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MajorThemes
and
Additional
Budget Details
Fiscal Year 1983
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
Major Themes and Additional Budget Details
Table of Contents
OVERVIEW
9
FEDERALISM
15
REFORMING ENTITLEMENT PROGRAMS
35
DISCRETIONARY SPENDING
85
THE NATIONAL SECURITY POSTURE
175
CONTROLLING FEDERAL CREDIT
193
USER FEES
213
MANAGEMENT INITIATIVES
239
INDICES BY FUNCTION AND AGENCY
285
Major Themes and Additional Budget Details
Index
1.
OVERVIEW .
2.
FEDERALISM...
9
15
New Federalism Initiative
Child Welfare Block Grant
Health Block Grants
Low Income Home Energy and Emergency Assistance Consolidation
Rental Rehabilitation Grants
Training and Employment Programs
Legal Services Corporation
3.
REFORMING ENTITLEMENT PROGRAMS
Food Stamps
Nutrition Assistance for Puerto Rico and Territories
Child Nutrition Programs
Special Milk Program
Aid to Families with Dependent Children
Child Support Enforcement
Medicaid
Medicare
Supplemental Security Income
Combined Welfare Administration
State Responsibility for Errors in Welfare Programs
Trade Adjustment Assistance Weekly Cash Benefits
Redwood Employee Protection Program
Federal Employee Injury Compensation
Guaranteed Student Loan (GSL)
Civil Service Retirement
Military Retirement
Railroad Retirement and Railroad Unemployment and Sickness Insurance
Veterans Disability Compensation
Veterans Pensions
4.
21
26
27
29
30
31
33
35
44
46
47
49
50
53
55
58
61
63
65
67
69
71
74
76
78
79
82
83
DISCRETIONARY SPENDING
85
A. Reducing subsidies
91
Brucellosis Control
Economic Development Administration and Trade Adjustment Assistance Program.
Non-Nuclear Energy Research and Development
Health Professions Education
Health Maintenance Organizations
Federal Subsidy for Saint Elizabeths Hospital
HUD Subsidized Housing Overview
Modified Section 8 Housing Certificate Program
5
93
95
97
99
100
102
104
107
B.
G
Subsidized Housing: New Production
Subsidized Housing: Tenant Rent Contributions
Rent Supplement and Rental Assistance Payments Programs
Housing for the Elderly and Handicapped
Public Housing Operating Subsidies
Solar Energy and Energy Conservation Bank
Highways
Maritime Assistance and Regulatory Reform
Mass Transit Assistance
Federal Railroad Assistance
Federal Railroad Operations
AMTRAK
Conrail
Appalachian Development Program
Student Assistance
Limit Legal Fee Awards
109
Ill
113
114
115
117
118
119
121
124
126
128
130
131
133
135
Reducing lower priority spending
137
Soil and Water Conservation
Summary of Smaller Items in the Department of Commerce
NO A A Ocean and Weather Programs
Fish and Wildlife Service
National Park Service Programs
Impact Aid
Education Grant Programs
Reduced Navigation Maintenance
State Environmental Grants
139
141
143
145
147
150
151
153
155
Increasing investment in research and development
157
Nuclear Energy Programs
National Aeronautics and Space Administration
National Science Foundation
159
161
163
D. Other Programs
165
Enterprise Zones
Minority Business Assistance
Community Development Block Grants
Urban Development Action Grants
New Market-Based Savings Bonds
THE NATIONAL SECURITY POSTURE
Strategic Forces
General Purpose Forces
Mobility Forces
Navy Shipbuilding
Operations and Maintenance
International Security Assistance
167
169
171
172
173
175
183
185
187
188
190
192
6
6.
CONTROLLING FEDERAL CREDIT
193
Rural Electrification and Telephone Revolving Fund Loan Authorization
Rural Housing Loan Program
Federal Housing Administration Credit Limits
GNMA Mortgage-Backed Securities Credit Limits
Export Credits and Guarantees
SBA Direct Business Loans
SBA Guaranteed Credit Assistance
7.
USER FEES
213
Patent and Trademark Fees
Fees for Commercial Nuclear Waste Disposal
Fees for NOAA Aeronautical and Nautical Maps and Charts
GNMA Mortgage-Backed Securities — Fees
Recreation User Fees
Aviation User Fees
Coast Guard User Fees
Commodity Futures Trading Commission User Fees
Corps of Engineers Navigation User Fees
Fees for Energy Regulatory Licenses and Services
User Fee for Grievance Arbitration
Veterans Housing Loan Guarantee User Fee
8.
200
203
205
206
208
210
212
220
222
224
225
226
228
230
232
233
235
236
238
MANAGEMENT INITIATIVES
239
A.
Reducing Federal Intrusion
245
Reducing Federal Employment
Dismantling the Department of Energy
Dismantling the Department of Education
Market Valued Sales of Excess Real Property
Real Property Management
FTC Deregulation Efforts
Health Planning
Professional Standards Review Organization
Bureau of Indian Affairs Administrative Staff
Federal Paperwork
247
250
253
256
258
261
263
264
265
267
Fraud, Waste and Abuse
269
Inspectors General
President's Council on Integrity and Efficiency
271
273
Additional Management Initiatives
275
Management Improvement^
Debt Collection
Federal Procurement Reform
Federal Housing Administration Mortgage Insurance Premiums
277
279
282
284
B.
C.
INDICES BY FUNCTION AND AGENCY
285
7
OVERVIEW
9
CHAPTER 1
OVERVIEW
Introduction
The 1983 Budget underscores the redirection of economic policy and fiscal priorities announced by
President Reagan a year ago. In his first major address to the Congress in February of 1981, the
President announced a Program for Economic Recovery to create a solid foundation for sustained
economic growth and prosperity by limiting the size and scope of Government, strengthening the
private sector and the free market economy, and reducing inflation and interest rates.
In the Budget Message submitted to the Congress in February of 1982, the President reasserted his
firm resolve and unwavering adherence to the four policy fundamentals of his economic recovery
plan:
•
Reduced personal and business tax rates to stimulate saving, investment, work effort, and
productivity,
•
Firm control over the growth of overall Federal spending, borrowing, and credit demand,
•
Decreased Federal regulatory burden where the Federal Government has intruded
excessively and unnecessarily,
•
In cooperation with the independent Federal Reserve Board, a steady and moderate growth
in the money supply to reduce inflation.
During 1981, the Administration worked with the Congress to take major steps toward implementing
this program:
•
Congress passed the Economic Recovery Tax Act, the largest tax cut in history for businesses
and individuals.
•
In the Omnibus Budget Reconciliation Act, Congress reformed entitlement and other
programs, saving $130 billion over the 1982-84 period.
The 1983 Budget will continue to diminish the rate of growth of Federal spending and to shrink the
Government's share of GNP. The era of rapidly expanding budgets has come to an end. As a result,
resources will remain permanently in the more productive private sector.
Major Themes
The changes proposed in the 1983 Budget are not short-term policies devised solely to reduce the
deficit. Rather they are motivated by fundamental convictions about the relationships between the
Federal Government and the State and local governments, the Federal Government and the private
sector, and the United States and other nations, and about the management of the Federal
Government itself. These convictions are:
•
The governments closest to the people — the State and local governments — are more
responsive to the needs and desires of their citizens than is the Federal Government.
•
The most efficient means of allocating resources and meeting the needs of nearly all people
is the free enterprise marketplace. The Federal Government's role in the marketplace should
be one of creating incentives for growth and opportunity.
•
A stronger and more modern defense capability is essential to deter attack and coercion, to
protect vital U.S. interests, and to lay the groundwork for negotiating mutual force
reductions.
•
The Federal Government is the taxpayer's steward. It has the obligation to ensure that the
resources surrendered to advance the public welfare are put to the most effective and proper
uses.
11
Each of these convictions addresses fundamental imbalances that have built up over several decades of
misguided public policies. Each calls for basic structural reforms, major policy changes, and the
establishment of a long-term, stable policy framework.
FEDERALISM
The most important of the President's new initiatives is aimed at reducing Federal involvement in
matters that are more properly conducted by State and local governments. His long-term proposal
sorts out responsibilities between the Federal Government and the States. This new Federalism
Initiative is motivated by: (1) a desire to restore the constitutional balance between Federal and State
governments, (2) a need to reduce the growing number of categorical Federal grants, which are
encumbered with too many conditions, regulations, and staffing requirements, and (3) a belief that
State and local governments are more responsive to the needs of both benefit recipients and taxpayers.
The President's proposal will increase the effectiveness of State and local governments by giving them
more control over services that are more appropriately conducted at their levels, and it will provide
the resources to pay for them.
REFORMING ENTITLEMENT PROGRAMS
The President has established a National Commission on Social Security Reform to develop a
bipartisan concensus on measures to ensure the long-term financial stability of the Social Security
system. Thus, the 1983 Budget proposes no major changes to the Social Security system.
However, the growth of other entitlement spending has far outstripped increases in basic indicators of
need and cost — the relevant population, the number of participants, and the general rate of inflation
or the cost of particular goods and services. This explosion in entitlements points to the need for
major legislative reforms to reduce work disincentives and inequities, eliminate overlapping and
excessive benefits, retarget resources to those most in need, and provide new incentives and
requirements to promote more efficient program administration.
DISCRETIONARY SPENDING
Much inappropriate Federal spending occurs in discretionary programs — those programs that are
subject to annual Congressional appropriations or discretionary actions. The Administration has
thoroughly reviewed such programs in search of unwarranted subsidies to businesses or individuals,
spending that is more appropriate to State and local governments, and unnecessary public sector
capital improvement projects. The result of the review is a number of significant proposals to reduce
spending.
NATIONAL SECURITY
One of the most important tasks of the Federal Government is to ensure protection of national
interests and security. Since the 1970's the United States has allowed its military power to decline
relative to its expanding national interests and the growth in military power of the Soviet Union.
President Reagan's defense program will reverse this unfavorable trend.
To meet national security and defense objectives, the Administration's program strengthens the U.S.
military posture in the high priority areas of strategic forces, combat readiness, force mobility, and
conventional force modernization.
CONTROLLING FEDERAL CREDIT
Unprecedented Federal demand for credit by the Government saps the vitality of credit markets and
hampers their performance in the critical task of allocating resources to the most productive uses. This
credit burden includes direct borrowing by the Government to finance the budget deficit and
12
off-budget spending, as well as individual or institutional borrowing through the use of Government
guaranteed loans, and borrowing by Government-sponsored enterprises.
The proliferation of credit demands has left interest rates exposed to continued upward pressure,
while the misdirection of investment resources has seriously weakened economic growth and
productivity. This year for the first time the credit budget was used to impose systematic discipline
and policy control on the growth of Federal credit.
USER FEES
The Federal Government provides many services that directly benefit clearly identifiable groups of
business and private users. Last September, President Reagan announced that the Administration
would apply uniform principles of cost recovery to the current patchwork of user fees for Federal
services. The President directed all Federal agencies to determine the extent to which benefits accrue
to clearly identifiable users and to recover the cost of providing these benefits through specific fees
instead of continuing the burden on the general taxpayer. User fees have several important
advantages — including greater economic efficiency and equity — over general revenue financing for
the provision of Government services.
MANAGEMENT INITIATIVES
In keeping with his commitment to stewardship, the President has made several proposals designed to
reduce the Federal Government to an appropriate size and to ensure that it is managed effectively,
efficiently, and productively. Included in the 1983 Budget are proposals to abolish the Departments
of Energy and Education, reduce Federal employment, dispose of underused land held by the Federal
Government, and improve the collection of debts owed the Federal Government.
13
FEDERALISM
15
CHAPTER 2
FEDERALISM
President Reagan has a number of broad and fundamental goals for his presidency. One of the most
important of these is to alter the relationship between the Federal and State and local governments by
shifting decision-making and responsibilities for a variety of policy, budgetary, and regulatory matters
to State and local governments.
The 1983 Budget Proposals
The President's 1983 budget contains a number of initiatives aimed at reducing Federal involvement
in activities that are more properly administered by State and local governments. The most important
of the new initiatives is the President's long-term proposal for a sorting out of responsibilities between
the Federal Government and the, States which was first announced in his recent State of the Union
address. Following are highlights of the New Federalism Initiative:
•
Starting in 1984 the Federal Government will assume full responsibility for financing
Medicaid while the States take over the two main welfare programs — Food Stamps and Aid
to Families with Dependent Children (AFDC).
•
This $20 billion swap will consolidate responsibility for major medical programs at the
Federal level and income assistance for the non-elderly needy at the State level. State
savings from the swap grow by an increasing margin over time.
•
For the transfer of other Federal grant programs, a new $28 billion trust fund belonging to
the States will be established. It will be financed by existing Federal excise taxes and the
windfall profits tax on oil.
•
The States will draw upon this trust fund as they assume responsibility for more than 40
grant programs in the areas of education, community development, transportation and social
services. Turnback of these programs will be at the option of the States through 1987. If
States elect to withdraw from the Federal grant programs before then, their trust fund
allocations will be treated as "super revenue sharing" and may be used for any purpose.
•
For the States, individually and collectively, the plan involves essentially no net financial
gain or loss. They would have a known, increasing and assured future source of financing
without the present uncertainty over Federal budget levels.
•
There will be protections in such areas as pass-through of funds to local governments, civil
rights and adequate benefit levels for welfare.
The 1983 budget also continues the process, begun in 1982, of consolidating several categorical
Federal grants into single block grants. The President proposes to combine over 40 categorical grants
into 7 new block grants or consolidated programs, with over $6.5 billion in 1983 budget authority.
New grants include:
•
A child welfare block grant that would consolidate several categorical Federal grants into a
more flexible grant, permitting States to focus efforts on permanent placement of children
rather than maintaining long-term foster care arrangements.
•
The Rental Rehabilitation Grant, which would replace the Section 8 Moderate Rehabilitation
program and the Rehabilitation Loan Fund. It would be focused on low-income tenants
through the proposed Section 8 Housing Certificate program.
•
A training and employment grant that would replace the expiring CETA programs. Costs
would decline substantially from an average of about $6,400 per service year in CETA Title
II-B,C in 1982 to $4,600 in 1983 in the block grant.
17
•
The Combined Welfare Administration grant would combine grants for State administration
of Medicaid, AFDC and Food Stamps.
•
Vocational and Adult Education combines a number of small grants.
•
Education for the Handicapped combines 13 grants.
•
Rehabilitation Services combines basic State grants with several project grant authorities.
me
New Federalism"
President Reagan's "New Federalism" is motivated by a number of factors:
•
A desire to restore the Constitutional balance between the Federal Government and State
and local governments. Under the Constitution, the powers of the Federal Government are
limited.
"The powers not delegated to the United States by the
Constitution nor prohibited by it to the States are reserved to
the States respectively, or to the people." Article 10 U.S.
Constitution.
•
A need to reduce the growing number of categorical Federal grants, which are encumbered
with too many conditions, regulations, and staffing requirements.
•
A belief that State and local governments are more responsive to the needs of both benefit
recipients and taxpayers. The quality of State government has increased dramatically over
the past two decades, as have the resources available to States formerly regarded as
impoverished.
•
A recognition that dividing responsibility for a program between the Federal and other levels
of government results in neither being responsible.
The Problems of Categorical Grants
Federal grants to State and local governments have proliferated in the past two decades and have now
attained a bewildering complexity that is satisfying to none of the parties. They also have been a
significant cause of the growth of Federal spending. Numerous governors and mayors, and such
bodies as the Advisory Commission on Intergovernmental Relations, have called for reform.
•
In 1960, total Federal grant outlays to state and local governments were $7 billion; by 1981
they were about $95 billion.
•
In the same period the number of grant programs almost tripled, to more than 500. For
example, in 1981, the Department of Health and Human Services administered more than
160 separate programs in the health area alone. Seven different agencies provided grants for
community and economic development. Five agencies funded water and sewer projects.
There were 76 separate grant programs for elementary, secondary and vocational education.
•
Between 1960 and 1981, Federal grant funding levels grew at an average annual rate of 13%
— far faster than GNP, the Federal budget, or public sector expenditures as a whole.
•
During that period the grant-in-aid share of the Federal budget nearly doubled, to 14% last
year. Grants now finance 27% of State and local government expenditures compared to 15%
20 years ago, and have risen from 1.4% to 3.4% of the GNP.
•
Statutory requirements and red tape associated with Federal assistance make the current
Federal grant system almost impossible to administer. A typical grant program imposes from
300 to 500 separate requirements and mandates on State and local governments as a
condition for receipt of funds.
18
•
These requirements are accompanied by needless burdens on all parties. For example, child
nutrition programs now involve 272 pages of Federal regulations and 38 million "burden
hours" of paperwork a year, the equivalent of 18,000 persons working for a full year to
complete forms.
Effects on The Political Process
The President's proposal will increase the effectiveness of State and local governments by giving them
more control over activities that are more appropriately conducted at those levels. The proposals will
also free Congressional resources now focused on local problems to concentrate more on national
needs and problems.
•
State responsiveness to local fiscal needs has dramatically increased. Total State aid to
localities funded from the States' own revenues grew nearly six-fold from 1965-1980, and
now surpasses $60 billion a year.
•
The proliferation of Federal programs has undermined the ability of elected officials to make
policy. From 1964 to 1978, the number of roll call votes in the House rose from 232 to
1,540 and the number of committee and subcommittee meetings rose from 3,596 to 6,771.
•
In 1965 Representatives reported that they spent an average of one day a week on legislative
study. In 1977 the Obey Commission reported that Congressional study time had shrank to
only 11 minutes per day. The role of unelected staff rose correspondingly: from 4,500
House staffers in the mid-1960's to 9,000 in 1979.
•
Stimulated by Federal growth, lobbying is now the third largest industry in Washington,
with an annual budget of $4 billion. Excluding privately retained law firms and lobbyists,
Washington offices of States, cities, and related public groups currently employ at least 1,500
persons and consist of at least 72 special State and local interest groups, 32 States, 3 State
legislatures, 20 cities and 10 counties. Mayors and governors now spend increasing portions
of their time regularly travelling to Washington.
The Effectiveness of State Governments
One of the original arguments for Federal assumption of so many of the tasks that belonged to the
Suites was that the State governments were not capable of administering the programs. That is
certainly not true today.
•
As the Advisory Commission on Intergovernmental Relations has concluded:
"A largely unnoticed revolution has occured in state
government. The states have been transformed to a remarkable
degree. The decades of the 1960s and 1970s witnessed changes
in state government unparalled since the post-Reconstruction
period a century ago, generally in the direction advocated by
reformers for 50 years."
•
Twenty years ago, all but five State legislatures were badly malapportioned. Since Baker vs.
Carr (1962), every State has apportioned its legislature on the basis of one person, one vote.
•
Past regional differences in wealth have narrowed dramatically. In 1960, the per capita
income in the wealthier regions, the Mideast and Far West, was 16% above the national
average, compared with an income level in the Southeast that was 27% below the national
average.
•
By 1977, the relative disparity had been reduced by 40% with the wealthiest region, the Far
West, having per capita income 11% above the national average and the poorest region, the
Southeast, only 14% below. Moreover, all the States in the Southeast have experienced
growth in per capita income since 1970 at rates exceeding the national average.
19
•
Between 1960 and 1980 black voter registration in the eleven Southern States rose from
29.1% of the voting age population to 59.8%. Southern white registration during the same
period rose only 4% — from 61.6% to 65.7%.
•
One-party States have largely become a phenomenon of the past. Since 1968, no single
party has held a monopoly on senatorial and gubernatorial positions in any State.
•
Every State judicial system is now required to hear and remedy cases arising under
constitutional and other Federal law. In addition, State courts have taken the lead in many
instances in extending rights beyond those recognized in Federal law. State court systems in
virtually every State have been dramatically reformed.
•
The proportion of State civil servants covered by a merit system has increased from 50% in
1960 to 75% in 1980.
•
State revenue sources have become significantly more diversified and resilient. 36 States
now have a corporate and personal income tax, as well as a general sales tax, compared to
only 19 in 1960.
•
The diversity of interest groups active at the State level has increased significantly since the
mid-1960s. Witness the growth of environmental, ethnic and racial minority, disadvantaged,
tax reform, handicapped and other citizen lobbies in virtually every State capital.
•
Executive power in State government has become more focused, more accountable, and
more professional. 46 States now have four-year gubernatorial terms; 45 permit their
governors to succeed themselves; virtually all governors now control a State planning unit.
Between 1965 and 1980, all States undertook reorganizations of executive departments; 24
States reduced the number of independently elected administrative heads.
•
Almost all State legislatures now meet every year in either regular or special session;
professional staffs now provide technical support for the finance and appropriations
committees or in a central legislative unit in every State on a year-round basis, compared to
only a handful 20 years ago.
20
NEW FEDERALISM INITIATIVE
Proposal
To more clearly delineate between Federal and State responsibilities and to bring about a greater
efficiency in both service and administration of government, the President proposes a major reshaping
of the fiscal relationship between the Federal Government and the States. The details of the proposal
follow. The plan offers significant advantages to both State and Federal Governments.
•
Starting in fiscal year 1984, the Federal Government will assume the full cost of the rapidly
growing Medicaid program, to go along with its existing responsibility for Medicare. This will
save the States an estimated $19 billion in 1984, which would rise to $25 billion in 1987
under present trends.
•
Also starting in 1984, the States will assume the full cost of the two major components of our
welfare system — Food Stamps, which is now federally financed but administered by the
States, and Aid to Families with Dependent Children (AFDC), the cost of which is now
shared between the States and the Federal government.
•
On a nationwide basis, the "swap" of Medicaid for Food Stamps and AFDC involves a net
saving for the States of more than $2 billion in FY 84, an amount that will grow in later
years because of the rapidly rising cost of Medicaid. This swap is not dependent on the new
trust fund described in the following paragraphs.
•
The Federal Government will earmark existing alcohol, tobacco and telephone excise taxes,
$.02 of the gasoline tax and a portion of the oil windfall profits tax for a new $28 billion
Federalism trust fund that will belong to the states.
•
The share of each state in the trust fund will be based on its 1979-1981 share of specified
Federal grants now slated for "turnback" (see appendix A), with an adjustment for any gains
or losses for individual states resulting from the Medicaid-welfare swap.
•
During a transition period of four years, 1984-1987, the states can use their trust fund money
in either of two ways. If they want to continue receiving some or all Federal grants that are
designated for turnback, they can use their trust fund money to reimburse the Federal
agencies that make those grants and abide by Federal conditions and rules. Or, to the extent
they choose to forego the Federal grant programs, they can receive their trust fund money
directly as super revenue sharing, to be used for these or other purposes. There will be a
mandatory pass-through of part of the super revenue sharing funds to local governments.
•
The size of the trust fund will nearly equal the size of the turnback programs, which will
total about $30.2 billion in FY 84. Thus the states, counting their net savings from the
Medicaid-welfare swap, will lose nothing in fiscal terms and, equally important, they will no
longer have to be concerned about Federal budget reductions.
•
Beginning in 1988, the more than 40 Federal turnback programs — which involved 124
separate grants in 1981 — will cease to exist and the States will be in complete control of
their own priorities.
•
Also after four years, the Federal excise taxes will start to phase out, by 25 percent each year,
and will disappear after 1991. The trust fund will go out of existence on the same schedule.
The States will be able to impose the same excise taxes at their option to preserve their
revenues, with no tax-raising effect on the items concerned. Or they can choose other
revenues, or reduce program cost.
•
During the period of operation of the trust fund, taking into account the Medicaid-welfare
swap, the problem of "winners and losers" among the states is minimal.
21
Rationale
The plan represents a long-overdue effort to sort out responsibilities within the Federal system on the
basis of principles and criteria. Apart from national functions such as defense, the Federal
Government will retain and, in some cases, assume full responsibility for the most dramatically
increasing domestic social needs.
Under the plan, the Federal Government will be responsible for health insurance and income
maintenance programs for the elderly, including Social Security, and health insurance for the poor of
all ages.
The States will assume responsibility for domestic needs that are growing much less rapidly, have in
most cases historically been a state and local function, and which even now are administered and
largely financed by the States despite the proliferation of Federal grants.
As Governor Babbitt of Arizona has said:
"Congress ought to be worrying about arms control and defense instead of potholes
in the street. We might just have both an increased chance of survival and better
streets."
The plan represents a nonpartisan program for reorganization of Federal-state relations. Democrats
presently hold 27 out of 50 governorships, and both Houses of the state legislature in 28 states,
compared to 23 Republican governors and only 15 Republican state legislatures.
Effects of the Proposal
•
The Federal government will assume primary responsibility for health insurance and the
aged.
Health Care
— Health care has been the most rapidly rising expense for both the private sector and
government. National health care spending more than doubled from 1974 to 1980, from
$116 billion to $247 billion annually. The increase of 15.2 percent in national medical
costs in 1980 alone was the largest on record.
— Medicare and the Federal/state cost of Medicaid increased even more drastically, an
average of 16% per year between 1975 and 1980 and 21% in 1981 alone. Total costs grew
from $30.8 billion to $72.5 billion. Only an integrated cost containment and reform
program can hope to slow either program.
Aged
— The country's proportion of persons above age 65 will increase by over 25% between
1970 and 1990, from 9.7% to 12.4% of the population. Current projections place the
proportion at 20% by the year 2010.
— Under social insurance and other programs, this growth in the elderly population has
produced and will continue to produce rapid growth of government outlays. The Federal
Government will bear major responsibility for these expenditures, including
Supplemental Security Income, Medicaid, housing assistance and senior nutrition and
service programs, as well as Medicare and Social Security.
•
The State governments will assume responsibility for Food Stamps and AFDC, along with
such essentially local functions as education.
— In the President's budget, the total funding level for AFDC and Food Stamps is
projected to decrease slightly from $26.5 billion in 1981 to $24.5 billion in 1987,
compared with a projected 83% increase in the total cost of Medicaid under current law
in the same period.
22
— As to education, the national school age population, aged 5-17, peaked in 1970 at 51.3
million and will decline 4% from 45.0 million in 1981 to 43.4 million in 1984.
•
States will receive a secure, dedicated revenue source to finance the turnback programs,
removing most of the present uncertainty over funding levels.
— In the past, States could not anticipate with certainty the level of Federal funding. From
1970 to 1981, Federal grants-in-aid to State and local governments increased in an
erratic pattern ranging from 3% to 22%, and they decreased in 1982.
— In the past, States have had to readjust their planning as often as seven times per year
because of changes at various stages in the Federal budget process.
— Federal excise taxes will be turned back and eventually eliminated, and excise taxes will
be added to sales and property taxes as inherently State and local sources of revenue. In
addition, the President's decision not to seek excise tax increases will maximize present
State and local options to raise these taxes if they so desire.
•
Protections will be maintained for cities, welfare recipients, and minorities subject to
discrimination.
— A mandatory pass-through procedure for local general units of government is
incorporated in the super revenue sharing element of the plan.
— Transitional requirements will be established to ensure that welfare recipients will be
protected as the States assume responsibility for AFDC and Food Stamps.
— Full civil rights protections against discrimination on the basis of race, color, ethnic
origin, sex, religion, handicap and age are included on a model patterned after General
Revenue Sharing.
•
The President's new Federalism initiative is designed to remedy the fundamental problem of
too many grant-in-aid programs. After the sorting out of programs is complete, the
grant-in-aid system will shrink to about one-fourth its FY 81 magnitude.
23
Appendix I: Illustrative List of Programs
For Turn Back To The States
Category/Program
( # of Programs)
Types of Grants Made
in FY 1981
EDUCATION AND TRAINING (5)
Vocational Rehabilitation
Vocational and Adult Education
State Block Grants (ECIA Ch. 2)
CETA
5
13
28
8
55
INCOME ASSISTANCE (1)
Low Income Home Energy Assistance
1
SOCIAL, HEALTH AND NUTRITION SERVICES (18)
Child Nutrition
Child Welfare
Adoption Assistance
Foster Care
Runaway Youth
Child Abuse
Social Services Block Grant
Legal Services
Community Services Block Grant
Prevention Block Grant
Alcohol, Drug Abuse and Mental Health Block Grant
Primary Care Block Grant
Maternal and Child Health Block Grant
Primary Care Research and Development
Black Lung Clinics
Migrant Health Clinics
Family Planning
Women, Infants and Children (WIC)
4
1
1
1
1
1
3
1
8
8
5
1
7
1
1
1
1
47
TRANSPORTATION (12)
Grants-in-Aid for Airports
2
Primary
Rural
Urban
Bridge
Construction Safety
Highway Safety
Other
24
Appalachian Highways
Urban Mass Transit:
1
13
COMMUNITY DEVELOPMENT AND FACILITIES (6)
Water and Sewer
Grants
Loans
Community Facilities Loans
Community Development Block Grant
Urban Development Action Grants
Waste Water Treatment Grants
2
1
2
1
1
7
REVENUE SHARING AND TECHNICAL ASSISTANCE (2)
OSHA State Grants
General Revenue Sharing
1
1
2
GRAND TOTALS:
Grants made in 1981
125
25
Child Welfare Block Grant
AGENCY: Department of Health and Human Services
FUNCTIONAL CODE: 609/551/605
Funding
($ in millions)
1981
1982
1983
1984
1985
1986
1987
Savings From
Current Services
1982
1983
BUDGET AUTHORITY
523
465
380
380
380
380
380
121
OUTLAYS
508
493
383
380
380
380
380
151
Program Description
Several Federal programs, Child Welfare Services, Child Welfare Training, Adoption Assistance, and
Foster Care, finance child welfare-related activities. Their objective is to strengthen and reunify
families and to place children promptly and permanently in adoptive homes when they cannot be
reunited with their families.
Proposed Change
These four child welfare related programs would be consolidated into a single block grant to States.
Funds are requested to continue these activities at the same level requested in the 1982 September
budget.
Rationale
Consolidation of related categorical programs into block grants is part of the Administration's effort to
return responsibility for administration of categorical social programs to the States and remove the
Federal Government from inappropriate directive roles. Under the current system, States do not have
the flexibility to direct their efforts to permanently place children rather than continue foster care
arrangements.
The consolidation is the logical extension of current law which allows States to use excess foster care
funds for child welfare services so that they can utilize available resources in the most effective way to
serve children.
Effects of the Proposed Change
•
The proposed consolidation would greatly simplify administration of these programs at all
levels. Currently States must develop and maintain three State plans and attendant reporting
systems. These would be eliminated or replaced by a single, less rigid requirement, thus
reducing by at least two-thirds the regulatory burden on the States for child welfare
programs.
•
States would be encouraged to focus their efforts on the return of children to their natural
parent or the permanent placement of children rather than maintaining lengthy but tentative,
inappropriate and costly foster care arrangements.
•
States would have greater flexibility to develop service delivery mechanisms tailored to
specific, local needs.
26
Health Block Grants
AGENCY: Department of Health and Human Services
FUNCTIONAL CODE: 609/551/605
Funding
($ in millions)
§avingS
F r o m
Current Services
1981
1982
1983
1984
1985
1986
1987
1982
1983
BUDGET AUTHORITY
861
1,934
1,934
1,934
1,934
1,934
431
OUTLAYS
761
1,702
1,934
1,934
1,934
1,934
406
Program Description
The Omnibus Budget Reconciliation Act of 1981 consolidated 21 categorical health programs into 4
block grants for maternal and child health, preventive care, mental health and substance abuse, and
primary care, beginning in 1982 or 1983. The block grants will serve program purposes similar to the
categorical programs consolidated, but will allow States flexibility to coordinate and improve the
effectiveness of services for their citizens. They will strengthen program administration by reducing
Federal regulatory, legal, and reporting requirements now imposed on States and grantees. Duplicative
and low-priority programs can be eliminated, while gaps in needed local services can be filled.
Proposed Change
•
Building upon the changes enacted by the Reconciliation Act, the Administration proposes to
expand the Maternal and Child Health (MCH) Block Grant to include the nutrition program
for women, infants, and children (WIC), previously administered by the Department of
Agriculture. This expanded and renamed program, "Services for Women, Infants and
Children," will thus include a full range of health services for women and children.
•
The Primary Care Block Grant, which is authorized to begin in 1983, will also be expanded
to include current categorical programs for black lung clinics, migrant health, and family
planning.
Rationale
•
Under the Services for Women, Infants and Children Block Grant, the effectiveness of State
and local health programs will be increased by assuring coordination of WIC with other
health services for pregnant or lactating women and their young children. Evidence indicates
that the combination of supplemental feeding and prenatal or postnatal health care is more
effective in improving health status than either one alone. Currently, WIC and MCH funds
are channeled through State health agencies but each program has its own regulatory and
paperwork requirements. This proposal would reduce these duplicative Federal requirements
on States and allow them to target resources towards the specific maternal and child health
problems in each State.
•
Consolidating separate categorical grants for black lung clinics, migrant health, and family
planning with the Primary Care Block Grant beginning in 1983 will reduce the fragmentation
of current primary care services programs. Rather than being required to go to several
different and unrelated grantees for primary care services, individuals in need of health care
will be able to receive care within a comprehensive assistance system. This approach will
reduce the multiplicity of Federal rules and regulations under which primary care service
agencies currently operate.
27
Effects of the Proposed Change
•
The expanded health block grants will enhance the ability of States to target MCH and
Primary Care Block Grant funds on specific health problems of vulnerable populations in the
State, e.g., teenage pregnancy, infant mortality, poor nutrition among young children, anemia,
and black lung.
•
The expanded block grants will eliminate the detailed, overlapping, and complex Federal
regulations associated with the WIC, black lung, migrant health, and family planning
programs. These regulations now run more than 80 pages in the Code of Federal Regulations
while the block grant regulations would be limited to about 5 pages in the Code.
28
Low Income Home Energy and Emergency Assistance Consolidation
FUNCTIONAL CODE: 609
AGENCY: Department of Health and Human Services
Funding
gav.]ttgS p r o m
($ in millions)
Current Services
1981
1982
1983
1984
1985
1986
1987
BUDGET AUTHORITY
1.849
1,752
1.300
OUTLAYS
1.849
1,865
1,300
1982
1983
1,300
1.300
1.300
1,300
452
1,300
1.300
1,300
1.300
452
Program Description
States, through two separate grant programs administered by the Department of Health and Human
Services, assist low-income households with high home energy costs, and/or in need of emergency
financial aid or other crisis support. States can augment LIHEEAC by transferring funds from other
block grants.
Proposed Change
•
Consolidate energy and emergency assistance activities under one program; eliminate those
unnecessary restrictions in the reauthorized Low Income Home Energy Assistance Block
Grant which currently prevent States from delivery of effective energy and emergency
assistance to those who need it the most. The Administration is proposing to eliminate
regulations which excessively direct States and impose burdensome reporting requirements.
•
Re-establish the targeted nature of this program on heating costs in the winter months by
adjusting the grant formula to target funds to States most in need.
Rationale
As part of the 1982 effort to consolidate categorical programs into block grants to States, the
Administration proposed consolidating the low-income energy assistance and emergency assistance
programs into a flexible block grant to States. Last year, Congress reauthorized the Low Income
Home Energy Assistance Program separately and continued many of the same restrictive rules and
regulations as the previous program. Both these categorical programs serve people in need, but
Federal regulations and eligibility requirements prevent delivery of assistance in the most
cost-effective manner. States could eliminate duplicative administrative mechanisms and criteria now
required for two programs. States can determine who best to serve without Federal directives which
obstruct efficient and effective service delivery.
Effects of the Proposed Change
•
The new proposal would reduce the overall amount of State reporting requirements,
assurances and compliance procedures now required from 32,490 to 16,000 manhours.
•
Federal administration now needed to administer unneeded regulations could be reduced by
$1 million.
•
Poor families with children, and the elderly could apply to one Energy and Emergency
Assistance program rather than different programs with complicated rules.
29
Rental Rehabilitation Grants
AGENCY: Department of Housing
and Urban Development
FUNCTIONAL CODE: 609/551/605
Funding
($ in millions)
1981
1982
BUDGET AUTHORITY
OUTLAYS
1983
1984
1985
150
150
150
—
75
150
1987
Savings From
Current Services
1982
1983
150
150
-150
150
150
1986
Program Description
Two programs of the Federal Government currently subsidize the rehabilitation of multi-family rental
properties: the Section 8 Moderate Rehabilitation program and the Rehabilitation Loan Fund. In
addition, localities can use Community Development Block Grant funds, at their discretion, to
rehabilitate these same types of units.
Proposed Change
The Administration proposes to terminate the Section 8 Moderate Rehabilitation program and the
Rehabilitation Loan Fund and substitute a new block-grant program for subsidizing multi-family
rental rehabilitation. This program, to be called Rental Rehabilitation Grants, would be linked with
the Modified Section 8 Housing Certificate program (see the fact sheet on Modified Section 8
Housing Certificates) and would provide grants to States and units of local government for up to half
the cost of rehabilitating multi-family rental properties, principally for low-income families. When a
property has been rehabilitated through this program, its units will be made available to low-income
tenants with housing certificates. The Administration is proposing an authorization of $150 million for
this new program in 1983.
Rationale
Rental Rehabilitation Grants are being proposed as a replacement for the Section 8 Moderate
Rehabilitation program and the Rehabilitation Loan Fund because:
•
Up-front grants, as would be provided by this new program, would be more efficient and
less costly economic subsidies than those currently provided in the programs proposed for
termination.
•
This program would address the rehabilitation needs of multi-family rental properties by
providing Federal assistance to localities to encourage such rehabilitation.
•
By linking this program with the Modified Section 8 Housing Certificate program, the
rehabilitation efforts of the Federal Government would be concentrated on low-income
tenants since the certificates will be used by them.
Effects of the Proposed Change
•
At an anticipated average grant of $5,000 per unit, it is estimated that 30,000 multi-family
rental units would be rehabilitated annually with this new program, thereby increasing the
nation's stock of adequate multi-family rental housing units for low-income tenants.
•
Single-family, owner-occupied housing rehabilitation will continue to be adequately
addressed by the Community Development Block Grant program.
30
Training and Employment Programs
FUNCTIONAL CODE: 609/551/605
AGENCY: Department of Labor
Funding
($ in millions)*
1981
1982
1983
1984
1985
1986
1987
Savings From
Current Services
1982
1983
BUDGET AUTHORITY
5,245
3,070
2,387
2,387
2,387
2,387
2,387
1,666
OUTLAYS
5,564
4,259
2,179
2,837
2,387
2,387
2,387
1,871
* 1981 and 1982 includes CETA training, Trade Adjustment Assistance, and Community Service Employment for Older
Americans. A program to replace them is proposed to start in 1983.
Program Description
The Federal Government's principal training and employment programs are authorized by the
Comprehensive Employment and Training Act (CETA) of 1973. CETA programs are operated by
units called prime sponsors — States, cities, and counties of over 100,000 population, or combinations
of such governmental units. Grants to prime sponsors are used to provide various types of training,
counseling, and other supportive services to unemployed and economically disadvantaged individuals.
Stipends are paid to those in training.
Proposed Change
Authorization for appropriations for the CETA programs expires at the end of 1982. Legislation will
be proposed to replace the present program of categorical grants to prime sponsors with a block grant
to States for training. The legislation will include provisions to increase coordination with vocational
education and other related programs. Make-work subsidized jobs in the public sector will not be
authorized. Training stipends will be eliminated.
Also included as part of the proposal will be a small program administered from Washington
providing training for groups that have particular difficulties finding and retaining jobs. This
nationally administered program will replace current training programs authorized by various laws for
such groups as older Americans, migrants, Indians, and those eligible for Trade Adjustment Assistance
benefits. (See the fact sheet on Trade Adjustment Assistance Weekly Cash Benefits in Chapter 3.)
The legislation will also propose continuing the Job Corps residential training program. The program
provides basic literacy and arithmetic skills and vocational training for youth age 16-21 with severe
educational and economic disadvantages.
Rationale
•
Categorical grants should be consolidated whenever possible. By removing the current
artificial categorization of Federal assistance under CETA, grant recipients will have more
flexibility to concentrate on what they believe to be their most pressing employment
problems.
•
The block grant will place responsibility for training and employment programs at the State
level which already has the responsibility for related programs such as vocational and adult
education and the Employment Service.
•
Stipends paid for participation in a training program can duplicate or supplant regular
income maintenance programs. In addition, they can induce people to enter training
programs for short-term income gains rather than for long-term improvements in
employment and earnings.
31
•
Administrative overhead costs will decrease for the Federal Government and the number of
separate entities with which the Federal Government must negotiate and monitor grant
agreements will be reduced.
Effects of the Proposed Change
•
The most effective program approaches (on-the-job training and classroom training) will be
stressed in Federal technical assistance to States, while the least effective approaches, such as
public sector work experience, will be de-emphasized.
•
Because stipend payments will not be provided to individuals who attend classroom training
under the block grant, budget authority provided in 1983 would enable approximately 1.1
million people, the same number of people as were in the core training programs in 1982, to
be served even though resource levels for training programs will be decreased by about $361
million. Somewhat lower levels of participation may be experienced in 1983 as the new
program phases in.
•
Average cost per service year will decrease from about $6,400 in CETA Title II-B,C in 1982
to $4,600 in 1983 in the block grant
•
The Job Corps program will be reduced to about 22,000 slots, roughly the level achieved
during most of the 1970's. Federally operated centers, which are more costly than those run
by private contractors, will be closed.
32
Legal Services Corporation
FUNCTIONAL CODE: 609/551/605
AGENCY: Legal Services Corporation
Funding
($ in millions)
g ayings p rom
Current Services
1981
1982*
BUDGET AUTHORITY
321
120
OUTLAYS
324
147
1983
1984
1985
1986
1987
1982
1983
—
121
260
13
112
247
•Reflects Continuing Resolution level through March 31, 1982.
Program Description
The Legal Services Corporation (LSC) funds State and local agencies that provide free civil legal
assistance to the poor. LSC is a private non-profit corporation which acts independently of related
Federal social and community services programs. Grantees are involved both in cases for individual
clients and in broader "law reform" activities.
Proposed Change
The Administration proposes that the Corporation not be reauthorized and that no further separate
Federal funding be provided for 1982, 1983, or later years. LSC funding already enacted by Congress
in the Continuing Resolution through March 31, 1982 ($120.5 million) will be used for future needs
relating to responsibilities for existing cases, separation costs of Corporation and grantee staff, and
related close-out functions. The Administration proposes that any extension of the 1982 Continuing
Resolution beyond March 31 not include further ftinds for LSC.
Rationale
The Legal Services Corporation has operated since 1980 without an authorization approved by
Congress, due to differences over the proper role, funding mechanism, and structure for legal services.
The Administration proposes adoption of a different approach: providing States with flexibility and
discretion to use block grants funds, and relying on private attorneys to fulfill their ethical obligations
to provide services to the poor.
The Administration's $2.1 billion Social and Community Services Block Grants include adequate
authority to fund legal services activities States may wish to provide for their citizens. These sources
of funds will give more flexibility to States, and permit the services to be more responsive to the
direct needs of their citizens, than the current Legal Services Corporation.
The American Bar Association (ABA) Code of Professional Responsibility states:
"The basic responsibility for providing legal services for those unable to pay ultimately
rests upon the individual lawyer, and personal involvement in the problems of the
disadvantaged can one of the most rewarding experiences in the life of a lawyer; Every
lawyer; regardless of professional prominence or professional workloadshould find time
to participate in serving the disadvantaged.99
The 500,000 attorneys nationwide can be a significant resource for legal services for the poor. The
Administration believes the private bar can and should do more to fulfill their obligations through pro
bono publico services.
In addition, the Federal Government should no longer subsidize the private bar in the fulfillment of
its ethical responsibilities to the poor. Revenues received by private bar law firms alone now exceed
33
360-900
0
82
$20 billion per year. Significant legal services for the poor can also be undertaken through modest fee
assessments and service requirements of State and local bar associations.
Restrictions on advertising, competition, and other barriers to normal market forces for legal services
have been substantially reduced over the last few years. This will increase the availability of low-cost
private legal services, particularly in "routine" cases such as divorce.
Most legal services are now provided by LSC grantees, operating as staff attorney offices directly
handling individual cases. A major Congressionally-mandated study concluded that other legal service
delivery systems which make greater use of the private bar are viable—"judicare" (operating in
conjunction with staff attorneys) and contracts with law firms. States could use Social and
Community Services Block Grant funds to finance such legal services if they so choose.
Effects of the Proposed Change
With the use of Social and Community Services Block Grant funds, State priority setting and control
over resources will be enhanced, overhead will be decreased, and coordination among different social
services at the local level will be improved. Direct services on pressing legal matters for eligible
individual clients could be maintained or increased under this proposal. States will decide how the
Social and Community Services Block Grant funds may be best used.
34
REFORMING ENTITLEMENT PROGRAMS
35
CHAPTER 3
REFORMING ENTITLEMENT PROGRAMS
The explosion of entitlement expenditures has forced a careful reexamination of the entitlement or
automatic spending programs. Under these programs, individuals who meet eligibility criteria spelled
out in law are entitled to receive benefits that help offset losses of income, aid those who are unable
to provide for themselves, or finance certain goods and services such as medical care and higher
education. When one looks behind the good intentions of these programs, one finds tremendous
problems of fraud, waste and mismanagement. Worse than this, the truly needy have not been well
served. We have been able to identify $11.7 billion (21% of the President's proposed 1983 net budget
savings) in reforms in entitlement programs.
The proposed reforms for 1983 are for non-Social Security entitlement programs. The President has
established a National Commission on Social Security Reform to develop a bipartisan consensus on
measures to ensure the financial stability of the Social Security system. The Commission will issue its
recommendations by January 1983.
Past Rapid Growth
Costs of non-Social Security entitlements have skyrocketed since the massive expansion of Federal
social programs initiated in the 1960s.
•
Spending for these programs totaled $167.8 billion in 1981, reflecting increases of 412% since
1970 and 1,745% since 1955.
•
Between 1955 and 1981, non-Social Security entitlements roughly doubled as a percent of
the budget, rising from 13.3% to 25.4%.
•
As a share of the Gross National Product, they have- doubled in even less time, increasing
from 2.4% in 1965 to 5.9% in 1981.
The growth of entitlements has far outstripped increases in basic indicators of need — the relevant
population, the number of participants, and the general rate of inflation or the cost of particular goods
and services. For example:
•
Real entitlement spending per person in poverty grew 83% between 1970 and 1980, counting
all entitlements except Social Security, Medicare, and Federal employee retirement.
•
Food Stamp spending per participant, adjusted to take into account increases in the price of
food, grew 18% between 1975 and 1981.
•
Medicaid expenditures per public assistance case grew 49.5% in
and 1980.
•
A real increase of 50.4% per Federal employee occurred in Federal Employees Compensation
Act expenditures between 1974 and 1981, despite the fact that there was no change in the
average number of job-related deaths — a primary indicator of safety in Federal
employment.
•
Spending per Guaranteed Student Loan recipient, adjusted for increases in educational costs,
grew 10,500% between 1970 and 1981.
real terms between 1970
In part, this growth represents a shift in responsibility from both State and local governments and the
family to the Federal Government
•
Food Stamp benefits now are fully funded by the Federal Government, whereas Aid to
Families with Dependent Children (AFDC) benefits (which are intended to cover basic food
cofts) are set and funded, on average, 46% by the States. By holding down AFDC benefits
while Food Stamp benefits have continued to increase, States have been able to increase the
Federal share of the combined benefits package from 65% in 1972 to 76% in 1981.
37
•
School meals provide another example of an unintended increase in the Federal share of
overall program costs. Average Federal per meal costs in constant dollars rose from 31 cents
in 1970 to 60 cents in 1981. At the same time, average student payments dropped from 60 to
34 cents. Because the lowest income students continued to receive school meals free, most of
the increased Federal subsidy has gone to higher income students.
•
The fastest growing single component of Medicaid is intermediate care for the mentally
retarded, which increased at an average annual rate of 57.1% between 1973 and 1979. For the
Federal Government, increased costs largely have resulted from the shift of responsibility for
beneficiaries whose care was previously funded totally by the States to Medicaid, in which
the Federal Government shares costs.
The Need for Reforms
The entitlement expenditure explosion reflects not only cost shifts from others to the Federal
Government but program provisions which have:
•
Created disincentives to work.
•
Resulted in unequal treatment of people in similar circumstances.
•
Provided unintended and excessive benefits to recipients.
•
Undermined targeting of resources to those most in need.
•
Impeded efficient and effective program operations.
Work Disincentives and Inequities
Welfare programs provide one example of disincentives to work and unequal treatment of people in
similar circumstances. Paradoxically, these problems have arisen out of welfare program features
designed to promote work by ensuring that families would be better off employed than on welfare.
Such features include provisions to disregard some earned income and allow certain deductions for
work expenses in the calculation of eligibility and benefits. They result, in far too many cases, in
welfare families being better off than similar non-welfare families.
•
An average welfare family of four in 1970 would have received AFDC, Medicaid, and
School Lunch benefits equivalent to $7,548 in 1980 dollars. Ten years later, they would have
an increase in inflation-adjusted benefits (including Food Stamps in 1980) to a level of
$8,124 in 1980 dollars.
•
By contrast, a working non-welfare family of four with exactly the same after-tax income in
1970 would not have done nearly as well. If their income rose with national average
earnings, their after-tax income in 1980 would be $7,224, a 4% decline in real terms. The
family's income would be 11% below that of a non-working welfare family.
•
Had the head of the welfare family gone to work in the same occupation as the head of the
non-welfare family, the welfare family would be even better off. The combined effects of
earnings disregards in cash and in-kind assistance programs and the Earned Income Tax
Credit would give the working welfare family after-tax income including benefits of $11,076
— an amount 53% higher than that received by the family that supports itself through work
alone.
Federal efforts to mitigate welfare program work disincentives have had the effect of creating a special
class of those who receive income supplements far in excess of the take-home pay of their
non-welfare, working counterparts. In fact, two-thirds of wage-earning, low-income families (income
below 150% of the Federal poverty level) receive no AFDC, Food Stamps, or Medicaid benefits at all.
However, the harmful effects of the misguided policies of the past go beyond the obvious inequities
of selected income supplementation.
38
•
Program benefits and hence costs rise faster than the ability of the working population to
support these programs through taxes.
•
With programs such as Medicaid and Food Stamps rising far faster than inflation, income
supplementation programs have become a major source of persistent deficits, excessive taxes
and poor economic performance.
•
The resulting poor performance of the economy becomes a further penalty suffered by those
who support their families solely through earnings.
Work disincentives and inequities also are evident in the Civil Service and Military Retirement
programs.
•
Office of Personnel Management data show that between 1965 and 1980 accumulated
Consumer Price Index (CPI) increases of 173% resulted in Civil Service retirement benefit
increases of 204%, while Civil Service wages rose by only 147%.
•
Between 1977 and 1981, salaries of senior executives in the Executive Branch rose only 5.5%
compared to CPI and Federal retirement annuity increases of over 54%.
•
With annuities increasing faster than pay, many new retirees find that they receive lower
annuities than persons who retired in prior years with identical service histories.
—
At least 95% of present Civil Service retirees receive annuities greater than similar new
retirees would receive, with half receiving 15% to 35% more. Annuitants at all levels
have been affected.
—
Similar problems have occurred in the military retirement program. After the 1982
CPI increase, over 60% of the military retired population will receive higher annuities
than they would if retiring under 1982 pay scales, with some receiving as much as 21%
more.
•
In addition, the discrepancy between wages and annuities has encouraged persons to retire in
order to take maximum advantage of annuity increases. A predictable result has been the
loss of senior and executive personnel.
—
In 1980, 57% of career employees at the pay ceiling who were eligible to retire did so,
in contrast to a 17% retirement rate in 1978.
—
The number of senior workers who chose to retire at the relatively young ages of 55
to 59 soared from 16% of those eligible in 1978 to 75% in 1980.
Overlapping and Excessive Benefits
An example of overlapping benefits is provided by the proliferation of nutrition programs which have
pyramided benefits upon many of the same low-income population.
•
In 1979, members of more than 2.2 million households received both Food Stamp and free
or reduced-price School Lunch benefits. Because Food Stamp allotments are designed to
assure a nutritionally adequate diet for all members of a household, dual participation
provides children with approximately 133% of their recommended daily nutrition
requirements.
•
In 1981, milk subsidies worth more than $800 million were included as part of nutritionally
balanced meals served by schools which also received Federal Special Milk Program
subsidies of $104 million to deliver an additional 1.75 billion pints of milk.
39
Benefits Not Targeted on the Needy
An example of benefits for people not in need is reflected in the surge in Federal assistance for
students from middle- and upper-income families following passage of the Middle Income Student
Assistance Act of 1978 (MISAA), which liberalized eligibility for loan guarantee and grant programs:
•
New loan volume between 1977 and 1981 grew from $1.5 billion to $8.0 billion — a 443%
increase — much of which went to the non-needy.
—
•
For example, the proportion of college juniors in families with incomes over $25,000
who received Guaranteed Student Loans (GSL) increased from 23% in school year
1978-79 before MISAA to 33% in school year 1979-80 after MISAA.
Moreover, the availability of low-interest loans in an era of dramatically fluctuating interest
rates has made it profitable for families who have the resources to educate their children to
borrow money through the GSL program, reaping a windfall at the expense of the taxpayer.
—
For example, in September 1980, a family with an annual income of $100,000 and
three children attending Harvard, including one enrolled in law school, could have
borrowed $10,000 through GSL and paid no principal or interest while the students
were in school. The family could have invested the $10,000 in a money market fund
paying 16% over the next 12 months. At the same time the Federal Government
would have paid $1,760 in interest subsidies and special allowances to the bank
making the loan, as well as $200 in interest on the Federal debt. As a result, in one
year the family would have made $1,600 at a cost to taxpayers of $1,960.
Inefficient and Ineffective Program Operations
Examples of inefficient and ineffective program operations are provided by Medicare and Medicaid.
•
Through these programs, the Federal Government is the largest single purchaser of hospital
care in the Nation.
•
The long prevailing wisdom has been that the infusion of Federal funds into the medical
care market has resulted in runaway medical price increases.
•
However, hospital cost growth in excess of inflation accounted for only 8.3% of expenditure
increases between 1969 and 1979, while increases in utilization and intensity (quantity and
complexity of care) accounted for 34.3% of the increase. Retrospective cost-based hospital
reimbursement and widespread first dollar insurance coverage for hospital care have
combined to create incentives for hospitals to provide, and consumers to seek or accept, new
and more extensive diagnostic and therapeutic procedures and techniques.
•
Although conceived primarily as a medical program and initially operated as such, Medicaid
increasingly has become a program to help the functionally limited — people who need
assistance in carrying out the tasks of daily living, such as dressing, battling, and eating.
Payments for long-term care grew from 32% to 47% of the total Medicaid budget between
1969 and 1979, in the latter year amounting to $9.7 billion.
•
The explosive growth in Medicaid long-term care expenditures has not necessarily resulted
in appropriate care. In fact, a Congressional Budget Office review of numerous studies
concluded that as many as 10% to 20% of all skilled nursing facility residents and 20% to 40%
of intermediate care facility residents may be receiving more expensive levels of care than
necessary.
40
Enhancing Work Incentives and Equity
To deal with the problem of work disincentives and inequitable income supplementation, a series of
entitlement program reforms are being proposed in this budget.
•
Those who become unemployed as a result of industries shrinking from changing patterns of
international trade will no longer be eligible for special extended Trade Adjustment
Assistance cash benefits. The additional length of time workers are eligible for benefits
discourages them from looking for employment in other industries. Moreover, all workers
who have lost their jobs through no fault of their own should be treated similarly. Instead
of these additional benefits, the Federal program for special target groups (see fact sheet on
Training and Employment Programs in Chapter 2) will provide training, job search, and
relocation allowances to help these workers to prepare for new work and move to it.
•
Those who apply for AFDC and Food Stamps will have to show that they have searched for
employment. States will be required to have Community Work Experience Programs to
encourage AFDC recipients to find work in the private sector, to develop and maintain work
skills, and to assure that they perform useful public services when no private job is available.
Parents will not be counted in the assistance unit if they quit a job, reduce hours of work, or
refuse a job or work assignment. Earnings disregards for those receiving Food Stamps and
the $20 income disregard for new recipients of Supplemental Security Income will be
eliminated in order to eliminate inequities between beneficiaries and others in similar
circumstances.
•
Federal employee injury compensation will be altered so that benefit levels depend on
take-home pay rather than gross pay. This will prevent untaxed benefits from being higher
than previous take-home earnings.
Long-term disabled Federal employees will be
transferred to Civil Service retirement rolls at age 65, as they would have been if they had
continued working.
•
Cost-of-living adjustments (COLA) for current and future Federal civilian and military
annuitants will be changed to achieve more equity among annuitants and between annuitants
and current workers. The adjustment will be the lesser of the annual increase in the pay
schedule for most Federal employees or the Consumer Price Index. Annuitants whose
annuity is 120% or more of the annuity of current retirees with the same grade/step of
service will not receive a COLA increase. If their annuity is more than 100% but less than
120%, the adjustment will be 75% of the increase they would otherwise receive.
Reducing Program Overlap
Program proliferation has caused inequities and excessive payments.
This Administration is
committed to reducing these effects and will propose legislation to make needed changes.
•
Energy assistance payments will be counted as income in calculating eligibility and benefits
for AFDC and Food Stamps.
•
The Summer Feeding Program and the Special Milk Program will be ended because Federal
support for nutrition is available through Food Stamps, subsidies for school breakfasts and
lunches, and other programs.
•
More than half of retired Federal workers qualify for Hospital Insurance under Medicare.
The Administration will propose universal eligibility for Medicare for Federal workers and
require them to contribute to the hospital insurance.
•
Veterans who are rated between 60%- and 90% disabled and who are judged "unemployable"
will not be paid at the 100% rate if they also receive Social Security, Supplemental Security
Income, or Federal retirement benefits. Dependents of people who receive Veterans
Pensions and Civil Service annuities will not receive student benefits beyond secondary
school, just as dependents of Social Security recipients do not. Other assistance programs are
available for students in postsecondary education.
41
Focusing Resources on Those in Need
Eligibility for many entitlement programs has been extended well beyond the people most in need.
This not only has caused rapid growth of Federal expenditures for entitlement programs, but also has
undermined the original objective of helping the most needy.
•
Since 1978, the primary beneficiaries of Guaranteed Student Loans have been middle and
upper-income families, many of whom could readily invest their own funds in their
children's education instead of in high-yield financial investments. Starting in 1982, the
needs of undergraduate students at all income levels will be analyzed, and loans will be
limited to students who qualify after taking into account family contributions and other
financial aid such as Pell Grants. Graduate and professional students will be allowed to
borrow only under the less subsidized auxiliary program. Special allowance and interest
benefit payments will be limited to the period of school attendance, any deferment periods,
plus two years following graduation or withdrawal from school.
•
Food Stamps benefits will be reduced 35 cents instead of 30 cents for each $1 of income.
Other changes in the Food Stamp, AFDC, and Supplemental Security Income programs will
also focus benefits on those most in need by taking account of all household resources,
limiting benefits to the exact period of eligibility, and assessing need more carefully.
Promoting Efficient and Effective Program Operations
Incentives and requirements to tighten the administration of entitlement programs and hold down
unnecessary costs are proposed in the budget.
•
A Combined Welfare Administration program will be started to give States a fixed amount
to manage the Food Stamp, Medicaid, and AFDC programs. The fixed amount will provide
greater incentives for efficiency than the current open-ended match of administrative costs.
States will have flexibility to respond to these incentives by designing administrative
mechanisms under fewer Federal requirements.
•
The Federal Government now matches State benefit payments for AFDC and Medicaid and
also matches erroneous payments up to 4% of the State's total payments. For Food Stamps,
a slightly higher percentage of erroneous payments can be made without penalty. Funding
of erroneous payments in all programs will be reduced to 3% in 1983, 2% in 1984, and 1% in
1985. No such payments will be made thereafter. Quality control will be closely monitored
to ensure that errors are measured correctly and that States have data to make program and
management improvements. The Federal Government is working closely with State and
local governments to reduce error rates. The President's new Federalism initiative's swap
program would obviate this issue.
•
Excessive payment to providers for Medicare services will be ended. Payments for the excess
costs of private rooms not covered by Medicare will be stopped; hospital-affiliated home
health agency and skilled nursing facility services will be reimbursed at the same rate as
those provided by free-standing facilities; and duplicate reimbursement for hospital
outpatient physician services will be limited. Utilization review targets to reduce the amount
of unnecessary care provided will be set, and improvements will be made in the contractor
bill-paying system.
42
End Inappropriate Federal Instrusion
The rail industry's pension will be restored to the private sector, thereby freeing railroad labor and
management from the need to petition Congress to enact legislation to conform rail pensions to their
collectively bargained labor contract.
•
Defederalizing railroad retirement will reduce budget outlays by $2 billion in 1983 and
eliminate a Federal agency with over 1,500 employees.
•
Retirees' benefits and employees' rights will be unchanged due to the reorganization.
Entitlement Reform Effects
These reforms in entitlement programs will restore the original safety net character of social welfare
programs, focus assistance on the people most in need, and improve the efficiency and equity of
benefit payments.
•
Outlay savings from these entitlement changes will amount to $1.4 billion in 1982, $12.8
billion in 1983, $18.1 billion in 1984, $23.8 billion in 1985, $29.4 billion in 1986, and $35.9
billion in 1987. The aggregate savings of $121.4 billion will be reduced by $5.1 billion of
revenue losses over the six year period.
•
The effect of the President's proposals will not be reduction in the total level of support for
deserving American families. On the contrary, non-Social Security entitlements will rise from
$167.8 billion in 1981 to an historic high of $184.4 billion in 1983, a 9.9% increase.
Moreover, these expenditures, under the present proposals, are projected to increase steadily
to $226.9 billion in 1987, or at an annual rate of increase of 5.3%.
Thus, necessary savings in, and focusing of, these entitlement programs will not undermine their role.
Rather, the Administration's proposals conform these programs to their original rationale, thereby
strengthening support for them and insuring that they meet the needs of those they were intended to
serve.
43
Food Stamps
AGENCY: Department of Agriculture
FUNCTIONAL CODE: 609/551/605
Funding*
(% in millions)
1984
1985
1981
1982
1983
CURRENT SERVICES
Budget Authority
Outlays
10,556
10,340
10,653
10,613
11,825
11,821
12,145
12,108
REAGAN BUDGET
Budget Authority....
Outlays
10,556
10,340
10,380
10,340
9,531
9,563
273
273
2,294
2,258
PROPOSED SAVINGS
Budget Authority
Outlays
1986
1987
12,549
12,505
12,843
12,798
13,130
13,083
9,737
9,732
10,008
10,002
10,172
10,166
10,433
10,427
2,407
2,375
2,541
2,502
2,671
2,632
2,697
2,656
•Excludes nutrition assistance for Puerto Rico in all years. Includes Food Stamps share of savings from Combined Welfare
Administration for states, which is also included in a separate paper in this chapter.
Program Description
Food Stamps subsidize the food purchases of households that meet the eligibility standards for gross
income and disposable assets. Monthly allotments of Food Stamps are made available to such
households and are redeemable for food through commercial outlets. Allotments are periodically
adjusted to reflect changes in USDA's Thrifty Food Plan.
Proposed Change
The Administration is committed to restraining the uncontrolled growth of entitlement programs,
requiring those who ought to work to do so, and targeting available resources to those families that
most need assistance. In accordance with this policy, several changes will be proposed for the Food
Stamp program.
•
Energy assistance payments will be counted as income in determining household eligibility
and benefit levels.
•
The special disregard of earnings in determining benefit levels will be eliminated.
•
Benefits will be reduced by 35 cents for each additional dollar in income rather than the
current 30 cents.
•
Able-bodied Food Stamp applicants will be required to begin job search activities when they
apply for assistance.
•
Benefit rounding adjustments will be made so that amounts in excess of whole dollar
amounts will be dropped from benefit payments.
•
Monthly benefits of less than $10 per household per month will be eliminated.
•
Federally financed Food Stamp State administrative expenses will be combined with other
welfare administration funds. This is discussed in more detail in a separate paper.
•
States will be held to firm targets for reducing erroneous eligibility and benefit
determinations so that by 1986 there will be no Federal participation in erroneous payments.
This is also discussed in a separate paper.
44
Rationale
•
These changes will contribute to efforts begun in the Omnibus Budget Reconciliation Act to
refocus Food Stamps as a nutrition assistance program for the dependent poor rather than
the generalized and costly income transfer program it has become in recent years.
•
Under current law certain types of cash income are either not counted or partially
disregarded in determining eligibility and benefit levels. This creates inequities among
recipients and between recipients and non-participants with similar incomes and resources.
Changes proposed in the treatment of income are intended to reduce these inequities and to
take account of the total resources (both cash and in-kind) available for needy Americans.
•
Issuance of benefits of less than $10 per month is costly both to the recipient who applies for
Food Stamps and for the States and localities that administer the program. In most States,
certification and issuance costs exceed $15 per case.
•
Erroneous Food Stamp issuance cost the Federal government more than $1.1 billion in 1981.
This level of waste and abuse cannot be allowed to undermine support for benefits for those
who must have Government help to maintain an adequate diet.
•
Food Stamp costs and participation have escalated rapidly over the past three years. Outlays
grew from $5.5 billion in 1978 to more than $11 billion in 1981. During that same period
more than six million new participants were added to the rolls. One out of ten Americans
now receives Food Stamps.
•
Census surveys in 1980 showed that nearly 40% of Food Stamp households had incomes
above the Federal poverty level, and more than half of Food Stamp households had incomes
in excess of $5,500 per year. More than 2 million households received nutrition benefits
through both Food Stamps and federally subsidized school meal programs.
Effects of the Proposed Change
•
Current Food Stamp benefits for families with little or no income — more than 4 million of
the current participants — will be essentially unchanged by these proposals.
•
Recipients with higher incomes will have their benefits adjusted to reflect their need for
nutrition assistance in addition to the disposable income they currently have. Inequities in
the treatment of income from various sources will be substantially reduced or eliminated.
•
Those who are able to work will be required to make efforts to find employment so that
assistance can continue for those unable to work because of age or infirmity.
45
Nutrition Assistance for Puerto Rico and Territories*
AGENCY: Department of Agriculture
FUNCTIONAL CODE: 609/551/605
Funding
BUDGET AUTHORITY
OUTLAYS
1981**
1982**
968
965
958
956
1983
869
822
(S in millions)
1984
1985
869
869
869
869
1986
1987
869
869
869
869
•Savings attributable to this proposal are incorporated in savings shown in categorical nutrition program (Food Stamps,
Child Nutrition) papers.
**Actual 1981 amounts and estimated 1982 amounts of spending associated with categorical nutrition programs (Food
Stamps, Child Nutrition, WIC).
Program Description
The Omnibus Budget Reconciliation Act of 1981 authorized a nutrition assistance grant for Puerto
Rico, beginning in July 1982. This grant eliminates the detailed Federal regulations, accounting and
reporting previously required for the Food Stamp program in Puerto Rico. Puerto Rico will receive
$825 million in FY 83 under this grant, with the flexibility to target assistance in accord with local
priorities. Other insular areas (Virgin Islands, American Samoa, Guam, Northern Marianas) also
receive assistance under categorical Federal nutrition programs (e.g., Food Stamps and School Lunch
programs).
Proposed Change
Federal nutrition assistance will be consolidated in the insular areas. This consolidation will permit
the territorial governments to provide adequate nutrition for their needy residents without the
constraints of detailed, federally imposed regulatory and program requirements.
Rationale
•
Categorical nutrition programs, targeted for needy mainland residents, are inappropriate,
complex and burdensome for Caribbean and Pacific island societies.
•
Consistent with the intent of Public Law 95-134, Omnibus Territories legislation enacted in
1977, this consolidation will simplify application and reporting procedures, waive local
matching funds requirements, and allow wide flexibility to direct assistance to locally
determined needs.
•
General Accounting Office (GAO) and Inspector General reports have repeatedly found that
territorial governments do not have the administrative capability to manage complex Federal
programs or the economic and transportation structure that is assumed for mainland
programs.
Effects of the Proposed Change
•
Nutrition assistance for needy residents of U.S. insular areas would continue under the
auspices of territorial governments. Assistance could be provided in cash or in-kind (e.g.,
school meal subsidies, food purchase vouchers).
•
Island governments will be freed from the constraints of more than 300 pages of Federal
regulations and program reporting requirements.
46
Child Nutrition Programs
FUNCTIONAL CODE: 605
AGENCY: Department of Agriculture
Funding
($ in millions)
1984
1985
1986
1987
3,637
3,445
3,881
3,678
4,131
3,917
2,985
2,853
3,153
3,013
3,339
3,191
3,529
3,373
411
364
483
432
542
487
602
544
1981
1982
1983
CURRENT SERVICES
Budget Authority
Outlays
3,464
3,438
2,847
2,729
3,161
2,989
3,397
3,217
REAGAN BUDGET
Budget Authority
Outlays
3,464
3,438
2,847
2,729
2,826
2,708
334
282
PROPOSED SAVINGS
Budget Authority
Outlays
—
—
Program Description
The Child Nutrition programs finance school lunches and breakfasts, child care meals, summer meals,
snacks, nutrition education, and State administrative expenses. The lunch, breakfast, and child care
programs subsidize all meals served, but the subsidy amounts vary by household income level. The
summer program is fully subsidized for all recipients, regardless of need.
Proposed Change
•
The summer feeding program would be ended.
•
The current entitlements for school breakfast and child care feeding (CCFP) subsidies would
be converted to a categorical grant to States.
©
Nutrition education activities would be left to State and local discretion. Federal mini-grants
for such programs would be discontinued.
Rationale
•
The federally subsidized summer meal program has been riddled with fraud and abuse since
it was established in the rush of Great Society legislation in the 1960's. With the availability
of other Federal nutrition assistance programs, i.e., Food Stamps, which was not a national
program when summer feeding began, the summer feeding program is now duplicative and
wasteful. In recent years the summer programs have been concentrated in a few large, urban
States where repeated abuses have been cited by GAO and USDA's Inspector General.
•
The current CCFP is administratively cumbersome and over-regulated. Direct grants to
States will allow more effective targeting of these resources according to State and local
priorities and reduce administrative burden by eliminating detailed Federal regulations for
over 60,000 child care feeding centers.
•
Federal funding has grown dramatically as a percentage of school meal financing while
student payments for such meals have, in real terms, substantially declined. In 1980 dollars,
the Federal share of average per meal costs increased from an estimated 31 cents in 1970 to
60 cents in 1981 while student payments dropped from 60 cents to 34 cents during the same
period.
•
Funding individual meal subsidies for breakfast at school is an inappropriate Federal role.
Under the grant-in-aid concept proposed by the Administration, States may allocate
nutrition funds to schools and other institutions according to State and local priorities.
47
Effects of the Proposed Change
•
Inappropriate Federal imposition of nutrition program design and administration would be
ended for the child care and breakfast programs. More than 40 pages of program regulations
and requirements would be eliminated.
•
Federal meal subsidies for all school lunches would continue for more than 23 million
students.
48
Special Milk Program
AGENCY: Department of Agriculture
Funding
FUNCTIONAL CODE: 605
_
(S in millions)
1981
1982
1983
1984
1985
1986
1987
CURRENT SERVICES
Budget Authority
Outlays
119
104
28
34
29
27
30
28
34
32
37
35
41
39
REAGAN BUDGET
Budget Authority
Outlays
119
104
28
34
—
2
—
—
—
—
—
—
—
—
—
-
—
—
29
25
30
28
34
32
37
35
41
39
PROPOSED SAVINGS
Budget Authority
Outlays
Program Description
The Special Milk appropriation finances milk subsidies for students in schools that do not participate
in other federally subsidized meal programs.
Proposed Change
The Special Milk program would be terminated effective for the 1982-83 school year.
Rationale
•
Nearly 90% of the 1.6 million students receiving milk subsidies are non-needy (their families
have incomes in excess of $16,000 per year). These students will receive subsidies of 9 cents
per half-pint of milk in the 1981-82 school year regardless of their family income.
•
Every President since John Kennedy has proposed major reductions or elimination of the
Special Milk Program.
Effects of the Proposed Change
•
The program's original goal, to promote fluid milk consumption in schools, has been
superseded by the large subsidies ($700 million in 1982) for milk consumption in other
Federal meal programs. The $34 million now anticipated to be spent on Special Milk in
1982 will have a negligible effect on milk consumption in the U.S.
•
Termination of this special subsidy would cost upper-income families about 10 cents per day,
less than $20 per year per child — less than one-half of one percent of the average family's
disposable income.
49
Aid to Families with Dependent Children
AGENCY: Department of Health and Human Services
FUNCTIONAL CODE: 609
Funding
(S in millions)
1984
1985
1981
1982
1983
CURRENT SERVICES
Budget Authority
Outlays
8,036
8,064
5,893
7,811
6,609
6,609
6,607
6,607
REAGAN BUDGET
Budget Authority
Outlays
8,036
8,064
5,727
7,645
5,454
5,454
—
166
166
1,155
1,155
PROPOSED SAVINGS
Budget Authority..
Outlays
1986
1987
6,669
6,669
6,779
6,779
6,891
6,891
5,541
5,541
5,554
5,554
5,582
5,582
5,677
5,677
1,066
1,066
1,115
1,115
1,197
1,197
1,214
1,214
Program Description
Aid to Families with Dependent Children (AFDC) provides cash assistance for needy children
deprived of parental support by the death, disability or continued absence of a parent from the home.
About half the States also have an AFDC — Unemployed Parent program for low income families in
which both parents are present in the home, but the principal earner is unemployed. AFDC is
administered by State and local governments in conformity with Federal guidelines. Benefit levels are
determined by each State, with the Federal Government matching these benefit costs at rates from
50% to 77%. The Federal Government also pays 50% of the cost of State and local administration.
Proposed Changes
A variety of legislative changes to AFDC eligibility rules and benefit levels is proposed, as described
below. These changes, which would be effective July 1, 1982, are designed to:
•
Strengthen AFDC employment incentives by requiring those who are able to work to do so.
•
Determine AFDC benefits by including in the applicant's income those resources which are
often available to an AFDC family but have not previously been counted.
•
Eliminate program overlaps and simplify administration.
Rationale
•
Require Slates to have Community Work Experience Programs. States now have the option
to establish workfare programs, but less than half the States are planning to do so.
Requiring the work experience in all States would assure that AFDC recipients are
encouraged to find work in the private sector and perform useful public services when no
private job is available. ($-49 million)
•
Mandate job search for AFDC applicants. Applicants would be required to demonstrate that
they have exhausted possible private sector employment as a source of income before
receiving public assistance. A similar change is proposed for Food Stamps. ($-145 million)
•
Provide Unemployed Parent benefits only if parent participates in workfare. Since these
benefits are paid to families in which both parents are present, one parent should actively be
seeking employment through all possible means, including Community Work Experience
Programs (CWEP). Limiting Unemployed Parent benefits to those who participate in CWEP
programs would help preserve work skills and assure that only those who are unable to find
private employment receive public assistance. ($-86 million)
50
•
Remove parent/caretaker from the assistance unit for voluntarily quitting work, reducing
earnings, refusing employment, or refusing a workfare assignment. The benefit level would be
reduced because the parent/caretaker would not be counted as a member of the unit when
assistance needs are computed. The change would discourage reductions in work effort
simply to become eligible for welfare.
•
Seek no further funding for the Work Incentives (WIN) program. New work opportunities
for welfare recipients created in the Omnibus Budget Reconciliation Act of 1981, including
Community Work Experience Programs and Work Supplementation programs, and the
reforms proposed in the 1983 Budget make WIN unnecessary. These new programs would
give States greater flexibility to develop public and private job settings for welfare recipients
than WIN does. As WIN funding had been separate from AFDC, savings from this
proposal are not included in the AFDC totals in the table above. ($-245 million)
•
End employable parent's benefit when youngest child reaches 16. Since the parent's presence
in the home is no longer essential in these cases, the employable adult should be expected to
seek work rather relying solely on public assistance. ($-47 million)
•
Prorate shelter and utilities for AFDC families in large households. The economies of sharing
living expenses in large households are often not taken into account in AFDC. By taking
into account de facto support that is not now considered, benefits would be targetted on
those most in need. ($-174 million)
•
Require States to count Federal or State energy assistance payments as income for AFDC.
The change would reduce program overlap and take into account existing resources in
determining benefits to AFDC families. Over $1.7 billion in Federal Low Income Energy
Assistance was disregarded by AFDC in 1982. A similar policy is proposed for Food
Stamps. ($-175 million)
•
Include the income of all unrelated adults as part of the AFDC assistance unit for purposes of
computing benefits. While the income of stepparents has recently been included in the
AFDC benefit calculation, other unrelated adults are still excluded, even if they have
significant resources to help support the AFDC family. Standard income disregards would
be applied before determining the amount available to the AFDC unit. ($-69 million)
•
Include all minor children in the AFDC unit, except for disabled children who have separate
benefits. Minor children who have significant separate resources can currently be excluded
from the AFDC unit at the option of the welfare family. Counting the resources of all
minor children would ensure equitable treatment of families with similar needs. Children
with SSI disability benefits would continue to be excluded. ($-63 million)
•
Eliminate military service by the father as a reason for AFDC eligibility. Military personnel
can sometimes avoid family financial obligations and shift their responsibility to the public
assistance rolls, even when there is continued family contact. This practice would be
stopped. Families who have actually been deserted could still be eligible for AFDC, but
increased efforts to collect child support payments would first be made. ($-16 million)
•
Require States to round benefits to the lower whole dollar. This is similar to recently enacted
practice in Social Security, and is also proposed for Food Stamps and SSI. This proposal
would streamline State administration. ($-10 million)
•
Prorate first month's benefit based on date of application. States are now permitted to pay
benefits back to the first day of the month of application. Under this proposal, assistance
would begin on the date of application. A similar change has been enacted for Food
Stamps, and is proposed for SSI. ($-14 million)
•
Eliminate optional AFDC emergency assistance program, and broaden the Low Income Home
Energy Assistance program to include emergency assistance-type expenditures. This would
reduce program overlap and give States added flexibility to provide assistance in the manner
they deem most appropriate. This change would be effective October 1, 1982. ($-60
million)
•
Phase in full fiscal responsibility to the States for erroneous payments in AFDC, Medicaid, and
Food Stamps. A zero error tolerance would be phased in by 1986. ($-234 million)
51
Proposed changes which affect AFDC and other public assistance programs, including Combined
Welfare Administration for States, and the new Federal policy on treatment of erroneous payments,
are discussed elsewhere in this chapter.
Effects of the Proposed Changes
These changes would ensure that Federal resources are targeted on the neediest, and that individuals
and families who are able to support themselves do not continue to rely on public assistance. Federal
outlay savings from these changes are estimated at $1.2 billion 1983 and nearly $6 billion over the
next five years. States will save an amount equal to about 85% of the Federal savings.
52
Child Support Enforcement
FUNCTIONAL CODE: 609/551/605
AGENCY: Department of Health and Human Services
Funding
($ in millions)
1984
1985
1981
1982
1983
CURRENT SERVICES
Budget Authority
Outlays
448
439
409
510
553
553
622
622
REAGAN BUDGET
Budget Authority
Outlays
448
439
374
475
408
408
—
—
35
35
145
145
PROPOSED SAVINGS
Budget Authority
Outlays
1986
1987
700
700
787
787
886
886
471
471
544
544
625
625
718
718
151
151
159
159
166
166
176
176
Program Description
Currently, the Federal Government pays 75% of State and local administrative costs for Child Support
Enforcement (CSE) agencies that establish paternity and collect support payments from legally liable
absent parents. The Federal share of these costs is shown in the table above. Where the absent
parent's family is on AFDC, these collections offset AFDC costs. In 1981, these collections reduced
Federal AFDC costs by $268 million. By 1987, the Federal share of collections under current law is
projected to exceed $500 million.
An added 15% payment (financed solely out of the Federal share of collections) is also made to States
for "cooperating" in child support cases in other jurisdictions. States also receive special Federal
financing for court personnel who are involved in child support as part of their regular
responsibilities.
Since the Federal share of total collections is less than 50%, but the Federal share of administrative
costs is over 75%, the CSE program is a net gain for States, and a net cost to the Federal
Government, even though AFDC collections are increasing.
Proposed Changes
The Administration proposes to restructure Federal matching to provide incentives for improved State
and local performance. The current structure of Federal matching payments and distribution of
AFDC collections would be repealed. Instead, a new formula designed to reward States both for
increasing collections and for operating cost-effective programs would be instituted.
The Administration also proposes to require States to retain 6% of child support collections for all
non-AFDC cases as reimbursement for the costs of enforcement and collection. Currently, these costs
are paid almost entirely by the Federal Government, even though the collections do not offset Federal
AFDC costs. The existing fee provision, which is applied only to a few non-AFDC cases, would be
repealed.
In addition, a number of other reforms are proposed to strengthen the CSE identification and
collection process, and increase collections. These include increasing the availability of information
for State CSE agencies, and making allotments against pay for military personnel who have delinquent
child support obligations. Savings from these proposals ($12 million in 1983) are shown in the AFDC
budget as increased collections which offset AFDC costs.
53
Rationale
•
Twelve States run cost-effective programs with AFDC collections/administrative cost ratios
of more than 2 to 1. Nineteen States do not currently collect enough to even cover costs,
and the remaining States run programs of only marginal effectiveness. Since the Federal
Government finances over 75% of State and local CSE costs, improved performance by the
States should be required.
•
The new 6% fee for non-AFDC cases would stop the public subsidy to families not receiving
AFDC, while continuing to provide a service that the private sector could not provide at a
comparable price.
Effects of the Proposed Changes
Restructuring Federal matching rates would increase the incentives for States to improve the
performance of their child support enforcement agencies, and would help ensure that family financial
obligations are fulfilled. The proposed changes would increase AFDC collections and/or decrease the
Federal share of CSE administrative costs by about $150 million in 1983 and nearly $900 million over
the next five years. Increased child support collections would help offset Federal and State AFDC
costs.
54
Medicaid
AGENCY: Department of Health and Human Services
FUNCTIONAL CODE: 551
Funding
($in millions)
1984
1985
1981
1982
1983
CURRENT SERVICES*
Budget Authority
Outlays
17,442
16,843
18,945
18,101
14,461
18,989
20,960
20,960
REAGAN BUDGET
Budget Authority
Outlays
17,442
16,433
17,968
17,823
12,925
17,006
—
977
278
1,536
1,983
PROPOSED SAVINGS
Budget Authority
Outlays
1986
1987
24,152
24,152
26,472
26,472
29,223
29,223
18,628
18,628
20,407
20,407
22,138
22,138
24,314
24,314
2,332
2,332
3,745
3,745
4,334
4,334
4,909
4,909
Includes $884 million in 1981 and $895 million in 1982 for State administration grants; in later years these funds are shown
in a separate account The Administration's proposal for a Combined Welfare Administration for States is discussed in a
separate paper in this chapter. Excludes Federal administrative costs of approximately $70 million, which are included in the
functional tables in Part 5 of the Budget The large reduction in BA in 1983 is due to a transition quarter resulting from a
technical change in the appropriation language.
Program Description
Medicaid is a program of grants to States to assist them in providing medical care to low income
families and individuals. The Federal Government provides States with open-ended matching
payments for their expenditures, with the Federal match (based on State per capita income) ranging
from 50% to 78%. Program growth averaged 15% annually from 1975 to 1980, and was 21%, $2.9
billion, in 1980-1981. Combined Federal and State expenditures per Medicaid beneficiary will exceed
$1,400 in 1983 even with proposed savings.
The Reconciliation Act of 1981 reduced the Federal match — by 3% in 1982, 4% in 1983, and 4-1/2%
in 1984 — and provided States some additional flexibility to manage the program efficiently.
Nonetheless, Federal program expenditures under current law (excluding administrative expenses) are
expected to grow at an annual rate of more than 10% in 1983 and 1984, jumping to over 15% in 1985.
Proposed Change
The Administration will propose a variety of legislative changes designed to improve program
efficiency and effectiveness and to provide increased ability to manage the program. Adoption of
these changes would result in outlay savings of $2.0 billion in 1983, rising to $4.9 billion annually by
1987. As part of the Federalism initiative, discussed elsewhere, the Administration has also offered to
accept full responsibility for the financing of Medicaid.
Rationale
The unconstrained growth of the Medicaid program places a heavy burden on both Federal and State
taxpayers. Open-ended Federal matching, poorly structured benefits, and overly-generous eligibility
have contributed to Medicaid's failure to provide cost-effective services to those in need. The
Administration proposals will reduce excessive costs while assuring maintenance of essential assistance.
Proposed changes would:
•
Reduce the Federal match for optional services and beneficiaries. Currently, the Federal
Government matches expenditures for optional services and for optional beneficiaries at the
same rate as expenditures under the basic program. The Administration proposes to reduce
the Federal match for optional State programs by three percentage points to reflect their
lower priority and their discretionary character (-$600 million in 1983).
55
•
Establish co-payments for Medicaid services. The provision of nearly all medical services
without any charge to the beneficiary creates a situation which can lead to unnecessary
demand for services, waste and excess costs. Imposing modest recipient co-payments (e.g.,
$l/outpatient visit, $2/inpatient day) would encourage more responsible use of resources by
requiring beneficiaries to provide some financial contribution for their own care in accord
with generally accepted insurance principles (-$329 million in 1983).
•
Allow States flexibility to recover long term care (LTC) costs from beneficiary estates and
relatives. Because of the high cost of LTC services, individuals with relatively high incomes
and assets may become Medicaid-eligible. Federal law and regulations, however, pose
barriers to State collections from the beneficiaries' estates and the incomes of beneficiaries'
families. Removing these barriers, while retaining Medicaid eligibility requirements, would
eliminate an inappropriate public subsidy to Medicaid LTC beneficiaries' families and heirs,
while continuing to assure access to needed care (-$283 million in 1983).
•
Establish a Combined Welfare Administration program for States.
Expenditures for
administrative services are largely controllable by States. However, despite the controllability
of administrative costs, the Federal Government matches whatever States spend. At the
same time, the regulations associated with open-ended matching are unnecessarily complex
and burdensome. The Administration proposes to replace the current matching system with
a unified fixed payment for administrative costs for three welfare programs — Medicaid,
AFDC and Food Stamps. The unified payment is discussed in more detail in a separate
paper (-$218 million in Medicaid savings in 1983, not included in the Medicaid totals
above).
•
Eliminate Federal matching for the State Medicare buy-in. Currently, Federal general fund
expenditures finance 75% of Medicare Supplementary Medical Insurance (SMI) expenditures.
States are allowed to enroll eligible Medicaid beneficiaries in SMI and pay the beneficiary
share of premiums out of Medicaid funds at the normal Federal Medicaid match (the
Medicare buy-in). The combination of the 75% general fund subsidy and the Federal
Medicaid match results in a Federal subsidy of almost 90% for Medicare-covered services.
Eliminating matching for the buy-in would reduce the Federal subsidy to a more reasonable
75% while still providing sufficient incentives for States to buy in (-$203 million in 1983).
•
Eliminate special matching rates. Currently, States receive special higher matching rates for
such activities as family planning and nursing home inspections. Elimination of these special
matches would allow States to establish program priorities without the distortions imposed by
special Federal fiscal incentives and would end unnecessary Federal subsidies for these
activities (-$64 million in 1983).
•
Phase-in full State responsibility for erroneous payments. State payment errors, up to 4% of
program costs, are currently matched by the Federal Government at the same rate as other
program payments. The proposed change would establish a policy of phasing-in full State
responsibility for erroneous payments through reducing the acceptable error level by 1
percentage point per year. This proposal is discussed in detail in a separate paper in this
chapter (-$59 million in 1983).
•
Shorten the automatic extension of Medicaid eligibility. Currently, individuals who lose their
eligibility for AFDC as the result of increased earnings are granted an automatic Medicaid
eligibility extension of four months. The Administration proposes to reduce the extension to
one month, sufficient time for private employment-based health insurance to become
effective (-$75 million in 1983).
•
Impact on Medicaid of AFDC proposals. Proposed changes in AFDC to improve the welfare
system, including increased work requirements, improved income measurement, and
administrative simplification, will reduce Medicaid costs (-$153 million in 1983).
•
Impact on Medicaid of SSI proposals. Reductions in the SSI rolls through tightened
standards for determination of disability will reduce Medicaid expenditures (-$176 million in
1983).
•
Other proposals. Several minor changes, including the impact of Medicare proposals on
Medicaid, will produce additional savings (-$41 million in 1983).
56
Effects of the Proposed Change
These changes will maintain basic Federal responsibility for assuring medical care for those in need.
Even with these reforms, Federal program expenditures will rise to $17 billion in 1983 and are
expected to increase to $24 billion annually by 1987. At the same time, excessive program
expenditures will be reduced by:
•
increasing beneficiary and family responsibility for care;
•
reducing Federal subsidies which are unnecessary to assure services to those in need and
which distort program priorities;
•
providing additional incentives for economical program administration and targeting of
resources; and,
•
eliminating Federal barriers to economical program operation.
57
Medicare
AGENCY: Department of Health and Human Services
FUNCTIONAL CODE: 551
Funding
($ in millions)
1984
1985
1981
1982
1983
CURRENT SERVICES
Budget Authority
Outlays
45,292
42,489
55,846
49,872
61,293
57,823
67,768
66,309
REAGAN BUDGET
Budget Authority*..
Outlays
45,292
42,489
55,863
49,552
62,454
55,352
17
320
1,161
2,472
PROPOSED SAVINGS
Budget Authority*
Outlays
1986
1987
76,127
76,174
87,447
87,027
97,244
99,145
68,860
61,178
76,656
68,365
88,523
75,649
98,566
83,051
1,092
5,131
529
7,809
776
11,378
1,322
16,094
•Excludes amounts associated with combining Social Security trust fund resources other than as provided by current law.
Program Description
Medicare provides health insurance for aged and disabled Americans. Medicare Hospital Insurance
(HI) is financed by payroll taxes; Medicare Supplementary Medical Insurance (SMI) is financed by a
combination of beneficiary premiums and general revenues. Approximately 26 million aged and 3
million disabled Americans will benefit from Medicare coverage in 1983.
Proposed Change
The Administration is proposing a number of program changes to improve the efficiency and
effectiveness of Medicare. The changes are designed to:
•
reduce the excessive rate of health care cost inflation by improving market forces in the
health care industry,
•
reduce excessive reimbursement to providers, and
•
improve program efficiency.
The proposed changes would help fulfill the Administration's commitment to assuring the continuance
of Medicare-financed services to beneficiaries and, if adopted, would result in outlay savings of $2.5
billion in 1983, rising to $16.1 billion in 1987. Specific proposals are discussed below.
Rationale
Medicare's rate of spending increase is a growing burden to the Federal budget and a major
contributor to health cost inflation. Under current law and policy, the program will grow about 16%,
or about $8 billion in 1983, compared to overall budget growth of 4.5%. Medicare spending now
accounts for 26% of national expenditures for hospital care and 17% for physician services. The
perverse incentives built into the health care financing system have fueled Medicare cost increases. At
the same time, the explosive growth in Medicare costs, combined with Medicare's inflationary
reimbursement principles, has also contributed to the excessive rate of health care cost inflation
generally.
The urgency of achieving economies in the Medicare program is heightened by the financial
difficulties confronting the Social Security system. Considered alone, the Medicare HI trust fund will
see expenditures exceeding income in 1985 and will be exhausted by the early 1990s. Program
58
economies are needed in order to assure continuance of essential protection to aged and disabled
Americans and to eliminate wasteful and unnecessary expenditures. For the long term, the
Administration proposes to reduce the Medicare growth rate through reforms designed to improve
market forces in the health care industry and in the program itself.
Proposed changes include:
•
Improve market forces in the health care industry: Perverse incentives are woven into the
fabric of the current health care market. Wasteful provider reimbursement, coinsurance
arrangements that subvert price-consciousness in choice of provider and promote excessive
utilization of services, and inadequate incentives to promote cost-effective health care systems
have all contributed to an explosive rate of growth in health care costs. The Administration
will propose, later this year, measures to improve market forces in the health care industry
and in the medicare program. No costs or savings from these efforts are assumed until 1984.
•
Institute co-payments for home health services. Home health services are currently free and
unlimited. As a result, the program is growing at an annual rate of almost 30%. Modest
co-payments would be established to encourage beneficiary cost-consciousness in the use of
the service. The co-payment would be 5% for the first 100 visits (about $2.40) and 20%
thereafter (-$35 million in 1983).
•
Establish HI entitlement insurance coverage for Federal workers. Currently, more than half of
retired Federal workers over 65 qualify for HI coverage on the basis of spouse earnings or
modest periods of employment in the private sector, even though they did not pay the HI
tax as Federal employees. Universal eligibility for Medicare among Federal workers would
be established by requiring payment of the HI tax. This change would improve the solvency
of the HI trust fund and provide more equitable treatment of Federal workers ($619 million
in 1983 revenue increase).
•
Make Medicare coverage secondary to private group insurance for the working aged
Currently, Medicare subsidizes the labor costs of companies employing aged workers by
providing primary insurance coverage. This proposal would require employers to offer aged
workers the same health insurance as other employees and establish coordination of benefits
between Medicare and private group insurance (-$306 million in 1983).
•
Reduce the rate of increase of Medicare hospital reimbursement by 2%. Currently, Medicare
generally reimburses hospitals for the full cost of medically necessary services to beneficiaries,
regardless of how inefficiently the services are provided. This inherently inflationary
reimbursement method has contributed to an excessive rate of hospital cost increase which
was close to 20% in 1981. This proposal would achieve program economies by reducing
Medicare hospital reimbursement 2% on an interim basis until the Administration's
forthcoming proposals to improve the competitiveness of the health care sector are fully
effective (-$653 million in 1983).
•
Set single reimbursement limit for home health agency (HHA) and skilled nursing facility
(SNF) services. Currently, hospital-affiliated HHAs and SNFs have a higher reimbursement
limit than free-standing facilities, even when services provided are identical.
The
Administration proposes to establish a single reimbursement limit to encourage greater
competition and efficiency in the delivery of services (-$18 million in 1983.)
•
Eliminate private room subsidy. Payment to hospitals for the excess cost of private rooms is
an unintended byproduct of current Medicare cost calculation methods, since Medicare was
always intended to pay only the cost of semi-private rooms. The Administration proposes to
remove the excess cost of private rooms prior to calculation of Medicare's share of total costs.
The change would not increase out-of-pocket expenses of program beneficiaries, since only
reimbursement to hospitals would be affected (-$54 million in 1983).
•
Reduce reimbursement for physicians rendering care in hospital outpatient departments. The
outpatient reimbursement reduction would reflect the lower overhead costs experienced by
these physicians and thus eliminate the double payment which results from Medicare paying
this overhead both through physician charges and through hospital cost reimbursement
(-$160 million in 1983).
59
•
Establish prospective reimbursement rates for renal dialysis services. This proposal would
create greater incentives for provider efficiency and would encourage less costly home
dialysis (-$130 million in 1983).
•
Revise radiology/pathology reimbursement. The Administration proposes to reduce Medicare
reimbursement for radiologists and pathologists from 100% to 80%, thus paying them on the
same basis as other physicians (-$160 million in 1983).
•
Update Medicare physician fee limits on October 1, 1982, instead of July 7, 1982. This
proposal would conform Medicare fee limit changes with the Federal fiscal year (-$210
million in 1983).
•
Cut proposed increase in the physician fee limits from 8% to 5%. Since 1972, the increase in
the maximum fees the Medicare program will recognize for reimbursement purposes has
been limited by an index representing wages and physician practice costs. Physician
payments under Medicare have increased faster than the index. The rate of increase in
recognized fees would be reduced on an interim basis until the Administration's forthcoming
proposals to improve competition in the health care sector are fully effective (-$35 million in
1983).
•
Index the SMI deductible. The current $75 deductible would be indexed to the Consumer
Price Index in order to keep its economic value constant (-$65 million in 1983).
•
Establish targets to reduce unnecessary use of hospital and medical care. Currently, the
average length of stay for Medicare patients is 11 days. Wide variations in the length of stay
among regions, even after adjusting for differences in diagnosis, indicate that some of these
days are unnecessary. For example, there are 48% more days of care per capita in the
Northeast than the West. The Administration proposes to establish objectives for Medicare
contractor activities and cooperate with private sector efforts to reduce unnecessary days and
other services. At the same time, current provisions which waive provider liability for the
cost of unnecessary or uncovered care would be eliminated (-$ 372 million in 1983).
•
Establish Medicare eligibility at the beginning of the first full month after attaining age 65
rather than the beginning of the month in which the birthday occurs. This change would
conform Medicare practices to similar changes proposed for other entitlement programs
(-$145 million in 1983).
•
Other reforms. Other minor reforms would produce additional savings (-$129 million in
1983).
Effects of the Proposed Change
The proposed changes will reduce Medicare program costs while maintaining beneficiaries' basic
health insurance protection.
•
Even with the proposed changes, benefits per Medicare enrollee would increase 10% in 1983,
and payments to providers will increase 12% percent.
•
These proposals, by preserving trust fund assets, will help to assure that basic benefits can
continue to be paid in the future without excessively burdensome tax increases.
60
Supplemental Security Income
AGENCY: Department of Health and Human Services
FUNCTIONAL CODE: 551
Funding
($ in millions)
1984
1985
1981
1982
1983
CURRENT SERVICES
Budget Authority
Outlays
7,227
7,191
7,878
8,000
9,177*
9,188*
8,270
8,268
REAGAN BUDGET
Budget Authority
Outlays
7,227
7,191
7,777
7,900
8,891*
8,903*
—
—
101
100
PROPOSED SAVINGS
Budget Authority
Outlays
286
286
1986
1987
9,330
9,326
9,826
9,823
10,296
10,292
7,781
7,779
8,622
8,618
8,912
8,909
9,196
9,192
489
489
708
708
914
914
1,100
1,100
•Since the first day of the first month of fiscal 1984 falls on a weekend, the first benefit check for 1984 is paid on the last
weekday of 1983 thus making 1983 a 13 rather than 12 benefit month year.
Program Description
Supplemental Security Income (SSI) provides cash assistance to low-income individuals who are aged,
blind or disabled. The current (1982) maximum monthly payments and income guarantees are $264.70
for an eligible individual and $397 for an eligible couple. These amounts are indexed annually for
increases in the cost-of-living. Approximately 1.5 million aged persons and 2.1 million blind or
disabled persons receive Federal SSI benefits.
Another 500,000 persons receive State SSI
supplementation payments only. Benefit checks are usually issued the first of each month.
Proposed Change
The Administration proposes to:
•
Prorate the first month's SSI benefit from the date of application or date of eligibilty (in the
case of aged persons).
•
Restrict the definition of permanent disability to a prognosis of at least 24 months of
disability.
•
Ensure that the definition of disability is based on a preponderance of medical rather than
other factors.
•
For new beneficiaries no longer disregard the first $20 of income in setting benefit levels.
•
Recover overpayments to individuals from available Social Security benefits.
•
Continue to phase out transitional hold harmless payments.
Rationale
•
Under current law, all new recipients have been paid a full month's benefit regardless of the
day of the month on which they file or, in the case of aged applicants, the day they become
eligible for assistance (i.e., turn age 65). Consequently, most individuals who apply for SSI
receive benefits for periods of time before they applied or were eligible. Prorating the first
month's benefits based upon date of application (or eligibility) would base an applicant's
benefits more fairly on the appropriate period.
61
•
Under current law, the monthly guarantee and actual payments are rounded to the next
higher 10 cents in the computation process. Over time, however this rounding procedure has
had a compounding effect that results in slightly higher benefit payments. Rounding the SSI
guarantee and payment amounts to the next lower dollar would eliminate the modest
overcompensation that results from the current higher rounding procedure.
•
The SSI definition of permanent disability includes a requirement that an individual's
impairment must be expected to result in death or continue for not less than 12 months.
Restricting permanent disability to nonemployable individuals with a prognosis of at least 24
months of disability would assure that temporary disabling impairments would not be a basis
to qualify for benefits. The 24 month duration requirement is more consistent with the
concept of permanent disability.
•
Individuals are considered disabled under SSI if their medically determined impairment is of
such severity that they are not only unable to do their previous work, but cannot, because of
education or work experience, engage in substantial gainful employment. Ensuring the
definition of disability is based on a preponderance of medical factors would eliminate a
problem under present law in utilizing vocational and other subjective nonmedical factors
which make consistent disability determination decisions difficult. Relying on medical factors
would produce more objective and consistent determinations and fewer appeals.
•
Under current law, $20 per month of an individual's income is disregarded in determining
SSI eligibility and amount of benefits. Since the disregarded amount is fixed, it is of
decreasing significance in real dollars. It also can result in differential treatment of recipients.
Some people in similar circumstances get the maximum SSI payment of $264 and others
having combined SSI and other income get $20 more a month than the maximum SSI
payment. The proposed change would apply a uniform standard to newly eligible persons.
•
The Social Security Administration has been unable to recover more than forty percent of
SSI overpayments because many of the overpaid individuals are no longer in the SSI
program. Half of the former beneficiaries receive Social Security retirement and disability
benefits. The proposed change would allow Social Security Administration to recover SSI
overpayments from these no longer needy individuals.
Effects of Proposed Change
Rounding benefit amounts and payment standards would have a minimal effect on individual
benefits. Beneficiaries would have their monthly benefits reduced by an average of 50 cents.
Applying an established medical definition of disability would lower SSA's administrative costs and
make disability determinations more consistent and objective.
This proposal would exclude payments to an estimated 115,000 individuals in 1983 who are not
permanently disabled.
62
Combined Welfare Administration
FUNCTIONAL CODE: 609/551/605
AGENCY: Department of Health and Human Services/
Department of Agriculture
1983
CURRENT SERVICES
Budget Authority
Outlays
2,125
2,100
($ in millions)
1984
1985
1986
1987
2,2%
2,298
2,483
2,488
2,615
2,588
2,794
2,761
2,920
2,885
3,056
3,020
2,2%
2,298
2,181
2,181
2,181
2,181
2,181
2,181
2,181
2,181
2,181
2,181
302
307
434
407
613
580
739
704
875
839
REAGAN BUDGET
Budget Authority...,
Outlays
PROPOSED SAVINGS
Budget Authority
Outlays
NOTE: These figures include savings to the Departments of Health and Human Services and Agriculture which are shown
separately in the 1983 budget
Program Description
The Federal Government currently matches State administrative expenses at a 50% rate for the Food
Stamp, Medicaid, and Aid to Families with Dependent Children (AFDC) programs on an
open-ended basis. Some administrative expenses, such as those for anti-fraud activities and
management information systems, receive a higher Federal match. Although these three welfare
programs are often jointly administered, States work with a different set of cost allocation and
reporting requirements for each program.
Proposed Change
Combined Welfare Administration (CWA) will combine funding to States for the administrative
expenses of Food Stamps, Medicaid and AFDC into a single payment with no State match required.
It will be funded at 95% of the Federal share of 1982 ongoing administrative expenses for those
programs. In certain areas where the Federal Government supports anti-fraud and anti-abuse
activities at a higher level, such as Food Stamps Fraud Control, the current open-ended Federal
match will continue. Many Federal administrative requirements will be reduced or eliminated to give
States added flexibility.
Rationale
•
CWA supports the Administration's goal of returning to the States greater responsibility for
running programs. States will have the flexibility to design efficient administrative
mechanisms for public assistance programs that best meet their beneficiaries' needs.
•
CWA replaces an open-ended system that provides States with little incentive to control
administrative costs, and that burdens States with separate reporting and cost allocation
requirements for AFDC, Medicaid, and Food Stamps. Under the current system,
administrative costs vary widely; for example, in 1978, States' costs for issuing one Food
Stamp case varied from $7.00 to $107.00. These variations bear little relationship to an
individual State's ability to control the high error rates in public assistance programs.
•
From other appropriations the Federal government will continue to match 75% of State
expenditures for activities that currently receive special Federal matching for controlling
fraud and abuse on an open-ended basis. This reflects the high priority given these activities
by the Administration.
63
Effects of the Proposed Change
•
CWA will reduce Federal payments for administering the Food Stamp, Medicaid and AFDC
programs by $302 million in 1983 and $875 million by 1987.
•
With the opportunity to restructure their administrative operations and the removal of
separate cost allocation and reporting requirements, States should be able to realize
substantial savings.
•
CWA will also give States the incentive to operate more efficiently, since they will not need
to apply the full amount of State funds previously used to meet the matching requirement.
64
State Responsibility for Errors in Welfare Programs
AGENCY: Department of Health and Human Services/
Department of Agriculture
FUNCTIONAL CODE: 551/605/609
Funding
r$ in millions)
1984
1985
1981
1982
1983
CURRENT SERVICES (est)
Budget Authority
Outlays
1,781
1,781
1,684
1,684
1,562
1,562
1,278
1,278
REAGAN BUDGET (est)
Budget Authority
Outlays
1,781
1,781
1,684
1,684
654
654
—
—
—
—
908
908
PROPOSED SAVINGS (est)
Budget Authority
Outlays
1986
1987
1,297
1,297
1,304
1,304
1,310
1,310
424
424
234
234
—
—
—
—
854
854
1,063
1,063
1,304
1,304
1,310
1,310
Program Description
Aid to Families with Dependent Children (AFDC), Medicaid, and Food Stamps are the major
Federal/State public assistance programs. While benefits are paid in part or in total by the Federal
Government, States administer the programs. In AFDC and Medicaid, States also design the eligibility
rules and benefits levels within broad Federal guidelines. Of the more than $50 billion in total 1981
benefit payments for AFDC, Medicaid, and Food Stamps, an estimated $3.3 billion are overpayments
or are paid to individuals who are totally ineligible, according to quality control samples. In these
cases, States have either not complied with Federal program rules, have incorrectly computed benefits,
or have failed to adequately verify the statements of income and family composition made by
recipients.
States are currently subject to fiscal sanctions for AFDC and Medicaid payment error rates which
exceed 4% (the level for Food Stamps is slightly higher). Errors up to these target levels are currently
permitted, and Federal funding for them is provided.
Proposed Change
Under the Administration's proposal, full State fiscal responsibility for erroneous welfare payments
administered by State and local governments would be phased in over 4 years. The maximum
allowable payment error rate for Federally financed payments would be 3% in 1983 and decline to 1%
for 1985. Beginning in 1986, no Federal matching would be permitted for any erroneous payments in
AFDC, Medicaid, and Food Stamps. The quality control system would ensure that errors are
measured correctly. Grant amounts to States would reflect projections of State costs and error rates.
The change would begin on October 1, 1982.
Rationale
There is no justification for Federal financing of payment errors in State-administered programs.
States currently have little special financial incentive to reduce errors since they are federally funded
under matching rates that range from 50% to 77%. Food Stamp benefits are fully federally financed.
While State error rates have decreased substantially over the last 10 years, they remain too high: 7.3%
in AFDC, 5.0% in Medicaid, and 10.4% in Food Stamps. The Federal cost of erroneous State AFDC
and Medicaid payments in 1981 was about $700 million. Food Stamp payments in error exceeded $1
billion for 1981.
360-900 0 - 8 2 - 3
65
The four year phase-out would give States adequate time to make improvements in design and
administration of their welfare programs in order to eliminate errors. Waivers of these maximum error
rates would not be permitted.
Effects of Proposed Change
This proposal would require States to run welfare programs more efficiently by placing financial
responsibility with the level of government which administers the programs. This change is an integral
part of the Administration's commitment to eliminating fraud, abuse, and waste. By 1986, Federal
savings from this proposal would exceed $1.3 billion annually.
66
Trade Adjustment Assistance Weekly Cash Benefits
AGENCY: Department of Labor
Funding
FUNCTIONAL CODE: 603
_
($ in millions)
1984
1985
1981
1982
1983
CURRENT SERVICES
Budget Authority
Outlays
1,481
1,481
144
144
118
118
81
81
REAGAN BUDGET
Budget Authority
Outlays
1,481
1,481
144
118
10
10
—
—
—
26
108
108
PROPOSED SAVINGS
Budget Authority
Outlays
1986
1987
65
65
63
63
60
60
—
-
—
-
—
—
—
-
81
81
65
65
63
63
60
60
Program Description
Workers whose loss of work is attributed, at least in part, to imports can receive extra unemployment
compensation under Trade Adjustment Assistance (TAA). The majority of current recipients are
workers in the automobile industry. TAA benefits, equal to the worker's weekly unemployment
benefits, are paid to those who have used up all their weeks of unemployment insurance and are still
not working. Such workers can receive a total of 52 weeks of unemployment insurance and TAA
benefits combined.
TAA funds in the Employment and Training Assistance account also cover those training costs
approved by the Secretary of Labor as well as job search and relocation allowances. These benefits,
which assist dislocated workers to find new jobs, are commonly called "adjustment" benefits.
Workers in approved training may receive up to 26 additional weeks of TAA beyond the 52 weeks of
combined unemployment insurance and TAA benefits available to them.
Proposed Change
The Administration proposes to:
•
Maintain the adjustment portion of TAA by funding training, job search, and relocation as
part of a Federal program for special target groups. (See fact sheet on Training and
Employment Programs in Chapter 2.)
•
Eliminate all TAA weekly cash benefits effective July 1, 1982, for all but those already
enrolled in approved training.
Rationale
•
Workers who have lost their jobs through no fault of their own should be treated similarly
regardless of the reason for job loss. The regular unemployment insurance program provides
adequate benefits for such workers. This is consistent with Administration policy of targeting
aid to those most in need.
•
Most workers eligible for TAA have taken advantage only of the cash benefits and have not
used the training or other adjustment benefits. Of almost 1.3 million workers who received
TAA from April 1975 through March 1981, only 38,000, or 3%, entered training; 1.2%
completed training; 0.35% took job search aid; and 0.24% received relocation allowances.
•
The extra weeks of cash TAA benefits provide disincentives for effective job search by
unemployed workers. Research on unemployment insurance indicates that availability of
67
additional weeks of cash benefits leads workers to remain unemployed for longer periods of
time.
•
Training, job search, and relocation allowances are better than cash payments in helping
displaced workers find new jobs, since such allowances help workers prepare for and move to
new work while cash payments tied to unemployment do not.
•
The Administration's goal of increased economic growth is best achieved by helping these
workers acquire the new skills they need to re-enter the workforce.
Effects of the Proposed Change
This change will reorient the TAA program to emphasize adjustment to changed economic conditions.
Training, job search, and relocation benefits which help workers adjust will be maintained. Extra
weekly cash unemployment benefits, which provide workers with a disincentive to seek new jobs, will
be eliminated.
68
Redwood Employee Protection Program
AGENCY: Department of Labor
FUNCTIONAL CODE: 603
Funding
1981
1982
1983
CURRENT SERVICES
Budget Authority
Outlays
31
31
12
12
10
REAGAN BUDGET
Budget Authority
Outlays
31
31
12
11
PROPOSED SAVINGS
Budget Authority
Outlays
—
—
(Sin millions)
1984
1985
1986
1987
10
Program Description
The Redwood Employee Protection program provides specified rights and benefits for up to six years
to an estimated 3,000 workers who have been or are likely to be declared displaced by Federal
acquisition of land for the Redwood National Park, pursuant to 1978 amendments to legislation that
established the Redwood National Park. Benefits include cash payments to replace fully after-tax
wages that would have been paid to Redwood workers if they had not been laid off. The program
also includes severance payments, continuation of all rights and benefits under health, other welfare,
and pension plans, as well as job search and relocation allowances.
Benefit payments began in September 1978. Through early December 1981, the program had paid
$28.4 million in weekly benefits to 2,448 workers and $18.9 million in severance payments to 1,239
workers. Job search allowances totaling less than $20,000 were authorized for 90 workers and
relocation allowances totaling $340,000 were authorized for 127 workers. Net weekly benefit amounts
have ranged from $150 to $800. Recently the average severance benefit has been $22,000. Net
severance benefits have ranged from $5,600 to $54,000.
Proposed Change
Effective July 1, 1982, pay benefits under the program only to those eligible workers directly affected
by the expansion of the park who became unemployed on or before December 31, 1978. Other
workers in the area who became unemployed after December 31, 1978 and who are still eligible for
regular unemployment insurance benefits would continue to receive them but could not collect
Redwood benefits.
Rationale
•
The Federal benefits were authorized for workers who lost their jobs when the Federal
Government acquired land to expand the Redwood National Park. These extraordinary
benefits should be limited to those workers directly affected by the land acquisition.
•
The proposed change would continue special benefits for workers whose unemployment
began as late as December 31,1978, some nine months after the land acquisition.
•
Excessive and inequitable benefits cannot continue to be justified at a time when budget
constraints force very sharp targeting of aid on those most in need.
69
Effects of the Proposed Change
The change would eliminate the extraordinary benefits for workers who first became unemployed nine
months or more after the Redwood Park land acquisition. They would be eligible for unemployment
insurance under the same rules that apply to other workers who lost their jobs through no fault of
their own.
70
Federal Employee Injury Compensation
AGENCY: Department of Labor
FUNCTIONAL CODE: 602
Funding
($ in millions)
1984
1985
1981
1982
1983
CURRENT SERVICES*
Budget Authority
Outlays
279
238
345
269
394
394
418
418
REAGAN BUDGET
Budget Authority
Outlays
279
238
345
269
336
336
PROPOSED SAVINGS
Budget Authority
Outlays
—
—
—
—
SAVINGS LN OTHER AGENCIES.
—
POSTAL SERVICE SAVINGS
TOTAL SAVINGS
1986
1987
472
472
535
535
605
605
372
372
450
450
511
511
578
578
58
58
46
46
22
22
24
24
27
27
—
38
80
104
112
119
—
=
20
41
54
52
61
-
-
116
167
180
193
207
•After reflecting proposed limit on Federal pay raises.
Program Description
Federal employees injured on the job are paid by the Department of Labor for medical expenses and
provided with tax-exempt income replacement of as much as 75% of their former gross salaries if they
have dependents. These payments can continue for life. Employing agencies subsequently reimburse
the Department for their employees. Employees who file claims that an injury prevents them from
reporting for work can continue to receive full pay from their agencies for up to 45 days while the
claim is being examined.
Proposed Change
The Administration proposes to:
•
Alter the compensation rate for disability from a flat percentage of gross Federal pay to a
formula based on 80% of take-home pay.
•
Eliminate the 45-day continuation of full pay while claims are being examined; extend the
waiting period from three to seven days before compensation can be paid; and permit
agencies to advance compensation under the above formula in clear-cut cases while claims
are being examined.
•
Transfer long-term disabled employees to civil sevice retirement rolls at age 65.
•
Provide survivors of employees who die as result of work-related injury the same benefits as
those provided to disabled workers.
•
Provide the same benefits to all employees for loss of a body member regardless of grade
level.
•
Limit annual cost-of-living adjustments to the lesser of the annual increase in the pay
schedule for most Federal employees (General Schedule) or the Consumer Price Index (CPI).
71
Rationale
The changes are designed to ensure that Federal workers disabled as a result of their employment
return to gainful work as soon as possible. The changes would accomplish this by correcting a
number of deficiencies in the structure of the program and by tightening program administration to
preclude misuse and assure efficient case processing. The number of claims being submitted for
workers' compensation benefits under the Federal Employees' Compensation Act (FECA) has been
growing at an alarming pace bearing no relationship to the number of Federal employees or the
Government's safety record. The annual number of claims received by this program has grown from
18,000 in 1970 to over 30,000 in 1980. In the same period, Government employment declined and
there was no change in the average number of job-related deaths, indicating that the Government's
safety record has not deteriorated.
•
Relating income replacement to gross salary results in higher paid workers receiving more
take-home pay than they receive when they are working. The proposed change to 80% of
take-home pay would eliminate this problem. Augmentation of benefits in the case of those
with dependents would also be eliminated, since it is both inappropriate for a wage
replacement system and unavailable to private sector workers.
•
The 45-day continuation of pay has succeeded in ensuring that employees were not left
without income while their claims were being processsed. However, full pay is clearly an
incentive to take time off for minor injuries beyond that necessary for recovery and has
resulted in significant agency costs. The proposed change would authorize agencies to pay
the new injury compensation in advance of claim determination provided they have certain
medical evidence that shows a serious disability involved.
•
Prior to amendments of FECA in 1974 the three-day waiting period was between the onset
of the disability and the collection of benefits. The 1974 amendments placed the waiting
period at the end of the 45-day continuation of pay period. The proposed change would
establish a seven-day waiting period before a claimant receives compensation benefits. This
would make the Federal compensation program similar to that in most State workers'
compensation systems, which have traditionally used such periods to (1) reduce the number
of minor injury cases entering the system and (2) provide disincentives for workers to take
time off for minor injuries.
•
Workers' compensation programs in theory provide replacement of wages lost due to
employment-related injury or illness. However, this loss is no longer present once retirement
occurs, and in the case of Federal employees the retirement system is better suited to meet
the needs of this period. For example, present FECA recipients have no survivor benefits
for nonwork-related deaths, whereas in the retirement program, by taking a reduced annuity,
a recipient can have survivor benefits regardless of cause of death.
•
Survivors of employees who die as a result of work-related injury are now paid less than
disabled workers. This was an oversight in the last amendments to the law.
•
Higher-grade Federal employees receive higher additional benefits than lower-grade
employees for loss of a body member. There is no economic justification for such a
difference, particularly because the basic monthly income payments which vary with grade
already compensate for loss of earning power.
•
Since injury compensation benefits are adjusted annually by the increase in the CPI, they
tend to rise faster than wages paid to Federal employees still working. Tying the benefit
adjustment to the lower of the CPI or Federal pay increase will correct this inequity.
Effects of the Proposed Change
These changes will result in the removal of (1) incentives to file questionable claims, (2) disincentives
for injured workers to return to work when they are medically able to do so, and (3) inequities in
compensation rates which permit higher paid workers to receive more in compensation benefits than
they received in take-home pay when working.
72
Approximately 50,000 beneficiaries will continue to receive average workers' compensation
benefits of about $950 a month.
Approximately 50,000 beneficiaries will have their benefits reduced on average by $115 per
month, primarily because of the new compensation formula.
Approximately 100,000 claimants will not go on continuation-of-pay.
Approximately 9,000 beneficiaries will be transferred to the civil service retirement rolls.
73
Guaranteed Student Loan (GSL)
AGENCY: Foundation for Education Assistance*
FUNCTIONAL CODE: 502
Funding
($ in millions)
1984
1985
1981
1982
1983
CURRENT SERVICES
Budget Authority
Outlays
2,535
1,259
3,061
3,039
3,397
3,313
3,689
3,616
REAGAN BUDGET
Budget Authority
Outlays
2,535
2,259
2,752
2,807
2,485
2,551
—
—
309
232
912
762
PROPOSED SAVINGS
Budget Authority
Outlays
1986
1987
4,035
3,949
3,877
3,916
3,768
3,795
2,516
2,508
2,499
2,503
2,001
2,125
1,521
1,641
1,174
1,108
1,536
1,445
1,876
1,791
2,247
2,154
•Formerly the Department of Education.
Program Description
The Guaranteed Student Loan (GSL) program was authorized by the Higher Education Act of 1965.
The program provides loan guarantees and interest subsidies to States, private lending institutions, and
eligible students. Parents and graduate and professional school student borrowers can also finance
higher education costs through the less subsidized GSL auxiliary loan program.
Proposed Change
The Higher Education Act would be amended to:
•
Increase the "origination fee" charged on new loans from 5% to 10%.
•
Apply the need analysis to students at all income levels and limit loans to those students who
will qualify after taking into account family contributions and other financial aid (e.g., Pell
Grants, G.I. bill).
•
Allow graduate and professional students to borrow only under the auxiliary loan program
and increase the loan limits under the auxiliary loan program for these students from $3,000
to $8,000 per year and from $15,000 to $40,000 for all years.
•
Increase the insurance premiums paid on GSL's to the Federal Government by:
— increasing the premium charged lending institutions in the Federally Insured Loan
program, which insures 5% of all new loans, from 0.25% to 1.0%; and
— initiating a reinsurance premium charged State and private guarantee agencies, which
insure 95% of all new loans, equal to 50% of the annual income which these agencies
earn from insurance premiums they charge participating lending institutions.
•
Limit special allowance interest benefit payments to in-school and deferment periods plus a
two-year period following graduation or withdrawal from school (exclusive of deferment
periods).
Rationale
The current program provides complete Federal subsidization of interest during a student's
postsecondary education and subsidizes any interest above 9% after school completion and deferments.
This encourages students to borrow regardless of financial need from their first year in school and can
74
needlessly cause students to amass high levels of debt. These debt levels in turn allow decreased
reliance on family savings and student work.
Federal expenditures to pay interest subsidy
entitlements in this program have increased by over seven-fold between 1977 and 1981, from $331
million to $2.4 billion.
Since 1978 the primary beneficiaries of GSL loans have been middle and upper income families who
could afford to invest their own funds, which were "freed up" by the guaranteed loans, or the GSL
funds themselves in money market funds and similar savings instruments yielding high returns — in
essence making money on their "free" Federal loans at the taxpayers' expense. The effective rate of
Federal subsidy of a student loan has been as high as 19%.
Effects of the Proposed Change
•
Starting in 1982, only undergraduate students with demonstrated financial need will receive
some 2.9 million federally insured loans amounting to about $6.3 billion. In addition, about
943,000 auxiliary loans to parents and to graduate and professional school students will be
insured, amounting to some $2.5 billion.
•
In 1983, an estimated 2.8 million undergraduate students will receive federally insured loans
amounting to about $5.9 billion. In addition, an estimated $1.8 million auxiliary loans
totalling about $4.4 billion will be insured.
75
Civil Service Retirement
AGENCY:"Office of Personnel Management
Funding
CURRENT SERVICES
Budget Authority
Outlays
REAGAN BUDGET
Budget Authority
Outlays
,
PROPOSED SAVINGS
Budget Authority
Outlays
FUNCTIONAL CODE: 600
_
1981
1982
1983
($ in millions)
1984
1985
—
—
32,849
19,436
34,262
21,543
36,435
23,516
—
—
32,849
19,412
34,254
21,054
—
—
—
24
8
489
1986
1987
38,350
25,386
40,005
27,277
41,324
29,249
36,223
22,417
37,873
23,928
39,362
25,567
40,553
27,339
212
1,099
477
1,458
642
1,710
770
1,910
Program Description
Civil Service Retirement (CSR) annuities are protected against inflation by being indexed to the
Consumer Price Index. Full CPI adjustments are made each year.
Proposed Change
Cost-of-living adjustments (COLA) would be limited to the lesser of the increase in the CPI or the
annual increase in General Schedule pay for Federal employees. Annuitants whose annuity in any
given year is 120% or more of the annuity of current retirees with the same grade/step and length of
service would not receive a COLA increase. If the annuity is more than 100% but less than 120% the
adjustment would be 75% of the COLA increase. Conforming changes will be effected in the other
Executive Branch retirement systems.
Rationale
Annuities have been rising much faster than pay. Because annuities of new retirees are usually based
on their recent wages, their annuities are much lower than the annuities of those who retired several
years ago, even when their service history is identical in length and grade level. Further, Federal
workers who retire are treated better than those who stay on the job because their income is given
greater protection from inflation.
Effects of the Proposed Change
•
To rectify past excessive adjustments, this proposal would hold down future COLA's until
annuities of those who retired some time ago are once again in parallel with the annuities of
new retirees. The proposal would ensure that annuitants would not receive more in annuity
payments than they would receive in salary had they not retired.
•
The proposal would remove an incentive for valuable senior personnel to retire.
—
In 1980, 57% of career employees at the pay ceiling who were eligible to retire did so.
Only 17% of comparable employees retired in 1978.
— The number of workers retiring at ages 55 to 59 — relatively early compared to private
enterprise — has increased dramatically from 16% of eligibles in 1978 to 75% in 1980.
•
The discrepancy between annuities of persons retiring at the same grade-step would be
reduced.
76
— A person who retired at GS-15/4 in May 1973 recieves $8,868 more a year than a
retiree in that grade and step who retired in May 1981.
— At GS-5/4, a May 1973 retiree receives $2,796 more than a May 1981 retiree.
•
Protection of Federal annuities with full (100%) CPI adjustments is a far more generous
benefit than that ordinarily provided by the private sector. Non-Federal retirees generally
are afforded only partial inflation protection—70% for the majority.
77
Military Retirement
FUNCTIONAL CODE: 502
AGENCY: Department of Transportation
Funding
CURRENT SERVICES
Budget Authority
Outlays
REAGAN BUDGET
Budget Authority
Outlays
PROPOSED SAVINGS
Budget Authority
Outlays
($ in millions)
1984
1985
1981
1982
1983
13,840
13,729
15,036
15,000
16,600
16,560
17,922
17,880
13,840
13,729
15,036
15,000
16,511
16,471
0
0
0
0
89
89
1986
1987
19,113
19,068
20,273
20,226
21,457
21,407
17,732
17,690
18,856
18,811
19,959
19,912
21,111
21,061
190
190
257
257
314
314
346
346
Program Description
Military Retirement annuities are protected against inflation by being indexed to the Consumer Price
Index. Full CPI adjustments are made each year.
Proposed Change
Cost-of-living adjustments (COLA) would be limited to the lesser of the increase in the CPI or the
annual increase in Basic Pay for military personnel. The objective of the change is to reach a point
where people on the retired rolls will not receive higher annuities than those about to retire. Thus,
annuitants whose annuity in any given year is 120% or more of the annuity of current retirees with
the same rank/grade and length of service would not receive a COLA increase for that year. If the
annuity is more than 100%, but less than 120%, the adjustment would be 75% of the COLA increase.
These changes would extend to personnel retired from all the uniformed services, including the Coast
Guard, the Commissioned Corps of the Public Health Service, and the Commissioned Corps of the
National Oceanographic and Atmospheric Administration.
Rationale
With annuities rising so much faster than pay, new military retirees are finding their annuities much
lower than the annuities of those who retired several years ago even when their service history is
identical.
Protection of Military annuities with full (100%) CPI adjustments is an overly generous benefit
compared to the private sector. Non-Federal retirees generally are afforded only partial inflation
protection — 70% for the majority.
•
60% of the military retired population receive higher annuities than they would receive if
retiring under today's pay scales.
•
The difference for many is large — as much as 21% higher for members who retired under
the 1973 pay scales.
Effects of the Proposed Change
•
The proposal would hold down future COLA's to these annuitants until their annuities are
once again drawn into a reasonable relationship with the annuities new retirees are now
receiving.
•
An incentive would be removed for valuable senior personnel to retire early.
78
Railroad Retirement and Railroad Unemployment and Sickness Insurance
AGENCY: Railroad Retirement Board
FUNCTIONAL CODE: 601
Funding
(Sin millions)
1984
1985
1981
1982
1983
CURRENT SERVICES
Budget Authority
Outlays
4,675
5,294
5,121
5,328
5,493
5,722
5,775
6,067
REAGAN BUDGET
Budget Authority
Outlays
4,675
5,294
5,121
5,328
—
-
—
—
—
—
5,493
5,722
PROPOSED SAVINGS*
Budget Authority
Outlays
1986
1987
6,069
6,334
6,228
6,642
6,408
6,939
—
—
—
—
—
-
—
-
5,775
6,067
6,069
6,334
6,228
6,642
6,408
6,939
•Rail workers' payroll taxes would be directly credited to the Social Security trust funds and rail retirees' social security
benefits would be directly administered by the Social Security Administration. The overall effect of this proposal would
reduce the Federal budget deficit as follows:
1983
1984
1985
1986
1987
-248
-374
-502
-508
-596
Program Description
The Federal Railroad Retirement Board (RRB), located in Chicago with 76 district offices, administers
selected fringe benefits for railroad workers and their families:
•
Social Security-equivalent benefits, including Medicare;
•
"windfall" benefits, wholly subsidized by American taxpayers;
•
a multi-employer rail industry pension plan financed by special payroll taxes and exempt
from Employee Retirement Income Security Act of 1974 (ERISA) standards;
•
special unemployment insurance (UI) compensation, which is directly federally administered
and outside the normal State systems; and
•
a sickness insurance plan, like others in the private sector which are based on contractual
agreements.
The General Accounting Office concluded (GAO Report HRD 81-27, March 9, 1981):
. .the railroad retirement program has evolved from a staff retirement plan to a
social security plus private pension plan. . . the purpose and structure of the railroad
retirement program have been fundamentally changed since its beginning. . . the
Federal Government has helped the program increase benefits and add more
categories of beneficiaries by (1) allowing railroad retirement to interface with and
receive support from social security, and (2) providing general revenue appropriations
to pay for dual (windfall) benefits. Such assistance, and the need for additional
revenues to meet future program liabilities, raise questions as to the Federal
Government's role and responsibilities in supporting the railroad retirement program"
(Emphasis added)
Proposed Change
Reorganize RRB, restoring the rail industry's pension to the private sector, and treat rail employees
the same as all other private sector employees, providing social insurance through Social Security and
regular State UI programs.
79
Rationale
The Administration reorganization proposal would defederalize railroad retirement. This would restore
the rail industry's pension to the private sector, completing a decade of evolution. This would end an
inappropriate Federal function and free railroad labor and management from the need to petition
Congress to enact legislation to conform the rail pension system to their collectively bargained labor
contract. In the future, the rail sector pension plan would operate like other multi-employer private
pension plans.
•
Retirees' benefits and employees' rights would be unchanged due to the reorganization.
•
While restructuring railroad retirement in 1974, both the House and Senate Committees
concluded:
"the Railroad Retirement system is today, in essence, a company pension program
administered for historical reasons, by the Federal Government. . . Future changes in
(industry pension) benefits will arise out of collective bargaining between railroads
and the unions.
Under these circumstances, the character of the Railroad Retirement system differs
substantially from other systems having a Trust Fund managed by the Secretary of
the Treasury.
The Committee, therefore, feels that the Railroad Retirement Account should be
treated similarly to trust funds established for the payment of other private pension
plans. . . M. (Emphasis added)
This fall, GAO "recognize(d) that matters involving the benefits and rates, especially for the private
pension component, are negotiated through the collective bargaining process." (GAO Report HRD
81-112, September 24, 1981).
•
Railroad employees are among the most organized and best represented workers in America;
their union leaders currently bargain on an industry-wide basis with railroad operators on
pensions, wages, work rules, and health and welfare benefits. Existing Federal laws insure
fair bargaining and guarantee needed protections to both railroads and their employees.
•
Rail earnings will average $31,880 in 1983, placing rail employees among the highest paid
workers in America.
•
The average rail employee receives 105% or 5% more in rail pension income upon retiring
than his take home pay according to a Congressional Budget Office (CBO) study (The
Railroad Retirement System Benefits and Financing, December 1981).
•
Rail pensions are among the richest multi-employer pensions. Railroaders' pensions exceed
Federal Civil Service or Military Retirement payments for comparable earnings, according to
GAO (HRD 79-41, June 8, 1979), and they exceed the pensions available in "the utilities
and other transportation industries", according to CBO.
•
Federal taxpayers directly subsidize railroad retirement — because it combined Social
Security and industry pension benefits — by $379 million in 1982. This yearly taxpayer
subsidy exceeds $750 per rail employee.
•
Rail labor and management collectively bargained sound financing of the rail pension and
sought Congressional enactment of their agreement.
Historical reasons for Federal
involvement in an industry pension have disappeared. The rail sector declared that even
under "worst case" assumptions, uninterrupted annuities are assured by the labor and
management agreement enacted this summer.
•
By ending the inappropriate Federal involvement:
— the rail industry's pension will be free to invest outside of Federal debt securities and
receive higher returns;
80
— both the nationwide Social Security system and the industry pension plan could provide
better targeted service to beneficiaries;
— the rail industry's pension will no longer be intertwined with Social Security; and
— collectively bargained private pensions would no longer have to contend with the
"changing viewpoints — and whims — of both the executive and legislative branches of
government", alleviating the concern expressed recently by the head of a major rail
union.
Effects of the Proposed Change
•
Ending Executive Branch administration of the rail industry pension would:
— abolish a Federal agency;
— reduce the Federal deficit by over $0.2 billion starting in 1983, and result in a $0.6
billion deficit reduction by 1987;
— end an inappropriate Federal function;
— avoid future raids on the Federal Treasury from this industry pension; and,
— reduce Federal Government costs as a percent of GNP by 0.1%.
•
Individuals would not receive lower private pension benefits. They would receive Social
Security and Medicare benefits directly from the Social Security Administration and the
Health Care Financing Administration. And, a few individuals now denied benefits under
the railroad pension plan would receive payments from Social Security.
•
Rail workers would become eligible for higher unemployment benefits typically available
under the State unemployment insurance systems.
•
Social Security, in a unique arrangement, has contributed $18 billion to railroad retirement
since 1951; annually, Social Security pays over $1.6 billion to railroad retirement for social
security equivalent benefits. This transfer would end as Social Security would directly
administer Social Security benefits for retired rail workers and their familes.
•
Railroad retirement assets — $3.6 billion — would be transferred to the new, private rail
industry pension corporation. These reserves would help assure the financial integrity of the
rail industry's pension plan and could be invested in non-Federal securities.
81
Veterans Disability Compensation
AGENCY: Veterans Administration (VA)
FUNCTIONAL CODE: 701
Funding
($ in millions)
1984
1985
1981
1982
1983
CURRENT SERVICES
Budget AuthorityOutlays
8.530
8,426
9.604
9.488
10.293
10,316
11.100
11.039
REAGAN BUDGET
Budget Authority
Outlays
8.530
8.426
9.604
9.487
10.146
10.170
—
—
—
1
147
146
PROPOSED SAVINGS
Budget Authority
Outlays
1986
1987
11.675
11.627
12.272
12.222
12.820
12.774
10.668
10.607
11.227
11.179
11.799
11.749
12.318
12.272
432
432
448
448
473
473
502
502
Program Description
Compensation is payable to veterans and their survivors based on disabilities incurred in or aggravated
by active military service, death while on active duty, or death resulting from service-connected
disabilities. Beneficiaries are rated 10% to 100% disabled on the basis of average earnings impairment
for any particular disability, with benefit payments ranging from $54 to $1,016 per month on that
basis. Benefits to survivors are based on the military grade of the veteran at the time of discharge or
death. Total beneficiaries are expected to increase from 2,632.000 in 1981 to 2,638,000 in 1982 and to
2,644,000 in 1983. Large annual funding increases are caused primarily by annual cost-of-living
increases.
Proposed Change
Eliminate the current provision of law which provides payment at the 100% rate to veterans who are
rated between 60% and 90% disabled and who are judged to be "unemployable," even though they
also receive Social Security, SSI, or Federal retirement benefits.
Dependents allowances would be restricted to veterans rated 50% or more disabled. Prior to 1978
only veterans rated 50% or more disabled received allowances for their dependents. In 1978, legislation
was enacted extending dependents allowances to veterans with 30% and 40% disabilities.
Rationale
•
Receipt of other Federal disability or retirement benefits is evidence that these veterans
receiving VA "unemployability" payments either do not have the intent or do not have the
capability of re-entering the labor market.
•
The second proposal would reduce compensation benefits to a large number of veterans with
relatively minor disabilities such as flat feet, severe chronic laryngitis, severe convulsive tic, or
a moderate ulcer. This would restore the emphasis of this program to aiding those veterans
most in need whose service-related disabilities clearly and substantially restrict their
employment opportunities.
Effects of the Proposed Change
•
About 54,000 veterans who are rated between 60% and 90% disabled, and currently receive
"unemployability" compensation, would receive a reduction of benefits averaging $5,212 per
year, or 35%.
•
320,000 disabled veterans rated less than 50% disabled would receive an average of $423 per
year less in dependents benefits.
82
Veterans Pensions
AGENCY: Veterans Administration (VA)
FUNCTIONAL CODE: 502
Funding
($ in millions)
1984
1985
1981
1982
1983
CURRENT SERVICES
Budget Authority
Outlays
3.794
3.755
4.048
3.940
3.981
4.077
4.181
4.166
REAGAN BUDGET
Budget Authority
Outlays
3,794
3.755
4.048
3.940
3.915
4.015
66
62
PROPOSED SAVINGS
Budget Authority•
Outlays
—
—
1986
1987
4.290
4.271
4.424
4.404
4.577
4.554
4.121
4.106
4.233
4.213
4.368
4.347
4.520
4.497
60
57
58
56
57
57
57
60
Program Description
A pension is payable to wartime veterans or their survivors on the basis of need and disabilities that
are considered permanent and total. The program provides income for basic needs of eligible veterans
or their survivors. The number of beneficiaries is expected to decrease slightly from 1.953,000 in 1981
to 1,846.000 in 1982 to 1,763,000 in 1983 as WWI and WWII veteran populations decrease. Survivors
are defined to include adult students up to the age of 23.
Proposed Change
Legislation is proposed to provide benefit payments for dependent students in secondary schools only
up to the age of 19. Students beyond secondary school would not receive benefits past the age of 18.
Rationale
•
Providing aid to adult students to attend postsecondary educational institutions is
inappropriate to the primary mission of the program — income protection for veterans and
survivors. A wide variety of Federal and non-Federal higher education financial assistance
programs is already available to aid such students.
•
This benefit is not related to education costs, proficiency in school, or the ability to meet
educational expenses.
•
This legislation makes VA's pension allowance for adult students consistent with a similar
Social Security allowance.
Effects of the Proposed Change
About 105,000 students will lose benefits averaging about $290 per year.
83
DISCRETIONARY SPENDING
85
CHAPTER 4
DISCRETIONARY SPENDING
$14.2 billion or 25% of the President's proposed 1983 budget savings come from non-defense
discretionary programs — those programs that are subject to Congressional appropriations or
discretionary actions.
The reductions in the discretionary programs are desirable and necessary for two reasons:
•
Much inappropriate or unnecessary Federal spending occurs within the discretionary
programs. (Entitlement spending, which also contains much inappropriate spending, is
discussed in Chapter 3.) Discretionary programs finance:
— unwarranted subsidies to businesses and individuals;
— spending that is more appropriate to State and local governments;
— unnecessary public sector capital improvement projects; and
— peripheral or lower priority programs.
•
Since discretionary programs are generally subject to appropriations actions, changes can be
made quickly and in large increments. This is especially important because so much of the
budget is extremely difficult to change within a short period of time. For example:
— Social Security, funded in great part by permanent budget authority, will lead to outlays
of $173.5 billion or 22.9% of 1983 outlays.
— Government-wide outlays from budget authority provided in previous years will account
for $125.7 billion in 1983 outlays or 16.6% of total outlays. .
— Net interest payments are estimated to be $96.4 billion or 12.7% of 1983 outlays.
Criteria for Change
Since the common element in discretionary spending programs is the appropriation form, there is a
tremendous diversity within the category, ranging from subsidized housing to space missions, and
from aid to local school districts to subsidies for ocean-going vessels. The changes proposed,
however, are based on one or more of the following principles:
•
Eliminate unwarranted subsidies;
•
Reduce lower priority spending programs;
•
Invest in high risk, high pay-off, long term research and development only where
appropriate to National needs;
•
Reduce the Federal role in programs that are more appropriately administered by State and
local governments (see Chapter 2).
•
Provide a free-market approach, through the enterprise zone concept, to encourage jobs and
revitalization in depressed inner city areas.
Unwarranted Subsidies
The Federal government uses direct spending subsidies — as with other forms of subsidies — to alter
the market's allocation of resources. In some instance, subsidies can be useful tools for advancing the
public interest. But in many cases they have resulted in unwarranted and unproductive transfers to
businesses, State and local governments, or individuals.
87
Subsidies to Business
The President has proposed a number of reductions in programs that are simply transfers or assistance
to private, profit-seeking industries or enterprises.
•
The Federal Government would make no additional commitments to provide operating
differential subsidies to U.S. merchant ship operators to offset the higher operating costs
(primarily wages) of vessels that sail under die U.S.-flag.
•
Federal purchases of railroad preferred stock to finance specific improvements would cease
in 1983, as would loan guarantee commitments for the same purpose.
•
The operation of the Transportation Test Center, a rail R&D facility, would be transferred to
the railroad industry, with no 1983 funding.
•
Federal financing of the 30 year old brucellosis control program would be phased out by
1985. Brucellosis, a bacterial disease that causes infertility and spontaneous abortion in cattle
and swine breeding stock and reduced milk productivity in dairy animals, can and should be
taken care of by livestock and dairy owners.
•
The Federal Government will cease direct subsidies for the commercial introduction of
energy technologies (e.g., high temperature turbines) where the private sector has incentives
to invest.
•
Grants, loans and loan guarantees offered to private businesses through the Economic
Development Administration and the Trade Adjustment Assistance Program would be
discontinued. There is little evidence that the billions provided in the past have induced
development or economic expansion in depressed areas that would not have occurred there
or elsewhere without this investment. In fact, the Economic Development Program has been
so expanded that over 80% of the nation qualifies for assistance.
•
CONRAIL would receive no operating assistance in 1983 or future years.
•
The Health Maintenance Organization Program would cease to offer new grants and loans
for the establishment and expansion of HMOs. After 9 years, the feasibility of HMOs has
been adequately demonstrated and the market system can now better determine the value
that people place on HMO services.
Subsidies to State and Local Governments
The Federal Government also provides a variety of subsidies to State and local governments. Since
the Federal Government pays for a portion or all of the service, State and local governments often
offer or accept services that are inappropriate or unnecessary.
•
Operating assistance for mass transit systems would be phased out by 1985. Since the
benefits of mass transit are local, mass transit is primarily a State and local responsibility.
•
The President proposes to reduce the Federal subsidy to AMTRAK and require the States,
labor, and passengers to share the cost of maintaining rail passenger service. States
benefitting from AMTRAK service pay less than 1% of AMTRAK's total costs.
•
Federal funding for the Appalachian Regional Commission and non-highway programs and
access roads will be terminated at the end of 1982. The Appalachian Development Highway
System (ADHS) would be phased out and funded at a level sufficient to complete on-going
construction projects and to repay States that used their own funds in anticipation of later
reimbursement.
High priority projects in the States will also be funded in an effort to
assure a minimum allocation to each State during the phaseout. The ADHS will be included
in the Federal Highway Trust Fund in 1983.
88
Subsidies to Individuals
The Federal Government offers a number of subsidies to individuals. Much like entitlement
programs, the discretionary subsidies have both expanded beyond the proper target population and
have often run counter to the forces of the market system, rather than using the market to further the
program goals.
•
The Administration proposes to redirect low-income housing assistance away from high-cost
newly constructed housing towards a system of subsidies that would encourage recipients to
choose their own housing units.
•
The Pell Grant program would be more tightly focused on low-income students. The
amount of discretionary income that families must contribute would be increased. Grants
would be provided to 1.8 million students.
•
Health professions education assistance will be eliminated for many medical specialties.
There is very strong evidence that even with decreased Federal support health professions
enrollment will remain at its current level.
•
Federal fee awards to attorneys would be restricted, and fee caps would be placed on all
such awards, other than those authorized under the Equal Access to Justice Act to small
businesses that are subject to an overreaching Federal Government.
Lower Priority Spending
The President has also proposed a number of reductions in lower priority programs: those programs
that produce benefits of little or questionable value. Often the reductions are accompanied by
program reforms that would improve efficiency or more clearly target Federal resources to areas in
which significant returns can be attained.
For instance:
•
National Park land acquisition would be restricted and no funding would be proposed for
State Historic Preservation, Urban Parks, and Land and Water Conservation Fund State
grants. However, the Administration believes that existing National Park System facilities are
badly in need of repair, and therefore restoration is a higher priority. A $525 million
multi-year initiative for park improvement is proposed again in 1983 in lieu of land
acquisitions and grants.
•
State Environmental grant funding would be reduced 19% in 1983, due to specific
Environmental Protection Agency actions to improve program efficiency and reduce State
overhead and staff requirements.
•
Soil and Water Conservation funding would be significantly reduced because more of
conservation costs should be borne by private landowners who benefit. The President
proposes to initiate a matching grant program to induce State and local governments to take
a greater role in managing the conservation program.
•
The National Oceanic and Atmospheric Administration (NOAA) would achieve considerable
economies by closing low priority weather stations, operating only one polar satellite,
deferring lower priority R&D, and stretching out marine boundary survey research activities.
There are also a variety of subsidies to State and local governments which are being phased
out.
•
Fish and Wildlife Services would close or transfer to States those fish hatcheries that produce
fish for sports fishing within State waters. At the same time, hatcheries of national
significance, the National Wildlife Refuge System, and grants to States would receive
increased funding.
89
Investment in Research and Development
The Federal Government invests in research and development to meet direct Federal needs, such as
defense, and to assist in meeting national needs. The Reagan Administration believes that the market
system generally provides private enterprise with sufficient incentives to undertake research and
development to meet "national needs." However, due to the absence of a market incentive for profit
seekers to invest adequately in basic research and in long-term, high-risk R&D with a potential high
payoff to the Nation, there is a role for the Federal Government in these areas. Although such
Federally supported R&D is usually far removed from immediate and visible public benefit, its
importance to the economy, over the long term makes this Federal investment a relatively high
priority endeavor.
Exemplifying this strategy, the 1983 budget:
•
Provides for real growth of about 2% over 1982 in National Science Foundation support of
research — largely basic — in the natural sciences and engineering.
•
Proposes funds for the National Aeronautics and Space Administration funds to:
— further develop the Shuttle-based transportation system, and
— continue support for space science and long-term research in space applications and
aeronautics.
•
Continues a strong nuclear program
— continuing construction of the Clinch River Breeder Reactor demonstration, and
— emphasizing research in fusion,.
Other Programs
Other discretionary programs included in the 1983 budget are:
•
An enterprise zone program
•
Maintenance of program levels for minority business assistance, to encourage private sector
opportunities and Federal procurement opportunities for minority business firms
•
Maintenance of funding for the Community Development Block Grant Program and the
Urban Development Action grant program
•
An improved savings bond program that links rates to be paid to market rates, providing
small savers with the opportunity to earn market-related rates on bonds purchased.
90
REDUCING
SUBSIDIES
91
Brucellosis Control
AGENCY: Department of Transportation
FUNCTIONAL CODE:
Funding
($ in millions)
gavjngS p
502
r o m
Current Services
1981
1982
1983
1984
1985
1986
1987
BUDGET AUTHORITY
90
OUTLAYS
87
1982
1983
91
60
26
6
6
6
31
92
60
26
6
6
6
32
Program Description
Brucellosis is a bacterial disease that causes infertility and abortion in breeding stock and reduces milk
productivity in dairy animals.
The brucellosis program consists of testing for the disease at markets, dairies, and slaughter plants;
tracing disease back to herd origin and testing area herds for additional infection; quarantining of
infected herds; requiring the slaughter of infected animals and paying the owners indemnities; and
vaccinating uninfected calves and adult animals. States are required to contribute 40% of program
costs.
The program is aimed at eradication of the disease by the year 2000 at a combined
Federal-State-producer cost of $1.1 billion (in 1981 dollars).
Proposed Change
The federally financed "eradication" program will be ended.
assistance to producers will be continued.
Surveillance for disease and technical
Rationale
•
The brucellosis control program is a subsidy to beef and dairy producers for what otherwise
would be a normal management practice.
•
Federal costs for the program are nearly triple the annual production loss of $34 million.
•
Producers who practice good herd management are penalized by the current program:
— breeding animals cannot be shipped outside the quarantined areas without being tested.
— immunized animals that erroneously test positive for brucellosis must either be sent to
slaughter or retested to prove absence of disease.
•
Eradication may not be realistically achievable:
— wild animals carry the disease.
— disease can be easily reintroduced and spread.
— The incidence of disease has only been reduced to 0.42% from 1.2% in 1960 although
$690 million was spent between 1960 and 1981.
•
Over the next twenty years, this change will save over a half billion dollars for the Federal
Government and an additional $200 million for States and producers.
93
Effects of the Proposed Change
The program change will:
•
Increase producer responsibility for vaccination of their own herds and' for selective
purchasing of breeding stock.
•
Eliminate unnecessary costs associated with retesting animals whose immunity (i.e.,
circulating antibodies) erroneously indicates disease is present on preliminary testing. If
retesting is not done, the animals (often expensive breeding animals) are condemned to
slaughter.
•
Eliminate an unwarranted intrusion of Federal Government into the operation of private
businesses — in this case dairy and beef production.
•
Provide the impetus for a major reexamination of Animal and Plant Health Inspection
Service programs during the coming year to assure continued provision of adequate
protection against high priority animal disease and plant pest problems in the future.
•
Economic loss from the disease is expected to rise somewhat but should level off and begin
dropping sharply as more producers manage the disease through increased vaccination and
selective purchasing of breeding stock.
94
Economic Development Administration and
Trade Adjustment Assistance Program
AGENCY: Department of Transportation
FUNCTIONAL CODE:
Funding
($ in millions)
gavingS
p
502
r o m
Current Services
1981
1982*
BUDGET AUTHORITY
476
251
OUTLAYS
619
506
1983
1984
1985
1986
1987
1982
1983
15
10
8
6
4
0
237
301
187
90
13
-18
0
53
* The President's budget requested $44 million for EDA and $28 million for TAA in 1982.
Resolution for FY 1982 added $180M in budget authority for EDA.
The second Continuing
Program Description
The Economic Development Administration (EDA) provides grants, loans, and loan guarantees to
assist economically distressed areas and to help localities adjust to economic disruptions such as those
caused by the closing of a major company or government installation. Under the Trade Act, the
International Trade Administration (ITA) provides Trade Adjustment Assistance (TAA) grants, loans,
and loan guarantees to firms adversely affected by imports from foreign countries.
The Fact Sheet entitled "Trade Adjustment Assistance Weekly Cash Benefits" (Department of Labor)
deals with TAA for workers.
Proposed Change
As part of its policy of placing greater emphasis on the private sector and transferring primary
responsibility for administering community and economic development assistance to States and local
governments, the Administration proposed, in March 1981, termination of EDA at the end of 1981.
However, to provide for a more gradual phase-out of EDA programs and for a longer adjustment
period prior to termination, funds have been made available to continue EDA programs through 1982.
The Administration now proposes to terminate EDA at the end of 1982. In 1983, funding will be
provided solely for close-out costs. TAA is also proposed for termination at the end of 1982.
Rationale
•
Economic expansion and job creation will be stimulated through the President's overall
economic recovery program, which includes general tax, spending, and regulatory reduction
measures. By 1986, the President's program is expected to create millions of new jobs.
Improvement in overall economic conditions offers more hope to distressed areas than do the
programs to be terminated. Furthermore, States and their localities will continue to receive
Federal assistance for economic development through block grant programs that distribute
Federal funds more efficiently and provide for more local discretion.
•
The original purpose of EDA was to provide special financial assistance to those few
economically distressed areas of the country that were by-passed by general prosperity. The
program has evolved to the point where over 80 percent of the nation qualifies as a
distressed area. In fact, even when an area has experienced economic recovery, it still
continues to be eligible for EDA funds by law.
•
There is little evidence that the expenditures from these programs have induced development
in distressed areas that would not have occurred either there or elsewhere without this
investment.
95
•
There is no evidence that the programs being terminated have created new jobs nation-wide.
Rather, such programs appear primarily to encourage potential growth in some areas at the
expense of other areas. Similarly, the Government does not create net new jobs in the
economy by moving productive resources from the private sector to the public sector.
•
The programs being terminated tend to lock people and resources into firms and areas that
have lost their economic viability. The nation pays for this subsidization of inefficiency
through direct budgetary costs and hidden costs of decreased productivity and economic
growth. Our economic system generates prosperity and high living standards through a
process of continual economic change.
•
Trade Adjustment Assistance to firms has a high default rate since most of the firms assisted
are close to bankruptcy. As of June 30, 1981, 30 percent of the TAA portfolio was
delinquent in meeting payments and another 33 percent was in the process of liquidation.
Effects of the Proposed Change
•
Because EDA programs often substitute Federal resources for expenditures that would have
been made for industrial parks, community centers, etc. by the private sector or the local
public sector in distressed areas or elsewhere, the impact overall of terminating the programs
will be minor.
•
Only about 65 firms per year have benefitted from TAA loans and loan guarantees. A
significant portion of these firms has failed to adjust to import competition. Thus, the
impact of abolishing this program will be relatively minor.
•
Funds for State and local community and economic development programs will continue to
be available in 1983 through the Urban Development Action Grant program ($0.4 billion)
and the flexible Community Development Block Grant program ($3.5 billion) which
distributes Federal funds more efficiently than EDA. Likewise, specialized assistance for
rural areas will continue to be available through the Farmers Home Administration.
•
Job creation and revitalization of highly distressed urban areas will be stimulated by the
President's urban enterprise zone initiative which is based on a reduction of tax and
regulatory burdens.
96
Non-Nuclear Energy Research and Development
AGENCY: Department of Commerce
FUNCTIONAL CODE: 271
Funding
($ in millions)
SavmgsTTom
Current Services
1982
1983
1981
1982
1983
1984
1985
1986
1987
BUDGET AUTHORITY
2,292
1,026
376
331
323
327
351
0
892
OUTLAYS
2,239
1,749
666
425
355
340
364
0
811
Program Description
The non-nuclear R&D programs (in the existing Department of Energy) provide support to the
private sector for developing new technologies using fossil fuels, solar and geothermal energy; for
energy conservation research; for developing new methods of electricity transmission and energy
storage; and for supporting energy related health and environmental effects research.
Proposed Change
•
These programs would be transferred to a new Energy Research and Technology
Administration in the Department of Commerce as a result of the proposed dismantling of
the Department of Energy.
•
Subsidies to accelerate commercial introduction of advanced technologies (e.g., high
temperature turbines) would be discontinued.
•
Long term generic and technology base research (e.g., materials and catalysis research and
instrumentation) and environmental research would continue to be supported. Operation of
unique Government experimental facilities and certain pilot plant and test facilities would
also continue.
The following table summarizes funding for non-nuclear energy R&D by major program.
Budget Authority (in Million $)
Fossil
Solar
Geothermal
Conservation
Environment
Electric Systems/Storage
Total Non Nuclear
Energy R&D
1981
994
524
156
279
227
112
1982
417
208
63
81
223
34
1983
107
72
10
18
169
0
2,292
1,026
376
Rationale
•
The practice of giving Government subsidies to business in order to accelerate technology
development was originated in the 1970's during a period of Government controls on oil
markets.
•
Energy industries are already making significant investments in energy technology
development and are able to make the necessary market-related decisions on funding the
360-900
97
0 -
82 - 4-
further efficient development of new economical products and processes. With the decontrol
of oil and new tax provisions, the pace of development of new technologies by the private
sector should accelerate.
•
In some cases, e.g. coal gasification, the introduction of commercial processes is not
technologically constrained but is rather dependent on favorable economic conditions, so it
makes little sense to continue Government R&D on further technology development.
•
The Government can perform an important role in support of private sector technology
development by focusing Federal funding on technology base research with widespread
application (e.g. materials research or understanding the mechanisms of catalysis) rather than
subsidizing the development of company-specific processes (e.g., in coal liquifaction).
Industry can then take Government research findings and apply them to the development
and demonstration of specific new products or processses
Effects of the Proposed Change
Adoption of these policy and program changes in Federal support of non-nuclear technology
development would save the taxpayer over $1 billion in outlays in 1983.
The FY 1983 budget reductions will not have a significant effect on the overall national energy R&D
effort. For example, based on the latest NSF survey of private R&D activity:
•
Total Government funding for fossil R&D in 1980 amounted to 14% of total industry
spending.
•
Private sector spending for energy R&D in 1980 was up by 18% over 1979. Lower inflation
and more favorable tax changes (including a new 25% tax credit for certain incremental R&D
investments) should spur further increases in the future.
In general, the reductions in direct Federal R&D spending will result in further refinement of Federal
programs toward basic and other long-term research. The specific effects in each technology area are
noted below.
•
In fossil energy, Federal support for improving or accelerating development of specific new
synthetic fuels technologies, new mining equipment, etc. would be ended. Research would
continue on instrumentation, environmental effects and generic research such as coal
chemistry and catalysis all of which can provide important new information and lead to
development by industry of new and improved technologies.
•
In solar energy, Federal funding of the development of advanced hardware (e.g., active solar
cooling systems) and operation of component test facilities would be phased out in favor of
growing industry support. The solar program would be restructured to focus on basic,
generic research activities (e.g., materials science, photobiology). Support for operation of
the Barstow solar thermal pilot plant would continue while preparations are made for
transferring support for this facility to the private sector.
•
In geothermal, federally supported research would continue on high potential areas such as
geochemistry and energy conversion work associated with the most abundant yet
undeveloped lower temperature geothermal resource base.
•
In electric energy system and energy storage, all remaining federally funded research
activities would be phased out since they are largely of an applied nature. Generic research
related to these activities will be funded through other programs.
•
Environmental research would be maintained (except for process-specific studies) to assist
the Government in carrying out its environmental regulatory responsibilities, particularly in
fossil energy.
•
The Federal Government would continue to operate experimental facilities with unique
capabilities and would continue support for pilot-scale and other technology test facilities
that are cost effective (e.g., where project completion costs are less than termination costs).
98
Health Professions Education
AGENCY: Department of Health and Human Services
FUNCTIONAL CODE: 609/551/605
Funding
($ in millions)
£av|ngS p
r o m
Current Services
1981
1982
1983
1984
1985
1986
1987
1982
1983
BUDGET AUTHORITY
232
165
117
117
117
117
117
—
59
OUTLAYS
302
232
184
148
124
121
119
—
5
Program Description
The Department of Health and Human Services supports 21 project and formula grant training
programs for institutions and students aimed at increasing the supply of health professionals, primarily
physicians, dentists, and nurses.
Proposed Change
As part of its plans for better targeting of the allocation of Federal funds, the Administration has
proposed to refocus Federal aid on a limited number of national priority medical specialities, rather
than providing large subsidies for all specialities. The Congress has agreed to this redirection in the
Reconciliation process by eliminating capitation entitlement grants to health professions schools.
Large subsidies for all specialties are no longer necessary in light of the growing projected supply of
most health professionals. In 1983, support will thus be focused on training in nonphysician
specialties such as physicians assistants and nursing occupations, where additional support and
improvement are warranted and where manpower utilization can be more effective.
The
Administration will request funding in 1983 for a $117 million grant program for high priority health
professions training. As part of this program, the Administration will continue support at $17 million
for assistance programs to encourage minorities, who are now under-represented in health professions
fields, to choose health careers.
Rationale
•
Federal subsidy of physician education is particularly inappropriate in view of the projected
surpluses, high physician earnings potential and generally low tuition levels. Average
medical school tuition in 1980 was about $3,000, and was only $1,600 for the two-thirds of
students enrolled in public schools in their own States.
•
The number of active physicians alone is expected to reach nearly 600,000 by 1990, an
increase of 58% between 1975 and 1990.
•
The ratio of physicians per 100,000 population is projected to rise from 173 per 100,000 to
239 per 100,000 in the same period.
•
During the 1960's and the 1970's the supply of health professionals increased dramatically,
partly as a result of Federal subsidies of about $18 billion. During the 1970's, the annual
number of graduates from medical schools doubled from 8,000 to nearly 16,000.
•
Recent national surveys have demonstrated that the Nation today has reached or will exceed
the estimated required level of health professionals for almost every major specialty.
Effects of the Proposed Change
•
There will be no effect on supply excess for most health professionals. There are three times
as many qualified applicants as there are spaces available in health professions schools,
indicating that, even with decreased Federal support, health professions enrollment will likely
remain at its high current level.
•
Nurse training will continue to be supported through nursing special projects as opposed to
general support since the total supply of nurses appears to be adequate but too many qualified nurses have chosen other professions or are being utilized in nonpatient care positions.
99
Health Maintenance Organizations
AGENCY: Department of Health and Human Services
FUNCTIONAL CODE: 502
Funding
($ in millions)
1981
1982
1983
1984
1985
1986
1987
Savings From
Current Services
1982
1983
BUDGET AUTHORITY
20
4
7
18
OUTLAYS
34
21
16
16
7
Program Description
The Health Maintenance Organization (HMO) program provides grants and loans for the
establishment or expansion of HMOs. Loans may also be awarded for construction of ambulatory care
facilities. HMOs provide specific health services to their members in return for a prepaid, fixed
payment. HMOs are an alternative to the traditional health care delivery system, which provides
health care on a fee-for-service basis.
Proposed Change
As part of the effort to eliminate unnecessary Federal subsidies, the Administration proposes to phase
out the Federal grant and loan subsidy program to HMOs by the end of 1983. Legislation will be
proposed to carry out this policy. In 1982, Congress has agreed to funding levels consistent with the
Administration proposals.
Rationale
•
The feasibility of HMO prepaid health care delivery has been adequately demonstrated after
9 years of Federal support. HMOs can be financially self-supporting. In recent years,
substantial amounts of private capital have gone into HMO development. There are now
253 HMOs with 10.3 million members located in every urban area with a population greater
than 1 million, and affiliated with 15% of the Nation's physicians.
•
A major impediment to private capital for HMO development has been the unnecessarily
restrictive requirements for Federal qualification found in the Health Maintenance
Organizations Act. In fact, restrictive benefit requirements and organizational standards have
priced their benefit packages out of the market and been a leading source of defaults among
small, federally supported HMOs. The Omnibus Budget Reconciliation Act of 1981
modified certain of these restrictive requirements by allowing HMOs to set different payment
rates by community group.
•
The current subsidy program focuses on entities that could not obtain private financing
because of their high risk, and continues to impose extensive, costly benefit packages and
other conditions that inhibit their competitiveness. As a result, defaults on unsecured loans
for HMO operating deficits and required interest subsidy payments will exhaust the $35
million HMO loan revolving fund by the end of 1982. The exhaustion of the revolving fund
could require future appropriations of up to $100 million to cover contingent liabilities even
without awarding any new loans. An additional 1982 supplemental request may be required
for defaults that cannot be covered by the HMO loan fund.
•
Once HMOs are no longer required to meet restrictive Federal requirements for organization,
services and financing, private capital should be more available for HMO development,
obviating the need for further subsidies.
100
Effects of the Proposed Change
•
The phaseout of the Federal grant and loan program should have no significant effect on
development of economically viable HMOs, which can be funded through private sources.
Corporations supporting HMO development or enrollment include R. J. Reynolds, General
Motors, IBM, Xerox, Blue Cross/Blue Shield, U.S. Steel, Sears, General Foods, General
Mills, Ford, Chrysler, Kaiser, and Prudential.
•
Competitive HMOs will be more effectively encouraged through the health financing reform
proposals that the Administration is developing for later submission than through grants and
loan subsidies.
101
Federal Subsidy for Saint Elizabeths Hospital
AGENCY: Department of Health and Human Services
FUNCTIONAL CODE: 502
Funding
($ in millions)
1981
1982
1983
BUDGET AUTHORITY
99
95
68
OUTLAYS
99
96
70
1984
1985
1986
1987
55
42
35
28
56
43
36
29
Savings From
Current Services
1982
1983
Program Description
In 1855, Congress established a Government Hospital for the Insane on the "Saint Elizabeths tract" in
southeast Washington to provide mental health services to D.C. residents and certain Federal
beneficiaries. During the Civil War, the hospital was used to treat amputees who, reluctant to be
treated in a mental institution, referred to the facility as Saint Elizabeths Hospital (SEH). Like the
recently repealed 1798 entitlement to free care for merchant seamen, SEH entitlements to nationally
subsidized care are based on needs of an earlier era, and a Federal role prior to the development of
D.C. home rule.
The role of SEH (and other mental institutions and hospitals) began to change in the 1950's and
1960's, with the development of effective drug treatment of mental illness and the growing use of
community-based mental health services. SEH now serves approximately 1,975 inpatients (more than
85% of whom are D.C. residents) and outpatient services are provided without charge to about 3,400
D.C. residents.
The availability of beds at SEH and the willingness of the Federal Government to subsidize the cost
of care there have been incentives to inappropriate institutionalization of large numbers of D.C.
residents. The U.S. District Court in D.C. recognized this in 1975 and ordered the Federal and
District governments to provide mental health care in less restrictive settings for several classes of SEH
patients. Despite community outplacement of several hundred SEH patients since that date, surveys of
patient care needs indicate that up to half of the inpatients currently at SEH should be in less
restrictive community settings.
Proposed Changes
•
In compliance with the court order and to facilitate appropriate mental health treatment, the
Administration is proposing to increase efforts and incentives to place in alternative
community facilities the classes of SEH inpatients for whom the court has determined less
restrictive care is appropriate.
•
In addition, to phase down the Federal subsidies of D.C. mental health care, the
Administration will seek partial reimbursement by the District of Columbia and full payment
from Federal agencies for the cost of care provided at SEH to individuals for whom they are
responsible.
Rationale
In the last fifteen years SEH costs have increased dramatically—despite a two-thirds reduction in the
inpatient census—and these costs have been shifted increasingly from the District to the Federal
Government, as displayed below:
102
($ in millions)
1965
6,148
1,437
$29
$10
33%
Inpatients
Outpatients
Operating cost
Federal subsidy
Percentage Federal subsidy
1981
2,040
3,250
$124
$99
80%
Effects of the Proposed Changes
•
Implementation of the court order would be accelerated, as a result of increased financial
and administrative incentives for SEH and D.C. to locate alternative care beds and actively
carry out court directives.
•
Many patients would receive more appropriate care in less restrictive, less expensive
environments.
•
Direct Federal subsidies for D.C. residents would be reduced, consistent with the more
limited Federal support other States receive.
•
D.C. would have increased responsibility for and control over mental health services
delivered to D.C. residents, consistent with home rule and federalism, while the Federal role
in delivering community services would be reduced.
103
HUD Subsidized Housing Overview
AGENCY: Department of Housing and Urban Development
Funding
FUNCTIONAL CODE: 604
_
1981
1982
1983
($ in millions)
1984
1985
CURRENT SERVICES
Budget Authority
Outlays
24,840
5,747
16,367
6,775
17,313
7,852
18,192
8,768
REAGAN BUDGET
Budget Authority
Outlays
24,840
5,747
5,217
6,726
-5,221
7,352
—
—
11,150
49
1. Modified Section 8 Housing Certificate
Program
Budget Authority
Outlays
—
—
2. Subsidized Housing:
New Production*
Budget Authority
Outlays
1986
1987
19,061
9,658
19,933
10,582
20,824
11,500
-3,478
7,831
890
8,401
-1,627
8,867
1,728
9,205
22,534
500
21,670
937
18,171
1,257
21,560
1,715
19,0%
2,295
—
—
6,100
32
4,470
2
5,419
-35
8,152
-74
5,199
-146
—
-
9,400
10
14,989
34
14,810
283
14,049
685
14,661
1,299
15.106
2,036
3. Subsidized Housing:
Tenant Rent Contribution
Budget Authority
Outlays
—
-
—
19
—
311
—
442
—
363
—
298
—
111
4. Rent Supplement and Rental Assistance
Payment Programs
Budget Authority
Outlays
—
—
1,750
20
1,445
123
2,390
210
-1,297
244
-1,253
192
-1,209
128
PROPOSED SAVINGS
Budget Authority
Outlays
DETAILS OF SAVINGS
•Except for Section 8 subsidy for Sectin 202 financed housing for the elderly and handicapped.
The Department of Housing and Urban Development currently administers several programs that
assist low-income individuals in meeting the cost of renting adequate housing. Under these programs,
the Federal Government has entered into long-term (15 to 40 year) contracts with private landlords or
local housing authorities to subsidize the rents for eligible low-income households. The recently
enacted Omnibus Budget Reconciliation Act of 1981 limited the amount of rent that eligible
low-income tenants can pay to 30% of their adjusted income. (Most current tenants now pay 26% of
their income for rent and this percentage will be increased gradually to 30% by 1986).
Each of the major HUD subsidy programs are described briefly below. Although the specific subsidy
mechanisms differ substantially, they suffer some common defects:
•
All involve long-term subsidy commitments that result in uncontrollable budget outlay
increases for many years;
•
Because the tenant's rent contributions are capped by law, any unanticipated cost increases
are borne solely by the Federal Government;
•
Eligible households are restricted in their choice of housing since many of the subsidies are
tied to specific rental units; and
•
The per unit subsidy costs, especially for the newly-constructed units, have increased at
unacceptably high rates.
The Administration's 1983 proposed reforms for the subsidized housing programs address each of
these serious defects.
104
Public Housing
The Public Housing program houses 1,204,000 families renting units owned and operated by local
public housing agencies (PHA's). HUD supports the construction of this low-income public housing
by making annual payments to PHA's to amortize their long-term tax exempt debt issued to finance
these projects. The Government also spends over $1 billion annually to assist PHA's in meeting the
high cost of operating their projects.
In addition to being very expensive to construct and maintain, public housing has, in the past,
resulted in excessive concentrations of low-income households in particular neighborhoods. Adverse
social side-effects have arisen where concentration has occurred.
For these reasons, the
Administration is proposing that no additional public housing units be funded.
Section 8 Existing Housing Program
HUD currently provides subsidies to 844,000 households living in private market rental housing that
rents for amounts below a certain established level and meets certain housing quality standards.
Actual rents are limited to a maximum "fair market rent" level established and revised annually for
the area by HUD. Fair market rents for Section 8 housing have exceeded the rents for comparable
units in the private market.
The Administration is proposing to reform this program by deregulating the rent level of qualifying
units and allowing eligible tenants to use the subsidy to select for themselves any standard quality
rental unit they choose.
Section 8 New Construction Program
HUD provides assistance to 475,000 households living in privately owned, newly-constructed and
rehabilitated rental housing. Under this program, HUD makes commitments to housing developers to
pay "fair market" rents for these units for 20 to 40 years if the landlord agrees to rent to eligible
low-income tenants.
The Section 8 New Construction program is very expensive — subsidies will average nearly $4,000 per
family in 1983. Given the austere budget environment, the Administration has proposed shifting
resources away from the "deep subsidy" new construction program to the more efficient Modified
Section 8 Housing Certificate program.
Rent Supplement and Rental Assistance Payments
The Rent Supplement and Rental Assistance Payments (RAP) programs provide assistance to 207,000
low-income tenants living in privately-owned housing. Both programs pay apartment project owners
the difference between the tenant rent contribution and market rent, although subsidies in the Rent
Supplement program are limited to no more than 70% of market rent. No mechanism was provided
in the authorizing language of either program that would fund increased subsidies required because of
higher operating costs. Deobligations from the Rent Supplemental and Section 236 Rental Housing
Assistance programs, and other sources used in the past to provide increases for Rent Supplement and
RAP subsidies are no longer available.
The Administration proposes converting these projects to another program that is better structured to
provide these units with needed subsidy increases — the Section 8 Existing Housing program.
Section 202 — Elderly and Handicapped Housing Direct Loan Program
The Section 202 direct loan program assists non-profit organizations to build Section 8 subsidized
housing for low income elderly or handicapped tenants. To qualify for a Section 202 loan, the
housing must be specially designed to provide an alternative to institutionalization of the elderly and
handicapped. Non-profit organizations sponsoring the construction and management of these housing
105
projects provide a range of necessary services for the occupants of such projects. HUD has made $4.3
billion in Section 202 direct loans and provided Section 8 subsidies for 97,000 elderly and
handicapped units.
The Administration proposes to continue this program at a reduced level and provide direct loans for
the construction of 10,000 additional units for the elderly and handicapped in 1983.
106
Modified Section 8 Housing Certificate Program
AGENCY: Department of Housing
and Urban Development
Funding
FUNCTIONAL CODE: 604
_
1981
SAVINGS FROM CURRENT SERVICES
Budget Authority
Outlays
1982
—
—
—
—
1983
6,100
32
($ in millions)
1984
1985
4,470
2
5,419
-35
1986
1987
8,152
-74
5,199
-146
Proposed Change
•
The Administration proposes to replace the Section 8 Existing Housing Program with a
Modified Section 8 Housing Certificate Program as current commitments with public housing
authorities, which administer the current Section 8 Existing Housing Program, expire.
•
The current Section 8 Existing Housing Program imposes a rent ceiling equal to the "fair
market rent". Under the modified program, there would be no "maximum" rent level
chargeable by the landlord. Instead, the modified program would provide the tenant rental
assistance directly and permit the subsidy recipients (Housing Certificate holders) to select
for themselves the type and cost of a standard unit within the locality of the PHA issuing the
certificate. As under the Section 8 Existing Housing Program, the value of the certificate will
be based on a payment standard reflecting relative area rental costs and the tenant's income
level.* The tenant will be able to keep all savings associated with finding an acceptable unit
that rents below the regionally determined payment standard.
•
In addition, the modified program will be funded to the extent that other Section 8 and
public housing contracts can be converted to this more efficient subsidy mechanism. The
Modified Program will also be used in conjunction with a HUD Rental Rehabilitation
initiative (see fact sheet on Rental Rehabilitation Grants).
•
As under the current Section 8 Existing Housing Program, eligibility for Section 8 Housing
Certificates will be limited to households with incomes less than 50% of area median income.
The local public housing authorities (PHA's) issuing these Housing Certificates will give
greater priority to displaced tenants, tenants currently living in substandard housing, or those
currently paying a disproportionately high percentage (greater than 30%) of their income for
housing. The amount of the subsidy provided under the Modified Section 8 Housing
Certificate Program will be a function of a family's geographic location, size, and annual
income. The average subsidy will be about $2,000 per recipient per year.
Rationale
•
The Section 8 Existing Housing program provides subsidy payments to assist low-income
households in meeting the cost of renting decent, safe, and sanitary housing. The Modified
Section 8 Housing Certificate Program, which is a reform of the Section 8 Existing Housing
Program (see Subsidized Housing Overview), draws upon the experience gleaned from the
recently-completed 10-year study of housing subsidies known as the Experimental Housing
Allowance Program (EHAP). The results of the EHAP experiment indicate that the
modifications to the Section 8 Existing Housing Program would not have any inflationary
impact on prevailing local rent levels.
•
Under the current Section 8 Existing Housing Program, rents for subsidized units exceed
rental costs for private market rental units by 26%. Landlords have an incentive to raise
rents to the published fair market rent level, and tenants have no incentive to negotiate their
own rents. By providing a subsidy directly to the tenant, the Section 8 Housing Certificate
would give tenants the incentive and the ability to "shop around" and pay only the market
rent for the type of unit they choose to occupy.
107
•
The Housing Certificate approach is economically efficient in that it would enable tenants to
allocate their income to those things they value most highly.
•
The Federal Government is currently tied to subsidized housing commitments extending well
into the next century. Such long-term commitments are fiscally imprudent given the
uncertainty of the long-term need for, or economic viability of, such housing units. The
shortened Modified Section 8 Existing Housing subsidy commitment (5 years versus 15 to 40
years) provides greater flexibility to adjust to or reconsider subsidized housing policy in the
future.
Effects of the Proposed Change
•
Over the next 5 years the Administration expects to support 910,000 Section 8 Housing
Certificates starting with an estimated 107,000 for 1983.
•
Under the Housing Certificate approach, participating households would be rewarded for
their efforts in finding the lowest cost unit. The tenant will be able to keep all the savings in
connection with finding an acceptable unit that rents below the regionally determined
payment standard.
•
The Modified Section 8 Housing Certificate Program would provide an average subsidy
comparable to the subsidy provided in the current Section 8 Existing Housing Program. The
subsidy would effectively increase the average recipient's income by 25%. The subsidy will
cover 80% of the estimated rent that unsubsidized low-income renters are expected to pay in
1983.
•
Tenants would be provided maximum freedom to choose the type of unit and the location in
which that they wish to live given the amount of rent (supplemented by their Housing
Certificate subsidy) they are willing to pay.
108
Subsidized Housing: New Production
AGENCY: Department of Housing
and Urban Development
FUNCTIONAL CODE: 604
Funding
1981
SAVINGS FROM CURRENT SERVICES
Budget Authority
Outlays
1982
—
—
9,400
10
1983
14,989
34
(Sin millions)
1984
1985
14,810
283
14,049
685
1986
1987
14,661
1,299
15,106
2.036
Proposed Change
•
The Administration proposes to terminate the costly new construction program, except for
10,000 elderly and handicapped housing units, and rely more heavily on a Modified Section
8 Housing Certificate Program to aid low-income households in need of housing assistance
(see fact sheets on the Modified Section 8 Housing Certificate Program and Housing for the
Elderly and Handicapped).
•
HUD currently has commitments to subsidize 400,000 Section 8 and public housing units
that have not begun construction. Many of these projects are not financially viable, and
given historical trends, the Administration anticipates that in 1982 and 1983, 145,000 of these
commitments will be cancelled and their funds deobligated and returned to HUD. The 1983
budget anticipates to use these deobligated funds to convert Rent Supplement projects to the
Section 8 subsidy program, provide funds for public housing modernization and support the
Modified Section 8 Housing Certificate Program.
Rationale
•
The housing construction programs are being terminated because they are very costly,
provide too large a subsidy to too few people, and do not address the nation's current
housing problem.
•
The rapidly rising cost of newly-constructed subsidized housing prohibits the continuation of
these programs. Tenant rent subsidies, paid to the developers of newly-constructed Section 8
projects, have risen at twice the rate of increase in construction costs. Public housing is also
expensive, with construction costs averaging $63,000 per unit.
•
Annual subsidies for newly constructed Section 8 units range as high as $17,000 per family.
This large subsidy is, in part, a result of expenditures for unnecessary amenities which do not
significantly improve die quality of housing.
A recent GAO report found that
newly-constructed Section 8 units were 25% larger than the acceptable size established by
HUD and often contained costly amenities such as swimming pools and ceiling "skylights".
•
The most recent data indicate that in 1977, less than 7.5% of U.S. households resided in
substandard housing with one or more physical deficiences. The basic housing problem
confronting the poor has changed from one of lack of adequate housing to inadequate
income. The Administration is therefore proposing a policy of providing Section 8 Housing
Certificates to address the basic housing problem facing low income households.
•
Federally subsidized public housing projects have had serious problems in providing a decent
and safe living environment for low-income households. Many public housing projects have
become concentrations of culturally deprived families packed into tali structures — an
environment ill-suited to normal family life. Often projects are built in economically
decaying central cities where job and educational opportunities are limited. The Modified
Section 8 Housing Certificate Program, which will replace new public housing construction,
will provide recipients freedom of choice as to the location of their residence.
109
•
Subsidized housing outlays grew from $2.9 billion in 1978 to $5.8 billion in 1981, an annual
compounded growth rate of 24.2%. By the end of 1981, commitments for future housing
outlays totaled $239 billion. Curbing the growth of the subsidized housing programs and
holding the number of subsidized households to 3.8 million is essential to the
Administration's effort to control long-term Federal Government spending, thereby
eliminating inflation and promoting economic growth. Historically, increases in real income
growth have been the largest contributor to improvements in housing conditions and the
ability of the private sector to respond to market demand for housing.
•
HUD currently has a backlog of nearly 700,000 subsidized housing construction
commitments. The Administration wants to complete economically viable outstanding
commitments and focus efforts on better serving current tenants and making current
programs operate more efficiently.
Effects of the Proposed Change
•
Renters will not suffer from a reduced subsidized housing new production program. A
recent analysis of rental housing conditions prepared by HUD for Congress found that, in
most housing markets, there is an adequate supply of rental housing.
•
Even at the reduced program level, the Administration's program will increase the number of
subsidized households from 3.4 million at the beginning of 1983 to 3.8 million households by
the end of 1985. This includes 200,000 newly constructed Section 8 and public housing units
that will be made available as a result of prior commitments. Thus, by 1985 HUD will be
serving 400,000 more subsidized households, but this support will be provided partly through
the less costly and more effective Modified Section 8 Housing Certificate Program.
•
The Administration's policy of terminating the Public Housing and Section 8 new
construction and substantial rehabilitation programs will yield outlay savings of over $4.3
billion between 1982 and 1987.
110
Subsidized Housing: Tenant Rent Contributions
AGENCY: Department of Housing
and Urban Development
FUNCTIONAL CODE: 502
Funding
1981
1982
SAVINGS FROM CURRENT SERVICES
Budget Authority
Outlays
33
37
1983
184
428
($ in millions)
1984
1985
317
698
266
652
1986
1987
225
542
201
488
Figures represent further savings now expected — reductions in budget authority and outlays for public housing operating
subsidies, reductions in outlays alone for other subsidized housing programs (Section 8, Section 236, Rent Supplement) — in
addition to those initially enacted under the 1981 Reconciliation Act. Only that portion of the outlays shown above which
are associated with the subsidized housing programs are reflected in the table for the "HUD Subsidized Housing Overview."
Proposed Change
Rents charged to tenants in HUD subsidized housing are subject to a maximum ratio of rent to
income ceiling. This ceiling was raised — from 25 percent of income to 30 percent of income — in
the Omnibus Budget Reconciliation Act of 1981. That act also restricted the rate at which rents can
be increased to 10 percent per year. At the time that the rent to income ceiling was raised by the
Congress last year, the Administration announced its intention to raise rents by one percent of income
per year for current HUD tenants.
Although the Administration plans to implement rent increases at the rate of one percent of income
per year, beginning in 1982, as earlier announced, additional steps will be taken that will further raise
rent contributions required of certain tenants in HUD subsidized housing:
•
All new occupants of HUD subsidized housing will have their rents set at 30 percent of
income.
•
In calculating the required rent contribution, the cash value of Food Stamps will be added to
cash income. This action will require a legislative change — included in the Administration's
entitlement reform legislation — in the statutes governing the Food Stamp program.
•
Tenants whose monthly utility bills exceed 25 percent of their adjusted income will no longer
receive monthly payments from HUD for the amount in excess of the rent ceiling.
•
Certain tenants will experience rent increases in excess of 10 percent per year under the
above proposals. Also, a significant number of present tenants pay rents that are way below
25-30 percent of income. For these reasons, legislation will also be proposed to increase the
limit on the rate of annual rent increases from 10 percent to 20 percent.
Rationale
•
Many low income tenants of HUD subsidized housing have been required to pay very
minimal rents because of local ceiling rents and excessive deductions taken from income
before rent charges are applied. Thus, despite increases in their rent contributions, as
permitted under the 1981 Reconciliation Act changes, many households would, without
further changes in the law, be allowed to pay well below 30 percent of income for rent in the
next few years. This is especially true because of the effect of the 10 percent limit on annual
rent increases. Therefore, it is proposed that this limit be increased to ensure the attainment
of greater equity across tenant households living in HUD subsidized housing as well as
greater equity between subsidized and unsubidized low-income households. Comparable
unsubsidized low-income renters already pay, on average, over 50 percent of (cash) income
for rent.
•
Counting Food Stamps as income will also help increase rent revenues and reduce Federal
costs, while reflecting more completely the total cash and cash-equivalent resources available
to low income households for purposes of assessing a fair rent charge.
111
•
Reimbursing tenants who pay more than 25% of their income for utility costs undermines
utility conservation and is an anomalous practice that should be terminated regardless of
other changes that might be introduced with respect to rent charges.
Effects of the Proposed Change
•
For those families receiving Food Stamps, counting Food Stamps as income will result in a
rent increase from this step alone of almost 10 percent, or $13 per month in 1983.
•
Monthly rent of Food Stamp recipients in subsidized housing is expected to average $145 in
1983, up from $115 in 1982. For comparison, the average rents paid by renter households in
the lowest quarter of the income distribution of renters in 1980 is estimated at $184 per
month.
•
Similarly, new tenants in subsidized housing will pay rents expected to average $165 per
month in 1983.
•
For those households that receive reimbursement for utility payments, these payments would
have averaged $36 per month in 1983.
112
Rent Supplement and Rental Assistance Payments Programs
AGENCY: Department of Housing and
Urban Development
Funding
SAVINGS FROM CURRENT SERVICES
Budget Authority
Outlays
FUNCTIONAL CODE: 604
_
1981
1982
1983
—
—
1,750
20
1,445
123
($ in millions)
1984
1985
2,390
210
-1,297
244
1986
1987
-1,253
192
-1,209
128
Proposed Change
All 172,300 Rent Supplement and RAP units in FHA-insured projects will be converted to the
Section 8 existing program as soon as possible. (The remaining 34,700 units are in State-aided
projects. They will not be converted because any increased subsidy beyond that already provided will
be the responsibility of the particular State.)
Rationale
The Section 8 existing program has provisions built into the subsidy mechanism that can be used to
provide these units with needed subsidy increases. The conversion of Rent Supplement and RAP
units to Section 8 existing units therefore provides a long-term solution for the inadequate funding
mechanisms inherent in these programs. This is an appropriate step toward ensuring the viability of
these Federally-insured or Federally-held projects where the Government has a direct financial
liability.
Effects of the Proposed Change
•
This change will consolidate similar HUD subsidy programs.
•
The rent burden of those Rent Supplement tenants who currently pay in excess of the 30%
of their income for rent will be reduced.
•
The probability of defaults and subsequent claims against the FHA Fund will be reduced by
providing a mechanism by which rents can be raised without imposing intolerable burdens
on existing tenants or increasing tenant turnover and vacancy rates.
113
Housing for the Elderly and Handicapped
AGENCY: Department of Housing
and Urban Development
FUNCTIONAL CODE: 502
($ in millions)
Savings From
Current Services
1987
1982
1983
1981
1982
1983
1984
1985
1986
BUDGET AUTHORITY
OUTLAYS*
797
817
745
711
277
286
402
-51
456
165
489
7
531
-213
0
0
401
549
DIRECT LOAN OBLIGATIONS
873
819
453
476
499
522
545
0
420
"Includes planned loan asset sales.
Proposed Change
The Administration proposes to continue the Section 202/Section 8 program at a reduced level of
10,000 units in 1983. The 1982 program level will be about 17,000 units.
Rationale
•
If the 1982 Section 8/Section 202 program were continued in 1983 as it is currently
structured, the average construction cost of a new housing unit would exceed $53,000. The
Administration has proposed reforms that will eliminate unnecessary amenities in these
projects, allow for competitive bidding in the construction of Section 202/Section 8 projects,
and subject the Section 202/Section 8 program to the same cost controls as other Federal
housing programs.
•
Even with these efficiencies, the program still entails deep subsidies, e.g., units supported
with 1983 funds will provide an average subsidy of $5,000 per tenant during the first year of
occupancy. Providing large subsidies has resulted in HUD's serving only 40% of the elderly
in need of housing assistance.
•
In conjunction with the general effort to control Government spending, the Administration
will direct elderly and handicapped housing funds away from the large subsidy new
construction programs and toward a lower cost Modified Section 8 Housing Certificate
Program (see fact sheet on the Modified Section 8 Housing Certificate Program) that will
serve more individuals at a lower cost.
Effects of the Proposed Change
•
The Administration proposal will continue to provide for 10,000 Section 8/Section 202 units
each year. Even at the reduced program level, 100,000 newly-constructed Section 8 elderly
or handicapped units will be made available for occupancy over the next 3 years.
•
Many low income elderly and handicapped individuals who are able to live independently
and do not need specialized housing assistance will be provided a subsidy under the
Modified Section 8 Housing Certificate program. This will permit the elderly and
handicapped to stay in their own units while at the same time reducing the portion of their
income paid for housing.
•
The Modified Section 8 Housing Certificate program, combined with the "shared housing"
initiative (a housing arrangement whereby a group of residents share a common living area
with the assistance of a live-in homemaker), will provide additional alternatives for
preventing institutionalization of the elderly and handicapped.
•
Under the Administration's housing proposals, the elderly will continue to benefit from
nearly half of Federal subsidized housing outlays.
•
The Administration's elderly and handicapped housing proposals will reduce cumulative
1983-1987 outlays $942 million below those associated with the current program level.
114
Public Housing Operating Subsidies
FUNCTIONAL CODE: 401
AGENCY: Department of Transportation
Urban Development
Funding
BUDGET AUTHORITY
OUTLAYS
($ in millions)
Savings From
Current Services
1982
1983
1981
1982
1983
1984
1985
1986
1987
1,071
1,293
1,075
1,033
983
934
934
0
152
929
1,278
1,110
1,052
1,005
956
934
0
84
Program Description
Public housing, which includes 1.2 million units administered by 2,700 separate local housing
authorities, is supported by the Federal Government in two ways:
—
Full construction costs are paid by annual debt service installments, which averaged $1,200
per unit last year; and
—
About 50 percent of operating costs are paid by operating subsidies, which averaged about
$800 per unit last year.
Operating subsidies are necessary because, since 1969, tenant rent contributions have been inadequate
to cover operating costs. As discussed elsewhere in this document, the Administration is proposing to
hold down operating costs in subsidized housing through further increases in tenant rents over and
above those authorized in legislative changes in 1981. Operating subsidies are determined on the basis
of a formula that estimates the cost of operating a public housing authority's units, taking into account
the size and location of the authority and the types of projects it operates.
Proposed Change
In addition to increased rents, other steps will be taken to reduce the level of Federal payments
required to operate public housing:
•
Utility costs will be reduced through reductions in the consumption levels funded by the
subsidy formula; these reductions in consumption levels are feasible because of intensive
efforts now underway to modernize public housing and make it more energy efficient, and
because regulations governing tenant utility allowances are being revised.
•
Rather than adding further to the inventory of public housing units, efforts will be made to
cancel current construction commitments and sell or demolish some of the extremely high
cost projects now in operation.
•
Lease and grievance regulations will be revised to enable public housing authorities to collect
delinquent rents more readily and to evict disruptive tenants.
Rationale
The success of the Administration's plan for achieving a sustained economic recovery will improve the
housing conditions of low-income Americans to a far greater extent than this subsidy program has or
could. As discussed in the fact sheet on "Modified Section 8 Housing Certificate Program," a recent
HUD analysis of rental housing conditions indicates that greater reliance can be placed upon the
existing rental market to meet the housing needs of low-income families and the elderly. Therefore,
efforts will be made to strictly limit the size of the public housing inventory, and to obtain greater
revenues from tenants to pay operating costs.
115
Effects of the Proposed Change
•
The size of the public housing inventory will level off at nearly 1.3 million units over the
next few years. The total number of subsidized housing units will, however, increase because
units from other housing programs of the Department of Housing and Urban Development
will be added.
•
Rental receipts of public housing authorities in 1983 are expected to grow by 24% due to
income growth of tenants and previously authorized rent increases, as well as those now
proposed.
•
As a result of energy conservation investments and modernization of the public housing
inventory, the energy consumption level funded in 1983, as estimated by the operating
subsidy formula, is expected to be reduced to a level 15-20% below the 1981 level.
116
Solar Energy and Energy Conservation Bank
AGENCY: Department of Housing
and Urban Development
FUNCTIONAL CODE: 272
Funding
($ in millions)
Savings From
Current Services
1982
1983
1981
1982
1983
1984
1985
1986
1987
BUDGET AUTHORITY
.25
0
0
0
0
0
0
22
23
OUTLAYS
.25
0
0
0
0
0
0
7
29
Program Description
The Solar Energy and Energy Conservation Bank Act, enacted in July 1980, established a new
program and organization within the Department of Housing and Urban Development. The program
was intended to: 1) promote energy conservation in homes and in commercial and agricultural
buildings; and 2) encourage the development of solar technology, particularly passive solar designs for
new residences. Subsidies were to be provided through grants and below market-rate loans.
Authorized funding was to grow from $300 million in 1981 to $1,025 million by 1983. Of the actual
appropriation for 1981 of $121.25 million, $121 million was rescinded.
Proposed Change
The Administration proposes to rescind the 1982 appropriation of $22 million so that this new subsidy
program will not be established.
Rationale
The Administration believes that market incentives should be relied upon to induce energy
conservation in the residential, commercial and agricultural sectors of the economy. Specialized
Federal subsidy programs that reward a fortunate few home or building owners should be resisted.
Energy conservation should be a feasible investment decision best left to individuals and firms. In
light of the expectation that owners of residential, commercial and agricultural structures will make
energy conservation investments on their own, a Federal subsidy would be, at least in part, simply a
financial windfall to many recipients of the below market-rate loans and grants.
Effects of the Proposed Change
If the $22 million appropriation for 1982 were to be used, a substantial portion of the funds would be
absorbed in staffing and promotional expenses. Only 7,500 households nationwide would receive
subsidized loans or grants for energy conservation, and only 1,800 purchasers of new homes with
passive solar design features might have had their mortgage costs reduced.
117
Highways
AGENCY: Department of Transportation
FUNCTIONAL CODE: 401
Funding
($ in millions)
1981
1982
1983
1984
1985
1986
1987
BUDGET AUTHORITY
9,117
8,630
8,058
8,484
8,484
8,484
8,404
OUTLAYS
9,131
8,313
8,370
8,293
8,437
8,495
8,491
SavingsFrom
Current Services
1982
1983
9
—
1,211
436
Program Description
The highway programs provide grants to the States for the Federal share of costs to construct or
rehabilitate highways included in these highway systems: Interstate, primary, secondary, and urban.
Funds also are provided for rehabilitation or replacement of bridges, for highway safety projects, and
for a number of small, separate categorical programs which provide special purpose grants such as
billboard removal, railroad-highway grade crossing improvements, and funding of road construction in
the territories.
Proposed Change
The Administration proposes to focus funding on the Interstate and primary highway programs — the
programs of greatest benefit to the nation as a whole.
•
Deteriorating Interstate highways will receive funds for rehabilitation, and certain existing
Interstates that have experienced significantly increased travel will receive funds for
improvement.
•
Highway programs that fund projects that primarily benefit particular States or localities will
receive lower priority.
•
Specific earmarking of funds for the special interest highway categories will be eliminated.
Rationale
These changes are needed because:
•
The primary Federal interest of supporting and providing for interstate commerce and the
national defense is best served by die Federal Interstate and to a somewhat lesser extent by
the primary highway programs.
•
Highway programs designed to meet basically State or local concerns (e.g., secondary and
urban) are properly the primary responsibility of these governmental entities. It is at these
governmental levels that the real need, priority, and appropriate funding for projects
designed to address particular State or local problems can be determined.
Effects of the Proposed Change
•
The expanded Interstate rehabilitation (I-4R) program will enable States to address the
growing problems — brought about by age and greater-than-anticipated vehicle weights and
traffic volumes — of deteriorating Interstate highways.
•
Reduced Federal emphasis on roads of principal interest to States and localities — secondary
and urban roads — will require these governmental units to give increased attention to the
most cost-effective use of funds for these highways.
118
Maritime Assistance and Regulatory Reform
AGENCY: Department of Transportation
FUNCTIONAL CODE: 502
Funding
(% in millions)
1981
1982
1983
1984
1985
1986
1987
Savings From
Current Services
1982
1983
BUDGET AUTHORITY
488
415
407
529
529
529
529
35
OUTLAYS
543
625
508
453
466
496
511
34
Program Description
The Department of Transportation's Maritime Administration (MarAd) provides (1) direct ship
construction differential subsidies (CDS) of up to 50% of the price of building new privately owned
merchant ships in U.S. shipyards; and (2) direct operating differential subsidies (ODS) to offset the
higher costs (primarily wages) of operating U.S.-flag vessels in the oceanborne foreign commerce.
MarAd also guarantees construction loans and mortgages on U.S.-flag vessels built in the United
States. These guarantees enable eligible parties to obtain long-term financing at interest rates
comparable to those available to AAA-rated corporations.
Proposed Change
For the construction differential subsidy program, the Administration proposes:
•
For 1983, to continue the 1982 decision not to request funds for subsidies; and
•
For 1984 through 1987, a tentative annual program level of $100 million.
For the operating differential subsidy program, the Administration proposes to:
•
Meet the Government's obligation on existing contracts;
•
Make administrative changes to hold down escalating costs; and
•
Allow no additional ODS commitments.
For the loan guarantee program, the Administration proposes:
•
$675 million in new loan guarantee commitments in 1982 and $600 million in 1983; and
•
A tentative planning level of $600 million for 1984.
Rationale
•
The MarAd proposals are part of the Administration's overall effort to apply sound economic
criteria to economic subsidy programs. The reduction in new loan guarantee commitments is
consistent with the Administration's efforts to control the volume of Federal and
Federally-assisted credit and its adverse economic impact.
•
The proposed CDS reduction will not significantly hurt overall employment because fewer
than 5% of the workers employed in maintenance of a shipbuilding/ship repair mobilization
base work on projects supported by CDS at current levels.
•
Through better administration and a more incentive-oriented program, operating subsidies
can be reduced for those operators now receiving them. The average subsidy per sea-going
billet is over $60,000 a year.
119
•
The Administration is proposing regulatory changes that will remove many of the constraints
under which the maritime industry operates and will reduce the involvement of Government
in the commercial practices of the industry. These reforms will put the U.S.-flag carriers on
a more equal footing with their foreign competition. These regulatory changes will allow
more flexibility to compete and enhance the position of the maritime industry.
•
The Administration is conducting a full review of maritime policies including the need for
subsidies, the importance of both the shipbuilding capability and the merchant marine to
national defense, the impact o f plaimed increases in'naval shipbuilding, ways to increase
commercial participation in military support functions, and the effect that new tax policies
and possible trade agreements may have on improving the competitiveness of the U.S.
merchant marine. The outcome of this study may result in major program changes and, in
turn, a revaluation of current budget decisions, particularly the projected funding of the
ship construction program in 1984-1987.
Effects of Proposed Change
•
Termination of the ship construction program will have little effect on the active shipbuilding
base because of overall trends in ship construction, particularly Navy work. There are 26
shipyards in the base (involved with Government-subsidized (CDS), commercial, and Navy
ship construction and repair). Four of these yards currently have CDS contracts. The yards
in the active shipbuilding base employ 118,000 workers of which about 5,600 workers are
associated with CDS construction. Navy construction employs about 77,600 workers (66% of
all shipyard workers), with employment expected to rise as Navy ship construction increases.
•
These proposals and changes will lessen direct Government support and will create a
stronger, more competitive U.S. merchant marine.
•
Loan guarantees will be targetted to those segments of the industry most essential to
achieving the nation's merchant marine objectives.
120
Mass Transit Assistance
FUNCTIONAL CODE: 502
AGENCY: Department of Transportation
Funding
($ in millions)
gavjngS p
r o m
Current Services
1981
1982
1983
1984
1985
1986
1987
1982
1983
BUDGET AUTHORITY
4,662
3,495
3,150
2,976
2,976
2,976
2,976
599
OUTLAYS
3,855
3,743
3,155
2,996
2,934
3,004
2,971
801
Program Description
The Federal Government currently provides grant assistance for mass transit through a variety of
formula and discretionary grant programs. Funds are provided to grant recipients for capital projects,
operating costs, planning activities, demonstration of innovative management techniques and advanced
technologies, managerial training and university research. Direct Federal research is also conducted to
improve mass transit facilities, equipment, and management techniques and methods.
Proposed Change
•
Capital assistance grants would be continued in 1983 at approximately the 1982 level.
Modernization and rehabilitation of existing, proven transit systems will be emphasized. The
Administration would continue to postpone discretionary assistance for the planning and
construction of new rail transit systems at least until the condition of the economy and the
Federal budget improve. Some capital grant funds would be available for new rail system
construction where such construction was underway in February 1981 or the local authorities
have discretion in allocating funds made available by the cancellation of planned Interstate
highways.
•
The previously announced phase-out of operating assistance would be initiated in 1983 by
reducing the formula grant funds available to urbanized areas for such purposes to 62% of
the 1982 level. Further reductions to 27% of the 1982 level are proposed for 1984, with a
complete phase-out scheduled by 1985.
•
The formula grant program which made funds available for operating expenses in smaller
towns and rural areas would be terminated in 1983. Capital projects in such areas could be
funded by other programs and the large balance of previously appropriated but unused funds
would still be available to phase out operating assistance to these smaller areas.
•
Research and training efforts would be more narrowly focused on short-term, practical
solutions to the more immediate problems facing the transit industry, e.g., service reliability
and productivity improvement.
Rationale
•
These changes are part of the larger effort to return responsibility and decision-making to
State and local governments, to retarget public sector capital improvement programs, and to
eliminate subsidies that encourage inefficiency in program operations.
•
These specific changes are needed because:
— Primary responsibility for mass transit should remain with State and local governments.
Decisions about service levels, equipment and facilities, fares, wage rates and
management practices are better left to local decision-makers. Excessive levels of
Federal assistance unfortunately lead to excessive Federal interference in these local
decisions. A case in point was the Department of Transportation regulations establishing
121
specific, detailed requirements that mass transit systems be equipped for access by the
handicapped. The Department has issued new regulations rescinding these regulations
and giving State and local governments greater freedom to devise their own, more
cost-effective approaches to serving the handicapped.
— Federal emphasis and funds should be concentrated on maintaining existing transit
systems that have proven effective and are an essential part of a large urban
transportation network rather than diluted through construction of expensive new rail
transit systems.
— Federal subsidies for operating costs undermine incentives for efficient operations and
responsible local policy making. As a result, Federal operating subsidies have been
partially absorbed by lower productivity and reduced fares.
— Fares have generally not kept pace with inflation since the 1973 oil embargo, even
though the cost of title main alternative means of transportation — the private auto —
has increased even more than the rate of inflation. Although some systems have begun
to raise fares significantly in the last year, many systems have not. In many areas, transit
fares could be raised to cover the loss of Federal operating subsidies without losing
many patrons.
— Federal funds in some areas help to support marginally effective, conventional transit
services. Transportation needs could be better served by more cost effective and
innovative alternatives such as carpools, vanpools, subscription bus and jitney services.
By shifting more financial responsibility to local authorities, such low cost alternatives
would become more attractive solutions to urban transportation problems.
— Federal subsidies and the Federal "strings" attached to those subsidies tend to drive up
costs, e.g., labor protection, Davis-Bacon, procurement, planning and paperwork
requirements.
Effects of the Proposed Change
•
Transit operators and State and local governments may adjust to reduced Federal transit
subsidies in a number of ways. They may increase fares, increase productivity, curtail
services, and increase local and State tax revenues tor transit. Fare increases are the most
likely effect and would not be unduly damaging to transit. In real dollar terms, transit fares
have declined since 1973, while the cost of the main alternative—the private automobile—has
increased dramatically. Furthermore, transit riders nationwide generally pay less than half of
transit operating costs, and a much lower percent of combined operating and capital costs.
•
Reduced Federal subsidies may also spur greater efficiency in a number of ways. Labor
productivity could be increased by local negotiation of improved work-rules. Marginally
effective transit services with low ridership could be reduced or eliminated.
•
A gradual phase-out of Federal operating subsidies by 1985 provides time for cities and
States to adjust to the absence of Federal operating assistance. An effort will continue to be
made to concentrate transition funds in the transit-intensive cities.
122
URBAN MASS TRANSPORTATION ADMINISTRATION
BUDGET AUTHORITY
($ in millions)
1984
1982
1983
1449*
330
538
2317
1561
375
400
100
2436
1575
375
400
275
2625
FORMULA GRANTS TO URBANIZED AREAS
(AVAILABLE FOR BOTH OPERATING
AND CAPITAL EXPENSES)
1036
640
275
—
—
FORMULA GRANTS TO NON-URBANIZED
AREAS (AVAILABLE FOR BOTH OPERATING
AND CAPITAL EXPENSES)
69
—
—
—
—
RESEARCH, TRAINING AND
ADMINISTRATION
75
74
76
76
76
-2
3495
3150
CAPITAL GRANT PROGRAMS
Discretionary Grants
Formula Bus Grants to Urbanized Areas
Interstate Transfer Grants
Washington METRO Grants
Subtotal Capital Grants
—
WATERBORNE DEMONSTRATION
RESCISSIONS
TOTAL
*
—
—
2976
1985
1986
1825
400
400
275
2900
1875
425
400
200
2900
—
2976
—
2976
Additional $231 million available in 1982 from deferral of funds in 1981 and a transfer of previously appropriated funds into
Discretionary grants.
123
Federal Railroad Assistance
AGENCY: Department of Transportation
FUNCTIONAL CODE: 502
Funding
BUDGET AUTHORITY
OUTLAYS
GUARANTEED LOAN
COMMITMENTS
(S in millions)
1981
1982
1983
1984
100
193
61
155
20
144
47
8
135
1985
1986
1987
Savings From
Current Services
1982
1983
84
5
18
NA
NA
Program Description
Federal Railroad Assistance has three components: Federal purchase of railroad preferred stock to
finance specific improvement projects (especially track rehabilitation) and to assist reorganization of
bankrupt railroads; loan guarantees for the same types of projects; and formula grant assistance to
States for rail planning and for rehabilitation of track and associated facilities on low-traffic
branchlines.
Proposed Change
The Administration proposes to:
•
Terminate the preferred stock program and the loan guarantee program in 1983.
•
Phase out formula grant assistance to States by the end of 1983; 1983 funding ($20 million)
would be approximately one-half of the 1982 level ($35 million).
Rationale
•
This is a good time to make the change. The financial prospects for U.S. railroads have
improved significantly in the past several years, and therefore the need for special Federal
aid has ended. This financial improvement is evidenced by substantially improved railroad
profits in the past several years ($427 million in 1978; $837 million in 1979, and $1,337
million in 1980).
•
Continued positive change for the railroad industry is expected because of the following
factors: enactment of railroad deregulation legislation in 1980; tax advantages to railroads
resulting from the Economic Recovery Tax Act of 1981; recent approval of major railroad
mergers by the Interstate Commerce Commission; increased coal carriage for both domestic
and foreign markets.
•
These assistance programs originally were intended to be of temporary duration while
solutions to the rail industry's problems were sought. As noted above, these solutions have
now been largely achieved.
•
These cuts are consistent with the Administration's views regarding returning functions to the
private sector and to State and local governments.
•
States and/or localities should support programs whose benefits are primarily local, as are the
State grant program's for light traffic branchlines. Most of the lines being subsidized carry
less than 3 million gross tons per mile annually.
•
DOT'S Inspector General issued a report in September 1981 supporting phase-out of the
State grant program. He stated, "most lines will ultimately be abandoned and little benefit
will be accomplished by continuing Federal support."
124
Effects of the Proposed Change
•
The railroad industry's annual rate of return in 1980 was more than double that of the years
between 1975-1979. Thus, elimination of the programs will have negligible effect on the
overall financial health of the industry.
•
Few applications for loan guarantee funding have been received, and therefore no adverse
effects are anticipated from terminating that program.
•
In those instances in which railroads seek to abandon unprofitable rail lines, shippers may
need to seek alternative service.
•
The trend of railroad consolidations and mergers is far more important to the financial future
of the industry than is the continuation of the Federal subsidy programs.
•
The decrease in Federal aid may be more than offset by financial benefits from the new tax
laws. The railroad industry can take advantage of accelerated depreciation provisions and
sale-leaseback provisions.
•
Reorganization of certain bankrupt railroads in the Midwest and New England is proceeding
at a satisfactory rate and will not be assisted by further Federal subsidy.
125
Federal Railroad Operations
AGENCY: Department of Transportation
FUNCTIONAL CODE:301,303,304,453
Funding
(% in millions)
1981
1982
1983
1984
1985
1986
1987
Savings From
Current Services
1982
1983
BUDGET AUTHORITY
20
13
—
14
OUTLAYS
12
17
13
11
Program Description
Federal Railroad Operations involve two elements: operation and ownership of the freight and
passenger services of the Alaska Railroad which runs 500 miles ftom Seward, through Anchorage, to
Fairbanks; and operation and ownership of the Transportation Test Center, a rail research and
development (R&D) facility outside Pueblo, Colorado.
Proposed Change
The Administration proposes to:
•
Transfer the Alaska Railroad to the State of Alaska (no 1983 funding provided).
•
Transfer operation of the Transportation Test Center to the private sector (no 1983 funding
provided).
Rationale
•
The Federal Railroad Operations program provides benefits that accrue primarily either to
private industry or a single State or locality. The Federal Government need not and should
not be involved.
•
The State of Alaska is fully capable of shouldering financial and operating responsibility for
the Alaska Railroad. Alaska had more than a $1 billion budget surplus in 1980.
•
Much of the R&D at the Transportation Test Center is directly intended to assist the railroad
industry: increasing locomotive fuel efficiency, testing equipment durability, etc. It should
be the responsibility of the private sector, especially the railroad industry, to fund R&D
activities to improve its productivity. Indeed, the Economic Recovery Tax Act should
stimulate R&D through R&D tax credits.
•
Federal costs associated with the operation of the Transportation Test Center have been
about $8 million annually. With railroad profits of $1.3 billion in 1980, assumption of this
cost should not be overly burdensome to the railroad industry.
Effects of Proposed Change
•
After more than a half century of Federal ownership and operation, with only limited and
very recent State contributions to the cost of passenger service, Alaska will assume full
control over railroad services in the State.
•
While the Federal costs associated with the Alaska Railroad have been approximately $9
million annually in recent years, the financial prospects for the railroad are improving,
thereby decreasing likely subsidy costs to the State. Railroad revenues for 1981 were up
52%, while expenses increased only 17%, resulting in a bottom-line, earned surplus of $3.3
million before depreciation.
126
DOT will continue to contract for specific projects, especially railroad safety work, at the
Transportation Test Center.
The industry has questioned the value of some of the Transportation Test Center's R&D
work. Only if the Center is under private sector control can it be fully responsive to railroad
industry needs.
The new tax law provides special tax benefits to encourage R&D by private industry. The
benefits take the form of tax credits equal to 25% of incremental R&D expenses (wages,
supplies, and charges for computer and lab equipment).
127
AMTRAK
AGENCY: Department of
Housing
and
Urban
Development
FUNCTIONAL CODE: 451
Funding
($ in millions)
1981
1982
BUDGET AUTHORITY
881
735
OUTLAYS
851
820
1983
Sayings From
Current Services
1982
1983
1984
1985
1986
1987
600
500
525
550
575
—
185
610
500
525
550
575
—
155
Program Description
Amtrak provides intercity passenger rail service throughout the United States. In the Northeast
Corridor, Amtrak operates over 35 trains per day in each direction. It operates 22 other short distance
routes, with service ranging from one to seven round trips per day. Amtrak also operates 16 long
distance routes throughout the nation, most with daily service.
Proposed Change
The Administration proposes to fund Amtrak at a reduced level, requiring labor, the States, and
passengers to supplement the reduced Federal subsidy, and to terminate operation of the Cardinal
(Washington, D.C., to Chicago). This will permit Amtrak to continue to operate a national system.
In the absence of an acceptable collectively bargained agreement, legislation will be submitted to:
•
Provide incentives for Amtrak to reduce 1983 costs through changes in inefficient workrules,
or reduced salaries, or increased productivity;
•
Alter labor protection from payments for six years at 100% of salary to dismissed employees
to single lump sum payments at time of dismissal that will be much less costly to Amtrak;
and
•
Require States to increase the amount they pay for State and Federally funded service from
45%-65% of short term avoidable costs to 100% of long term avoidable costs.
Rationale
•
The Federal government pays a higher percentage of the costs of Amtrak service than it does
for any other mode of ground transportation. On average, each Amtrak passenger received a
subsidy of $32 per trip in 1980 and the subsidy reached as much as $192 per ticket on the
Sunset Limited (New Orleans to Los Angeles). Yet Amtrak service is in less demand than
other modes, is less energy-efficient than buses and some cars, and often benefits a particular
State or region rather than the nation as a whole.
•
In 1980, the Federal subsidy per Amtrak passenger exceeded the cost of an economy airline
ticket on the following routes: New Orleans to Los Angeles; Chicago to Los Angeles; New
York to Miami; Chicago to Washington, D.C.; and Portland to Eugene. Amtrak's deficit
increased from $153 million in 1972 to $755 million in 1981. Revenues increased 230% over
that period, but costs increased 335%. The Federal Government should not continue to
subsidize this huge deficit. Passengers, the States, and Amtrak labor and management should
share the costs if Amtrak is to continue to operate a national system.
•
In 1981, Amtrak's labor costs, which were approximately $730 million, represented 55% of
total operating costs. These costs are high in part because of antiquated work rules and
operating practices. In some cases, employees receive a day's pay for 100 or 150 miles
travelled rather than for eight hours worked. On the Northeast Corridor, this means some
employees can work for only 80 hours and receive a full month's pay. The Federal taxpayer
currently pays over 50% of Amtrak employees' salaries.
128
•
Amtrak employees are currently eligible for severance payments at 100% of salary and
compensation for six years. The average salary including benefits is about $30,000. This
practice is expensive for both Amtrak and the Government, reduces Amtrak's incentive to
dismiss employees when service is cut, and reduces the severed employee's incentive to find
a job. By comparison, Conrail employees now receive lump sum severance payments of
$25,000 or less.
•
States benefitting from Amtrak service pay less than one percent of Amtrak's total costs.
Amtrak's 22 short distance routes provide service to only fourteen States and eighteen of
these 22 routes serve essentially one State. This service is beneficial to particular regions
rather than to the nation as a whole. The States should pay 100% of the long term avoidable
costs ($37 million) of routes that are now jointly funded by the States and the Federal
Government. This is $24 million more than the States currendy pay.
•
Amtrak operates the Cardinal only because Congress mandated operation of the route. The
Cardinal was to have been terminated because its costs are higher and its load factor lower
than the levels allowed in the law for certain Amtrak routes. The Administration opposes
continued operation of this route because demand, as demonstrated by ridership, is too low
to justify its high costs.
Effects of the Proposed Change
•
The Federal subsidy of Amtrak in 1983 would drop $300 million (or one third) below the
1981 level.
•
Amtrak's operating revenue/cost ratio would exceed 55%, an increase of 13 percentage points
over the 1981 ratio.
•
Labor and management costs would fall by approximately $75 million; terminating the
Cardinal would save $5 million; and States would more than double their 1982 contribution.
•
Amtrak would continue to operate a national system in 1983.
360-900
129
0 - 8 2 - 5
Conrail
AGENCY: Department of Transportation and
U.S. Railway Association
FUNCTIONAL CODE: 401
Funding
($ in millions)
1981
1982
1983
1984
1985
1986
1987
Savings From
Current Services
1982
1983
BUDGET AUTHORITY
631
—
20
165
—
—
—
—
—
OUTLAYS
302
170
75
100
65
—
—
—
—
Program Description
Conrail provides freight and commuter rail service in the northeastern quadrant of the U.S. The
Federal Government provides: (1) operating subsidies and capital improvement funds for Conrail and
(2) funds to provide financial benefits (termed labor protection payments) to certain classes of Conrail
employees whose service with Conrail is terminated.
The Administration proposes to:
•
Adhere to the provisions and policies of the Northeast Rail Service Act of 1981 (part of the
Omnibus Budget Reconciliation Act of 1981) for the sale of Conrail to the private sector as
follows:
— The Administration can sell Conrail prior to June 1983, but only as a single entity.
— The U.S. Railway Association must make determinations on Conrail's profitability
starting in June 1983. If Conrail fails to pass the tests, the Secretary of Transportation is
instructed to initiate procedures to sell Conrail assets. If Conrail passes the tests, the
Secretary must continue to try to sell Conrail as a whole until at least mid-1984.
•
Provide no additional operating or capital assistance to Conrail in 1983.
•
Provide funding for certain classes of furloughed Conrail employees, as required, up to the
full level authorized by the Northeast Rail Service Act of 1981. For 1983, $20 million is
requested; and for 1984, $165 million is preliminarily planned.
Rationale
•
Conrail has not requested operating subsidies for 1983.
•
Conrail's financial performance has improved significantly. Conrail broke even for the first
time in calendar 1981, and it forecasts profits for 1982 and 1983.
•
A total of $400 million is authorized for the newly revised labor protection program and
$225 million has been provided to date. The 1983 request of $20 million is expected to meet
all costs accrued through that year. This funding assists Conrail's efforts to become
profitable by enabling it to trim its workforce.
•
These proposals for Conrail are consistent with the Administration's views regarding
returning private sector functions to the private sector. The government has already spent in
excess of $6 billion in the past five years on Conrail.
Effects
•
Elimination of operating subsidy will not affect provision of freight services by Conrail
because Conrail has indicated it does not require additional funding.
•
Conrail's commuter services will be transferred either to local jurisdictions or to an Amtrak
subsidiary called "Amtrak Commuter." Funds have already been appropriated to assist the
transition process. The transfer will have taken place by January 1983.
130
Appalachian Development Program
FUNCTIONAL CODE:301,303,304,453
AGENCY: Appalachian Regional
Commission (ARC)
Funding
($ in millions)
1981
1982
1983
1984
1985
1986
1987
Savings From
Current Services
1982
1983
BUDGET AUTHORITY*
302
153
—
—
—
—
—
163
OUTLAYS*
300
298
289
164
83
49
36
7
•Includes area development and highway programs through 1982. Beginning in 1983, the Appalachian Development Highway
System funding is included in the Department of Transportation budget
Program Description
The Appalachian Regional Commission provides grants to the thirteen Appalachian States for
economic and community development and for improving highway access to and within Appalachia.
— The area (economic) development programs provide funding directly to the States, or
through other Federal agencies, for community infrastructure, housing, economic
development and job creation, resource development, and planning projects.
—
The Appalachian highway program provides for construction of the Appalachian
Development Highway System and for access roads to places of potential economic
development.
Proposed Change
Federal funding for the non-highway programs, the access roads program, and for salaries and
expenses for the Appalachian Regional Commission would be terminated at the end of 1982.
Funding for the Appalachian Development Highway Program from 1983-1986 would provide for
completing ongoing Appalachian Development Highway System (ADHS) construction projects, for
repaying those States that have used State funds in anticipation of later reimbursement from the
Federal Government, and for an allocation to all States during the phase-out. Starting in 1983, these
residual ADHS funds would be included in the Federal Highway Administration budget and funded
from the Highway Trust Fund.
Rationale
As part of the Administration's effort to redirect responsibility for economic development programs to
responsible State and local governments, the Administration proposed elimination of the ARC and
non-highway programs at the end of 1981. Due to the need for additional time for State and local
governments to adjust to the termination of Federal funding, appropriations were provided for an
additional year, through 1982.
The Appalachian Development Highway System program was initiated in 1965 to improve access to
and travel within Appalachia. Although it has received separate, categorical funding, the Appalachian
Development Highway System is part of the Federal-aid highway system, and eligible for those funds
administered by the Department of Transportation. Beginning in 1987, all new construction for the
ADHS is proposed to be funded from the States' available apportionments from this Federal-aid
program. The Administration recognizes, however, that ongoing construction projects could be
adversely affected by this change in funding source, and proposes continuation of the ADHS program
in the Federal Highway Administration budget to finish these construction projects. Also, the
131
Administration recognizes that some States have relied on future Federal payments and accelerated
some construction projects using their own funds. These States would be reimbursed for past
expenditures. High priority projects in the states would also be funded to assure a minimum program
in all states.
Effects of the Proposed Change
The proposed change will place responsibilities on Appalachian States and local governments to
provide for the economic and social development of the Appalachian region.
•
Non-highway funds provided in 1982 (i.e., $50M) will be used to complete existing ARC
funded projects, primarily in the areas of community development, health care and
education.
•
The Appalachian Development Highway System phase-out funds will provide for completion
of 126 miles of road, for a total of 1,857 miles completed (out of 3,025 miles of the planned
system). The average cost per mile of the completed highway miles is about $1.7 million.
The cost to complete the remaining mileage will be about $5.0 million per mile.
•
Future funding for the ADHS should come from the States' Federal-aid funds. These roads
should compete with other State Federal-aid roads, and Federal-aid roads in other parts of
the nation, for funds from the Highway Trust Fund.
132
Student Assistance
FUNCTIONAL CODE: 502
AGENCY: Foundation for Education Assistance*
Funding
(S in millions)
savjngS p
r o m
Current Services
1982
1983
1981
1982
1983
1984
1985
1986
1987
BUDGET AUTHORITY
3.802
3.211
1.800
1.400
1,400
1.400
1.400
141
1,775
OUTLAYS
3.906
3.490
3.137
1,761
1,408
1.400
1.400
22
378
•Formerly the Department of Education.
Program Description
Pell Grants (formerly Basic Educational Opportunity Grants) provide awards to undergraduate
students who can demonstrate need. It is the foundation upon which additional Federal education
financial assistance is built.
Campus-based aid programs — Supplemental Educational Opportunity Grants (SEOG), College
Work Study (CWS), and National Direct Student Loans (NDSL) — provide additional student aid to
undergraduates who can demonstrate need. These program dollars are distributed at the discretion of
school financial aid officers to meet individual student financial need.
Proposed Change
•
Under the Administration's proposal, benefits to the highest income students will be
eliminated. In the Pell Grant program, this will be accomplished by increasing the
percentage of discretionary income (income remaining after a reserve for basic family
expenses is subtracted) that families must contribute to the support of a student.
•
Of the campus-based aid programs:
— SEOG will receive no funds;
— NDSL will receive no new funds but will use repayments to its current $5 billion loan
fund to make new loans; and
— College Work Study will be focused on the neediest students and funded at a reduced
level.
Rationale
•
Without these reforms, the Federal Government would provide financial assistance to nearly
50% of all undergraduate students attending two and four year institutions. The role of the
Federal Government in student financial assistance is to help support those most in need —
not one out of every two undergraduate students.
•
The Administration believes that parents have the primary responsibility for the education of
their children, with support from States, localities, and private institutions.
•
Until the last few years, over 50 percent of Pell Grant
less than $6,000. However, in recent years larger and
the over-$15,000 income group have qualified and
participation by these higher income families is
liberalizations rather than by general inflation increases
•
College Work Study is the most appropriate form of campus-based aid.
133
recipients were from families earning
larger segments of the population in
received awards. The increase in
explained primarily by eligibility
in nominal family income levels.
Effects of the Proposed Change
•
To ensure continued acccss to higher education by financially needy students, funds are
requested to support the Pell Grant program at a level based on a maximum grant of $1,600
in 1983-84. This will maintain assistance to low and moderate income students. The request
will provide grants to about 1.8 million students.
•
The reduction in student financial assistance is offset by an increase in the assessment rate
levied on family income. In 1981, only 10.5% of a family's discretionary income was
expected as a contribution to a student's educational cost in the calculation of a Pell award.
In 1983, it is proposed that families contribute a greater share of their discretionary income
for such purposes.
•
College Work Study will continue to be available to the neediest students.
134
Limit Legal Fee Awards
Funding
BUDGET AUTHORITY
OUTLAYS
1981
1982
1983
20
112
89
129
135
($ in millions)
1984
1985
1986
1987
149
146
20
40
20
20
20
20
General Description
Many laws authorize or require the Federal Government to pay attorney's fees to prevailing parties in
court or agency proceedings. Most of these fee-shifting statutes provide for an award of a "reasonable
attorney's fee" based on a "prevailing market rate"; the latter is now largely pegged to private,
commercial bar rates and often exceeds $100 per hour even where the applicant attorneys receive low
salaries from law firms and attorneys representing parties not obligated to pay for their representation.
A literal industry has arisen for attorneys dependent on federal fee awards.
Proposed Change
•
While maintaining "core" recoveries to individuals and small business under the Equal
Access to Justice Act ["the Act"], a maximum hourly rate for fee awards under other Federal
fee-shifting statutes would be established. The fee cap would be primarily calculated on the
basis of the mean hourly rate paid to Government attorneys, plus a constant factor to pay for
overhead costs.
•
"Core" recoveries under the Act would be exempt from the fee cap provision. The Act
permits fees of $75 per hour to individuals and small businesses, and requires a showing that
the Government was not substantially justified in the position it took in litigation.
•
In all cases, the client would be required to certify that the fee is owed to the attorney, was
determined on an arm's length basis, and will be paid to the extent not covered by the fee
award.
•
In all cases, the fee awarded must bear a reasonable relation to the result achieved in the
proceeding.
Rationale
•
Several Federal statutes authorize or require the Federal Government to bear attorneys fees
for private parties. This reverses the standard "American rule," under which parties bear
their legal costs, win or lose.
•
Federal fee awards often exceed $100 per hour, invariably at multiples of the cost of the
Federal attorneys involved in the same cases.
•
In many instances, fee awards are based upon time spent by attorneys on the case and may
exceed the amount recovered by the client in the case.
•
Where damages are recoverable from the government, clients should pay their attorneys from
the sums recovered.
•
Oversubsidization of attorneys unduly encourages recourse to the courts; the cost to the
Federal Government of defending suits without merit is substantial.
135
Effects of the Proposed Change
•
Restricting attorney's fees will decrease Federal outlays and will reduce the Federal civil case
load, which has grown over 100% since 1975.
•
The proposal will restrict contingency fee litigation against the Federal Government, brought
by and on behalf of attorneys whose "notationar clients bear no litigation risks or costs, and
who are merely the means by which attorneys satisy nominal standing requirements.
•
The proposal maintains protections for individuals and small businesses who have been
subjected to overreaching Federal actions.
136
REDUCING LOWER PRIORITY
137
SPENDING
Soil and Water Conservation
FUNCTIONAL CODE: 301, 303, 304, 453
AGENCY: Department of Agriculture
Funding
($ in millions)
1983
1984
1985
1986
1987
796
573
562
562
562
562
828
721
624
598
584
578
1981
1982
BUDGET AUTHORITY
831
OUTLAYS
849
Savings From
Current Services
1982
1983
270
—
147
Program Description
The Soil Conservation Service (SCS) provides soil and water conservation technical assistance to
landowners, conducts soil surveys and collects national information on soil and water related
conservation problems. It also assists sponsors of small water resource projects in planning and
implementing works of improvement in small watersheds primarily to reduce flood damage in rural
areas and small communities.
The Agricultural Stabilization and Conservation Service (ASCS) administers the Agricultural
Conservation Program (ACP), a program of financial assistance to cost share with landowners the cost
for installing soil and water conservation practices on private lands.
Proposed Change
The Administration proposes to restructure these programs to achieve soil and water conservation
benefits at lower cost. TTiis restructuring comprises:
•
Concentrating assistance on resolving high priority soil and water resource problems.
•
Maintaining the funding level for conservation technical assistance.
•
Initiating a $10 million pilot program of matching grants to induce States and localities to
accentuate and compliment existing Federal, State and local soil and water conservation
activities.
•
Significantly reducing the total funding level for conservation cost share assistance from the
1982 enacted level.
•
Significantly reducing the total funding level for small watershed works of improvement from
the 1982 enacted level.
Rationale
Basic changes in approach and funding levels are being proposed for soil and water conservation
programs because:
•
Conservation cost share assistance has not been effective in addressing the most severe soil
and water problems. A recent USDA study of the Agricultural Conservation program found
the following:
— Only 21% of erosion control assistance was directed to lands which account for 84% of
all excess erosion.
— Less than 4% of water conservation assistance was directed to lands with high rates of
water use acounting for over 33% of the total volume of water conserved.
139
•
Careful concentration of a substantially reduced level of assistance on the most serious
problem areas would achieve much of the conservation benefits achieved at present funding
levels.
— Conservation benefits would be achieved at lower cost.
— State governments would exercise a significantly greater role in management of, and
allocation of funds for, conservation programs. The relative benefits of land treatment
measures and water impoundments can be compared, and State and local priorities more
accurately reflected in funding decisions under this approach.
— Planning and construction activity on lower priority watershed construction projects
should be reduced because in many cases they are only marginally cost beneficial.
Furthermore they frequently lack the urgency of higher priority erosion control
measures.
•
Federal technical assistance should continue to be available at recent year levels so that the
latest conservation technology can be readily disseminated to and applied by private land
owners.
— State and local governments will continue to have access to the Federal nationwide
network of local Soil Conservation Service offices as a source of technical guidance and
information on soil and water conservation matters.
Effects of the Proposed Change
•
State and local governments can take advantage of their proximity to local areas in
identifying local problems and solutions.
•
Increased local funding should lead to heightened awareness of the importance of achieving
cost-effective solutions to soil and water conservation programs.
•
Short-term practices may be more attractive to farmers. Individual producers will be
encouraged to apply conservation management type practices which are readily applicable
and more cost-effective than many structural type conservation practices. For example, the
effective management by the producer of crop and surface residues on cropland through the
application of conservation tillage and conservation management systems in appropriate
situations provides an efficient and cost-effective means of controlling much excess erosion,
and is economic for the producer to incorporate in his farming operation.
140
Summary of Smaller Items in the Department of Commerce
AGENCY: Department of Commerce
FUNCTIONAL CODE: 376
Funding
($ in millions)
1981
1982
1983
1984
1985
1986
1987
BUREAU OF THE CENSUS:
Budget Authority
Outlays
235
249
145
155
155
148
116
115
130
128
145
145
145
145
NATIONAL BUREAU OF STANDARDS:
Budget Authority
Outlays
104
111
120
118
104
107
102
103
104
104
104
104
104
104
20
20
18
25
—
—
24
7
1
359
380
283
298
259
279
218
225
234
233
249
249
249
249
PUBLIC TELECOMMUNICATIONS:
Budget Authority
Outlays
TOTAL:
Budget Authority
Outlays
Savings From
Current Services
1982
1983
1
8
8
13
13
—
18
2
—
1
39
23
Program Description
The Bureau of the Census provides basic statistical information about the population and economy of
the United States. Periodic censuses and programs provide benchmark data at specified 5-year or
10-year intervals. Current programs provide a broad base of monthly, quarterly and annual
information for many areas covered by the censuses as well as official statistics on U.S. foreign trade.
The National Bureau of Standards (NBS) is responsible for the development, maintenance, and
dissemination of the national standards for measurement. In addition to its primary standards and
measurement role, NBS provides technical support for research to increase industrial productivity,
develop Federal computer standards, and enhance the knowledge of fire science and engineering.
The Public Telecommunications Facilities Program (PTFP) provides grants for planning and
construction of non-commerical telecommunications facilities to help in starting up new facilities and
extending the delivery of public telecommunications services. This program was initially proposed for
termination in the President's 1982 Budget Revisions transmitted to the Congress in March 1981.
Proposed Changes
Census: Data collection costs for the 1982 Agricultural Census would be reduced by $10 million in
1983. A special "area sample," first conducted in the 1978 Agricultural Census, would not be
repeated. Data for the outlying areas (Guam, Virgin Islands, Puerto Rico) would not be collected,
and follow-on surveys (e.g., farm finance survey, farm energy, etc.) would not be conducted.
NBS: Direct funding of some productivity programs (automated manufacturing and metals processing)
would be reduced by $4 million, or 15% from the 1982 level, and the recycled materials progam
would be terminated. Funding for development of Federal computer standards would be reduced by
$5 million or 40% from the 1982 level. The fire science and engineering activity previously funded by
the Federal Emergency Management Administration (FEMA), but performed by NBS staff, would be
continued with directly appropriated funding of $3.5 million, 12% below the 1982 level.
PTFP: In 1983, the Administration proposes elimination of grants for assistance in the planning,
constructing, and upgrading of public broadcasting stations.
141
Rationale
Census: The changes in the Census budget are also an integral part of the President's comprehensive
plan to impose fiscal restraint on programs of national interest. The budget provides for data content
and quality comparable to that published for the 1978 Agricultural Census. The number of farms
enumerated would provide a sufficient base for the conduct of accurate follow-on sample surveys in
the 5-year interval before the 1987 Agricultural Census.
NBS:
The highest priority is given to assuring adequate staffing and funding for the basic
measurement programs. These activities in the physical, chemical, mathematical, and engineering
sciences would be continued at about the 1982 level. The programs designed to provide technical
support to industrial productivity would be reduced because the Administration believes that it is
possible to place greater reliance on the private sector for activities with near term commercial
applications such as robotics and development of information for specific industrial processes.
Activities related to the development of Federal computer standards would be reduced because the
interests of the Federal Government can be protected with a lower level of effort which provides for
Federal representation in voluntary ADP standards setting actitivites. This program is proposed for
transfer to the General Services Administration in 1983. Funding for the fire science and engineering
program is proposed for transfer from FEMA in order to improve the planning and management of
this activity. The level of effort would be reduced because some of the research activities previously
funded by FEMA (e.g., test methods for the flammability of fabrics) are essentialy complete.
The PTFP program has successfully extended, to a vast majority of the American people, public
broadcasting radio and television programming. Latest estimates show that over 92% of the nation has
access to public programming via the world's most sophisticated satellite newtwork. Further, the
dramatic growth in the cable television industry will serve to extend public programming to a larger
number of Americans in the coming decade.
Effects of the Proposed Changes
Census: Elimination of the area sample would result in loss of data for approximately 9% of the
estimated 2.5 million U.S. farms identified in the 1978 census. This subset of farms, however,
represented only 1% of farm sales in 1978. The quality of county level data would not be affected
since the area sample contributed only to a refinement of state level estimates. Any follow-on surveys
that may be considered essential by primary data users (e.g., USDA) can be conducted on a
reimbursable basis at a later date. This arrangement can be used for data for the outlying areas as
well.
The NBS core measurement and standards activities would be continued at the current level.
PTFP: The effects on the operation of the public broadcasting network would be negligible. Station
managers would need to maximize <he service life of their present equipment and devise new
fundraising strategies to secure private sector support of equipment purchases and maintenance.
142
NOAA Ocean and Weather Programs
FUNCTIONAL CODE:301,303,304,453
AGENCY: Department of Commerce
Funding
($ in millions)
Savings From
Current Services
1982
1983
1981
1982
1983
1984
1985
1986
1987
BUDGET AUTHORITY
840
849
776
829
858
809
899
16
142
OUTLAYS
877
963
849
812
868
908
905
3
109
^Offsetting fees going to Treasury not reflected. Outyear costs reflect increases for satellite procurement and
launch services.
Program Description
The National Oceanic and Atmospheric Administration's (NOAA) mission is to manage, conserve and
monitor marine resources and to monitor and predict atmospheric and marine conditions for the
protection of life and property.
NOAA supports a national weather service; civil environmental satellite remote sensing systems:
fisheries research, management and development; ocean and atmospheric research and development
(R&D): a hydrographic and ocean research fleet; aeronautical and nautical mapping and charting;
national geodetic control points; coastal zone management: and, a national environmental data storage
and retrieval system. (The mapping and charting program is discussed in a separate fact sheet in
Chapter 7 — User Fees.)
Proposed Changes
•
National Weather Service — Close 45 low priority weather service offices; eliminate
agricultural weather services; and fund aviation weather services through the FAA airport
and airway trust fund.
•
Environmental Satellites — Reduce the polar satellite system to one satellite in orbit. NOAA
will assume responsibility for the LANDSAT system from NASA and would begin to
recover the system's operating costs through the collection of user fees from the sale of data
and data products to Federal and non-Federal users. Systems changes required for
compatibility with the NASA satellite communication networks will be funded.
•
Fisheries Research, Management, and Development — Curtail fisheries funding by terminating
State fisheries grants, industry subsidies, and the aquaculture research program; reducing
funding for marine mammals, fisheries management and development, research and services,
habitats, and coastal zone management coordination; and shifting partial funding
responsibility for the Columbia River hatcheries and Pribilof Islands operations, in phases, to
the benefitting States and industries.
•
Oceanic and Atmospheric Research and Development — Reduce deferrable R&D programs
(e.g., climate, global atmospheric research, solar terrestrial research, ocean buoys, and ocean
pollution). Eliminate Sea Grant funding, most weather modifications programs, and the
Great Lakes and undersea research programs.
•
Ship Support, Maps, Charts and Geodetic Control — Stretch out marine boundary survey
research activities and the geodetic vertical adjustment program; reduce ship operations; and
recover full costs of aeronautical and nautical maps and charts by 1985 (see user fees
section).
•
Coastal Zone Management and Environmental Data Services — Reduce the estuarine
sanctuaries program, environmental data services, and overall NOAA administrative costs.
Accelerate phase-out of the coastal zone management State grant program and coastal energy
impact assistance.
143
Rationale
•
National Weather Service — Lower priority weather stations would be closed as part of an
overall restructuring effort by the weather service to streamline services and reduce excess
personnel. Adequate services would be provided from other stations. Agricultural users
would still be provided with general forecasts. Recovery of aviation weather service cost is
consistent with Administration policy to recover the cost of services which provide special
benefits to identifiable recipients above and beyond those which accrue to the general public.
•
Environmental Satellites — Moving to a single polar orbiting satellite would not seriously
degrade U.S. weather forecasting capability. LANDSAT user charges are consistent with the
Administration's effort to relieve the general taxpayer of the burden of subsidizing specific
program beneficiaries.
•
Fisheries Research, Management, and Development — Fishing industry subsidies are
terminated to allow the industry to develop as demand dictates. States, localities, and
industries would be expected to continue funding programs which benefit them.
•
Oceanic and Atmospheric Research and Development — To reduce expenditures, noncritical
or deferrable research would be reduced. States and localities which benefit from some of
these programs could undertake this research if it is of sufficient priority.
•
Ship Support, Maps, Charts and Geodetic Control — Ship support is reduced commensurate
with other activities. Completion of marine boundary and geodetic surveys would be
decelerated to reduce annual expenditures. (See user fees section for discussion of maps and
charts fees.)
•
Coastal Zone Management and Environmental Data Services — Coastal Zone Management
rescissions are consistent with the phaseout policy established in 1982. Lower priority,
data-archiving functions are reduced to achieve savings.
•
While imposing fiscal restraint on programs of national interest, these policy/program
changes would allow NO A A to continue priority service programs for the protection of life
and property, as well as for the management and conservation of marine resources. Research
and development to support essential NOAA services and to provide a scientific basis for
analysis of environmental protection issues is continued. Priority services that would
continue include, but are not limited to: weather services, mapping and charting; acid rain
and climate research; weather stations with upper air observations or radar coverage:
development of doppler radar, severe weather information system, and automation of surface
observations; satellite data necessary for weather warning and forecasts — primarily related
to hurricanes and tornados — for key areas of risk; and management of the national
fisheries.
Effects of the Proposed Change
The proposed changes shift funding responsibility for certain NOAA activities to States and private
industry, reduce R&D activities, and decrease the scope of lower priority activities. The following
impacts are illustrative:
•
The remaining weather stations (about 210) would assume the services of stations being
closed.
•
Global coverage by the polar satellite would occur once every 12 hours, rather than once
every 6 hours.
•
Optimum utilization and development of fisheries resources would be remanded to the
fishing industry; Regional Fisheries Management Council's attention would be focused on
higher risk fisheries; and
•
Priority fisheries, oceanographic and charting and mapping activities would be supported by
20 vessels instead of 22.
144
Fish and Wildlife Service
AGENCY: Department of
Housing
and
Urban
Development
FUNCTIONAL CODE: 451
funding
(S in millions)
Savings From
Current Services
1982
1983
1981
1982
1983
1984
1985
1986
1987
NATIONAL WILDLIFE REFUGE
SYSTEM
Budget Authority
Outlays
62
60
65
63
74
72
74
72
74
72
74
72
74
72
—
—
—
—
NATIONAL FISH HATCHERY
SYSTEM
Budget Authority
Outlays
20
19
22
21
20
19
20
19
20
19
20
19
20
19
—
—
3
3
OTHER FEDERAL OPERATIONS
Budget Authority
Outlays
222
256
190
201
164
162
160
156
160
156
160
156
160
156
—
—
26
13
FEDERAL AID TO STATES
Budget Authority
Outlays
124
131
145
127
158
133
172
143
191
160
209
175
229
191
—
—
7,383
7,060
6,516
6,516
6,516
6,516
6,516
—
—
TOTAL PERSONNEL
FTE
Program Description
The mission of the Fish and Wildlife Service is to conserve, protect, and enhance fish and wildlife
and their habitats. The Service administers programs for migratory birds, threatened and endangered
species, certain marine mammals, international resources, and wildlife on lands under Service control.
The Fish and Wildlife Service operates 410 wildlife refuges containing 89 million acres, 68 fish
hatcheries and related production and training facilities, 9 research laboratories, and funds numerous
planning and monitoring activities.
Proposed Change
•
The Administration proposes to save $3.7 million by closing or transferring to States those
fish hatcheries that produce fish for sports fishing within State waters. Since the fish
produced by these hatcheries are for local recreation, the continued operation of each of the
hatcheries will be a State decision.
•
Funding for nationally significant hatcheries would be increased by $1.6 million.
•
A $7 million savings would be achieved by streamlining the organizational structure of the
Fish and Wildlife Service and eliminating unnecessary overhead costs associated with 547
full-time-equivalent personnel.
•
The 1983 request includes increases in support of the new refuges authorized by the 1980
Alaska Lands Act. It also disburses to the States $158 million in Federal excise taxes
collected on fish and wildlife sports equipment for support of hunting and fishing.
Rationale
•
The Fish and Wildlife Service is streamlining its internal operations, simplifying cumbersome
organizational arrangements and administrative procedures, focusing on activities of national
priority, and reducing overhead expenses wherever possible.
145
•
The changes in fish and wildlife programs are consistent with the desire to develop balance
between the Federal Government and the States. States collect the revenues from licenses
for sports fishing and are in the best position to determine the types and volume of fish
produced for stocking their waters.
•
The Fish and Wildlife Service has reaffirmed the priorities of the National Fish Hatchery
System. Primary areas of Federal responsibility include:
— international waters such as the Great Lakes;
— waters essential for spawning of anadromous species such as Atlantic and Pacific salmon;
— waters in which the fishery resource has been altered by the construction of dams or
other Federal projects; and
— waters on Indian lands.
Federal involvement in these areas is necessary because of Federal law, action of the courts,
and the need to supplement individual State efforts to adequately support and maintain
interstate or international fishery management programs.
•
Over the years, hatcheries that do not serve Federal or national needs have been added to
the Fish and Wildlife Service. Thirty-one of these federally funded fish hatcheries, which
produce fish primarily for recreation activities in intrastate waters, are scheduled to be
transferred to the States or closed.
•
The International Association of Fish and Wildlife Agencies, which represents the States, has
previously recommended reductions in operations of the National Fish Hatchery System in
the same magnitude as the Administration proposes in the 1983 Budget.
Effects of the Proposed Change
Within limited funding, the Fish and Wildlife Service would continue to ensure effective operation of
essential progams:
•
The reduction in administrative overhead would result in more efficient management and
administration of fish and wildlife programs.
•
The Fish and Wildlife Service would focus its fish hatchery programs on national needs and
concerns. Reductions in nonessential activities make it possible to devote the necessary
resources to improvements in the national refuge and hatchery system.
•
Grants to States for fish and wildlife projects financed from federally collected revenues
would increase by $13 million in 1983.
•
The proposed $9 million increase for refuge operation and maintenance reflects an increase
in emphasis on maintaining the integrity of the National Wildlife Refuge System.
•
The $6 million increase for facility rehabilitation construction would correct safety hazards,
protect wildlife habitat, complete pollution abatement facilities, and restore diminished
production capability at national fish hatcheries.
•
Federal land acquisitions would be limited to the most important acquisitions for recovery of
endangered species.
146
National Park Service Programs
AGENCY: Department of
Housing
and
Urban
Development
Funding
FUNCTIONAL CODE: 451
($ in millions)
1981
1982
1983
1984
1985
1986
1987
OPERATIONS/CONSTRUCTION
Budget Authority
Outlays
524
607
619
665
677
675
679
654
679
669
679
679
679
679
GRANTS
Budget Authority
Outlays
198
363
33
385
—
—
244
124
61
LAND ACQUISITION
Budget Authority
Outlays
63
106
103
173
60
72
60
60
60
60
60
60
60
60
Savings From
Current Services
1982
1983
—
5
—
—
33
21
50
33
Program Description
The Department of the Interior, through the National Park Service, operates 333 park and historic
areas comprising about 74 million acres. In addition, the Park Service administers three categorical
grant-in-aid programs: Land and Water Conservation Fund State grants, Historic Preservation Fund
State grants, and Urban Park grants. These grants assist States and localities in acquiring and
developing recreation areas and facilities and administering State historic preservation programs.
Under the Land and Water Conservation Fund, the Park Service acquires land from private owners to
create new park areas or expand existing areas.
Proposed Change
A $525 million, five-year initiative to restore and improve existing national parks was begun in 1982,
with an initial $105 million request above the Carter 1982 Budget. This initiative would continue,
with the Administration again proposing that funding be derived from receipts deposited into the
Land and Water Conservation Fund.
The Administration would continue its basic policy of not proposing funding for the three narrow
categorical grant programs. The Congress accepted the Administration's position on the Land and
Water Conservation Fund State grants in 1982, but did provide funding for the other two categorical
grant programs. No funds would be requested for the private, nonprofit National Trust for Historic
Preservation, in keeping with the Administration's belief that the private sector should play the major
role in historic preservation. The Department of the Interior would have added resources to ensure
continued certification of properties eligible for Federal historic preservation income tax credits.
Land acquisition would be limited to parcels subject to condemnation awards, emergency purchases,
and high-priority conservation areas.
Rationale
•
The park improvement initiative, termination of the three State grant programs, and a
restricted land acquisition budget are integral components of the Administration's overall
effort to eliminate low-priority Federal spending and use available resources more effectively.
•
The park restoration and improvement initiative is an investment in the nationally significant
resources held in trust for all Americans by the National Park Service. Many facilities in the
Park System were built during the 1930's and have simply worn out. However, past funding
generally focused on expanding the number and types of units in the system. Recent GAO
147
reports document such problems as road deterioration, hazardous visitor accommodations,
and inadequate water and sewer systems — all resulting from the lack of sufficient
maintenance and repair funds.
•
Grants to States and localities for recreation and historic preservation primarily produce local
benefits. Such activities should compete for local tax dollars on the same footing as other
local services and are low priority for Federal funding.
•
Most buildings listed on the Park Service's National Register of Historic Places are not
nationally significant; in fact, many are only locally significant. Registration will continue,
but at a slower pace if each State provides the total funding of its historic preservation
program.
•
The Economic Recovery Tax Act of 1981 provides a 25 percent income tax credit for historic
preservation. Over $200 million in tax credits are estimated for 1983 and almost $300
million in 1984.
•
The Federal government owns more than 760 million acres of land, more than one-third of
the United States. State and local governments hold a small but growing share (6 percent),
bringing public ownership to 40 percent. Reducing Federal land acquisition will slow this
transfer of land from private to public ownership.
•
The large backlog of authorized land acquisitions include many parcels that have no unique,
nationally significant features that warrant their inclusion in the Park System. Acquiring
these lower-priority tracts not only spreads the Park Service's operations thin and dilutes the
quality of our National Parks, but also takes away from local decision-making control over
recreational resources that are primarily local in use and service.
•
The $60 million requested for National Park Service land acquisition in 1983 will be used to
pay court awards on lands already taken or condemned by the United States and for
emergency purchases. Also, the Forest Service, the Fish and Wildlife Sevice, and the Bureau
of Land Management will continue to acquire some high-priority conservation areas.
Effects of the Proposed Change
NATIONAL PARK RESTORATION AND IMPROVEMENT PROGRAM:
•
This initiative will focus on five major areas: correction of health and safety problems; cyclic
maintenance, repair, and rehabilitation; historic resources preservation; natural resources
preservation; and major capital improvements.
The following facilities are examples of those that will receive funding:
— Cape Hatteras National Seashore — lighthouse stabilization
— Scotts Bluff National Monument — water supply upgrading
— Great Smokey Mountains National Park — reconstruction of two bridges
— Mesa Verde National Park — stabilization of ruins
— Haleakala National Park — water and fire protection systems improvement.
STATE RECREATION GRANTS OF THE LAND AND WATER CONSERVATION FUND:
•
Prior-year appropriations of over $350 million of unexpended balances will be available to
States in 1983 and beyond. States and localities may continue to use their own funds for
parks, as well as issue bonds or place zoning requirements on new developments.
HISTORIC PRESERVATION FUND:
•
Through the efforts of States, localities and individuals, the number of properties identified
eligible for inclusion on the National Register of Historic Places will continue to grow in
1982 and 1983.
148
URBAN PARKS:
•
There will be no federally financed new starts in 1983, although some local governments will
continue to fund improvements with their own funds. Also the Urban Park Program began
1982 with unexpended funding of over $100 million, which will be used for projects through
1985.
NATIONAL PARK SERVICE LAND ACQUISITION:
•
The Congress appropriated funds in excess of the Administration's total land acquisition
proposal in 1982, but did not fully cover the costs of ongoing court awards. The
Administration's 1983 request will pay for those court awards received in 1982 and estimated
for 1983 which were left unfunded by the Congress in 1982.
149
Impact Aid
AGENCIES: Departments of the Treasury, the Interior,
and Defense*
FUNCTIONAL CODES: 051, 501
Funding
($ in millions)
1981
1982
BUDGET AUTHORITY
757
OUTLAYS
753
1987
Savings From
Current Services
1982
1983
1983
1984
1985
1986
456
287
287
287
287
287
—
205
645
403
311
289
287
287
-
154
'Includes activities formerly financed in the Department of Education.
Program Description
The Impact Aid program provides aid to local school districts whose local revenues are deemed to
have been reduced by the presence of Federal property. Payments are made directly to local school
districts and used for operating expenses and, in some cases, for construction and emergency repairs to
school buildings. Payments are currently made to approximately 2,000 school districts on behalf of
children who reside and/or whose parents work on Federal property or are in the military.
Proposed Change
The Administration proposes to transfer the largest part (maintenance and operations) of Impact Aid
to the Treasury Department; portions of the construction program to the Departments of the
Treasury, the Interior, and Defense; and the administration of federally operated schools to the
Department of Defense.
In 1983, Impact Aid will:
•
Pay school districts only for those children who live on Federal property and whose parents
work on Federal property or are in the military. ("A" children; children with either but not
both attributes are "B" children.)
•
Provide for emergency repairs to school facilities only on Federal property.
•
Payments will be made at approximately 80% of the level of payments made in 1982 for "A"
children.
Rationale
•
The 1983 proposal recognizes that, especially in a time of budgetary restraint, Impact Aid
funds should be directed to those school districts most likely to suffer revenue loss as a result
of Federal activities — school districts enrolling "A" children.
•
In past years, payments have been made to as many as 3,900 school districts, primarily on
behalf of "B" children, whose Federal connection does not interfere with their families'
contribution to local school revenues. There is little rationale for any Federal contribution in
such a situation.
Effects of the Proposed Change
•
Payments will be made to approximately 1,500 school districts that serve 340,000 "A"
children who live and whose parents work on Federal property, mostly military installations
or Indian lands.
•
Payments made on the basis of 1.7 million "B" children will be eliminated.
150
Education Grant Programs
AGENCIES: Foundation for Education Assistance*
FUNCTIONAL CODES: 501, 502, 503, 506
Department of Health and Human Services
Department of the Interior
Funding
($ in millions)
1981
1982
5,955
4,831
6,201
6,237
Savings From
Current Services
1982
1983
1984
1985
3,989
3,539
3,539
3,539
3,539
842
1,753
4,797
4,069
3,619
3,548
3,539
162
1,088
1983
1986
1987
•Formerly the Department of Education.
Program Description
Chapter 1 of the Education Consolidation and Improvement Act of 1981 (ECIA) provides funds to
State and local education agencies to finance supplemental compensatory educational services for the
educationally disadvantaged. Chapter 1 replaced Title I of the Elementary and Secondary Education
Act, which provided similar services.
Indian Education programs authorized by the Indian Education Act of 1972 help improve education
for American Indians and Alaskan natives in public and Indian-controlled schools.
Vocational and Adult Education programs support a range of vocational training activities at the
secondary, postsecondary, and adult levels.
Handicapped Education programs under the Education of the Handicapped Act aid States in educating
handicapped children.
Funds also go to States under Chapter 1 of ECIA to help educate
handicapped children.
Rehabilitation Services and Handicapped Research activities include a wide array of services (e.g.,
counseling, vocational training, physical and mental rehabilitation, and transportation) to assist
handicapped individuals to become gainfully employed or live independently.
Proposed Change
Chapter I, ECIA
Indian Education
Vocational and Adult Education
Handicapped Education
Rehabilitation Services
Total
1981
1982
1983
2,959
82
782
1,178
954
5,955
2,365
71
634
900
861
4,831
1,942
51
500
846
650
3,989
(budget authority in millions)
1984
1985
1986
1,500
43
500
846
650
3,539
1,500
43
500
846
650
3,539
1,500
43
500
846
650
3,539
1987
1,500
43
500
846
650
3,539
Reduce the level of Federal funding from 1982 to 1983 by $842 million, or 17%, in budget authority:
•
Reduce Chapter /, ECIA funding by $423 million.
•
Transfer the Indian Education programs to the Department of the Interior and reduce
funding by $20 million.
•
Consolidate Vocational and Adult Education authorities into a simplified grant to States and
reduce funding by $134 million.
151
•
Consolidate Handicapped Education authorities from the Education of the Handicapped Act
and Chapter 1 of ECIA into simplified grants to States and reduce funding by $54 million.
•
Transfer Rehabilitation Services and Handicapped Research to the Department of Health and
Human Services and consolidate authorities into a simplified grant to States and reduce
funding by $211 million.
Rationale
In response to the overall need for fiscal restraint, funding for these activities should be reduced
because they represent lower priorities for Federal funding than other activities.
As part of the realignment of the Federal-State relationship in education, the scope of the Federal
role in education should be constrained and its potential for intruding on State and local prerogatives
should be limited.
Chapter 1 funding can be reduced and still provide important aid to help the most needy. Giving
States and localities greater control over and flexibility in the use of funds is expected to produce
administrative efficiencies and a corresponding reduction in average cost per pupil sufficient to avoid
elimination of service to the most needy children.
Transfer of Indian Education to the Department of the Interior will allow all Federal funds for
education of Indians to be administered by one agency, which will improve the opportunity for
efficient administration of programs for Indians, allow better policy coordination among programs for
Indians, and improve the effectiveness of resource allocation.
Consolidation of vocational and adult education authority is needed to increase State and local
flexibility and control over use of funds and eliminate unnecessary recordkeeping.
Handicapped education programs are now provided under two laws containing a variety of categorical
programs. Consolidating these into simplified grants to States is needed to allow more efficient use of
funds, eliminate undue Federal burdens and limitations on State and local efforts, and reduce
administrative costs.
Rehabilitation grant programs should be consolidated to give States greater flexibility in use of funds,
reduce Federal administration burdens, and allow States to provide rehabilitation services more
effectively to their handicapped citizens. The transfer of these activities to the Department of Health
and Human Services places the program within an agency better suited to administer it.
Effects of the Proposed Change
Emphasis on using limited resources for populations most in need will be strengthened.
funds will be reduced.
Federal
•
Over 4.3 million educationally disadvantaged children will be served in 1983 with Chapter 1
funds if the States can achieve an average cost of about $400 per child.
•
About 310,000 Indian children will be served with Indian education funds at a cost of about
$100 per child.
•
Vocational and adult education funds will be more effectively programmed.
•
About 4.3 million handicapped children will be aided at a cost of $180 per child, about $10
less than in 1982.
•
About 900,000 handicapped persons will be provided with rehabilitation services, some
350,000 fewer than in 1982. About 142,000 of these people will be rehabilitated to
employment, about 56,000 fewer than in 1982.
Program statutes and regulations will be simplified and funding procedures will be streamlined in
order to improve the quality of services and to increase the proportion of funds spent on real service
delivery rather than on unnecessary procedures, reporting, and recordkeeping.
152
Reduced Navigation Maintenance
AGENCY: Corps of Engineers/Tennessee Valley Authority
FUNCTIONAL CODE: 301
Funding
($ in millions)
1981
1982
1983
1984
1985
gav-ngS
1986
1987
p
r o m
Current Services
1982
1983
BUDGET AUTHORITY
510
565
465
485
510
535
555
—
150
OUTLAYS
510
565
465
485
510
535
555
—
150
Program Description
The Corps of Engineers and Tennessee Valley Authority operate and maintain a system of locks,
dams, channels, and other facilities on the inland waterways of the Nation, principally for moving
bulk goods, such as grain and coal.
The Corps also dredges harbor channels and maintains other facilities for ocean-going and Great
Lakes traffic.
Proposed Change
•
The Administration requests $465 million for inland and deep draft operation and
maintenance, $150 million below the $615 million required to perform a moderate level of
maintenance at all waterways and harbors.
•
The appropriation request will be increased if adequate reimbursement is provided upon the
enactment of user fee legislation.
Rationale
•
Reduced funding is consistent with the Administration's policy position that maintenance and
new construction should be a non-Federal responsibility paid for through user fees rather
than by the general taxpayer.
•
Most other types of completed Federal water resources projects are maintained by
non-Federal project sponsors.
Effects of the Proposed Change
If Congress does not enact legislation for waterway user charges, the Corps of Engineers will have to
restrict its maintenance to the highest priority operations.
Congressional inaction on user fees would cause the following serious problems:
•
About 35 low volume inland waterways are expected to close while 13 moderate volume
waterways will experience reduced hours of operation.
•
About 40 high cost-low tonnage commercial ports where Federal costs exceed $1 per ton of
commerce will not be dredged, resulting in light-loading of vessels or diversion to other
ports. These ports handle only 2 percent of the deep draft tonnage, but are responsible for
20 percent of deep draft maintenance costs.
•
Shallow draft harbors will not be maintained at Federal expense.
•
The amounts cannot be calculated in advance, but the budget cuts should result in overall
national savings because high unit-cost waterways and ports have been chosen for budget
reductions.
153
Some waterways may experience traffic diversions to other more cost-effective modes of
transportation, such as rail, and there may be increased use of ports less costly for the
Federal Government to maintain. These diversions may increase costs for some specific
shipments.
It is likely that the cost to users of low and moderate volume waterways will increase.
Low-volume waterways like the Kentucky waterway and the Allegheny waterway will be
closed, and moderate-volume waterways like the Arkansas will have reduced hours of
operation.
The shallow draft harbors which will not be dredged serve primarily fishermen and
recreationists. Not dredging these harbors may cause channel closures or light loading and
inconvenience.
The Administration will request funds to rectify the above effects when adequate user fees to
recover costs of maintenance dredging are authorized by Congress.
154
State Environmental Grants
AGENCY: Environmental Protection Agency
FUNCTIONAL CODE:301,303,304,453
Funding
($ in millions)
Savings From
Current Services
1982
1983
1981
1982
1983
1984
1985
1986
1987
BUDGET AUTHORITY
210
225
182
182
182
182
182
0
61
OUTLAYS
224
219
205
186
182
182
182
0
27
Program Description
EPA administers six categorical State grant programs, including: air quality, water quality, public
water supply, underground injection control, hazardous wastes, and pesticides enforcement grants.
These grants pay part of the costs of State personnel and expenses for regulation and enforcement
under pollution abatement laws.
Proposed Change
Reductions in funding of 19% in 1983 are proposed as a result of significantly reduced Federal
demands on State overhead and management responsibilities.
Rationale
The Environmental Protection Agency will initiate actions to increase State flexibility and control over
their pollution abatement activities. These include:
•
Reduce program requirements on States.
One of the principal objectives of the
Administration is to eliminate the many cumbersome and overly complex program
requirements that have little, if any, impact on environmental quality. Changes needed range
from lengthening the period of pollution permits, thereby avoiding unnecessary reviews, to
reducing the number of mandated programs that States must administer, such as vehicle
emission inspections, when States have preferred alternatives that achieve the same objective.
EPA is also moving quickly, through regulatory reform initiatives, to reduce program
requirements on States. A major effort to drop requirements that were not mandated by law
but which EPA itself had imposed on States has already begun. In the waste treatment grant
program, EPA recently proposed new, simplified regulations which reduce the information
and paperwork burden on States by over one-third while maintaining all statutory
requirements and those needed for effective program management.
EPA has also initiated a new enforcement policy that will enable both the States and the
Federal Government to concentrate resources on violations that could significantly affect
environmental quality rather than "de minimus" technical violations.
•
Reduce Federal oversight of State permit and implementing actions. States have consistently
argued that Federal EPA oversight consists of far too much duplication, permit-specific
approval and technical second-guessing. EPA is moving quickly to eliminate the enormous
delays, of up to 2 years, in approving routine State implementing actions. These delays have
been primarily due to layer upon layer of Federal bureaucratic review and approval.
EPA has begun three pilot programs: 1) to consolidate Federal and State procedural
requirements, such as public notice and comment provisions, rather than duplicating State
actions at the Federal level; 2) to speed the review and approval of noncontroversial or
technical changes in State regulations; and 3) to reduce the number of EPA internal reviews
of State actions.
155
These initiatives will free States from having to spend inordinate time and effort defending
State regulations before EPA and from having to initiate the lengthy process of changing
State regulations to comply with EPA second-guessing.
•
Reduce Federal reporting requirements on States, including reducing or simplifying the many
"status" reports required of States and consolidating the procedural requirements in support
of applications for Federal grant funds. States have been uniform in their opposition to the
workload associated with responding to Federal "red tape" requirements.
•
Encourage user fees. Sixteen States have already begun charging permit and license fees to
offset the costs of operating air and water pollution control programs. These revenues pay
for the costs of issuing permits, monitoring dischargers, and conducting inspections of
dischargers to ensure compliance with permits. The charging of even modest fees by all
States for issuing pollution-related permits will significantly reduce the need for Federal
subsidies and would provide States with sufficient additional revenues to pursue pollution
control activities which are either not covered by Federal funding or for which sufficient
funding would not otherwise exist.
Effects of the Proposed Change
The actions initiated by EPA will not affect the substantive pollution control efforts conducted by
State agencies. Instead, these initiatives will permit States to:
•
reduce overhead and staffing requirements currently being devoted to managing the process
rather than managing State programs:;
•
reduce the amount of staffing involved in negotiating and rewriting plans and regulations to
suit EPA; and
•
reduce staffing required to fill out and submit reports and data to EPA.
The increased State flexibility that will result from these actions will be further enhanced as States
move to greater self-sufficiency and independence through the adoption of appropriate user fee
mechanisms.
156
INCREASING INVESTMENT IN RESEARCH AND DEVELOPMENT
157
Nuclear Energy Programs
FUNCTIONAL CODE:301,303,304,453
AGENCY: Department of Commerce
Funding
($ in millions)
1981
1982
1983
1984
1985
1986
BUDGET AUTHORITY*
1,889
1,567
1,458
1,686
1,675
1,823
1,988
0
319
OUTLAYS**
1,912
1,398
1,329
1,596
1,843
1,888
2,035
0
366
*
1987
Savings From
Current Services
"""1982
19&3"
Includes obligations from 1983 on for commercial waste disposal from fees on nuclear power generation as explained in Chapter 6.
Includes costs from 1983 on for commercial waste disposal from such fees.
Program Description
The principal elements of the nuclear energy program (in the existing Department of Energy) are
research and technology development, commercial nuclear waste management and uranium
enrichment. The nuclear program also supports research and technology development to improve the
safety of current nuclear powerplants (light water reactors); to evaluate spent fuel storage and
reprocessing options (nuclear fuel cycle); and to advance nuclear space power technology (advanced
nuclear systems).
Technologies for energy production now under development are chiefly fusion and the breeder
reactor, focused on the Clinch River Breeder Reactor (CRBR).
Proposed Change
The 1983 budget provides for continuation of a strong nuclear program taking into account the
appropriate role of the Federal Government and program priorities. Savings are proposed in 1983 for
activities not in keeping with this policy.
The specific major changes are noted below:
•
For Magnetic Fusion, the budget proposes to refocus the program toward resolving existing
scientific and technical issues. The pace of engineering development, including funding for
large demonstration facilities, has therefore been stretched out.
•
For the Breeder Reactor, a significant increase is proposed for the Clinch River Breeder
Reactor (CRBR) project and long range technology development in support of CRBR. This
increase is more than offset by eliminating funding in 1983 for component development for
the Large Developmental Plant (LDP) and through phase-out of the Light Water Breeder
Reactor demonstration.
•
For the Light Water Reactor program, budget funding will be focused on investigating the
damaged reactor core from the Three Mile Island plant in order to obtain data that will be
applicable generally to nuclear reactor safety. Funding in 1983 for the High Temperature
Gas Reactor (HTGR) program is not requested, accounting for much of the reduction from
1982.
•
Funding for Nuclear Fuel Cycle activities in 1983, which consist of reprocessing, waste form
technology, and spent fuel storage technology, is at the same program level as 1982.
•
For the Commercial Nuclear Waste program, the budget in 1983 proposes an accelerated
program for site-specific activities leading to the development and operation of permanent
disposal facilities for high level radioactive waste. The budget assumes enactment of
legislation to impose user fees on nuclear power generation. This fee transfers the
responsibility of paying for waste disposal service from the taxpayer to the utility ratepayer.
(See Fees for Commercial Nuclear Waste Disposal paper in Chapter 6 for further details.)
159
The following table summarizes funding for the Nuclear Energy Programs:
Budget Authority (in million $)
1982
1981
1983
394
454
444
663
687
577
(122)
(122)
(254)
83
117
32
21
7
59
40
38
31
246
263
315
Program
Magnetic Fusion
Breeder Reactor
(CRBR)
Light Water Reactor
Nuclear Fuel Cycle/Spent Fuel*
Advanced Nuclear Systems
Commercial Nuclear Waste
Commercial Nuclear Waste
Disposal Fund**
Other Waste Programs
Uranium Enrichment (net)
TOTAL Nuclear Energy
(...)
(...)
(246)
442
1,889
(262)
1
1,567
(185)
(130)
0
1,458
*Note: Nuclear Fuel Cycle program was formulated in 1983 from Spent Fuel, part of the Breeder Reactor
program and part of Commercial Nuclear Waste program.
•"Obligations from fees received from utilities on nuclear power generation.
Rationale
•
Continued Federal support for Magnetic Fusion and Breeder Reactor programs is
appropriate in light of die potential pay-off of these technologies to the nation and the
inability of industry to make significant investments at this time.
In the Magnetic Fusion program, funding for research is emphasized to assure that current
scientific issues are adequately resolved prior to construction of large fusion engineering
devices.
In the Breeder Reactor program, breeder reactor technology will be effectively demonstrated
by construction and operation of Clinch River Breeder Reactor (CRBR). No funds are
requested for the Large Developmental Plant (LDP) in FY 1983 on the assumption that
construction of an LDP is the responsibility of private industry. If any agreement to an
international cooperative LDP effort materializes among Federal, domestic private and
foreign groups, then funds for limited design activities can be provided within the program
proposed for 1983 The Light Water Breeder Reactor (LWBR) has successfully completed its
test program and therefore will be retired.
•
For the Light Water Reactor program, research at the Three Mile Island (TMI) site has been
increased to the extent that the Federal Government can support research of benefit to the
nation as a whole. It is assumed the responsibility of TMI clean-up rests primarily with
those who produce and use nuclear power.
No funds are provided for the High
Temperature Gas Reactor since the further deployment of this existing technology should be
a private sector responsibility.
•
In the Commercial Nuclear Waste program, commitment to a permanent waste facility
commissioned by the end of this century is needed to support continued utilization of
nuclear power. Without a program to meet this goal, continued licensing by the NRC of
reactors is in question. User fees are a more appropriate form of financing for this
business-like activity. Meanwhile, it is expected that nuclear plant utilities can provide for
sufficient interim storage capacity.
Effects of the Proposed Change
•
The nuclear energy program for 1983 has been reduced by $109 million in budget authority
over 1982. This represents a shift in emphasis from multiple demonstrations to more long
term, high risk R&D, and away from taxpayer subsidy of commercial nuclear waste disposal.
•
The Clinch River Breeder Reactor will be supported consistent with a plant start-up before
1990.
•
Commercial demonstration of current technologies such as the HTGR are left to the private
sector for support.
160
National Aeronautics and Space Administration
FUNCTIONAL CODES: 250, 402
AGENCY: National Aeronautics
and Space Administration
Funding
($ in millions)
1981
1982
1983
1984
1985
1986
1987
BUDGET AUTHORITY
5,518
5,936
6,608
6,508
6,054
5,499
5,432
OUTLAYS
5,421
5,827
6,577
6,530
6,193
5,673
5,499
Savings From
Current Services
1982
1983
Program Description
Programs of the National Aeronautics and Space Administration (NASA) consist primarily of R&D
activities in space transportation, space science, space and terrestrial applications, and aeronautics.
—
Space transportation programs provide for procurement and operation of a fleet of Space
Shuttle Orbiters and other space and ground hardware to meet the launch needs of civil,
military, and foreign users.
—
Space science programs investigate the Earth's space environment, the Sun, the planets and
distant objects in the Universe—primarily through the use of unmanned spacecraft supported
by ground-based research.
—
Space and terrestrial applications activities support R&D to apply space technology to
practical uses. Included, for example, are activities to improve understanding of Earth
resources, climate, weather and pollution; to develop agriculture forecasting techniques based
on satellite data; and to extend the range of satellite communications.
—
Aeronautics R&D supports fundamental research in the aeronautical disciplines (e.g.,
aerodynamics and propulsion) and selected component technology development and
demonstration efforts.
In addition to these specific R&D programs are general agency-wide support activities at NASA
Headquarters and the field centers. Included primarily are satellite tracking and data acquisition
support; all NASA civil service and administrative costs; maintenance of the agency's physical plant;
and R&D addressing fundamental space technology problems and opportunities common to a broad
spectrum of space programs.
Proposed Change
The 1983 Budget for NASA provides for an overall increase of $672 million. The overall increase is
the net effect of increases for several high priority activities offset partially by decreases for lower
priority activities, as detailed below.
•
For Space Transportation, the budget provides increases for logistics and contractor support
to assure timely transition of the Space Shuttle to an operational system; for development of
a lighter weight solid fuel rocket for the Space Shuttle to permit carrying heavier payloads;
and for the first demonstration of the repair on orbit of a disabled satellite. Savings would
be achieved by not initiating the development of the Centaur upper-stage propulsion project.
•
For Space Science, the Gamma Ray Observatory Mission would be continued, leading to a
1988 launch. Funding would be increased to continue as planned the Galileo project to
Jupiter to be launched in 1985. Major cost savings would be achieved through not initiating
the development of the Venus Orbiting Imaging Radar mission and by reducing other lower
priority science projects.
360-900
161
0 - 8 2 - 6
•
For Space and Terrestrial Applications, savings would be achieved by placing greater reliance
on the private sector for satellite communications R&D. Funding responsibility for future
operational weather satellite improvements would be transferred to the National Oceanic and
Atmospheric Administration of the Department of Commerce.
•
For Aeronautics R&D, increases would be provided for fundamental research in aeronautical
science. Offsetting savings would be obtained by reducing efforts in those areas of
technology development and demonstration aimed primarily at relatively near-term civil
aviation applications.
•
For Agency-wide Supporting Activities, an increase is necessary to initiate lease payments for
the new Tracking and Data Relay Satellite System.
The following table summarizes the proposed 1983 Budget for NASA:
(Budget Authority in Million $)
1982
1983
1981
Space Transportation
Space and Science
Space and Terrestrial Applications
Aeronautics
Agency-wide supporting activities
TOTAL NASA
2,729
542
340
271
1,636
5,518
3,090
568
334
233
1,711
5,936
3,468
682
320
232
1,906
6,608
Rationale
•
For Space Transportation, increases are needed to assure a timely transition to an operational
Shuttle system that will meet, with a high level of confidence, the needs of civilian and
military users. The Centaur upper stage development is being terminated because it is not
essential to approved civil or military requirements.
•
For Space Science, development of the Venus Orbiting Imaging Radar mission is not being
initiated in order to provide adequate funds for the highest priority science missions (i.e., the
Space Telescope, the Gamma Ray Observatory, and the Galileo mission to Jupiter).
•
For Space and Terrestrial Applications, support would be curtailed for major satellite missions
intended to accelerate commercial applications of space technology or to demonstrate new
satellites for other civil agencies. Planning and funding for new major satellites with
commercial value is more appropriately and efficiently pursued by the private sector. Where
Federal agencies need NASA capability, the work is more appropriately done on a
reimbursable basis.
•
For Aeronautics R&D, research in aeronautical sciences and related facilities support would
be increased to help sustain the knowledge base which underlies the long-term strength of
the Nation in aviation technology. Federal support for technology development with
relatively near term commercial application represents an inappropriate subsidy to industry
and is being curtailed.
•
For Agency-wide Supporting Activities, generic space research and technology would be
maintained at a relatively constant level to assure a flow of new knowledge and technology to
future programs. Personnel, facilities, and administrative costs would be kept to minimum
levels.
Effects of the Proposed Change
•
The NASA Budget for 1983 provides an increase of $672 million in budget authority over
1982, a real increase of about 4 percent.
•
The decrease in NASA's budget in the outyears reflects the completion of several major
space flight missions and the progress of the Space Shuttle from the costly development and
orbiter production phase to revenue generating operations. Space Shutde revenues, which
include prepayments toward the cost of planned future launches, are estimated to rise from
$59 million in 1982 to $135 million in 1983. These revenues will increase further in future
years as the frequencey of Space Shuttle launches increases.
162
National Science Foundation
AGENCY: National Science
Foundation
FUNCTIONAL CODE: 250
Funding
($ in billions)
Increase Above
Current Services
BUDGET AUTHORITY
OUTLAYS
1981
1982
1983
1984
1985
1986
1987
1,036
1,003
1,078
1,078
1,078
1,078
1,078
981
1,101
982
1,130
1,048
1,076
1,076
Program Description
The National Science Foundation (NSF) primarily supports long-term basic research in all scientific
disciplines through grants, largely to scientists in academic institutions, and through support of major
research facilities in areas such as ground-based optical and radio astronomy, oceanography, and
atmospheric sciences.
Proposed Change
NSF programs would increase in 1983 by $75 million or 7 percent over 1982. This increase would
compensate for cost increases due to inflation in research project support. The budget also includes
partially offsetting reductions in some lower priority activities. Specifically, the 1983 budget would:
•
Provide an increase of about 9 percent over 1982 in the support by NSF of research in the
natural sciences and engineering, with particular emphasis on the mathematical and physical
sciences and engineering.
•
Continue U.S. activities in the Antarctic — managed by NSF — at approximately the
ongoing level of effort. Includes $13 million in budget authority for icebreaker support in
the Antarctic previously budgeted in the Department of Transportation.
•
Continue NSF's research fellowship program, but not fund any other Science Education
activities.
•
Provide no funds to initiate the construction phase of the new Ocean Margin Drilling
program, but continue the ongoing ocean drilling program for another year.
•
Provide some additional funds in 1982 and 1983 over levels previously proposed for 1982 for
behavioral, social and economic sciences, particularly to preserve high priority support of
data bases and basic methodological research.
Rationale
The Foundation's support of basic research is of particular significance because it complements the
basic research programs of mission agencies, such as the Department of Defense and the National
Institutes of Health, and balances Federal support across all scientific disciplines. The Administration
supports basic research because the private sector is unlikely to make investments in this area that are
adequate for the long-term needs of the Nation.
In the 1983 budget for NSF:
•
Emphasis is given to the physical sciences and engineering based upon the relative
importance of these disciplines to the long-term technological advancement and economic
strength of the Nation.
163
•
Support of the Antarctic program is continued because of the importance of the Antarctic as
an area where a number of nations conduct valuable research in peaceful coexistence under
the terms of the Antarctic Treaty, of which the U.S. is a signatory.
•
The research fellowship program is continued as a complement to the Foundation's support
of research. However, other lower-priority Science Education activities previously supported
by the NSF would be phased out by 1983 because education is more appropriately the
responsibility of State and local governments.
•
The construction phase of the Ocean Margin Drilling program would not be initiated
because of inadequate industry support to continue the cost sharing arrangements earlier
planned for the program and because full funding for this program by NSF would not be
warranted on the basis of scientific priorities.
•
Some increases are proposed in 1982 and 1983 over the previously reduced level of the
Administration's 1982 (March) Budget for the social, behavioral, and economic sciences that
would allow continued funding for relatively higher priority areas. Examples include the
maintenance of long-term data bases, methodological improvements, and quantitative
research that are important to the continued development of these disciplines as fields of
scientific inquiry.
Effects of Proposed Change
•
The phase-out in 1982 and 1983 of separate programs in Science Education would have a
relatively small impact because past NSF support levels have constituted a negligible fraction
of the approximately $150 billion that the Nation invests on education each year.
•
The proposed increases for the natural sciences and engineering would provide a real growth
in 1983 of approximately 2% above 1982 for these disciplines.
164
OTHER PROGRAMS
165
Enterprise Zones
FUNCTIONAL CODE: 451
AGENCY: Department of Housing and Urban Development
Funding
($ in millions)
1985
1986
1984
BUDGET AUTHORITY ..
OUTLAY EQUIVALENT
1987
0
0
0
0
310
620
930
930
Program Description
Enterpise Zones is an experimental, free market approach for dealing with urban problems. It has
two purposes: to create jobs in depressed inner city areas, especially for disadvantaged workers; and
to redevelop and revitalize the geographic areas themselves.
The Enterprise Zone concept is a new approach to urban problems, relying on market processes rather
than direct Federal subsidies and central planning. It focuses on removing government barriers to
economic growth — barriers to people creating, producing and earning their own profits and wages.
It would do this by:
•
Providing tax relief at the Federal, State, and local levels.
•
Reducing unnecessary red tape at Federal, State, and local levels.
•
Improving local public services, possibly through experimentation with private provision of
some of these services.
•
Involving private, local, neighborhood organizations in the program.
The Secretary of HUD would be authorized to approve the designation of an area as an enterpise
zone on the application of the State and city governments if the area met eligibility criteria as an area
of pervasive poverty, unemployment, and general distress. Up to 25 zones per year, for three years,
could be so designated, on a competitive basis. In evaluating applications, the Secretary of HUD
would by law consider the contribution of non-Federal governments to tax and regulatory relief;
improvement of local public services; and the involvement of neighborhood organizations and private
sector groups.
Once designated by HUD as an enterprise zone, Federal tax incentives relating to investment, payroll,
employee income, and capital gains would be applicable to activity in the zone. Zones would also
fall under the provisions of the 1980 Regulatory Flexibility Act.
Rationale
•
Our nation has a history of throwing money at urban problems. We have tried a variety of
programs — the Federal Urban Renewal Program, the Model Cities Program, the Economic
Development Administration — and have found our efforts not only a failure, but often
inimical to the very goals we claimed we were trying to accomplish.
•
We must seek another way.
•
We should experiment with a new approach to reduce State, local, and Federal tax and
regulatory burdens in specific geographical areas meeting predesignated criteria to provide
the incentives for people, less restricted by the precepts and objectives of those who govern,
to determine their own destiny.
167
Effects of the Proposed Change
The basic elements of the enterprise zones approach should provide the following incentives and
opportunities:
•
Incentives for employers to establish or expand businesses and create jobs in the zone areas.
•
Incentives for people, particularly those currently unemployed or receiving low wages, to take
jobs in zone areas.
•
Opportunities for zone residents, including the disadvantaged, to participate in the economic
success of the zones.
Thus, this approach should contribute to both increased employment and revitalization of depressed
urban areas.
168
Minority Business Assistance
FUNCTIONAL CODE:301,303,304,453
AGENCIES: Department of Commerce and
Small Business Administration
Funding
($ in millions)
gavingS p
r o m
Current Services
1981
1982
1983
1984
1985
1986
1987
1982
1983
BUDGET AUTHORITY
OUTLAYS
279
231
245
267
160
194
176
179
183
183
185
185
185
185
0
10
100
79
PROGRAM LEVEL
Non-credit assistance
Credit assistance
75
485
101
495
101
495
101
495
101
495
101
495
101
495
TOTAL PROGRAM LEVEL
560
596
596
596
596
596
596
Program Description
Management, technical, and procurement assistance (i.e., non-credit assistance) is provided to
minority-owned firms by the Department of Commerce and the Small Business Administration (SBA)
through the following programs:
—
The Minority Business Development Agency (MBDA) of Commerce contracts with public
and private organizations to provide management and technical assistance to minority firms.
—
The SBA provides non-credit assistance to minority firms by establishing minority
procurement goals for Federal agencies, awarding non-competitive 8(a) contracts and
Business Development Expense (BDE) grants to minority firms, and providing management
and technical assistance through private contractors.
Credit assistance is provided to minority-owned firms through SBA's direct and guaranteed business
loans and its Minority Enterprise Small Business Investment Company (MESBIC) program.
MESBIC's are privately-owned companies, which are licensed, regulated, and supported financially by
SBA, for the purpose of providing equity financing or long-term loans to small minority firms.
Proposed Change
MBDA's management and technical assistance program would be restructured to focus attention on
the development of private sector market opportunities for minority businesses. Beginning in 1984, $6
million of MBDA's program level will be financed through private sector cost-sharing.
SBA would have the lead responsibility for ensuring that minority firms have equal access to
procurement opportunities in the Federal sector. SBA would also allocate a greater proportion of its
resources to management and technical assistance for minority firms.
Guaranteed loans would be used in lieu of direct loans to provide credit assistance to minority firms.
Rationale
The changes in minority business assistance reflect the President's commitment to ensure that
minority-owned firms have an equal opportunity for growth and development.
•
By assigning specific responsibilities to the Department of Commerce and the SBA for
private and Federal sector promotional efforts for minority businesses, confusion over the
relationship of MBDA and SBA programs would be eliminated.
169
•
MBDA would have adequate resources to promote market opportunities for minority
business in the private sector where the potential for sales is much greater than in the public
sector. MBDA would finance 90 Business Development Centers, which will assist minority
businesses to develop marketing strategies, package loan applications, and enter into joint
ventures.
•
SBA would focus its efforts on improving the ability of minority firms to compete for
Federal procurement opportunities and, thereby, ultimately for private contracts.
In
conjunction with this effort, SBA would also attempt to increase the number of Federal
contracts awarded to minority firms.
•
The use of guaranteed loans for minority firms rather than direct loans would eliminate a
tendency to depend on Federal subsidies for survival; would mitigate — over time — the
perception of financial institutions that minority firms are higher credit risks; and would
foster the development of sound relationships between minority firms and private financial
institutions.
Effects of the Proposed Change
•
MBDA contractors would provide services in 90 standard metropolitan statistical areas
(SMSA's). Almost 80% of minority business are located in these SMSA's.
•
SBA would maintain its 1982 level of credit and non-credit assistance to minority firms in
1983.
170
Community Development Block Grants
FUNCTIONAL CODE: 451
AGENCY: Department of Housing
and Urban Development
Funding
($ in millions)
1981
1982
1983
1984
1985
1986
1987
Savings From
Current Services
1982
1983
BUDGET AUTHORITY
3,695
3,456
3,456
3,456
3,456
3,456
3,456
270
OUTLAYS
4,042
4,005
3,350
3,200
3,456
3,456
3.456
5
Program Description
The Community Development Block Grant (CDBG) program provides entitlement grants to all large
cities and urban counties and discretionary grants to selected smaller communities. The discretionary
grants are made either by the Department of Housing and Urban Development or by States, if they
have elected to administer the program.
Funds may be used for a wide variety of community and economic development activities, largely at
the discretion of recipient communities. These activities include housing rehabilitation, infrastructure
improvement, public facilities, and public services, all to benefit principally low- and
moderate-income people.
In 1981, about $2,659 million went to 669 large cities and urban counties and about $934 million was
used in 1,830 smaller communities.
For 1983, the Administration is proposing a funding level of $3,456 million for the CDBG program,
the same as the 1982 level.
Rationale
The level of funding requested for 1983 is an indication — in a year of many reductions — of the
high priority the Administration assigns to this program. This program is consistent with the
Administration's concept of federalism since it allows States and localities to determine their own
community and economic development needs and address them in a manner which best suits them.
Effects
Generally, total 1983 grants to units of local government would be the same, at the requested funding
level, as those to be received in 1982. This will assist communities in undertaking important
community and economic development projects such as infrastructure improvement, rehabilitation,
and public facility expansion for their citizens.
171
Urban Development Action Grants
AGENCY: Department of Housing
and Urban Development
FUNCTIONAL CODE: 451
Funding
(S in millions)
1981
1982
1983
1984
1985
1986
1987
BUDGET AUTHORITY
675
440
440
440
440
440
440
OUTLAYS
371
525
550
525
522
480
440
Savings From
Current Services
1982
1983
—
34
—
1
Program Description
The Urban Development Action Grant (UDAG) program provides discretionary, competitive grants to
units of local government to be used in conjunction with private and other public ftmds to promote
locally determined and project-specific economic development. These projects are designed to
increase private investment and jobs in distressed areas.
In 1981, about $697 million was awarded for 433 economic development projects.
For 1983, the Administration is proposing budget authority of $440 million for the UDAG program,
an amount identical to the 1982 level.
Rationale
This program is an effective tool for leveraging private investment and helping to generate jobs in
distressed areas, both of which are Administration objectives. Therefore, the Administration is
requesting 1983 funding of $440 million to continue the efforts of this program.
Effects
Generally, the same number and size of grants would be awarded in 1983 at the requested funding
level as are now anticipated for 1982. This will assist distressed communities in undertaking economic
development projects in conjunction with private businesses in order to generate new jobs, increase
tax bases, and promote economic revitalization in these distressed areas.
172
New Market-Based Savings Bonds
AGENCY: Department of
Housing
and
Urban
Funding
PROPOSED LEGISLATION*..
1981
1982
95,503
115,700
—
95,503
—
115,700
Development
FUNCTIONAL CODE: 451
INTEREST ON THE PUBLIC DEBT-.
($ in millions)
1984
1983
1985
1986
133,229
-329
132,900
141,391
-691
140,700
147,458
-858
146,600
149,176
-976
148,200
1987
143,936
764
144,700
•The proposal will increase Treasury interest payments to holders of savings bonds but substantially reduce Treasury
borrowing costs for other marketable securities
Program Description
Savers wishing to invest in small denomination Treasury securities currently have two choices, the
series EE savings bond, which continually accrues interest until the bond is redeemed, and the series
HH bond, which provides payments of interest to investors twice a year. Both types were intended to
provide a reasonable return to bondholders while protecting them against losses of their savings
resulting from changes in credit market conditions.
The interest rates under the current bond program have been limited by law. As a result, increases in
savings bond interest rates have lagged behind increases in rates on market-based instruments. This
has penalized savings bondholders who wanted to continue in this savings tradition that started before
World War II.
Proposed Change
The Administration is proposing legislation to modernize the savings bond program. The proposed
legislation would enable the Treasury to link the interest rate on savings bonds to market rates of
interest. Savers would be provided a ,,floating,, interest rate on savings bonds in order to make them
more competitive with alternatives during periods of generally rising rates. They would be guaranteed
minimum rates, which would gradually rise through the fifth year. All bonds held for longer than
five years would earn interest at a rate equal to 85% of the average market yield on five-year Treasury
securities during the holding period, or the guaranteed minimum rate, whichever is higher. Existing
savings bonds held for an additional five year period would also be eligible for interest payments
under the new system. All other features of savings bonds — including denominations, tax
advantages, payroll savings plans — would remain the same.
Rationale
The new proposal will make savings bonds more attractive to investors and thereby preserve a useful
means of financing the Federal debt in a cost-effective manner. It will provide small savers wishing
to continue their participation in the savings bond program with a unique Federal security that earns
a market related rate of interest with an investment as small as $25.
Effects of the Proposed Change
The market based bond will enable a small saver — with an over the counter purchase or a payroll
deduction — to obtain 85 percent of the average rate on five year Treasury securities if the bond is
held for five or more years. Moreover, taxes will continue to be deferred at the holder's option until
the bond is cashed-in, and not as interest is earned.
173
The proposal is expected to reverse the flow out of savings bonds that has occurred in recent years,
when savings bond interest rates have been substantially below market interest rates. This reverse will
reduce interest costs in the 1982-1986 period because Treasury borrowing through more costly
marketable securities will be reduced.
174
THE NATIONAL SECURITY POSTURE
175
CHAPTER 5
T H E NATIONAL SECURITY P O S T U R E
One of the most important tasks of the Federal Government — perhaps the most important — is to
insure protection of national interests and security. This is an expensive task. However the ability of
the United States to grow and prosper depends on the foundation of a strong defense to protect
national interests. In turn, a healthy economy will support the defense expenditures that are required
to maintain the nation's security. These objectives are mutually supportive.
Since the 1970's the United States has allowed its military power to decline relative to its expanding
national interests and the growth in military power of the Soviet Union. The United States has been
living off the substantial defense investment of the 1950's and early 1960's when defense expenditures
averaged about 9 percent of the GNP. By 1978 defense spending declined to 5% of the GNP.
President Reagan's Defense program will reverse this unfavorable trend. It is expensive, but far less so
than would be the case if there were further erosion in military power relative to that of the Soviet
Union. The combined 1981 and 1982 increases in defense budget authority over 1980 is $71.5 billion.
The 1981 and 1982 defense budgets now total $178.4 billion and $214.1 billion respectively. The
1983-1987 program of $1,640 billion will continue improvements needed to deter or, if necessary,
respond to conventional and nuclear war. Such improvements will insure the best chance of deterring
any challenge to national interests which could lead to military conflict.
National Security Objectives
The main national security objectives of the United States are to:
•
Deter any attack on, and prevent the coercion of the United States and its allies.
•
Protect U.S. economic interests and U.S. citizens abroad.
•
Maintain access to critical resources.
•
Maintain, in conjunction with U.S. allies, the military capabilities required to counter the
expansion of the Soviet military presence, where the interests of the United States are
threatened.
The Potential Threat
Although there are threats to American security interests independent of Soviet actions, the most
demanding threats derive from the broad and growing military power of the Soviet Union. For
example:
•
Soviet military power has grown in virtually all categories. Diplomacy, military aid, proxies
(such as Cuban troops in Africa and elsewhere), the support of terrorism, and implicit threats
of force have all been used to expand Soviet influence and access throughout the world.
•
Soviet challenges are particularly serious because they occur after a long-term decline in
American, British and other allied access to bases and airspace in, or enroute to, many areas
critical for the western alliance. The consequences of this deterioration of position cannot be
easily or quickly remedied.
•
Throughout the 1970's the Soviet Union has allocated 12% to 14% of its gross national
product to military programs and they are expected to continue to do so.
•
The Soviet threat to the Persian Gulf is a particularly grave one. The economies of the West
depend on the oil of this area. It is a region rife with political instabilities, and into which
the Soviet Union has a superior capability to project military power.
177
Defense Objectives
It is the objective of United States defense programs to prevent war — particularly nuclear war.
Programs are designed and forces are deployed to deter aggression at all conflict levels. To support
deterrence, United States defense forces must be prepared to wage war — including nuclear war. If
deterrence fails and aggression occurs, then war must be terminated in a manner that serves our
political objectives and assures our survival as a free nation.
The U.S. defense posture must make it clear to the Soviet Union that war with the U.S. will result in
unacceptably high costs to the USSR. The foundations of U.S. defense policy include:
•
Availability of strategic forces capable of carrying out their missions.
•
Maintenance of clear U.S. maritime superiority required for the projection of U.S. power to
vital regions overseas, support of U.S. allies, and assuring continued access to vital resources.
•
Use of superior military technology.
•
Maintenance of a strong force posture in NATO and East Asia; and a mobile force capable
of successfully blunting an enemy attack against other vital U.S. interests overseas.
The basic missions of U.S. nuclear forces and nuclear strategy are to:
•
Deter a nuclear attack on the United States and its allies.
•
Deter a conventional attack against our allies, especially NATO.
•
Limit damage to U.S. population and economic assets if a nuclear attack should occur.
•
Minimize the extent to which Soviet nuclear threats could be used in a crisis to coerce
the United States and to coerce or intimidate our allies.
The Defense Program
To meet national security and defense objectives the Administration's program plans to strengthen
U.S. military posture in four high priority areas, namely:
•
Strategic Forces
•
Combat Readiness
•
Force Mobility
•
Conventional Force Modernization
Restoring the Strategic Balance.
A thorough eight month review of U.S. strategic forces and objectives preceded the President's
decision this past October to strengthen strategic force programs. The review found that:
•
The relative imbalance with the Soviet Union will be at its worst in the mid-eighties and
hence needs to be addressed quickly.
•
There are deficiencies in force survivability, endurance, and the capability to exercise
command and control during nuclear war. Current communications and warning systems
were found to be vulnerable to severe disruption from an attack of very modest scale. Also,
greater efforts are needed to provide for civil population protection and plan for postwar
recovery.
•
The multiple protective structure basing proposal for MX did not provide long term
survivability since the Soviets could respond (at about the same or less cost) by simply
deploying larger numbers of warheads.
The 1983 Budget funds programs to correct these deficiencies. The President's strategic program
provides for both near term improvements and longer term programs. The Soviets now have more
178
intercontinental ballistic missiles (1398 vs 1053) and submarine-launched ballistic missiles (950 vs 520)
than the U.S. with the U.S.'s lead in warheads now diminishing. Further, the Soviets are expected to
begin deployment of a new bomber. This situation makes the strategic balance most unfavorable in
the near term. Therefore priority will be given to systems that can be fielded quickly as well as
systems that are more survivable. Near term components of the President's strategic program include:
•
Acquisition of a new bomber (the B-1B) to provide a continued capability to penetrate
Soviet defenses, and development of an advanced technology (Stealth) bomber for
deployment in the 1990's.
•
Early deployment of cruise missiles on existing bombers and attack submarines to increase
survivable weapons deployed at sea.
•
Continued deployment of Trident ballistic missile submarines to strengthen the sea-based leg
of our strategic deterrent.
•
Deployment of new larger and more accurate MX missiles. The missiles will be deployed in
existing fixed silos until a more survivable basing method is developed.
The longer term programs are needed to solve the more difficult problems such as vulnerability of
land-based ballistic missiles and communications, intelligence, and warning systems. Longer-term
programs include:
•
Development of a survivable deployment plan for the MX missile.
•
Development and deployment of a new submarine-launched ballistic missile (which will
provide better accuracy, range and more payload).
•
Continued improvements to warning and communications systems, including bomber
warning radars and missile warning satellites and radars.
•
Improvements in strategic defenses, including development of an anti-satellite system and
more effective civil defense programs (emphasizing city evacuation).
Assuring U.S. Force Combat Readiness
The world situation has changed so that a major conflict involving the United States could occur
without adequate time to upgrade U.S. force readiness. Concerns about military readiness reflect both
the long lead time required to procure sophisticated equipment (both parts and finished equipment)
and past failures to provide support for combat units. The United States cannot wait for a period of
rising tensions before bringing forces up to combat readiness. The Administration's program will
continue to bolster combat readiness by correcting deficiencies in several areas.
•
Spare parts are vital. For U.S. forces to exploit their more sophisticated weapon systems,
they must be supported by sufficient spares to allow high operating rates for training as well
as to provide for war reserves. Too often in the recent past spare parts procurement has
been postponed in order to fund ships, aircraft and vehicles, and maintain force levels.
•
Ammunition requirements are also a high priority. From bullets and artillery shells to
sophisticated guided missiles, additional funding will provide for increased training as well as
support war reserves.
•
Providing the armed forces with adequate numbers of skilled, motivated and capable
personnel continues to be one of the most important military objectives. A major boost in
readiness was accomplished in 1981 when the military services all made significant gains in
enlisting highly qualified people as well as retaining experienced personnel. The 1983
Budget will provide levels of military compensation that will improve the readiness and
capability of the All Volunteer Force.
•
Funding for the operations and maintenance of forces is being increased to provide required
training, operating rates, and equipment support. There will be increased aircraft flying
hours and supply inventories. In addition, backlogs of combat equipment and real property
awaiting maintenance will be reduced.
179
Force Mobility and Capability in Remote Areas
The U.S. needs to plan for flexibility and mobility to offset inherent Soviet advantages due to their
geographic proximity to potential areas of conflict.
•
Sea control is of critical importance in maintaining U.S. ability to deploy and support
combat elements in diverse locations, especially in areas beyond the reach of the traditional
alliance network and basing infrastructure. Sustaining force deployments requires that the
United States control the sea lines of communication to those areas. In wartime, over 95% of
our military resupply will have to travel by sea.
•
The importance of sea control requires that the U.S. pursue as a high priority a shipbuilding
program that will result in acquisition of 133 new ships and conversion of 16 ships in
1983-1987, an increase of 53 new ships and $48 billion over the final five-year shipbuilding
plan of the previous Administration. The Navy shipbuilding program includes funds for
buying or converting general purpose battle forces, including aircraft carriers, attack
submarines, escort ships and amphibious ships, to insure our ability to maintain sea control
and to project power ashore.
•
Pursuing the program mapped out in the 1983 Budget will result in a battle force of over
600 ships by the end of the decade. This force level will restore a margin of maritime
superiority that is clear to both our friends and any potential foes.
•
The U.S. is also gaining expanded access to bases adjacent to our sources of oil.
— Diego Garcia, in the Indian Ocean, will have expanded port facilities and will continue
to serve as a site for deployed prepositioning ships carrying combat material.
— Access is also available in Somalia, which is strategically located near the outlet of the
Red Sea.
•
The most rapid method of deploying forces is by airlift. The Administration is proceeding
with procurement of an updated version of the C-5 cargo aircraft and additional KC-10
tanker/cargo aircraft to supplement the existing fleet of C-5As and C-141s. In addition, new
wings will be installed on all 77 C-5A airlift aircraft, extending their life beyond the year
2000.
•
The Defense Department is also upgrading our fleet of KC-135 tanker aircraft by replacing
their engines with newer, more fuel efficient models. These tankers are essential for the
aerial refueling necessary to reach potential conflict areas halfway around the world and
sustain the operation of combat aircraft.
•
To improve our ability to bring forces to bear worldwide, the Administration is converting
four more SL-7 fast logistics ships to provide vehicle roll-on and roll-off capabilities. Also,
12 to 15 maritime ships will be chartered and converted to provide the capability to
preposition equipment and supplies in Southwest Asia.
All of these improvements are essential to offset Soviet geographical advantage. As a result of these
initiatives, wide-body military airlift capability will about double, and prepositioning of equipment
and supplies aboard ships will significantly reduce the time required for deployment of heavy forces
to the Southwest Asia region.
Conventional Force Modernization
The Administration is also bolstering other conventional capabilities as well as anticipating future
needs with strong research and development programs.
•
Production rates and quantities of tanks, helicopters, air defense systems, and fighters have
been increased to meet force level objectives at more economical rates. The Administration
does not intend to match Soviet deployments weapon for weapon; the U.S.'s more capable
weapons can sometimes offset their superiority in numbers.
Similarly, cooperative
deployments of allied forces can make up for some numerical disadvantages. Examples of
weapon systems being purchased include: the M - l Abrams tank which is more survivable
and mobile than current U.S. tanks; the AH-64 attack helicopter which is faster and more
survivable than existing helicopters; the LAMPS MK III anti-submarine warfare helicopter
180
to increase the range at which enemy submarines can be attacked; the F/A-18 Navy tactical
aircraft to increase air combat and ground attack capabilities; and improved precision guided
missiles.
•
Major improvements are planned in U.S. command, control, and communications
capabilities. Also, technical improvements to existing systems will be made, including
competitive development of new attack versions of the F-15 and F-16 aircraft. In addition,
the Administration will develop an Advanced Medium Range Air-to-Air Missile to counter
increasingly capable Soviet systems.
•
Major efforts are being made to maintain vigorous research and development programs in
other areas most likely to yield large improvements in weapon system capability. For
example, the capability for fighting at night, in poor weather and in all types of climates is
being increased. Also, lighter weight anti-armor vehicles are being developed to improve the
ability to respond rapidly to crises in remote areas.
•
Greater combat flexibility and force effectiveness will result from procurements of new
advanced tactical command, control and communications systems, such as a new family of
telephones and radios for battlefield use by all the services.
•
To deter any adversaries from resorting to the use of chemical weapons, we are continuing to
improve defensive and retaliatory chemical warfare capabilities.
•
The U.S. is proceeding with plans to produce improved theater nuclear weapons including
the Ground Launched Cruise Missile and Pershing II ballistic missiles. Deployment of these
weapons in Europe will counter existing Soviet deployments of intermediate range nuclear
weapons.
Efficiency and Economy in Spending
The Department of Defense is initiating a variety of changes in its funding and management practices
to make significant savings.
•
Weapon system acquisition costs will be reduced. For certain stable acquisition programs,
additional budget authority is provided to allow system manufacturers to buy materials and
produce components at more economical rates. This multiyear procurement approach will
also encourage contractors to invest in productivity improvements and strengthen the defense
industrial base. In addition, eliminating marginal programs will make more funds available
to suport high priority programs at more economical production rates.
•
The time needed to develop new weapon systems will be reduced by increased reliance on
evolutionary improvements to current weapon systems and adequate funding of testing
efforts.
•
Reliability and maintainability of weapon systems will be emphasized, resulting in reduced
operating and maintenance costs once the system is deployed. Further savings in operations
will be made by consolidating services, reducing administrative overhead and contracting out
to the private sector.
•
Administrative costs will be reduced by streamlining the acquisition process. Initiatives
include improving long-range planning and budgeting, decentralizing program management
responsibilities, and reducing paperwork requirements.
•
Increased efforts to combat waste, fraud and abuse include close monitoring and review of
defense programs and policies and active follow-up of audit findings. To help accomplish
this task, the new position of Assistant to the Secretary of Defense for Review and Oversight
was created in May, 1981.
•
Savings will result from the disposal of excess property.
181
Regional Defense Policies
The United States and its allies must be prepared to respond to Soviet aggression in many regions
both by defending a given area and by exploiting Soviet vulnerabilities at times and places of our
choosing. These regions include Europe and its supply lines, the Eastern Mediterranean, the Persian
Gulf and Northeast Asia. Recognizing that the United States cannot and should not carry a
disproportionate share of the burden of regional defense, policy will be aimed at:
•
Increasing the effectiveness of existing alliances.
•
Encouraging other like-minded nations to improve their ability to act jointly with us in
defense of our common interests.
•
Expanding efforts to improve the compatibility of U.S. and allied forces and substantially
increasing joint planning and training exercises.
International Security Assistance
The Administration intends to take full advantage of international security assistance programs to
increase the military capabilities of our friends and allies. Economic support will also be provided to
nations of special security importance in order to foster stability. The United States must also assist a
number of countries throughout the world whose policies, actions and military postures can further
U.S. national security and related foreign policy objectives. The United States will provide aid to
friendly countries that are:
•
Resisting actual or potential aggression that may come directly from the Soviet Union or
indirectly through Soviet proxies, such as Cuba, or through Soviet-inspired internal
subversion.
•
Allowing access to bases or other facilities for U.S. forces or granting transit or other rights.
•
Contributing to peace and stability in areas of the world where conflict would directly
impact on U.S. security, such as the Middle East.
Arms Control
Arms control efforts should support national security objectives but cannot substitute for necessary
modernization of our forces. The U.S. can negotiate successfully with the Soviets only if it is made
clearly evident that this nation is determined to redress the strategic balance and protect national
security interests. Any agreements or treaties entered into, must insure maintenance of strong and
capable U.S. forces necessary to protect our security and must be equitable and fully verifiable.
182
Strategic Forces
AGENCY: Department ofHousingandUrbanDevelopment
FUNCTIONAL CODE: 451
Funding
BUDGET AUTHORITY
1981
1982
12.7
16.2
($ in billions)
1983
1984
1985
23.1
33.2
30.3
Program Description
Strategic forces are deployed to deter a nuclear attack against the United States and its allies and
prevent coercion by the Soviet Union.
Offensive forces currently consist of land-based
intercontinental ballistic missiles (ICBMs), submarine-launched ballistic missiles (SLBMs) and
bombers. In the future, they will include air- and sea-launched cruise missiles.
To defend against bomber attack, surveillance systems and interceptor aircraft are deployed. Systems
for ballistic missile defense and space defense are being developed.
In addition to offensive and defensive components, warning and communications are essential strategic
force components.
Proposed Change
The President's Strategic Modernization program consists of five elements:
•
Improvements to warning and communications systems, including improvements to radars
and satellites that warn of nuclear attacks.
•
Deployment of a new bomber (the B-1B) and development of an advanced technology
(Stealth) bomber for the 1990s.
•
Development and deployment of a new submarine-launched ballistic missile (which will
provide better accuracy and more payload) as well as early deployment of cruise missiles on
attack submarines.
•
Deployment of new larger and more accurate MX missiles. These missiles will be deployed
in existing fixed silos until a more survivable long-term basing system is selected and
deployed.
•
Improvements in strategic defenses, including air defense interceptors, development of an
anti-satellite system, and increases in civil defense programs.
Rationale
•
The Soviet Union now has more ICBMs (1,398 vs 1,053) and SLBMs (950 vs 520) than the
U.S. and our lead in warheads is narrowing. The Soviets are also expected to begin
deployment of a new bomber. Since this could result in an unfavorable strategic balance in
the near term, systems that can be fielded quickly are receiving priority — including air- and
sea-launched cruise missiles and the B-1B bomber.
•
Overall survivability of U.S. ICBMs is now threatened by the Soviets. Therefore, the
Administration is bolstering the other components of the strategic triad including bombers,
cruise missiles and submarines, and is making major efforts to strengthen the survivability
and endurance of warning and communications systems.
•
Multiple shelter basing for MX is not being pursued since the Soviets could defeat this
system simply by deploying more warheads. Rather, a survivable, long-term basing mode
for the MX will be selected for deployment.
183
•
Given the threat posed by the current Soviet bomber force and indications of Soviet bomber
modernization, the U.S., in conjunction with Canada, is modernizing and improving the
North American air defense system.
•
Past Administrations have allowed civil defense programs to decline. The new program
(funded in the Federal Emergency Management Agency) will speed up efforts to provide for
better protection of the population and aid post-war recovery.
Effects of the Proposed Change
•
The Administration's strategic program will reverse the trend in the strategic balance favoring
the Soviet Union and counter the recent Soviet advances in missiles, submarines and the
current as well as expected new Soviet bomber deployments.
•
The Soviets will be forced, at great expense, to improve further their defenses against
manned bombers following introduction of the B-1B.
•
Increased survivability of U.S. strategic command and control systems will insure U.S.
capability to retaliate and hence reduce the probability of Soviet attack.
•
The U.S. will negotiate arms control from a position of strength.
184
General Purpose Forces
AGENCY: Department ofHousingandUrbanDevelopment
FUNCTIONAL CODE: 451
Funding
BUDGET AUTHORITY
1981
1982
68.8
88.2
($ in billions)
1983
1984
106.2
114.0
1985
139.0
Program Description
General purpose forces include Army, Navy, Air Force and Marine Corps tactical units. (Although
their costs are included here, Navy ships and the operations and maintenance of general purpose
forces are discussed in separate fact sheets.)
Proposed Change
•
Production rates will be increased to provide for more rapid acquisition of a variety of new
systems such as the M - l Abrams tank, the AH-64 attack helicopter, the LAMPS MK III
anti-submarine warfare helicopter, the F/A-18 Navy tactical aircraft, the F-15 Air Force
fighter aircraft, and improved precision guided missiles. These new systems will provide
significant increases in combat capability relative to current systems — in terms of range,
survivability, and firepower.
•
Selective use of multi-year contracting will allow for more efficient production rates to
modernize the forces at reduced total cost,. Examples include procurement of 120 F-16's
annually and the multi-year procurement of the Navy C-2 carrier-on-board delivery aircraft.
•
The chemical retaliatory stockpile, as well as defensive capabilities, will be improved.
•
Support equipment essential for the rapid deployment of combat forces will be procured.
Such items include water purification equipment, fuel distribution systems and fork lift
trucks.
•
Command, control, and communications capabilities will be improved. For example, the
TRITAC family of telephone and radio equipment will be more mobile and reliable, and
harder for an adversary to disrupt.
•
Technical improvements to existing types of systems will be made, including competitive
development of new attack versions of the F-15 and F-16 aircraft.
•
New weapons development to counter increasingly capable Soviet systems will be
emphasized. An example is the Advanced Medium Range Air-to-Air Missile (AMRAAM)
for use by both the Navy and Air Force.
Rationale
•
Throughout the 1970's the Soviet Union consistently allocated 12% to 14% of its Gross
National Product to military programs, with no signs of abatement. In the last decade the
Soviets introduced large quantities of highly capable, new generation tactical equipment (e.g.,
tanks, armed helicopters, combat aircraft, submarines, air combat missiles, etc.), that need to
be countered by modernized U.S. forces. Additionally, the traditional U.S. superiority in
system quality has been considerably narrowed, making Soviet quantitative advantages more
serious. The Soviet military force buildup has increased the risk that they may rely on
military power to support their foreign policy goals.
•
For the U.S. to maintain, in concert with our allies, sufficient conventional forces to deter
potential aggression, our forces must be provided with adequate numbers of new, modern
equipment.
185
•
During the previous Administration, modernization was delayed, some production rates were
held at inefficient levels, and critical wartime supplies were not procured in sufficient
quantities.
•
The U.S. must have a capability to deter any potential adversaries from resorting to the use
of chemical weapons.
•
There are deficiencies in U.S. capabilities to support the rapid deployment force in a desert
environment and to communicate on the battlefield.
•
To assure that the U.S. acquires weapons that are capable of countering the threat, a strong
research and development program must be maintained, including improvements to existing
types of equipment as well as the development of totally new systems.
Effects of the Proposed Change
Increased acquisition of modern, more capable weapon systems such as the M - l tank and the
F/A-18, AV-8B and F-15 tactical aircraft will enable U.S. forces to deter and counter Soviet
aggression in any area of the world where it might threaten U.S. or allied vital interests.
•
The capability for fighting at night, in poor weather and in all types of climates will increase.
•
Lighter weight anti-armor vehicles will be developed to improve our ability to respond
rapidly to crises in remote areas.
•
More maintainable and reliable weapons such as the F/A-18 will be procured to achieve
greater combat efficiency.
•
Greater combat flexibility and force effectiveness will result from procurement of new
advanced tactical command, control and communications systems.
•
These U.S. initiatives should encourage allied nations to undertake complementary
improvements in their defense capabilities.
•
Production of new chemical munitions will reverse the deterioration of our chemical
retaliatory stockpile and, by providing credible and reliable retaliatory capability, will reduce
the risk that an adversary might be tempted to use chemicals against the U.S. or its allies.
186
Mobility Forces
AGENCY: Department of Defense
FUNCTIONAL CODE:301,303,304,453
Funding
BUDGET AUTHORITY.
1981
1982
2.9
4.0
(S in billions)
1984
1983
1985
6.6
6.8
4.4
Program Description
The major missions of the mobility forces are to move personnel and material during an initial
deployment, and to move sustaining support during combat. Mobility is essential for effective and
timely deployment of combat power for both NATO and non-NATO, e.g., Persian Gulf,
contingencies. Current mobility forces include about 350 long range airlift aircraft and 21 cargo ships
as well as several hundred civilian ships and aircraft which could be called up in case of a large scale
conflict.
Proposed Change
•
A fleet of fifty updated C-5 long-range wide body military cargo aircraft will be acquired.
•
Forty-four more KC-10A tanker/cargo aircraft will be procured.
•
New wings will be installed on all 77 existing C-5A airlift aircraft.
•
Four more SL-7 fast logistics ships will be converted to provide vehicle roll-on and roll-off
capabilities.
•
Twelve to fifteen maritime ships will be chartered, converted and prepositioned, with
equipment and supplies, in Southwest Asia.
•
More support equipment, including loading devices, will be procured.
Rationale
•
Current U.S. mobility forces cannot move the required combat or combat support units fast
enough to effectively counter military aggression in Europe, Korea or in the Southwest
Asia/Persian Gulf region. For example, at the present time only a small, light combat force
could be rapidly moved to the Southwest Asia region.
•
Major mobility shortages include wide-body, military cargo aircraft: fast logistics ships;
prepositioned ships; and support equipment. Elimination of these shortages is an essential
first step toward improving U.S. military capability during the first thirty days after the
beginning of a crisis.
Effects of the Proposed Change
The overall effect of the proposed changes will be to significantly increase U.S. rapid deployment
capabilities. For example:
•
Acquisition of additional long range aircraft will almost double wide-body military airlift
capability before 1990. The updated C-5 aircraft will provide about 65% of the increase with
the KC-10A providing the balance. The KC-10A will also provide a significant increase in
tanker capability.
•
Rewinging of existing C-5As will extend their effectiveness beyond the year 2000.
•
The converted SL-7 fast logistics ships will be capable of rapidly moving a heavy combat
division.
•
Prepositioning of equipment and supplies aboard ships in the Southwest Asia region will
reduce the time required for deployment of heavy forces.
187
Navy Shipbuilding
AGENCY: Department of Defense
FUNCTIONAL CODE: 051
Funding
BUDGET AUTHORITY
1981
1982
7.6
8.9
($ in billions)
1983
1984
1985
18.6
16.8
12.5
Program Description
The Navy shipbuilding program includes funding for:
—
Trident ballistic missile submarines, which will augment the sea-based leg of our strategic
deterrent forces.
—
General purpose battle forces, including aircraft carriers and their associated escort ships,
which will insure our ability to maintain sea control and to project power ashore.
—
Other ships that will support these missions or other missions of national priority such as
movement and support of the Rapid Deployment Force.
Proposed Change
•
The 1983-1987 five year shipbuilding plan includes 133 new ships at a total investment of
$96 billion, which is an increase of 53 ships and $48 billion over the final five year plan of
the previous Administration.
•
Specific comparisons are:
CARTER (82-86)
6
7
0
16
0
51
80
Trident Strategic Submarines
Attack Submarines
Aircraft Carriers
Cruisers
Amphibious Ships
Escorts and Auxiliaries
TOTAL NEW SHIPS
REAGAN (83-87)
6
17
2
18
10
_80
133
Rationale
•
Over the last two decades the Soviet Navy has been transformed from a basically coastal
defense force into an ocean-going force. It is designed to perform tactical, and strategic
missions in waters distant from the Soviet Union.
•
In the mid-1960s, the Soviets had 260 major surface warships and amphibious ships. Today,
they have 362. The Soviets have eight new classes of submarines and eight new classes of
major surface warships, including nuclear-powered cruisers and new aircraft carriers, in
existence or under construction.
•
The United States, dependent on open seas for commerce and military resupply, must have
the naval capability to maintain control of vital sea lanes. In the mid-1960s, the U.S. had
more than 500 major surface warships and amphibious ships. Today we have fewer than
270.
188
•
The defense budgets of the previous Administration, which emphasized NATO land combat
capabilities, did not provide naval force improvements needed to guarantee sea control.
Ships suited for escorting supply convoys to Europe were given high priority. Ships having
more general application, such as aircraft carriers and amphibious ships, received little
emphasis. Only one aircraft carrier and one amphibious ship were purchased by the
previous Administration.
Effects of the Proposed Change
•
The shipbuilding plan proposed in this budget recognizes U.S. dependence on maritime
forces and reverses adverse trends by increasing the total number of ships and emphasizing
procurement of the most capable ships.
— Production of attack submarines will be more than doubled. The resulting increase in
force levels will exploit an area where the U.S. holds a significant technological
advantage over the Soviet Union.
— Procurement of two nuclear-powered aircraft carriers will enhance our ability to control
the seas and project power ashore in areas of vital interest.
— Amphibious ship production will provide the Marine Corps greater capability to conduct
amphibious campaigns.
— Expanded production of other ships, such as escorts, mine warfare ships, and auxiliaries,
will better support existing forces.
189
Operations and Maintenance
AGENCY: Department of Transportation
FUNCTIONAL CODE: 402
Funding
BUDGET AUTHORITY
1981
1982
55.5
62.3
($ in billions)
1983
1984
1985
69.4
82.0
73.0
Program Description
Operations and maintenance includes pay for civilian personnel, fuel, utilities, maintenance of
equipment and real property, purchase of routine supplies and equipment, and other day-to-day
operations and support costs.
Proposed Change
The proposed funding will provide real growth of 6% in 1983 over 1982. This will provide for
increased combat force readiness, fielding of new systems, and reductions in maintenance backlogs.
Rationale
•
Real growth for operations and maintenance is required to correct existing deficiencies in the
combat readiness of U.S. forces. These deficiencies include unacceptable numbers of units
not ready for combat and too many weapon systems out of commission. In addition,
individual combat skills, including pilot proficiency, are lower than desired. Needed
improvements will be achieved by:
— increasing field training and aircraft flying hours;
— eliminating backlogs of equipment awaiting repairs;
— providing more resources for individual training.
•
Additional funds are also required to field new, improved weapons systems that will be
entering service in 1983. This involves training for crews, and extensive engineering,
logistics, and personnel support.
•
Increases are needed to reduce the backlog of real property in need of repair. This backlog
grew substantially during the past Administration, particularly at Army posts in Europe.
Effects of the Proposed Change
The proposed changes will provide for:
•
Full support for current force structure;
•
Improved training;
•
Improved capability of existing combat forces to engage in battle when called upon;
•
Support for new equipment entering the force including:
— 680 M l tanks
— 400 fighting vehicles
— 180 Blackhawk and AH-1S helicopters
190
— 4 attack submarines
— 11 frigates
— 2 squadrons of F14s
— 4 squadrons of F16s
•
Elimination of backlogs of major equipment needing repair and reduction of backlogs of real
property awaiting maintenance.
191
International Security Assistance
AGENCY: Funds Appropriated to the President
FUNCTIONAL CODE: 152
Funding
BUDGET AUTHORITY
OUTLAYS
GUARANTEED LOAN COMMITMENTS
(Off-Budget)
DIRECT LOAN OBLIGATIONS
1981
2,543
3,131
1982
3,486
3,485
1983
4,663
3,835
(2,546)
938
(3,084)
1,136
(3,929)
2,814
($ in millions)
1984
1985
4,689
4,703
4,496
4,787
(3,929)
2,824
(3,229)
2,824
1986
4,618
4,650
1987
4,480
4,478
(3,229)
2,834
(3,229)
2,844
Program Description
Security assistance includes funds for the acquisition of modern military equipment necessary for
defense, budget and balance of payments support, peacekeeping operations, and professional military
education and training for foreign military personnel.
Proposed Change
•
Funds will be provided for the acquisition of military equipment through loans at variable
interest rates geared to the recipient country's ability to repay.
•
Increases necessary for the renegotiation of base rights and facilities access agreements
necessary for defense are included.
•
Economic support is increased to provide assistance to countries with unstable economies
threatened by outside intervention.
•
Contingency funds are set at a level to enable rapid response to unforeseen situations
requiring military and economic aid.
Rationale
•
Soviet, Cuban and Libyan intervention in friendly nations and areas of security interest to
the U.S. is increasing.
•
Due to the worldwide economic downturn, few countries can afford to finance the
procurement of defensive equipment at commercial or Federal Financing Bank (FFB) rates.
•
Base rights and facilities access agreements in areas strategically important to the U.S.
defense are due for renegotiation during 1983.
•
U.S. involvement in and support of peacekeeping operations in the Sinai and Chad is
essential for the success of these efforts.
•
The rapidly changing nature of security situations around the world requires sufficient
flexibility to be able to respond quickly to avoid confrontation or irreversible economic and
political change.
Effects of the Proposed Change
•
Loans for military procurement will be provided at rates to ensure the recipient country's
ability to absorb the debt and repay the U.S.
•
Sufficient funds will be available to allow successful renegotiation of base rights and facilities
access agreements.
•
Economic support necessary to stabilize countries threatened by external intervention will be
provided.
•
The President will have sufficient flexibility to meet unforeseen requirements around the
world.
192
CONTROLLING FEDERAL CREDIT
193
360-900
0 - 8 2 - 7
CHAPTER 6
CONTROLLING FEDERAL CREDIT
Federal Demands on Credit Markets
During the last decade, the rapid growth of Federal credit activity has helped to make the Federal
Government the dominant consumer of the nation's financial resources.
•
From 1955 through 1975, Federal and federally assisted borrowing, on average, absorbed less
than 20% of available credit resources. (This includes borrowing by the Government to
finance the budget deficit and off-budget spending, borrowing by individuals or private
institutions with Government-guaranteed loans, and borrowing by Government-sponsored
enterprises.)
•
In the latter half of the 1970's, large deficits and rapid expansion in credit programs drove
the average absorption up to 28%.
•
The absorption levels reached in 1980 and 1981 (36% and 35%) have been experienced
before only during the recession and recovery period of 1975-1976.
TABLE 1. BORROWING UNDER FEDERAL AUSPICES:
ABSORPTION OF DOMESTIC CREDIT MARKET FUNDS
(Fiscal years; in billions ofdollars)
19551959
Five-Year Averages
1960- 1965- 19701964
1974
1969
19751979
1980
1981
35.5
50.8
80.6
148.6
301.7
342.5
407.8
2.1
4.0
4.5
4.3
6.4
5.1
13.0
13.9
56.8
13.6
70.5
31.6
79.3
28.0
0.4
M
M
M
12.6
21.4
34.8
Total funds raised under
Federal auspices
6.5
15
12.4
31.9
83.0
123.5
142.1
Federal absorption rate
18%
19%
15%
21%
28%
36%
35%
Total funds raised in
domestic credit markets17
Federal borrowing
Net guaranteed loans
Net Governmentsponsored enterprise
borrowing
^Funds raised by non-financial sectors, excluding equities. Source: Federal Reserve Board Flow of Fund Accounts,
adjusted during 1955-69 for consistency with budget concepts.
Unprecedented Federal credit demands reduce the Nation's ability to improve productivity and
output. Increasing demand for credit by the Government and the borrowers it serves saps the vitality
of credit markets and hampers their performance in the critical task of allocating resources to the most
productive uses.
•
Many unsubsidized private borrowers are crowded out of the "credit queue" because priority
is given to Federal and federally assisted borrowers.
Federally assisted borrowers are frequently less productive than private borrowers because
they are not chosen with regard to the highest expected return while allowing for risk. In
this way, Federal intervention distorts the market's assessment of risk and return, causing a
misdirection of investment and a decline in future economic growth and productivity.
Interest rates are exposed to continual upward pressure. With Federal borrowing absorbing
so much of the supply of credit, private borrowers are forced to bid interest rates up.
195
•
Borrowers cannot obtain stable long-term financing, which frustrates implementation of
long-term investment plans and further inhibits economic growth.
The Federal demand for credit has had a major effect on expectations of future inflation and interest
rates because it is a crucial link between fiscal and monetary policy.
•
Throughout the 1960's and 1970's, growing Federal deficits, combined with heavy Federal
credit demands, were accommodated by faster monetary growth. This caused inflation to
accelerate.
•
Unless the burden of Federal and federally assisted borrowing is curtailed during the 1980's,
prospects for permanent monetary control and inflation reduction will be substantially
lessened.
The Supply of Federal Credit
A substantial portion of Federal and federally assisted borrowing results from its lending activities
which supply credit to selected borrowers. On- and off-budget agencies make direct loans. They also
guarantee loans made by the private sector. In addition, Government-sponsored enterprises serve
credit markets. The table below shows trends in the lending side of Federal credit activity.
TABLE 2. NET LENDING UNDER FEDERAL AUSPICES
(Net lending, fiscal years; in billions ofdollars)
Direct Loans
On-Budget
Off-Budget
Guaranteed Loans
Government-Sponsored
Enterprises
TOTAL
Actual
1978
1979
1980
1981
2.6
9.0
8.6
11.2
6.0
13.6
9.5
14.7
5.2
20.9
11.1
13.5
13.4
25.2
31.6
28.0
4.9
11.7
25.2
28.1
24.1
32.4
26.9
36.7
58.4
77.9
79.9
86.5
1976
1977
4.2
6.7
Direct Loans
Direct loans, in which agencies lend Federal funds to selected borrowers, accounted for $26.1 billion
in Federal outlays in 1981 for such programs as the Farmers Home Administration, the
Export-Import Bank, and the foreign military sales credit program.
However, of this total $20.9 in direct loan outlays were excluded by law from the budget totals.
Off-budget direct loans: the Federal Financing Bank (FFB). The outlays of the off-budget Federal
entities mostly arise from the use of the FFB as a source of financing by other agencies for direct and
guaranteed loans. The FFB effectively converts certain on-budget direct loans and guarantees into
off-budget direct loans. This activity creates an off-budget deficit that absorbs valuable savings and
capital just as does the on-budget deficit. Off-budget lending increased threefold between 1976 and
1981.
Guaranteed Loans
Guaranteed loans, private loans for which the Government guarantees the repayment of principal and
interest, accounted for $28.0 billion in net credit market activity in 1981 for such programs as Federal
Housing Administration and Veterans Administration mortgage insurance, the Export-Import Bank,
and the Small Business Administration.
196
Guaranteed loans are not budget outlays, because no Federal funds are used except in case of default.
Many of their effects are nevertheless similar to the effects of outlays because they effectively
reallocate economic resources from privately selected to federally selected uses. Borrowing for
guaranteed loans absorbs funds available to credit markets in a manner similar to direct Federal
borrowing.
Government-Sponsored Enterprises
The seven Government-sponsored enterprises made $32.4 billion of net loans in 1981. The seven
enterprises consist of three that support housing — the Federal National Mortgage Association,
Federal Home Loan Banks, and Federal Home Loan Mortgage Corporation; the three Farm Credit
Banks, which support agriculture — the Banks for Cooperatives, Federal Land Banks, and Federal
Intermediate Credit Banks; and one that supports students obtaining higher education — the Student
Loan Marketing Association. Most of these enterprises provide liquidity to the markets they serve
through secondary market operations.
Because of their private ownership, the Government-sponsored enterprises are not included in the
budget totals or controlled through the budget process. Nevertheless, Government sponsorship has
provided these enterprises with advantages in the securities markets that completely private institutions
do not have. This enables them to borrow at rates only slightly higher than those of the Treasury.
Steps for Control
Upon assuming office, the Administration took immediate steps to reverse the growth trends of
Federal credit. An interagency Cabinet-level group was formed and undertook a comprehensive
review of the Government's direct and guaranteed loan programs in order to shape a consistent credit
policy. The credit budget was used for the first time to impose systematic discipline and policy
control on the growth of Federal credit.
The group also recommended modifying
Government-sponsored enterprises into becoming completely private organizations. Additional policy
changes will be recommended and implemented in the months ahead.
The Credit Budget
This Administration has worked closely with the Congress to strengthen the credit budget. Now in its
third year, this framework is a major step toward full integration of credit into the budget process.
•
The credit budget covers all direct and guaranteed loans, making no distinction between onand off-budget entities. Government-sponsored enterprise loans are not included, because
of their private ownership.
•
The credit budget focuses decisions on gross program levels at the point of legal obligations,
thereby facilitating control.
In its credit budget revisions just after taking office, the Administration proposed reduction in direct
and guaranteed loan activity for 1982 of $21.0 billion below the level proposed by the previous
Administration. Federal demands on the Nation's financial markets will be substantially alleviated in
the years ahead despite temporarily higher Federal borrowing to finance the deficit. The 1983 credit
budget marks the beginning of a steady downward path in the total burden of Federal credit demands
on the nation's economy.
Under the President's credit budget proposals, significant progress is being made to reduce the
Federal claims on financial resources, far below the level they would attain if the growth trend since
1976 continued unabated.
•
For 1983, the Administration's credit budget proposals bring direct loan obligations down by
$7.4 billion between 1981 and 1983 and substantially slow the growth in guaranteed loan
commitments compared to previous growth trends.
197
TABLE 3. THE CREDIT BUDGET TOTALS17
(In billions of dollars)
1981
Actual
1982
Estimate
1983
Estimate
Direct Loan Obligations
57.2
56.4
49.0
Guaranteed Loan Commitments
76.5
87.1
98.4
133.7
143.4
147.3
TOTAL
1/
The credit budget totals differ from totals shown in Table 2 because the credit budget is based on gross obligations and
commitments for credit, while Table 2 shows the net change in outstanding credit
Major programmatic changes in the credit budget include:
Government National Mortgage Association. Loan commitments for GNMA mortgage-backed
securities are proposed to decrease by $9.6 billion between 1982 and 1983. Private mortgage-backed
securities programs are now rapidly developing; the Administration's GNMA proposal would
encourage and accelerate the success of these private efforts.
Export-Import Bank. Direct lending will be reduced by $0.6 billion between 1982 and 1983, and
guaranteed loans will be held at the 1982 level. Because of the decline in demand for direct credit
and the potential for the private sector to undertake increased insurance activity, these amounts will
be sufficient to enable the Export-Import Bank to meet the requisite needs of exporters facing
subsidized foreign competition.
Farmers Home Administration. The Administration believes that private lenders are increasingly able
to fill rural credit needs adequately. Accordingly, program reductions proposed in FmHA total $2.6
billion in direct loans and $0.6 billion in loan guarantees. These changes include major decreases in
direct loans for rural housing, and termination of the business and industrial, and alcohol fuels, loan
guarantee programs.
International Security Assistance. The Administration plans to increase its military and economic
assistance to friendly and strategically important nations in both 1982 and 1983. Direct loans will
increase by $1.0 billion in 1983, and guaranteed loans, financed through the Federal Financing Bank,
will increase by $0.8 billion.
Rural Electrification Administration. In 1983, REA guaranteed loans will be reduced by $0.5 billion
and direct loans will be reduced by $0.4 billion. These reductions are proposed because a large
number of REA borrowers can obtain credit from unsubsidized private sources at prevailing market
rates.
Small Business Administration. The Administration is proposing to eliminate SBA direct loans
beginning in 1983 and to reduce 1983 guarantees by 10% below the 1982 level. These reductions are
proposed as part of the overall plan to control credit, because small businesses will benefit more from
stable financial markets and lower interest rates than from Federal credit assistance for a few selected
borrowers.
Public Housing. A decrease in direct loan obligations of $0.5 billion and an increase of $1.5 billion in
guaranteed loan commitments between 1982 and 1983 result from financing transactions of prior year
commitments for public housing notes.
Commodity Credit Corporation. Direct loan obligations for commodity price support programs are
estimated to decrease by $2.0 billion between 1982 and 1983 due to provisions in the recently enacted
Agriculture and Food Act of 1981.
198
Major increases in the credit budget are due to improved economic conditions for housing. As the
housing industry recovers from its depressed 1981 levels, guaranteed lending increases are expected
for:
Federal Housing Administration. Guaranteed loan commitments for FHA are estimated to increase by
$5.0 billion in 1982 and $6.4 billion in 1983.
Veterans Administration. Increases in guaranteed loan commitments in the veterans loan guarantee
revolving fund are $7.8 billion in 1982 and $2.9 billion in 1983.
Privatization of Government-Sponsored Enterprises
If their current links to the Federal Government are continued, the Government-sponsored
enterprises should also be brought under closer scrutiny through the budget and credit
budget process. The Administration prefers, however, to modify the special relationship
between these enterprises and the Federal Government in order to transform them into
completely private organizations. In particular, the Administration seeks to accelerate the
development of a truly private secondary market for housing finance. Both the Federal
Home Loan Mortgage Corporation (FHLMC) and the Federal National Mortgage
Association (FNMA) will be active in guaranteeing conventional mortgage-backed securities
in the coming year, and it is expected that both institutions will be strongly supported by the
expansion of private mortgage insurance activity. Moreover, it is anticipated that the
competitive advantages now accorded to FHLMC and FNMA will be gradually eliminated.
Other Administration Proposals for Control of Credit Subsidies
In the coming months the Administration plans action on:
•
Interest subsidies. The Administration is moving to develop a consistent policy on the
provision of interest subsidies.
•
The Federal Financing Bank. The budget treatment and portfolio oversight of the Federal
Financing Bank will be reviewed and improved.
•
Debt collection and default accounting. Substantial work is now in process to create standard
accounting definitions and administrative controls.
199
Rural Electrification and Telephone Revolving Fund Loan Authorization
AGENCY: Department of Agriculture
FUNCTIONAL CODE: 271
Funding
($ in millions)
1984
1985
1981
1982
1983
4,816
4,715
5,097
5,088
4,824
4,809
4,183
4,158
1,260
GUARANTEED LOAN COMMITMENTS. 5,131
1,285
4.245
885
3,760
885
3,760
1986
1987
3,990
3,951
4,051
3,996
4,163
4,094
885
3,760
885
3,760
885
3,760
Program Description
The Rural Electrification Administration (REA) of USDA makes direct and guaranteed loans for
construction and operation of electric and telephone utilities in rural areas. By statute, direct loans are
made by REA at very low interest rates — 2% or 5% — depending upon the project and the financial
condition of the borrower.
Loan guarantees were authorized to attract private capital to rural electric and telephone projects,
particularly in those cases in which utilities do not have the equity or cash flow necessary to attract
private loans without Federal assistance. However, since the Federal Financing Bank (FFB) was
established, REA borrowers have used REA guarantees to borrow almost exclusively from the Federal
Treasury through the FFB.
Proposed Change
In 1982, REA guaranteed loan commitments will be reduced by almost $1 billion to $4.2 billion. In
1983, REA direct loans will be reduced by $400 million to $885 million, ($225 million for electric and
$175 million for telephone) and guarantees will be reduced by an additional $485 million to $3.8
billion. These remaining levels of lending are projected through 1987.
Rationale
These reductions are possible under existing law through administrative changes because of increased
ability of borrowers to obtain part of their financing needs from other sources:
•
These actions are part of an Administration objective to control Federal credit and reduce
Federal demands on private credit markets.
•
Although these lending programs are "off-budget," they add to the total Federal deficit and
to demands on financial markets. The Treasury borrows to finance the programs, and in
most cases these long-term lending programs are being financed by Treasury short-term
borrowing. For example, during 1981 the Treasury paid 14% to borrow funds lent by REA
at 5% costing the taxpayer the difference, or $9 million per year for each $100 million lent
•
Most of the rural telephone borrowers (approximately 70%) are eligible for the tax benefits
available to private companies provided in the Internal Revenue Code, including the latest
amendments which permit sale and leaseback of facilities. Many of the largest electric
borrowers are eligible for the same provisions and in fact are now taking advantage of them.
•
A larger portion of total program needs can be obtained from non-Federal sources without
REA guarantees. Generation and transmission of electricity as well as other REA financed
projects will be expected to obtain a portion of their credit needs from unsubsidized private
sources without REA guarantees.
200
•
All borrowers do not need the same proportion of Federal assistance to obtain their
financing requirements. Eligible purposes for Federal loans and guarantees can be limited to
those which cannot be reasonably financed otherwise.
•
These subsidies are not necessary because electric and telephone service can be provided in
these areas at a profit using private capital.
•
REA assisted cooperatives and companies lack incentives to improve their financial positions
for the purpose of attracting private capital so long as these subsidies remain available.
Electric Loans
•
This program has served its primary purpose of bringing electric power to the farm.
— When the REA electric program was established in 1935, only 11% of the Nation's farms
had electricity.
— Today more than 99% of farms have electric service, and many of the areas are served
by electric co-ops.
•
Because interest on capital borrowed by REA co-ops is subsidized by the Federal taxpayer,
customers of REA-fmanced electric utilities receive service at rates on a national average
which are less than average rates charged by non-REA financed utilities.
— According to data published by the Department of Energy and REA in January 1980,
customers of REA-financed systems on average paid 3.3 percent to 9.9 percent lower
rates for electricity than customers of other utilities.
— Within some individual States, however, rural electric systems may charge more than
other private utilities which have access to power from low-cost hydro projects and
therefore provide electricity at even lower cost.
Telephone Loans
•
This program has also served its primary purpose of bringing telephone service to the farm.
— When the program was begun in 1949, only 38% of American farms had telephone
service, a large part of which was inadequate.
— Today, over 90% of all rural households have telephone service, most of which is
comparable to urban service.
•
The cost of REA telephone service to rural subscribers is lower on the average than the cost
paid by urban dwellers because telephone companies and co-ops have used low interest REA
loans to establish, maintain and upgrade this service.
— A recent REA study comparison of single-party residence monthly telephone rates for
the Bell System and REA-financed telephone borrowers showed the following (CY 1978
data):
- - For the 45 States compared, REA borrowers in 12 States on average charged less
than the Bell System; REA borrowers charged more on average in 33 States.
- - The weighted average monthly bill for all 45 States was $6.50 for the Bell System
and $8.00 for the REA borrower systems. (The REA borrower average exceeded the
Bell System average by 23%.)
— The Bell System rates used in the study exclude large metropolitan area exchanges
where the largest numbers of phone subscribers paid monthly bills ranging from 30% to
more than 60% higher than the small Bell System service areas selected for comparison.
Using the average monthly bills paid by most urban subscribers to the Bell System, Bell
System rates on average would exceed REA borrower rates for single-party residence
service by approximately 25%.
201
Effects of the Proposed Change
The effects on consumers will not be significant because:
•
Large amounts of private credit at market rates is available.
•
Some $700 million in subsidized loans at 2% and 5% will still be available to utilities that
warrant assistance.
•
Additional telephone loans will remain available from the Rural Telephone Bank at a
somewhat more favorable interest rate than private markets.
•
Federal guarantees (72% of 1981 total) will still be available (for both electric and telephone)
from the Federal Financing Bank which also includes a subsidy.
•
Although a reduction in lending levels will cause some increases in subscriber rates, the
impact on individuals will be reasonable when compared with rates charged by other utilities,
and the relative cost of providing service in less densely populated areas.
202
Rural Housing Loan Progam
AGENCY: Department of Agriculture
FUNCTIONAL CODE: 371
Funding
BUDGET AUTHORITY..
OUTLAYS
GUARANTEED LOAN COMMITMENTS..
($ in millions)
1984
1985
1981
1982
1983
594
130
1,583
1,092
1,110
1,617
1,536
1,723
3,487
6
3,727
1,145
1,145
—
—
—
1986
1987
1,698
1,775
1,834
1,706
1,779
1,646
1,145
1..145
1,145
—
—
—
Program Description
The Farmer's Home Administration's (FmHA) homeownership, repair, rental construction, site
development and farm labor loan programs are available in any rural community of 10,000 or less,
and in communities of 10,000-20,000 outside standard metropolitan statistical areas (SMSA's). Loans
are made at interest rates as low as 1 percent.
Proposed Change
In 1983, federally assisted rural housing loan programs are proposed to be reduced as follows:
($ in millions)
1982
1983
Units
1982
1983
Single Family Housing
Repair and Rehabilitation of
Single Family Housing
Multi Family (Rental) Housing
Housing Site Development
Farm Labor Rental Housing
2,730
900
67,500
20,100
24
940
5
26
24
200
2
19
6,440
29,400
5,900
5,740
1,340
1,090
TOTAL
3,727
1,145
104,680
32,830
—
—
FmHA will improve its efforts to ensure that truly needy households are the primary beneficiaries of
the rural housing programs. It will enforce a credit-elsewhere test to determine eligibility for
homeownership loans.
Rationale
•
The Administration proposes to reduce FmHA direct lending programs for housing as part
of a general effort to limit the growth of Federal outlays and to reduce dependence on the
Federal Government as a supplier of credit Reduced Federal involvement in credit markets
should help to relieve pressure on interest rates, particularly in the housing sector.
•
This reduction is consistent with trends in mortgage markets which suggest that rural areas
generally are adequately served by private credit markets.
— Over the period 1960 to 1978, housing starts in rural areas increased at a faster pace
than the population living in non-SMSAs.
— At the same time, there has been steady progress in eliminating substandard housing in
rural areas. Between 1970 and 1978, the percent of all rural households living in
substandard housing has declined from nearly 18% to approximately 8%.
•
The proposed reduction will enable FmHA to improve its loan making and servicing
responsibilities to low- and moderate-income borrowers. The Agency will be able to provide
more individual assistance to loan applicants and more counseling and supervision to
203
borrowers. These actions should help to reduce the high rate of delinquent payments, which,
for homeownership loans reached 27% in mid-October.
Effects of the Proposed Change
•
FmHA is not and should not be viewed as the primary lending source for rural housing. In
fact, in 1980, FmHA loans financed only about 10% of all home purchases in rural America.
Therefore, the proposed changes will have minimal impact on rural home purchases.
204
Federal Housing Administration Credit Limits
FUNCTIONAL CODE: 371
AGENCY: Department of Housing
ana Urban Development
Funding
($ in millions)
1984
1985
1981
1982
1983
412
182
252
-245
134
-1,179
189
-1,155
DIRECT LOAN OBLIGATIONS
414
GUARANTEED LOAN COMMITMENTS 23,635
383
28,609
311
35,000
306
35,000
BUDGET AUTHORITY
OUTLAYS
1986
1987
283
-1,142
233
-1,228
235
-1,309
329
35,000
321
35,000
311
35,000
Program Description
The Federal Housing Administration (FHA) operates about 40 programs that provide insurance for
home and project mortgages and property-improvement and mobile-home loans. Since its inception
in 1934, FHA has insured mortgages and loans covering 17.3 million units with a value of $260
billion. FHA currently insures 5 million home and multifamily mortgages with a value of $151
billion. In fiscal year 1981, FHA insured 277,000 home mortgages with a value of $12.5 billion, 1,100
multifamily mortgages covering 116,000 units with a value of $3.6 billion, and 309,000
property-improvement and mobile-home loans with a value of $1.7 billion.
Proposed Change
FHA will be redirected to serve groups—such as first time and inner city homebuyers—that cannot
obtain equivalent private mortgage insurance, and need insurance to purchase homes. By targeting
FHA insurance towards these groups, the Administration will continue to encourage homeownership
without interfering with private insurers. As a result of this redirection, the President proposes to
reduce the current 1982 limitation of $40 billion to $35 billion in 1983 and each year thereafter.
Rationale
•
This is an integral component of the President's plan to control the growth of Federal credit.
•
FHA should provide mortgage insurance for only those segments of the market not
adequately served by the private sector. For example, some homebuyers — particularly first
time homebuyers who are able to make only very low downpayments — may be unable to
obtain private mortgage insurance and thus require FHA mortgage insurance if they are to
be able to purchase a home.
•
The growth in the size of and capacity of the private mortgage insurance industry has
provided a viable alternative to FHA mortgage insurance.
Effects of the Proposed Change
•
Despite this proposed decrease in the amount of commitments FHA can make to insure
mortgages, the amount of mortgages FHA will actually insure is expected to increase from
$23.6 billion in 1982 to $28.6 billion in 1983. This will occur because of expected increases
in both aggregate housing activity and in the rate at which commitments are used.
•
More homebuyers will use lower cost private mortgage insurance; private mortgage insurors
already insure about twice as many mortgages as FHA.
205
GNMA Mortgage-Backed Securities Credit Limits
AGENCY: Department of Housing
and Urban Development
FUNCTIONAL CODE: 371
Funding
OUTLAYS
1981
1982
1983
-92
-118
-149
GUARANTEED LOAN COMMITMENTS 42.150
48.000*
(% in millions)
1984
1985
-175
-203
1986
1987
-228
-252
38.400
•Reflects proposed supplemental calculation in currently enacted 1982 limitations.
Program Description
The Government National Mortgage Association (GNMA) Mortgage-Backed Securities program was
authorized by Title VII of the Housing and Urban Development Act of 1968. The Act allows private
lenders to pool mortgages guaranteed by FHA, VA, and FmHA and to issue securities backed by
these pools. GNMA guarantees the timely payment of principal and interest of these securities.
Thus, the GNMA program enables private lenders, primarily mortgage bankers, to finance their
mortgage holdings by selling securities backed by the full faith and credit of the Federal government.
GNMA commitments grew from $231 million in 1970 to $42.2 billion in 1981. Loans guaranteed rose
from $38 million to $16.9 billion during the same period. Outstanding GNMA securities totaled $105
billion as of the end of September 1981. This amount represents the equivalent of U.S. Treasury debt
and absorbs available savings much like Treasury borrowing does.
Commitment limitations were first imposed on the program in 1981 as part of the government-wide
Federal Credit Control program. The limitation was set at $64 billion in 1981. To help address
current problems in financial markets, President Reagan proposed a target 25% reduction for 1982 in
the GNMA Mortgage-Backed Securities program. The commitment limitation would, therefore, be
set at $48 billion in 1982.
Proposed Change
For 1983, the Administration proposes a further reduction in the commitment limitation for GNMA
mortgage-backed securities as a part of the effort to reduce overall Federal borrowing requirements
and exert downward pressure on interest rates. Specifically, GNMA commitment authority will be
limited to $38.4 billion, a 20% reduction from the 1982 level.
A second change involves increasing the fee charged for a GNMA commitment to a rate that will
equal similar fees charged by private sector conventional mortgage-backed securities programs. In
addition, a new fee will be charged to cover the costs of processing new GNMA issuers. The effects
of these fee changes are discussed in the User Fee section.
Rationale
•
The reduction in the GNMA commitment limitation is an integral part of proposed
reductions in overall Federal credit programs. Federal credit reductions are designed to
relieve pressure on interest rates and to open the way for sustainable and noninflationary
economic recovery.
•
Federal housing credit reductions will encourage and accelerate the development of a
predominantly private sector housing market. In particular, both the Federal National
Mortgage Association (FN MA) and the Federal Home Loan Mortgage Corporation
(FHLMC) have developed conventional mortgage-backed securities programs that will be
operating in calendar year 1982. These programs will be strongly supported by the
206
expansion of private mortgage insurance activity, which is already larger than comparable
government-insured activity.
Effects of the Proposed Change
The 1983 targeted reductions in the GNMA mortgage-backed securities program should:
•
Positively affect aggregate credit markets and exert downward pressure on interest rates;
•
Encourage the development of mortgage-backed securities programs in the private market
for both conventional and government-insured mortgages; and
•
Reduce budget outlays since additional income will be generated by the increase in user fees.
207
Export Credits and Guarantees
AGENCY: Export-Import Bank
Funding
FUNCTIONAL CODE: 155
_
($ in millions)
1981
1982
1983
1984
1985
1986
1987
BUDGET AUTHORITY
OUTLAYS
6,908
2,066
3,986
1,855
2,701
1,918
2,667
1,188
2,731
1,385
2,647
1,317
2,608
647
DIRECT LOAN OBLIGATIONS
GUARANTEED LOAN COMMITMENTS
5,431
7,416
4,400
8,000
3,830
8,000
3,830
8,000
3,830
8,000
3,830
8,000
3,830
8,000
Program Description
The Export-Import Bank provides credit support for the sale of American goods and services overseas
in the form of:
—
long-term direct loans on subsidized terms to purchasers of U.S. exports, and
— loan guarantees and insurance against defaults by foreign purchasers.
In recent years, programs were expanded rapidly, and rates and fees were reduced as part of a general
effort by die Bank to promote exports through highly favorable financial policies.
Proposed Change
The Administration proposes to:
•
reduce direct lending by $570 million in 1983 to $3.8 billion, and
•
hold loan guarantee authorizations steady at $8 billion.
The proposed budget levels are supported by policy changes implemented by the Bank that will
enable it to operate effectively at reduced programs levels. The Bank:
•
is now targeting its resources more carefully to assure that it is supplementing and not
competing with private export finance that is readily available,
•
generally no longer provides direct credits 1) for sales to other industrial countries, with
developed capital markets of their own, 2) for lines of credit which compete with commercial
banking, or 3) for sales of older generation aircraft and other product areas where
competitive products from other countries do not exist; and
•
now charges a rate of interest that more closely approximates its cost of money in order to
place the Bank's future financial condition on a sounder basis and limit the large losses that
will occur in 1982 and 1983 because of the previous Administration's policies.
In the areas of loan guarantees and insurance, the Administration is examining new techniques for
developing more independent private sector capability for servicing U.S. exporters:
•
The resources of the domestic banking and insurance industry are enormous and should be
capable of effectively supporting U.S. exports where competitive finance is not an issue.
•
As these programs develop, the government will be able to concentrate its resources in those
limited areas where activity is warranted.
208
Rationale
The changes support the Administration's policy to reduce federal subsidies that distort market forces.
Such changes are needed because:
•
The cost of interest subsidies on long-term loans is substantial; subsidized export credits
transfer resources from domestic taxpayers to exporters or the foreign borrower.
•
Subsidies distort trade and investment, result in a low rate of return on invested capital, and
worsen the terms of trade, particularly in the short term.
•
Economic gains to the general public have not been identified or measured in any rigorous
manner.
•
Claims that subsidized exports generate additional employment, income and Federal revenue
while reducing expenditures for social programs fail to consider that credit diverted to
exports must come at the expense of other sectors which will experience offsetting losses.
By limiting the size and cost of these programs, the changes that are being undertaken will reduce
distortions in the economy. At the same time, the economic program being put into place by the
Administration will improve the competitive position of U.S. industry generally by reducing inflation,
providing generalized incentives for increased investment and improved productivity and by removing
artificial restraints and disincentives to trade.
Effects of the Proposed Change
•
The Bank's subsidy to foreign borrowers, estimated to be between $200 million and $1
billion in 1980 by the Congressional Budget Office, will be reduced.
•
The Bank's losses, estimated to be $243 million in 1983 for the loan programs, can be
reduced in future years as inflation and interest rates subside and recent international
agreements to increase official export credits take effect.
•
Impact on U.S. exports will be limited because:
— Fluctuations in U.S. export performance result primarily from cyclical changes in the
U.S. and foreign economies.
— The Export-Import Bank's direct credits finance less than 2% of U.S. exports of goods
and services.
— The preponderance of Bank's loan guarantee programs are not competitive financial
instruments for increasing exports and have limited ability, therefore, to generate
additional U.S. exports.
209
SBA Direct Business Loans
AGENCY: Small Business Administration
Funding
FUNCTIONAL CODE: 376
(% in millions)
_
1981
1982
1983
1984
1985
1986
1987
BUDGET AUTHORITY
OUTLAYS
292
219
184
211
0
46
0
0
0
0
0
0
0
0
DIRECT LOAN OBLIGATIONS*
NEW LOAN APPROVALS
871
292
712
184
554
0
0
0
-
0
0
•This includes amounts for repurchases of defaulted SBA guaranteed loans.
Program Description
The Small Business Administration (SBA) provides subsidized loans to small business to construct,
expand, or convert facilities; to purchase equipment or building materials; or to supply working
capital. Except for a 3% interest rate on loans to businesses that employ or are owned by
handicapped individuals, interest rates on direct loans were increased in 1981 to the Government's
cost of borrowing money, which is currently about 15%. Since the interest rates have been increased,
demand for such loans (which still have subsidized interest rates relative to market rates) has fallen off
dramatically to an annualized rate of less than $150 million.
Pursuant to existing law, direct loan funds are allocated among the following program areas:
— general business assistance;
— aid to businesses that employ or are owned by handicapped individuals;
— aid to socially and economically disadvantaged business-owners; and
— aid for energy conservation or development.
Proposed Change
The Administration proposes to eliminate SBA direct loans beginning in 1983.
Rationale
The proposed change is an integral component of the President's plan to apply sound criteria
to economic subsidy programs.
As a group, the nation's 14 million small businesses will benefit more from the
Administration's efforts to stabilize financial markets, reduce interest rates, eliminate
burdensome regulations, and lower inflation than from the fewer than 4,000 direct loans
made by SBA annually.
Subsidized direct loans are costly to the small business community:
— They result in increased Federal borrowing and thereby reduce available private credit.
— They create a competitive advantage for some small firms over others that are equally
deserving.
Elimination of subsidized direct loans would reduce the number of failures of marginal small
businesses that are unable to compete in the marketplace without Federal subsidies.
210
Effects of the Proposed Change
•
The elimination of direct loans will have a negligible effect on small business. At the end of
1981, SBA had 38,671 direct loans outstanding in its portfolio. This means that less than 0.3
percent of the 14 million small businesses identified by IRS receive direct financial assistance
from SBA.
•
Direct loans already approved will continue through their full term. No new loans will be
made as of October 1, 1982.
•
SBA will continue to provide guaranteed loans at a level of $2.7 billion in 1983 to small
businesses that have difficulty obtaining private financing. SBA will also continue to assist:
— new and/or expanding minority businesses by purchasing non-voting preferred stock
and debentures of Minority Enterprise Small Business Investment Companies
(MESBICs); and
— new and/or expanding non-minority small businesses through guarantees of Small
Business Investment Company (SBIC) debentures.
211
SBA Guaranteed Credit Assistance
AGENCY: Small Business Administration
FUNCTIONAL CODE: 376
Funding
GUARANTEED LOAN
COMMITMENTS
1981
1982
1983
3.616
3.156
2.850
(S in millions)
1984
1985
2.850
2.250
1986
1987
1.750
1.150
Program Description
The Small Business Administration (SBA) provides guaranteed credit assistance to small business
through its:
—
guaranteed business loan program, and
—
100% guarantee of pollution control equipment loans, which are financed from the proceeds
of State pollution control bonds.
Proposed Change
The President proposes to reduce 1983 guaranteed credit assistance 10% below the Administration s
proposed 1982 levels.
Rationale
•
The proposed reduction in SBA guaranteed credit assistance is an integral component of the
President's plan to control Federal credit.
•
As a group, small businesses will benefit more from the Administration's efforts to stabilize
financial markets, reduce interest rates, eliminate burdensome regulations, and lower inflation
than from Federal credit assistance.
•
Less than 1% of small businesses receive any type of financial assistance from SBA. This is
particularly significant in view of the fact that Federal guarantee assistance has not been
constrained heretofore.
•
Since the vast majority of small businesses are obtaining financing without Federal assistance,
aid should be limited to those businesses for which a valid case can be made that the market
overestimates the risk of a project or underestimates its return in terms of achieving social
objectives (e.g., counteracting discrimination or generating greater economic independence
for minority communities).
Effects of the Proposed Change
•
Reducing the level of guaranteed business loans will not have a significant adverse effect on
small business. In 1981, SBA guaranteed 23,215 business loans and had a total of 100,604
guaranteed loans outstanding in its portfolio. This means that SBA provided guaranteed
business loans to less than 1% of the 14 million small businesses identified by IRS.
•
By better targetting assistance and assessing more realistic guarantee fees, SBA will be able to
provide necessary assistance to those firms that suffer from market imperfections. Consistent
with this philosophy. 17% or $410 million of SBA guaranteed business loans will be targetted
to minority-owned firms.
•
Guarantees for pollution control equipment contract repayments will be maintained in 1983
at the 1982 level of $150 million.
212
USER FEES
213
CHAPTER 7
USER FEES
The Federal Government provides numerous services that directly benefit narrow, clearly identifiable
groups of business and private users. However, because these services evolved over time — the first
navigation aids for ships began in 1789; permanent disposal sites for radioactive waste from nuclear
power plants will begin operating nearly two centuries later — the Federal agencies providing these
services recover widely varying proportions of their costs through fees on the users.
Last September, President Reagan announced that the Administration would apply uniform principles
of cost recovery to the current patchwork of user fees for Federal services. The President directed all
Federal agencies to:
•
review their activities to determine the extent to which benefits accrue to clearly identifiable
users; and
•
seek to recover the cost of providing those benefits through the use of specific fees instead of
placing the burden on the general taxpayer.
In the 1983 Budget, President Reagan has proposed to increase or institute 15 categories of user fees.
Such fees are expected to reduce the revenue required from general taxes to support subsidized
services by $2.5 billion in 1983 and $3.5 billion in 1984.
Inconsistency in Past Federal Policy
Past Federal policy toward the recovery of cost from clearly identifiable groups receiving program
benefits has been inconsistent. In some cases, few if any costs are recovered; in others close to 100%
of program costs are obtained. Without the changes the President has proposed, there will be
continued subsidization of particular businesses and individuals who receive Federal services.
Examples of inconsistencies include:
•
The nation-wide system of barge canals and waterways is a service that the Federal
Government provides without recovering more than a small fraction of its costs. In 1981, the
Corps of Engineers spent $700 million to build and maintain inland waterways. The barge
operators and other users of the system paid only $20 million in fees to offset these costs,
approximately 3%.
By contrast, the users of the Federal Highway system have been supporting its construction
through a dedication of the Federal gasoline tax, diesel taxes, and other excise taxes on
highway users since the Highway Trust Fund was established in 1956. Unlike the inland
waterway users, highway users paid 100% of the cost of the Federal highway program in
1981.
•
Another example of the inconsistency in current Federal user fee policy under current law
concerns the services the Federal Government provides to the electric utility industry. Work
on the disposal of waste from nuclear plants is currently funded entirely by the general
taxpayer. In 1981 the Federal Government spent $174 million on developing commercial
nuclear waste disposal facilities and brought in no offsetting receipts from the electric utility
industry.
Yet, at present, Federal agencies supply utilities with enriched uranium fuels for nuclear
generating plants under arrangements that recover all of the costs of production over time.
In 1981, the uranium enrichment program spent $1.59 billion and collected $1.25 billion in
fees.
•
In 1981 $7 million was collected from general aviation users for aeronautical charts
purchased from the National Oceanic and Atmospheric Administration. Although they paid
an average of $1.15 for each of these charts, it cost the Federal Government $4.00 per chart
to prepare and distribute the charts. The general taxpayer thus picked up more than
215
two-thirds of the cost of providing this service to the aviation industry. The general taxpayer
also subsidizes in a higher proportion the sale of nautical charts to yacht owners and
commercial shippers.
By contrast, the Federal Government collects 100% of the cost of providing consular services
to U.S. citizens in foreign countries through user fees. Such consular services include
notorization and authorization, copying and recording of documents, and preparing and
sending of messages.
Advantages of User Fees
User fees have several important advantages over the use of general revenue financing for the
provision of government services. The advantages include:
•
enhanced equity;
•
increased economic efficiency; and
•
alleviation of Government's competitive advantage over the private sector.
Enhanced Equity. Those identifiable groups who directly benefit from the existence of a service
should pay that portion of the cost of providing the service rather than the general taxpayer. The
beneficiaries of the services for which the Administration is instituting new or increased fees consist in
general of corporations or the relatively affluent. By charging these groups directly, we can avoid the
necessity of imposing additional taxes on lower- and middle-income citizens. Examples of user fees
which promote enhanced equity include:
•
Fees for NOAA Aeronautical and Nautical Maps and Charts. Currently, the National
Oceanic and Atmospheric Administration provides commercial and private owners and
operators of all types of aircraft and vessels with maps and charts at a price that is less than
one-third the cost of production and distribution. This proposal would gradually increase
prices for maps and charts to achieve full cost recovery by 1985. Additional revenues
generated by this policy amount to $14 million in 1983 and $44 million by 1985.
•
Coast Guard User Fees for Operating Expenses. At present, nearly all services rendered by
the Coast Guard for the general public are provided without charge, including issuing
licenses, inspecting facilities, certifying vessel construction, maintaining aids to navigation,
providing rescue assistance service, and other services. Boat and yacht owners and the
maritime community are well defined groups benefitting directly from these services.
Legislation will be proposed in early 1982 that would authorize the Secretary of
Transportation to initiate fees for certain Coast Guard services. Fees for direct services
involving a transaction (e.g., licenses and inspections) would be set according to the cost of
providing the service. Other services (e.g., maintaining navigation aids and providing search
and rescue services) would be financed by an annual fee or other type of charge. Revenues
generated by this proposal amount to $200 million in 1983 and fUll cost recovery of $800
million in 1984.
•
Corps of Engineers Navigation User Fees. Locks, dams, and channels are constructed and
maintained by the Corps of Engineers and TVA for barge traffic on inland waterways. The
Corps also dredges harbor channels and constructs and maintains other facilities for
ocean-going and Great Lakes traffic. Construction and upkeep of both inland and deep
draft waterways have traditionally been provided at near zero cost to commercial users. Such
a benefit is a subsidy to the multi-billion dollar waterborne transportation industry. In the
1982 Budget, the Administration proposed legislation for user fees to recover new
construction and maintenance expenses for commercial projects. Congress has thus far failed
to enact such fees. Such fees would bring in $448 million in additional revenues in 1983.
•
Fees for Commercial Nuclear Waste Disposal. The Federal Government is responsible for
assuring permanent disposal facilities for high level radioactive waste resulting from the
generation of electricity by nuclear power plants. The development of these facilities is
currently being financed by the taxpayer. Legislation is now pending in Congress that will
mandate a fee (one mill per kilowatt hour) on electric utilities that are generating nuclear
216
waste. The income generated will be used to establish a fund for developing underground
geologic repositories. Such a fund will support a business-like, self-sustaining operation for
waste disposal. Revenues from the fee are expected to be $300 million in 1983.
•
Fees for Energy Regulatory Licenses and Services. The Federal Energy Regulatory
Commission (FERC) issues permits and licenses and sets rates for producer sales of natural
gas, operation of oil and natural gas pipelines, development of hydroelectric power, and
interstate wholesale sales of electric power. Fees are now charged for pipeline and
hydropower activities. Under this proposal new fees will be charged to companies making
license and other applications to the FERC. Fees will be extended to services such as
electric and natural gas rate determinations not now under fees. For services such as
pipeline approvals and hydropower licenses, existing' fees will increase substantially. It is
expected that these proposed changes will bring in an additional $35 million in offsetting
receipts in 1983 if enacted.
Increased Economic Efficiency. Since government services are subsidized, the price paid by the
consumer of those services is below the cost of providing the service. Subsidized prices promote
over-consumption leading to increased government costs and burdened government resources.
Further, subsidized benefits can lead to an inefficient allocation of available Federal Government
resources. By providing direct benefits to one type of business (or group of individuals) at no cost,
the government is in effect putting competing businesses at a disadvantage. Such a distortion leads to
an over-allocation of resources to the subsidized business and an under-allocation of resources to the
non-subsidized business. Examples of proposed user fees that can lead to increased economic
efficiency include:
•
Patent and Trademark Fees. The Patent and Trademark Office (PTO) assists and encourages
the development of business and industry by providing protection to individuals for
inventions and registering trademarks. PTO receives over 100,000 patent applications and
over 50,000 trademark applications annually. A growing backlog of applications has resulted
in ever-increasing turnaround time for the issuance of patents. This proposed change would
increase fees charged from the current 50% to 100% of application processing costs in order
to have those individuals who benefit from patent/trademark protection pay the cost of the
service. Increased revenue from fees will result in a more prudent use of resources and
permit enhanced program operations to reduce application processing time. Increased
revenues resulting from this proposal are estimated to be $39 million in 1983.
•
User Fee for Grievance Arbitration. Currently, the Federal Mediation and Conciliation
Service (FMCS) provides lists of qualified arbitrators to parties in dispute over terms of a
collective bargaining agreement. In 1981 FMCS issued about 33,200 lists of arbitrators. The
National Mediation Board (NMB), in connection with railroad industry grievances under
collective bargaining agreements, compensates and pays expenses of neutral referees, appoints
neutral referees when parties do not agree to one, and maintains offices for the National
Railroad Adjustment Board. Under this proposal, a general provision would be added to the
Labor-HHS appropriation bill enabling and requiring both agencies, beginning in 1983, to
charge users of these services a fee equal to the total costs of Federal services. Requiring
parties to pay for these services is expected to slow the rate of increase in arbitration
caseloads and lead parties to find less costly and more productive ways of handling
grievances. Such a proposal is expected to bring in $1 million in 1983 to completely offset
these program costs.
•
Veterans Housing Loan Guarantee User Fee.
The Veterans Administration's Loan
Guarantee Program provides guarantees to lending institutions for residential housing loans
made to veterans. An average of 330,000 loans are guaranteed each year. This proposal
would require payment of a 0.5% funding fee at the time of settlement on each loan
guaranteed. Such a fee would help decrease the cost of this program to the government. It
is expected that this proposal will bring in an additional $95 million in offsetting receipts in
1983 if enacted.
•
Commodity Futures Trading Commission User Fees. The CFTC is an independent
regulatory agency whose purpose is to encourage the efficiency of the futures market, to
assure their integrity and to protect participants against abusive trade practices, fraud, and
217
360-900 0 - 8 2 - 8
deceit. The CFTC plans to initiate actions to recover the full cost of regulatory operations.
Recovery of the cost of CFTC regulation (some $23 million in 1983) through transaction fees
and licenses transfers the regulatory cost from the general taxpayer to the identifiable
beneficiaries. Growth in the markets to be regulated increases demands on available
resources for regulation.
Alleviation of Government's Competitive Advantage Over the Private Sector. When the Federal
Government subsidizes services that are provided in the private sector it can lead to an unfair
competitive advantage which can cause the private sector to under-supply such services. Examples of
user fees that can lead to an alleviation of government's competitive advantage over the private sector
include:
•
Recreation User Fees. Several Federal Government agencies provide recreational facilities
for the public at a fraction of the cost of providing them. Under this proposal existing
entrance fees at Federal recreation areas will be increased, and the number of areas where
fees are charged will be expanded. Increased recreational user fees for public facilities will
lessen unfair competition with private recreation developments which have to recover all of
their costs without direct subsidies. It is expected that increased fees will bring in more than
$60 million in additional offsetting revenues in 1983.
•
GNMA Mortgage-Backed Securities-Fees. The Government National Mortgage Association
(GNMA) Mortgage-Backed Securities program provides Federal guarantees on securities
backed by FHA, VA, and FmHA mortgages. GNMA now charges a commitment authority
application fee of $500 per pool package of commitments. This fee has not increased since it
was established in early 1971. Increased fees will bring in an additional $4 million annually
in offsetting receipts in 1983 and help offset the competitive disadvantage of private sector
mortgage-backed securities programs.
Additional Benefits Provided by User Fees
User fees can provide additional program benefits in that they generate revenues which can be used
to enhance funding resulting in increased program development, operation, and efficiency. Examples
include:
•
Aviation User Fees. The Administration is proposing legislation that would increase the
ticket tax on scheduled air carrier flights and general aviation fuel taxes and reinstitute other
aviation taxes to their pre-1981 levels. Receipts from these taxes would be deposited into the
Airport and Airway Trust Fund. Historically, the trust fund has paid for about 40% of FAA
expenses including all FAA capital programs plus certain field maintenance costs. The
increased user fees are coupled with an administration proposal to increase capital funding
levels and finance 85% of total FAA costs from the trust fund — i.e., all FAA costs
attributable to air carriers and general aviation. This proposal reflects the Administration's
commitment to modernizing the National Airspace System if the users pay all allocable costs
of development, acquisition, operation and maintenance. The proposal is expected to bring in
almost $1.2 billion in additional offsetting receipts in 1983.
•
Patent and Trademark Fees. The Patent and Trademark Office (PTO), which provides
patent protection to individuals for inventions and registering trademarks, has experienced a
growing backlog of applications resulting in ever-increasing turnaround time for the issuance
of patents. Increased fees will be used to offset the costs of improved PTO service. Program
expansion will permit a reduction of application processing time. Fee-derived revenue will
also permit development of a fully-automated application processing system in subsequent
years to further improve service and maintain or reduce costs.
218
Cases Where User Fees Will Not Be Applied
In cases where the general public is the recipient of the benefits of a Federal program rather than a
clearly identifiable group, user fees will not be imposed. Further, in instances where collection of
user fees is infeasible or not cost-beneficial, user fees will not be implemented. Some examples
include:
•
The Patent and Trademark Office. Patent protection serves the public by providing an
incentive to disclose new technology. Disclosure of this information is a key to increased
productivity and economic growth. Since the details of the invention are made public in the
files of the PTO public search room, the cost of this and similar activities will be borne by
general tax revenues.
•
Coast Guard Services. User fees will not be proposed for those services that benefit the
public in general. Such services include military readiness, enforcement of laws and treaties,
and marine science.
•
Recreational Services. Appropriate fees will be raised and/or charged at those areas and
facilities where they can be administered economically. It is not feasible to collect fees at
every recreational area as many of the areas are too small, remote, or sporadically used.
Many of the areas may have access through a large number of entry points and staffing the
entrances would be uneconomic.
Summary of the 1983 Proposals
By instituting the fees described above, the Administration will:
•
Reduce the revenues required from general taxes to support subsidized services to clearly
identifiable groups by over $3 billion.
•
Apply consistent principles of cost recovery to all agencies supplying services.
•
Reduce subsidies to business and other private users of Federal services.
•
Encourage a prudent utilization of Federal Government resources.
•
Alleviate Government's competitive advantage over some private sector businesses.
•
Enhance program efficiency and quality of service.
219
Patent and Trademark Fees
AGENCY: Department of Commerce
FUNCTIONAL CODE: 371
Funding
PROGRAM LEVEL:
Budget Authority
Outlays
(% in millions)
1984
1985
1981
1982
1983
116
112
121
120
155
-152
167
163
87
OFFSETTING RECEIPTS:
Current Law
Policy Increase
PERCENT RECOVERED (BA):
Current Law
Policy Increase
1986
1987
176
172
182
178
182
178
96
105
113
117
48
39
53
43
57
48
62
51
64
53
56
57
60
62
64
31
25
32
25
32
28
34
28
35
29
Program Description
The Patent and Trademark Office (PTO) assists and encourages the development of business and
industry by providing patent protection to individuals for inventions and registering trademarks. PTO
receives more than 100,000 patent applications and more than 50,000 trademark applications annually.
A growing backlog of applications has resulted in ever-increasing turnaround time for the issuance of
patents. Without the changes described below, it will continue to take more than two years to process
a patent application, with an average increase of two months per year for 1983 and beyond.
Proposed Change
The proposed change would increase fees charged from the current 50% to 100% of application
processing costs. The purpose of the change is to have those individuals who benefit from
patent/trademark protection pay the cost of the service. In the case of patents, 50% of the processing
cost would be recovered prior to issuance of the patent and 50% would be recovered through
maintenance payments over the 17-year life of the patent. Approximately 15 years after the fees are
instituted, full cost recovery for patent processing would be achieved. Increased fee revenues would
be invested in program operations to reduce processing time. The Federal Government would
continue to fund the public search room and other nonprocessing functions such as U.S.
representation at international patent meetings and the expenses of the commissioner's office.
Rationale
•
These changes are proposed as part of the Administration's effort to impose or increase user
fees where a service provides special benefits to an identifiable recipient above and beyond
those that accrue to the general public.
•
The 17-year monopoly provided by patent protection enables the patent holder to obtain
exclusive and substantial returns from commercial application of the invention. Therefore,
100% of the costs of processing the patent is a fair charge for the benefits received. In
addition, since 50% of cost recovery occurs through maintenance payments, the patent holder
has the option of allowing the patent to lapse (by stopping payment) if the invention is not
profitable.
•
Patent protection also serves the public by providing an incentive to disclose new technology.
Disclosure of this information is a key to increased productivity and economic growth. Since
the details of the invention are made public in the files of the PTO public search room, the
cost of that and similar activities should be borne by general tax revenues.
220
•
By increasing fees and initiating maintenance payments, the U.S. system of fees would
generally be in line with the systems in other industrialized countries. Therefore, no relative
disincentive to using the U.S. system should result, especially in light of the size of the U.S.
market.
•
In the context of severe fiscal constraint, the goal of efficient and effective patent and
trademark systems is not attainable without the increased fees proposed.
Effects of the Proposed Change
•
In most areas, the user fees proposed will not even keep pace with past inflation. The
average patent filing fee established by the Congress in 1965 was $85. Simply escalated by
the growth in the average salary of a patent examiner, that $85 in 1965 is equivalent to about
$400 in 1984. The average filing fee projected under the Administration's proposal is $330.
The average $145 patent issue fee in 1965, when similarly escalated, would be about $700 in
1984, or roughly 42% more than the proposed $500 issue fee. The proposed fees for other
PTO services follow a similar pattern.
•
Increased fees will be used to offset the costs of improved PTO service. Program expansion
will permit a reduction of processing time to 18 months by 1987 for patents and 13 months
by 1985 for trademarks. These are considered to be the optimum processing times for patent
and trademark applications. Fee-derived revenue will also permit development of a
fully-automated application processing system in future years to further improve service and
maintain or reduce costs.
221
Fees For Commercial Nuclear Waste Disposal
FUNCTIONAL CODE: 271
AGENCY: Department of Commerce
Funding
PROGRAM LEVEL:
Budget Authority/Obligations
Outlays
OFFSETTING RECEIPTS:
Current Law
Policy Increase
PERCENT RECOVERED (BA):
Current Law
Policy Increase*
($ in millions)
1984
1985
1981
1982
1983
173
174
188
192
235
235
315
315
300
128
1986
1987
339
339
387
364
531
458
501
549
627
659
159
162
162
124
—
—
—
—
*Fees exceed obligations in early years because major construction and operating costs for the geologic repository are not
incurred until the 1990's.
Program Description
The Federal Government has assumed responsibility for assuring permanent disposal facilities for high
level radioactive waste resulting from the generation of electricity by nuclear power plants. Lack of
progress in this area is one of the main public concerns with continued use of nuclear power.
The objective of the current program (in the existing Department of Energy) is to plan, develop and
implement the technology necessary to provide for such disposal. Potential sites in several States are
currently being evaluated. Beginning in 1983, exploratory shafts will be sunk underground at three
different sites.
Proposed Change
•
In his policy statement (October 8, 1981) on nuclear power, the President stated that the
Government had failed to meet its responsibility for nuclear waste disposal. He therefore
directed that the Government work closely with industry and State governments to swiftly
deploy means for storing and disposing of commercial nuclear waste.
•
To provide sufficient resources for the identification and evaluation of several potential sites,
for subsurface shafts and tests, and for construction and operation of underground geologic
repositories, funding would be obtained through a user fee on electric utilities that are
generating nuclear waste.
— It is assumed that pending legislation which the Administration supports will mandate
this fee (now estimated at one mill per kilowatt hour) and that the income will be used
to establish a fund to support a business-like, self-sustaining operation for waste
disposal.
— A commitment to an accelerated fixed schedule for developing an operating repository
would be made to enable industry to plan better for its short-term waste management
needs.
— Ultimately, an independent single-purpose organization would be formed to reflect
better the business-like nature of the program. This will ensure the availability of
adequate management resources over the long time period required for development and
operation of repositories.
•
Direct Federal funding would be limited to generic R&D on alternative waste management
concepts, continued investigations on the materials in which to solidify and encapsulate the
waste, and development of models necessary to assess the safety of potential repository sites.
222
Rationale
•
Commercial nuclear waste disposal is a service that will be provided to nuclear utilities.
Those who benefit from the electricity should also pay for disposing of the waste that is
being generated at the same time.
•
The Nuclear Regulatory Commission has concluded that reactors cannot continue to be
licensed unless the means for safe disposal will exist when required. A Commission
rulemaking currently underway will determine whether there is sufficient confidence that
repositories will be available so that this issue can be precluded from individual licensing
cases. Without an aggressive waste program and the resources to provide a repository on a
fixed schedule, the licensing of new reactors could be in jeopardy.
Effects of the Proposed Change
•
The cost of nuclear-generated electricity will be increased by about two percent. The full
cost of waste disposal will no longer be subsidized by the taxpayer.
•
The program will be accelerated and sufficiently funded to cover contingencies.
•
With firm commitment on permanent disposal capability from the Federal Government,
utilities can plan interim storage needs accordingly.
•
The lack of waste disposal capability will no longer be an issue in licensing new reactors.
223
Fees for NOAA Aeronautical and Nautical Maps and Charts
AGENCY: Department of Commerce
FUNCTIONAL CODE: 306
Funding
($ in millions)
1984
1985
1981
1982
1983
PROGRAM LEVEL:
Budget Authority
Outlays
58
58
62
62
67
67
71
71
RECEIPTS:..
1986
1987
71
71
71
71
71
71
20
22
40
56
71
71
71
Current
20
22
Policy Increase
—
—
26
14
27
29
27
44
27
44
27
44
34
36
60
79
100
100
100
34
—
36
39
21
38
41
38
62
38
62
38
62
% OF COSTS RECOVERED (BA):
Current
Policy Increase
—
Program Description
The National Oceanic and Atmospheric Administration (NOAA) provides the aviation and marine
community (civil and military, commercial and private owners, and operators of all types of aircraft
and vessels) with maps and charts.
This activity is funded by: (1) reimbursements from other Federal agencies; (2) direct sales to Federal
agencies and the public (cost recovery is limited by Public Law 88-441 to printing and distribution);
and (3) appropriated funds.
Proposed Change
Beginning in 1983, prices for maps and charts would be increased gradually to achieve full cost
recovery by 1985. (In 1981, only 34% of the mapping and charting program costs were recovered.)
Legislation to provide copyright protection and amend P.L. 88-441 will be proposed.
Rationale
•
These proposals are part of the Administration's effort to impose or increase user fees where
a service provides special benefits to identifiable recipients above and beyond those that
accrue to die general public.
•
The general taxpayer will be relieved of the burden of subsidizing the cost of these maps and
charts to the aviation and marine community.
•
Paying the full costs for such services would encourage their economical use.
Effects of the Proposed Change
•
The present average charge for aeronautical charts is about $2 and for nautical maps is $5.
By 1985, the average charge is projected to increase to $9 and $37 respectively.
•
When compared to the overall costs of operating aircraft or marine vessels, the additional
costs to the operators from this proposal should be accommodated easily.
224
GNMA Mortgage-Backed Securities — Fees
AGENCY: Department of Housing
and Urban Development
FUNCTIONAL CODE: 371
Funding
1981
PROGRAM LEVEL:
Outlays
OFFSETTING RECEIPTS:
Current Law
Policy Increase
1982
1983
($ in millions)
1984
1985
1986
1987
-92
-118
-149
-175
-203
-228
-252
4
4
5
5
0
.9
5
4
9
5
4
9
5
4
9
5
4
9
5
4
0
Program Description
The Government National Mortgage Association (GNMA) Mortgage-Backed Securities program
provides Federal guarantees on securities backed by FHA, VA and FmHA mortgages. GNMA, as
authorized by the Housing and Urban Development Act of 1968, guarantees the timely payment of
principal and interest of the securities.
Two major types of fees are currently charged to securities issuers by GNMA. These are a
commitment authority application fee of $500 per pool package of commitments and an annual
guarantee fee for actual guarantees issued of six basis points based on the aggregate principal balance
of outstanding securities. The application fee amount has not changed since it was first established in
early 1971. The proposed change in this budget focuses only on the application fee.
Proposed Change
In the 1983 Budget, the Administration proposes to raise the fee for a GNMA commitment to be, on
average, equal to $1,000 per pool package commitment. This is approximately equivalent to
application fees charged by private sector conventional mortgage-backed securities programs for
similar services. In addition, a new fee of $250 will be charged to new GNMA securities issuers, of
which there are about 150 per year.
Rationale
•
The change is proposed as part of the Administration's effort to increase user fees where a
service or program provides special benefits to an identifiable recipient.
•
GNMA's guarantee provides securities issuers (primarily mortgage bankers) with a subsidy
not available to other financial market intermediaries.
•
To encourage and accelerate the development of private sector mortgage-backed securities
programs, the Federal Government advantage should be removed. Raising fees will help
increase competition between GNMA and private market alternatives.
Effects of the Proposed Change
•
Increased fees will help offset the
mortgage-backed securities programs.
•
Additional application fee revenue, which will total $4 million in 1983, will be generated
from the proposed changes.
225
competitive
disadvantage
of
private
sector
CorpsofEngineersNavigationUser Fees
AGENCY: Department of the Interior
Department of Agriculture
Department of the Army
Tennessee Valley Authority
FUNCTIONAL CODE: 303
Funding
PROGRAM LEVEL:
Budget Authorm
Outlays
OFFSETTING RECEIPTS:
Current Law
Policy Increase*
1982
1983
916
916
1.016
1.016
1.089
1.089
1.096
1.096
34
41
104
34
41
—
—
PERCENT RECOVERED (BA):
Current Law
Policy Increase
($ in millions)
1984
1985
1981
4
4
1986
1987
1.100
1.100
1.105
1.105
1.125
1,125
109
111
112
113
41
63
41
68
41
70
41
71
41
72
4
10
10
10
10
10
4
4
6
4
6
4
6
4
6
4
6
—
—
•Figures shown reflect minimum amounts to be collected: exact amounts will depend upon the legislative proposal sent to
Congress.
Program Description
Seven Federal agencies in four departments provide recreational facilities for the public, including
picnic areas, trails, campsites, visitor centers, exhibits, roads, boat ramps and lake and river access
areas, swimming, marinas, concession operations, skiing sites, and wilderness areas.
At present the law imposes major restrictions on the collection of recreation user fees, such as:
—
limiting National Park Service entrance fees to $3:
—
prohibiting any fees at 82 percent of the recreation areas managed by the Army's Corps of
Engineers, which provides more than 400 million visitor-days of recreation annually; and
— preventing collection of any user fees at 41 percent of the Forest Service's campsites.
Proposed Change
The Administation proposes to increase existing entrance fees at Federal recreation areas and expand
the number of areas where fees are charged. Legislation will be proposed to adjust fees for inflation
and set comparable fees for comparable areas and facilities. The fees collected by each agency will be
used to finance recreational projects of that agency.
Rationale
This Administration believes that specific identifiable beneficiaries of Federal services should pay
more of the costs associated with the provision of the benefit.
The cost of a Golden Eagle passport, which admits the car owner and all passengers to all National
Parks and recreation areas for an entire year, has been $10/year since its inception in 1965. Just
keeping up with inflation would require a $30 charge for the passport in 1983. Many other entrance
fees have not been raised since the 1960's.
Broad-based support for increasing Park Service entrance fees has been expressed in editorials in
Western newspapers and letters from private citizens to the National Park Service. The entrance fees
are a small part of the cost of visiting the parks. Moderate increases is not expected to affect the
annual 6% to 9% increase in attendance.
226
Effects of the Proposed Change
•
The proposed increase in fees would more than double revenues from Federal recreation
areas, lessening the subsidy from the general taxpayer to the user of public recreation sites.
•
Fees will remain low even where increased, so that citizens will not be prevented from access
to public recreation sites.
•
Fees will be raised and/or charged only at those areas and facilities where the costs of
collecting fees are not unreasonable compared to the resulting revenues.
•
Increased fees for public facilities will lessen unfair competition with private recreation
developments, which have to recover all of their costs without direct subsidies.
227
Aviation User Fees
AGENCY: Department of Transportation
FUNCTIONAL CODE: 402
Funding
($ in millions)
1984
1985
1981
1982
1983
PROGRAM LEVEL:
Budget Authority
Outlays
3,412
3,158
3,063
3,073
3,903
3,375
3,889
3,653
RECEIPTS*
Current Law
Policy Increase
1,194
—
1,268
131*
1,474
1,187
1,670
1,350
1986
1987
4,165
4,195
4,365
4,202
4,610
4,295
1,878
1,548
2,108
1,742
2,344
1,946
NOTE: During 1982-1985, user fee receipts coupled with a drawdown of the uncommitted Trust Fund balance would result in
85% cost recover}'. In 1986-1987, user fee receipts alone would finance all allocable costs.
•
Assumes July 1,1982 effective date.
Program Description
Because of the expiration of statutory authority at the end of 1980, no revenues are currently being
deposited into the Airport and Airway Trust Fund, and many aviation taxes have expired. Currently, a
5% passenger ticket tax on scheduled air carrier flights is being deposited into the general fund of the
Treasury, while a 4 cents/gallon tax on general aviation gasoline and a tire and tube tax are being
deposited into the highway trust fund.
Although the Congress has historically restricted use of aviation tax revenues, all FAA capital
programs (grants-in-aid to airports, facilities and equipment, and research, engineering and
development) plus certain field maintenance costs have been trust fund financed. The total annual
trust fond share of FAA programs typically has been about 40%.
Proposed Change
In March 1981, the Administration proposed aviation user fee legislation that would reauthorize
revenue deposits to the Airport and Airway Trust Fund and institute the following user fees: 6.5%
passenger ticket tax; general aviation taxes during 1981-1986 of 12 cents/gallon increasing to 36
cents/gallon on aviation gasoline and 20 cents/gallon increasing to 65 cents/gallon on jet fuel; 5%
freight waybill tax; $3.00 international departure tax; and a tire and tube tax.
The March 1981 user fee structure was coupled with a proposal to finance 85% of FAA programs
from the Airport and Airway Trust Fund. This percentage represents the portion of FAA capital,
operating and maintenance costs clearly allocable to air carriers and general aviation.
The Administration is proposing legislation that would revise the March 1981 proposal for the
passenger ticket tax and general aviation fuel taxes to the following:
Passenger Ticket Tax
General Aviation Gasoline
Tax (Cents/gallon)
General Aviation Jet Fuel
Tax (Cents/gallon)
1982
8%
1983
8%
1984
8%
1985
8%
1986
8%
1987
8%
12
12
14
16
18
20
14
14
16
18
20
22
Other tax rates proposed last March would remain unchanged. In addition to recovering 85% of FAA
expenses from the Trust Fund, the Administration is proposing to use an additional $27 million of
Trust Fund receipts, beginning in 1983, to finance the Aviation Weather Services Program
administered by the National Oceanic and Atmospheric Administration.
228
Rationale
•
This proposal is part of the Administration's effort to impose user fees where a service
provides special benefits to identifiable recipients above and beyond those which accrue to
the general public.
•
Subsidizing users leads to economic inefficiencies and encourages over-use of the aviation
system, thus resulting in continual pressure to expand the system's capacity. To help break
this cycle, users should be held responsible for their fair share of the cost of operating as
well as maintaining and improving the airways system. In the past, only small amounts of
user tax revenues have been applied toward operating costs. But, clearly passengers and pilots
are the beneficiaries of services provided by FAA employees such as those who man the air
traffic control system and flight service stations.
•
The proposed user fees are also necessary to finance increased funding for FAA-owned
facilities and equipment and associated research and development. This increased funding
will be used to modernize the National Airspace System and will benefit all aviation users by
increasing safety while reducing fuel and delay costs.
•
The gradual increase in the fuel taxes should prevent severe disruptions to general aviation
activity. The 8% ticket tax restores the tax to the rate in effect during 1970-1980.
•
Using the Administration's estimate of allocable costs, the 4 cents/gallon tax on aviation
gasoline paid by general aviation users in 1981 covered only about 5% of their allocable
costs. With the revised fuel taxes, general aviation users would pay about 15% of their
allocable costs in 1983, increasing to about 30% in 1987. Even using an alternative cost
allocation based on minimum services required rather than actual costs incurred by the FAA,
general aviation would be paying less than 60% of its allocable costs in 1987.
•
The higher tax levels on general aviation jet fuel reflect the fact that these aircraft place
greater demands on the National Airspace System than do less sophisticated planes utilizing
aviation gasoline.
•
With only about 25% of general aviation activity and 45% of travel on air carriers classified
as personal, the majority of the burden of the increased user fees will fall on the business
sector where such expenses are tax deductible. Thus, the increased user fees reduce taxes
payable, and the cost to most users is significantly less than the increased receipts into the
Airport and Airway Trust Fund.
Effects of the Proposed Change
•
The revised tax proposal coupled with the increased capital funding, including
reauthorization of airport grants at $450 million annually, reflects the Administration's
commitment to modernizing the National Airspace System if the users are willing to pay the
allocable costs of development, acquisition, operation and maintenance.
•
If the revised tax proposal is enacted, the Administration would support an increase of nearly
$535 million above the 1982 enacted level for facilities, equipment and associated
development. In 1987, about $1.4 billion would be authorized for the development and
procurement of FAA facilities and equipment.
•
The higher capital funding levels coupled with the revised tax proposal would result in an
uncommitted trust fund balance in the range of $.8 to $2.3 billion during 1983-1987
compared to the $3.0 billion uncommitted balance at the end of 1981.
229
Coast Guard User Fees
AGENCY: Department of Transportation
FUNCTIONAL CODE: 402
Funding
1981
1982
1983
2,035
1,854
2,517
2,136
1,998
2,253
800
800
800
800
RECEIPTS
Current
Policy Increase**
—
—
% OF ALLOCABLE COSTS RECOVERED
Current
Policy Increase.
—
—
TOTAL COSTS
Budget Authority
Outlays
ALLOCABLE PROGRAM COSTS*
Budget Authority
Outlays
*
($ in millions)
1984
1985
1986
1987
2,411
2,338
2,506
2,432
2,585
2,536
2,666
2,632
800
800
800
800
800
800
800
800
800
800
—
—
—
200
—
800
—
800
—
800
—
800
—
—
—
25
—
100
—
100
—
100
—
100
Funds shown represent the Operating Expenses portion allocable to services which benefit the Maritime industry
and recreational boaters.
Level in 1983 reflects program start-up; for 1984 and out years, legislation calls for collection of 100% of allocable
costs, estimated to be $800 in 1982 dollars.
Program Description
Currently, most services rendered by the Coast Guard for the public are provided without charge:
issuing licenses; inspecting facilities; certifying vessel construction; maintaining aids to navigation;
providing rescue and assistance service, and other services.
Proposed Change
•
Legislation will be proposed in early 1982 that would authorize the Secretary of
Transportation to initiate fees for certain Coast Guard services.
•
Fees for direct services involving a transaction (e.g., licenses and inspections) would be set
according to the cost of providing the service. Other services (e.g., maintaining navigation
aids and providing search and rescue services) would be financed by an annual fee or other
type of charge. Fees would be adjusted periodically to reflect changes in the levels of service
provided and their associated costs.
Rationale
•
Commercial and recreational boating users are well-defined groups benefitting directly from
the services offered by the Coast Guard. Charging these users for the services they receive
allows the tax burden to be shifted away from the general taxpayer.
•
There are about 14 million recreational boats in the U.S. Commercial users include inland,
domestic coastal, and international trade carriers, as well as domestic and foreign fishing
vessels. Federal fees will recover the costs of special services provided for their benefit by the
Coast Guard.
Effects of the Proposed Change
•
Fees initially will be set at less than full recovery allowing a period of adjustment for the
correction of errors, public review of schedules, and a review of appeals and protests.
Proposed legislation will call for 100% of certain allocable Coast Guard operating costs to be
recovered by the end of 1983.
230
Legislation will reflect the concern of many private and commercial groups that those Coast
Guard services subject to user fees will be made more cost effective. Coast Guard activities
that can be more economically done in the private sector will be reduced or terminated, if
and when commercial services are offered.
Fees will be collected under arrangements to be made by the Department of Transportation.
Revenues from user fees will be deposited into the general fund of the Treasury, and treated
as proprietary receipts of the Department of Transportation.
To avoid "double payment" by boat owners on inland waterways, Coast Guard costs will not
be included in the base costs used to calculate inland waterway user fees proposed to be
collected by the Corps of Engineers.
User fees will not be proposed for those programs that serve the general public (e.g., military
readiness, enforcement of laws and treaties, and marine science).
231
Commodity Futures Trading Commission
User Fees
AGENCY: Commodity Futures Trading Commission
FUNCTIONAL CODE: 371
Funding
1982
1981
PROGRAM LEVEL:
Budget Authority
Outlays
19
19
OFFSETTING RECEIPTS:
Current Law
Policy Increase
—
PERCENT RECOVERED (BA):
Current Law
Policy Increase
—
1983
($ in millions)
1984
1985
1986
1987
20
20
23
23
23
23
23
23
23
23
24
23
1
1
22
1
22
1
22
1
22
1
23
5
4
96
4
96
4
96
4
96
4
96
1
—
5
—
Program Description
The Commodity Futures Trading Commission (CFTC) is an independent regulatory agency that
administers the Commodity Exchange Act of 1936 as amended. The purpose of the CFTC is to
encourage the efficiency of the futures market, to assure their integrity and to protect participants
against abusive trade practices, fraud, and deceit.
Proposed Change
The CFTC plans to initiate actions, including proposed legislation if necessary, to recover the full cost
of CFTC regulatory operations. Costs would be recovered through fees for futures transactions traded
in the exchanges as well as fees for classes of persons regulated under the Act who are not members
of an exchange. Fees collected would be paid to the Treasury.
Rationale
Regulations to prevent abusive trade practices, fraud and deceit in futures markets convey benefits to
market participants and to futures exchanges that go beyond those accruing to the general public.
Recovery of the costs of CFTC regulation through transaction fees and licenses transfers the
regulatory cost from the general taxpayer to the identifiable beneficiaries.
Growth in the markets to be regulated increases demands on available resources for regulation. Since
there are identifiable benefits that accrue to market participants, user charges for recovering the costs
of CFTC regulation are both appropriate and desirable.
Effects of the Proposed Change
•
A nominal transaction charge averaging about $.25 per contract on the current volume would
generate adequate revenues to recover full CFTC costs.
•
Such fees should not be a significant barrier to market participation.
•
Since fees are related to transactions volumes, revenues will increase as volume increases.
232
Corps of Engineers Navigation User Fees
AGENCY: Corps of Engineers/Tennessee Valley Authority
FUNCTIONAL CODE: 301
Funding
(Sin millions)
1984
1985
1981
1982
1983
1,135
1,135
1,145
1,145
935
935
980
980
OFFSETTING RECEIPTS:
Current Law
Policy Increase
20
—
58
—
67
448
PRECENT RECOVERED (BA):
Current Law
Policy Increase
2
—
5
—
7
48
PROGRAM LEVEL:
Budget Authority
Outlays
1986
1987
1,025
1,025
1,075
1,075
1,120
1,120
82
458
90
475
110
480
110
510
8
47
9
46
10
45
10
46
Program Description
Locks, dams, and channels are constructed and maintained by the Corps of Engineers and Tennessee
Valley Authority for barge traffic on the inland waterways. The Corps also dredges harbor channels
and constructs and maintains other facilities for ocean-going and Great Lakes traffic.
Construction and upkeep of both inland and deep draft waterways have traditionally been provided at
almost no cost to commercial users.
Proposed Change
•
In the 1982 Budget, the Administration proposed legislation to recover new construction and
maintenance expenses for commercial projects. The 1983 Budget also proposes that these
Federal expenditures be repaid by commercial users or project sponsors.
•
While Congress has not yet enacted navigation user fees, some progress has been made. A
deep draft Bill (S.1692) has cleared full Committee. S.1692 is generally sound in concept,
but maintenance revenues are too low — only about 14 percent of current Federal costs.
•
Hearings have not yet been held on the Administration's inland waterway user fee proposal.
•
The Administration proposes a reduced funding level for some navigation projects — see the
fact sheet on navigation maintenance in Chapter 4. Additional funding will be requested
when adequate reimbursement for navigation project operation and maintenance is available
through establishment of user fees.
Rationale
•
These navigation user fee proposals are part of the Administration's effort to require
payment for government services when the users are clearly identifiable and the costs
allocable.
•
Federal deep draft dredging and operation of the inland waterway system is a billion dollar a
year subsidy to the multibillion dollar waterborne transportation industry.
•
Ports in the U.S. are a big business. Foreign payments for U.S. port expenses (does not
include Federal dredging) were $4.6 billion in 1979, and the value of marine terminal
facilities is currently in excess of $40 billion.
•
15 percent of intercity tonnage travels on the inland waterway system, while rail, its principal
competitor, carries 35 percent.
233
360-900
0 - 8 2 - 9
•
User fees would assure a source of funding for commercially viable development.
•
Corps of Engineers construction funding in constant dollars is now about half what it was 20
years ago, and declining.
•
Reducing navigation subsidies will create a more efficient and equitable transportation
system.
•
The waterborne transportation industry will still be largely subsidized since it will not have to
pay for the construction of navigation projects already in place, which cost the Federal
Government billions.
Effects of the Proposed Change
•
Traffic on the majority of waterways is projected to continue to grow about the same amount
— more than 50 percent — in this century, with or without Federal user fees. Only a small
number of high-cost/low-volume projects, such as the Kentucky Waterway, may be severely
affected.
•
For the inland system as a whole, user fees would initially amount to about $1.10 per 1000
ton miles. This would be added to the current barge rate of about $8 per 1000 ton miles. In
contrast, the current rail rate is about $25 per 1000 ton miles.
•
The cost of shipping grain from river port to ocean port will increase less than 4 cents per
bushel for most shippers. The increases will range from 1/2 cent to 10 cents per bushel.
•
A 100 percent deep draft user charge would average only about one-half percent of existing
port facility and service charges for break bulk cargoes, one and one-half percent for
containers, and seven percent for coal.
•
Deep draft harbor user fees would not appreciably affect the competitive relationships
between ports, particularly if cost recovery on low tonnage/high cost ports were limited to
125 percent of the national average cost per ton of cargo (currently 23 cents), as the
Administration suggested during Committee consideration of S.1692.
•
With a 23 cent per ton maximum user fee payment in place, port maintenance user fees
would add only 1/10 of one percent to the delivered cost of a ton of Montana grain to a
customer in Japan.
234
Fees for Energy Regulatory Licenses and Services
AGENCY: Federal Energy Regulatory Commission
FUNCTIONAL CODE: 276
Funding
(Sin millions)
1984
1985
1981
1982
1983
1986
1987
PROGRAM LEVEL:
Budget Authority
Outlays
75
69
76
77
93
90
92
90
89
89
87
86
88
87
OFFSETTLNG RECEIPTS:
Current Law
Policy Increase
24
—
25
—
25
35
25
35
25
35
25
33
25
34
PERCENT RECOVERED (BA):
Current Law
Policy Increase
32
—
33
—
27
38
27
38
28
39
29
38
28
39
Program Description
The Federal Energy Regulatory Commission issues permits and licenses and sets rates for sales of
natural gas, operation of oil and natural gas pipelines, development of hydroelectric power, and
interstate sales of electric power.
Fees are now charged for pipeline and hydropower activities.
Proposed Change
•
New or increased fees will be charged to companies making license and other applications to
the Federal Energy Regulatory Commission.
•
Fees will be extended to services such as electric and natural gas rate determinations, not
now subject to fees.
•
For services such as pipeline approvals and hydropower licenses, for which fees are now
being collected, the fees will increase substantially.
Rationale
•
Businesses should pay fees to cover the Commission's cost of processing license and other
applications—just as motorists must pay fees to cover the costs of issuing and maintaining
records for drivers' licenses.
•
In the past, the fees charged have been too low to cover the Commission's cost of providing
the regulatory service.
Effects of the Proposed Change
•
Natural gas producers, pipeline operators and other developers and power companies will
have to pay new or increased fees to cover the cost of Government services.
•
Although some fees may increase substantially, they will be very small compared with the
overall cost to these companies of developing, generating or transporting energy. To
illustrate, the $60 million level of fees estimated for 1983 represents only 0.1 percent of the
$44 billion of 1980 investment for the entire electric and gas utility industries combined.
•
The $60 million in fees will also be very small compared with the total economic value
received by energy consumers. As a measure of that value, 1980 sales revenues in the
electric utility industry were $91 billion and those for gas utilities were $48 billion.
•
Proposed fees cover roughly two-thirds of the cost of the Commission's programs.
235
User Fee for Grievance Arbitration
AGENCIES: Federal Mediation and Conciliation Service (FMCS)
and National Mediation Board (NMB)
Funding
FUNCTIONAL CODE: 505
($ in millions)
1984
1981
1982
1983
PROGRAM LEVEL
Budget Authority
Outlays
31
29
29
29
25
26
24
25
OFFSETTING RECEIPTS
Current Law
Policy Increase
*
—
1
PERCENT RECOVERED (BA)
Current Law
Policy Increase
*
*
—
**
**
—
—
**
5
1985
1986
1987
24
24
24
24
24
24
*
*
*
*
1
1
1
1
**
5
**
5
**
5
**
5
* Less than $500,000.
** Less than 1%.
Program Description
The Federal Mediation and Conciliation Service (FMCS) provides lists of qualified arbitrators to
parties in dispute over interpretation or application of terms of a collective bargaining agreement. In
1981 FMCS issued about 33,200 lists of arbitrators.
The National Mediation Board (NMB), in connection with railroad industry grievances and minor
disputes under collective bargaining agreements, compensates and pays expenses of neutral referees,
appoints neutral referees when the parties do not agree on one, and maintains offices for the National
Railroad Adjustment Board. In 1981 about 7,400 grievance cases were received and about 6,100 were
settled or withdrawn.
Proposed Change
A general provision in the Labor-HHS appropriation bill will be proposed that would enable and
require both FMCS and NMB to charge users of these services a fee equal to the total costs of
Federal services and require parties to pay the costs of the arbitrator or neutral referee beginning in
1983. The FMCS fee will be about $15 per list of arbitrators supplied to the parties. NMB fees for
each party will depend on the volume of cases.
Rationale
•
Since benefits of these services accrue directly and primarily to the parties, it is appropriate
that they incur the costs as well.
•
Except for the railroad industry, parties to these disputes now pay arbitrator or referee
compensation themselves.
•
Current free provision of this government service unfairly and unnecessarily undercuts
private agencies which must charge a fee for similar services. The user fee will reduce this
discrepancy in ,,prices,, between the public and private sectors.
Effects of the Proposed Change
•
This user fee is expected to have very little impact on the conduct of labor-management
relations because of the relatively small charges involved.
236
•
Increased costs of grievance arbitration may lead parties to find less costly and more
productive ways of handling grievances.
•
Requiring parties to pay for these Federal services is expected to slow the rate of increase in
arbitration caseloads.
237
Veterans Housing Loan Guarantee User Fee
AGENCY: Veterans Administration (VA)
Funding
PROGRAM LEVEL
Budget Authority
Outlays
FUNCTIONAL CODE: 704
_
1981
1982
1983
($ in millions)
1984
1985
1986
1987
176
176
190
190
357
357
507
507
254
254
248
248
246
246
OFFSETTING RECEIPTS
Current Law
Policy Increase
—
—
—
—
—
95
—
105
—
110
—
112
—
113
PERCENT RECOVERED (BA)
Current Law
Policy Increase
—
—
—
—
—
27
—
21
—
43
—
45
—
46
Program Description
The Veterans Administration provides guarantees to lending institutions for residential housing loans
made to veterans. The amount covered by the guarantee is 60% of the loan, up to a maximum
guarantee of $27,500. Guarantees are reusable, but the total of all guaranteed amounts may not
exceed $27,500 at any point in time. An average of 330,000 loans are guaranteed each fiscal year.
About 635,000 veterans have used the program since 1944 to purchase successive or additional homes.
Proposed Change
Legislation will be proposed to require the payment of a 0.5% funding fee at the time of settlement
on each loan guaranteed.
Rationale
The user fee will help defray administrative and operating costs of this program without affecting
mortgage interest costs paid by veterans. Since this program provides a benefit to a select group, it is
reasonable to expect that this group bear a portion of the cost of providing the benefit.
Effects of the Proposed Change
The average housing loan that is guaranteed by VA is about $57,000. Each beneficiary would thus be
required to pay a one-time funding fee of around $285. As a result, the administrative and operating
costs associated with the loan guarantee program would be reduced. Benefits would remain available
to veterans seeking housing loan guarantees.
238
MANAGEMENT INITIATIVES
239
CHAPTER 8
MANAGEMENT INITIATIVES
President Reagan has pledged to reduce the intrusion of the Federal government into the affairs of
State and local government and the lives of U.S. citizens. There is now considerable potential for such
intrusion, as the following suggests:
•
Non-defense Federal employment levels have increased at twice the rate of population
growth over the past two decades.
•
Four new Cabinet Departments have been added to the nine that existed in 1965.
•
The ownership of nearly one-third of the Nation's total land keeps many of the potential
benefits of such land out of the economic mainstream.
The President is equally determined that the Federal Government improve the management of those
assets and activities that are properly within the Federal realm and to reduce fraud, waste and abuses.
There is much room for improvement:
•
Fraud and waste in Federal Government programs probably cost the taxpayers billions of
dollars annually.
•
An estimated $33 billion of the $218 billion owed to the Federal Government on September
30, 1981, was either delinquent or in default.
•
Patterns of wasteful spending have been uncovered in production and distribution of
Government periodicals, pamphlets and audiovisual products; with travel by Federal
employees; and in the ineffective and unnecessary use of consulting services.
•
Federal procurement processes, involving more than one-fifth of the budget, are overly
regulated, complex and restrictive of competition.
Reducing Federal Intrusion
The 1983 budget contains initiatives that would reduce the size and projected cost of the Federal
workforce, eliminate organizational units that symbolize and provoke inappropriate extensions of
Federal authority, terminate anti-competitive regulatory programs, and relieve private citizens and
individuals of onerous paperwork and reporting requirements.
•
The number of Federal employees will be systematically and steadily reduced to a target
level in 1984 that is 75,000 workyears below the level projected in the revised 1982 Budget.
— The greatest reductions will be made in domestic agencies with the major regulatory and
oversight social service programs.
— Defense and certain other clearly Federal responsibilities will be exempt or subject to
reductions of lesser proportions.
•
The budget contains the President's plan for the abolition of two Federal departments, each
of which represents a major new extension of Federal authority during the last
Administration:
— The Department of Energy, founded in 1977 on the concept of comprehensive national
energy planning, will be dismantled. Its legitimate activities in weapons development,
long-range, high-risk research, and resource management will be assigned to the
Departments of Commerce and the Interior.
— The Department of Education, established in 1980 as the culmination of two decades of
increasing Federal involvement in the affairs of State, local and private educational
institutions, will be abolished.
•
Several small agencies are also proposed for elimination:
241
— The U.S. Fire Administration, which involves the Federal Government in fire prevention
and protection activities that have been local responsibilities since Benjamin Franklin's
day. The U.S. Fire Academy will be continued, however.
— The Bureau of Alcohol, Tobacco and Firearms, whose activities can be absorbed into
other elements of the Treasury Department.
— The U.S. Metric Board, whose appropriate functions can be better carried out by the
Commerce Department.
— Other agencies, including the Appalachian Regional Commission, the Legal Services
Corporation, and the Water Resources Council, which were first proposed for
elimination in the revised 1982 budget.
As part of the overall effort to reduce Government spending in support of the President's
economic recovery program, the budget anticipates an October 1982 pay increase for Federal
civilian employees of 5% (versus a current services increase of 8%).
The President proposes a major new initiative to increase the sales amount of Federally held
real estate assets:
— A Government-wide review of real property holdings will identify and release for sale
properties not essential to Government functions.
— The Administration will propose the repeal of current laws that mandate property
transfers at less than fair market value.
— The sale of surface rights to selected lands held by the Bureau of Land Management
and the Forest Service will also be accelerated.
— The Administration's goal is to realize $4 billion annually from these initiatives by 1984,
and to promote the most economic use of lands.
Acceleration of leasing of Outer Continental Shelf (OCS) tracts that have promise of
containing oil and gas.
The President also proposes to eliminate or reduce a number of regulatory activities that
involve the Federal Government in planning or controlling economic behavior that is more
efficiently determined by the free market. For example:
— The budget of the Federal Trade Commission will be reduced by 14% from the 1981
level, requiring the Commission to eliminate low-priority and redundant initiatives that
impose unnecessary constraints on the private sector.
— A two-year phase-out is proposed of the two Federal programs that support a
complicated and ineffective array of health planning and regulatory institutions.
Competition among health care providers will control health costs better.
Other initiatives will also lessen the taxpayer's burden in supporting the Federal workforce.
The overhead administrative staff of the Bureau of Indian Affairs, for instance, will be cut
back to levels that will permit more efficient service delivery.
A concerted, Government-wide initiative will be expanded to place strict and enforceable
limits on the freedom of Federal agencies to impose paperwork burdens on American
citizens — an effort that has already produced impressive results. This will reduce Federal
costs involved in collecting marginally useful information and, even more importantly, will
relieve State and local governments and private institutions and individuals of the costs of
millions of hours devoted to filling out Federal forms.
FHA-insured home buyers will be charged for insurance premiums in a manner which is
more consistent with private insurance market practices. Instead of paying a premium equal
to l/24th of 1% of the outstanding mortgage balance every month, each FHA-insured home
buyer will make a one time payment at time of settlement.
242
Fraud, Waste and Abuse
President Reagan has launched a major effort to fulfill his pledge to the American people to do
something about fraud, waste, and mismanagement in Government programs. These efforts are
designed to eliminate unnecessary expenditures, collect all debts owed, assure that every dollar
collected by the Government is put to a proper and productive use, and restore confidence in the
governmental process.
•
President Reagan's anti-fraud efforts have already had a significant effect on the way the
Federal Government conducts its business. Over $2 billion has been either recovered or
represents expenditures that have been avoided during the latest reporting period covering
April through September 1981.
•
The President's Council on Integrity and Efficiency was established to coordinate the fraud
and waste effort and the Inspector General program. This group of the Government's top
investigators, auditors, and management experts has activities underway in dozens of
important areas, such as:
— expanding the use of computer matching techniques to prevent losses in Federal grant
and benefit programs;
— uncovering cases of fraud by providers of medical care in programs like Medicaid and
Medicare; and
— developing effective internal controls over the use of Government property, travel by
Federal employees, the use of consultants, and the production of government
publications and audiovisual materials.
•
The President's Council on Integrity and Efficiency and the Inspectors General will continue
to focus the efforts of approximately 6,000 auditors and investigators on improving the
operation of the Government's programs. Special emphasis will be placed on eliminating
fraud and waste in Federal entitlement, construction, and housing programs.
Additional Management Initiatives
Several other initiatives are designed to secure additional value from current resources and assets held
by the Government, building upon measures already underway:
•
Reductions in operating expenses common to all Federal agencies:
— Actions to reduce the cost of travel by Federal employees, with projected savings of
about $35 million in airfare discounts for the year ending June 1982 and an objective of
annual savings of $200 million through the aggressive pursuit of airfare and other
discounts, elimination of unnecessary travel, and reduction of the administrative expense
of managing government travel.
— Elimination of audio-visual products and publications by Federal agencies will have
saved over $20 million through 1982. On-going reviews of every periodical and
pamphlet should produce additional savings in 1983.
— Reduction in the use of consultants in Federal agencies.
•
Improved collection of debts owed the Federal Government also is a key element of the
President's economic program and his philosophy of government.
Goals have been
established and responsiblities assigned by agency to collect as much as $4 billion of
delinquent debts each year. The Administration has asked the Congress to enact legislation
needed to eliminate disincentives in the Government's debt collection process; to make
available essential tools and techniques used effectively in the private sector; and to provide
for better control over the way the Government extends and services credit and collects
debts.
•
The Administration is committed to far reaching and fundamental reforms in the Federal
procurement process. Federal procurement is a $130 billion-a-year business involving
one-fifth of the Federal budget, more than 130,000 Federal employees and over 17 million
contracting actions a year. Proposed reforms include:
243
— New concepts of competition that will permit the Government to attract the innovation
and skills of the marketplace.
— Increased emphasis on the need for a skilled and knowledgeable workforce of career
professionals to operate and oversee the Government's procurement programs.
— Simplification of contracting procedures by means of a single, Government-wide
procurement regulation.
— Elimination of complexity by standardizing and streamlining the clauses used in
Government solicitations and contracts; increased emphasis on using commercial
practices for buying commercial products; and simplifying small purchase procedures.
244
REDUCING FEDERAL 1NTR USION
245
Reducing Federal Employment
Executive Branch
Total Full-Time Equivalent Employment
(Excluding the Postal Service)
(in thousands)
TOTAL
Defense
Non-Defense
1981
estimate
1982
Revised
Budget
2,110.7
947.0
1,163.7
2,100.8
937.7
1,163.1
1982
current
2,080.3
945.2
1,135.1
1983
estimate
2,053.7
947.3
1,106.4
1984
estimate
2,035.1
947.0
1.088.1
Federal Employment in 1981
In 1981, the Executive Branch (excluding the Postal Service) employed the full-time equivalent of
2,110,700 civilian employees in 13 cabinet level departments and 94 agencies. Of these, 947,000 were
in the Department of Defense.
Proposed Reductions
The Reagan Administration has taken a series of actions to reduce Federal employment. These
actions complement the program reductions, the block grants, the devolution of Federal activities to
State and local levels, and the regulatory relief program.
•
On January 20, 1981, his inauguration day, President Reagan placed a freeze on Federal
hiring.
•
In March 1981, new and lower employment targets for 1981 and 1982 were established as a
part of the Reagan Administration's revised 1982 Budget.
•
On September 24, 1981, the President announced a further 75,000 reduction goal for the
nondefense Federal workforce between the revised budget for 1982 and 1984. This required
an 8-10% reduction in personnel in nearly all Federal agencies (except the Department of
Defense), including the Executive Office of the President. Less stringent reductions or
exemptions were provided for the State Department, Veterans Administration medical care,
tax collection, and law enforcement activities such as the Federal Bureau of Investigation.
Rationale
Federal civilian employment in the Executive Branch reflects the increased emphasis that the Congress
and previous Administrations have placed on programs in the nondefense sector. Total Federal
employment increased only moderately between 1960 and 1980. Defense employment decreased by 8%
but nondefense employment increased from 760,800 to 1,200,800, (or 58%), over the same period,
more than twice the 26% increase in the U.S. population.
During this same period, employment increased in:
•
The Labor Department by 230%.
•
Health, education and welfare activities by 164%.
•
The Justice Department by 82%.
•
The Treasury Department by 64%.
•
The Department of Housing and Urban Development (formerly the Housing and Home
Finance Agency) by 53%.
•
The General Services Administration by 33%.
•
The Veterans Administration by 32%.
The primary reason for these increases were new programs and program expansions enacted by the
Congress and supported by previous Administrations. The mandate the people gave to President
Reagan in November of 1980 was to reduce the size of the Federal Government.
247
Effects of the Proposed Change
•
97% or 72,500 of the 75,000 full-time equivalent (workyear) reduction goal for the period
1982-1984 has been allocated to the departments and agencies. This will result in annual
savings of $2.1 billion once the reductions are fully effective in 1985.
If an increase of 9,300 full-time equivalents (workyears) required for Veterans
Administration medical care is excluded, the remaining nondefense agencies are reduced by
81,800.
•
Agencies have been encouraged to make the reductions in the programs in which excessive
growth has occurred and in peripheral activities, e.g., public affairs, publications, audio-visual
productions, and other overhead activities.
•
The following are examples of specific reductions.
— The Department of Agriculture (-12,100) — Programmatic reductions and increased
efficiencies are planned in: the Forest Service (about one-half of the total reduction);
the Animal and Plant Health Inspection Service; the Farmers Home Administration; the
Soil Conservation Service; and in Science and Education Programs.
— The Department of Commerce (-7,300) — A net decrease will result from completion of
the Decennial, Economic and Agricultural Censuses, the termination of the Economic
Development Administration, and the phasedown or elimination of National Oceanic
and Atmospheric Administration weather and marine related activities. Additional
reductions are associated with energy functions transferred to the department.
— The Department of Health and Human Services (-16,800) — The Department will
reduce employment by: converting categorical grants to block grants for health, social
and community services programs; decreasing regulatory requirements for health and
social services programs and eliminating overhead functions, closing (or returning to
community control) Public Health Service Hospitals; contracting out services to be
performed by the private sector where it is cost effective under OMB Circular No.
A-76; and eliminating excessive overhead functions.
— The Department of Housing and Urban Development (-1,600) — This decrease is due
to reductions in departmental decisionmaking and oversight in favor of State and local
discretion in those programs that directly affect them.
— The Department of the Interior (-8,100) — Declining staff levels will be achieved
through reductions in overhead (particularly in the Bureau of Indian Affairs), closing
some facilities, streamlining regulatory processes, and use of less labor intensive methods
of natural resource management.
— The Department of Labor (-3,200) — Some reductions will occur in virtually all
activities, reflecting both reductions in less essential programs and increased operating
efficiencies.
Major reductions will occur in the Employment and Training
Administration and in the Mine Safety and Health Administration.
— The Treasury Department (-2,200). Reductions will occur in selected activities with
staffing held relatively constant in direct law enforcement and revenue collection
functions. Decreases will be achieved through streamlining of current operations,
increased efficiencies, and a major reorganization and termination of the Bureau of
Alcohol, Tobacco and Firearms as a separate entity.
•
The following table shows the estimated workyear changes by major agency from the 1982
estimates in the revised (March) 1982 Budget to 1984.
248
FULL-TIME EQUIVALENT OF TOTAL FEDERAL CIVILIAN EMPLOYMENT
IN THE EXECUTIVE BRANCH 1/
(Excluding the Postal Service)
Fiscal Year
1981
estimate 2/
Agriculture
4757
Commerce
Defense-civil functions
Health and Human Services67
Housing and Urban
Development
Interior 5767
Justice 5 7 6 7
Labor
State
Transportation47
2/
3/
4/
5/
6/
7/
8/
1982
current
1983
estimate
1984
estimate
117,300
121,000
117,000
111,000
108,900
52,600
34,400
148,400
45,500
32,300
154,400
45,600
32,300
147,600
40,500
30,700
38,200
29,100
141,400
137,600
16,100
15,700
14,900
14,400
14,100
85,900
87,400
85,000
81,600
79,300
56,900
22,600
23,400
55,100
21,600
22,900
55,800
18,600
23,300
61,900
54,400
18,400
23,500
62,500
58.800
69,300
56,400
19,200
23,000
60,100
123,900
124,400
122,200
123,000
122,200
12,700
12,900
12,200
10,500
10,500
22,600
214,100
22,700
209,600
22,500
215,900
22,000
216,800
22,000
218,900
Assistance 6 7
General Services Administration
International Communication
6.200
34,000
5,300
32,800
5,400
32,300
4,800
31,000
4,800
29,500
Agency 6 7
International Development
Cooperation Agency
Nuclear Regulatory Commission
Office of Personnel Management
Panama Canal Commission
Small Business Administration
Tennessee Valley Authority
Other civilian agencies 5 7 6 7
Undistributed Reduction
Subtotal
Defense-military functions 6 7 ^ 7
Subtotal
Contingencies
Total
7,900
7,600
7,900
7,900
7,900
5,800
3.400
7,200
8.900
5,000
50.100
45,500
5,800
3,400
6,600
9,100
4,700
44,800
47,200
5,700
3,400
6,400
9,000
4,500
42,500
43,100
5,600
3,400
5,900
9,000
4,200
41,400
5.400
3,300
5,800
9,000
4,100
40,300
40,700
Treasury 6 7
Environmental Protection
Agency
National Aeronautics and
Space Administration
Veterans Administration
Other:
Foundation for Education
1/
1982
Revised
Budget 3/
1,163,700
1.162,100
1,134,100
1,105,400
39,900
-2.500
1„087,100
947.000
2,110,700
937.700
2,099,800
1.000
2,100,800
945.200
2,079,300
1.000
2,080,300
947,300
2,052,700
1.000
2,053,700
947,000
2,034,100
1.000
2,035,100
—
2,110,700
Excludes developmental positions under the worker-trainee opportunity program (WTOP) as well as certain statutory
exemptions.
Data are on an estimated basis, because most Executive Branch agencies were not reporting full-time equivalent (FTE)
information prior to October 1981.
As contained in the Revised 1982 Budget, transmitted to the Congress in March 1981.
Reflects the transfer, during 1981, of the Maritime Administration from the Department of Commerce to the
Department of Transportation.
The budget proposes dismantlement of the Department of Energy (DOE), effective October 1, 1982. Employment
data for activities previously performed by DOE are included in the agencies that are proposed to assume these
activities.
The budget proposes dismantlement of the Department of Education (DEd), effective October 1, 1982. Employment
data for activities previously performed by DEd are included in the agencies that are proposed to assume these
responsibilities.
Section 904 of the 1982 Defense Authorization Act (Public Law 97-86) exempts the Department of Defense from
full-time equivalent controls.
Subject to later distribution.
249
Dismantling the Department of Educaoitn
AGENCY: Department of Commerce, Interior
and Others
FUNCTIONAL CODE: 270, 250, 050
Funding
($ in millions)
1981
1982
1983
1984
1985
1986
1987
Savings From
Current Services
1982
1983
BUDGET AUTHORITY*
Energy?
General Science
Defense
11,203
7,048
504
3,651
11,511
6,309
529
4,673
10,224
4,117
601
5,506
11,350
4,338
629
6,383
12,222
4,588
652
6,982
13,723
5,529
674
7,520
13,061
4,442
695
7,924
195
195
0
(0)
768
1,334
-37
-529
OUTLAYS*
11,631
11,668
10,572
10,556
11.111
13,085
12,996
20
834
EMPLOYMENT (FTE)
19,330
18,375
14,541
14,278
N/A
N/A
N/A
N/A
N/A
*
Includes in 1982 through 1987 off-budget funds for the purchase of oil for the strategic petroleum reserve as follows:
BUDGET AUTHORITY
OUTLAYS
Full time equivalent work years
—
—
3,684
2,834
2,074
2,774
1,935
2,297
2,440
2,196
3,299
3,546
2,197
2,818
Program Description
The existing Department of Energy is an agglomeration of activities that support:
•
Various energy programs related to nuclear and non-nuclear research and development,
energy production and conservation, emergency preparedness (including the Strategic
Petroleum Reserve) and policy planning and information;
•
Fundamental general science programs, primarily in high energy and nuclear physics; and
•
Nuclear defense programs, primarily weapons research and development and production.
Proposed Change
•
The dismanding proposal fulfills the President's commitment to abolish the Department of
Energy.
•
Elements of the Energy Department are proposed for transfer to other agencies:
— Energy-related programs will be transferred principally to the Department of Commerce
(e.g., energy research, emergency preparedness, and. policy planning and information)
and to the Department of the Interior (e.g., leasing policy, oil and gas production, oil
storage, electric power marketing and transmission).
— General science and defense programs will also be transferred to the Department of
Commerce.
— Within the Department of Commerce, a new Energy Research and Technology
Adminstration will be proposed to manage the energy research, general science and
nuclear weapons programs and to maintain the synergistic relationship among these
programs.
— Continuing energy regulatory functions (e.g., interstate electric rate setting, pipeline and
hydropower dam permitting) will be located in a separate and independent Federal
Energy Regulatory Commission while remaining petroleum regulatory enforcement
activities will be transferred to the Justice Department for completion and phaseout.
250
•
In conjunction with the dismantling action, the Administration is reducing or phasing out
programs that have subsidized industry and substituted for appropriate private sector
investment and have thus inhibited or distorted energy producer and user behavior in the
marketplace. These programs principally include:
— Near term R&D and demonstrations to accelerate the introduction of new technologies
into the marketplace, and
— Energy conservation grants to State and local governments.
•
The Administration is also proposing to continue to finance off budget the oil purchases for
the Strategic Petroleum Reserve as directed by the Congress in the Omnibus Budget
Reconciliation Act of 1981.
Rationale
•
The Nation's energy problems will be resolved primarily by the American people, not by the
government. The marketplace is the proper regulator of behavior by energy producers and
consumers.
•
The existence of the Department of Energy has sent the wrong signals to energy producers
and consumers, deluding them into a sense of complacency and dependence upon central
planning rather than encouraging aggressive, efficient economic behavior based upon realistic
prices and clear tests of profitability.
•
Instead of improving the nation's energy situation, Federal Government programs which
were developed over the last decade actually reduced our ability to respond effectively to the
energy supply disruptions and rapid price increases that occurred. Government controls, for
example, contributed directly to creating the long gasoline lines in 1974 and in 1979.
•
Therefore the Administration is proposing to abolish the Department of Energy and
eliminate all unnecessary subsidy programs and burdensome regulatory activities.
•
Those programs and activities that are appropriately a Federal responsibility are being
retained and placed in departments and agencies that can most effectively administer them.
Effects of the Proposed Change
•
Actions taken to reduce or eliminate Energy Department activities, together with the
dismantling, will produce in 1983, estimated budget authority savings of $1.3 billion and
employment reductions of 3,800 workyears from present estimates of 1982 levels.
•
After reaching a low ($4.1 billion) in 1983, energy program funding increases in 1984 and
beyond reflect largely die buildup of nuclear related projects now committed, the Strategic
Petroleum Reserve, and energy production and distribution activities.
•
The rising budgets for defense and general science programs in 1983 and beyond are
consistent with Administration priorities for the Nation's security and future progress.
•
Creation of an Energy Research and Technology Administration as a separate organization in
the Commerce Department will allow for a better focused, more specialized management of
the high technology weapons, science and energy programs than was possible in the
Department of Energy with its broader and more diverse responsibilities.
•
The Department of Commerce is also well suited to manage (1) energy information activities,
in view of its current statistical functions; (2) remaining elements of domestic and
international energy policy, in view of its role in economic and international trade policy;
and (3) emergency preparedness planning and response, in view of its knowledge of and
continuing contacts among businesses and State and local governments as well as foreign
governments.
251
The expertise of the Department of Interior in resource management will enhance the quality
of executive direction for the Strategic Petroleum Reserve, the Naval Petroleum and Oil
Shale Reserves, and the Power Marketing Administrations. Off-budget financing for
Strategic Petroleum Reserve oil acquisition will assure continuity of funding to maintain a
rapid build-up of oil stocks.
Establishing the Federal Energy Regulatory Commission as a separate agency recognizes its
regulatory independence as intended by the Congress as well as strengthens the
Commission's ability to make management improvements relevant to its unique
responsibilities.
The Justice Department, with its expertise in litigation, is the appropriate location for
cleanup and phaseout activities (largely litigation) of the petroleum regulatory regime
terminated by the President in January 1981.
252
Dismantling the Department of Education
AGENCY: Foundation for Education Assistance*
FUNCTIONAL CODES: 500,501,502,503,506,751
Funding**
($ in millions)
1982
1983
1984
1985
1986
1987
11,233
13.364
5,386
8,765
11,401
4,828
7,795
8,901
4,828
7,778
7,903
4,828
7,280
7,416
4,828
6,800
7,921
4,828
1981
BUDGET AUTHORITY
OUTLAYS
EMPLOYMENT (FTE)
12,918
13,063
6,165
Current Services
1982
1983
1,351
337
NA
4,769
1,778
NA
•Includes activities formerly included in the Department of Education.
••Reflects the Foundation as it would be with enactment of the Administration's proposals.
Program Description
The Department of Education has provided assistance to local and State education agencies, higher
educational institutions, other nonprofit groups and institutions and individuals. It has supported:
•
Compensatory education programs for disadvantaged students, Indians, the handicapped, and
children whose primary language is other than English;
•
Direct grants to school districts whose property tax bases are adversely affected by the
presence of Federal facilities;
•
Rehabilitation programs to assist physically and mentally handicapped individuals to become
gainfully employed or to live independently;
•
Vocational and adult education programs;
•
Assistance in the form of grants, loans, and work study to help students and their families
meet the cost of postsecondary education;
•
Special programs to assist economically disadvantaged students to enter, continue, and/or
resume postsecondary education as well as assistance to developing colleges, such as
historically black colleges; and
•
Statistical information and research programs aimed at increasing knowledge of how students
learn, data gathering and disseminating of information about educational research and
successful educational practices.
Proposed Change
The principal elements of the proposal are:
•
The Department of Education will be abolished;
•
A Foundation for Education Assistance will be established;
— The Foundation will be headed by a Director, appointed by the President; and
— The Foundation will assume responsibility for block grants and consolidated aid for
State and local educational agencies; student loans and grants; support for compensatory
and equal educational opportunity programs; and a core of informational, statistical, and
research services for education;
•
Activities not directly related to education support functions will be allocated, as appropriate,
to other agencies.
253
In conjunction with the dismantling action, the Administration is terminating programs which either
have achieved their objectives or which are more appropriately the responsibilities of States, local
governments, or private institutions. These programs include:
•
Higher education graduate fellowships, where financing can be provided through institutions
or private assistance, or from student resources;
•
Library support programs, which are the responsibility of State and local governments or of
colleges and universities;
•
Veterans cost of instruction, covering expenses that institutions can meet through tuition and
fees;
•
Aid to land grant colleges, which subsidizes regular operating expenses covered by tuition
and fees;
•
College assistance for migrants, who are eligible for other forms of student aid; and
•
Cooperative education, which institutions should arrange with business and industry where it
serves their needs.
Rationale
•
The primary responsibility for education belongs to parents, States, and localities. A
Cabinet-level Department of Education symbolizes the preemption of appropriate State and
local activities.
•
Federal intervention in education has been intrusive, has imposed unnecessary administrative
and regulatory burdens on education agencies, and is supported by too large a bureaucracy
for the limited role the Federal Government should play.
•
Federal dollars have distorted State and local, and private education policies by mandating
priorities for local officials, and by taking many decisions about what and how to teach out
of the hands of local boards, teachers, parents, and administrators.
Effects of the Proposed Change
•
Actions taken to reduce, consolidate, or eliminate programs, the transfer of certain programs
to other agencies, and the replacement of the Department of Education with the Foundation
will result in savings of 1,411 workyears from the 1981 level for the Department of
Education to the 1983 budget request (with annual savings of $56 million). 644 staff are
transferred with programs to other Federal agencies.
•
The Foundation's organizational structure will be trim and efficient. Ninety-six existing
Federal programs will be consolidated to 38 programs. Regional representation activities will
be abolished. Eleven unnecessary Federal boards and commissions will be repealed.
Twenty-three Federal education programs will be terminated.
•
Twenty-eight Federal programs will be transferred to other Federal agencies where they can
be more efficiently operated.
— Rehabilitation programs for the disabled will be transferred to the Department of Health
and Human Services where they will be coordinated with similar programs.
— The special programs for Gallaudet College, the American Printing House for the Blind,
and the National Technical Institute for the Deaf will be transferred to the Department
of Health and Human Services and will be coordinated with other programs serving the
disabled.
— Indian Education programs and Impact Aid construction on Indian lands will be
transferred to the Department of the Interior to improve the coordination of programs
serving Indians.
254
— International education programs will be transferred to the International
Communications Agency to be coordinated with the Agency's other bi-national
programs.
— Department of Defense Overseas Schools will remain in the Department of Defense,
rather than be transferred to the Department of Education as scheduled. This will avoid
a myriad of logistical and accountability problems.
— Impact Aid maintenance and operations programs will be transferred to the Department
of the. Treasury. Treasury will make payments based on a formula for Federal aid in
lieu of taxes in much the same way as it administers general revenue sharing.
— The enforcement responsibilities of the Office for Civil Rights will be transferred to the
Justice Department where, should Foundation efforts to achieve voluntary compliance
fail, strong litigative actions to enforce civil rights laws that affect education will be
pursued.
— College Housing subsidy and construction programs will be transferred to the Treasury
Department. There is no new assistance available under these programs. The
Department of the Treasury is better able to manage the Federal payments associated
with long term loans made in prior years.
— The Minority Institutions Science Improvement Program will be transferred to the
National Science Foundation where it will be administered in conjunction with other
science support activities and where it can be evaluated by persons with technical and
scientific knowledge.
•
Resources for programs transferred to other agencies (excluded from table above) are:
($ in millions)
BUDGET AUTHORITY
OUTLAYS
EMPLOYMENT (FTE).
1981
1982
1983
1984
1985
1986
1987
1,957
2,028
718
1,590
1,774
681
1,154
1,336
644
1,139
1,092
644
1.139
1,075
644
1,138
1,063
644
1.137
1,062
644
255
Savings From
Current Services
1982
1983
104
80
NA
608
489
NA
Market Value Sale of Excess Real Property
AGENCY: General Services Administration
FUNCTIONAL CODE: 804
Funding
RECEIPTS
1981
1982
1983
60*
60*
250
($ in millions)
1984
1985
249
111
1986
1987
111
111
•Average level of receipts.
Program Description
The Office of Real Property Disposition manages disposal of real property. Excess real property
refers to land and buildings no longer required to meet the operational needs of Federal land holding
agencies. Property is disposed of in three ways:
—
Discounted transfer to other Federal agencies.
—
No-cost conveyances to State/local governments for public benefit purposes e.g. health,
education, recreation.
—
Negotiated and competitive sales to the public.
Less than 30% of the excess real property handled by GSA is disposed of through negotiated or
competitive sale. Thus, the Federal Government would generate less than one third of the cash
receipts possible if all properties excessed under current practices were sold at market value.
Proposed Change
The Administration proposes to eliminate all discounted transfers to other Federal agencies and all
no-cost conveyances to State and local governments. Federal agencies would be required to pay 100%
of fair market value. State and local governments would be permitted first right of refusal but would
also be required to pay full market price. The only exception would be no-cost property conveyances
to State and local governments for use as correctional facilities. This exception is being made because
of the President's strong commitment to assist States and localities in upgrading their criminal justice
systems.
This fact sheet deals only with the effects of eliminating transfers below market value under current
laws and procedures for excessing unneeded properties. The Administration is proposing other
changes in Federal property management explained under "Real Property Management Program."
Rationale
This proposed change would ensure that the Federal Government would receive full compensation for
disposal of real property assets. Requiring Federal agencies to seek appropriations for acquisition of
property will improve asset management and expose acquisitions to budgetary review.
Eliminating no-cost conveyances to State and local governments would ensure efficient utilization of
property. Some properties donated to State/locals have never been put to the intended public benefit
use and the lack of effective reversion remedies in such cases has resulted in permanent losses to the
Federal Government. This proposal would introduce price consciousness on the part of the recipients
resulting in purchases being made only when needed. GAO and GSA have documented a number of
cases in which donated Federal property has been underutilized or has been used for a purpose other
than public benefit. For example, D.Q. University in Davis, California received a valuable parcel of
land intended for educational purposes. That property has never been utilized for the intended
purpose and although the University's non-compliance has been well documented by a number of
Federal agencies, attempts to revert the land to Federal ownership have been unsuccessful.
256
The proposed change is also intended to increase receipts to the Treasury. Conservative estimates of
the economic benefits are that sales proceeds will more than triple. Frequently, the most valuable
excess properties are donated or transferred on a cost-free basis. Recently, a high value parcel
consisting of 45 acres of land and 49 buildings was donated to the City of Los Angeles. If sold at
competitive prices, this property could have yielded a minimum of $15 million to the Treasury. This
is just one of many instances in which the Federal Government has forfeited the opportunity to
increase cash receipts.
Effects of the Proposed Change
•
The dollar value of sales of real property will increase considerably, resulting in greater cash
receipts to the Treasury.
•
Federal agencies will acquire properties excessed by other agencies only when they need
these properties.
•
Waste and misuse of excessed Federal property will be reduced.
•
Highest and best use of property by purchasers will be ensured.
•
Properties sold to the private sector will enhance the tax base of the community.
•
As a result of this proposal, an increase in 1983 receipts is estimated to be $190 million.
•
Increases in receipts from an active Federal property management program are expected to
be much greater than those identified here. The fact sheet on the proposed Real Property
Management Program explains the program and its expected results.
257
Real Property Management
AGENCY: General Services Administration
Department of the Interior
Department of Agriculture
Funding
FUNCTIONAL CODE: 954
_
1981
1982
($ in millions)
1984
1985
1983
CURRENT LAW
—
_
_
RECEIPTS
—
—
1,000
_
_
4,000
_
4,000
1986
_
1987
__
4,000
4,000
Program Description
The General Services Administration manages about 36 million acres of land. This land is primarily
developed property utilized by Federal agencies to carry out program missions. GSA disposes of
Federal property which is declared by the holding agencies as excess to their program needs.
Historically, GSA has disposed of excess property in one of three ways:
•
Free transfer to other Federal agencies.
•
Donation to State/local government for public benefit use.
•
Negotiated and competitive sales.
The Departments of the Interior and Agriculture manage 650 million acres of Federal land, much of
which is undeveloped. About 500 million acres of this property is managed by Interior's Bureau of
Land Management (BLM) and Agriculture's Forest Service (USFS). BLM has responsibility for
subsurface mineral rights and for mineral leasing on all Federal lands. Under limited authority the
departments dispose of Federal property by:
•
below market value sales and transfers to State and local governments;
•
trading parcels with State and local governments or private owners to block together more
efficiently managed contiguous tracts; and
•
in the case of BLM, limited sales to the public
Additionally, the Army Corps of Engineers and Interior's Bureau of Reclamation manage lands
contiguous to many of their water resource facilities which are not needed for the day-to-day
operation of the facilities. With very few exceptions these lands have traditionally been retained and
managed by the agencies.
Proposed Change
•
The Administration proposes to undertake a concerted program to improve Federal asset
management and to dispose of unneeded Federal property.
•
Properties to be identified for disposal include:
— Assets excess to the needs of Federal agencies holding them;
— Property of significantly higher value in private rather than in public use;
— Public lands that cannot be efficiently managed due to the small size and location of the
parcels;
— Public lands in urban or suburban areas that hinder local economic development; and
258
— Lands acquired during the development of water resource facilities but no longer
necessary to the day-to-day operation of those facilities.
•
A White House/Cabinet-level Real Property Review Board will be established to ensure
maximum coordination of the effort. This Board will perform the following functions:
— Develop and monitor policies for acquisition, utilization, and disposal of Federal assets.
— Establish practices that create economic incentives/disincentives causing agencies to
manage property assets efficiendy.
— Actively identify high value property that is not being put to highest and best use.
— Coordinate a selective appraisal of Federal property holdings.
— Mediate disputes that may arise regarding property identified for disposal or conditions
applying to the property to be conveyed.
•
The Administration's initiatives for 1983 call for discontinuing free transfers to Federal
agencies and phasing out discounted and no-cost conveyances to State/local governments.
Sales of real property will be at full market value.
•
This proposal does not affect lands that are essential to protect for their unique
characteristics and national values in areas such as national parks, monuments, historic sites,
refuges, or wilderness areas. It also does not include lands set aside to be conveyed to the
States, Indian tribes, or Alaskan Natives.
Rationale
•
This proposed initiative will enhance the Federal Government's overall management of
property assets. There is currently no government-wide mechanism for policy development
or coordinated management of property acquisition, utilization or disposal. Additionally,
there are no economic incentives in place to encourage agencies to manage property assets
efficiently.
•
In the case of Agriculture and Interior holdings, some lands should be in other ownership to
permit optimum use.
— Some of the acreage in Federal ownership is located in or near urban areas. It is of no
particular use to the Federal Government, yet limits community growth and takes
property away from its best potential uses.
— Some other Federal lands consist of widely scattered, small parcels which cannot be
efficiendy managed.
— Other parcels may have potential for higher and better uses in private ownership, such
as for raising crops or timber.
•
Some of the lands managed by the Corps of Engineers and Bureau of Reclamation may have
been purchased because they were needed during a construction effort or to round out parcel
purchases from previous owners. These lands and others may not be needed for the efficient
operation of the project, yet may have high value for private development.
Effects of the Proposed Change
•
Sale of selected Federal properties will:
— Reduce Federal property management costs,
— Increase Federal receipts,
— Make property assets available for local economic development and homesites, and
— Increase the local tax base.
259
Federal agencies will improve management of real property assets by having incentives to
dispose of unneeded assets or those not being used economically.
Highest and best use of property holdings will be promoted.
Receipts of GSA managed property from sales are expected to total $1 billion in 1983.
Receipts from a combination of the sale of GSA managed property and from sale of land
held by Departments of the Interior, Agriculture, and Army Corps of Engineers are expected
to total $4 billion annually beginning in 1984..
Less than 5% of total Federal land will be sold over the 5 year period, but that will include
parcels most important to local development.
Sale of public lands is not expected to decrease Federal mineral leasing activities, the
revenues from which are shared with the States.
260
FTC Deregulation Efforts
FUNCTIONAL CODE: 376
AGENCY: Federal Trade Commission
Funding
1982
BUDGET AUTHORITY
70.8
68.8
60.8
55.1
54.6
54.2
54.2
OUTLAYS
70.1
68.1
61.0
54.0
53.5
53.0
53.0
1,671
1,455
1,310
1,199
1,199
1,199
1,199
FEE
1983
(Hours in millions)
1984
1985
1981
1986
1987
Program Description
The Federal Trade Commission (FTC) is an independent regulatory agency with three primary
missions: enhancing competition, protecting consumers, and performing economic analysis. The
Bureau of Competition shares responsibility with the Justice Department's Antitrust Division in the
enforcement of antitrust statutes. The FTC also seeks to protect the marketplace from deceptive
practices.
Proposed Change
The proposed reduction reflects the FTC's intent to refocus, retarget and pursue the objectives set
forth in antitrust and consumer protection statutes. The 1983 budget and employment would be
reduced by 14% from 1981 actual levels in the competition, consumer protection and economic
analysis missions.
Rationale
By imposing fiscal restraints and reduced staffing levels, the reductions will contribute to President
Reagan's continued effort to reduce Government spending and to remove unnecessary regulatory
burdens on the private sector.
Effects of the Proposed Change
As a result of the proposed funding and staff reduction, the FTC will:
•
Reduce reporting and regulatory burdens on business. The reporting burden hours on
business will be reduced by approximately 15% in calendar year 1982.
•
Impose a moratorium on the collection of new data under the Line of Business program in
order to analyze information already collected and to determine whether the program should
be continued.
•
Place greater reliance on preliminary economic analysis in carrying out FTC's enforcement of
the antitrust laws.
•
Emphasize horizontal mergers and price-fixing cases that could clearly lead to a lessening of
competition and undermine competitive markets and consumers' welfare.
•
Modify or eliminate regulations that have increased costs to consumers without providing
commensurate benefits.
•
Focus its interventions before regulatory agencies to reduce regulatory burdens and enhance
competition in the private sector.
•
Eliminate resources for public intervenor funding, a program that finances interest groups to
participate in administrative and judicial legal proceedings.
261
Close several regional offices in order to consolidate resources and improve the efficiency of
operations.
Reassess the advertising substantiation program; consolidate food and drug advertising into
one program; monitor food and over-die-counter drug advertising; and continue to police
false and deceptive advertising.
Analyze special needs, and problems of small business.
262
Health Planning
FUNCTIONAL CODE: 551
AGENCY: Department of Health and Human Services
Funding
BUDGET AUTHORITY
OUTLAYS
($ in millions)
1981
1982
1983
1984
1985
1986
1987
127
159
64
116
2
67
0
17
0
0
0
7
4
3
Savings From
Current Services
1982
1983
67
20
Program Description
The health planning program provides support, primarily through formula grants, for 186 local health
systems agencies (HSAs) and 57 State health planning and development agencies (SHPDAs). The
program has a dual charge to assure equal access to quality medical care and to control costs. In
1981, the Federal Government provided 90% of HSA funds and 75% of SHPDA funds.
Proposed Change
The Federal health planning program is proposed for phase-out over the 1981-1983 period, consistent
with a 2-year Administration timetable to develop and carry out health financing reforms that
encourage competition in the health sector. The Congress has accepted, in the 1982 Budget levels for
health planning, the first phase of the Administration's proposed funding reductions.
Rationale
•
As part of the general effort to restrain health care costs by stimulating competition in the
health care industry, the Administration proposes phasing out the Federal health planning
program. This program represents an effort to impose a complex national health regulatory
program on States and localities. Moreover, it has not proven effective in controlling costs
on a national basis, and it inhibits market forces needed to strengthen competition and
provide less costly services.
•
If competitive forces are to restrain costs, free entry into health care markets is essential.
Otherwise, high-cost providers can monopolize health care markets. The certificate-of-need
review process, conducted under the health planning program, is a system whereby hospitals
and other institutional providers must receive a Government franchise and government
approval before beginning operations. This system inhibits free market entry, often propping
up high-cost institutions behind a Government-created entry barrier. Elimination of this
franchising system is a necessary element in the Administration's efforts to promote the
effective functioning of private market forces in the health care sector.
Effects of the Proposed Change
•
The elimination of the health planning/regulation program, in conjunction with other health
financing and regulatory reforms, is expected to enhance competition, reduce costs and
improve access to health services.
•
If States or local entities believe individual planning agencies to be worthwhile, they can
provide continued support, as warranted, from their revenues.
263
Professional Standards Review Organizations
AGENCY: Department of Health and Human Services
FUNCTIONAL CODE: 371
Funding
($ in millions)
1981
1982
145
156
24
92
OBLIGATIONS
OUTLAYS
1983
1984
1985
1986
1987
Savings From
Current Services
1982
1983
48
17
78
76
Program Description
The Professional Standards Review Organization (PSRO) program provides funding for
physician-sponsored organizations to review the quality and appropriateness of medical care provided
to certain Federal beneficiaries.
The Omnibus Budget Reconciliation Act of 1981, in response to Administration proposals to
phase-out the program, provides the Secretary of HHS with the authority to refuse to renew
agreements with PSROs found to be ineffective or inefficient, but requires that no fewer than 130
PSROs will be funded in 1982. The Act also allows States the option to contract with PSROs on or
after October 1, 1981 to perform utilization and medical review functions required under Medicaid.
Proposed Change
The Administration will propose legislation to phase-out support for PSROs by July 1, 1982. Under
current law, the utilization review function must be performed by hospitals where PSROs are not
active. Since these Federal regulations have also not proved effective, the mandate for utilization
review would also be eliminated.
Rationale
•
The PSRO program was established to provide a regulatory framework for Federal control of
the health care system and health costs. Such a system is contrary to Administration policy
directions which emphasize competition as a superior means of cost control.
•
The program grants the review franchise on the basis of group sponsorship rather than on
the criteria of cost, effectiveness, and competence, thus leading to funding inefficient and
ineffective organizations.
•
The program has not been cost-effective on a national basis. In 1981, the Congressional
Budget Office provided evidence that the PSRO program expense-combined with PSRO
ineffectiveness and simply shifting costs rather than saving money-actually raised national
health care spending. A net loss of $.60 resulted for every dollar spent on the program.
Effects of the Proposed Change
PSROs will be able to contract their services with State Medicaid programs and private systems of
care. This should allow the most effective PSROs to continue.
264
Bureau of Indian Affairs Administrative Staff
FUNCTIONAL CODE: 371
AGENCY: Department of the Interior
Funding
($ in millions)
gavjngS p
r o m
Current Services
BUDGET AUTHORITY
OUTLAYS
TOTAL PERSONNEL (FTE)
1981
1982
1983
1984
1985
1986
1987
87
84
84
81
68
65
52
50
52
50
52
51
52
51
3,480
3,360
2,720
2,080
2,080
2,080
2,080
1982
1983
16
16
Program Description
The Bureau of Indian Affairs (BIA) provides services to Indians that non-Indians receive from all
three levels of government. BIA's operating programs which are proposed to be funded at $781
million in 1983 include: education, social services, housing, economic development, welfare, natural
resources development, and rights protection. $68 million is proposed in 1983 to administer these
programs. BIA has a three-tiered administrative and program delivery structure with a central office
in Washington, D.C., 12 area offices, and 85 agency offices. In 1983 17% of BIA's total personnel
resources would be involved full time in performing administrative functions.
Proposed Change
•
The Administration proposes to reduce administrative overhead throughout the BIA
bureaucracy by a total of $16 million, through improved efficiency and elimination of
overlapping activities while minimizing adverse impacts on programs and services for Indian
people. The proportion of total BIA staff spending full time on administrative functions
would be reduced from 22% in 1982 to 17% in 1983.
•
The funds from the reduction in BIA overhead have been reallocated to two important
Indian initiatives proposed in the 1983 President's Budget: (1) a $5 million program for tribal
government development for small tribes; and (2) a $10 million economic development
initiative to provide seed money grants to assist Indian enterprises in leveraging private sector
funds.
Rationale
•
BIA has approximately one employee for every 40 Indians living on or near reservations,
with 5% of total personnel resources located at headquarters and 10% in the area offices.
Over 40% of the area office personnel are involved in running the bureaucracy itself and do
not provide any direct services to Indians.
•
During 1981, in 5 of the 12 area offices the ratio between total area office personnel and the
agency personnel they oversee was 1:4 or less, more overhead than effective program
management should require.
•
Some agency office personnel deliver and oversee the same functions carried out by tribal
governments under contract. This is clearly a duplication of effort.
•
There is no evidence that the BIA's large administrative structure contributes to either
effective or efficient program management. In 1978 GAO reported that BIA had severe
problems in administering and monitoring Indian programs and accounting for Federal
funds. A follow-up report released in 1981 found that no progress had been made in
correcting these deficiencies.
265
360-900 0 - 8 2 - 1 0
•
The $16 million reduction in administrative overhead will force a reorientation of the BIA
bureaucracy, sharpening accountability and reducing nonservice delivery personnel level to a
more efficient size.
•
The $5 million small tribes initiative is expected to reduce the need for some administrative
work now done by the BIA.
Effects of the Proposed Change
•
The Bureau has identified and is implementing cost reduction measures that will reduce
administrative and program management costs. This effort, principally in the following areas,
accounts for most of the $16 million cost reduction:
— Consolidation and redefinition of roles and responsibilities for headquarters and field
offices.
— Disposal of existing real property holdings to reduce facilities and lands no longer
required for program and administrative activities.
— Improved efficiencies in equipment usage, e.g., motor vehicles.
— Reductions in personal property, supplies and equipment and/or reallocation of existing
holdings to avoid new purchases/leases.
•
Reductions in Indian operating programs have been geared as much as possible toward
reducing administrative overhead in the BIA rather than adversely affecting programs and
services delivered to Indians. This is consistent with a resolution approved by the National
Congress of American Indians in May 1981 asking that potential cuts in the BIA budget
come from BIA administrative costs rather than from Bureau services.
•
Despite the $16 million reduction, the key trust responsibilities of the Bureau for Indian-held
assets will be maintained, and accountability will be sharpened.
•
The BIA will emphasize contract management, vulnerability assessment, effective oversight of
tribally operated BIA programs and elimination of duplication of BIA and tribal delivery
systems to reduce costs.
•
Improved efficiency in administrative and program management of the Bureau's service
delivery system will result in significant cost savings in the implementation of Indian
programs.
•
The $10 million economic development initiative and the $5 million small tribes initiative are
being proposed to strengthen tribal government management capabilities and reservation
economies in an effort to make tribes more self-sufficient.
266
Federal Paperwork
FUNCTIONAL CODE: 000
AGENCY: Government wide
Funding
HOURS OF BURDEN IMPOSED
ON THE PUBLIC
1981
1982
1983
1.5
1.3
1.2
(Hours in millions)
1984
1985
1986
1987
Program Description
The Paperwork Reduction Act of 1980 set a goal of reducing Federal paperwork from the level
known to exist* when the Act was passed (by 25% — 15% by the close of FY 1982). The FY 1982
paperwork budget allowance reduces federally required paperwork known to exist when the Act was
passed by 17% and by 13% from the level that was known to exist when this Administration took
office. For 1983, the planning level anticipates a further reduction of about 10%.
Paperwork budget allowance levels are established through the Information
cycle one year later than that of the fiscal budget. The difference in timing
establish program priorities through the fiscal process and then follow
information collection — implementation strategies. Hence, the data in the
are the allowance levels for 1981 and 1982 and the planning level for 1983.
Collection Budget on a
results from the need to
up with paperwork —
tabulation shown above
Proposed Changes
Paperwork imposed by Federal agencies on individuals, business organizations and State and local
governments, among others, is expected to be reduced to 1.33 billion hours (or a reduction of 196
million hours) by the end of fiscal year 1982 from the current level in place (1.53 billion hours) when
President Reagan took office in January of 1981.
•
Approximately 45% (602 million hours) of the paperwork burden to be imposed in FY 1982
will be generated by the Department of Treasury. An additional 14% of the total burden will
result from information collections from the Department of Transportation. These
Departments plus the Departments of Health and Human Services (8%) and Agriculture (8%)
impose burdens exceeding 100 million hours. These four Departments, plus the Department
of Labor, account for over 80% of the total Federal paperwork.
•
In 1982, 75% of Federal paperwork will be mandatory, 19% will be required to obtain or
retain a Federal benefit (such as a Federal grant) and 6% will be voluntary. When reporting
and recordkeeping is viewed by category of purpose, 78% will be imposed for regulatory or
compliance purposes, 13% for application forms. 5% will be for program evaluation or
research, 3% for program management, and 1% for general statistical purposes.
•
In fiscal year 1982, 57% of the total burden will be imposed on businesses and other
institutions, 32% on individuals or household, 10% on State and local governments, and 1%
on farms.
•
The planning level for 1983 anticipates further significant reductions in paperwork Federal
agencies impose on the public.
*The Paperwork Reduction Act brought the independent regulatory and bank supervisory agencies under OMBs paperwork
authority. Adding the paperwork burden these agencies impose, plus some formerly undocumented burdens, to the
previously known level of 1.3 billion hours, results in a 1.5 billion hour estimate of the Government's paperwork burden
when the Reagan Administration took office.
267
Some of the major paperwork reductions that have taken place or will be completed by the close of
1982 include:
•
Reduction in requirements for the Federal Communications Commission's (FCC) Radio
Station Log (-17 million hours). During 1981 the FCC revised its regulations to relieve radio
stations of requirements to maintain logs of programs aired. This requirement had been
imposed originally to insure compliance with rules regarding the airing of a certain number
of hours of public service broadcasting.
•
Adoption of a common claim form for use by Medicare, Medicaid, and third-party payers
(-11 million hours).
Representatives of the Medicare and Medicaid programs have
collaborated with representatives of the private insurance industry and the American Medical
Association to develop a uniform claim form for use in outpatient physician visits. Instead of
requiring separate forms, third-party payers will now accept a single form with resulting
burden reductions on phvsician offices. Implementation should be completed by the close of
1982.
•
Reducing the Internal Revenue Service's (IRS) Employers Quarterly Tax Return will have a
beneficial effect (-12 million hours). During 1982 IRS will eliminate a number of items on
the present quarterly tax return.
•
Reducing the Department of Transportation's (DOT) Driver's Log (-9 million hours). DOT
will relieve requirements imposed upon truck drivers in the trucking industry to maintain
detailed daily records of their driving time, rest time, and off-duty time. New regulations will
exempt certain drivers from the requirements with the effect of reducing the number of
drivers diat must maintain records.
•
A significant portion of the paperwork reduction associated with Federal grants results from
enactment of the Omnibus Reconciliation Act of 1981, which consolidated 57 categorical
grant programs into 9 new block grants. The Department of Health and Human Services has
responsibility for 7 of the 9 new block grants; Housing and Urban Development and
Education each have responsibility for one of the other two block grant programs. As a result
of this consolidation, paperwork associated with these programs will be reduced by 5.4
million hours or 83% in 1982.
Rationale
Information is a commodity which, like other commodities, has costs of production as well as benefits
of use. The public has only a limited amount of time to supply, and the Federal Government only a
limited amount of resources to assemble, process, and use this information. The Information
Collection Budget process requires that agencies recognize these constraints and set information
collection priorities accordingly. The objective of the Information Collection Budget is to limit the
costs to individuals, private organizations, and State and local governments of filling out forms and
records for the Federal government. Under the Paperwork Reduction Act, every Federal form and
recordkeeping requirement imposed on more than nine individuals or organizations must be approved
by the Office of Management and Budget. Agency requests for OMB approval must be accompanied
by an estimate of the annual number of "burden hours" that would be assesed on the public.
Through the OMB review process, unnecessary requirements are eliminated and essential ones are
kept as short and simple as possible. At the beginning of the fiscal year, each Federal agency is given
a budget of the total "burden hours" that it may impose as a result of all of its approved forms and
recordkeeping requirements. The agency budgets are compiled in the government-wide Information
Collection Budget.
Effects of the Proposed Change
•
Federal paperwork will be cut by 17% from the level that was known to exist when the
Paperwork Reduction Act of 1980 was passed and by 13% from the level that was in place
when this Administration took office. As part of this reduction, paperwork associated with
Federal grants is expected to be reduced by 25% in 1982.
•
The 13% overall reduction is equivalent to savings of 95,000 workyears of efforts.
268
FRAUD, WASTE AND ABUSE
269
INSPECTORS GENERAL
Program Description
The Inspector General Act of 1978 created 12 independent offices of Inspector General (Agriculture,
Commerce, Housing and Urban Development, Interior, Labor, Transportation, Community Services
Administration, Environmental Protection Administration, General Services Administration, National
Aeronautics and Space Administration, Small Business Administration, and Veterans Administration),
and consolidated agency audit and investigation under IGs. Prior to 1978, separate statutes created
IGs in Health and Human Services (then Health, Education and Welfare) and Energy. In 1980,
statutory IGs were established for the Departments of Education and State and in 1981 for Agency for
International Development. There currently are 17 IGs based on the 1978 model and legislation is
pending to extend the concept to the Departments of Defense, Justice, and Treasury.
The Inspectors General are appointed by the President and also provide reports to the Congress.
Their objectives are to detect and prevent fraud and abuse and to promote economy, efficiency, and
effectiveness in the programs of their agencies.
Proposed Emphasis
During his February 19, 1981 address to the Nation on the Economic Recovery Program, President
Reagan emphasized that the fight against fraud and waste in government programs is a top priority.
The Administration strongly supports the Inspectors General and continues to seek to make their
operations as effective as possible, particularly within the context of the current necessary severe
budget restraints on government programs. The Inspectors General will be making the best use of
their resources by conducting joint management improvement projects with agency Assistant
Secretaries for Management.
The Inspectors General and their agency Assistant Secretaries have already arranged to undertake two
dozen specific management improvement and anti-fraud and waste projects covering a range of jointly
identified needs concerning such matters as:
•
•
•
•
Vulnerability of contracting procedures;
Contracts and grants management;
Cost reduction programs; and
Administrative sanctions.
Rationale
There have been many allegations that fraud and waste are widespread in Government programs.
Both certainly exist, but it is extremely difficult to pinpoint the magnitude of the problem. Most
fraud, according to the General Accounting Office, is undetected, so projections based on known cases
have little meaning.
•
GAO has defined fraud as "willfull wrongdoing by individuals or public and private
organizations that affects the government's interests." While Federal agencies are susceptible
to hundreds of different types of fraudulent activities in a wide range of areas, four principal
areas seem to be most vulnerable:
—
—
—
—
financial assistance to individuals;
inventory control and property management;
mail service; and
personal property management.
271
•
Projections of waste are even less meaningful than those for fraud, in part because the very
term "waste" is so subjective—one person's waste is another person's critical program.
However, we can at least illustrate the magnitude of possible waste in Government programs:
if the Social Security program were operating at 99% efficiency and only 1% of the funds
involved in the program could come under the label "waste," the sheer size of the program
would mean that over a billion dollars a year was being "wasted."
•
The cost of fraud and waste to the taxpayers probably amounts to billions of dollars
annually. In the last six months of 1981, the Inspectors General in the departments and
agencies identified and saved the taxpayers over $2 billion in funds recovered and costs
avoided.
Unfortunately, fraud and waste cannot be legislated out of existence. While significant improvements
have been made in the laws to reduce Government program vulnerability to fraud and waste, the
most effective strategy still remains vigorous management attention supported by strong audit,
investigation, and enforcement programs.
Effects and Prospects
As a direct result of Inspector General efforts in the last six month reporting period:
•
Over $406 million has been recovered by the Federal Government, a 46% increase over the
previous reporting period;
•
Over $1.7 billion in expenditures has been avoided;
•
There have been 1,179 indictments, a 59% increase over the previous reporting period; and
•
657 convictions have been handed down, a 28% increase over the last reporting period.
The Inspectors General will continue efforts to reduce waste and mismanagement by identifying
where it has occurred, recommending remedial actions, and suggesting systemic improvements to
strengthen internal controls which will prevent problems from occurring.
•
The key to long-term control of fraud, waste, and mismangement in Government programs
is prevention.
Inspectors General will use loss prevention studies and vulnerability
assessments to spot potential problem areas before fraud, waste, and mismanagement can
occur.
•
The Inspectors General will continue to identify loopholes in legislation that could result in
program susceptibility to fraud and waste.
•
The Inspectors General will work across agency lines in cooperative audits and investigations
on problems and issues of Government-wide or interagency concern such as benefit program
recipient fraud.
•
Individual agency-specific audits and investigations will continue to represent the major part
of Inspector General operations during 1983.
272
PRESIDENT'S COUNCIL ON INTEGRITY AND EFFICIENCY
Program Description
To coordinate and emphasize the Government-wide anti-fraud and waste effort, President Reagan
established the President's Council on Integrity and Efficiency in March 1981. The Council offers a
direct means for providing continuing Administration leadership to the Inspector General program,
which is focused on legislatively mandated Inspectors General who head the audit and investigation
efforts in most Cabinet Departments and major agencies. The Council seeks to identify occurences of
fraud, waste, and mismanagement; recommend remedial actions; and suggest improvements in
internal controls to prevent problems from occurring in the first place.
The members of the President's Council include:
•
Statutorily mandated Inspectors General from major departments and agencies (Agriculture,
Commerce, Education, Energy, Health and Human Services, Housing and Urban
Development, Interior, Labor, State, and Transportation as well as AID, CSA, EPA, GSA,
NASA, SBA, and VA).
•
Representatives from the Departments of Defense, Justice, and Treasury, the Office of
Personnel Management, and the Federal Bureau of Investigation.
Proposed Emphasis
The Council will continue to lead the Administration's campaign to reduce fraud and waste in Federal
programs and operations and to strengthen the Inspector General program by:
•
Developing standards for the management and operation of Inspector General-type activities,
through, for example, the preparation of standard audit guides for specific problem areas and
the establishment and use of standard performance measures applicable to Inspector General
operations.
•
Developing policies and programs to assure a well-trained and highly skilled corps of
auditors and investigators, through, for example, the creation and scheduling of special
training courses for Inspector General employees in techniques for auditing and investigating
white collar crime and fraud cases and in modern business management principles.
•
Developing interagency audit and investigation programs and projects to deal with problems
that exceed the capability or authority of individual agencies.
Rationale
The Council was created to coordinate and improve Government-wide anti-fraud and waste
operations and is designed to develop and assure implementation of activities aimed at this objective.
To this end, the Council is chaired by the Deputy Director of the Office of Management and Budget
and meets regularly once a month. This is an effective strategy because it encourages the Inspectors
General to consider Government-wide priorities that go beyond the concerns of individual agencies,
assures the effective and timely exchange of ideas and techniques for fighting fraud and waste, and
emphasizes the continuing priority that the Administration places on reducing fraud and waste.
Effects and Prospects
The Council operates through five standing committees:
•
•
performance evaluation;
investigations/law enforcement;
273
•
•
•
administrative remedies and incentives;
legislation; and
training.
The Council also undertakes specific projects to reduce waste and fraud. Examples of currently active
projects are:
•
Government Property. This project involves examining the controls that agencies have set up
to keep track of Government property being used by contractors and grant recipients and to
prevent and detect wasteful or abusive activities involving such property.
•
Suspensions and Debarments in Housing Programs. The objective of the Suspensions and
Debarments in Housing Programs project is to provide better protection for the Government
and the public from participants abusing Federal housing programs. Suspensions and
debarments are actions to prevent individuals or groups from doing business with the
Government or from receiving government program benefits for a limited period of time or
indefinitely. These actions are to protect the Government from individuals or organizations
guilty of abusive practices.
•
National Federal Employees Compensation Act. The primary goal of the National Federal
Employees Compensation Act (FECA) Project is to identify long-term disability cases that
should be either terminated or have benefits reduced due to unreported income, fraud, or
administrative deficiencies.
•
Computer Matching. The Computer Matching Project will expand use of computer matching
as a fraud and abuse prevention and detection mechanism in Federal and State program
management and operations. The project will provide for exchange and dissemination of
information on matching programs and on technical capabilities and developments. As an
example, recent computer matches uncovered Social Security checks being sent to recipients
who had already been reported as deceased under another Federal program. This will result
in the recovery and saving of millions of dollars for the taxpayer.
•
Unliquidated Obligations. The primary objective of this project is to see that outstanding
commitments of Government funds are reviewed by program managers regularly and are
cancelled if the supplies or services have not been received within a reasonable time.
•
Medical Provider Fraud. This project is designed to uncover likely cases of fraud by
providers of medical care and related services or products. Several Government agencies
have sizable health programs, such as Medicaid and Medicare, which reimburse participating
providers, such as pharmacists and physicians, on a fee-for-service basis. Since many of
these programs appear to be vulnerable to substantial abuses, the Inspector General at
Health and Human Services is leading a comprehensive review and assessment of medical
provider fraud.
274
ADDITIONAL
MANAGEMENTINITIATIVES
275
MANAGEMENT IMPROVEMENT
Program Description
In addition to Inspector General activities, the President's Council on Integrity and Efficiency, debt
collection, and quality control efforts, the Administration is emphasizing several more management
improvement actions. Some operating expenses of the Federal Government can be reduced
significantly through the introduction of management improvements and increased emphasis on the
application and maintenance of internal controls governing administrative activities. While there are
many administrative activities which warrant special cost reduction efforts, areas that have recieved
particular attention in this budget are aimed at:
•
Eliminating wasteful spending for Government periodicals, pamphlets, and audiovisual
products;
•
Reducing the cost of official travel by Government employees; and
•
Eliminating ineffective and wasteful use of consulting and related services.
Proposed Emphasis
•
The imposition of strict internal control procedures for publishing and film-making projects,
a moratorium on new productions during the latter half of calendar year 1981, and funding
reductions in the Federal programs which generally give rise to new publications have
combined to produce a downward trend in expenditures for the period 1981-83. During this
period, government-wide funding of these activities since the beginning of this
Administration through 1982 will drop by around 7% or over $20 million despite steadily
rising production costs due to inflation. Ongoing reviews of every periodical and pamphlet
should produce additional savings in 1983.
•
In 1983, concerted efforts will be made to hold down the total costs associated with official
travel, estimated at about $5 billion, by strengthened management controls including those
aimed at elimination of abusive practices.
•
Efforts by the President and the Congress to slow the growth in consulting and related
services will be continued. Management controls will be strengthened to ensure the best use
of available resources.
Rationale
The management improvements in these areas will result in greater control over expenditures for
publishing, travel, and the use of consultants. They will permit the needed work to be done and, at
the same time, save the taxpayers money by eliminating unnecessary, no longer important, or abusive
expenditures.
Effects and Prospects
•
Federal expenditures for Government periodical publications, pamphlets, film-making, and
video-tape productions have declined steadily since the imposition of stricter management
controls by OMB in the middle of 1981.
•
In 1982-83, the Administration is implementing various recommendations of the OMB-led
Interagency Travel Management Improvement Project to produce annual savings of $200
million. These savings will be achieved through simplification of travel regulations and the
tightening of authorization policies, expanded use of discounts and improved travel services,
expanded use of teleconferencing in lieu of travel, better budgeting and cost controls, and
other management improvements.
277
•
In addition to reducing the growth in funding for consulting services and three related
categories of services — management and professional services, special studies and analyses,
and management and support services for research and development activities — the
Administration has emphasized the importance and promoted the development of internal
management controls. These controls will ensure that only necessary and essential consulting
and related services are performed by requiring that proposals be carefully reviewed by
agency management before aproval, that contracts be closely monitored during performance,
and that final products be evaluated for usefulness.
278
DEBT COLLECTION
AGENCY: Government-wide
Funding
EXPECTED SAYINGS:
Distributed in Agency Accounts
Undistributed (Allowances)
Tax Receipts*
Total Savings
1982
1983
1,310
1,350"
1,000
1,660
4,010
—
230
1,540
($ in millions)
1984
1985
1986
1987
800
2,000
2.040
4,840
775
2,000
1.093
3,868
750
2,000
565
3,315
1,375
1,000
2.040
4,415
These are savings that represent increased recoveries of delinquent taxes owed the Internal Revenue Service.
Program Description
The amount of overdue and uncollected debts owed the Government is enormous. An estimated $33
billion of the $218 billion owed to the Government on September 30, 1981 was either delinquent or
in default. An additional $8 billion in loans are in some form of rescheduled or stretched out status
because of borrowers' inability to repay. Over $1 billion in bad debts are being written off each year
and it is estimated that an additional $8 billion will be written off over the next several years.
This situation has resulted from years of inattention and neglect and from a pervasive attitude that
the Government has a more legitimate role in the operation of debt than in its collection.
Proposed Emphasis
The President decided that an aggressive debt collection program must be pursued and has committed
the Administration to recover as much as $4 billion each year in delinquent debt, including
delinquent taxes owed the Internal Revenue Service. The program is a two-pronged effort, consisting
of administrative and legislative initiatives.
•
On the administrative side, the twenty-four agencies that account for over 95% of the debts
owed the Government have begun comprehensive programs to improve their credit
management and debt collection practices. These programs are designed to reduce the
current backlog of delinquent debt, prevent unnecessary new delinquencies from occurring,
and quickly recover new delinquencies. The following will be undertaken:
— Loan origination and servicing programs will be examined and made more effective.
— Collections officials in agencies will be better trained and held directly accountable for
improved debt collection efforts.
— The litigation process will be improved to allow for speedier and more effective action
against debtors who have the ability to repay but refuse to do so.
— New tools and techniques will be utilized. For example, contracting out certain debt
collection functions, such as recordkeeping and billing, to the private sector may make
the most sense in instances where the private sector already has greater expertise.
•
On the legislative side, the Administration has asked Congress for legislation needed to
eliminate some of the disincentives that presently exist in the Government's debt collection
process; to make available essential tools and techniques used effectively in the private
sector; and to provide for increased efficiency and effectiveness in the way the government
goes about granting and servicing credit and collecting debt. This legislation would allow
agencies to:
— require credit applicants to furnish their Social Security numbers to insure the identity
of the person to whom the Government is granting credit or trying to collect debt;
279
— contract for use of private sector debt collection agencies;
— assess interest, penalties, and administrative charges on nontax debts due the
Government; and
— refer credit information on delinquent debtors to credit bureaus.
Rationale
Allowing debts owed the Government to go uncollected increases the cost of Government and is
inflationary. This situation contributes significantly to the burden on responsible, honest citizens who
pay their taxes and honor their obligation to the government.
•
The interest alone on the $33 billion in delinquent debt is costing taxpayers about $14
million a day.
•
The Government incurs substantial operating costs every year in pursuing the collection of
delinquent debt.
•
During times of fiscal restraint, dollars of debt not repaid either must be replaced by
additional tax dollars or program levels reduced.
•
When delinquent debts are not collected, debtors receive benefits to which they are not
entitled. Loan and other programs become unauthorized giveaway programs.
•
A well-run and effective program provides incentives for debtors not to be delinquent in the
future.
Effects and Prospects
•
The President's program is the first concentrated effort to improve Federal debt collection.
The budget impact alone will be significant. The 1983 Budget includes as much as $4 billion
in annual collections resulting from the measures being taken by the agencies. These
collections will generally be achieved within existing agency resources.
Debt collection activities include the following:
— The Veterans Administration is developing an automated system for charging interest
and administrative costs on over $1 billion in delinquent receivables. The system, which
is scheduled for completion by the end of 1983, will also provide for the referral of
credit information on delinquent debtors to credit bureaus.
— By the end of 1983, the number of delinquent borrowers in Agriculture's Farmers Home
Administration (FmHA) programs will be reduced by 70,000, a 20% reduction, through
more aggressive collection action and faster resolution of delinquent accounts.
— HUD, with over $1.5 billion in delinquent debt, is requesting the Congress to amend the
Bankruptcy Act to exempt HUD projects from its provisions. If enacted, this will
prevent defaulted debtors from delaying foreclosure by filing for bankruptcy.
— The Department of Defense will be making changes to military service pay systems to
provide for identification and recovery of $60 million in delinquent debts of service
members by deducting them from separation payments.
— In 1983, efforts of the Internal Revenue Service staff devoted to collection of delinquent
tax accounts will be increased. This staff increase is expected to produce additional
revenues of over $ 1.4 billion.
— The 1983 Budget provides the IRS with funding to automate certain office functions
involved in the collection of delinquent taxes. The planned automation provides for the
use of computer terminals by collections employees to aid in placing phone calls, issuing
letters and forms, and initiating most follow-up actions. It is estimated that the resulting
accelerated collection efforts will increase the recovery of delinquent taxes by as much as
$500 million annually.
280
— The Department of Justice will be automating the debt collection case tracking functions
in the 94 U.S. Attorneys' offices. This will greatly accelerate the recovery of $3 billion
in delinquent Federal debt currently being litigated by the Justice Department.
— The Treasury Department is initiating a comprehensive reporting system which will
provide information on the amount and age of delinquent debt, the amount of bad
debts, and other data needed to evaluate agency debt collection performance.
•
The legislative initiatives proposed by the administration will result in the recovery of a
minimum of $500 million in delinquent debt that otherwise would not be recoverable.
•
In addition to the sizeable dollar savings, the President's debt collection program will
produce other benefits important for good Government, although difficult to measure:
— An increase in the efficiency of Government operations.
— A significant reduction in the rate of new delinquencies since debtors will now know
that the Government is serious about collecting its debts.
— Restoration of faith in the Government's ability to use good business and management
practices.
281
Federal Procurement Reform
The Administration is committed to far reaching and fundamental reforms in the Federal procurement
process. Federal procurement is a $130 billion-a-year business involving one-fifth of the Federal
budget, more than 130,000 Federal employees and over 17 million contracting actions a year. Despite
its magnitutde, it is a process that has not received sufficient Government-wide attention. As a result,
it is replete with unnecessary and complex regulations, outdated and inefficient procedures, crushing
paperwork burdens, a lack of adequate competition in awarding contracts and too little
professionalism in the contracting work force.
Proposed Emphasis
This Administration will propose specific remedies, including:
•
New concepts of competition that will permit the Government to attract the innovation and
skills of the market place, rely on proven commercial products and make business decisions
based on total cost to the Government.
•
Increased emphasis on the need for a skillflul and knowledgeable work force of career
professionals to operate and oversee the Government's procurement programs.
•
Simplification of contracting procedures by means of a single, Government-wide
procurement regulation — in lieu of the multiplicity of overlapping regulations in existence
throughout the Executive Branch.
•
Elimination of complexity by standardizing and streamlining the clauses used in Government
solicitations and contracts, increased emphasis on using commercial practices for buying
commercial products, and by simplifying small purchase procedures.
•
Creation of performance standards for procurement systems and personnel so that
responsiveness, efficiency, and management control and accountability become the
fundamental characteristics of the process.
•
Increased emphasis on the Government's long-standing policy of reliance on the private
sector for needed products and services, including janitorial functions, guard sevices and
audio-visual services — in lieu of performing such functions in house.
Rationale
As a key component in the management of Federal programs, the Federal procurement process has
failed to reach its full potential for effectively and efficiently supporting agency requirements. Too
often, agency users do not receive the products and services they require when they need them and at
a resonable cost. Less than half of Federal procurement dollars are spent competitvely — as
competition is curtailed by complexity, funding constraints, restrictive specifications, lack of advance
planning, and limited knowledge of the market place.
The problems of Federal procurement are further exacerbated by the existence of an outdated,
fragmented statutory base, over 800 sets of agency procurement regulations, a diffusion of
responsibility, and too few standards of performance. These factors, in turn have led to adversarial
relationships between Government and its suppliers, and unnecessarily inhibited work force and an
erosion in the naiton's industrial base. Implementattion of an integrated series of reforms — in law,
in regulation, in procedure and in standard — is essential for correcting these deficiencies.
Effects of the Proposed Change
•
In 1982-83, the Administration — through OMB's Office of Federal Procurement Policy —
will propose a thorough, comprehensive series of reforms to make procurement more
282
efficient and responsive. Where appropriate, implementation of these reforms will be
achieved by administrative actions (e.g., issuance or revision of Executive Orders, OMB
Circulars). In addition, the Administration will shortly propose to the Congress specific
legislative remedies for those procurement management inefficiencies that have increasingly
burdened the Federal Government's contracting processes. When implemented over the next
five years, savings of over $5 billion annually are expected to flow from these reforms.
•
The Administration has emphasized, and will continue to devote strong management
attention, to the fundamental policy of relying on competitive private enterprise to supply
the products and services needed by the Government. We believe that once the policy is
fully and properly implemented, the Federal Government will save more than $1 billion
annually — simply by utilizing the private sector to perform such functions as custodial
services in Federal buildings, audio-visual services, building maintenance and repair, and
data processing.
283
Federal Housing Administration Mortgage Insurance Premiums
AGENCY: Department of Housing
and Urban Development
FUNCTIONAL CODE: 371
Funding
PROGRAM LEVEL:
Outlays
OFFSETTING RECEIPTS:
($ in millions)
1984
1985
1981
1982
1983
182
-245
-1.179
-1.155
—
—
7.45
714
61
684
183
531
Current Law
Policy Increase.
1986
1987
-1.142
-1,228
-1,309
674
625
563
305
369
427
198
549
14
Program Description
The Federal Housing Administration (FHA) operates about 20 programs that provide insurance for
home mortgages. Since its inception in 1934, FHA has insured nearly 14 million home mortgages
with a value of over $211 billion. FHA currently insures 4.9 million home mortgages with a value of
$115 billion.
Proposed Change
This proposal will
paying a premium
each FHA-insured
discounted present
change the way FHA-insured homebuyers pay insurance premiums. Instead of
equal to l/24th of one percent of the outstanding mortgage balance every month,
homebuyer will make a one-time payment at the time of settlement equal to the
value of the monthly premium payments they would have otherwise paid.
Rationale
•
This method of charging for insurance premiums is more consistent with private insurance
premium payment methods.
•
This change is consistent with maintaining the actuarial soundness of FHA home insurance
programs.
Effects of Proposed Change
•
The net amount of receipts that FHA receives from insured homebuyers will increase by
$745 million in 1983 because homebuyers will make all of their premium payments at
settlement instead of paying premiums equal to l/24th of one percent of the outstanding
mortgage balance every month for the life of the mortgage.
•
The average amount of the premium payment will be about $1500. However, FHA will not
require that this premium payment be added to the downpayment. Instead, FHA will allow
the premium payment to be built into the mortgage: total monthly payments will be about
the same as they were before this change.
•
This change will not affect the basis for determining the insurance premium payment. To
maintain actuarial soundness, the up-front premium charge will be determined using the
same annual premium payment as is currenly charged — 1/2 of one percent of the
outstanding mortgage balance over the life of the mortgage. The up-front premium charge
will, however, assume an expected life for each mortgage to discount the expected stream of
future monthly premium payments back to one single payment.
•
The accounting and collection functions of both FHA and private lenders will be simplified.
284
INDICES
285
INDEX OF FACT SHEETS BY FUNCTION
050
National Defense
PAGE
MILITARY RETIREMENT
IMPACT AID
STRATEGIC FORCES
GENERAL PURPOSE FORCES
MOBILITY FORCES
NAVY SHIPBUILDING
OPERATIONS AND MAINTENANCE
DISMANTLING THE DEPARTMENT OF ENERGY
150
International Affairs
INTERNATIONAL SECURITY ASSISTANCE
EXPORT CREDITS AND GUARANTEES
250
161
163
250
Energy
DISMANTLING THE DEPARTMENT OF ENERGY
NUCLEAR ENERGY PROGRAMS
RURAL ELECTRIFICATION AND TELEPHONE REVOLVING
FUND LOAN AUTHORIZATION
FEES FOR COMMERCIAL NUCLEAR WASTE DISPOSAL
NON-NUCLEAR ENERGY RESEARCH AND DEVELOPMENT
SOLAR ENERGY AND ENERGY CONSERVATION BANK
FEES FOR ENERGY REGULATORY LICENSES AND SERVICES
300
192
208
General Science, Space, and Technology
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
NATIONAL SCIENCE FOUNDATION
DISMANTLING THE DEPARTMENT OF ENERGY
270
78
150
183
185
187
188
190
250
250
159
200
222
97
117
235
Natural Resources
SOIL AND WATER CONSERVATION
REDUCED NAVIGATION MAINTENANCE
CORPS OF ENGINEERS NAVIGATION USER FEES
BUREAU OF INDIAN AFFAIRS ADMINISTRATIVE STAFF
FISH AND WILDLIFE SERVICE
NATIONAL PARK SERVICE PROGRAMS
RECREATION USER FEES
STATE ENVIRONMENTAL GRANTS
FEES FOR NOAA AERONAUTICAL AND NAUTICAL MAPS AND CHARTS
NOAA OCEAN AND WEATHER PROGRAMS
287
139
153
233
265
145
147
226
155
224
143
350
Agriculture
BRUCELLOSIS CONTROL
370
93
Commerce and Housing Credit
HOUSING FOR THE ELDERLY AND HANDICAPPED
RURAL HOUSING LOAN PROGRAM
FEDERAL HOUSING ADMINISTRATION CREDIT LIMITS
GNMA MORTGAGE-BACKED SECURITIES CREDIT LIMITS
GNMA MORTGAGE-BACKED SECURITIES-FEES
MINORITY BUSINESS ASSISTANCE
SUMMARY OF SMALLER ITEMS IN THE DEPARTMENT OF COMMERCE
SBA DIRECT BUSINESS LOANS
SBA GUARANTEED CREDIT ASSISTANCE
PATENT AND TRADEMARK FEES
COMMODITY FUTURES TRADING COMMISSION USER FEES
FTC DEREGULATION EFFORTS
FEDERAL HOUSING ADMINISTRATION MORTGAGE INSURANCE PREMIUMS
400
Transportation
HIGHWAYS
MASS TRANSIT ASSISTANCE
FEDERAL RAILROAD ASSISTANCE
FEDERAL RAILROAD OPERATIONS
AMTRAK
CONRAIL
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
AVIATION USER FEES
MARITIME ASSISTANCE AND REGULATORY REFORM
COAST GUARD USER FEES
450
118
121
124
126
128
130
161
228
119
230
Community and Regional Development
RENTAL REHABILITATION GRANTS
COMMUNITY DEVELOPMENT BLOCK GRANTS
URBAN DEVELOPMENT ACTION GRANTS
ENTERPRISE ZONES
ECONOMIC DEVELOPMENT ADMINISTRATION AND
TRADE ADJUSTMENT ASSISTANCE PROGRAM
APPALACHIAN DEVELOPMENT PROGRAM
SOIL AND WATER CONSERVATION
500
114
203
205
206
225
169
141
210
212
220
232
261
284
30
171
172
167
95
131
139
Education, Training, Employment and Social Services
IMPACT AID
EDUCATION GRANT PROGRAMS
DISMANTLING THE DEPARTMENT OF EDUCATION
STUDENT ASSISTANCE
288
150
151
253
133
GUARANTEED STUDENT LOAN (GSL)
TRAINING AND EMPLOYMENT PROGRAMS
USER FEE FOR GRIEVANCE ARBITRATION
CHILD WELFARE BLOCK GRANT
550
Health
HEALTH BLOCK GRANTS
COMBINED WELFARE ADMINISTRATION
STATE RESPONSIBILITY FOR ERRORS IN WELFARE PROGRAMS
MEDICAID
MEDICARE
PROFESSIONAL STANDARDS REVIEW ORGANIZATIONS
FEDERAL SUBSIDY FOR SAINT ELIZABETHS HOSPITAL
HEALTH MAINTENANCE ORGANIZATIONS
HEALTH PROFESSIONS EDUCATION
HEALTH PLANNING
600
27
63
65
55
58
264
102
100
99
263
Income Security
CIVIL SERVICE RETIREMENT
RAILROAD RETIREMENT AND RAILROAD UNEMPLOYMENT
AND SICKNESS INSURANCE
FEDERAL EMPLOYEE INJURY COMPENSATION
TRADE ADJUSTMENT ASSISTANCE WEEKLY CASH BENEFITS
REDWOOD EMPLOYEE PROTECTION PROGRAM
HUD SUBSIDIZED HOUSING OVERVIEW
MODIFIED SECTION 8 HOUSING CERTIFICATE PROGRAM
SUBSIDIZED HOUSING: NEW PRODUCTION
SUBSIDIZED HOUSING: TENANT RENT CONTRIBUTIONS
RENT SUPPLEMENT AND
RENTAL ASSISTANCE PAYMENTS PROGRAMS
PUBLIC HOUSING OPERATING SUBSIDIES
FOOD STAMPS
NUTRITION ASSISTANCE FOR PUERTO RICO
AND TERRITORIES
CHILD NUTRITION PROGRAMS
SPECIAL MILK PROGRAM
COMBINED WELFARE ADMINISTRATION
STATE RESPONSIBILITY FOR ERRORS IN WELFARE PROGRAMS
CHILD SUPPORT ENFORCEMENT
AID TO FAMILIES WITH DEPENDENT CHILDREN
SUPPLEMENTAL SECURITY INCOME
LOWEMERGENCY
INCOME HOME
ENERGY AND
ASSISTANCE
CONSOLIDATION
700
74
31
236
26
76
79
71
67
69
104
107
109
Ill
113
115
44
46
47
49
63
65
53
50
61
29
Veterans Benefits and Services
VETERANS DISABILITY COMPENSATION
VETERANS PENSIONS
VETERANS HOUSING LOAN GUARANTEE USER FEE
289
82
83
238
750
Administration of Justice
LEGAL SERVICES CORPORATION
DISMANTLING THE DEPARTMENT OF EDUCATION
800
General Government
MARKET VALUE SALES OF EXCESS REAL PROPERTY
901
173
Undistributed Offsetting Receipts
REAL PROPERTY MANAGEMENT
000
256
Interest
NEW MARKET-BASED SAVINGS BONDS
950
33
253
258
No Functional Codes
NEW FEDERALISM INITIATIVE
LIMIT LEGAL FEE AWARDS
REDUCING FEDERAL EMPLOYMENT
FEDERAL PAPERWORK
INSPECTORS GENERAL
PRESIDENT'S COUNCIL ON INTEGRITY AND EFFICIENCY
MANAGEMENT IMPROVEMENT
DEBT COLLECTION
FEDERAL PROCUREMENT REFORM
290
21
135
247
267
271
273
277
279
282
INDEX OF FACT SHEETS BY AGENCY
Funds Appropriated to the President
PAGE
INTERNATIONAL SECURITY ASSISTANCE
192
Department of Agriculture
BRUCELLOSIS CONTROL
CHILD NUTRITION PROGRAMS
COMBINED WELFARE ADMINISTRATION
FOOD STAMPS
NUTRITION ASSISTANCE FOR PUERTO RICO AND TERRITORIES
REAL PROPERTY MANAGEMENT
RECREATION USER FEES
RURAL ELECTRIFICATION AND TELEPHONE REVOLVING FUND LOAN AUTHORIZATION
RURAL HOUSING LOAN PROGRAM
SOIL AND WATER CONSERVATION
SPECIAL MILK PROGRAM
STATE RESPONSIBILITY FOR ERRORS IN WELFARE PROGRAMS
93
47
63
44
46
258
226
200
203
139
49
65
Department of Commerce
DISMANTLING THE DEPARTMENT OF ENERGY
ECONOMIC DEVELOPMENT ADMINISTRATION AND
TRADE ADJUSTMENT ASSISTANCE PROGRAM
FEES FOR COMMERCIAL NUCLEAR WASTE DISPOSAL
FEES FOR NOAA AERONAUTICAL AND NAUTICAL MAPS AND CHARTS
MINORITY BUSINESS ASSISTANCE
NOAA OCEAN AND WEATHER PROGRAMS
NON-NUCLEAR ENERGY RESEARCH AND DEVELOPMENT
NUCLEAR ENERGY PROGRAMS
PATENT AND TRADEMARK FEES
SUMMARY OF SMALLER ITEMS IN THE DEPARTMENT OF COMMERCE
250
95
222
224
169
143
97
159
220
141
Department of Defense
GENERAL PURPOSE FORCES
IMPACT AID
MILITARY RETIREMENT
MOBILITY FORCES
NAVY SHIPBUILDING
OPERATIONS AND MAINTENANCE
STRATEGIC FORCES
185
150
78
187
188
190
183
Department of Health and Human Services
AID TO FAMILIES WITH DEPENDENT CHILDREN
CHILD SUPPORT ENFORCEMENT
CHILD WELFARE BLOCK GRANT
291
50
53
26
COMBINED WELFARE ADMINISTRATION
EDUCATION GRANT PROGRAMS
FEDERAL SUBSIDY FOR SAINT ELIZABETHS HOSPITAL
HEALTH BLOCK GRANTS
HEALTH MAINTENANCE ORGANIZATIONS
HEALTH PLANNING
HEALTH PROFESSIONS EDUCATION
LOW INCOME HOME ENERGY AND EMERGENCY ASSISTANCE CONSOLIDATION
MEDICAID
MEDICARE
PROFESSIONAL STANDARDS REVIEW ORGANIZATIONS
STATE RESPONSIBILITY FOR ERRORS IN WELFARE PROGRAMS
SUPPLEMENTAL SECURITY INCOME
63
151
102
27
100
263
99
29
55
58
264
65
61
Department of Housing and Urban Development
COMMUNITY DEVELOPMENT BLOCK GRANTS
ENTERPRISE ZONES
FEDERAL HOUSING ADMINISTRATION CREDIT LIMITS
FEDERAL HOUSING ADMINISTRATION MORTGAGE INSURANCE.PREMIUMS
GNMA MORTGAGE-BACKED SECURITIES-FEES
GNMA MORTGAGE-BACKED SECURITIES CREDIT LIMITS
.'.
HOUSING FOR THE ELDERLY AND HANDICAPPED
HUD SUBSIDIZED HOUSING OVERVIEW
MODIFIED SECTION 8 HOUSING CERTIFICATE PROGRAM
PUBLIC HOUSING OPERATING SUBSIDIES
RENT SUPPLEMENT AND RENTAL ASSISTANCE PAYMENTS PROGRAM
RENTAL REHABILITATION GRANTS
SOLAR ENERGY AND ENERGY CONSERVATION BANK
SUBSIDIZED HOUSING: NEW PRODUCTION
SUBSIDIZED HOUSING: TENANT RENT CONTRIBUTIONS
URBAN DEVELOPMENT ACTION GRANTS
171
167
205
284
225
206
114
104
107
115
113
30
117
109
Ill
172
Department of the Interior
BUREAU OF INDIAN AFFAIRS ADMINISTRATIVE STAFF
DISMANTLING THE DEPARTMENT OF ENERGY
EDUCATION GRANT PROGRAMS
FISH AND WILDLIFE SERVICE
IMPACT AID
NATIONAL PARK SERVICE PROGRAMS
REAL PROPERTY MANAGEMENT
RECREATION USER FEES
265
250
151
145
150
147
258
226
Department of Labor
FEDERAL EMPLOYEE INJURY COMPENSATION
REDWOOD EMPLOYEE PROTECTION PROGRAM
TRADE ADJUSTMENT ASSISTANCE WEEKLY CASH BENEFITS
TRAINING AND EMPLOYMENT PROGRAMS
292
71
69
67
31
Department of Transportation
AMTRAK
AVIATION USER FEES
COAST GUARD USER FEES
CONRAIL
FEDERAL RAILROAD ASSISTANCE
FEDERAL RAILROAD OPERATIONS
HIGHWAYS
MARITIME ASSISTANCE AND REGULATORY REFORM
MASS TRANSIT ASSISTANCE
128
228
230
130
124
126
118
119
121
Department of the Treasury
IMPACT AID
NEW MARKET-BASED SAVINGS BONDS
150
173
Environmental Protection Agency
STATE ENVIRONMENTAL GRANTS
155
National Aeronautics and Space Administration
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
161
Veterans Administration
VETERANS DISABILITY COMPENSATION
VETERANS HOUSING LOAN GUARANTEE USER FEE
VETERANS PENSIONS
82
238
83
Foundation for Education Assistance
DISMANTUNG THE DEPARTMENT OF EDUCATION
EDUCATION GRANT PROGRAMS
GUARANTEED STUDENT LOAN
STUDENT ASSISTANCE
253
151
74
133
Office of Personnel Management
CIVIL SERVICE RETIREMENT
76
Small Business Administration
MINORITY BUSINESS ASSISTANCE
SBA DIRECT BUSINESS LOANS
SBA GUARANTEED CREDIT ASSISTANCE
169
210
212
293
Appalachian Regional Commission
APPALACHIAN DEVELOPMENT PROGRAM
131
Commodity Futures Trading Commission
COMMODITY FUTURES TRADING COMMISSION USER FEES
232
Corps of Engineers
CORPS OF ENGINEERS NAVIGATION USER FEES
REDUCED NAVIGATION MAINTENANCE
233
153
Export-Import Bank
EXPORT CREDITS AND GUARANTEES
208
Federal Energy Regulatory Commission
FEES FOR ENERGY REGULATORY LICENSES AND SERVICES
235
Federal Mediation and Conciliation Service
USER FEES FOR GRIEVANCE ARBITRATION
236
Federal Trade Commission
FTC DEREGULATION EFFORTS
261
General Services Administration
MARKET VALUE SALES OF EXCESS REAL PROPERTY
REAL PROPERTY MANAGEMENT
256
258
Legal Services Corporation
LEGAL SERVICES CORPORATION
33
National Mediation Board
USER FEES FOR GRIEVANCE ARBITRATION
236
National Science Foundation
NATIONAL SCIENCE FOUNDATION
163
294
Railroad Retirement Board
RAILROAD RETIREMENT AND RAILROAD UNEMPLOYMENT AND SICKNESS INSURANCE.
79
Others
DEBT COLLECTION
FEDERAL PAPERWORK
FEDERAL PROCUREMENT REFORM
INSPECTORS GENERAL
LIMIT LEGAL FEE AWARDS
MANAGEMENT IMPROVEMENT
PRESIDENT'S COUNCIL ON INTEGRITY AND EFFICIENCY
REDUCING FEDERAL EMPLOYMENT
295
279
267
282
271
135
277
273
247
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