Control Act of 1985. Their inclusion raises the
budget totals by an amount equal to off-budget outlays, but has no
effect on Federal sector estimates since the NIPA have always
included the transactions of the off-budget Federal entities. Adjustments required to reconcile the budget to the Federal sector in the
NIPA are explained below.
Table B - 1 0 . RELATIONSHIP OF THE BUDGET TO THE FEDERAL SECTOR, NIPA
(In billions of dollars)
1983
actual

1984
actual

1985
actual

600.6

Description

666.5

734.1

777.1

850.4

28.3
9.7
7.1
-1.3
.2

29.7
13.0
2.5
-1.5
-.1

32.4
14.6
-6.4
-1.9
.3

33.9
13.7
.3
-1.9
.1

36.0
17.4
3.2
-1.9
.1

644.6

710.1

773.1

823.2

905.2

808.3

851.8

946.3

979.9

994.0

-17.6 -25.3
29.7
32.4
13.0
14.6
2.7
1.3
3.4
2.0
-5.0
-5.3
-2.3
-2.8

-10.5
33.9
13.7
3.5
1.9
-5.4
-1.1

-6.3
36.0
17.4
7.0
1.6
-5.4
-.6

963.2

1,015.9

1,043.7

1986
estimate

1987
estimate

RECEIPTS
Total receipts

Government contributions for employee retirement (grossing)..
Other netting and grossing
Timing adjustments
Geographic exclusions
Other
Federal sector, NIA receipts
EXPENDITURES
Total outlays

Lending and financial transactions
-15.7
Government contribution for employee retirement (grossing)... 28.3
Other netting and grossing
9.7
Defense timing adjustment
1.0
Bonuses on Outer Continental Shelf land leases
7.5
-4.8
Geographic exclusions
Other
-.8
Federal sector, NIA expenditures
1

833.5

875.6

Includes off-budget as well as budget totals.

Lending and financial transactions.—The NIPA conceptually
measure the Nation's current income and production, and therefore do not include transactions, such as loans, that are an ex-

A-10

THE BUDGET FOR FISCAL YEAR 1987

change of existing assets and liabilities rather than current income
or production. Loan transactions have a significant economic
impact, affecting the allocation and distribution of income and
output, but they are analyzed more appropriately within a financial market framework, such as that provided by the flow-of-funds
data of the Federal Reserve Board. Special Analysis E (Borrowing
and Debt) 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 included in Table
B-10 are shown in Special Analysis F. However, this total differs
from the total for direct loans shown in Special Analysis F because:
(a) the NIPA record nonrecourse agricultural commodity loans as
purchases rather than loans; and (b) capital contributions to international financial institutions are not loans, but are financial
transactions excluded from the NIPA.
The sharp increase in lending and financial transactions in 1985
is largely due to lending for the Public and Indian Housing Authorities. Changes in tax law in the Deficit Reduction Act of 1984
raised questions about the tax-exempt status of these loans. As a
consequence, tax-exempt financing was suspended and replaced by
direct Federal lending until the Internal Revenue Service ruled
that the tax-exempt status was not jeopardized by this act. The
exclusion for lending declines in 1986 and 1987, reflecting the
administration's commitment to reduce direct Federal lending.
Government contributions for employee retirement.—The contributions of Government agencies to the retirement trust funds of their
employees constitute the largest netting and grossing adjustment.
Since, these contributions are made by Government accounts to
other Government accounts, they are not included in the budget
totals, which conceptually measure the Government's current
transactions with the public. While the contributions are recorded
as outlays of the agencies, they are offset by an intragovernmental
deduction. However, the NIPA have long counted Government payments for civilian 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 non-military
accounts are recorded as purchases of goods and services. The
receipt of these retirement contributions is treated in the NIPA as
contributions for social insurance. Since receipts and expenditures
are increased by identical amounts, this treatment has no net
effect on the surplus or deficit. Around 80% of these payments go

SPECIAL ANALYSIS B

B-17

to the civil service retirement trust fund, while most of the remainder is for social security and medicare.
Due to a conceptual change incorporated in the benchmark revision issued in December 1985, the NIPA treatment of Government
contributions for military retirement is now similar to the treatment of contributions for civilian employees. In 1985, the budget
began financing military retirement on an accrual basis akin to the
financing of civil service retirement. A trust fund was created to
pay retirement benefits to current and future military retirees.
Benefits are financed by payments to the retirement trust fund
from three sources: employing agencies, for services currently rendered (the "accrual charge"); the general fund, to cover the unfunded liability that existed when the new retirement trust fund was
created; and the interest earned on trust fund balances. These
payments are not included in the budget totals since they are offset
by intragovernmental deductions. In the revised NIPA, a new
social insurance fund and an employer contribution for military
retirement are imputed. The imputed contribution is equal to benefits paid. Since an equal amount is added to both receipts and
expenditures, imputed accruals have no impact on the surplus or
deficit. However, the contributions imputed in the NIPA differ
significantly from the budget accruals in many years. The budget
estimates are based on benefits earned in the time period when
service was rendered, while the NIPA use the cash benefits paid in
one period as a proxy for the contributions required to fund benefits earned in that period but paid in a succeeding period.
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 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 NIPA these insurance premiums are treated as social insurance receipts just as are receipts from compulsory Government
programs. Likewise, noncompulsory insurance premiums under the
supplementary medical insurance program and similar but much
smaller noncompulsory hospital insurance premiums are classified
as offsetting collections (negative outlays) in the budget, but are
classified as social insurance contributions in the NIPA.
Other netting and grossing includes some imputed contributions
for social insurance for Federal employees for unemployment compensation (which adds an equal amount to purchases of goods and
services) and workers' compensation (which adds an equal amount

A-10

THE BUDGET FOR FISCAL YEAR 1987

to domestic transfer payments). As part of the conceptual changes
introduced in the NIPA benchmark revisions, social insurance contributions are now imputed for medical care for military personnel
and their dependents and for unemployment benefits for former
military personnel.
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 NIPA as indirect business nontaxes;
this converts the collections from an offset to outlays in the budget
to a receipt in the NIPA.
All netting and grossing items, including Government contributions for employee retirement, have an equal impact on receipts
and expenditures, so they have no effect on the calculation of the
NIPA deficit.
Timing adjustments.—The budget records receipts at the time
the cash is collected regardless of when the liability is incurred. In
contrast, the NIPA attempt to record most receipts from the business sector in the time period in which the liability is incurred
rather than when taxes are actually collected, 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 incurred or the cash is received by Treasury. Hence,
receipts recorded in the budget for one fiscal year are sometimes
recorded in the prior fiscal year in the NIPA due to the lags
between the time when liability is incurred or payment made and
time of collection. The timing adjustments made to budget receipts
attempt to account for these time lags.
The principal timing adjustment made 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. The Federal Government
normally makes progress payments for work in process for major
procurement programs. Progress payments are excluded from
NIPA Federal sector expenditures, because work in progress is
counted in the NIPA as part of private business inventories until
the goods are completed and delivered to the Government, when
they are recorded as defense purchases. 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 NIPA. In addition, some accounting adjustments are included with the defense timing adjustment
in this translation. Nondefense timing adjustments are normally
small and are included in the "other" category in Table B-10.

SPECIAL ANALYSIS B

B-17

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 NIPA. As already noted, the budget records these bonuses as
proprietary receipts and, therefore, deducts them from budget outlays. The NIPA exclude these transactions as being a transfer of
assets, because the payments are not included in calculating book
profits under current corporate accounting practice.
Geographic 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. Since the budget includes receipts from
and payments to persons and local governments in these territories, and the NIPA exclude such transactions, this constitutes a
major reconciliation item between the two data series.
Other.—This category contains miscellaneous adjustments, such
as foreign currency transactions that are included in the NIPA but
not in the budget.

Table B - l l . FEDERAL TRANSACTIONS IN THE NATIONAL INCOME AND PRODUCT ACCOUNTS, 1976-87
(In billions of dollars)
Description

RECEIPTS, NIPA BASIS

Personal tax and nontax receipts
Corporate profits tax accruals
Indirect business tax and and nontax accruals
Contributions for social insurance
Total receipts, national income
basis
EXPENDITURES, NIPA BASIS

Actual

Estimate

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

137.1
52.1

165.9
59.0

186.5
67.8

222.9
75.7

250.7
70.2

289.6
69.4

310.0
52.1

292.9
54.5

304.0
73.6

345.2
67.6

360.1
84.8

392.1
104.1

24.2
109.1

24.5
125.4

27.1
142.9

29.0
163.6

35.3
182.3

53.4
211.4

50.0
231.1

50.2
247.0

54.9
277.6

56.4
304.0

55.8
322.5

60.7
348.3

322.6

374.7

424.3

491.2

538.6

623.8

643.3

644.6

710.1

773.1

823.2

905.2

132.2
(91.5)
(40.8)
158.0
(154.3)
(3.7)

146.8
(99.2)
(47.6)
171.2
(167.1)
(4.1)

158.6
(106.3)
(52.2)
183.6
(179.3)
(4.4)

173.1
(117.7)
(55.5)
203.5
(198.5)
(5.1)

199.9
(137.2)
(62.8)
241.1
(235.4)
(5.8)

231.8
(160.7)
(71.1)
281.3
(274.6)
(6.7)

264.4
(187.3)
(77.1)
312.8
(305.6)
(7.2)

288.2
(211.3)
(76.9)
347.4
(339.7)
(7.7)

299.5
(230.8)
(68.7)
352.2
(342.3)
(9.9)

342.2
(255.7)
(86.5)
373.0
(359.9)
(13.1)

358.6
(269.9)
(88.7)
393.9
(378.4)
(15.5)

372.7
(289.4)
(83.3)
407.9
(393.8)
(14.1)

57.5
25.1

66.3
28.5

74.7
33.5

79.1
40.7

86.7
50.8

90.1
66.7

83.4
82.2

85.7
90.6

90.7
109.7

97.8
128.7

102.6
139.8

93.9
146.1

6.2
-.1

6.9
-.1

9.7
-.1

9.9
*

10.4

12.5
-.1

13.0
*

21.2
.4

23.5
-.1

21.4
.1

21.0

23.1

378.9

419.6

459.9

506.4

589.0

682.4

755.9

833.5

875.6

963.2

1,015.9

1,043.7

-56.3

-44.8

-35.6

-15.2

-50.4

-58.5

-112.6

-188.9

-165.5

-190.1

-192.7

-138.6

Note.—Excludes the transition quarter. The estimates for 1986 and 1987 are preliminary; any revisions will be published in the February 1986 issue of the Survey of Current Business.

PART 2

ANALYSES OF
THE TOTALS

INTRODUCTION
Part 2 provides analyses and tabulations of the totals that cover
the Federal Government's finances and operations as a whole, and
reflect the ways in which Government finances affect the economy.
The data include both on-budget and off-budget amounts (i.e., transactions of the Federal old-age, survivors, and disability insurance
trust funds). These special analyses are designated C through I.
Special Analysis C (Funds in the Budget) classifies on-budget and
off-budget information by Federal fund and trust fund categories.
Special Analysis D (Federal Investment and Operating Outlays)
classifies outlays in terms of the duration and nature of the benefits provided, distinguishing those of an investment or developmental type from those that primarily yield current benefits.
Special Analysis E (Borrowing and Debt) 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) analyzes direct
loan and loan guarantee programs from the perspective of the
credit budget. It presents detailed data on these programs, and
describes the activities of Government-sponsored enterprises and
the Federal Financing Bank. It also analyzes credit subsidies, loan
asset sales, defaults and tax-exempt financing.
Special Analysis G (Tax Expenditures) provides a list and discussion of 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 compares 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.
Special Analysis I (Civilian Employment in the Executive Branch)
deals with the levels of civilian employment in the executive branch
and the systems used to control civilian employment. It also contains
data on total Federal personnel costs (including military personnel).
2-2

SPECIAL ANALYSIS C
FUNDS IN THE BUDGET
This analysis provides information on transactions of the Federal
Government in terms of Federal funds and trust funds, the two
major fund groups. Data are provided on receipts, outlays, and
surpluses or deficits as well as net obligations and balances.
Federal funds are composed of the general fund, special funds,
public enterprise revolving funds, and intragovernmental management and revolving funds. Trust funds are composed of regular
(non-revolving) trust funds and trust revolving funds.
All income of a business-type nature (interest, loan repayments,
sale of property or services, etc.) is offset against outlays (spending)
rather than included in receipts. Similarly, any income to any
Federal Government account arising from the spending by any
Federal Government account is also offset against Federal Government outlays. This approach means that governmental receipts
represent payments by the public that result from exercise of the
Government's sovereign powers (i.e., taxes and similar payments)
and that outlays measure the net payments to the public that must
be financed by taxes or borrowing.
When the budget is disaggregated by fund group, any payments
by accounts within a fund group to receipt accounts within the
same fund group ("intrafund transactions") continue to be deducted
before arriving at total receipts and outlays for the fund group.
However, when payments are made by Federal fund accounts to
trust fund receipt accounts, and from trust fund accounts to Federal fund receipt accounts ("interfund transactions"), the income is
normally included on the receipts side of the collecting fund group.
As a result of this treatment, when Federal fund and trust fund
receipts are aggregated to arrive at total receipts, these interfund
transactions must be deducted to arrive at a figure of total (governmental) receipts from the public. Likewise, when the Federal fund
and trust fund outlays are aggregated to arrive at total outlays, the
interfund transactions must be deducted to avoid double-counting.
These deductions are shown in table C-1.

C-l

A-10

THE BUDGET FOR FISCAL YEAR 1987

The Balanced Budget and Emergency Deficit Control Act of 1985
(Public Law 99-177) 1 eliminated the off-budget status of formerly
off-budget Federal entities, but it also required that the receipts
and outlays of the two social security trust funds (the Federal oldage and survivors insurance and the Federal disability insurance
trust funds) be moved off-budget. These changes have been made
retroactively for all years presented in the tables of this analysis,
so that the data are comparable over time.
The movement of the previously off-budget Federal entities onbudget means that all Federal funds are on-budget. However, the
movement of the two trust funds off-budget means that there are
now off-budget as well as on-budget trust funds. As a result, there
are:
—trust intrafund payments from off-budget to on-budget accounts;
—interfund payments from on-budget Federal funds to off-budget
trust funds; and
—interfund payments from off-budget trust funds to on-budget
Federal funds.
All of these amounts now are included in the gross receipts of
the receiving group, then deducted from the receipts and offset
against the outlays of that group. Consequently, the on- and offbudget receipts and the on- and off-budget outlays, respectively,
can be added together with no further deductions to arrive at total
Federal Government receipts and outlays. These transactions, gross
and net, are shown in table C - l .
In addition, the Balanced Budget and Emergency Deficit Control
Act of 1985 provides emergency powers (known as sequestration) to
eliminate deficits in excess of a maximum deficit amount. The
sequestration of 1986 funds, if any, under this Act is reflected in
this analysis by providing data that are net of sequestration.

1 The Balanced Budget and Emergency Deficit Control Act of 1985 (commonly known as the Gramm-RudmanHollings Act) was enacted on December 12, 1985. Section 261(a)(1)(E) of this Act moved off-budget the receipts
and disbursements of the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability
Insurance Trust Fund, and the taxes imposed under sections 1401(a), 3101(a), and 3111(a) of the Internal
Revenue Code of 1954.

SPECIAL ANALYSIS

B-17

Table C - l . FEDERAL GOVERNMENT RECEIPTS AND OUTLAYS BY FUND GROUP
(In millions of dollars)
1985
actual

Description

1986
estimate

1987
estimate

RECEIPTS

On-budget:
Federal funds:
Total in fund accounts
Intrafund transactions
Interfund receipts from off-budget
Proprietary receipts from the public
Subtotal, Federal fund receipts

500,748
-22,040
-791
-18,428
459,488

525,992
-21,081
-684
-19,072
485,155

576,499
-22,305
-660
-20,242
533,293

Trust funds:
Total in fund accounts
Intrafund receipts from on-budget
Intrafund receipts from off-budget
Proprietary receipts from the public
Subtotal, trust fund receipts

218,163
-24
-3,560
-16,830
197,749

228,498
-11
-3,068
-18,223
207,196

240,033
-2
-2,813
-20,529
216,689

-109,352

-113,149

-113,884

547,886

579,201

636,097

200,349
-365
-13,814

214,498
-182
-16,378

228,531
-14,256

Interfund transactions
Total on-budget receipts

Off-budget:
Trust funds:
Total in fund accounts
Intrafund transactions
Interfund receipts from on-budget
Total off-budget (trust fund) receipts

186,171

197,938

214,275

734,057

777,139

850,372

On-budget:
Federal funds-.
Total in fund accounts
Intrafund transactions
Interfund receipts from off-budget
Proprietary receipts from the public
Subtotal, Federal fund outlays

767,396
-22,040
-791
-18,428
726,137

791,786
-21,081
-684
-19,072
750,949

794,995
-22,305
-660
-20,242
751,789

Trust funds:
Total in fund accounts
Intrafund receipts from on-budget
Intrafund receipts from off-budget
Proprietary receipts from the public
Subtotal trust fund outlays

173,144
-24
-3,560
-16,830
152,730

178,688
-11
— 3,068
—18,223
157,386

180,825
-2
-2,813
-20,529
157,481

-109,352

-113,149

-113,884

769,515

795,185

795,386

190,986
-365
-13,814

201,303
-182
-16,378

212,873
-14,256

176,807

184,743

198,617

946,323

979,928

994,002

Total receipts
OUTLAYS

Interfund transactions
Total on-budget outlays

Off-budget:
Trust funds-.
Total in fund accounts
Intrafund transactions
Interfund receipts from on-budget
Total off-budget (trust fund) outlays
Total outlays

A-10

THE BUDGET FOR FISCAL YEAR 1987

Table C - 1 . FEDERAL GOVERNMENT RECEIPTS AND OUTLAYS BY FUND GROUP—Continued
(In millions of dollars)
1985
actual

Description

Surplus or deficit ( - ) :
On-budget:
Federal funds
Trust funds
Total on-budget deficit

-266,648
45,019
-221,629

Off-budget (trust funds) surplus

-265,794
49,810
-215,984

1987
estimate

-218,496
59,208
-159,288

9,363

13,195

15,658

-212,266

Total deficit
1

1986
estimate

-202,789

-143,630

Net of $126 thousand of proprietary receipts from the public in 1985.

FEDERAL FUNDS

The Federal fund group is composed of the general fund, special
fund, public enterprise (revolving) fund, and intragovernmental
fund accounts. Intragovernmental funds include intragovernmental
revolving funds and management funds. With the exception of
revolving fund accounts, collections received by these accounts are
normally deposited in receipt accounts, and outlays are made from
expenditure accounts. In the case of revolving funds, collections are
credited directly to the revolving funds. Thus, for revolving funds,
outlays are reported net of receipts at the account level. The five
types of appropriation (expenditure or fund) accounts and two
types of receipt accounts associated with the Federal fund group
are described as follows:
• General fund expenditure accounts—Appropriation accounts
established to record amounts appropriated by law for the
general support of Federal Government activities and the
subsequent outlay of these funds.
• General fund receipt accounts—Receipt accounts credited
with all collections not earmarked by law for a specific purpose. These include: taxes, customs duties, and miscellaneous
receipts.
• Special fund expenditure accounts—Appropriation accounts
established to record special fund amounts appropriated by
law for specific programs and the subsequent outlay of the
fund. Generally, if the purpose of the fund is to carry out a
cycle of business-type operations, primarily with the public, it
will be classified instead as a "public enterprise fund."
• Special fund receipt accounts—Receipt accounts credited with
collections that are earmarked by law for a specific purpose.
• Public enterprise revolving fund accounts—Appropriation accounts authorized to be credited with collections, primarily
from outside the Government, that are earmarked to finance
a continuing cycle of business-type operations.

B-17

SPECIAL ANALYSIS B

• Intragovernmental revolving fund accounts—Appropriation
accounts authorized to be credited with collections, primarily
from other agencies and accounts, that are earmarked to
finance a continuing cycle of business-type operations, for
example: working capital funds, industrial funds, stock funds,
and supply funds.
• Management fund accounts—Appropriation accounts authorized by law to credit collections from two or more appropriations to carry a common purpose or project not involving a
continuing cycle of business-type operations. These accounts
facilitate the administration and accounting for intergovernmental activities.
Federal fund receipts and outlays.—In 1987, the Federal fund
receipts are estimated at $533 billion and outlays are estimated at
$752 billion. Table C-2 presents the distribution of receipts by
source and outlays by agency for the Federal fund group; all Federal funds are on-budget.
The Federal fund receipts shown in the table are composed of the
amounts collected by the general and special funds that are governmental in nature, plus interfund receipts from on-budget trust
funds. The interfund receipts included in the table are all in the
category entitled "miscellaneous receipts." Proprietary receipts
from the public of the general and special funds arise from marketoriented transactions and thus are offsetting collections rather
than governmental receipts.
Table C - 2 . FEDERAL FUND RECEIPTS AND OUTLAYS
(In millions of dollars)
Description

1985
actual

1986
estimate

1987
estimate

RECEIPTS BY SOURCE

Individual income taxes
Corporation income taxes
Excise taxes
Estate and gift taxes
Customs duties
Miscellaneous receipts
Total receipts, Federal funds

334,531
61,331
19,097
6,422
12,049
26,058

353,738
70,865
17,426
6,073
12,374
24,679

385,984
86,729
16,233
5,661
12,907
25,779

459,488

485,155

533,293

1,607
962
111
11,905
55,375
2,110
245,401
12,521
16,682
10,612

1,943
1,059
111
12,766
54,148
1,975
258,385
13,350
17,840
10,071

1,982
1,199
113
13,998
44,600
2,000
274,222
14,011
15,442
10,205

OUTLAYS BY AGENCY

Legislative branch
The Judiciary
Executive Office of the President
Funds appropriated to the President
Agriculture
Commerce1
Defense—Military 2
Defense—Civil
Education
Energy

A-10

T H E B U D G E T FOR FISCAL Y E A R 1987
Table C - 2 . FEDERAL FUND RECEIPTS AND OUTLAYS—Continued
(In millions of dollars)
1985
actual

Description

1987
estimate

1986
estimate

Excess of outlays ( — )

91,741
15,154
4,701
3,847
5,121
3,059
9,519
184,550
4,522
40
7,341
17,345
935
26,136
12,240

-2
-5,542

-300
-5,450
-1,200

-5,280
-1,200

750,949

751,789

-266,648

Total outlays, Federal funds

86,727
28,720
4,874
3,589
6,161
2,810
9,198
165,879
4,181
-218
7,251
17,700
680
25,917
10,925

726,137

Health and Human Services, except social security
Housing and Urban Development
Interior
Justice
Labor
State
Transportation
Treasury 1
Environmental Protection Agency
General Services Administration
National Aeronautics and Space Administration
Office of Personnel Management
Small Business Administration1
Veterans' Administration
Other independent agencies
Allowances3
Undistributed offsetting receipts:
Other interest
Rents and royalties on the Outer Continental Shelf...
Sale of major physical assets

-265,794

-218,496

88,321
13,864
4,129
4,121
4,567
3,633
6,252
189,160
3,827
-39
7,478
17,653
141
25,767
10,870
754

Reflects proposed abolishment of the Small Business Administration and transfer of activities to the Departments of Commerce and Treasury in
1987.
2
3 Includes allowances for civilian and military pay raises and other legislation for the Department of Defense.
Includes allowances for civilian agency pay raises, increased employing agency payments for employee retirement, and military pay raises for
the Coast Guard.

Obligations.—The obligations (net) for Federal funds are estimated at $783 billion for 1987, as set forth in table C-3. These transactions flow largely from budget authority for Federal funds of $784
billion for the year, although some flow from 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
Agriculture
Commerce1
Defense—Military2
Defense—Civil
Education
Energy
Health and Human Services, except social security.
Housing and Urban Development
Interior
Justice

1985
actual

1,738
998
113
15,290
53,488
2,320
276,937
12,457
18,163
10,223
87,149
29,109
4,883
3,741

1986
estimate

1,965
1,071
108
14,050
54,410
1,855
277,989
13,440
17,037
10,599
91,425
12,884
4,459
3,948

1987
estimate

2,006
1,222
115
13,722
41,856
1,705
311,119
14,191
14,766
10,632
88,185
10,913
3,815
4,262

B-17

SPECIAL A N A L Y S I S B
Table C - 3 . OBLIGATIONS INCURRED, NET, IN FEDERAL FUNDS—Continued
(In millions of dollars)
1985
actual

Department or other unit

1987
estimate

1986
estimate

6,627
2,960
9,098
166,095
3,993
-16
7,568
17,662
764
26,049

4,877
4,176
9,691
184,492
3,138
70
7,445
17,350
868
26,470

4,436
4,431
4,503
188,891
3,893
366
7,740
17,677
96
26,333

-1,034
857
2,272
3,336
5,966

Labor
State
Transportation
Treasury1
Environmental Protection Agency
General Services Administration
National Aeronautics and Space Administration
Office of Personnel Management
Small Business Administration1
Veterans Administration
Other independent agencies:
Export-Import Bank
Federal Home Loan Bank Board
U.S. Postal Service
Railroad Retirement Board
All other independent agencies
Allowances:
Coast Guard military pay raises
Civilian agency pay raises
Increased employing agency payments for employee retirementUndistributed offsetting receipts:
Other interest
Rents and royalties on the Outer Continental Shelf
Sale of major physical assets

-458
1,670
3,888
3,689
6,919

-1,689
1,060

3,376
2,916
6,439
36
403
331

-5,542

-300
-5,450
-1,200

-5,280
-1,200

763,263

772,574

783,265

- 2

Total

Reflects proposed abolishment of the Small Business Administration and transfer of activities to the Departments of Commerce and Treasury in
1987.
2
Includes allowances for civilian and military pay raises and other legislation for the Department of Defense.

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
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 construction programs that
are fully funded, to provide for activities of a continuing nature
(such as research and development), for loan programs, for standby
emergency purposes or for reserves for losses and debt redemption.
Table C - 4 . FEDERAL FUND BALANCES OF BUDGET AUTHORITY
(In millions of dollars)
Department or other unit

Legislative branch
The Judiciary
Executive Office of the
President

End 1985

Start 1985
Obligated

329
101
21

Unobligated

448
5

Obligated

411
124
21

End 1986

Unobligated

390
40

End 1987

Unobligated

432
136
17

218

Unobligated

456
159
19

193

A-10

T H E B U D G E T FOR FISCAL Y E A R 1987
Table C - 4 . FEDERAL FUND BALANCES OF BUDGET AUTHORITY—Continued
(In millions of dollars)
End 1985

Start 1985
Obligated

Funds appropriated to the
President
Agriculture
Commerce1
Defense—Military 2
Defense—Civil
Education
Energy
Health and Human
Services, except social
security
Housing and Urban
Development
Interior
Justice
Labor
State
Transportation
Treasury 1
Environmental Protection
Agency
General Services
Administration
National Aeronautics and
Space Administration
Office of Personnel
Management
Small Business
Administration1
Veterans Administration
Other independent
agencies:
Export-Import Bank
Federal Home Loan
Bank Board
Railroad Retirement
Board
All other independent
agencies
Allowances3
Total

23,086
18,338
1,480
153,253
767
12,271
8,281
6,682
213,045
2,437
593
3,906
597
9,327
704

Unobligated

Obligated

30,957 27,216
1,374 19,529
1,636
366
51,526 182,564
699
496
1,236 13,683
7,854
2,113
2,036

7,229

58,013 213,301
2,300
668
729
385
4,213
5,056
702
259
8,870
2,461
905
28,233

End 1986

Unobligated

Obligated

31,211 28,436
1,625 19,791
351
1,516
61,390 202,168
418
789
1,993 12,771
2,450
7,959
4,654

6,913

58,476 186,155
823
2,058
439
828
1,780
3,951
535
1,819
2,471
9,042
23,654
847

End 1987

Unobligated

Obligated

29,742 28,097
987 17,047
282
1,211
59,847 239,065
183
969
1,605 12,075
2,047
8,348
202

Unobligated

29,649
1,827
274
60,258
38
1,344
988

6,777

184

56,203 177,044
1,744
500
265
965
1,512
3,805
2,617
53
7,292
1,261
942
15,931

49,210
380
311
1,527
72
211
16,093

10,375

686

9,706

947

8,321

1,938

8,387

1,234

839

934

970

1,244

990

1,390

1,395

392

1,321

1,001

1,631

912

1,735

766

1,996

642

151

266

113

141

118

168

143

157

180
3,306

1,417
2,321

260
3,397

1,774
2,617

193
3,731

1,637
2,207

10
4,297

1,503

3,109

439

1,977

687

732

1,907

3,920

3,121

2,248

4,378

1,188

4,956
1,664

4,577
6

10,979

2,374

11,801

3,206

14,358

3,203

15,067
16

3,389

488,987

199,214

524,879

207,910

520,170

184,461

545,010

171,796

*500 thousand or less.
1
Reflects proposed abolishment of the Small Business Administration and transfer of activities to the Departments of Commerce and Treasury in
1987.
2
balances of allowances for civilian and military pay raises and other legislation for the Department of Defense.
3 Includes
Includes balances of allowances for civilian agency pay raises.

Public enterprise revolving funds.—The public enterprise funds
conduct a cycle 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. The transactions of the FFB are shown in intragovern-

B-17

SPECIAL A N A L Y S I S B

mental revolving funds, but the FFB conducts lending on behalf of
a number of the public enterprise revolving funds shown in table
C-5. A table summarizing FFB transactions is published in the
Treasury Department chapter of the Budget Appendix. Details of
the transactions are found in the Appendix chapters for the agencies that use the FFB to finance their programs, and information
on the FFB's operating expenses is included in the Treasury Department chapter.
Data on public enterprise funds are included net of collections in
tables C - l 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 $89 billion in 1987, and
gross outlays are planned to total $113 billion, resulting in net
outlays of $25 billion.
Table C - 5 . PUBLIC ENTERPRISE FUND TRANSACTIONS
(In millions of dollars)
Applicable collections
Description

Funds appropriated to the President:
Foreign assistance
Agriculture:
Commodity Credit Corporation
Farmers Home Administration:
Rural housing insurance fund
Agricultural credit insurance
fund
Rural development insurance
fund
Federal Crop Insurance Corporation...
Rural Electrification Administration....
Commerce1
Education
Energy
Health and Human Services, except
social security
Housing and Urban Development:
Public and Indian Housing ProgramFederal Housing Administration fund.
Other
Interior
Transportation
Treasury 1
General Services Administration
Small Business Administration1
Veterans Administration
Other independent agencies:
Export-Import Bank
Federal Emergency Management
Agency
Federal Savings and Loan Insurance
Corporation fund
Federal Home Loan Bank Board
National Credit Union Administration
Tennessee Valley Authority

Gross outlays
1986
estimate

1987
estimate

762

808

801

17,207

28,627

35,430

33,393

3,415

3,143

8,854

6,340

4,959

10,341

7,189

5,073

13,123

9,315

6,952

1,627
343
1,511
104
319
3,010

990
333
1,595
116
199
3,068

738
492
1,392
88
772
3,234

2,351
644
1,511
166
155
2,679

1,752
676
1,634
73
194
2,978

1,739
607
1,373
50
179
3,011

930
3,910
2,208
402
329
972
349
1,589
2,697

721
4,799
2,083
395
480
165
298
1,391
2,818

5,062
1,949
422
283
170
256

1,601
3,365
1,748
400
1,024
10
26
1,674
3,115

1,862
3,152
1,545
428
383
3,679
38

3,105

14,815
3,256
1,788
399
572
415
110
1,604
2,906

3,654

3,385

3,449

3,270

3,229

2,494

372

419

539

267

493

518

3,320
64

1,881
38

1,944
40

3,934
64

2,338
37

1,747
40

1,174
4,669

561
4,789

591
5,103

319
5,584

302
5,207

298
5,636

1986
estimate

1987
estimate

372

678

765

10,944

15,082

6,469

1985
actual

3,109

A-10

T H E BUDGET FOR FISCAL Y E A R 1987
Table C - 5 . PUBLIC ENTERPRISE FUND TRANSACTIONS—Continued
(In millions of dollars)
Applicable collections
Description

1985
actual

1986
estimate

Gross outlays
1987
estimate

1985
actual

1986
estimate

1987
estimate

29,998

31,858

32,754

30,026

32,219

35,208

91,735

88,806

88,619

128,275

116,072

113,284

Offsetting collections from the public -71,406
Offsetting collections from other accounts
-20,329

-78,762

-83,930

-10,044

-4,689

All other not included above
Total

Reflects proposed abolishment of the Small Business Administration and transfer of activities to the Departments of Commerce and Treasury in
1987.

TRUST

FUNDS

The trust fund group is composed of the regular trust funds and
a few trust revolving funds. The regular trust funds collect certain
taxes and other receipts for specified purposes, such as payment of
social security benefits, in accordance with the terms of a statute
or trust agreement. The two types of appropriation accounts and
one type of receipt account associated with the trust fund are as
follows:
• Trust fund expenditure accounts—Appropriation accounts established to record appropriated trust fund amounts that finance specific purposes or programs.
• Trust fund receipt accounts—Receipt accounts credited with
collections generated by statute or the terms of a trust agreement.
• Trust revolving fund accounts—Appropriation accounts authorized to be credited with collections and used to carry out
a cycle of business-type operations in accordance with a statute.
Trust revolving funds are similar to intragovernmental revolving
funds and public enterprise revolving funds in that they conduct a
cycle of business-type operations and their outlays are normally
stated net of collections. Trust fund receipts, outlays and balances
are presented in tables C-6 through C-9. Both on-budget and offbudget (social security) trust funds are shown.
Cash operations.—Trust fund receipts are estimated at $431 billion in 1987, with outlays planned at $356 billion, as shown in
tables C-1 and C-6. This includes $214 billion in receipts and $199
billion in outlays for transactions of the Federal old-age and survivors insurance and disability insurance funds that are off-budget.
In fiscal years 1985-87, trust funds have excesses of receipts of
the following amounts (in millions of dollars):

B-17

SPECIAL ANALYSIS B
1985 actual

Total receipts, trust funds
On-budget
Off-budget
Total outlays, trust funds
On-budget
Off-budget
Excess of receipts or outlays (—), trust
On-budget
Off-budget

1986 estimate

1987 estimate

383,920
(197,749)
(186,171)
329,538
(152,730)
(176,807)

405,134
(207,196)
(197,938)
342,129
(157,386)
(184,743)

430,964
(216,689)
(214,275)
356,098
(157,481)
(198,617)

54,382
(45,019)
(9,363)

63,005
(49,810)
(13,195)

74,866
(59,208)
(15,658)

funds

Trust fund receipts .—Table C-7 presents information classifying
the trust fund receipts by major fund, and by source for each such
fund.
Trust fund outlays.—Corresponding information on trust fund
outlays, classifying the data for the larger funds, is found in table
C-8.
Trust fund balances.—Total balances of the trust funds continue
to increase, as shown by the following figures:
1984
actual

Open book balances
On-budget
Off-budget
Investments in U.S. securities:
Public debt
On-budget
Off-budget
Agency debt
Total

1985
actual

19,077
22,803
(18,476)
(19,746)
(601) (3,057)

1986
estimate

1987
estimate

4,499
13,331
(3,897)
(12,729)
(602) (602)

241,527
292,069
372,390
439,361
(209,647) (255,398) (330,656) (381,369)
(31,879)
(36,671)
(41,733)
(57,992)
765
765
765
715
261,369

315,637

377,654

453,407

A summary of the balances by fund is presented in table C-9.
Included are 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 differ from 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 while
unappropriated receipts are included in the cash balances but are
not a part of the balances of budget authority. The note to table C9 lists these accounts and reconciles the balances on a budget
authority basis with the cash balances.
For 1987, the largest net investments are expected to be those of
the Federal employees retirement funds.

A-10

THE BUDGET FOR FISCAL YEAR 1987
Table C - 6 . OUTLAYS AND RECEIPTS OF TRUST FUNDS
(In millions of dollars)
Outlays
Description

On-budget:
Railroad retirement trust funds
Black lung disability trust fund
Veterans life insurance trust funds....
Federal employees retirement funds...
Military retirement fund
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
Other trust funds (nonrevolving)
Trust revolving funds

1985
actual

1986
estimate

Receipts
1987
estimate

4,567
9,649
2,239

3,425
10,800
3,109

11,300
3,327

180,825
-2
-2,813
-20,529

218,163
-24
-3,560
-16,830

228,498
-11
-3,068
-18,223

240,033
-2
-2,813
-20,529

157,386

157,481

197,749

207,196

216,689

201,303
-182
-16,378

212,873

214,498
-182
-16,378

228,531

-14,256

200,349
-365
-13,814

-14,256

176,807

184,743

198,617

186,171

197,938

214,275

329,538

342,129

356,098

383,920

405,134

430,964

8,818
1,010
1,212
24,997
18,014
19,971
77,528
14,472
4,015

4,584
9,792
1,776
-2,995

4,433
10,500
2,131
-2,675

11,100
2,866
-3,176

Subtotal
173,144
Intrafund receipts from on-budget
-24
Intrafund receipts from off-budget
-3,560
Proprietary receipts from the public- -16,830

178,688
-11
-3,068
-18,223

152,730

Off-budget:
Federal old-age, survivors, and disability insurance trust funds
190,986
Intrafund transactions
-365
Interfund receipts from on-budget
-13,814
Total
Total
1

1987
estimate

9,894
1,010
1,410
46,093
33,702
25,411
89,559
15,080
3,247

8,203
959
1,111
24,304
17,644
20,803
74,432
14,649
2,193

off-budget 1

1986
estimate

10,017
957
1,380
42,643
30,955
25,400
81,672
14,423
3,717

7,893
898
1,002
23,305
15,789
23,826
71,398
13,263
2,613

Total on-budget

1985
actual

9,106
918
1,326
40,911
27,426
28,592
75,504
14,328
3,598

Net of $126 thousand of proprietary receipts from the public in 1985.

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.
Trust fund obligations.—The obligations (net) for trust funds are
estimated at $360 billion for 1987, as set forth in table C - l l . This
includes $200 billion in obligations (net) for transactions of the
Federal old-age, survivors, and disability insurance trust funds that
are off-budget.

B-17

SPECIAL A N A L Y S I S B
Table C - 7 . TRUST FUND RECEIPTS (in millions of dollars)
[Amounts under proposed legislation are shown separately]
Description

On-budget:
Railroad retirement trust funds:
Social insurance taxes and contributions
Railroad debt repayment
Interest on Federal securities
Receipts from other trust funds
Other (mainly receipts of advances and
Federal payments)
Proposed legislation

1985
actual

1987
estimate

1986
estimate

3,633
91
560
2,813

3,605

3,535

191
2,353

472
2,685

2,958

3,325

2,642
155

9,106

10,017

9,894

581
336
1

546
411

580
448

918

957

1,010

904
423

942
438

972
438

1,326

1,380

1,410

4,759
13,413

4,743
14,760

4,700
15,932

22,737
2

23,137
2

23,425
2
2,034

Subtotal Federal employees retirement
funds

40,911

42,643

46,093

Military retirement fund:
Federal payment as employer for employee
retirement
Federal contribution
Interest on Federal securities

16,964
9,500
962

18,034
10,500
2,421

19,069
11,200
3,433

27,426

30,955

33,702

25,758
1,242
1,592

23,581
1,571
248

23,213
1,809
278
111

Subtotal, unemployment trust fund

28,592

25,400

25,411

Health insurance trust funds:
Social Security insurance taxes and contributions
Premiums and other charges

44,871
5,562

50,641
5,771

55,655
6,569

Subtotal, railroad retirement trust funds....
Black lung disability trust fund:
Excise taxes
Advances from general fund
Other receipts
Proposed legislation
Subtotal, black lung disability trust fund....
Veterans life insurance trust funds:
Interest on Federal securities
Other receipts
Subtotal, veterans life insurance trust
funds
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)
Other receipts
Proposed legislation

Subtotal, military retirement fund
Unemployment trust fund:
Social Security insurance taxes and contributions
Interest on Federal securities
Advances from the general fund
Proposed legislation

-18

A-10

THE BUDGET FOR FISCAL YEAR 1987
Table C - 7 . TRUST FUND RECEIPTS (in millions of dollars)—Continued
[Amounts under proposed legislation are shown separately]
Description

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
Proposed legislation
Subtotal, highway trust funds
Airport and airway trust fund:
Excise taxes
Interest on Federal securities
Proposed legislation
Subtotal, airport and airway trust fund
State and local government fiscal assistance
trust fund: Deposits for general revenue
sharing:
Current law . ..
Proposed legislation
Subtotal, state and local government
fiscal assistance trust fund
Foreign military sales trust fund
Other trust funds (nonrevolving):
Current law
Proposed legislation
Subtotal
Intrafund receipts from on-budget
Intrafund receipts from off-budget
Proprietary receipts from the public
Total on-budget receipts

Off-budget:
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
Intrafund transactions

1985
actual

1987
estimate

1986
estimate

3,170

4,147

5,275

1,449

1,597

1,711

20,453

19,514
2

20,787
-438

75,504

81,672

89,559

13,015
1,313

13,022
1,401

13,191
1,266
623

14,328

14,423

15,080

2,851
746

2,954
763

3,247
862
-862

3,598

3,717

3,247

4,567

4,185
-760

4,567

3,425

9,649

10,800

11,300

2,239

2,339
770

2,318
1,009

218,163

228,498

240,033

-24
-3,560
-16,830

-11
-3,068
-18,223

-2
-2,813
-20,529

197,749

207,196

216,689

186,171
4,118

197,938
4,418

213,963
4,711

2,509

2,843

3,177

7,552

9,299

6,363
317

200,349

214,498

228,531

-365

-182

SPECIAL ANALYSIS

B-17

Table C - 7 . TRUST FUND RECEIPTS (in millions of dollars)—Continued
[Amounts under proposed legislation are shown separately]
1985
actual

Description

Interfund receipts from on-budget
Total off-budget receipts

1987
estimate

1986
estimate

-13,814
1

Total receipts

-16,378

-14,256

186,171

197,938

214,275

383,920

On-budget
Off-budget

(197,749)
(186,171)

405,134

(207,196)
(197,938)

430,964

(216,689)
(214,275)

* $500 thousand or less.
1
Net of $126 thousand of proprietary receipts from the public in 1985.

Table C - 8 . TRUST FUND OUTLAYS (in millions of dollars)
[Amounts under proposed legislation are shown separately]
Description

On-budget:
Railroad retirement trust funds:
Benefit payments and claims
Repayment of benefit advances
Administrative expenses and other
Proposed legislation
Subtotal, railroad retirement trust funds....
Black lung disability trust fund:
Benefit payments
Federal administrative expenses
Interest on advances
Proposed legislation
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
Proposed legislation
Subtotal, Federal employees retirement
Military retirement fund:
Payments to beneficiaries
Proposed legislation
Subtotal, military retirement fund
Unemployment trust fund:
Withdrawals for benefit payments
Repayment of advances from general fund .
Administrative expenses and other
Proposed legislation
Supplemental now requested
Subtotal, unemployment trust fund
Health insurance trust funds:
Benefit payments

1985
actual

1987
estimate

1986
estimate

5,815
2,029
49

6,036
2,110
57

6,276
2,411
56
74

7,893

8,203

8,818

583
40
275

602
44
313

626
49
353
-18

898

959

1,010

1,002

1,111

1,212

22,698
562
45

23,594
666
44

24,910
716
45
-674

23,305

24,304

24,997

15,789

17,644

18,514
-500

15,789

17,644

18,014

16,075
5,121
2,630

14,999
3,170
2,635
-1

15,308
1,885
2,780
1
-3

23,826

20,803

19,971

69,518

72,592

77,797

A-10

THE BUDGET FOR FISCAL YEAR 1987
Table C - 8 . TRUST FUND OUTLAYS (in millions of dollars)—Continued
[Amounts under proposed legislation are shown separately]
1985
actual

Description

Administrative expenses and other
Proposed legislation
Supplemental now requested

1986
estimate

1987
estimate

1,880

1,862
-15
-6

1,958
-2,225
-2

71,398

74,432

77,528

13,263

14,675
-26

14,576
-104

13,263

14,649

14,472

2,613

2,193

4,015

4,584

4,433

760
-760

4,584

4,433

Foreign military sales trust fund

9,792

10,500

11,100

Other trust funds <nonrevolving):
Current law
Proposed legislation

1,776

2,131

2,683
183

1,776

2,131

2,866

-2,995

-3,145
470

-2,430
-880
134

Subtotal, trust revolving funds

-2,995

-2,675

-3,176

Subtotal
Intrafund receipts from on-budget
Intrafund receipts from off-budget
Proprietary receipts from the public

173,144
-24
-3,560
-16,830

178,688
-11
-3,068
-18,223

180,825
-2
-2,813
-20,529

152,730

157,386

157,481

Off-budget:
Federal old-age, survivors, and disability insurance trust funds:
Benefit payments
Payments to other trust funds
Administrative expenses and other

184,076
3,924
2,985

194,881
3,250
3,172

206,818
2,813
3,242

Subtotal, Federal old-age, survivors, and
disability insurance trust funds

190,986

201,303

212,873

-365
-13,814

-182
-16,378

-14,256

176,807

184,743

198,617

Subtotal, health insurance trust funds ,,,
Highway trust funds (mainly grants to
States):
Current
Rescission proposal
Subtotal, highway trust funds
Airport and airway trust fund
State and local government fiscal assistance
trust fund: Payments for general revenue
sharing:
Current
Proposed legislation
Subtotal, State and local government
fiscal assistance trust fund

Subtotal, other trust funds (nonrevolving)
Trust revolving funds:
Current law
Proposed legislation
Rescission proposal

Total on-budget outlays

Intrafund transactions
Interfund receipts from on-budget
Total off-budget outlays

B-17

SPECIAL ANALYSIS B
Table C-8. TRUST FUND OUTLAYS (in millions of dollars)—Continued
[Amounts under proposed legislation are shown separately]
1985
actual

Description

Total outlays

329,538

On-budget
Off-budget

1986
estimate

1987
estimate

356,098

342,129

(152,730)
(176,807)

(157,386)
(184,743)

(157,481)
(198,617)

Net of $126 thousand of proprietary receipts from the public in 1985.

Table C - 9 . TRUST FUND BALANCES
(In millions of dollars)
Description

Federal old-age, survivors, and disability insurance trust funds (off-budget)
Railroad retirement trust funds
Black lung disability trust fund
Veterans life insurance funds
Federal employees retirement funds
Military retirement fund
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
Other trust funds (nonrevolving)
Trust revolving funds
Total

On-budget
Off-budget

As of Sept. 30
1984 actual

32,213
3,077
2
9,393
125,878

1985 actual

1986 estimate

1987 estimate

42,334
5,952

57,993
7,148

13,899
26,036
11,822
6,441

39,753
4,138
2
9,718
143,483
11,637
18,688
31,967
12,886
7,426

9,982
161,822
24,948
23,285
49,016
12,660
8,949

10,181
182,919
40,636
28,605
61,047
13,268
8,181

1,205
5,634
3,421
22,348

1,188
5,491
3,919
25,342

5,791
4,898
28,017

5,991
6,247
31,192

261,369

(229,156)
(32,213)

315,637

453,407

377,654

(275,885)
(39,753)

(395,414)
(57,993)

(335,320)
(42,334)

Note—The following table reconciles balances on a budget authority basis with the cash balances shown above:
1984

Balance available on an authorization basis
Unfinanced contract authority:
Airport and airway trust fund
Highway trust funds
Foreign military sales trust fund
Other
Unappropriated receipts:
Available for appropriation by Congress:
Soldiers' Home permanent fund
Airport and airway trust fund
Highway trust funds
Hazardous substance response trust fund
Inland waterways trust fund
Aquatic resources trust fund
Other.
Balances lapsing
Capital transfers
Retained as permanent endowment
Balance available on a cash basis

1985

1986

1987

286,230

345,593

409,337

484,166

-1,555
-26,826
-11,726
-22

-1,728
-29,636
-14,588
-80

-2,008
-30,218
-16,588
-67

-2,225
-28,958
-17,888
-107

152
4,565
10,089
133
32
12

162
4,596
10,941
51
172
128
22

167
6,034
10,516
61
245
163
4
2

183
5,344
11,162
74
296
139
6

1,210
5

261,369

315,637

377,654

453,407

111

A-10

T H E BUDGET FOR FISCAL Y E A R 1987
Table C - 1 0 . TRUST REVOLVING FUND TRANSACTIONS
(In millions of dollars)
Offsetting collections
Description

Office of Personnel Management (employees' life insurance and health benefits)..
Federal Deposit Insurance Corporation
All other trust revolving funds
Total trust revolving funds

Receipts from the public
Receipts from other accounts
1

Gross outlays

1986
estimate

1987
estimate

8,404
4,484
721

8,815
4,655
767

8,952
4,565
798

7,466
2,542
608

7,851
2,997
715

7,712
2,665
761

13,609

14,237

14,315

10,615

11,562

11,138

(6,647)
(6,963)

(7,735)
(6,502)

(7,177)
(7,137)

1985
actual

1986
estimate

1985
actual

1987
estimate

Excludes right-of-way revolving fund which is a part of the highway trust funds.
Table C - l l . OBLIGATIONS INCURRED, NET, IN TRUST FUNDS
(In millions of dollars)
Department or other unit

Legislative Branch
The Judiciary
Funds appropriated to the President
Agriculture
Commerce
Defense—Military
Defense—Civil
Education
Energy
Health and Human Services, except social security..
Health and Human Services, social security
Housing and Urban Development
Interior
Justice
Labor
State
Transportation
Treasury
Environmental Protection Agency
General Services Administration
National Aeronautics and Space Administration
Office of Personnel Management
Veterans Administration
Federal Deposit Insurance Corporation
Railroad Retirement Board
All Other Independent Agencies
Total

On-budget..
Off-budget..

*500 thousand or less.

1985
actual

1986 estimate

1987 estimate

3
4
2,863
1
35
82
17,269
*

2
4
2,013
183
33
28
17,800

3
4
1,301
133
85
74
18,136

5
64,436
178,021

68,963
185,716

71,514
199,751
*

223

243

21,832
233
16,636
3,296
809

21,061

23,207
635
-2,784
5,761
19

23,630
835
-2,945
6,179
15

344,610

360,019
(160,268)

13
-3
24,916
212
18,587
4,556
472
22,150
571
-2,351
5,641
16
337,500

(159,479)
(178,021)

(158,894)
(185,716)

252
18,551
2
1,197

(199,751)

SPECIAL ANALYSIS D
FEDERAL INVESTMENT AND OPERATING OUTLAYS
This analysis classifies Federal spending into two categories: outlays for investment, which yield long-term benefits; and outlays for
operating and other purposes, which yield current benefits. In response to considerable interest in public expenditures for physical
capital facilities, data on historical trends in Federal physical capital investment are provided in this analysis and are shown in the
budget volume entitled Historical Tables, Budget of the United
States Government, Fiscal Year 1987. In accordance with the requirements of the Federal Capital Investment Program Information Act of 1984 (Title II of Public Law 98-501), a supplement to
this special analysis is being prepared for separate transmittal to
the Congress. This supplement presents 10-year projections of Federal physical investment spending and a review of recent assessments of civilian investment needs for selected purposes.1
This special analysis focuses on Federal outlays of an investment
nature, particularly for the years 1985 through 1987. Federal investment-type outlays are made for many purposes. They range
from lending, which yields a monetary return; to the acquisition of
physical assets, which yield a stream of services over a period of
years; to expenditures for human capital in the form of research,
education, and training, which provide less tangible long-term benefits. This analysis also presents historical data on long-run trends
in Federal outlays for public physical capital investment.
While the data in this analysis are shown in considerable detail,
classification problems are sufficiently complex that these data are
only approximate. There are several reasons for this imprecision:
• For some grants to State and local governments, the recipient
jurisdiction, not the Federal Government, ultimately determines whether the grant is used to finance investment-type or
current account programs. This analysis classifies all of the
outlays in the category where the recipient jurisdictions are
expected to spend most of the money. Hence, general revenue
sharing is classified as "current" spending, although some
may be spent by recipient jurisdictions on physical capital
investments, whereas community development block grants
are classified as investment.
1

The "Supplement to Special Analysis D " can be obtained From Government Printing Office bookstores.

D-1

A-10

THE BUDGET FOR FISCAL YEAR 1987

• Some spending could be classified into more than one subcategory. For example, grants for construction of education facilities finance the acquisition of physical assets, but they also
contribute to the provision of education and training. To
avoid double counting, the outlays are classified in the subcategory that is considered most "capital-like." Consequently,
the conduct of education and training does not include the
cost of education facilities, because these facilities are included in the construction and rehabilitation of physical assets
category.
The order of presentation of outlays for investment begins with
outlays for loans, followed by construction and rehabilitation, acquisition of major equipment, conduct of research and development, conduct of education and training, and other investments.
Table D-1 summarizes Federal outlays that are classified as being
of an investment nature.
Table D - 1 . SUMMARY OF TOTAL FEDERAL INVESTMENT-TYPE OUTLAYS, 1984-87
(In billions of dollars)
1984

Loans and financial investments
Construction and rehabilitation:
National defense
Nondefense:
Grants to State and local governments
Other
Subtotal
Acquisition of major equipment:
National defense
Nondefense
Subtotal
Conduct of research and development:
National defense
Nondefense
Subtotal
Conduct of education and training:
Grants to State and local governments
Other
Subtotal
Other (including commodity inventories):
National defense
Nondefense
Subtotal
Total

1985

1986
estimate

1987
estimate

5.2

32.5

20.5

9.7

4.7

5.4

5.8

5.9

22.7
6.8

24.4
8.1

26.0
8.6

24.1
9.0

34.1

38.0

40.4

38.9

63.8
2.6

72.6
3.6

78.1
3.9

79.2
3.8

66.5

76.2

82.0

83.0

25.8
15.2

30.4
16.9

32.1
16.4

35.3
16.3

41.0

47.2

48.5

51.6

10.6
11.5

11.4
11.6

11.9
12.0

11.2
10.5

22.1

23.0

24.0

21.7

1.1
6.0

1.2
6.4

1.0
4.9

1.2
0.8

7.2

7.6

5.9

2.0

176.1

224.5

221.3

206.9

SPECIAL ANALYSIS B

B-17

COMPOSITION OF FEDERAL INVESTMENT

Lending and financial investments.—The Federal Government
conducts a wide variety of credit activities including both direct
loans and loan guarantees. Federal direct loans are a form of
investment because the Government acquires an income-yielding
asset. However, most Federal loans are not intended to be profitable; indeed, they result in large-scale, taxpayer-financed subsidies to
the loan recipients. The large reductions in net lending reflects the
administration's policy of reducing the role of the Government in
favor of private market lending efficiency. Direct loans are discussed in detail in both Part 5 and Part 6c of the Budget and in
Special Analysis F, "Federal Credit Programs." Other financial
investment includes funding for such programs as international
financial institutions and acquisition of enterprise capital stock.
This category also contains the expected $1.2 billion proceeds from
the sale of Conrail stock.
Construction and rehabilitation of physical assets is one of the
largest components of Federal investment spending. As Table D - l
shows, the bulk of Federal outlays in this category is in the form of
grants to State and local governments to finance construction or
rehabilitation of physical assets, such as highways and mass transportation facilities, rather than being for assets acquired by the
Federal Government itself. Special Analysis H, "Federal Aid to
State and Local Governments/' contains a detailed analysis of all
Federal grants.
The administration proposes large-scale sales of physical assets
beginning in 1987 as part of the privatization initiative. The proceeds from these sales are recorded as offsets in the other investment category when they are expected to occur.
Acquisition of major equipment is composed almost entirely of
investment in national defense weapons systems. National defense
spending is discussed in greater detail in the national defense
section in Part 5 of the Budget.
Federal outlays for the conduct of research and development are
devoted to increasing our basic scientific knowledge and meeting
related Federal needs. These outlays are designed to increase our
national security, to improve the marginal productivity of capital
and labor for both public and private purposes, and to improve the
quality of life. In recent years the defense share of these outlays
has been increasing. The national defense component is estimated
to rise to 68% of the total by 1987. Over the past two decades
development of space-related technology has been the largest component of nondefense outlays for the conduct of research and development, but in 1982 it was overtaken by health research. The
decline in outlays for space research is largely due to the conclusion of the major research and development phase for the space

A-10

THE BUDGET FOR FISCAL YEAR 1987

shuttle. Major research and development programs are discussed in
the appropriate functions in Part 5 of the Budget, and Special
Analysis K, "Research and Development/' discusses Federal research and development in its entirety.
Federal outlays for the conduct of education and training are
intended to increase the knowledge and skills of our people. Most
of these outlays are either grants to State and local governments to
assist in the operation of educational institutions or income transfers to students under the student assistance and veterans readjustment benefits programs. Federal outlays for education and training
are discussed in Part 5 of the Budget.
The other investment category is composed of an assortment of
activities, primarily the acquisition and disposition of major commodity inventories such as agricultural products for the farm price
support program and oil for the strategic petroleum reserve. The
administration proposes the sale of the naval petroleum reserve
and the power marketing administrations. The sale of the naval
petroleum reserve is slated to begin in 1987, while the power
marketing administration's sale will start in 1988. Other programs
include Census Bureau activities designed to develop our national
information base and foreign assistance programs designed to promote international development.
FEDERAL INVESTMENT IN PUBLIC WORKS AND RELATED ASSETS

The budget documents have traditionally contained a significant
amount of historical information that could be used to analyze
major trends affecting specialized segments of Federal investmenttype spending. For example, historical data for education and
training outlays are available as part of the functional tabulations,
historical data on credit are shown in Special Analysis F, historical
data on grants appear in Special Analysis H, and historical data on
research and development are published in Special Analysis K.
This section includes material from the historical data base on
Federal outlays for public physical capital investment. Table D-2
shows Federal outlays for public physical investment at 5-year
intervals from 1960 to 1980 and annually from 1980 to 1987; Table
D-3 displays the same data in constant 1982 prices and as a percent
of the gross national product (GNP). These tables include almost all
Federal outlays for construction and rehabilitation and for acquisition of major equipment. However, they are limited to providing
data on public physical capital acquisition. Therefore, they exclude
investment in commodity inventories and the relatively small
amount of outlays (such as ship construction subsidies) that is used
for private physical investment.

SPECIAL ANALYSIS B

B-17

The data in these tables indicate that:
• National defense physical capital investment is estimated to
continue to increase through 1987 in current dollars but in
real terms (adjusted for inflation) defense physical capital
investment peaks in 1986. The constant dollar totals are now
well above the lowest levels immediately before and after the
Vietnam War and in 1986 are projected to surpass the levels
immediately after the Korean War.
• Direct Federal investment in nondefense physical assets is at
relatively high historical levels, but expected to decline in 1987.
A major reason for the decline is the expected sale of the
naval petroleum reserve.
• Grants for physical capital investment grew rapidly in real
terms and as a percent of GNP between 1950 and 1965. Between 1965 and 1980 grants for this purpose grew overall in
real terms and were roughly level as a percent of GNP.
However, the composition shifted significantly. Transportation grants were roughly constant in real terms while declining as a percent of GNP; in contrast, other grants grew rapidly. Starting in 1983 there was a major increase in transportation grants due to enactment of the Surface Transportation
Assistance Act of 1982. Grants for physical capital investment
are also expected to peak in 1986 and decline in 1987.

Table D - 2 . FEDERAL OUTLAYS FOR MAJOR PUBLIC PHYSICAL CAPITAL INVESTMENT

(In billions of dollars)

I960

Assets acquired by the Federal Government:
National defense:
Military procurement
Military construction and family housing
Atomic energy defense

1965

1970

1975

1980

1981

1982

1983

1984

1985

1986
estimate

1987
estimate

13.3
2.1
1.7

11.8
1.3
1.1

21.6
1.3
0.7

16.0
1.8
0.9

29.0
2.4
1.5

35.2
2.4
2.0

43.3
2.9
2.6

53.6
3.4
3.1

61.9
3.6
3.9

70.3
4.4
4.5

75.7
4.7
4.5

76.7
4.8
4.8

17.2

14.2

23.6

18.7

33.0

39.6

48.8

60.1

69.4

79.2

84.9

86.3

1.0
0.8
0.1

1.4
L4
0.2

1.5
0.8
0.2

3.0
1.4
0.4

4.6
2.7
0.7

4.9
2.8
1.0

4.4
2.8
1.3

4.6
2.5
0.8

3.9
3.3
2.6

4.6
3.5
3.6

4.7
4.0
3.8

5.0
4.0
3.8
-1.2

Subtotal, nondefense

1.9

3.0

2.5

4.8

8.1

8.8

8.5

8.0

9.8

11.7

12.5

11.6

Total Federal assets

19.1

17.3

26.1

23.5

41.1

48.3

57.2

68.1

79.2

91.0

97.4

97.8

2.9
0.1
0.1
*

4.0
0.1
0.6

4.3
0.2
1.6

4.6
1.0
2.5

9.0
2.6
5.8

8.8
3.1
5.6

7.7
2.9
5.2

8.8
3.2
4.7

10.4
3.8
4.9

12.7
3.2
5.0

13.7
4.0
4.9

13.2
3.7
4.2

0.1

0.1
0.1
0.2

0.2
0.2
0.6

1.9
0.3
0.5

4.3
0.6
0.2

3.9
0.6
0.2

3.8
0.3
0.3

3.0
0.6
0.2

2.6
0.7
0.3

2.9
0.7
0.4

2.9
0.6
0.4

2.5
0.6
0.3

3.3

5.0

7.1

10.9

22.5

22.1

20.2

20.5

22.7

24.9

26.4

24.5

Subtotal, national defense
Nondefense:
Construction and rehabilitation:
Water and power projects
Other
Acquisition of major equipment
Sale of physical assets

Grants to State and local governments for physical capital investment:
Transportation:
Highways
Urban mass transportation and airports
Community and regional development
Natural resources and environment:
Pollution control facilities
Other
Allother2
Total grants for physical capital investment2

•

22.4

22.3

33.2

34.4

63.5

70.5

77.4

88.6

101.9

115.9

123.9

122.3

17.2
5.2

Total public assets financed by the Federal Government

14.2
8.0

23.6
9.6

18.7
15.7

33.1
30.5

39.6
30.9

48.8
28.6

60.2
28.5

69.4
32.5

79.3
36.6

85.0
38.9

86.3
36.0

Memorandum

National defense
Nondefense
1

Excludes outlays for private asset acquisition (such as ship construction subsidies) and major commodity inventories (agricultural commodities and the strategic petroleum reserve).
Includes National Guard shelters and civil defense grants classified in the national defense function.
*$50 million or less.
2

Table D - 3 . SUMMARY COMPARISONS OF FEDERAL OUTLAYS FOR MAJOR PUBLIC PHYSICAL CAPITAL INVESTMENTS
I960

1965

1970

1975

1980

1981

1982

1983

1984

1985

1986
estimate

1987
estimate

w
O
l-H

In billions of constant (fiscal year 1982) dollars
Assets acquired by the Federal Government:
National defense
Nondefense

C
A
>

51.7
5.9

40.4
8.7

55.8
6.1

33.1
8.2

40.2
9.1

43.3
9.3

48.8
8.5

57.5
8.0

64.5
9.8

72.3
11.6

75.4
12.0

73.9
10.7

57.6

49.1

61.9

41.3

49.4

52.6

57.2

65.5

74.3

83.9

87.4

84.6

11.0
0.4
0.3
0.5

14.2
2.0
0.6
0.5

12.4
4.5
1.0
1.5

9.4
4.2
3.8
0.9

12.7
6.3
5.4
0.3

12.2
5.7
4.6
0.3

10.7
5.2
4.1
0.2

11.9
4.7
3.5
0.2

13.7
4.7
3.2
0.2

14.6
4.6
3.3
0.4

15.7
4.3
3.1
0.4

14.4
3.6
2.6
0.3

Subtotal grants

12.2

17.3

19.4

18.3

24.6

22.7

20.2

20.3

22.0

22.9

23.5

20.9

Total

69.8

66.4

81.3

59.6

73.9

75.4

77.4

85.8

96.3

106.8

110.8

>
>

105.5

Subtotal
Grants to State and local governments for physical capital
investment:
Transportation
Community and regional development
Natural resources and environment
All other

t1
T
H<

22
o

0
1

Table D-3. SUMMARY COMPARISONS OF FEDERAL OUTLAYS FOR MAJOR PUBLIC PHYSICAL CAPITAL INVESTMENTS—Continued
I960

1965

1970

1975

1980

1981

1982

1983

1984

1985

1986

1987

estimate

As a percent of Gross National Product
Assets acquired by the Federal Government:
National defense
Nondefense
Subtotal
Grants to State and local governments for physical capital
investment:
Transportation
Community and regional development
Natural resources and environment
All other

3.38

2.11

2.38

1.23

1.24

1.32

1.55

1.81

1.88

2.01

2.03

1.90

0.38

0.45

0.26

0.32

0.30

0.29

0.27

0.24

0.27

0.30

0.28

3.76

2.56

2.64

1.55

1.54

1.61

1.82

2.05

2.15

2.31

2.33

2.18

0.59

0.61

0.46

0.37

0.43

0.40

0.34

0.36

0.38

0.40

0.42

0.37

0.02

0.09

0.16

0.22

0.19

0.16

0.14

0.13

0.12

0.09

0.02

0.04

0.15

0.18

0.15

0.13

0.11

0.09

0.08

0.07

0.03

0.02

0.06

0.04

0.01

0.84

0.74

0.64

0.62

0.61

0.63

0.54

2.38

2.36

2.46

2.67

2.76

2.94

2.95

2.72

Subtotal

0.65

0.74

0.71

Total

4.41

3.31

3.35

2.26

SPECIAL ANALYSIS B

B-17

CALCULATIONS OF NET FEDERAL AND FEDERALLY FINANCED
NONDEFENSE PUBLIC PHYSICAL CAPITAL INVESTMENT

For many years, data on the estimated value of most forms of
both public and private physical capital—roads, factories, housing,
etc.—have been developed by the Department of Commerce and
published in the Survey of Current Business. (See, for example, pp.
54-59 of the August 1984 issue.) However, the Commerce data on
the net capital stock and net investment are not directly linked to
the Federal budget and do not include estimates for the years
covered by the budget. In response to requests that the budget
provide data on net public investment, the historical data base for
Federal nondefense physical capital investment and grants to State
and local governments for physical capital investment was extended back to 1915 by broad category. These data were then
converted to constant prices to approximate replacement costs and
depreciated by the straight-line basis. The end product is a price
adjusted estimate of federally financed public net investment.
The data for nondefense public investment spending are in two
categories: direct Federal investment and investment financed by
grants to State and local governments. Direct investment results in
Federal ownership of real property, while most investment made
through Federal grants is owned by the State or local governments
receiving the grants.
The historical data were adjusted to constant fiscal year 1986
dollars using price deflators for Federal nondefense capital purchases. The 1970-87 portion of the resulting constant dollar series is
shown as new investment in Table D-4. These constant dollar historical data were then depreciated on a straight-line basis over the
following assumed useful lives: 40 years for investments financed
by grants; 46 years for direct investment in water and power
projects; 30 years for all other nondefense construction and rehabilitation; and 16 years for major equipment.
Table D-4 shows the capital depreciation that results from these
life-spans. The difference between new investment and depreciation
is shown as net investment. Because of space constraints, only net
figures are shown for some of the components.

Table D - 4 . COMPOSITION OF NEW AND NET FEDERAL AND FEDERALLY FINANCED INVESTMENT IN NONDEFENSE PUBLIC PHYSICAL CAPITAL IN CONSTANT (1986) PRICES
(In billions of dollars)
Total investment

Net direct Federal investment

Depreciation

Water and
power

D
i

Investment financed from Federal grants-in-aid
Composition of net investment

Year

New

Net

Total

Other

New

Depreciation

Net

Transportation (mainly
highways)

Community
and regional
development

Natural
resources
and
environment

Other

1970
1971
1972
1973
1974

23.9
25.6
27.1
29.0
30.0

11.5
12.0
12.6
13.2
13.9

12.4
13.6
14.5
15.8
16.1

1.3
1.9
2.9
3.1
3.0

1.1
1.6
1.9
1.7
1.9

0.2
0.3
1.0
1.5
1.1

17.6
18.6
19.0
20.5
21.4

-6.5
-6.9
-7.4
-7.8
-8.3

11.1
11.7
11.6
12.6
13.1

6.9
6.8
6.4
7.0
5.9

3.0
3.4
3.9
3.9
3.7

0.2
0.8
0.6
1.3
3.1

1.0
0.7
0.6
0.4
0.5

1975
1976
TQ
1977
1978
1979

27.8
31.2
8.8
34.8
37.6
38.1

14.4
14.9
3.9
15.5
16.2
16.8

13.3
16.2
4.9
19.3
21.5
21.3

2.7
2.7
0.7
3.0
3.7
4.1

2.2
2.2
0.6
2.7
2.9
3.0

0.5
0.5
0.1
0.3
0.9
1.0

19.2
22.5
6.5
25.6
27.5
27.4

-8.6
-8.9
-2.3
-9.3
-9.8
-10.2

10.6
13.5
4.2
16.3
17.7
17.2

4.4
6.5
1.6
6.0
5.6
6.3

2.8
3.0
1.1
4.9
8.0
6.4

3.1
3.6
1.4
5.1
4.3
4.7

0.4
0.3
0.1
0.2
-0.1
-0.2

1980
1981
1982
1983
1984

36.1
34.3
29.9
29.7
33.7

17.4
18.2
18.8
19.5
20.2

18.7
16.1
11.0
10.3
13.5

2.8
2.8
1.8
1.1
2.8

1.8
1.7
0.8
1.0
0.1

0.9
1.1
1.0
0.2
2.6

26.5
24.6
21.0
21.4
23.5

-10.7
-11.2
-11.8
-12.3
-12.8

15.9
13.3
9.3
9.1
10.7

6.9
6.1
3.7
4.8
6.7

4.8
4.0
3.1
2.5
2.6

4.6
3.6
2.8
2.2
1.8

-0.4
-0.4
-0.4
-0.4
-0.3

1985
1986
1987

37.7
38.9
35.9

20.2
22.1
22.9

16.5
16.7
13.0

4.4
4.4
4.0

0.8
0.6
0.8

3.6
3.8
3.2

25.6
26.4
23.6

-13.4
-14.0
-14.6

12.1
12.3
9.0

8.0
8.8
7.0

2.5
2.1
1.2

2.0
1.7
1.1

-0.3
-0.3
-0.3

H
ffi
M
td
C
o
a
w
H
^
O
C
O
o
>
r
H<

w
>
C
O
0
0

SPECIAL ANALYSIS B

B-17

These data have a substantial margin of estimating error. The
sources of error include:
• The extended historical outlay series.—The historical data
series was extended back from 1940 to 1915 using data from
published budget documents. There are no specific outlay data
on nondefense physical capital investment for this period, and
estimates were made on the basis of program authorizations.
• Replacement cost estimates.—The replacement cost of the Federal stock of nondefense physical capital has increased
through time. Unfortunately, the rate of increase is not
known exactly. For this presentation, an estimate of replacement costs in 1986 prices was made through the application of
a deflator series for Federal purchases of durables and structures indexed to 1986 prices. There are no specific price indexes for Federal purchases of durables and structures for 1915
through 1929, and estimates were made on the basis of Census
Bureau historical statistics on constant price public capital
formation.
• Depreciation estimates.—The assumed useful lives for each of
the categories of nondefense physical capital investment are
necessarily very uncertain. Since they are for broad classes of
investment, they do not apply to specific cases. Also, straightline depreciation may not be the most accurate method to
apply to the different categories of Federal nondefense physical capital investment.
Hence, the data should be viewed as approximations only—not
precise estimates.
The data in Table D-4 show that net investment, adjusted for
inflation, rose between 1970 and 1978 and then declined. They also
show that the decline in net investment between 1978 and 1987
greatly exceeds the decline in new investment. This difference is
explained by the pattern in the depreciation column. With the
passage of time, the capital stock is larger and depreciation is
correspondingly larger. Depreciation is especially affected by the
relatively high investment years of the 1970's and early 1980's. In
previous years, depreciation was largely based on the relatively low
investments of the 1940's and 1950's. In 1983 for example, while
new investment in constant prices was 24% higher than the 1970
total, net investment was 17% lower.
The division between direct Federal physical capital investment
and grants for investment—both on a gross and a net basis—has
changed substantially over time. Before the mid-1950's, new direct
nondefense investment exceeded grants for investment, but by the
decade between 1970 and 1980, grants-in-aid for investment exceeded nondefense investment by a ratio of 2.6 to 1. As a consequence
of the much slower rate of growth of direct investments, for the

A-10

THE BUDGET FOR FISCAL YEAR 1987

period during 1970 to 1987, the net capital formation (new investments less depreciation) financed by grants-in-aid was about four
times greater than the net capital formation for stocks directly
owned by the Federal Government.
Federal grants for transportation facilities and equipment—predominantly highway but also mass transit and airport grants—
were the most prevalent form of Federal grants-in-aid for physical
facilities. Over the period from 1970 to 1981, transportation grants
were 39% of total new investment. Both new and net grants for
transportation increase substantially from 1982 to 1986 due largely
to the expansion financed by the Surface Transportation Assistance Act of 1982, which expires at the end of 1986. The administration proposes reauthorization legislation that limits budget authority and planned obligations to anticipated highway user fee receipts from the public and thus reduces new transportation grants
by $1.3 billion in 1987. The constant dollar decline in all other
grants for physical facilities is attributable to the general policy of
fiscal restraint proposed by the administration.
DETAILED DATA PRESENTATION

The succeeding tables in this analysis distribute total Federal
Government outlays into a number of different classifications, focusing on the size and composition of investment-type spending but
also showing the composition of non-investment outlays. They provide two basic displays of Federal spending. Table D-5 is a summary table showing the data split between national defense spending
and civil (i.e., nondefense) spending (Table D-7 provides detailed
data for the same categories). Table D-6 is a summary table identifying the grants and loans to State and local governments separately from all other Federal outlays (Table D-8 provides details).
The classification structure used in compiling this information is
designed primarily to distinguish investment-type outlays from current outlays and to disaggregate the investment-type spending.
Consequently, it does not provide information for other purposes,
such as the total outlays or other forms of assistance affecting
particular sectors of the economy. For example, the category "aids
to agriculture, commerce, and transportation" includes current
benefits, such as subsidies for operating expenses of air, water, and
rail transportation; it does not include related subsidies for the
construction of private merchant ships, which are investment-type
outlays included under "acquisition of major equipment." Nor does
it include assistance provided by the Federal Government through
loan guarantees, tax expenditures, other provisions of the tax code,
or the privately owned, Government-sponsored enterprises. Although they are not quantified in this analysis, these tools are also
methods by which the Federal Government affects the amount and

SPECIAL ANALYSIS B

B-17

composition of public and private investment. Federally guaranteed
loans, for example, are substitutes for direct loans and can result
in the creation of certain assets in place of others.2
CURRENT PROGRAM TRENDS

Investment-type programs.—Investment-type outlays are estimated to decrease from $224.5 billion in 1985 to $221.3 billion in 1986
and decline further to $206.9 billion in 1987. A total of $9.7 billion
in 1987 outlays are for loans and financial investments, $121.9
billion are for the acquisition, construction, or rehabilitation of
physical assets, and $75.3 billion are for the conduct of education,
training, research, and development and for other investment-type
programs. Defense investment-type outlays, which account for 59%
of total investment-type outlays in 1987, are primarily for the
acquisition of major equipment and other physical assets and for
the conduct of research and development. Civil programs are primarily for construction and rehabilitation of physical assets, the
conduct of education and training, and the conduct of research and
development.
Loans and financial investments.—A loan involves a disbursement of cash or an increase in liabilities in exchange for financial
assets. If the loans are made at competitive market rates, the
market value of the assets is equal to the outlays. Federal loans
are made at lower rates than comparable private lending, although
the budget proposes to significantly narrow this gap for some programs. Therefore, the non-Federal borrowing is subsidized, and the
outlay exceeds the value of the asset created. See Special Analysis
F, "Federal Credit Programs" for a discussion of Federal credit
subsidies and estimates of the amount of subsidy by program in
1985. For domestic loans, the Government's asset is matched by the
liability of the private sector—but to the extent that the loan is
subsidized, the asset is worth less than its face value (or cost).
Hence, when Federal loan assets are sold, they frequently are
heavily discounted to cover the subsidy loss. Most Federal domestic
loans finance the acquisition or improvement of either physical
assets or human capital. Loans to foreign borrowers are an increase in financial assets held by the United States. Most foreign
loans are for economic development programs or for the promotion
of U.S. exports, including military equipment and farm commodities. In 1985, loan volume was enlarged by a one-time changeover
of financing for low-rent public housing that converted large scale
loan guarantees into direct loans. The category "other financial
investments" includes an estimated collection of $1.2 billion in
proceeds from the sale of Conrail in 1986.
2

See Special Analysis F, "Federal Credit Programs."

A-10

THE BUDGET FOR FISCAL YEAR 1987
Table D - 5 . SUMMARY OF INVESTMENT, OPERATING, AND OTHER FEDERAL OUTLAYS
(In millions of dollars)
1985
actual

1986
estimate

1987
estimate

Investment-type programs.Construction and rehabilitation
Acquisition of major equipment and other physical assets
Conduct of research and development
Other investment-type programs
Subtotal, investment-type programs

5,396
73,692
30,360
1,481
110,929

5,797
78,904
32,131
627
117,459

5,853
80,295
35,282
151
121,581

Current programs.Provision of benefits
Repair, maintenance, and operation of physical assets
Other current programs
Subtotal, current programs

99
74,820
66,874
141,793

101
76,376
72,078
148,555

126
83,117
77,606
160,849

-187

-191

252,748

265,827

282,238

31,142
32,564
3,611
16,855
22,995
2,093
4,291
113,552

20,096
34,606
3,851
16,365
23,951
674
4,273
103,816

9,763
33,062
3,755
16,272
21,695
-3,127
3,926
85,346

(231,796)
(185,648)
417,444

(240,175)
(195,446)
435,621

(242,451)
(206,818)
449,269

(10,429)
(2,187)
12,616

(10,686)
(2,472)
13,158

(11,410)
(2,566)
13,976

8,345
23,484
1,795
6,861
9,564

8,211
21,766
2,479
6,472
10,490

7,970
26,593
2,903
1,973
9,397

(133,554)
(-4,118)
129,436

(147,158)
(-4,418)
142,740

(152,713)
(-4,716)
147,996

11,984
621,529

11,673
652,600

11,843
671,919

(-39,778)
( — 1,728)
-41,506

(-41,592)
(-723)
-42,315

(-45,137)
(-364)
-45,501

714,101

711,764

National defense:

Unclassified
Total, national defense
Civrf:

Investment-type programs.Loans and financial investments
Construction and rehabilitation
Acquisition of major equipment
Conduct of research and development
Conduct of education and training
Commodity inventories and other physical assets
Other investment-type programs
Subtotal, investment-type programs

Current programs:
Provision of benefits:
On-budget
Off-budget
Subtotal, provision of benefits
Administrative expenses of benefit programs:
On-budget
Off-budget
Subtotal, administrative expense
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:
On-budget
Off-budget
Subtotal, net interest
Other current programs
Subtotal, current programs
Unclassified:
On-budget
Off-budget
Subtotal, unclassified
Total, civil

693,575

B-17

SPECIAL ANALYSIS B

Table D - 5 . SUMMARY OF INVESTMENT, OPERATING, AND OTHER FEDERAL OUTLAYS—Continued
(In millions of dollars)
1985
actual

Outlay total

On-budget
Off-budget

946,323

(769,515)
(176,807)

1986
estimate

979,928

(795,185)
(184,743)

1987
estimate

994,002

(795,386)
(198,617)

Physical assets.—The benefits provided by the construction and
rehabilitation of physical assets and by the acquisition of major
equipment are of a long-term nature, while commodity inventories
are for reserves or stockpiles rather than direct current use. Federal outlays designed specifically to finance the purchase of such
assets are treated as investment-type outlays regardless of whether
the asset is purchased by the Federal Government or by State,
local, or private entities. Total outlays for physical assets—including acquisition of major commodity inventories—are estimated at
$119.8 billion in 1987; of that amount $86.1 billion is for national
defense. Most national defense outlays for physical assets are for
the procurement of military equipment. About two-thirds of estimated Federal outlays for nondefense physical assets in 1987 are in
the form of grants-in-aid to State and local governments, especially
for construction programs such as for highways, mass transit, and
pollution control facilities. The other physical assets category includes an estimated $1.2 billion offsetting collection from the sale of
the naval petroleum reserve in 1987.
Since the purpose of Tables D - 2 and D - 3 is to provide information
about outlays for investment in public physical assets, to the extent
feasible the data on investment in private physical assets were
excluded from these tables. Commodity inventories include crops
acquired as part of the farm price support program and also oil
purchases for the strategic petroleum reserve. As noted above,
these inventories are also excluded from the investment data in
Tables D - 2 and D-3.
Conduct of research and development.—Research and develop^
ment increases the Nation's base of information and knowledge.
Outlays are estimated at $51.6 billion in 1987. The entire increase
in 1987 over 1986 is for national defense. Nondefense outlays for
the conduct of research and development decline by 2 percentage
points from 1986 to 1987, and account for 32% of all research and
development outlays in 1987. Within the total spending for research and development there is a continuing increase in 1987 for
basic research, with emphasis on the support of research in the
physical sciences. See Special Analysis K, "Research and Development" for additional details.

A-10

THE BUDGET FOR FISCAL YEAR 1987

Table D - 6 . SUMMARY OF FEDERAL OUTLAYS FOR GRANTS-IN-AID, LOANS, AND DIRECT FEDERAL
PROGRAMS
(In millions of dollars)
1985
actual

1986
estimate

1987
estimate

Grants-in-aid:

Investment-type programs:
Construction, rehabilitation, and acquisition of physical assets
Conduct of education and training
Other investment-type programs
Subtotal, investment-type programs

24,875
11,447
239
36,560

26,443
11,918
213
38,573

24,516
11,189
163
35,867

Current programs:
Provision of benefits
Administrative expenses of benefit programs
Social service and related programs
Aids to agriculture, commerce, and transportation
General purpose fiscal assistance
Regulation, control, and law enforcement
Other current programs
Subtotal, current programs

46,989
5,662
7,518
1,075
6,948
499
646
69,337

48,791
5,891
7,253
453
6,556
584
700

46,050
6,473
7,055
584
2,040
596
430

70,229

63,228

105,897

108,802

99,094

32,458
13,473
76,205
2,803
47,000
11,564
4,417
187,920

20,540
14,386
81,952
1,051
48,284
12,046
4,443
182,702

9,739
14,798
82,998
-2,473
51,392
10,514
4,093
171,060

(184,923)
(185,648)
370,570

(191,494)
(195,446)
386,940

(196,526)
(206,818)
403,344

(4,767)
(2,187)
6,954

(4,796)
(2,472)
7,268

(4,937)
(2,566)
7,503

811
22,409
76,188
9,066

949
21,312
78,323
9,905

915
26,009
85,685
8,800

(133,554)
(-4,118)
129,436

(147,158)
(-4,418)
142,740

(152,713)
(-4,716)
147,996

78,551
693,986

83,489
730,926

89,287
769,540

(-39,753)
( — 1,728)
-41,480

(-41,779)
(-723)
-42,502

(-45,329)
(-364)
-45,693

Total, grants-in-aid
Direct Federal programs:

Investment-type programs-.
Loans and financial investments
Construction and rehabilitation of physical assets
Acquisition of major equipment
Acquisition of commodity inventories and other physical assets...
Conduct of research and development
Conduct of education and training
Other investment-type programs
Subtotal, investment-type programs
Current programs-.
Provision of benefits-.
On-budget
Off-budget
Subtotal, provision of benefits
Administrative expenses of benefit programs:
On-budget
Off-budget
Subtotal, administrative expenses of benefit programs
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:
On-budget
Off-budget
Subtotal, net interest
Other current programs
Subtotal, current programs
Unclassified:
On-budget
Off-budget
Subtotal, unclassified

B-17

SPECIAL ANALYSIS B

Table D - 6 . SUMMARY OF FEDERAL OUTLAYS FOR GRANTS-IN-AID, LOANS, AND DIRECT fEDERAL
PROGRAMS—Continued
(In millions of dollars)
1985
actual

Total, direct Federal programs
Outlay total

On-budget
Off-budget.

840,426
946,323

(769,515)
(176,807)

1986
estimate

1987
estimate

871,126

894,908

979,928

(795,185)
(184,743)

994,002

(795,386)
(198,617)

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 largely for direct payments to individuals, such as income
transfers to post-secondary students and for grants to institutions
and to State and local governments. Outlays are estimated at $21.7
billion in 1987, of which $11.2 billion are grants to State and local
governments.
Collection of information.—This category includes outlays for collection of information, such as censuses and topographic or other
natural resource surveys. Outlays are estimated at $1.6 billion in
1987.
International development.—Foreign assistance for general international economic development, other than loans, is included in
this category. These outlays, which are expected to benefit U.S.
interests by enhancing the economic development of friendly foreign nations, are estimated to be $2.4 billion in 1987.
Current programs.—Programs that provide benefits in the current year are divided into several subcategories as briefly discussed
below. Some outlays classified as current may in part be used by
their recipients for investment-type purposes. However, the principal effect of these outlays—such as unemployment compensation
and retirement payments—is to provide benefits that will be used
for current purposes such as consumption and operating expenses
rather than for future purposes. Total outlays for current programs
are 84% of 1987 estimated outlays, with $160.8 billion for defense
programs and $671.9 billion for civil programs.
"Provision of benefits" is the largest of current outlay category.
Total outlays in this category are estimated to increase from $435.7
billion in 1986 to $449.4 billion in 1987. Social security and disability benefits, which are now off-budget, constitute the largest element in this category; they are estimated to total $206.8 billion in
1987. The Balanced Budget and Emergency Deficit Control Act of
1985 (Public Law 99-177) shifted all of the formerly off-budget

A-10

THE BUDGET FOR FISCAL YEAR 1987

entities on-budget and converted the Federal old age and survivors
insurance and disability insurance trust funds to off-budget. Other
major outlays in this category include medicaid, medicare, civil
service and military retirement, veterans disability, unemployment
compensation, and food and nutrition programs.
Current outlays for "social services and related programs" are
those for human development and child welfare services and employment programs. Outlays in 1987 are estimated to be $8.0 billion, of which $7.1 billion are for grants to State and local governments.
"Aids to agriculture, commerce, and transportation" include
price support subsidies and small business and transportation programs. Outlays for these programs are estimated to decrease from
$23.5 billion in 1985 to $21.8 billion in 1986 and then rise to $26.6
billion in 1987.
Other current outlays are largely for operation of the Federal
Government, including the repair, maintenance, and operation of
physical assets (primarily defense related); regulation and law enforcement; net interest; and other administrative or operating expenses. These outlays are $334.8 billion or an estimated 34% of
budget outlays in 1987. Because proprietary receipts from the
public—such as receipts from the sale of electric power, the sale of
publications and reproductions, and the sale of timber and other
natural land products—are offsets against the outlays to which
they most nearly apply, net outlays are negative in some cases.
Unclassified.—The unclassified category includes much of the
undistributed offsetting receipts, most payments from the Government to itself, and the associated offsetting collections. Outlays for
this category are estimated to be —$45.7 billion in 1987.

B-17

SPECIAL ANALYSIS B
Table D - 7 . INVESTMENT, OPERATING, AND OTHER FEDERAL OUTLAYS
(In millions of dollars)
1985
actual

1986
estimate

1987
estimate

National defense investment-type programs

Construction and rehabilitation of physical assets:
Military construction
Family housing
Atomic energy defense activities

Subtotal, acquisition of major equipment
Other physical assets
Conduct of research and developmentDefense military
Atomic energy and other
Subtotal, research and development
Other investment-type programs
Subtotal, investment-type programs

4,454
402
996

5,396

5,797

5,853

70,325
2,269

75,702
2,399

76,652
2,590

72,594

78,101

79,242

803

1,053

28,165
2,195

29,831
2,300

32,763
2,519

30,360

32,131

35,282

1,481

627

151

110,929

117,459

121,581

101

126

74,536
284

76,085
291

82,810
306

74,820

76,376

38,117

66,782
92

70,311
1,767

72,466
5,140

66,874

72,078

77,606

141,793

148,555

160,849

Acquisition of major equipmentProcurement
Atomic energy defense activities and other

4,402
357
1,038

1,098

Subtotal, construction and rehabilitation of physical assets

4,135
321
940

-187

-191

252,748

265,827

282,238

4,673
8,600
2,198
357
317
-397
486
772
13,184

4,973
10,282
1,839
352
430
-280
363
974
1,134

6,749
2,579
-327
-776
111
-1,282
83
-252
1,269

National defense current programs

Provision of benefits

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
Other national defense.
Subtotal, other current programs
Subtotal, current programs
Unclassified
Total, national defense
Civil investment-type programs

Loans:
International affairs
Agriculture
Mortgage credit and deposit insurance
Aids to commerce
Transportation
Disaster relief
Other community and regional development
Education
Other

A-10

THE BUDGET FOR FISCAL YEAR 1987
Table D - 7 INVESTMENT, OPERATING, AND OTHER FEDERAL OUTLAYS—Continued
(In millions of dollars)
1985
actual

1986
estimate

1987
estimate

30,191

20,066

8,152

881
71

1,189
-1,159

1,574
36

951

1,610

12,689
2,420
181
870
230
3,817
497
834
3,112
2,170
985
2,611
757
1,393

13,691
3,177
209
840
230
3,575
488
965
3,100
2,187
929
2,611
791
1,812

13,186
2,876
135
855
165
3,099
413
823
2,900
2,323
868
2,753
884
1,783

32,564

34,606

33,062

Acquisition of major equipment:
Transportation
Space flight, control and data communications
General science and basic research
Postal Service
Other

801
1,555
123
300
832

1,037
1,128
119
499
1,068

1,152
956
137
471
1,038

Subtotal, acquisition of major equipment

3,611

3,851

3,755

Commodity inventories and other physical assets:
Commodity inventories:
Agriculture
Other

-2,075
1,651

-2,051
281

-3,574
16

Subtotal, commodity inventories

-423

-1,769

-3,558

2,517

2,444

431

2,093

674

-3,127

2,410
1,182
510

2,968
1,343
520

3,176
1,460
600

4,102

4,831

5,236

4,249

2,384

2,002

467
559

471
537

408
571

Subtotal, loans
Other financial investments:
International development
Other
Subtotal, other financial investments
Construction and rehabilitation of physical assets:
Highways
Mass transportation
Rail transportation
Air transportation
Water transportation
Community development block grants
Urban development action grants
Other community and regional development
Pollution control and abatement
Water resources
Other natural resources and environment
Energy
Veterans hospitals and other health facilities
Other
Subtotal, construction and rehabilitation of physical assets

Other physical assets
Subtotal, commodity inventories and other physical assets
Conduct of research and development:
General science, space and technology:
NASA
NSF
Other general science
Subtotal, general science, space, technology
Department of Energy
Transportation:
Department of Transportation
NASA

B-17

SPECIAL ANALYSIS B
Table D-7. INVESTMENT, OPERATING, AND OTHER FEDERAL OUTLAYS—Continued
(In millions of dollars)
1985
actual

Subtotal, transportation

1986
estimate

1987
estimate

1,027

1,007

980

4,412
719

4,907
750

4,745
929

5,131

5,657

5,674

Agriculture

775

794

Natural resources and environment

883

873

797

All other research and development

689

818

789

16,855

16,365

16,272

7,446
7,255
194

7,964
6,937
236

7,036
7,001
203

14,895

15,137

14,241

1,143
3,445
913
2,599

892
3,723
897
3,302

731
3,168
826
2,730

22,995

23,951

21,695

1,684
2,607

1,678
2,595

1,618
2,308

4,291

4,273

3,926

103,816

85,346

166,993
18,654

175,873
19,573

186,637
20,181

185,648

195,446

206,818

18,376
4,041

18,991
4,295

19,345
4,561

22,417

23,286

23,906

15,801
5,230
10,402
1,742

17,649
5,165
10,624
1,926

18,016
6,252
10,822
2,049

241,239

254,096

267,863

Health:
NIH
All other health
Subtotal, health

Subtotal, conduct of research and development
Conduct of education and training:
Department of Education:
Higher education
Elementary, secondary, and vocational education
Other
Subtotal, Department of Education
Veterans readjustment benefits
Training and employment programs
Health training
Other education and training
Subtotal, conduct of education and training
Other investment-type programs:
Collection of information
International development
Subtotal, other investment-type programs
Subtotal, investment-type programs

113,552

Civil current programs

Provision of benefits-.
Retirement, survivor, and disability benefits:
Social Security (off-budget):
Retirement and survivor benefits
Disability benefits

Subtotal, Social Security (off-budget)
Civil Service.Retirement and survivor benefits
Disability benefits
Subtotal, Civil Service
Military retirement
Railroad retirement including social security equivalent benefitsVeterans disability benefits
Other retirement and disability benefits
Subtotal, retirement, survivor, and disability benefits

A-10

THE BUDGET FOR FISCAL YEAR 1987
Table D - 7 . INVESTMENT, OPERATING, AND OTHER FEDERAL OUTLAYS—Continued
(In millions of dollars)
1986
estimate

1985
actual

Other provisions of benefits:
Veterans pension benefits
Medicare
Medicaid
Other health benefits
Unemployment compensation
Housing programs
Food and nutrition programs
Supplemental security income
Assistance payments program
Other

1987
estimate

3,842
69,531
21,393
1,052
16,147
11,302
18,972
8,648
7,649
8,770

3,835
72,576
23,401
1,166
15,043
11,327
18,550
9,174
8,034
9,185

3,825
75,567
23,360
1,027
15,320
10,258
17,706
9,555
6,922
8,903

167,305

172,291

172,443

Direct provision of services:
Hospital ami medical care for veterans
Other health services
Other;

7,718
1,124
57

8,029
1,084
121

7,855
1,009
98

Subtotal, direct provision of services

8,899

9,234

8,962

417,444

435,621

449,269

2,187
2,997
7,432

2,472
2,973
7,713

2,566
3,131
8,279

12,616

13,158

13,976

1,845
1,522
2,743
2,236

1,851
1,492
2,604
2,264

1,889
1,294
2,693
2,093

8,345

8,211

7,970

15,578
432
535
-417
1,786
2,549
2,008
1,013

14,649
94
671
-388
1,105
2,386
1,944
1,303

18,012
1,484
-28
-426
606
2,474
1,919
2,552

23,484

21,766

26,593

773
-932
941

658
-1,324
646

330
-1,268
896

782

-20

-42

-4,279

-3,335

-3,005

Subtotal, other provisions of benefits

Subtotal, provision of benefits
Administrative expenses:
Social Security retirement and disability (off-budget)
Medicare and medicaid
Unemployment compensation, assistance payments, and other
Subtotal, administrative expenses
Social services and related programs:
Human development services
Employment programs
Social services block grant
Other
Subtotal, social services and related programs
Aids to agriculture, commerce, and transportation:
Agriculture
Postal Service
Small business assistance
Mortgage credit and thrift insurance
Ground transportation
Air transportation
Water transportation and waterways
Other
Subtotal, aids to agriculture, commerce, and transportation
Repair, maintenance, and operation of physical assets-.
Natural resources:
Water resources
Conservation and land management
Recreation resources and other
Subtotal, natural resources
Energy (net of offsetting receipts)

SPECIAL ANALYSIS

B-17

Table D - 7 INVESTMENT, OPERATING, AND OTHER FEDERAL OUTLAYS—Continued
(In millions of dollars)
1985
actual

Other (net)

1986
estimate

1987
estimate

5,291

5,825

5,950

1,795

2,470

2,903

4,584
680
1,597

4,433
654
1,384

677
1,296

6,861

6,472

1,973

1,166
1,001
1,074
544
323
-2,430
1,058
727

1,236
977
1,065
497
329
-2,036
1,091
886

1,223
1,042
755
453
234
-2,907
1,125
814

3,464

4,046

2,738

3,477
2,043
489
92

3,608
2,179
527
130

3,765
2,171
576
146

Subtotal, law enforcement activities

6,100

6,444

6,658

Subtotal, regulation, control, and law enforcement

9,564

10,490

9,397

179,063
-22,071
-4,118
-23,438

196,095
-26,654
-4,418
-22,283

206,855
-29,631
-4,716
-24,511

129,436

142,740

147,996

2,442
1,416
3,518
429

2,750
1,532
3,662
556

3,537
1,691
3,331
266

7,805

8,499

8,824

5,547
-1,368

5,287
-2,114

4,742
-1,724

4,179

3,174

3,018

621,529

652,600

671,919

Subtotal, repair, maintenance, and operation of physical
assets
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
Savings institutions
Tax collections
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
Interest received by on-budget trust funds
Interest received by off-budget trust funds
Other interest
Subtotal, net interest
General Administration:
International affairs
Legislative branch
Other general government
Other
Subtotal, general administration
Other current programs:
International security assistance
Other
Subtotal, other current programs
Subtotal, current programs

A-10

THE BUDGET FOR FISCAL YEAR 1987
Table D - 7 . INVESTMENT, OPERATING, AND OTHER FEDERAL OUTLAYS—Continued
(In millions of dollars)
1985
actual

Unclassified:
Employer share, employee retirement:
On-budget
Off-budget
Subtotal, employer share, employee retirement
Offshore oil receipts
Other unclassified
Subtotal, unclassified
Total, civil
Outlay total

On-budget
Off-budget

1986
estimate

1987
estimate

(-24,708)
(-2,509)

(-26,283)
(-2,843)

(-28,471)
(-3,177)

-27,217

-29,126

-31,648

-5,542
-8,747

-5,450
-7,740

-5,280
-8,573

-41,506

-42,315

-45,501

693,575

714,101

711,764

946,323

(769,515)
(176,807)

979,928

(795,185)
(184,743)

994,002

(795,386)
(198,617)

SPECIAL ANALYSIS B

B-17

Table D-8. TOTAL OUTLAYS FOR GRANTS-IN-AID, AND DIRECT FEDERAL PROGRAMS
(In millions of dollars)
1985
actual

1987
estimate

1986
estimate

Grants-in-aid
Investment-type programs:
Construction and rehabilitation of physical
assets:
Highways
Mass transportation
Rail transportation
Air transportation
Pollution control and abatement
Other natural resources and environment
Community development block grants
Urban development action grants
Other community and regional development....
Other construction

12,685
2,420
27
789
2,932
296
3,817
497
681
343

13,671
3,177
25
776
2,892
203
3,575
488
825
385

13,172
2,876
26
828
2,514
176
3,099
413
713
299

Subtotal, construction and rehabilitation
of physical assets

24,487

26,017

24,117

Acquisition of equipment and other physical
assets

388

426

399

Conduct of research and development

215

213

163

2,757
7,029
1,660

3,005
6,683
2,230

2,661
6,770
1,757

11,447

11,918

11,189

Conduct of education and training:
Employment and training assistance
Elementary and secondary education
Other
Subtotal, conduct of education and training
Collection of information

36,560

38,573

35,867

Current programs:
Provision of benefits-.
Medicaid
Nutrition and food programs
Assistance payments
Housing payments and subsidies
Other

21,393
8,068
7,649
8,573
1,307

23,401
7,753
8,034
8,208
1,395

23,360
7,251
6,922
7,268
1,249

Subtotal, provision of benefits

46,989

48,791

46,050

1,576
1,262
2,247

1,579
1,285
2,384

1,742
1,348
2,676

Subtotal, administrative expenses

5,085

5,249

5,766

Social services and related programs:
Employment programs
Human development services
Social services and child welfare services
Other

1,236
1,772
3,476
1,611

1,198
1,782
3,416
1,499

1,015
1,819
3,503
1,425

Subtotal, investment-type programs

Administrative expenses:
Unemployment compensation
Medicaid
Other administrative expenses

THE BUDGET FOR FISCAL YEAR 1987

A-10

Table D-8. TOTAL OUTLAYS FOR GRANTS-IN-AID, AND DIRECT FEDERAL PROGRAMS—Continued
(In millions of dollars)
1985
actual

1987
estimate

1986
estimate

Subtotal, social services and related programs

8,095

7,895

7,762

Aids to agriculture, commerce, and transportation:
Transportation
Other

1,073
2

451
2

582
2

Subtotal, aids to agriculture, commerce,
and transportation

1,075

453

584

Repair, maintenance, and operation of physical
assets

427

522

335

4,584
1,597
767

4,433
1,384
739

1,296
744

6,948

6,556

2,040

499
220

584
178

596
95

69,337

70,229

63,228

105,897

108,802

99,094

4,673
239
8,600
357
2,198
317
-397
772
123
13,479
1,145

4,973
1,154
10,282
352
1,839
430
-280
974
139
18
631

6,749
1,116
2,579
-776
-327
111
-1,282
-252
137
79
-3

31,506

20,510

8,129

951

1,610

32,458

20,540

9,739

5,333
2,009
1,029
2,611
468
737
606

5,738
2,053
1,069
2,611
498
772
736

5,799
2,205
1,196
2,753
315
861
718

General purpose fiscal assistance:
General revenue sharing
Shared revenues
Other
Subtotal, general purpose fiscal assistance
Regulation, control, and law enforcement
Other current programs
Subtotal, current programs
Total, grants-in-aid
Direct Federal Programs
Loans and financial investments:
International affairs
Energy supply
Agriculture
Commerce and housing credit
Mortgage credit and deposit insurance
Transportation
SBA disaster loan fund
Education
Veterans
Low-rent public housing
Other
Subtotal, loans
Financial investments
Subtotal, loans and financial investments...
Investment-type programs:
Construction and rehabilitation of physical
assets:
National defense
Water resource projects
Other natural resources and environment
Energy
Transportation
Veterans hospitals and other health facilities..
1
Postal Service

B-17

SPECIAL ANALYSIS B

Table D-8. TOTAL OUTLAYS FOR GRANTS-IN-AID, AND DIRECT FEDERAL PROGRAMS—Continued
(In millions of dollars)
1985
actual

1987
estimate

1986
estimate

680

909

951

13,473

14,386

14,798

72,594
1,555
300
1,756

78,101
1,128
499
2,224

79,242
956
471
2,328

76,205

81,952

82,998

1,339
1,636
-2,075
-225

1,075
281
-2,051
-273

1,217
16
-3,574
-164

675

-967

-2,505

2,128

2,018

47,000

48,284

51,392

1,207
7,338
521
637
905
956

983
7,912
552
662
895
1,042

771
7,025
477
448
827
966

11,564

12,046

10,514

Collection of information

1,684

1,705

1,647

International development....

2,733

2,738

2,446

187,920

182,702

171,060

166,993
78,187
69,531
7,718
1,132
16,147
10,974
7,207
8,648
1,100
2,917

175,873
82,159
72,576
8,029
1,093
15,043
10,887
7,629
9,174
1,283
3,185

186,637
85,177
75,567
7,855
1,018
15,320
10,455
7,305
9,555
1,228
3,228

370,554

386,931

403,344

Other construction
Subtotal, construction and rehabilitation
of physical assets
Acquisition of major equipment:
National defense
NASA, nondefense
Postal Service
Other
Subtotal, acquisition of major equipment....
Commodity inventories:
Atomic energy defense activities
Strategic Petroleum Reserve
Commodity Credit Corporation
Other commodity inventories
Subtotal, commodity inventories
Other physical assets
Conduct of research and development
Conduct of education and training:
Assistance to veterans
Higher education
Elementary and secondary education
Employment and training assistance
Health training
Other
Subtotal, conduct of education and training

Subtotal, investment-type programs
Current programs:
Provision of benefits:
Social Security retirement and disability
(off-budget)
Other retirement and disability benefits
Medicare
Medical care for veterans
Other health
Unemployment compensation
Food and nutrition programs
Housing payments and subsidies
Supplemental security income
Earned income tax credit
Other
Subtotal, provision of benefits

THE BUDGET FOR FISCAL YEAR 1987

A-10

Table D-8. TOTAL OUTLAYS FOR GRANTS-IN-AID, AND DIRECT FEDERAL PROGRAMS—Continued
(In millions of dollars)
1985
actual

Administrative expenses:
Social Security retirement and disability
(off-budget)
Medicare
Unemployment compensation, assistance
payments and other

1986
estimate

1987
estimate

2,187
1,735

2,472
1,688

2,566
1,783

3,032

3,107

3,154

6,954

7,268

7,503

827

958

915

Aids to agriculture, commerce, and transportation:
Agriculture
Postal Service
Small business assistance
Mortgage credit and thrift insurance
Ground transportation
Air transportation
Water transportation and waterways
Other

15,578
432
535
-417
718
2,549
2,008
1,007

14,649
94
671
-388
658
2,386
1,944
1,297

18,012
1,484
-28
-426
28
2,474
1,919
2,546

Subtotal, aids to agriculture, commerce,
and transportation

22,409

21,312

26,009

Repair, maintenance, and operation of physical
assets-.
National defense
Other (includes offsetting collections)

74,820
1,368

76,376
1,947

83,117
2,568

Subtotal, repair, maintenance, and operation of physical assets

76,188

78,323

85,685

9,066

9,905

8,800

Subtotal, administrative expenses
Social services and related programs

Regulation, control, and law enforcement
Net interest:
On-budget
Off-budget
Subtotal, net interest
Other current programs:
Military personnel
Allowance for Department of Defense pay
raises
Other national defense
Allowance for civilian agency pay raises
Other
Subtotal, other current programs
Subtotal, current programs
Unclassified:
Employer share, employee retirement:
On-budget
Off-budget
Subtotal, employer share, employee retirement

(133,554)
(-4,118)

(147,158)
(-4,418)

(152,713)
(-4,716)

129,436

142,740

147,996

66,782

70,311

72,466

i,683

11,764

11,495

3,272
1,801
423
11,325

78,551

83,489

89,287

693,986

730,926

769,540

(-24,708)
(-2,509)

(-26,283)
(-2,843)

(-28,471)
(-3,177)

-27,217

-29,126

-31,648

SPECIAL ANALYSIS B

B-17

Table D-8. TOTAL OUTLAYS FOR GRANTS-IN-AID, AND DIRECT FEDERAL PROGRAMS—Continued
(In millions of dollars)
1985
actual

Offshore oil receipts
Other unclassified
Subtotal, unclassified
Total, direct Federal programs
Outlay total
On-budget
Off-budget
*$500 thousand or less.

1986
estimate

1987
estimate

-5,542
-8,721

-5,450
-7,927

-5,280
-8,765

-41,480

-42,502

-45,693

840,426

871,126

894,908

946,323
(769,515)
(176,807)

979,928
(795,185)
(184,743)

994,002
(795,386)
(198,617)

SPECIAL ANALYSIS E
BORROWING AND DEBT
The major fiscal operations of the Federal Government include
not only taxation and expenditure but also:
• borrowing cash to meet outlays not covered by receipts and to
refinance maturing debt;
• investing balances that trust funds and other Government
accounts do not currently need for outlays; and
• providing guarantees and other types of assistance to certain
borrowing by the public.
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 by foreign residents, agency borrowing, investment
in Federal securities by Government accounts, the statutory debt
limitation, 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 borrowing 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 Supplementary
data on debt since 1940 are published in a separate volume, Historical Tables, Budget of the United States Government, Fiscal Year
1987.

Special Analysis F, "Federal Credit Programs/' examines the
related subject of Federal credit programs, which provide 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 and the
economy of the programs contained in the 1987 Federal budget.

1 Data on many of these liabilities are contained in "Statement of Liabilities and Other Financial Commitments of the United States Government," an annual report prepared by the Financial Management Service of
the Department of the Treasury and published in the Treasury Bulletin. The 1984 data were published in the
winter (1st quarter) issue, 1985, pp. 193-205.

E-1

A-10

THE BUDGET FOR FISCAL YEAR 1987
BORROWING AND REPAYING DEBT

The Federal Government issues debt for two principal reasons.
First, it issues debt to the public, largely in order to finance the
Federal deficit. Second, it issues debt to those Government accounts, primarily trust funds, that accumulate surpluses that are
required by law to be invested in Federal securities. Nearly all of
the Federal debt has been issued by the Treasury and is called
"public 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 Banks as well as borrowing from commercial banks, foreign central banks, other financial institutions
and businesses, and individuals. The term "borrowing from the
Federal Reserve Banks" does not imply that the Treasury sells
debt securities directly to the Federal Reserve. Instead, the Federal
Reserve normally buys securities in the open market. In the past
the Federal Reserve was able to buy securities directly from the
Treasury only under exceptional circumstances and in amounts
limited by statute. The statutory authority for even these exceptions expired in 1981.
For most purposes borrowing from the Federal Reserve Banks
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 Banks 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 Banks 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 Banks 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.

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 - 7 but also certain Governmentguaranteed securities and the debt of the Government-sponsored enterprises listed in table E - l l .

SPECIAL ANALYSIS B

B-17

Table E - l summarizes Federal borrowing from 1985 through
1991. In 1985 the total Federal borrowing (net of the refunding of
securities that matured)—i.e., the rise in gross Federal debt—was
$250.7 billion. The issue of debt to Government accounts was $53.5
billion, and the sale of debt to the public was $197.3 billion. The
Federal Reserve Banks increased their holdings of Federal debt by
$14.7 billion, so the increase in debt held by the rest of the public
was $182.6 billion. As a result of this borrowing, Federal debt held
by the public increased to $1,509.9 billion at the end of 1985. Gross
Federal debt was $1,827.5 billion.
Table E - l . FEDERAL BORROWING
(In billions of dollars)
Borrowing or repayment ( — ) of debt
Description

Debt outstanding,
enu uii year

1985
actual

1986
estimate

1987
estimate

1988
estimate

1989
estimate

1990
estimate

250.8
-0.1

284.7
-0.2

208.9
-0.3

190.3
-2.0

175.4

157.0

Gross Federal debt

250.7

284.5

208.6

188.3

175.4

157.0

Less debt held by Gov. accounts-.
Treasury debt
Agency debt

53.5

Gross Federal debt:
Treasury debt
Agency debt

1991
estimate

1987
estimate

1991
estimate

135.4 2,316.7 2,974.7
*
4.0
2.0
135.4 2,320.6 2,976.7

80.4

67.0
-0.1

NA
NA

463.9
1.0

NA
NA

53.5

80.4

66.9

95.4

108.6

122.1

137.6

464.9

928.6

Total, debt held by public... 1 9 7 . 3

204.2

141.7

93.0

66.8

34.9

NA
NA

Debt held by Gov. accounts 1

Composed of:
Debt held by the Federal Reserve Banks
Debt held by others

14.7
182.6

- 2 . 2 1,855.7 2,048.1

NA
NA

* $50 million or less.
1
Investment by Government accounts during 1988-91 is estimated as approximately equal to the total trust fund surplus.
N A = N o t available.

Borrowing from the public has fluctuated widely in the past in
response to fluctuations in the economy. Recently, from 1981 to
1983, it increased substantially from $79.3 billion to $212.3 billion.
This was due to both the temporary effects of recession and disinflation and a more lasting, structural imbalance between receipts
and outlays. In the past two years the rapid recovery has helped to
restrain the level of borrowing, but it has not diminished much.
The decline in real gross national product (GNP) during the
recession of 1981-82 reduced money incomes, which decreased
income and social security tax receipts almost immediately; the
associated rise in unemployment raised outlays for unemployment
compensation and certain other programs. The decrease in the rate
of inflation, which was unusually sharp, reduced both receipts and
outlays, but receipts fell more quickly. Tax collections fell almost

A-10

THE BUDGET FOR FISCAL YEAR 1987

immediately below what they otherwise would have been, because
the lower inflation reduced the money incomes on which most
taxes are based. In contrast, for example, cost-of-living adjustments
to benefit programs occur at fixed intervals and are not made until
some months after the price changes that determine them; and
lower interest rates in response to lower inflation do not reduce
interest outlays on existing debt securities. Therefore, the lower
real GNP and the disinflation both widened the Federal deficit.
These effects are an example of the sensitivity of the budget to
economic conditions, which is discussed in Part 2 of the Budget
With strong economic recovery starting in early 1983 and with a
more stable rate of inflation, these factors ceased to widen the
Federal deficit and borrowing. Instead, the rapid expansion of real
GNP and the sharp decline in the unemployment rate increased
receipts, reduced outlays, and thus decreased the Federal deficit
and borrowing. However, the effects of the still remaining unemployed resources continue to keep the deficit and borrowing at
greater levels than they would be at high employment.
The present large deficit and borrowing are also due to causes
that do not go away with the steady and strong economic expansion assumed in this budget. Although the estimated total unemployment rate falls to 5.6% by 1991, a deficit of $103.8 billion
nevertheless remains under these conditions of high employment
unless policy actions are taken to diminish it. The effect is shown
in table E-2 by the estimated borrowing from the public based on
the current services estimates of the deficit.
Table E-2. COMPARISON OF CURRENT SERVICES AND POLICY ESTIMATES OF BORROWING AND DEBT
(Dollar amounts in billions)
Description

Borrowing from the public.Current services
Policy
Debt held by the public:
Current services
Policy
Debt held by the public as percentage of GNP:
Current services
Policy

1986
estimate

1987
estimate

1988
estimate

1989
estimate

1990
estimate

1991
estimate

206.9
204.2

179.9
141.7

149.4
93.0

138.2
66.8

125.4
34.9

103.0
-2.2

1,716.8 1,896.7 2,046.0 2,184.2 2,309.7 2,412.6
1,714.0 1,855.7 1,948.7 2,015.4 2,050.3 2,048.1
41.0
40.9

41.8
40.9

41.7
39.7

41.5
38.3

41.1
36.5

40.5
34.4

The current services estimates of the budget, as explained in
Special Analysis A, "Current Services Estimates," show the receipts, outlays, and deficit that would be realized under existing
polices with regard to spending programs and taxes (and under the
same economic assumptions as used for the budget). As shown in
table E-2, they imply large continued borrowing through 1991,
though with a significant downward trend, despite the continual
improvement in economic conditions.

SPECIAL ANALYSIS B

B-17

In contrast, the policies proposed in this budget are estimated to
eliminate the deficit and borrowing from the public in accordance
with the targets set forth in the Balanced Budget and Emergency
Deficit Control Act of 1985 (the Gramm-Rudman-Hollings Act). As
shown in tables E - l and E-2, borrowing from the public under these
policies is estimated to decrease steadily from its 1986 level of $204.2
billion, falling to $141.7 billion in 1987 and turning into a $2.2 billion
repayment of debt in 1991. As a result, the debt held by the public
under the policies proposed by the Administration is $2,048.1 billion
in 1991, which is $364.5 billion less (or 15.1% less) than the debt
under the current services estimates.
The economic assumptions behind these estimates are presented
in Part 2 of the Budget The assumptions for 1986 and 1987 are a
forecast of the economy. In contrast, the assumptions for later
years are not exact forecasts of future economic conditions. Instead,
they are extrapolations of trends, based on the assumption that the
fiscal policy proposed in this budget will be enacted and that the
Federal Reserve will pursue a policy of gradually reducing the rate
of growth of the monetary aggregates. Thus, they assume steady
progress in sustaining economic growth and in reducing inflation,
interest rates, and unemployment. The receipts and outlay estimates also assume that the taxation and expenditure proposals in
this budget are enacted and implemented.
BORROWING AND GOVERNMENT DEFICITS

Table E-3 shows the relationship between borrowing from the
public and the Federal deficit. The total deficit of the Federal
Government includes not only the budget deficit but also the surplus or deficit of the off-budget Federal entities, which have been
excluded from the budget by law. Under present law the off-budget
Federal entities are the old-age and survivors insurance trust fund
and the disability insurance trust fund.3 Since they had a combined surplus in 1985 and are estimated to continue having surpluses during 1986-91, they currently reduce the requirements for
Treasury to borrow from the public.
The total Federal deficit is financed either by borrowing from the
public or by several other means. The other means of financing
are:
• a decrease in Treasury's operating cash balance;
• an increase in monetary liabilities for checks outstanding,
accrued interest payable on debt held by the public, etc.;

a Off-budget Federal entities are discussed in the Budget of the United States Government. Fiscal Year 1987.
Part (ia. A technical analysis of the budgetary relationship between on-budget and off-budget accounts is
presented in Special Analysis C, "Funds in the Budget."

THE BUDGET FOR FISCAL YEAR 1987

A-10

Table E-3. MEANS OF FINANCING THE DEFICIT 1
(In millions of dollars)
Description

Surplus or deficit ( - )

On-budget
Off-budget2
Means of financing other
than borrowing from the
public:
Decrease or increase ( — )
in Treasury operating
cash balance
Increase or decrease ( - )
in:
Checks outstanding, etc. 3 .
Deposit fund balances 4 ....
Seigniorage on coins
Total, means of
financing other
than borrowing
from the public
Total, requirements for
borrowing from the
public
Change in debt held
by the public
1

1985 actual

1986 estimate 1987 estimate 1988 estimate 1989 estimate

-212,266 -202,789 -143,630

-93,585

1990
estimate

-67,504 -35,752

1991
estimate

1,323

-221,629 -215,984 -159,288 -126,765 -111,304 -90,134 -65,650
9,363
13,195 15,658 33,179 43,799 54,382 66,973

13,367

-2,940

-979
2,093
516

428
711
439

1,511
-105
544

622

752

837

906

14,997

-1,362

1,950

622

752

837

906

-197,269 -204,151 -141,680

-92,963

-66,752 - 3 4 , 9 1 5

2,229

34,915

-2,229

197,269

204,151

141,680

92,963

66,752

Several amounts have been assumed to be zero during 1987-91 because they are usually small and cannot be estimated accurately.
The off-budget Federal entities consist of the old-age and survivors insurance trust fund and the disability insurance trust fund.
Besides checks outstanding, includes accrual of interest payable on Treasury debt, miscellaneous liability accounts, allocations of special
drawing rights, and, as an offset, cash and monetary assets other than the Treasury operating cash balance, miscellaneous asset accounts, and
profit on sale of gold.
4
Does not include investment in Federal debt by deposit funds classified as part of the public.
2

SPECIAL ANALYSIS B

B-17

• an increase in deposit fund balances, which are discussed on
pages E-23 and E-24, together with their effect on the means of
financing; and
• seigniorage, which is the face value of minted coins less the
cost of their production.
All of these other means of financing except seigniorage are
changes in the Government's balance sheet—either its asset or its
liability accounts—and so may be either positive or negative. In
most years they add up to a positive total amount, in which case
they finance part of the deficit. Sometimes, however, they add up
to a negative total amount, in which case they, like the deficit,
must themselves be financed by borrowing from the public. In 1985
the Federal deficit was $212.3 billion. The greater part of this
amount, $197.3 billion, was borrowed from the public, and the
remaining $15.0 billion was financed by other means.
The other means of financing are normally small relative to
borrowing from the public. This is because they are limited by
their own nature. Decreases in cash balances, for example, are
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 single year and are 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, as a whole, these other accounts did finance an
unusually large amount of the deficit in 1985. Almost all of this
was due to the decrease in the Treasury operating cash balance. At
the end of 1984 the cash balance was $30.4 billion, which was $10.4
billion above the normal end-of-year target of $20 billion. Since
cash at the end of 1985 was $17.1 billion, the decrease in cash
balance during 1985 financed $13.4 billion of the Federal deficit.
In contrast, the cash balance is estimated to increase in 1986 in
order to restore the end-of-year target. This is the primary reason
why Federal borrowing is required to finance these accounts as
well as the deficit. As a result, the means of financing other than
borrowing are $16.4 billion less in 1986 than in 1985. Consequently,
Federal borrowing is estimated to increase in 1986 despite a decrease
in the deficit.
The structure of table E-3 demonstrates that the off-budget Federal entities affect borrowing from the public in exactly the same
way as the on-budget entities. Thus, balancing the budget as defined under current law is not enough to prevent an increase in
the Federal debt held by the public, if the off-budget entities have a
deficit. Likewise, a budget deficit does not require borrowing from
the public so long as the off-budget Federal entities have a surplus
that is as large as the budget deficit or larger. The outlays of the
entire Government must be in balance with receipts in order for

A-10

THE BUDGET FOR FISCAL YEAR 1987

the Government not to have to borrow from the public, regardless
of whether particular Federal entities are defined as being included
in the budget totals (aside from the relatively small effect of the
other means of financing).
The amount of debt issued to Government accounts depends
largely on the surpluses of the trust funds, both on-budget and offbudget, which own over nine-tenths of the total Federal debt held
by Government accounts. Investment by these accounts in Federal
securities and the total trust fund surplus during 1984-87 are
compared in the table below (in billions of dollars):
1984
actual

Investment by Government accounts in Federal debt
Total trust fund surplus

1985
actual

1986
estimate

1987
estimate

24.0

53.5

80.4

6 6 . 9

32.9

54.4

6 3 . 0

7 4 . 9

Investment in Federal securities by Government accounts is
roughly similar in size to the total trust fund surplus throughout
this period. This relationship has historically been close, with the
small differences accounted for by two factors. Certain accounts
other than trust funds buy or sell Federal debt, as shown in table
E-8, and the trust funds may change the amount of their cash
assets not currently invested in debt.4 This relationship is less
close than normal in 1984 and 1986, due to the effect of the debt
limit on the investment of the civil service retirement and disability trust fund (as explained on pages E-20 and E-22). The effects in
these two years, however, are offsetting. The relationship is less close
than normal in 1987 due to the proposed disinvestment of the airport
and airway trust fund (as explained on page E-22).
SIZE AND GROWTH OF FEDERAL DEBT

Gross Federal debt has risen substantially over the past half
century, from $16.9 billion in 1929 to $1,827.5 billion at the end of
1985. Table E-4 compares the trends since 1954 in gross Federal
debt and the amounts of debt held by Government accounts, the
public (including the Federal Reserve Banks), and the Federal Reserve Banks. During this period the gross Federal debt increased by
nearly seven times, and the amount of debt held in Federal Government accounts (primarily trust funds) rose by a similar proportion. The average annual growth rates of gross Federal debt, debt
held by the public, and debt held by the public apart from the
Federal Reserve Banks were all about the same: around 6.3%. In
the latter part of the period, the growth of debt accelerated.
Whereas the debt held by the public increased at an average
annual rate of 2.8% from 1954 to 1975, it grew at a rate of 11.9%
from 1975 to 1980 and at a rate of 16.1% from 1980 to 1985.
4 These "open book balances" are very small relative to trust fund holdings of Federal debt, as shown in
Special Analysis C, "Funds in the Budget."

B-17

SPECIAL ANALYSIS B
Table E-4. TRENDS IN FEDERAL DEBT 1
(Dollar amounts in billions)
Debt outstanding, end of year
Held by
Gross
Federal
debt

Fiscal year

Federal
Government
accounts

The public
Total

Federal
Reserve
Banks

GNP

Debt held
by public
as
percent of
GNP

Other

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

369.4
387.6
418.0
441.2
449.8
479.5

60.8
58.5
53.2
49.7
50.3
49.0

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969 2

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

507.7
519.0
556.6
588.6
629.4
673.6
740.5
793.5
852.4
929.5

46.7
46.0
44.6
43.2
40.9
38.8
35.7
33.7
34.1
30.1

1970 3
1971
1972
1973 4
1974
1975
1976 5
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
65.5
71.4
75.2
80.6
85.0
94.7
96.7
105.0
115.5
115.6

227.2
238.8
252.3
267.9
265.4
311.9
385.6
401.6
446.8
495.5
529.0

990.5
1,057.1
1,151.2
1,285.5
1,417.0
1,523.5
1,699.6
1,794.7
1,935.8
2,173.4
2,452.2

28.8
28.8
28.1
26.7
24.4
26.1
28.3
27.8
28.5
28.1
26.3

120.8
594.3 2,667.6
124.5
670.0 2,986.2
134.5
794.9 3,141.5
986.2 3,320.9
155.5
155.1 1,157.5 3,695.3
169.8 1,340.1 3,936.8
NA
NA 4,192.2
NA
NA 4,538.1
NA
NA 4,902.9
NA 5,268.9
NA

26.8
26.6
29.6
34.4
35.5
38.4
40.9
40.9
39.7
38.3

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

estimate
estimate
estimate
estimate

914.3
1,003.9
1,147.0
1,381.9
1,576.7
1,827.5
2,112.0
2,320.6
2,509.0
2,684.3

199.2
715.1
794.4
209.5
929.4
217.6
240.1 1,141.8
264.2 1,312.6
317.6 1,509.9
398.0 1,714.0
464.9 1,855.7
560.3 1,948.7
668.9 2,015.4

1990 estimate
1991 estimate

2,841.4
2,976.7

791.0 2,050.3
928.6 2,048.1

NA
NA

NA 5,623.4
NA 5,955.2

36.5
34.4

Data from 1940 to 1991 in millions of dollars are published in Historical Tables, Budget of the United States Government, Fiscal Year 1987,
section 7. Earlier historical data are presented on a different basis in Statistical Appendix to Annual Report of the Secretary of the Treasury on
the2 State of the Finances, Fiscal Year 1980, table 19.
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.
3
Gross Federal debt and debt held by the public increased $1.6 billion due to a reclassification of the Commodity Credit Corporation certificates
of 4interest from loan assets to debt.
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.
5
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.
N A = N o t available.

A-10

THE BUDGET FOR FISCAL YEAR 1987

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 chart below, as a proportion of the total credit market debt owed by nonfinancial sectors of
the economy: Federal, State and local, and private.5 Whereas Federal debt held by the public was only 13% of total debt at the end
of calendar year 1929, it had risen to 69% by the end of calendar
year 1945. Federal borrowing was large during these years, especially to finance World War II, and borrowing by other sectors was
restricted by low incomes and poor credit-worthiness during the
depression and by controls and scarcities during the war.

Percentage Distribution of Debt*
Percent
-100

100-

1929

End of Year
•Federal Debt is Debt Held by the Public (Including the federal Reserve Bonks)

From 1945 to 1974, however, in every single year but one, private
debt increased as a proportion of total credit market debt and
Federal debt held by the public decreased as a proportion. During
this period the average annual rate of growth was 1.1% for Federal
debt held by the public, 10.0% for State and local debt, and 9.7%
for private credit market debt. By 1974, Federal debt held by the
public had declined to 16.7% of total credit market debt, and
The estimates for 194(i to the
estimates for earlier years are from
linked to the flow-of-funds estimates
during 1929-51 and for fiscal years
U.S. credit markets.

present are from the Federal Reserve Board flow-of-funds accounts; the
the Bureau of Economic Analysis of the Department of Commerce and are
on the basis of their respective 194(i levels. The data are for calendar years
thereafter. The private sector debt includes debt of foreigners incurred in

SPECIAL ANALYSIS B

B-17

private debt had risen to 73.6% of the total. As a result of these
trends, Federal debt, though still important, became a relatively
much smaller part of the financial markets than it had been at the
end of World War II.
This trend ended in 1975. A recession caused large Federal deficits in 1975 and 1976, and as a result the Federal debt held by the
public rose as a percentage of total credit market debt in both
years. After a brief decline and a short period of stability, Federal
debt held by the public increased year-by-year from 17.8% of credit
market debt in 1980 to 22.4% in 1985. This is the highest percentage since 1968. The counterpart to a higher proportion of Federal
debt in the last five years has been a lower proportion of private
debt.
During the same period following World War II, Federal debt
decreased relative to GNP. Debt held by the public was 110.7% of
GNP at the end of 1945 but, as shown in table E-4, declined to
60.8% of GNP by the end of 1954 and 24.4% by the end of 1974.
For several years thereafter debt held by the public fluctuated as a
percentage of GNP in about the same way as it fluctuated as a
percentage of total credit market debt. In 1982, however, debt held
by the public rose sharply from 26.6% of GNP to 29.6%, and by
1985 it had risen to 38.4%. This percentage is higher than in any
other year since 1965.
Because of the reasons outlined in a preceding section, Federal
borrowing is estimated to remain very large in 1986 before starting
to decrease sharply in 1987. As a result, debt held by the public is
estimated to rise further to 40.9% of GNP in 1987 and 1988 before
gradually but steadily declining to 34.4% in 1991. This decline
could not occur, however, without policy measures to cut the deficit
very greatly. Under the current services estimates for the budget,
as shown in table E-2, Federal borrowing from the public would be
much larger. Debt held by the public as a percentage of GNP
would rise to 41.8% of GNP in 1987 and then decline only slightly
in the following years.
The interest cost of the debt is more significant than the amount
of the debt for some types of comparison designed to measure the
importance of Federal indebtedness. Interest payments on the debt
must be financed by either higher taxes or more borrowing, and
more borrowing raises still further the debt and therefore the
amount of interest that must be paid in the future. The 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 rate on 91-day Treasury bills, for example,
averaged 2.0% in the 1950's, 4.0% in the 1960's, and 6.3% in the
1970's. It then averaged 12.1% in calendar years 1980-82 before

THE BUDGET FOR FISCAL YEAR 1987

A-10

falling to 8.6% in 1983, 9.6% in 1984, and 7.5% in 1985. Consequently, whereas the Federal debt held by the public increased by
nearly seven times between 1954 and 1985, table E-5 shows that
the interest paid on this debt increased by twenty-nine times.
Table E-5. TRENDS IN INTEREST ON FEDERAL DEBT
(Dollar amounts in billions)
Interest on debt
held by the public
as a percent of

Interest on the gross Federal debt
Paid to
Fiscal year

Total

Federal
Government
accounts

The public
Total

Federal
Reserve
2
Banks

Other

GNP

Out-3
lays

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

1.40
1.34
1.33
1.34
1.41
1.34

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

1.59
1.50
1.42
1.47
1.47
1.46
1.41
1.47
1.48
1.52

8.73
7.96
7.40
7.78
7.80
8.29
7.75
7.39
7.09
7.70

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
9.6

12.2
12.6
12.9
14.2
16.9
18.6
22.5
NA
26.2
31.2
38.6

1.58
1.55
1.44
1.44
1.58
1.62
1.69
1.70
1.71
1.80
1.97

7.99
7.78
7.20
7.53
8.30
7.42
7.73
7.96
8.07
8.54
9.59

75.2
96.0
117.5
128.9
154.1
179.4
196.4
207.1

14.8
17.1
19.9
21.3
25.2
31.3
36.7
40.2

60.4
78.9
97.7
107.7
129.0
148.1
159.6
166.9

12.5
13.4
15.4
15.3
16.3
17.7
NA
NA

47.9
65.5
82.4
92.3
112.7
130.4
NA
NA

2.26
2.64
3.11
3.24
3.49
3.76
3.81
3.68

10.22
11.63
13.10
13.32
15.14
15.65
16.29
16.80

1980
1981
1982
1983
1984
1985
1986 estimate
1987 estimate
1

Total interest on gross Federal debt is significantly larger than the outlays for the net interest function in the budget, because the net
interest function includes as deductions the interest paid to trust funds and Government collections of interest.
2
These figures are approximate. They are estimated as the average of calendar year amounts or as an adjustment to deposits of earnings. The
1985 estimate is preliminary.
Includes off-budget outlays. Historical series of outlays are published in the Budget Part 6e, tables 22 and 23.
NA = Not available.

SPECIAL ANALYSIS B

B-17

As a result, interest payments to the public have tended to grow
faster than GNP over this entire period, despite the decline of debt
as a percentage of GNP until the middle 1970's. In the middle and
late 1950's, interest paid to the public was equal to about 1.4% of
GNP, whereas by 1970 it had risen to 1.6% and by 1980 to 2.3%. By
1985, interest paid on debt held by the public had risen to 3.8% of
GNP, which is twice as high a proportion as in 1978. This was due
in very large part to the rapid expansion of debt, which increased
sharply the ratio of debt to GNP. Interest as a percentage of GNP
is estimated to remain about the same in 1986 and decline only
slightly in 1987, despite decreases in market interest rates, because
of the large borrowing necessary to finance the Federal deficit.
Interest paid to the public as a percentage of total Federal outlays does not show the same sustained trend over the period as a
whole. From 1954 to the middle 1970's, interest averaged 7.7% of
total outlays and tended neither to increase nor to decrease. The
percentage of outlays paid in interest then began to increase, however, both steadily and substantially. It rose rapidly to 10.2% in
1980, 13.3% in 1983, and 15.6% in 1985. By 1987 this percentage is
estimated to increase still further to 16.8%. Thus, the importance
of interest on the debt relative to either GNP or Federal outlays is
now considerably more than in earlier years. Under the current
services estimates of the budget, as defined on page E-4, it would be
greater than shown in this table for 1986 and 1987 because of the
larger debt.
Since the end of World War II the composition of the Federal
debt has changed. Until some years ago an increasingly large proportion of marketable securities had a short maturity. One contributing factor was the statutory ceiling of 4Vi% that has been maintained since 1918 on the interest rate for Treasury bonds. Longterm market rates exceeded 4%% after 1965, so after that year the
ceiling 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, 1985, the amount of notes
outstanding with an original maturity over 5 years was $365.4
billion, of which $243.2 billion had an original 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 the Treasury was allowed by law to issue up to $10
billion of bonds at interest rates above 4Vi%. In 1973 those bonds
held by Government accounts and the Federal Reserve Banks were
exempted from the interest rate limit, and since 1976 the amount
of the exemption for other bonds has been raised in 10 steps. The

A-10

THE BUDGET FOR FISCAL YEAR 1987

last increase to the exemption was from $150 to $200 billion, enacted in May 1984. As of December 31, 1985, $207.4 billion of the
bonds outstanding had been sold since the change of law in 1971,
whereas only $3.7 billion of bonds issued in earlier years were still
outstanding. The public exclusive of the Federal Reserve Banks
held $179.8 billion of the bonds issued since 1971. The effective
interest rate on bonds issued since 1971 has ranged from 6.1% to
15.8%.
Notwithstanding the initial relaxations of the interest rate ceiling, the average maturity of privately held, marketable Treasury
debt decreased steadily from about 5 years at the end of 1967 to
about 2Vz years at the end of 1975. Since then, however, as the
restriction has been relaxed further, the average maturity has
gradually lengthened to about 5 years.
DEBT HELD BY FOREIGN RESIDENTS

During most of American history the debt of the Federal Government was 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 1.0% of the total debt held by the public.
In the following years the debt held by foreign residents tended to
grow gradually, and, as shown in table E-6, 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 held by the public.
Foreign holdings began to grow much faster starting in 1970.
This change arose in part out of decisions by foreign monetary
institutions to intervene in foreign exchange markets. Because 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. Thus, the exchange market
intervention by foreign monetary institutions often acted to increase their official reserves of dollars. U.S. Government securities
are the safest and one of the most liquid forms of holding dollar
assets. Consequently, as foreign countries acquired more dollardenominated official reserves, they purchased a large amount of
U.S. Government securities.
The second principal reason for the growth of foreign holdings
was the massive current account surpluses of some countries, particularly the OPEC nations, beginning in 1974. The counterpart to
their surpluses was their acquisition of financial assets, and the
financial assets acquired in the United States largely took the form
of U.S. Government securities.

SPECIAL ANALYSIS B

B-17

Table E-6. FOREIGN HOLDINGS OF FEDERAL DEBT
(In billions of dollars)
Debt held by the public
Fiscal year

Total

Foreign

Borrowing from the
public
2

Total

Foreign

Interest on debt held
by the public
Total

Foreign

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 4

396.9
480.3
498.3
551.8
610.9
644.6

66.0
69.8
74.6
95.5
121.0
120.3

50.9
82.9
18.0
53.5
59.1
33.6

9.2
3.8
4.9
20.9
25.5
-.7

24.7
28.7
7.6
33.0
39.2
48.3

4.5
4.4
1.2
5.1
7.9
10.8

1980
1981
1982
1983
1984
1985

715.1
794.4
929.4
1,141.8
1,312.6
1,509.9

121.7
130.7
140.6
160.1
175.5
210.2

70.5
79.3
135.0
212.3
170.8
197.3

1.4
9.0
9.9
19.5
15.4
34.7

60.4
78.9
97.7
107.7
129.0
148.1

12.0
16.1
17.9
18.0
19.0
21.2

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
the3 extent that the amount of debt is changed by reclassification. Reclassifications are identified in the footnotes to table E-4.
Estimated by Bureau of Economic Analysis, Department of Commerce. These estimates include small amounts of interest from other sources,
including the debt of Government-sponsored enterprises, which are not part of the Federal Government.
4
A benchmark revision as of December 1978 reduced the estimated foreign holdings of Federal debt. As a result, the data on foreign holdings
for 1965-78 are not fully comparable with the data for later years, and the estimated "borrowing" from foreign residents in 1979 reflects the
benchmark revision as well as transactions in Federal debt securities.
2

Both of these factors were subsequently reversed. Many foreign
countries have drawn down their dollar reserves from time to time
to finance intervention in the foreign exchange market, and the
aggregate OPEC current account surplus shifted into a deficit.
However, these reversals have been more than offset by the large
amount of private capital inflow that has accompanied the appreciation of the dollar and the growing deficit in the U.S. current
account. The net result has been a large increase in holdings of
dollar assets by foreigners, and this is reflected in the further
increase in the Federal debt held by foreigners.
The increase in foreign holdings of U.S. Government securities
since 1970 has therefore been primarily the product of foreign
decisions rather than the direct marketing of these securities to
foreign residents. By the end of fiscal year 1985 foreign holdings of
Treasury debt had reached $210.2 billion, which was 14% of the
total debt held by the public. This was a somewhat smaller proportion of total debt held by the public than during most of the 1970's

A-10

THE BUDGET FOR FISCAL YEAR 1987

and the early 1980's, due to the rapid growth recently in total
Federal debt. Because of the rising interest rates until recent
years, the interest paid on foreign holdings of debt grew faster
than did the foreign holdings themselves over the period as a
whole.
In the years before 1970, when debt held by foreign residents was
relatively small, borrowing from the public was approximately the
same as borrowing from the domestic public. Since 1970, though,
borrowing from the domestic public has in some years been quite
different from total borrowing. As table E-6 shows, borrowing from
foreign residents was nearly all or a major part of total borrowing
from the public during some years of the 1970's. For the period
since 1970 as a whole, borrowing from foreign residents has been
16% of borrowing from the public. This percentage was higher
during the 1970's than the 1980's, however, being 30% in the
earlier period compared to 10% later. In 1985, despite the $34.7
billion purchased by foreign residents, the largest amount in any
year, the total Federal borrowing was so large that foreign purchases equalled only 18% of borrowing from the public. This does
not measure the full impact of the capital inflow on the market for
Federal debt securities, however, since the capital inflow supplied
additional funds to the securities market generally and included
deposits in U.S. financial intermediaries that themselves buy Federal debt.
About three-quarters of the Federal debt held by foreign residents is owned by foreign central banks or other official financial
institutions, and all of it is currently denominated in dollars.
During 1985, however, holdings by private foreign investors grew
especially fast. This was consistent with two related steps taken by
the Government in 1984 that directly made Treasury securities
more attractive to foreign investors. First, the Deficit Reduction
Act repealed the 30% withholding tax on interest paid to nonresident aliens on portfolio debt, which increased the after-tax rate
of return on regular Treasury securities (and also corporate securities) held by foreign investors. Second, the Treasury began to sell
dollar-denominated notes that were targeted to foreign private investors. These notes can be held by foreign financial institutions
without telling the Treasury the identity of the ultimate holder,
provided the institution certifies that the initial purchaser and any
subsequent recipient of interest is not a U.S. person. As of December 31, 1985, $2.5 billion of these notes were outstanding. In addition, during 1985 Treasury began to sell certain notes and bonds
under the STRIPS program (Separate Trading of Registered Interest and Principal on Securities). This enabled investors to buy zerocoupon Treasury securities and has been very attractive to some
private foreign residents.

SPECIAL ANALYSIS B

B-17

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, and
the disbursement of the proceeds from net borrowing is an outlay.
Agency borrowing was shown in total in table E - l and is shown
by agency in table E-7 for 1985-87. In all three years more debt is
repaid than is newly borrowed, and over the period as a whole total
agency debt decreases by $0.5 billion. The agency debt outstanding
is less than 1.0% of gross Federal debt.
As implied by the addendum to table E-7, the amount of agency
borrowing has been profoundly affected by the Federal Financing
Bank (FFB).6 The FFB was created in December 1973 under the
Treasury Department and began financial operations in May 1974.
Its purposes are to assist and coordinate agency borrowing and
guaranteed borrowing and to reduce the cost to the Government of
some of its borrowing operations. It has the authority to purchase
agency debt, to purchase agency loan assets, and, with an agency
guarantee, to make direct loans to the public; in turn, it finances
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.7 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 investment securities market borrowed $1.2
billion from the FFB in 1985 and are estimated to borrow $1.3
billion in 1986 and $0.9 billion in 1987. Because these agencies now
borrow almost exclusively from the FFB instead of the public,
almost no new agency borrowing in the market took place in the
last 11 years or is scheduled to take place in the future. The
change in agency debt outstanding is therefore determined almost
The operations of the FFB are discussed in some detail in Special Analysis F.
7 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 with one exception has been from Treasury, because Treasury can borrow
from the public at slightly lower interest rates than FFB would have to pay and therefore no further FFB
borrowing from the public is planned. However, as explained on page E-29, because of the debt limit problem
the FFB issued $14.2 billion of securities to the civil service retirement and disability trust fund in October and
November 1985. These securities will mature on June 30, 198(5.
6

THE BUDGET FOR FISCAL YEAR 1987

A-10

Table E-7. AGENCY BORROWING 1
(In millions of dollars)
Borrowing or repayment ( - ) of debt
Description

Borrowing from the public:
Agriculture: Farmers Home Administration2
Defense
Education:
College housing loans2
Higher education facilities 2
Health and Human Services, except social security 2 .
Housing and Urban Development:
Federal Housing Administration
Housing for elderly or handicapped2
Government National Mortgage Assoc.2
Revolving fund (liquidating programs) 2
Interior
Transportation: Coast Guard
Small Business Administration2
Veterans Administration2
Export-Import Bank
Postal Service
Tennessee Valley Authority
Total, borrowing from the public..
Borrowing from other funds:
Agriculture: Farmers Home Administration2
Defense
Education:
College housing loans2
Higher education facilities 2
Healtn and Human Services, except social security2
Housing and Urban Development:
Federal Housing Administration
Housing for elderly or handicapped2
Government National Mortgage Assoc.2
Revolving fund (liquidating programs) 2
Small Business Administration2
Veterans Administration2

1985
actual

-74

1987
estimate

1986
estimate

-46

-21

-4
-16

-11

-75
-25

-9
-100

-45

-107

-147

-208

- 1

- 1
- 1

-5
-3

Total, borrowing from other funds..
Total, agency borrowing included in gross Federal
debt

-52
-115

-151

-260

-281

-292

-890

ADDENDUM
Borrowing from Federal Financing Bank:
Export-Import Bank
National Credit Union Central Liquidity FacilityPostal Service
Tennessee Valley Authority
United States Railway Association
Total, agency borrowing from Federal Financing
Bank

-47
603
896
4

1,176

-20
1,228

-22

350

1,248
577
7

1,273

919

* $500 thousand or less.
1
2 Excludes agency borrowing from Treasury.
Certificates of participation in loans issued by the Government National Mortgage Association on behalf of several agencies.

entirely 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 much greater than it is
now. The Treasury component would be correspondingly less.

SPECIAL ANALYSIS B

B-17

By the end of 1987, $1.8 billion of agency debt, or over two-fifths
of the total, will be obligations of two of the five agencies listed in
table E-7 that in recent years have borrowed almost exclusively
from the FFB: the Postal Service and Tennessee Valley Authority.
In contrast, $33.7 billion in debt will be owed to the FFB by these
two agencies together with the Export-Import Bank, which is estimated to have repaid all its borrowings from the public before that
date. A total of $2.0 billion, or one-half of all agency 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-7. These certificates have not been issued since 1968, and those still outstanding
will all mature in 1987 and 1988. A further $15 million of agency
debt will be family housing mortgages assumed by the Department
of Defense under two programs, much the larger of which was
terminated about two decades ago.
The remaining agency debt will have been issued by two agencies
whose borrowing from the public is inherent in the way they
operate certain programs. Both agencies may issue special instruments in lieu of cash as a means of paying specified bills. As a rule,
outlays are recorded when cash is used to pay the Government's bills
for wages and salaries, equipment, social security benefits, etc. In
these two cases, where the payments are instead in the form of
special instruments, outlays are likewise recorded because the payments likewise pay the Government's bills.8 The instruments themselves are classified as agency debt. Neither agency has any occasion
to sell these debt instruments to the FFB.
One of these agencies, the Federal Housing Administration
(FHA), may issue either checks or debentures in paying claims to
the public that arise from defaults on FHA-insured mortgages. The
FHA will have $127 million of debentures outstanding at the end of
1987 (3% of total agency debt). The other agency is the Interior
Department. Under two recently enacted statutes, it is authorized
to acquire certain lands and mineral rights from the public in
exchange for a type of instrument generically termed "monetary
credits." The recipients of monetary credits can use them for specified purposes such as payments for Federal coal or mineral leases.
An estimated $18 million of monetary credits will be outstanding
at the end of 1987.
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
8 The definition of outlays and its relationship to obligations and budget authority are discussed in Part 6b of
the Budget.

A-10

THE BUDGET FOR FISCAL YEAR 1987

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 the figures
on agency borrowing and debt and from the discussion of this
subject both in this special analysis and in all other parts of the
budget documents.
INVESTMENT BY GOVERNMENT ACCOUNTS IN FEDERAL SECURITIES

Trust funds and some public enterprise funds (revolving funds)
accumulate cash in excess of current requirements in order to meet
future claims and demands. These cash surpluses are invested
mostly in Treasury debt and, to a very small extent, in agency
debt. Since this investment is a debt transaction, purchases are not
counted as outlays for the account or for the budget, and redemptions are not counted as receipts.
Net investment by trust funds and other Federal accounts declined from $17.9 billion in 1979 to a range of $8 to $10 billion per
year during 1980-82, due both to recessions and also to structural
problems in social security financing. In 1983, as the result of the
Social Security Amendments of 1983, investment by Government
accounts increased to $22.6 billion, the largest amount ever
reached as of that time; and in 1984 it rose to $24.0 billion. As
shown in table E-7, it increased to $53.5 billion in 1985 and is
estimated to increase further to $80.4 billion in 1986 and then
decrease to $66.9 billion in 1987. The year-to-year change in investment is thus $29.4 billion in 1985, $26.9 billion in 1986, and -$13.5
billion in 1987.
This unusual pattern of investment—extraordinary increases in
1985 and 1986 followed by a sharp decrease in 1987—is primarily
due to two reasons. The first is the effect of the debt limit on the
investment of the civil service retirement and disability trust fund.
The general fund paid $15.4 billion to this trust fund on the last
day of September 1984 as the annual payment to finance the
current year's costs of unfunded liability. This amount would ordinarily have been invested in Federal securities immediately. However, as explained on page E-28, the Federal debt was nearly at the
statutory limit. As a result, about $11.8 billion of this amount could
not be invested on the same day without exceeding the limit, and,
indeed, was not fully invested until the limit was raised by Congress on October 13. Since the end of September was also the end
of the fiscal year, investment by the civil service retirement and
disability trust fund in 1984 was $11.8 billion less than it would
otherwise have been. The counterpart to this was an equal increase
in investment during early 1985 above the amount that would be
normal.

B-17

SPECIAL ANALYSIS B
Table E-8. INVESTMENT BY GOVERNMENT ACCOUNTS IN FEDERAL SECURITIES
(In millions of dollars)
Investment or disinvestment ( Description

Investment in Treasury debt:
Overseas Private Investment Corporation
Defense—Civil: Military retirement trust fund
Energy-. Nuclear waste fund
Health and Human Services:
Federal old-age and survivors insurance trust fund 1
Federal disability insurance trust fund 1
Federal hospital insurance trust fund
Federal supplementary medical insurance trust fund
Housing and Urban Development:
Federal Housing Administration
Government National Mortgage Association
Other
Interior: Outer Continental Shelf deposit funds
Labor: Unemployment trust fund
State: Foreign Service retirement and disability trust fund
Transportation:
Highway trust fund
Airport and airway trust fund
Treasury: Exchange stabilization fund
Environmental Protection Agency: Hazardous response trust
fund
Office of Personnel Management:
Civil Service retirement and disability trust fund
Other trust funds
Veterans Administration-.
National service life insurance trust fund
Other trust funds
Other Federal funds
Federal Deposit Insurance Corp.: Trust fund
Federal Home Loan Bank Board-. FSLIC
National Credit Union Adm.: Share insurance fund
Postal Service fund
Railroad Retirement Board trust funds:
Railroad social security equivalent benefit account
Rail Industry Pension Fund
Other Federal funds
Other trust funds
Other deposit funds 2
Total, investment in Treasury debt ..
Investment in agency debt:
Health and Human Services, except social security:
Federal hospital insurance trust fund
Housing and Urban Development:
Federal Housing Administration
Government National Mortgage Association
Office of Personnel Management: Civil Service retirement and
disability trust fund
Veterans Adm.: National service life insurance trust fund
Federal Home Loan Bank Board.- FSLIC
Total, investment in agency debt..
Total, investment in Federal debt.

1986
estimate

1985
actual

1987
estimate

11,635
1,366

13,311
-25

111

115
15,688
-181

3,744
1,048
4,194

1,620

2,916
2,146
17,481
-382

17,101
-843
12,766
-735

718
312
980
894
4,611
484

1,364
152
-296
-274
3,961
523

1,603
-111
138
699
5,142
404

1,102

718
1,529
154

-8,939
156

400

290

15,449
939

31,221
1,019

20,726
30

336
51
3
1,934
-414
813
85

293
47
-63
1,658
-457
232
548

221
42
-31
1,900
197
267
-1,380

214
921
249
246

271
1,338
144
356

1,030
38
-118

53,461

80,395

66,990

- 5
- 3

- 1
- 3

106

977
-1,170

608

166

- 2

-50

-52

- 7
53,453

80,391

66,938

2,011
45,750
4,792
900

344
75,259
5,062
-274

50,663
16,258
699

MEMORANDUM
Investment
Investment
Investment
Investment
1
2

by
by
by
by

Federal funds
trust funds (on-budget)
off-budget Federal entities (trust funds).
deposit funds 2

Off-budget Federal entity.
Only those deposit funds classified as Government accounts.

-682

A-10

THE BUDGET FOR FISCAL YEAR 1987

The same kind of event occurred at the end of September 1985, as
explained on page E-29. Because of the debt limit, about $13.4 billion
of payments from the general fund and the Postal Service fund could
not be invested that day and were not entirely invested until
November 14. This reduced 1985 investment by $13.4 billion and, as a
counterpart, increased 1986 investment by the same amount.
The net effect of the delayed investment in these two years was to
decrease investment by the civil service retirement and disability
trust fund by $11.8 billion in 1984, to decrease investment by $1.6
billion in 1985, and to increase investment by $13.4 billion in 1986.
The fluctuating year-to-year pattern of the fund is apparent in table
E-7. Thus, the debt limit made the year-to-year change in total
investment by Government accounts very uneven and temporarily
loosened the normally tight relationship between trust fund surpluses and trust fund investment.
The second reason for the unusual pattern of investment by
Government accounts is the proposed disinvestment of the airport
and airway trust fund as of October 1, 1986. The purpose of this
legislative proposal is to recoup the shortfall in the trust fund's use
of its balances during the last four years. This proposal would directly
reduce the trust fund's investment—and the total investment by
Government accounts—by an estimated $8.9 billion in 1987. Like
the effect of the debt limit, this temporarily loosens the usually
tight relationship between the trust fund surplus and trust fund
investment.
The civil service retirement and disability trust fund accounts for
one-third of the estimated investment by Government accounts
during 1985-87, which is substantially more than any other Government account. Among the other accounts, the most important
sources of investment are the military retirement trust fund, which
is responsible for one-fifth of the estimated investment, and the
three trust funds financed by the social security payroll tax, which in
combination are responsible for almost as much as civil service. These
trust funds altogether make 84% of the total estimated investment.
The military retirement trust fund was established in 1985 in
accordance with the defense authorization bill for 1984. The cash
benefits for military retirees will be paid out of the trust fund,
while the costs of the benefits that are currently accruing are paid
to the trust fund from the defense budget. The new trust fund has
put the funding of military pensions on a basis roughly akin to the
funding of Federal pensions for civilian employees. As table E-8
shows, this adds considerably to investment by Government accounts.9
The three trust funds financed by the social security payroll
tax—old-age and survivors insurance (OASI), disability insurance

The military retirement trust fund is explained further in Part (i of the 198(i Budget, pp. (>-40 to (>-43.

SPECIAL ANALYSIS B

B-17

(Dl), and hospital insurance (HI)—had positive net investment as a
whole in 1983 for the first time since 1975. This was due to the
cash resources provided by the Social Security Amendments of
1983. As a result of this act and the improving economy, these
trust funds as a whole continue to run large surpluses and to
invest increasing amounts—a cumulative total of $60.6 billion
during 1985, 1986, and 1987. During 1985 OASI repaid $4.4 billion
that it had borrowed from Dl and HI in 1983, and during 1986 it is
estimated to repay the remaining $13.2 billion. Consequently, the
amounts of investment displayed in table E-8 for the individual
funds during 1985 and 1986 do not reflect the underlying financial
conditions of the respective funds.
As a result of the large investment by these trust funds and the
effect of the lower unemployment rate on the finances of the
unemployment trust fund, total holdings of Federal securities by
Government accounts will reach an estimated $464.9 billion by the
end of 1987. This will comprise 20% of the gross Federal debt. One
major trust fund—the civil service retirement and disability trust
fund—will account for two-fifths of total holdings. All the trust
funds together will account for 95% of the holdings. Nearly all of
the holdings in Government accounts will be Treasury debt, and
the holdings of agency debt will continue to decline by small
amounts.
A comparatively small amount of Federal debt is held by deposit
funds. Deposit funds are amounts held by the Federal Government
as an agent for others (such as State income taxes withheld from
Federal employees' salaries and not yet paid to the States); cash
collections awaiting determination as to their final disposition; and
other sums held temporarily before being refunded or paid into
some other fund. Deposit fund balances are thus not the property
of the Federal Government. Therefore, changes in deposit fund
balances are not included in the budget totals and do not affect the
Federal deficit.
Most deposit funds consist of uninvested balances, but a few
funds are invested in Treasury debt and collect interest on their
investments. Since a deposit fund is not Federal property, its holding of Federal debt is normally treated as debt held by the public
rather than as debt held by a Government account. However, the
investments of three deposit funds are classified as debt held by
Government accounts rather than as debt held by the public. One
of these is a relatively small account. The other two deposit funds
contain receipts from rents and royalties on the Outer Continental
Shelf, the title to which is in dispute between the Federal Government and the States. Until title is settled, these amounts are being
held in deposit funds. The balances of these funds were first invested in Federal debt in 1980. They have continued to acquire funds,

A-10

THE BUDGET FOR FISCAL YEAR 1987

and, as shown in table E-8, they are estimated to hold $7.8 billion
at the end of 1987. The Treasury concluded that the Federal claim
on these receipts is sufficiently strong that it would be more accurate to classify them as Government holdings of Federal debt
rather than as debt held by the public.
Since increases in deposit funds raise Treasury cash balances,
they are a means of financing the Government deficit. When the
deposit funds are not invested in Federal debt, an increase in
deposit fund balances appears as one of the "means of financing
other than borrowing from the public" in table E-3. The increase
in deposit fund balances thus enables Treasury to reduce its borrowing from the public.
When the deposit funds are invested in Federal debt, their treatment depends on whether they are classified as part of the public
or as Government accounts. Under the normal rule, according to
which they are treated as part of the public, deposit fund investment in Federal debt is defined to be borrowing from the public.
The counterpart to the increase in Federal debt held by the public
is a decrease in the deposit fund balances available to finance the
deficit by means other than borrowing from the public. This is
shown as a decrease in the liabilities of the Government for deposit
fund balances in table E-3. The ultimate effect of the increase in
the deposit funds is thus for the Treasury borrowing from the
public to come from the deposit funds rather than from some other
sector of the public, with no net change in the means of financing
other than borrowing from the public.
On the other hand, when deposit funds are classified as Government accounts, the investment of deposit fund balances in Federal
debt is defined to be an increase in debt held by Government
accounts rather than an increase in debt held by the public. Since
the debt held by the public does not increase, this investment does
not reduce the amount of deposit fund balances (as shown in table
E-3) that are available to finance the deficit by means other than
borrowing from the public. This investment does, however, increase
the gross Federal debt and the debt subject to statutory limit (as
shown in table E-10).
LIMITATIONS ON FEDERAL DEBT

Statutory limitations have normally been placed on Federal debt.
Until World War I, the Congress ordinarily authorized a specific
amount of debt for each separate issue. Beginning with the Second
Liberty Bond Act of 1917, however, the nature of the limitation
was modified in several steps until it developed into a ceiling on
the total amount of most Federal debt outstanding. The latter type

SPECIAL ANALYSIS B

B-17

of limitation has been in effect since 1941.10 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 fiscal year 1968 under the Participation Sales Act of
1966; and
• other debt issued by Federal agencies that, according to explicit statute, is guaranteed as to principal and interest by the
United States.
The debt subject to statutory limit 1 1 includes virtually all Treasury debt. The small amount of Treasury debt not subject to limit is
shown in table E-9. 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 participation certificates sold in 1968. These securities comprise nearly
one-third 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. Subsequently, in order to enable TVA to finance additional facilities,
Congress raised the limit several times. It is now $30 billion. The
Postal Service is limited to $10 billion of securities outstanding and
$2 billion of annual borrowing.
The only other debt subject to the general statutory limit is a
very small amount of matured principal and interest. This is not
classified as part of gross Federal debt. To derive the debt subject
to limit from the gross Federal debt also requires a very small
accounting adjustment.
The amount of debt subject to limit is compared in table E-9
with the gross Federal debt and the Federal debt held by the
public. The debt subject to limit was $1,823.8 billion at the end of
1985 and is estimated to rise to $2,317.4 billion by the end of 1987.
As shown in table E-9, 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
1 0 The legislation on the level of the statutory limit since 1940 and the amount of debt subject to statutory
limitation are shown in Historical Tables, Budget of the United States Government, Fiscal Year 1987, section 7.
The legislation beginning in 1917 is shown in Statistical Appendix to Annual Report of the Secretary of the
Treasury on the State of the Finances, Fiscal Year 1980, table 32.
11 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.

THE BUDGET FOR FISCAL YEAR 1987

A-10

Table E-9. 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
Deduct:
Treasury debt not subject to limit
Agency debt not subject to the general limitDepartment of Defense
Department of Interior
Export-Import Bank
Postal Service
Tennessee Valley Authority
Participation certificates1
Coast Guard
Total, Federal debt not subject to limit
Gross Federal debt subject to statutory limit
Other debt subject to limit, and adjustments
Total, debt subject to statutory limit

1986
estimate

1987
estimate

1,509,857
317,612

1,714,008
398,003

1,855,688
464,942

1,827,470

2,112,011

2,320,630

602

83
17
9
250
1,725
1,030
*

37
18

15
18

250
1,625
1,030

250
1,580
830

3,716

3,561

3,295

1,823,754
22

2,108,450
22

2,317,335
22

1,823,775

2,108,471

2,317,356

1985
actual

* $500 thousand or less.
1
Certificates of participation in loans issued by the Government National Mortgage Association on behalf of several agencies (these amounts
exclude the certificates issued during 1968, which are subject to the debt limitation).

Government accounts. 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 level of the statutory limit on the Federal debt has frequently been changed by Congress. During the 1960's Congress passed 13
separate acts to raise the limit or to extend the duration of a
temporary increase in the limit, and during the 1970's Congress
passed 18 such acts. During 1980-85 Congress passed two to four
such acts each year.
These frequent changes have come about both because the Federal debt has grown steadily and substantially and because of the
nature of the debt limit legislation. From 1971 to 1983 the statutory debt limit consisted of a permanent limit of $400 billion plus a
temporary increment that was usually scheduled to expire in a
year or less. Because the debt subject to limit was more than $400
billion, new legislation was required no later than the date when
each temporary increment expired. Several times the temporary
increment expired without having been extended, so for a few days
on each occasion the Federal debt exceeded the statutory limit. The
validity of debt issued prior to the expiration of the temporary
ceiling was not affected, but the Treasury Department had to suspend all auctions of new securities and all sales of savings bonds.

SPECIAL ANALYSIS B

B-17

Such a situation created uncertainty in the securities market and
forced the Treasury to take costly administrative actions.
In May 1983 Congress changed the nature of the debt limitation.
The permanent limit of $400 billion and the temporary increment
to that limit were combined into a single, higher limit without an
expiration date. This prevents the Federal debt from exceeding the
statutory limit, since Treasury would stop issuing new securities
before that event would occur. The new type of limitation does not,
however, avoid the costs of market uncertainty and administrative
actions that formerly arose whenever the debt limit fell to below
the actual level of debt. The same costs arise when the amount of
debt approaches close to the limit and the timing of congressional
action to raise the limit is uncertain. Treasury then has to take
steps to avoid exceeding the limit, and the market is uncertain
what will happen. The principal difference is that under the new
type of limitation Treasury can ordinarily refund maturing securities from the proceeds of selling new securities, since this does not
increase the amount of debt outstanding;12 whereas under the
former type of limitation Treasury had to use up its existing cash
balances to pay off maturing securities once the temporary increment to the debt limit had expired, since it could not sell new
securities at all. In the short time that the new procedure has
operated the debt limit has usually been set at amounts expected
to be reached within a few months, so frequent increases in the
limit still have been needed.
The statutory debt limit was formerly raised only by normal
legislative procedures. In September 1979, however, an alternative
method of enacting debt limits was established by statute. The
purpose of the change was for the House of Representatives to vote
on the debt limit as a part of the congressional budget process. The
congressional budget resolutions establish targets or ceilings for
outlays, receipts, and the deficit and also recommend an appropriate level for the debt subject to limit. The recommendation as to
the appropriate level of debt had not previously had the effect of
law, nor had it been part of the direct process whereby the debt
limit was established.
However, beginning with the resolutions adopted in calendar
year 1980, the budget resolution that is adopted by the Congress
has about half the time been a part of the process that establishes
a debt limit. The vote in the House of Representatives is deemed to
have been a vote in favor of a joint resolution setting the statutory
limit. The joint resolution, having been deemed to have passed the

1 2 However, Treasury cannot refund maturing securities by selling new issues if it does not have sufficient
cash to make its other payments on the same day. This is because the proceeds from selling the new securities
cannot be earmarked for paying off the debt that matures, and under these circumstances Treasury does not
have sufficient cash to meet all of its legal obligations at the same time.

A-10

THE BUDGET FOR FISCAL YEAR 1987

House, is transmitted to the Senate for further legislative action.13
Upon final passage, it is sent to the President for his signature.
This new procedure relates 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. The debt limit may still be changed by
ordinary legislation, with one exception recently imposed by the
Balanced Budget and Emergency Deficit Control Act of 1985 (the
Gramm-Rudman-Hollings Act). It is not in order for either House
to consider a change in the debt limit for a fiscal year until after
the congressional budget resolution for that year has been adopted.
Both methods of changing the debt limit have been used since the
new procedure went into effect.
The statutory debt limit was raised to $1,573 billion by ordinary
legislation on July 6, 1984. This increase was sufficient for fiscal
year 1984, but the Congress did not enact any higher level of debt
limit until after it had completed action on the congressional
budget resolution for 1985. This resolution, which was passed on
September 26, 1984, declared that the appropriate level of debt for
fiscal year 1985 was $1,823.8 billion. This provision was deemed to
have passed the House as a joint resolution as of October 1, 1984,
but was not finally enacted until October 13.
By the time the congressional budget resolution was passed,
Treasury had been unable to fully invest all trust funds on the
intended date. At the beginning of September those receipts of the
social security trust funds (old-age and survivors insurance and
disability insurance) that are normally transferred to these funds at
the beginning of the month were transferred but were not invested
for several days. On the last day of September $15.4 billion was
supposed to have been invested for the civil service retirement and
disability trust fund; during the first days of October investment was
supposed to have been made for the military retirement trust fund,
the social security trust funds, and the supplementary medical
insurance trust fund. The total of all these latter amounts was $38.5
billion, but because of the debt limit most of the investment had to be
delayed. The funds were not fully invested until the debt limit was
increased, and all of them lost interest. During early October the
Treasury also made small changes in its weekly bill auctions because
of the debt limit problem, and two auctions of notes and bonds were
postponed.
The new debt limit was adequate for Treasury's needs through
most of fiscal year 1985. Near the end of that year, on August 1,
1985, the Congress adopted a congressional budget resolution for
fiscal year 1986 containing a provision that declared the appropri1
The Senate has not adopted the same procedure as the House, so the Senate must approve changes in the
debt limit separately from its approval of the congressional budget resolution.

SPECIAL ANALYSIS B

B-17

ate level of debt to be $1,847.8 billion or, as of October 1, $2,078.7
billion. This provision was deemed to have passed the House, but
no further action was immediately taken.
At the beginning of September, Treasury could not fully invest the
receipts of the social security trust funds that are normally transferred
at the beginning of the month, because that would have raised the
amount of debt over the limit. By the end of the month the debt
was still at the limit, social security had been only partially invested further, Treasury had postponed or limited the normal auctions
for some of its securities, and Treasury had not been able to keep
the Exchange Stabilization Fund fully invested. On the last day of
September, $17.4 billion was supposed to have been invested for the
civil service retirement and disability trust fund; during the first
days of October investment was supposed to have been made for
the social security trust funds, the military retirement trust fund,
and the supplementary medical insurance trust fund. The total of
these latter amounts was $42.5 billion, but because of the debt limit
most of the investment had to be delayed, as it had been the year before.
By this time the debt limit bill had become the vehicle for the
Gramm-Rudman-Hollings proposal to eliminate the deficit in a
series of steps over several years. This proposal, which set deficit
targets and created a mechanism to enforce them, was offered as an
amendment to the debt limit bill. This amendment became the
principal issue before the Congress until December 12, 1985, when
the debt limit bill was enacted incorporating a revised version of the
amendment designated the Balanced Budget and Emergency Deficit
Control Act of 1985.
As a result, the amount of debt remained at the limit, and
several extraordinary steps were taken to prevent a default on the
Government's various obligations. The first such step was taken on
October 9, the day after Treasury's cash balance became virtually
exhausted, when use was made of the Federal Financing Bank
(FFB). FFB debt is not subject to be general statutory debt limit, so
Treasury reduced the amount of debt subject to limit by issuing $5
billion of FFB securities to the civil service retirement and disability trust fund in place of Treasury securities. This enabled Treasury to raise $5 billion of cash by selling securities to the public that
were subject to the debt limit. A total of $14.2 billion of FFB
securities was eventually issued to the civil service retirement and
disability trust fund, nearly reaching the FFB's own $15 billion
special limit.14
By the beginning of November further steps were needed in
order for Treasury to finance the outlays for social security and
other purposes that are always very large at the start of the
month. Treasury temporarily reduced the debt held in Government
accounts by disinvesting the social security trust funds, the civil
1 4 These securities have the same interest rates and date of maturity (June 30, 1986) as the Treasury securities
that they replaced.

A-10

THE BUDGET FOR FISCAL YEAR 1987

service retirement and disability trust fund, and the railroad retirement account (i.e., by accelerating the redemption of certain securities they held by up to seven days earlier than normal). This
decreased the debt subject to limit, which enabled Treasury to obtain
cash by selling debt securities to the public that were subject to the
limit.
The next critical problem was large payments due on November
15. Treasury was scheduled to pay $16 billion of cash interest on its
debt but did not have enough cash to do this (on November 14 it
had a cash balance of only $7.3 billion). In addition, $10 billion of
notes were scheduled to mature, and Treasury could not sell new
securities to refund them because the proceeds could not be earmarked for that purpose. Inability to meet its obligations would
have caused an unprecedented default on the interest and principal
of U.S. Government securities. To avoid this, on November 14 the
Congress temporarily raised the debt limit to $1,903.8 billion for
the period ending December 6. Treasury immediately sold sufficient securities to meet its obligations and fully invested all the
trust funds.
By December 5 the debt was at the level of the temporary limit,
so when the limit returned to $1,823.8 billion on December 7 the
amount of debt exceeded the limit. For the next several days
Treasury was forced to postpone its normal auction of bills, to
suspend sales of savings bonds and State and local government
special issues, and to cease investing trust funds. On December 12,
1985, however, the debt bill was enacted, raising the limit to
$2,078.7 billion and including as a separate title the Balanced
Budget and Emergency Deficit Control Act of 1985. Treasury immediately sold securities to the public and fully invested the trust
funds.
The trust funds had lost interest during this period for several
reasons stemming from Treasury's inability to keep them fully
invested. As part of the Balanced Budget and Emergency Deficit
Control Act, the Congress provided that the trust funds be made
whole. The debt securities they held were changed so that they
would be the same as if the debt limit had been enacted before
September, and funds were appropriated to pay the interest they
had lost. The Act also made the social security trust funds whole
for the losses they had incurred as a result of similar circumstances in September and October 1984. Other trust funds were not
made whole for their losses in 1984, however, and no trust fund
was made whole for losses in earlier years. Treasury completed the
required transactions as of December 31, 1985 (except for possible
adjustments later in 1986 that depend on future interest rates). A
total of $494 million was paid to the trust funds, of which $382
million was paid to social security (old-age and survivors insurance
and disability insurance) and $78 million was paid to the civil service

SPECIAL ANALYSIS B

B-17

retirement and disability trust fund. The payment to the social
security trust funds consisted of $373 million to make them whole for
the disruption in calendar year 1984 and $9 million for calendar year
1985.
The new limit of $2,078.7 billion is under the $2,108.5 billion of
debt subject to statutory limit that is estimated to be outstanding
at the end of 1986. Therefore, a further increase in the limit will be
necessary before September 30, 1986, in order for the Federal Government to meet its obligations.
FEDERAL FUNDS FINANCING AND THE CHANGE 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 size of the total deficit of the Federal Government. This is
because the trust fund surplus or deficit, which makes up part of
the total surplus or deficit of the Federal Government, has no
essential effect on the amount of debt that is subject to limit. The
reason is explained below in a discussion that is more technical
than the rest of this special analysis.
The budget consists of two major groups of funds: Federal funds
and trust funds.15 The Federal funds are derived mainly from tax
receipts and borrowing and are used for the general purposes of
the Government. The trust funds, on the other hand, collect certain
taxes and other receipts to be used for specified purposes, such as
paying social security or unemployment insurance benefits. The
social security trust funds (old-age and survivors insurance and
disability insurance) are now excluded from the budget by law and
consequently classified as off-budget Federal entities. The budgetary classification of these trust funds does not affect the following
discussion.
When the Federal funds have a deficit, it must generally be
financed by borrowing. The borrowing is necessary regardless of
whether the trust funds have a surplus. This is because the trust
fund surpluses are mostly invested in securities issued by Federal
funds, and these securities are classified as Federal debt. For instance, if the trust funds receive $1 billion more of tax receipts, the
Treasury needs to sell $1 billion less of debt to the public in order
to obtain cash to finance the Government's outlays; but Treasury also
needs to issue $1 billion more of debt to the trust funds in order to
keep the trust funds fully invested. Therefore, total Federal debt is
unchanged. The trust fund surplus thus does not reduce the need
for the Federal funds to issue debt in order to finance the Federal
funds deficit (even though it does reduce borrowing from the
public).
15

Data for Federal funds and trust funds are presented in Special Analysis C, "Funds in the Budget."

A-10

THE BUDGET FOR FISCAL YEAR 1987

Federal funds borrowing consists almost exclusively of the Treasury selling debt securities that are subject to the statutory limit.
As a result, almost all of the debt that is used to finance the
Federal funds deficit is subject to the statutory limit. While most of
this debt is sold to the public or issued to trust funds, a comparatively small amount is issued to certain Federal revolving funds
and deposit funds.
Table E-10 shows in detail the relationship of the change in debt
subject to limit to the Federal funds deficit. This deficit is an
amount that has to be financed. Some relatively small portion may
be financed by means other than borrowing, such as seigniorage
and a decrease in cash held by Federal funds (however, if the sum
of these other means of financing is negative, then these other
means are a further amount that has to be financed.)16 A small
portion may be financed by certain Federal funds (or certain deposit funds 17 ) selling their holdings of Federal debt. Another small
portion may be financed by certain Federal funds issuing debt that
is not subject to the statutory limit. The remainder of the amount
to be financed can only be financed by selling debt subject to the
statutory limit. This ordinarily comprises most of the total. Thus,
the Federal funds deficit approximately determines the increase in
debt subject to statutory limit.
In 1985, for example, the total Federal funds deficit to be financed was $266.6 billion. The "means of financing other than
borrowing" financed $19.9 billion of this amount, primarily, as
discussed earlier, because of the decrease in Treasury cash balances. Certain Federal funds and deposit funds increased their
holdings of Federal debt by $3.9 billion, which had to be financed
by still further borrowing; and they decreased their debt outstanding that was not subject to limit by $0.1 billion, which had to be
replaced by an equal amount of debt that was subject to limit.
Therefore, a total of $250.8 billion had to be borrowed subject to
the debt limit.
The trust fund surplus, whether on-budget or off-budget, does not
have an explicit effect in table E-10. If the trust fund surplus were
exactly invested in Federal debt securities subject to the statutory
limit, it would have no effect at all on the amount of debt subject
to limit. However, to the extent that trust fund surpluses are
uninvested—i.e., used to increase the trust fund holdings of cash
assets—the debt subject to limit is reduced. This is because the
uninvested balances provide cash that can be used to finance Federal funds outlays without recording an increase in Federal debt.
1 6 The amounts for means of financing other than borrowing exclude the amounts attributable to trust funds.
It is not known how the trust fund open book balances (cash assets not currently invested) are divided between
cash and the grouping labeled "checks outstanding, etc." In table E - 1 0 they are all assumed to be in checks
outstanding, etc.
17 Only those deposit funds classified as Government accounts.

B-17

SPECIAL ANALYSIS B

Table E-10. FEDERAL FUNDS FINANCING AND CHANGE IN DEBT SUBJECT TO STATUTORY LIMIT 1
(In millions of dollars)
Description

Federal funds surplus
or deficit
(—)
Means of financing other
than borrowing:
Decrease or increase
( — ) in Treasury
operating cash balanceIncrease or decrease
( - ) in;
Checks outstanding,
etc 2
Deposit fund
balances3
Seigniorage on coins
Total, means of
financing other
than borrowing..
Decrease or increase ( - )
in Federal debt held by
Federal funds and deposit
funds 4
Increase or decrease ( - )
in Federal funds debt not
subject to limit
Total, requirements for
borrowing
subject to debt
limit
Change in debt subject to
limit but not part of
Federal debt, and in
adjustment
Change in debt subject to
limit
ADDENDUM
Debt subject to statutory
limit

1985 actual

1986 estimate 1987 estimate 1988 estimate 1989 estimate 1990 estimate 1991 estimate

-266,648 -265,794 -218,496 -189,546 -176,420 -157,883 -135,856

13,367

-2,940

3,885

-16,888

9,456

600

300

2,093
516

711
439

-105
544

622

752

837

906

19,861 - 1 8 , 6 7 8

9,895

1,222

1,052

837

506

-835

-3

-2

-1

-3,935

-70

-17

-97

-155

-266

-400

-250,820 -284,696 -208,885 -189,160 - 1 7 5 , 3 7 1 -157,048 -135,351

-20
250,800

284,696

208,885

189,160

175,371

157,048

135,351

1,823,775 2,108,471 2,317,356 2,506,516 2,681,887 2,838,935 2,974,286

* $50 million or less.
1
Several amounts have been assumed to be zero during 1987-91 because they are usually small and cannot be estimated accurately.
Besides checks outstanding, includes accrual of interest payable on Treasury debt, miscellaneous liability accounts, allocations of special
drawing rights, and, as an offset, cash and monetary assets other than the Treasury operating cash balance, miscellaneous asset accounts, and
profit on sale of gold.
3
4 Does not include investment in Federal debt securities by deposit funds classified as part of the public.
Only those deposit funds classified as Government accounts.
2

The increase in uninvested cash assets of the trust funds is recorded in table E-10 as an increase in the liabilities of the Federal
funds for checks outstanding, etc. (i.e., an increase in the liabilities
of Federal funds to trust funds). This increases the "means of
financing other than borrowing" for the Federal funds, which in
turn reduces the requirement for borrowing subject to the statuto-

A-10

THE BUDGET FOR FISCAL YEAR 1987

ry limit. The uninvested cash assets of the trust funds do not
usually change a great deal from year to year, and by law the trust
fund surpluses must generally be invested in Federal debt. Consequently, the effect of the trust fund surplus on debt subject to limit
is normally minor.
As discussed in the two previous sections, however, the investment
of the civil service retirement and disability trust fund was not
normal at the ends of 1984 and 1985, and under proposed legislation
it will not be normal for the airport and airway trust fund in 1987.
The statutory debt limit prevented Treasury from fully investing the
civil service retirement and disability trust fund on the last day of
1984 for the payment that it received that day from the general fund
(part of the Federal funds); and this occurred again on the last day of
1985. As a result, the trust fund's cash balance was abnormally high
by about $11.8 billion at the end of 1984 and about $13.4 billion at the
end of 1985. Consequently, the debt subject to limit at the end of
1984 was $11.8 billion lower than it would have been under normal
circumstances, and the Federal funds deficit was larger than the
increase in debt subject to limit by an additional $11.8 billion. As was
displayed in table E-10 for 1984 (in Special Analysis E for 1986), the
uninvested trust fund surplus raised checks outstanding, etc., by
$11.8 billion, which provided $11.8 billion to finance the Federal
deficit by means other than borrowing.
The full investment of the trust fund occurred by mid-October
1984 and required financing by the issuance of securities subject to
the debt limit. This caused a decrease in checks outstanding, etc.,
by $11.8 billion during fiscal year 1985 compared to the amount it
would have been under normal circumstances. However, the inability of Treasury to fully invest the trust fund on the last day of 1985
provided $13.4 billion to finance the Federal funds deficit by an
increase in checks outstanding, etc., instead of borrowing. Because
of this offset, the net effect of trust fund transactions on checks
outstanding, etc. (and consequently on the means of financing
other than borrowing) was relatively small in 1985. However, this
offset also meant that the amount of debt subject to limit at the
end of 1985 was $13.4 billion less than it would have been under
normal circumstances.
The full investment of this $13.4 billion occurred by mid-November 1985 and required financing by the issuance of securities subject to the debt limit. For fiscal year 1986 this causes a decrease in
checks outstanding, etc., by $13.4 billion from the amount it would
otherwise have been. Thus, as in 1984, the difference between the
Federal funds deficit and the increase in debt subject to limit is
estimated to be abnormally large, but it is in the opposite direction.
The increase in debt is larger than the Federal funds deficit. The

SPECIAL ANALYSIS B

B-17

estimated amount of debt at the end of 1986 is not affected by the
delays in fully investing the civil service retirement and disability
trust fund at the ends of the two previous years.
The proposed disinvestment of the airport and airway trust fund
in 1987 directly reduces the estimated debt subject to limit by $8.9
billion and thereby provides $8.9 billion to finance the Federal
funds deficit by means other than borrowing. As a result, the
increase in debt subject to limit during 1987 is a further $8.9
billion less than the Federal fund deficit.
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 much 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-9, during 1986 and 1987 the debt subject to limit is estimated to
increase by $493.6 billion, whereas the debt held by the public is
estimated to increase by $345.8 billion.
The present analysis helps to demonstrate the difficulty in preventing a continual rise in the Federal debt subject to statutory
limit. Table E-10 shows that the debt subject to statutory limit
may continue to rise even if the total Federal Government deficit
(including both on-budget and off-budget accounts) is exactly zero
and, as a result, the debt held by the public remains constant (as
an approximation, aside from the relatively small effect of the
means of financing other than borrowing). In order for the debt
subject to limit to remain constant, table E-10 shows that (as an
approximation) the Federal funds portion of the budget must be in
balance. If this condition is met, the amount to be financed in table
E-10 is zero, and (as an approximation) the requirements for borrowing subject to the debt limit are zero.
However, the trust funds almost always have a surplus. Therefore, a zero Federal Government deficit would imply that there
would still be a deficit in the Federal funds and, as a result, that
the debt subject to statutory limit would still increase. As a result,
it is more difficult to have a balance in the Federal funds alone
than it is to have a balance for the Government as a whole; and, in
consequence, it is more difficult to prevent a rise in the debt
subject to statutory limit than in the debt held by the public.
This is demonstrated by comparing the estimated financing requirements for 1991 that are shown in tables E-3 and E-10. In 1991
the Federal Government as a whole has a $1.3 billion surplus,
which allows it to repay $2.2 billion of debt held by the public.
Nevertheless, the debt subject to limit increases by $135.4 billion.
The reason is that the Federal funds have a deficit of $135.9 billion.

A-10

THE BUDGET FOR FISCAL YEAR 1987

The Federal Government as a whole is able to have a small surplus
despite the large Federal funds deficit, because the trust funds
have a surplus of $137.2 billion, which is even larger.
The same conclusion can alternatively be illustrated by comparing
the trends in borrowing from the public and borrowing subject to the
debt limit. From 1985 to 1991, Table E-3 shows that borrowing from
the public decreases by $199.5 billion, in line with the movement
from a large total Government deficit to a small surplus. Table E-10
shows, however, that borrowing subject to the debt limit decreases
only by $115.4 billion. This difference of $84.0 billion is mostly
because of an $82.8 billion increase in the trust fund surplus. The
rise in the trust fund surplus reduces borrowing from the public by
an equal amount but does not reduce the need to issue debt subject to
the statutory limit.
This analysis also applies to the difficulty in preventing a continual rise in the gross Federal debt. Gross Federal debt is nearly the
same as debt subject to statutory limit, as explained in the previous section. Therefore, in order to prevent a continual rise in gross
Federal debt, the Federal funds portion of the budget must be in
balance (as an approximation).
FEDERALLY ASSISTED BORROWING

The effect of the Government on borrowing in the credit market
arises not only from its own borrowing to finance Federal operations but also from its assistance to certain borrowing by the
public. Federally assisted borrowing is of two principal types: Government-guaranteed borrowing, and borrowing by Governmentsponsored enterprises.
Guaranteed borrowing is another term for guaranteed lending. It
consists of loans for which the Federal Government guarantees (or
insures) the payment of the principal and/or interest in whole or
in part. Guaranteed 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 institutional lender, or it may be a
security sold in the capital market.
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 loan guarantees is to support housing, but they are
also used for many other purposes. As shown subsequently in table
E-12, primary guaranteed borrowing (which excludes double counting) was $21.6 billion in 1985 and is estimated to be $40.2 billion in
1986 and $30.8 billion in 1987. Special Analysis F, "Federal Credit
Programs," presents detailed data on guaranteed loans and estimates the subsidies that are provided by loan guarantees.

SPECIAL ANALYSIS B

B-17

The other type of federally assisted borrowing is borrowing by
Government-sponsored enterprises, which are discussed in more
detail in Special Analysis F. These enterprises were established
and chartered by the 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.18 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 financial
intermediaries. They borrow in the securities market and lend
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, the Federal Home Loan Banks, and the
Student Loan Marketing Association (SLMA) are required to obtain
Treasury approval of the terms and timing of specific offerings.
SLMA borrowed exclusively from the Federal Financing Bank from
the time of FFB's establishment until May 1981.19 SLMA now
borrows new funds from the public, without any guarantee. The
three enterprises regulated by the Farm Credit Administration—
the Banks for Cooperatives, Federal Intermediate Credit Banks,
and Federal Land Banks—borrow by issuing consolidated Farm
Credit bonds and notes rather than securities under their separate
names.
Government sponsorship of these enterprises has given them
various direct benefits. These benefits differ from one enterprise to
another and from one type of debt security to another. In most
cases, but not all, they include such advantages as the following:
their debt securities can be held by federally regulated financial
institutions in a number of cases where other private securities or
State and local securities are not eligible; they are exempt from
Federal, State, and local income taxation; the interest on their debt
securities is exempt from State and local income taxation; and
some of them have lines of credit with the Federal Government
18 Report of the President's Commission on Budget Concepts (Washington: U.S. Government Printing Office,
1967), pp. 29-30.
1 9 SLMA was the only Government-sponsored enterprise whose new securities could be guaranteed by the
Government and therefore bought by the FFB. The Secretary of Education had authority to guarantee SLMA
securities issued prior to October 1, 1984.

A-10

THE BUDGET FOR FISCAL YEAR 1987

that range up to $4 billion. Because of these specific advantages
and the overall Federal sponsorship, the enterprises are perceived
by the securities market to have a special relationship with the
Federal Government. As a result, and despite the absence of Federal guarantees, the Government-sponsored enterprises borrow at
lower interest rates than they would otherwise have to pay.
In consequence of these privileges, the budget proposes that fees
be imposed on new borrowings (including mortgage-backed securities) of the Government-sponsored enterprises. With certain qualifications, the fee is to apply annually to the net new securities
issued after 1986. Depending on the particular Government-sponsored enterprise and the type of security, the rate is to range from
0.01% to 0.10% in 1987 and is thereafter to rise in a number of
steps to a range of 0.10-0.50%.
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
1986-87 are not necessarily the same as the Administration's economic forecast, which is used for the budget. In order to show the
borrowing by this sector as a whole from the rest of the market,
the total borrowing figures in table E - l l 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 repaying its debt to the Federal Home Loan
Banks.
Borrowing by Government-sponsored enterprises has risen to
much higher levels in the last few years than it was before. Until
1978 the largest amount of borrowing by this sector as a whole had
been $14.9 billion in 1974. Borrowing increased sharply to $24 to
$27 billion during 1978-80, however, and then expanded with only
one interruption to $49.7 billion in 1984. Borrowing increased significantly again in 1985, reaching $64.1 billion. The Governmentsponsored enterprises estimate that it will average $67.5 billion
during 1986-87.
The major Government-sponsored borrowers during 1984-87 are
the two enterprises that borrow in order to support housing
through the purchase of mortgages: the Federal National Mortgage
Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). In 1984 they borrowed $31.2 billion altogether;
during 1985-87 they borrowed or are estimated to borrow a steady
$55 to $59 billion each year. This is 87% of total Governmentsponsored borrowing. These high levels of borrowing and lending
are primarily being carried out through their programs of mortgage-backed securities. Both of these programs purchase conventional mortgages and finance the purchases by packaging the mortgages into pools and selling participation certificates in the pools to

B-17

SPECIAL ANALYSIS B
Table E - l l . BORROWING BY GOVERNMENT-SPONSORED ENTERPRISES
(In millions of dollars)
Borrowing or repayment ( - )
Description

1984
actual

Total
Less increase in holdings of debt issued by Government-sponsored enterprises

1986
estimate

1987
estimate

Debt
outstanding
end 1987
estimate

1,774

2,671

2,465

2,741

17,876

17,934

27,451

22,110

25,562

188,134

159
-688
739

-258
-2,745
-1,382

19
-2,318
-2,161

457
-743
-2,029

8,542
12,461
42,059

15,633
13,269

6,168
31,581

11,426
36,813

11,000
29,222

96,000
171,850

48,820

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 by
sored enterprises

1985
actual

63,486

68,355

66,209

536,923

-865

-626

-84

-298

1,051

49,686

64,112

68,439

66,507

535,872

Government-spon-

The debt represented by consolidated notes and bonds is attributed to the respective Farm Credit banks.

the public. By the end of 1987, FNMA and FHLMC are estimated
to have raised their combined share of total Government-sponsored
debt from 42% in 1980 to 67%.
Although the borrowing by FNMA and FHLMC is currently
dominant in the Government-sponsored sector, the borrowing by
the Federal Home Loan Banks is also very large. They are estimated to continue increasing their debt in order to finance loans to
savings and loan associations and other thrift institutions, nearly
doubling their debt outstanding during 1984-87. Their operations
also support the housing sector. In contrast, the three Governmentsponsored enterprises that comprise the Farm Credit System—the
Banks for Cooperatives, the Federal Intermediate Credit Banks,
and the Federal Land Banks—contracted their net lending and
borrowing in 1985 and, as a group, are estimated to contract it
further in 1986 and 1987. This reflects in part the current economic
difficulties of the farm sector.
The Federal Government provides a different kind of assistance
to State and local government borrowing than it does to other
borrowers through loan guarantees and Government-sponsored enterprises. It exempts the interest on State and local debt from
Federal income tax. This reduces the interest rate these governments have to pay and thereby encourages them to borrow larger
amounts. Tax exemption has also been extended to certain bonds
nominally issued by a State or local government to raise funds for
private purposes. These private purpose bonds, such as industrial
development bonds, now comprise over half of all new long-term,

A-10

THE BUDGET FOR FISCAL YEAR 1987

tax-exempt issues. In 1985 the total tax-exempt borrowing (net of
repayments) estimated in the Federal Reserve flow-of-funds accounts was $108.2 billion. In its tax reform proposals, the Administration has recommended removing the tax exemption of most
newly issued private purpose bonds. Tax-exempt borrowing is discussed further in Special Analysis F, "Federal Credit Programs/'
and, from a different perspective, in Special Analysis G, "Tax
Expenditures/'
TOTAL FEDERAL AND FEDERALLY ASSISTED BORROWING

Table E-12 summarizes 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 as total amounts for the sector as a whole
and as net amounts. The net amounts contain adjustments that
were made 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 Governmentsponsored enterprise bought (or sold) a Federal or federally assisted
debt security. This is because borrowing would occur both when the
security was initially sold and when the Federal agency or Government-sponsored enterprise borrowed in order to finance its purchase.
Federal borrowing from the public to finance the deficit dominates the total of Federal and federally assisted borrowing each
year during 1985-87. Federal borrowing comprises 66% of the total
for the whole period, with the share declining from 71% in 1985 to
60% in 1987. This decrease is due to both a decrease in Federal
borrowing and an increase in federally assisted borrowing. At the
end of 1987 Federal debt held by the public is 66% of the total
Federal and federally assisted debt outstanding.
The following chart depicts the trends in Federal and federally
assisted borrowing from 1966 to 1987. The series are volatile, and the
fluctuations are usually dominated by Federal borrowing, which is
driven primarily by the Federal deficit. The fluctuations in the
Federal deficit, in turn, are strongly related to the pattern of
recession and recovery. Total Federal and federally assisted borrowing increased steadily and substantially from $80.8 billion in 1979 to
$280.5 billion in 1983. With a subsequent reduction in the defict and
with federally assisted borrowing not rising very much, the total was
lower in 1984 and 1985. However, the significant increases estimated
in both guaranteed and Government-sponsored borrowing in 1986,
together with a small rise in Federal borrowing, are estimated to
produce a record $312.2 billion of Federal and federally assisted
borrowing in 1986. In 1987, though, sharp decreases in Federal and

B-17

SPECIAL ANALYSIS B

guaranteed borrowing are estimated to reduce the total by $74.4
billion or 24%.
Table E-12. NET BORROWING BY GOVERNMENT, GOVERNMENT-GUARANTEED BORROWERS, AND
GOVERNMENT-SPONSORED ENTERPRISES
(In billions of dollars)
Borrowing or repayment ( - )
Description

Federal borrowing from the public 1
(net) 2 3

Guaranteed borrowing
Less increase in guaranteed loans held by Federal agencies: 3
Government National Mortgage Association
Primary guaranteed borrowing4
Borrowing by Government-sponsored enterprises5
Less increase in holdings of Federal debt
Less increase in Government-sponsored debt held by Federal
agencies:
Federal Financing Bank
Tennessee Valley Authority
Less increase in holdings of guaranteed loans:
Student Loan Marketing Association6
Federal National Mortgage Association
Farm Credit Banks
Federal Home Loan Banks
Federal Home Loan Mortgage Corporation
Net Government-sponsored borrowing
Total, Federal and federally assisted borrowing

1985
actual

1986
estimate

1987
estimate

Debt
outstanding
end 1987
estimate

197.3

204.2

141.7

1,855.7

20.8

39.5

30.2

481.8

-.7

-.6

21.6

40.2

30.8

481.4

64.1
.5

68.4
-.6

66.5
-.1

535.9
2.1

_ *

5.0
.1

2.6
- 1 . 5*
_

.8
1.0

2.4
-1.6
.1
.4
-.1

.3
-.1

11.6
28.0
.1
3.1
1.7

57.9

67.9

65.3

484.2

276.7

312.2

237.8

2,821.3

2.1
1.8

* $50 million or less.
1
2 See table E-l.
"Guaranteed-borrowing (net)" is the same as "guaranteed loans (net)" in table F-20 of Special Analysis F. To avoid double counting, it is
calculated net of guarantees of loans previously guaranteed and guarantees of Federal agency debt.
3
4 The increase in guaranteed loans held by the FFB is netted out in deriving guaranteed borrowing (net).
5 "Primary guaranteed borrowing" in this table is the same as "primary guaranteed loans" in table F-20.
6 From table E-ll.
The increase in holdings of guaranteed loans by the Student Loan Marketing Association is subtracted out on this line only to the extent that
SLMA borrows from the public. To the extent that SLMA borrows from the FFB, the increase in holdings of guaranteed loans is ultimately
financed by Federal borrowing and the loans are therefore classified as direct loans rather than guaranteed loans. This amount is subtracted out
above as an increase in Government-sponsored debt held by Federal agencies.

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 borrowed by the non-financial sector in the credit market. However,
total Federal and federally assisted borrowing has increased as a
proportion of the total funds borrowed. This proportion increased
from 17% during 1960-69 to 21% during the first half of the 1970's
and 27% during the second half. During 1980-85 the proportion
was higher still, averaging 41%. Thus, Government programs have
recently been a larger proportion of funds borrowed in credit markets than they were in the preceding years. However, in 1984 and
1985 the proportion (36% in both years) was down sharply from the
proportions in 1982 (50%) and 1983 (55%). This result, and the

A-10

THE BUDGET FOR FISCAL YEAR 1987

Federal and Federally Assisted Borrowing
$ Billions
350

$ Billions
350

1966

Fiscal Years

Estimate

estimated decrease of Federal and federally assisted borrowing in
1987, suggest that the upward trend of relative Federal participation
in the credit market may no longer be continuing.

B-17

SPECIAL ANALYSIS B
Table 6. FEDERAL GOVERNMENT FINANCING AND DEBT
(In billions of dollars)

FINANCING
1985 actual

Surplus or deficit ( - )
On-budget
Off-budget
Means of financing other
than borrowing from the
public:
Decrease or increase
( - ) in Treasury
operating cash balanceIncrease or decrease
( - ) in;
Checks outstanding,
etc. 1
Deposit fund balances....
Seigniorage on coins
Total, means of
financing other
than borrowing
from the public
Total, requirements
for borrowing
from the public
Change in debt held by
the public

Estimate
1987

1986

1988

1989

1990

-212.3
-202.8
-143.6
-93.6
-67.5
(-221.6) (-216.0) (-159.3) (-126.8) (-111.3)
(9.4)
(13.2)
(15.7)
(33.2)
(43.8)

1991

-35.8
(-90.1)
(54.4)

1.3
(-65.6)
(67.0)

13.4

-2.9

-1.0
2.1
.5

.4
.7
.4

1.5
-.1
.5

15.0

-1.4

2.0

-197.3

-204.2

-141.7

-93.0

-66.8

-34.9

2.2

197.3

204.2

141.7

93.0

66.8

34.9

2.2

DEBT, END OF YEAR
Gross Federal debt:
Debt issued by Treasury
Debt issued by other
agencies
Total, gross Federal
debt
Held by:
Government accounts
The public
Federal Reserve
System
Others

1,823.1

2,107.8

2,316.7

2,507.0

2,682.3

2,839.4

2,974.7

4.4

4.2

4.0

2.0

1,827.5

2,112.0

2,320.6

2,509.0

2,684.3

2,841.4

2,976.7

317.6
1,509.9

398.0
1,714.0

464.9
1,855.7

560.3
1,948.7

668.9
2,015.4

791.0
2,050.3

928.6
2,048.1

169.8
1,340.1

THE BUDGET FOR FISCAL YEAR 1987

A-10

Table 6. FEDERAL GOVERNMENT FINANCING AND DEBT—Continued
(In billions of dollars)

DEBT SUBJECT TO STATUTORY LIMITATION, END OF YEAR
1985 actual

Debt issued by Treasury
Treasury debt not subject to
limitation ( - )
Agency debt subject to
limitation
Total, debt
subject to
statutory
limitation 2
1

Estimate
1986

1987

1988

1989

1990

1991

1,823.1

2,107.8

2,316.7

2,507.0

2,682.3

2,839.4

2,974.7

-.6

1.3

1,823.8

2,108.5

2,317.4

2,506.5

2,681.9

2,838.9

2,974.3

Besides checks outstanding, includes accrued interest payable on Treasury debt, miscellaneous liability accounts, allocations of special drawing
rights, and, as an offset, cash and monetary assets other than the Treasury operating cash balance, miscellaneous asset accounts, and profit on
sale of gold.
2
The statutory debt limit is $2,078.7 billion (Public Law 99-177).

SPECIAL ANALYSIS F
TABLE OF CONTENTS

Page

I. Introduction

F-3

II. Controlling Federal Credit Programs

F-5

III. The Credit Budget

F-7

A. Credit Budget Concepts

F-7

B. Appropriation Act Limitations

F-9

C. Impact of Gramm-Rudman-Hollings

F-14

D. Direct Loans

F-14

E. Loan Guarantees

F-18

IV. Government-Sponsored Enterprises.

F-21

V. Changes in the Quantity and Price of Federal Credit

F-28

VI. Federal Credit Subsidies

F-31

VII. Defaults

F-38

VIII. Federal Financing Bank

F-40

IX. Loan Asset Sales and Repurchases

F-42

X. Contingent Liabilities

F-43

XI. Federal Deposit Insurance

F-46

XII. Leasing

F-47

XIII. Tax-Exempt Credit

F-48

XIV. Summary

F-53

X V . Appendix

F-53

F-1

TABLES AND CHARTS

Page

Chart F - l Total Federal Credit Budget
F-4
Table F - l Contingent Liability for Guaranteed Loans Outstanding
F-8
Table F - 2 The Credit Budget Totals
F-9
Table F - 3 Credit Budget Programs Subject to and Exempt from Appropriation Act Limitation
F-10
Table F - 4 Credit Appropriation Act Limitations
F-12
Chart F - 2 Used and Unused Balance of Enacted Limitations—Eximbank
F-ll
Table F - 5 Comparison of Requested and Enacted Limitations with Actual
Loan Levels for Selected Programs
F-l3
Table F - 6 Summary of Direct Loan Transactions
F-15
Table F-7 Summary of Primary Guaranteed Loan Transactions
F-20
Table F - 8 Summary of Lending and Borrowing by Government-Sponsored
Enterprises
F-22
Chart F - 3 Government-Sponsored Enterprises and A-Rated Bonds: Spread
Above Treasuries
F-23
Table F - 9 Benefits Enjoyed by Government-Sponsored Enterprises
F-23
Chart F - 4 Federal Participation in Domestic Credit Markets
F-30
Table F-10 Summary of Outstanding Federal and Federally Assisted Credit.. F-31
Table F - l l Subsidy Values of 1985 Direct Loan Obligations
F-33
Table F-12 Subsidy Values of 1985 Guaranteed Loan Commitments
F-36
Table F - l 3 Direct Loan Write-offs and Guaranteed Loan Commitments
F-39
Table F - l 4 Summary of Federal Financing Bank Activity
F-41
Table F-15 Loan Asset Sales and Repurchases
F-44
Table F-16 Contingent Liabilities
F-45
Table F-17 Federal Deposit Insurance
F-46
Table F-18 Tax-Exempt Financing
F-52
Table F - l 9 Direct Loan Transactions
F-55
Table F-20 Guaranteed Loan Transactions
F-67
Table F-21 Lending and Borrowing by Government-Sponsored Enterprises.... F-73
Table F-22 Federal Financing Bank Acquisitions
F-76
Table F-23 Federal Participation in Domestic Credit Markets
F-80
F-2

SPECIAL ANALYSIS E
FEDERAL

CREDIT

PROGRAMS

I. INTRODUCTION

The Federal Government is the Nation's largest financial intermediary. At the end of 1985, it held $257 billion in its loan portfolio, which was about 30% larger than the loan assets of the two
largest U.S. commercial banks combined. The Federal Government
also had guaranteed loans with an outstanding balance of $410
billion at the end of 1985. Through direct loans and loan guarantees, the Federal Government allocates credit and credit subsidies
to farmers, homeowners, small businesses, exporters, utilities, shipbuilders, and State, local, and foreign governments. Until this administration, the volume of new credit offered by the Government
had grown substantially for 15 years. The following chart compares
the pattern of growth over that period with the most recent patterns and the estimates of future growth through 1991.1
Federal credit is designed to meet various social or economic
goals that, for whatever reason, the private sector does not meet.
Meeting these goals may entail the provision of a subsidy to a
favored borrower or the correction of a perceived capital market
imperfection. The problems in directing or controlling Federal
credit are enormous and systemic.
The discipline that the private market would impose on private
financial intermediaries is absent. The discipline that the budget
process imposes on most Federal agencies is not fully effective in
controlling Federal credit programs. The Federal credit budget,
while an improvement over sole reliance on the unified budget for
credit programs, does not capture explicitly the most important
aspect of Federal credit—the economic subsidy offered to favored
borrowers. Moreover, Federal credit programs are not immune
from the credit quality problems suffered by private intermediaries
in lending to homeowners, farmers and some foreign governments.
The Federal Government's disproportionately high share of the
loans owed by these groups, and its role as lender of last resort to
poor credit risks, means that it endures losses that would bankrupt
a private financial institution of the same size. These losses are
ultimately borne by taxpayers.
1

See also the Economic Report of the President, Chapter 6 "Credit Markets."

F-3

THE BUDGET FOR FISCAL YEAR 1987

A-10

Total Federal Credrt Budget
$ BIfllons

Fiscal

$ BttHons

fars

&Hmate

This analysis provides estimates of the subsidies provided by
direct loan and loan guarantee programs in Tables F - l l and F-12.
These estimates compare the interest rates, loan fees, maturities,
and repayment schedules of Federal direct and guaranteed loans to
the terms of an alternative private loan in order to estimate the
Federal subsidy. This information will allow the Congress and Federal agencies to make better decisions about credit programs. These
estimates, which are conservative, show that subsidies for direct
loans obligated in 1985 were $9.8 billion and subsidies for guaranteed loan commitments in 1985 were $6.1 billion. Comparable estimates for 1986 are $9.2 billion and $6.2 billion; for 1987, they are
$7.1 billion and $5.1 billion. The economic costs of these subsidies
should be compared to the benefits of Federal credit programs to
evaluate the worth of the programs.
This special analysis presents basic information on the broad
spectrum of Government credit programs and policies from 1985
through 1991. It describes recent credit policy, and explains the
credit budget and its relationship to appropriation act limitations
on direct loan obligations and guaranteed loan commitments and
discusses the impact of the Balanced Budget and Emergency Defl-

SPECIAL ANALYSIS B

B-17

cit Control Act of 1985, commonly known as Gramm-Rudman-Hollings (GRH). It describes the credit activity of Government-sponsored enterprises (GSEs), and presents in detail the direct loans
and guaranteed loans of the Federal Government. It also discusses
trends in Federal credit, Federal credit subsidies, and other special
topics. This special analysis supplements the credit data and discussions found elsewhere in the budget documents (see Appendix A
of this analysis).
II. CONTROLLING FEDERAL CREDIT PROGRAMS

Comparisons with private financial intermediaries.—The objec-

tives of Federal credit programs are different from those of private
financial institutions. The purpose is to offer terms and conditions
to selected borrowers that are more favorable than those otherwise
available from private lenders. Compared to fully private loans,
these terms and conditions may include lower interest rates or loan
guarantee fees, less stringent credit risk thresholds in making
credit available, or more generous grace periods or repayment
schedules. Legislation frequently defines the eligible pool of applicants, specifies the lending terms that an agency or program may
offer, and otherwise restricts the discretion of Federal program
managers in a manner that never occurs for private lenders.
In addition to these differences in purpose, there are also differences in procedures between public and private financial intermediaries. Unlike a private financial intermediary, a Federal direct
loan or loan guarantee program has no standard measure of performance, such as profit, for assessing its success. Federal credit
programs were created to subsidize favored borrowers to varying
degrees. Therefore, net income does not measure success. In many
cases, income is not even measured correctly since there is no welldefined cost of capital for credit programs. The lack of a measurement tool creates large difficulties in efficiently allocating resources to Federal credit (and noncredit) programs.
Moreover, the norms of the marketplace that restrict the growth
and size of private lenders do not apply to Federal credit programs.
Unlike commercial banks, Federal agencies need not worry about
constraints on the volume or quality of new lending imposed by the
inadequacy of primary capital. Federal agencies can continue to
lend even if they have little or no equity. Federal lending agencies
need not be concerned with the standards imposed on private
banks by Federal regulatory agencies for assessing and reporting
on the quality of loan portfolios. This makes alternative forms of
discipline all the more important if Federal credit is to be directed
in the most efficient manner.

A-10

THE BUDGET FOR FISCAL YEAR 1987

The unified budget.—The unified budget, with its focus on budget
authority, outlays, and receipts, is an incomplete mechanism for
controlling Federal credit programs. First, it was not designed to
measure the full volume of new credit extended for direct loans.
The largest direct loan programs are financed by revolving funds
in which repayments on existing loans offset disbursements for
new direct loans. Congressional appropriations of budget authority
for these revolving funds are generally only necessary when new
disbursements exceed repayments. Thus, the unified budget cannot
directly control the amount of new direct loans extended.
Second, guaranteed loan commitments 2 were excluded when the
unified budget was established in 1967 and are specifically excluded from the definition of budget authority by the Congressional
Budget Act of 1974. The reason for the exclusion is that the loan
guarantee, by itself, does not affect budget outlays and the deficit.
The loan guarantee is only a contingent liability of the Government. However, by assuming that contingent liability, the Government induces lenders to invest in particular loans, and thereby
allocates capital for federally determined purposes. In this manner,
a guaranteed loan commitment may provide as large a subsidy and
redirect capital as effectively as a direct loan obligation.
A third important shortcoming of the unified budget for credit
programs is that it neither measures nor controls the most salient
aspect of Federal credit—the size of the subsidy offered the borrower. Since a primary purpose of Federal credit programs is to provide borrowers with a subsidy, this is a serious omission in effective
budgetary control. Without some means of measuring and controlling this subsidy, neither the executive branch nor the Congress
can make informed decisions about Federal credit programs, either
in comparing one with the other, or in comparing them with noncredit expenditure programs.
The Federal credit budget.—In January 1980, a significant step in
redressing some of the inadequacies of the unified budget was
made with the introduction of the Federal credit budget. The Federal credit budget measures the direct loan obligations and guaranteed loan commitments, and, through the use of language in appropriation acts, limits these credit activities. Although it is a step
forward, the credit budget does not restrain the total volume of
Federal credit effectively. Only about 55% of the credit budget
totals for 1985 were capped by appropriation act limitations. Moreover, the credit budget does not measure the subsidy costs, nor does
it place any direct restriction on the level of subsidy that a program offers the borrower.
2 Guaranteed loan commitments are synonymous with loan guarantee commitments, the term used by
Congress.

SPECIAL ANALYSIS B

B-17

OMB Circular No. A-70.—One means of controlling Federal
credit more effectively is to control the price at which it is offered
to the public. As a step toward this goal, the Office of Management
and Budget (OMB) reissued Circular No. A-70, "Policies and Guidelines for Federal Credit Programs," on August 24, 1984. OMB circulars are directives that are binding upon the executive agencies as
a matter of Presidential policy and are generally enforceable
through administrative procedures. Circular A-70 was approved by
the President prior to its release.
The A-70 guidelines apply to proposed and existing Federal
direct loan and loan guarantee programs. The guidelines place two
sets of requirements on agencies. The first is to provide information on the costs and benefits of Federal credit programs. This
includes, for example, estimates of the credit available from relevant private financial institutions, subsidies, and net default costs.
The second is to require agencies to propose new legislation or
policies for credit programs that are consistent with sound credit
policies. Should current legislation not permit this, agencies are
generally required to prepare proposals to change that legislation
so the programs will conform to A-70 guidelines.
A second OMB circular, No. A-129, "Managing Federal Credit
Programs," expands on many of A-70's principles. It contains comprehensive guidance on servicing and collecting all Government
receivables, including those arising from direct and guaranteed
loans, grants and contracts. It also prescribes policies and standards encompassing credit extension, write-off and close-out of accounts, as well as overall credit program management, accounting
and reporting.
The administration has focused on directing agency implementation of the requirements of the Debt Collection Act and OMB credit
policies. This focus helps ensure that all financial assistance programs are administered according to consistent credit and management policy standards, which will result in improved collections
and reduced delinquencies.
III. THE CREDIT BUDGET
A . CREDIT BUDGET CONCEPTS

The credit budget is the annual measure of direct loan obligations and guaranteed loan commitments. It is the sum of the credit
authority offered by the Federal Government. The credit budget is
based on three concepts. First, it is intended to measure new credit
at the point that the Government legally contracts to provide a
loan or a loan guarantee. Usually, this is when a loan agreement
or loan guarantee agreement is signed. The credit budget does not
measure the tentative or preliminary offers of credit assistance

THE BUDGET FOR FISCAL YEAR 1987

A-10

that Government agencies may make prior to the loan or loan
guarantee contract, nor does it measure the subsequent acts of loan
disbursements, either by the Federal agency or by the guaranteed
private lender.
Second, the credit budget reflects all new offers of credit. Credit
authority is measured on a gross basis and does not reflect repayments of loans. This concept differs from the unified budget where
budget authority is required only when collections are insufficient
to finance new budgetary obligations. The concept of credit authority is necessary because subsidies are provided to all new recipients
of direct loans and loan guarantees, regardless of the extent to
which borrowers are repaying other loans previously made.
Third, guaranteed loan commitments are measured as the full
principal of the loan, even if the Government's contingent liability
is less than the full loan principal. The full principal is included in
the commitment because the entire loan, even if only partially
guaranteed, is assisted by the guarantee. Moreover, in some programs that offer partial guarantees, the private lender is at risk
only when the value of the collateral and the guarantee combined
are less than the full loan principal.
There are a number of programs in which less than the full
principal of the loan is guaranteed. The major agency that nominally offers guarantees significantly below full loan principal is the
Veterans Administration.3 In the aggregate, of the $410 billion of
guaranteed loans outstanding in 1985, the Government's contingent
liability was $333 billion or 81%. Excluding the VA, the contingent
liability was $273 billion for $280 billion of guaranteed loans outstanding, or 97%.
The contingent liability and full principal of all guaranteed loans
outstanding are shown in Table F-1.
Table F-1. CONTINGENT LIABILITY FOR GUARANTEED LOANS OUTSTANDING
(In millions of dollars)
1985 actual

Veterans Administration mortgage guarantees:
Contingent liability
Full principal
All other loan guarantee programs:
Contingent liability
Full principal
Total outstanding:
Contingent liability
Full principal

1986 estimate

1987 estimate

60,080
130,591

62,772
136,392

66,425
144,325

272,680
279,851

306,440
314,224

328,434
337,087

332,760
410,442

369,212
450,616

394,859
481,412

3 The contingent liability for VA guarantees is the first 60% of the mortgage amount, to a maximum of
$27,500. The legislation providing the guarantee effectively turns the guarantee into a 100% guarantee in most
cases because the lender's loss on foreclosure seldom exceeds 60% of the mortgage amount.

B-17

SPECIAL ANALYSIS B

The credit budget totals.—Table F-2 provides the credit budget
totals for 1983 through 1988. It also shows the six largest direct
loan programs and loan guarantee programs.
Table F-2. THE CREDIT BUDGET TOTALS
(In billions of dollars)
1983
actual

Direct loan obligations-.
Commodity Credit Corporation
Farmers Home Administration
Rural Electrification Administration
Foreign military sales
Export-Import Bank
Low-rent public housing
All other

1984
actual

1985
actual

1986
estimate

1987
estimate

1988
estimate

13.9
6.7
4.5
5.1
0.8
0.2
10.2

5.5
7.2
2.1
5.7
1.5
1.4
15.7

10.4
7.9
4.0
4.9
0.7
14.1
10.8

16.6
5.0
3.4
5.0
1.1
1.5
9.0

11.5
1.5
2.4
5.7

10.9
1.0
1.9
5.8

1.7
7.8

1.1
7.3

41.4

39.1

52.8

41.6

30.6

28.0

Guaranteed loan commitments:
Federal Housing Administration
Low rent public housing
Guaranteed student loans
Veterans Administration housing
Export-Import Bank
Commodity Credit Corporation
All other

44.6
14.3
7.3
14.7
8.5
4.7
3.1

17.1
13.7
7.6
16.5
7.1
4.2
4.6

47.4

49.3

37.2

8.9
12.1
7.8
2.7
5.8

9.3
12.3
11.5
5.3
6.1

9.8
14.7
12.0
3.0
3.1

11.4
14.6
12.0
3.0
3.5

Total commitments 2

97.2

70.8

84.7

93.8

79.8

81.7

138.6

109.9

137.6

135.5

110.3

109.7

64.2

39.7

54.6

60.5

55.4

51.9

Total obligations 1

Total credit budget
ADDENDUM
Secondary guaranteed loan commitments
1

2 Includes loans with an agency guarantee that are disbursed by the Federal Financing Bank.
Excludes commitments for guarantees of loans previously guaranteed (secondary guarantees) and for guarantees by one Government account
of direct loans made by another Government account. Totals for the former are shown in the addendum. Totals for the latter are included as
direct loans.

The 1986 credit budget is below the 1985 credit budget because of
a one-time increase in public housing direct loans during 1985,
from $1.4 billion in 1984 to $14.1 billion in 1985 and down to $1.5
billion in 1986. For 1987, the administration is proposing that the
credit budget decrease by $25 billion, or 19% below the 1986 totals.
The programmatic reasons for the changes in the credit budget
totals since 1985 are discussed below in the sections on direct loans
and guaranteed loans.
B. APPROPRIATION ACT LIMITATIONS

One of the key features of the credit budget is the enforcement
mechanism provided through the enactment of limitations on
credit activity in annual appropriation acts. The administration
proposes limitations annually on direct loan obligations and guaranteed loan commitments for most credit programs. The limitations act as ceilings on the volume of new credit th?t may be
offered by the account. The limitation is specified in the appropria-

A-10

THE BUDGET FOR FISCAL YEAR 1987

tion language for individual budget accounts that include credit
activity.
The President's 1987 Budget proposes limitations for programs
amounting to 55% of the credit budget totals. Approximately 27%
of direct loan obligations and 65% of guaranteed loans are proposed for limitation. The remainder are programs controlled
through other mechanisms. Table F-3 indicates the breakdown of
loans subject to, and exempt from, appropriations act limitation.
Table F-3. CREDIT BUDGET PROGRAMS SUBJECT TO AND EXEMPT FROM
APPROPRIATION ACT LIMITATION
(In billons of dollars)
Guaranteed loan commitments

Direct loan obligations
1985
actual

Loans subject to appropriation act limitation
Loans subject to limitation under P.L. 99-177
Loans exempt from limitation
Total

1987
estimate

21.1
-4.9

13.9
-0.5

8.8
-0.5

16.3

8.3

36.6

13.4
18.7
9.6

22.2

52.8

Limitations enacted/proposed
Less: Unused balance of limitation, expiring

1986
estimate

41.6

30.6

1986
estimate

1987
estimate

62.8
-5.9

71.5
-8.1

65.7
-13.7

56.9

51.9

27.9

63.4
19.9
10.5

84.7

93.8

79.8

54.6

60.5

55.4

1985
actual

27.8

ADDENDUM
Secondary guarantees subject to limitation

The first stage of congressional action on the credit budget is the
budget resolution. Although not required by the Congressional
Budget Act, recent budget resolutions have generally included
guideline levels for credit programs. The budget resolution for 1986
included credit targets by function for 1985 through 1988. The
functional allocations specified direct loan obligations, primary
loan guarantee commitments, and secondary loan guarantee commitments.
Gramm-Rudman-Hollings incorporates credit authority more
fully into the congressional budget process. It requires allocations
to the Appropriations Committee and its subcommittees to include
new direct loan obligations and new loan guarantee commitments.
After the budget is submitted to the Congress, the House and
Senate Appropriations Committees begin working on the 13 appropriation bills. Four bills contain 15 of the 22 requested limitations:
Agriculture, Commerce/Justice/State, Foreign Assistance, and
Housing and Urban Development/Independent Agencies. Over the
past several years, Congress has enacted limitations in most of the
programs for which limitations were requested. The administration
continues to urge the Congress to enact limitations on guaranteed
loans on the basis of the full principal amount of the loan rather
than the contingent liability.

SPECIAL ANALYSIS B

B-17

In general, limitation language in appropriation acts:
• is a one-year limitation;
• sets a ceiling on direct loan obligations and/or guaranteed
loan commitments; and
• applies to an individual account, although limitations on specific programs within an account may also be provided.
Table F-4 identifies the enacted and proposed limitations for
credit programs between 1985 and 1987.
While the appropriation act limitation is an effective control
mechanism for new lending by some programs, there are many
programs in which the actual demand for Federal credit assistance
has been consistently less than the level enacted in annual appropriation bills. For example, the enacted limitations on direct and
guaranteed loans of the Export-Import Bank (Eximbank) have
consistently exceeded the actual demand for loans since 1982.
Chart F-2 illustrates the used and unused portions of the enacted
limitations for 1982-1985.

Limitations vs. Actual Use

•

Export-Import Bank, 1982 - 1 9 8 5

Unused UmHatton

Actual Use

$BHHons
12 -

Direct Loans

Guaranteed Loans
-

Fiscal Years

THE BUDGET FOR FISCAL YEAR 1987

A-10

Table F-4. CREDIT APPROPRIATION ACT LIMITATIONS
(In millions of dollars)
1985
actual

Limitations on direct loan obligations:
Foreign military sales credit
AID, Private sector revolving fund
Overseas Private Investment Corporation
Agricultural credit insurance fund
Rural housing insurance fund
Rural development insurance fund
Rural electrification and telephone revolving fund 3
REA, FFB direct loans 3
Rural telephone bank 3
Self-help housing land development fund
International Trade Administration, Operations and administration
College housing loans
Bonneville Power Administration fund
Health resources and services
Nonprofit sponsor assistance
Federal Housing Administration fund
Housing for the elderly or handicapped fund
Community development grants: FFB direct loans 2
Bureau of Reclamation, Loan program
National Park Service, Construction
Bureau of Indian Affairs, Revolving fund for loans
Federal Highway Administration, Right-of-way revolving fund
Railroad rehabilitation and improvement financing funds.- FFB direct
loans 2
VA, Direct loan revolving fund
Export-Import Bank
National Credit Union Administration, Central liquidity fund
Total, limitations on direct loan obligations
Limitations on guaranteed loan commitments:
AID, Housing and other credit guaranty programs
Overseas Private Investment Corporation
Agricultural credit insurance fund
Rural development insurance fund
Economic development assistance programs 4
International Trade Administration, Operations and administration4
Health professions graduate student loan insurance fund
Federal Housing Administration fund
Bureau of Indian Affairs, Indian loan guaranty and insurance fund
Export-Import Bank
Total, limitations on guaranteed loan commitments
ADDENDUM
Secondary guaranteed loan commitments.GNMA, Guarantees of mortgage-backed securities

1986
estimate

1987
estimate

4,940
0
15
4,292
3,238
455
1,100
1,325
185
3
6
40
40
1
2
65
600
225
68
0
19
50

4,967
17
14
3,198
1,336
421
861
933
177
0
1
0
20
1
84
55
50
46
2
16
48

5,661
15
15
1,500
0
0
435
225
139
0
0
0
20
1
0
74
30
0
46
0
16
50

6
1
3,865
600

4
1
1,062
568

0
0
0
600

21,141

13,882

8,827

160
150
1,246
150
167
17
0
50,900
0
10,000

145
136
1,872
96
30
0
275
57,420
0
11,484

0
150
2,500
0
0
0
100
50,900
30
12,000

62,790

71,459

65,680

68,250

65,315

68,250

*$500,000 or less.
Note—This table excludes de facto limitations imposed in 1986 by Public Law 99-177.
1
2 Includes President's budget proposals for changes in enacted limitations and reductions pursuant to Public Law 99-177.
In this table, loans disbursed by the FFB are shown as direct loans. The limitation applies to the guaranteed loan commitments of the
originating agency.
3
4 Enacted limitations reflect the loan floor.
These limitations were enacted on the basis of contingent liability. The full principal amount is reflected here.

There are a variety of programs, in addition to Eximbank, for
which demand is often below the enacted limitation. Table F-5

B-17

SPECIAL ANALYSIS B

compares the proposed and enacted limitations to the actual level
of direct loan obligations and guaranteed loan commitments in
1985 for the largest credit programs with shortfalls from limitations.
Table F-5. COMPARISON OF REQUESTED AND ENACTED LIMITATIONS WITH ACTUAL LOAN LEVELS
FOR SELECTED PROGRAMS IN 1985
(In millions of dollars)
Proposed
limitation

Direct loan obligations.Rural housing insurance fund
Rural electrification and telephone revolving fund
Rural telephone bank
Bureau of Reclamation, loan program
Export-Import Bank
Guaranteed loan commitments:
Rural development insurance fund
Federal Housing Administration fund
GNMA, Guarantees of mortgage-backed securities
Export-Import Bank

Enacted
limitation

Actual
loan level

Unused
balance
of
limitation

2,320
575
185
66
3,830

3,238
1,100
185
68
3,865

2,718
765
168
55
660

.520
335
17
13
3,205

50,900
68,250
10,000

150
50,900
68,250
10,000

61
47,441
54,597
7,849

89
3,459
13,653
2,151

After enactment of appropriation bills, direct and guaranteed
loan activity subject to limitation is controlled through the apportionment process. This is the mechanism by which the executive
branch controls the rate at which new loans are obligated or guaranteed. While limitations are generally apportioned quarterly, a
few are apportioned on an annual or project basis.
For some programs, an appropriation act limitation on annual
activity is deemed unsuitable for any of several reasons, and control is provided through other mechanisms. First, limitations are
not proposed for programs in which the authorizing legislation
provides a clear entitlement to qualified applicants, such as farm
price support loans and credit assistance to veterans. These programs are similar to those expenditure programs considered relatively uncontrollable, and the levels of new credit are determined
by substantive law.
Second, direct loans that arise from payment of claims on defaulted guaranteed loans are exempt from appropriation act limitation. Payment of these default claims is mandatory, as in the FHA
mortgage insurance and the guaranteed student loan program.
Therefore, the effective point of control is earlier, at the time of
the original guaranteed loan commitment.
Third, some programs are exempt from appropriation act limitation when additional control through limitations would inhibit the
effective operation of a program. For example, in several foreign
assistance programs, such as the economic support fund, AID development assistance, and P.L. 480 food assistance, appropriated budget

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

authority governs both the loan and the grant activity. A specific
direct loan limitation is therefore an unnecessary duplication of
existing congressional controls.
C . IMPACT OF GRAMM-RUDMAN-HOLLINGS

Gramm-Rudman-Hollings establishes ceilings on the deficit for
the next 6 years with a balanced budget required by 1991. Parts 2
and 6 of the Budget provide a discussion of this law.
Gramm-Rudman-Hollings contains several provisions that affect
credit programs. It defines direct loan obligations and loan guarantee commitments as "credit authority," and it subjects credit authority to the same restrictions as budget authority and other
budgetary resources. When sequestration of budgetary resources is
required to meet deficit ceilings, credit authority will also be sequestered. In 1986, new direct loan obligations and guaranteed loan
commitments have been reduced by the general non-defense sequestration percentage of 4.3%. For those programs with enacted
limitations in appropriations acts, the limitation has been lowered
by this percentage. For direct loan obligations and guaranteed loan
commitments not previously subject to limitation, the estimated
level has served as a ceiling which will also be lowered. The lower
level constitutes a de facto limitation.
Several loan programs are granted special treatment by GRH.
Three programs, Bonneville Power Administration fund, health
professions graduate student loan insurance fund, and power programs of the Tennessee Valley Authority, are totally exempt from
reductions. Others are exempt to the extent they have prior legal
obligations, including the Pension Benefit Guaranty Corporation
fund, the Federal Deposit Insurance Corporation, and the Federal
Savings and Loan Insurance Corporation fund. In addition, direct
loans that result from defaults on guaranteed loans are generally
exempt. The Commodity Credit Corporation and guaranteed student loans are the subject of specific provisions in the law.
Except for some programs with special rules, the only immediate
source of outlay reductions due to the GRH effect on credit programs results from the sequestration of direct loan obligations. The
immediate outlay impact of reduced direct loan obligations differs
from program to program, because of lags between obligation and
actual loan disbursement, just as the immediate outlay effect of
reduced budget authority differs among other spending programs.
D . DIRECT LOANS

Direct loans are financed from a variety of sources including
appropriations, borrowing, and repayments of previous loans.
Direct loan programs are designed to redirect economic resources
to particular uses by providing credit on more favorable terms than

B-17

SPECIAL ANALYSIS B

would otherwise be available from private sources. A direct loan is
best justified when the Federal objective could not be met with
financing from private sources, even with a Government guarantee. The objectives of a direct loan program, for example, may
require financing at interest rates that are lower than those available from private lenders, or loan maturities that are longer than
otherwise available. Direct loans are made available to individuals,
businesses, and State, local, and foreign governments. Direct loan
tables attribute loans that are made by the FFB and guaranteed by
an agency to the agency responsible for guaranteeing the loans.
The credit activity between the Federal Government and the public
in these transactions is a direct loan, not a guarantee.
Direct loan obligations in a given year do not result in an equal
volume of new direct loan disbursements in the same year for
several reasons. First, there is often a lag between the time of
obligation and the actual disbursement of the loan. For example,
prospective borrowers may seek financing for a project when it is
in the design stage, but the financing will not be needed until the
next year or even the next several years. As a result, some agencies, such as the Export-Import Bank and the Rural Electrification
Administration, disburse loans 2 years or more after the time of
the direct loan obligation. Second, some prospective borrowers will
never convert the direct loan obligations into borrowing because
the projects for which financing had been sought are subsequently
cancelled or postponed.
Loan disbursements are payments of loans to the public. They
are mostly to make new loans, but they also include some loan
guarantee claims. The change in loans outstanding equals new loan
disbursements less repayments of loans, loan write-offs, and other
adjustments.
As shown in Table F-6, direct loan obligations are proposed to
decline between 1985 and 1987 from $52.8 billion to $30.6 billion.
The agricultural and business sectors will receive 48.5% and
35.2%, respectively, of the 1987 credit budget. The major changes
from 1985 to 1987 in direct loan obligations are discussed below.
Table F-6. SUMMARY OF DIRECT LOAN TRANSACTIONS
(In billions of dollars)
Actual
1984

Obligations
Loan disbursements

Change in outstandings
Outstandings

39.1
41.4

Estimate
1985

52.8
64.4

6.3

28.0

229.3

257.4

1986

41.6
47.3

1987

30.6
34.4

1988

1989

1990

28.0
31.0

24.8
26.3

22.3
23.4

1991

20.1
21.1

-4.1

-4.4

-3.2

-5.7

-7.1

253.3

-4.6

248.9

245.7

239 9

232.9

228.3

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

The Commodity Credit Corporation (CCC) provides short-term
non-recourse loans to producers of agricultural commodities. The
loans provide subsidized financing for production costs and set a
minimum price for individual commodities, since the farmer may
turn his crop over to the Government rather than repay the loan.
The demand for CCC price support loans, therefore, depends on the
market price of the crop compared to the price in the loan rate.
When market prices are below the threshold price in the loan rate,
farmers borrow large amounts from the CCC, forfeiting the crop as
repayment to the Government if market prices have not risen by
harvest time. Demand for CCC price support loans rose from $10.2
billion in 1985 to an estimated $16 billion in 1986, mainly due to an
increase in agricultural production that resulted in lower crop
prices, which in turn led to increased need for Government price
supports.
The Food Security Act of 1985 (known as the farm bill) gives the
Secretary of Agriculture the discretion to set commodity prices
implicit in CCC loans more closely to market prices. This will help
make U.S. agricultural exports more competitive on world markets.
This should eventually reduce the need for Government price supports; however, continued Federal credit support for farmers may
be necessary as they adjust to a market-based system.
The Farmers Home Administration (FmHA) makes loans for
purchasing and operating farms, improving rural housing, and developing rural community facilities. Total FmHA direct loan obligations are proposed to decline significantly in 1987, to a level of
$1.5 billion. This level reflects a shift in Federal loan activity from
direct loans to guarantees of private loans in the Agricultural
Credit Insurance Fund, and the administration's proposals to terminate both FmHA housing and rural development programs in
favor of providing such assistance through the Department of
Housing and Urban Development (HUD).
The Rural Electrification Administration (REA) was designed to
be a lending agency responsible for rural electrification and for
furnishing electricity and telephone service to rural areas not receiving central station service. REA direct loan obligations declined
from $4.0 billion in 1985 to $3.4 billion in 1986. This reflects a
decline in construction created by lower demand for electricity and
the related surplus of electric generating capacity.
REA direct loan activity is proposed to decline to $2.4 billion in
1987. This decrease is due to the administration's plan to encourage rural electric systems to rely more on private financing for
needed credit. Over the next 5 years, the Federal share is proposed
to be phased out and replaced by private financing.
Foreign Military Sales (FMS) credit provides financing to foreign
governments and international organizations so that they can pro-

SPECIAL ANALYSIS B

B-17

cure U.S. military equipment and services. The increase from $4.9
billion in 1985 to $5.0 billion in 1986 reflects a slight increase in
U.S. exports. FMS credit direct loan obligations will increase by
$0.7 billion in 1987. This 14% increase will permit the Government
to finance the procurement of additional military equipment and
services by countries whose security is threatened by military
forces hostile to U.S. interests. The bulk of the requested increase
will be provided to Egypt and Israel, with Turkey, Greece and
Spain continuing to receive large amounts of credit. In order to
reduce the debt service burden of these countries, 55% of the
program is requested as loans that will be forgiven and 14% is
requested on concessional terms.
Export-Import Bank (Eximbank) direct loan obligations were $0.7
billion in 1985. This is significantly below past levels because of the
high value of the U.S. dollar relative to other currencies, the
worldwide economic recession and its effect on U.S. exports of
commercial aircraft, nuclear plants, and other large capital equipment. The administration is proposing the elimination of new Eximbank loans in 1987 and their replacement by a $100 million
interest rate subsidy program and an increase to $12 billion in
guarantees. For that reason, no direct loan obligations are shown
after 1986. New disbursements that occur after 1986 are the result
of loans obligated before 1987.
The Small Business Administration credit programs are proposed
to be terminated in 1987. Under the budget proposal, new direct
loan obligations offered by SBA after 1986 would be the result of
commitments made in prior years or previously guaranteed loans
that are expected to default. The existing loan portfolio would be
transferred to the Treasury Department for servicing and liquidation. The Treasury Department would also sell the existing loan
assets to investors, without Federal guarantee or recourse, beginning in 1987. Some of the issues involved in loan asset sales are
discussed in Section IX of this analysis.
Direct loan obligations of the low-rent public housing program
increased from $1.4 billion in 1984 to $14.1 billion in 1985 and are
expected to decrease to $1.5 billion in 1986. Prior to the enactment
of the Deficit Reduction Act of 1984, housing construction was
financed with tax-exempt obligations issued by the Public and
Indian Housing Authorities (PHAs and IHAs) and secured by 20- to
30-year Federal commitments to repay the full principal amount.
DEFRA however, raised questions about the tax-exempt status of
PHA and IHA obligations. Consequently, tax-exempt financing for
these construction activities was suspended. It was replaced by
direct loans extended by HUD to PHAs and IHAs. These loans in
turn will be forgiven. As a consequence, the Federal Government
would be relieved of associated long-term commitments to amortize

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

the forgiven loans. Beginning in 1986, new PHA and IHA capital
expenditures are funded annually.
Table F-19 shows detailed data for Federal direct loan programs
from 1985 through 1991.
E . LOAN GUARANTEES

Guaranteed loan commitments are agreements in which the Government guarantees the payment of the principal and interest of
the loan in whole or in part in the event of default. 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. For the purposes of the credit budget, the term "guaranteed loan" includes insured loans.
A loan guarantee transfers some or all of the risk of default from
the lender to the Government. In cases where the Government
guarantees the timely payment of 100% of the loan principal and
interest against all risk, it transforms a private loan into a nearGovernment direct loan financed by a near-Government security.
The guaranteed loan will have essentially the same economic effects as a Government direct loan offered at moderate premiums
above Treasury yields, but it will not have all the attributes of a
Government direct loan because private lenders will negotiate different financial terms and conditions (e.g., fees) than would a Government agency.
The guaranteed loan will not have all of the attributes of a U.S.
Treasury security either, since it will be less liquid and will involve
higher transaction costs. The great volume of Treasury securities,
their regular issuance in a range of maturities, and the specialized
institutions and trading facilities that deal in those securities, all
produce an efficient market that cannot be matched by the market
for guaranteed loans. The Government guarantee, for example,
may not be transferred from one lender to another as readily as a
U.S. Treasury security may be traded. Legal counsel may be required to determine the extent to which a lender is assured of
repayment and under what circumstances. This requirement is a
transaction cost not associated with a U.S. Treasury security. For
these and other reasons, guaranteed loans bear interest rates above
the yields on otherwise comparable U.S. Treasury securities.
Loan guarantees, like direct loans, redirect economic resources
by providing credit to borrowers at more favorable terms than
would otherwise be available in the private market. The degree to
which the guarantee reallocates credit will depend on the degree of

SPECIAL ANALYSIS B

B-17

the subsidy.4 At one extreme, the potential transaction being financed may be considered so risky that no financing would be
available without the guarantee. For example, it is unlikely that
private lenders would make student loans generally available without guarantees because of the inherent, and significant, uncertainty about any particular borrower's future income stream. In this
case, the subsidy will be quite large and will have a dramatic effect
on the reallocation of credit.
At the other extreme, the guarantee may result in only a small
subsidy and, other conditions being equal, may not significantly
change the allocation of credit. Some beneficiaries of loan guarantee programs would have been able to secure the funds privately—
without Government support—albeit at a higher cost. For example,
guaranteed mortgage credit might be used to finance, at a lower
cost, a house that would have been purchased even in the absence
of a Federal guarantee. In such a case, the borrower benefits from
a small subsidy and the guarantee does not significantly alter the
allocation of credit resources.
In both cases, although to different degrees, the guarantee reallocates credit toward federally selected uses, increasing the total
volume of credit channeled into these uses. This leaves a smaller
supply of credit available to those potential borrowers who do not
receive assistance, and increases the interest rates on financing
available to these borrowers.
Loan guarantees are used in a wide variety of programs. Guaranteed loans may be made to individuals, to businesses, and to State,
local, and foreign governments. The guaranteed loan commitment
may be used for a loan made by a bank or other institutional
lender or an investment security sold in the capital market. Guaranteed loans, for the purposes of the credit budget, do not include
other contractual agreements, such as guarantees of private leases,
contracts to make subsidy payments over extended periods, or debt
service grants that the recipients may use as collateral for borrowing.
Data for guaranteed loans for 1985 through 1991 are summarized
in Table F-7. The guaranteed loan commitments in a given year do
not always result in new guaranteed loans in that year, for the
same reasons that direct loan obligations in a given year do not
necessarily lead to disbursements in that year. The change in
outstandings is equal to the amount of new guaranteed loans less
repayments and other adjustments. Table F-20 provides detailed
data for guaranteed loan programs for 1985 through 1991.

4 The degree of credit reallocation will also depend on the price elasticity of demand of the good being
financed. A small change in the price (i.e., the subsidy) of the good being financed may result in a considerable
change in the amount of the good actually bought and sold. This special analysis does not consider demand and
supply elasticity effects.

F-l 6

THE BUDGET FOR FISCAL YEAR 1987
Table F-7. SUMMARY OF PRIMARY GUARANTEED LOAN TRANSACTIONS
(In billions of dollars)
Actual
1984

Commitments
New guaranteed loans

Change in outstandings
Outstandings

Estimate
1985

1986

1987

1988

1989

1990

1991

20.1

84.7
55.5

21.6

93.8
73.6

40.2

30.8

25.9

410.4

24.7

450.6

481.4

24.0

24.7

386.7

507.3

531.3

556.0

580.7

70.8
73.3

79.8
68.2

81.7
67.7

83.3
70.9

84.8
73.6

85.4
75.6

As noted in the previous section, direct loans disbursed by the
Federal Financing Bank (FFB), which are guaranteed by a Federal
agency are excluded from guaranteed loans and included in Table
F-6. As shown above in Table F-7, primary guaranteed loan commitments are expected to decrease from $84.7 billion in 1985, to
$79.8 billion in 1987. Housing programs accounted for 67% of guaranteed loan commitments in 1985, and are expected to remain at
that level through 1987. The major programmatic changes from
1984 through 1987 are discussed below.
Guaranteed loan commitments in 1985 for the Federal Housing
Administration (FHA) rose by 175% over 1984, the result of falling
interest rates and a healthy housing environment. Commitments,
which equaled $47.4 billion in 1985 compared to $17.1 billion in
1984, are expected to peak in 1986 at $49.3 billion and decline to
$37.2 billion thereafter. The Veterans Administration (VA) offers a
mortgage guarantee that is similar in effect to the FHA mortgage
insurance program, but does not require veterans to make downpayments on their housing purchases. For 1986, guaranteed loan
commitments by VA are estimated to be $12.3 billion, rising to
$14.7 billion in 1987.
The Commodity Credit Corporation (CCC) provides loan guarantees for export sales that would not otherwise occur without Federal credit assistance. CCC guaranteed loan commitments for U.S.
exports fell by $1.5 billion from 1984 to 1985. This decline is attributable to a strong U.S. dollar compared to foreign currencies and a
subsequent drop in demand from foreign buyers for U.S. Government-subsidized credit. Annual guaranteed loan commitments of
$3.0 billion are requested for 1987 reflecting the proposed legislation which reduces CCC's export credit program to levels reflecting
free market needs.
The guaranteed student loan program (GSL) provides guarantees
of education loans to graduate and undergraduate students. Commitments for the program increased by $1.3 billion from 1984 to
1985 as participation increased by 17%. The level of GSL commitments is estimated at $9.3 billion in 1986, an increase of $400
million, or 4%, from 1985.

SPECIAL ANALYSIS B

B-17

The Export-Import Bank provides guarantees to facilitate U.S.
exports. Guaranteed loan commitments increased from $7.1 billion
to $7.8 billion between 1984 and 1985. In 1986, it is estimated that
Eximbank commitments will be $11.5 billion, as risk protection
continues to be important to U.S. exporters. The proposed level in
1987 and beyond is $12 billion, $1.8 billion of which will be available for the interest rate subsidy program.
Public and Indian housing programs had no new guaranteed loan
commitments in 1985. The absence of guaranteed loans is the
result of the extension of direct loans to PHAs and IHAs that are
necessary since the enactment of DEFRA and the suspension of
private market financing. The direct loans thereby eliminate the
need for new guarantee commitments. (The proposal to reform the
financing of public and Indian housing is described under Chapter
III C: Direct Loans.)
The Small Business Administration credit programs, as noted in
the section on direct loans, are proposed to be terminated in 1987.
For that reason, no new guaranteed loan commitments are proposed after 1986. Outstanding guaranteed loans with a balance of
$9.5 billion in 1986 will be serviced by the Treasury Department.
About 90% of all single-family mortgages insured by FHA or VA
are sold subsequently in the secondary mortgage market using the
Government National Mortgage Association (GNMA) mortgagebacked securities program. This program provides guarantees for
securities issued by private mortgage originators and backed by
pools of FHA-insured and VA-guaranteed mortgages. The GNMA
guarantees enhance the liquidity of trading these securities.
GNMA's issuance of new securities is closely tied to the amount of
FHA insurance and VA mortgage guarantees. Commitments for
GNMA mortgage-backed securities therefore rose from $39.7 billion
in 1984 to $54.6 billion in 1985. An increase to $55.4 billion is
estimated in 1987. The 1987 budget proposes to increase the fee
that GNMA charges for its guarantee, from 6 basis points (a basis
point is 1/100 of a percent), to 15 basis points in 1987 and to 20
basis points thereafter. This increase is estimated to raise $15
million in new revenue in 1987, and $547 million over the period
1987 to 1991.
I V . GOVERNMENT-SPONSORED ENTERPRISES

Over the last 70 years, the Federal Government established five
financial intermediaries, whose purpose is to direct funds to particular sectors of the economy. These entities, generically known as
Government-sponsored enterprises (GSEs), are:
• Federal Home Loan Banks;
• Federal Home Loan Mortgage Corporation;
• Federal National Mortgage Association;

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

• Student Loan Marketing Association;
• Farm Credit System, composed of Banks for Cooperatives,
Federal Intermediate Credit Banks, and Federal Land Banks.
While most of the GSEs were created as Government institutions, all have been privately owned since 1969 and are not included in either the unified budget or the credit budget. However, since
they were designed for the furtherance of Government objectives
and since they continue to enjoy special benefits not received by
other private financial intermediaries, their financial statements
are shown in the Budget Appendix (Part IV). Table F-8 summarizes the lending and borrowing of the GSEs for 1985-1987; Table
F-21 in the back of this special analysis presents details of their
activity.
Table F-8. SUMMARY OF LENDING AND BORROWING BY GOVERNMENT-SPONSORED ENTERPRISES
(In billions of dollars)
Actual 1985

Total net lending:
Obligations
New transactions

Net change

Outstandings
Total borrowing:

Net change
Outstandings

Estimate
1986

259,984
251,958
60,741
369,940

233,505
228,517
62,416
432,358

57,884
351,612

67,871
418,885

GSEs make capital available for housing, agriculture, and education. They seek to direct credit to these favored sectors of the
economy by acting as financial intermediaries that stimulate greater amounts of lending to these sectors. Their goals are accomplished by creating a secondary market that increases the liquidity
of direct lenders in housing and education, and by direct lending in
agriculture. Over the last 5 years, outstanding GSE debt grew by
142%, from $153 billion in 1980 to $370 billion in 1985. By comparison, loans outstanding to private businesses and corporations grew
45% over the same period. In general, sectors that do not benefit
from the presence of a GSE will have less financing allocated to
them, and the financing that is available will be more expensive
because there is less of it.
Securities offered by GSEs in the financial market are not guaranteed by the U.S. Government. Nonetheless, these securities usually have yields of 50 to 300 basis points below medium-rated
corporate debt. In fact, as seen in Chart F-3, GSE instruments
historically carried only slight premiums above the yields of Treasury securities of comparable maturity; these premiums have
ranged from 10 to 50 basis points during 1985, with the notable

B-17

SPECIAL ANALYSIS B

exception of Farm Credit System debt instruments, which are discussed below.

Government-Sponsored Enterprises and A-Rated Bonds
Spread above Treasuries
Basis Points
Bads M i l s
300

300

JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC
Calendar tear 1985

The relatively small premiums above Treasuries are explained
by the perception of a "special relationship" between the GSEs and
the Federal Government. While the specialness of this relationship
arises in part from the intangible nature of Government sponsorship, it also reflects real benefits enjoyed by these enterprises.
Table F-9 lists some of the benefits available to GSEs.
Table F-9. BENEFITS ENJOYED BY GOVERNMENT-SPONSORED ENTERPRISES
Type of Benefit

Line of credit at Treasury
Exemption of corporate earnings from Federal income
Exemption of interest income of investors from State and local income
taxes
Eligibility for Federal Reserve open market purchases
Equal standing with Treasury debt as investments for most banks
Exemption from SEC registration and various State banking laws
Eligibility as collateral for public deposits
1
2

Indirect line of credit through the FHLBs.
Federal Land Banks, Federal Intermediate Credit Banks, and Federal Land Bank Associations.

FHLB

FHLMC

FNMA

FCS

SLMA

Yes
Yes

Yes 1
No

Yes
No

Yes
Yes 2

Yes
No

Yes
Yes
Yes
Yes
Yes

No
Yes
Yes
Yes
Yes

Yes
Yes
Yes
Yes
Yes

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

As a means of reimbursing the Federal Government for some of
these benefits, and to place these GSEs on a more equal plane with
private financial intermediaries, the administration has proposed
an annual user fee on new borrowings, including the issuances of
mortgage-backed securities and participation certificates. The fees
are proposed for the various GSEs starting in 1987. The fees will
differ by GSE to reflect the borrowing advantage each enjoys in its
respective market, and would be phased in over the next few years.
For example, the Federal Home Loan Mortgage Corporation would
be charged a fee on its new debt issues of 10 basis points in 1987,
12.5 basis points in 1988, and 15 basis points in 1989; the Federal
National Mortgage Association would be assessed a fee on its new
debt issues of 10 basis points in 1987, 30 basis points in 1988, and
50 basis points in 1989.
The operations of the five GSEs are discussed individually
below.5
Federal Home Loan Bank System.—The Federal Home Loan
Bank System was established in 1932 as the first permanent Government-sponsored intermediary for housing. Its original charter
was to supervise federally chartered savings and loans associations
and to promote home ownership through the extension of credit to
savings and other home financing institutions. The Federal Home
Loan Bank Board (FHLBB), which serves primarily as a regulatory
agency, and twelve regional Federal Home Loan Banks (FHLBs)
comprised the original system. Subsequently, the Federal Savings
and Loan Insurance Corporation (FSLIC) and the Federal Home
Loan Mortgage Corporation (Freddie Mac) were added to the
system in 1934 and 1970, respectively.
The Federal Home Loan Banks support the residential mortgage
market by providing a central source of housing credit to thrift
institutions through loans or "advances" to members. The FHL
banks provide member thrifts with access to national capital markets and eliminate regional barriers to the flow of mortgage funds.
Advances are an attractive source of funds for members largely
because they are the cheapest funds available after savings deposits. Each of the 12 FHL banks is regulated by the FHLBB but
establishes its own policies with FHLBB guidelines. FHL banks
finance their advances primarily by selling debt securities in the
money and capital markets and, to a lesser extent, by accepting
both demand and time deposits from member institutions.
Federal Home Loan Mortgage Corporation.—FHLMC (Freddie

Mac) is a subsidiary of the FHL banks and their member thrifts. It
5 For additional information on GSEs, see also: Michael J. Moran, "The Federally Sponsored Credit Agencies:
An Overview," Federal Reserve Bulletin, June 1985; and Congressional Budget Office, "Government-Sponsored
Enterprises and Their Implicit Federal Subsidy: The Case of Sallie Mae," December 1985.

SPECIAL ANALYSIS B

B-17

was created in 1970 to increase the availability of mortgage credit
and liquidity in the residential mortgage market. Performing a
different function from that of its parent, Freddie Mac provides a
secondary market for conventional mortgage loans, which are not
insured by the Federal Housing Administration or guaranteed by
the Veterans Administration. Typically, Freddie Mac purchases
mortgages originating from mortgage bankers, savings institutions,
commercial banks, and other primary lenders. These institutions
sell mortgages to enhance the liquidity of their assets.
Freddie Mac finances its purchases of mortgage loans by issuing
debt, pooling the mortgages together, and issuing pass-through certificates backed by these loans. By issuing pass-through certificates,
the ownership of the underlying mortgage pool is transferred to a
trustee thereby removing the loans from Freddie Mac's balance
sheet. Thus, generally accepted accounting principles for private
businesses greatly understate Freddie Mac's participation in the
secondary market.
As a financial intermediary, Freddie Mac is vulnerable to interest rate fluctuations but has developed innovative financing transactions in an effort to guard against unforeseen interest rate
swings. The company's most recent financing innovation is the
collateralized mortgage obligation (CMO). This financing method is
a debt instrument backed with mortgages or mortgage-backed securities, designed to reduce the major disadvantage of uncertainty
about maturity that is associated with mortgage pass-through certificates.
Federal National Mortgage Association.—FNMA (Fannie Mae)
was established by Congress in 1938 to provide a secondary market
for federally underwritten mortgages. In 1968, it became a privately-owned corporation, and its stock is now traded on the New York
Stock Exchange.
Fannie Mae is the largest single investor in home loans in the
United States. The company increases the liquidity of mortgage
bankers, savings institutions and commercial banks by purchasing
from them both conventional loans and loans insured by the Federal Housing Administration and guaranteed by the Veterans Administration. Fannie Mae finances its purchases by issuing debt
and mortgage-backed pass-through securities similar to those
issued by Freddie Mac. As a financial intermediary, Fannie Mae's
profitability is sensitive to movements in interest rates. In recent
years, the company has attempted to decrease its sensitivity to
interest rate fluctuations by increasing fee income, issuing zerocoupon bonds and other debt in the Eurobond market, issuing yendenominated securities abroad, and by participating in currency
swaps.

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

Fannie Mae, Freddie Mac, and the Government National Mortgage Association (Ginnie Mae) have long dominated the secondary
market for mortgages, particularly the mortgage-backed security
portion of the market. Recently, however, totally private institutions have begun to issue mortgage-backed securities, in part because of regulatory and administrative changes implemented by
the administration. Recent legislation has enabled private firms to
compete more effectively with Fannie Mae and Freddie Mac.
Beginning in 1986, however, both Fannie Mae and Freddie Mac
will expand their markets to single-family home mortgages with a
ceiling level of $133,250 compared to the current "conforming rate"
of $115,300. This 15.6% increase is much larger than the 1.1%
increase in the ceiling level achieved last year. This new market is
expected to translate into an estimated $16 billion in new loans
available for purchase and pooling into agency pass-throughs in
1986, and another estimated $30 billion in existing loans.
Student Loan Marketing Association.—SLMA (Sallie Mae) was
created in 1972 to expand the amount of funds available for insured student loans. It does so by providing liquidity to lenders,
which include savings and loan associations, commercial banks,
mutual savings banks, educational institutions, and State and nonprofit agencies.
Sallie Mae provides liquidity by operating a secondary market
for student loans and by providing "warehousing" advances. Sallie
Mae's secondary market involves the purchase of existing insured
student loans from lenders. When this occurs, Sallie Mae gets title
to the loans and is repaid directly by the borrowers. Warehousing
advances are Sallie Mae loans to lenders that are secured by student loans or certain types of obligations guaranteed by the Government. In such cases, the lenders continue to hold title to the
loans and pay Sallie Mae interest on the funds borrowed. Advances
are also available to State student loan agencies as a taxable
source of funds for their operations. In 1987, Sallie Mae will purchase student loans estimated at $2.0 billion, and will make warehousing advances estimated at $1.8 billion.
Starting in 1974, Sallie Mae operations were financed entirely
through borrowing from the FFB. Sallie Mae stopped new borrowing from the FFB in January 1982; since then, it has done all its
new borrowing in private credit markets. It will borrow an estimated $2.5 billion in 1986. Sallie Mae is able to borrow at rates only
slightly higher than Treasury bills, and virtually all of the student
loans that it holds as assets are federally insured. Sallie Mae's
overall cost of funds in 1985 was about 35 basis points over 91-day
Treasury bills, while student loans are guaranteed to yield the
holder of the loan 350 basis points over the Treasury bill rate. As a
result, Sallie Mae has maintained a profitable interest rate spread

SPECIAL ANALYSIS B

B-17

on its student loan portfolio even after its expenses in servicing
student loans are taken into account. Sallie Mae's profit margins
on its warehousing advances are considerably lower.
The continued profitability of Sallie Mae's operations ought to
attract competitors to Sallie Mae's market and eventually drive
down the yield associated with guaranteed student loans. However,
such competition has not developed, as is well discussed in the
Congressional Budget Office study of Sallie Mae referenced above.
The dominance of Sallie Mae in the secondary market for guaranteed student loans can be attributed mainly to the low-cost source
of funds it enjoys as a GSE.
Farm Credit System.—The FCS is a system of cooperatives that
provide credit to farmers and ranchers, their cooperatives, farmrelated businesses, commercial fishermen, and rural homeowners.
The FCS is supervised by the Farm Credit Administration (FCA),
an independent Federal agency. The FCS obtains funds through
the sale of securities to investors in the private credit markets.
These securities are "joint and several," which means that default
by one FCS institution requires all others to honor the obligations
of the security.
The goals of the FCS are accomplished through its component
parts: Federal Land Banks (FLBs) and Federal Land Bank Associations (FLBAs); Federal Intermediate Credit Banks (FICBs) and Production Credit Associations (PCAs); and the Banks for Cooperatives
(BCs).
The year 1985 was difficult for farmers and all financial institutions that serve them. The cash flow of many farmers was reduced
due to depressed commodity prices, and large numbers of borrowers defaulted on their loans. Land prices continued to decline in
many areas of the country, reducing the value of collateral pledged
for bank loans. These factors combined to make 1985 the worst
year in the history of the FCS since the Great Depression.
The 37 banks that make up the FCS anticipated an estimated net
loss of $2.5 billion for calendar year 1985, compared to net income
of $442 million for 1984. Total capital of FCS banks at year-end
stood at an estimated $6.5 billion, a drop of $2.7 billion from the
level of a year earlier. The provision for loan losses for 1985 was an
estimated $2.7 billion while net loan write-offs during the year
amounted to an estimated $1.5 billion. Comparable figures for 1984
were $121 million and $127 million.
Published accounts of FCS woes inevitably affected the yields of
FCS bonds. Prior to 1985, system securities were priced at only 5 to
10 basis points above Treasury instruments of comparable maturity; that spread grew to 17 to 31 basis points by April 1985, and 35
to 114 basis points by September 1985. The spread fell back to 30 to

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

50 basis points by December 1985 mainly because of changes made
in FCS that are discussed below.
The financial crisis of the Nation's farmers and its impact on
FCS led the administration and the Congress to seek changes in
the structure and operations of the system. The Farm Credit
Amendments Act of 1985 was signed into law by the President on
December 23, 1985. The new law provides the basis for reestablishing FCS as a reliable source of financing for American agriculture.
There are three main parts to the Act: it creates the FCS Capital
Corporation; it reorganizes the FCA into a stronger, arms-length
financial regulator of FCS institutions; and it gives the Secretary of
the Treasury the discretion to provide financial assistance to the
FCS under limited circumstances and with proper appropriation of
funds.
The FCS Capital Corporation has the power to mobilize the
earned surplus of all FCS entities, purchase bad loans at market
value and restructure those loans, and assess FCS members to
cover the corporation's service costs and losses. The administration
believes this ability to draw on system-wide reserves will provide
adequate support for the FCS as a whole.
Granting FCA stronger regulatory powers, similar to those already held by other Federal regulators of financial institutions,
will help to ensure the long-term health of FCS. The Act creates a
new three-member board to administer the FCA, which will be
authorized to establish and enforce capital requirements and fiduciary regulations on member units. The FCS will also adopt generally accepted accounting principles and have member banks publicly
audited.
Finally, the Secretary of the Treasury will have the discretion to
purchase the obligations of the corporation, subject to the availability of appropriations provided specially for this purpose by the
Congress, under circumstances specified in the Act. The administration does not expect that any such public funds will be needed.
V . CHANGES IN THE QUANTITY AND PRICE OF FEDERAL CREDIT

This section discusses some of the trends and policy initiatives in
Federal credit activity that cut across programs. The first part of
this section discusses the general quantity of new Federal and
federally assisted credit, including that of GSEs. The second part of
this section discusses an administration proposal to raise the price
of Federal and federally assisted credit by charging higher interest
rates and fees.
Changes in the quantity.—The flow-of-funds accounts measure
total net lending and borrowing between various sectors of the U.S.
economy. These accounts are estimated by the Federal Reserve

SPECIAL ANALYSIS B

B-17

Board, and provide one context in which to analyze the flow of
Federal credit. A comparison of net Federal and federally assisted
lending to total net lending in the U.S. economy allows an estimate
to be made of the total amount of net lending directly influenced
by Federal programs. It also allows a comparison to be made of
changes in the degree of Federal influence over time.
Chart F-4 summarizes these relationships during the last decade.
Federal and federally assisted lending in a given year is the difference between the amount of direct, guaranteed and GSE loans
outstanding at the beginning and end of year. The net amount of
Federal and federally assisted lending was $110.3 billion in 1985.
The supply of credit is the net increase in the holdings of various
investor groups. In 1985, this was $768.6 billion. The participation
ratio of Federal and federally assisted lending to total lending,
therefore, was 14.4% in 1985. This is below the peak for this decade
of 22.5% in 1980 and higher than the 1984 ratio of 11.6%. Table F 23 provides additional details on the participation ratios.
These ratios should be used with caution for two reasons. First,
and most importantly, the participation ratios do not indicate the
full extent of Federal influence in allocating credit to favored
borrowers. That influence is reflected in a more meaningful way by
the degree of subsidy. A loan guarantee with a small degree of
subsidy does not allocate capital to the same degree as a direct loan
with a high degree of subsidy. Yet the lending participation ratios
do not distinguish between a dollar of guaranteed loans and a
dollar of direct loans; they weigh both dollars equally.
Second, the participation ratios are shown on an aggregate basis
for the entire economy and so do not reveal the Federal influence
on borrowing by particular sectors, such as households, corporate
businesses, or farms. This means that some sectors may be more
affected by changes in Federal credit program levels than others,
even when the overall lending participation ratio remains the
same.
The Federal Government not only lends to various sectors of the
economy, but it also borrows. The scope and details of Federal
borrowing are discussed in Special Analysis E ("Borrowing and
Debt"). The net annual amount of Federal and federally assisted
borrowing in 1985 was $276.8 billion. The borrowing participation
ratio, therefore, was 36.2% in 1985. As shown in Chart F-4, the
borrowing participation ratio is more volatile than the lending
participation ratio, ranging from 19% to 56% of total borrowing
between 1975 and 1983. The volatility is due primarily to swings in
the budget deficit. Again, a cautionary note is in order. The full
impact of Federal borrowing on the U.S. economy and the credit
markets depends on competing demands from other borrowing sectors, as well as changes in the supply of credit available for borrow-

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

ing. Table F-23 at the back of this special analysis provides additional details on participation ratios.

Federal Participation in Domestic Credit Markets

Table F-10 summarizes outstanding Federal and federally assisted loans from 1984 to 1987. Total direct loans outstanding at the
end of 1985 were $257.4 billion and total guaranteed loans outstanding were $410.4 billion. In 1985, Federal and federally assisted
loans outstanding increased by 11.6% over 1984. Increases of 9.5%
in 1986 and 8.0% in 1987 are estimated.
Changes in the price.—The second trend in Federal credit policy
has been to increase interest rates and fees. Interest rates and
guarantee fees are frequently set in legislation. Neither the interest rates nor the loan guarantee fees cover all the costs to the
Federal Government of many credit programs. These costs include
default risks for both direct and guaranteed loans, as well as servicing and administrative costs.
The 1987 budget proposes to charge borrowers from several loan
programs interest rates and loan guarantee fees that more ade-

B-17

SPECIAL ANALYSIS B
Table F-10. SUMMARY OF OUTSTANDING FEDERAL AND FEDERALLY ASSISTED CREDIT
(In billions of dollars)
Actual

Estimate

1984

Direct loans
Primary guaranteed loans
Loans by Government-sponsored enterprises
Total, Federal and federally assisted loans
Federal debt held by the public
Primary guaranteed debt (same as guaranteed loans above)
Debt of Government-sponsored enterprises
Total, Federal and federally assisted debt

1985

1986

1987

229.3
386.7
314.1

257.4
410.4
370.0

253.3
450.6
432.4

248.9
481.4
496.5

930.1

1,037.8

1,136.3

1,226.8

1,312.6
386.7
294.8

1,509.9
410.4
351.6

1,714.0
450.6
418.9

1,855.7
481.4
484.2

1,994.1 2,271.9

2,583.5

2,821.3

quately compensate the Government for the risks it bears. These
higher interest rates and fees are proposed to help offset the cost to
the Federal Government of defaults and delayed repayments, as
well as the servicing and administrative costs. The higher interest
rates and fees will differ by program depending on the credit risks
specific to that program. These higher interest rates and fees will
also reduce the subsidies provided by the affected programs. In
most cases, the remaining subsidy will still be substantial.
In addition, as discussed in Section IV, it is proposed that Government-sponsored enterprises pay an annual fee on the gross
amount of their securities issued after 1986. This fee will raise an
estimated $2.5 billion over the period 1987-1991.
V I . FEDERAL CREDIT SUBSIDIES

Federal credit programs provide more favorable terms than those
otherwise obtained in the private market and thus result in a
subsidy, often of significant magnitude, to the borrower. For direct
loans, a subsidy results when one or all of the following terms of
Federal credit are in place:
• Interest rates below commercial levels.
• Longer maturities than fully private loans.
• Deferral of interest.
• Allowance of grace periods.
• Waiver or reduction of loan fees.
• Higher loan amount in relation to the value of the underlying
enterprise than a fully private loan.
• Availability of funds to borrowers for purposes for which the
private sector would not lend—at virtually any interest rate
under virtually any repayment terms.
For guaranteed loans, an interest rate subsidy occurs because the
Government guarantee removes some or all risk of default or loss
facing the lender and because the Government does not charge

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

what a private insuror would charge for the same degree of guarantee. The lender is therefore willing to lend to the guaranteed
borrower at rates lower than the market rate since no premium for
default risk is required.
In many cases, large interest rate subsidies may be intended, for
a direct loan program may be established with an objective that
explicitly requires a below-market interest rate. The Economic Support Fund, for example, extends loans at interest rates of about 3%
per annum in order to meet its objective of aiding foreign countries. In other cases, the extent of the subsidy may be unintentional, as when a direct loan program's interest rate is initially set at a
level comparable to a market interest rate but is never changed to
keep pace with changes in market interest rates over time. For
example, Congress in 1944 set the interest rate on some loans of
the Rural Electrification Administration at 2%, which was slightly
higher than the cost of Treasury borrowing at that time. Last year,
the cost of long-term Treasury borrowing was over 11%, but REA's
lending rate had been increased only to 5%.
Neither the unified budget nor the credit budget captures the
subsidy that result from interest rate spreads and other loan terms
characteristic of Government credit. However, the cash outlays of
the direct loan or loan guarantee program are reflected in the
unified budget, while the new levels of annual loan activity (both
direct loan obligations and guaranteed loan commitments) are summarized in the credit budget. A full evaluation of the cost of any
direct or guaranteed loan program to the Government must include an analysis of both the economic cost via estimated subsidy
values and the actual cash outlay.
This section presents estimates of the subsidies provided by Federal direct loan and loan guarantee programs in 1985. The direct
loan subsidy is calculated as the discounted value (or present value)
of the additional payments, that the borrower would have been
required to pay for the loan if it had been a purely private loan.
This method requires an estimation of the interest rate and other
costs a representative borrower would have had to pay to a private
lender absent the Government loan. It is not possible to determine
this rate of return with precision, since the terms of a loan depend
on such conditions as the purpose of the loan, the creditworthiness
of the borrower, the competition among lenders, and specific circumstances facing the borrower and lender at the time the loan
agreement is negotiated. These conditions differ greatly among
loans. Therefore, hypothetical representative private loans have
been used for comparison.
To derive the rate of return on a representative private loan,
estimates have been made of the private loan terms according to
the purpose of the loan (e.g., to buy a house or to provide a small

B-17

SPECIAL ANALYSIS B

business with working capital) and the type of borrower (e.g., a
high-risk company versus a low-risk company) typically associated
with the particular direct loan programs. The estimates take into
account not only the differences in interest rates, but also the
differences in loan fees, maturities, and repayment schedules that
would normally be expected for the type of loan being compared.
The subsidy estimates do not take into account several nonquantifiable variables such as different legal covenants in loan contracts. A simplifying assumption used in these calculations is that
all loans in a given program bear a similar degree of risk. This
assumption is not always true. Several programs (e.g., the ExportImport Bank or the Small Business Adminstration) make loans to a
variety of borrowers with widely dissimilar risk characteristics.
The discount rate used to evaluate the present values of the
Government and private loan is the rate of return on the private
loan. This rate is a more appropriate discount rate than the interest rate on the private loan, because that interest rate does not
reflect the return that lenders receive from commitment commissions and other loan fees, nor does it reflect the maturity and
repayment schedule.
Table F - l l shows subsidy values for 99% of the direct loans
obligated in 1985. The present value of the total subsidy is $9.8
billion.
Table F - l l . SUBSIDY VALUES OF 1985 DIRECT LOAN OBLIGATIONS
Interest rate (in percent)
Agency and programs

Funds Appropriated to the President:
AID functional development assistance
Economic support fund
Foreign military sales credit:
Forgiven
Concessional
Treasury rate (FFB)
Agriculture:
ACIF:
Emergency disaster
Farm operating
Farm ownership
Other
RHIF:
Farm labor housing
Home ownership
Rental housing
Other
RDIF:
Community facilities 1
Water and waste 1
CCC:
Commodity loans 2
Export loans

Average
Government
loan

Loan maturity (in years)

Present value of subsidy

Assumed
private loan

Average
Government
loan

Assumed
private loan

Percent of
direct loan
obligations

3.0
5.0

14.6
13.6

30.0
15.0

20.0
15.0

65.4
62.0

206
156

0.0
5.0
11.6

14.7
13.2
13.6

NA
7.0
20.0

1.0
7.0
20.0

100.0
37.7
10.3

2,717
261
157

5.0
8.4
8.9
10.8

13.5
14.0
14.0
14.0

40.0
7.0
40.0
40.0

7.0
5.0
25.0
25.0

48.2
14.0
28.0
20.4

237
511
183
3

1.0
3.0
1.0
1.0

12.1
12.1
12.1
12.1

50.0
33.0
50.0
20.0

5.0
25.0
5.0
15.0

75.9
54.4
13.4
76.0

13
968
610
12

8.0
8.0

12.2
12.2

40.0
40.0

20.0
20.0

27.8
32.5

32
110

9.5
10.2

14.0
11.5

.75
3.0

.75
1.0

1.6
2.8

164
2

Millions of
dollars

F-l 6

THE BUDGET FOR FISCAL YEAR 1987
Table F - l l . SUBSIDY VALUES OF 1985 DIRECT LOAN OBLIGATIONS—Continued
Interest rate (in percent)
Agency and programs

Rescheduled loans
Public Law 480
REA:
Electric
Electric (FFB)
Telephone
Rural Telephone Bank
Education:
Guaranteed student loan defaults
National direct student loans
College housing
Housing and Urban Development:
Community development grants (FFB)
FHA fund
Housing for the elderly and handicapped
Low-rent public housing
Rehabilitation loan fund
Interior:
Bureau of Reclamation
Transportation:
MarAd Federal ship financing fund defaultsHighway right-of-way loans
Veterans Administration:
Vendee loans and loans acquired
National service life insurance
Export-Import Bank
NCUA
Small business assistance:
Business assistance
Business loan and investment fund
Disaster
Tennessee Valley Authority (Seven States) . ,
Total—Selected direct loan subsidies

Average
Government
loan

Loan maturity (in years)

Present value of subsidy

Assumed
private loan

Average
Government
loan

Assumed
private loan

Percent of
direct loan
obligations

10.7
3.0

11.8
14.6

5.0
30.0

5.0
20.0

3.0
68.6

6
668

5.0
10.5
5.0
9.0

13.5
13.5
12.7
12.7

35.0
35.0
35.0
35.0

15.0
15.0
15.0
15.0

49.6
17.2
44.9
42.2

279
355
101
71

4.0
5.0
3.0

20.0
15.0
15.5

14.5
10.0
10.0

10.0
10.0
10.0

80.8
66.1
36.5

11.2
11.8
9.0
8.3
4.5

11.5
12.1
13.0
13.0
14.1

6.0
30.0
40.0
1.0
20.0

6.0
30.0
10.0
2.0
15.0

1.6
0.9
24.8
2.8
42.6

3
1
138
399
32

2.0

14.4

33.0

30.0

65.5

10.8

14.5
12.9

5.0
10.0

3.0
20.0

9.5
60.6

32
30

11.0
9.3
11.0
8.2

11.5
11.1
13.1
10.5

30.0
4.0
7.5
.5

5.6
3.0
6.4
1.4

45
3
42
1

11.3
12.3
6.6
10.8

13.8
16.5
16.5
13.7

14.0
7.0

10.0
2.0

5.0

14.2
16.9
22.0
5.4

74
118
70
11

Millions of
dollars

•

821
132
15

9,827

1 The borrower's alternative to the Federal loan could be a federally tax-exempt instrument. Using a tax-exempt rate as an alternative borrowing
rate for the purposes of these calculations, however, would understate the economic subsidy since part of the subsidy would be the loss of tax
revenue. In these cases, therefore, the private market interest rate is the tax-exempt rate adjusted for taxes. The tax-exempt rate is assumed to
be 75% of the taxable rate.
2 The subsidy calculations for CCC commodity loans take into account only the difference between the Federal and private loan terms. The
calculations do not measure the additional subsidy received by farmers in the form of target price deficiency payments. Further, the calculations do
not take into account the effect of these commodity price loans on ultimate commodity market prices (i.e., that the loans help set a floor for the
commodity market prices.)
Note: The comparative loan terms shown above are for illustrative purposes. The present value of the subsidies shown in the right hand
columns take into account fees, grace periods, and amortization schedules, which are not shown.

Table F - l l also shows the degree of subsidy measured as the
amount of subsidy compared to the amount of direct loan obligations. The greater the difference between the Government loan
terms and private loan terms, the higher the degree of subsidy. In
1985, the programs that had the largest degree of subsidy were the
FMS credit forgiven loans, and the RHIF rental housing program.
The calculation method used in Table F - l l measures the value
of the subsidy to the borrower. Another common approach meas-

SPECIAL ANALYSIS B

B-17

ures the cost of the subsidy to the Government. Under this approach, the Treasury borrowing rate is used instead of a comparable private market interest rate. This method shows a lower subsidy because the Government can raise funds more cheaply than the
private sector.
The latter approach does not accurately measure the true cost of
the loan subsidy to the economy, nor does it measure the full
benefit of the subsidy to the borrower. The Treasury borrowing
rate is a risk-free rate on extremely liquid securities, while all of
the loans made by the Government to the public bear some risk
and incur greater transaction costs. Using the Treasury rate as a
proxy for private market interest rates may lead to startling results. Government loans with interest rates slightly above the
Treasury rate will appear to have negative subsidies, although the
loans will offer borrowers a considerable subsidy benefit compared
to the credit terms they could obtain in the private market. A case
in point is the Foreign Military Sales Credit program, which normally charges foreign government borrowers an interest rate oneeighth percentage point above the U.S. Treasury borrowing rate.
Under the Treasury cost-of-money assumption, the program and its
borrowers would appear to involve no subsidies—indeed the foreign
borrower would appear to be subsidizing the U.S. Government.
However, the assumed private lending rate shown in Table F - l l is
13.6%, and the calculated present value of the subsidy of this
program is $157 million. Clearly, foreign governments would not
borrow under this program if they could obtain better terms elsewhere.
Guaranteed loan subsidies are calculated by the same method as
direct loan subsidies. The guaranteed loan subsidy is the present
value of the additional payments that borrowers would have paid if
the loan had not been guaranteed by a Federal agency. In some
cases, private insurance or guarantee coverage of a type offered by
Federal programs is available from private insurors. An example is
private mortgage insurance, which is comparable to the mortgage
insurance or guarantees offered by the FHA and VA. In these
cases, one means of estimating the subsidy is to calculate the
present value of the difference in fees charged by Federal and
private insurors. In other cases, private insurors simply do not
offer insurance or guarantee coverage that is similar to that offered by Federal programs. The absence of private insurance may
be because the credit risks of the guaranteed loans are so large or
so immeasurable that private insurors will not undertake to offer
guarantees or it may be because potential private insurance has
been preempted by a Federal guarantee program, which inherently
has an immensely larger capacity to bear risk and to charge guarantee fees below what the private insuror would charge. In these

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

cases, the subsidy is calculated in terms of the interest rate and
fees a private lender might have charged the borrower in the
absence of a Federal guarantee.
Table F-12 presents these subsidy calculations by major loan
guarantee program for 1985 guaranteed loan commitments. The
present value of the total estimated subsidies is $6.1 billion.
Table F-12. SUBSIDY VALUES OF 1985 GUARANTEED LOAN COMMITMENTS
Interest rate (in
percent) 1
Agency and programs

Funds Appropriated to the
President:
AID housing and other creditOverseas Private Investment
Corporation
Agriculture:
ACIF:
Farm operating
Farm ownership
RDIF:
Industrial development
CCC export credits
Education:
Guaranteed student loans
Health:
Health professions graduate
student insurance
Housing and Urban Development:
FHA:
Single-family
Multi-family
Transportation:
MarAd Federal ship financing
fund
Veterans Administration:
Loan guaranty revolving fund..
Export-Import Bank:
Financial guarantees
Other guarantees and
insurance
Small business assistance:
General business

Loan maturity (in
years)

Guarantee fees (in
percent) 2

Average
Government
guaranteed loan

Assumed
private
loan

Average
Government
guaranteed loan

Assumed
private
loan

Average
Government
guaranteed loan

10.9

14.6

30.0

20.0

2.0

10.4

14.6

10.0

7.0

2.0

12.8
12.1

14.0
14.0

7.0
40.0

5.0
25.0

1.0

10.5
10.2

12.2
13.5

30.0
3.0

15.0
1.0

1.0
.33

15.0

10.0

7.5

13.5

11.4

15.0

16.5

10.0

2.0

13.5

11.8
12.5

12.4
12.4

30.0
40.0

30.0
10.0

3.8

11.2

13.5

20.0

10.0

10.5

11.0

30.0

10.4

12.4

5.0

10.4

12.4

1.5

12.5

15.5

9.0

2.0

1.0

Assumed
private
loan

1.0

Total—Selected
guaranteed loan
subsidies
Includes annual fees.
Flat fees only.
Note—The comparative guaranteed loan terms shown above are for the most frequent type of loan guaranteed by the program, and are shown
for illustrative purposes. The present value of the subsidies shown in the right hand columns take into account all of the types of loans
guaranteed by the program, and include grace periods and amortization schedules, which are not shown.
1

Table F-12, like Table F - l l , measures the value of the subsidy to
the borrower, not the cost of the subsidy to the Government. This

SPECIAL ANALYSIS B

B-17

cost would be the difference between the loan guarantee fee revenue and the net costs of default payments for each loan. A subsidy
calculated on this basis would be much lower than the $6.1 billion
"value of the subsidy to the borrower." It would be inappropriate
to use such a "cost to Government" basis for calculating economic
subsidies, since it would not measure the cost of the loan guarantee
to the economy. This could lead to the mistaken perception that a
program was economically self-sustaining when, in fact, it was not.
The Government need not worry, for example, that it will be forced
out of business should it miscalculate the credit risk of guaranteeing a large loan.
Several qualifications should be kept in mind when reviewing
the estimates of Federal credit subsidies.
First, the subsidy calculation measures the economic cost of a
given direct loan program, but it does not compare the cost to the
benefit. This special analysis does not attempt to measure the
benefits of credit programs and therefore cannot judge their justifications. Despite the absence of such measurements, it should be
clear that the value of a particular credit program cannot be
determined without making such a comparison. For the same reasons, of course, the outlays for a regular expenditure program
provide a measure of the costs but not of the benefits.
Second, the subsidy estimates in Tables F - l l and F-12 are sensitive to changes in assumptions. As an example, if the appropriate
private interest rate for rural housing is 20.0%, rather than 12.1%
as shown in Table F - l l , the present value of the subsidy will
increase from $968 million to $1,182 million.
Third, the theoretical difficulties of calculating Federal credit
subsidies are enormous, and the subsidy values shown in Tables F 11 and F-12 do not overcome all of them. For example, private
investors might wish to have more detailed financial information
about the borrower than the Federal Government might possess.
The private sector would therefore reflect these higher transaction
costs in its charges for loans and loan guarantees. The OMB subsidy estimates do not take account of such transaction costs.
Finally, the subsidies shown are almost certainly underestimated
because they are calculated on a marginal price basis. The implicit
assumption is that the Federal program is not large enough, to
affect the price of the unguaranteed loans. This is not true for
some programs. The large size and pervasive nature of some Federal programs, especially in the housing sector, means that the Federal supply of credit is so large that the market clearing price of
that credit is probably lower than it would otherwise be. This
means that the private lenders in that sector may charge less than
they otherwise would, thereby lowering the subsidy estimate.

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

Naturally, lenders in other economic sectors are charging more
than they otherwise would—since credit has been directed away to
other sectors—thereby raising the subsidy estimate for other programs. Since all sectors of the economy are not equally represented
by Federal credit programs, the total estimates of credit subsidies
are probably understated. For large credit programs in housing and
agriculture, the marginal credit subsidies shown in Tables F - l l
and F-12 are almost certainly lower than the subsidies that would
be calculated if these programs were smaller.
Although economic subsidy values are important in evaluating
the merits of Federal credit programs, it is equally important to
know the actual cash cost of loan and loan guarantee programs to
the Government, since this will affect Government outlays and the
deficit. For direct loans, these costs will be the difference between
the interest income on the loans compared to interest expense, the
default costs and the servicing costs. For loan guarantees it will be
the difference between the revenue from guarantee fees and the
net costs of default. Most loan guarantee programs in 1985 paid
default claims that were higher than the fee revenue they received.
As mentioned in Section V, in order to place loan and loan guarantee programs on a sounder actuarial basis, the administration proposes to raise the level of the interest rates and fees they charge
borrowers. Raising interest rates and fees does reduce the subsidy
to favored borrowers, but in all cases, the programs still provide
subsidies to favored borrowers.
V I I . DEFAULTS

Federal credit programs have markedly different objectives than
private lending institutions, which seek profits. Several Government credit programs, such as the Small Business Administration,
are designed to play the role of "lender of last resort." Federal
loans, therefore, often bear more risk than private lenders are
willing to bear. Partially as a result, some Government loan programs have high default rates. The diverse characteristics of Federal credit programs, each with its own legislative mandate, and the
variety of different borrowers make it difficult to compare default
rates among Federal programs.
Losses from direct loan write-offs appear to have been a miniscule amount of loans outstanding over the last 2 years according to
the present system of Government reporting. In great part, however, this reflects the absence of Government-wide standards for writing off direct loans held in the Government's portfolio. As a result,
direct loans are frequently carried in the Government's portfolio at
their nominal value regardless of their true value. The Eximbank,
for example, still holds in its portfolio $81 million in loans made to
Cuba between 1951 and 1958. The FmHA holds in its portfolio, at

B-17

SPECIAL ANALYSIS B

their full nominal value, several billion dollars of loans that are
delinquent by more than a year.
In the past, losses from loan guarantee programs were considered relatively small for two reasons. First, many of the guaranteed loans involved liens on marketable property, particularly
houses. Second, due to the absence of Government-wide standards,
many loans acquired as a result of defaults on guaranteed loans
were never written off. This makes the losses due to Government
guarantee programs look smaller than they are.
Table F-13 shows the amount of direct loans written off and the
amount of guaranteed loans terminated for defaults. Of all direct
loans outstanding, only 0.3% are recorded as write-offs in 1985. Of
total guaranteed loans outstanding, 1.5% are reported to be terminated in 1985.
Table F-13. DIRECT LOAN WRITE-OFFS, GUARANTEED LOAN TERMINATIONS FOR DEFAULTS, AND
PERCENT OF TOTAL OUTSTANDING LOANS
(In millions of dollars)
Actual
1985

Direct loans:
Guaranteed student loans
FmHA agricultural credit insurance fund
Federal Housing Administration
Small business assistance:
Disaster loan fund
Business loans
Other
Total write-offs
Guaranteed loans.Guaranteed student loans
Veterans Administration
Federal Housing Administration
Small business loans
Maritime Administration
Export-Import Bank
Commodity Credit Corporation
Economic development revolving fund
FmHA agricultural insurance fund
Other
Total terminations
1

Estimate
1986

As Percent of Outstanding Loans1
1987

1985

1986

1987

6
114
55

11
150
79

230
50
168

0.21
0.42
1.31

0.30
0.52
1.86

5.45
0.17
4.11

139
360
98

122
346
72

114
338
91

2.92
7.60
0.05

2.76
6.89
0.03

3.22
7.31
0.04

772

780

991

0.32

0.31

0.39

1,018
1,353
2,234
476
321
258
185
103
26
103

1,300
1,410
2,334
540
500
113
539
23
48
98

1,423
1,479
2,349
557
100
175
599
18
123
74

3.00
1.06
1.22
5.30
4.76
4.77
3.78
32.09
2.07
0.39

3.48
1.06
1.12
5.80
8.28
1.95
8.63
10.22
2.35
0.45

3.54
1.05
1.02
6.14
1.85
2.54
8.22
9.47
3.66
0.33

6,077

6,905

6,897

1.52

1.60

1.48

Average of loans outstanding over year.

There has been a growing recognition that losses in both direct
and loan guarantee programs are higher than reported. In recognition of this problem, the Treasury Department and the Office of
Management and Budget are studying means to improve the Governments reporting of and control over defaults.
In addition, the Government is taking tangible steps by:

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

• automating debt servicing and collections systems to improve
the efficiency and effectiveness of these basic operations;
• referring information on severely delinquent accounts to private consumer or commercial credit reporting agencies;
• using private collection agencies to collect severely delinquent
debt which may be uncollectable otherwise;
• offsetting delinquent debtors' income tax refunds through the
IRS, and Federal employees' salaries for the amounts owed;
• reporting written-off accounts to the IRS as unreported
income towards the debtors' tax return, and
• considering creation of a central Federal credit agency.
The Small Business Administration (SBA) and the FmHA agriculture credit insurance fund report the largest write-offs for direct
loans in 1985. SBA wrote off $499 million, or 5.3% of its average
outstanding loans in that year. The FHA had the largest dollar
amount of guaranteed loan terminations for default. In 1985, FHA
terminated $2.2 billion or 37% of the total amount of guaranteed
loan terminations.
V I I I . THE FEDERAL FINANCING BANK

The Federal Financing Bank (FFB) began operation in May 1974
and has been a significant factor in financing Federal credit activities. The Bank is administered by the Treasury Department.
The FFB was designed to serve as a financial intermediary for
the efficient financing of obligations issued, sold, or guaranteed by
Federal agencies. Use of the FFB by Federal agencies leads to
lower debt financing costs than if the agencies or the guaranteed
borrowers were to sell their obligations individually in the credit
market. Agency obligations trade at premiums above Treasury securities due to their relative illiquidity, smaller size of issue, and
unique financial terms that distinguish them from Treasury securities and each other. This budget proposes to allow the Secretary of
the Treasury to recapture for the U.S. Government these avoided
costs by charging borrowers a special premium.
The FFB performs three functions: (1) it purchases guaranteed
loan assets from Federal agencies; (2) it disburses loans directly to
borrowers when the loans are guaranteed by a Federal agency; and
(3) it buys debt of Federal agencies that are otherwise authorized to
borrow from the public. In all cases, the servicing of the loans and
the operation of the programs remain with the agencies that use
the FFB. Prior to Gramm-Rudman-Hollings, the outlays of the first
two types of transactions were "off-budget." Gramm-Rudman-Hollings attributes FFB outlays to the agencies that use the FFB. The
third type of FFB transaction does not involve outlays since it is an
intragovernmental financing transaction.

B-17

SPECIAL ANALYSIS B

(1) Loan asset sales.—Most loan asset sales are made to the FFB
rather than to the public.
(2) Guaranteed loan originations.—The FFB disburses loans directly to borrowers when the loan is guaranteed by a Federal
agency. The agency's guarantee program thus becomes a program
that effectively makes direct loans. The only programs that are
proposed to use the FFB in this manner in 1987 are the Rural
Electrification Administration and the Tennessee Valley Authority's Seven States Energy Corporation.
(3) Agency debt.—Agencies authorized to borrow from the public,
such as Eximbank, almost always borrow from the FFB (or the
Treasury) instead, since it is less expensive than issuing their own
securities and borrowing directly from financial markets. This borrowing has no effect on outlays, since outlays are recorded when
the proceeds of borrowing are spent by the agencies.
Legislation will be reproposed to require that, at the discretion of
the Secretary of the Treasury, all 100% federally guaranteed loans
of a type ordinarily traded in the investment securities market be
processed through the FFB.
Table F-14 summarizes the activities of the FFB for 1985
through 1991. Table F-22 at the end of this special analysis shows
the activities of the FFB over the same period by agency and
account.
Table F-14. SUMMARY OF FEDERAL FINANCING BANK ACTIVITY
(In billions of dollars)
Actual
1985

Purchases of loan assets from
Federal agencies:
New acquisitions
Net outlays
Outstandings
Guaranteed loan originations:
New acquisitions
Net outlays
Outstandings
Total:
New acquisitions
Net outlays
Outstandings

Estimate
1986

1987

1988

1989

1990

1991

0.1
-4.8
60.2

-3.6
56.7

11.9
4.8
68.2

3.2
1.9
70.1

-0.6
69.5

69.5

0.5
-4.4
65.0

6.4
2.6
53.4

4.3
1.8
55.2

2.8
-1.4
53.8

2.0
0.1
53.9

1.6
-0.3
53.6

1.4
-0.6
53.0

1.2
-0.7
52.3

18.3
7.4
121.6

7.6
3.7
125.3

2.8
-1.9
123.3

2.4
0.1
123.4

2.1
-4.7
118.7

1.5
-5.4
113.3

1.2
-4.3
109.0

1.2
31.8

1.3
33.1

0.9
34.0

1.3
35.3

0.9
36.2

0.4
36.6

0.3
36.8

0.4

ADDENDUM
Agency Borrowing:
Net change
Outstandings
* Less than $50 million.

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

The proper treatment of FFB transactions has been a major
accounting issue with respect to the unified budget. In principle, all
outlays of the Federal Government should be reported in the unified budget. The past use of the FFB was the greatest exception to
the comprehensive principles of the unified budget. From 1978 to
1985, FFB outlays averaged 96% of all off-budget outlays. The
Gramm-Rudman-Hollings Act attributes the budget authority and
the outlays that the FFB incurs back to the agency responsible for
the transaction.
I X . LOAN ASSET SALES AND REPURCHASES

Loan assets are direct loans that an agency has made to the
public and on which repayments are still owed. These loan assets
are often sold to either the public or the FFB. In the case of loan
asset sales to the FFB, the agency selling the loan assets also
guarantees the repayment of the loan of the FFB. In the case of
sales to the public, the agencies do not normally guarantee the
repayment.
The repurchase of loan assets, occurs when the agency buys back
from the FFB or the public the loan assets it previously sold.
Although the repurchase agreement requires an agency to incur a
budgetary obligation, repurchases of loan assets from the FFB are
intragovernmental transactions and do not comprise new credit
transactions with the public.
The original method of selling loan assets was to sell the title of
the individual loans to the public. Later, various types of certificates representing pools of loans were sold to the public. However,
with the creation of the FFB, most loan assets have been sold by
agencies to the FFB as a means of financing the program. In 1985,
89% of total loan asset sales were to the FFB. Table F-15 shows
data for loan asset sales and repurchases.
Prior to this budget, the largest volume of loan assets sold were
certificates of beneficial ownership (CBOs) sold to the FFB by the
Farmers Home Administration (FmHA) and Rural Electrification
Administration (REA) to support their direct loan programs. The
President's Commission on Budget Concepts recommended in 1967
that the sale of such securities be treated as borrowing because
there is little difference in substance between (1) an agency selling
securities labeled "certificates of beneficial ownership," (2) the
same agency selling securities labeled "debt," or (3) the Treasury
Department selling securities labeled "debt." While this treatment
generally has been applied, legislation requires that the CBO's of
FmHA and REA be treated as loan assets rather than debt.
Loan assets sold to the FFB are repurchased by the agency at
scheduled intervals. At present, the FmHA is the only agency that

SPECIAL ANALYSIS B

B-17

repurchases its loan assets, but REA plans to begin repurchasing
loan assets in 1990.
With this budget, the Federal Government is embarking on a
pilot program to sell off a portion of its loan portfolio to the public.
The pilot program will sell loans with a nominal value of $4.4
billion and an estimated market value of $2.0 billion in 1987.
Including interest expense, the overall budget deficit will be reduced by $1.8 billion in 1987. Budget deficits in later years will
increase, however, because a sale in 1987 means that the Government loses the expected stream of principal repayments and interest income in later years.
Sales of loans without a Federal guarantee to the public are
attractive to the Government for several reasons. First, the private
purchaser may be more efficient in administering the loan than
the Federal agency. Selling the loans allows the Government to
reduce its administrative expenses. Second, the discount from the
face value of the loans provides an unambiguous measure of the
subsidy of the loan. This subsidy can then be compared with the
benefits of the loan, and thereby provide the executive branch and
Congress with the information necessary to evaluate the relative
benefits and costs of such subsidized loans. The table below shows
the nominal amount of loans sold to the FFB or the public.
Selling loan assets to the public with a Government guarantee is
a form of federally assisted borrowing from the public. The Government incurs a contingent liability in the amount of the loan guarantee. Guaranteed loan asset sales are, however, a more costly
means of borrowing for the Government than selling Treasury
securities, since purchasers of the guaranteed loan assets frequently will offer prices well below the face value of the loans, despite
the Government guarantee. The lower price is offered because the
loan assets may be relatively illiquid or have unique characteristics
that reduce their value to the purchaser. Yet, because of the Government guarantee, such sales do reduce the demand for the alternative investment of a Treasury security. It is more efficient for
the Government to meet its borrowing needs by issuing Treasury
securities. For this reason, administration policy is to sell loan
assets to the public without a Government guarantee.
X . CONTINGENT LIABILITIES

The Federal Government provides guarantees and insurance
against several types of risk for many sectors of the economy.
Under certain specified contingencies, such as borrower default or
natural disaster, these programs require that the Government
assume a liability and so make payments. These contingencies
expose the Government to the possibility of loss sometime in the
future.

F-l 6

THE BUDGET FOR FISCAL YEAR 1987
Table F-15. LOAN ASSET SALES AND REPURCHASES
(In millions of dollars)
Transaction

Agency or program

FFB loan assets.-1
Overseas Private Investment CorporationAgriculture:
Rural Electrification Administration
Agriculture credit insurance fund....
Rural housing insurance fund
Rural development insurance fund..
Health and Human Services:
Medical facilities
Health maintenance organizations...
Small business development companies..
Total, FFB loan assets
Other loan assets:2
Agriculture:
Rural Electrification Administration.
Rural telephone bank
Rural development insurance fund..
Rural housing insurance fund
Commerce:
Economic development
Education:
Student financial assistance
Guaranteed student loans
Higher education facilities
College housing loans
Housing and Urban Development:
Federal Housing Administration
Rehabilitation loans
Veterans' Administration:
Loan guarantees
Small business assistance:
Disaster loans
Business loans

repurchases from FFB..
sales to FFB
repurchases from
sales to FFB
repurchases from
sales to FFB
repurchases from
sales to FFB
repurchases from

FFB..

379
191
6,815
4,157
3,695
2,110
1,010
595

repurchases from FFB..
sales to FFB
repurchases from FFB..
repurchases from FFB..

9
3
10
7

sales to FFB
repurchases from FFB..

11,902
7,084

sales
sales
sales
sales

to
to
to
to

the
the
the
the

FFB..
FFB..
FFB..

publicpublicpublicpublic..

sales to the public..
sales
sales
sales
sales

to
to
to
to

the
the
the
the

public..
public.,
publicpublic-

sales to the publicsales to the publicsales to the publicsales to the public..
sales to the public..

Subtotal, other assets
sales to the publicHousing and Urban Development:
GNMA tandem plan (FHA/VA mort- sales to the publicgages).
Total, other assets

Actual
1985

sales to the public..

713
764
1,477

See table F-22 for details of FFB purchases.
2 "Sales to the public" include sales to government-sponsored enterprises such as FNMA and FHLMC, which are among the principal purchasers
of HUD and VA mortgages.
1

SPECIAL ANALYSIS B

B-17

A contingency has been defined by the Financial Accounting
Standards Board (FASB) as an existing condition, situation, or set
of circumstances involving uncertainty as to possible gain ("gain
contingency") or loss ("loss contingency") to an enterprise that will
ultimately be resolved when one or more future events occur or fail
to occur.6 Examples of loss contingencies, the only category applicable to this discussion, include actual or possible claims and assessments and guarantees of indebtedness of others.
Federal accounting practices are not governed by FASB; however, the definition provides a basis for exploring the Government's
exposure due to insurance and loan guarantee programs. The data
presented in Table F-16 do not represent the Government's expected loss contingency for 1987 alone, as would be presented in an
annual corporate financial statement, but rather the overall contingent liability or exposure of the Government resulting from all
potential insurance claims and guaranteed loan defaults. As can be
seen in the accompanying table, the Government bears risk from a
variety of sources, including deposit insurance, loan guarantee programs, flood and crop insurance, and pension insurance.
Table F-16. CONTINGENT LIABILITY OF THE FEDERAL GOVERNMENT
(In millions of dollars)
Program or activity

Federal deposit insurance
Loan guarantee programs 1
National flood insurance
Federal crop insurance
Pension Benefit Guaranty Corporation
Total
1

Gross basis.

The credit budget encompasses all loan guarantee programs, but
only a small part of the transactions of Federal deposit insurance
programs (see the section on these programs for a more complete
discussion), and only the lending activity of the Pension Benefit
Guaranty Corporation. Table F-16 also shows other programs that
expose the Government to significant risk that are outside the
ambit of the credit budget; furthermore, there are other, smaller
insurance programs not in the table that increase Federal contingent liability.
The administration is studying the creation of a pilot program to
reinsure its guaranteed loans. Such a program would involve purchasing reinsurance policies from private insurance companies that
would cover the Federal Government's contingent liability due to
the loan guarantees. The cost of reinsurance policies would show
up in the budget as an outlay and would reflect in real terms the
cost to the Government of its guaranteed loans.
6

Financial Accounting Standards Board, "Statement of Financial Accounting Standards No. 5," Stamford, CT.

F-l 6

THE BUDGET FOR FISCAL YEAR 1987
X I . FEDERAL DEPOSIT INSURANCE

The Federal Government insures depositors through the Federal
Deposit Insurance Corporation (FDIC), the Federal Savings and
Loan Corporation (FSLIC), and the National Credit Union Administration. Some credit activities of these programs have been reflected in past credit budgets, while other activities have not.
Deposit insurance offered by these programs serves two purposes:
(1) it helps stabilize the Nation's monetary and financial system
and thereby the economy as a whole; and (2) it protects depositors
in the insured financial intermediaries. Table F-17 below shows
that the value of insured deposits at the end of 1985 was over $2.3
trillion.
Table F-17. FEDERAL DEPOSIT INSURANCE
(In billions of dollars)
1983

Federal Deposit Insurance Corporation
Federal Savings and Loan Insurance Corporation
National Credit Union Administration
Total

1984

1,210
608
78

1,322
695
88

1,432
769
104

1,896

2,105

2,305

1985

Federal deposit insurance is not included in the guaranteed loan
portion of the credit budget, principally because it does not directly
allocate credit to the ultimate borrowers of that credit. Deposit
insurance directly affects the liabilities (the deposits) of financial
intermediaries but only indirectly their assets (loans). All other
Federal guarantee programs are structured to influence the assets
or loans of financial intermediaries directly. Nonetheless, as the
1984 Economic Report of the President states, Federal deposit insurance does give insured institutions "an incentive to take on more
risk than they would otherwise, either by making riskier loans or
by increasing leverage" (page 165). To this degree, deposit insurance indirectly allocates credit. It also indirectly affects the allocation and amount of credit by changing depositor behavior as a
result of its protection, and by insuring the stability of the financial system and the economy.
Federal deposit insurance programs may assist insured depositors in a variety of ways. When an insured financial institution
becomes troubled, deposit insurance programs may (1) liquidate the
institution and pay depositors directly; (2) merge the troubled institution with a healthier institution, in some cases providing financial assistance to the acquiring partner in the merger; or (3) provide financial assistance directly to the troubled institution in the
expectation that it will recover. Financial assistance to private

SPECIAL ANALYSIS B

B-17

financial intermediaries has consisted of equity purchases, purchases of physical assets, and direct loans and loan guarantees.
Direct loans involving disbursements of cash are included in the
credit budget. These amounts have typically been small for the
FDIC and the FSLIC because the preferred means of helping troubled financial intermediaries was to arrange a merger with a
healthy institution. This type of transaction did not normally involve the disbursement of cash and the creation of a loan asset
held by the FDIC or FSLIC.
The increase in bank failures, particularly of some larger banks,
has increased the amount of FDIC and FSLIC loans to private
financial intermediaries. While many of these transactions do not
involve the disbursement of cash by a Federal agency to the troubled financial institution, they do involve the acquisition by the
Federal agency of both loan assets and liabilities of the troubled
institution. The dollar amount of loan assets held by the Federal
Government has increased. For that reason, transactions of this type
are scored in the 1987 credit budget as direct loan obligations and
increases in direct loans outstanding. Direct loan obligations made
by deposit insurance programs amounted to $833 million in 1985.
X I I . LEASING

A lease, according to the Financial Accounting Standards Board
(FASB), is "an agreement conveying the right to use property,
plant or equipment (land and/or depreciable assets) usually for a
stated period of time." The Federal Government is both a lessor
and a lessee in hundreds of leases involving billions of dollars
every year. As a lessor, the Government leases to private entities
on-shore and off-shore acreage for oil and gas exploration and lands
for grazing and timber harvesting. Total acreage leased is 308
million, which raises $8 billion in proprietary receipts annually.
As a lessee, the Federal Government leases from private entities
office facilities, computers, telecommunications equipment, satellites, ships, cars, planes and other equipment. Federal agencies sign
both operating and capital leases. An operating lease is a shortterm transaction that does not involve a change in "material ownership interest" in an asset. The lessor holds title to, performs
maintenance on, and regains use of the asset after the lease period.
A capital lease (or a financial lease) involves a basic change in
the "material ownership interest" in the asset. The lease agreement usually transfers ownership of the asset to the lessee at the
end of the lease period. The lease period covers at least 75% of the
economic life of the asset, and the present value of the minimum
lease payments is at least 90% of the market value of the asset.

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

Capital leases, in essence, are a means by which lessees can purchase the asset by borrowing from the lessor.
Government-wide guidelines on leasing are set forth in Office of
Management and Budget Circular No. A-104 ("Comparable Cost
Analysis for Decisions to Lease or Purchase General Purpose Real
Property"), which was issued in 1972. This circular is currently
undergoing revision in an effort by the administration to refine the
decision-making process agencies use in signing operating or capital leases. A capital lease typically results in the purchase of the
asset by the lessee at the end of the lease term. This relationship
narrows the true financing analysis to a trade-off between purchasing an asset through lease payments or through Treasury securities. In almost every case, it costs the Government less to purchase
the asset rather than sign a capital lease for the same asset.
X I I I . T A X EXEMPT CREDIT

Interest on State and local government obligations generally has
been exempted from the Federal income tax since its adoption in
1913.7 Federal tax exemption increases the demand for these obligations, since it results in higher interest rates net of taxes for the
lenders and investors. This increase in demand reduces the interest
rates of these obligations relative to the pre-tax interest rates of
taxable securities. Consequently, tax-exempt interest rates in 1984
have normally been about 75% of taxable interest rates on longterm obligations with similar credit risk.
Tax exemption reallocates scarce credit resources, just as do
Federal direct loans and loan guarantees. Borrowers aided by Federal tax-exempt status have access to credit resources at preferential interest rates over competing borrowers without the taxexempt status. Borrowers who benefit both from tax exemption and
Federal guarantees have an advantage over all other borrowers,
including the Federal Government, since the interest on Federal
Government debt is taxable.
Although tax-exempt financing alters the allocation of credit and
has costs similar to other Government financing programs, it is not
included in the credit budget for several reasons. First, unlike
other credit assistance, the statutory authority for tax-exempt
credit generally allows unlimited access that is unilaterally elected
by eligible borrowers. Second, tax-exempt credit is not controlled by

7 Tax exemption is a tax expenditure. (See Special Analysis G, "Tax Expenditures.") Special Analysis G
includes a discussion of revenue losses attributable to special provisions of the tax code, including various types
of tax-exempt bonds.

SPECIAL ANALYSIS B

B-17

the budget process in the same manner as direct loans or guaranteed loans; effective control of tax-exempt financing can only be
achieved through legislated changes to the tax code.
A relatively small portion of tax-exempt financing is guaranteed
by the Federal Government and so is included in the credit budget
as guaranteed loan commitments. This occurs when the Federal
Government guarantees the financial assets that underlie the taxexempt obligation. Examples include State and local government
bonds that finance home mortgages guaranteed by the Federal
Housing Administration or the Veterans Administration, or bonds
that finance student loans guaranteed by the Department of Education. No complete data exist on the amount of guaranteed loans
that are directly or indirectly linked to tax-exempt financing.
This administration and previous ones have believed for several
reasons that Federal agencies should not offer direct or indirect
guarantees for securities that benefit from tax-exempt status. First,
tax-exempt financing is an inefficient means of financing, since the
tax loss to the Treasury is greater than the savings from the lower
financing costs available to the borrower. Therefore, it should not
be stimulated by benefiting from a Government guarantee. Second,
the guarantee of tax-exempt financing confers double benefits on
investors in those securities: they pay no Federal income tax and
they bear no risk. This class of debt obligation is therefore superior
to Treasury securities.
OMB's Circular A-70 states explicit prohibitions against the linkage of Federal guarantees with tax-exempt instruments. Congress
has generally agreed with this policy. The Deficit Reduction Act of
1984 includes provisions that deny tax-exempt status to obligations
that are guaranteed directly or indirectly by the Federal Government, including obligations issued by institutions insured by Federal deposit insurance programs. The Act does allow several exceptions to the rule, including certain bonds to finance mortgages
insured by FHA and guaranteed by VA, and student loans guaranteed by the Department of Education. In separate legislation, the
Congress has explicitly prevented the SBA from refusing to guarantee tax-exempt bonds under its pollution control bond guarantee
program, which the administration again proposes to terminate in
1987.
During the first half century of the income tax, tax-exempt borrowing was mainly for public purposes such as financing roads and
schools. From the 1960s on, however, the benefits of tax-exempt
financing have increasingly been made available to private businesses. State or local governments typically establish authorities
that function as financial institutions in providing tax-exempt fi-

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

nancing to private borrowers. They use their tax-exempt financing
to purchase an asset, which in turn, is purchased from them by the
borrower, or lend the proceeds of an issue to a private borrower. In
general, the private borrower is solely responsible for the payment
of interest and principal even in the event of default. The State or
local government, in some cases, can benefit from investment earnings on funds held for temporary periods and from fees paid by
borrowers.
Industrial development bonds (IDBs) issued for use by private
business were made taxable in the 1968 and 1969 tax acts, but a
number of major exceptions were permitted. Tax-exempt IDBs are
permitted for pollution control, sewage and waste facilities, multifamily rental housing, facilities financed with "small-issues" of
under $10 million in face amount, and certain other private business projects. In recent years, tax-exempt bonds have also become a
common means of financing owner-occupied housing, student loans,
and private nonprofit hospitals and educational facilities.
Concerned by the rapid growth of private purpose tax-exempt
bonds, Congress recently placed further restrictions on their use.
The Omnibus Reconciliation Act of 1980 imposed a number of
restrictions on tax-exempt mortgage subsidy bonds for owner-occupied housing, including limitations on the volume issued in each
State. The Tax Equity and Fiscal Responsibility Act of 1982 required that IDBs be approved by an elected public official after a
public hearing, and that assets of certain IDB-financed projects
placed in service after 1982 be depreciated using the straight-line
method rather than accelerated depreciation. The 1982 tax act also
eliminated the tax exemption for "small issue" IDBs issued after
1986.
The Deficit Reduction Act of 1984 (DEFRA) restricted the annual
volume of student loan bonds and most IDBs issued in each State
to the greater of $150 per capita or $200 million, approximately $37
billion in 1984. The per capita limitation will be reduced to $100 in
1987 to reflect the termination of the small-issue exception for nonmanufacturing facilities; authority for small-issue IDBs for manufacturing facilities was extended through 1988. DEFRA also required IDB issuers to rebate any excess arbitrage earnings to the
Federal Government, and prohibited the use of consumer loan
bonds. Although the Act extended the use of mortgage subsidy
bonds for 4 years, an optional program for issuers to provide mortgage credits to eligible homebuyers in lieu of tax-exempt bonds was
enacted. Finally, volume limits on the use of veterans' housing
bonds restricted their use to five States.
Even with these restrictions, the volume of private purpose taxexempt bonds has continued to increase. Table F-18 shows the
growth in the volume of long-term, tax-exempt bonds. Total issues

SPECIAL ANALYSIS B

B-17

more than doubled from 1981 to 1984, increasing from $55 billion
to $116 billion. Over the same time period, the volume of private
purpose tax-exempt bonds rose at a somewhat faster rate, increasing from $31 billion in 1981 to $74 billion in 1984. In 1976, private
purpose tax-exempt bonds accounted for one-third of total taxexempt, long-term issues. This percentage rose to 60% by 1980, and
has remained fairly constant since then.
The President's tax reform proposal of May 1985 would have
eliminated tax exemption for nongovernmental bonds, defined as
bonds for which more than 1% of the proceeds are used by a
nongovernmental person. The Tax Reform Act of 1985 (H.R. 3838),
passed by the House in December 1985, also restricts the use of
private purpose bonds relative to current law, but by considerably
less than the president's proposal. Bonds are defined as nongovernmental if the lesser of 10% or $10 million of the proceeds are used
by nongovernmental persons or if the lesser of 5% or $5 million
are loaned to a nongovernmental person. Nongovernmental bonds
that are not specifically exempted are taxable; those that are taxexempt are generally subject to a volume cap. In the House bill a
single volume cap of $175 per capita or $200 million would replace
the three separate volume caps under current law. The cap would
cover all nongovernmental bonds other than airport bonds and in
addition cover the nongovernmental part of governmental bonds.
The bill also tightens arbitrage profit limitations and restricts advance refunding.
The effective January 1, 1986, date in the House bill, and the
consequent rush to market, mainly to avoid the proposed restrictions on arbitrage and advance refunding, helps account for the
record $178 billion in long-term, tax-exempt issuances in 1985. Taxexempt issuers also took advantage of lower interest rates in order
to refinance existing debt. An estimated $50 billion of long-term
tax exempts were issued in 1985 for refunding. A return to the pre1985 rate of growth in tax-exempt financing is assumed for the
1986 and 1987 volume projections.
Special Analysis G, "Tax Expenditures," shows the annual revenue loss from outstanding tax-exempt bonds issued for various
purposes.

Table F-18. TAX EXEMPT FINANCING 1
Cn
to

(In billions of dollars)
Calendar years
Actual2

Estimates

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

17.4

19.7

28.1

32.5

30.9

49.6

57.3

74.0

88.4

79.2

71.3

Housing bonds
Single-family mortgage subsidy bonds
Mufti-family rental housing bonds
Veterans general obligation bonds

4.4
1.0
2.9
0.6

6.9
3.4
2.5
1.2

12.1
7.8
2.7
1.6

14.0
10.5
2.2
1.3

4.8
2.8
1.1
0.9

14.6
9.0
5.1
0.5

17.0
11.0
5.3
0.7

20.5
12.8
5.5
2.2

26.7
15.3
10.3
1.1

22.8
15.9
5.8
1.1

24.3
17.9
5.3
1.1

Private exempt entity bonds 3
Student loan bonds
Pollution control industrial development bonds
Small-issue industrial development bonds
Other industrial development bonds 4

4.3
0.1
3.0
2.4
3.2

2.9
0.3
2.8
3.6
3.2

3.2
0.6
2.5
7.5
2.2

3.3
0.5
2.5
9.7
2.5

4.7
1.1
4.3
13.3
2.7

8.5
1.8
5.9
14.7
4.1

11.8
3.3
4.5
14.7
6.0

11.7
1.2
8.1
18.3
14.1

19.4
1.1
7.1
19.3
14.8

15.4
0.8
7.1
18.9
14.2

17.4
0.8
7.4
6.0
15.4

29.5
46.9

29.3
49.1

20.3
48.4

22.0
54.5

24.2
55.1

35.3
84.9

36.2
93.5

41.7
115.7

89.8
178.2

52.2
131.4

57.0
128.3

Private purpose tax-exempts

Public purpose tax-exempts
Total new issues, long-term tax exempts

Includes long-term refunding bonds.
Includes some estimates.
Private exempt entity bonds are obligations of Internal Revenue Code Section 501(c)(3) organizations, such as private non-profit hospitals and educational facilities.
4 Other IDB's include obligations for private businesses that qualify for tax exempt activites, such as sewage disposal, airports and docks.
Source: Office of Tax Analysis, Department of Treasury.
1

2
3

1987

3
H
W
c!

8
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o
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r
M
£

SPECIAL ANALYSIS B
XIV.

B-17

SUMMARY

The need for better control over Federal credit is widely recognized within the executive branch and the Congress. With $257
billion in direct loans outstanding and $410 billion in primary
guaranteed loans outstanding in 1985, the Federal Government is
the single largest financial intermediary in the United States. Its
credit policies and practices affect all major segments of the economy.
To gain better control over Federal credit, the President's budget
since January 1980 has included a Federal credit control system,
composed of the credit budget and credit limitations proposed in
individual appropriations bills. This system has been strengthened
by Gramm-Rudman-Hollings. The Act requires Congress to establish aggregate limits on new direct loan obligations and guaranteed
loan commitments in the budget resolution process and requires
that credit authority totals be included in the budget reconciliation
process. The management of Federal credit programs should be
improved through consistent application of Government-wide
standards on loan defaults and write-offs.
These steps, though critical, are only part of the improvements
necessary for better control. The subsidy element in Federal credit
programs needs to be measured more accurately and targeted more
effectively. A key improvement in Federal credit programs would
be to state their objectives and the means of achieving those objectives in a straightforward manner. The subsidy costs of operating
these programs could then be compared to the economic and social
benefits realized in achieving the programs' objectives.
XV.

APPENDIX

ADDITIONAL DISCUSSIONS OF FEDERAL CREDIT PROGRAMS AND
RELATED ISSUES IN THE 1987 BUDGET DOCUMENTS

• Special Analysis E ("Borrowing and Debt") contains information on Federal borrowing, borrowing by Government-sponsored enterprises, and the Federal Financing Bank.
• Special Analysis G ("Tax Expenditures") contains information
on tax-exempt borrowing.
• Special Analysis H ("Federal Aid to State and Local Governments") contains information on Federal loans to State and
local governments.
• Part 5 of the Budget ("Meeting National Needs: The Federal
Program by Function") contains a discussion of major credit
programs by budget function (e.g., Agriculture, Commerce and
Housing, International Affairs).
• Part 6c of the Budget ("The Federal Credit Budget") presents
a summary of much of the material in this special analysis.

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

• Part 6e of the Budget ("Summary Tables") contains summary
tables of the credit budget totals (Table 1) and summaries by
agency of direct loan obligations and guaranteed loan commitments (Table 5).
• The Budget Appendix contains additional information for
each credit program by budget account. Part I of the Appendix ("Detailed Budget Estimates") provides credit program
information by major departments and agencies. Part IV
("Government-Sponsored Enterprises") provides information
on these enterprises.

Table F-20.GUARANTEEDLOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT (in millions of dollars)—Continued
Actual 1985

Agency or Program

Funds Appropriated to the President:
Economic support fund

Obligations
Loan disbursements
Change in outstandings.,
Outstandings

1988

1989

1990

6,222

210

379
379
309
6,531

404
404
308
6,839

411
411
313
7,151

417
417
317
7,468

422
422
320
7,788

Obligations
Loan disbursements
Change in outstandings.,
Outstandings

4,940
2,275
916
1,056

4,967
3,770
135
1,191

5,661
6,121
3,012
4,203

5,771
5,916

5,870
5,935
2,587
9,455

5,955
5,889
1,370
10,825

Foreign military sales (loans made by FFB)1

Obligations
Loan disbursements
Change in outstandings.,
Outstandings

1,683
978
18,089

950
187
18,275

473
-306
17,969

303
-440
17,529

173
-613
16,916

147
-720
16,197

Guarantee reserve fund (foreign military sales defaults).

Obligations
Loan disbursements
Change in outstandings..
Outstandings

762
762
390
1,165

808
130
1,295

801
801
36
1,332

800
800
35
1,367

800
800
35
1,402

800
800
35
1,437

Overseas Private Investment Corporation..

Obligations
Loan disbursements
Change in outstandings..
Outstandings

15
6
3
36

15
6

Foreign military sales..

Overseas Private Investment Corporation (FFB loan

AID functional development assistance..

assets)2..

252
271

Estimate
1987

1986

Change in outstandings..
Outstandings

-5

Obligations
Loan disbursements
Change in outstandings.,
Outstandings

315
292
277
3,117

14
6
2
38
-5

301
274
258
3,375

6
1

2,666
6,869

-1

315
223
200
3,576

315
339
331
3,906

315
339
331
4,237

315
340
332
4,569

Table F-20.GUARANTEEDLOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT (in millions of dollars)—Continued
Actual 1985

Agency or Program

AID development loans revolving fund

AID private sector revolving fund

AID housing and other credit guarantees

AID miscellaneous appropriations

Agriculture:
Farmers Home Administration:
Agricultural credit insurance fund

Agricultural credit insurance fund (FFB loan assets) 2

Rural housing insurance fund

Estimate
1986

1987

1988

1989

1990

Obligations
Loan disbursements..
Change in t
Outstandings.

-288
8,738

-300
8,438

-295
8,143

-276
7,867

-276
7,591

-282
7,309

Obligations
Loan disbursements.,
Change in t
Outstandings..

18
3
3
3

15
12

15
10
*

15
10
4
25

15
10
-4
20

Obligations
Loan disbursements.,
Change in i
Outstandings.

37
37

45
45
9
56

49
49
9
65

51
51
32
98

-9
156
1,500
1,635
-364
12

Obligations
Loan disbursements
Change in outstandings.
Outstandings

8
8

- 8

114

51
51
/
121

-9
147

- 6

—6

1,000
1,061
32
44

500
-19
1,334
1,378

59
59

141

173

165

4,757
4,735
-22
388

3,198
3,557

Outstandings

2,658
28,175

922
29,097

-382
28,715

—385 -3,434
28,330
24,896

Obligations
Loan disbursements
Change in outstandings.,
Outstandings

2,718
2,935
-106
329

1,336
2,292
448
111

1,040
-382
395

598
-415
-19

Obligations
Loan disbursements
Change in outstandings
Outstandings

-11

377

231
23
4

135 .

26
-46
1,332

-2,620

22,276

518
521

Rural housing insurance fund (FFB loan assets) 2

Change m outstandings.

Rural development insurance fund

Obligations
Loan disbursements

Outstandings

294
-2
120

148
21
141

58
-141

-180
8,138

8,138

-46
646

8,318

Obligations
Loan disbursements

72
72
-20
803

-15
788

-41
748

—18
730

730

-38
692

10,186
10,186
4,378
12,233

15,956
16,116
4,553
16,786

10,840
10,680
-3,662
13,125

10,356
10,356
-2,276
10,849

8,738
8,738
-2,627
8,222

7,289
7,289
-2,413
5,809

5,526
5,526
—1,576
4,232

Obligations
Loan disbursements

Obligations
Loan disbursements
Outstandings

Obligations
Loan disbursements

Change in outstandings..
Outstandings

Obligations
Loan disbursements

Change in outstandings.
Outstandings

567
-80
122
362
8,318

Change in outstandings

Rural electrification and telephone revolving fund

-1,415
24,187

7,956

Outstandings

Public Law 480 long-term export credits

-1,990
25,602

313
7,956

Change in outstandings.

Rescheduled guaranteed loans

-1,000
27,592

415
7,643

Outstandings

Storage facility loans

28,592

Change in outstandings

Change in outstandings.

Commodity loans

-150
28,592

421
478
-4
60

Outstandings

Commodity Credit Corporation:
Short and medium term export loans

391
28,742

455
531
-40
65

Change in outstandings.

Rural development insurance fund (FFB loan assets) 2

1,585
28,351

Obligations
Loan disbursements

415
141
202

1
1
-318
398

-264
134

-105
29

-29

184
184
1,307
1,671

614
614
777
2,448

683
683
727
3,175

584
584
616
3,791

574
574
583
4,374

497
497
431
4,805

451
451
310
5,115

975
961
777
10,046

906
906
671
10,717

827
827
610
11,327

843
843
615
11,942

859
859
625
12,567

874
874
632
13,199

887
887
641
13,840

1,738
797

1,196
742

290
493

145
499

435
489

488

500

Table F-20.GUARANTEEDLOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT (in millions of dollars)—Continued
Actual 1985

Agency or Program

Outstandings
Rural electrification and telephone revolving fund (loans made by FFB)1

Obligations
Loan disbursements..
Change in t
Outstandings.

Estimate
1986

1987

1988

74
10,237

-45
10,191

-85
10,107

2,063
2,063

2,019
2,019
719
22,394

1,088

21,675

1989

1990

10,012

-94

-101
9,912

-123
9,788

1,815
1,804
1,304
23,698

1,500
1,493
993
24,691

1,300
1,297
797
25,488

1,100
1,098
598
26,086

4,051

Outstandings

3,724

188

327
4,051

4,051

Obligations
Loan disbursements..
Change in t
Outstandings.

168
73
55
1,383

177
89
71
1,454

139

-31
1,423

-33
1,390

46
89
-35
1,355

89
-38
1,318

Economic development revolving fund

Obligations
Loan disbursements..
Change in t
Outstandings.

93
101
7
631

21
24
-49
582

16
16
-38
544

14
14
-16
528

11
11
-13
514

-11
503

EDA miscellaneous appropriations

Obligations
Loan disbursements
Change in outstandings..
Outstandings

—3

—3
95

17
112

-10

-5
97

ITA operations and administration

Obligations
Loan disbursements
Change in t
Outstandings..

Rural electrification and telephone revolving fund (FFB loan assets)2

Rural telephone bank

Commerce:

Obligations
Loan disbursements..
NOAA coastal energy impact fund

1
-1
-7
2

102

-1

Change in outstandings
Outstandings

-2
94

-2
92

Obligations
Loan disbursements
Change in outstandings
Outstandings

6
6
-3
15

3
3
*
15

Defense stock fund

Obligations
Loan disbursements
Change in outstandings
Outstandings

Production guarantees

Obligations
Loan disbursements
Change in outstandings
Outstandings

Production guarantees (loans made by FFB) 1

Obligations
Loan disbursements
Change in outstandings
Outstandings

3
3
6

6
6
12

6
6
18

2
2
20

Obligations
Loan disbursements
Change in outstandings
Outstandings

1,533
1,533
1313
1,313

495
495
438
1,751

-30
1,721

-34
1,687

-42
1,645

-41
1,603

-43
1,560

Guarantees of SLMA obligations (loans made by FFB) 1

Obligations
Loan disbursements
Change in outstandings
Outstandings

5,000

-30
4,970

-30
4,940

-30
4,910

-30
4,880

-30
4,850

Guaranteed student loans

Obligations
Loan disbursements
Change in outstandings
Outstandings

1,076
1,033
738
3,203

1,260
1,249
843
4,046

1,377
1,372
356
4,401

1,476
1,472
457
4,858

1,516
1,514
330
5,188

1.501
1.502
153
5,341

1.466
1.467
-39
5,302

199
180

1
170

190
42

240
172

290
239

340
289

340
334

NOAA Federal ship financing (fishing)

Defense:

Navy industrial fund (loans made by FFB) 1
Education:

Obligations
Loan disbursements
National direct student loans

-2
90

-2
88

-2
86

-i7
84

-2
82

-15

G
O
KI
T

-1

8
>

^
>
*<
C)
Z
C
O

^
S

Table F-20.GUARANTEEDLOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT (in millions of dollars)—Continued
Actual 1985

Agency or Program

Estimate
1986

1987

1988

1989

1990

1991

Change in outstandings
Outstandings
College housing loans

Higher education

Higher education facilities loans and insurance

Energy:
Alternative fuels (loans made by FFB)1

159
5,133

111
5,244

-47
5,197

81
5,277

170
5,447

228
5,675

264
5,939

Obligations
Loan disbursements
Change in outstandings
Outstandings

40
43
-375
2,300

61
-21
2,280

61
-1,119
1,161

21
-990
171

-7
164

-7
157

-6
151

Obligations
Loan disbursements
Change in outstandings
Outstandings

-9
77

-24
52

-18
34

-10
24

Obligations
Loan disbursements
Change in outstandings
Outstandings

-19
356

-17
339

-17
322

-108
213

-88
27

-2
26

Obligations
Loan disbursements
Change in outstandings
Outstandings

12
12
12
12

Geothermal resources (loans made by FFB)1

Obligations
Loan disbursements
Change in outstandings
Outstandings

6
-6

Bonneville Power Administration

Obligations

-98
115

247
-1,290

Obligations
Loan disbursements
Change in outstandings
Outstandings

-24

Geothermal resources

13
13

-12

20
19
25

20
18
42

Obligations
Loan disbursements
Change in outstandings
Outstandings

2
3
—3
27

2
3
1
29

2
2
1
30

2
2
1
31

2
2
1
32

2
2
1
33

2
2
1
34

HMOs and medical facilities (FFB loan assets) 2

mge in outstandings.
Outstandings

-16
232

-10
222

-11
211

-12
199

-13
186

-14
172

-15
158

Health resources and services

Obligations
Loan disbursements
Change in outstandings..
Outstandings

1
1
—27
511

1
1

-6
470

1
1

251
251

Loan disbursements
mge in outstandings.
Outstandings
Health and Human Services.HMOs and medical facilities

Housing and Urban Development:
Low-rent public housing

Low-rent public housing (loans made by FFB) 1 ,

-4

Obligations
Loan disbursements
Change in outstandings..
Outstandings

-42

-11
500

-9
492

-8
484

1
1
- 7
476

14,065
1,459
14,065
1,459
13,479 -14,694
14,694

1,722
1,722

1,124
1,124

488
488

-6
464

a
>
r

wHI

Obligations
Loan disbursements
Change in outstandings..
Outstandings

-32
2,146

-35
2,111

-37
2,074

-39
2,035

-42
1,993

-44
1,949

-47
1,902

Housing for the elderly or handicapped

Obligations
Loan disbursements
Change in outstandings..
Outstandings

597
540
511
5,667

55
531
501
6,167

30
413
381
6,548

19
288
254
6,802

11
191
155
6,957

7
125
87
7,043

5
81
41
7,085

GNMA emergency mortgage purchases,

Obligations
Loan disbursements
Change in outstandings..
Outstandings

455
—748
1,634

351
-653
981

163
-606
375

-218
157

-115
42

-5
37

-4
32

50
108

Community development grants (loans made by FFB) 1

Obligations
Loan disbursements..

133
103

I
OS

Table F-20.GUARANTEEDLOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT (in millions of dollars)—Continued
Actual 1985

Agency or Program

Estimate
1987

1986

1988

1989

1990

Change in outstandings
Outstandings

81
289

46
335

335

-53
282

— 76
206

Federal Housing Administration fund-

Obligations
Loan disbursements
Change in outstandings
Outstandings

330
330
38
4,204

472
459
96
4,301

278
257
-423
3,877

405
373
-94
3,783

426
420
-46
3,737

563
563
-40
3,697

Rehabilitation loan fund.,

Obligations
Loan disbursements
Change in outs
Outstandings

75
69
3
718

11
79

16
-73
643

— 79
564

—79
485

—79
406

Obligations
Loan disbursements
Change in outstandings
Outstandings

55
58
51
442

46
48
38

46
49
40
520

37
42
32
551

42
42
31
583

15
33
21
604

Obligations
Loan disbursements
Change in outstandings
Outstandings

18
18
13
105

16
18
7
112

16
16
7
119

15
15
4
124

15
15
6
129

15
15
6
135

Obligations
Loan disbursements
Change in outstandings
Outstandings

17
9

12
12
578

6
6
584

-1

583

-7
576

-14
562

4
2
-93
61

4
—3
57

3
-5
52

-9
43

-7
36

Interior:
Bureau of Reclamation loans..

BIA revolving fund-

Transportation:
Railroad rehabilitation and improvement financing..

Railroad rehabilitation and improvement financing (loans made by FFB)1

Federal-aid highways trust fund..

Obligations
Loan disbursements
Change in outstandings
Outstandings
Obligations

566

2
4
- 6

154
27

-1

716

- 6 8

138

6
6
75

1
1
75

1
1
76

-38
38

-19
19

50
49
-15
116

48
48
-2
113

50
50

113

Change in outstandings..

-11

-1

Obligations
Loan disbursements..

13
13
-20
69

-8
61

-6
55

-5
50

-5
45

-4
41

-4
37

336
336
327
597

522
522
512
1,109

117
117
107
1,216

37
37
27
1,243

15
15
5
1,248

15
15
5
1,253

15
15
5
1,258

31
2
2
2

32
30
30
32

2
31
30
62

3
1
63

-2
62

-2
60

-2
58

Change in outstandings.

—67
888

888

-79
809

-91
717

-105
612

-121
491

-138
354

Obligations
Loan disbursements

963
963
155
1,221

999
999
229
1,451

1,036
1,036
235
1,685

936
936
181
1,866

845
845
162
2,028

791
791
146
2,174

756
756
144
2,318

Loan disbursements

Change in outstandings..
Outstandings

Right-of-way revolving fund

Obligations
Loan disbursements.

Change in t

Outstandings..

Miscellaneous expired accounts

Obligations
Loan disbursements
Outstandings

Aircraft purchase loan guarantees

Change in c

Outstandings

MarAd Federal ship financing fund

Obligations
Loan disbursements

Change in outstandings..
Environmental Protection Agency:
Abatement, control, and compliance

Outstandings

Obligations
Loan disbursements..

Change in t
NASA:
Space flight, control, and data communications (loans made by FFB)

Veterans Administration:
Vendee loans and loans repurchased

Outstandings.

Obligations
Loan disbursements
Outstandings

Change in outstandings.
Outstandings

Direct loan revolving fund

Obligations..

-19

i
>
>
CO

HI
cn

Oi
CO

Table F-20.GUARANTEEDLOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT (in millions of dollars)—Continued
Actual 1985

Agency or Program

Estimate
1986

1987

1988

1989

1990

Loan disbursements
Change in outstandings..
Outstandings
National service life insurance fund..

Other veterans insurance funds.

District of Columbia:
Loans to the District of Columbia..

Export-Import Bank-

Federal Deposit Insurance Corporation3

Federal Savings and Loan Insurance Corporation3

2
-29
139

3
-13
126

2
-33
93

1
-31
62

1
-31
31

1
—27
4

Obligations
Loan disbursements
Change in outstandings..
Outstandings

97
97
-48
1,065

98
98
-41
1,024

101
101
-33
991

106
106
-24
967

108
108
-19
948

118
118

Obligations
Loan disbursements..
Change in i
Outstandings.

27
27
-13
237

26
26
-14
222

27
27
-7
216

30
30
-4
211

31
31
-4
208

207

-311
1,572

-35
1,537

-38
1,498

-41
1,457

-43
1,414

-46
1,367

660
1,647
-644

1,062
1,575
-676
16,184

-1,210

1,045

14,973

490
-1,526
13,447

171
-1,898
11,549

75
-2,065
9,484

110
110
51
3,795

150
150
111
3,906

150
150
111
4,017

150
150
111
4,128

500
500
495
2,735

500
500
400
3,135

500
500
400
3,535

500
500
400
3,935

Obligations
Loan disbursements
Change in outstandings..
Outstandings
Obligations
Loan disbursements.
Change in t
Outstandings.

16,860

Obligations
Loan disbursements.
Change in c
Outstandings..

-305
3,617

130
130
127
3,744

Obligations
Loan disbursements.,
Change in c
Outstandings.

783
783
603
1,758

500
500
481
2,239

-6

942
34
34

-1

National Credit Union Administration:
Share insurance fund

2
5

1
3

29
49

-14
35

1
3
- 7
28

Obligations
Loan disbursements
Change in outstandings
Outstandings

47
47
-48
222

100
100

80
80

Obligations
Loan disbursements
Change in outstandings
Outstandings

-5
408

-5
403

Obligations
Loan disbursements
Change in outstandings
Outstandings

697
605
-119
3,220

621
630
-66
3,154

Small business development companies (FFB loan assets) 2 ..

Change in outstandings
Outstandings

-7
33

-10

Small business assistance (loans made by FFB) 1

Obligations
Loan disbursements
Change in outstandings
Outstandings

525
525
405

300 .
300 .
-1989 .

1,620

514
514
369
1,989 .

Obligations
Loan disbursements
Change in outstandings
Outstandings

320
319
-403
4,557

342
382
-286
4,270

259 .
259 .
-1,462
2,808

1,495
1,314

Obligations
Loan disbursements
Change in outstandings
Outstandings

63
63

66
66
-1
262

69
69
-4
258

70
70
-2
257

Central liquidity facility-

General Services Administration Federal buildings fund (loans made by
FFB) 1

Small business:
Business and investment loans..

Disaster loans

Tennessee Valley Authority

Obligations
Loan disbursements
Change in outstandings,
Outstandings

- 2

262

-20

202

-5
23

1
3
—3
20

-1
19

150
150

180

- 6

-6

391

- 7
384

- 8

397

- 8

376

368

SB
£

388
388
-1,568
2,507

243
243
-1,441
1,066

182
182
-1,066

94
94

9
>

-22

180

1
3

491
491
920
4,074

-10

1
3

—3

-1,286
28
67
67
*

257

tr 1
>

*<
S2

-28

65
65
1
258

7
oa

Table F-20.GUARANTEEDLOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT (in millions of dollars)—Continued
Actual 1985

Agency or Program

Estimate
1986

1987

1988

1989

1990

167
167
-147
1,640

165
165
-147
1,493

145
145
-159
1,334

133
133
-174
1,160

112
112
-59
1,101

7
92

7
99

8
107

9
115

9
125

42
58
-7
619

46
53
-2
617

49
49
-11
607

51
51
-10
597

53
53
-13
584

1991

Tennessee Valley Authority (loans made by FFB) 1

Obligations
Loan disbursements
Change in outstandings
Outstandings

206
206
96
1,651

Payments for Conrail securities

Obligations
Loan disbursements
Change in outstandings
Outstandings

851

Obligations
Loan disbursements
Change in outstandings
Outstandings

2
78

Other agencies and programs

Obligations
Loan disbursements
Change in outstandings
Outstandings

21
40
-30
624

Other agencies and programs (loans made by FFB)1

Obligations
Loan disbursements
Change in outstandings
Outstandings

60
60
59
157

—3
154

-63
91

—3
88

—3
84

—3
81

-4
77

Obligations
Loan disbursements
Change in outstandings,
Outstandings

52,847
64,396
27,991
257,366

41,634
47,327
-4,076
253,290

30,555
34,440
-4,381
248,910

28,006
30,971
-3,249
245,661

24,794
26,280
-5,733
239,928

22,262
23,396
-7,069
232,860

20,141
21,084
-4,609
228,251

United States Railway Association

Grand total, net direct loans

* $500,000 or less.
1 Loans guaranteed by the agency and disbursed by FFB. They are counted as direct loans in the credit budget.
2 Loans made by the agency and subsequently sold to FFB. The agency guarantees and repurchases the loans when they mature.
3 Direct loan obligations and disbursements for these programs represent increases in their holdings of loan assets rather than cash disbursements.

248
248
136
1,787

-851

6
85
41
55
2 .
626

Table F-20. GUARANTEED LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT (in millions of dollars)—Continued

Funds Appropriated to the President:
Foreign military sales

Overseas Private Investment Corporation..

AID housing and other credit guarantees..

Agriculture:
Rural Electrification Administration

Farmers Home Administration:
Agricultural credit insurance fund..

Rural housing insurance fund..

Rural development insurance fund..

Estimate

Actual 1985

Agency or Program

1987

Commitments
New guaranteed loans.,
Change in c
Outstandings.

—20

-20
160

Commitments
New guaranteed loans.,
Change in i
Outstandings.

150
31
24
223

136
44

180

4
227

1988

1989

140

-20
120

150
75
27
254

150
100
75
329

120
91
1,360

120
91
1,451

140

100

1,301
2,500

- 2 0

1990

- 2 0

100

100
75
404

100
75
479

113
1,536

100
71
1,607

1,389

50 .
38
1,427

1,415

3,000
2,992
2,501
6,528

3,500
3,500
1,054
7,583

4,000
4,000
1,054
8,637

-2

Commitments
New guaranteed loans....
Change in outstandings..
Outstandings

160
94
70
1,176

1,269

Commitments
New guaranteed loans....
Change in outstandings..
Outstandings

147
135
1,045

140
128
1,173

Commitments
New guaranteed loans....
Change in outstandings..
Outstandings

1,175
530
257
1,385

1,872
1,640
1,309
2,694

Commitments
New guaranteed loans.,
Change in t
Outstandings.

-238
755

-139

-21

595

-295
300

-185
116

Commitments
New guaranteed loans.,
in i

61
176
-294

96
226
-223

137
-156

97
-395

-244

145
120

616

128

2,122

1,333
4,027

-20

- 1 2

113

18 .
-185

Table F-20. GUARANTEED LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT (in millions of dollars)—Continued
Actual 1985

Agency or Program

Estimate
1986

1987

1988

1990

1989

Outstandings.
Commodity Credit Corporation export credits.

Commerce:
Economic development revolving fund..

ITA operations and administration..

National Oceanic and Atmospheric Administration.

Education: Guaranteed student loans.

Energy:
Geothermal resources development fund-

Health and Human Services:
Medical facilities guarantees and loan fund..

2,912

2,689

2,533

2,138

1,893

1,708

Commitments
New guaranteed loans....
Change in outstandings
Outstandings

2,674
3,134
404
5,094

5,264
5,264
2,298
7,392

3,000
3,000
-201
7,191

3,000
3,000
-265
6,926

3,000
3,000
-717

6,210

3,000
3,000
-50
6,160

-172
235

-25
210

-40
170

-25
145

-22

-20

Commitments
New guaranteed loans....
Change in outstandings..
Outstandings

3
11
2
24

-3
-10
14

-14

Commitments
New guaranteed loans...,
Change in outstandings..
Outstandings

34
34
2
158

33
33
3
161

11,420
10,893
3,412
44,904

12,888
12,293
3,800
48,704

Commitments
New guaranteed loans....
Change in outstandings.,

Commitments
New guaranteed loans....
Change in outstandings..
Outstandings
Commitments
New guaranteed loans....
Change in outstandings..
Outstandings
Commitments..

8,454
3,903
35,807

-12

9,269
8,826
3,077
38,884

123

103

-161
9,756
9,304

2,608

41,492

14,033
13,388
3,801
52,505

New guaranteed loans.

Change in i

Outstandings.
Health professions graduate student

Commitments
New guaranteed loans....

Change in outstandings..
Outstandings

Housing and Urban Development:
Low-rent public housing

Commitments
New guaranteed loans....

Change in outstandings..
Outstandings

Revolving fund (liquidating)

Commitments
New guaranteed loans....

Change in outstandings.,
Outstandings

Federal Housing Administration

Commitments
New guaranteed loans....

Change in outstandings.
Outstandings

GNMA mortgage-backed securities

Commitments
New guaranteed loans....

Change in outstandings.,
Outstandings

Interior:
Indian loan guaranty and insurance fund-

Commitments
New guaranteed loans....

Change in outstandings.,
Outstandings

Transportation:
MarAd Federal ship financing fund

Commitments
New guaranteed loans...

Change in outstandings.,
Outstandings

Aircraft purchase loan guarantees

Commitments..

-95
995

-63
932

-66

—67
798

—67
731

-67
663

—67
596

271
271

111

100
100
71
1,265

100
100

1,334

100
100
65
1,399

100
100

831

389
389
363
1,194

1,461

100
100
59
1,521

-13,276
8,887

-310
8,577

—337
8,240

-364
7,876

-392
7,484

-419
7,065

-447
6,617

-5
57

—3
54

7
61

-15
47

-13
25

-15
10

47,441
23,234
25,447
195,480

49,336
36,910
25,934
221,413

37,164
31,788
18,831
240,244

37,164
29,838
14,981
255,225

37,164
31,211
14,466
269,691

37,164
37,164
32,436
33,762
14,677 15.339
284,368 299,707

54,597
36,277
24,541

201,026

60,463
43,188
33,655
234,681

55,357
39,541
30,778
265,458

51,875
292,836
26,578
292,036

52,632
318,179
26,143
318,179

52,371
53.340
341,411 363,984
23,231 22,573
341,411 363,984

42
49
34
119

60
60
50
169

38
174
-602
6,444

67
90
-810
5,634

20
20

197

40
-380
4,781

-410
4,371

-410
3,961

-410
3,551

f
>

r1
KJ
£2
55

197

27
-473
5,161

20
20

187

25
25
11
197

S8
3
ot
t
—

30
30

l
Oi
to

Table F-20. GUARANTEED LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT (in millions of dollars)—Continued
Actual 1985

Agency or Program

New guaranteed loans....
Change in outstandings.,
Outstandings
Miscellaneous expired accounts.

Treasury:
Guarantees of New York City notes..

Biomass energy development-

Veterans Administration:
Direct loan revolving fund-

Loan guarantee revolving fund-

Export-Import Bank-

Estimate
1987

1986

1089

1990

—87
407

-50
357

-46
311

-38
273

-33
239

-29
210

CommitmentsNew guaranteed loans..
Change in c
Outstandings.

997

Commitments ..
New guaranteed loans.
Change in t
Outstandings.

-637
190

-190

Commitments. .
New guaranteed loans.
Change in t
Outstandings.

300
300
512

294
287
800

- 2

1991

Commitments
New guaranteed loans....
Change in outstandings..
Outstandings
Commitments
New guaranteed loans....
Change in outstandings..
Outstandings
Commitments
New guaranteed loans....
Change in outstandings..
Outstandings

283
273
1,072

1,060

- 2

-26

183

997

-2

-12

1,048

-12

1,036

14,564
14,715
14,440
14,307
12,299
12,140
14,231
13,857
13,948
13,708
11,569
13,803
11,452
13,658
7,504
7,933
6,688 6,324
5,801
5,208
7,133
130,591 136,392 144,325 151,828 158,962 165,650 171,974
7,849
4,424
-555
5,127

11,484
5,123
1,324
6,450

12,000
5,479

862

7,312

12,000
6,219
855
8,167

12,000
6,440
797
8,964

12,000
6,584
768
9,733

12,000
6,695
736
10,469

Federal Savings and Loan Insurance Corporation.

Commitments
New guaranteed loans..
Change in c
Outstandings.

National Credit Union Administration.

Commitments
New guaranteed loans...
Change in outstandings.
Outstandings

Small business:
Business and investment loan guarantees.

Pollution control equipment guarantees.

Disaster loans..

900
900
751
2,514

-20

426
426
357
2,871

350
350
263
3,134

1,400 .
-852
8,275

278
278
178
3,312

228
228
128
3,440

155
155
55
3,495

130
130
30
3,525

-2,161
6,114

-1,586
4,528

-1,214
3,314

-955
2,359

4 .

Commitments
New guaranteed loans....
Change in outstandings..
Outstandings

2,802
2,496
208
8,782

2,902 .
2,685
345
9,127

Commitments
New guaranteed loans....
Change in outstandings..
Outstandings

7
1
1
327

48 .
48 .
48 .
374

S
3
O
t—i
>

374

IT1

Commitments
New guaranteed loans....
Change in outstandings.,
Outstandings

1 4
—

Tennessee Valley Authority.

Commitments
New guaranteed loans...,
Change in outstandings..
Outstandings

Synthetic Fuels Corporation..

Commitments
New guaranteed loans...
Change in outstandings.
Outstandings

60
4

Commitments
New guaranteed loans...
Change in outstandings.
Outstandings

15
18
-31
783

Other agencies and programs..

12
12
20
30
35
-41
741

3 .
35 .
124
865

3
23

-72
793

-12

-11 ,

-65
728

660

11 ,

—71
589

Table F-20. GUARANTEED LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT (in millions of dollars)—Continued
Actual 1985

Agency or Program

Subtotal, guaranteed loans (gross)

Less secondary guaranteed loans-.1
GNMA guarantees of FHA/VA/FmHA pools

Subtotal, guaranteed loans (net)

Less guaranteed loans held as direct loans:2
By GNMA

Total, primary guaranteed loans

Estimate
1986

1987

1988

1989

1990

1991

Commitments
New guaranteed loans
,
Change in outstandings
Outstandings

139,308
92,213
45,357
613,101

154,313
117,110
73,176
686,277

135,125
107,891
60,968
747,245

133,577
360,495
52,234
799,480

135,971
389,104
50,010
849,490

137,150
415,020
47,948
897,438

138,723
439,563
47,310
944,748

Commitments
New guaranteed loans
Change in outstandings
Outstandings

54,597
36,277
24,541
201,026

60,463
43,188
33,655
234,681

55,357
39,541
30,778
265,458

51,875
292,836
26,578
292,036

52,632
318,179
26,143
318,179

52,371
341,411
23,231
341,411

53,340
363,984
22,573
363,984

Commitments
New guaranteed loans
Change in outstandings,
Outstandings

84,711
55,936
20,815
412,076

93,850
73,921
39,521
451,597

79,768
68,350
30,190
481,787

81,701
67,659
25,656
507,443

83,339
70,924
23,867
531,310

84,779
73,609
24,717
556,027

85,384
75,579
24,738
580,765

Commitments
New guaranteed loans
Change in outstandings
Outstandings

455
-748
1,634

351
-653
981

163
-606
375

-218
157

-115
42

-5
37

-4
32

Commitments
New guaranteed loans
Change in outstandings
Outstandings

84,711
55,481
21,564
410,442

93,850
73,570
40,174
450,616

79,768
68,187
30,796
481,412

81,701
67,659
25,874
507,286

83,339
70,924
23,982
531,269

84,779
73,609
24,722
555,991

85,384
75,579
24,742
580,733

* $500,000 or less.
1 Loans guaranteed by the Federal Housing Administration, the Veterans Administration, or the Farmers Home Administration are included above. GNMA places a secondary guarantee on these loans, so they are deducted here to avoid double counting.
2 When guaranteed loans are acquired by a budget account, they are counted as direct loans and shown in the direct loan table. Consequently, they are deducted from the totals in this table.

H
tc
M
td
a
o
o
w
H
W
8
•

B-17

SPECIAL ANALYSIS B
Table F-21. LENDING AND BORROWING BY GOVERNMENT-SPONSORED ENTERPRISES
(In millions of dollars)
Enterprise

Actual 1985

Estimate
1986

1987

LENDING
Student Loan Marketing Association..

Obligations
New transactions

Net Change

3,125
3,125

2,142

3,437
3,437

2,356

3,781
3,781

2,591

Outstandings

13,932

16,523

Obligations
New transactions

21,795
20,328

21,271
16,981

19,550
17,224

Outstandings

Federal National Mortgage Association:
Corporation accounts

11,576

96,769

102,318

109,492

Obligations
New transactions

25,789
19,230

22,487
21,789

23,320
24,025

Net Change
Mortgage-backed securities..

Net Change

11,919

15,881

5,549

18,033

7,174

19,823

Outstandings

Farm Credit Banks:
Banks for cooperatives..

48,769

66,802

86,625

Obligations
New transactions

29,260
29,260

28,988
28,988

28,717
28,717

7,533

7,707

8,067

13,390
13,390

12,716
12,716

12,078
12,078

13,209

13,183

1,660
1,660

1,876
1,876

Net Change

Outstandings

Federal intermediate credit banks..

Obligations
New transactions

Net Change

Outstandings

Federal land banks..

Obligations
New transactions

-1,115

-3,368

15,625
1,445
1,445

173

-2,416

360

-26

Net Change

-2,466

-3,241

Obligations
New transactions

124,916
124,916

100,000
100,000

105,000
105,000

87,015

97,028

105,775

4,921
4,921

3,935
3,935

5,000
5,000

Outstandings

13,088

14,385

17,491

Obligations
New transactions

35,343
35,343

39,011
39,011

39,500
39,500

91,989

122,747

149,340

Obligations
New transactions

259,984
251,958

233,505
228,517

238,822
237,201

Outstandings

Federal Home Loan Bank system-.
Federal home loan banks

-3,368

418,299

481,598

546,725

-600

-240

-250

Outstandings

Net Change

Outstandings

Federal Home Loan Mortgage Corporation:
Obligations
Corporation accounts
New transactions

Net Change

Participation certificate pools ]

Net Change

Outstandings

Subtotal, lending (gross).,

Net Change

Less loans between sponsored enterprises-

Obligations
New transactions

Net Change

Outstandings

45,935

12,139

3,641

27,957

65,828

1,190

43,470

10,013

1,297

30,758

63,297

950

40,229

8,748

3,106

26,593

65,128

700

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

Table F-21. LENDING AND BORROWING BY GOVERNMENT-SPONSORED ENTERPRISES—Continued
(In millions of dollars)
Actual 1985

Enterprise

Estimate
1986

Less secondary funds advanced from Federal
sources:
Obligations
SLMA from FFB 2
New transactions.

Net Change

Outstandings

TVA to FNMA..

Outstandings
Less guaranteed loans held as direct loans by:
Obligations
Federal National Mortgage Association
New transactions.

Net Change

Outstandings

Obligations
New transactions.

Net Change

Outstandings

Federal Home Loan Mortgage Corporation.

Obligations
New transactions.

Net Change

Outstandings

Farm Credit Banks..

5,000

Obligations
New transactions.

Net Change

Federal home loan banks..

5,000

Obligations
New transactions.

Net Change

1,826
31,064

751

2,514

981

1,875

-13

-1,553

29,511

357

2,871

-94

1,781

115

2,142

2,356

Obligations
New transactions.

259,984
251,958

233,505
228,517

Outstandings

369,940

432,358

Outstandings

Student Loan Marketing Association:

Obligations
New transactions..

Net Change

Outstandings

Total lending..

Net Change

6,576

60,741

8,932

62,416

BORROWING (Funds Raised)
Student Loan Marketing Association

Net Change

Federal National Mortgage Association:

Net Change

Farm Credit System:
Banks for cooperatives

Net Change

-258

Federal intermediate credit banks..

Net Change

—2,744

-2,318

Federal land banks-

Net Change

-1,382

-2,160

Federal Home Loan Bank system:
Federal home loan banks

Outstandings..
Outstandings..
Outstandings..
Outstandings..
Outstandings..

Net Change

Outstandings..

2,671

12,670

27,451

140,462

8,067

15,522

46,249
6,168
73,573

2,465

15,135

22,110

162,572

19
8,086
13,205

44,088

11,426

85,000

B-17

SPECIAL ANALYSIS B

Table F-21. LENDING AND BORROWING BY GOVERNMENT-SPONSORED ENTERPRISES—Continued
(In millions of dollars)
Estimate
Actual 1985

Enterprise

1986

Federal Home Loan Mortgage Corporation.
Subtotal, borrowing (gross)

Outstandings..

31,581
105,815

36,813
142,628

Net Change
Outstandings..

63,487
402,358

68,355
470,714

-626
834

-84
1,349

5,000

Less borrowing from other sponsored enterprises
Net Change
Outstandings..
Less borrowing from Federal sources:
2
SLMA from FFB
Outstandings..
FNMA from TVA..

Total borrowing from the public
Less investments in Federal securities..

Net Change
Outstandings..
Net Change
Outstandings..

64,113
396,444

68,439
464,285

Outstandings..

542
2,743

-553
2,190

Less borrowings for guaranteed loans held as
direct loans by:
Federal National Mortgage Association
Net Change
Outstandings..
Federal home loan banks..
Federal Home Loan Mortgage Corporation.
Farm Credit System.
Student Loan Marketing Association2..
Total borrowed

1,826

31,064

-1,553
29,511

Outstandings..

751
2,514

357
2,871

Net Change
Outstandings..

981
1,875

-94
1,781

Outstandings..

-13
60

55
115

Net Change
Outstandings..

2,142
6,576

2,356
8,932

Net Change
Outstandings..

57,884
351,612

67,871
418,885

All new transactions are loans purchased from FHLMC corporation accounts.
Until recently, all SLMA lending has been financed through the FFB, and therefore has been counted in Table F - 1 9 as direct loans. All SLMA
loans are student loans guaranteed by the Federal Government. They have, therefore been counted in Table F - 2 0 as guaranteed loans. The first
deduction eliminates the overlap of this table with the direct loan table. The second deduction removes the non-FFB financed remainder of SLMA,
to eliminate overlap with the guaranteed loan table.
3 Loans purchased at discount are recorded at their acquisition cost.
1

F-l 6

THE BUDGET FOR FISCAL YEAR 1987
Table F-22. FFB ACQUISITIONS (in millions of dollars)
Agency or program

Actual
1985

Purchase of loan assets from:
Overseas Private Investment Corporation:
Net outlays
Outstandings
Farmers Home Administration (USDA):
Agricultural credit insurance fund:
New acquisitions
Net outlays
Outstandings
Rural housing insurance fund:
New acquisitions
Net outlays
Outstandings
Rural development insurance fund:
New acquisitions
Net outlays
Outstandings
Rural Electrification Administration
(USDA):
New acquisitions
Net outlays
Outstandings

-5

6,815
2,658
28,175

1991

—1

3,695
391
391
1,585
28,351 28,742

-150
28,592

28,592

8,318

1,010
415
7,643

343
313
7,956

7,956

362
362
8,318

379

327
327
4,051

4,051

188

3,724

3
-7
109

Small business assistance:
Net outlays
Outstandings

-7
33

1990

526
-385 -3,434 -2,620 -2,150
28,330 24,896 22,276 20,126

Health
Maintenance
Organizations
(HHS):
New acquisitions
Net outlays
Outstandings

Defense production guarantees (DOD):
New acquisitions

1989

-382
28,715

-9
123

Direct loans (purchases of loans guaranteed by agencies):
Foreign military sales credit (FAP):1
New acquisitions
Net outlays
Outstandings

1988

2,172
922
29,097

Medical facilities guarantees (HHS):
Net outlays
Outstandings

Subtotal, purchase of loan
assets-.
New acquisitions
Net outlays
Outstandings

Estimate
1987

1986

- 6

117

-4
105
-10

—6
111

-5
100
-10

11,902
3,234
4,818 1,928 -554
68,164 70,093 69,539

1,683
978
18,089

950
187
18,275

473
-306
17,969

-1,000 -1,990 -1,415
27,592 25,602 24,187
115
-180

8,138

4,051

-7
104

-7
97

-7
90

- 6

95
-10

- 8

-7
76

-3

362
526
115
-45 -4,450 -4,804 -3,580
69,494 65,044 60,240 56,660

303
-440
17,529

173
-613
16,916

147
—720
16,197

187
— 728
15,469

B-17

SPECIAL ANALYSIS B
Table F-22. FFB ACQUISITIONS (in millions of dollars)—Continued
Estimate

Actual
1985

Agency or program

1986

1987

1,533
1,313
1,313

495
438
1,751

2,063

Rural Electrification Administration
(USDA):1
New acquisitions.
Net outlays
Outstandings....

21,675

2,019
719
22,394

Guarantees of SLMA obligations (Education):
Net outlays
Outstandings

5,000

Alternative fuels production (Energy):
New acquisitions
Net outlays
Outstandings
Geothermal resources development fund
(Energy):
New acquisitions
Net outlays
Outstandings

1,088

2
20

-30
1,721

-34
1,687

-42
1,645

-41
1,603

-43
1,560

1,297
1,098
797
598
25,488 26,086

899
399
26,485

1,804
1,493
1,304
993
23,698 24,691

-30
4,970

-30
4,940

-30
4,910

-30
4,880

-30
4,850

—37
2,074

-39
2,035

-42
1,993

-44
1,949

—47
1,902

- 2

-2

- 2

6
- 6

-32
2,146

Revolving fund-liquidating (HUD):
Net outlays
Outstandings

-35
2,111

-1

108
46
335

73
335

29
-53
282

3
-76
206

138

-57
81

-1

-2

- 2

-2

grants
103

289

Loans to territories (Interior):
Net outlays
Outstandings

1991

247
-1,290

Low-rent public housing (HUD):1
Net outlays
Outstandings

Federal Buildings Fund (GSA):
Net outlays
Outstandings

1990

Navy industrial fund (DOD):
New acquisitions
Net outlays
Outstandings

Railroad programs (DOT):1
New acquisitions
Net outlays
Outstandings

1989

1
8

Net outlays
Outstandings.

development
Community
(HUD): 1
New acquisitions
Net outlays
Outstandings...

1988

154

-93
61

4
—3
57

3
—5
52

-9
43

-7
36

-5
30

-5
408

-5
403

-6

- 8

391

- /
384

- 8

397

376

368

4
- 6

F-l 6

THE BUDGET FOR FISCAL YEAR 1987
Table F-22. FFB ACQUISITIONS (in millions of dollars)—Continued
Agency or program

Actual
1985

Space flight, control and data communications (NASA):
Net outlays
Outstandings

—67
888

Small business investment companies
and other small business assistance-.1
New acquisitions
Net outlays
Outstandings

525
405
1,620

Oregon veterans housing:
New acquisitions..
Net outlays
Outstandings

Estimate
1986

1987

1988

—79
809

-91
717

-105
612

-121
491

-138
354

167
-147
1,640

165
-147
1,493

145
-159
1,334

133
-174
1,160

112
-59
1,101

2,827
4,342
1,765 -1,380
55,160 53,780

1,994
145
53,926

1,617
-290
53,635

1,378
-619
53,017

1,198
-721
52,296

888

1989

1990

1991

514
300
369 -1,989
1,989

60
60
60

Seven States Energy Corporation (TVA):
New acquisitions
Net outlays
Outstandings

206
96
1,651

248
136
1,787

Subtotal, direct loans (purchase of loans guaranteed
by agencies):
New acquisitions
Net outlays
Outstandings

6,433
2,616
53,396

-60

Total, direct loans and purchases
of agency loan assets:
2,827
New acquisitions
2,143
1,492
18,335
7,575
2,356
1,198
7,433 3,693 -1,934
100 -4,740 -5,423 -4,301
Net outlays
121,560 125,253 123,319 123,419 118,679 113,256 108,956
Outstandings
ADDENDUM
AGENCY BORROWING
Export-Import Bank:
Outstandings
Tennessee Valley Authority:
Net change
Outstandings
National Credit Union Administration:
Net change
Outstandings
U.S. Railway Association:
Net change
Outstandings
Postal Service:

-281
15,409

-292
15,117

-890
14,227

—799
13,428

-900 -1,000 -1,100
12,528 11,528 10,428

896
14,381

350
14,731

577
15,308

581
15,889

265
16,154

339
16,493

470
16,963

-47
222

-22
200

200

22
74

11
85

7
92

7
99

8
107

9
115

9
125

603

1,228

1,248

1,510

1,498

1,065

891

B-17

SPECIAL ANALYSIS B
Table F-22. FFB ACQUISITIONS (in millions of dollars)—Continued
Agency or program

Outstandings
Total, agency borrowing:
Net change
Outstandings

Actual
1985

Estimate
1986

1987

1988

1989

1990

1991

1,690

2,918

4,166

5,676

7,174

8,239

9,129

1,194
31,776

1,275
33,051

941
33,992

1,299
35,292

871
36,163

412
36,575

270
36,845

•$500,000 or less.
1 FFB activity for this account may not be identical to the entries in Part 6d of the Budget, "Budget by Agency and Account", due to timing
differences between recognition of FFB budget authority and commitments to guarantee loans that are financed through the FFB (shown here as
FFB new acquisitions).

F-l 6

THE BUDGET FOR FISCAL YEAR 1987
Table F-23. FEDERAL PARTICIPATION IN DOMESTIC CREDIT MARKETS
(Dollar amounts in billions)
Actual
TQ

1977

1978

1979

1980

1981

1982

1983

1984

1985

Total funds loaned in U.S. credit
64.9 309.8 386.7 427.9 354.5 407.4 396.7 512.6 687.1 768.6
markets 1
3.7 11.6 19.8 19.6 24.2 26.1 23.4 15.3
6.3 28.0
Direct loans
Guaranteed loans
- 0 . 1 13.5 13.4 25.2 31.6 28.0 20.9 34.1 20.1 21.6
Government-sponsored
enterprise
3.1 11.7 25.2 28.1 24.1 32.4 43.3 37.1 53.1 60.7
loans 2
Federal and federally assisted
lending
Federal lending participation
ratio (percent)

6.7

36.7

58.4

72.9

79.9

86.5

87.6

86.5

79.6 110.3

10.3

11.8

15.1

17.0

22.5

21.2

22.1

16.9

11.6

14.4

Total funds borrowed in U.S. credit
markets 1
64.9 309.8 386.7 427.9 354.5 407.4 396.7 512.6 687.1 768.6
Federal borrowing from public
18.0 53.5 59.1 33.6 70.5 79.3 135.0 212.3 170.8 197.3
Borrowing for guaranteed loans
- 0 . 1 13.5 13.4 25.2 31.6 28.0 20.9 34.1 20.1 21.6
Government-sponsored
enterprise
borrowing2
1.4 12.0 21.4 21.9 21.4 34.8 43.8 34.6 55.5 57.9
Federal and federally assisted
borrowing
Federal borrowing participation
ratio (percent)

19.3

79.0

93.9

80.7 123.5 142.1 199.7 281.0 246.5 276.8

29.7

25.5

24.3

18.9

34.8

34.9

50.3

54.8

35.9

36.0

Funds loaned to and borrowed by nonfinancial sectors, excluding equities.
2 The data in Table F - 2 3 for total funds loaned are defined as excluding financial sectors. Nonetheless, the Government-sponsored enterprises,
as well as Federal assisted lending, are properly compared with total funds loaned. Government-sponsored enterprises lending is a proxy for the
lending by non-financial sectors that is intermediated by the sponsored enterprises. It assists the ultimate non-financial borrowers whose loans are
purchased or otherwise financed by the sponsored enterprise.
1

Source: Federal Reserve Board Flow of Funds Accounts for total funds loaned and borrowed.

SPECIAL ANALYSIS G
TAX EXPENDITURES
The Congressional Budget Act of 1974 (Public Law 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 liability."
The definition of tax expenditures requires a distinction between
the baseline provisions of the tax structure and special or preferential provisions that are exceptions to the baseline structure. Prior
to 1983, Special Analysis G used the term normal to denote the
baseline against which tax expenditures were measured. Because
Public Law 93-344 does not provide an exact specification of the
normal provisions of the tax law, determination of what provisions
constitute special or preferential provisions, and therefore should
be listed as tax expenditures, necessarily involves some arbitrary
choices. This process has been overseen by executive agency and
congressional committee staffs.
Prior to 1983, the listing of tax expenditures in Special Analysis
G generally matched those published by the Congressional Budget
Office and the Joint Committee on Taxation. This resulted from
the concept of a normal tax used by both executive branch and
congressional staffs which was a variant of the comprehensive
income tax, albeit with several major exceptions, that had not
deviated significantly from the concept as used in the original tax
expenditure listings.
Tax expenditures in Special Analysis G were measured against a
revised baseline after 1982 which is referred to as the reference
tax. This year's Special Analysis G displays tax expenditures as
compared to both the reference tax baseline used beginning with
1983 and the normal tax baseline used prior to 1983. In the following sections both baselines are described in general terms, the
conceptual and practical differences between them are discussed,
and then the major categories of tax expenditures are reviewed.
The current Special Analysis G does not incorporate any revisions based on either the President's tax reform proposal of May
1985 (Treasury II) or the version passed in late 1985 by the House
of Representatives (H.R. 3838). A comprehensive review will ad-

G-l

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

dress this and other tax expenditure issues once tax reform legislation has been enacted later this year.
PRE-1983 BUDGET CONCEPTS

The normal tax structure used as a departure point for identifying and measuring tax expenditures has historically had many
features in common with a comprehensive income tax, where
income is defined as the sum of consumption and the change in net
wealth in a given period of time. The concept of a normal income
tax did not specify any particular structure of tax rates, or definition of the taxpaying unit (as between families and individuals),
and allowed for personal exemptions and a standard deduction. In
addition, the concept of a normal tax, as would a comprehensive
income tax, allowed for deductions needed to measure net income,
such as deductions for interest incurred to finance the holding of
income-producing assets and for employee business expenses. The
normal tax structure did allow, however, for several major departures from what is commonly understood to be the base of a truly
comprehensive income tax:
• Under the normal tax structure, income was only taxed when
realized, not as accrued. Thus, for example, the benefit, relative to strict accrual accounting of income, from deferring tax
on accrued, but unrealized, capital gains was not regarded as
a tax expenditure.
• The fact that the current tax system taxes only cash income,
not imputed income received in the form of consumption benefits from capital used directly by households or consumption
by households of goods they produce, was regarded as part of
the normal tax structure. Thus, the exclusions from tax of
imputed income from owner-occupied homes and consumer
durables and tax-free consumption by farmers of products
grown on their farms were not regarded to be tax expenditures.
• The normal tax structure included a separate tax on corporation income, although neither economic theory nor common
international practice justifies a totally separate corporation
income tax. At the same time, the normal tax structure allowed for devices to eliminate the separate corporate tax by
attributing income to shareholders, such as subchapter S corporations. The additional revenue resulting from the maintenance of a separate, unintegrated corporation tax could well
be considered a negative tax expenditure if the normal tax
base were defined as the comprehensive income of individuals, with corporate retained earnings attributed to individual
shareholders.

SPECIAL ANALYSIS B

B-17

• The normal tax structure did not adjust the basis of capital
assets or debt for changes in the price level over the time
period assets were held, thus overstating real capital gains,
interest income, as well as interest costs, and understating
depreciation during a period of inflation. If the normal tax
were a true comprehensive income tax, failure to take account of inflation in measuring depreciation, capital gains,
and interest income of lenders would be regarded as negative
tax expenditures. In turn, failure to take account of inflation
in measuring the interest costs of borrowers would be regarded as a positive tax expenditure, or subsidy for borrowing.
Notwithstanding these major differences from a fully comprehensive income tax, the normal tax concept can be thought of as a
base for a practical income tax intended to avoid these complexities. Moreover, these departures from a comprehensive tax that
define the normal tax had essentially remained unchanged until
1982. This facilitated generally consistent decisions on what constituted tax expenditures by those responsible for preparing tax expenditure budgets.
The normal tax as described above is, of course, not the only
broad-based or normative tax system that can be used as a standard for identifying tax expenditures. One could, for example, use as
the standard a truly comprehensive income tax in which the tax
base is equal to consumption plus the change in net wealth of
individuals and families. Under such a standard, as indicated in
the previous discussion, the failure to include accrued but unrealized income in the tax base would be regarded as a tax expenditure, while the double taxation of corporate dividends would be
regarded as negative tax expenditure, or tax penalty.
Alternatively, the normative standard could be a comprehensive
personal tax on consumption of individuals and families. The failure to tax income accrued within pension funds would not be a tax
expenditure, as it would be under an income tax standard, because
under a consumption based tax, income earned but not consumed
would not be taxable. On the other hand, the failure to include the
proceeds of borrowing in the tax base would be a tax expenditure
under a consumption tax standard, even though borrowing, in
itself, would have no effect on the tax base under an income tax.
In addition, some of the items listed as tax expenditures when
the normal tax is used as a baseline can themselves be regarded as
practical adjustments to correct for departures of the normal tax
from a truly comprehensive base. For example, as noted above, the
failure to adjust the basis of capital assets for changes in the price
level in measuring taxable income is part of the normal tax even
though it represents a significant departure from correct income
measurement. The exclusion from tax of 60 percent of realized

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

capital gains—a provision listed as a tax expenditure relative to
both the normal tax baseline and the reference tax baseline discussed below—may itself be regarded as a pragmatic rule to adjust
for the overstatement of income from capital gains in a period of
inflation.
Similarly, in a period of stable prices, capital consumption allowances under a comprehensive income tax would be based on economic depreciation. In a time of inflation, however, use of more
accelerated depreciation methods can be regarded as a pragmatic,
though imprecise, way of offsetting the failure to adjust depreciation deductions for the increases in the replacement cost of
assets.
POST-1982 BUDGET CONCEPTS

Both definition and measurement of tax expenditures have undergone major changes in recent years, in part reflecting a changed
perception of what constitutes the major structural features of the
current tax system. This evolution began with the introduction of
the concept of outlay equivalents in the 1982 budget and evolved
into a redefinition of the tax structure against which departures
labelled as tax expenditures would be measured in subsequent
budgets.
In 1982, Special Analysis G included a supplement that departed
from previous procedures. In it were jointly displayed the Federal
support for housing and energy programs provided on both the
outlay and revenue sides of the budget. The purpose of this departure was to illustrate how a tax expenditure budget might be used
in the budgetary process to provide a consistent accounting of all
resources used to achieve specified national needs, or program
objectives, and to demonstrate how such a procedure might aid in
the determination of overall budget expenditure and revenue targets.
To achieve this purpose, a modification of previous estimation
methodology was introduced. If, for example, the purpose of residential energy tax credits was to reduce the costs to homeowners of
certain energy conservation investments, then the credit should be
viewed not as a reduction in tax, but as a subsidy payment that
might just as well have been made by the Department of Energy.
In order to convert the residential energy credit into an outlay
equivalent, it was necessary to ask how the payment would be
treated under the existing tax laws if instead it were a grant from
the Department of Energy. If this payment in cash would be taxable, then the tax subsidy would have to be "grossed-up" to the
equivalent taxable cash payment to be comparable with actual
outlays for the same purpose.

SPECIAL ANALYSIS B

B-17

In performing this analysis of the subsidy-equivalence of housing
and energy tax expenditures, it was observed that the norm from
which these special provisions departed was simply the body of
generally applicable income tax rules to which the special provisions were exceptions. This suggested that, in the budgetary context implied by the Congressional Budget Act of 1974, it would be
useful to distinguish two categories of items that had been labelled
tax expenditures in previous budgets. The first category would
consist of deviations from general rules of the existing tax system
that could be measured and evaluated in a manner comparable to
the measurement and evaluation of subsidy and transfer programs
on the outlay side of the budget. The second category would consist
of more general deviations of the structure of the Federal income
tax from some normative, comprehensive income or other broadbased tax. The items in the second group would not be labeled tax
expenditures as such, even though they might be regarded as items
to be considered as part of a more general reform of the existing
income tax.
This evolutionary step was taken in the 1983 Special Analysis G
and has been continued since then. Two criteria were used to
identify a tax expenditure or tax subsidy. First, it was necessary
that, absent the special provision, the tax laws provided general
rules to enable a taxpayer to determine his income tax due and
payable. These general rules were called the reference law. Second,
it was necessary that the special provision apply to a sufficiently
narrow class of transactions or transactors to permit the specification of a program objective that could be assigned to an existing
agency other than the IRS and be administered with appropriated
funds. In keeping with the intended use of the estimates in budget
program displays, the budget impacts of the items listed were
expressed as outlay equivalents.
Neither the Congressional Budget Office nor the Joint Committee on Taxation, however, adopted these revisions. Both continued
to use a modified income tax norm, described above, as their basis
for identifying tax expenditures. As a consequence, Special Analysis G did not fully correspond in the 1983 and 1984 budgets to these
other tax expenditure listings, a condition some have found confusing. Beginning with the 1985 budget, therefore, tax provisions
qualifying as tax expenditures under the broader income tax norm
were listed in Special Analysis G in addition to those that had met
the narrower tests for identifying tax expenditures (or tax subsidies) of the reference law standard used in 1983 and 1984. The
discussion below sets out in greater detail the reference tax law
and identifies some of the departures of this reference law from the
normal income tax standard used prior to 1983 to identify tax
expenditures.

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

REFERENCE T A X RULES AND COMPARISON TO NORMAL T A X
STRUCTURE

The reference tax rules from which departures represent expenditure-like government programs include:
1. Definition of the taxpaying unit Taxpaying units are individuals (single, married, head of household); corporations (except those
electing subchapter S treatment, cooperatives, real estate investment trusts, and other financial organizations that attribute their
income to members in whose hands it is taxable); and trusts and
estates (to the extent income is not distributed to beneficiaries).
Certain otherwise taxable corporations and associations whose activities and ownership meet the requirements of section 501 are
exempt from income tax, as are government-owned enterprises
encompassed by section 115.
The taxpaying units are the same in the normal and reference
tax structures with one major exception. In the normal tax, controlled foreign corporations are not regarded as entities separate
from their controlling U.S. shareholders. Therefore, the deferral of
tax on income accumulated within controlled foreign corporations
is regarded as a tax expenditure. In contrast, except for tax haven
activities, the reference tax rules follow the current tax system in
treating controlled foreign corporations as separate taxable entities
whose income is not subject to U.S. tax until distributed to U.S.
taxpayers. Under that definition of the tax unit, deferral of tax on
controlled foreign corporation income is not a tax expenditure
because U.S. taxpayers generally are not taxed on accrued, but
unrealized income.
2. Tax rate schedules. Separate schedules for single individuals,
heads of household, married persons filing jointly, married persons
filing separately, and corporations are all regarded as part of the
reference tax system. The rate structures imposed on the tax base
of these entities are whatever current law provides. The normal
tax system is similar, except that it specifies a single rate (the
current maximum rate) on corporate income. The lower tax rates
applied to the first $100,000 of corporate income are thus regarded
as a tax expenditure relative to the normal tax.
3. General accounting rules for determining income subject to tax.
Income subject to tax is gross income less costs of earning that
income. Gross income includes payments (or obligations to receive
payment) from all sources, foreign and domestic, that are: (1) consideration received in the exchange of goods and services (including
one's labor services), or of property; and (2) the taxpayer's share of
gross, or net income earned and/or reported by another entity,
such as interest, dividends, rents, royalties, and profits of partnerships, subchapter S corporations, and cooperatives. Under the reference tax rules, gross income does not include gifts, defined as

SPECIAL ANALYSIS B

B-17

receipts of money or property that are not consideration in an
exchange, or most transfer payments (gifts from the Federal Government). Gross income does, however, include transfer payments
associated with past employment, such as social security benefits.
The normal tax base also does not define gifts between individuals
as gross income. However, under the normal tax baseline used
prior to 1983, all cash transfer payments (gifts from government to
private individuals) were regarded as gross income, and exemptions
of such gifts from tax under current law were identified as tax
expenditures.
Costs of earning gross income are deductible in determining taxable income under the reference rules. These include: (1) expenses
incurred in earning gross personal service income (not including
expenditures on goods and services for personal use); (2) costs of
earning income incurred by a taxpayers trade or business including costs of goods sold (compensation of employees, goods and services purchased from other firms, royalties paid), an allowance for
physical capital used up in producing the output that generates the
gross income of the business (depreciation in the case of machinery,
equipment, and structures; depletion in the case of mineral deposits); and (3) interest paid creditors who have advanced funds to help
finance the ownership and use of assets by the trade or business.
These deductions are all necessary to measure the net income of
the equity holder in a business. Deductions for cost of goods sold
functionally allocate to employees and suppliers their shares of the
trade or business' gross income which they in turn will report on
their income tax returns. Depreciation and depletion deductions
are necessary to cover the using-up of physical capital, the cost of
which has already been paid for by the owners, thus enabling the
owners to recover their capital free of an additional tax. Depreciation allowances as provided according to statutory schedules for
different classes of depreciable property are part of the reference
tax rules. Depletion allowances in the reference tax rules are not
schedular, but are based on the pro-rata recovery of the original
cost as the mineral deposit is depleted by extraction. Deductions for
interest represent an allocation of pretax income of a trade or
business reportable as such by creditors of that trade or business
under the reference tax.
The normal tax includes the same items of deduction needed to
measure net income as the reference tax, but, in addition, specifies
the time pattern of depreciation deductions to correspond in some
approximate way to the time pattern of using up of physical capital. The reference tax encompasses the existing general depreciation rules, as modified by the Accelerated Cost Recovery System
(ACRS), as part of the general structure of the tax rules. Because
ACRS schedules are generally the applicable rules for all invest-

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

ments in depreciable property, they are part of the reference tax
structure and not identified as a tax expenditure item, or tax
subsidy, when the reference tax is taken as the baseline. In contrast, when the normal tax rules are used as the baseline, the
ACRS schedules for depreciable personal and real property are a
tax expenditure item. This identification of ACRS as a tax expenditure relative to the normal tax base recognizes that some attempt,
however imprecise, to match capital recovery rules to the decline
in asset value is needed to measure economic income from depreciable capital. In the accompanying tables, the revenue loss resulting from substituting ACRS for the normal tax depreciation rules,
is listed as a tax expenditure under the pre-1983 budget concept.
The normal tax rules used for this purpose are the Asset Depreciation Range System (ADR) midpoint lives for machinery and equipment and 35-year straight-line depreciation for structures.
In addition to rules for determining what is to be includable in
gross income and what deductions are to be allowed, and when, an
operational income tax requires a set of accounting procedures for
classifying, recording, and summarizing transactions during the tax
year. In the reference tax system, the basic elements of this accounting system are similar to those described above that characterize the normal income tax. These elements are: (1) reliance on
valuations determined at the time transactions occur (realization
as opposed to accrual accounting); (2) exclusion from gross income
of the market value of services from durable goods or other selfproduced income, such as do-it-yourself repairs and maintenance;
(3) reliance on historical cost to determine allowable deductions for
capital cost recovery and in the computation of gain on the sale of
an asset (no inflation adjustments); (4) distinguishing current expense from capital expenditures, with the former deductible from
gross income in the period when the transaction is completed,
while the latter is recovered by depreciation or depletion deductions over the asset's productive life; and (5) specification of the
accounting period for summarizing transactions to determine
income subject to tax, computing tax due and payable as well as a
stipulation of when tax must be paid. As part of the computation of
tax liability, both the reference tax and the normal tax allow a tax
credit for foreign income taxes paid up to the amount of U.S.
income taxes that would otherwise be due. This prevents the
double taxation of income earned abroad.
MAJOR DEPARTURES FROM THE REFERENCE RULES

Beginning with the 1983 budget, the reference tax has been used
to identify provisions that substitute for budget outlays. For example, compared to the general rules described as the reference tax:

SPECIAL ANALYSIS B

B-17

• Not all consideration received in exchange for goods and services is reportable as gross income. Some forms of employee
compensation, such as certain military housing and food allowances or employer-paid fringe benefits, are specifically excluded from employees' reportable gross income although it is
clearly a consideration received in exchange for labor services
and is properly deductible from the gross income of the trade
or business of employers who are taxable entities.
• Holders of State and local government bonds are specifically
exempt from reporting interest payments on those obligations
as gross income, although these payments are no less income
than interest, dividends, rents, and royalties received from
other payees.
• Dividend and interest receipts of pension funds, the value of
which accrues to taxable beneficiaries, are not reportable as
gross income when received, either by the qualified pension
trusts or by the beneficiaries; they become reportable, after
compounding at pre-tax rates of interest, only when they are
paid out as retirement benefits.
Defense Department outlays reported in the budget for military
personnel are lower because part of military compensation is paid
in tax-free housing and food allowance dollars. This exclusion of
compensation from tax substitutes for higher direct outlays to
obtain the same quality and quantity of military personnel whose
compensation in this form, if received from another employer,
would be subject to tax. Similarly, the nontaxability of interest
paid by State and local borrowers enables them to obtain funds at
lower rates with a saving to their taxpayers. This particular exclusion is, therefore, a substitute for interest subsidies or capital
grants to State and local governments on the outlay side of the
budget. The exclusion of employer-paid pension, health, and other
insurance benefits for employees and the preferred treatment of
pension trust income substitute for outlays that would pay part of
the costs of private retirement, health, and insurance plans.
The tax laws also provide many deductions from gross income in
the derivation of taxable income that have no apparent relation to
the cost of earning the reported gross income, as the general rule
requires. For example:
• Individuals may deduct amounts paid to charitable, educational, scientific or religious organizations, although these are
not costs of earning reportable gross income.
• Some oil, gas, and mineral producers are allowed deductions
for percentage depletion that are not limited to recovery of
the cost of acquiring the mineral deposit. In addition, some
investments in the acquisition of depletable and depreciable
property may be deducted in the year incurred, rather than

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

capitalized and recovered as production ensues. These special
rules for cost recovery of oil and gas and mineral deposits
permit investment costs in these activities to be recovered
more rapidly than the reference rules allow in activities generally. Furthermore, they often permit more than the full
investment to be recovered tax free, contrary to the conditions imposed on other forms of capital use.
• Individuals are allowed to deduct mortgage interest and consumer interest paid from their pretax incomes, although
under the reference tax rules applicable to housing and consumer durables, they have not reported the gross income from
services of housing and consumer durables earned with the
aid of the debt they are servicing.
These particular exceptions to the general reference tax rules
governing the use of deductions for computing taxable income have
direct incentive effects that could just as well be obtained with
outlay programs. Deductibility of qualified contributions lowers the
private price of giving, as would matching grants to qualified organizations based on contributors' support. The preferential treatment of minerals investment and production expands mineral
output as would direct subsidies paid to mineral producers. The
deductibility of mortgage interest encourages home ownership
much the same as Federal mortgage interest subsidy programs do.
Finally, there are special exceptions to the general rules for
determining net income tax due and payable. After a taxpayer has
determined his pretax income, taking into account all preferential
exclusions for gross income and all the special deductions, and has
applied the appropriate tax rate schedule, the tax liability thus
derived is not necessarily the amount he must pay. For example,
the taxpayer may take as credits against his tax otherwise due and
payable amounts determined by expenditures during the tax year
on:
• Qualified property (the investment tax credit for purchasing
machinery and equipment).
• Rehabilitating old and historic structures.
• Contributions to political candidates.
• Transfer of the employer corporation stock to qualified employee stock ownership plans.
It is not difficult to visualize equivalent outlay programs designed to subsidize these particular classes of transactions directly.
All of these departures from the reference tax rules are also
departures from the normal tax rules and appear in the tax expenditure budgets constructed from both baselines. The major
items that are tax expenditures relative to the normal baseline
(pre-1983 budget method), but that are not items of tax expenditure
relative to the reference rules used beginning with the 1983 budget

SPECIAL ANALYSIS B

B-17

are: deferral of income of controlled foreign corporations, expensing of research and development expenditures, reduced tax rates
on the first $100,000 of corporate income, "gifts" or unilateral
transfers from governments, and the difference between current
statutory depreciation rules (ACRS) and alternative rules designed
to provide a more accurate measure of economic income from
capital investments.
MEASURING T A X EXPENDITURES

Accounting for budget outlays on a functional or programmatic
basis, as in Part 5 of the Budget, provides a measure of Federal
Government influence on the allocation of resources in the economy and for what purposes. The functional purposes may be broadly
divided into: (1) the provision of public goods and services; (2) the
provision of subsidies; and (3) the payment of transfers. Budget
outlays for public goods and services such as national defense, are
used to acquire labor and capital services directly used in the
production of such goods. Subsidies, such as those for school
lunches, are intended to reduce market prices below the cost of
resources used to produce them. Transfers, such as aid to families
with dependent children, are intended to provide a level of income
to recipients they otherwise could not achieve.
Government receipts and outlays reallocate resources because
they change the composition of GNP from what it would be in
their absence. The decisions to provide public goods and services, to
subsidize certain prices (and hence outputs), and to make transfers
result in producing a slate of goods and services that otherwise
would not be produced. This occurs because control over resources
is removed from the private sector either by taxation or by borrowing and made available for public use. Functional budget outlay
figures, then, provide a basis for evaluating programs. The amount
of an outlay measures the resource cost to the Federal Government
of accomplishing the program objective. Because GNP is a (gross)
measure of the market value of goods and services, the ratio of
total budget outlays to GNP is commonly used as an indicator of
the size of Government relative to the private economy.
When functional budget outlay figures are used to evaluate specific programs, it is essential that the outlay figures be both consistent and comprehensive measures of resource costs. In this
regard, it is important that resource costs represent the pretax
price of resources. The market value of all goods and services
summarized in GNP not only includes the effects of indirect taxes
(sales and property taxes) on market prices, but also the beforetax
incomes of suppliers of labor (wages) and capital (rent, interest, and
profit). Consistency of budget outlay figures requires that all such
amounts also be stated in pretax magnitudes. Generally, budget

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

outlays for the purchase of goods and services are gross of taxes;
the payments to vendors and Government employees are gross
income to the sellers out of which taxes will be paid as determined
by the reference tax law in effect. Similarly, subsidy outlays in the
budget generally enter the gross incomes of sellers of subsidized
goods and services, along with the remainder of the sales proceeds
realized by sellers as payment by private purchasers of the subsidized goods.
In some instances budget outlays for goods and services or subsidies are exempted from tax by a special tax provision. When this
occurs, the outlay figure understates the resource cost of the program of which it is a part and is, therefore, not comparable with
other outlay amounts. For example, as noted above, the budget
outlays for certain housing and meal allowances of military personnel are not includable in their incomes and therefore understate
the cost of this National Defense budget element. If this form of
compensation were treated under the generally applicable reference or normal tax rule as income taxable to the employee, the
Defense Department would have to make larger cash payments to
its military personnel to leave them as well off after tax as they
are now with nontaxable allowances. Only when the existing tax
subsidy is added to the tax-exempt budget outlay is this element of
National Defense expenditure comparable with other defense outlays.
The estimates of tax expenditures in table G - l have been prepared to conform to the objectives of functional budget accounting
for outlays. Thus, table G - l figures are estimated as outlay equivalents, the magnitudes of which are consistent with direct budget
outlays. The entries should be viewed as amounts that should be
added to functional budget outlays and restored to budget receipts
to provide a more consistent and comprehensive display of the
resource reallocations produced by Federal fiscal measures.
The basic difference between the outlay equivalent and revenue
loss estimates is that the former estimates reflect the fact that
payments would be subject to tax under the reference tax rules.
The following examples will clarify the difference in estimating
technique for major classes of tax subsidies.
1. Government outlays that are exempt from tax.—As noted
above, certain housing and meal allowances for military personnel
are not included in the pretax incomes of military personnel. The
revenue loss estimate for this item merely computes the tax that
would be paid by military personnel if these payments had been
taxable. The outlay equivalent recognizes that the intent of this
personnel policy is to attract and retain the existing military force.
The equivalent taxable pay under the reference or normal tax law
would, therefore, have to be sufficient to yield them an aftertax

SPECIAL ANALYSIS B

B-17

(disposable) income large enough to permit the same housing and
meal expenditures they now enjoy. This is equivalent to the taxable cash pay they receive which must yield them enough disposable income to continue in military service. The outlay equivalent
estimate exceeds the revenue loss estimate that does not take
account of this fact. By grossing-up exempt government outlays for
military service, the tax subsidy estimate is now measured in a
manner consistent with other Defense Department outlays.
2. Subsidies to reduce market prices.—Some subsidies reduce
market prices by purposively reducing taxes otherwise due and
payable by producers. For example, before it was allowed to expire
at the end of 1985 the incremental research and experimentation
(R&E) credit provided a subsidy for industrial R&E. A firm qualifying for the credit, however, was not required to include the credit
in computing its taxable income, as it would have had to if it had
received such funds as a cash payment from the Government in
support of its R&E. Cash payments for R&E would either be reported as gross income by the payee or would have reduced the deduction for R&E expense, entering the payee's income subject to tax in
either event. The expenditure equivalent of the incremental R&E
tax credit would be estimated as the amount of subsidy subject to
reference tax rules that would have to be paid to firms for their
qualified R&E expenditures and which would reduce their costs by
as much as the tax credit, which does not enter taxable income.
Again, this estimate of the R&E tax credit expenditure equivalent
would be larger than the amount that would be estimated as a
revenue loss.
Other subsidies reduce prices by reducing tax otherwise due and
payable by the final purchaser. For example, the personal deduction formerly allowed for medical insurance obviously reduced the
cost of medical insurance to its purchasers. Under the reference
tax rules, this deduction was unrelated to the computation of individuals' (purchasers') taxable income. Further, the full payment of
the premium by the insured taxpayer entered the taxable incomes
of medical practitioners and others whose fees were covered by the
insurance. The expenditure equivalent of this subsidy was, therefore, simply the reduction in tax payments of purchasers. In other
words, the preferential deduction represented partial reimbursement to households for the personal insurance expenditure they
had made. Because this amount was included in the tax base of
suppliers, the outlay equivalent of this tax expenditure was, therefore, the same as the revenue loss estimate.
3. Capital subsidies.—The Government may subsidize the acquisition of capital in the private sector in either of two ways. It might
provide capital grants with respect to the acquisition of specified
classes of assets, or it might provide preferential loans to entities

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

acquiring particular assets. The investment tax credit for machinery and equipment is an example of a capital grant; so are construction subsidies paid to shipowners who have ships built in U.S.
shipyards, or the furnishing of equipment to Government contractors.
In general, under the reference and normal tax laws, the beneficiary of a capital grant is regarded as not having contributed the
portion paid for by the Government to the cost of an asset. His
"basis" in the subsidized asset is only the amount of his disposable
resources expended. The asset is, therefore, shown on the beneficiary's tax books of account at its net private cost. Depreciation of
only the private cost net of subsidy is recoverable in computing his
income tax liability. However, in the case of the investment tax
credit before January 1, 1983, the private firm was allowed cost
recovery deductions for the entire cost of credited assets, gross of
the investment tax credit for its purchase. Under the outlay equivalent computation, this additional cost recovery is accounted for as
an addition to the initial grant (tax credit) to derive the expenditure equivalent. The estimated outlay equivalent for the investment tax credit was, therefore, larger than the revenue loss estimate because the latter did not take into account the extra investment grant provided by the additional tax depreciation allowed.
Beginning in January 1983, this additional grant was reduced by
half the amount of the investment tax credit with the introduction
of a partial basis adjustment on assets eligible for the investment
tax credit.
Tax deferrals resulting from special accelerated capital cost recovery allowances are a form of Government lending. For example,
as has been noted, under both the reference and normal tax rules
investments for the discovery and development of mineral deposits
would be capitalized when incurred and recovered as depletion
allowances as production from the deposit ensues. Under special
tax rules, however, these investment expenditures are recovered as
deductions when made, reducing taxes due and payable at the time
the investment is made, and increasing taxes in later years. The
deferral of tax, as compared with the tax stream that would have
occurred under either tax rules, is the equivalent of an interestfree loan. Accounting for the tax expenditure resulting from the
tax deferral is akin to the budget outlay accounting for Federal
lending. When the tax is deferred, a tax expenditure (revenue loss)
equal to the deferral is recorded. This is equivalent to making an
interest free loan. When the tax is actually paid, the tax expenditure is reversed as if it were a loan repayment. The procedure
mirrors that of net lending, with the revenue loss of the tax expenditure canceling out over time. Budget accounting, however,
fails to measure the subsidy value of Federal lending. Therefore,

SPECIAL ANALYSIS B

B-17

the subsidy element attributable to the zero interest rate on the
tax deferral is not counted either in the outlay equivalent estimate
of this tax expenditure. For this reason the tax deferral's outlay
equivalent is the same as the revenue loss estimate.
All tax expenditure estimates reported were prepared by the
Treasury Department and are based upon income tax law enacted
as of December 31, 1985. In table G - l the estimates show the
expenditure equivalent of each special tax provision by fiscal year.
For tax expenditures resulting from the exclusion from taxable
income of Federal Government payments to individuals, estimates
of the payments upon which the tax subsidy estimates are based
are shown elsewhere in the Budget.
The estimating procedure for tax expenditures uses the implicit
assumption—the same that governs estimates of out-year budget
outlays—that the existing tax structure and all other institutional
resource costs determinants are given. It is also assumed that
aggregate output and incomes remain at the levels that underlie
the 1987 budget estimates.
The tax expenditure estimates presented in this Special Analysis,
including those computed on a revenue loss basis shown in Table
G-2, should not be interpreted as estimates of the increase in
Federal receipts (or reductions in budget deficit) that would accompany the repeal of the special provisions. There are four reasons
why such an interpretation is not possible.
First, repeal of some provisions could affect the aggregate level
of income and economic growth. All receipts and expenditures in
the budget are based on projections of income and growth that
assume all existing laws, amended only as proposed in the budget,
will continue. Thus, it is assumed that the investment tax credit
and other incentives for private capital formation as currently
enacted remain in effect. If, however, these investment incentives
were repealed (or drastically curtailed) without being replaced by a
comparable investment incentive or other appropriate offset, the
current projections of income and growth would have to be revised
downward. Projections of receipts and expenditures would also
have to be changed to be consistent with the revised estimates of
income. The estimated net effect of repeal of the investment tax
credit on receipts, therefore, would not be equivalent to the tax
expenditure. Of course, large changes in outlay programs beyond
those proposed in the budget would also affect the tax base.
Second, all the tax expenditure estimates are based on the actual
level of benefited activities achieved with their aid, given the existence and utilization of all other tax expenditures. In the event a
particular tax expenditure provision was repealed, the relative cost
of the affected activity would be increased and this could be expected to elicit a response, some of which would spill over into other

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

activities favored as tax expenditures. For example, if the exclusion
of employer-paid medical insurance from the gross income of employees were repealed, this form of employee compensation would
become more costly from the employees' point of view and would
likely be substituted for by other forms of compensation, including
cash and other still tax-favored fringes, such as employer-paid pensions. Thus, the budget impact of repealing the exclusion of employer-paid medical insurance would not be an increase in revenues equal to the estimated cost of that tax expenditure, but a
smaller amount due to some increase in tax expenditures for pensions or other fringes. In this respect, tax expenditures are similar
to many outlay programs; a cut in support prices for one commodity might very well result in an increase in outlays for other pricesupported commodities.
Third, as is the case with estimates of proposed changes in the
reference tax law, tax subsidy estimates are computed on a cashflow basis. The magnitudes of resources reallocated by the Federal
Government are portrayed by showing the budget impact of differences between current law provisions and either the reference or
normal tax under the assumption that the baseline without the
particular tax subsidy provision had always been in effect. These
figures generally show, therefore, larger amounts than would be
realized as increased receipts in the first years of transition to a
tax law without the special provisions. The estimates only take into
account those changes scheduled under existing law, such as the
phasing in or out of specific provisions.
Fourth, tax expenditure estimates cannot simply be added together to obtain totals for functional areas or a grand total. Although these estimates are reported on a provision by provision
basis, many tax expenditures are interdependent because they mutually affect marginal tax rates and because of specific
interdependencies between related provisions. For example, if a
significant tax expenditure item such as exclusion from gross
income of state and local bond interest received were repealed, this
would move many taxpayers into higher tax brackets and, for those
taxpayers, the value of other special exclusions and deductions
from gross income would be enhanced. Thus, if one of these other
tax expenditure provisions were simultaneously repealed along
with exemption of State and local interest payments, the budget
impact of the dual repeal would be greater than the sum of the two
separate tax expenditure estimates. On the other hand, simultaneous repeal of two or more of the tax expenditure items cleared
through individual tax accounts as deductions, such as for charitable contributions, mortgage interest, and property taxes, would
have less budget impact than the sum of the individual tax expenditure estimates because each elimination of a deduction would

SPECIAL ANALYSIS B

B-17

make it more advantageous for taxpayers to opt for the zero bracket amount rather than to continue to itemize remaining allowable
deductions. This would reduce the revenue gain from additional
limitations on itemized deductions. Due to these and other interdependences among tax expenditure items, the tabulated figures can
only be interpreted as estimates of the budget impact of changes in
one item at a time, assuming that other provisions of the tax law
remain unchanged.
T A X EXPENDITURES BY FUNCTION

The 1985-87 outlay equivalent estimates of tax expenditures for
are displayed by functional category in table G - l and revenue loss
estimates for the same items are shown in table G-2. Whenever an
item is identified as a tax expenditure by application of normal tax
rules, but not by reference tax rules, both are shown in the tables,
the former designated as "Pre-1983 budget method", the latter as
"Post-1982 budget method." The headings for National Need, or
functional categories, are those used in Part 5 of the budget.
Inasmuch as the sources of data for estimating tax expenditures
are largely corporation and individual income tax returns, the
estimates are arrayed by type of return. It must be emphasized,
however, that listing estimates under the corporation and individual headings does not imply that these categories of filers benefit
from the functional program served by the special tax provisions in
proportion to the respective tax expenditure amounts shown.
Rather, these breakdowns principally show the specific tax accounts through which the cost of the program is cleared. Corporations as such neither pay tax nor receive government payments.
They are the institutional conduit through which their employees,
creditors, and stockholders engage in exchanges with customers
and the Government. Thus, the reduction in tax deposits of corporations resulting from minerals tax preferences makes possible
higher wages and/or more employment for mineral workers,
higher royalties payable to mineral land owners (usually not the
mining company), and may even make possible lower minerals
prices. Little, if any, of the subsidy remains in the pockets of
creditors and equity holders as interest rates or rates of return
that are higher than such capital can earn elsewhere in the economy. Similarly, the exemption from Federal income tax of interest
paid by State and local governments provides a subsidy to those
governments in the form of lower borrowing rates. Individual and
corporate holders of such debt only benefit from the tax exemption
to the extent their marginal tax rates exceed the percentage spread
between taxable and nontaxable interest rates.

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

With these caveats in mind, a review follows of the tax expenditure estimates by functional category, as shown in tables G - l and
G-2.
National defense.—The housing and meals provided military personnel, either in cash or in kind, are excluded from income subject
to tax. The exclusion is a tax expenditure relative to the normal as
well as the reference tax rules.
International affairs.—A U.S. citizen or resident alien who is a
resident of a foreign country or who is present in one or more
foreign countries for a prescribed period is allowed tax relief on his
foreign earnings. Beginning in 1982, the prescribed period of time
abroad is a minimum of 11 out of the past 12 months.
Eligible taxpayers in 1986 may exclude $80,000 per year of foreign earned income and may exclude or deduct reasonable housing
costs in excess of one-sixth of the salary of a civil servant at grade
GS-14, step 1. The $80,000 exclusion in 1986 will increase by $5,000
annually starting in 1988 until it reaches $95,000 in 1990. These
provisions do not apply to persons who are employed by the U.S.
Government. However, they do apply to persons who are not U.S.
Government employees, but who are paid from public funds. The
tax expenditure estimate does include the effect, however, of excluding from their taxable income certain allowances received by
Federal employees working abroad. These provisions depart from
the income measurement rules of both the reference and normal
tax law under which no allowance is made for regional cost-ofliving differentials. Their effect is to reduce the cost of employing
U.S. taxpayers abroad.
Domestic international sales corporations (DISC) were organized
to carry out the export sales of their U.S. parent corporations and
to obtain the benefits of certain preferential tax rules. These preferential tax rules were departures from the reference as well as
the normal income tax structure. However, responding to increasing concern over the legality of DISC under the General Agreement on Tariffs and Trade (GATT), Congress replaced DISC in 1984
with an alternative export incentive, the Foreign Sales Company
(FSC). A portion of the export income of these FSCs is exempt from
federal income tax. In addition, a domestic corporation is allowed a
100 percent dividends received deduction for distributions from a
FSC attributable to certain foreign trade income. In effect no corporate income tax is imposed on a portion of income from exports.
With certain limited exceptions, the income of foreign corporations controlled by U.S. shareholders is not subject to U.S. taxation
because, under the reference tax rules, corporations chartered and
operating in foreign countries are not subject to U.S. income reporting and taxation. Therefore, the income of even those foreign
corporations controlled by U.S. shareholders (individuals and corpo-

SPECIAL ANALYSIS B

B-17

rations) subject to U.S. taxation becomes taxable only when the
controlling U.S. shareholders receive dividends or other distributions with respect to their foreign stockholding.
As previously noted, this rule, however, is a deviation from the
normal income tax rule under which a controlling interest in a
foreign corporation, defined as ownership of more than 50 percent
of the foreign corporation's common stock by U.S. shareholders,
each holding 10 percent or more of the stock, is considered a
partnership interest held by the U.S. shareholders. The currently
attributable foreign source pretax income from such an interest is
subject to U.S. taxation, whether or not distributed. Thus, when
the normal tax rule is taken as a baseline, the excess of controlled
foreign corporation income over the amount distributed to a U.S.
shareholder gives rise to a tax expenditure in the form of tax
deferral, that is, an interest-free loan. This tends to encourage
investment abroad by U.S. shareholders.
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. Such expenditures are, therefore,
capital outlays under the normal income tax rules that will generate amortization deductions over the period they are productive.
Quantification is to a substantial degree arbitrary, however, due to
lack of a clearly defined norm for the expected amortization period.
Yet expensing of R&D expenditures is a departure from the normal
tax rules and is, therefore, considered a tax expenditure under this
standard. This is not the case under the reference tax rule, because
Code section 174 makes such expensing the general tax rule.
The Economic Recovery Tax Act of 1981 (ERTA) added a credit
for increasing research activities. The credit was equal to 25 percent of the increase in certain research and experimentation expenditures over average expenditures in a base period. The taxpayer was not required to reduce his otherwise allowable deduction for
R&E expenses by the amount of credit allowed. For 1983, 1984, and
1985, the base period was the preceding 3 years. The credit was
allowed to expire at the end of 1985.
Under both the reference and normal tax rules, the worldwide
gross income of U.S. taxpayers is reportable and taxable under U.S.
income measurement rules and tax rates, although a credit is
allowed for foreign income taxes paid. Due to differences between
U.S. and foreign country income measurement rules and tax rates,
a reasonably accurate "sourcing" of domestic and foreign gross
incomes and related deductions of taxpayers engaged in international operations is required to determine net tax owed in the
United States. Regulations issued in 1976 under Code section 861,
but suspended until July 31, 1985, were designed to achieve a

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

reasonable international allocation of research and experimentation expenses.
Energy.—Certain expenditures necessary to discover fuel mineral
properties may be deducted in whole or in part as current expenses
rather than being capitalized and amortized over the productive
life of the property. Included in this category of expenditures, the
tax treatment of which departs from both the reference and
normal tax rules, are: In the case of oil and gas investments, the
intangible drilling costs (IDCs) of wells, such as wages and the costs
of using machinery for grading and drilling, and for nonsalvageable materials used in constructing wells; and in the case of other
fuel minerals, the exploration and development costs of surface
stripping and the construction of shafts and tunnels. However, in
the case of IDCs, integrated oil companies may currently deduct
only 85 percent of such costs and amortize the remaining 15 percent over three years. Other oil producers may currently deduct
100 percent of their IDCs, but the amount of annual IDCs in excess
of the taxpayer's oil and gas income is subject to the minimum tax.
In the case of other fuel minerals, only 85 percent of the exploration and development costs may be currently deducted. The remaining 15 percent are deductible over five years. These departures from both the reference and normal tax rules yield subsidies
to the domestic supply of these energy resources.
In addition, mineral fuel producers may generally take percentage depletion deductions rather than cost depletion as provided in
the reference and normal tax rules. Under cost depletion, actual
outlays, to the extent not immediately recovered through expensing of exploration, discovery, and development costs, may be deducted over the productive life of the property, much as other
businesses may take deductions for the depreciation of the capital
goods they use, the cost of which is capitalized when acquired.
Unlike depreciation, however, percentage depletion deductions are
not limited to the cost of the investment. Under percentage depletion, taxpayers may deduct a percentage of gross income from
mineral production at rates that are 22 percent for uranium, 15
percent for oil, gas and oil shale, and 10 percent for coal. However,
the deduction is limited to 50 percent of net income from the
property (65 percent of taxable income in the case of oil and gas).
Percentage depletion for oil and natural gas is available only for
limited quantities of output from independent oil and gas producers and royalty owners. Production from geothermal deposits is
eligible for percentage depletion at the same rate as allowed for oil
and gas, but with no limit on output and no limitation with respect
to qualified producers. In lieu of taking percentage depletion, holders of royalties from coal deposits may treat their payments as
capital gains rather than ordinary income.

SPECIAL ANALYSIS B

B-17

A variety of tax incentives stimulate energy conservation and
encourage conversion to energy sources other than oil or natural
gas. Individuals could take a 15 percent income tax credit for home
insulation and other energy-conserving components up to a maximum amount of $300. A credit of 40 percent of the first $10,000 of
qualifying expenditures was allowed on residential solar and other
renewable energy source property. The residential energy credits
have been allowed to expire on December 31, 1985.
In addition to the 10 percent investment tax credit for machinery
and equipment, and before they were allowed to expire at the end
of 1985, a 10 percent credit was allowed for biomass energy property and intercity buses, an 11 percent additional credit was available for certain small-scale hydroelectric generating property, and
a 15 percent additional credit was allowed for solar, wind, ocean
thermal, and geothermal equipment. However, the credit for smallscale hydroelectric generating property is available through December 31, 1988 for projects filed with the Federal Energy Regulatory Commission before January 1, 1986.
Prior to December 31, 1982, there were also additional 10 percent
credits allowed for alternative energy property (i.e., property using
fuel other than oil or natural gas); 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, cogeneration equipment; alumina electrolytic cells; and equipment for producing natural gas from geopressurized brine. The additional investment credit can still be claimed for long term projects under
these provisions if the taxpayer completed all engineering studies
and applied for all required environmental and construction permits in connection with the project prior to January 1, 1983.
A nontaxable $3 per barrel of oil-equivalent production credit is
provided for several forms of alternative fuels, but, as a general
rule, is not available unless the price of oil drops below $29.50 (in
1979 dollars). The credit was available without this price limitation
for processed wood fuel and steam produced from solid agricultural
byproducts until the exception expired at the end of 1984.
Gasohol (a motor fuel comprised of at least 10 percent alcohol) is
exempt from 6 of the 9 cents per gallon Federal excise tax on
gasoline. There is a corresponding production income tax credit for
alcohol used as a fuel in applications where the excise tax is not
assessed. This credit, equal to a subsidy of 60 cents per gallon for
alcohol used as a motor fuel, is intended to encourage substitution
of alcohol for petroleum-based gasoline. Certain small scale hydroelectric generating facilities and facilities which produce steam or
alcohol from solid waste may be financed with tax-exempt industri-

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

al development bonds, again to encourage the supply of nonpetroleum energy resources.
Natural resources and environment—As is true for fuel minerals,
certain capital outlays associated with exploration and development of nonfuel minerals may be expensed rather than capitalized
and depreciated over the life of the asset. Most nonfuel mineral
extractors also make use of percentage depletion rather than cost
depletion, with percentage depletion rates ranging from 22 percent
for sulphur down to 5 percent for sand and gravel.
Interest on State and local government debt issued to finance
pollution control facilities of private firms is excluded from income
subject to tax.
Expenditures to preserve and restore historic structures qualify
for a 25 percent investment credit. Taxpayers are permitted to
depreciate 87.5 percent of the investment notwithstanding the 25
percent capital grant implicit in the credit. Annual depreciation
amounts are determined by the 18-year straight-line method.
The pretax income derived from the cutting of timber and iron
ore royalties are taxed as capital gain at rates lower than those
applicable to ordinary income.
Private forestry is in addition encouraged by a special provision
permitting up to $10,000 ($5,000 for a married taxpayer filing a
separate return) of direct costs incurred in a taxable year to forest
or reforest a site for the commercial production of timber to be
amortized over a 7-year period rather than to be capitalized and
recovered when the timber is cut, 20 or more years later. The
$10,000 of costs are also eligible for the 10 percent investment tax
credit, notwithstanding that investments in timber stands are not
depreciable.
Agriculture.—Farmers, other than certain corporations and partnerships engaged in agriculture, are allowed to deduct currently
certain expenditures for feed and fertilizer, and for certain conservation measures. Current expensing is allowed, although these expenditures are for inventories held at the end of the year or for
capital improvements that otherwise are required to be capitalized
under reference tax income accounting rules. Capital gains treatment generally applies to the profit from the sale of livestock and
certain other agricultural products.
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 the investment tax credit, could as well have been
classified under the natural resources and environment, energy,
agriculture, or transportation categories.
An exclusion of $100 ($200 on a joint return) is allowed for
dividend income. The Deficit Reduction Tax Act (DEFRA) of 1984

SPECIAL ANALYSIS B

B-17

repealed the 15 percent net interest income exclusion of up to a
maximum of $3,000 ($6,000 for joint returns) which had been provided for tax years beginning in 1985 by ERTA in 1981.
The interest on small issue industrial development bonds (IDBs)
issued by State and local governments to finance private business
property is excluded from income subject to tax. Depreciable property financed with small issue IDBs must be depreciated using the
straight-line method. Small issue IDBs are generally limited only
in the face amount of the bond issue, although certain facilities,
such as recreation or entertainment facilities, cannot be so financed. The tax exemption of small issue bonds is scheduled to
expire on December 31, 1986, except for small issue IDBs exclusively issued to finance manufacturing facilities for which the tax
exemption is scheduled to expire two years later.
Interest is exempt from taxation on all mortgage subsidy bonds
issued before January 1, 1988, by State and local governments to
finance below-market rate mortgages for certain owner-occupied
homes. The annual volume of mortgage subsidy bonds is restricted
to State-by-State ceilings. Bond proceeds generally are used to finance homes purchased by first time buyers of dwellings with
prices under 110 percent of the average area purchase price.
Because mortgage subsidy bonds were found to be relatively
inefficient in providing subsidies to first time home buyers, States
have been authorized through December 31, 1987 to issue mortgage
credit certificates (MCCs) in lieu of qualified mortgage bonds. MCCs
entitle home buyers to income tax credits for a specified percentage
of interest on qualified mortgage loans. When utilizing MCCs the
entire amount of the subsidy flows directly to the home buyer
without part of it ending up with investors and middlemen as
under the bond program.
The aggregate annual amount of MCCs a State may issue may
not exceed 20 percent of the amount of qualified mortgage bonds
that may be issued under the annual State-by-State ceiling and
that the State elects to surrender in lieu of MCCs. Because of this
relationship between MCCs and qualified mortgage bonds, their
outlay equivalent and revenue loss estimates are presented in the
tables G - l and G-2 as single line items.
State and local government issues of IDBs to finance private
multifamily residential rental projects are restricted to multifamily
rental housing projects that include 20 percent (15 percent in targeted areas) of units for low- and moderate-income families. Other
tax-exempt bonds for multifamily rental projects are issued generally with the requirement that all tenants must be low- or moderate-income families.
There are also limits imposed on State and local government
bonds for private activity, specifically IDBs and student loan bonds.

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

This includes limits on the aggregate volume of private activity
bonds that each State may issue. The annual limitation has been
set initially at the greater of $150 for each resident of a State
(reduced to $100 after 1987) or $200 million and is effective for
bonds issued after 1983.
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 upon the death of the
insured.
The earnings of credit unions not distributed to members as
interest or "share dividends" are exempt from Federal income
taxes. Commercial banks, mutual savings banks, and savings and
loan associations also are provided a subsidy. They 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
percent of income provided they maintain stipulated fractions of
their assets in "qualifying assets," primarily residential mortgages.
As previously noted, interest paid on consumer credit is allowed
as an itemized deduction for individuals, and owner-occupants of
homes may deduct mortgage interest and property taxes (but not
maintenance outlays or depreciation) as itemized nonbusiness deductions. These are tax expenditures because, under the reference
and normal tax rules, these taxpayers are not required to report
gross income from the properties to which the deductions pertain.
The minimum required holding period to qualify as a long-term
gain was shortened from 1 year to 6 months for assets acquired
after June 22, 1984 and before January 1, 1988. Sixty percent of net
long-term gains from the sale of capital assets may be excluded
from income. However, the excluded 60 percent of net long-term
gains is treated as a preference item in computing the alternative
minimum tax for individuals. This tax is applicable only if a taxpayer's regular income tax is less than his alternative minimum
tax. Half of net long-term capital losses and 100 percent of net
short-term capital losses may be offset against ordinary income up
to a maximum deduction of $3,000 per year with an unlimited
carryforward. Net long-term capital gains from sales or exchanges
are taxed at a maximum rate of 20 percent. This maximum rate is
equal to the 40 percent inclusion rate times the maximum individual marginal tax rate of 50 percent.
Corporations may elect a 28 percent alternative tax rate on
capital gains. The tax expenditure is estimated on the assumption
that these gains would otherwise be taxed at ordinary rates.

SPECIAL ANALYSIS B

B-17

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 2 years before or after the
sale. The "adjusted sales price" is the amount realized (gross proceeds less selling expenses) minus qualified fixing up expenses. If a
new house is constructed, it must be occupied within 2 years after
the sale of the previous residence. The deferral of tax with respect
to these gains on owner-occupied dwellings is the tax expenditure
estimated.
A taxpayer who is 55 years of age or older at the time of the sale
of his residence may elect to exclude up to $125,000 of gain from its
sale. This is a once-in-a-lifetime election. In effect, this provision
converts some prior deferrals of tax into forgiveness of tax.
The gain on the sale of capital assets acquired by inheritance is
computed as the excess of the sales price over their value at the
time of the original owner's death, rather than as the excess over
their value at the time of acquisition by the original owner. The
estimate assumes that the difference in the computed gain would
be taxed as part of the capital gain in the year of sale.
The 10 percent investment tax credit is applied to the cost of
qualifying property (generally, tangible, depreciable personal property used in a trade or business) in the 5-, 10-, and 15-year recovery
classes under the Accelerated Cost Recovery System (ACRS).
(Assets in the 3-year recovery class are entitled only to a 6 percent
credit). Notwithstanding the reduction in cost of acquiring qualified
property provided by the credit, taxpayers prior to 1983 were able
to recover the original cost gross of the credit. However, beginning
with property placed in service in 1983, the basis of an asset must
be reduced by one half of the investment credit allowed on the
asset, or the taxpayer may elect a 2 percentage point reduction in
the credit rate.
As a general rule, the investment tax credit cannot be claimed
for investments in land or buildings or for property used abroad.
The credit may be claimed as progress payments are made on
equipment which require two or more years to construct. Prior to
the Revenue Act of 1978, the maximum credit allowed against
income tax liability in a taxable year was generally limited to
$25,000 plus 50 percent of tax liability in excess of $25,000. The
1978 act raised the excess liability percentage to 60 percent for
1979 and, through annual increments of 10 percentage points, to 90
percent by 1982. As of 1983, the percentage was scaled back to 85
percent.
(ACRS) replaced previous statutory and administrative rules that
determined annual tax depreciation allowances. Under ACRS, effective for all depreciable property placed in service after January
1, 1981, six statutory cost allowance schedules were provided. Four

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

classes were for personal property and two for real property. The
four personal property schedules, with recovery periods ranging
from 3 years for vehicles and R&E equipment to 15 years for
certain public utility property, set forth annual allowances that are
based on the declining balance formula at a rate equal to 150
percent of the straight-line rate. Originally, the two real property
schedules both had 15-year recovery periods. The first property
schedule applies only to low-income housing which continues with
a 15 year recovery period whenever depreciation is on an accelerated basis. Annual allowances based on the declining balance formula may be accelerated to 200 percent of the straight-line rate.
The holding period of the other property schedule, applicable to all
other buildings, was extended to 18 years. Its allowances may be
based on 175 percent of the straight-line rate.
As previously noted, ACRS is presently the reference law and
thus yields no tax expenditure when that is taken as the baseline.
However, when the preexisting statutory Asset Depreciation Range
System (ADR), with its guideline depreciation periods for scores of
personal property classes, is taken as the normal tax depreciation
standard along with 35-year straight-line depreciation for real
property (not included in ADR), then the ACRS provisions yield
"Pre-1983 budget method" tax expenditure estimates (tax deferrals)
as shown in the tables. Of course, other standards for determining
annual depreciation allowances would yield different estimates.
In 1981 "safe harbors" were provided for tax leases of business
machinery and equipment. Under these leases, depreciation and
the investment tax credit are normally claimed by the lessor, although the lessee is the actual user and owner of the machinery or
equipment. Safe-harbor leasing was repealed by the Tax Equity
and Fiscal Responsibility Act of 1982 (TEFRA), effective after 1983.
For the period between July 1, 1982 and January 1, 1984, a restricted form of safe harbor leasing was in effect.
In 1984, DEFRA reduced the tax benefits that were up to then
available for tangible property used by tax-exempt entities including Federal, State and local governments. The Act provides for less
rapid write-offs of property in use by tax-exempt entities. Depreciation deductions must be computed using the straight-line method
disregarding salvage values instead of applying ACRS. For example, real tax-exempt use property must be depreciated over the
greater of 40 years or a period equal to 125 percent of the lease
term.
As under prior law, the investment credit generally is denied for
property leased or used by tax-exempt entities. The Act expands
the number of tax-exempt entities placed under the use restriction
and provides statutory guidelines to distinguish between leases and
service contracts or similar arrangements designed to circumvent

SPECIAL ANALYSIS B

B-17

the use restriction. DEFRA also introduced measures to limit foreign tax-exempt entities so that their tax benefits for property used
does not exceed that of domestic tax-exempt entities. The Act's
provisions generally apply to leases entered into after May 23, 1983
subject to numerous transition rules.
When an individual or corporation acquires or otherwise enters
into a new business, certain "start-up" expenses, such as the costs
of investigating opportunities and legal services, are normally incurred. The taxpayer may elect to amortize these outlays over 60
months although they are similar in kind to other payments he
makes for nondepreciable intangible assets to be used in the business that are not recoverable until the business is sold.
Before expiring at the end of 1985, taxpayers who held common
or preferred stock in a qualified dividend reinvestment plan established by a domestic public utility company could exclude from tax
up to $750 per year ($1,500 for joint returns) of distributions in the
form of common stock rather than cash. The stock so received had
a zero basis; the proceeds of sales of the stock were taxed as capital
gain if the sale took place at least one year after the record date of
the distribution. Under the normal and reference tax rules, distributions from corporate income are taxable to individual shareholders as ordinary income in the year received.
Corporation income tax rates range from 15 percent of the first
$25,000 of taxable income to 46 percent of taxable income over
$100,000. Prior to DEFRA, the corporation income tax of corporations with income of $100,000 or more was $20,250 less than had
the tax been at a flat 46 percent rate on all income. DEFRA
imposed an additional 5 percent corporate tax on corporations with
taxable income in excess of $1 million, but with this additional tax
liability limited to $20,250. The benefit of graduated rates is, therefore, eliminated for corporations with income in excess of
$1,405,000.
Under the "Post-1982 budget method" graduated rates are part
of the reference tax rules and do not give rise to a tax expenditure.
Under the "Pre-1983 budget method", however, this rate progression departs from the normal tax rule that all corporation income
be taxed at the single rate at which most corporation income is
taxed (46 percent) and gives rise to a tax expenditure intended to
encourage small business.
Transportation.—Certain companies that operate U.S. flag vessels receive an indefinite deferral of income taxes on that portion
of their income used for shipping purposes, primarily construction,
modernization and major repairs of ships, and repayment of loans
to finance these qualified investments. An investment credit of one
half the regular credit may be claimed on the tax-deferred amounts
withdrawn from capital construction funds. This is an exception to

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

the reference tax rule that the credit may be claimed only with
respect to the taxpayer's basis in qualified property.
Until expiration on December 31, 1984, State and local governments were allowed to issue tax-exempt obligations to finance the
purchase of mass-commuting vehicles for lease to government transit agencies.
As a consequence of the deregulation of motor carriers in 1980,
the value of operating authorities held by affected firms diminished. Under the reference and normal tax rule asset value
changes are recognized only when an exchange transaction occurs,
so this loss of value would occasion no income tax consequence. A
motor carrier would simply experience a diminished gross income
as competition reduced tariffs and, accordingly, pay less income
tax. Only in the event a carrier liquidated or sold out to another
firm would the loss trigger a tax refund. To relieve existing motor
carriers continuing in business of some of the loss they experienced
due to deregulation, a tax expenditure was provided in the form of
an exceptional 60-month amortization of their investment in operating authorities (a nondepreciable intangible asset). The provision
applies to taxable years ending after June 30, 1980.
Community and regional development—Until
it expires on
December 31,1986, taxpayers may, under certain conditions, elect to
amortize rehabilitation expenditures for low- and moderate-income
rental housing over a 5-year period in lieu of ACRS depreciation.
Rehabilitation expenditures may not exceed $20,000 per dwelling
unit and must exceed $3,000 to qualify. The limit is $40,000 per
dwelling unit if the rehabilitation was on units which the tenants
could purchase at a price that limited the profit to the seller.
An investment tax credit is available for the rehabilitation of
buildings that are used for business or productive activities (other
than for residential purposes). The credit is 15 percent of rehabilitation expenditures for buildings at least 30 years old and 20
percent for buildings at least 40 years old. The basis of the rehabilitation recoverable as depreciation must be reduced by the amount
of the credit. Under prior law, a 10 percent credit was allowed for
buildings at least 20 years old, with no reduction in basis.
The interest on industrial development bonds (IDBs) issued by
State and local governments to finance airports, docks, and sports
and convention facilities is exempt from taxation. Unlike the small
issue IDBs, there is no limit on the face amount of tax-exempt
bonds issued for these purposes nor are they subject to the annual
State-by-State volume limitation placed on the issuance of IDBs.
Education, training, employment, and social services.—The first
$300 per month received by students as scholarship or fellowship
aid is excluded from students' gross incomes, provided the amounts
are not emoluments awarded them for services they perform in

SPECIAL ANALYSIS B

B-17

association with the payee. From a strictly economic point of view,
scholarships and fellowships are either gifts not conditioned on the
performance of services, or they are rebates of educational costs by
the institutions in which students are enrolled. Thus, under the
"Post-1982 budget method", the exclusion is not a tax expenditure,
because the reference law does not include either gifts or price
reductions in a taxpayer's gross income. However, under the "Pre1983 budget method," the exclusion is considered a tax expenditure, because under normal tax rules gifts of Government funds—
and many scholarships are derived directly and indirectly from
Government funding—are includable in gross income.
Interest on State and local government debt issued to finance
student loans and facilities used by private nonprofit educational
facilities is excluded from income subject to tax. The Treasury
Department has exclusive jurisdiction over any determination by
the executive branch as to whether interest on any such obligation
is exempt from tax. As mentioned before, the aggregate volume of
such private activity bonds that each State may issue during any
calendar year is limited.
Taxpayers may claim personal exemptions for dependent children age 19 or over who receive parental support payments 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; the extra
exemption claimed by parents is, therefore, a tax expenditure.
Many employers provide employee benefits that are excluded
from employee income. The employers' costs for these benefits are
deductible business expenses. The exclusion from an employee's
income of the value of meals and lodging provided by an employer
for his own convenience is a tax expenditure, as are the exclusion
of housing allowances and the rental value of parsonages from the
taxable income of ministers. However, deductions of mortgage interest and real estate taxes taken by ministers who are provided
such housing allowances are severely limited as of January 1, 1986,
when IRS Revenue Ruling 83-3 became effective.
From January 1, 1979, through December 31, 1985, an employer
was able to set up an educational assistance program to provide
educational benefits to his employees. The program could pay for
tuition, fees, books, and supplies and amounts received under the
program were excluded from an employee's gross income. Employer contributions to prepaid legal services plans and the value of
legal services received under such plans were also excluded from
employee income until the exclusion expired at the end of 1985.
Prior to January 1, 1983, a corporation could claim an additional
1 percent investment tax credit if an equivalent amount of its
common stock were set aside in a employee stock ownership plan
(ESOP). A further one-half of 1 percent investment tax credit could

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

be claimed to the extent that additional employer contributions to
an ESOP were matched by employee contributions. The base for
the tax credit for contributions of stock to an ESOP is limited to
one-half of 1 percent of total compensation paid to all employees
under the plan from 1983 through 1987, after which it expires.
Employees generally are prohibited from withdrawing their share
of an ESOP for 7 years. The effective subsidy rate for this form of
employee compensation exceeds 100 percent; the employer is fully
reimbursed for the stock he transfers, and the benefited employees
are not required to include this compensation in their current year
gross income.
Contributions to charitable, religious and certain other nonprofit
organizations are allowed as an itemized deduction for individuals,
generally up to 50 percent of adjusted gross income. Beginning in
1982, nonitemizers could also deduct a portion of their charitable
contributions. Taxpayers whose contributions to charitable or educational organizations are in the form of capital assets (usually
securities that have appreciated in value) obtain a deduction for
the contribution at the current value of the asset without taxation
of the appreciation in value. Beginning in 1982, corporations could
also deduct charitable contributions of up to 10 percent of their
pretax income. Tax expenditures resulting from the deductibility of
contributions are shown separately for educational and other institutions. Contributions to health institutions are reported under the
health function.
A 30 percent 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 credit may also be claimed by divorced or separated parents
who have custody of children and by single parents. Expenditures
up to a maximum $2,400 for one dependent and $4,800 for two or
more dependents are eligible for the credit. The credit is equal to
30 percent of qualified expenditures for taxpayers with incomes of
$10,000 or less with the credit reduced by one percentage point for
each $2,000 of income between $10,000 and $28,000. This aid to
encourage employment of spouses is supplemented by excluding
from employees' income the value of employer-furnished child care.
Additional aid to spousal employment is provided by the deduction
allowed married taxpayers filing jointly. The deduction allowed is
equal to 10 percent of the lesser of $30,000 or the earned income of
the lower earning spouse.
Before it was allowed to expire on December 31, 1985, the targeted jobs credit provided tax credits to employers for qualified wages
paid to individuals certified as members of a targeted group. A
credit of 50 percent of first-year wages and 25 percent of secondyear wages up to $6,000 of each employee's wages could be taken

SPECIAL ANALYSIS B

B-17

by the employer to offset up to 90 percent of his tax liability.
However, the employer's deduction for wages was reduced by the
amount of the credit, the same reference tax treatment as would be
accorded a wage subsidy paid in cash. The credit also included an
85 percent credit for wages paid for the summer employment of 16
and 17 year old disadvantaged youths. These credits were also
structured to be taxable with the requirement that the employer
reduce his wages paid deduction by the amount of the credit
claimed.
To encourage the adoption of children found by a State to be
difficult to place without financial assistance to the adopting parents, taxpayers may deduct up to $1,500 of adoption expenses incurred during a year. Only those adoption expenses incurred with
respect to a child with "special needs" as defined in section 473 of
the Social Security Act qualify for this tax expenditure.
Health.—Employee compensation in the form of payments by
employers for health insurance premiums and other medical expenses are deducted as business expenses by employers but excluded from employee gross income. The exclusion from employee
income of this form of compensation gives rise to a tax expenditure.
For tax years beginning in 1983, the floor for deductible medical
expenses was increased from 3 percent to 5 percent of a taxpayer's
adjusted gross income. Beginning in 1984, the one percent of adjusted gross income floor under the deductible amount of drug expenditures was eliminated. However, only expenditures for prescription
drugs and insulin are now deductible.
Interest on State and local government debt issued to finance
hospital construction is excluded from income subject to tax.
Contributions to nonprofit health institutions are allowed as a
deduction for individuals and corporations. Tax expenditures resulting from the deductibility of contributions to other charitable
institutions are listed under the education, training, employment,
and social services function.
Drugs for the treatment of rare diseases or physical conditions
are often called "orphan drugs" because the narrow markets for
their use discourages private firms from undertaking the costly
investment in clinical testing that must be completed before manufacture and general distribution may be approved by the Food and
Drug Administration. To encourage the development of such drugs,
a tax credit equal to 50 percent of the clinical testing costs incurred by the taxpayer was introduced. Because the drug firm is
not required to reduce its deduction for testing expense (an R&D
expenditure), this credit reduces the private cost of clinically testing "orphan drugs" to little more than 7.5 cents per $1 expended.
This tax expenditure is scheduled to expire at the end of 1987.

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

Income security.—The exclusion from taxable income of public
assistance benefits received by individuals is listed as a tax expenditure under the "Pre-1983 Budget Method" because, under normal
tax rules, cash transfers from government are includable in gross
income. In contrast, gifts not conditioned on the performance of
services, including transfers from government as well as from individuals, are not taxable under the reference tax baseline. Therefore, under the "Post-1982 Budget Method" the exclusion from
taxable income of public assistance benefits is not shown as a tax
expenditure.
The exclusion from tax of a portion of unemployment benefits
gives rise to a tax expenditure. Under current law, if the sum of a
taxpayer's adjusted gross income, unemployment compensation and
excludable disability income is over $12,000 ($18,000 for a joint
return), the lesser of one-half of that amount over the $12,000 limit
or his unemployment benefits is taxable.
Certain payments up to $100 per week by an employer in lieu of
wages during periods of employee injury or sickness were excluded
from the taxable income of persons under the age of 65, who are
permanently and totally disabled. For these individuals the exclusion was reduced dollar for dollar by adjusted gross income plus
disability income in excess of $15,000. This exclusion was repealed
effective December 31, 1983, and the tax credit for the elderly was
expanded to cover the permanently disabled. Disability-related
military pension income received by current retirees is also mostly
excluded from income subject to tax.
Certain contributions to pension plans by employers and
amounts set aside by the self-employed and those not covered by an
employer's plan (contributions to individual retirement accounts or
IRAs) 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 percent
of their income up to a maximum of $15,000 per year. Employees
can deduct annual contributions of $2,000 (or 100 percent of compensation, if less), or $2,250 on a joint return if one spouse has no
income. The investment income earned by pension funds and other
qualifying retirement plans is not taxable when earned.
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 benefits is listed under the education, training, employment,
and social services function.
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.

SPECIAL ANALYSIS B

B-17

The retirement credit for the elderly allows individuals who are
65 years of age or older to take a tax credit equal to 15 percent 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 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 disabled and retired are both covered under this
provision.
Premiums paid for casualty and theft insurance with respect to
items of one's personal or real property are considered personal
expenditures on a par with purchases of the property itself. Neither the purchases of property nor insurance premiums are, therefore, deductible as costs of earning income, and receipt of reimbursement for insured loss of such property is not reportable as
gross income by the insured. Thus, under neither the reference nor
normal tax baselines would the amount of an uninsured loss of
such property be reportable. However, a special provision permits
taxpayers to deduct casualty and theft losses of more than $100
each, but only to the extent that total losses during the year exceed
10 percent of adjusted gross income (AGI). This special relief for
taxpayers suffering an uninsured loss is, therefore, a tax expenditure.
The earned income credit may be claimed by low-income workers
with minor dependents. As a percentage of earned income up to
$5,000, the credit is equal to 11 percent for a maximum annual
credit of $550. The credit phases out at the rate of 12% cents per
dollar over $6,500. Furthermore, in any tax year the amount of the
credit allowed must be reduced by the alternative minimum tax
liability of the tax payer. 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 that offsets tax liabilities is
shown as a tax expenditure.
Social Security.—Social security benefits, like other forms of deferred employee compensation, give rise to tax expenditures to the
extent that they exceed employees' contributions of previously
taxed income to pay for those benefits. These additional retirement
benefits are paid for by employers' contributions that were excluded from employees' taxable compensation. Up to one-half of
any recipient's social security benefits and tier 1 railroad retirement benefits may be subject to inclusion in the income tax base.
Thus, this tax expenditure is reduced to the portion which remains
excluded from the tax base. Benefits will be taxable if a recipient's
"modified adjusted gross income" plus one-half of his or her social
security and railroad retirement benefits exceed a certain base

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

amount: $32,000 for those filing joint tax returns; $25,000 for single
persons; and zero for those married filing separately (if they did
not live apart from their spouse for the entire year). Modified
adjusted gross income is AGI plus (a) the amount, if any, taken as
a deduction for two-earner married couples, (b) foreign or U.S.
possession income excluded from AGI, and (c) tax-exempt interest
excluded from AGI. If the modified AGI exceeds the specified base
amount, the lesser of one-half of the excess or one-half of the social
security or railroad retirement benefits must be included in income
subject to tax.
Other benefit payments from the Social Security Trust Fund, for
disability and for dependents and survivors, are excluded from
beneficiaries' gross incomes and thus also give rise to tax expenditures. However, beginning in 1984, Social Security disability benefits were modified when the elderly tax credit (see Income Security,
above) was expanded.
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.
The interest on general obligations issued by State and local
governments to finance housing for veterans is excluded from
income subject to tax. However, there are restrictions on veterans
mortgage subsidy bonds including limits on their issuance to preexisting State programs and amounts based upon previous volume
levels. Furthermore, future issuance of these bonds is limited to
veterans who served in active duty before 1977. This tax expenditure provision is unaffected by the sunset of mortgage subsidy
bonds.
General government.—A 50 percent credit may be claimed for
political contributions up to $100 ($200 for joint returns).
General purpose fiscal assistance.—Interest on State and local
government debt is excluded from Federal taxation. Most of these
bonds are owned by commercial banks and casualty and property
insurance companies, but a substantial proportion is also held by
individuals. As a result of the tax exemption, State and local
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 to finance
private activities, such as student loans, businesses, private nonprofit organizations, and housing, is classified elsewhere. Only the
excluded interest on bonds for public purposes, such as schools,
roads, and sewers, is included in this functional tax expenditure.
The deductibility of nonbusiness State and local taxes gives indirect assistance to these governments by reducing the costs of the
services they provide and, thus, the burden on their taxpayers. The
estimates shown here are primarily for the deductibility of State

SPECIAL ANALYSIS B

B-17

and local income and sales taxes. The deductibility of property
taxes on owner-occupied homes is classified under commerce and
housing credit.
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.
PROPOSED CHANGES IN T A X EXPENDITURES

In the current budget the Administration is proposing two new
tax revisions that would create education related tax expenditures.
If necessary, these proposals will be amended to reflect any
changes in present law resulting from the enactment of the tax
reform legislation.
Tuition Tax Credit—The Administration proposes to provide taxpayers a nonrefundable credit of 50 percent of tuition expenses
paid to private elementary and secondary schools for certain qualified dependents. The maximum credit allowable for each dependent
phases up over time to a maximum of $300 and phases out for
taxpayers with adjusted gross incomes between $40,000 and
$60,000. The proposed effective date is August 1, 1986.
Enactment of the tuition tax credit will result in a revenue loss
of $370 million in 1987. The corresponding outlay equivalent tax
expenditure estimate is $695 million in 1987.
Tax Incentives for Higher Education.—The Administration proposes to exclude from tax the earnings on savings deposited in
special accounts that will be used to pay future higher education
expenses of dependent children. The maximum annual contribution
to these accounts will be $1,000 per child. This maximum will be
reduced 5 cents for each dollar that the taxpayer's adjusted gross
income exceeds $40,000, so that any taxpayer with adjusted gross
income in excess of $60,000 will be ineligible.
If enacted, the education savings account proposal is scheduled to
become effective January 1, 1987 and would result in a revenue
loss of $35 million in 1987. The corresponding outlay equivalent tax
expenditure is $90 million in 1987.
Other Proposals.—A number of other tax revisions have been
proposed by the Administration in previous budgets. If enacted,
they would also qualify as new tax expenditures.
The Administration continues to support the three year extension of the currently expired credit for research and experimentation expenditures as well as the increase in the spousal IRA limit
from $2,250 to $4,000. The two proposals are part of the President's
May 1985 tax reform proposals to the Congress. None of the tax

490-700 O - 86 - 10 QL 3

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

reform proposals are included in the current budget because, in
total, they are designed to be revenue neutral.
The Administration also continues to support a program for the
development of economically distressed localities that would provide Federal regulatory and tax relief for targeted urban areas to
encourage jobs and economic development. No specific proposal is
included in the current budget, but the Administration plans to
propose again an "enterprise zones" program once the tax reform
legislation has been enacted.

B-17

SPECIAL ANALYSIS B
Table G - l . OUTLAY EQUIVALENT ESTIMATES FOR TAX EXPENDITURES BY FUNCTION
(In millions of dollars)
Fiscal years
Description
1985

National defense:
Exclusion of benefits and allowances to Armed
Forces personnel
International affairs:
Exclusion of income earned abroad by United
States citizens
Deferral of income of domestic international sales
corporations (DISC)
Exclusion of income of foreign sales corporations
(FSC)
Deferral of income from controlled foreign corporations:
Pre-1983 budget method
Post-1982 budget method
Total (after interactions)1
General science, space, and technology:
Expensing of research and development expenditures:
Pre-1983 budget method
Post-1982 budget method
Credit for increasing research activities
Suspension of the allocation of research and experimentation expenditures
Total (after interactions)
Energy:
Expensing of exploration and development costs-.
Oil and gas
Other fuels
Excess of percentage over cost depletion:
Oil and gas
Other fuels
Capital gains treatment of royalties on coal
Exclusion of interest on State and local industrial
development bonds for certain energy facilities...
Residential energy credits:
Supply incentives
Conservation incentives
Alternative, conservation and new technology credits:
Supply incentives
Conservation incentives
Alternative fuel production credit
Alcohol fuel credit 2
Energy credit for intercity buses
Special rules for minning reclamation reserves
Total (after interactions)
Natural resources and environment:
Expensing of exploration and development costs,
nonfuel minerals
Excess of percentage over cost depletion, nonfuel
minerals
Exclusion of interest on State and local IDBs for
pollution control and sewage and waste disposal
facilities

Individuals

Corporations
1986

1987

1985

1986

1987

2,375

2,535

2,675

2,265

2,405

2,550

765
750

1,550

1,765

625

650

715

2,140

2,200

2,480

2,265

2,405

2,550

3,570

2,795

2,735

160

130

125

2,390

1,225

515

210
6,765

110
4,530

T575

220

165

* 150

-300
60

-190
65

45
70

790

810

415
430
15

390
460
15

385
490
15

1,590
30
115

1,490
30
120

1,465
35
125

130

140

155
450
295

175
70

215
*

120
*

15
•

15
35
730

5
50
760

65
930

440

460

485

1,185

1,405

1,640

10
*

170

5
2,445

5
1,965

5
1,805

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

Table G - l . OUTLAY EQUIVALENT ESTIMATES FOR TAX EXPENDITURES BY FUNCTION—Continued
(In millions of dollars)
Fiscal years
Description
1985

Tax incentives for preservation of historic structures
Capital gains treatment of iron ore
Capital gains treatment of certain timber income
Investment credit and seven-year amortization for
reforestation expenditures
Total (after interactions)
Agriculture:
Expensing of certain capital outlays
Capital gains treatment of certain income
Total (after interactions)
Commerce and housing credit:
Dividend exclusion
Exclusion of interest on small issue industrial
development bonds
Exemption of credit union income
Excess bad debt reserves of financial institutions
Exclusion of interest on life insurance savings
Deductibility of interest on consumer credit
Deductibility of mortgage interest on owner-occupied homes
Deductibility of property tax on owner-occupied
homes
Exclusion of interest on State and local housing
bonds for owner-occupied housing
Exclusion of interest on State and local debt for
rental housing
Capital gains (other than agriculture, timber, iron
ore and coal)
Deferral of capital gains on home sales
Exclusion of capital gains on home sales for
persons age 55 and over
Carryover basis of capital gains at death
Investment credit, other than ESOP's, rehabilitation
of structures, energy property, and reforestation
expenditures
Accelerated depreciation on rental housing:
Pre-1983 budget method
Post-1982 budget method
Accelerated depreciation of buildings other than
rental housing:
Pre-1983 budget method
Post-1982 budget method
Accelerated depreciation of machinery and equipment:
Pre-1983 budget method
Post-1982 budget method
Safe harbor leasing rules
Amortization of start-up costs
Reinvestment of dividends in public utility stock
Reduced rates on the first $100,000 of corporate
income:
Pre-1983 budget method
Post-1982 budget method

Individuals

Corporations
1986

1987

1985

1986

705

290
30
115

370
30
120

45
1,820

50
2,140

470

10
555

75
65
130

400
720
1,040

425
755
1,095

660

685

5,020
15,845

5,370
17,775

24,975

27,180

9,395

10,145

1,610

1,985

760

945

40,675
2,535

42,715
2,570

1,150
6,850

1,275
7,690

140
*

180
*

235
*

460

550

40
1,565
70
55
115

345

2,155
375

-180

1,560

1,695

75
145

2,295
405
535

2,030

28,310

30,520

33,935

4,530

4,580

165

185

200

630

690

5,625

6,460

7,025

2,930

3,260

19,035

20,345

21,485

2,425

2,595

2,640
40

2,245
35

1,850
35

310
685

295
170

9,245

9,805

11,115

B-17

SPECIAL ANALYSIS B

Table G - l . OUTLAY EQUIVALENT ESTIMATES FOR TAX EXPENDITURES BY FUNCTION—Continued
(In millions of dollars)
Fiscal years
Description

Corporations

Individuals
1987

1985

Deductions for special percentage of taxable
income for life insurance companies
Total (after interactions) 1
Transportation:
Deferral of tax on shipping companies
Exclusion of interest on State and local government bonds for mass commuting vehicles
Deduction for motor carrier operating rights
Total (after interactions)
Community and regional development:
Five-year amortization for housing rehabilitation
Investment credit for rehabilitation of structures
(other than historic)
Exclusion of interest on IDBs for airports, docks
and sports and convention facilities
Total (after interactions)
Education, training, employment, and social services:
Exclusion of scholarship and fellowship income:
Pre-1983 budget method
Post-1982 budget method
Exclusion of interest on State and local student
loan bonds
Exclusion of interest on State and local debt for
private nonprofit educational facilities
Parental personal exemption for students age 19
or over
Deductibility of charitable contributions (education)
Employer educational assistance
Total education (after interactions) 1
Exclusion of employer provided child care
Exclusion of employee meals and lodging (other
than military)
Exclusion of contributions to prepaid legal services
plans
Investment credit for ESOPs
Credit for child and dependent care expenses
Targeted jobs credit
Deduction for two earner married couples
Total training and employment (after interactions)
Deductibility of charitable contributions, other than
education and health
Deduction for certain adoption expenses
Exclusion of parsonage allowances
Total social services, (after interactions)
Grand total (after interactions) 1
Health:
Exclusion of employer contributions for medical
insurance premiums and medical care
Deductibility of medical expenses
Exclusion of interest on State and local debt for
private nonprofit health facilities

1986

1,335
70,565

1,425
75,915

130

125

115

220

15
160

135

185

195

220

160

170

480
730

585
850

695
990

210

225

885

990

220

245

1,120

1,230

955
95
3,320
20

1,155
25
3,695
25

885

975

145

175

1985

1986

1,515
83,105 117,420 128,715

215

410

445

495

555

"620

710

3,035

3,660

4,025

360

350

3,700
125
6,795

4,020
70
7,420

3,395

4,010

4,070

9,950

11,145

510

555

620

9,870
*

11,965
*

510
4,460

555
5,185

620
5,400

170
10,040
23,310

175
12,140
26,980

28,025
3,640

31,285
3,825

1,280

1,595

1,945

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

Table 6-1. OUTLAY EQUIVALENT ESTIMATES FOR TAX EXPENDITURES BY FUNCTION—Continued
(In millions of dollars)
Fiscal years
Description

Corporations
1985

Deductibility of charitable contributions (health)
Tax credit for orphan drug research
Total (after interactions)
Income security:
Exclusion of railroad retirement system benefits
Exclusion of workmen's compensation benefits
Exclusion of public assistance benefits:
Pre-1983 budget method
Post-1982 budget method
Exclusion of special benefits for disabled coal
miners
Exclusion of untaxed unemployment insurance benefits
Exclusion of military disability pensions
Net exclusion of pension contributions and earnings:
Employer plans
Individual Retirement Accounts
Keogh plans
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
Additional exemption for the blind
Additional exemption for elderly
Tax credit for the elderly and disabled
Deductibility of casualty losses
Earned income credit 3
Total (after interactions) 1
Social Security:
Exclusion of social security benefits:
Disability insurance benefits
OASI benefits for retired workers
Benefits for dependents and survivors
Total (after interactions)
Veterans benefits and services:
Exclusion of veterans disability compensation
Exclusion of veterans pensions
Exclusion of Gl bill benefits
Exclusing of interest on state and local debt for
veterans housing
Total (after interactions)
General government:
Credits and deductions for political contributions
General purpose fiscal assistance:
Exclusion of interest on public purpose State and
local debt
Deductibility of nonbusiness State and local taxes
other than on owner-occupied homes
Tax credit for corporations receiving income from
doing business in United States possessions
Total (after interactions)

1986

Individuals
1987

1985

1986

250

275

305
*

1,390

1,690

1,530

1,870

2,250

33,055

36,800

445
2,325

455
2,500

545

580

150

145

1,115
120

995
125

71,065
18,685
3,385

78,190
21,090
3,730

2,765
175

2,990
170

20
35
3,040

30
40
3,340

110

295
335
345
330
102,780 113,135
1,170
12,895
3,765
17,830
1,700
190
105

2,765
4,265

3,040
4,700

3,345
5,180

290

5,980

6,635

21,635

1,835

275
2,285

270
1,660

1,735
190
85

255
2,250

1,500

1,200
13,440
3,960
18,600

23,365

27,615

30,000

32,550

B-17

SPECIAL ANALYSIS B

Table G - l . OUTLAY EQUIVALENT ESTIMATES FOR TAX EXPENDITURES BY FUNCTION—Continued
(In millions of dollars)
Fiscal years
Description

Corporations
1985

Interest:
Deferral of interest on savings bonds

1986

Individuals
1987

1985

700

1986

720

1987

735

* $2.5 million or less. All estimates have been rounded to the nearest $5 million.
1 Totals include only pre-1983 budget method.
2 In addition, the exemption from the excise tax for alcohol fuels results in a reduction in excise tax receipts of $375 million in 1985, $455
million in 1986, and $530 million in 1987.
3 The figures in the table indicate the tax subsidies provided by the earned income tax credit. The effect on outlays is: 1985, $1,100 million;
1986, $1,283 million; 1987, $1,228 million.

F-l 6

THE BUDGET FOR FISCAL YEAR 1987
REVENUE LOSS ESTIMATES FOR T A X EXPENDITURES

T a b l e G - 2 shows the estimated revenue loss associated with each
t a x subsidy item

for which an outlay equivalent

estimate

was

provided in table G - l . A s explained in the text under the heading
" M e a s u r i n g T a x Expenditures," revenue loss estimates do not take
into account the additional resources (if any) that would be required to provide the s a m e after-tax incentive if the expenditure
program were administered as a direct outlay rather t h a n through
the t a x system. A s was also previously explained, these revenue
loss estimates are not equivalent to estimates of the increase in
Federal receipts that would accompany the repeal of tax expenditure provisions.
Table G-2. REVENUE LOSS ESTIMATES FOR TAX EXPENDITURES BY FUNCTION
(In millions of dollars)
Fiscal years

1985

Individuals

Corporations

Description

1985

1986

1987

1,955

2,095

2,210

1,405

1987

1986

1,490

1,580

930

1,030

390

430

3,205

2,625

160

130

125

1,030

400

-235
45

15
45

825

790

850

280
330
10

275
350
10

1,055
20
90

990
20
90

950
20
95

-40

-45

175

195

215

330
245

315
190

B-17

SPECIAL ANALYSIS B

Table 6-2. REVENUE LOSS ESTIMATES FOR TAX EXPENDITURES BY FUNCTION—Continued
(In millions of dollars)
Fiscal years

1985

Alternative, conservation and new
technology credits:
Supply incentives
Conservation incentives
Alternative fuel production credit
Alcohol fuel credit 1
Energy credit for intercity buses
Special rules for minning reclamation reserves
Natural resources and environment:
Expensing of exploration and development costs,
nonfuel minerals
Excess of percentage over cost depletion, nonfuel
minerals
Exclusion of interest on State and local IDBs for
pollution control and sewage and waste disposal
facilities
Tax incentives for preservation of historic structures
Capital gains treatment of iron ore
Capital gains treatment of certain timber income
Investment credit and seven-year amortization for
reforestation expenditures
Agriculture:
Expensing of certain capital outlays
Capital gains treatment of certain income
Commerce and housing credit:
Dividend exclusion
Exclusion of interest on small issue industrial
development bonds
Exemption of credit union income
Excess bad debt reserves of financial institutions
Exclusion of interest on life insurance savings
Deductibility of interest on consumer credit
Deductibility of mortgage interest on owner-occupied homes
Deductibility of property tax on owner-occupied
homes
Exclusion of interest on State and local housing
bonds for owner-occupied housing
Exclusion of interest on State and local debt for
rental housing
Capital gains (other than agriculture, timber, iron
ore and coal)
Deferral of capital gains on home sales
Exclusion of capital gains on home sales for
persons age 55 and over
Carryover basis of capital gains at death
Investment credit, other than ESOP's, rehabilitation
of structures, energy property, and reforestation
expenditures
Accelerated depreciation on rental
housing:
Pre-1983 budget method
Post-1982 budget method

Individuals

Corporations

Description

1987

1986

1985

175

110

1987

1986

95
*

45
*

10
35

5
45

5
55

315

330

350

-280

-435

-570

1,530

1,955

2,310

110

140

185

265

320

400

215
20
85

275
20
90

355
20
90

70
30

75
35

80
40

400
575

425
605

455
635

475

495

515

2,645

3,135

3,475

3,915
15,530

3,655
17,600

3,415
18,735

24,785

26,920

29,560

9,315

10,060

10,865

-470
220
-115

-640
240
35

-780
260
330

425

515

605

1,260

1,545

1,820

205

255

285

550

685

780

1,540

1,675

1,710

25,885
1,775

27,185
1,935

28,550
20,090

830
4,355

910
4,940

990
5,530

21,315

22,315

24,505

3,130

3,210

3,230

165

185

200

635

700

760

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

Table G-2. REVENUE LOSS ESTIMATES FOR TAX EXPENDITURES BY FUNCTION—Continued
(In millions of dollars)
Fiscal years
Description

Corporations

Individuals

1985

Accelerated depreciation of buildings other than rental housing:
Pre-1983 budget method
Post-1982 budget method
Accelerated depreciation of machinery and equipment:
Pre-1983 budget method
Post-1982 budget method
Safe harbor leasing rules
Amortization of start-up costs
Reinvestment of dividends in public utility stock
Reduced rates on the first $100,000 of corporate
income:
Pre-1983 budget method
Post-1982 budget method
Deduction for special percentage of taxable income
for life insurance companies
Transportation:
Deferral of tax on shipping companies
Exclusion of interest on State and local bonds for
mass commuting vehicles
Deduction for motor carrier operating rights
Community and regional development:
Five-year amortization for housing rehabilitation
Investment credit for rehabilitation of structures
(other than historic)
Exclusion of interest on IDBs for airports, docks
and sports and convention facilities
Education, training, employment, and social services:
Exclusion of scholarship and fellowship income:
Pre-1983 budget method
Post-1982 budget method
Exclusion of interest on State and local student
loan bonds
Exclusion of interest on State and local debt for
private nonprofit educational facilities
Parental personal exemption for students age 19
or over
Deductibility of charitable contributions (education)
Employer educational assistance
Exclusion of employer provided child care
Exclusion of employee meals and lodging (other
than military)
Exclusion of contributions to prepaid legal services
plans
Investment credit for ESOPs
Credit for child and dependent care expenses
Targeted jobs credit
Deduction for two earner married couples
Deductibility of charitable contributions, other than
education and health
Deductions for certain adoption expenses

1986

1987

1985

1986

1987

5,420

6,365

6,945

2,590

3,165

3,375

18,105

20,395

21,240

2,040

2,630

2,645

2,340
25

1,990
25

1,640
210
450

220
280

200

5,015

5,225

5,885

790

845

900

130

120

-5
50

-5
15

-5
5

55
5

50
5

185

196

215

160

165

180

525

670

795

-60

-95

-125

860

960

995

225

245

255

150

185

220

1,110

1,215

1,345

935

110

1,115

1,130
25
25

795

870

955

2,700
6,725

3,030
50
7,350

3,235
15
8,155

9,670

11,730

11,545

410

440

490

1,890

2,325

2,585

360

350

245

505

545

610

B-17

SPECIAL ANALYSIS B

Table G-2. REVENUE LOSS ESTIMATES FOR TAX EXPENDITURES BY FUNCTION—Continued
(In millions of dollars)
Fiscal years
Description

Corporations
1985

Exclusion of parsonage allowances
Health:
Exclusion of employer contributions for medical
insurance premiums and medical care
Deductibility of medical expenses
Exclusion of interest on State and local debt for
private nonprofit health facilities
Deductibility of charitable contributions (health)
Tax credit for orphan drug research
Income security:
Exclusion of railroad retirement system benefits
Exclusion of workmen's compensation benefits
Exclusion of public assistance benefits:
Pre-1983 budget method
Post-1982 budget method
Exclusion of special benefits for disabled coal
miners
Exclusion of untaxed unemployment insurance benefits
Exclusion of military disability pensions
Net exclusion of pension contributions and earnings:
Employer plans
Individual Retirement Accounts
Keoghs
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
Additional exemption for the blind
Additional exemption for elderly
Tax credit for the elderly and disabled
„ Deductibility of casualty losses
Earned income credit 2
Social Security:
Exclusion of social security benefits:
Disability insurance benefits
OASI benefits for retired workers
Benefits for dependents and survivors
Veterans benefits and services:
Exclusion of veterans disability compensation
Exclusion of veterans pensions
Exclusion of Gl bill benefits
Exclusion of interest on State and local debt for
veterans housing
General government:
Credits and deductions for political contributions
General purpose fiscal assistance:
Exclusion of interest on public purpose State and
local debt
Deductibility of nonbusiness State and local taxes
other than on owner-occupied homes

1986

Individuals
1987

1985

130
21,095
3,620

1,665
1,655
455
2,390
580

150

145

1,112
120

1,005
125

48,525
12,695
1,960

53,365
14,365
2,135

2,055
125

2,220
125

20
35
3,005
230
285

30
40
3,305
110
255
310

1,170
12,955
3,755

1,205
13,515
3,950

1,695
190
105

1,730
190
90

190

215

260

35
300

1,360
1,365

545

45
270

23,510
3,805

445
2,225

45
250

140

275

6,415

7,085

21,455

23,170

110

1,645

1,810

1,950

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

Table G-2. REVENUE LOSS ESTIMATES FOR TAX EXPENDITURES BY FUNCTION—Continued
(In millions of dollars)
Fiscal years
Description

Corporations

Individuals

1985

Tax credit for corporations receiving income from
doing business in United States possessions
Interest:
Deferral of interest on savings bonds

1986

1987

1,660

1,825

2,010

1985

690

1986

710

1987

725

* $ 2 . 5 million or less. All estimates have been rounded to the nearest $5 million.
1 In addition, the exemption from the excise tax for alcohol fuels results in a reduction in excise tax receipts of $375 million in 1985, $455
million in 1986, and $530 million in 1987.
2 The figures in the table indicate the effect of the earned income tax credit on receipts. The effect on outlays is: 1985, $1,100 million; 1986,
$1,283 million; 1987, $1,228 million.

SPECIAL ANALYSIS G
FEDERAL AID TO STATE AND LOCAL GOVERNMENTS

State and local governments have a vital constitutional role in
providing government services. The Federal Government contributes directly toward that role both by promoting a healthy economy and by providing grants, loans, and tax subsidies to State and
local governments.
Federal policies designed to improve the economy contribute significantly to the fiscal health of the State and local sector. State
and local governments have benefited significantly from the national economic recovery over the past 3 years. Decreases in the
deficit and reductions in Federal spending are essential to continued long-term economic growth.
Federal grants help State and local governments finance programs covering most areas of domestic public spending, including
income support, capital spending, and other assistance. Federal
grant-in-aid outlays, which are estimated to be $108.8 billion in
1986, are projected to decline to $99.1 billion in 1987. These reductions reflect the administration's efforts to restrain Federal spending and to reduce Federal involvement in activities that are primarily State and local responsibilities.
The major proposals affecting grants-in-aid in the 1987 Budget
include program reforms, management reforms, reductions, and
terminations. The major reforms include:
• a new transportation block grant proposal for local highway
and transit facilities. This would be financed by part of the
Federal tax on gasoline. The administration is proposing $3.3
billion in budget authority for the block grant in 1987.
• expansion of the primary health care block grant to include
narrow categorical programs for black lung clinics, migrant
health, and family planning.
• consolidation of seven environmental programs into a pollution control block grant. The purpose of this consolidation is
to enhance the ability of State policy makers to administer

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. All data in this Special Analysis
include the effects of the 1986 automatic reductions associated with the Balanced Budget and Emergency Deficit
Control Act of 1985 (Gramm-Rudman-Hollings). For a discussion of the technical aspects of this legislation, see
Part 6b, "The Budget System and Concepts" in The Budget of the United States Government: Fiscal Year 1987.

H-1

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

these programs in an efficient manner, and to increase State
flexibility.
• reforms in the Federal payment for State administrative expenses associated with the medicaid, food stamps, and aid to
families with dependent children (AFDC) programs. Generally, a uniform 50% matching rate for all types of administrative costs would be phased in over several years, replacing the
complicated and disparate set of matching rates now in place
for various types of State overhead costs. Similar changes are
proposed for computer-related funding in the child support
enforcement program.
The administration is also proposing reductions or terminations
of grant programs that are unnecessary, ineffective, or an inappropriate use of Federal funds. These proposals are motivated both by
the need to reduce the Federal deficit and by a fundamental conviction about the proper relationship between Federal, State and
local governments. The major reductions or terminations include:
• general revenue sharing outlays after 1986. Local governments have decreased their reliance on inelastic and regressive revenue sources and most are able to finance their own
public services. In the current fiscal environment, Federal
revenues must be used to support national needs and priorities.
• medicaid reforms that would reduce outlays more than $1.0
billion from projected 1987 current services levels. In subsequent years, growth in Federal payments would be limited to
the rate of increase in prices in the medical sector.
• large reductions for mass transit programs. These proposals
reflect the administration's belief that it is inappropriate to
spend general tax dollars on activities that provide mainly
local benefits. The penny gas tax for mass transit activities
will continue to be used to fund part of the proposed transportation block grant.
• termination of urban development action grants and economic
development assistance in order to reduce direct Federal
intervention in the economic decisions of firms and individuals.
• elimination of the work incentive program because it is ineffective and because better programs to train welfare recipients are available under the Job Training Partnership Act.
• termination of the community services block grant. Activities
carried out under this program can be funded by the social
services block grant.
• sharing timber and mineral receipts on a net rather than a
gross basis, in order to discourage production when costs
exceed receipts.

B-17

SPECIAL ANALYSIS B

In addition, State administrative costs for unemployment compensation and the employment service are financed by a Federal
tax on employers. States have raised questions about equity in
allocating resources among States, lack of flexibility resulting from
highly specific allocations for administering unemployment compensation, and the adequacy of resources for certain activities. The
administration is soliciting the views of interested parties about
the full range of options to provide States with increased authority,
flexibility, and responsibility for unemployment compensation and
the administrative effectiveness and financing of the employment
service.
The chart below shows trends in outlays in major grant categories from 1977 to 1989. Grants for payments for individuals are
estimated to be 53% of total grants by 1989.

Federal Grants to State and Local Governments
$ Blffions

120

$ Billions
-120

Ttl
bo

K)0-

-100

1977 78
Fiscal Years

Estimate

Federal direct lending and loan guarantees to State and local
governments are an additional source of Federal aid. Federal loans
are used by States and localities for many purposes, including
housing construction and rehabilitation, land and water resource

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

development, and education. In 1987, the administration is proposing to disburse $2.4 billion in new loans to State and local governments. New guaranteed loans are estimated to be $0.2 billion in
1987.
The two major State and local tax expenditures are the deductibility of most State and local taxes and the exclusion of interest on
State and local securities from Federal taxation. Federal aid to
State and local governments through tax expenditures is estimated
to be $46.0 billion in 1987.
HIGHLIGHTS OF THE FEDERAL AID PROGRAM

This section provides an overview of the Federal aid program
proposed for 1987. Shown first are major differences between
actual grant outlays in 1985 and estimated levels for 1986 and
1987. This presentation is followed by a more detailed description
of proposals for specific grant programs and a discussion of proposed levels of Federal aid through loans and tax expenditures.
Table H - l shows changes in grant outlays between 1985 and
1986 and between 1986 and 1987. These changes are divided into
three categories: payments for individuals, grants for capital spending, and all other grants.
Between 1985 and 1986, the largest outlay increases are for
medicaid, which increases an estimated $2.0 billion, and capital
spending for highways, which increases an estimated $1.0 billion.
Between 1986 and 1987, the largest decrease is for the elimination of general revenue sharing, which is estimated to have $4.4
billion in outlays in 1986.
Energy, natural resources, environment, and agriculture.—The administration is proposing to consolidate seven environmental programs into a pollution control block grant. The seven programs
include air and water quality, drinking water, underground injection control, toxic substances enforcement, pesticides, and hazardous waste. Proposed budget authority for the new pollution control
block grants and the hazardous waste program is $270 million for
1987. Due to the rapid increase in requirements resulting from the
1984 amendments to the Resource Conservation and Recovery Act
of 1976, as amended, $73 million will be designated for the hazardous waste program in 1987. This program will become part of the
block grant in 1988. The block grant is designed to:
• simplify and reduce reporting and administrative requirements;
• increase State control over the way in which national environmental standards are met;
• enhance State accountability to its citizens and local governments; and

SPECIAL ANALYSIS

B-17

Table H-1. FEDERAL GRANT-IN-AID CHANGES, 1985-87
(In billions of dollars)
Outlays

Total grants, 1985 actual
Changes:
Payments for individuals:
Medicaid
Assistance payments program (AFDC)
Other

105.9
2.0
0.4
-0.2

Subtotal, payments for individuals
Capital spending:
Highway programs
Mass transit
Other

2.3
1.0
0.8
-0.2

Subtotal, capital spending
Other programs:
Mass transit
Food donations (CCC)
Other

1.6
-0.6
-0.5
02

Subtotal, other programs

-1.0

Total grants, 1986 estimate
Changes:
Payments for individuals-.
Housing programs
Assistance payments program (AFDC)
Other

108.8
-1.0
—0.9
-0.1

Subtotal, payments for individuals
Capital spending:
Highway programs
Sewage treatment plants
Community development block grants
Mass transit
Other

- 2.0

Subtotal, capital spending
Other programs:
General revenue sharing
Social services
Training and employment
Other

-1.9

Subtotal, other programs

-5.8

-0.5
- 0.4
-0.5
-0.3
-0.2

-4.4
-0.3
-0.5
-0.6

Total grants, 1987 estimate

99.1

• increase State flexibility to address high priority, local concerns by allowing States to shift resources a m o n g

various

environmental categories.
State and local energy
Department

conservation

grants

administered by the

of Energy are used to weatherize school

buildings,

hospitals, and t h e homes of low-income individuals. Grants are also
available to help States develop energy conservation programs. T h e
administration proposes to terminate funding for these programs

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

in 1987. The significant energy and dollar savings from conservation projects in schools and hospitals provide sufficient incentive
for these institutions to finance such projects without additional
Federal assistance. State energy planning and extension activities
are a State responsibility that should be supported at the State
level. Federal assistance to low-income households for energy conservation and heating expenses would continue through the Department of Health and Human Services. In addition, it is expected
that funds will be made available directly to States as part of the
resolution of cases involving petroleum pricing violations under the
expired oil price control program. Although these funds may be
used to help finance energy-related activities, they are not part of
the Federal budget and therefore are not counted as grants-in-aid.
The budget authority request in 1987 for grants from the abandoned mine reclamation fund is $151 million, about the same as
the 1986 level. Approximately 225 projects in 22 States will be
financed by the 1987 request.
Outlays for sport fish restoration grants are estimated to increase
from $88 million in 1986 to $122 million in 1987 due to motor boat
fuel taxes, additional excise taxes, and customs duties added by the
Deficit Reduction Act of 1984.
Funding is not proposed for 1987 for grants to State governments
for recreation land acquisition and development and for historic
preservation administration, a reduction of $73 million from 1986
appropriated levels. These activities are best funded at the State
level in accordance with State needs and priorities.
The Environmental Protection Agency construction grants program was created to help State and local governments build municipal wastewater treatment systems. The original objective of this
program—to reduce the pollution from municipal waste—has largely been met with the assistance that has been provided since 1972.
For 1987, the administration will request $1.8 billion in budget
authority after authorization to phase out the program by 1990 has
been enacted. Outlays are estimated to be $2.4 billion in 1987,
largely from prior year commitments. In the future, communities
will be expected to finance waste treatment facilities from their
own sources and assistance that State governments may provide.
The hazardous substance response trust fund pays for the cleanup
of abandoned hazardous waste sites and chemical spills. Budget
authority of $301 million has been requested in 1987 for site specific cooperative agreements with States. This funding level, which is
$76 million above the 1986 level, should finance the cleanup of 32
sites in 1987. Cooperative agreements with States are one component of a total Federal-State superfund program that will be
funded at approximately $1.1 billion per year over the next 5 years.

SPECIAL ANALYSIS B

B-17

The Extension Service makes formula and project grants to
States to provide out-of-school education in agriculture and other
subjects at State and local levels. The 1987 budget proposes to
reduce budget authority for these grants to $140 million, $188
million below the 1986 level. Funds for projects unrelated to farming or conservation, such as for cooking or homemaking, will no
longer be provided.
Transportation.—The major initiative in the transportation area
is a proposed new transportation block grant to States and large
urban areas for local roads, bridges, and transit systems. Grants
will be distributed by formula and can be used without prior Federal project approval on highway or capital transit projects in any
locality, and for transit operating expenses in small urban and
rural areas. Proposed budget authority for the block grant for 1987
is $3.3 billion, which includes $2.2 billion from the highway trust
fund and $1.1 billion from mass transit funds, primarily the penny
tax on gasoline dedicated to mass transit.
The Federal-aid highway program helps fund the Interstate highway system, other primary highways, bridges, and rural and urban
highways. The administration is proposing to reauthorize the highway programs for 1987-90 at $12.6 billion of budget authority per
year, which is $1.9 billion below the 1986 budget authority level. At
this lower level, the highway program would be funded only by
current year highway user fees. To help maintain the highway
program within available receipts, an obligation limitation of $12.4
billion is requested in 1987. The budget reduction will be implemented largely by restructuring the Interstate completion program. Of the $12.6 billion request, $2.2 billion is for the new block
grant and $7.8 billion is proposed for new construction or rehabilitation of the Interstate and primary systems, depending on States'
needs.
The administration proposes budget authority of $110 million in
1987 for highway traffic safety grants to States, a reduction of $16
million from 1986. These grants supplement State highway safety
programs and support Federal truck safety standards, highway
safety, and alcohol education programs. The reduced level reflects
the expiration of the special grants for computerized State traffic
recordkeeping systems and inclusion of the motor carrier safety
grant program within the highway trust fund, and not as a separate authorization.
Except for funding for the transportation block grant, the administration is proposing no new funding for general mass transit
programs. This results in a decrease of $2.0 billion in budget authority from 1986 levels. These changes reflect the administration's
belief that mass transportation is a local responsibility since these
activities provide mainly local benefits. Localities should not pass

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

on a portion of their costs to taxpayers who neither benefit from
the services nor have any influence on'their costs. However, as
long as the Federal Government continues to collect the one-cent
gas tax for transit, there remains a legitimate Federal role in
managing and allocating these receipts.
The proposed limit on obligations for grants-in-aid for airports
for 1987 is $712 million. Although this spending level is almost
$300 million less than the amount authorized, little impact on
airport development is expected because large airports are in a
strong financial situation and can finance their expansion needs
with little or no Federal aid. Projects that improve airport safety,
increase airport capacity, or reduce noise will receive the highest
priority for funding in 1987.
Community and regional development—The community development block grant program (CDBG) provides flexible community and
economic development support to cities, counties, Indian tribes, and
U.S. territories. The administration proposes to defer $500 million
of 1986 budget authority to 1987. This would make about $2.6
billion available in both 1986 and 1987. The administration also
proposes to change the statutory distribution of these funds between urban and rural areas from 7 0 % - 3 0 % to 65%-35%. This
change will increase the resources available to rural areas currently served by the Farmer's Home Administration's rural development programs that are proposed for reductions in 1987.
The administration proposes to terminate the urban development
action grants program in 1987 and rescind $234 million of the 1986
appropriation. This proposal is consistent with the Governmentwide effort to reduce local economic development subsidies and
reduce excessive Federal intervention in the economic decisions of
firms and individuals. Cities may use CDBG resources for economic
development projects.
In 1983, the administration proposed and Congress enacted, the
rental rehabilitation grant program to help States and localities
rehabilitate properties for low-income renters. This program was
intended for communities that do not have enough standard quality low- and moderate-income housing to support a rental voucher
program. The $300 million in budget authority made available for
this program since 1983 will allow the Federal Government to
subsidize up to half the cost of rehabilitating an estimated 60,000
rental housing units by the end of 1986. Because State and local
governments and other Federal programs (such as the CDBG program) can support the same services as the rental rehabilitation
grants program, the administration is proposing to rescind the 1986
appropriation and terminate this program.
Congress enacted a second grant program in 1983 to subsidize the
construction or substantial rehabilitation of rental housing in low-

SPECIAL ANALYSIS B

B-17

and moderate-income neighborhoods with shortages of rental housing. The rental development grant program, which was funded on a
demonstration basis through 1985, is not proposed to be extended
in this budget. New housing construction is an expensive means of
housing the poor compared to approaches that utilize existing housing, such as the housing voucher programs supported by the administration.
The administration is not requesting funds in 1987 for the economic development assistance programs administered by the Economic Development Administration (EDA). The budget also proposes to rescind some unobligated funds in 1986 and use the remainder to close the agency. There is no evidence that categorical
EDA project grants create net employment gains for the Nation.
Instead, they keep resources in unproductive areas and industries.
Funds for State and local community and economic development
are available in 1987 through the community development block
grant program.
Programs administered by the Appalachian Regional Commission (ARC) are intended to promote economic development of the
13-State Appalachian region. Both the Commission and its programs are proposed to be terminated in 1987. The budget also
proposes to rescind uncommitted funds in 1986. This proposal reflects the administration's policy to rely on the private sector to
provide the major stimulus for economic development. Moreover,
continuing the regionally targeted ARC programs can no longer be
justified with the economic growth that has occurred in the Appalachian region.
Education.—Budget authority requested for the State education
block grant for 1987 is $500 million, about the same as the 1986
level. This block grant provides States and localities with resources
that can be used for a wide variety of educational purposes.
Major education grants for persons with special needs include
compensatory education, education for the handicapped, vocational
and adult education, bilingual education, and Indian education.
The 1987 budget authority request for these activities is $5.5 billion, about the same as the 1986 level. Proposed budget authority
for 1987 for vocational and adult education is $503 million, $184
million below the 1986 level. The administration proposes to redirect the funds for the vocational education basic grant to support
only programs for the disadvantaged, the handicapped, and other
special groups. Legislation has been proposed to allow parents of
children served by Chapter 1 compensatory education services to
use Federal funds to obtain educational services in public or private schools.
Impact aid payments compensate school districts for educating
children whose parents live and work on Federal property. The

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

payments also provide assistance for certain construction needs.
Budget authority of $548 million is requested for 1987. Aid for
districts with children who live and whose parents work on Federal
property is proposed at about the 1986 level. No funds are proposed
for compensation where the children impose little or no burden on
school districts.
Training and employment—Budget authority proposed for basic
State grants under the Job Training Partnership Act of 1982
(JTPA) is $1.8 billion in 1987. States have considerable discretion in
using these funds to prepare youth, welfare recipients, and other
unskilled adults for employment.
The summer youth employment program finances minimum-wage
public sector jobs for youth between the ages of 14 and 21. The
formula for distributing these grants unexpectedly increased resources to localities with less severe summer unemployment problems among disadvantaged youth. Therefore, the administration
proposes to modify the method for distributing these funds so that
they will be directed to the areas with the greatest need. Moreover,
the administration also proposes to rescind $208 million from the
amount enacted for the summer of 1987 and to maintain the resulting $428 million for the summer of 1988.
For the dislocated worker program, the administration proposes a
supplemental appropriation of $74 million for 1986, for total resources of $170 million to assist workers that have been displaced
by economic shocks. For 1987, budget authority of $100 million is
proposed, which will be available for helping workers in those
locations where significant economic dislocations indicate that
workers could not get new jobs without help.
No budget authority is requested in 1987 for the work incentive
(WIN) program. The program has not proven to be cost effective
and is no longer necessary since JTPA block grant funds must be
used to train welfare recipients for jobs. In addition, changes are
proposed in the AFDC and food stamp programs to expand opportunities for employment.
Grant outlays for the Federal-State employment service are estimated to be $921 million in 1987, compared to an estimated $955
million in 1986. As discussed at the beginning of this Special Analysis, the administration is soliciting views on options for increasing
the States' role in this program.
Social services.—Budget authority requested for the social service
block grant is $2.7 billion for 1987, $116 million more than the level
proposed for 1986. Child day care, foster care, child protective
service, preparation and delivery of meals, and legal services are
some examples of social services offered by the States. In addition,
States may transfer up to 10% of their social services allotment to

SPECIAL ANALYSIS B

B-17

block grants that support health services, health promotion, or lowincome housing assistance.
The administration proposes to terminate in 1987 the community
services block grant program. States have the discretion to fund
community services activities under the social services block grant.
Grants for vocational rehabilitation services help physically and
mentally disabled persons become gainfully employed and live
more independently. The administration is proposing $1.1 billion of
budget authority for 1987 for this program, about the same as for
1986.
In 1987, budget authority of $808 million is requested for foster
care, adoption assistance, child welfare services, and child welfare
training programs. These family social services support State efforts to reunite children with their families or to place them
promptly in adoptive homes. The administration continues to support its legislative proposal for modifications in the foster care
system to encourage States to reduce the duration and incidence of
foster care placements.
Grants for human development services supplement State, local,
and nonprofit efforts to improve the quality of life for low-income,
neglected, abused, or homeless children, and for elderly people and
other special groups. The largest program for children is Head
Start, which helps local community groups provide child development programs for low-income preschool children. The 1987 budget
authority request for these programs is $1.9 billion. This funding
will allow the Head Start program to maintain its current enrollment of 448,000 children in 1987. To give States greater flexibility
in addressing the related issues of child abuse and family violence,
three existing categorical programs are proposed to be consolidated
into a new family crisis and protective services program. Budget
authority of $30 million is requested for this program in 1987.
Health.—The medicaid program continues to be the largest
grant-in-aid. This program supports State and local efforts to provide health services to low-income residents. Almost half of the
spending is to help finance the costs of nursing homes for the lowincome elderly and disabled. For 1987, medicaid outlays are estimated to be $24.7 billion, more than $1 billion below the current
services level. The savings result in part from increased program
flexibility that will help States reduce costs and in part from
proposed reforms of Federal funding for administrative costs, described at the beginning of this Special Analysis. In subsequent
years, the Federal payment would be limited to increases in the
consumer price index for medical costs.
Budget authority of $1.6 billion is requested in 1987 for the four
health block grants: maternal and child health; preventive health
and health services; alcohol, drug abuse, and mental health; and

F-l 6

THE BUDGET FOR FISCAL YEAR 1987

primary care. The $235 million increase over the 1986 proposed
level in part reflects an administration proposal to expand the
primary care block grant to include three narrow categorical programs for black lung clinics, migrant health, and family planning.
Administration of unemployment compensation.—Grants for the

administration of the unemployment compensation program, which
provides income to eligible unemployed workers, are financed by a
Federal tax on employers. Outlays for this grant are estimated to
be $1.7 billion in 1987. As discussed at the beginning of this Special
Analysis, the administration is soliciting views on options for increasing the authority and responsibility of the States for this
program.
Housing assistance.—Outlays for the grant portion of the subsidized housing program are estimated to be $3.9 billion in 1987. The
administration is proposing that $2.3 billion of 1986 budget authority be deferred to 1987, with no additional request for 1987. Grant
outlays under this program include those for public and Indian
housing and for the voucher, existing housing, moderate rehabilitation, and State-sponsored new construction programs funded under
Section 8 of the Housing Act of 1937. The administration is proposing 50,000 new housing voucher units per year beginning in 1986,
adding to an estimated HUD inventory of about 4 million households served. Of the many initiatives proposed for this account, the
most important with respect to State and local governments is the
proposal to require these governments to pay half of the administrative costs for the Section 8 existing and housing voucher programs. This reform will bring housing assistance programs more
closely in line with the treatment of administrative costs for other
low-income assistance programs like the AFDC and food stamp
programs.
Budget authority of $1.2 billion is requested for payments for the
operation of low-income housing. These payments are used to subsidize operating costs for approximately 1.4 million low-rent public
and Indian housing units. This request assumes no growth in personnel and related expenses, but allows for inflation adjustments
for utility expenses that are generally beyond the housing authorities ability to control.
Food and nutrition assistance.—Outlays for the Federal share of
State administrative expenses for the food stamp program are estimated to be $1.0 billion in 1987. Reforms proposed for these expenses are described at the beginning of this Special Analysis.
Child nutrition programs subsidize meals for children in schools,
child care facilities, and other institutional settings. Approximately
12.7 million children will receive federally subsidized meals in

SPECIAL ANALYSIS B

B-17

1987. The administration proposes to redirect Federal spending for
school lunch and breakfast programs and child care facilities to
children from lower income families, discontinuing meal subsidies
for upper income students. Budget authority proposed for the program in 1987 is $3.4 billion, a reduction of $0.2 billion from the
1986 level.
The special supplemental food program for women, infants, and
children provides nutritious food supplements monthly to prevent
health problems associated with inadequate diets during critical
stages of child development. The program will serve approximately
3 million low-income women and children each month in 1987. The
budget authority requested for this program is $1.6 billion in 1987,
$57 million above the 1986 level.
The Commodity Credit Corporation (CCC) donates surplus food
such as cheese, butter and nonfat dry milk to needy families,
charitable institutions, and schools. CCC commodities valued at
$1.2 billion are expected to be distributed through State and local
governments in 1987.
Other income security.—Aid to families with dependent children
(AFDC) helps State and local governments finance cash assistance
payments to needy families. The budget proposes several reforms
that would require AFDC applicants and recipients to engage in
job search and work activities as a condition of AFDC eligibility
and would set new Federal funding rates for State and local administrative and training costs. The proposed changes for Federal
grants for State administrative costs are described at the beginning
of this Special Analysis. Total outlays for AFDC are estimated to
be $8.2 billion in 1987, $0.9 billion below the 1986 level.
The child support enforcement program (CSE) finances most State

and local administrative expenses for establishing paternity and
for collecting support from legally liable absent parents. These
collections offset State and Federal AFDC costs. The administration proposes to continue reductions in the Federal matching rate
for CSE costs, consistent with those in the Balanced Budget and
Deficit Control Act of 1985 (Gramm-Rudman-Hollings). Federal outlays for CSE are estimated to be $708 million in 1987.
The Federal Government reimburses States for all of the initial
resettlement costs of welfare, health, employment, English language training, and other services for refugees and entrants.
Budget authority of $358 million is requested in 1987 for refugee
assistance.

To moderate the impact of energy costs on low-income families,
$2.1 billion in budget authority is proposed for low-income home
energy assistance in 1987, about the same level as for 1986. This
program is a block grant that allows States to make payments to
individuals, fuel vendors, or public housing operators.

F-l

THE BUDGET FOR FISCAL YEAR 1987

Administration of justice.—For the 2 major justice assistance
programs, the administration is proposing no new budget authority
for 1987. The objective of the juvenile justice and delinquency
prevention program—the separation of juvenile from adult offenders—has largely been achieved. The State and local criminal justice
assistance grant program benefits only State and local communities and should therefore be funded by these governments.
The administration will continue to support a recent initiative
for victims of crime in accordance with the Comprehensive Crime
Control Act of 1984. Outlays for this program are estimated to be
$47 million in 1987.
General purpose fiscal assistance.—General revenue sharing pro-

vides assistance to approximately 40,000 local jurisdictions with
virtually no restrictions on the use of the funds. The administration is not proposing to reauthorize the general revenue sharing
program after it expires at the end of 1986, and is proposing to
rescind the final quarterly authorization. Local governments have
improved their own tax systems and most have the resources to
finance local public services. In the current fiscal environment,
Federal revenues must be used to fulfill national needs and responsibilities. Outlays for the program are estimated to be $4.4 billion
in 1986, with no outlays proposed for 1987.
The Federal government collects receipts for the sale of timber
and mineral rights on certain Federal lands and returns a portion
of the receipts to States and localities. The administration proposes
to share these receipts with States and counties after the costs
associated with operations and management are deducted. This
conversion to sharing receipts on a net rather than gross basis
reduces Forest Service, Bureau of Land Management, and Minerals
Management Service payments from an estimated $786 million in
1986 to $681 million in 1987. The payment in lieu of taxes program
would increase in 1988, partially offsetting some of the decreases in
1987.
Additional information on these and other grant programs is in
Part 5 of the Budget. For a detailed list of all grant programs and
proposed budget levels, see Table H - l l .
Loans.—Another form of Federal aid to State and local governments is assistance in obtaining credit, either directly through
loans and advances, or indirectly through loan guarantees. The
Federal government provides credit assistance to States, localities,
and Indian tribes on more favorable terms than private lenders.
Direct loans and loan guarantees are used to finance housing construction, land acquisition, land and water development projects,
and a variety of other activities.

SPECIAL ANALYSIS B

B-17

Direct loan disbursements (excluding repayments) are estimated
to be $2.4 billion in 1987. The low-rent public housing program is
the largest provider of direct loans to States and localities. This
program finances construction, acquisition, and modernization activities for public housing.
A Federal loan guarantee occurs when a government agency
enters into a formal commitment to use government funds to repay
a lender upon default by the borrower. New loan guarantees to
State and local governments are estimated to be $0.2 billion in
1987.
More information on Federal credit activities is available in table
H-12 and in Special Analysis F.
Tax expenditures.—Federal aid to State and local governments is
also provided through tax expenditures. Tax expenditures are a
means by which the Federal Government carries out public policy
objectives; in many cases they can be considered alternatives to
direct spending programs. To compare direct Federal spending and
assistance provided through tax expenditures, estimates for tax
expenditures are generally shown as outlay equivalents; that is, the
level of budget outlays required to provide the same amount of
after-tax benefits is the tax expenditure. A detailed discussion of
the measurement and definition of tax expenditures and a complete list of revenue loss and outlay equivalent estimates for specific tax expenditure items is contained in Special Analysis G.
The two major categories of tax expenditures that provide aid to
State and local governments are the deductibility of most State and
local taxes and the exclusion of interest on State and local securities from Federal taxation. Individuals can claim nonbusiness sales,
income, and property tax payments to State and local governments
(other than payments already taken as business deductions) 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.
Interest on virtually all State and local government securities is
tax exempt. As a result, State and local governments can sell their
debt at lower interest rates than would be possible if such interest
were taxable. The exclusion of interest on public purpose State and
local debt subsidizes the financing of traditional public projects,
such as toll roads, sewer systems, and schools. However, as shown
in table H-2, State and local jurisdictions also provide the benefits
of tax-exempt financing to a wide variety of private and quasipublic activities, such as pollution control, housing and small businesses. The growth of private purpose tax-exempt bonds and other
issues pertaining to tax-exempt credit are discussed in more detail
in Special Analysis F.

F-l

THE BUDGET FOR FISCAL YEAR 1987
Table H-2. TAX EXPENDITURES AIDING STATE AND LOCAL GOVERNMENTS
(Outlay equivalents; in millions of dollars)
Description

Deductibility of:
Property taxes on owner-occupied homes
Nonbusiness State and local taxes other than on owner-occupied
homes
Exclusion of interest on:
Public purpose State and Local debt
IDBs for certain energy facilities
IDBs for pollution control and sewage and waste disposal facilities,, ,
Small-issue IDBs
Owner-occupied mortgage subsidy bonds
State and local debt for rental housing
Mass commuting vehicle IDBs
IDBs for airports, docks and sports and convention facilities
State and local student loan bonds
State and local debt for private nonprofit educational facilities
State and local debt for private nonprofit health facilities
State and local debt for veterans housing
Total (after interactions)1

Fiscal year
1985

1986

1987

9,395

10,145

10,955

21,635

23,365

25,225

7,480
130
1,185
1,880
1,610
760
20
480
220
145
1,280
255

8,295
140
1,405
2,155
1,985
945
20
585
245
175
1,595
275

9,160
155
1,640
2,295
2,405
1,075
20
695
255
215
1,945
295

37,700

41,680

45,950

1 The estimate of total tax expenditures reflects interactive effects among the individual items. Therefore the individual items cannot be added
to obtain a total.

To curb the rapid growth of private purpose tax-exempt bonds,
Congress has placed restrictions on their use in recent legislation.
The Mortgage Subsidy Bond Tax Act of 1980 imposed a number of
restrictions on tax-exempt mortgage subsidy bonds (MSB's) for
owner-occupied housing, including limitations on the volume issued
in each State. The Deficit Reduction Act of 1984 (DEFRA) extended
these limitations to December 31, 1987. DEFRA also placed restrictions on qualified veteran's MSB's. The issuance of these bonds is
limited to preexisting State programs in amounts based on previous volume levels. Future issuance will be limited to veterans who
served in active duty before 1977.
The Tax Equity and Fiscal Responsibility Act of 1982 required
that industrial development bonds (IDB's) be approved by an elected public official after a public hearing and that assets of certain
IDB-financed projects placed in service after 1982 be depreciated
using straight-line rather than accelerated depreciation. The 1982
tax act also eliminated the tax exemption for small issue IDB's
issued after 1986. DEFRA extended the expiration date to December 1988 for small issue IDB's that are issued exclusively to finance
manufacturing facilities.
The Deficit Reduction Act also placed limits on the total volume
of private purpose industrial revenue bonds that can be issued
within each State. The maximum amount is limited to the greater
of $150 per capita ($100 after 1987) or $200 million per year. Under

SPECIAL ANALYSIS B

B-17

prior law there were no limitations on the amount of such bonds
issued by State and local governments.
In addition, once tax reform legislation has been enacted, the
administration is planning to repropose an enterprise zone program that would provide tax incentives for redevelopment of economically distressed areas.
FEDERAL GRANTS-IN-AID BY FUNCTION, AGENCY, AND REGION

Distribution of grants by function.—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
congressional control.
Table H-3. FEDERAL GRANT-IN-AID OUTLAYS BY FUNCTION
(In millions of dollars)

Function

Actual
1985

Estimate
1986

National defense
157
150
Energy
528
529
Natural resources and environment
4,069 3,918
Agriculture
2,420 1,922
2
Commerce and housing credit
2
Transportation
17,055 18,178
Community and regional development
5,221 5,245
Education, training, employment, and social services- 17,817 18,108
Health
24,451 26,530
Income security
27,153 27,530
Veterans benefits and services
96
91
Administration of justice
145
95
187
General government
182
General purpose fiscal assistance
6,656 6,264
Total outlays

1987

1988

1989

1990

1991

123
377
3,397
1,511
2
17,551
4,476
17,354
26,431
25,721
98
166
116
1,771

142
350
3,145
1,421
2
16,461
3,614
17,258
27,631
27,024
111
102
79
1,868

144
288
3,143
1,028
2
15,586
3,243
16,999
29,001
27,913
123
94
78
1,951

147
248
2,847
905
2
15,855
3,097
16,989
30,339
28,790
135
96
78
2,044

146
248
2,353
899
2
15,000
3,111
17,020
31,603
29,604
141
97
78
2,098

105,897 108,802 99,094 99,208 99,593 101,572 102,400

Table H-3 shows a functional distribution of Federal grant-in-aid
outlays.2 (Consistent with the emphasis now being placed on longer
range budget planning, Table H-3 and other tables in this Special
Analysis show estimates through 1991.) The functional composition
of grant outlays has changed significantly over the years, as shown
in table H-4. The health function has increased from 3% of Federal aid in 1960 to an estimated 27% in 1987. Transportation has
declined from 43% in 1960 to an estimated 18% in 1987. Other
changes occurred between 1960 and 1987 in education, training,
employment, and social services programs, which increase from 7%
in 1960 to an estimated 18% in 1987. General purpose fiscal assistance also increased with the addition of revenue sharing, from 2%
2 Table H - l l contains functional data and programmatic detail within each function for both budget authority and outlays.

F-l

THE BUDGET FOR FISCAL YEAR 1987

in 1960 to an estimated 9% in 1980. In 1987, outlays for this
function are expected to drop to 2% of total grants, due primarily
to the termination of the general revenue sharing program. The
distribution of grant-in-aid outlays for all other functions is expected to remain fairly constant between 1987 and 1991.
Table H-4. PERCENTAGE DISTRIBUTION OF FEDERAL GRANT-IN-AID OUTLAYS BY FUNCTION
Actual
1960

1970

Estimate

1980

1985

1987

1986

1988

1989

1990

1991

Total

2
3
43
2

2
3
19
7

6
1
14
7

4
2
16
5

4
2
17
5

3
2
18
5

3
1
17
4

3
1
16
3

2
1
15
3

7
3
38
2

27
16
24
2
1

24
17
20
9
1

17
23
26
6
1

17
24
25
6
1

18
27
26
2
1

17
28
27
2
1

17
29
28
2
1

17
30
28
2
1

17
31
29
2
1

100

Natural resources and environment
Agriculture
Transportation
Community and regional development....
Education, training, employment, and
social services
Health
Income security
General purpose fiscal assistance
Other

100

*0.5% or less.

Distribution of grants by agency.—Table H-5 shows grant outlays
by agency. The Department of Health and Human Services will
provide 43% of total estimated grant-in-aid outlays in 1987, far
more than any other agency.
Table H-5. FEDERAL GRANT-IN-AID OUTLAYS BY AGENCY
(In millions of dollars)
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
Other
Total outlays

Actual 1985

Estimate
1986

1987

163
10,440
463
7,960
314
42,018
10,796
1,548
69
5,357
16,984
5,024
3,197
1,564

274
10,167
342
8,219
297
44,153
10,542
1,425
118
5,669
18,111
4,770
3,171
1,544

211
9,445
206
8,009
167
43,077
8,947
1,368
135
5,457
17,485
351
2,783
1,453

105,897

108,802

99,094

Distribution of grants by region.—Table H-6 shows that Federal
aid on a per capita basis varies among regions. Except for Region
II, the thinly populated Western States ranked highest in 1975
because of highway construction grants and shared revenues from

SPECIAL ANALYSIS B

B-17

Federal land holdings. The northwestern States had the lowest
regional population density, extensive Federal land holdings and,
until recently, the highest per capita aid.
Table H-6. DISTRIBUTION OF GRANTS BY REGION, SELECTED FISCAL YEARS
Dollars per capita
Federal Region

Maine, Vermont, New Hampshire, Massachusetts, Connecticut, Rhode
Island
New York, New Jersey, Puerto Rico, Virgin Islands
Virginia, Pennsylvania, Delaware, Maryland, West Virginia, District of
Columbia
Kentucky, Tennessee, North Carolina, South Carolina, Georgia, Alabama,
Mississippi, Florida
Illinois, Indiana, Michigan, Ohio, Wisconsin, Minnesota
Arkansas, Louisiana, Oklahoma, New Mexico, Texas
Iowa, Kansas, Missouri, Nebraska
Colorado, Montana, North Dakota, South Dakota, Utah, Wyoming
Arizona, California, Nevada, Hawaii, other territories
Idaho, Oregon, Washington, Alaska

19851
total
grants

1975

19852

Average
annual
percent
increase,
197585

247
283

501
588

7.1
7.4

11.6

251

460

6.1

16.0
19.1
9.6
4.7
4.0
13.1
4.5

205
195
210
196
263
232
263

381
417
344
395
530
412
517

6.2
7.7
4.9
7.1
7.1
5.8
6.8

105.9

United States

6.3
16.9

227

437

6.6

Preliminary estimate, in billions of dollars.
2 See "Federal Expenditures by State," Bureau of the Census, for additional information concerning State distribution of Federal grants and
other Federal spending.
1

The highest per capita aid in 1985 went to Region II, which
generally provides higher benefits for medicaid and other income
support programs. The lowest per capita aid in 1985 went to Regions IV, VI, and VII, generally covering the South and the Plains
States.
HISTORICAL PERSPECTIVES

In recent decades, Federal aid to State and local governments
has become a major factor in the financing of certain government
functions. The rudiments of the present system date back more
than 120 years to the Civil War. The Morrill Act, passed in 1862,
established the land grant colleges and instituted certain federally
required standards, as is characteristic of the present grant-in-aid
system. Federal aid was later initiated for agriculture, highways,
vocational education and rehabilitation, forestry, and public health.
In the depression years, Federal aid was extended to meet income
security and other social welfare needs.
However, Federal grants did not become a significant factor in
Government expenditures until after World War II. As shown in
table H-7, Federal grants to State and local governments were $2
billion in 1950, and by 1965 they had risen to $11 billion. In 1981
they increased to nearly $95 billion, an average annual increase of
14.2% since 1965. In 1987 Federal grants are estimated to be $99.1

F-l

THE BUDGET FOR FISCAL YEAR 1987
Table H-7. HISTORICAL TREND OF FEDERAL GRANT-IN-AID OUTLAYS
(Fiscal years; dollar amounts in millions)
Federal grants as a percent of
Total
grants-inaid

Five-year intervals:
1950
1955
1960
1965
1970
1975
Annually:
1980
1981
1982
1983
1984
1985
1986 estimate
1987 estimate
1988 estimate
1989 estimate
1990 estimate
1991 estimate

$2,253
3,207
7,019
10,910
24,065
49,791
91,451
94,762
88,195
92,496
97,577
105,897
108,802
99,094
99,208
99,593
101,572
102,400

Federal outlays 1
Total

Domestic2

State and
local
expenditures 3

Gross
National
Product

5.3%
4.7
7.6
9.2
12.3
15.0

9.3%
13.7
17.1
17.5
22.0
20.9

10.4%
10.1
14.7
15.3
19.3
23.0

0.8%
0.8
1.4
1.6
2.4
3.3

15.5
14.0
11.8
11.4
11.5
11.2
11.1
10.0
9.7
9.4
9.3
9.1

20.6
18.7
16.1
15.8
16.0
15.6
15.6
14.3
14.0
13.8
13.9
13.9

26.3
25.2
21.9
21.6
21.2
21.0
NA
NA
NA
NA
NA
NA

3.4
3.2
2.8
2.8
2.6
2.7
2.6
2.2
2.0
1.9
1.8
1.7

Includes off-budget outlays; all grants are on-budget.
Excludes outlays for the national defense and international affairs functions.
As defined in the national income and product accounts.
NA=Not available.
1

billion, 10.0% of total Federal outlays and 14.3% of domestic Federal outlays.
Table H-7 also shows grants-in-aid as a percent of State and
local expenditures and as a percent of gross national product
(GNP). Grants as a percent of State and local expenditures increased from 10.4% in 1950 to 26.3% in 1980, declining to 21.0% in
1985. Grants increased as a percent of GNP from 0.8% in 1950 to
3.4% in 1980, and are projected to decline to 1.7% by 1991.
Table H-8 shows the composition of grant-in-aid outlays since
1950 according to the categories of payments for individuals, capital investment, and other purposes. Almost half of estimated 1987
grants are to States and localities as payments for individuals.3
Most such grants are accompanied by State or local matching
payments. Among the larger of these programs are medicaid, assistance payments (AFDC), housing assistance, and nutrition programs.
Table H-8 also shows the share of State and local capital expenditures financed by Federal grants or by revenues from State and
local own sources. The Federal share increased from 8.3% in 1955
3 Payments for individuals are defined as Federal outlays providing benefits in cash or in-kind that constitute
income transfers to individuals or families.

SPECIAL ANALYSIS B

B-17

Table H-8. COMPOSITION OF GRANT-IN-AID OUTLAYS
(Fiscal years; dollar amounts in millions)
Composition of grant:s-in-aid
Total
grants-inaid

Five-year intervals:
1950
1955
1960
1965
1970
1975
Annually:
1980
1981
1982
1983
1984
1985
1986 estimate
1987 estimate

Grants for
payments
for
individuals 1

Grants for
capital
investment 2

Other

2,253
3,207
7,019
10,910
24,065
49,791

1,257
1,623
2,480
3,699
8,612
16,445

484
820
3,321
4,985
7,046
10,870

91,451
94,762
88,195
92,496
97,577
105,897
108,802
99,094

31,927
36,931
37,875
41,636
44,284
48,090
50,420
48,431

22,452
22,116
20,108
20,474
22,662
24,844
26,406
24,470

Share of State and local
capital expenditures financed
byGrants-in-aid

Own source
revenues

512
764
1,218
2,226
8,407
22,476

8.4%
8.3
23.9
24.8
24.6
25.7

91.6%
91.7
76.1
75.2
75.4
74.3

37,072
35,715
30,212
30,386
30,632
32,963
31,976
26,193

36.4
35.9
34.0
33.8
34.8
36.2
NA
NA

63.6
64.1
66.0
66.2
65.2
63.8
NA
NA

1 For an identification of accounts in this category, see Table H—11, including its footnotes.
2 Excludes capital grants that are included as payments for individuals.
NA=Not available.

to 23.9% in 1960 largely because of the initiation of Federal trust
fund financing for the interstate highway system. The share increased from 24.6% in 1970 to 36.4% in 1980, increasing by almost
half in ten years. The major capital investment programs are for
highways, mass transit, community development block grants, and
sewage treatment systems.
Grants for capital investment are estimated to be $24.5 billion in
1987, 25% of total grants-in-aid.
GRANTS MANAGEMENT

The increase in grant expenditures since World War II was
accompanied by an increase in the number of grants designated for
specific purposes. This increase took place especially in the 1960's
and early 1970's. These grants usually contained Federal legislative
and regulatory mandates, required matching funds from the recipient governments, and gave little discretion in their use to State
and local officials. They came to be known as categorical grants,
with complex administrative requirements to ensure that their
purposes were met.
To reverse this trend and to devolve authority, broad-based
grants have been emphasized in recent years. In addition, many
mandatory administrative or procedural requirements associated
with grant programs have been simplified or eliminated. Regulatory reforms and management improvements have increased the

F-l

THE BUDGET FOR FISCAL YEAR 1987

efficiency of the intergovernmental grant-in-aid system and have
strengthened the authority of State and local elected officials over
Federal financing and development activities in their jurisdictions.
General purpose and broad-based grants.—General-purpose

aid

gives State and local governments almost complete discretion in
determining their use. Broad-based aid, which includes the block
grants, gives State and local governments considerable discretion
within a broadly defined program area. Table H-9 shows generalpurpose and broad-based grants as a percent of total grants for
selected years from 1972 to 1989.
General-purpose aid increased dramatically with the introduction
of the general revenue sharing program, from less than 2% of all
grants in 1972 to more than 14% in 1975, but declined to 6.5% in
1985. The administration is not proposing to continue the general
revenue sharing program after 1986. The remaining programs in
this category are expected to comprise 2.0% of total grants-in-aid in
1987.
Under the current administration, broad-based aid increased as a
percent of total Federal aid from slightly over 11% in 1980 to more
than 13% in 1985. Based on proposals in the 1982 Budget, Congress
enacted nine block grants that consolidated 57 grant programs
contained in the Catalog of Federal Domestic Assistance. In 1982,
Congress enacted the Job Training Partnership Act, which replaced
several expiring Comprehensive Employment and Training Act
programs with a block grant to the States.
In this budget the administration is proposing new block grants
for transportation and pollution control, and an expanded block
grant for primary health care. The community services block grant
is the only program in this category proposed for elimination.
Broad-based aid is estimated to increase to 15.6% of total grants-inaid in 1989.
In recent years the number of grant programs has declined. In
1981 there were 361 grant programs compared to 328 in 1985. More
than 85% of estimated obligations in 1985 were concentrated in
only 25 programs.
Most general-purpose and broad-based grants reduce or eliminate
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 increased. In 1980, State and local
governments were estimated to provide approximately $.37 of
matching funds for each $1 of Federal aid; the State and local
share in 1985 was about $.50 for each Federal dollar. The increase
is because of the significant growth in programs such as medicaid
that require a larger than average matching share.

SPECIAL ANALYSIS B

B-17

Table H-9. OUTLAYS FOR GENERAL-PURPOSE, BROAD-BASED, AND OTHER GRANTS
(Dollar amounts in millions)
Actual

General-purpose grants:
General revenue sharing
Other general purpose fiscal
assistance and TVA 1
Subtotal, generalpurpose grants
Broad-based:
Pollution control block grant
Transportation block grant
Community development
Health block grants
State education block grants
Employment and training
Social services block grant
Low-income home energy
assistance
Other
Subtotal, broad-based
grants
Other grants
Total
ADDENDUM: PERCENT OF
TOTAL
General-purpose grants
Broad-based grants
Other grants
Total

Estimate
1987

1988

1989

2,026

$1,973

$2,093

$2,189

6,459

1,973

2,093

2,189

3,575
1,442
475
1,883
2,604

118
496
3,099
1,610
449
1,806
2,693

225
1,820
2,629
1,621
488
1,823
2,700

261
2,484
2,664
1,622
500
1,826
2,700

1975

1980

1985

1986

$6,130

$6,829

$4,584

$4,433

$544

878

1,765

2,260

544

7,008

8,594

6,844

1972

38
82

3,902
83

1,931

1,333
2,047

2,144
2,763

3,817
1,368
424
1,710
2,743

835

1,100

1,439

2,139
1,870

2,017
1,803

2,098
1,521

2,098
1,391

2,098
1,376

2,856
30,975

4,600
38,183

10,331
72,526

14,071
84,982

13,799
88,544

13,890
83,231

14,795
82,320

15,531
81,873

34,375

49,791

91,451 105,897 108,802

99,094

99,208

99,593

1.6%
8.3%
90.1%

14.1%
9.2%
76.7%

9.4%
11.3%
79.3%

2.0%
14.0%
84.0%

2.1%
14.9%
83.0%

2.2%
15.6%
82.2%

6.5%
13.3%
80.2%

5.9%
12.7%
81.4%

100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

For detail, see grants in the general purpose fiscal assistance function, Table, H - l l . Amounts in Table H-9 above include shared revenues
from the Tennessee valley Authority, shown in the energy function.
1

Federalism.—The President's success in restoring governmental
authority to State and local governments has been substantial.
More Federalism changes were underway in 1985 and will be undertaken in 1986. In August 1985, the Domestic Policy Council
formed a Working Group on Federalism charged with identifying
Federal activities that may be privatized; opportunities for block
grants, regulatory relief and simplification of crosscutting requirements; management improvements in categorical programs; and
measures for improving Federal responsiveness to State and local
concerns. As a result of the Supreme Court's February 1985 Garcia
decision applying the costly overtime pay and other provisions of
the Fair Labor Standards Act (FLSA) to State and local governments, the Domestic Policy Council developed and supported a
legislative response jointly with State and local representatives to
improve the provisions of the Act. FLSA amendments were signed
into law by the President in November 1985.

F-l

THE BUDGET FOR FISCAL YEAR 1987

Regulatory relief.—In addition to structural and legislative reforms described above, regulatory relief has significantly reduced
red tape and, more importantly, greatly increased State and local
policy flexibility. The nine 1981 block grants and portions of the
1982 Job Training Partnership Act (JTPA) were implemented by
only 31 pages of Federal regulations, in place of the previous 905
pages. Most of the integrity of this regulatory relief has been
maintained despite pressures for more of the old style of prescriptive regulations, especially for the Education and JTPA block
grants. The nine 1981 block grants reduced the paperwork burden
on States and localities by an estimated 4.9 million hours per year
(over 90%), and reduced Federal staff administering the programs
by 80%—from about 3,000 employees to 600. To a striking and
increasingly important degree, State and local officials are becoming policy makers for Federal grant programs, not middle managers for Federal agencies.
In 1985, deregulation of selected categorical programs continued.
For example, in November, the Department of Education proposed
major changes to the existing bilingual education rules to give local
education agencies substantial discretion to determine the extent of
native language use in transitional bilingual education programs.
The Federalism Working Group is meeting with key State and
local officials in an effort to compile a new roster of major regulations for revision or elimination. Following discussions with the
Working Group, and pursuant to procedures of Executive Orders
12291 and 12498, the list of targeted regulations will be presented
to the Domestic Policy Council for consideration and action early
in 1986.
Management improvements.—During 1985, the administration
carried out a number of efforts to reduce red tape and streamline
Federal aid to State and local governments.
• In October, OMB published an updated catalog identifying the
68 "crosscutting" requirements that affect Federal financial
assistance.
• To simplify one of these, the Uniform Relocation Assistance
policies, the President signed a memorandum calling upon 20
agencies to issue common regulations. Agencies issued a
common proposed rule in May 1985, and will issue a common
final rule by February 1986, one year from the date of the
President's memorandum.
• OMB and five interagency teams are completing a draft revision of OMB Circular A-102 that may be reissued as a
common proposed rule by 23 grantmaking agencies. The rule
will ensure uniform, businesslike management practices by
Federal agencies and allow States to follow their own financial management, property, and procurement laws and proce-

SPECIAL ANALYSIS B

B-17

dures in administering Federal categorical grant programs.
The Government-wide common rule will institutionalize preaward, post-award and after-the-grant follow-up by Federal
agencies, and form a single, simplified set of administrative
terms and conditions for States.
• New comparable financial reporting forms are being developed for the management of the five major open-ended entitlement programs in the Department of Agriculture and the
Department of Health and Human Services.
• OMB issued Circular A-128, "Audits of State and Local Governments,to carry out the Single Audit Act of 1984. The Act
requires each government that receives more than $100,000 in
Federal aid to have an annual organization-wide audit of its
financial operations.
• A joint State and Federal task force signed a Memorandum of
Understanding regarding proposed amendments to the Intergovernmental Cooperation Act and related administrative
regulations. These amendments will provide a mutually
agreeable means for transferring funds between the Federal
Government and the States.
• Executive Order 12372, "Intergovernmental Review of Federal
Programs/' has continued to achieve improved Federal responsiveness to State and local concerns and better communication among all levels of government. OMB and the Federal
agencies have also instituted several procedural changes to
improve Federal performance further, while a number of
States have begun to explore ways to use the Order for implementing their own crosscutting policy initiatives.
• OMB and the Bureau of the Census, working with State governments and other Federal agencies, have improved the reporting of Federal grant and other expenditure statistics to
local areas. The funds for most major pass-through programs
are now shown in the county where they are actually spent.
OTHER SOURCES OF FEDERAL AID 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 (NIPA) series (published in Special
Analysis B and in the Survey of Current Business) 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. Both series omit the following items that the
budget includes:

F-l

THE BUDGET FOR FISCAL YEAR 1987

—Federal aid to the Governments of Puerto Rico and U.S. territories;
—certain 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 NIPA 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. Because both Census and the NIPA 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. One major kind of
outlay included in the budget and Census definitions but excluded
from the NIPA 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 NIPA
rather than as grants. Table H-10 shows these and other minor
differences among the three series, but the differences are largely
offsetting and the three series exhibit similar patterns.
Table H-10. THREE MEASURES OF FEDERAL GRANTS-IN-AID TO STATE AND LOCAL GOVERNMENTS,
1981-84
(In billions of dollars)
1982

1981

Budget (Special Analysis H)
Less principal exclusions.Agricultural commodities
Geographical exclusions
Plus payments for research
Federal unemployment benefits and related
All other (net)
Federal payments (Census)
Less.Low-rent public housing
Federal unemployment benefits and related
All other (net)
Grants-in-aid (national income and product accounts)

1984

1983

94.8

88.2

92.5

97.6

-1.1
-1.8
3.2
2.6
-3.1

-1.1
-1.8
3.4
0.4
-3.1

-2.0
-2.5
4.2
0.2
-3.9

-1.8
-2.6
4.7
0.4
0.7

94.6

86.0

88.5

99.0

-3.9
-2.6
2.0

-4.8
-0.4
2.6

-5.5
-0.2
2.9

-5.6
-0.4
-2.3

90.1

83.4

85.7

90.7

Note: In December 1985 the Department of Commerce issued a major revision of the NIPA series. The revised data are included in this table.

In addition to these data sources, information on the distribution
of Federal funds to State and local governments can be found in
several other documents.

SPECIAL ANALYSIS B

B-17

—Budget Information for the States (BIS) provides estimates of

State funding allocations for the largest formula grant programs for the past, present and budget year. These programs
comprise approximately 80% of total Federal aid to State and
local governments. The document is prepared by the Office of
Management and Budget soon after the Budget is released.
—Federal Expenditures by State is a report prepared by the

Bureau of the Census that shows Federal spending by State for
the most recently completed fiscal year. This document includes the outlay data on Federal grants to State and local
governments that previously appeared in the Department of
the Treasury publication, Federal Aid to States.
—The Consolidated Federal Funds Report (CFFR) is two docu-

ments that show the distribution of Federal spending by
county areas and by local governmental jurisdictions. It is
released by the Bureau of the Census in the Spring.
—The Catalog of Federal Domestic Assistance is prepared by the

General Services Administration with data collected by the
Office of Management and Budget and is available from the
Government Printing Office. The basic edition of the Catalog is
usually published in June and an update is generally published
in December. It contains a detailed listing of grant-in-aid and
other assistance programs; discussions of eligibility criteria,
application procedures, and 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. These notices
also provide information on eligibility criteria and application
procedures.
—The Federal Assistance Awards Data System (FAADS) provides

computerized information about current grant funding. Data
on all direct assistance awards is provided quarterly to the
States and to the Congress.
THE STATE AND LOCAL GOVERNMENT SECTOR OF THE NATIONAL
INCOME AND PRODUCT ACCOUNTS 4

The national income and product accounts (NIPA) provide a
comprehensive statistical description of the U.S. economy that includes State and local government receipts and expenditures. These
data measure the relationship between the State and local governments as a sector of the economy and other sectors.

4 Special Analysis B provides general information on the Federal sector of the national income and product
accounts.

F-l

THE BUDGET FOR FISCAL YEAR 1987

There are three major differences between NIPA 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 NIPA data but
are generally included in budgetary data. Second, a large number
of transactions in the NIPA accounts are recorded on an accrual
basis, while many governments show transactions on a cash basis.
Third, NIPA data aggregate total State and local transactions,
whereas many governments separate their general fund from special funds. As a result of these differences, NIPA totals are not the
same as an aggregate of these governments' financial budgets.
However, the NIPA data do provide timely estimates of total State
and local fiscal transactions not otherwise available and if used
with care can provide helpful financial indicators.
NIPA State and local sector.—The following chart shows State
and local operating account surpluses and deficits as a percent of
receipts, excluding the social insurance funds (primarily pensions).
The social insurance funds have been excluded because their surpluses are for future pension obligations and are not available for
carrying out the general responsibilities of these governments. It is
reasonable for the operating account to be in deficit because it
includes capital expenditures, often financed through borrowing.
The peaks and troughs in the operating account are largely the
result of:
—changes in economic activity, which affect primarily receipts;
—decisions regarding debt-financed capital spending; and
—changes in Federal aid.
The operating account was in deficit every year from 1955 to
1971. Unlike this earlier period, during the 1970's it was generally
in surplus. In part, this change reflected the growth of Federal
grants (rather than State and local borrowing) to finance new
infrastructure.
—The surpluses in the early 1970's were largely the result of the
initiation of general revenue sharing and strong economic
growth.
—The low point in 1975 was largely the result of the recession.
—The surpluses in the latter 1970's were largely the result of the
economic recovery, increases in anti-recession Federal grants,
reductions in debt-financed capital spending, and general restraints in government spending exemplified by the passage of
Proposition 13 in California in 1978.
The recent recession brought the account into deficit in 1982,
albeit a quite small one relative to the 1955-71 period. As a result
of the recession, States and localities reduced expenditures and
increased taxes. These actions along with the national ecomomic

SPECIAL ANALYSIS B

B-17

recovery over the past three years have returned the account to
surplus for 1984 and 1985.

State and Local Surpluses and Deficits (Operating Account)
as a Percent of Receipts
Percent

Percent

Calendar Year
Note: Excludes Socfai Insurance Funds

Estimate

DETAILED FEDERAL AID TABLES

The following two tables present detailed Federal aid data for
1985, 1986, and 1987. Table H - l l , "Federal Grants to State and
Local Governments—Budget Authority and Outlays/' provides detailed budget authority and outlay data for grants-in-aid. Table H 12, "Credit Assistance to State and Local Governments," provides
information on direct and guaranteed loans to State and local
governments.

F-l

THE BUDGET FOR FISCAL YEAR 1987

Table H - l l . FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS—BUDGET AUTHORITY AND
OUTLAYS
(In millions of dollars)
BUDGET AUTHORITY

Function, agency and program

NATIONAL DEFENSE:
Department of Defense—Military:
National Guard centers construction
Federal Emergency Management Agency:
Emergency management planning and
assistance
Total, national defense.
ENERGY:
Department of Energy:
Energy conservation
Department of Housing and Urban Development:
Assistance for solar and conservation
improvements
Tennessee Valley Authority:
Tennessee Valley Authority fund
Total, energy ..
NATURAL RESOURCES AND ENVIRONMENT:
Department of Agriculture:
Watershed and flood prevention operations
Resource conservation and development..
State and private forestry
Forest research
Department of Commerce:
Operations research and facilities
Coastal zone management
Department of the Interior:
Abandoned mine reclamation fund
Regulation and technology
Land acquisition
Urban park and recreation fund
Historic preservation fund
Resource management
Construction
Sport fish restoration
Operation of the national park system....
Miscellaneous permanent appropriations..
Environmental Protection Agency:
Sewage treatment system construction
grants
Abatement, control, and compliance
Hazardous substance response trust
fund

OUTLAYS

1987
estimate

1986
estimate

1985
actual

1986
estimate

105

148

130

131

157

283

256

314

27
188

298

256

529

103
8
26
1

160
11
26
1

143

143
24

258
37
72

149
35
10

151
45

5
5

122
124

1
121

161

108
36
135
44
29
3
4

148

2,400

262

2,374
278

800
1,8
270

!,889

262

225

301

Total, natural resources and environment

3,532

3,504

2,855

4,069

AGRICULTURE:
Department of Agriculture:
Food donations (Commodity Credit Corporation)
Extension Service
Cooperative State Research Service
Other agriculture

1,945
344
162
4

1,424
328
153
1

1,176
140
131

1,938
338
141
4

2,455

1,906

1,447

2,420

Total, agriculture..

SPECIAL ANALYSIS B

B-17

Table H - l l . FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS—BUDGET AUTHORITY AND
OUTLAYS—Continued
(In millions of dollars)
BUDGET AUTHORITY

Function, agency and program

1985
actual

1986
estimate

OUTLAYS

1987
estimate

1985
actual

1986
estimate

COMMERCE AND HOUSING CREDIT:
Department of Commerce:
Enterprise development and opportunityTotal, commerce and housing
credit
TRANSPORTATION:
Department of Transportation:
Federal-aid highways (trust fund)
Highway traffic safety grants
Highway-related safety grants
Motor carrier safety grants
Other highway programs
Formula grants - transit
Transportation block grant - transit
Discretionary grants - transit
Interstate transfer grants - transit
Research, training, and human resources
Washington metro
Miscellaneous expired accounts
Federal Railroad Administration
Grants-in-aid for airports
Boat Safety
Research and special programs
Washington Metropolitan Area Transit Authority:
Interest payments
Total, transportation.
COMMUNITY AND REGIONAL DEVELOPMENT:
Funds Appropriated to the President:
Disaster relief
Department of Agriculture:
Rural water and waste disposal grants...
Rural community fire protection grants...
Miscellaneous expiring appropriations
Department of Commerce:
Economic development assistance programs
Regional development programs
Regional development commissions
Miscellaneous appropriations
Department of the Interior:
Bureau of Indian Affairs
Department of Housing and Urban Development:
Community development block grants
Urban development action grants
Rental housing and rehabilitation
Other community development
Federal Emergency Management Agency:
Emergency management planning and
assistance
National insurance development fund

1,409

13,518
131
10
27
168
1,189

507
462

750
376

14
60
852
35
789

9
149
950
35
776
19
4

19,043

15,068

17,055

18,178

294

163

274

115
3

109
3

176
3
1

183
3

231

263
10
*

230

3,817
497
15

3,575
488
243
36

12,625
110
10

14,771
176
10
14
65
2,450

14,539
126
9
16
38
2,058

1,100
250

755
191

18
250

5
217

17
987
29
4

15
973
43
4

1,017
30
4

20,187

2,990
109

266

1,220

3,472
440

12,434
120
11
9

2,125

2
*

F-l

THE BUDGET FOR FISCAL YEAR 1987

Table H - l l . FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS—BUDGET AUTHORITY AND
OUTLAYS—Continued
(In millions of dollars)
OUTLAYS

BUDGET AUTHORITY

Function, agency and program

1987
estimate

1986
estimate

1985
actual

Appalachian Regional Commission:
Appalachian regional development programs
Neighborhood Reinvestment Corporation:
Neighborhood Reinvestment Corporation..

147

Total, community and regional
development

4,536

1985
actual

EDUCATION, TRAINING, EMPLOYMENT,
AND SOCIAL SERVICES:
Department of Commerce:
Public telecommunications facilities
Miscellaneous appropriations
Department of Health and Human Services:
Social services block grant
Community services
Human development services
Family social services
Work incentives
Department of the Interior:
Operation of Indian programs
Department of Labor:
Training and employment services
Federal-State employment service
Community service employment for
older Americans
Temporary employment assistance
Department of Education:
Compensatory education for the disadvantaged
Impact aid
Special programs
Bilingual education
Immigrant education
Indian education
Education for the handicapped
Rehabilitation services and handicapped
research
Payments to institutions for the handicapped
Vocational and adult education
Student financial assistance1
Higher education
Higher education facilities loans and
insurance
Libraries
Community Services Administration:
Community services programs
Corporation for Public Broadcasting:
Public broadcasting fund
National Endowment for the Arts:
National Endowment for the Arts
Institute of Museum Services:
Institute of Museum Services
Total, education, training, employment, and social services. ..

1986
estimate

198
15
3,625

2,235

5,221

5,245

150

2,743
372
1,807
738
274

2,604
229
1,818
816
172

2,725
368
1,890
757
258

2,584
168
1,813
846
157

3,107
960

2,530
921

2,477
922

2,700
1,897

2
2,775
891

3,005
955

-18

2,940
687
612
69

1,177

73
1,177

4,194
629
479
96
15
78
928

1,133

1,142

1,137

733

1,321

5
687

503

4
633
76

7
976
30

118

122

-1

3,683
686
699
100
30
64
1,177

3,525
656
592
96

3,682
548
635
104

930
76

55
1,365

150

160

200

150

160

19,059

17,325

17,817

18,108

16,973

SPECIAL ANALYSIS B

B-17

Table H - l l . FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS—BUDGET AUTHORITY AND
OUTLAYS—Continued
(In millions of dollars)
BUDGET AUTHORITY

Function, agency and program

HEALTH:
Department of Agriculture:
Food Safety and Inspection Service
Department of Health and Human Services:
Medicaid 1
Health resources and services 1
Disease control, research and training....
Alcohol, drug abuse, and mental
health 1
Department of Labor:
Occupational Safety and Health Administration
Mine Safety and Health Administration...
Total, health
INCOME SECURITY:
Department of Agriculture-.
Child nutrition programs 1
Food stamp program administration1
Nutrition assistance for Puerto Rico 1 ....
Women, infants, and children programs 1
Commodity supplemental food program 1
Special milk program 1
Food donations program 1
Agricultural Marketing Service (food
donations) 1
Rural housing preservation grants
Rural housing for domestic farm labor 1
Mutual and self-help housing 1
Department of Health and Human Services:
Assistance
payments
program
(AFDC) 1
Child support enforcement
Payments to States from receipts for
child support
Low income home energy assistance1...
Refugee and entrant assistance1
Department of Labor:
Unemployment trust fund - administration
Department of Housing and Urban Development:
Subsidized housing program 1
Payments for operation of low income
housing 1
Congregate services program 1
Federal Emergency Management Agency:
Emergency food and shelter 1
Total, income security
VETERANS BENEFITS AND SERVICES:
Veterans Administration:
Medical care 1
Grants for constructing State care facilities 1

1985
actual

1986
estimate

OUTLAYS

1987
estimate

1985
actual

1986
estimate

21,845
1,109
175

24,440
1,017
177

24,708
1,040
182

22,655
1,037
162

24,686
1,134
158

503

470

490

501

461

23,729

26,183

26,521

24,451

26,530

3,599
912
825

3,664
967
820

3,424
1,037
825

3,464

886

3,656
939

1,498

1,558

1,615

1,495

1,579

25
17
140

37
11
180

39
187

43
15
167

37
13
198

478
5

368
19

411

467

369
1
10
7

8,537
612

8,962
566

J.171
707

8,592
577

9,041
642

2,098
426

2,008
304

2,098
358

2,139
420

2,017
374

1,601

1,598

1,742

1,576

1,579

10,759

5,124

5,197

4,813

1,402
4

1,159

1,172

1,205
5

1,337

32,966

27,422

21,785

27,153

27,530

825

820

F-l

THE BUDGET FOR FISCAL YEAR 1987

Table H - l l . FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS—BUDGET AUTHORITY AND
OUTLAYS—Continued
(In millions of dollars)
OUTLAYS

BUDGET AUTHORITY

Function, agency and program

Other veterans
Total, veterans benefits and services
ADMINISTRATION OF JUSTICE:
Department of Justice:
Justice assistance
Crime victims fund
National Institute of Corrections
Revolving fund
Department of Housing and Urban Development:
Fair housing assistance
Equal Employment Opportunity Commission:
Equal Employment Opportunity Commission

1985
actual

1987
estimate

1986
estimate

1987
estimate

1986
estimate

1985
actual

112

125
96
6

20
100
5

64
6

78
31
8

82
47
7

107

90
61
7

Total, administration of justice

184

252

157

145

166

GENERAL GOVERNMENT:
Department of the Interior:
Administration of territories
Trust Territory of the Pacific Islands

74
99

72
76

67
13

76
106

90
97

84
32

173

149

182

187

116

236

228

236

218

103

100

105

103

100

105

539

575

551

539

551

134
13
53

6
12
57

46
13
55

133
13
53

17
12
57

45
12
55

4,567

3,425

4,584

4,433

327
97

234
100

245
108

336
105

236
101

244
108

548

530

560

548

530

560

6,625

5,275

1,775

6,656

6,264

1,771

113,998

105,163

89,146

105,897

108,802

99,094

Total, general government
GENERAL PURPOSE FISCAL ASSISTANCE:
Department of Agriculture:
Forest Service permanent appropriations..
.Department of Defense—Civil:
Corps of Engineers permanent appropriations
Department of the Interior-.
Payments in lieu of taxes
Payments to States mineral leasing receipts
Bureau of Land Management permanent
appropriations
National wildlife refuge fund
Payments to the U.S. territories
Department of the Treasury:
General revenue sharing
Internal revenue collections for Puerto
Rico
Miscellaneous permanent appropriations...
Department of Energy-.
Payments to States under the Federal
Power Act
District of Columbia:
Federal payment to the District of Columbia
Total, general purpose fiscal assistance
Total, grants-in-aid

*$500 thousand or less.
1
Programs included in the "grants for payments to individuals" category shown in Table H-8.

SPECIAL ANALYSIS B

B-17

Table H-12. CREDIT ASSISTANCE TO STATE AND LOCAL GOVERNMENTS1
(In millions of dollars)
1986
estimate

1985
actual

Function, agency and program

1987
estimate

Direct Loans
Energy, natural resources and environment:
Department of the Interior:
Bureau of Reclamation loan program..

Loan disbursements

Net loans

Outstandings
Drought emergency loan fund..

Loan disbursements

Net loans

Outstandings
Environmental Protection Agency:
Construction grants

Loan disbursements

Net loans

Outstandings
Abatement, control, and compliance

442

480

520

-1

11
14

10
34
31

89
77
550

Outstandings

Loan disbursements

Net loans

Total, energy, natural resources' and environment
Loan disbursements

473

79
629

Commerce and housing credit:
Department of Agriculture:
Rural housing insurance fund-

Loan disbursements

Net loans

Outstandings
Transportation:
Department of Transportation:
Federal-aid highways (trust fund)

Loan disbursements

Outstandings
Total, transportation

368

381

Loan disbursements

Net loans

Loan disbursements

Net loans

Outstandings
Right-of-way revolving fund

25
15
396

113

-15

116

Net loans

-9

-2

Outstandings
Community and regional development:
Department of Agriculture:
Rural development insurance fund..

190

189

190

479

418

202

Loan disbursements

Net loans

Outstandings
Department of Commerce:
Coastal energy impact fund-

Loan disbursements

Net loans

Outstandings

Department of Interior:
BIA revolving fund for loans.

Loan disbursements

-2

531

-40

-4

-2

141
*

-2

90
13

F-l

THE BUDGET FOR FISCAL YEAR 1987
Table H-12. CREDIT ASSISTANCE TO STATE AND LOCAL GOVERNMENTS

Continued

(In millions of dollars)
1985
actual

Function, agency and program

N t loans
e
Outstandings..
Department of Housing and Urban Development:
Loan disbursements..
Community development

Net loans

Outstandings
FHA revolving fund (liquidating programs).,

Loan disbursements..

Net loans

Outstandings
Urban renewal programs..

Loan disbursements..

Net loans

1986
estimate

103

108

289

335

—21

-18
367

385

2
—21
1

Outstandings
Total, community and regional development... Loan disbursements..

650

600

884

914

741

19
- 7
734

Net loans

- 6

-6

Outstandings

115

109

18
*

163

Net loans

Outstandings
Education, training, employment, and social services:
Department of Education:
College housing loans
Loan disbursements..

Net loans

Outstandings

-50

Higher education facilities loan and insurance
fund
Loan disbursements..

Student loans and other..

Loan disbursements..

Net loans

Outstandings
Total education, training, employment, and
social services
Loan disbursements..

Net loans...

Outstandings
Health:
Department of Health and Human Services:
Medical facilities guarantee and loan fund-

-3

1,018

1,005

-12

Loan disbursements..

Net loans

Outstandings
Income security:
Department of Housing and Urban Development:
Loan disbursements..
Low-rent public housing (includes FFB)

Net loans

14,065

1,459

Outstandings
General government:
Department of the Interior:
Administration of territories (FFB).

13,44/ -14,729
16,840

2,111

Loan disbursements..

Net loans

Outstandings

-1
63

SPECIAL ANALYSIS B

B-17

Table H-12. CREDIT ASSISTANCE TO STATE AND LOCAL GOVERNMENTS

Continued

(In millions of dollars)

General purpose fiscal assistance:
Other independent agencies:
Loans to the District of Columbia..

1986
estimate

1985
actual

Function, agency and program

Loan disbursements..

Net loans

-311

-35

Outstandings

1,572

1,537

New loans

Net loans

13,206 -14,660

14,945

2,259

Outstandings..

Grand total, direct loans..

21,424

6,764

Guaranteed Loans
Community and regional development:
Department of Agriculture:
Rural development insurance fund

-294

176

226

Outstandings
Department of Housing and Urban Development:
Revolving fund (liquidating programs)

Net loans

2,912

-222
2,690

New guaranteed loans..

Net loans

Outstandings
Urban renewal programs

New guaranteed loans..

Net loans

Outstandings
Department of Interior:
Indian loans

New guaranteed loans..

Outstanding

Net loan

Total, community and regional development... New guaranteed loans..

196

276

Net loans

-283

— 178

Outstandings

2,972

2,795

Income security:
Department of Housing and Urban Development:
Low-rent public housing
New guaranteed loans..

Net loans

Outstandings
Grand total, guaranteed loans..

New guaranteed loans..

Net loans

Outstandings

-13,276
8,887
196

-310
8,577
276

-13,559

-487

11,859

11,372

* $500 thousand or less.
1

Only direct loans are included in budget outlays. New direct loan disbursements less loan repayments, sales, etc., are net loans, which are
counted in the budget 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"

SPECIAL ANALYSIS I
CIVILIAN

EMPLOYMENT

IN T H E

EXECUTIVE

BRANCH

The Administration has steadfastly adhered to its goal of restraining the size of the Federal workforce to the minimum necessary to carry out essential functions with efficiency. This analysis
outlines the mechanisms used to control civilian employment in
the Executive Branch, the resulting employment ceilings, and experience in reducing nondefense civilian employment. It also deals
with personnel compensation and benefits and compares the Federal workforce with other government employment as well as overall
civilian employment in the United States.
FULL-TIME EQUIVALENT OF TOTAL FEDERAL CIVILIAN EMPLOYMENT
IN THE EXECUTIVE BRANCH

Total employment of civilian agencies in the executive branch is
controlled on a full-time equivalent (FTE) or workyear basis. Postal
Service employment by law is not subject to Presidential control,
and section 904 of the 1982 Defense Authorization Act (Public Law
97-86) exempts the Department of Defense from full-time equivalent employment controls.
Table I - l is a tabulation of full-time equivalent employment
estimates for the major departments and agencies of the executive
branch. Generally, the estimates for 1986, 1987, and 1988 constitute
upper limits on agency FTE employment.
The 1986 total for "Civilian Agency Employment" reflects an
adjustment to reflect the fact that actual nondefense employment
tends to fall short of assigned employment ceilings. The average
shortfall for the period 1982-1985 is nearly two percent, with a
range of 3.38 to 1.17 percent. For 1986, a shortfall of 0.75 percent is
projected. Shortfalls for 1987-1988 are not projected since achievement of lower employment levels for these years is dependent on
favorable Congressional action on the 1987 Budget.
By the end of 1985, the Administration had reduced nondefense
employment by 78,000 FTE's from budget estimates for 1982. Further reductions are planned by the end of 1987.
SIGNIFICANT CHANGES IN FULL-TIME EQUIVALENT EMPLOYMENT

Nondefense employment is expected to decrease by nearly 23,400
from 1986 to 1987 and by about 38,900 from 1986 to 1988.

I-l

F-l

THE BUDGET FOR FISCAL YEAR 1987
Table 1-1. FULL-TIME EQUIVALENT OF FEDERAL CIVILIAN EMPLOYMENT 1
Fiscal year
1985 2
actual

1986
estimate

1987
estimate

1988
estimate

106,658
32,790
28,681
4,876
16,257
132,501
12,101
72,166
60,852
18,176
24,788
61,044
127,442
12,459
21,991
221,292

108,750
34,440
28.548
4,579
16,218
128,483
11,720
72,015
64,266
18.549
26,088
60,938
126,467
13,361
21,800
221,051

98,500
33,830
28,348
4,500
15,721
123,636
11,288
70,305
65,820
18,155
26,937
58,981
129,587
13,161
21,800
212,066

96,570
37,643
28,348
4,500
12,005
118,674
10,916
69,955
66,028
18,060
27,122
57,164
132,345
13,090
21,800
204,662

4,969
25,254
3,498
5,666
8,215
4,177
31,098
8,572
39,582

4,875
25,406
3,491
5,510
8,300
4,219
31,000
9,120
41,430
-8,180

4,825
22,635
3,369
5,419
8,300
707
31,000
9,280
40,822

4,700
22,297
3,369
5,029
8,300
0
31,000
9,369
40,552

Civilian agency employment..
Defense—military functions 3

1,085,105
1,036,870

1,082,444
1,034,375

1,058,992
1,037,113

1,043,498
1,037,356

Subtotal
Postal Service Employment 4

2,121,975
692,748

2,116,819
717,694

2,096,105
736,852

2,080,854
764,852

2,814,723

2,834,513

2,832,957

2,845,706

Agriculture
Commerce
Defense—civil functions
Education
Energy
Health and Human Services
Housing and Urban Development.
Interior
Justice
Labor
State
Transportation
Treasury
Environmental Protection Agency
National Aeronautics and Space AdministrationVeterans Administration
Other:
Agency for International Development
General Services Administration
Nuclear Regulatory Commission
Office of Personnel Management
Panama Canal Commission
Small Business Administration
Tennessee Valley Authority
United States Information Agency
Miscellaneous
Estimated nondefense lapse

Total, Executive Branch
1

Excludes developmental positions under the Worker-Trainee Opportunity Program (WTOP) as well as certain statutory exemptions.
Data are estimated for portions of Defense-civil functions as well as for the Federal Reserve System, Board of Governors and the International
Trade Commission.
3
Section 904 of the 1982 Defense Authorization Act (Public Law 97-86) exempts the Department of Defense from full-time equivalent
employment controls. Data shown are estimated.
4
Includes the Postal Rate Commission.
2

Most agencies show decreases, in Table 1-1, from the 1986 estimates to the corresponding estimates for 1987:
• Department of Agriculture (—10,250). The decrease is due to
significant funding reductions in several major areas. The
1987 Budget proposes to privatize programs now operated by
the Federal Crop Insurance Corporation and the Rural Electrification Administration. The Farmers Home Administration will shift most of its lending from direct to privately
originated guaranteed loans. With private banks originating
and servicing the loans, Federal employment will be reduced.
Similarly, the Federal role in conservation and extension activities would be reduced and staffing levels adjusted. Forest

SPECIAL ANALYSIS B

B-17

Service staffing levels are also proposed to be reduced consistent with implementation of management efficiencies.
• Veterans Administration (—8,985). This reduction reflects anticipated productivity increases in all areas, together with
savings in medical care staffing as a result of treating fewer
veterans in the lowest priority care category. These decreases
are partially offset by increases for additional medical staff to
be used for modernized medical facilities.
• Department of Health and Human Services (—4,847). Reductions result from increased automation and productivity in
the Social Security Administration; the phasing in of program
terminations such as the Community Services Block Grant,
health professions subsidies and health planning; implementing an expanded State primary care block grant; and elimination of duplicative functions and unnecessary overhead.
• Small Business Administration (—3,512). This reduction is due
to the planned termination of Small Business Administration
credit programs and reductions in non-credit programs. SBA
and its remaining non-credit activities are proposed for transfer to the Department of Commerce. Liquidation of the SBA
loan portfolio will be transferred to the Treasury Department.
• General Services Administration (—2,771). This decrease reflects productivity improvements resulting from the reorganization of and consolidations within the Federal Supply Service and the Public Building Service. Decreases of 940 FTE in
GSA will be offset by an increase in the National Security
Administration as it becomes responsible for the maintenance
and security of its headquarters building.
• Department of Transportation (—1,957). This decrease reflects
both program eliminations and reductions. Employment reductions are expected as a result of the Administration's proposal to combine highway and transit programs of a State and
local nature into a Transportation Block Grant. Additional
FTE savings are a result of the proposed privatization of the
Transportation Systems Center by April 1, 1987 and the
Turner-Fairbanks highway facility, as well as consolidations
within the Federal Aviation Administration.
• Department of Interior (—1,710). Reductions result from: a
transfer of responsibilities for animal damage control from
the Interior Department to the Department of Agriculture, a
decrease in the size of the Jobs Corps Program, management
efficiencies, and program reductions distributed across the
entire Department.
• Department of Commerce (—610). This net decrease results
from programmatic reductions and productivity savings in the
National Oceanic and Atmospheric Administration and the

F-l

THE BUDGET FOR FISCAL YEAR 1987

National Bureau of Standards, as well as termination of the
Economic Development Administration and the U.S. Travel
and Tourism Administration. Increases are provided for the
transfer of 595 FTE's from the Small Business Administration
to consolidate business assistance programs into the Department of Commerce and 733 FTE's in the Census Bureau for
the conduct of the economic and agricultural censuses.
• Department of Energy (—497). Employment will continue to
decline due to implementation of management improvements
and reductions in regulatory activities and in near-term research and development activities. This decline is consistent
with the administration's policy of primary reliance on the
marketplace to achieve energy goals.
• Department of Housing and Urban Development (—432). The
department's employment will decline as a result of: (1) the
reduced workload associated with the projected decline in
Federal Housing Administration mortgage insurance applications, (2) termination of the Urban Development Action Grant
Program, (3) a reduction in the number of areas receiving
Community Development Block Grants, and (4) the contracting-out of certain administrative functions.
• Department of Labor (—394). The decrease reflects proposed
reductions in the Job Corps, the completion of the revision of
the Consumer Price Index, and increased productivity in the
Department.
• Environmental Protection Agency (—200). This reduction reflects phaseout of the waste treatment grants program and a
decrease in agency overhead.
• Department of Defense—civil functions (—200). This reduction
reflects an anticipated decrease in personnel needed to carry
out the Civil Works program due to systematic application of
productivity reviews pursuant to OMB Circular A-76.
Some agencies show increases:
• Department of Treasury (3,120). This increase consists primarily of personnel necessary for a multi-year revenue enhancement initiative within the Internal Revenue Service. Personnel will also be increased to process tax returns and respond
to taxpayer inquiries. In addition, 1,664 FTE's will be transfered to the Financial Management Service to service and
liquidate a loan portfolio to be transferred from the Small
Business Administration. Reductions due to productivity enhancements are anticipated in the Customs Service and the
Bureau of Public Debt.
• Department of Defense—military functions (2,738). The increase provides further improvements in spare parts management, supports new weapons systems, releases military per-

SPECIAL ANALYSIS B

B-17

sonnel to perform essential military functions, expands logistics support programs and improves supply management functions.
• Department of Justice (1,554). These increases are primarily
in the areas of the Federal Bureau of Investigation and the
Drug Enforcement Administration agents and support staff,
additional attorneys to address increased civil litigation, and
for annualization of positions provided in 1986.
• Department of State (849). Substantial increases in staffing
abroad and in Washington are required to improve the security of U.S. employees and facilities at diplomatic missions
abroad and to protect foreign diplomats in the United States.
END-OF-YEAR EMPLOYMENT LEVELS
Table 1-2. TOTAL FEDERAL EMPLOYMENT END-OF-YEAR
Description

Actual, as of September 30
1983

1984

1985

1,852,984
280,051
(983,644)
(1,149,391)

1,881,590
265,085
(1,004,529)
(1,142,146)

1,898,980
286,933
(1,043,240)
(1,142,673)

2,133,035

2,146,675

2,185,913

545,687
117,405

560,952
121,764

587,132
162,952

663,092

682,716

750,084

24,367

24,522

27,546

2,820,494

2,853,913

2,963,543

2,123,349
39,708

2,138,157
39,560

2,151,032
38,487

Subtotal, military personnel

2,163,057

2,177,717

2,189,519

Total, executive branch employment

4,983,551

5,031,630

5,153,062

31,685
24,084

32,097
23,982

32,644
24,345

55,769

56,079

56,989

5,039,320

5,087,709

5,210,051

Civilian employment in the executive branch:
Full-time permanent
Other than full-time permanent

DOD-MHitary functions (total employment)
Non-DOD (total employment)
Subtotal

Postal Service:
Full-time permanent
Other than full-time permanent
Subtotal
Special categories1
Subtotal, executive branch civilian employment
duty: 2

Military personnel on active
Department of Defense
Department of Transportation (Coast Guard)

Legislative and judicial personnel:3
Full-time permanent
Other than full-time permanent
Subtotal, legislative and judicial branches
Grand total
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
3 Excludes reserve components.
Excludes members and officers of Congress.

Between January 1981, when this administration took office, and
September 30, 1985, nondefense total employment fell from
1,232,181 to 1,142,673; a decrease of 89,508 employees. Total Federal

F-l

THE BUDGET FOR FISCAL YEAR 1987

civilian employment in the executive branch was 2,185,913 at the
end of 1985, excluding Postal Service employees.
Table 1-2 shows Government-wide Federal civilian employment
as of the end of fiscal years 1983, 1984, and 1985. Postal Service
employment (including the Postal Rate Commission) is also shown,
together with data for the legislative and judicial branches and for
active duty military personnel.
Full-time permanent employment accounted for nearly 87 percent of executive branch employment (excluding the Postal Service)
at the end of fiscal year 1985. The remainder is made up of parttime employees, intermittent employees (those employed on an
irregular basis) and full-time temporary employees (generally, in
positions occupied for less than one year).
PERSONNEL COMPENSATION AND BENEFITS

Direct compensation of the current 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. In addition, it includes uniform allowances (when paid in cash), cost-ofliving and overseas quarters allowances.
In the case of military personnel, compensation includes basic
pay, special and incentive pay (including enlistment and reenlistment bonuses), and allowances for clothing, housing, and subsistence.
Related compensation in the form of personnel benefits for current personnel consists primarily of the Government's share (as
employer) of health insurance, life insurance, old-age survivors'
disability and health insurance, and payments to the Department
of Defense's DOD Military Retirement Fund and the Civil Service
Retirement and Disability Fund to finance future retirement benefits.
The 1987 Budget includes proposals that are designed individually and as a whole to gain control over the Government's expenditures as an employer. The size of projected deficits has contributed
to a growing perception that Government salaries are relatively
high (certain technical measurements of pay comparability with
the private sector notwithstanding), and that the benefit programs
are liberal and expensive. For 1987, the Administration will propose:
• reform of the Civil Service Retirement System to bring benefits and costs more into line with private sector practice,
• a voucher system for the health benefits program to widen
employee choice and to control cost escalation through enhanced competition for employee enrollments.

SPECIAL ANALYSIS B

B-17

Additional details on these proposals can be found under the
income security and health functions of Part 5 of the 1987 Budget
of the United States.
Table 1-3. COMPENSATION AND BENEFITS FOR CURRENT PERSONNEL
(In millions of dollars)
Description

Civilian personnel costs:
Executive branch:
Direct compensation
Personnel benefits 1

1985 actual

1986 est.

1987 est.

(26,952)
(3,619)

71,303

72,555

20,888
3,667

22,202
4,653

24,555

26,855

1,167
151

1,230
164

1,226

1,318

1,394

95,072

97,176

1,119
101,923

43,980
21,168

46,606
22,664

47,655
23,057

65,148

Legislative and
Direct compensation
Personnel benefits

(26,093)
(3,260)

1,093
133

Subtotal

(26,130)
(3,283)

23,840

Postal Service:
Direct compensation
Personnel benefits

59,561
13,988

20,200
3,640

Subtotal

58,406
12,897

70,006

DOD-MHitary functions, civilian personnel:
Direct compensation
Personnel benefits

57,462
12,544

69,270

70,712

judiciary: 2

Subtotal
raise 3

Allowance for civilian pay
Total, civilian personnel costs
Military personnel costs: 4
Direct compensation
Personnel benefits
Subtotal
Allowance for military pay

raise 5

2,648

Total, military personnel costs

65,148

69,270

73,360

costs 3

160,220

166,446

175,283

22,850
17,547

24,283
18,028

25,130
18,372

40,397

42,311

43,502

Grand total, personnel

ADDENDUM
Retired pay for former personnel:
Civilian personnel
Military personnel
Total

1Note—Personnel costs do not reflect the effects of the sequestration of 1986 budgetary resources required by Public Law 99-177.
In addition to the employing agency's contributions to the costs of life and health insurance, retirement, and Medicare Hospital Insurance, this
amount includes transfers from general revenues to amortize the effects of general pay increases on Federal retirement systems, for employees in
the legislative and judicial branches as well as employees (nonPostal) in the executive branch. The transfers amounted to $4,406 million in 1985
and2 are estimated to be $4,407 million in 1986 and $4,618 million in 1987.
3 Excludes members and officers of Congress.
4 Assumes a 3 percent pay raise, effective January 1987.
5 Excludes reserve components.
Comprised of allowances for a 4 percent pay increase effective October 1, 1986 for military personnel as follows: for the Department of
Defense, $2,611 million; for the Coast Guard, $36 million.

The budget assumes a 4 percent military pay increase on October
1, 1986, and a 3 percent increase in pay for Federal white- and
blue-collar workers, effective in January 1987. The final decision on
the pay adjustment for white-collar workers will be made in late

F-l

THE BUDGET FOR FISCAL YEAR 1987

summer, as the law provides, after Presidential review of the recommendations of the President's Pay Agent, the Federal Employees Pay Council, and the Advisory Committee on Federal Pay, and
after a review of prevailing economic conditions.
As indicated in table 1-3, obligations for executive branch civilian personnel compensation and benefits in 1987 are projected to
reach nearly $72.6 billion, excluding the Postal Service.
GOVERNMENT EMPLOYMENT AND LABOR FORCE COMPARISONS

As shown on the following chart, Government employment—
Federal, State, and local—comprised nearly 15.5 percent of the
total employed civilian labor force in 1985.
Within this segment, Federal civilian employment in the executive branch accounts for 2.75 percent of the total employed civilian
labor force in 1985, down from a high of 3.82 percent in 1968.
The portion of the total employed civilian labor force attributable to State and local government has grown from 10.6 percent in
1965 to 12.7 percent in 1985.

Government Civilian Employment

Fiscal Years
*&CBCUKV8 BfUfKih

SPECIAL ANALYSIS B

B-17

GOVERNMENT EMPLOYMENT AND POPULATION COMPARISONS

As illustrated in the following chart and in table 1-4, the Federal
share of total government employment has declined significantly
over the last three decades, from 33.4 percent in 1955 to 17.7
percent in 1985. Employment for all government had been rising
steadily due to increases in State and local government. In 1981 it
began to decline but in 1983 this trend reversed and State and local
government is again increasing.

Government Civilian Employment
Millions of Employees

1955

Fiscal Years
»£xgqjttvg ifoonch

The ratio of Federal civilian employment to the total U.S. population is expected to be 12.4 per thousand in 1985. As is evident in
table 1-2, the main reasons for the increase in this ratio over 1984
are increases in the Department of Defense—Military Functions,
and in the Postal Service.

F-l

THE BUDGET FOR FISCAL YEAR 1987
Table 1-4. GOVERNMENT EMPLOYMENT AND POPULATION, 1955-85
Government employment
Fiscal year

1955
1956
1957
1958
1959
1960 2
1961 2
1962
1963 3
1964 3
1965
1966
1967
1968
1969 4
1970 2
1971 2
1972
1973
1974
1975
1976
1977 5
1978
1979
1980 2
1981 2
1982
1983
1984
1985
1

Federal
executive
1
branch
(thousands)

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
2,821
2,806
2,768
2,819
2,854
2,964

State and
local
governments
(thousands)

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
12,704
13,050
13,359
13,542
13,274
13,207
13,220
13,429
13,743

Population

All
governmental
units
(thousands)

Federal as
percent of all
governmental
units

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
15,493
15,870
16,182
16,363
16,080
15,975
16,039
16,283
16,707

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
18.0
17.8
17.4
17.2
17.5
17.3
17.6
17.5
17.7

Total United
States
(thousands)

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
205,052
207,661
209,896
211,909
213,854
215,973
218,035
220,904
223,278
225,779
6 228,279
6 230,523
6 232,993
6 235,160
6 237,315
6 239,440

Federal
employment
per 1,000
population

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
13.4
13.1
13.3
13.2
13.0
12.6
12.6
12.5
12.4
12.2
11.9
12.0
12.0
12.4

Covers total end-of-year employment of full-time permanent, temporary, part-time, and intermittent employees in the executive branch, including
the2 Postal Service, and, beginning in 1970, includes various disadvantaged youth and worker-trainee programs.
3 Includes temporary employees for the decennial census.
7,411 project employees in 1963 and 406 project employees in 1964 for the public works acceleration program.
4 Excludes
On Jan. 1, 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
6 Data for 1954 through 1976 are as of June 30; for 1977 through 1984, as of Sept. 30.
U.S. population data for 1980-1985 are the latest available from the Census Bureau.

PART 3

SELECTED
FEDERAL PROGRAMS

INTRODUCTION
Part 3 furnishes Government-wide program and financial information in two selected program areas—civil rights and research
and development, designated J and K.
Special Analysis J (Civil Rights Activities) summarizes Federal
spending for principal 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.
3-2

SPECIAL ANALYSIS I
CIVIL RIGHTS ACTIVITIES
Coverage and Scope. Some 130 Federal statutes prohibit discrimination based on sex, race, color, religion, national origin, age, or
handicap in employment, housing, education, credit, public accommodations, and participation in Federally assisted programs (as
well as in the exercise of such rights and responsibilities of citizenship as voting and jury service). Taken as a whole, these laws
express the vision Americans have come to share of the nation we
want to be: a nation in which every woman and man is treated
according to individual effort and ability; a nation in which one's
race, sex, religion, color or national origin are truly irrelevant to
the judgment of what a person is worth and what he or she can
contribute.
Special Analysis J describes the progress made in enforcing these
guarantees.
VOTING RIGHTS
The Voting Rights Act of 1965, as amended, (42 U.S.C. 173 et
seq.) and the Overseas Citizens Voting Rights Act (42 U.S.C. 1973
dd) guarantee the right of all qualified citizens to register and vote
without discrimination on account of race, color, membership in a
language minority group, age, or absence from legal residence. The
Departmemt of Justice's Civil Rights Division is primarily responsible for enforcing these statutes.
Under the Voting Rights Act, for example, Justice is solely responsible for designating counties where Federal personnel are
necessary to conduct registration or observe polling places; and for
determining whether proposed changes affecting voting in 926 political subdivisions in 21 States (including 9 States in their entirety)
covered by the Act's pre-clearance provisions are discriminatory. In
conjunction with the Director of the Census, the Department determines which States and subdivisions of States will be subject to
those pre-clearance requirements. In addition, the Office of Personnel Management is responsible for providing Federal observers as
necessary to assure the fairness of elections.
The Civil Rights Division's Voting Rights Section participated in
17 new cases during 1985, 16 as plaintiff and 1 as amicus curiae. Of
the 16 lawsuits filed by the Division, 6 were brought prior to the
November 1984 Presidential election to achieve compliance by the

J-l

F-l

THE BUDGET FOR FISCAL YEAR 1987

States of Alabama, Arkansas, Minnesota, Montana, New Hampshire and Wisconsin with the Overseas Citizens Voting Rights Act,
(as was a lawsuit filed during the final month of fiscal year 1984
against Colorado). All were resolved by court orders that allowed
overseas voters' absentee ballots to be counted for the Presidential
election if they were postmarked by election day and received
within 10 to 14 days thereafter—allowing the votes of 2,768 people
to be counted in the 1984 Presidential election.
The Civil Rights Division filed 4 lawsuits to enforce the preclearance requirement of Section 5 of the Voting Rights Act, 5
lawsuits to enjoin alleged dilution of minorities' voting rights
through the use of at large or malapportioned election districts in
violation of Section 2 of the Voting Rights Act, and 1 lawsuit to
compel a State to comply with the voter assistance provisions of
the Voting Rights Act. The Civil Rights Division obtained 4 consent
decrees during 1985 requiring cities, counties, and school boards to
adopt districting plans that comply with Section 2 of the Voting
Rights Act.
During 1985, the Civil Rights Division received over 3,000 submissions involving more than 14,000 voting changes under section 5
of the Voting Rights Act, and objections were made to 105 voting
changes. Also during 1985, a total of 700 observers were assigned to
cover 12 elections in 29 counties in 5 States. 307 of these observers
were assigned to counties in Mississippi during the 1984 Presidential election.
ENFORCEMENT OF OTHER FUNDAMENTAL
CONSTITUTIONAL AND CIVIL RIGHTS
To be secure in one's person and property and to enjoy the
freedoms guaranteed each individual by the Constitution are the
most basic of civil rights. In addition to the provisions of the
Constitution itself, these rights are guaranteed by:
—Title 18 of the United States Code, which prohibits deprivations of rights and privileges guaranteed under the Constitution or the laws of the United States, including 18 U.S.C. 241
(conspiracy against the rights of citizens), 18 U.S.C. 242 (deprivation of rights under color of law), 18 U.S.C. 245 (interference
with Federally protected rights), 18 U.S.C. 1581 (prohibition
against peonage), and 18 U.S.C. 1584 (prohibition against involuntary servitude).
—42 U.S.C. 3631, which prohibits interference with housing
rights.
—30 other criminal civil rights statutes (in addition to those
cited above).
—42 U.S.C. 1997 (The Civil Rights of Institutionalized Persons
Act), which prohibits violations of the rights of persons confined to publicly operated residential institutions including

SPECIAL ANALYSIS B

B-17

prisons, jails, mental health and retardation facilities, juvenile
detention centers, and publicly operated nursing homes.
Within the Department of Justice, the Civil Rights Division's
Criminal Section is primarily responsible for investigating and
prosecuting violations of the Federal civil rights criminal statutes.
The Division annually processes a large number of complaints
alleging criminal interference with civil rights.
During 1985, the Criminal Section reviewed over 9,000 complaints alleging criminal interference with civil rights; approximately 3,000 of these complaints were investigated by the Federal
Bureau of Investigation. The results of 56 investigations were presented to Federal grand juries; 35 indictments were returned and
13 informations were filed charging a total of 106 defendants,
including 67 law enforcement officers. Thirty cases were tried,
resulting in conviction for 41 defendants and acquittal for 21 defendants. An additional 36 defendants pled guilty to violations of
criminal civil rights statutes. In sum, the Section enjoyed a success
rate of almost 80 percent.
The Civil Rights Division's Criminal Section continued to give
particular emphasis to prosecuting cases involving racial violence.
During 1985, the Division filed 11 racial violence cases involving 30
defendants. Six of these cases (involving 16 defendants) involved
Ku Klux Klan activity, and 7 of these defendants have already
been found guilty. A 2-year grand jury investigation of crossburnings and shootings into the residences of individuals living in
North Carolina resulted in the conviction of 3 members of a group
styling itself the "White Knights of Liberty". Indictments are pending against 9 additional members in this case. In Montgomery,
Alabama, 3 persons associated with a Klan group pled guilty to
setting fire to the offices of the Southern Poverty Law Center
which maintains files on Klan activities. All of the defendants were
sentenced to prison terms, with one defendant sentenced to serve
15 years for receiving stolen explosives. A fourth individual pled
guilty and was sentenced to a year's imprisonment for his involvement in another racial incident in Montgomery, the burning of a
cross at the home of a county commissioner who had urged citizens
to boycott a local bank for alleged discriminatory practices.
The Civil Rights Division's Criminal Section actively prosecuted
alleged violations of civil rights by government officials. For example, the Division obtained convictions in a case involving 10 police
officers in Puerto Rico charged with perjury and conspiracy to
obstruct justice in connection with their participation in the unlawful killing of 2 independence advocates. The 10 defendants were
sentenced to serve prison terms ranging from a minimum of 6
years up to 30 years (5 received terms of 20 years or more). In
another noteworthy case, the Division prosecuted 2 police officers

F-l

THE BUDGET FOR FISCAL YEAR 1987

and 3 prison inmate/trustees in Tennessee for beating and sexually
assaulting a man and his fiancee while they were in custody for
traffic related offenses. The indictments led to the conviction of all
5 defendants.
The Criminal Section also continued its efforts to deter the victimization of migrant workers in violation of the involuntary servitude and peonage statutes during 1985. In Los Angeles, California,
4 defendants indicted for conspiracy to smuggle Indonesian laborers into the United States via fraudulently obtained non-immigrant
visas pled guilty, while 2 others charged with conspiracy and violating involuntary servitude statutes were convicted after a 2month trial. Another case alleging involuntary servitude was filed
against 2 wealthy homeowners who recruited illegal aliens to perform domestic work in their homes in Hawaii, California and
Nevada. Recruited predominantly in southern California, the victims were misled as to their working conditions and were subjected
to physical abuse.
Under the Civil Rights of Institutionalized Persons Act (CRIPA),
42 U.S.C. 1997, the Special Litigation Section of the Department of
Justice's Civil Rights Division participates in litigation to vindicate
the constitutional rights of persons confined to publicly operated
residential institutions. These include prisons, jails, mental health
and retardation facilities, juvenile detention centers and publicly
operated nursing homes. During 1985, the Special Litigation Section succeeded in resolving 5 suits filed under CRIPA with consent
decrees. In addition, the Section filed its first contested lawsuit
under CRIPA involving a mental health facility; and initiated 12
investigations of alleged CRIPA violations by mental health institutions, mental retardation facilities, juvenile detention centers, and
adult correctional institutions.
NONDISCRIMINATION IN FEDERALLY ASSISTED
PROGRAMS
It is fundamental that activities funded by the Federal government itself must be conducted without discrimination. This principle is embodied in a substantial body of law including, in addition
to numerous program-specific statutory provisions prohibiting discrimination:
—Title VI of the Civil Rights Act of 1964, which prohibits discrimination in all Federally assisted programs and activities
based on race, color, or national origin.
—Title IX of the Education Amendments of 1972, which prohibits
discrimination based on sex in Federally educational programs
and activities.

SPECIAL ANALYSIS B

B-17

—The Age Discrimination Act of 1975, which prohibits discrimination based on age in all Federally assisted programs and
activities.
—Section 504 of the Rehabilitation Act of 1973, which prohibits
discrimination based on handicap in all Federally assisted programs and activities.
Since every agency which provides financial assistance enforces
these statutes, assuring nondiscrimination in Federally assisted
programs is the most widely dispersed Federal civil rights enforcement responsibility. In the past, this dispersion has given rise to
numerous problems, including: Potential conflicts of interest arising from the fact that each agency is responsible for enforcing
these provisions in regard to assistance it provides; absence of
correspondence between enforcement resources and the alleged incidence of discrimination in the various Federally assisted programs; overlap and duplication of agency enforcement efforts; a
tendency of enforcement agencies to emphasize technical trivia and
impose nonproductive reporting and other paperwork burdens; and
attempts to extend agency enforcement mandates to include the
employment practices of recipients.
Within the Department of Justice's Civil Rights Division, the
Coordination and Review Section has been working to eliminate
these and other problems. Under Executive Order 12250, the Department of Justice is responsible for coordinating the enforcement
of all statutes requiring equal opportunity in the provision of Federally assisted services and benefits except the Age Discrimination
Act. Significant accomplishments by the Section in 1985 included:
—Reviewing 59 agency regulations implementing these statutes
to assure clarity and consistency.
—Negotiating additional and improved delegation agreements,
designed to eliminate duplicate agency compliance activities
and provide for more effective allocation of agencies' enforcement resources.
—Developing detailed technical assistance guides designed to aid
agencies in implementing their responsibilities under Section
504 (in addition to continuing its efforts to assist agencies in
developing regulations under Section 504 governing agency
conducted activities).
Among Federal agencies, the Department of Health and Human
Services and the Department of Education have the largest enforcement programs under these statutes. During 1985, the Department of Health and Human Services (HHS) completed 725 investigations, resulting in changes in potentially discriminatory policies
by 83 hospitals, 14 long term care facilities, 12 other direct health
care providers, 5 child welfare agencies, and 39 other social services providers. HHS also completed 135 compliance reviews, result-

F-l

THE BUDGET FOR FISCAL YEAR 1987

ing in changes in potentially discriminatory policies by 83 health
care providers and social services agencies.
A combination of improved procedures and declining complaint
workloads has enabled the Department of Education's Office for
Civil Rights (the largest of the Title VI enforcement agencies) to
significantly improve its complaint closure rate (resulting in a 50%
reduction in its backlog of pending complaints since 1980):
Table J - l . DEPARTMENT OF EDUCATION OFFICE FOR CIVIL RIGHTS COMPLAINT CLOSURE RATE;
1980-1985*
Fiscal year
1980
(actual)

Percentage closure rate*
Number, complaints pending end of year..

57%
2,051

1985
(actual)

67%
1009

•Complaints closed/complaints pending or received for processing.

The Equal Educational Opportunity Section of the Justice Department's Civil Rights Division represents the Federal government in education-related litigation under Title VI (as well as
other nondiscrimination statutes and the Constitution). During
1985, the Section launched a major inquiry into the funding of
minority schools by the Los Angeles Unified School District and
targeted for investigation the special education programs of several
school systems. The Section also increased its enforcement efforts
with regard to Native Americans, initiating investigations of alleged discrimination in the provision of educational opportunities
by public school districts in North Dakota, Montana, Idaho, Arizona, and New Mexico.
The Equal Educational Opportunity Section filed 2 new suits
involving elementary and secondary education during 1985. One
suit, a Title VI referral from the Department of Education concerning the high school district in Phoenix, Arizona, resulted in a
consent decree utilizing magnet schools to encourage voluntary
student desegregation. The other suit involved the public school
system in Bolivar County, Mississippi, and sought further desegregation and equalization of the District's educational facilities.
Among significant actions involving institutions of higher education, the Section entered into a consent decree resolving allegations
of sex discrimination at a Texas institution, and commenced negotiations with the Massachusetts Maritime Academy concerning appropriate measures to remedy a finding of illegal sex discrimination by a Federal district court.
EQUAL EMPLOYMENT OPPORTUNITY
The principal statutes and Executive orders prohibiting discrimination in employment are:

SPECIAL ANALYSIS B

B-17

—Title VII of the Civil Rights Act, which prohibits employment
discrimination based on race, color, religion, national origin, or
sex.
—The Equal Pay Act (EPA), as amended, which prohibits discrimination in compensation based on sex.
—The Age Discrimination in Employment Act (ADEA), which
prohibits discrimination against persons aged 40 through 70
based on age.
—Executive Order 11246, as amended, section 503 of the Rehabilitation Act of 1973, and section 402 of the Vietnam Veterans
Readjustment Act, which prohibit employment discrimination
by Federal contractors based on race, color, sex, national
origin, religion, handicap, service-connected disability, or Vietnam era military service, and require Federal contractors to
take affirmative action to assure that such discrimination does
not occur.
The EEOC enforces the Equal Pay Act and the Age Discrimination in Employment Act. It also enforces all aspects of title VII
except litigation involving State and local governments. The Department of Labor's Office of Federal Contract Compliance Programs (OFCCP) enforces Executive Order 11246, section 503 of the
Rehabilitation Act, and section 402 of the Vietnam Era Veterans
Readjustment Act. The Department of Justice's Civil Rights Division litigates all employment discrimination cases under Executive
Order 11246 and the statutes prohibiting discrimination by Federally assisted programs. It also litigates alleged violations of title
VII by State and local governments. The Equal Employment Opportunity Act of 1972 and Executive Order 12067 require the EEOC
to coordinate enforcement of all Federal statutes and regulations
prohibiting employment discrimination.
During 1985, 72,002 charges of employment discrimination were
filed with the EEOC. The Commission completed processing of
63,567 charges, 8,989 (14%) through pre-investigative settlement.
The EEOC also continued its leadership among Federal civil rights
agencies in involving State and local agencies in resolving employment discrimination charges. During 1985, the EEOC provided over
$18.7 million in grants to State and local nondiscrimination agencies.
The EEOC conducted an equally vigorous litigation program. The
Commission had 537 cases in active litigation at the beginning of
1985. During 1985, the Commission prosecuted these (and subsequently authorized) cases by conducting 54 trials, successfully resolving 90 subpoena enforcement actions and successfully resolving
204 lawsuits by settlements, consent decrees or judgments. Additionally, as a result of extensive litigation development activities,
field legal units filed 411 new lawsuits in 1985.

F-l

THE BUDGET FOR FISCAL YEAR 1987

Since 1981, the Department of Labor's Office of Federal Contract
Compliance Programs (OFCCP) has effected substantial improvements in its management and procedures—particularly its procedures for selecting contractors for compliance reviews and assuring
their quality and timeliness. As a result, the OFCCP was able to
complete 5,217 compliance reviews of contractor facilities employing 2.97 million persons during 1985 (compared with only 2,632
compliance reviews of facilities employing 1.05 million workers
during 1980, the last year of the prior administration. The OFCCP
also completed 1,035 investigations of discrimination complaints
during 1985.
During 1985, the Employment Litigation Section of the Department of Justice's Civil Rights Division filed 9 new suits against
public employers under Title VII of the Civil Rights Act of 1964, as
amended. Consent and litigated decrees, providing relief for identified victims of discrimination, were obtained in 10 cases. Also
during 1985, the Division contacted defendants in more than 50
cases to seek modifications of consent decrees previously obtained.
The modifications sought by the Division were designed to make
the decrees consistent with the Department of Justice's interpretation of the Supreme Court's 1984 decision in Firefighters Local 1784
v. Stotts, 104 S.Ct. 2576. The Division also filed motions requesting
the court to order such modifications in decrees involving 3 cities.
These motions are currently pending, and the ultimate disposition
of these cases will depend upon the rulings of the Supreme Court
and other appellate courts.
FAIR HOUSING AND EQUAL CREDIT
Title VIII of the Fair Housing Act of 1968, as amended, prohibits
discrimination based on race, color, religion, sex, or national origin
in the sale, rental, or financing of housing or provisions for brokerage services.
The Department of Housing and Urban Development's Office for
Fair Housing and Equal Opportunity is responsible for investigating complaints of alleged violations of title VIII. Where it concludes that violations of title VIII have occurred, HUD attempts to
resolve them through informal conference, conciliation, and persuasion.
Title VIII also provides that fair housing complaints filed with
HUD may be deferred to State and local fair housing agencies with
equivalent statutory authority. HUD has worked aggressively to
expand the involvement of State and local governments in processing fair housing complaints. Through direct grants and technical
assistance, HUD has helped State and local agencies develop procedures, train staff, and complete other tasks necessary to develop
the capacity to process fair housing complaints. As a result, the
number of State and local agencies participating in charge process-

SPECIAL ANALYSIS B

B-17

ing grew from 32 at the end of 1980 to 96 at the end of 1985, a
three-fold increase, and 2,867 fair housing complaints were referred
to State and local agencies for processing during 1985 which would
otherwise have been processed by HUD.
Table J-2. TOTAL FAIR HOUSING COMPLAINTS PROCESSED BY HUD AND STATE AND LOCAL
AGENCIES
Vaar
Tear

Total
closures

2,860
3,308

1980
1985

Percent
change,
19801985

+ 15%

During 1985, HUD also provided financial support for local Community Housing Resource Boards. These Boards initiate affirmative marketing and other voluntary efforts to assure fair housing.
It is expected that 589 of these Boards will be in existence at the
end of 1986. An estimated $1 million will be spent to support the
activities of these Boards in 1987. (In addition, the President's
budget would make $7 million available to support fair housing
initiatives by State and local governments and private organizations during 1987.)
Table J-3. FAIR HOUSING COMPLAINTS REFERRED TO STATE AND LOCAL AGENCIES
Actual
1980

Complaints received
Complaints referred

1981

1982

1983

1984

1985

3,039
410

4,209
1,661

5,112
2,679

4,551
2,736

4,533
3,062

4,490
2,867

HUD's investments in the abilities of the private sector and
State and local governments will reduce the incidence of violations
which give rise to complaints. Where complaints are filed, more
will be resolved by the States and communities in which the parties reside. During 1985, for example, HUD referred 64 percent of
the complaints it received to State and local agencies for processing
(compared with only 13 percent in 1980). As a result of this cooperation between HUD and State and local agencies, there has been
a substantial increase in the service provided to persons filing
complaints under title VIII, with 15 percent more complaints
closed in 1984 than in 1980.
The Civil Rights Division of the Department of Justice is responsible for bringing suits to enjoin alleged patterns and practices of
discrimination prohibited by title VIII. During 1984, the Division
established a separate unit, the Housing and Civil Enforcement
Section, to handle pattern and practice lawsuits brought pursuant

F-l

THE BUDGET FOR FISCAL YEAR 1987

Table J-4. NUMBER OF STATE AND LOCAL AGENCIES WITH CHARGE PROCESSING AGREEMENTS

End of fiscal year:
198 0
198 1
1982
1983
198 4
198 5
1986 (estimate).
1987 (estimate).

32
42
67
79
90
96
110
130

to the Fair Housing Act (42 U.S.C. 3601-3619) or the Equal Credit
Opportunity Act (15 U.S.C. 1691-1691f).
During 1985, the Housing and Civil Enforcement Section filed 18
housing discrimination cases and successfully negotiated consent
decrees in 21 housing suits. Nine of the cases filed attack alleged
racial discrimination by apartment owners in 7 different States,
including a company operating over 1,600 units in the Memphis
metropolitan area. Five other new cases alleging racial discrimination were filed against time-share developers. Defendants in these
cases controlled the sale of approximately 12,000 time-share units.
Three other suits were brought recently to challenge racially restrictive covenants. (During 1985, the Housing and Civil Enforcement Section also filed 6 suits under Title II of the Civil Rights Act
of 1964 to remedy alleged racial discrimination in places of public
accommodation.)
Since the passage of the 1976 amendments to the Equal Credit
Opportunity Act, the Department of Justice's Civil Rights Division
has worked with Federal regulatory agencies and significant suits
have been filed challenging the lending practices of banks, cash
loan companies and retail creditors as well as the activities of real
estate appraisers and mortgage lenders. These suits include cases
against 4 nationwide creditors. During 1985, the Division's Housing
and Civil Enforcement Section filed complaints and consent decrees
in 2 cases against nationwide creditors (a third equal credit opportunity case filed in 1985 involved a time-shared development which
was also covered by the Fair Housing Act).
THE U.S. COMMISSION ON CIVIL RIGHTS
Congress established the Commission on Civil Rights in 1957 to
study the enforcement of statutes guaranteeing equal protection of
the law regardless of race, color, religion, or national origin. The
Commission's early work contributed significantly to the national
recognition that it is immoral to limit any person's opportunities
because of his or her sex, race, religion, national origin, or other
characteristics similarly irrelevant to character and ability—a rec-

SPECIAL ANALYSIS B

B-17

ognition that led to the passage of the Civil Rights Act of 1964, the
Voting Rights Act, the Fair Housing Act, the Rehabilitation Act of
1973, and other landmark legislation. In 1983, the President nominated several new members with distinguished civil rights backgrounds to the Commission. An impasse over these nominations
was terminated by the passage of compromise legislation, supported by the President and the Congressional leadership of both parties, creating a new Commission.
During 1985, the Commission held a widely noted hearing on the
status of affirmative action. The hearing included several panels of
experts (with widely varying policy perspectives) in the fields of
law, statistics, economics, and management. Topics addressed included the concepts of underrepresentation and underutilization,
minority business set-aside programs, and the future of affirmative
action. The Commission also published a compilation of papers
presented during 1984 hearings on the concept of comparable
worth; and completed work on a Directory of State and Local Fair
Housing Agencies and a Citizen's Guide to Understanding the
Voting Rights Act

Through 1987, the Commission will continue to pursue studies
focusing on a wide variety of concerns, including violence and
bigotry against Asian and Pacific Island Americans; trends in
income and unemployment by sex, race, and ethnicity; civil rights
enforcement by State and local governments; affirmative action in
higher education; methods of achieving school desegregation; and
the employment of Americans of Eastern and Southern European
Ancestry.
Table J-5. BUDGET AUTHORITY FOR PRINCIPAL FEDERAL CIVIL RIGHTS ACTIVITIES
(in millions of dollars)
1985
actual

Architectural and Transportation Barriers Compliance Board
Commission on Civil Rights
Department of Education, Office for Civil Rights
Department of Health and Human Services, Office for Civil Rights 1
Equal Employment Opportunity Commission
Department of Housing and Urban Development, Fair Housing Activities
Department of Justice, Civil Rights Division
Department of Labor, Office of Federal Contract Compliance Programs..
1
2

2.0
12.9
45.0
20.2
163.7
32.4
22.6
45.4

Total obligational authority, including both budget authority and trust fund transfers.
1986 estimates include reductions mandated by the Balanced Budget and Emergency Deficit Control Act of 1985.

SPECIAL ANALYSIS I
RESEARCH

AND

DEVELOPMENT

This analysis covers the funding of research and development
across all agencies with R&D programs of $10 million or more. It
consists of two sections. The first highlights the R&D policies and
trends in the 1987 budget. The second describes in more detail the
R&D programs of 12 agencies whose R&D obligations individually
exceed $150 million. These agencies fund over 99 percent of total
Federal R&D.
PART I. HIGHLIGHTS

In 1987, total Federal obligations for research and development,
including R&D facilities, are estimated at $63 billion, an increase
of almost $9 billion or 16 percent above the 1986 estimated level of
$54 billion as shown in table K-1. Support for the conduct of basic
research, included within this total, is estimated to increase by 8
percent, from $8.0 billion in 1986 to $8.6 billion in 1987.
All of the 1986 estimates reflect the reductions mandated by the
Balanced Budget and Emergency Deficit Control Act of 1985
(Gramm-Rudman-Hollings). These reductions generally reduced
1986 appropriated amounts for R&D by over 4% in the case of
civilian programs and about 5% in the case of defense activities.
Within the framework of necessary overall restraint to reduce
the deficit, the 1987 budget reflects the continued high priority
that this Administration gives to R&D that is appropriate for Federal support. It provides significant increases for:
• the R&D programs of the Department of Defense, including
the Strategic Defense Initiative and the nuclear weapons
R&D program of the Department of Energy;
• the R&D programs of the National Aeronautics and Space
Administration, primarily related to initiation of Space Station Development; and
• government-wide support of basic research, particularly
through programs of the National Aeronautics and Space Administration, the Department of Energy, and the National
Science Foundation,
At the same time, the 1987 budget continues to propose reductions in programs that are not an appropriate Federal responsibility and should be left to the states or the private sector for needed
investments. These include large reductions across the energy tech-

K-l

F-l

THE BUDGET FOR FISCAL YEAR 1987

nology programs of the Department of Energy, as well as elimination of selected programs of the Department of Commerce (e.g., the
Sea Grant program), and research activities of the Department of
Interior (e.g., the Mineral Institutes program).
Table K - l . TOTAL FEDERAL FUNDING FOR CONDUCT OF R&D AND RELATED FACILITIES
(In billions of dollars)
Obligations
1985 actual

Outlays

1986 estimate

1987 estimate

1985 actual

1986 estimate

1987 estimate

Conduct of R&D
R&D facilities

49.5
1.9

52.0
1.8

60.8
1.7

45.2
1.8

47.8
1.7

51.4
1.7

Total

51.4

53.8

62.5

47.0

49.5

53.1

CONDUCT OF RESEARCH AND DEVELOPMENT

The budget for 1987 includes $61 billion in obligations for the
conduct of R&D, an increase of $9 billion or 17 percent over 1986.
Highlights of the proposed programs of the seven major R&D agencies, which account for over 97 percent of the obligations for the
conduct of R&D by the Federal Government, are presented below.
• Department of Defense (DOD).—Obligations for the conduct
of R&D by DOD are estimated at $41.8 billion for 1987, an
increase of $8.3 billion or about 25 percent above 1986. The
increased funds proposed for R&D allow growth for several
important programs, including work on the Strategic Defense
Initiative, the development of the C-17 transport aircraft, and
a joint NASA-DOD program to explore technology development on advanced concepts for a future transatmospheric
vehicle.
• Department of Energy (DOE).—Obligations for the conduct of
R&D by the Department of Energy are estimated at $4.9
billion, a net increase of 2 percent over 1986. Significant
increases in nuclear weapons R&D and in basic research are
offset by major reductions in energy technology programs.
Nuclear weapons R&D will increase from $2,246 million to
$2,609 million. Funding for the General Sciences program,
which includes basic research in high energy and nuclear
physics, will increase to $602 million in 1987. Included in this
total are funds for construction of a new nuclear physics
facility at Newport News, Virginia and to continue construction projects such as the Accumulator/Booster Ring at the
Brookhaven Alternating Gradient Synchrotron. Obligations
for Energy Programs will decrease from $2.0 billion in 1986 to
$1.7 billion in 1987. Within this total, significant increases for
basic energy research will be more than offset by reductions

SPECIAL ANALYSIS B

B-17

in applied research and development related to specific
energy technologies.
• Department of Health and Human Services (HHS).—The Administration continues to fund HHS R&D activities at stable
and sustainable levels. In 1987, the National Institutes of
Health (NIH) will support 18,000 research projects grants, 523
research centers, and 9,100 research trainees. In addition, the
Administration's Fair Share Allocated Overhead policy will
reimburse research institutions for their administrative expenses at reasonable and fair rates, and will provide additional resources to support high-priority, high-quality research. In
1987, total HHS obligations will amount to almost $5.5 billion.
• National Aeronautics and Space Administration (NASA).—
NASA obligations for the conduct of R&D including facilities
are estimated at $4.4 billion in 1987, an increase of $510
million over 1986. Much or most of this increase initiates
space station development planned to be continued in the late
1980's and early 1990's. Initial operational capability is anticipated in the mid-1990's. For science programs, the budget
continues support for the Space Telescope and the Galileo
mission to Jupiter. The budget also continues development of
major flight projects such as the Gamma Ray Observatory and
the Mars Observer Mission. It provides for one new mission in
1987, the Ocean Topography Mission (TOPEX), and for instrument development for the International Solar-Terrestrial Physics (ISTP) program.
• National Science Foundation (NSF).—Obligations for research supported by NSF are expected to increase by about
$174 million, or 13 percent—to $1.5 billion in 1987. The
budget principally provides enhanced support for basic research in academic institutions with emphasis on the physical
sciences and engineering, and on providing modern research
instrumentation in universities. The budget provides additional funds for the Engineering Research Centers program, initiated in 1985, aimed at strengthening multidisciplinary research and training in engineering at universities, and for the
Advanced Scientific Computing program to improve the productivity of U.S. scientists by providing them greater access to
supercomputers. The budget also provides increased support
for high-priority research in the geosciences, computational
science and engineering, and in biotechnology.
• Department of Agriculture (USDA).—Obligations for the conduct of R&D are estimated at $907 million for 1987, a decrease of 2 percent from the 1986 level of $922 million. Within
the USDA total, the Cooperative State Research Service will

490-700 O - 86 - 13 QL 3

F-l

THE BUDGET FOR FISCAL YEAR 1987

provide $234 million for research and development primarily
conducted by colleges and universities. The Agricultural Research Service expects to obligate $497 million, an increase, of
$34 million over 1986, with emphasis on basic research in
plant germplasm, biotechnology, new agricultural products,
and the improvement of commodity exports. The Forest Service will continue its research on land management planning
and forest inventory.
• Department of Commerce (DOC).—Obligations for R&D undertaken by DOC decrease by $83 million between 1986 and
1987, to $297 million. The proposed reductions reflect the
Administration's continued efforts to reduce funding for programs that are more appropriately the responsibility of the
private sector and state or local governments. Programs proposed for elimination include the Sea Grant Program of the
National Oceanic and Atmospheric Administration, and both
the fire and building research programs at the National
Bureau of Standards (NBS). Some increases, however, are
proposed for NBS in areas of growing importance, such as
ceramics and optical fiber systems. The budget also provides
for construction of a Cold Neutron Research Facility at the
Bureau.
Table K-2 summarizes Federal support for the conduct of R&D
by agency.
Table K-2. CONDUCT OF RESEARCH AND DEVELOPMENT BY MAJOR DEPARTMENTS AND AGENCIES
(In millions of dollars)
Obligations
Department or agency

1985
actual

Defense-Military functions
31,099
Health and Human Services
5,444
(National Institutes of Health)
(4,824)
Energy
4,901
National Aeronautics and Space Administration- 3,235
National Science Foundation
1,346
941
Agriculture
Transportation
430
Interior
389
Environmental Protection Agency
320
Commerce
399
210
Agency for International Development
227
Veterans Administration
All other 1
550
Total
1

49,491

Outlays

1986
estimate

1987
estimate

1985
actual

1986
estimate

1987
estimate

33,485
5,524
(4,905)
4,785
3,594
1,334
922
364
381
334
380
206
186
531

41,823
5,471
(4,672)
4,886
4,051
1,508
907
277
345
310
297
203
194
531

27,878
4,997
(4,419)
4,900
2,970
1,186
889
417
414
275
373
204
215
527

29,267
5,561
(4,957)
4,778
3,528
1,338
913
416
403
318
383
208
182
538

32,693
5,532
(4,752)
4,819
3,743
1,455
911
331
351
332
311
209
187
544

52,024

60,803

45,244

47,832

51,418

Includes the Departments of Education, Justice, Labor, Housing and Urban Development and Treasury, the Tennessee Valley Authority, the
Smithsonian Institution, the Corps of Engineers, the Nuclear Regulatory Agency, and the Federal Emergency Management Agency.

SPECIAL ANALYSIS B

B-17

CONDUCT OF BASIC RESEARCH

The 1987 budget continues this Administration's emphasis on the
importance of increased support for basic research across all scientific disciplines. Even in a time of budget restraint, such support
represents an essential investment in the nation's future. Scientific
knowledge in fields such as mathematics, physics, chemistry, biology and the various engineering disciplines provides the foundation
for long-term achievement of national objectives of a strong defense, continued economic growth, and an enhanced quality of life.
Funding for basic research is included within the overall Federal
support for the conduct of R&D. In 1987, obligations for the conduct of basic research are estimated at $8.6 billion, an increase of
$614 million, or 8 percent above the level for 1986.
Support of basic research particularly serves to strengthen the
ability of the nation's academic research scientists to conduct highquality research and to assist in educating the next generation of
scientists and engineers. University-based researchers receive
about half of the total Federal obligations for basic research and
provide the critical element of education to maintain a vigorous,
first-class scientific and technical talent pool.
Table K-3 summarizes Federal support for the conduct of basic
research by agency.
ARCTIC RESEARCH

Two complementary policy documents currently govern U.S.
Arctic research policy. The Arctic Research and Policy Act of 1984
(Public Law 98-373) requires an
. . integrated, coherent, and
multiagency request . . ." for research in the Arctic as part of the
President's annual budget request to Congress. National Security
Decision Directive 90 (NSDD 90, April 14, 1983) identifies four basic
elements of U.S. Arctic Policy:
• protection of essential security interests in the arctic region,
including the adjacent seas and airspace;
• support for sound, rational development in the arctic region,
while minimizing adverse effects on the environment;
• promotion of scientific research in fields which contribute
knowledge about the Arctic, or which are most advantageously studied in the Arctic; and,
• promotion of mutually beneficial international cooperation in
the Arctic to achieve the above objectives.
In response to these directives, the Interagency Arctic Research
Policy Committee (established by Public Law 98-373) has compiled
a detailed listing of agency programs in arctic research, including
budgetary estimates, and has grouped them into three major categories of national concern:
• national security;

F-l

THE BUDGET FOR FISCAL YEAR 1987
Table K-3. CONDUCT OF BASIC RESEARCH BY MAJOR DEPARTMENTS AND AGENCIES
(In millions of dollars)

Obligations
Department or agency

Outlays

1985
actual

Subtotal
Total

1986
estimate

1987
estimate

1,262
860
926

1,256
940
922

1,423
987
1,045

1,111
705
896

1,260
834
907

1,372
759
1,018

728
131
23
12

857
132
22
13

1,085
118
20
11

704
142
23
11

870
145
21
14

1,018
121
20
13

4,142

4,688

3,592

4,051

4,321

3,229
(3,024)
447
71
39
15
12
15

3,290
(3,077)
434
71
39
15
11
15

3,353
(2,938)
434
79
37
16
10
14

2,954
(2,765)
406
61
25
16
6
15

3,303
(3,099)
423
66
36
15
6
16

3,381
(2,988)
427
73
38
15
11
14

3,875

3,942

3,483

3,865

3,958

7,769

Agencies supporting primarily life and other
sciences:4
Health and Human Services
(National Institutes of Health)
Agriculture
Smithsonian Institution
Environmental Protection Agency
Veterans Administration
Education
Other Agencies5

1985
actual

3,828

Subtotal

1987
estimate

3,942

Agencies supporting primarily physical sciences and engineering:2
National Science Foundation
Defense—Military functions
Energy
National Aeronautics and Space Administration
Interior
Commerce
Other Agencies3

1986
estimate

8,017

8,630

7,076

7,915

8,279

Amounts reported in this table are included in totals for conduct of R&D.
Includes mathematics and computer sciences.
Includes the Corps of Engineers, the Federal Emergency Management Agency, the Tennessee Valley Authority, and the Department of
Transportation.
4
5 Includes psychology and social sciences.
Includes the Departments of Labor, Justice, and Treasury, and the Agency for International Development.
2
3

• rational development with minimal environmental or adverse
social impact; and,
• research on arctic phenomena and on science best studied in
the Arctic (the Arctic as a natural laboratory).
Table K-4 provides a summary of Federal support for arctic
research integrated by major category.
Table K-4. FEDERAL SUPPORT FOR ARCTIC RESEARCH

(Obligations in millions of dollars)
Category

National security
Rational development
Natural laboratory
Total
1

1985
actual

1986
estimate

1987
estimate

22,624
35,049
21,163

26,125
34,974
21,929

26,278
34,457
22,036

78,836

83,028

82,771

Includes the Departments of Defense, Energy, Health and Human Services, Interior, Commerce, and Transportation, the National Science
Foundation, the National Aeronautics and Space Administration, the Environmental Protection Agency and the Smithsonian Institution.

SPECIAL ANALYSIS B

B-17

R & D FACILITIES

In 1987, within the total for support for R&D facilities, funding is
provided for major scientific instrumentation, including the specialized research facilities at national laboratories and university centers, e.g., particle accelerators, telescopes, and advanced computers.
Such specialized facilities are critical to advancing the frontiers of
science in a number of scientific disciplines. Funds for R&D facilities are also used for construction or renovation of general purpose
laboratories and research support facilities.
In 1987, obligations for R&D facilities are expected to total $1.7
billion, a decrease of $78 million from 1986. Even though total
funding will decrease in 1987, the budget still provides for initiation of several major new construction projects in DOE, including
an advanced nuclear physics facility at Newport News, Virginia
and the 1-2 GeV synchrotron source at Lawrence Berkeley Laboratory.
Table K-5 summarizes Federal support for R&D facilities and
capital equipment.
Table K-5. RESEARCH AND DEVELOPMENT FACILITIES BY MAJOR DEPARTMENTS AND AGENCIES
(In millions of dollars)
Obligations
Department or agency

1985
actual

Energy
Defense—Military functions
National Aeronautics and Space AdministrationAgriculture
National Science Foundation
Health and Human Services
(National Institutes of Health)
All other 1
Total

909
533
268
41
74
43
(29)
27
1,894

1986
estimate

813
437
279
92
68
54
(44)
68
1,812

Outlays
1987
estimate

1985
actual

759
453
332
42
84
10
(8)
54
1,734

958
404
247
34
64
43
(26)
34
1,784

1986
estimate

902
325
271
48
68
46
(35)
30
1,690

1987
estimate

826
376
310
69
81
27
(19)
41
1,730

Includes the Departments of Transportation, Commerce, Interior, and Treasury, Veterans Administration, Tennessee Valley Authority, and the
Smithsonian Institution.

PART II. AGENCY R & D PROGRAMS

Presented below are summaries of the R&D activities of the 12
agencies whose R&D obligations individually exceed $150 million.
DEPARTMENT OF DEFENSE

DOD research and development is oriented toward the development of strategic and tactical weapons and supporting systems to
provide for the nation's defense.
DOD obligations for the conduct of R&D in 1987 will total $41.8
billion, an increase of $8.3 billion over 1986. Within the total,
funding for basic research will increase from $940 million in 1986

F-l

THE BUDGET FOR FISCAL YEAR 1987

to $987 million in 1987. R&D facilities funding would total $453
million, up from $437 million in 1986.
By mission category, major R&D efforts for 1987 include:
—Technology Base and Advanced Technology Development—The

purpose of these programs is to investigate promising new
technologies and to avoid technological surprise by potential
adversaries. Funding (budget authority) for the Strategic Defense Initiative (SDI) will increase from $2.8 billion in 1986 to
$4.8 billion in 1987. SDI areas of study include sensors, laser
weapons, high-speed missiles, battle management computers
and systems designs. The DOD University Research Initiative
program will continue with $50 million set aside in 1987 to
support selected technology thrusts (including instrumentation)
at the nation's universities. These funds augment other funds
used to support specific research programs at universities. A
joint NASA-DOD technology development program would be
started to explore advanced concepts for a future transatmospheric vehicle.
—Strategic Programs.—Programs receiving emphasis in 1987 include the MILSTAR communications satellite program, the
Small Intercontinental Ballistic Missile, a short range airlaunched attack missile, the Peacekeeper missile and Stealth
development. B-1B bomber development winds down as the
aircraft enters deployment.
—Tactical Programs.—Systems are developed to improve the capability of U.S. general purpose and theater nuclear forces,
and allow the rapid deployment of those forces wherever the
vital interests of the United States are threatened.
• The Army is developing upgrades to its combat vehicles, the
Patriot air defense missile system, aircraft engines and field
artillery. In adddition, an advanced anti-tank weapon and a
light helicopter are being developed.
• The Navy is developing a new attack submarine. The P-3
antisubmarine patrol aircraft will be upgraded, and development of the V-22 tilt-rotor aircraft, the T-45/TS trainer aircraft, the F-14 upgrade, and the A-6E attack aircraft improvement program will continue.
• The Air Force continues work on the Advanced Tactical
Fighter aircraft, improvements to the F-15 and F-16 aircraft,
and the Airborne Warning and Control System (AWACS). The
Alternate Fighter Engine program seeks improvements to
fighter aircraft engine reliability. The C-17 transport aircraft
development progresses.
—Intelligence and Communications, Program Management and

Support.—R&D on intelligence and communication systems
will focus on communication satellites, on radios that will

SPECIAL ANALYSIS B

B-17

work in the electronic noise of the battlefield, and on surveillance radars. Work will also continue on the use of technology
to reduce manufacturing costs and to extend the life and capability of existing defense systems.
—NATO Cooperation.—Cooperation in research and development
and joint production of new weapon systems will be pursued to
make the best use of Alliance resources. Funding for these
activities is not identified separately in table K-6 but is included in the other categories listed in that table.
Table K-6 provides the details of the Department of Defense
military R&D funding.
Table K-6. DEPARTMENT OF DEFENSE—MILITARY RESEARCH AND DEVELOPMENT
(In millions of dollars)
1985
actual

Type of activity

1986
estimate

1987
estimate

3,149
2,754
7,983
8,857
3,942
3,350
1,064

3,179
3,949
7,251
10,179
4,368
3,484
1,075

3,596
6,312
9,120
12,446
5,028
4,199
1,122

OBLIGATIONS
Conduct of R&D:
Research, development, test and evaluation-.
Technology base
Advanced technology development
Strategic programs
Tactical programs
Intelligence and communcations
Program management and support
Other appropriations
Total conduct of R&D

. 31,099

Total conduct of basic research, included above..
R&D facilities

(860)
533

3 3 , 4 8 5 ^ 41,823
(940)
437

(987)
453

. 31,632

Total obligations..

33,922

42,275

27,878
404

29,267
325

32,693
376

28,282

29,592

33,070

OUTLAYS
Conduct of R&D..
R&D facilities
Total outlays.
1

Includes funds for Operational Systems Development of $7,883 million in 1985, $8,636 million in 1986 and $10,630 million in 1987.

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

NASA makes investments in R&D programs to provide for a
permanent U.S. presence in space with a future space station; to
maintain the Shuttle-based Space Transportation System; to advance knowledge of the Earth, the near-Earth environment, the
solar system and the universe; and to support long-term research
and technology advancement for low gravity materials science and
satellite communications. It also supports long-term research and
selected systems technology projects in aeronautics.
R&D accounts for about two-fifths of the total budget for NASA.
The balance of the NASA budget includes funding primarily for

F-l

THE BUDGET FOR FISCAL YEAR 1987

Shuttle production and operations, tracking and data acquisition
activities, and related institutional support.
In 1987, NASA obligations for R&D including facilities for the
agency will be approximately $4.4 billion, a net increase of $510
million over 1986. Within this total, funds are available to complete projects currently under development, to augment major research and technology programs, and to initiate a major new flight
project in space science and applications. Within the total funding
for R&D, basic research obligations in 1987 are estimated at $1.1
billion, an increase of $228 million, or 27 percent over 1986. Within
the total of $332 million in 1987 for R&D facilities, a decrease in
obligations for facilities construction will be more than offset by an
increase for the acquisition of capital equipment.
Space transportation.—Obligations for Space Transportation
R&D are estimated to increase from $611 million in 1986 to $817
million in 1987. This increase is consistent with funding needed to
pursue design, definition, and development of the space station for
planned launch in the early 1990's.
The space station is intended to enhance the nation's science and
applications programs, to help develop advanced technologies potentially useful to the economy, and to encourage greater commercial use of space.
The 1987 budget provides for restoring progress in the Space
Shuttle program towards achieving routine and reliable access to
space for all planned users, and for continued investments to further
improve the reliability and performance of the Shuttle fleet. Other
major continuing activities in the 1987 budget will include development and procurement of the Centaur upper stage—a new highenergy upper stage for use with the Shuttle; further development of
the tethered satellite program, a Shuttle-based science program
conducted in cooperation with the Italian government; and development of an Orbital Maneuvering Vehicle for future near-Earth
orbital transfers.
Space science and applications.—Obligations for space science
and applications are estimated in 1987 at $1.6 billion, essentially at
the 1986 level. The funding provided will allow initiation of a
major new flight project, continued support of ongoing flight
projects, and the analysis of scientific data being sent back to
Earth from spacecraft now in space.
The 1987 budget continues support for space science research to
enhance understanding of the Sun, the planets, and the universe;
space-related research on the Earth's climate, resources, surface
and atmosphere; research to advance knowledge in materials science and materials processing through low gravity experiments in
space; and continuing long-term basic technology work for satellite
communications.

SPECIAL ANALYSIS B

B-17

The major new flight project proposed for initiation in 1987 is an
Ocean Topography Experiment (TOPEX), a joint U.S.-French cooperative project, to measure the surface topography of the oceans
over three years to help determine the oceans' general circulation.
In addition, NASA will undertake instrument development for the
International Solar-Terrestrial Physics (ISTP) program. This program, which would be planned and carried out jointly by the U.S.,
the European Space Agency (ESA), and Japan, is intended to provide a comprehensive effort to measure phenomena associated with
the Sun-Earth interaction chain.
Continuing development efforts for ongoing major flight projects
yet to be launched include:
• the Gamma Ray Observatory, planned for launch in 1988,
which will enhance basic research in high energy astrophysics, providing new knowledge about objects in deep space;
• Spacelab astronomy experiments, which will be conducted on
the Shuttle with the goal of improving our understanding of
the Earth's vicinity, the Sun and the universe;
• the Magellan project, planned for launch in 1988, to map the
planet Venus;
• the Mars Observer Mission, a major Space Science project
planned for 1990 launch, to continue the scientific exploration
of the planet Mars;
• the Upper Atmosphere Research Satellite (UARS) spacecraft,
to be launched in 1989, to investigate the chemical composition of the Earth's stratosphere and mesosphere; and
• the Scatterometer project, a research instrument to measure
global wind patterns on the surface of the oceans. This instrument will be flown in 1990 on a Navy satellite now under
development.
Continued support will be provided in 1987 for several satellites,
including:
• two Voyager spacecraft, launched in 1977, which have successfully encountered Jupiter and Saturn; Voyager 2 encountered Uranus in January 1986 and is scheduled to fly by
Neptune in 1989;
• the Galileo orbiter and probe mission to Jupiter to carry out
long-term studies of the planet, its satellites, and its magnetosphere; and
• the Space Telescope, which is expected to serve as a major
astronomy facility for a 10- to 15-year period.
The budget also provides for continuing research and technology
work in areas such as space-related life science research; nearEarth experiments using balloons and sounding rockets; research
in geodynamics, ocean processes, and atmospheric dynamics; Shut-

F-l

THE BUDGET FOR FISCAL YEAR 1987

tie-based science and applications experiments; and preparations
for the future launch of planned missions. Continuing efforts to
improve satellite communications technology will be refocused towards generic and longer-term technology-based efforts, in recognition of the responsibility of the private sector to pursue relatively
near-term satellite communications technologies.
Transatmospheric research and technology.—In 1987, a new pro-

gram, supported jointly by DOD and NASA, in transatmospheric
research and technology will be initiated. This activity will encompass a vigorous program of research and advanced technology in
areas such as airbreathing propulsion, high-temperature structures
and advanced materials, and is expected to lead to a transatmospheric flight research vehicle demonstration phase in the early
1990s.
Aeronautical research and technology.—Obligations for aeronautical research and technology are estimated to increase from $274
million to $334 million in the 1987 budget to augment ongoing
research in fundamental aeronautical disciplines such as materials
and structures, propulsion and selected systems technology
projects.
In 1987, increased funds are included to continue the following
ongoing efforts:
• the X-wing rotorcraft project, a joint NASA/DOD project to
develop the technology for future high speed rotorcraft using
the X-wing rotor concept; and
• numerical aerodynamic simulation (NAS), which will allow
greater use of advanced computational techniques to improve
the productivity of aeronautical research and design. In 1987,
the NAS system will begin its first year of full operational
capability.
Agency-wide support activities.—Obligations for agency-wide support activities will total $1.2 billion in 1987, a slight increase above
the 1986 level. These programs include primarily R&D-related
NASA civil service and administrative costs, tracking and data
acquisition system improvements, and R&D addressing fundamental space technology problems and opportunities common to a wide
spectrum of space programs.
Table K-7 provides the details of NASA's R&D funding.
DEPARTMENT OF ENERGY

The R&D programs of the Department of Energy include: a
National Defense Program related to the development and testing
of nuclear weapons; a General Science Program of basic research in
high energy physics and nuclear sciences; and an Energy Program
on R&D in support of energy technology development. Table K-8
provides summary information on the funding of these programs.

SPECIAL ANALYSIS B

B-17

Table K-7. NATIONAL AERONAUTICS AND SPACE ADMINISTRATION—RESEARCH AND DEVELOPMENT
(In millions of dollars)
1985
actual

1986
estimate

505
1,341

1,564

312

274

127
15
935

171
16
958

3,235

Type of activity

3,954

OBLIGATIONS
Conduct of R&D:
Space transportation systems
Space science and applications
Transatmospheric research and technology
Aeronautical research and technology
Agency-wide support activities:
Space research and technology
Tracking and data acquisition
Research and program management
Total conduct of R&D..
Total conduct of basic research, included above.
R&D facilities

(728)
268

611

(857)
279

3,503

Total obligations..

3,873

2,970
247

3,528
271

3,217

3,799

OUTLAYS
Conduct of R&D..
R&D facilities
Total outlays.

Obligations for the conduct of R&D by the Department are estimated to total $4.9 billion in 1987, an increase of $100 million from
1986. Obligations in 1987 for R&D facilities, including the construction or upgrading of general purpose laboratories and other research support facilities, will amount to $759 million.
Obligations for the conduct of basic research, included in the
total for the conduct of R&D, are estimated to be $1,045 million in
1987, an increase of $120 million over 1986. Within the basic research total, funds are provided to continue or initiate a number of
major projects, in both the energy program and the general science
program, that will enhance the nation's capability in basic research.
The National Defense Program supports the continued research,
development and testing of nuclear weapons. It also supports the
development of improved naval propulsion reactors, technologies
for monitoring nuclear weapons treaties, and methods for safeguarding nuclear materials. In addition, R&D efforts will continue
in developing methods for the safe storage and disposal of radioactive wastes resulting from weapons production. Obligations for the
national defense program for the conduct of R&D will increase
from $2.2 billion in 1986 to $2.6 billion in 1987. Increased funding
for conduct of R&D provides for continued R&D in isotope separation techniques, for increased weapons testing, and for increased
research in the basic physics of nuclear weapons. Increases in the

F-l

THE BUDGET FOR FISCAL YEAR 1987

advanced weapons concepts activities will focus on research in
support of the Strategic Defense Initiative.
The General Science Program supports basic research in high
energy and nuclear physics. A proposed increase of $88 million, to
$602 million, in 1987 will enhance support for experimental efforts
to understand the basic constituents of matter and energy and the
forces that govern their interaction.
The 1987 budget request will provide for:
• increased utilization of existing accelerator facilities, including operation of the newly-completed (1986) Tevatron I upgrade at Fermilab and the Stanford Linear Collider at SLAC;
• initiation of a heavy ion nuclear research and accelerator
program at the Brookhaven Alternating Gradient Synchrotron;
• completion of the LAMPF proton beam facilities upgrade at
the Los Alamos National Laboratory;
• continued construction of the Central Computing Facility
project at Fermilab and the Accumulator/Booster Ring upgrade at the Brookhaven Alternating Gradient Synchrotron;
and
• initiation of the construction phase of an advanced nuclear
physics electron accelerator facility at Newport News, Virginia.
The budget also includes funds for continued advanced accelerator and detector research and development activities related to the
next-generation high-energy particle physics accelerator.
The Energy Program funds basic science and engineering research underlying both nuclear and non-nuclear technologies, R&D
to support development of specific energy technologies, and research on the environmental and human health effects of energy
production technologies. Energy program obligations for the conduct of R&D will decrease from $2.0 billion in 1986 to $1.7 billion
in 1987. Obligations for R&D facilities in this program will be $125
million, a decrease of $88 million from 1986.
In the basic energy sciences, funding is proposed at a level of $441
million in 1987, a slight increase over 1986, for research in such
fields as nuclear science, chemistry, engineering, materials science,
applied mathematics, biology, and the geosciences. The program
provides the fundamental scientific and technical base for future
advances in both nuclear and non-nuclear technology development.
In addition, the program provides support for the operation of
several major national facilities that are used by researchers from
industry, universities and national laboratories. These include the
National Synchrotron Light Source (NSLS) at the Brookhaven National Laboratory, the Intense Pulsed Neutron Source (IPNS) facility at Argonne National Laboratory, and the Electromagnetic Iso-

SPECIAL ANALYSIS B

B-17

tope Separation Plant (Calutrons) at Oak Ridge National Laboratory.
The 1987 budget continues to provide support for construction of
the Center for Advanced Materials at Lawrence Berkeley Laboratory (LBL), the Ion Collision Physics Facility at Kansas State University, the expansion of NSLS, the upgrade of the Stanford Synchrotron Radiation Laboratory facilities, and the experimental guidehall for the Los Alamos Neutron Scattering Center.
The budget also provides funds for initiation of construction of a
1-2 GeV synchrotron at LBL and for R&D activities related to
advanced synchrotron and neutron facilities required for future
engineering and science research.
A new clean coal technology program, mandated by Congress in
the 1986 budget, has been added to the Energy Program. This
activity has a budget authority of $398 million in 1986 to be obligated over a three-year period. The Department will solicit proposals from the private sector for cost-shared commercial-scale demonstrations of clean coal technologies. Typical examples of such technologies include: advanced coal cleaning techniques, alternate combustion technologies, preparation of clean coal based fuels, and
post-combustion cleanup systems.
The 1987 budget will continue the redirection of the on-going
non-nuclear R&D programs to limit federal support to longer-term
generic research and place greater reliance on the private sector
for support of nearer-term technology development. To increase the
involvement of the private sector in the direction and management
of industry-based R&D programs, funds will be available in 1987 to
support DOE participation in industry-cooperative R&D ventures
in broad areas of generic technology development. Obligations for
the conduct of R&D in the fossil, solar/renewables and conservation

programs are expected to be $273 million in 1987, a decrease of
about $320 million from 1986.
Funding for the conduct of fossil related R&D and associated
facilities will be $150 million in 1987, a decrease of $163 million
from 1986. The 1987 budget is focused on research to improve
technologies for utilizing coal and for extracting oil and gas from
unconventional sources. Support in the technology base program
continues to be provided in such areas as the chemistry of coal
conversion, environmental controls, and combustion research.
Major themes of the cooperative research program will be coal
preparation and utilization technology, oil and gas extraction processes, and alternate (coal-based) fuels development.
Research in support of solar and other renewable energy technol-

ogies, proposed at a level of $108 million, will emphasize longer
term, technology base R&D in areas such as photovoltaics, solar
thermal energy, biofuels, wind and geothermal energy, electrical

F-l

THE BUDGET FOR FISCAL YEAR 1987

energy systems, and energy storage. The total request for the
energy conservation R&D program is $71 million. Research to foster
energy conservation in buildings and community systems, industry,
and transportation will continue in 1987.
The 1987 budget continues to provide for a broad program of
research in nuclear fission and fusion energy technologies. Total
obligations for these R&D programs will be about $650 million in
1987, a decrease of $88 million from 1986. Conduct of R&D will
total approximately $600 million, and funding for related facilities
will be $49 million.
In the fission program, obligations of $302 million are estimated
for the conduct of R&D in 1987, a decrease of $45 million from
1986. Total obligations for R&D facilities in 1987 will be $23 million. Major portions of the nuclear fission R&D program are being
restructured to phase down the advanced civilian reactor program,
including breeder reactors, and to shift efforts toward R&D on
reactor concepts that can meet space and military nuclear power
requirements. The restructured program, while serving national
security interests, will also maintain a technical and industrial
base for any future deployment of advanced nuclear technologies in
the commercial sector. The fission R&D program will also seek to
resolve technical issues associated with the technology of nuclear
waste storage and consequent environmental impacts.
In the magnetic fusion program, funding of $304 million is proposed for the conduct of R&D, a decrease of $18 million from 1986.
This reduction slows the pace of fusion reactor development consistent with national energy needs and continues the shift in program emphasis toward resolving scientific questions key to the
ultimate achievement of fusion energy. In 1987, the fusion program
will focus on the development of the toroidal magnetic confinement
system by supporting the continued operation of Princeton's large
tokamak test reactor (TFTR), and the first year of operations of GA
Technologies' Doublet-III-D machine and the Oak Ridge National
Laboratory's ATF torsatron. Fabrication of three smaller toroidal
devices initiated in 1986 will continue in 1987: a reversed field
pinch machine (RFP) at Los Alamos, a compact toroid called a field
reversed configuration (FRC) experiment, and a shaped plasma
tokamak (PBX-U) at Princeton. Total obligations for R&D facilities
in 1987 will be $26 million. Ignition studies aimed at a final design
of a burning plasma tokamak and studies to support the President's Geneva initiative on expanded cooperation with the Soviets
in fusion research will also be funded in 1987.
Funds for the uranium enrichment R&D program for 1987 total
$50 million. This program develops advanced technologies for separation and enrichment of uranium. In 1986, DOE selected the
Atomic Vapor Laser Isotope Separation (AVLIS) process for future

SPECIAL ANALYSIS B

B-17

development. In 1987 DOE will take steps to transfer to the private
sector in 1988 the responsibility for further development of AVLIS.
Finally, the energy program supports R&D to determine the biological and environmental effects of energy production and use.
The biological and environmental research R&D program emphasizes the health effects of radiation, the use of radiation in medical
diagnosis and therapy, and generic biological research related to
radiation and other cellular traumas. This program also supports
environmental research in areas related to energy technologies,
such as atmospheric processes involved in acid rain formation and
deposition and carbon dioxide-induced climatic effects. The level of
funding for such activities will be $197 million in 1987, an increase
of $16 million above 1986. Funding in 1987 for radon-related, acidrain-related, and carbon-dioxiderelated research is over $23 million.
Table K-8 provides the details of funding for the Department of
Energy.
Table K-8. DEPARTMENT OF ENERGY
(In millions of dollars)
1985
actual

1986
estimate

1987
estimate

2,251
515
2,135

2,246
515
2,025

2,609
602
1,674

4,901

Type of activity

4,785

4,886

OBLIGATIONS
Conduct of R&D:
National defense program
General science program
Energy program.
Total conduct of R&D
Total conduct of basic research, included above
R&D facilities

(922)
813

(926)
909

(1,045)
759

5,809

5,598

5,645

4,900
958

Total obligations

4,778
902

4,819
826

5,858

5,680

5,645

OUTLAYS
Conduct of R&D
R&D facilities
Total outlays

DEPARTMENT OF HEALTH AND HUMAN SERVICES

The Department of Health and Human Services will obligate a
total of $5.5 billion in 1987 for the conduct of R&D, a decrease of
$63 million below the 1986 level. Within this total, funding for
basic research is estimated to be $3.4 billion. Obligations for R&D
facilities will total $10 million in 1987.
Health.—Almost 85 percent of the Department's funds for the
conduct of R&D will be obligated by the National Institutes of
Health for biomedical research to advance the nation's capabilities
for the prevention, diagnosis, and treatment of disease. Several

F-l

THE BUDGET FOR FISCAL YEAR 1987

other agencies within the Department—the Alcohol, Drug Abuse,
and Mental Health Administration, the Food and Drug Administration, the Centers for Disease Control, the Health Resources and
Services Administration, the Health Care Financing Administration, and the Office of the Assistant Secretary for Health—also
support health-related research.
The National Institutes of Health (NIH) consist of 12 separate

Institutes which will obligate $4.7 billion in 1987 for the conduct of
R&D, a 5 percent decrease below the 1986 level. In addition to
these direct obligations, NIH will obligate an additional $144 million for AIDS research. To ensure a coordinated Federal response
to AIDS, these amounts are funneled through the Office of the
Assistant Secretary for Health. NIH will fund 18,000 research
project grants, 523 centers, and 9,100 research trainees in 1987.
Continued emphasis will be given to support of basic research in
1987. Over one-half, or $2.9 billion, of NIH's proposed R&D budget
will support basic research, along with $144 million in reimbursable AIDS-related obligations. Together, this represents a slight increase over the comparable 1986 NIH level of $3.1 billion.
Among the continuing R&D activities to be supported by NIH
are:
• basic research on cancer chemoprevention, including studies
of nutritional factors; rehabilitation of patients with chronic
obstructive pulmonary disease; prevention of glaucoma; diagnostic imaging; biological response to chemicals; immunology
and neurobiology, including development and application of
molecular biology techniques;
• clinical research with emphasis on medical intervention in
the disease process, including prototype development and refinement of products, techniques, processes, methods, and
practices;
• continuation of cooperative clinical trials on the Acquired
Immune Deficiency Syndrome (AIDS); isolated systolic hypertension in the elderly; herpes simplex virus vaccine; antiviral
drugs against neonatal herpes, herpes encephalitis, and genital herpes; the efficacy of interferon for controlling the frequency and severity of multiple sclerosis; gonococcal vaccines
and the prevention of premature labor, and the role of folic
acid in neural tube defects; and
• increased basic clinical research into the cause, cure, and
prevention of arthritis under the auspices of the newly-created National Institute of Arthritis and Musculoskeletal and
Skin Diseases.
The Alcohol, Drug Abuse and Mental Health

Administration

(ADAMHA) conducts studies on the causes, prevention and treatment of alcohol and drug abuse and on mental disease and neuro-

SPECIAL ANALYSIS B

B-17

logical disorders, with emphasis on improving knowledge of effective prevention of these public health problems.
The 1987 budget proposes to stabilize ADAMHA's extramural
research programs in biomedical, behavioral and clinical areas by
supporting 1,400 research project grants per year. Obligations will
decrease in 1987 to $383 million, $13 million below 1986.
Specific research areas to be addressed include:
• the neurosciences, behavioral sciences, psychopharmacology,
and clinical investigations and evaluations of services to the
mentally ill, with special emphasis on preventing and diagnosing mental and emotional problems in children;
• drug abuse among the nation's youth, including studies on the
adverse health hazards of marijuana and cocaine; and
• causes and consequences of alcohol abuse, particularly among
teenagers.
The Food and Drug Administration supports research relevant to
its mission of regulating food, drugs, biologies, medical devices and
radiological products. In 1987, obligations for these activities are
estimated at $82 milli«£i.
The Centers for Disease Control support studies on the epidemiology and control of communicable diseases and on health promotion
and disease prevention. In 1987, obligations for these activities are
estimated at $49 million.
Other Health Related Agencies within the Department support

research in areas such as the effect of socioeconomic factors on
social security programs and the economy; survey methods and
techniques for analysis of health statistics; and the organization,
delivery, and financing of health services. This support is provided
through programs of the Health Resources and Services Administration, the Office of the Assistant Secretary for Health and the
Health Care Financing Administration.
Human services.—The Department's obligations for R&D in
human services programs in 1987 will be $35 million. The proposed
budget will support a variety of development and social services
research aimed at improving the Head Start program; the quality
of life for the elderly; knowledge of child abuse and neglect; day
care systems; family and community support systems; and fostering
independence for the disabled.
Table K-9 provides details of the R&D funding of the Department of Health and Human Services.

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THE BUDGET FOR FISCAL YEAR 1987

Table K-9. DEPARTMENT OF HEALTH AND HUMAN SERVICES—RESEARCH AND DEVELOPMENT
(In millions of dollars)
1985
actual

1986
estimate

1987
estimate

4,824
378
82
46
35
18
19

4,905
396
79
48
22
18
10

4,672
383
82
49
19
224
9

5,401

5,478

5,437

10
23
10

13
27
6

13
17
5

5,444

5,524

5,471

(3,229)
43

(3,290)
54

(3,353)
10

5,487

5,578

5,481

4,997
43

5,561
46

5,532
27

5,040

5,606

5,558

Type of activity and organizational units

OBLIGATIONS
Conduct of R&D:
Health:
National Institutes of Health
Alcohol, Drug Abuse, and Mental Health Administration
Food and Drug Administration
Centers for Disease Control
Health Care Financing Administration
Office of the Assistant Secretary for Health
Health Resources and Services Administration
Subtotal, Health
Human Services:
Social Security Administration
Office of Human Development Services
Departmental Management
Subtotal, Human Services
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 SCIENCE FOUNDATION

The National Science Foundation (NSF) supports primarily basic
research in all disciplines through grants to scientists and engineers in academic institutions. NSF support is particularly important because it complements the basic research programs of other
agencies and assists in balancing Federal support for promising
research across all fields of science and engineering.
The 1987 NSF budget provides $1.5 billion in obligations for the
conduct of R&D, an increase of $174 million or 13 percent above
1986. Within this total, support for basic research will increase by
more than 13 percent.
Although the principal growth in the 1987 budget will be in the
support of basic research at academic institutions through project
grants, efforts will also be made to provide opportunities to train
future scientists and engineers, and to provide the research facilities and equipment necessary to improve the productivity of academic researchers. High priority will be given to strengthening

SPECIAL ANALYSIS B

B-17

support for the physical sciences in fundamental research areas
such as mathematics, computational sciences, and global geosciences, for engineering, and for molecular and cell biology. Additional studies of the continental lithosphere will be funded, including
investigations of potential future lithospheric and seismological
projects.
In addition, the 1987 budget will provide increased funds:
• for the Engineering Research Centers (ERC) program, initiated in 1985. The first six awards were made in the spring of
1985 in a wide variety of research areas including robotics,
biotechnology and intelligent manufacturing systems. Research in these areas has the potential to make important
contributions to the long-term competitiveness of the U.S.
economy, particularly in high-technology-dependent industries. NSF expects to support a total of approximately 15
ERCs in 1987. In addition, an important component of the
ERC program is the provision of enhanced opportunities for
the training of future engineers.
• to increase the access of academic scientists to supercomputers. In 1987, the Phase 2 supercomputer centers at Princeton, the University of Illinois and the University of California
at San Diego will be in full operation. It is anticipated that
one or two Phase 1 centers with unique capabilities will
remain in operation in 1987. There will also be continuing
emphasis on development of a national network to link academic researchers to the supercomputer centers.
• to continue ongoing projects, such as the acquisition of the
Advanced Vector Computer at the National Center for Atmospheric Research, the construction of the Very Long Baseline
Array radiotelescope, and major improvements at the Cornell
Electron Storage Ring accelerator.
DEPARTMENT OF AGRICULTURE

The Department of Agriculture supports research and development in several disciplines related to agriculture and forestry to
ensure the continued high productivity of U.S. agricultural and
forest lands.
Obligations of the Department for the conduct of research and
development are expected to total $907 million in 1987, compared
to the $922 million in 1986. Of the total, $434 million will support
basic agricultural research, maintaining the 1986 estimated level.
The Department's 1987 Budget for research and development is
highlighted below by major bureau.
The Agricultural Research Service expects to obligate $497 million in 1987 to conduct basic and applied research in plant and
animal productivity; commodity conversion and delivery; soil and

F-l

THE BUDGET FOR FISCAL YEAR 1987

water conservation; and integration of systems. This is an increase
of $34 million in obligations over 1986. In 1987, increased emphasis
will be placed on basic research in plant germplasm and biotechnology to improve the profitability and competitiveness of U.S.
agriculture. An initiative to develop new uses for surplus agricultural commodities is also included.
The Cooperative State Research Service (CSRS) estimates that

$234 million will be obligated in 1987. CSRS supports research on
agriculture and forestry through grants to land-grant colleges.
Also, within CSRS, the Competitive Research Grants program
funds basic research in biotechnology, plant and animal science,
pest science, and human nutrition.
The Forest Service estimates that $112 will be obligated for research and development in 1987. This represents a decrease from
the $120 million obligated in 1986. The long-range goal of forestry
research is to provide the information needed to manage and protect forest and range land resources, and to gain maximum economic and social benefits from their use.
Other Departmental programs will obligate approximately $64
million for R&D in 1987, covering a broad spectrum of research
activities, such as research in agricultural economics, international
agricultural cooperation, and statistical reporting.
DEPARTMENT OF COMMERCE

The Department of Commerce undertakes research primarily in
ocean science and engineering, meteorology and weather forecasting, and in the maintenance of measurement standards to support
science and industry.
Obligations for the conduct of R&D by the Department in 1987
are estimated at $297 million, a decrease of $83 million from 1986.
This reflects reduced levels of support by the National Oceanic and
Atmospheric Administration and the National Bureau of Standards
for applied research, that is more appropriately the responsibility
of state and local governments or the private sector.
National Oceanic and Atmospheric Administration

(NOAA).—

NOAA obligations for the conduct of research and development in
1987 will decrease from $256 million to $192 million as a result of
greater reliance on support from the private sector and state and
local governments, and elimination of lower priority research in
such programs as Seafloor Spreading Center Research, National
Undersea Research Program, National Sea Grant College Program,
and some programs of the National Marine Fisheries Service.
NOAA will increase R&D programs on Radiatively Important
Trace Species (RITS) and hurricane predictions, and will develop a
thermodynamic Profiler system. Acid rain research and R&D to
support the Pacific Salmon Treaty will be maintained.

SPECIAL ANALYSIS B

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National Bureau of Standards (NBS).—NBS conducts research
aimed at maintaining and improving a system of measurement
required to support the nation's industrial and scientific endeavors.
In 1987, NBS is expected to obligate $91 million for the conduct of
R&D. This represents a decrease of $8 million from 1986. This
decrease reflects program changes affecting all areas of technical
research activities at NBS. However, funding will increase to support development of measurements and standards to assure reliable performance of advanced ceramics, and development of measurement technology and services for components of optic fiber systems to support industrial development and to ensure international
competitiveness. In addition, construction of a new Cold Neutron
Research facility used for materials science will be initiated. Funding for several programs, including fire and building research, the
Computer Sciences and Technology Program, the Technical Competence Program, and the Research Associates Program will be terminated or reduced because such research can and should appropriately be supported by other sectors of the economy.
Other Commerce R&D Activities.—Funding for smaller R&D programs in the Department, which include those in General Administration, the Bureau of the Census, the Economic Development Administration, and the National Telecommunications and Information Administration, are proposed at $14 million in 1987, a decrease of $10 million from the 1986 level.
DEPARTMENT OF THE INTERIOR

The R&D activities of the Department of the Interior principally
derive from its broad-ranging responsibilities for management of
the nation's natural resources, including developing energy and
mineral resources, and restoring and preserving wildlife habitats.
R&D programs also serve the needs of other Federal agencies and
the private sector.
Obligations for the conduct of R&D for the Department of the
Interior for 1987 are estimated at $345 million. This represents a
decrease of $36 million from the 1986 level. It reflects reductions in
activities of a lower priority and elimination of those activities
more appropriately conducted by state and other units of government or the private sector, e.g., the Mineral Institutes.
About 91 percent of the Department's 1987 funds for the conduct
of R&D will be obligated by the Geological Survey ($204 million),
Fish and Wildlife Service ($49 million), and the Bureau of Mines
($61 million). Highlights of the 1987 research objectives of these
and other departmental programs are described below.
The Geological Survey undertakes research on the extent, distribution, and character of the nation's natural resources and on the
geologic processes, structures, and hazards that affect the develop-

F-l

THE BUDGET FOR FISCAL YEAR 1987

ment and use of the land and physical environment. For 1987,
obligations will decrease by $14 million, to a total of $204 million.
Research in 1987 will be directed toward:
• accurate appraisals of mineral resources and new improved
methods of mineral exploration;
• development of basic data on geologic principles and processes;
• improvement of the scientific basis for appraisal and evaluation of water resources; and
• development and application of new technologies, including
remote sensing, to prepare cartographic information.
The Fish and Wildlife Service supports research in the Service's
laboratories and field stations and cooperative efforts with state
fish and game departments. It also provides Federal aid to states
for research on restoration of fish and wildlife resources. This
research provides basic biological information about species numbers, population dynamics, ecological relationships, and habitat requirements. Obligations will total $49 million in 1987.
The Fish and Wildlife Service will support research activities
concerned with:
• the habitats of waterfowl, migratory and non-migratory birds,
and mammals;
• the status and distribution of endangered and threatened species;
• impact of broad-scale environmental changes on fish and wildlife populations and habitat; and
• diseases of freshwater and anadromous fish.
The Bureau of Mines conducts basic and applied research across
the minerals cycle to improve understanding of the principles of
mining and minerals processing and to reduce associated health
hazards. Obligations for the conduct of R&D are expected to decrease by $22 million to $61 million in 1987. This decrease in
obligations is the result of proposed reductions in applied research,
particularly in projects which are more appropriate for support by
non-Federal sources. The 1987 budget reflects continued emphasis
on strategic and critical minerals R&D activities and stresses:
• long-range, high-risk research in extractive metallurgy technology;
• development of domestic source substitutes for imported strategic and critical minerals;
• health-related research on the proper quality and quantity of
air flow in underground mines; and,
• long-term, generic research on mine disaster prevention,
ground control, industrial hazards, explosives, and systems
engineering.

SPECIAL ANALYSIS B

B-17

Other Departmental Programs expect to obligate about $31 million in 1987, a decrease of about $3 million from 1986.
DEPARTMENT OF TRANSPORTATION

The R&D program of the Department of Transportation is oriented toward providing the information and new technology needed
for its own operational (e.g., air traffic control) programs and for
regulatory (e.g., automotive and aircraft safety standards) programs. Obligations for the conduct of research and development by
the Department are estimated at $277 million for 1987, a decrease
of $86 million from 1986.
The Federal Aviation Administration (FAA) is expected to obli-

gate $144 million in 1987. The proposed 1987 R&D obligations for
FAA represents a decrease from 1986 of $72 million. This decrease
is associated with reduced requirements for the National Airspace
System Plan.
Development and testing of the Advanced Automation System to
automate air traffic control in the 1990's will continue. FAA will
support other research activities concerned with Automated En
Route Air Traffic Control (AERA); communications system development; Central Weather Processor (CWP); terminal doppler weather
radar; and development of devices to detect weapons, explosives
and flammable liquids.
The National Highway Traffic Safety Administration will obli-

gate $27 million for motor vehicle and highway safety research,
and demonstrations emphasizing safety belt usage and alcohol
countermeasures. In 1987, a small increase is planned for safety
belt activity.
The Urban Mass Transportation Administration (UMTA) is ex-

pected to obligate $8 million to conduct research, training, and
human resources programs in all phases of urban mass transportation to improve mass transportation services (especially in urban
areas) and reduce costs. In addition, UMTA will support interdisciplinary academic research including training of personnel to conduct further research or to obtain employment in urban mass
transportation planning, construction, operation or management.
The Federal Highway Administration will obligate $54 million to
continue support for research programs in highway planning,
design, construction, and maintenance to ensure an effective and
efficient highway system. Research will also be directed toward
identifying and correcting impediments to highway safety and improving truck safety.
The Federal Railroad Administration will obligate $10 million to
support R&D efforts to enhance railroad safety.
The Maritime Administration will obligate $6 million in 1987 to
support R&D, a decrease of about $5 million from 1987. The de-

F-l

THE BUDGET FOR FISCAL YEAR 1987

crease reflects movement toward an objective of greater private
sector initiative in maritime research and development.
The U.S. Coast Guard will obligate $22 million to support research to maintain and improve search and rescue systems, environmental protection, marine safety, aids to navigation, the enforcement of laws and treaties, and activities affecting all Coast
Guard missions. The proposed 1987 figure represents a decrease of
$2 million below the 1986 level.
The Research and Special Programs Administration will obligate

$2 million for R&D in hazardous materials, pipeline safety, radionavigation, transportation statistics, and emergency transportation.
The Office of the Secretary will obligate $5 million for broadbased policy research on domestic and international transportation
issues of importance to the nation.
ENVIRONMENTAL PROTECTION AGENCY

The Environmental Protection Agency (EPA) conducts research
and development in support of its regulatory and enforcement
responsibilities to protect human health and the environment. The
1987 budget proposes $310 million in total obligations represents a
reduction of 7 percent below 1986. The major research emphases
include: (1) a continued commitment to acid rain research to provide a scientifically valid framework for sound policy decisions; (2)
increased research on pesticides, including the cross-media problem
of pesticides in groundwater; and (3) a strengthened research effort
on bioengineered and conventional toxic substances.
The acid rain/energy research program will support the development of more reliable information upon which mitigation decisions
may be made. The program directs basic research in areas identified by the Interagency Task Force on Acid Precipitation to provide
enhanced data on the physical and chemical mechanisms governing the acid rain phenomenon. This involves research on aquatic
effects, forest damage, monitoring trends, and installation of an
acid rain monitoring network.
The pesticides program will support the development of methods
to detect the presence of an exposure to pesticides in groundwater,
and to assess management strategies to prevent such contamination. Pesticides research will also support studies on the effects of
bioengineered pesticides, and validation of models for predicting
exposure to, transport and fate of, pesticides.
The toxic substances research program will continue to address
any potential hazards associated with products of biotechnology, as
well as to support ongoing work on the human health risks and
environmental effects associated with toxic pollutants. Toxic substances research will also serve to improve pollutant monitoring
methods.

SPECIAL ANALYSIS B

B-17

The hazardous waste research program will address several areas
of study needed to implement regulations required by the 1984
RCRA Amendments. Risk assessment studies will be used in
agency decisions to list and ban hazardous wastes. Studies will be
conducted on methods to detect leaks from underground storage
tanks.
Under the President's reauthorization proposal, the Superfund
research program will expand to provide technical support to
EPA's Regional Offices to conduct geophysical surveys at an increased number of Superfund sites. Quality assurance support to
contract laboratories will be provided.
The drinking water research program will examine the health
effects of complex chemical mixtures. Also, the transport and fate
of contaminants in the subsurface environment will continue to be
identified through the groundwater research program.
The air research program will continue to provide monitoring
methods, air quality models, health and welfare assessments, and
emission reduction technology evaluations to assess National Ambient Air Quality Standards, promulgate New Source Performance
Standards and National Emissions Standards Hazard Assessment
Protocols and develop State Implementation Plans.
VETERANS' ADMINISTRATION

The Veterans' Administration (VA) conducts and administers
medical, rehabilitation, and health services research designed to
improve the quality and increase the effectiveness of health care
for the veteran. In 1987, the VA will obligate $194 million for the
conduct of R&D. This is an increase of $8 million above 1986.
The VA biomedical research program covers a wide range of
medical problems, with special emphasis on Agent Orange, aging,
alcoholism, post-traumatic stress, the health problems of female
veterans and former prisoners of war, schizophrenia, spinal cord
injury and tissue regeneration.
Rehabilitation research focuses on the problems of the disabled
veteran and develops sensory aids for impaired vision and hearing.
This work brings the latest electronic and computer technology to
bear on problems of prosthetics, orthotics, wheelchair design, and
spinal cord injury (including functional electrical stimulation of
muscles in paralyzed limbs.
Health services research is designed to help health care professionals and managers to improve the effectiveness, economy, and
accessibility of health care services provided to the veteran. Research in this area deals with such areas as aging and preventive
medicine.

F-l

THE BUDGET FOR FISCAL YEAR 1987
AGENCY FOR INTERNATIONAL DEVELOPMENT

Research and development activities of the Agency for International Development (AID) consist mainly of applied research to
solve specific problems associated with basic human needs and
social and economic research aimed at improving U.S. and hostcountry understanding of the barriers to development. Programs
under AID reflect the administration's recognition of the importance of R&D in addressing the problems faced by the Third World.
Over the years, AID has provided substantial support to research
efforts undertaken by U.S. universities and international research
centers such as the International Rice Research Institute in the
Philippines.
Obligations by AID for the conduct of R&D are estimated at $203
million for 1987, a decrease of $3 million from 1986.
AID will continue to support research aimed at improving agricultural production capability, with an emphasis on efforts to overcome the mounting food crisis in Third World nations. R&D funds
will also be devoted to two other critical problems: population
growth, emphasizing methods of controlling increasing population
growth rates in the developing countries, and energy supply, emphasizing renewable and nonconventional energy sources critical
for development to proceed.
Significant research efforts are also being pursued in two other
promising areas: oral rehydration therapy and a malaria vaccine.
The former holds the promise of significantly reducing the incidence of child mortality associated with diarrheal diseases, currently estimated to claim the lives of over 1 million children annually.
Similarly, AID-supported research on a malaria vaccine may lead
to a breakthrough in controlling a disease which currently infects
some 200 million people worldwide and is the leading cause of
death in Third World nations.
OTHER AGENCY PROGRAMS

An additional 10 departments and agencies (listed in table K-2,
footnote 1) will obligate an estimated $531 million in 1987, for the
conduct of R&D, essentially the same as in 1986. Obligations by
these agencies amount to less than 1 percent of all federally-funded
programs in R&D. The programs of these agencies, like those of
other agencies discussed above, are closely related to serving the
agencies' missions.
Among the agencies in this category that expect to increase their
obligations for R&D in 1987 are the Smithsonian Institution, the
Tennessee Valley Authority, and the Departments of Labor, Housing and Urban Development, and Treasury.
Table K-10 provides information on the long-term trends in Federal funding for the conduct of R&D.

SPECIAL A N A L Y S I S

B-17

Table K - 1 0 . TRENDS IN CONDUCT OF R&D
(Obligations in billions of dollars)
Year
196 0
196 1
196 2
196 3
196 4
196 5
196 6
196 7
196 8
196 9
197 0
197 1
197 2
197 3
197 4
197 5
197 6
197 7
197 8
197 9
198 0
198 1
198 2
198 3
198 4
198 5
1986 (estimate)
1987 (estimate)
1
2

Includes military-related programs of the Departments of Defense and Energy.
Included in totals for conduct of R&D.

Defense

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
15.1
17.8
22.1
24.5
28.3
33.4
35.7

All other
1.5
2.1
3.1
4.7
6.4
7.3
7.8
7.9
7.6
7.2
7.3
7.4
7.6
7.8
8.4
9.3
10.4
11.6
13.2
14.5
14.7
15.3
14.3
13.9
14.9
16.1
16.3
16.4

Full text of Budget of the United States Government, Special Analyses : Fiscal Year 1987

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